File No. 33-4559
As filed with the Securities and Exchange Commission on May 20, 1996.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/
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Pre-Effective Amendment No. __ /____/
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Post-Effective Amendment No. ___ /____/
(Check appropriate box or boxes)
FREEDOM INVESTMENT TRUST II
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(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
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(Address of principal executive office) Zip Code
(617) 375-1700
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(Registrant's Telephone Number, including Area Code)
With a copy to:
Susan S. Newton, Esq. Jeffrey N. Carp, Esq.
John Hancock Advisers, Inc. Hale and Dorr
101 Huntington Avenue 60 State Street
Boston, MA 02199 Boston, MA 02109
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(Name and address of agent for service)
Approximate Date of Proposed Public Offering: As soon as practicable
after the effectiveness of the registration statement.
No filing fee is required because an indefinite number of shares has
previously been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. This Registration Statement relates to
shares previously registered on Form N-1A (File Nos. 33-4559 and
811-4630).
It is proposed that this filing will become effective on June 19, 1996
pursuant to Rule 488 under the Securities Act of 1933.
<PAGE>
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
(a series of Freedom Investment Trust II)
CROSS-REFERENCE SHEET
Items Required by Form N-14
<TABLE>
<CAPTION>
PART A
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Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
<S> <C> <C>
1. Beginning of Registration COVER PAGE OF REGISTRATION
Statement and Outside Front STATEMENT; FRONT COVER PAGE OF
Cover Page of Prospectus PROSPECTUS
2. Beginning and Outside Back TABLE OF CONTENTS
Cover Page of Prospectus
3. Fee Table, Synopsis SUMMARY; RISK FACTORS AND SPECIAL
Information and Risk Factors CONSIDERATIONS
4. Information About the SUMMARY; INFORMATION CONCERNING THE
Transaction MEETING; PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN OF REORGANIZATION; CAPITALIZATION
5. Information About the PROSPECTUS COVER PAGE: INTRODUCTION;
Registrant SUMMARY; BUSINESS OF SPECIAL OPPORTUNITIES FUND
6. Information About the PROSPECTUS COVER PAGE: INTRODUCTION;
Company Being Acquired SUMMARY; BUSINESS OF GOLD & GOVERNMENT FUND
7. Voting Information PROSPECTUS COVER PAGE; NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS;
SUMMARY; INFORMATION CONCERNING THE MEETING
8. Interest of Certain Persons NONE
and Experts
9. Additional Information NOT APPLICABLE
Required for Reoffering by
Persons Deemed to be
Underwriters
<PAGE>
PART B
------
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. Additional Information ADDITIONAL INFORMATION ABOUT
About the Registrant SPECIAL OPPORTUNITIES FUND
13. Additional Information About ADDITIONAL INFORMATION ABOUT
the Company Being Acquired GOLD & GOVERNMENT FUND
14. Financial Statements ADDITIONAL INFORMATION ABOUT SPECIAL OPPORTUNITIES FUND; ADDITIONAL
INFORMATION ABOUT GOLD & GOVERNMENT FUND; PRO FORMA COMBINED FINANCIAL
STATEMENTS
PART C
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Item No. Item Caption
-------- ------------
15. Indemnification INDEMNIFICATION
16. Exhibits EXHIBITS
17. Undertakings UNDERTAKINGS
</TABLE>
<PAGE>
Dear Fellow Gold & Government Fund Shareholder:
As you know, the Gold & Government Fund is currently required to invest at least
65% of its total assets in a combination of gold and gold mining securities and
U.S. Government securities. This investment restriction has made it very
difficult for this unique product to meets its primary objective of capital
appreciation and preservation of purchasing power. And while there are some
indications of improvement in the precious metals sector, the outlook for
long-term industry recovery seems uncertain. For this reason, we are proposing a
merger of the John Hancock Gold & Government Fund into the John Hancock Special
Opportunities Fund.
We believe this merger will benefit you in two ways:
Increased Investment Flexibility. The Special Opportunities Fund was created to
offer investors access to not just one, but several of the most promising
industry sectors. The Fund targets up to five industry sectors that the Fund's
management team believes to offer extraordinary growth prospects, and then
selects the companies within those sectors that show the greatest promise. In
fact, the Special Opportunities Fund currently counts the precious metals sector
among its targeted industries.
The Special Opportunities Fund offers you:
* Access to the top growth sectors
* The opportunity to invest in the fastest-growing companies within these
sectors
* Timely repositioning for highest growth potential
Lower Fund Expenses. Your Trustees firmly believe that combining these two funds
may benefit shareholders by allowing the Fund to capitalize on expected
economies of scale in investment research, operations and other important areas.
By creating a larger combined fund, the reorganization may lead to reduced
expenses and, ultimately, lower costs for you.
Your Vote is Important!
At a special meeting of shareholders on August 14, 1996 at 9:00 A.M., you will
be asked to approve the merger of the Gold & Government Fund into the Special
Opportunities Fund. Your Board of Trustees has already unanimously approved this
merger.
We urge you to consider this proposal and vote by completing, signing and
returning the enclosed proxy ballot form immediately. Your prompt response will
help avoid the cost of additional mailings to the Fund. For your convenience, we
have provided a postage-paid envelope.
If you have questions, please call your Customer Service Representative at
1-800-225-5291, Monday through Friday between 8:00 A.M and 8:00 P.M. Eastern
time.
Sincerely,
/s/ Edward J. Boudreau, Jr.
Edward J. Boudreau, Jr.
Chairman and CEO
<PAGE>
JOHN HANCOCK GOLD & GOVERNMENT FUND
101 Huntington Avenue
Boston, Massachusetts 02199
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 14, 1996
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of John Hancock Gold & Government Fund ("Gold & Government Fund"), a
series of Freedom Investment Trust, a Massachusetts business trust ("Freedom
Trust"), will be held at 101 Huntington Avenue, Boston, Massachusetts 02116 on
Wednesday, August 14, 1996 at 9:00 a.m., Boston time, and at any adjournment
thereof, for the following purposes:
1. To consider and act upon a proposal to approve an Agreement and Plan of
Reorganization between Freedom Trust, on behalf of Gold & Government Fund,
and Freedom Investment Trust II ("Freedom Trust II"), on behalf of John
Hancock Special Opportunities Fund ("Special Opportunities Fund"),
providing for Special Opportunities Fund's acquisition of all of Gold &
Government Fund's assets in exchange solely for the assumption of Gold &
Government Fund's liabilities by Special Opportunities Fund and the
issuance of Class A and Class B shares of Special Opportunities Fund to
Gold & Government Fund for distribution to its Class A and Class B
shareholders; and
2. To consider and act upon such other matters as may properly come before the
Meeting or any adjournment thereof.
The Freedom Trust Board of Trustees has fixed the close of business on June
17, 1996 as the record date for determination of shareholders who are entitled
to notice of and to vote at the Meeting and any adjournment thereof.
If you cannot attend the Meeting in person, please complete, date and sign
the enclosed proxy and return it to John Hancock Investor Services Corporation,
101 Huntington Avenue, Boston, Massachusetts 02199 in the enclosed envelope. It
is important that you exercise your right to vote. THE ENCLOSED PROXY IS BEING
SOLICITED BY THE BOARD OF TRUSTEES OF JOHN HANCOCK GOLD & GOVERNMENT FUND.
By order of the Board of Trustees,
Susan S. Newton, Secretary
Boston, Massachusetts
June 24, 1996
<PAGE>
JOHN HANCOCK GOLD & GOVERNMENT FUND
a series of
Freedom Investment Trust
PROXY STATEMENT
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
a series of
Freedom Investment Trust II
PROSPECTUS
This Proxy Statement and Prospectus sets forth the information you should
know before voting on the proposed reorganization of John Hancock Gold &
Government Fund ("Gold & Government Fund") into John Hancock Special
Opportunities Fund ("Special Opportunities Fund"). Please read it carefully and
retain it for future reference. Gold & Government Fund is a series of Freedom
Investment Trust, a Massachusetts business trust ("Freedom Trust") and Special
Opportunities Fund is a series of Freedom Investment Trust II ("Freedom Trust
II"), a Massachusetts business trust.
This Proxy Statement and Prospectus includes the Prospectus of Special
Opportunities Fund for Class A and Class B shares, dated March 1, 1996.
Information about Gold & Government Fund's Class A and Class B shares is
incorporated herein by reference to the Gold & Government Fund Prospectus which
is available at no charge upon request to Special Opportunities Fund at
1-800-225-5291.
A Statement of Additional Information dated June 24, 1996 relating to this
Proxy Statement and Prospectus, and containing additional information about each
of Special Opportunities Fund and Gold & Government Fund, including historical
financial statements, is on file with the Securities and Exchange Commission
("SEC"). It is available, upon telephone request at no charge at the toll-free
number stated above, from Special Opportunities Fund. The Statement of
Additional Information is incorporated by reference into this Prospectus.
This Proxy Statement and Prospectus relates to Class A and Class B shares
of beneficial interest (collectively, the "Special Opportunities Fund Shares")
of Special Opportunities Fund which will be issued in exchange for all of Gold &
Government Fund's
<PAGE>
assets. In exchange for these assets, Special Opportunities Fund will assume all
liabilities of Gold & Government Fund.
The Class A Special Opportunities Fund Shares issued to Gold & Government
Fund for distribution to Gold & Government Fund's Class A shareholders will have
an aggregate net asset value equal to that of Gold & Government Fund's Class A
shares. The Class B Special Opportunities Fund Class B Shares issued to Gold &
Government Fund for distribution to Gold & Government Fund's Class B
shareholders will have an aggregate net asset value equal to that of Gold &
Government Fund's Class B shares. The asset values of Gold & Government Fund and
Special Opportunities Fund will be determined at the close of business (4:00
p.m. Eastern Time) on the Closing Date (as defined below) for purposes of the
proposed reorganization.
Following the receipt of Special Opportunities Fund Shares (1) Gold &
Government Fund will be liquidated, (2) the Special Opportunities Fund Shares
will be distributed to Gold & Government Fund's shareholders pro rata in
exchange for their shares of Gold & Government Fund and (3) Gold & Government
Fund will be terminated as a series of Freedom Trust. Consequently, Class A Gold
& Government Fund shareholders will become Class A shareholders of Special
Opportunities Fund, and Class B Gold & Government Fund shareholders will become
Class B shareholders of Special Opportunities Fund. These transactions are
collectively referred to in this Proxy Statement and Prospectus as the
"Reorganization." The Reorganization is being structured as a tax-free
reorganization so that, in the opinion of tax counsel, no gain or loss will be
recognized by Special Opportunities Fund, Gold & Government Fund or the
shareholders of Gold & Government Fund. The terms and conditions of this
transaction are more fully described in this Proxy Statement and Prospectus, and
in the Agreement and Plan of Reorganization that is attached as EXHIBIT A.
Special Opportunities Fund is a non-diversified series of Freedom Trust II,
an open-end management investment company organized as a Massachusetts business
trust in 1986. Special Opportunities Fund's investment objective is long-term
capital appreciation. Special Opportunities Fund seeks to achieve its investment
objective by varying the relative weighting of its portfolio securities among
several economic sectors based upon both macroeconomic factors and the outlook
for each particular sector. The Fund may focus on as many as five of the
following economic sectors at any one time: automotive and housing, consumer
goods and services, defense and aerospace, energy, financial services, health
care, heavy industry, leisure and entertainment, machinery and equipment,
precious metals, retailing, technology, transportation, utilities, foreign and
environmental.
2
<PAGE>
The principal place of business of both Special Opportunities Fund and Gold
& Government Fund is at 101 Huntington Avenue, Boston, Massachusetts 02199.
Their toll-free telephone number is 1-800-225-5291.
SHARES OF SPECIAL OPPORTUNITIES FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION, AND THE
SHARES OF SPECIAL OPPORTUNITIES FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement and Prospectus is June 24, 1996.
3
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION........................................................... 1
SUMMARY................................................................ 2
RISK FACTORS AND SPECIAL CONSIDERATIONS................................ 17
INFORMATION CONCERNING THE MEETING..................................... 18
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION............... 20
CAPITALIZATION......................................................... 27
COMPARATIVE PERFORMANCE INFORMATION ................................... 29
BUSINESS OF GOLD & GOVERNMENT FUND..................................... 31
General............................................................... 31
Investment Objective and Policies..................................... 31
Portfolio Management.................................................. 31
Trustees.............................................................. 31
Investment Adviser and Distributor.................................... 31
Expenses.............................................................. 31
Custodian and Transfer Agent.......................................... 31
Gold & Government Fund Shares......................................... 32
Purchase of Gold & Government Fund Shares............................. 32
Redemption of Gold & Government Fund Shares........................... 32
Dividends, Distributions and Taxes.................................... 32
BUSINESS OF SPECIAL OPPORTUNITIES FUND................................. 32
General............................................................... 32
Investment Objective and Policies..................................... 32
Portfolio Management.................................................. 33
Trustees.............................................................. 33
Investment Adviser and Distributor.................................... 33
Expenses.............................................................. 33
Custodian and Transfer Agent.......................................... 33
Purchase of Special Opportunities Fund Shares......................... 33
Redemption of Special Opportunities Fund Shares....................... 34
Dividends, Distributions and Taxes.................................... 34
EXPERTS................................................................ 34
AVAILABLE INFORMATION.................................................. 34
EXHIBIT A.............................................................. A-1
i
<PAGE>
EXHIBITS
A - Agreement and Plan of Reorganization by and between Freedom Investment
Trust, on behalf of John Hancock Gold & Government Fund, and Freedom
Investment Trust II, on behalf of John Hancock Special Opportunities
Fund (attached to this document).
B - Prospectus of John Hancock Special Opportunities Fund for Class A and
Class B shares, dated March 1, 1996, as supplemented April 3, 1996
(attached to this document).
C - Annual Report to Shareholders of Special Opportunities Fund, dated
October 31, 1995 (included with this document).
ii
<PAGE>
PROXY STATEMENT AND PROSPECTUS
FOR SPECIAL MEETING OF SHAREHOLDERS OF
JOHN HANCOCK GOLD & GOVERNMENT FUND
TO BE HELD ON AUGUST 14, 1996
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies by the Board of Trustees of Freedom Trust on behalf of
Gold & Government Fund. The proxies will be voted at the Special Meeting of
Shareholders (the "Meeting") of Gold & Government Fund to be held at 101
Huntington Avenue, Boston, Massachusetts 02199 on Wednesday, August 14, 1996 at
9:00 a.m., Boston time, and at any adjournment or adjournments of the Meeting.
The purposes of the Meeting are set forth in the accompanying Notice of Special
Meeting of Shareholders.
This Proxy Statement and Prospectus is accompanied by and incorporates by
reference the prospectus of John Hancock Special Opportunities Fund ("Special
Opportunities Fund") for Class A and Class B shares, dated March 1, 1996 (the
"Special Opportunities Fund Prospectus"). The Annual Report to Shareholders of
Special Opportunities Fund, dated October 31, 1995, accompanies this Proxy
Statement and Prospectus. These materials are being mailed to shareholders of
Gold & Government Fund on or after June 24, 1996. Information about Gold &
Government Fund is incorporated by reference to the Gold & Government Fund
prospectus dated March 1, 1996 (the "Gold & Government Prospectus") which is
available upon request. Gold & Government Fund's Annual Report to Shareholders
was previously sent to shareholders on or about December 31, 1995.
As of May 31, 1996, _________ Class A and __________ Class B shares of
beneficial interest of Gold & Government Fund were outstanding. Shareholders of
record on June 17, 1996 (the "Record Date") are entitled to notice of and to
vote at the Meeting.
All properly executed proxies received by management prior to the Meeting,
unless revoked, will be voted at the Meeting according to the instructions on
the proxies. If no instructions are given, shares of Gold & Government Fund
represented by proxies will be voted FOR the proposal (the "Proposal") to
approve the Agreement and Plan of Reorganization (the "Agreement") between
Freedom Trust, on behalf of Gold & Government Fund, and Freedom Trust II, on
behalf of Special Opportunities Fund.
The Board of Trustees knows of no business to be presented for
consideration at the Meeting other than that mentioned in the immediately
preceding paragraph. If other business is properly
1
<PAGE>
brought before the Meeting, proxies will be voted according to the best judgment
of the persons named as proxies.
In addition to the mailing of these proxy materials, proxies may be
solicited in person or by telephone by Trustees, officers and employees of Gold
& Government Fund; by personnel of Gold & Government Fund's investment adviser,
John Hancock Advisers, Inc., and its transfer agent, John Hancock Investor
Services Corporation ("Investor Services"); or by broker-dealer firms. Gold &
Government Fund and Special Opportunities Fund (each, a "Fund" and collectively,
the "Funds") will each bear its own fees and expenses in connection with the
Reorganization discussed in this Proxy Statement and Prospectus.
The information concerning Gold & Government Fund and Special Opportunities
Fund in this Proxy Statement and Prospectus has been supplied by Freedom Trust
and Freedom Trust II, respectively.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus. The summary is qualified by reference to
the more complete information contained in this Proxy Statement and Prospectus,
and in the EXHIBITS attached to or included with this document. Please read this
entire Proxy Statement and Prospectus carefully.
REASONS FOR THE PROPOSED REORGANIZATION
The Freedom Trust's Board of Trustees has determined that the proposed
Reorganization is in the best interests of Gold & Government Fund and its
shareholders. In making this determination, the Trustees considered several
relevant factors, including (1) the fact that the investment objectives and
policies of Gold & Government Fund and Special Opportunities Fund are similar,
(2) the fact that the Reorganization will result in improved economies of scale
and a corresponding decrease in the expenses currently borne by Gold &
Government Fund's shareholders and (3) the fact that combining the Funds' assets
into a single portfolio will enable Special Opportunities Fund to achieve
greater diversification than Gold & Government Fund is now able to achieve. The
Board of Trustees believes that the Special Opportunities Fund Shares received
in the Reorganization will provide existing Gold & Government Fund shareholders
with substantially the same investment advantages that they currently enjoy at a
comparable level of risk. Shareholders of both Funds may benefit from a fund
offering greater diversification in its investment portfolio as a result of the
larger asset base. Greater diversification may reduce the negative effect which
the adverse performance of any one security may have on the performance of the
entire portfolio. For a more detailed
2
<PAGE>
discussion of the reasons for the proposed Reorganization, see "Proposal to
Approve the Agreement and Plan of Reorganization--Reasons For The Proposed
Reorganization."
THE FUNDS' EXPENSES
The Funds and their shareholders are subject to various fees and expenses.
The tables set forth below show the shareholder transaction and operating
expenses of Class A and Class B shares of the Funds. These expenses are based on
fees and expenses incurred during each Fund's most recently completed fiscal
year.
Gold & Government Fund
Class A Class B
Shares Shares
------ ------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) ............. 5.00% None
Maximum sales charge imposed on reinvested
dividends ....................................... None None
Maximum deferred sales charge ..................... None* 5.00%
Redemption fee+ ................................... None None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management fee .................................... 0.80% 0.80%
12b-1 fee** ....................................... 0.30% 1.00%
Other expenses*** ................................. 0.52% 0.52%
Total Fund operating expenses ..................... 1.62% 2.32%
* No sales charge is payable at the time of purchase on investments of $1
million or more, but for these investments a contingent deferred sales
charge may be imposed in the event of certain redemption transactions
within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Class's average net assets, and the remaining portion will be
used to cover distribution expenses.
*** Other expenses include transfer agent, legal, audit, custody and other
expenses.
+ Redemption by wire fee (currently $4.00) not included.
3
<PAGE>
Special Opportunities Fund
Class A Class B
Shares Shares
------ ------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) ............. 5.00% None
Maximum sales charge imposed on reinvested
dividends ....................................... None None
Maximum deferred sales charge ..................... None* 5.00%
Redemption fee+ ................................... None None
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management fee .................................... 0.80% 0.80%
12b-1 fee** ....................................... 0.30% 1.00%
Other expenses*** ................................. 0.49% 0.49%
Total Fund operating expenses ..................... 1.59% 2.29%
* No sales charge is payable at the time of purchase on investments of $1
million or more, but for these investments a contingent deferred sales
charge may be imposed in the event of certain redemption transactions
within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Class's average net assets, and the remaining portion will be
used to cover distribution expenses.
*** Other expenses include transfer agent, legal, audit, custody and other
expenses.
+ Redemption by wire fee (currently $4.00) not included.
Special Opportunities Fund (Pro Forma)
The table set forth below shows the pro forma operating expenses of Class A
and Class B shares of Special Opportunities Fund which assumes that Shareholders
of Gold & Government Fund approved the Reorganization and that the
Reorganization took place on October 31, 1995. These expenses are based on fees
and expenses incurred during each Funds' most recently completed fiscal year.
4
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Class A Class B
Shares Shares
------ ------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases
(as a percentage of offering price) ............. 5.00% None
Maximum sales charge imposed on reinvested
dividends ....................................... None None
Maximum deferred sales charge ..................... None* 5.00%
Redemption fee+ ................................... None None
Class A Class B
Shares Shares
Annual Fund Operating Expenses
(As a percentage of average net assets)
Management fee .................................... 0.80% 0.80%
12b-1 fee** ....................................... 0.30% 1.00%
Other expenses*** ................................. 0.48% 0.48%
Total Fund operating expenses ..................... 1.58% 2.28%
* No sales charge is payable at the time of purchase on investments of $1
million or more, but for these investments a contingent deferred sales
charge may be imposed in the event of certain redemption transactions
within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Class's average net assets, and the remaining portion will be
used to cover distribution expenses
*** Other expenses include transfer agent, legal, audit, custody and other
expenses.
If the Reorganization is consummated, the actual total operating expenses
of Class A and Class B shares of Special Opportunities Fund may vary from the
pro forma operating expenses indicated above due to changes in the net asset
value of Gold & Government Fund or Special Opportunities Fund between October
31, 1995 and the Closing Date (defined below).
5
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Example
The following example illustrates the expenses you would pay on a $1,000
investment under the existing fees for each of Gold & Government Fund and
Special Opportunities Fund and under the pro forma fees if the Reorganization
had occurred on October 31, 1995. The example assumes (1) a 5% annual return and
(2) redemption at the end of each time period.
<TABLE>
<CAPTION>
Class A Class B Class A Class B
Gold & Gold & Special Special Pro Forma Pro Forma
Government Government Opportunities Opportunities Class A Class B
Fund Fund Fund Fund Shares Shares
---------- -------- ------------ ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
1 year $ 66 $ 74 $ 65 $ 73 $ 65 $ 73
3 years 99 102 98 102 97 101
5 years 135 144 132 143 131 142
10 years 235 248 229 245 228 244
</TABLE>
Assuming there is no redemption at the end of each time period, the
expenses you would pay on the same investment would be as follows:
<TABLE>
<CAPTION>
Class B Class B Pro
Gold & Special Forma
Government Opportunities Class B
Fund Fund Shares
---- ---- ------
<S> <C> <C> <C>
1 year $ 24 $ 23 $ 23
3 years 72 72 71
5 years 124 123 122
10 years 248 245 244
</TABLE>
The purpose of this example and the tables set forth above is to assist
investors in understanding the various costs and expenses of investing in shares
of each Fund and what such costs would be had the Reorganization occurred. The
example above should not be considered a representation of future expenses of
Gold & Government Fund or Special Opportunities Fund after the Reorganization.
Actual expenses may vary from year to year and may be higher or lower than those
shown above.
THE FUNDS' INVESTMENT ADVISER
John Hancock Advisers, Inc. (the "Adviser") acts as investment adviser to
both Funds.
BUSINESS OF GOLD & GOVERNMENT FUND
Gold & Government Fund is a diversified series of Freedom Trust, an
open-end management investment company organized as a Massachusetts business
trust in 1984. As of October 31, 1995, Gold & Government Fund's net assets were
6
<PAGE>
$35,218,599. Ann M. McDonley and Kevin R. Baker are co-portfolio managers of
Gold & Government Fund. Ms. McDonley joined the Adviser in 1992 as a
fixed-income derivatives specialist. Prior to 1992, Ms. McDonley was a Vice
President and Treasurer of First Signature Bank & Trust Company, an affiliate of
the Adviser. Mr. Baker was President of Baker Capital Management. He also worked
as a registered representative for Kidder, Peabody & Co. Incorporated.
BUSINESS OF SPECIAL OPPORTUNITIES FUND
Special Opportunities Fund is a non-diversified series of Freedom Trust II.
As of October 31, 1995, Special Opportunities Fund's net assets were
$238,925,410. Kevin R. Baker is portfolio manager of Special Opportunities Fund
and is assisted by an investment team of sector and global specialists from the
Adviser's equity group.
COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES OF
GOLD & GOVERNMENT FUND AND SPECIAL OPPORTUNITIES FUND
Gold & Government Fund's investment objective is fundamental and may not be
changed without shareholder approval. Special Opportunities Fund's investment
objective is non-fundamental and may be changed by a vote of the Fund's Board of
Trustees. Prior to the implementation of a change to the Fund's investment
objective, the Fund's prospectus and statement of additional information will be
revised or supplemented.
In considering whether to approve the Reorganization, you should consider
the differences between the two Funds' investment objectives and policies and
whether an investment in Special Opportunities Fund is a suitable investment for
you. For a discussion of the risks associated with an investment in the Funds,
see "Risk Factors and Special Considerations."
<TABLE>
<CAPTION>
Investment Special Opportunities Gold & Government Fund
Policies Fund
<S> <C> <C>
Investment The Fund's investment objective is The Fund seeks to achieve capital
Objective: long-term capital appreciation. appreciation and preservation of
the purchasing power of the
investor's capital. Moderate income
is a secondary objective.
7
<PAGE>
Primary The types of securities in which The types of in which
Investments: the Fund may invest include: securities/sectors the Fund may
invest include:
(1) Common stocks, preferred (1) During an inflationary cycle:
stocks, convertible debt securities equity securities (common stock,
and warrants of U.S. and foreign preferred stock and securities
issuers. The Fund may also invest convertible into common and
in fixed-income securities preferred stock) of domestic and
including U.S. Government foreign companies engaged in the
securities, convertible and exploration for, mining and
non-convertible corporate preferred processing of, or dealing in gold
stocks and debt securities. and other precious metals ("Gold
Corporate fixed- income securities Stocks") and gold, particularly
will be rated at least investment gold bullion and gold coins
grade or if unrated determined by (collectively, "Gold").
the Adviser to be of comparable
quality.
(2) Sectors include: automotive and (2) During a deflationary cycle:
housing, consumer goods and securities of the U.S. Government
services, defense and aerospace, and its agencies and securities of
energy, financial services, health the U.S. Government in the form of
care, heavy industry, leisure and separately traded principal and
entertainment, machinery and interest components of securities
equipment, precious metals, guaranteed by the U.S. Treasury
retailing, technology, ("U.S. Government Securities").
transportation, utilities, foreign
and environmental (the "Sectors").
8
<PAGE>
Investment (1) Under normal market conditions, (1) At least 65% of the Fund's
Policies: at least 90% of the Fund's total assets will at all times be
investment in equity securities invested in some combination of
will be in issuers in five or fewer Gold Stocks and Gold and U.S.
of the Sectors. Government Securities.
(2) No more than 25% of the Fund's (2) During an inflationary cycle
total assets in any one industry, the Fund will invest at least 25%
but up to 100% of the Fund's net and up to 80% of its total assets
assets may be in one Sector. in Gold Stocks and may invest up to
10% of its total assets in Gold.
During periods of actual or
anticipated inflation, the Fund
will concentrate its investments
principally in Gold or Gold Stock.
During a deflationary cycle the
Fund may invest up to 90% of its
total assets in U.S. Government
securities having varied
maturities. During periods of
actual or anticipated disinflation
the Fund will move from a
concentration of investments in
Gold and Gold Stock to a
concentration of investments in
U.S. Government securities.
(3) The Fund is classified as (3) The Fund is classified as
non-diversified to permit diversified and is required to
investment of more than 5% of its limit investments in obligations of
assets in the obligations of any any one issuer to 5% of the Fund's
one issuer. total assets and to 10% of an
issuer's voting securities.
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Investment
Restrictions: The investment restrictions applicable to Special Opportunities
Fund are substantially similar to or more restrictive than those of Gold &
Government Fund, except as noted below:
(1) The Fund may not borrow money, (1) The Fund may not except from
borrow money, except from banks as banks as a temporary measure or
a temporary and not to exceed 33% emergency measure and not to exceed
of the Fund's total assets taken at 5% of the Fund's net assets.
market value.
(2) The Fund may not pledge, (2) The Fund may not pledge,
mortgage or hypothecate its assets, mortgage or hypothecate its assets,
except to secure borrowings and except to secure borrowings and
then only up to 33% of the value of then only up to 5% of the value of
the Fund's total assets taken at the Fund's total assets cost.
taken at market value.
(3) The Fund may not make short (3) The Fund may not make short
sales of securities, except sales of securities except "against
"against the box," to hedge the box."
exposure to an actual or
anticipated market decline in the
value of its investments or to
profit from an anticipated decline
in the value of a security.
(4) The Fund may not invest more (4) The Fund may not invest more
than 15% of its assets in than 10% of its assets in
restricted or illiquid securities. restricted or illiquid securities.
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Other The Fund may enter into repurchase The Fund may enter into repurchase
Investments: agreements, purchase securities on agreements, purchase restricted and
a forward commitment or when-issued illiquid securities, buy call and
basis, lend its portfolio put options and sell covered call
securities, engage in short sales, options on gold bullion, U.S.
purchase restricted and illiquid Government securities and Gold
securities, engage in short-term Stocks and buy and sell gold
trading, purchase and sell options bullion, financial futures
on securities and indices composed contracts and options on such
of securities in which it may contracts.
invest, buy and sell financial
futures contracts and options on
such futures for hedging and enter
into forward foreign currency
exchange contracts for hedging
foreign currency.
</TABLE>
FORM OF ORGANIZATION
Each of Gold & Government Fund and Special Opportunities Fund is a series
of a Massachusetts business trust. Both Funds have authorized and outstanding
two classes of shares: Class A and Class B. Each share of a series of the
respective Trust represents an equal proportionate interest in the assets
belonging to that series. The liabilities attributable to each series are not
charged against the assets of the other series of the respective Trust. Shares
of each series and the other series of the respective Trust are voted separately
with respect to matters pertaining to that series, but all shares vote together
for the election of Trustees and the ratification of independent accountants of
the respective Trust. The shares of each class of Gold & Government Fund and
Special Opportunities Fund represent an interest in the same portfolio of
investments of that Fund. Except as stated below, each class of each Fund has
equal rights as to voting, redemption, dividends and liquidation. Each class
bears different Rule 12b-1 distribution and service fees and may bear other
expenses properly attributable to that class. Class A and Class B shareholders
of each Fund have exclusive voting rights with regard to the Rule 12b-1
distribution plan covering their class of shares.
SALES CHARGES AND DISTRIBUTION AND SERVICE FEES
Class A Shares. Special Opportunities Fund and Gold & Government Fund
impose an initial sales charge on Class A shares as described above under the
caption, "The Funds' Expenses." An initial sales charge does not apply to Class
A shares acquired through the reinvestment of dividends from net investment
income or capital gain distributions.
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<PAGE>
Class A shares of Special Opportunities Fund acquired by Gold & Government
Fund's Class A shareholders pursuant to the Reorganization will not be subject
to any initial sales charge or CDSC. However, the CDSC imposed upon certain
redemptions within one year of purchase will continue to apply to the Class A
shares of Special Opportunities Fund issued in the Reorganization. The holding
period for determining the application of this CDSC will be calculated from the
date the Gold & Government Fund Class A shares were originally issued.
Class B Shares. Gold & Government Fund and Special Opportunities Fund do
not impose an initial sales charge on Class B shares. However, Class B shares
redeemed within a specified number of years of purchase will be subject to a
CDSC at the rates set forth below. This CDSC 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, Class B shareholders will not be
assessed a CDSC on increases in account value above the initial purchase price,
including shares derived from reinvested dividends. The amount of the CDSC, if
any, will vary depending on the number of years from the time the Class B shares
were purchased until the time they are redeemed, as follows:
Contingent
Deferred Sales
Year In Charge As a
Which Class B Percentage of
Shares Redeemed Dollar Amount
Following Purchase Subject To CDSC
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and
thereafter None
Class B shares of Special Opportunities Fund acquired by Gold & Government
Fund's Class B shareholders pursuant to the Reorganization will not be subject
to any CDSC at the time of the Reorganization. However, these shares will remain
subject to the original CDSC applicable when you redeem those shares. For
purposes of computing the CDSC payable upon redemption of Class B Special
Opportunities Fund Shares acquired by Gold & Government Fund's Class B
shareholders pursuant to the Reorganization and the automatic conversion of
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<PAGE>
Class B shares into Class A shares, the holding period of the Gold & Government
Fund Class B shares will be added to that of the Class B Special Opportunities
Fund Shares acquired in the Reorganization.
Distribution and Service Fees. Both Funds have adopted distribution plans
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). Under these plans, each Fund may pay fees to John
Hancock Funds, Inc. ("John Hancock Funds"), the distributor of the Funds'
shares, to reimburse distribution and service expenses in connection with Class
A shares. These fees are payable at an annual rate of up to 0.30% of the average
daily net assets attributable to the Class A shares of Gold & Government Fund
and Special Opportunities Fund, respectively.
In addition, under the plans, each Fund may pay fees to John Hancock Funds
to reimburse it for distribution and service expenses in connection with Class B
shares. These fees are payable at an annual rate of up to 1.00% of each Fund's
average daily net assets attributable to its Class B shares. With respect to
Class B shares only, if John Hancock Funds is not fully reimbursed for payments
made or expenses incurred in any fiscal year, it is entitled to carry forward
these expenses to subsequent fiscal years for submission to the applicable Fund
for payment, subject always to the maximum annual Class B distribution fee
described above.
The Board of Trustees of Freedom Trust II, on behalf of Special
Opportunities Fund, has determined that, if the Reorganization is consummated,
unreimbursed distribution and shareholder service expenses originally incurred
in connection with Gold & Government Fund's Class A and Class B shares will be
reimbursable under Special Opportunities Fund's Rule 12b-1 plans. As of October
31, 1995, the unreimbursed distribution and shareholder service expenses for
Class A shares of Special Opportunities Fund and Gold & Government Fund were
$341,951 and $26,623, respectively. The unreimbursed distribution and
shareholder service expenses for Class B shares of Special Opportunities Fund
and Gold & Government Fund were $6,051,842 and $17,354, respectively. See
"Unreimbursed Distribution and Shareholder Expenses" below.
PURCHASES AND EXCHANGES
Shares of Special Opportunities Fund may be purchased through certain
broker-dealers and through John Hancock Funds at the public offering price,
which is based on the next determined net asset value per share, plus any
applicable sales charge. The minimum initial investment in Special Opportunities
Fund is $1,000 ($250 for group investments or $500 for retirement plans). In
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<PAGE>
anticipation of the Reorganization, after the Record Date, no new accounts may
be opened in Gold & Government Fund. Existing shareholders of Gold & Government
Fund may continue to purchase shares of the Fund after the Record Date.
Shareholders of both Funds may exchange their shares at net asset value for
shares of the same class, if applicable, of certain other funds managed by the
Adviser. Shares of any fund acquired in this manner that are subject to a CDSC
will incur the CDSC, if still applicable, upon redemption. The exchange
privilege is available only in those states where exchanges can be made legally.
DISTRIBUTION PROCEDURES
Gold & Government Fund generally declares and distributes dividends
representing all or substantially all net investment income quarterly and may
distribute net short-term capital gains, if any, quarterly, and will distribute
net long-term capital gains, if any, annually after the close of the fiscal
year. Special Opportunities Fund generally declares and distributes dividends
representing all or substantially all net investment income, if any, at least
annually and distributes net short-term or long-term capital gains, if any,
annually after the close of the fiscal year.
REINVESTMENT OPTIONS
Unless an election is made to receive cash, the shareholders of both Funds
automatically reinvest all of their respective dividends and capital gain
distributions in additional shares of the same class of the same Fund. These
reinvestments are made at the net asset value per share and are not subject to
any sales charge.
REDEMPTION PROCEDURES
Shares of both Funds may be redeemed on any day that the Fund is open for
business at a price equal to the net asset value of the shares next determined
after receipt of a redemption request in good order, less any applicable CDSC.
Alternatively, shareholders of both Funds may sell their shares through
securities dealers, who may charge a fee. Redemptions and repurchases of Class B
shares and certain Class A shares of Gold & Government Fund and Special
Opportunities Fund are subject to the applicable CDSC, if any. Class A and Class
B shares of Gold & Government Fund may be redeemed up to and including the
Closing Date (as defined below).
14
<PAGE>
REORGANIZATION
Effect of the Reorganization. Pursuant to the terms of the Agreement, the
proposed Reorganization will consist of the acquisition by Special Opportunities
Fund of all the assets of Gold & Government Fund in exchange solely for (i) the
assumption by Special Opportunities Fund of all the liabilities of Gold &
Government Fund and (ii) the issuance of Special Opportunities Fund Shares equal
to the value of these assets, less the amount of these liabilities, to Gold &
Government Fund. As part of the liquidation process, Gold & Government Fund will
immediately distribute to its shareholders these Special Opportunities Fund
Shares in exchange for their shares of Gold & Government Fund. Consequently,
Class A shareholders of Gold & Government Fund will become Class A shareholders
of Special Opportunities Fund and Class B shareholders of Gold & Government Fund
will become Class B shareholders of Special Opportunities Fund. After completion
of the Reorganization, the existence of Gold & Government Fund as a series of
Freedom Trust will be terminated.
The Reorganization will become effective as of 5:00 p.m. on the closing
date, scheduled for August 16, 1996, or another date on or before December 31,
1996 as authorized representatives of the Funds may agree (the "Closing Date").
The Class A Special Opportunities Fund Shares issued to Gold & Government Fund
for distribution to Gold & Government Fund's Class A shareholders will have an
aggregate net asset value equal to that of Gold & Government Fund's Class A
shares. The Class B Special Opportunities Fund Shares issued to Gold &
Government Fund for distribution to Gold & Government Fund's Class B
shareholders will have an aggregate net asset value equal to that of Gold &
Government Fund's Class B shares. For purposes of the Reorganization, the Funds'
respective asset values will be determined as of the close of business (4:00
p.m. Eastern Time) on the Closing Date.
The Board of Trustees of Freedom Trust on behalf of Gold & Government Fund,
including the Trustees not affiliated with the Funds, unanimously approved the
Reorganization and determined that it was in the best interests of Gold &
Government Fund and that the interests of Gold & Government Fund's shareholders
would not be diluted as a result of the Reorganization. Similarly, the Board of
Trustees of Freedom Trust II on behalf of Special Opportunities Fund, including
the Trustees not affiliated with the Funds, approved the Reorganization, and
determined that it was in the best interests of Special Opportunities Fund and
that the interests of Special Opportunities Fund's shareholders would not be
diluted as a result of the Reorganization. For a discussion of the factors
considered by the Boards of Trustees, see "Proposal to Approve the Agreement and
Plan of Reorganization--Reasons for the Proposed Reorganization."
15
<PAGE>
Tax Considerations. The consummation of the Reorganization is subject to
the receipt of an opinion of Hale and Dorr, counsel to the Funds, satisfactory
to Freedom Trust and Freedom Trust II on behalf of the respective Funds and
substantially to the effect that:
(a) The acquisition by Special Opportunities Fund of all of the assets of
Gold & Government Fund solely in exchange for the issuance of Special
Opportunities Fund Shares to Gold & Government Fund and the assumption of all of
Gold & Government Fund's liabilities by Special Opportunities Fund, followed by
the distribution by Gold & Government Fund, in liquidation of Gold & Government
Fund, of Special Opportunities Fund Shares to the shareholders of Gold &
Government Fund in exchange for their shares of beneficial interest of Gold &
Government Fund and the termination of Gold & Government Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code, and
Gold & Government Fund and Special Opportunities Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) no gain or loss will be recognized by Gold & Government Fund upon (a)
the transfer of all of its assets to Special Opportunities Fund solely in
exchange for the issuance of Special Opportunities Fund Shares to Gold &
Government Fund, and the assumption of all of Gold & Government Fund's
liabilities by Special Opportunities Fund; and (b) the distribution by Gold &
Government Fund of these Special Opportunities Fund Shares to the shareholders
of Gold & Government Fund;
(c) no gain or loss will be recognized by Special Opportunities Fund upon
the receipt of Gold & Government Fund's assets solely in exchange for the
issuance of Special Opportunities Fund Shares to Gold & Government Fund and the
assumption of all of Gold & Government Fund's liabilities by Special
Opportunities Fund;
(d) the basis of the assets of Gold & Government Fund acquired by Special
Opportunities Fund will be, in each instance, the same as the basis of those
assets in the hands of Gold & Government Fund immediately prior to the transfer;
(e) the tax holding period of the assets of Gold & Government Fund in the
hands of Special Opportunities Fund will, in each instance, include Gold &
Government Fund's tax holding period for those assets;
(f) the shareholders of Gold & Government Fund will not recognize gain or
loss upon the exchange of all of their shares of beneficial interest of Gold &
Government Fund solely for Special Opportunities Fund Shares as part of the
Reorganization;
16
<PAGE>
(g) the basis of the Special Opportunities Fund Shares received by Gold &
Government Fund shareholders in the Reorganization will be the same as the basis
of the Gold & Government Fund Shares surrendered in exchange therefor; and
(h) the tax holding period of the Special Opportunities Fund Shares
received by Gold & Government Fund shareholders will include, for each
shareholder, the tax holding period for the Gold & Government Fund shares
surrendered in exchange therefor, provided the Gold & Government Fund shares
were held as capital assets on the date of the exchange.
THE MEETING
Time, Place and Date. The Meeting will be held on Wednesday, August 14,
1996, at 101 Huntington Avenue, Boston, Massachusetts 02199, at 9:00 a.m. Boston
time.
RECORD DATE
The Record Date for determining shareholders entitled to notice of and to
vote at the Meeting is June 17, 1996.
VOTE REQUIRED FOR APPROVAL
Approval of the Agreement by the shareholders of Gold & Government Fund
requires the affirmative vote of a "majority of the outstanding securities" of
Gold & Government Fund as defined in the Investment Company Act, which means the
lesser of (1) 67 percent or more of the shares of the Fund represented at the
Meeting if at least 50 percent of all outstanding shares of the Fund are
represented at the Meeting or (2) 50 percent or more of the outstanding shares
of the Fund entitled to vote at the meeting ("Majority Shareholder Vote"). The
Reorganization does not require the approval of Special Opportunities Fund's
shareholders. See "Proposal to Approve the Agreement and Plan of
Reorganization--Voting Rights and Required Vote."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Each Fund is subject to risks that result from the investment strategies
the Fund uses to achieve its investment objective. Special Opportunities Fund
limits its investments to certain specified economic sectors and, under normal
conditions, further limits the number of such sectors in which it may invest to
five. The Adviser determines the distribution of the Fund's securities among the
various sectors, the specific industries within each sector and the specific
securities within each industry. Furthermore, the Fund has elected to be treated
as "non-diversified" under the Investment Company Act. This means that the Fund
is permitted to invest more than 5% of its assets in the securities of any one
17
<PAGE>
issuer. If the Adviser does not accurately predict the economic performance of a
particular sector or issuer, the value of the Fund's shares may be more
susceptible to any single economic, political or regulatory event, and to credit
and market risks associated with a single issuer than would a more diversified
fund.
Gold and Government Fund's portfolio is changed to respond to changes in
the inflationary cycles in the United States economy. The Fund depends to a high
degree on the Adviser's ability to anticipate the onset and termination of
inflationary and disinflationary cycles. A failure to anticipate a
disinflationary cycle could result in the Fund's assets being disproportionately
invested in Gold Stocks or Gold. Conversely, a failure to predict an
inflationary cycle could result in the Fund's assets being disproportionately
invested in U.S.
Government Securities.
Each Fund invests in foreign securities which involve a greater degree of
risk than investment in domestic securities due to exchange controls, less
publicly available information, more volatile or less liquid securities markets
and the possibility of expropriation, confiscatory taxation or political,
economic or social instability.
Special Opportunities Fund's ability to invest up to 15% of its net assets
in illiquid securities may subject it to the risks of such securities to a
greater extent than Gold & Government Fund, which may invest up to 10% of its
assets in these securities. The sale of illiquid securities, if they can be sold
at all, generally requires more time and results in higher brokerage charges and
other selling expenses than does the sale of liquid securities.
INFORMATION CONCERNING THE MEETING
SOLICITATION, REVOCATION AND USE OF PROXIES
A majority of Gold & Government Fund's outstanding shares that are
represented and entitled to vote at the Meeting will be a quorum for the
transaction of business. A Gold & Government Fund shareholder executing and
returning a proxy has the power to revoke it at any time before it is exercised,
by filing a written notice of revocation with Gold & Government Fund's transfer
agent, Investor Services, P.O. Box 9116, Boston, Massachusetts 02205-9116, or by
returning a duly executed proxy with a later date before the time of the
Meeting. Any shareholder who has executed a proxy but is present at the Meeting
and wishes to vote in person may revoke his or her proxy by notifying the
Secretary of Gold & Government Fund (without complying with any formalities) at
any time before it is voted. Presence at the Meeting alone will not serve to
revoke a previously executed and returned proxy.
18
<PAGE>
If a quorum is not present in person or by proxy at the time any session of
the Meeting is called to order, the persons named as proxies may vote those
proxies that have been received to adjourn the Meeting to a later date. If a
quorum is present but there are not sufficient votes in favor of the Proposal,
the persons named as proxies may propose one or more adjournments of the Meeting
to permit further solicitation of proxies with respect to the Proposal. Any
adjournment will require the affirmative vote of a majority of the shares of
Gold & Government Fund, represented in person or by proxy, at the session of the
Meeting to be adjourned. If an adjournment of the Meeting is proposed because
there are not sufficient votes in favor of the Reorganization, the persons named
as proxies will vote those proxies in favor of the Reorganization in favor of
adjournment, and will vote those proxies against the Reorganization against
adjournment.
In addition to the solicitation of proxies by mail or in person, Gold &
Government Fund may also arrange to have votes recorded by telephone by officers
and employees of the Fund or by personnel of the Adviser or Investor Services.
The telephone voting procedure is designed to authenticate a shareholder's
identity, to allow a shareholder to authorize the voting of shares in accordance
with the shareholder's instructions and to confirm that the voting instructions
have been properly recorded. If these procedures were subject to a successful
legal challenge, such votes would not be counted at the Meeting. The Fund has
not sought to obtain an opinion of counsel on this matter and is unaware of any
such challenge at this time. A shareholder would be called on a recorded line at
the telephone number the Fund has in its records for the account and would be
asked the shareholder's Social Security number or other identifying information.
The shareholder would then be given an opportunity to authorize proxies to vote
his shares at the Meeting in accordance with the shareholder's instructions. To
ensure that the shareholder's instructions have been recorded correctly, the
shareholder will also receive a confirmation of the voting instructions in the
mail. A special toll-free number will be available in case the voting
information contained in the confirmation is incorrect. If the shareholder
decides after voting by telephone to attend the Meeting, the shareholder can
revoke the proxy at that time and vote the shares at the Meeting.
OUTSTANDING SHARES AND RECORD DATE
At the close of business on May 31, 1996, Class A and ___________ Class B
shares of beneficial interest of Gold & Government Fund were outstanding and
entitled to vote. Only Gold & Government Fund shareholders of record at the
close of business on June 17, 1996 (the "Record Date") are entitled to notice of
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<PAGE>
and to vote at the Meeting and any adjournment of the Meeting. As of May 31,
1996, Class A and ___________ Class B shares of beneficial interest of Special
Opportunities Fund were outstanding.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF GOLD &
GOVERNMENT FUND AND SPECIAL OPPORTUNITIES FUND
To the knowledge of the Freedom Trust, as of May 31, 1996, the following
persons owned of record or beneficially 5% or more of the outstanding Class A
shares of Gold & Government Fund: ; and the following persons owned of record or
beneficially 5% or more of the outstanding Class B shares of Gold & Government
Fund: .
To the knowledge of the Freedom Trust II, as of May 31, 1996, the following
persons owned of record or beneficially, 5% or more of the outstanding Class A
shares of Special Opportunities Fund: ; and the following persons owned of
record or beneficially 5% or more of the outstanding Class B shares of Special
Opportunities Fund: .
As of May 31, 1996, the Trustees and officers of the Freedom Trust and the
Freedom Trust II, as a group, owned in the aggregate less than 1% of the
outstanding Class A and Class B shares of beneficial interest of Gold &
Government Fund and Special Opportunities Fund, respectively.
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
GENERAL
The shareholders of Gold & Government Fund are being asked to approve the
Agreement, a copy which is attached as EXHIBIT A. The Reorganization will
consist of: (a) the transfer of all of Gold & Government Fund's assets to
Special Opportunities Fund, in exchange solely for the issuance of Special
Opportunities Fund Shares to Gold & Government Fund and the assumption of Gold &
Government Fund's liabilities by Special Opportunities Fund, (b) the subsequent
distribution by Gold & Government Fund, as part of its liquidation, of the
Special Opportunities Fund Shares to Gold & Government Fund's shareholders and
(c) the termination of Gold & Government Fund's existence. The Class A Special
Opportunities Fund Shares issued upon the consummation of the Reorganization
will have an aggregate net asset value equal to that of Gold & Government Fund's
Class A shares. The Class B Special Opportunities Fund Shares issued upon
consummation of the Reorganization will have an aggregate net asset value equal
to that of Gold & Government Fund's Class B shares. As noted above, the asset
values of Gold & Government Fund and Special Opportunities Fund will be
20
<PAGE>
determined at the close of business (4:00 p.m. Eastern Time) on the Closing Date
for purposes of the Reorganization. See "Description of Agreement" below.
Pursuant to the Agreement, Gold & Government Fund will liquidate and
distribute the Special Opportunities Fund Shares received, as described above,
pro rata to the shareholders of record of each class determined as of the close
of regular trading on the New York Stock Exchange on the Closing Date. The
result of the transfer of assets will be that Special Opportunities Fund will
add to its portfolio the net assets of Gold & Government Fund. Class A
shareholders of Gold & Government Fund will become Class A shareholders of
Special Opportunities Fund, and Class B shareholders of Gold & Government Fund
will become Class B shareholders of Special Opportunities Fund.
The Agreement and the Reorganization were unanimously approved by the
Freedom Trust Board of Trustees on behalf Gold & Government Fund at a meeting
held on March 5, 1996 and by the Freedom Trust II Board of Trustees on behalf of
Special Opportunities Fund at a meeting held on March 26, 1996.
REASONS FOR THE PROPOSED REORGANIZATION
The Freedom Trust Board of Trustees believes that the proposed
Reorganization will be advantageous to the shareholders of Gold & Government
Fund in several respects. The Freedom Trust Board of Trustees considered the
following matters, among others, in approving the Proposal.
First, a combined fund offers economies of scale that will have a positive
effect on the expenses currently borne by the shareholders of Gold & Government
Fund. Both Funds incur substantial overhead costs for accounting, legal,
transfer agency services, insurance, and custodial and administrative services.
The Board of Trustees expects that the Reorganization will result in a decrease
in the expenses currently borne by Gold & Government Fund's shareholders. See
"Summary--The Funds' Expenses."
Second, the Board of Trustees of the Freedom Trust considered the
performance history of each Fund, including the fact that Special Opportunities
Fund has achieved a better return for investors over the most recent one year
period ended October 31, 1995.
Third, the Board of Trustees believes that the Special Opportunities Fund
Shares received in the Reorganization will provide existing Gold & Government
Fund shareholders with substantially the same investment advantages that they
currently enjoy at a comparable level of risk. The Board of Trustees also
considered the performance history of each Fund.
21
<PAGE>
Fourth, the Board of Trustees believes that it is not advantageous to
operate and market Gold & Government Fund separately from Special Opportunities
Fund, because the investment objectives and policies of the two Funds are
generally similar.
Fifth, the Board of Trustees considered the fact that Gold & Government
Fund is significantly smaller than Special Opportunities Fund. The Board of
Trustees determined that the existence of a larger competing fund within the
same fund complex with generally similar investment characteristics is likely to
impede the marketing and asset growth of Gold & Government Fund.
Sixth, the Board of Trustees considered that shareholders of both Funds may
be better served by a fund offering greater diversification. To the extent that
the Funds' assets are combined into a single portfolio and a larger asset base
is created as a result of the Reorganization, greater diversification of Special
Opportunities Fund's investment portfolio can be achieved than is currently
possible. Greater diversification is expected to be beneficial to shareholders
of both Funds, because it may reduce the negative effect which the adverse
performance of any one security may have on the performance of the entire
portfolio. The Freedom Trust Board of Trustees also considered that the
Reorganization presents an opportunity for Special Opportunities Fund to acquire
assets without the obligation to pay commissions or other similar costs that are
normally associated with the purchase of securities. This opportunity provides
an economic benefit to Special Opportunities Fund and its shareholders.
In determining that the Reorganization is in the best interests of Gold &
Government Fund and the interests of its shareholders, the Board of Trustees
considered the fact that the Adviser will receive certain benefits from the
Reorganization. The Reorganization will result in a consolidated portfolio
management effort, and may result in time savings to the Adviser by reducing the
number of reports and regulatory filings that its personnel must prepare.
The Adviser provides investment advisory services to John Hancock Global
Resources Fund ("Global Resources Fund"), a series of John Hancock Series, Inc.,
a Maryland corporation (the "Company"). The Company's Board of Directors,
including the Directors not affiliated with the Funds, has approved the
reorganization of Global Resources Fund into Special Opportunities Fund (the
"Global Resources Reorganization"). On October 31, 1995, Global Resources Fund
had net assets of $28,726,170. The Reorganization of Gold & Government Fund
described in this Proxy Statement and Prospectus is not contingent in any way
upon the consummation of the Global Resources Reorganization. The Global
Resources Reorganization will not affect the net asset value of the Special
22
<PAGE>
Opportunities Fund Shares or the number of those Shares to be received by the
shareholders of Gold & Government Fund in the Reorganization.
CAPITAL LOSS CARRYOVERS
As of October 31, 1995, Gold & Government Fund had capital loss carryovers,
as determined for federal income tax purposes, in the aggregate amount of
approximately $11,789,591, of which $8,066,420 expires on October 31, 2002 and
$3,723,171 expires on October 31, 2003. If the Reorganization does not occur,
Gold & Government Fund may use the capital loss carryovers to offset any net
capital gain, which would reduce the amount of net capital gain the Fund would
be required to distribute to its respective shareholders in order to avoid
fund-level income and/or excise taxes on undistributed capital gain.
If the Reorganization is consummated, Special Opportunities Fund will
succeed to and take into account Gold & Government Fund's capital loss
carryovers and will be able to use such carryovers, along with any carryovers it
may have, to offset its net capital gain, subject to certain limitations under
the Code that may be applicable because of the Reorganizations and certain other
changes in the past or future share ownership of Special Opportunities Fund,
including the issuance of shares of Special Opportunities Fund in other
reorganization transactions. These limitations could result in the expiration of
all or portions of such carryovers before they are fully used. However, Gold &
Government Fund did not, as of October 31, 1995, have net unrealized gains that,
when realized, the capital loss carryovers could be used to offset, and
accordingly all or substantial portions of Gold & Government Fund's capital loss
carryovers may also expire unused if the Reorganization is not consummated.
UNREIMBURSED DISTRIBUTION AND SHAREHOLDER SERVICE EXPENSES
The Board of Trustees has determined that, if the Reorganizations are
consummated, distribution and shareholder service expenses incurred in
connection with shares of Gold & Government Fund and not reimbursed under the
Fund's Rule 12b-1 plans or through CDSCs, will be reimbursable expenses under
Special Opportunities Fund's Rule 12b-1 plans (the "assumption"). However, the
maximum aggregate amounts payable during any fiscal year under Special
Opportunities Fund's Rule 12b-1 Plan (0.30% of average daily net assets
attributable to Class A shares and 1.00% of average daily net assets
attributable to Class B shares) will not be affected by the assumption.
With respect to both Class A and Class B shares of Special Opportunities
Fund, the percentage of net assets on a pro forma combined basis that the
unreimbursed expenses represent will decrease as a result of the Reorganization
and the assumption. As of October 31, 1995, the unreimbursed distribution and
23
<PAGE>
shareholder service expenses of Special Opportunities Fund attributable to Class
A and Class B shares were $341,951 (0.33% of Special Opportunities Fund's net
assets attributable to Class A shares) and $6,051,842 (4.4% of Special
Opportunities Fund's net assets attributable to Class B shares), respectively.
As of the same date, the unreimbursed distribution and shareholder service
expenses of Gold & Government Fund attributable to Class A and Class B shares
were $26,623 (0.145% of Gold & Government Fund's net assets attributable to
Class A shares) and $17,354 (0.10% of Gold & Government Fund's net assets
attributable to Class B shares), respectively.
After the Reorganization, on a pro forma combined basis, the unreimbursed
distribution and shareholder service expenses of Special Opportunities Fund
attributable to Class A and Class B shares will be $368,574 (0.31% of Special
Opportunities Fund's pro forma net assets attributable to Class A shares) and
$6,069,196 (3.93% of Special Opportunities Fund's pro forma net assets
attributable to Class B shares), respectively.
The assumption will have no immediate effect upon the payments made under
Special Opportunities Fund's Rule 12b-1 Plans. While John Hancock Funds hopes to
recover unreimbursed distribution and shareholder service expenses over an
extended period of time, Special Opportunities Fund is not obligated to assure
that these amounts are recouped by John Hancock Funds. Unreimbursed distribution
and shareholder service expenses do not currently appear as an expense or
liability in the financial statements of either Fund, nor will they appear in
the financial statements of Special Opportunities Fund after the Reorganization
until paid or accrued. Unreimbursed expenses do not enter into the calculation
of the Fund's net asset value or the formula for calculating Rule 12b-1
payments. Even in the event of termination or noncontinuance of Special
Opportunities Fund's 12b-1 Plans, Special Opportunities Fund is not legally
committed, and is not required to commit, to the payment of any unreimbursed
distribution and shareholder service expenses. The staff of the Securities and
Exchange Commission has not approved or disapproved the treatment of the
unreimbursed distribution and shareholder service expenses described in this
Proxy Statement.
BOARDS' EVALUATION AND RECOMMENDATION
On the basis of the factors described above and other factors, the Freedom
Trust Board of Trustees, including a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act) of the Funds,
determined that the Reorganization is in the best interests of Gold & Government
Fund and that the interests of Gold & Government Fund's shareholders will not be
diluted as a result of the Reorganization. On the same basis, the Freedom Trust
24
<PAGE>
II's Board of Trustees including a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act) of the Funds,
determined that the Reorganization is in the best interests of Special
Opportunities Fund and the interests of Special Opportunities Fund's
shareholders will not be diluted as a result of the Reorganization.
THE TRUSTEES OF JOHN HANCOCK GOLD & GOVERNMENT FUND
RECOMMEND THAT THE SHAREHOLDERS OF JOHN HANCOCK
GOLD & GOVERNMENT FUND VOTE FOR THE PROPOSAL
TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
DESCRIPTION OF AGREEMENT
The following description of the Agreement is a summary, does not purport
to be complete, and is subject in all respects to the provisions of the
Agreement, and is qualified in its entirety by reference to the Agreement. A
copy of the Agreement is attached to this Proxy Statement and Prospectus as
EXHIBIT A and should be read in its entirety. Paragraph references are to
appropriate provisions of the Agreement.
Method of Carrying Out Reorganization. If Gold & Government Fund
shareholders approve the Agreement, the Reorganization will be consummated
promptly after the various conditions to the obligations of each of the parties
are satisfied (see Agreement, paragraphs 6 through 8). The Reorganization will
be completed on the Closing Date.
On the Closing Date, Gold & Government Fund will transfer all of its assets
to Special Opportunities Fund in exchange for Special Opportunities Fund Shares
with an aggregate net asset value equal to the value of the assets delivered,
less the liabilities of Gold & Government Fund assumed, as of the close of
business on the Closing Date (see Agreement, paragraphs 1 and 2).
The value of Gold & Government Fund's assets shall be determined in
accordance with the Fund's current prospectus and statement of additional
information and Special Opportunities Fund's net asset values per Class A share
and per Class B share will be determined according to the valuation procedures
set forth in the Freedom Trust II Declaration of Trust and By-laws and the
Special Opportunities Fund Prospectus, (see "Share Price" in the Special
Opportunities Fund Prospectus). No initial sales charge or CDSC will be imposed
upon delivery of the Special Opportunities Fund Shares in exchange for the
assets of Gold & Government Fund.
Surrender of Share Certificates. Gold & Government Fund shareholders whose
Class A or Class B shares are represented by one or more share certificates
should, prior to the Closing Date, either surrender their certificates to Gold &
25
<PAGE>
Government Fund or deliver to Gold & Government Fund an affidavit with respect
to lost certificates, in the form and accompanied by the surety bonds that Gold
& Government Fund may require (collectively, an "Affidavit"). On the Closing
Date, all certificates which have not been surrendered will be deemed to be
cancelled, will no longer evidence ownership of Gold & Government Fund's shares
and will evidence ownership of Special Opportunities Fund Shares. Shareholders
may not redeem or transfer Special Opportunities Fund Shares received in the
Reorganization until they have surrendered their Gold & Government Fund share
certificates or delivered an Affidavit relating to them. Special Opportunities
Fund will not issue share certificates in the Reorganization.
Conditions Precedent to Closing. The obligation of Gold & Government Fund
to consummate the Reorganization is subject to the satisfaction of certain
conditions precedent, including the Freedom Trust's performance of all acts and
undertakings required under the Agreement and the receipt of all consents,
orders and permits necessary to consummate the Reorganization (see Agreement,
paragraphs 6 through 8).
The obligation of Special Opportunities Fund to consummate the
Reorganization is subject to the satisfaction of certain conditions precedent,
including Freedom Trust II's performance of all acts and undertakings to be
performed under the Agreement, the receipt of certain documents and financial
statements from Freedom Trust, on behalf of Gold & Government Fund, and the
receipt of all consents, orders and permits necessary to consummate the
Reorganization (see Agreement, paragraphs 6 through 8).
The obligations of both parties are subject to the receipt of approval and
authorization of the Agreement by the vote of not less than a Majority
Shareholder Vote of Gold & Government Fund (as described in the section
captioned "Voting Rights and Required Vote") and the receipt of a favorable
opinion of Hale and Dorr as to the federal income tax consequences of the
Reorganization.
Termination of Agreement. The Agreement may be terminated, whether or not
approval of Gold & Government Fund's shareholders has been obtained, by mutual
agreement of the parties. In addition, either party may terminate its
obligations under the Agreement at or prior to the Closing Date, because of a
material breach by the other party of any representations, warranties or
agreements contained in the Agreement, or if a condition precedent in the
Agreement has not been met.
Expenses of the Reorganization. Special Opportunities Fund and Gold &
Government Fund will each be responsible for its own expenses incurred in
connection with entering into and carrying out the provisions of the Agreement,
whether or not the Reorganization is consummated.
26
<PAGE>
Tax Considerations. The consummation of the Reorganization is subject to
the receipt of a favorable opinion of Hale and Dorr, counsel to the Funds,
satisfactory to Freedom Trust on behalf of Gold & Government Fund and Freedom
Trust II on behalf of Special Opportunities Fund and described above under the
caption, "Summary--Reorganization--Tax Considerations."
VOTING RIGHTS AND REQUIRED VOTE
Each Gold & Government Fund share is entitled to one vote. Class A and
Class B shareholders of Gold & Government Fund vote together with respect to the
Proposal. Approval of the Proposal requires a Majority Shareholder Vote of Gold
& Government Fund.
Shares of beneficial interest of Gold & Government Fund represented in
person or by proxy, including shares which abstain or do not vote with respect
to the Proposal, will be counted for purposes of determining whether a quorum is
present at the Meeting. Accordingly, an abstention from voting has the same
effect as a vote against the Proposal. However, if a broker or nominee holding
shares in "street name" indicates on the proxy card that it does not have
discretionary authority to vote on the Proposal, those shares will not be
considered as present and entitled to vote with respect to the Proposal.
Accordingly, a "broker non-vote" has no effect on the voting in determining
whether the Proposal has been adopted pursuant to the requirement that the
Proposal be approved by 67% or more of the shares of the Fund represented at the
Meeting if at least 50% of all outstanding shares of the Fund are represented at
the Meeting. However, in determining whether a Proposal has been adopted
pursuant to the requirement that the Proposal be approved by 50% or more of the
outstanding shares of the Fund entitled to vote, because shares represented by a
"broker non-vote" are considered outstanding shares, a "broker non-vote" will
have the same effect as a vote against the Proposal.
If the requisite approval of shareholders is not obtained, Gold &
Government Fund will continue to engage in business as a registered open-end,
management investment company and the Board of Trustees of Freedom Trust will
consider what further action may be appropriate.
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of
October 31, 1995, and the pro forma combined capitalization of Special
Opportunities Fund as if the Reorganization had occurred on that date. The table
27
<PAGE>
reflects proforma exchange ratios of approximately (i) 1.4171 Class A Special
Opportunities Fund Shares being issued for each Class A share of Gold &
Government Fund and (ii) approximately 1.4339 Class B Special Opportunities Fund
Shares being issued for each Class B share of Gold & Government Fund. If the
Reorganization is consummated, the actual exchange ratios on the Closing Date
may vary from those indicated due to (i) changes in the market value of the
portfolio securities of Special Opportunities Fund and Gold & Government Fund
between October 31, 1995 and the Closing Date; (ii) changes in the amount of
undistributed net investment income and net realized capital gains of Special
Opportunities Fund and Gold & Government Fund during that period resulting from
income and distributions; and (iii) changes in the accrued liabilities of
Special Opportunities Fund and Gold & Government Fund during the same period.
<TABLE>
<CAPTION>
October 31, 1995
Gold & Special
Government Opportunities Pro Forma
Fund Fund Combined
----------- --------- ---------
<S> <C> <C> <C>
Net Assets.............. $35,218,599 $238,925,410 $274,144,009
Net Asset Value.........
Per Share:
Class A............... $ 13.20 $ 9.32 $ 9.32
Class B............... $ 13.18 $ 9.19 $ 9.19
Shares Outstanding
Class A............... $ 1,386,291 $ 10,902,887 $ 12,867,405
Class B............... $ 1,284,093 $ 14,949,105 $ 16,790,364
</TABLE>
-------------------
(1) If the Reorganization had taken place on October 31, 1995, Gold &
Government Fund would have received 1,964,518 Class A shares and 1,841,259
Class B shares of Special Opportunities Fund, which would have been
available for distribution to shareholders of the applicable class of Gold
& Government Fund. No assurance can be given as to the number of Class A
Shares or Class B shares of Special Opportunities Fund that will be
received by Gold & Government Fund on the Closing Date. The foregoing is
merely an example of what Gold & Government Fund would have received and
distributed had the Reorganization been consummated on October 31, 1995,
and should not be relied upon to reflect the amount that will actually be
received on the Closing Date.
28
<PAGE>
(2) If both the Reorganization and the Global Resources Reorganization had
taken place on October 31, 1995, Special Opportunities Fund's pro forma
combined net assets would be $302,870,179 and the number of Class A and
Class B Special Opportunities Fund Shares outstanding would have been
13,116,891 and 19,663,676 respectively. The Global Resources Reorganization
does not affect the net asset value of the Class A or Class B Special
Opportunities Fund Shares to be issued in the Reorganization to Gold &
Government Fund for distribution to its shareholders.
COMPARATIVE PERFORMANCE INFORMATION
TOTAL RETURN
The average annual total return of each class of the Funds is determined by
multiplying a hypothetical initial investment of $1,000 in a class by the
average annual compound rate of return (including capital
appreciation/depreciation, and dividends and distributions paid and reinvested)
attributable to that class for the stated period and annualizing the result.
Total return on Class B shares reflects the applicable CDSC.
The table below indicates the total return (capital changes plus
reinvestment of all dividends and distributions) on a hypothetical investment of
$1,000 in each class of each Fund covering the indicated periods ending October
31, 1995. The data below represent historical performance which should not be
considered indicative of future performance of either Fund. Some performance
results would be lower absent expense limitations that were in effect during the
periods described. Each Fund's performance and net asset value will fluctuate so
that their shares, when redeemed, may be worth more or less than their original
cost.
29
<PAGE>
<TABLE>
<CAPTION>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK GOLD & GOVERNMENT FUND
(Unaudited)
Value of
Investment on
October 31, 1995 Total Return Total Return
Investment Amount of Including Including Sales Charge Excluding Sales Charge
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
----------------- --------- ---------- ------------ ---------- ---------- ---------- ----------
CLASS A SHARES:
From inception
(January 3, 1992)
to October 31, 1995 1/3/92 $1,000 $ 975.77 ( 2.42%) ( 0.64%) 2.74% 0.71%
1 year ended
October 31, 1995 10/31/94 $1,000 $ 895.96 (10.40%) (10.40%) (5.66%) (5.66%)
CLASS B SHARES:
10 years ended
October 31, 1995 10/31/85 $1,000 $1,722.67 72.27% 5.60% 72.27% 5.60%
5 years ended
October 31, 1995 10/31/90 $1,000 $1,139.75 13.98% 2.65% 15.98% 3.01%
1 year ended
October 31, 1995 10/31/94 $1,000 $ 889.79 (11.02%) (11.02%) (6.32%) (6.32%)
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
(Unaudited)
Value of
Investment on
October 31, 1995 Total Return Total Return
Investment Amount of Including Including Sales Charge Excluding Sales Charge
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
----------------- --------- ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
From inception
(January 1, 1993)
to October 31, 1995 1/1/93 $1,000 $1,041.34 4.13% 2.05% 9.65% 4.73%
1 year ended
October 31, 1995 10/31/94 $1,000 $1,116.16 11.62% 11.62% 17.53% 17.53%
CLASS B SHARES:
From inception
(January 1, 1993)
to October 31, 1995 1/1/93 $1,000 $1,031.18 3.12% 1.55% 8.12% 4.00%
1 year ended
October 31, 1995 10/31/94 $1,000 $1,117.73 11.77% 11.77% 16.77% 16.77%
</TABLE>
30
<PAGE>
BUSINESS OF GOLD & GOVERNMENT FUND
GENERAL
For a discussion of the organization and operation of Gold & Government
Fund, see "Investment Objectives and Policies" and "Organization and Management
of the Funds" in the Gold & Government Fund Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of Gold & Government Fund's investment objective and
policies, see "Investment Objectives and Policies" in the Gold & Government Fund
Prospectus.
PORTFOLIO MANAGEMENT
Ann M. McDonley and Kevin R. Baker are co-portfolio managers of Gold &
Government Fund. Ms. McDonley joined the Adviser in 1992 as a fixed-income
specialist. Prior to 1992, Ms. McDonley was a Vice President and Treasurer of
First Signature Bank & Trust Company, an affiliate of the Adviser. Mr. Baker was
President of Baker Capital Management. He also worked as a registered
representative for Kidder, Peabody & Co. Incorporated.
TRUSTEES
For a discussion of the responsibilities of the Board of Trustees of
Freedom Trust, see "Organization and Management of the Funds" in the Gold &
Government Fund Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For a discussion regarding Gold & Government Fund's investment adviser and
distributor, see "Organization and Management of the Funds," "How to Buy Shares"
and "Share Price" in the Gold & Government Fund Prospectus.
EXPENSES
For a discussion of Gold & Government Fund's expenses, see "Expense
Information" and "The Funds' Expenses" in the Gold & Government Fund Prospectus.
CUSTODIAN AND TRANSFER AGENT
Gold & Government Fund's custodian is Investors Bank & Trust Company. Gold
& Government Fund's transfer agent is John Hancock Investor Services
Corporation.
31
<PAGE>
GOLD & GOVERNMENT FUND SHARES
For a discussion of Gold & Government Fund's shares of beneficial interest,
see "Organization and Management of the Funds" in the Gold & Government Fund
Prospectus.
PURCHASE OF GOLD & GOVERNMENT FUND SHARES
For a discussion of how shares of Gold & Government Fund may be purchased
or exchanged, see "How to Buy Shares," "Alternative Purchase Arrangements" and
"Additional Services and Programs" in the Gold & Government Fund Prospectus. In
anticipation of the Reorganization, Gold & Government Fund has stopped offering
its shares to the public other than shares purchased through a monthly automatic
accumulation plan, the reinvestment of dividends and distributions.
REDEMPTION OF GOLD & GOVERNMENT FUND SHARES
For a discussion of how Class A and Class B shares of Gold & Government
Fund may be redeemed (other than in the Reorganization), see "How to Redeem
Shares" in the Gold & Government Fund Prospectus. Gold & Government Fund
shareholders whose shares are represented by share certificates will be required
to surrender their certificates for cancellation or deliver an affidavit of loss
accompanied by an adequate surety bond to Investor Services in order to redeem
Special Opportunities Fund Shares received in the Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Gold & Government Fund's policy with respect to
dividends, distributions and taxes, see "Dividends and Taxes" in the Gold &
Government Fund Prospectus.
BUSINESS OF SPECIAL OPPORTUNITIES FUND
GENERAL
For a discussion of the organization and current operation of Special
Opportunities Fund, see "Investment Objective and Policies and Certain Risk
Considerations" and "Organization and Management of the Fund" in the Special
Opportunities Fund Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For discussion of Special Opportunities Fund's investment objective and
policies, see "Investment Objective and Policies and Certain Risk
Considerations" in the Special Opportunities Fund Prospectus.
32
<PAGE>
PORTFOLIO MANAGEMENT
Kevin R. Baker is portfolio manager of Special Opportunities Fund and is
assisted by an investment team of sector and global specialists form the
Adviser's equity group.
TRUSTEES
For a discussion of the responsibilities of Freedom Trust II's Board of
Trustees, see "Organization and Management of the Fund" in the Special
Opportunities Fund Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For a discussion regarding Special Opportunities Fund's investment adviser
and distributor, see "Organization and Management of the Fund," "How to Buy
Shares" and "Share Price" in the Special Opportunities Fund Prospectus.
EXPENSES
For a discussion of Special Opportunities Fund's expenses, see "Expense
Information" and "The Fund's Expenses" in the Special Opportunities Fund
Prospectus.
CUSTODIAN AND TRANSFER AGENT
Special Opportunities Fund's custodian is Investors Bank & Trust Company.
Special Opportunities Fund's transfer agent is John Hancock Investor Services
Corporation.
SPECIAL OPPORTUNITIES FUND SHARES
For a discussion of the Special Opportunities Fund Shares, see
"Organization and Management of the Fund" in the Special Opportunities Fund
Prospectus.
PURCHASE OF SPECIAL OPPORTUNITIES FUND SHARES
For a discussion of how Class A and Class B shares of Special Opportunities
Fund may be purchased or exchanged, see "How to Buy Shares," "Alternative
Purchase Arrangements" and "Additional Services and Programs" in the Special
Opportunities Fund Prospectus.
REDEMPTION OF SPECIAL OPPORTUNITIES FUND SHARES
For a discussion of how Class A and Class B shares of Special Opportunities
Fund may be redeemed, see "How to Redeem Shares" in the Special Opportunities
Fund Prospectus. Former shareholders of Gold & Government Fund whose shares are
represented by share certificates will be required to surrender their
33
<PAGE>
certificates for cancellation or deliver an affidavit of loss accompanied by an
adequate surety bond to Investor Services in order to redeem Special
Opportunities Fund Shares received in the Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Special Opportunities Fund's policy with respect to
dividends, distributions and taxes, see "Dividends and Taxes" in the Special
Opportunities Fund Prospectus.
EXPERTS
The respective financial statements and the financial highlights of Special
Opportunities Fund and Gold & Government Fund as of October 31, 1995 and for the
year then ended, incorporated by reference into this Proxy Statement and
Prospectus, have been audited by Price Waterhouse LLP, independent auditors, as
set forth in their report thereon appearing in the Statement of Additional
Information, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act, and in accordance therewith
files reports, proxy statements and other information with the SEC. These
reports, proxy statements and other information filed by Freedom Trust and
Freedom Trust II, respectively, on behalf of each Fund, can be inspected and
copied (at prescribed rates) at the public reference facilities of the SEC at
450 Fifth Street, N.W., Washington, D.C., and at the following regional offices:
New York (7 World Trade Center, Suite 1300, New York, New York). Copies of such
material can also be obtained by mail from the Public Reference Section of the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
34
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
A-1
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 24th
day of June, 1996, by and between John Hancock Special Opportunities Fund (the
"Acquiring Fund"), a series of Freedom Investment Trust II, a Massachusetts
business trust (the "Trust II"), and John Hancock Gold & Government Fund (the
"Acquired Fund"), a series of Freedom Investment Trust, a Massachusetts business
trust (the "Trust") each with their principal place of business at 101
Huntington Avenue, Boston, Massachusetts 02199. The Acquiring Fund and the
Acquired Fund are sometimes referred to collectively herein as the "Funds" and
individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of "reorganization,"
as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization will consist of the transfer of all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for the
issuance of Class A and Class B shares of beneficial interest of the Acquiring
Fund (the "Acquiring Fund Shares") to the Acquired Fund and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund, followed by
the distribution by the Acquired Fund, on or promptly after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the
Acquired Fund in liquidation and termination of the Acquired Fund as provided
herein, all upon the terms and conditions set forth in this Agreement.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES; LIQUIDATION OF THE
ACQUIRED FUND
1.1 The Acquired Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and interest
receivables, cash and other assets), as set forth in the statement of
assets and liabilities referred to in Paragraph 7.2 hereof (the "Statement
of Assets and Liabilities"), to the Acquiring Fund free and clear of all
liens and encumbrances, except as otherwise provided herein, in exchange
for (i) the assumption by the Acquiring Fund of the known and unknown
liabilities of the Acquired Fund, including the liabilities set forth in
the Statement of Assets and Liabilities (the "Acquired Fund Liabilities"),
which shall be assigned and transferred to the Acquiring Fund by the
Acquired Fund and assumed by the Acquiring Fund, and (ii) delivery by the
Acquiring Fund to the Acquired Fund, for distribution pro rata by the
Acquired Fund to its shareholders in proportion to their respective
ownership of Class A and/or Class B shares of beneficial interest of the
Acquired Fund, as of the close of business on August 16, 1996 (the "Closing
Date"), of a number of the Acquiring Fund Shares having an aggregate net
asset value equal, in the case of each class of Acquiring Fund Shares, to
the value of the assets, less
<PAGE>
such liabilities (herein referred to as the "net value of the assets")
attributable to the applicable class, assumed, assigned and delivered, all
determined as provided in Paragraph 2.1 hereof and as of a date and time as
specified therein. Such transactions shall take place at the closing
provided for in Paragraph 3.1 hereof (the "Closing"). All computations
shall be provided by Investors Bank & Trust Company (the "Custodian"), as
custodian and pricing agent for the Acquiring Fund and the Acquired Fund.
1.2 The Acquired Fund has provided the Acquiring Fund with a list of the
current securities holdings of the Acquired Fund as of the date of
execution of this Agreement. The Acquired Fund reserves the right to sell
any of these securities (except to the extent sales may be limited by
representations made in connection with issuance of the tax opinion
provided for in paragraph 8.6 hereof) but will not, without the prior
approval of the Acquiring Fund, acquire any additional securities other
than securities of the type in which the Acquiring Fund is permitted to
invest.
1.3 The Acquiring Fund and the Acquired Fund shall each bear its own expenses
in connection with the transactions contemplated by this Agreement.
1.4 On or as soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to shareholders of record (the "Acquired Fund shareholders"),
determined as of the close of regular trading on the New York Stock
Exchange on the Closing Date, the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund
Shares then credited to the account of the Acquired Fund on the books of
the Acquiring Fund, to open accounts on the share records of the Acquiring
Fund in the names of the Acquired Fund shareholders and representing the
respective pro rata number and class of Acquiring Fund Shares due such
shareholders. Acquired Fund shareholders who own Class A shares of the
Acquired Fund will receive Class A Acquiring Fund Shares and Acquired Fund
shareholders who own Class B shares of the Acquired Fund will receive Class
B Acquiring Fund Shares. The Acquiring Fund shall not issue certificates
representing Acquiring Fund Shares in connection with such exchange.
1.5 The Acquired Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Acquired Fund shall
surrender such certificates or deliver an affidavit with respect to lost
certificates in such form and accompanied by such surety bonds as the
Acquired Fund may require (collectively, an "Affidavit"), to John Hancock
Investor Services Corporation prior to the Closing Date. Any Acquired Fund
share certificate which remains outstanding on the Closing Date shall be
deemed to be canceled, shall no longer evidence ownership of shares of
beneficial interest of the Acquired Fund and shall evidence ownership of
Acquiring Fund Shares. Unless and until any such certificate shall be so
surrendered or an Affidavit relating thereto shall be delivered, dividends
and other distributions payable by the Acquiring Fund subsequent to the
Liquidation Date with respect to Acquiring Fund Shares shall be paid to the
holder of such certificate(s), but such
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<PAGE>
shareholders may not redeem or transfer Acquiring Fund Shares received in
the Reorganization. The Acquiring Fund will not issue share certificates in
the Reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name
other than the registered holder of the Acquired Fund Shares on the books
of the Acquired Fund as of that time shall, as a condition of such issuance
and transfer, be paid by the person to whom such Acquiring Fund Shares are
to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Trust, including, but not limited to,
the responsibility for filing of regulatory reports, tax returns, or other
documents with the Securities and Exchange Commission (the "Commission"),
any state securities commissions, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Trust.
2. VALUATION
2.1 The net asset values of the Class A and Class B Acquiring Fund Shares and
the net values of the assets and liabilities of the Acquired Fund
attributable to its Class A and Class B shares to be transferred shall, in
each case, be determined as of the close of business (4:00 p.m. Boston
time) on the Closing Date. The net asset values of the Class A and Class B
Acquiring Fund Shares shall be computed by the Custodian in the manner set
forth in the Acquiring Fund's Declaration of Trust as amended and restated
(the "Declaration"), or By-Laws and the Acquiring Fund's then-current
prospectus and statement of additional information and shall be computed in
each case to not fewer than four decimal places. The net values of the
assets of the Acquired Fund attributable to its Class A and Class B shares
to be transferred shall be computed by the Custodian by calculating the
value of the assets of each class transferred by the Acquired Fund and by
subtracting therefrom the amount of the liabilities of each class assigned
and transferred to and assumed by the Acquiring Fund on the Closing Date,
said assets and liabilities to be valued in the manner set forth in the
Acquired Fund's then current prospectus and statement of additional
information and shall be computed in each case to not fewer than four
decimal places.
2.2 The number of shares of each class of Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired Fund's
assets shall be determined by dividing the value of the Acquired Fund's
assets attributable to a class, less the liabilities attributable to that
class assumed by the Acquiring Fund, by the Acquiring Fund's net asset
value per share of the same class, all as determined in accordance with
Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian in accordance with
its regular practice as pricing agent for the Funds.
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3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be August 16, 1996 or such other date on or before
December 31, 1996 as the parties may agree. The Closing shall be held as of
5:00 p.m. at the offices of the Trust II and the Trust, 101 Huntington
Avenue, Boston, Massachusetts 02199, or at such other time and/or place as
the parties may agree.
3.2 Portfolio securities that are not held in book-entry form in the name of
the Custodian as record holder for the Acquired Fund shall be presented by
the Acquired Fund to the Custodian for examination no later than five
business days preceding the Closing Date. Portfolio securities which are
not held in book-entry form shall be delivered by the Acquired Fund to the
Custodian for the account of the Acquiring Fund on the Closing Date, duly
endorsed in proper form for transfer, in such condition as to constitute
good delivery thereof in accordance with the custom of brokers, and shall
be accompanied by all necessary federal and state stock transfer stamps or
a check for the appropriate purchase price thereof. Portfolio securities
held of record by the Custodian in book-entry form on behalf of the
Acquired Fund shall be delivered to the Acquiring Fund by the Custodian by
recording the transfer of beneficial ownership thereof on its records. The
cash delivered shall be in the form of currency or by the Custodian
crediting the Acquiring Fund's account maintained with the Custodian with
immediately available funds.
3.3 In the event that on the Closing Date (a) the New York Stock Exchange shall
be closed to trading or trading thereon shall be restricted or (b) trading
or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored;
provided that if trading shall not be fully resumed and reporting restored
on or before December 31, 1996, this Agreement may be terminated by the
Acquiring Fund or by the Acquired Fund upon the giving of written notice to
the other party.
3.4 The Acquired Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding
and nonresident alien withholding status of the Acquired Fund shareholders
and the number of outstanding shares of each class of beneficial interest
of the Acquired Fund owned by each such shareholder, all as of the close of
business on the Closing Date, certified by its Treasurer, Secretary or
other authorized officer (the "Shareholder List"). The Acquiring Fund shall
issue and deliver to the Acquired Fund a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares
have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such
bills of sale, checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably request.
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<PAGE>
4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust on behalf of the Acquired Fund represents, warrants and covenants
to the Acquiring Fund as follows:
(a) The Trust is a business trust, duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts and
has the power to own all of its properties and assets and, subject to
approval by the shareholders of the Acquired Fund, to carry out the
transactions contemplated by this Agreement. Neither the Trust nor the
Acquired Fund is required to qualify to do business in any
jurisdiction in which it is not so qualified or where failure to
qualify would subject it to any material liability or disability. The
Trust has all necessary federal, state and local authorizations to own
all of its properties and assets and to carry on its business as now
being conducted;
(b) The Trust is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), is in full force and effect. The Acquired
Fund is a diversified series of the Trust;
(c) The Trust and the Acquired Fund are not, and the execution, delivery
and performance of their obligations under this Agreement will not
result, in violation of any provision of the Trust's Declaration of
Trust, as amended and restated (the "Trust's Declaration") or By-Laws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust or the Acquired Fund is a party or by
which it is bound;
(d) Except as otherwise disclosed in writing and accepted by the Acquiring
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust or the Acquired Fund or any of
the Acquired Fund's properties or assets. The Trust knows of no facts
which might form the basis for the institution of such proceedings,
and neither the Trust nor the Acquired Fund is a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects the Acquired
Fund's business or its ability to consummate the transactions herein
contemplated;
(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase of
securities entered into in the ordinary course of business and
consistent with its obligations under this Agreement) which will not
be terminated without liability to the Acquired Fund at or prior to
the Closing Date;
(f) The unaudited statement of assets and liabilities, including the
schedule of investments, of the Acquired Fund as of October 31, 1995
and the related statement of operations (copies of which have been
furnished to the Acquiring Fund) present fairly in all material
respects the financial condition of the Acquired Fund as of October
31, 1995 and the results of its operations for the period then ended
in accordance with generally accepted accounting
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<PAGE>
principles consistently applied, and there were no known actual or
contingent liabilities of the Acquired Fund as of the respective dates
thereof not disclosed therein;
(g) Since October 31, 1995, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of
business, or any incurrence by the Acquired Fund of indebtedness
maturing more than one year from the date such indebtedness was
incurred, except as otherwise disclosed to and accepted by the
Acquiring Fund;
(h) At the date hereof and by the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Acquired Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished, and all
federal, state and other taxes, interest and penalties shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge no such
return is currently under audit and no assessment has been asserted
with respect to such returns or reports;
(i) The Acquired Fund has elected to be treated as a regulated investment
company for federal income tax purposes, has qualified as such for
each taxable year of its operation and will qualify as such as of the
Closing Date with respect to its final taxable year ending on the
Closing Date;
(j) The authorized capital of the Acquired Fund consists of an unlimited
number of shares of beneficial interest, no par value. All issued and
outstanding shares of beneficial interest of the Acquired Fund are,
and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Trust. All of the
issued and outstanding shares of beneficial interest of the Acquired
Fund will, at the time of Closing, be held by the persons and in the
amounts and classes set forth in the Shareholder List submitted to the
Acquiring Fund pursuant to Paragraph 3.4 hereof. The Acquired Fund
does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of its shares of beneficial interest,
nor is there outstanding any security convertible into any of its
shares of beneficial interest;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the assets to be transferred to the Acquiring Fund pursuant
to Paragraph 1.1 hereof, and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder, and upon delivery
and payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the
Securities Act of 1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Trust on
behalf of the Acquired Fund, and this Agreement constitutes a valid
and binding obligation of the Trust and the Acquired Fund enforceable
in accordance with its terms, subject to the approval of the Acquired
Fund's shareholders;
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<PAGE>
(m) The information to be furnished by the Acquired Fund to the Acquiring
Fund for use in applications for orders, registration statements,
proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate
and complete and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable
thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in Paragraph 5.7
hereof (other than written information furnished by the Acquiring Fund
for inclusion therein, as covered by the Acquiring Fund's warranty in
Paragraph 4.2(m) hereof), on the effective date of the Registration
Statement, on the date of the meeting of the Acquired Fund
shareholders and on the Closing Date, shall not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of beneficial interest of the
Acquired Fund have been offered for sale and sold in conformity with
all applicable federal and state securities laws;
(q) The prospectus of the Acquired Fund, dated March 1, 1996 (the
"Acquired Fund Prospectus"), previously furnished to the Acquiring
Fund, does not contain any untrue statements of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
4.2 The Trust II on behalf of the Acquiring Fund represents, warrants and
covenants to the Acquired Fund as follows:
(a) The Trust II is a business trust duly organized, validly existing and
in good standing under the laws of the Commonwealth of Massachusetts
and has the power to own all of its properties and assets and to carry
out the Agreement. Neither the Trust II nor the Acquiring Fund is
required to qualify to do business in any jurisdiction in which it is
not so qualified or where failure to qualify would subject it to any
material liability or disability. The Trust II has all necessary
federal, state and local authorizations to own all of its properties
and assets and to carry on its business as now being conducted;
(b) The Trust II is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect. The
Acquiring Fund is a non-diversified series of the Trust II;
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<PAGE>
(c) The prospectus (the "Acquiring Fund Prospectus") and statement of
additional information for Class A and Class B shares of the Acquiring
Fund, each dated March 1, 1996, and any amendments or supplements
thereto on or prior to the Closing Date, and the Registration
Statement on Form N-14 to be filed in connection with this Agreement
(the "Registration Statement") (other than written information
furnished by the Acquired Fund for inclusion therein, as covered by
the Acquired Fund's warranty in Paragraph 4.1(m) hereof) will conform
in all material respects to the applicable requirements of the 1933
Act and the 1940 Act and the rules and regulations of the Commission
thereunder, the Acquiring Fund Prospectus does not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and the Registration Statement will not include any untrue
statement of material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(d) At the Closing Date, the Trust II on behalf of the Acquiring Fund will
have good and marketable title to the assets of the Acquiring Fund;
(e) The Trust II and the Acquiring Fund are not, and the execution,
delivery and performance of their obligations under this Agreement
will not result, in violation of any provisions of the Trust II's
Declaration, or By-Laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Trust II or the
Acquiring Fund is a party or by which the Trust II or the Acquiring
Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the Acquired
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust II or the Acquiring Fund or
any of the Acquiring Fund's properties or assets. The Trust II knows
of no facts which might form the basis for the institution of such
proceedings, and neither the Trust II nor the Acquiring Fund is a
party to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely
affects the Acquiring Fund's business or its ability to consummate the
transactions herein contemplated;
(g) The unaudited statement of assets and liabilities, including the
schedule of investments, of the Acquiring Fund as of October 31, 1995
and the related statement of operations (copies of which have been
furnished to the Acquired Fund), present fairly in all material
respects the financial condition of the Acquiring Fund as of October
31, 1995 and the results of its operations for the period then ended
in accordance with generally accepted accounting principles
consistently applied, and there were no known actual or contingent
liabilities of the Acquiring Fund as of the respective dates thereof
not disclosed herein;
(h) Since October 31, 1995, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of
business, or any incurrence by the Trust II on behalf of the Acquiring
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<PAGE>
Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as disclosed to and accepted by the
Acquired Fund;
(i) The Acquiring Fund has elected to be treated as a regulated investment
company for federal income tax purposes, has qualified as such for
each taxable year of its operation and will qualify as such as of the
Closing Date;
(j) The authorized capital of the Trust II consists of an unlimited number
of shares of beneficial interest, no par value per share. All issued
and outstanding shares of beneficial interest of the Acquiring Fund
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Trust II. The
Acquiring Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any of its shares of
beneficial interest, nor is there outstanding any security convertible
into any of its shares of beneficial interest;
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of the Trust II on
behalf of the Acquiring Fund, and this Agreement constitutes a valid
and binding obligation of the Acquiring Fund enforceable in accordance
with its terms;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement, when so issued and
delivered, will be duly and validly issued shares of beneficial
interest of the Acquiring Fund and will be fully paid and
nonassessable by the Trust II;
(m) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with federal securities and
other laws and regulations applicable thereto; and
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by the Agreement,
except for the registration of the Acquiring Fund Shares under the
1933 Act, the 1940 Act and under state securities laws.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Trust on
behalf of the Acquired Fund and the Trust II on behalf of Acquiring Fund,
will operate their respective businesses in the ordinary course between the
date hereof and the Closing Date, it being understood that such ordinary
course of business will include customary dividends and distributions and
any other distributions necessary or desirable to avoid federal income or
excise taxes.
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<PAGE>
5.2 The Trust will call a meeting of the Acquired Fund shareholders to consider
and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired by the Acquired Fund for the purpose of
making any distribution thereof other than in accordance with the terms of
this Agreement.
5.4 The Trust on behalf of the Acquired Fund will provide such information
within its possession or reasonably obtainable as the Trust II on behalf of
the Acquiring Fund requests concerning the beneficial ownership of the
Acquired Fund's shares of beneficial interest.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate the transactions contemplated by this Agreement.
5.6 The Trust on behalf of the Acquired Fund shall furnish to the Trust II on
behalf of the Acquiring Fund on the Closing Date the Statement of Assets
and Liabilities of the Acquired Fund as of the Closing Date, which
statement shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be certified by the
Acquired Fund's Treasurer or Assistant Treasurer. As promptly as
practicable but in any case within 60 days after the Closing Date, the
Acquired Fund shall furnish to the Acquiring Fund, in such form as is
reasonably satisfactory to the Trust II, a statement of the earnings and
profits of the Acquired Fund for federal income tax purposes and of any
capital loss carryovers and other items that will be carried over to the
Acquiring Fund as a result of Section 381 of the Code, and which statement
will be certified by the President of the Acquired Fund.
5.7 The Trust II on behalf of the Acquiring Fund will prepare and file with the
Commission the Registration Statement in compliance with the 1933 Act and
the 1940 Act in connection with the issuance of the Acquiring Fund Shares
as contemplated herein.
5.8 The Trust on behalf of the Acquired Fund will prepare a Proxy Statement, to
be included in the Registration Statement in compliance with the 1933 Act,
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
1940 Act and the rules and regulations thereunder (collectively, the
"Acts") in connection with the special meeting of shareholders of the
Acquired Fund to consider approval of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE ACQUIRED
FUND
The obligations of the Trust on behalf of the Acquired Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Trust II on behalf of the
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Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1 All representations and warranties of the Trust II on behalf of the
Acquiring Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected
by the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date;
and
6.2 The Trust II on behalf of the Acquiring Fund shall have delivered to the
Acquired Fund a certificate executed in its name by the Trust II's
President or Vice President and its Treasurer or Assistant Treasurer, in
form and substance satisfactory to the Acquired Fund and dated as of the
Closing Date, to the effect that the representations and warranties of the
Trust II on behalf of the Acquiring Fund made in this Agreement are true
and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other
matters as the Trust on behalf of the Acquired Fund shall reasonably
request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF THE
ACQUIRING FUND
The obligations of the Trust II on behalf of the Acquiring Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Acquired Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Acquired Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date;
7.2 The Trust on behalf of the Acquired Fund shall have delivered to the Trust
II on behalf of the Acquiring Fund the Statement of Assets and Liabilities
of the Acquired Fund, together with a list of its portfolio securities
showing the federal income tax bases and holding periods of such
securities, as of the Closing Date, certified by the Treasurer or Assistant
Treasurer of the Trust;
7.3 The Trust on behalf of the Acquired Fund shall have delivered to the Trust
II on behalf of the Acquiring Fund on the Closing Date a certificate
executed in the name of the Acquired Fund by a President or Vice President
and a Treasurer or Assistant Treasurer of the Trust, in form and substance
satisfactory to the Trust II on behalf of the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties
of the Acquired Fund in this Agreement are true and correct at and as of
the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Trust
II on behalf of the Acquiring Fund shall reasonably request; and
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<PAGE>
7.4 At or prior to the Closing Date, the Acquired Fund's investment adviser, or
an affiliate thereof, shall have made all payments, or applied all credits,
to the Acquired Fund required by any applicable contractual or
state-imposed expense limitation.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE TRUST II
The obligations hereunder of the Trust II on behalf of the Acquiring Fund and
the Trust on behalf of the Acquired Fund are each subject to the further
conditions that on or before the Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interest of the Acquired Fund in accordance with the provisions
of the Trust's Declaration and By-Laws, and certified copies of the
resolutions evidencing such approval by the Acquired Fund's shareholders
shall have been delivered by the Acquired Fund to the Trust II on behalf of
the Acquiring Fund;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain
or prohibit, or obtain changes or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits of
federal, state and local regulatory authorities (including those of the
Commission and of state Blue Sky and securities authorities, including
"no-action" positions of such federal or state authorities) deemed
necessary by the Trust or the Trust II to permit consummation, in all
material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund, provided that either
party hereto may waive any such conditions for itself;
8.4 The Registration Statement shall have become effective under the 1933 Act
and the 1940 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or
be pending, threatened or contemplated under the 1933 Act or the 1940 Act;
8.5 The Acquired Fund shall have distributed to its shareholders all of its
investment company taxable income (as defined in Section 852(b)(2) of the
Code) for its taxable year ending on the Closing Date and all of its net
capital gain (as such term is used in Section 852(b)(3)(C) of the Code),
after reduction by any available capital loss carryforward, for its taxable
year ending on the Closing Date; and
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<PAGE>
8.6 The parties shall have received an opinion of Messrs. Hale and Dorr,
satisfactory to the Trust on behalf of the Acquired Fund and the Trust II
on behalf of the Acquiring Fund, substantially to the effect that for
federal income tax purposes:
(a) The acquisition by the Acquiring Fund of all of the assets of the
Acquired Fund solely in exchange for the issuance of Acquiring Fund
Shares to the Acquired Fund and the assumption of all of the Acquired
Fund Liabilities by the Acquiring Fund, followed by the distribution
by the Acquired Fund, in liquidation of the Acquired Fund, of
Acquiring Fund Shares to the shareholders of the Acquired Fund in
exchange for their shares of beneficial interest of the Acquired Fund
and the termination of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and
the Acquired Fund and the Acquiring Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund upon (i) the
transfer of all of its assets to the Acquiring Fund solely in exchange
for the issuance of Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund; and (ii) the distribution by the Acquired Fund of such Acquiring
Fund Shares to the shareholders of the Acquired Fund;
(c) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
issuance of the Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund;
(d) The basis of the assets of the Acquired Fund acquired by the Acquiring
Fund will be, in each instance, the same as the basis of those assets
in the hands of the Acquired Fund immediately prior to the transfer;
(e) The tax holding period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will, in each instance, include the Acquired
Fund's tax holding period for those assets;
(f) The shareholders of the Acquired Fund will not recognize gain or loss
upon the exchange of all of their shares of beneficial interest of the
Acquired Fund solely for Acquiring Fund Shares as part of the
transaction;
(g) The basis of the Acquiring Fund Shares received by the Acquired Fund
shareholders in the transaction will be the same as the basis of the
shares of beneficial interest of the Acquired Fund surrendered in
exchange therefor; and
(h) The tax holding period of the Acquiring Fund Shares received by the
Acquired Fund shareholders will include, for each shareholder, the tax
holding period for the shares of the Acquired Fund surrendered in
exchange therefor, provided that the Acquired Fund shares were held as
capital assets on the date of the exchange.
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<PAGE>
The Trust II and the Trust agree to make and provide representations with
respect to the Acquiring Fund and the Acquired Fund, respectively, which are
reasonably necessary to enable Hale and Dorr to deliver an opinion substantially
as set forth in this Paragraph 8.6. Notwithstanding anything herein to the
contrary, neither the Trust nor the Trust II may waive the conditions set forth
in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust II on behalf of the Acquiring Fund, and the Trust on behalf of
the Acquired Fund, each represent and warrant to the other, that there are
no brokers or finders entitled to receive any payments in connection with
the transactions provided for herein.
9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely for
its own expenses incurred in connection with entering into and carrying out
the provisions of this Agreement whether or not the transactions
contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust II on behalf of the Acquiring Fund, and the Trust on behalf of
the Acquired Fund agree that neither party has made any representation,
warranty or covenant not set forth herein or referred to in Paragraph 4
hereof and that this Agreement constitutes the entire agreement between the
parties.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust II,
on behalf of the Acquiring Fund, and the Trust on behalf of the Acquired
Fund. In addition, either party may at its option terminate this Agreement
at or prior to the Closing Date:
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed at or
prior to the Closing Date;
(b) because of a condition herein expressed to be precedent to the
obligations of the terminating party which has not been met and which
reasonably appears will not or cannot be met;
(c) by resolution of the Trust II's Board of Trustees if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interests of the
Acquiring Fund's shareholders; or
-14-
<PAGE>
(d) by resolution of the Trust's Board of Trustees if circumstances should
develop that, in the good faith opinion of such Board, make proceeding
with the Agreement not in the best interests of the Acquired Fund's
shareholders.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Trust II, the Acquiring Fund, the Trust, or the
Acquired Fund, or the Trustees or officers of the Trust II or the Trust,
but each party shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon by the authorized officers of the Trust and the Trust II.
However, following the meeting of shareholders of the Acquired Fund held
pursuant to Paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions regarding the method for determining the
number of Acquiring Fund Shares to be received by the Acquired Fund shareholders
under this Agreement to the detriment of such shareholders without their further
approval; provided that nothing contained in this Article 12 shall be construed
to prohibit the parties from amending this Agreement to change the Closing Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the Acquiring Fund or to the Acquired
Fund, each at 101 Huntington Avenue, Boston, Massachusetts 02199, Attention:
President, and, in either case, with copies to Hale and Dorr, 60 State Street,
Boston, Massachusetts 02109, Attention: Pamela J.
Wilson, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the prior written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
-15-
<PAGE>
14.5 All persons dealing with the Trust or the Trust II must look solely to the
property of the Trust or the Trust II, respectively, for the enforcement of
any claims against the Trust or the Trust II as the Trustees, officers,
agents and shareholders of the Trust or the Trust II assume no personal
liability for obligations entered into on behalf of the Trust or the Trust
II, respectively. None of the other series of the Trust or the Trust II
shall be responsible for any obligations assumed by on or behalf of the
Acquired Fund or the Acquiring Fund, respectively, under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first set forth above by its President or Vice President
and has caused its corporate seal to be affixed hereto.
FREEDOM INVESTMENT TRUST II on behalf of
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
By: /s/ Anne C. Hodsdon
----------------------------------------
Anne C. Hodsdon
President
FREEDOM INVESTMENT TRUST on behalf of
JOHN HANCOCK GOLD & GOVERNMENT FUND
By: Susan S. Newton
----------------------------------------
Susan S. Newton
Vice President
-16-
<PAGE>
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
Supplement to Class A and Class B Shares Prospectus dated March 1, 1996
The discussion of who is responsible for the day-to-day management of the
Fund contained in the "Organization and Management of the Fund" section is
replaced with the following:
Kevin R. Baker is portfolio manager of the Fund. He is supported by a team
of portfolio managers and analysts. Prior to joining the Adviser in 1994, Mr.
Baker was president of Baker Capital Management. He also worked as a registered
representative for Kidder Peabody.
3900S-4/96
April 3, 1996
<PAGE>
John Hancock
Special Opportunities Fund
Class A and Class B Shares
Prospectus
March 1, 1996
-----------------------------------------------------------------------------
TABLE OF CONTENTS
Page
-------
Expense Information 2
The Fund's Financial Highlights 3
Investment Objective and Policies and Certain Risk Considerations 5
Organization and Management of the Fund 10
Alternative Purchase Arrangements 11
The Fund's Expenses 12
Dividends and Taxes 13
Performance 14
How to Buy Shares 15
Share Price 16
How to Redeem Shares 22
Additional Services and Programs 24
This Prospectus sets forth information about John Hancock Special
Opportunities Fund (the "Fund"), a non-diversified series of Freedom
Investment Trust II, (the "Trust") that you should know before investing.
Please read and retain it for future reference.
Additional information about the Fund has been filed with the Securities
and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's
Statement of Additional Information, dated March 1, 1996, and incorporated by
reference into this Prospectus, free of charge by writing or telephoning:
John Hancock Investor Services Corporation, P.O. Box 9116, Boston,
Massachusetts 02205-9116, 1-800-225-5291 (1-800-544-6713 TDD).
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you understand the
various fees and expenses you will bear, directly or indirectly, when you
purchase Fund shares. The operating fees and expenses included in the table
and hypothetical example below are based on actual fees and expenses for the
Class A and Class B shares of the Fund for the fiscal year ended October 31,
1995, adjusted to reflect current fees and expenses. Actual fees and expenses
may be greater or less than those indicated.
Class A Class B
Shares Shares
------- ---------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a
percentage of offering price) 5.00% None
Maximum sales charge imposed on reinvested dividends None None
Maximum deferred sales charge None* 5.00%
Redemption fee+ None None
Exchange fee None None
Annual Fund Operating Expenses (as a percentage of
average net assets)
Management fee 0.80% 0.80%
12b-1 fee** 0.30% 1.00%
Other expenses 0.49% 0.49%
----- -------
Total Fund operating expenses 1.59% 2.29%
* No sales charge is payable at the time of purchase on investments in Class
A shares of $1 million or more, but for these investments a contingent
deferred sales charge may be imposed, as described under the caption
"Share Price, " in the event of certain redemption transactions within one
year of purchase.
** The amount of the 12b-1 plan used to cover service expenses will be up to
0.25% of average daily net assets, and the remaining portion will be used
to cover distribution expenses.
+ Redemption by wire fee (currently $4.00) not included.
1 3 5 10
Example Year Years Years Years
------- --- ---- ---- -------
You would pay the following expenses for the
indicated period of years on a
hypothetical $1,000 investment,
assuming 5% annual return:
Class A Shares $65 $ 98 $132 $229
Class B Shares
--Assuming complete redemption at end of
period $73 $102 $143 $245
--Assuming no redemption $23 $ 72 $123 $245
(The example should not be considered as a representation of past or
future investment returns. Actual expenses may be greater or less than
shown.)
The Fund's payment of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the
maximum front-end sales charge permitted under the National Association of
Securities Dealers Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained
in this Prospectus under the caption "The Fund's Expenses" and in the
Statement of Additional Information under the captions "Investment Advisory
and Other Services" and "Distribution Contract."
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following Table of Financial Highlights has been audited by Price
Waterhouse LLP, the Fund's independent accountants, whose unqualified report
is included in the Fund's 1995 Annual Report and is included in the Statement
of Additional Information. Further information about the performance of the
Fund is contained in the Fund's Annual Report to Shareholders which may be
obtained free of charge by writing or telephoning John Hancock Investor
Services Corporation ("Investor Services") at the address or telephone number
listed on the front page of this Prospectus.
Selected data for each class of shares outstanding throughout each period
indicated is as follows:
<TABLE>
<CAPTION>
For the Period
November 1, 1993
Year Ended (Commencement of
October 31, Operations) to
1995 October 31, 1994
------------- --------------------
CLASS A
-------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 7.93 $ 8.50
----------- ------------------
Net Investment Loss (0.07)(b) (0.03)(b)
Net Realized and Unrealized Gain (Loss) on Investments 1.46 (0.54)
----------- ------------------
Total from Investment Operations 1.39 (0.57)
Net Asset Value, End of Period $ 9.32 $ 7.93
=========== ==================
Total Investment Return at Net Asset Value 17.53% (6.71%)(f)
Total Adjusted Investment Return at Net Asset Value (a) -- (6.83%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $101,562 $ 92,325
Ratio of Expenses to Average Net Assets * * 1.59% 1.50%
Ratio of Adjusted Expenses to Average Net Assets (a) -- 1.62%
Ratio of Net Investment Loss to Average Net Assets (0,87%) (0.41%)
Ratio of Adjusted Net Investment Loss to Average Net Assets
(a) -- (0.53%)
Portfolio Turnover Rate 155% 57%
* * Expense Reimbursement Per Share -- $ 0.01(b)
CLASS B
-------
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 7.87 $ 8.50
----------- ------------------
Net Investment Loss (0.13)(b) (0.09)(b)
Net Realized and Unrealized Gain (Loss) on Investments 1.45 (0.54)
----------- ------------------
Total from Investment Operations 1.32 (0.63)
----------- ------------------
Net Asset Value, End of Period $ 9.19 $ 7.87
=========== ==================
Total Investment Return at Net Asset Value (d) 16.77% (7.41%)(f)
Total Adjusted Investment Return at Net Asset Value (a) -- (7.53%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $137,363 $131,983
Ratio of Expenses to Average Net Assets * * 2.30% 2.22%*
Ratio of Adjusted Expenses to Average Net Assets (a) -- 2.34%*
Ratio of Net Investment Loss to Average Net Assets (1.55%) (1.13%)*
Ratio of Adjusted Net Investment Loss to Average Net Assets
(a) -- (1.25%)*
Portfolio Turnover Rate 155% 57%
* * Expense Reimbursement Per Share -- $ 0.01(b)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
For the Period
Period July 6, 1994
Ended (Commencement of
April 11, Operations) to
1995 October 31, 1994
CLASS C (e)
----------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $7.94 $7.60
------ -----------
Net Investment Income 0.01 --
Net Realized and Unrealized Gain on Investments 0.29 (d) 0.34(d)
Total from Investment Operations 0.30 0.34
Net Asset Value, End of Period $8.24 $7.94
====== ===========
Total Investment Return at Net Asset Value 3.40 % (4.47%)
------ -----------
Total Adjusted Investment Return at Net Asset Value (a) -- (4.85%)(c)
====== ===========
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $218 $ 165
Ratio of Expenses to Average Net Assets * * 0.98 %* 1.01%*
Ratio of Adjusted Expenses to Average Net Assets (a) -- 1.39%*
Ratio of Net Investment Income to Average Net Assets 0.23 %* 0.03%*
Ratio of Adjusted Net Investment Income to Average Net Assets
(a) -- (0.35%)*
Portfolio Turnover Rate N/A 57%
* * Expense Reimbursement Per Share -- $ 0.01(b)
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis without expense reduction.
(b) On average month end shares outstanding.
(c) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the adviser during the periods shown.
(d) May not accord to amounts shown elsewhere in the financial statements.
(e) Per share operating performance and the ratios and supplemental data are
calculated as of April 11, 1995, the date on which Class C shares were
redeemed.
(f) Without the reimbursement, total investment return would be lower.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
AND CERTAIN RISK CONSIDERATIONS
The investment objective of
the Fund is long-term capital
appreciation.
The investment objective of the Fund is long-term capital appreciation. The
Fund seeks to achieve its objective by emphasizing investments in equity
securities of issuers in various economic sectors. There are market
fluctuations and risks in any investment and therefore there is no assurance
that the Fund will realize its objective.
The Fund emphasizes issuers in
certain economic sectors.
The equity securities in which the Fund invests consist primarily of common
stocks of U.S. and foreign issuers but may also include preferred stocks,
convertible debt securities and warrants. The Fund seeks to achieve its
investment objective by varying the relative weighting of its portfolio
securities among various economic sectors based upon both macroeconomic
factors and the outlook for each particular sector. John Hancock Advisers,
Inc. (the "Adviser") selects equity securities for the Fund from various
economic sectors, including, but not limited to, the following: automotive
and housing, consumer goods and services, defense and aerospace, energy,
financial services, health care, heavy industry, leisure and entertainment,
machinery and equipment, precious metals, retailing, technology,
transportation, utilities, foreign and environmental. The Fund may modify
these sectors if the Adviser believes that they no longer represent
appropriate investments for the Fund, or if other sectors offer better
opportunities for investment. See the Appendix to the Statement of Additional
Information for a further description of the sectors in which the Fund
invests.
The Adviser will adjust the Fund's relative weighting among the sectors in
response to changes in economic and market conditions. The Fund may focus on
as many as five of the foregoing economic sectors at any time. Under normal
market conditions, at least 90% of the Fund's investments in equity
securities will be invested in the equity securities of issuers in five or
fewer of the sectors. Subject to the Fund's policy of investing not more than
25% of its total assets in any one industry, issuers in any one sector may
represent all of the Fund's net assets. Due to the Fund's emphasis on a few
sectors, the Fund may be subject to a greater degree of volatility than a
fund that is structured in a more diversified manner. However, the Fund
retains the flexibility to invest its assets in a broader group of sectors if
a narrower range of investments is not desirable. This flexibility may offer
greater diversification than a fund that is limited to investing in a single
sector or industry. The Fund may hold securities of issuers in fewer than all
of the sectors at any given time.
In selecting securities for the Fund's portfolio, the Adviser will determine
the allocation of assets among equity securities, fixed income securities and
cash, the sectors that will be emphasized at any given time, the distribution
of securities among the various sectors, the specific industries within each
sector and the specific securities within each industry. In making the sector
analysis, the Adviser considers the general economic environment, the outlook
for real economic growth in the United States and abroad, trends and
developments within specific sectors and the outlook for interest rates and
the securities markets. A sector is a "special opportunity" when, in the
opinion of the Adviser, the issuers in that sector have a high earnings
potential. In selecting particular issuers, the Adviser considers
price/earnings ratios, ratios of market to book value, earnings growth,
product innovation, market share, management quality and capitalization.
5
<PAGE>
The Fund's investments may include securities of both large, widely traded
companies and smaller, less well-known issuers. The Fund seeks growth
companies that either occupy a dominant position in an emerging or
established 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. Higher risks
are often associated with investments in companies with smaller market
capitalizations. These companies may have limited product lines, market and
financial resources, or they may be dependent upon smaller or less
experienced management groups. In addition, trading volume for these
securities may be limited. Historically, the market price for these
securities has been more volatile than for securities of companies with
greater capitalization. However, securities of companies with smaller
capitalization may offer greater potential for capital appreciation, since
they may be overlooked and thus undervalued by investors.
The Fund may also invest in
fixed income securities in
pursuing its investment
objective or for temporary
defensive purposes.
The Fund may also invest in the following fixed income securities: U.S.
Government securities and convertible and non-convertible corporate preferred
stocks and debt securities. The market value of fixed income securities
varies inversely with changes in the prevailing levels of interest rates. The
market value of convertible securities, while influenced by the prevailing
level of interest rates, is also affected by the changing value of the equity
securities into which they are convertible. The Fund may purchase fixed
income debt securities with stated maturities of up to thirty years. The
corporate fixed income securities in which the Fund may invest will be rated
at least BBB by Standard & Poors' Ratings Group ("S&P") or Baa by Moody's
Investors Service, Inc. ("Moody's") or, if unrated, determined to be of
comparable quality by the Adviser. Debt securities rated Baa or BBB are
considered medium grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken capacity to
pay interest and repay principal. If the rating of a debt security is reduced
below Baa or BBB, the Adviser will consider whatever action is appropriate
consistent with the Fund's investment objectives and policies.
The Fund is classified as a non-diversified fund. The Fund is classified as a
"non-diversified" fund to permit investment of more than 5% of its assets in
the obligations of any one issuer. Since a relatively high percentage of the
Fund's assets may be invested in the obligations of a limited number of
issuers, the value of the Fund's shares may be more susceptible to any single
economic, political or regulatory event, and to credit and market risks
associated with a single issuer, than would the shares of a diversified fund.
The Fund may employ certain
investment strategies to help
achieve its investment
objectives.
Foreign Securities. The Fund may invest in 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.
Generally, ADRs are designed for use in United States securities markets and
EDRs are designed for use in European securities markets. Issuers of
unsponsored ADRs are not contractually obligated to disclose material
information
6
<PAGE>
in the United States and, therefore, there may not be a correlation between
that information and the market value of the ADR.
Foreign Currencies. Due to its investments in foreign securities, the Fund
may hold a portion of its assets in foreign currencies. As a result, the Fund
may enter into forward foreign currency contracts to protect against changes
in foreign currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract. Although hedging
strategies might reduce the risk of loss due to a decline in the value of the
hedged foreign currency, they may also limit any potential gain which might
result from an increase in the value of the currency.
Futures Contracts and Options on Futures. The Fund may buy and sell financial
futures contracts and options on futures to hedge against the effects of
fluctuations in securities prices, interest rates, currency exchange rates
and other market conditions and for speculative purposes. The potential loss
incurred by the Fund in writing options on futures is unlimited and may
exceed the amount of the premium received. The Fund's futures contracts and
options on futures will be traded on a U.S. or foreign commodity exchange or
board of trade. The Fund will not engage in a futures or options transaction
for speculative purposes, if immediately thereafter, the sum of initial
margin deposits on existing positions and premiums required to establish
speculative positions in futures contracts and options on futures would
exceed 5% of the Fund's net assets. The Fund intends to comply with the CFTC
regulations with respect to its speculative transactions. These regulations
are discussed further in the Statement of Additional Information.
Options Transactions. The Fund may write (sell) listed and over-the-counter
covered call and put options on securities in which it may invest, and on
indices composed of securities in which it may invest. The Fund may also
purchase put and call options on these securities and indices. All call
options written by the Fund are covered, which means that the Fund will own
the securities subject to the option as long as the option is outstanding.
All put options written by the Fund are also covered, which means that the
Fund will have deposited with its custodian cash, or liquid high grade debt
securities with a value at least equal to the exercise price of the put
option. Call and put options written by the Fund will also be considered to
be covered, to the extent that the Fund's liabilities under these options are
wholly or partially offset by its rights under call and put options purchased
by the Fund. The Fund will treat purchased over-the-counter options and
assets used to cover written over-the-counter options as illiquid securities.
However, with respect to options written with primary dealers in U.S.
Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the formula price.
While transactions in options and futures contracts may reduce certain risks,
they may entail other risks. Certain risks arise due to the imperfect
correlations between movements in the price of the contracts, and movements
in the prices of the securities or currency that underly the contract. In
addition, the Fund could be prevented from opening, or realizing the benefits
of closing out, a futures or options position because of position limits or
limits on daily price fluctuations imposed by an exchange. There can be no
assurance that a liquid secondary market will exist for any option or futures
7
<PAGE>
contract. The Fund's ability to hedge successfully will depend on the
Adviser's ability to predict accurately the future direction of securities
and currency markets and interest rates. Transactions in futures contracts
involve brokerage costs, require margin deposits, and require the Fund to
segregate liquid high grade debt securities in an amount equal to the value
of contracts that involve the purchase of the underlying asset or its
economic equivalent. The potential loss from writing options is potentially
unlimited and may exceed the amount of the premium received.
Short Sales. The Fund may engage in short sales "against the box", as well as
short sales to hedge against or profit from an anticipated decline in the
value of a security. When the Fund engages in a short sale, it will place in
a segregated account, cash or U.S. government securities in accordance with
applicable regulatory requirements. These will be marked to market daily. See
the Statement of Additional Information.
Restricted Securities. The Fund may purchase restricted securities, including
those eligible for resale to "qualified institutional buyers" pursuant to
Rule 144A under the Securities Act of 1933 (the "Securities Act"). The
Trustees will monitor the Fund's investments in these securities, focusing on
certain factors, including valuation, liquidity and availability of
information. Purchases of other restricted securities are subject to an
investment restriction limiting all the Fund's illiquid securities to not
more than 15% of its net assets.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements.
The Fund may reinvest any cash collateral in short-term securities. When the
Fund lends portfolio securities, there is a risk that the borrower may fail
to return the loaned securities. As a result, the Fund may incur a loss or in
the event of the borrower's bankruptcy may be delayed in or prevented from
liquidating the collateral. It is a fundamental policy of the Fund not to
lend portfolio securities having a total value in excess of 33-1/3% of its
total assets.
Repurchase Agreements, Forward Commitments and When-Issued Securities. The
Fund may enter into repurchase agreements and may purchase securities on a
forward commitment or when-issued basis. In a repurchase agreement, the Fund
buys a security subject to the right and obligation to sell it back to the
issuer at a higher price. These transactions must be fully collateralized at
all times, but involve some credit risk to the Fund if the other party
defaults on its obligation and the Fund is delayed in or prevented from
liquidating the collateral. The Fund will segregate in a separate account
cash or liquid, high grade debt securities equal in value to its forward
commitments and when-issued securities. Purchasing securities for future
delivery or on a when-issued basis may increase the Fund's overall investment
exposure and involves a risk of loss if the value of the securities declines
before the settlement date.
Short-Term Trading. Short-term trading means the purchasing and subsequent
sale of a security after it has been held for a relatively brief period of
time. The Fund engages in short-term trading in response to changes in
interest rates, securities prices or other economic trends and developments.
8
<PAGE>
Investment in foreign
securities may involve risks
that are not present in
domestic investments.
Global Risks. Investments in foreign securities may involve certain risks not
present in domestic securities due to exchange controls, less publicly
available information, more volatile or less liquid securities markets, and
the possibility of expropriation, confiscatory taxation or political,
economic or social instability. There may be difficulty in enforcing legal
rights outside the United States. Some foreign companies are not subject to
the same uniform financial reporting requirements, accounting standards and
government supervision as domestic companies, and foreign exchange markets
are regulated differently from the U.S. stock market. Security trading
practices abroad may offer less protection to investors such as the Fund. In
addition, foreign securities may be denominated in the currency of the
country in which the issuer is located. Consequently, changes in foreign
exchange rates will affect the value of the Fund's shares and dividends.
Finally, the expense ratios of international funds generally are higher than
those of domestic funds because there are greater costs associated with
maintaining custody of foreign securities and the increased research
necessary for international investing results in a higher advisory fee.
These risks may be intensified in the case of investments in emerging markets
or countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America
and Africa. Security prices in these markets can be significantly more
volatile than in more developed countries, reflecting the greater
uncertainties of investing in less established markets and economies.
Political, legal and economic structures in many of these emerging market
countries may be undergoing significant evolution and rapid development, and
they may lack the social, political, legal and economic stability
characteristic of more developed countries. Emerging market countries may
have failed in the past to recognize private property rights. They may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions on
repatriation of assets, and may have less protection of property rights than
more developed countries. Their economies may be predominantly based on only
a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rate and currency exchange rates. Local securities markets may
trade a small number of securities and may be unable to respond effectively
to increases in trading volume, potentially making prompt liquidation of
substantial holdings difficult or impossible at times. The Fund may be
required to establish special custodial or other arrangements before making
certain investments in those countries. Securities of issuers located in
these countries may have limited marketability and may be subject to more
abrupt or erratic price movements.
Investment Restrictions. The Fund has adopted certain investment restrictions
which are detailed in the Statement of Additional Information, where they are
designated as fundamental or nonfundamental. Fundamental investment
restrictions may not be changed without shareholder approval. All other
investment policies and restrictions are nonfundamental and can be changed by
a vote of the Trustees without shareholder approval. Portfolio turnover rates
of the Fund for recent years are shown in the section "The Fund's Financial
Highlights."
9
<PAGE>
Brokers are chosen based on
best price and execution.
When choosing brokerage firms to carry out the Fund's transactions, the
Adviser gives primary consideration to execution at the most favorable
prices, taking into account the broker's professional ability and quality of
service. Consideration may also be given to the broker's sales of Fund
shares. Pursuant to procedures established by the Trustees, the Adviser may
place securities transactions with brokers affiliated with the Adviser. These
brokers include Tucker Anthony Incorporated, John Hancock Distributors, Inc.
and Sutro & Company, Inc. They are indirectly owned by John Hancock Mutual
Life Insurance Company, (the "Life Company"), which in turn indirectly owns
the Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Trustees elect officers
and retain the investment
adviser, who is responsible
for the day-to-day operations
of the Fund, subject to the
Trustees' policies and
supervision.
The Fund is a non-diversified series of Freedom Investment Trust II, an
open-end management investment company organized as a Massachusetts business
trust in 1986. The Fund has an unlimited number of authorized shares of
beneficial interest. The Trust's Declaration of Trust permits the Trustees to
create, classify and reclassify the shares into one or more classes. The
Trustees have authorized the issuance of two classes of the Fund, designated
Class A and Class B. The shares of each class represent an interest in the
same portfolio of investments of the Fund and have equal rights as to voting,
redemption, dividends and liquidation. However, each class bears different
distribution and transfer agent fees and Class A and Class B shareholders
have exclusive voting rights with respect to their distribution plans.
The Fund is not required to hold annual shareholder meetings, although
special meetings may be held for such purposes as electing or removing
Trustees, changing fundamental policies or approving a management contract.
The Fund, under certain circumstances, will assist in shareholder
communications with other shareholders.
John Hancock Advisers, Inc.
advises investment companies
having a total asset value of
more than $16 billion.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary
of the Life Company, a financial services company. The Adviser provides the
Fund, and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds,
Inc. ("John Hancock Funds"), an indirect subsidiary of the Life Company,
distributes shares for all of the John Hancock funds through selected
broker-dealers ("Selling Brokers"). Certain Fund officers are also officers
of the Adviser and John Hancock Funds. Pursuant to an order granted by the
Securities and Exchange Commission, the Fund has adopted a deferred
compensation plan for its independent Trustees which allows Trustees' fees to
be invested by the Fund in other John Hancock funds.
Day-to-day management of the Fund is carried out by Michael P. DiCarlo and
Kevin R. Baker. Mr. DiCarlo also manages John Hancock Special Equities Fund
and other John Hancock funds. Mr. DiCarlo is Executive Vice President of the
Adviser and has been associated with the Adviser since 1984. Prior to joining
the Adviser in 1994, Mr. Baker was President of Baker Capital Management. He
also worked as a registered representative for Kidder Peabody.
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
10
<PAGE>
to specified charities of profits on securities held for less than 91 days.
These restrictions are a continuation of the basic principle that the
interests of the Fund and its shareholders come first.
ALTERNATIVE PURCHASE ARRANGEMENTS
An alternative purchase plan
allows you to choose the
method of purchase that is
best for you.
You can purchase shares of the Fund at a price equal to their net asset value
per share, plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge
Alternative--Class A Shares") or on a contingent deferred basis (see
"Contingent Deferred Sales Charge Alternative--Class B Shares"). If you do
not specify on your account application the class of shares you are
purchasing, it will be assumed that you are investing in Class A shares.
Investments in Class A shares
are subject to an initial
sales charge.
Class A Shares. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount you purchase is $1 million or more. If
you purchase $1 million or more of Class A shares you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.30% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price-Qualifying for a Reduced Sales Charge."
Investments in Class B shares
are subject to a contingent
deferred sales charge.
Class B Shares. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them
within six years of purchase (the "contingent deferred sales charge" or the
"CDSC"). Class B shares are subject to ongoing distribution and service fees
at a combined annual rate of up to 1.00% of the Fund's average daily net
assets attributable to the Class B shares. Investing in Class B shares
permits all of your dollars to work from the time you make your investment,
but the higher ongoing distribution fee will cause these shares to have
higher expenses than Class A shares. To the extent that any dividends are
paid by the Fund, these higher expenses will also result in lower dividends
than those paid on Class A shares.
Class B shares are not available to full-service defined contribution plans
administered by John Hancock Investor Services Corporation ("Investor
Services") or The Life Company that had more than 100 eligible employees at
the inception of the Fund account.
Factors to Consider in Choosing an Alternative
You should consider which
class of shares will be more
beneficial for you.
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares, given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider
whether, during the anticipated life of your Fund investment, the CDSC and
accumulated fees on Class B shares would be less than the initial sales
charge and accumulated fees on Class A shares purchased at the same time, and
to what extent this differential would be offset by the Class A shares' lower
expenses. To help you make this determination, the table under the caption
"Expense Information" on the inside cover page of this Prospectus shows
examples of the charges applicable to each class of shares. Class A shares
will normally be more beneficial if you qualify for reduced sales charges.
See "Share Price--Qualifying for a Reduced Sales Charge."
11
<PAGE>
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent
any dividends are paid. However, because initial sales charges are deducted
at the time of purchase, you would not have all of your funds invested
initially and, therefore, would initially own fewer shares. If you do not
qualify for reduced initial sales charges and expect to maintain your
investment for an extended period of time, you might consider purchasing
Class A shares. This is because the accumulated distribution and service
charges on Class B shares may exceed the initial sales charge and accumulated
distribution and service charges on Class A shares during the life of your
investment.
Alternatively, you might determine than it is more advantageous to purchase
Class B shares in order to have all your funds invested initially. However,
you will be subject to higher distribution fees and, for a six-year period, a
CDSC.
In the case of Class A shares, distribution expenses that John Hancock Funds
incurs in connection with the sale of shares will be paid from the proceeds
of the initial sales charge and the ongoing distribution and service fees. In
the case of Class B shares, expenses will be paid from the proceeds of the
ongoing distribution and service fees, as well as from the CDSC incurred upon
redemption within six years of purchase. The purpose and function of the
Class B shares' CDSC and ongoing distribution and service fees are the same
as those of the Class A shares' initial sales charge and ongoing distribution
and service fees.
Dividends, if any, on Class A and Class B shares will be calculated in the
same manner, at the same time and on the same day. They will also be in the
same amount, except for differences resulting from each class bearing only
its own distribution and service fees and shareholder meeting expenses. See
"Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly fee
to the Adviser which is based on a stated percentage of the Fund's average
daily net asset value as follows: 0.80% on the first $500 million of average
daily net assets of the Fund, 0.75% on the next $500 million of average net
assets and 0.70% of average net assets in excess of $1 billion. The
investment management fee paid by the Fund is higher than the fee paid by
most mutual funds, but is believed to be comparable to the fee paid by those
funds with a similar investment objective.
The Fund pays distribution and
service fees for marketing and
sales-related shareholder
servicing.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, the Fund will pay distribution and service
fees at an aggregate annual rate of up to 0.30% of the Class A shares'
average daily net assets and an aggregate annual rate of up to 1.00% of the
Class B shares' average daily net assets. In each case, up to 0.25% is for
service expenses and the remaining amount is for distribution expenses. The
distribution fees will be used to reimburse John Hancock Funds for its
distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of
John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing,
promotional and overhead expenses incurred in connection with the
distribution of Fund shares; and (iii) with respect to Class B shares only,
interest expenses on unreimbursed distri
12
<PAGE>
bution expenses. The service fees are paid to compensate Selling Brokers and
others providing personal and account maintenance services to shareholders.
In the event John Hancock Funds is not fully reimbursed for payments it makes
or expenses it incurs under the Class A Plan, these expenses will not be
carried beyond one year from the date they were incurred. These unreimbursed
expenses under the Class B Plan will be carried forward together with
interest on the balance of these unreimbursed expenses.
For the fiscal year ended October 31, 1995 an aggregate of $6,051,842 of
distribution expenses or 4.49%, of the average net assets of the Class B
shares of the Fund, was not reimbursed or recovered by John Hancock Funds
through the receipt of deferred sales charges or 12b-1 fees in prior periods.
Information on the Fund's total expenses is in the Fund's Financial
Highlights section of this Prospectus.
DIVIDENDS AND TAXES
Dividends. The Fund generally declares and distributes dividends representing
all or substantially all net investment income, if any, at least annually.
The Fund will generally also distribute net short-term or long-term capital
gains, if any, at least annually.
Dividends are reinvested in additional shares of your class unless you elect
the option to receive cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
reinvestment in additional shares option. Because of the higher expenses
associated with Class B shares, any dividend on these shares will be lower
than those on the Class A shares. See "Share Price".
Taxation. Dividends from the Fund's net investment income, certain net
foreign currency gains and net short-term capital gains are taxable to you as
ordinary income. Dividends from the Fund's net long-term capital gains are
taxable as long-term capital gains. These dividends are taxable whether
received in cash or reinvested in additional shares. Certain dividends may be
paid in January of a given year but may be taxable to you as if you received
them the prior December. Corporate shareholders may be entitled to take the
corporate dividends received deduction for dividends received by the Fund
from U.S. domestic corporations, subject to certain restrictions under the
Internal Revenue Code. The Fund will send you a statement by January 31
showing the tax status of the dividends you received for the prior year.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). As a regulated investment company, the Fund will not
be subject to the Federal income taxes on any net investment income or net
realized capital gains that are distributed to its shareholders within the
time period prescribed by the Code. When you redeem (sell) or exchange
shares, you may realize a taxable gain or loss.
On the account application you must certify that your social security or
other taxpayer identification number is correct and that you are not subject
to backup withholding of Federal income tax. If you do not provide this
information or are otherwise subject to this withholding, the Fund may be
required to withhold 31% of your dividends and the proceeds of redemptions or
exchanges.
13
<PAGE>
The Fund anticipates that it will be subject to foreign withholding taxes or
other foreign taxes on income (possibly including in some cases capital
gains) on certain of its foreign investments, which will reduce the yield on
these investments. However, if more than 50% of the Fund's total assets at
the close of its taxable year consists of stock or securities of foreign
corporations and if the Fund so elects, shareholders will include in their
gross incomes their pro-rata shares of qualified foreign taxes paid by the
Fund and may be entitled, subject to certain conditions and limitations under
the Code, to claim a Federal income tax credit or deduction for their share
of these taxes.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investments in and distributions from the Fund.
Non-U.S. shareholders and tax-exempt shareholders are subject to a different
tax treatment not described above. In many states, a portion of the Fund's
dividends that represent interest received by the Fund on direct U.S.
Government obligations may be exempt from tax. You should consult your tax
adviser for specific advice.
PERFORMANCE
The Fund may advertise its
total return.
Total return shows the overall dollar or percentage change in value of a
hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period
of time. Average annual total return shows the cumulative return divided over
the number of years included in the period. Because average annual total
return tends to smooth out variations in the Fund's performance, you should
recognize that it is not the same as actual year-to-year results.
Total return calculations for Class A shares generally include the effect of
paying the maximum sales charge (except as shown in "The Fund's Financial
Highlights"). Investments at lower sales charges would result in higher
performance figures. Total return for the Class B shares reflect deduction of
the applicable CDSC imposed on a redemption of shares held for the applicable
period (except as shown in "The Fund's Financial Highlights"). All
calculations assume that dividends are reinvested at net asset value on the
reinvestment dates during the periods. The total return for Class A and Class
B shares will be calculated separately and, because each class is subject to
different expenses, the total return may differ with respect to each class
for the same period. The relative performance of the Class A and Class B
shares will be affected by a variety of factors, including the higher
operating expenses attributable to the Class B shares, whether the Fund's
investment performance is better in the earlier or later portions of the
period measured and the level of net assets of the classes during the period.
The Fund will include the total return of both classes in any advertisement
or promotional materials including Fund's performance data. The value of the
Fund's shares, when redeemed, may be more or less than their original cost.
Total return is a historical calculation and is not an indication of future
performance. See "Factors to Consider in Choosing an Alternative."
14
<PAGE>
HOW TO BUY SHARES
Opening an account.
Buying additional Class A and
Class B shares
<TABLE>
<CAPTION>
<S> <C>
The minimum initial investment is $1,000 ($250 for group investments and
retirement plans). Complete the Account Application attached to this Prospectus.
Indicate whether you are purchasing Class A or Class B shares. If you do not
specify which class of shares you are purchasing, Investor Services will assume
you are investing in Class A shares.
----------------------------------------------------------------------------------------------------------
By Check: 1. Make your check payable to John Hancock Investor Services Corporation.
2. Deliver the completed application and check to your registered representative,
Selling Broker, or mail it directly to Investor Services.
----------------------------------------------------------------------------------------------------------
By Wire: 1. Obtain an account number by contacting your registered representative or Selling
Broker or by calling 1-800-225-5291.
2. Instruct your Bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to:
John Hancock Special Opportunities Fund
[Class A or Class B shares]
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered representative or Selling
Broker or mail it directly to Investor Services.
----------------------------------------------------------------------------------------------------------
Monthly Automatic 1. Complete the "Automatic Investing" and "Bank Information" sections on the
Accumulation Account Privileges Application, designating a bank account from which your funds
Program (MAAP) may be drawn.
2. The amount you elect to invest will be automatically withdrawn from your bank or
credit union account.
----------------------------------------------------------------------------------------------------------
By Telephone: 1. Complete the "Invest-By-Phone" and "Bank Information" sections on the Account
Privileges Application designating a bank account from which your funds may be
drawn. Note that in order to invest by phone, your account must be in a bank or
credit union that is a member of the Automated Clearing House System (ACH).
2. After your authorization form has been processed, you may purchase additional
Class A and Class B shares by calling Investor Services toll-free at
1-800-225-5291.
3. Give the Investor Services representative the name(s) in which your account is
registered, the Fund name, the class of shares you own, your account number and the
amount you wish to invest.
4. Your investment normally will be credited to your account the business day
following your phone request.
15
<PAGE>
----------------------------------------------------------------------------------------------------------
By Check: 1. Either complete the detachable stub included on your account statement or
include a note with your investment listing the name of the Fund, the class of
shares you own, your account number and the name(s) in which the account is
registered.
2. Make your check payable to John Hancock Investor Services Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling Broker.
----------------------------------------------------------------------------------------------------------
By Wire: Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA No. 211475000
For credit to:
John Hancock Special Opportunities Fund
[Class A or Class B shares]
Your Account Number
Name(s) under which account is registered.
Other Requirements. All purchases must be made in U.S. dollars. Checks written
on foreign banks will delay purchases until U.S. funds are received, and a
collection charge may be imposed. Shares of the Fund are priced at the offering
price based on the net asset value computed after John Hancock Funds receives
notification of the dollar equivalent from the Fund's custodian bank. Wire
purchases normally take two or more hours to complete and, to be accepted the
same day, must be received by 4:00 P.M., New York time. Your bank may charge a
fee to wire funds. Telephone transactions are recorded to verify information.
Certificates are not issued unless a request is made in writing to Investor
Services.
</TABLE>
Buying additional Class A and Class B shares.
(continued)
You will receive account
statements that you should
keep to help with your
personal recordkeeping.
You will receive a statement of your account after any transaction that
affects your share balance or registration (statements related to
reinvestment of dividends and automatic investment/withdrawal plans will be
sent to you quarterly). A tax information statement will be mailed to you by
January 31 of each year.
SHARE PRICE
The offering price of your
shares is their net asset
value plus a sales charge, if
applicable, which will vary
with the purchase alternative
you choose.
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of
outstanding shares of that class. The NAV of each class can differ.
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at fair
value as determined in good faith according to procedures approved by the
Trustees. Short-term debt investments maturing within 60 days are valued at
amortized cost which the Board of Trustees has determined to approximate
market value. Foreign securities are valued on the basis of quotations from
the primary market in which they are traded, and are translated from the
local currency into U.S. dollars using current exchange rates. If quotations
are not readily available or, the value has been materially affected by
events occurring after the closing of a foreign market, assets are valued by
a method that the Trustees believe accurately reflects fair value. The NAV is
calculated once daily as of the close of regular trading on the New York
Stock Exchange (generally at 4:00 p.m., New York time) on each day that the
Exchange is open.
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<PAGE>
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment is received in good order by John Hancock Funds. If you
buy shares of the Fund through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the New York
Stock Exchange and transmit it to John Hancock Funds before its close of
business to receive that day's offering price.
Initial Sales Charge Alternative--Class A Shares. The offering price you pay
for Class A shares of the Fund equals the NAV plus sales charge as follows:
Combined
Reallowance
Sales Sales and Reallowance
Charge Charge Service to Selling
as a as a Fee as a Broker as a
Percentage Percentage Percentage Percentage
Amount Invested of of the of of
(Including Sales Offering Amount Offering Offering
Charge) Price Invested Price(+) Price(*)
--------------------- -------- -------- --------- -----------
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to $249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to $499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to $999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%(***)
0.00%((**)) 0.00%((**)) (***)
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales charge. A
Selling Broker to whom substantially the entire sales charge is reallowed may
be deemed to be an underwriter under the Securities Act of 1933.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within one year of purchase.
(***) John Hancock Funds may pay a commission and first year's service fee (as
described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of $1 million or more in the aggregate as
follows: 1% on sales to $4,999,999, plus 0.50% on the next $5 million, and
0.25% on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance, in an amount equal to 0.25% of the net
assets invested in the Fund. Thereafter it pays the service fee
periodically in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in
additional Class A shares of the Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual
rate of up to 0.05% of the daily net assets of the accounts attributable to
these brokers.
Under certain circumstances described below, investors in Class A shares may
be entitled to pay reduced sales charges. See "Qualifying For a Reduced Sales
Charge."
17
<PAGE>
Contingent Deferred Sales Charge--Investments of $1 Million or More in Class
A Shares. Purchases of $1 million or more of the Fund's Class A shares will
be made at net asset value with no initial sales charge, but if the shares
are redeemed within 12 months after the beginning of the calendar month in
which the purchase was made (the CDSC period), a CDSC will be imposed. The
rate of the CDSC will depend on the amount invested as follows:
Amount Invested CDSC Rate
-------------------------------- ----------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
above rate.
The CDSC will be assessed on an amount equal to the lesser of the current
market value or the original purchase cost of the redeemed Class A shares.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends which have been reinvested in
additional Class A shares.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. Therefore, it will be assumed that the redemption is first made from
any shares in your account that are not subject to the CDSC. The CDSC is
waived on redemptions in certain circumstances. See "Waiver of Contingent
Deferred Sales Charges" below.
Qualifying for a Reduced Sales Charge.
You may qualify for a reduced
sales charge on your
investment in Class A Shares.
If you invest more than $50,000 in Class A shares of the Fund or combination
of John Hancock funds (except money market funds), you may qualify for a
reduced sales charge on your investments in Class A shares through a LETTER
OF INTENTION. You may also be able to use the ACCUMULATION PRIVILEGE and
COMBINATION PRIVILEGE to take advantage of the value of your previous
investments in shares of the John Hancock funds in meeting the breakpoints
for a reduced sales charge. For the ACCUMULATION PRIVILEGE and COMBINATION
PRIVILEGE, the applicable sales charge will be based on the total of:
1. Your current purchase of Class A shares of the Fund;
2. The net asset value (at the close of business on the previous day) of (a)
all Class A shares of the Fund you hold, and (b) all Class A shares of any
other John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
Example:
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000 and, subsequently, invest $30,000 in Class A shares of the Fund, the
sales charge
18
<PAGE>
on this subsequent investment would be 4.50% and not 5.00%. This is the rate
that would otherwise be applicable to investments of less than $50,000. See
"Initial Sales Charge Alternative--Class A Shares."
If you are in one of the following categories, you may purchase Class A
shares of the Fund without paying a sales charge:
Class A shares may be
available without a sales
charge to certain individuals
and organizations.
(bullet) 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 of any of the foregoing; or any Fund, pension, profit sharing
or other benefit plan for the individuals described above.
(bullet) Any state, county, city 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.*
(bullet) 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.*
(bullet) A broker, dealer, financial planner, consultant or registered
investment adviser that has entered into an agreement with John
Hancock Funds providing specifically for the use of Fund shares in
fee-based investment products or services made available to their
clients.
(bullet) 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.
(bullet) A member of an approved affinity group financial services plan.*
* For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may also be purchased without an initial sales
charge in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
Contingent Deferred Sales Charge Alternative--Class B Shares. Class B shares
are offered at net asset value per share without an initial sales charge, so
that your entire investment will go to work at the time of purchase. However,
Class B shares redeemed within six years of purchase will be subject to a
CDSC at the rates set forth below. The charge will be assessed on an amount
equal to the lesser of the current market value or the original purchase cost
of the shares being redeemed. Accordingly, you will not be assessed a CDSC on
increases in account value above the initial purchase price, including shares
derived from dividend reinvestments.
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
19
<PAGE>
assumed that your redemption comes first from shares you have held beyond the
six-year CDSC redemption period or those you acquired through reinvestment of
dividends, and next from the shares you have held the longest during the
six-year period. The CDSC is waived on redemptions in certain circumstances.
See the discussion "Waiver of Contingent Deferred Sales Charges" below.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time, your CDSC will be calculated as
follows:
<TABLE>
<CAPTION>
<S> <C>
(bullet) Proceeds of 50 shares redeemed at $12 per share $ 600
(bullet) Minus proceeds of 10 shares not subject to CDSC because they were acquired
through dividend reinvestment (10 X $12) -120
(bullet) Minus appreciation on remaining shares, also not subject to CDSC (40 X $2) -80
---
(bullet) Amount subject to CDSC $ 400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds
uses them to defray its expenses related to providing the Fund with
distribution services in connection with the sale of the Class B shares, such
as compensating Selling Brokers for selling these shares. The combination of
the CDSC and the distribution and service fees makes it possible for the Fund
to sell the Class B shares without an initial sales charge.
The amount of the CDSC, if any, will vary depending on the number of years
from the time you purchase your Class B shares until the time you redeem
them. Solely for purposes of determining this holding period, any payments
you make during the month will be aggregated and deemed to have been made on
the last day of the month.
Contingent Deferred Sales
Year in Which Class B Shares Charge As a Percentage of
Redeemed Following Purchase Amount Redeemed
------------------------------ ---------------------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision
of personal and account maintenance services to shareholders during the
twelve months following the sale, and thereafter the service fee is paid in
arrears.
Under certain circumstances,
the CDSC on Class B and
certain Class A share
redemptions will be waived.
Waiver of Contingent Deferred Sales Charges. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a
CDSC, unless indicated otherwise, in the circumstances defined below:
(bullet) Redemptions of Class B shares made under a Systematic Withdrawal
Plan (see "How to Redeem Shares"), as long as your annual
redemptions do not exceed 10%
20
<PAGE>
of your account value at the time you established your Systematic
Withdrawal Plan and 10% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor
Services. This waiver does not apply to Systematic Withdrawal Plan
redemptions of Class A shares that are subject to a CDSC.
(bullet) Redemptions made to effect distributions from an Individual
Retirement Account either before or after age 59-1/2, as long as the
distributions are based on your life expectancy or the
joint-and-last survivor life expectancy of you and your beneficiary.
These distributions must be free from penalty under the Code.
(bullet) Redemptions made to effect mandatory distributions under the Code
after age 70-1/2 from a tax-deferred retirement plan.
(bullet) Redemptions made to effect distributions to participants or
beneficiaries from certain employer-sponsored retirement plans
including those qualified under Section 401(a) of the Code,
custodial accounts under Section 403(b)(7) of the Code and deferred
compensation plans under Section 457 of the Code. The waiver also
applies to certain returns of excess contributions made to these
plans. In all cases, the distributions must be free from penalty
under the Code.
(bullet) Redemptions due to death or disability.
(bullet) Redemptions made under the Reinvestment Privilege, as described in
"Additional Services and Programs" of this Prospectus.
(bullet) Redemptions made pursuant to the Fund's right to liquidate your
account if you own fewer than 50 shares.
(bullet) Redemptions made in connection with certain liquidation, merger or
acquisition transactions involving other investment companies or
personal holding companies.
(bullet) Redemptions from certain IRA and retirement plans which purchased
shares prior to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must
notify Investor Services either directly or through your Selling Broker at
the time you make your redemption. The waiver will be granted once Investor
Services has confirmed that you are entitled to the waiver.
Conversion of Class B Shares. Your Class B shares and an appropriate portion
of reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased, and will result in lower annual distribution
fees. If you exchanged Class B shares into this Fund from another John
Hancock fund, the calculation will be based on the time you purchased the
shares in the original fund were purchased. The Fund has been advised that
the conversion of Class B shares to Class A shares should not be taxable for
Federal income tax purposes and should not change your tax basis or tax
holding period for the converted shares.
21
<PAGE>
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your
shares will be redeemed at the next NAV calculated after your redemption
request is received in good order by Investor Services, less any applicable
CDSC. The Fund may hold payment until reasonably satisfied that investments
recently made by check or Invest-by-Phone have been collected (which may
take up to 10 calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the
next business day. When you redeem your shares you may realize a taxable gain
or loss, depending usually on the difference between what you paid for them
and what you receive for them, subject to certain tax rules. Under unusual
circumstances, the Fund may suspend redemptions or postpone payment for up to
three business days or longer, as permitted by Federal securities laws.
22
<PAGE>
To assure acceptance of your
redemption request, please
follow these procedures.
<TABLE>
<S> <C>
By Telephone: All shareholders of the Fund are eligible automatically for the telephone redemption
privilege. Call 1-800-225-5291 from 8:00 A.M. to 4:00 P.M. (Eastern Time), Monday through
Friday, excluding days on which the New York Stock Exchange is closed. Investor Services
employs the following procedures to confirm that instructions received by telephone are
genuine. Your name, the account number, taxpayer identification number applicable to the
account and other relevant information may be requested. In addition, telephone
instructions are recorded.
You may redeem up to $100,000, but the address on the account must not have changed for
the last thirty days. A check will be mailed to the exact name(s) and address shown on
the account.
If reasonable procedures, such as those described above, are not followed, the Fund may
be liable for any loss due to unauthorized or fraudulent telephone instructions. In all
other cases, neither the Fund nor Investor Services will be liable for any loss or
expense for acting upon telephone instructions made according to the telephone
transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other tax-qualified retirement plans or
shares of the Fund that are in certificated form.
During periods of extreme economic conditions or market changes, telephone requests may
be difficult to implement due to a large volume of calls. During these times, you should
consider placing redemption requests in writing or use EASI-Line. EASI-Line's telephone
number is 1-800-338-8080.
By Wire: If you have a telephone redemption form on file with the Fund, redemption proceeds of
$1,000 or more can be wired on the next business day to your designated bank account and
a fee (currently $4.00) will be deducted. You may also use electronic funds transfer to
your assigned bank account and the funds are usually collectible after two business days.
Your bank may or may not charge a fee for this service. Redemptions of less than $1,000
will be sent by check or electronic funds transfer.
This feature may be elected by completing the "Telephone Redemption" section on the
Account Privileges Application that is included with this Prospectus.
In Writing: Send a stock power or letter of instruction specifying the name of the Fund, the dollar
amount or the number of shares to be redeemed, your name, class of shares, your account
number, and the additional requirements listed below that apply to your particular
account.
Type of
Registration Requirements
Individual, A letter of instruction signed with titles by all persons
Joint Tenants, authorized to sign for the account, exactly as it is
Sole Proprietorship, registered with the signature(s) guaranteed.
(Uniform Gifts or
Transfer to Minor
Act), General
Partners
Corporation, A letter of instruction and a corporate resolution, signed by
Association person(s) authorized to act on the account with the
signature(s) guaranteed.
Trusts A letter of instruction signed by the Trustee(s) with
signature guarantees. (If the Trustee(s) name is not
registered on your account, also provide a copy of the trust
document, certified within the last 60 days.)
If you do not fall into any of these registration categories, (i.e., Executors,
Administrators, Conservators of Guardians) please call 1-800-225-5291 for
further instructions.
</TABLE>
23
<PAGE>
Who may guarantee your
signature.
Additional information about
redemptions.
<TABLE>
<CAPTION>
<S> <C>
A signature guarantee is a widely accepted way to protect you and the Funds by verifying the signature
on your request. It may not be provided by a notary public. If the net asset value of the shares
redeemed is $100,000 or less, John Hancock Funds may guarantee the signature. The following
institutions may provide you with a signature guarantee, provided that the institution meets credit
standards established by Investor Services: (i) a bank; (ii) a securities broker or dealer, including a
government or municipal securities broker or dealer, that is a member of a clearing corporation or
meets certain net capital requirements; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan association, a cooperative bank, a
federal savings bank or association; or (v) a national securities exchange, a registered securities
exchange or a clearing agency.
Through Your Broker: Your broker may be able to initiate the redemption. Contact your broker for
instructions.
If you have certificates for your shares, you must submit them with your stock power or a letter of
instruction. Unless you specify to the contrary, any outstanding Class A shares will be redeemed before
Class B shares. You may not redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining small accounts, the Fund reserves the right to
redeem at net asset value all shares in an account which holds fewer than 50 shares (except accounts
under retirement plans) and to mail the proceeds to the shareholder or the transfer agent may impose an
annual fee of $10.00. No account will be involuntarily redeemed or additional fee imposed, if the value
of the account is in excess of the Fund's minimum initial investment. No CDSC will be imposed on
involuntary redemption of shares.
Shareholders will be notified before these redemptions are to be made or this fee is imposed and will
have 30 days to purchase additional shares to bring their account balance to the required minimum.
Unless the number of shares acquired by additional purchases and any dividend reinvestments exceeds the
number of shares redeemed, repeated redemptions from a smaller account may eventually trigger this
policy.
If you have certificates for your shares, you must submit them with your stock power or a letter of
instruction. Unless you specify to the contrary, any outstanding Class A shares will be redeemed before
Class B shares. Redemptions of certificated shares may not be made by telephone.
</TABLE>
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege
You may exchange shares of the
Fund for shares of the same
class of another John Hancock
fund.
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of
investment goals. Contact your registered representative or Selling Broker
and request a prospectus for the John Hancock fund that interests you. Read
the prospectus carefully before exchanging your shares. You can exchange
shares of each class of the Fund only for shares of the same class of another
John Hancock fund. For this purpose, John Hancock funds with only one class
of shares will be treated as Class A whether or not they have been so
designated.
Exchanges between funds which are not subject to a CDSC are based on their
respective net asset values. No sales charge or transaction charge is
imposed. Class B shares of the Fund that are subject to a CDSC may be
exchanged into Class B shares of another John Hancock fund without incurring
the CDSC; however, these shares will be subject to the CDSC schedule of the
shares acquired (except that exchanges into John Hancock Short-Term Strategic
Income Fund, John Hancock Intermediate Maturity Government Fund and John
Hancock Limited-Term Government Fund will be subject to the initial Fund's
CDSC). For purposes of computing the CDSC payable upon
24
<PAGE>
redemption of shares acquired in an exchange, the holding period of the
original shares is added to the holding period of the shares acquired in an
exchange. However if you exchange Class B shares purchased prior to January
1, 1994 for Class B shares of any other John Hancock fund, you will continue
to be subject to the CDSC schedule in effect on your initial purchase date.
The Fund reserves the right to require you to keep previously exchanged
shares (and reinvested dividends) in the Fund for 90 days before you are
permitted a new exchange. The Fund may also terminate or alter the terms of
the exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and
the purchase of shares of another for Federal income tax purposes. An
exchange may result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers
and investment advisers may exchange their clients' Fund shares, subject to
the terms of those agreements and John Hancock Funds' right to reject or
suspend those exchanges at any time. Because of the restrictions and
procedures under those agreements, the exchanges may be subject to timing
limitations and other restrictions that do not apply to exchanges requested
by shareholders directly, as described above.
Because Fund performance and shareholders can be hurt by excessive trading,
the Fund reserves the right to terminate the exchange privilege for any
person or group that, in John Hancock Funds' judgment, is involved in a
pattern of exchanges that coincide with a "market timing" strategy that may
disrupt the Fund's ability to invest effectively according to its investment
objective and policies, or might otherwise affect the Fund and its
shareholders adversely. The Fund may also temporarily or permanently
terminate the exchange privilege for any person who makes seven or more
exchanges out of the Fund per calendar year. Accounts under common control or
ownership will be aggregated for this purpose. Although the Fund will attempt
to give prior notice whenever it is reasonably able to do so, it may impose
these restrictions at any time.
By Telephone:
1. When you complete the application for your initial purchase of Fund
shares, you authorize exchanges automatically by telephone, unless you
check the box indicating that you do not wish to authorize telephone
exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable
to the account and other relevant information may be requested. In
addition, telephone instructions are recorded.
25
<PAGE>
In Writing:
1. In a letter request an exchange and list the following:
--name and class of the Fund whose shares you currently own
--your account number
--name(s) in which the account is registered
--name of the fund in which you wish your exchange to be invested
--the number of shares, all shares or the dollar amount you wish to
exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Reinvestment Privilege
If you redeem shares of the
Fund, you may be able to
reinvest all or part of the
proceeds in shares of this
Fund or another John Hancock
fund without paying an
additional sales charge.
1. You will not be subject to a sales charge on Class A shares that you
reinvest in a John Hancock fund that is otherwise subject to a sales
charge, as long as you reinvest within 120 days from the redemption date.
If you paid a CDSC upon a redemption, you may reinvest at net asset value
in the same class of shares from which you redeemed within 120 days. Your
account will be credited with the amount of the CDSC previously charged,
and the reinvested shares will continue to be subject to a CDSC. The
holding period of the shares acquired through reinvestment for purposes of
computing the CDSC payable upon a subsequent redemption will include the
holding period of the redeemed shares.
2. Any portion of your redemption may be reinvested in Fund shares or in
shares of other John Hancock funds, subject to the minimum investment
limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the
Fund's name, account number and class from which the shares were
originally redeemed.
Systematic Withdrawal Plan
You can pay routine bills from
your account, or make periodic
disbursements from your
retirement account to comply
with IRS regulations.
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You
can also obtain the application from your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually
or on a selected monthly basis, to yourself or any other designated payee.
4. There is no limit on the number of payees you may authorize, but all
payments must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares,
because you may be subject to an initial sales charge on your purchases of
Class A shares or to a CDSC on your redemptions of Class B shares. In
addition, your redemptions are taxable events.
26
<PAGE>
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks or if deposits to a bank account are returned for any reason.
You can make automatic
investments and simplify your
investing.
Monthly Automatic Accumulation Program (MAAP)
1. You can authorize an investment to be withdrawn automatically each month
on your bank for investment in Fund shares under the "Automatic Investing"
and "Bank Information" sections on the Account Privileges Application.
2. You can also authorize automatic investing through payroll deduction by
completing the "Direct Deposit Investing" section of the Account
Privileges Application.
3. You can terminate your Monthly Automatic Accumulation Program at any time.
4. There is no charge to you for this program, and there is no cost to the
Fund.
5. If you have payments withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
Group Investment Program (Class A only)
Organized groups of at least
four persons may establish
accounts.
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate
dollar amount of all participants' investments. To determine how to
qualify for this program, contact your registered representative or call
1-800-225-5291.
2. The initial aggregate investments of all participants in the group must be
at least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum and you may terminate the program at
any time.
Retirement Plans
1. You may use the Fund for various types of qualified retirement plans,
including Individual Retirement Accounts, Keogh plans (H.R.10), pension
and profit sharing plans (including 401(k) Plans), Tax Sheltered Annuity
retirement plans (403(b) plans or TSA plans ), and Section 457 plans.
2. The initial investment minimum or aggregate minimum for any of these plans
is $250. However, accounts being established as group IRA, SEP, SARSEP,
TSA, 401(k) and Section 457 plans will be accepted without an initial
minimum investment.
27
<PAGE>
[COVER]
JOHN HANCOCK
SPECIAL OPPORTUNITIES FUND
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Custodian
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
Transfer Agent
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Independent Auditors
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For: Service Information
Telephone Exchange call 1-800-225-5291
Investment-by-Phone
Telephone Redemption
For: TDD call 1-800-554-6713
JHD-3900P 3/96
JOHN HANCOCK
SPECIAL
OPPORTUNITIES
FUND
Prospectus
March 1, 1996
A mutual fund seeking long-term
capital appreciation.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-225-5291
["Recycle" symbol] Printed on Recycled Paper
<PAGE>
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL
SAVE YOUR FUND THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK GOLD & GOVERNMENT FUND
101 HUNTINGTON AVENUE, BOSTON, MASSACHUSETTS 02199
SPECIAL MEETING OF SHAREHOLDERS - AUGUST 14, 1996
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward J.
Boudreau, Jr., Susan S. Newton and James B. Little, with full power of
substitution in each, to vote all the shares of beneficial interest of John
Hancock Gold & Government Fund ("Gold & Government Fund" or the "Fund") which
the undersigned is (are) entitled to vote at the Special Meeting of Shareholders
(the "Meeting") of Gold & Government Fund to be held at 101 Huntington Avenue,
Boston, Massachusetts, on Wednesday, August 14, 1996 at 9:00 a.m., Boston time,
and at any adjournment of the Meeting. All powers may be exercised by a majority
of said proxy holders or substitutes voting or acting, or, if only one votes and
acts, then by that one. Receipt of the Proxy Statement dated June 24, 1996 is
hereby acknowledged. If not revoked, this proxy shall be voted:
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date __________________, 1996
NOTE: Signature(s) should agree
with name(s) printed herein. When
signing as attorney, executor,
administrator, trustee or guardian,
please give your full title as
such. If a corporation, please sign
in full corporate name by president
or other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
-----------------------------------
Signature(s)
<PAGE>
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL SAVE YOUR FUND THE EXPENSE
OF ADDITIONAL MAILINGS.
THIS PROXY SHALL BE VOTED IN FAVOR OF (FOR) PROPOSAL 1 IF NO SPECIFICATION IS
MADE BELOW. AS TO ANY OTHER MATTER, SAID PROXY OR PROXIES SHALL VOTE IN
ACCORDANCE WITH THEIR BEST JUDGEMENT. PLEASE VOTE BY FILLING IN THE APPROPRIATE
BOX BELOW, AS SHOWN, USING BLUE OR BLACK INK OR DARK PENCIL. DO NOT USE RED INK.
(1) To approve an Agreement and Plan of Reorganization between Freedom
Investment Trust, on behalf of Gold & Government Fund, and Freedom
Investment Trust II, on behalf of John Hancock Special Opportunities Fund
("Special Opportunities Fund") providing for Special Opportunities Fund's
acquisition of all of Gold & Government Fund's assets in exchange solely
for the assumption of Gold & Government Fund's liabilities, and the
issuance of Class A and Class B shares of Special Opportunities Fund to
Gold & Government Fund for distribution to its shareholders.
---- ---- ----
FOR |____| AGAINST |____| ABSTAIN |____|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
June 24, 1996
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the related Proxy Statement and Prospectus (also dated June
24, 1996) relating to Class A and Class B shares of John Hancock Special
Opportunities Fund ("Special Opportunities Fund") to be issued in exchange for
all of the net assets of John Hancock Gold & Government Fund ("Gold & Government
Fund"). Please retain this Statement of Additional Information for future
reference. A copy of the Proxy Statement and Prospectus can be obtained free of
charge by calling Shareholder Services at 1-800-225-5291 or by written request
to Special Opportunities Fund at 101 Huntington Avenue, Boston, Massachusetts
02199.
TABLE OF CONTENTS
Page
Introduction ........................................................ 3
Additional Information About Special Opportunities Fund 3
General Information and History
Investment Objective and Policies
Management of Special Opportunities Fund
Control Persons and Principal Holders of Shares
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Shares of Beneficial Interest
Purchase, Redemption and Pricing of
Special Opportunities Fund Shares
Underwriters
Calculation of Performance Data
Financial Statements
Additional Information about Gold & Government Fund ................. 5
General Information and History
Investment Objective and Policies
Management of Gold & Government Fund
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Shares of Beneficial Interest
Purchase, Redemption and Pricing of
Gold & Government Fund Shares
Underwriters
Calculation of Performance Data
Financial Statements
<PAGE>
EXHIBITS
A - Statement of Additional Information, dated March 1, 1996, of John Hancock
Special Opportunities Fund including audited financial statements as of
October 31, 1995.
B - Statement of Additional Information, dated March 1, 1996, of John Hancock
Gold & Government Fund including audited financial statements as of October
31, 1995.
C - Pro Forma Combined Financial Statements at October 31, 1995 and for the
period then ended of Special Opportunities Fund and Gold & Government Fund.
2
<PAGE>
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in a Proxy Statement and Prospectus dated June 24, 1996
(the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus has
been sent to the shareholders of Gold & Government Fund in connection with the
solicitation by the management of Gold & Government Fund of proxies to be voted
at the Special Meeting of Shareholders of Gold & Government Fund to be held on
August 14, 1996. This Statement of Additional Information incorporates by
reference the statement of additional information of Gold & Government Fund,
dated March 1, 1996 (the "Gold & Government Fund SAI"), and the statement of
additional information of Special Opportunities Fund, dated March 1, 1996 (the
"Special Opportunities Fund SAI"). The Gold & Government Fund SAI and the
Special Opportunities Fund SAI are included with this Statement of Additional
Information.
ADDITIONAL INFORMATION ABOUT SPECIAL OPPORTUNITIES FUND
General Information and History
-------------------------------
For additional information about Special Opportunities Fund generally and
its history, see "Organization of the Fund" in the Special Opportunities Fund
SAI.
Investment Objective and Policies
---------------------------------
For additional information about Special Opportunities Fund's investment
objective, policies and restrictions see "Investment Objective and Policies,"
"Certain Investment Practices" and "Investment Restrictions" in the Special
Opportunities Fund SAI.
Management of Special Opportunities Fund
----------------------------------------
For additional information about the Special Opportunities Fund's Board of
Trustees, officers and management personnel, see "Those Responsible for
Management" in the Special Opportunities Fund SAI.
Control Persons and Principal Holders of Shares
-----------------------------------------------
For additional information about control persons of Special Opportunities
Fund and principal holders of shares of beneficial interest of Special
Opportunities Fund see "Those Responsible for Management" in the Special
Opportunities Fund SAI.
Investment Advisory and Other Services
--------------------------------------
For additional information about Special Opportunities Fund's investment
adviser, custodian, transfer agent and independent accountants, see "Investment
3
<PAGE>
Advisory and Other Services," "Distribution Contract," "Transfer Agent
Services," "Custody of Portfolio" and "Independent Auditors" in the Special
Opportunities Fund SAI.
Brokerage Allocation and Other Practices
----------------------------------------
For additional information about Special Opportunities Fund's brokerage
allocation practices, see "Brokerage Allocation" in the Special Opportunities
Fund SAI.
Shares of Beneficial Interest
-----------------------------
For additional information about the voting rights and other
characteristics of Special Opportunities Fund's shares of beneficial interest,
see "Description of the Fund's Shares" in the Special Opportunities Fund SAI.
Purchase, Redemption and Pricing of Special Opportunities Fund Shares
---------------------------------------------------------------------
For additional information about the determination of net asset value, see
"Net Asset Value" in the Special Opportunities Fund SAI.
Underwriters
------------
For additional information about Special Opportunities Fund's principal
underwriter and the distribution contract between the principal underwriter and
Special Opportunities Fund, see "Distribution Contract" in the Special
Opportunities Fund SAI.
Calculation of Performance Data
-------------------------------
For additional information about the investment performance of Special
Opportunities Fund, see "Calculation of Performance" in the Special
Opportunities Fund SAI.
Financial Statements
--------------------
Audited financial statements of Special Opportunities Fund at October 31,
1995 are attached to the Special Opportunities Fund SAI.
Pro Forma combined financial statements at October 31, 1995 for Special
Opportunities Fund as though the Reorganization had occurred on October 31, 1995
are attached hereto.
4
<PAGE>
ADDITIONAL INFORMATION ABOUT GOLD & GOVERNMENT FUND
General Information and History
-------------------------------
For additional information about Gold & Government Fund generally and its
history, see "Organization of the Fund" in the Gold & Government Fund SAI.
Investment Objective and Policies
---------------------------------
For additional information about Gold & Government Fund's investment
objectives and policies, see "Investment Objectives and Policies," "Certain
Investment Practices" and "Investment Restrictions" in the Gold & Government
Fund SAI.
Management of Gold & Government Fund
------------------------------------
For additional information about Gold & Government Fund's Board of
Trustees, officers and management personnel, see "Those Responsible for
Management" in the Gold & Government Fund SAI.
Investment Advisory and Other Services
--------------------------------------
For additional information about Gold & Government Fund's investment
adviser, custodian, transfer agent and independent accountants, see "Investment
Advisory and Other Services," "Distribution Contracts," "Transfer Agent
Services," "Custody of Portfolio" and "Independent Auditors" in the Gold &
Government Fund SAI.
Brokerage Allocation and Other Practices
----------------------------------------
For additional information about Gold & Government Fund's brokerage
allocation practices, see "Brokerage Allocation" in the Gold & Government Fund
SAI.
Shares of Beneficial Interest
-----------------------------
For additional information about the voting rights and other
characteristics of Gold & Government Fund's shares of beneficial interest, see
"Description of the Funds' Shares" in the Gold & Government Fund SAI.
Purchase, Redemption and Pricing of Gold & Government Fund Shares
-----------------------------------------------------------------
For additional information about the net asset value of Gold & Government
Fund's shares, see "Net Asset Value" in the Gold & Government Fund SAI.
5
<PAGE>
Underwriters
------------
For additional information about Gold & Government Fund's principal
underwriter and the distribution contract between the principal underwriter and
Gold & Government Fund, see "Distribution Contract" in the Gold & Government
Fund SAI.
Calculation of Performance Data
-------------------------------
For additional information about the investment performance of Gold &
Government Fund, see "Calculation of Performance" in the Gold & Government Fund
SAI.
Financial Statements
--------------------
Audited financial statements of Gold & Government Fund at October 31, 1995
are attached to the Gold & Government Fund SAI.
6
<PAGE>
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
Class A and Class B Shares
Statement of Additional Information
March 1, 1996
This Statement of Additional Information provides information about John
Hancock Special Opportunities Fund (the "Fund") in addition to the information
that is contained in the Fund's Class A and Class B Prospectus dated March 1,
1996 (the "Prospectus").
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Fund's Prospectus, a copy of which may 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................................................ 1
INVESTMENT OBJECTIVE AND POLICIES....................................... 1
CERTAIN INVESTMENT PRACTICES............................................ 1
INVESTMENT RESTRICTIONS................................................. 10
THOSE RESPONSIBLE FOR MANAGEMENT................................... 14
INVESTMENT ADVISORY AND OTHER SERVICES.................................. 20
DISTRIBUTION CONTRACT................................................... 21
NET ASSET VALUE......................................................... 23
INITIAL SALES CHARGE ON CLASS A SHARES.................................. 23
DEFERRED SALES CHARGE ON CLASS B SHARES................................. 25
SPECIAL REDEMPTIONS..................................................... 26
ADDITIONAL SERVICES AND PROGRAMS........................................ 26
DESCRIPTION OF THE FUND'S SHARES........................................ 27
TAX STATUS.............................................................. 28
CALCULATION OF PERFORMANCE.............................................. 33
BROKERAGE ALLOCATION.................................................... 34
TRANSFER AGENT SERVICES................................................. 36
CUSTODY OF PORTFOLIO.................................................... 36
INDEPENDENT AUDITORS.................................................... 36
APPENDIX A - ECONOMIC SECTORS AND DESCRIPTION OF BOND RATINGS........... A-1
FINANCIAL STATEMENTS.................................................... --
<PAGE>
ORGANIZATION OF THE FUND
John Hancock Special Opportunities Fund ("the Fund") is a series of
Freedom Investment Trust II (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust on March 31, 1986, under the
laws of The Commonwealth of Massachusetts. The Fund commenced operations on
September 7, 1993. John Hancock Advisers, Inc. (the "Adviser") is an indirect
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (the "Life
Company"), a Massachusetts life insurance company chartered in 1862, with
national headquarters at John Hancock Place, Boston, Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek long-term capital appreciation.
The Fund seeks to achieve its objective by emphasizing investments in equity
securities of issuers in various economic sectors. There are market fluctuations
and risks in any investment and therefore there can be no assurance that the
investment objective of the Fund will be realized.
CERTAIN INVESTMENT PRACTICES
When-Issued Securities. "When-issued" refers to securities whose terms are
available and for which a market exists, but which have not yet been issued. No
payment is made with respect to a when-issued transaction, until delivery is
due, often a month or more after the purchase.
The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain an advantageous price
and yield at the time of the transactions. When the Fund engages in a
when-issued transaction, 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. On the date the Fund enters into an agreement to purchase
securities on a when-issued basis, the Fund will segregate in a separate account
cash or liquid, high grade debt securities equal in value to the when-issued
commitment. These assets will be valued daily at market, and additional cash or
liquid, high grade debt 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 commitment.
Repurchase Agreements. A repurchase agreement is a contract under which
the Fund would acquire 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 it enters into repurchase agreements.
1
<PAGE>
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 and could experience losses, including
possible decline in the value of the underlying securities during the period
while the Fund seeks to enforce its rights thereto, possible subnormal levels of
income and lack of access to income during this period, and expense of enforcing
its rights.
Financial Futures Contracts. The Fund may hedge its portfolio by selling
or purchasing financial futures contracts as an offset against the effect of
expected changes in interest rates or in security or foreign currency values.
Although other techniques could be used to reduce the Fund's exposure to
interest rate, securities market and currency fluctuations, the Fund may be able
to hedge its exposure more effectively and at a lower cost by using financial
futures contracts. The Fund will enter into financial futures contracts for
hedging purposes and for speculative purposes to the extent permitted by
regulations of the Commodity Futures Trading Commission ("CFTC").
Financial futures contracts have been designed by boards of trade which
have been designated "contract markets" by the CFTC. Futures contracts are
traded on these markets in a manner that is similar to the way a stock is traded
on a stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. It is expected that if new types
of financial futures contracts are developed and traded the Fund may engage in
transactions in such contracts.
Although financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts are
closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts (same exchange, underlying security or currency and
delivery month). If the offsetting purchase price is less than the Fund's
original sale price, the Fund realizes a gain, or if it is more, the Fund
realizes a loss. Conversely, if the offsetting sale price is more than the
Fund's original purchase price, the Fund realizes a gain, or if it is less, the
Fund realizes a loss. The Fund's transaction costs must also be included in
these calculations. The Fund will pay a commission in connection with each
purchase or sale of financial futures contracts, including a closing
transaction.
At the time the Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or U.S.
Government securities, known as "initial margin." The margin required for a
financial futures contract is set by the board of trade or exchange on which the
contract is traded and may be modified during the term of the contract. The
initial margin is in the nature of a performance bond or good faith deposit on
the financial futures contract which is returned to the Fund upon termination of
the contract, assuming all contractual obligations have been satisfied. The Fund
expects to earn interest income on its initial margin deposits. Each day, the
futures contract is valued at the official settlement price of the board of
2
<PAGE>
trade or exchange on which it is traded. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. This process is known
as "mark to market." Variation margin does not represent a borrowing or lending
by the Fund but is instead a settlement between the Fund and the broker of the
amount one would owe the other if the financial futures contract expired. In
computing net asset value, the Fund will mark to the market its open financial
futures positions.
Successful hedging depends on the extent of correlation between the market
for the underlying securities and the futures contract market for those
securities or currency. There are several factors that will probably prevent
this correlation from being perfect, and even a correct forecast of general
interest rate, securities market or currency trades may not result in a
successful hedging transaction. There are significant differences between the
securities or currency markets and the futures markets which could create an
imperfect correlation between the markets and which could affect the success of
a given hedge. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for financial
futures and debt and equity securities, including technical influences in
futures trading and differences between the financial instruments being hedged
and the instruments underlying the standard financial futures contracts
available for trading in such respects as interest rate levels, maturities and
creditworthiness of issuers. The degree of imperfection may be increased where
the underlying debt securities are lower-rated, and, thus, subject to greater
fluctuation in price than higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise of
skill and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected interest rate, securities market
or currency trends. The Fund will bear the risk that the price of the securities
being hedged will not move in complete correlation with the price of the futures
contracts used as a hedging instrument. Although the Adviser believes that the
use of financial futures contracts will benefit the Fund, an incorrect
prediction could result in a loss on both the hedged securities or currency in
the Fund's portfolio and the futures position so that the Fund's return might
have been better had hedging not been attempted. However, in the absence of the
ability to hedge, the Adviser might have taken portfolio actions in anticipation
of the same market movements with similar investment results but, presumably, at
greater transaction costs. The low margin deposits required for futures
transactions permit an extremely high degree of leverage. A relatively small
movement in the price of instruments underlying a futures contract may result in
losses or gains in excess of the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount the price of a futures contract may vary either up or down
from the previous day's settlement price, at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day
and, therefore, does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several
3
<PAGE>
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
Finally, although the Fund engages in financial futures transactions only
on boards or trade or exchanges where there appears to be an adequate secondary
market, there is no assurance that a liquid market will exist for a particular
futures contract at any given time. The liquidity of the market depends on
participants closing out contracts rather than making or taking delivery. In the
event participants decide to make or take delivery, liquidity in the market
could be reduced. In addition, the Fund could be prevented from executing a buy
or sell order at a specified price or closing out a position due to limits on
open positions or daily price fluctuation limits imposed by the exchanges or
boards of trade. If the Fund cannot close out a position, it will be required to
continue to meet margin requirements until the position is closed.
Options on Financial Futures Contracts. The Fund may purchase and write
call and put options on financial contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. The Fund would be required
to deposit with its custodian initial and variation margin with respect to put
and call options on futures contracts written by it.
Options on futures contracts involve risks similar to the risks relating
to transactions in financial futures contracts. Also, an option purchased by the
Fund may expire worthless, in which case the Fund would lose the premium paid
therefor.
Other Considerations. The Fund will engage in futures and related options
transactions only for bona fide hedging or speculative purposes to the extent
permitted by CFTC regulations. The Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, the Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities or the currency in which they are denominated that the Fund owns,
or futures contracts will be purchased to protect the Fund against an increase
in the price of securities or the currency in which they are denominated it
intends to purchase. As evidence of this hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities or assets denominated in the related currency in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits the Fund to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish speculative positions in futures contracts and
4
<PAGE>
options on futures will not exceed 5 percent of the net asset value of the
Fund's portfolio, after taking into account unrealized profits and losses on any
such positions and excluding the amount by which such options were in-the-money
at the time of purchase. The Fund will engage in transactions in futures
contracts and related options only to the extent such transactions are
consistent with the requirements of the Internal Revenue Code of 1986, as
amended, for maintaining its qualification as a regulated investment company for
Federal income tax purposes.
When the Fund purchases a futures contract, writes a put option thereon or
purchases a call option thereon, an amount of cash or high grade, liquid debt
securities (i.e., securities rated in one of the top three ratings categories by
Moody's Investors Service, Inc. or Standard & Poor's Corporation) will be
deposited in a segregated account with the Fund's custodian which is equal to
the underlying value of the futures contract reduced by the amount of initial
and variation margin held in the account of its broker.
Options Transactions. The Fund may write listed and over-the-counter
covered call options and covered put options on securities in order to earn
additional income from the premiums received. In addition, the Fund may purchase
listed and over-the-counter call and put options. The extent to which covered
options will be used by the Fund will depend upon market conditions and the
availability of alternative strategies. The Fund may write listed covered and
over-the-counter call and put options on up to 100% of its net assets.
The Fund will write listed and over-the-counter call options only if they
are "covered", which means that the Fund owns or has the immediate right to
acquire the securities underlying the options without additional cash
consideration upon conversion or exchange of other securities held in its
portfolio. A call option written by the Fund will also be "covered" if the Fund
holds on a share-for-share basis a covering call on the same securities where
(i) the exercise price of the covering call held is equal to or less than the
exercise price of the call written or the difference is maintained by the Fund
in cash or high grade, liquid debt obligations in a segregated account with the
Fund's custodian, and (ii) the covering call expires at the same time as the
call written. If a covered call option is not exercised, the Fund would keep
both the option premium and the underlying security. If the covered call option
written by the Fund is exercised and the exercise price, less the transaction
costs, exceeds the cost of the underlying security, the Fund would realize a
gain in addition to the amount of the option premium it received. If the
exercise price, less transaction costs, is less than the cost of the underlying
security, the Fund's loss would be reduced by the amount of the option premium.
The Fund will write a covered put option only with respect to securities
it intends to acquire for the Fund's portfolio and will maintain in a segregated
account with the Fund's custodian cash or high grade, liquid debt securities
with a value equal to the price at which the underlying security may be sold to
the Fund in the event the put option is exercised by the purchaser. The Fund can
also write a "covered" put option by purchasing on a share-for-share basis a put
on the same security as the put written by the Fund if the exercise price of the
covering put held is equal to or greater than the exercise price of the put
written and the covering put expires at the same time as or later than the put
written.
5
<PAGE>
In writing listed and over-the-counter covered put options on securities,
the Fund would earn income from the premiums received. If a covered put option
is not exercised, the Fund would keep the option premium and the assets
maintained to cover the option. If the option is exercised and the exercise
price, including transaction costs, exceeds the market price of the underlying
security, the Fund would realize a loss, but the amount of the loss would be
reduced by the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate its
obligation prior to exercise, it may effect a "closing purchase transaction".
This is accomplished by buying an option of the same series as the option
previously written. The effect of the purchase is that the Fund's position will
be offset by the Options Clearing Corporation. The Fund may not effect a closing
purchase transaction after it has been notified of the exercise of an option.
There is no guarantee that a closing purchase transaction can be effected.
Although the Fund will generally write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange or board of trade will exist for any particular
option or at any particular time, and for some options no secondary market on an
exchange may exist.
In the case of a written call option, effecting a closing transaction will
permit the Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. In the case of a
written put option, it will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
securities. Also, effecting a closing transaction will permit the cash or
proceeds from the concurrent sale of any securities subject to the option to be
used for other investments. If the Fund desires to sell a particular security
from its portfolio on which it has written a call option, it will effect a
closing transaction prior to or concurrent with the sale of the security.
The Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option.
The Fund will realize a loss from a closing transaction if the cost of the
closing transaction is more than the premium received for writing the option.
However, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security owned by the Fund.
Over-the-Counter Options. The Fund may engage in options transactions on
exchanges and in the over-the-counter markets. In general, exchange-traded
options are third-party contracts (i.e., performance of the parties' obligations
is guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. Over-the-counter ("OTC") transactions are two-party
contracts with price and terms negotiated by the buyer and seller. The Fund will
acquire only those OTC options for which the Adviser believes the Fund can
receive on each business day at least two separate bids or offers (one of which
will be from an entity other than a party to the option) or those OTC options
valued by an independent pricing service. The Fund will write and purchase OTC
options only with member banks of the Federal Reserve System and primary dealers
in U.S. Government securities or their affiliates. The Securities and Exchange
Commission (the "SEC") takes the position that OTC options are illiquid
securities
6
<PAGE>
subject to the Fund's 15% limitation on illiquid securities. The SEC allows the
Fund to exclude from the 15% limitation on illiquid securities a portion of the
value of the OTC options written by the Fund, provided that certain conditions
are met. First, the other party to the OTC options has to be a primary U.S.
Government securities dealer designated as such by the Federal Reserve Bank.
Second, the Fund would have an absolute contractual right to repurchase the OTC
options at a formula price. If the above conditions are met, a Fund must treat
as illiquid only that portion of the OTC option's value (and the value of its
underlying securities) which is equal to the formula price for repurchasing the
OTC option, less the OTC option's intrinsic value.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities, issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities
which provide monthly payments which are, in effect, a "pass-through" of the
monthly interest and principal payments (including any prepayments) made the by
individual borrowers on the pooled mortgage loans. Collateralized mortgage
obligations ("CMOs") in which the Fund may invest are securities issued by a
U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates.
Forward Foreign Currency Transactions. The foreign currency exchange
transactions of the Fund may be conducted on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market. The Fund may also deal in forward foreign currency exchange contracts
involving currencies of the different countries in which it will invest as a
hedge against possible variations in the foreign exchange rate between these
currencies. This is accomplished through contractual agreements to purchase or
sell a specified currency at a specified future date and price set at the time
of the contract. The Fund's dealings in forward foreign currency exchange
contracts will be limited to hedging either specified transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward foreign
currency contracts with respect to specific receivables or payables of the Fund
accruing in connection with the purchase and sale of its portfolio securities
denominated in foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in such foreign currencies. The Fund will not attempt to hedge all of its
foreign portfolio positions and will enter into such transactions only to the
extent, if any, deemed
7
<PAGE>
appropriate by the Adviser. The Fund will not engage in speculative forward
foreign currency exchange transactions.
If the Fund purchases a forward contract, its custodian bank will
segregate cash or high grade, liquid debt securities in a separate account of
the Fund in an amount equal to the value of the Fund's total assets committed to
the consummation of such forward contract. Those assets will be valued at market
daily and if the value of the securities in the separate account declines,
additional cash or securities will be placed in the account so that the value of
the account will be equal to the amount of the Fund's commitment with respect to
such contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency exchange transactions
varies with such factors as the currency involved, the length of the contract
period and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
Foreign Securities. Investments in foreign securities may involve risk and
considerations not present in domestic investments. Since foreign securities
generally may be quoted and pay interest or dividends in foreign currencies, the
value of the assets of the Fund as measured in U.S. dollars will be affected
favorably or unfavorably by changes in the relationship of the U.S. dollar and
other currency rates. The Fund may incur costs in connection with the conversion
of foreign currencies into U.S. dollars and may be adversely affected by
restrictions on the conversion or transfer of foreign currencies. In addition,
there may be less publicly available information about foreign companies than
U.S. companies. Foreign companies may not be subject to accounting, auditing,
and financial reporting standards, practices and requirements comparable to
those applicable to U.S.
companies.
Foreign securities markets, while growing in volume, have for the most
part substantially less volume than U.S. securities markets and securities of
foreign companies are generally less liquid and at times their prices may be
more volatile than securities of comparable U.S. companies. Foreign stock
exchanges, brokers and listed companies are generally subject to less government
supervision and regulation than those in the U.S. The customary settlement time
for non-U.S. securities is less frequent than in the U.S., which could affect
the liquidity of the Fund's investments.
The Fund may invest in companies located in developing countries which,
compared to the U.S. and other developed countries, may have relatively unstable
governments, economies based on only a few industries and securities markets
which trade only a small number of securities. Prices on exchanges located in
developing countries tend to be volatile and, in the past, securities
8
<PAGE>
traded on those exchanges have offered a greater potential for gain (and loss)
than securities traded on exchanges in the U.S. and more developed countries.
In some countries, there is the possibility of expropriation or
confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions or other adverse political, social or diplomatic
developments that could affect investments in these countries.
Short Sales. The Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. The Fund may also engage in
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, the Fund must borrow the security sold
short to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. Until the security is replaced, the Fund is required to pay to the
lender any accrued interest and may be required to pay a premium.
The Fund will realize a gain if the security declines in price between the
date of the short sale and the date on which the Fund replaces the borrowed
security. On the other hand, the Fund will incur a loss as a result of the short
sale if the price of security increases between those dates. The amount of any
gain will be decreased, and the amount of any loss increased, by the amount of
any premium or interest the Fund may be required to pay in connection with a
short sale. The successful use of short selling as a hedging device may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the Securities and Exchange
Commission, if the Fund engages in short sales of the type referred to in
non-fundamental Investment Restriction No. (b) below, it must put in a
segregated account (not with the broker) an amount of cash or U.S. Government
securities equal to the difference between (a) the market value of the
securities sold short at the time they were sold short and (b) any cash or U.S.
Government securities required to be deposited as collateral with the broker in
connection with the short sale (not including the proceeds from the short sale).
In addition, until the Fund replaces the borrowed security, it must daily
maintain the segregated account at such a level that (1) the amount deposited in
it plus the amount deposited with the broker as collateral will equal the
current market value of the securities sold short, and (2) the amount deposited
in it plus the amount deposited with the broker as collateral will not be less
than the market value of the securities at the time they were sold short.
Short selling may produce higher than normal portfolio turnover which may
result in increased transaction costs to the Fund and may result in gains from
the sale of securities deemed to have been held for less than three months,
which gains must be less than 30% of the Fund's gross income in order for the
Fund to qualify for regulated investment company pass-through tax treatment
under the Internal Revenue Code of 1986, as amended.
9
<PAGE>
The Fund does not intend to enter into short sales (other than those
"against the box") if immediately after such sale the aggregate of the value of
all collateral plus the amount in such segregated account exceeds the value of
5% of the Fund's net assets. A short sale is "against the box" to the extent
that the Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of a majority of the Fund's outstanding voting
securities which, as used in the Prospectus and this Statement of Additional
Information means approval by the lesser of (1) 67% or more of the Fund's
outstanding shares represented at a meeting if at least 50% of the Fund's
outstanding shares are present in person or by proxy at the meeting, or (2) 50%
of the Fund's outstanding shares.
The Fund may not:
(1) Issue senior securities, except as permitted by paragraph (2) 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, interest rate or currency swaps,
forward commitments, forward foreign currency exchange contracts and repurchase
agreements entered into in accordance with the Fund's investment policies, 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 or emergency purposes, except pursuant to reverse repurchase
agreements, in amounts not to exceed 33-1/3% of the Fund's total assets
(including the amount borrowed) taken at market value.
(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 secured by real estate or marketable interests
therein or issued by companies that invest in real estate or interests therein
and may retain or sell real estate acquired due to the ownership of securities.
(6) Make loans, except that the Fund may (a) lend portfolio securities in
an amount that does not exceed 33-1/3% of such Fund's total assets; (b) enter
into repurchase agreements; and (c) purchase bank certificates of deposit, bank
loan participation agreements, bankers'
10
<PAGE>
acceptances or all or a portion of an issue of debt securities, whether or not
the purchase is made upon the original issuance of the securities.
(7) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except financial futures contracts, options on securities,
securities indices, currency and other financial instruments, options on futures
contracts, forward foreign currency exchange contracts, forward commitments,
interest rate or currency swaps, warrants and repurchase agreements entered into
in accordance with the Fund's investment policies.
(8) Purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after such purchase, the value of
the Fund's investments in such industry would exceed 25% of its total assets
taken at market value at the time of each investment. For purposes of this
restriction, telephone, water, gas and electric public utilities are each
regarded as separate industries and wholly-owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parent. This limitation
does not apply to investments by the Fund in obligations of the U.S. Government
or any of its agencies or instrumentalities.
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.
Notwithstanding the foregoing fundamental investment restrictions, or any
investment policy or non-fundamental investment restriction of the Fund, the
Fund may invest all or part of its assets in an open-end management investment
company with substantially the same investment objectives, policies and
restrictions as the Fund.
Non-fundamental Investment Restrictions. The following restrictions
are designated as non-fundamental 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
securities trading account.
(b) Make short sales of securities or maintain a short position unless (i)
at all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issuer as, and equal in
amount to, the securities sold short; (ii) for the purpose of hedging the Fund's
exposure to an actual or anticipated market decline in the value of its
investments; or (iii) in order to profit from an anticipated decline in the
value of a security.
11
<PAGE>
(c) Purchase a security if, as a result, (i) more than 10% of the Fund's
assets would be invested in securities of closed-end investment companies, (ii)
such purchase would result in more than 3% of the total outstanding voting
securities of any one such closed-end investment company being held by the Fund,
or (iii) more than 5% of the Fund's assets would be invested in any one such
closed-end investment company.
(d) 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.
(e) Invest for the purpose of exercising control over or management
of any company.
(f) 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.
(g) Knowingly purchase or retain securities of an issuer if one or more of
the Trustees or officers of the Trust or directors or officers of the Adviser or
any investment management subsidiary of the Adviser individually owns
beneficially more than 0.5% and together own beneficially more than 5% of the
securities of such issuer.
(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) Purchase interests in real estate limited partnerships.
(j) 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.
(k) Purchase securities while outstanding borrowings, other than reverse
repurchase agreements, exceed 5% of the Fund's total assets.
(l) 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
12
<PAGE>
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
interest of the Fund and its shareholders, the Fund may cease offering shares in
the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Trustees may, at their sole discretion, revoke such policy.
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
The Fund agrees that, in accordance with the guidelines of the Arkansas
Securities Department and the statutes of the State of Wisconsin, until such
guidelines and statutes no longer require, it will not purchase securities
(excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 that have been determined by the Trustees to be
liquid based upon the trading markets for the securities) of issuers which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933 if by any reason thereof the value of its aggregate
investment in such classes of securities will exceed 10% of its total assets.
The Fund agrees that, in accordance with Texas Blue Sky Regulations, until
such regulations no longer require, the value of securities of any one issuer in
which the Fund is short may not exceed the lesser of 2% of the value of the
Fund's net assets or 2% of the securities of any class of any such issuer.
The Fund agrees that, in accordance with the Ohio Securities Division and until
such regulations are no longer required, it will comply with Rule
1301:6-3-09(E)(9) by not investing in the securities of other open-end and
closed-end investment companies except by purchase in the open market where no
commission or profit to a sponsor or dealer results from the purchase other than
the customary broker's commission, or except when the purchase is part of a plan
of merger, consolidation, reorganization or acquisition.
13
<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
Trust are also officers and Directors of the Adviser, or officers or Directors
of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
The following table sets forth the principal occupation of the Trustees
and principal officers of the Trust during the past five years. Unless otherwise
indicated, the business address of each is 101 Huntington Avenue, Boston,
Massachusetts 02199.
14
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
---------------- ---------------- -------------------
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
Officer, the Adviser and The
Berkeley Financial Group
("The Berkeley Group");
Chairman, NM Capital
Management, Inc. ("NM
Capital"); John Hancock
Advisers International
Limited ("Advisers
International"); John Hancock
Funds, Inc., ("John Hancock
Funds"); John Hancock
Investor Services Corporation
("Investor Services") and
Sovereign Asset Management
Corporation ("SAMCorp")
(herein after the Adviser,
The Berkeley Group, NM
Capital, Advisers
International, John Hancock
Funds, Investor Services and
SAMCorp are collectively
referred to as the
"Affiliated Companies");
Chairman, First Signature
Bank & Trust; Director, John
Hancock Freedom Securities
Corp., John Hancock Capital
Corp., New England/Canada
Business Council; Member,
Investment Company Institute
Board of Governors; Director,
Asia Strategic Growth Fund,
Inc.; Trustee, Museum of
Science; President, the
Adviser (until July 1992);
Chairman, John Hancock
Distributors, Inc. until
April 1994.
------------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
15
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
---------------- ---------------- -------------------
Douglas M. Costle Trustee (1, 2) Director, Chairman of the
RR2 Box 480 Board and Distinguished
Woodstock, Vermont Senior Fellow, Institute for
05091 Sustainable Communities,
Montpelier, Vermont, since 1991.
Dean Vermont Law School, until
1991. Director, Air and Water
Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
MITRE Corporation (governmental
consulting services).
Leland O. Erdahl Trustee (1, 2) President and Director of
8046 Mackenzie Court Nature Quality Ingredients
Las Vegas, NV 89129 Company, Inc. and Sante Fe
Ingredients Company, Inc.,
private food processing
companies. Director of
Uranium Resources, Inc.
President of Stolar, Inc.
from 1987 to 1991 and
President of Albuquerque
Uranium Corporation from
1985 to 1992. Director of
Freeport-McMoRan Copper &
Gold Company, Inc., Hecla
Mining Company, Canyon
Resources Corporation and
Original Sixteen to One
Mines, Inc. From 1984 to
1987 and 1991, management
consultant.
Richard A. Farrell Trustee(1, 2) President of Farrell, Healer
Venture Capital Partners & Co., a venture capital
160 Federal Street management firm, since
23rd Floor 1980. Prior to that date,
Boston, MA 02110 Mr. Farrell headed the
venture capital group at
Bank of Boston Corporation.
-----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
16
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
---------------- ---------------- -------------------
William F. Glavin Trustee (1, 2) President, Babson College;
Babson College Vice Chairman, Xerox
Horn Library Corporation until June
Babson Park, MA 02157 1989. Director, Caldor Inc.
and Inco Ltd.
Dr. John A. Moore Trustee (1, 2) President and Chief
Institute for Evaluating Executive Officer, Institute
Health Risks for Evaluating Health Risks,
1629 K Street NW a nonprofit institution,
Suite 402 since September 1989.
Washington, DC 20006 Assistant Administrator of
the Office of Pesticides and
Toxic Substances at the
Environmental Protection
Agency from December 1983 to
July 1989.
Patti McGill Peterson Trustee (1, 2) President, St. Lawrence
St. Lawrence University University; Director,
110 Vilas Hall Niagara Mohawk Power
Canton, NY 13617 Corporation and Security
Mutual Life.
John W. Pratt Trustee (1, 2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School
of Business Administration
(Since 1961).
Robert G. Freedman Vice Chairman and Vice Chairman and Chief
Chief Investment Investment Officer, the
Officer (4) Adviser; President (until
December 1994).
-----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
17
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
---------------- ---------------- -------------------
Anne C. Hodsdon President (4) President and Chief
Operating Officer, the
Adviser; Executive Vice
President, the Adviser
(until December 1994);
Senior Vice President; the
Adviser (until December
1993).
James B. Little Senior Vice Senior Vice President, the
President, Chief Adviser.
Financial Officer
Thomas H. Drohan Senior Vice Senior Vice President and
President and Secretary, the Adviser.
Secretary
John A. Morin Vice President Vice President, the Adviser.
Susan S. Newton Vice President, Vice President and Assistant
Assistant Secretary, the Adviser.
Secretary and
Compliance Officer
James J. Stokowski Vice President and Vice President, the Adviser.
Treasurer
-----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
18
<PAGE>
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which
John Hancock Advisers, Inc. serves as Adviser.
The following table provides information regarding the compensation paid
by the Funds and the other investment companies in the John Hancock Fund Complex
to the Independent Trustees for their services. Mr. Boudreau and each of the
officers of the Funds are interested persons of the Adviser, are compensated by
the Adviser and received no compensation for the Funds for their services.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement from Funds
Aggregate Benefits Estimated and John
Compensation Accrued as Annual Hancock Fund
Independent from the Part of the Benefits Upon Complex to
Trustees Fund* Fund's Expenses* Retirement Trustees(1)
-------- ----------- ---------------- ------------- -----------
(Total of 12
Funds)
<S> <C> <C> <C> <C>
William Barron, $ 4,239 $ - $ - $ 41,750
III**
Douglas M. Costle $ 4,239 - - 41,750
Leland O. Erdahl $ 4,239 - - 41,750
Richard A. $ 4,396 - - 43,250
Farrell
William F. Glavin $ 1,240 2,599 - 37,500
Patrick Grant** $ 4,447 - - 43,750
Ralph Lowell, $ 4,239 - - 41,750
Jr.**
Dr. John A. Moore $ 4,239 - - 41,750
Patti McGill $ 4,239 - - 41,750
Peterson
John W. Pratt $ 4,239 - - 41.750
------- ------ ------ ------
$39,756 $2,599 $ - $ 416,750
</TABLE>
*Compensation made for the fiscal year ended October 31, 1995.
**As of January 1, 1996, Messrs. Barron, Grant and Lowell resigned as
Trustees.
(1)The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1995.
As of the January 31, 1996, the officers and Trustees of the Trust as a
group owned less than 1% of the outstanding shares of each class of the Fund and
to the knowledge of the registrant, no persons owned of record or beneficially
5% or more of any class of registrant's outstanding securities.
19
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for the Fund is John Hancock Advisers, Inc., a
Massachusetts corporation (the "Adviser"), with offices at 101 Huntington
Avenue, Boston, Massachusetts 02199-7603. The Adviser is a registered investment
advisory firm which maintains a securities research department, the efforts of
which will be made available to the Fund.
The Adviser was organized in 1968 and presently has more than $16 billion
in assets under management in its capacity as investment adviser to the Fund and
the other mutual funds and publicly traded investment companies in the John
Hancock group of funds having approximately 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 Standard & Poor's
and A.M. Best's. Founded in 1862, the Life Company has been serving clients for
over 130 years.
The Trust, on behalf of the Fund, has entered into an advisory agreement
with the Adviser, under which the Adviser provides the Fund with (i) a
continuous investment program, consistent with the Fund's stated investment
objective and policies, (ii) supervision of all aspects of the Fund's operations
except those that are delegated to a custodian, transfer agent or other agent
and (iii) such executive, administrative and clerical personnel, officers and
equipment as are necessary for the conduct of its business.
Under the terms of the advisory agreement with the Fund, the Adviser
provides the Fund with office space, supplies and other facilities required for
the business of the Fund. The Adviser pays the compensation of all officers and
employees of the Trust, and pays the expenses of clerical services relating to
the administration of the Fund. 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 Trust who are not "interested persons," as such term is
defined in the Investment Company Act) are borne by the Fund.
The Fund pays the Adviser monthly an advisory fee, which is accrued daily,
based on a stated percentage of the Fund's average daily net asset value as
follows: .80% on the first $500 million of average daily net assets of the Fund,
.75% on the next $500 million of average net assets and .70% of average net
assets in excess of $1 billion.
If the total of all ordinary business expenses of the Fund for any fiscal
year exceeds the limitations prescribed by any state in which shares of the Fund
are qualified for sale, the fee payable to the Adviser will be reduced to the
extent of such excess and the Adviser will make any additional arrangements
necessary to eliminate remaining excess expenses. 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
20
<PAGE>
calculating the above limit, the Fund may exclude interest, brokerage
commissions and extraordinary expenses.
Pursuant to the advisory agreement, the Adviser is not liable to the Fund
or its shareholders for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which the investment
management contract relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Adviser in the performance of
its duties or from reckless disregard by the Adviser of its obligations and
duties under the investment management contract.
The advisory agreement was last approved May 1, 1995 and will continue in
effect year to year thereafter if approved annually by vote of a majority of the
Trustees of the Trust 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 Trustees or the holders of a majority of the
Fund's outstanding voting securities. The agreement will automatically terminate
upon assignment. The agreement may be terminated without penalty on 60 days'
notice at the option of either party to the contract or by vote of a majority of
the outstanding voting securities of the Fund.
For the fiscal year ended October 31, 1995, the Fund paid the Adviser an
investment advisory fee of $1,870,771.
DISTRIBUTION CONTRACT
The Fund has entered into a distribution contract with John Hancock Funds. Under
the contract, John Hancock Funds is obligated to use its best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined plus an applicable sales charge, if any. In connection
with the sale of Class A or Class B shares, John Hancock Funds and Selling
Brokers receive compensation in the form of a sales charge imposed, in the case
of Class A shares at the time of sale or, in the case of Class B shares, on a
deferred basis. The sales charges are discussed further in the Prospectus.
The Fund's Trustees have adopted Distribution Plans with respect to Class A and
Class B shares ("the "Plans"), pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Under the Plans, 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 average daily net assets
attributable to each class of shares. The distribution fees reimburse John
Hancock Funds for its distribution costs incurred in the promotion of sales of
Fund shares, and the service fees compensate Selling Brokers for providing
personal and account maintenance services to shareholders. In the event that
John Hancock Funds is not fully reimbursed for expenses incurred by it under the
Class B Plan in any fiscal year, 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
21
<PAGE>
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 Fund. The Plans and all
amendments were approved by the Trustees, including a majority of the Trustees
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plans (the "Independent Trustees"),
by votes cast in person at meetings called for the purpose of voting on such
Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis.
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 Expenses Interest,
Mailing of Compensation of John Carrying or
Prospectus to to Selling Hancock Other Finance
Advertising New Shareholders Brokers Funds Charges
----------- ---------------- ------- ----- -------
Special Opportunities
---------------------
<S> <C> <C> <C> <C> <C>
Class A shares $ 56,577 $4,108 $102,392 $133,915 $ 0
Class B shares $112,118 $ 0 $372,081 $294,995 $569,564
</TABLE>
Each of the Plans provides that it will continue in effect only so long as its
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. Each of the Plans provides that it may be terminated
without penalty, (a) by vote of a majority of the Independent Trustees, (b) by a
vote of a majority of the Fund's outstanding shares of the applicable class in
each case 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 vote of the
Trustees and the Independent Trustees of the Fund. The holders of Class A and
Class B shares have exclusive voting rights with respect to the Plan applicable
to their respective class of shares. In adopting the Plans the Trustees
concluded that, in their judgment, there is a reasonable likelihood that the
Plans will benefit the holders of the applicable class of shares of the Fund.
When the Trust 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 Plan, committed to the discretion of the Committee on
22
<PAGE>
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 heading "Those Responsible for Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's
shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished
by a principal market maker or a pricing service, both of which generally
utilize electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange of NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned categories for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the mean between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or
less are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of a Fund's NAV.
A Fund will not price its securities on the following national holidays:
New Year's Day; Presidents' Day, Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day. On any day an international
market is closed and the New York Stock Exchange is open, any foreign securities
will be valued at the prior day's close with the current day's exchange rate.
Trading of foreign securities may take place on Saturdays and U.S. business
holidays on which a Fund's NAV is not calculated. Consequently, a Fund's
portfolio securities may trade and the NAV of the Fund's redeemable securities
may be significantly affected on days when a shareholder has no access to the
Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund
are described in the Fund's Prospectus. Methods of obtaining reduced sales
charges referred to generally in the Prospectus are described in detail below.
In calculating the sales charge applicable to current purchases of Class A
shares of the Fund, the investor is entitled to 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
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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 Fund, 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. As described in the Prospectus, Class A shares
of the Fund may be sold without a sales charge to persons described in the
Prospectus.
Accumulation Privilege. Investors (including investors combining
purchases) who are already Class A shareholders may also obtain the benefit of
the reduced sales charge by taking into account not only the amount then being
invested but also the purchase price or value of the Class A shares already held
by such persons.
Combination Privilege. Reduced sales charges (according to the schedule
set forth in the Prospectus) also are available to an investor purchasing Class
A shares 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. Reduced sales charges are also applicable to
investments in Class A shares made over a specified period pursuant to a Letter
of Intention ("LOI"), which should be read carefully prior to its execution by
an investor. The Fund offers two options regarding the specified period for
making investments under the LOI. All investors have the option of making their
investments over a period of thirteen 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 48 month period. These
qualified retirement plans include group IRA's, SEP, SARSEP, TSA, 401(k) plans,
and Section 457 plans. Such an investment (including accumulations and
combinations) must aggregate $25,000 or more invested during the specified
period from the date of the Letter or from a date within ninety days prior
thereto, upon written request to Investor Services. The sales load 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 load actually paid and the
sales load payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made in with the specified period (either 13
or 48 months), the sales load applicable will not be higher than that which
would have been applied (including accumulations and combinations) had the LOI
been for the amount actually invested.
The LOI authorizes the 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
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completed within the thirteen-month period, at which time the escrowed Class A
shares will be released. If the total investment specified in the LOI is not
completed, the 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 shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so that the Fund will receive
the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
six years of purchase will be subject to a contingent deferred sales charge
("CDSC") at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B shares being redeemed. Accordingly, no CDSC will be imposed on increases
in account value above the initial purchase prices, including increases in
account value derived from reinvestment of dividends or capital gains
distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining this number of
years, all payments during a month will be aggregated and deemed to have been
made on the last day of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are used in
whole or in part by John Hancock Funds to defray its expenses related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, such as the payment of compensation to select Selling
Brokers for selling Class B shares. The combination of the CDSC and the
distribution and service fees facilitates the ability of the Fund to sell the
Class B shares without a sales charge being deducted at the time of the
purchase. See the Prospectus for additional information regarding the CDSC.
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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
the redemption payments to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of
such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. As described more fully in the Prospectus, the Fund
permits exchanges of shares of any class of the Fund for shares of the same
class in any other John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Prospectus, the
Fund permits the establishment of a Systematic Withdrawal Plan. Payments under
this plan represent proceeds arising from the redemption of the Fund's shares.
Since the redemption price of the shares of the Fund may be more or less than
the shareholder's cost, depending upon the market value of the securities owned
by the Fund at the time of redemption, the distribution of cash pursuant to this
plan may result in realization of gain or loss for purposes of federal, state
and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares of the Fund
could be disadvantageous to a shareholder because of the sales charge payable on
such purchases of Class A shares and upon redemption 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 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 shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any checks.
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The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the processing date of any investment.
Reinvestment Privilege. A shareholder who has redeemed Fund shares may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in the same class of the Fund
or in any of the other John Hancock funds, subject to the minimum investment
limits of that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
the Fund or in Class A shares of 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. Such shareholder's account will be credited with the amount
of any CDSC charge upon the prior redemption. The holding period of the shares
acquired through reinvestment will, for purposes of computing the CDSC payable
upon a subsequent redemption, include the holding period of the redeemed shares.
The Fund may modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for
federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated as described under the heading "Tax
Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and
supervision of the Fund. The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of the
Fund, without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this Statement
of Additional Information, the Trustees have authorized shares of the Fund and
four other series. 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.
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 B shares bear the expense of the CDSC arrangement and any expenses
(including the higher distribution expenses) resulting from this sales
arrangement. Holders of Class A shares and Class B shares have certain exclusive
voting rights on matters relating to their respective distribution plans. The
different classes of the Fund may bear different expenses relating to the cost
of holding shareholder meetings necessitated by the exclusive voting rights of
any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares
will be calculated in the same manner, at the same time and on the same day and
will be in the same amount, except that (i) the distribution and service fees
relating to Class A and Class B shares will be borne
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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 and Class B
shares will bear any other class expenses properly allocable to such class of
shares, subject to certain conditions imposed by the Internal Revenue Service in
issuing rulings to funds with a multiple-class structure. Similarly, the net
asset value per share may vary depending on whether Class A and 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 Trust, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration
of Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the Trust. However, the Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations or affairs of
the Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any Fund 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.
TAX STATUS
Each series of Freedom Investment Trust II, including the Fund, is treated
as a separate entity for accounting and tax purposes. The Fund has qualified and
elected to be treated as a "regulated investment company" under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), and intends to
continue to so qualify for each taxable year. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timing of its distributions, and the diversification of its assets, the Fund
will not be subject to Federal income tax on taxable income (including net
short-term and long-term capital gains) which is distributed to shareholders at
least annually in accordance with the timing requirements of the Code.
The Fund will be subject to a 4% non deductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
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Distributions from the Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Fund's Prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital gains.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for Federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
If the Fund invests in stock of certain non-U.S. corporations that receive
at least 75% of their annual gross income from passive sources (such as interest
producing investments, dividends, rents, royalties or capital gain) or hold at
least 50% of their assets in investments producing such passive income ("passive
foreign investment companies"), the Fund could be subject to Federal income tax
and additional interest charges on "excess distributions" received from these
passive foreign investment companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections, if available, ameliorate these adverse tax
consequences. Accordingly, the Fund may limit its investments 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,
certain foreign currency futures and options, foreign currency forward
contracts, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount, timing and character of distributions to shareholders. Any such
transactions that are not directly related to the Fund's investment in stock or
securities, possible including speculative currency positions or currency
derivatives not used for hedging purposes, may increase the amount of gain it is
deemed to recognize from the sale of certain investments held for less than
three months, which gain is limited under the Code to less than 30% of its
annual gross income, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
least 90% of its annual gross income. If the net foreign exchange loss for a
year treated as ordinary loss under Section 988 were to exceed the Fund's
investment company taxable income computed without regard to such loss (i.e.,
all of the Fund's net income other than any excess of net long-term capital gain
over net short-term capital loss) the resulting overall ordinary loss for such
year would not be deductible by the Fund or its shareholders in future years.
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 with respect to such
taxes, subject to certain provisions and limitations contained in the Code.
Specifically, if more than 50% of the value of the Fund's total assets at the
close of any
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<PAGE>
taxable year consists of stock or securities of foreign corporations, the Fund
may file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Fund even though not actually
received by them, and (ii) treat such respective pro rata portions as foreign
income taxes paid by them.
If the election is made, shareholders may then deduct such pro rata
portions of foreign income taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign income taxes paid by the Fund, although
such shareholders will be required to include their share of such taxes in gross
income. Shareholders who claim a foreign tax credit for such foreign taxes may
be required to treat a portion of dividends received from the Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credit. Tax-exempt shareholders will ordinarily not benefit from this election.
Each year that the Fund files the election described above, its shareholders
will be notified of the amount of (i) each shareholder's pro rata share of
foreign income taxes paid by the Fund and (ii) the portion of Fund dividends
which represents income from each foreign country.
The amount of net realized short-term and long-term capital gains, if any,
in any given year will vary depending upon the Adviser's current investment
strategy and whether the Adviser believes it to be in the best interest of the
Fund to dispose of portfolio securities or enter into options or futures
transactions that will generate capital gains. At the time of an investor's
purchase of Fund shares, a portion of the purchase price is often attributable
to realized or unrealized appreciation in the Fund's portfolio or undistributed
taxable income of the Fund. Consequently, subsequent distributions on these
shares from such appreciation or income may be taxable to such investor even if
the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his basis in his shares. Such gain or loss will be treated as capital gain
or loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, depending upon the shareholder's tax holding period for
the shares. A sales charge paid in purchasing Class A shares of the Fund cannot
be taken into account for purposes of determining gain or loss on the redemption
or exchange of such shares within 90 days after their purchase to the extent
shares of the Fund or another John Hancock fund are subsequently acquired
without payment of a sales charge pursuant to the reinvestment or exchange
privilege. This disregarded charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Also, any loss
realized on a redemption or exchange may be disallowed to the extent the shares
disposed of are replaced with other shares of the Fund within a period of 61
days beginning 30 days before and ending 30 days after the shares are disposed
of, such as pursuant to the Automatic Dividend Reinvestment Plan. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term
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capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
Although its present intention is to distribute all net short-term and
long-term capital gains, if any, the Fund reserves the right to retain and
reinvest all or any portion of its "net capital gain," which is the excess, as
computed for Federal income tax purposes, of net long-term capital gain over net
short-term capital loss in any year. The Fund will not in any event distribute
net long-term capital gains realized in any year to the extent that a capital
loss is carried forward from prior years against such gain. To the extent such
excess was retained and not exhausted by the carryforward of prior years'
capital losses, it would be subject to Federal income tax in the hands of the
Fund. Each shareholder would be treated for Federal income tax purposes as if
the Fund had distributed to him on the last day of its taxable year his pro rata
share of such excess, and he had paid his pro rata share of the taxes paid by
the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder
would (a) include his pro rata share of such excess as long-term capital gain
income in his return for his taxable year in which the last day of the Fund's
taxable year falls, (b) be entitled either to a tax credit on his return for, or
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 capital loss in any year to offset its net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund has $5,914,444 of capital loss carryforwards, which
expire October 31, 2002, available to offset future capital gains.
For purposes of the dividends received deduction available to
corporations, dividends received by the Fund, from U.S. domestic corporations in
respect of any share of stock held by the Fund, for U.S. Federal income tax
purposes, for at least 46 days (91 days in the case of certain preferred stock)
and distributed and designated by the Fund may be treated as qualifying
dividends. Corporate shareholders must meet the minimum holding period
requirement stated above (46 or 91 days) with respect to their shares of the
Fund in order to qualify for the deduction and, if they borrow to acquire such
shares, may be denied a portion of the dividends received deduction. The entire
qualifying dividend, including the otherwise deductible amount, will be included
in determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, if any. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
tax basis in its shares may be reduced, for Federal income tax purposes, by
reason of "extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
The Fund accrues income on certain PIKs, zero coupon securities or certain
increasing rate securities (and, in general, any other securities with original
issue discount or with market discount if the Fund elects to include market
discount in income currently) prior to the receipt of
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the corresponding cash payments. However, the Fund must distribute, at lease
annually, all or substantially all of its net income, including such accrued
income, to shareholders to qualify as a regulated investment company under the
Code and avoid Federal income and excise taxes. 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
distribution requirements.
Investment in debt obligations that are at risk of our in default presents
special tax issues for the Fund. Tax rules are not entirely clear about issues
such as when the Fund may cease to accrue interest, original issue discount, or
market discount, when and to what extent deductions may be taken for bad debts
or worthless securities, how payments received on obligations in default should
be allocated between principal and income, and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fund in order to reduce the risk of distributing insufficient
income to preserve its status as a regulated investment company and seek to
avoid becoming subject to Federal income or excise tax.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Limitations imposed by the Code on regulated investment companies like the
Fund may restrict the Fund's ability to enter into futures, options, and forward
transactions.
Certain options, futures and forward foreign currency transactions
undertaken by the Fund may cause the Fund to recognize gains or losses from
marking to market even though its positions have not been sold or terminated and
affect the character as long-term or short-term (or, in the case of certain
currency forwards, options and futures, as ordinary income or loss) and timing
of some capital gains and losses realized by the Fund. Also, certain of the
Fund's losses on its transactions involving options, futures or forward
contracts and/or offsetting portfolio positions may be deferred rather than
being taken into account currently in calculating the Fund's taxable income.
Certain of the applicable tax rules may be modified if the Fund is eligible and
chooses to make one or more of certain tax elections that may be available.
These transactions may therefore affect the amount, timing and character of the
Fund's distributions to shareholders. The Fund will take into account the
special tax rules (including consideration of available elections) applicable to
options, futures or forward contracts in order to minimize any potential adverse
tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local
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taxes. Shareholders should consult their own tax advisers as to the Federal,
state or local tax consequences of ownership of shares of, and receipt of
distributions from, the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their 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 from the Fund and, unless an effective IRS Form W-8 or
authorized substitute is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company under
the Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
Total Return
The average annual total return for Class A shares of the Fund for the 1
year period ended October 31, 1995 and from commencement of operations on
November 1, 1993 was 11.62% and 2.05%, respectively and reflect payment of the
maximum sales charge of 5.00%.
The average annual total return for Class B shares of the Fund for the 1
year period ended October 31, 1995 and from commencement of operations on
November 1, 1993 was 11.77% and 1.55%, respectively with the CDSC applied at the
end of the period.
Average annual total return is determined separately for Class A and Class
B shares. Total return is computed by finding the average annual compounded
rates of return over the designated periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
[GRAPHIC OMITTED]
Where:P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated period
assuming a hypothetical $1,000 payment made at the beginning
of the designated period
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper-Mutual
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Fund 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.
Performance ranking and rating reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S 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 redemption of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by officers of the Trust pursuant
to recommendations made by an investment committee of the Adviser, which
consists of officers and directors of the Adviser and its affiliates, and
officers and Trustees who are interested persons of the Trust. Orders for
purchases and sales of securities are placed in a manner which, in the opinion
of the officers of the 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 makers reflect a "spread."
Investments in 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 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 in 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, 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
34
<PAGE>
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 October 31, 1995 and 1994, the Fund paid
negotiated brokerage commissions of $843,682 and $326,247, respectively.
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 year ended October 31, 1995,
the Fund paid commissions of $70,270 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 Distributors, Inc. ("Distributors"), a broker-dealer
and John Hancock Freedom Securities Corporation and its two broker-dealer
subsidiaries, Tucker Anthony Incorporated and Sutro & Company, Inc. ("Sutro"),
each, (an "Affiliated Broker"). 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 through Affiliated Brokers. For the
fiscal year ended October 31, 1995, the Fund paid no commissions to 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 and 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 Trust, the Adviser or the
Affiliated Broker. Commissions on transactions with Affiliated Brokers must
comply with Rule 17e-1 of the 1940 Act and must be fair and reasonable to
shareholders as determined in good faith by the Trustees. Because the Adviser,
which is affiliated with the Affiliated Brokers, has, as 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 Brokers 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.
35
<PAGE>
Other investment advisory clients advised by the Adviser may also invest
in the same securities as the Fund. When these clients buy or sell the same
securities at substantially the same time, the Adviser may average the
transactions as to price and allocate the amount of available investments in a
manner which the Adviser believes to be equitable to each client, including the
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtainable for
it. On the other hand, to the extent permitted by law, the Adviser may aggregate
the securities to be sold or purchased for the Fund with those to be sold or
purchased for other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation ("Investor Services"), P.O. Box
9116, Boston, MA 02205-9116, a wholly-owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Fund. The Fund pays
an annual fee for of $16.00 for each Class A shareholder and $18.50 for each
Class B shareholder, plus certain out-of-pocket expenses. These expenses are
aggregated and charged to the Fund and allocated to each class on the basis of
the relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian
agreement between the Trust and Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts 02110. Under the custodian agreement, State Street
Bank and Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts, 02110. Price Waterhouse LLP audits and renders an
opinion on the Fund's annual financial statements and reviews the Fund's annual
Federal income tax return.
36
<PAGE>
APPENDIX A
ECONOMIC SECTORS AND DESCRIPTION OF BOND RATINGS
ECONOMIC SECTORS
The Fund seeks to achieve its investment objective by varying the
weighting of its portfolio among the following sixteen economic sectors:
1. Automotive and Housing Sector: companies engaged in the design,
production and sale of automobiles, automobile parts, mobile homes and related
products, and in the design, construction, renovation and refurbishing of
residential dwellings. The value of automobile industry securities is affected
by foreign competition, consumer confidence, consumer debt and installment loan
rates. The housing construction industry is affected by the level of consumer
confidence, consumer debt, mortgage rates and the inflation outlook.
2. Consumer Goods and Services Sector: companies engaged in
providing consumer goods and services such as: the design, processing,
production and storage of packaged, canned, bottled and frozen foods and
beverages; and the design, production and sale of home furnishings, appliances,
clothing, accessories, cosmetics and perfumes. Certain such companies are
subject to government regulation affecting the permissibility of using various
food additives and production methods, which regulations could affect company
profitability. Also, the success of food- and fashion-related products may be
strongly affected by fads, marketing campaigns and other factors affecting
supply and demand.
3. Defense and Aerospace Sector: companies engaged in the research,
manufacture or sale of products or services related to the defense and aerospace
industries, such as: air transport; data processing or computer-related
services; communications systems; military weapons and transportation; general
aviation equipment, missiles, space launch vehicles and spacecraft; units for
guidance, propulsion and control of flight vehicles; and airborne and
ground-based equipment essential to the test, operation and maintenance of
flight vehicles. Since such companies rely largely on U.S. (and other)
governmental demand for their products and services, their financial conditions
are heavily influenced by Federal (and other governmental) defense spending
policies.
4. Energy Sector: companies in the energy field, including oil, gas,
electricity and coal as well as nuclear, geothermal, oil shale and solar sources
of energy. The business activities of companies comprising this sector may
include: production, generation, transmission, marketing, control or measurement
of energy or energy fuels; provision of component parts or services to companies
engaged in such activities; energy research or experimentation; environmental
activities related to the solution of energy problems; and activities
A1
<PAGE>
resulting from technological advances or research discoveries in the energy
field. The value of such companies' securities varies based on the price and
supply of energy fuels and may be affected by events relating to international
politics, energy conservation, the success of exploration projects, and the tax
and other regulatory policies of various governments.
5. Financial Services Sector: companies providing financial services
to consumers and industry, such as: commercial banks and thrift institutions;
consumer and industrial finance companies; securities brokerage companies;
leasing companies; and firms in all segments of the insurance field (such as
multiline, property and casualty, and life insurance). These kinds of companies
are subject to extensive governmental regulations, some of which regulations are
currently being studied by Congress. The profitability of these groups may
fluctuate significantly as a result of volatile interest rates and general
economic conditions.
6. Health Care Sector: companies engaged in the design, manufacture
or sale of products or services used in connection with health care or medicine,
such as: pharmaceutical companies; firms that design, manufacture, sell or
supply medical, dental and optical products, hardware or services; companies
involved in biotechnology, medical diagnostic and biochemical research and
development; and companies involved in the operation of health care facilities.
Many of these companies are subject to government regulation, which could affect
the price and availability of their products and services. Also, products and
services in this sector could quickly become obsolete.
7. Heavy Industry Sector: companies engaged in the research,
development, manufacture or marketing of products, processes or services related
to the agriculture, chemicals, containers, forest products, non-ferrous metals,
steel and pollution control industries, such as: synthetic and natural
materials, for example, chemicals, plastics, fertilizers, gases, fibers,
flavorings and fragrances; paper, wood products; steel and cement. Certain
companies in this sector are subject to regulation by state and Federal
authorities, which could require alteration or cessation of production of a
product, payment of fines or cleaning of a disposal site. In addition, since
some of the materials and processes used by these companies involve hazardous
components, there are risks associated with their production, handling and
disposal. The risk of product obsolescence is also present.
8. Leisure and Entertainment Sector: companies engaged in the
design, production or distribution of goods or services in the leisure industry,
such as: television and radio broadcast or manufacture; motion pictures and
photography: recordings and musical instruments; publishing; sporting goods,
camping and recreational equipment; sports arenas; toys and games; amusement and
theme parks; travel-related services and airlines; hotels and motels; fast food
and other restaurants; and gaming casinos. Many products produced by companies
in this sector -- for example, video and electronic games -- may quickly become
obsolete.
9. Machinery and Equipment Sector: companies engaged in the
research, development or manufacture of products, processes or services relating
to electrical equipment, machinery, pollution control and construction services,
such as: transformers, motors, turbines, hand tools, earth-moving equipment and
waste disposal services. The profitability of most
A2
<PAGE>
companies in this group may fluctuate significantly in response to capital
spending and general economic conditions. Since some of the materials and
processes used by these companies involve hazardous components, there are risks
associated with their production, handling and disposal. The risk of product
obsolescence is also present.
10. Precious Metals Sector: companies engaged in exploration,
mining, processing or dealing in gold, silver, platinum, diamonds or other
precious metals or companies which, in turn, invest in companies engaged in
these activities. A significant portion of this sector may be represented by
securities of foreign companies, and investors should understand the special
risks related to such an investment emphasis. Also, such securities depend
heavily on prices in metals, some of which may experience extreme price
volatility based on international economic and political developments.
11. Retailing Sector: companies engaged in the retail distribution
of home furnishings, food products, clothing, pharmaceuticals, leisure products
and other consumer goods, such as: department stores; supermarkets; and retail
chains specializing in particular items such as shoes, toys or pharmaceuticals.
The value of securities in this sector will fluctuate based on consumer spending
patterns, which depend on inflation and interest rates, level of consumer debt
and seasonal shopping habits. The success or failure of a particular company in
this highly competitive sector will depend on such company's ability to predict
rapidly changing consumer tastes.
12. Technology Sector: companies which are expected to have or
develop products, processes or services which will provide or will benefit
significantly from technological advances and improvements or future automation
trends in the office and factory, such as: semiconductors; computers and
peripheral equipment; scientific instruments; computer software;
telecommunications; and electronic components, instruments and systems. Such
companies are sensitive to foreign competition and import tariffs. Also, many
products produced by companies in this sector may quickly become obsolete.
13. Transportation Sector: companies involved in the provision of
transportation of people and products, such as: airlines, railroads and trucking
firms. Revenues of companies in this sector will be affected by fluctuations in
fuel prices resulting from domestic and international events, and government
regulation of fares.
14. Utilities Sector: companies in the public utilities industry and
companies deriving a substantial majority of their revenues through supplying
public utilities such as: companies engaged in the manufacture, production,
generation, transmission and sale of gas and electric energy; and companies
engaged in the communications field, including telephone, telegraph, satellite,
microwave and the provision of other communication facilities to the public. The
gas and electric public utilities industries are subject to various
uncertainties, including the outcome of political issues concerning the
environment, prices of fuel for electric generation, availability of natural
gas, and risks associated with the construction and operation of nuclear power
facilities.
A3
<PAGE>
15. Foreign Sector: companies whose primary business activity takes
place outside of the United States. The securities of foreign companies would be
heavily influenced by the strength of national economies, inflation levels and
the value of the U.S. dollar versus foreign currencies. Investments in the
Foreign Sector will be subject to certain risks not generally associated with
domestic investments. Such investments may be favorably or unfavorably affected
by changes in interest rates, currency exchange rates and exchange control
regulations, and costs may be incurred in connection with conversions between
currencies. In addition, investments in foreign countries could be affected by
less favorable tax provisions, less publicly available information, less
securities regulation, political or social instability, limitations on the
removal of funds or other assets of the Fund, expropriation of assets,
diplomatic developments adverse to U.S. investments and difficulties in
enforcing contractual obligations.
16. Environmental Sector: companies that are engaged in the
research, development, manufacture or distribution of products, processes or
services related to pollution control, waste management or pollution/waste
remediation, or that provide alternative energies such as natural gas, water
utilities and clean renewable fuels such as solar, geothermal and hydropower,
various technologies that make coal burning cleaner, notably scrubbers, emission
monitoring and control equipment, biodegradable products and materials, or new
biotechnological products favoring the environment such as non-chemical
pesticides. These companies may have broadly-diversified business segments or
lines of business, only one or several of which are in the environmental sector.
DESCRIPTION OF BOND RATINGS(1)
Standard & Poor's Bond Ratings
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal, and differs from the highest 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 an 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.
----------
As described by the rating companies themselves.
A4
<PAGE>
To provide more detailed indications of credit quality, the ratings AA to
BBB may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
A provisional rating, indicated by "p" following a rating, is sometimes
used by Standard & Poor's. It assumes the successful completion of the project
being financed by the issuance of the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
Moody's Bond Ratings
Aaa--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. Generally speaking, the safety
of obligations of this class is so absolute that with the occasional exception
of oversupply in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
Aa--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.
The market value of Aa bonds is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers of
rating symbols Aa, A and Baa are to give investors a more precise indication of
relative debt quality in each of the historically defined categories.
A5
<PAGE>
Conditional ratings, indicated by "Con", are sometimes given when the
security for the bond depends upon the completion of some act or the fulfillment
of some condition. Such bonds, are given a conditional rating that denotes their
probably credit statute upon completion of that act or fulfillment of that
condition.
A6
<PAGE>
TRUSTEES
Edward J. Boudreau, Jr.
Chairman
William A. Barron, III*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
William F. Glavin*
Patrick Grant*
Ralph Lowell, Jr.*
John A. Moore*
Patti McGill Peterson*
John W. Pratt*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President, Assistant Secretary
and Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
INVESTMENT SUB-ADVISER
John Hancock Advisers International Limited
34 Dover Street
London, England W1X3RA
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
Investors around the world have been watching Wall Street in awe for the better
part of 1995. Through October, the Standard & Poor's 500-Stock Index, a
widely-used barometer of stock performance, had grown by more than 25%.
Investors who stayed in the market after a disappointing 1994 have been
rewarded.
On another street, Pennsylvania Avenue, one of the hot topics many people
are watching is Medicare reform. While there's no clear-cut solution on the
horizon, today's Medicare debate should serve as another wake-up call to all
Americans about the need to have a financial plan and to save for retirement.
Whether or not the government changes the way health-care benefits are allotted
to senior citizens, the message is clear: your future security and well-being
lies in your own hands -- not Uncle Sam's.
We know you've heard it a hundred times. Pick up almost any financial
periodical today, and you'll see cover stories on retirement. Many of them will
perhaps scare you or make you think that the task of saving for retirement is
just too daunting. But take heart. We don't believe that and neither do many
financial experts.
Yet retirement planning is not to be taken lightly. To live the way you want
to -- the way you deserve to after all those years of hard work -- you need to
plan and save now, on a regular basis, no matter what your other costs, no
matter how small the amount, no matter what your current age. It may be easier
if you start earlier, but it's never too late.
Building a secure nest egg is indeed doable. Talk to your financial adviser
about establishing your retirement planning roadmap, if you haven't already. And
educate yourself by reading some of the many articles about how to save for
retirement. Take control of your future by saving today. That way, when it comes
time for retirement, you shouldn't have to think about any street but Easy
Street.
Sincerely,
/s/ Edward J. Boudreau, Jr.
---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
BY MICHAEL P. DICARLO,
CHIEF EQUITY OFFICER AND PORTFOLIO MANAGER
JOHN HANCOCK
SPECIAL OPPORTUNITIES FUND
GROWTH STOCKS DELIVER EARNINGS, OUTPERFORM BROADER MARKET; TECHNOLOGY
SURGES WHILE PRECIOUS METALS LAG
Declining interest rates, low inflation and steady corporate earnings helped
drive stocks sharply higher during the year. Growth stocks, because they
produced especially strong earnings in a generally weaker economy, drew
attention from Wall Street and outpaced the broader market. However, performance
varied across sectors. For example, while the Fund's technology stocks generally
fared extremely well, other sectors, such as precious metals, turned in only
lackluster numbers. The upshot was a mixed performance bag. In absolute terms,
the Fund performed quite well, more than making up for losses suffered in 1994.
In relative terms, however, the Fund lagged the average fund in its competitive
universe. For the year that ended October 31, 1995, Class A and Class B shares
of John Hancock Special Opportunities Fund had total returns at net asset value
of 17.53% and 16.77%, respectively, compared to 21.09% for the average capital
appreciation fund, according to Lipper Analytical Services.(1)
What follows is a sector-by-sector discussion of the Fund's performance. The
Fund seeks always to spread its investments among five sectors of the economy
we've identified as having unusual promise. Those five sectors have remained
unchanged since the last shareholder report six months ago.
TECHNOLOGY
With more than 40% of the Fund's total net assets, technology was the most
important sector in the Fund, and the best-performing.
[A 2" x 3" photo of Michael DiCarlo at bottom right. Caption reads: "Michael P.
DiCarlo, Portfolio Manager."]
[CAPTION]
"GROWTH STOCKS... DREW ATTENTION FROM WALL STREET AND
OUTPACED THE BROADER MARKET."
3
<PAGE>
John Hancock Funds - Special Opportunities Fund
"...TECHNOLOGY WAS THE MOST IMPORTANT SECTOR IN THE FUND, AND THE BEST
PERFORMING."
-------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
1. INTUIT 7.8%
2. CUC INTERNATIONAL 5.4%
3. AMERICA ONLINE 4.9%
4. CASCADE COMMUNICATIONS 4.7%
5. LINEAR TECHNOLOGY 4.6%
As a percentage of net assets on October 31, 1995
Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Intuit 7.8% 2) CUC International 5.4% 3)
America Online 4.9% 4) Cascade Communications 4.7% 5) Linear Technology 4.6%. A
footnote below reads "As a percentage of net assets on October 31, 1995."
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCORECARD
INVESTMENTS RECENT PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS
<S> <C> <C>
America OnLine [GRAPHIC] Captures mainstream subscribers
Intuit [GRAPHIC] Introduces online banking
New World Communications [GRAPHIC] Earnings disappointment
</TABLE>
Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investments"; the header for the right column is "Recent
performance ... and what's behind the numbers. The first listing is America
Online followed by an up arrow and the phrase "Captures mainstream subscribers."
The second listing is Intuit followed by an up arrow and the phrase "Introduces
online banking." The third listing is New World Communications followed by a
down arrow and the phrase "Earnings disappointment." Footnote below reads: See
"Schedule of Investment." Investment holdings are subject to change."
See "Schedule of Investments." Investment holdings are subject to change.
Technology stocks benefited from a confluence of powerful trends, including the
explosion in multimedia computing; the proliferation of semiconductors; the
introduction of Windows 95, which has increased demand for sophisticated
computer hardware; and the push among manufacturers and service providers to
achieve productivity gains through technology.
Several software providers were among the Fund's largest holdings. These
included Microsoft, designers of Windows 95, which has met sales projections
even though many large corporate users have yet to upgrade their systems; and
Intuit, an innovative designer of personal-finance software and a leader in
electronic home-banking services.
OIL AND GAS
Investing in energy stocks is one way to capitalize on exploding growth in the
world's developing markets. Fast-growing economies in places such as China and
India have a huge unmet demand for energy. And in this country, the surge in
popularity of high-consumption vehicles has helped increase demand for oil,
while the supply side of the equation remains unchanged. Energy stocks totaled
about 15% of the Fund's net assets at the end of October. Our focus has been on
oil, rather than natural gas, and on the specialty service companies, which have
more potential for dramatic earnings growth. Our largest investment in the
sector, for example, is Diamond Offshore Drilling. All they do is drill offshore
oil and gas wells. We also own Pride Petroleum Services, a contract driller
which provides rigs and crews to oil wells all over the world. Both Pride and
Diamond have been decent performers in a somewhat lackluster sector. Meanwhile,
Reading & Bates, another contract driller, has failed so far to meet
expectations. Overall, we believe it's still early in the game for energy
stocks. For now, we're being patient, waiting for the stocks to realize their
significant potential.
MEDIA/INFORMATION DISTRIBUTION
Various media and information distribution stocks accounted for about 14% of
the Fund's net assets at the end of October. This category continues to be
driven by the Fund's largest individual holding and its top performer for the
year: America Online (AOL). By targeting mainstream consumers, AOL has emerged
as the fastest growing distributor of online computer services. During
the period we sold three broadcaster stocks: Renaissance Communications,
Capital Cities/ABC and entertainment giant Walt Disney, which has a deal pending
to buy Capital Cities/ABC. To the extent the broadcasters depend on advertising
revenues, we
4
<PAGE>
John Hancock Funds - Special Opportunities Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended October 31, 1995." The chart is
scaled in increments of 10% from bottom to top, with 30% at the top and 0% at
the bottom. Within the chart there are three solid bars. The first represents
the 17.53% total return for the John Hancock Special Opportunities Fund: Class
A. The second represents the 16.77% total return for the John Hancock Special
Opportunities Fund: Class B. The third represents the 21.09% total return for
the average capital appreciation fund. A footnote below reads: "Total returns
for John Hancock Special Opportunities Fund are at net asset value with all
distributions reinvested. The average capital appreciation fund is tracked by
Lipper Analytical Services. (1) See following page for historical performance
information."]
see them as less promising candidates for growth going forward. In most cases,
their prices already reflect the expected increase in 1996 ad revenues
associated with the upcoming Olympics, political conventions and presidential
election. Perhaps our most disappointing stock in recent months has been New
World Communications, a programming producer and local station owner. We believe
it's a delay and not a disaster, but so far earnings have not come through as
expected.
HEALTH CARE
Health-care and medical stocks were only 10% of the Fund's net assets at the end
of the period. But that percentage is growing. Most of the companies we own and
target are those in a position to profit from the drive to contain costs, a
mission which the government seems to have relegated to the private sector. They
included Boston Scientific, a medical device manufacturer with a broad array of
products, many of which enable physicians to perform cheaper, less invasive
procedures.
PRECIOUS METALS
Precious metals accounted for only about 4% of the Fund's net assets,
distributed among a handful of stocks, including Kinross Gold. In the jewelry
industry, demand for precious metals has outstripped supply for the past six
years. Moreover, Chinese and Mexican citizens have begun buying gold in record
amounts to protect their wealth in an unstable economic environment. So far,
however, those powerful forces have had little effect on the price of gold. This
was the Fund's most disappointing sector.
OUTLOOK
In the months to come, we'll keep the Fund's holdings within the sectors
outlined above and we may try to improve our relative performance by making less
frequent sector rotations and giving our tactics more room to play themselves
out. Overall, we believe the stage remains set for growth stocks to keep
performing well. Positives include a market-friendly Congress, which seems
poised to deliver both a capital-gains tax cut and looser regulations concerning
IRAs. What's more, the economy seems to be plodding along in its slow growth
mode with many signs suggesting it will stay that way for a while. That bodes
well for companies like those favored by Special Opportunities Fund. They are
companies which are often better able to deliver earnings than the more
economically-sensitive cyclical companies.
[CAPTION]
"THE CLIMATE FOR GROWTH STOCKS REMAINS ATTRACTIVE."
------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Special Opportunities Fund. Total return is a
performance measure that equals the sum of all dividends and capital gains,
assuming reinvestment of these distributions and the change in the price of the
Fund's shares, expressed as a percentage of the Fund's average net assets.
Performance figures include the maximum applicable sales charge of 5% for Class
A shares. The effect of the maximum contingent deferred sales charge for Class B
shares (maximum 5% and declining to 0% over six years) is included in Class B
performance. Remember that all figures represent past performance and are no
guarantee of how the Fund will perform in the future. Also, keep in mind that
the total return and share price of the Fund's investments will fluctuate. As a
result, your Fund's shares may be worth more or less than their original cost,
depending on when you sell them. Please see your prospectus for risks associated
with industry segment investing.
Note: Participant-directed defined-contribution plans with at least 100 eligible
employees at inception of the Fund account may purchase Class A shares without
an initial sales charge as of March 15, 1995. If those shares are redeemed,
however, during the year following the calendar year end during which they were
purchased, a contingent deferred sales charge will be assessed.
CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ONE LIFE OF
YEAR FUND(1)
---- -------
<S> <C> <C>
John Hancock Special Opportunities Fund: Class A 17.98% 7.04%
John Hancock Special Opportunities Fund: Class B 18.50% 7.29%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ONE LIFE OF
YEAR FUND(1)
---- -------
<S> <C> <C>
John Hancock Special Opportunities Fund: Class A 17.98% 3.63%
John Hancock Special Opportunities Fund: Class B 18.50% 3.75%
</TABLE>
NOTES TO PERFORMANCE
(1) Both Class A and Class B shares started on November 1, 1993.
6
<PAGE>
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John Hancock
Special Opportunities Fund would be worth on October 31, 1995, assuming you had
invested on the day each class of shares started and reinvested all
distributions. For comparison, we've shown the same $10,000 investment in the
Standard & Poor's 500 Stock Index -- an unmanaged index that includes 500 widely
traded common stocks and is a commonly used measure of stock market performance.
[Special Opportunities Fund
Class A shares
Line chart with the heading Special Opportunities Fund: Class A, representing
the growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $13,128 as of October 31, 1995. The second line represents the value
of the hypothetical $10,000 investment made in the Special Opportunities Fund on
November 1, 1993, before sales charge, and is equal to $10,965 as of October 31,
1995. The third line represents the Special Opportunities Fund after sales
charge and is equal to $10,413 as of October 31, 1995.
Special Opportunities Fund
Class B shares
Line chart with the heading Special Opportunities Fund: Class B, representing
the growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $13,128 as of October 31, 1995. The second line represents the value
of the hypothetical $10,000 investment made in the Special Opportunities Fund on
November 1, 1993, before contingent deferred sales charge, and is equal to
$10,812 as of October 31, 1995. The third line represents the Special
Opportunities Fund after contingent deferred sales charge and is equal to
$10,312 as of October 31, 1995.]
7
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON OCTOBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
--------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $167,202,826).......................... $ 202,350,123
Joint repurchase agreement (cost - $25,672,000).............. 25,672,000
-------------
228,022,123
Receivable for shares sold.................................... 241,136
Receivable for investments sold............................... 24,025,617
Interest receivable........................................... 4,211
Dividends receivable.......................................... 67,410
Deferred organization expenses - Note A....................... 78,290
Other assets.................................................. 726
-------------
Total Assets................................ 252,439,513
-----------------------------------------------------------
LIABILITIES:
Temporary overdraft of cash................................... 243,454
Payable for shares repurchased................................ 129,854
Payable for investments purchased............................. 12,750,625
Payable to John Hancock Advisers, Inc. and
affiliates - Note B.......................................... 326,416
Accrued fees and expenses..................................... 63,754
-------------
Total Liabilities........................... 13,514,103
-----------------------------------------------------------
NET ASSETS:
Capital paid-in............................................... 209,681,269
Accumulated net realized loss on investments and
foreign currency transactions................................ ( 5,914,444)
Net unrealized appreciation of investments and
foreign currency transactions................................ 35,158,585
-----------
Net Assets.................................. $ 238,925,410
===========================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $101,561,612/10,902,887............................. $ 9.32
=============================================================================
Class B - $137,363,798/14,949,105............................. $ 9.19
=============================================================================
MAXIMUM OFFERING PRICE PER SHARE *
Class A - ($9.32 x 105.26%)................................... $ 9.81
=============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
** Class C shares commenced operations on July 6, 1994. All shares were
redeemed on April 11, 1995.
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended October 31, 1995
--------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest...................................................... $ 1,047,280
Dividends (net of foreign withholding taxes
of $53,585).................................................. 668,536
-------------
1,715,816
-------------
Expenses:
Investment management fee - Note B........................... 1,870,771
Distribution/service fee - Note B
Class A.................................................... 296,691
Class B.................................................... 1,348,679
Transfer agent fee - Note B.................................. 945,811
Printing..................................................... 47,581
Custodian fee................................................ 44,422
Trustees' fees............................................... 44,135
Organization expense - Note A................................ 26,046
Auditing fee................................................. 23,300
Legal fees................................................... 16,506
Miscellaneous................................................ 5,966
-------------
Total Expenses.............................. 4,669,908
-------------------------------------------------------------------------------
Net Investment Loss......................... ( 2,954,092)
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments sold......................... 17,052,914
Net realized loss on foreign currency transactions ........... ( 17,231)
Change in net unrealized appreciation/depreciation
of investments............................................... 23,246,748
Change in net unrealized appreciation/depreciation
of foreign currency transactions............................. 11,288
-------------
Net Realized and Unrealized
Gain on Investments and Foreign
Currency Transactions....................... 40,293,719
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations................... $ 37,339,627
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss....................................................................... ($ 2,954,092) ($ 1,363,789)
Net realized gain (loss) on investments sold and foreign currency transactions............ 17,035,683 ( 22,967,358)
Change in net unrealized appreciation/depreciation of investments and foreign currency
transactions............................................................................ 23,258,036 12,841,899
------------ ------------
Net Incease (Decrease) in Net Assets Resulting from Operations........................... 37,339,627 ( 11,489,248)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET*........................................................ ( 22,887,222) 235,962,253
------------ ------------
NET ASSETS:
Beginning of period....................................................................... 224,473,005 --
------------ ------------
End of period............................................................................. $238,925,410 $224,473,005
============ ============
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold........................................................ 3,199,395 $27,308,044 20,116,435 $167,224,012
Shares issued in reorganization - Note E........................... 1,058,125 7,921,550 -- --
---------- ------------ ----------- -------------
4,257,520 35,229,594 20,116,435 167,224,012
Less shares repurchased............................................ (5,001,778) ( 42,409,032) ( 8,469,290) ( 70,395,194)
---------- ------------ ----------- -------------
Net increase (decrease)............................................ ( 744,258) ($ 7,179,438) 11,647,145 $ 96,828,818
========== ============ =========== =============
CLASS B
Shares sold........................................................ 2,612,144 $21,533,048 19,318,988 $159,278,074
Shares issued in reorganization - Note E........................... 69,972 519,918 -- --
---------- ------------ ----------- -------------
2,682,116 22,052,966 19,318,988 159,278,074
Less shares repurchased............................................ (4,494,039) ( 37,589,041) ( 2,557,960) ( 20,304,549)
---------- ------------ ----------- -------------
Net increase (decrease)............................................ (1,811,923) ($15,536,075) 16,761,028 $138,973,525
========== ============ =========== =============
CLASS C**
Shares sold........................................................ 11,302 $ 89,560 21,556 $ 166,302
Less shares repurchased............................................ ( 32,055) ( 261,269) ( 803) ( 6,392)
---------- ------------ ----------- -------------
Net increase (decrease)............................................ ( 20,753) ($ 171,709) 20,753 $ 159,910
========== ============ =========== =============
** Class C shares commenced operations on July 6, 1994. All shares were redeemed
on April 11, 1995.
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, AND ANY INCREASE OR
DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE FUND. THE FOOTNOTE ILLUSTRATES
THE NUMBER OF FUND SHARES SOLD DURING THE PERIOD, ALONG WITH THE CORRESPONDING
DOLLAR VALUE.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the period indicated, investment returns, key
ratios and supplemental data are listed as follows:
----------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD NOVEMBER 1, 1993
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
OCTOBER 31, 1995 TO OCTOBER 31, 1994
---------------- -------------------------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................. $ 7.93 $ 8.50
-------- --------
Net Investment Loss.............................................. (0.07)(b) (0.03)(b)
Net Realized and Unrealized Gain (Loss) on Investments........... 1.46 (0.54)
-------- --------
Total from Investment Operations................................ 1.39 (0.57)
-------- --------
Net Asset Value, End of Period................................... $ 9.32 $ 7.93
======== ========
Total Investment Return at Net Asset Value....................... 17.53% (6.71%)(f)
Total Adjusted Investment Return at Net Asset Value (a).......... -- (6.83%)(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)........................ $101,562 $ 92,325
Ratio of Expenses to Average Net Assets **....................... 1.59% 1.50%
Ratio of Adjusted Expenses to Average Net Assets (a)............. -- 1.62%
Ratio of Net Investment Loss to Average Net Assets............... (0.87%) (0.41%)
Ratio of Adjusted Net Investment Loss to Average Net Assets (a).. -- (0.53%)
Portfolio Turnover Rate.......................................... 155% 57%
** Expense Reimbursement Per Share............................... -- $ 0.01(b)
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................. $ 7.87 $ 8.50
-------- --------
Net Investment Loss.............................................. (0.13)(b) (0.09)(b)
Net Realized and Unrealized Gain (Loss) on Investments........... 1.45 (0.54)
-------- --------
Total from Investment Operations................................ 1.32 (0.63)
-------- --------
Net Asset Value, End of Period................................... $ 9.19 $ 7.87
======== ========
Total Investment Return at Net Asset Value....................... 16.77% (7.41%)(f)
Total Adjusted Investment Return at Net Asset Value (a).......... -- (7.53%)(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)........................ $137,363 $131,983
Ratio of Expenses to Average Net Assets **....................... 2.30% 2.22%*
Ratio of Adjusted Expenses to Average Net Assets (a)............. -- 2.34%*
Ratio of Net Investment Loss to Average Net Assets............... (1.55%) (1.13%)*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a).. -- (1.25%)*
Portfolio Turnover Rate.......................................... 155% 57%
** Expense Reimbursement Per Share............................... -- $ 0.01(b)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
-------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD JULY 6, 1994
PERIOD ENDED (COMMENCEMENT OF OPERATIONS)
APRIL 11, 1995 TO OCTOBER 31, 1994
-------------- ----------------------------
<S> <C> <C>
CLASS C (e)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................... $ 7.94 $ 7.60
-------- --------
Net Investment Income.............................................. 0.01 --
Net Realized and Unrealized Gain on Investments.................... 0.29(d) 0.34(d)
-------- --------
Total From Investment Operations.................................. 0.30 0.34
-------- --------
Net Asset Value, End of Period..................................... $ 8.24 $ 7.94
======== ========
Total Investment Return at Net Asset Value......................... 3.40% (4.47%)
Total Adjusted Investment Return at Net Asset Value (a)............ -- (4.85%)(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).......................... $ 218 $ 165
Ratio of Expenses to Average Net Assets **......................... 0.98%* 1.01% *
Ratio of Adjusted Expenses to Average Net Assets (a)............... -- 1.39% *
Ratio of Net Investment Income to Average Net Assets............... 0.23%* 0.03% *
Ratio of Adjusted Net Investment Income to Average Net Assets (a).. -- (0.35%)*
Portfolio Turnover Rate............................................ N/A 57%
** Expense Reimbursement Per Share................................. -- $ 0.01(b)
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis without expense reduction.
(b) On average month end shares outstanding.
(c) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the adviser during the periods shown.
(d) May not accord to amounts shown elsewhere in the financial statements.
(e) Per share operating performance and the ratios and supplemental data are
calculated as of April 11, 1995, the date on which Class C shares were
redeemed.
(f) Without the reimbursement, total investment return would be lower.
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT LOSS, GAINS (LOSSES),
AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET ASSET VALUE
FOR A SHARE HAS CHANGED SINCE THE COMMENCEMENT OF OPERATIONS. ADDITIONALLY,
IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE FINANCIAL STATEMENTS
ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
SPECIAL OPPORTUNITIES FUND ON OCTOBER 31, 1995. IT'S DIVIDED INTO TWO MAIN
CATEGORIES: COMMON STOCKS AND SHORT-TERM INVESTMENTS. THE COMMON STOCKS ARE
FURTHER BROKEN DOWN BY INDUSTRY GROUPS. SHORT-TERM INVESTMENTS, WHICH REPRESENT
THE FUND'S "CASH" POSITION, ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
October 31, 1995
--------------------------------------------------------------------------------
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
------------------- ---------------- -----
<S> <C> <C>
COMMON STOCKS
AUDIO/VIDEO (2.59%)
Polygram NV (Netherlands).................... 100,000* $ 6,200,000
------------
BROADCASTING (0.34%)
New World Communications Group, Inc.**....... 49,900* 823,350
------------
COMPUTERS (19.21%)
HBO & Co..................................... 35,000* 2,476,250
Intuit, Inc.**............................... 259,900* 18,712,800
Microsoft Corp.**............................ 75,000 7,500,000
Parametric Technology Co.**.................. 35,000* 2,340,625
Sun Microsystems, Inc.**..................... 52,000* 4,056,000
3Com Corp.**................................. 230,000* 10,810,000
------------
45,895,675
------------
CONSTRUCTION (0.24%)
Australian National Industries, Ltd.
(Australia)................................. 200,000 156,680
CEMEX SA (Class B) American Depositary
Receipt (ADR) (Mexico)...................... 18,812 60,466
Ekran Berhad (Malaysia)...................... 70,000 177,548
Hopewell Holdings (Hong Kong)................ 200,000 126,100
Tolmex SA de CV (Mexico)**................... 11,000 41,749
------------
562,543
------------
DIVERSIFIED OPERATIONS (5.65%)
CUC International Inc.**..................... 375,000 12,984,375
Hutchinson Whampoa (Hong Kong)............... 50,000 275,485
Ogden Corp................................... 10,000 227,500
------------
13,487,360
------------
ELECTRICAL (0.00%)
Consolidated Electric Power Asia Ltd.
(Hong Kong)................................. 1,503 3,042
------------
ELECTRONICS (10.45%)
HADCO Corp.**................................ 85,000* 2,380,000
Helix Technology Corp........................ 86,200 3,232,500
Linear Technology Corp....................... 250,000* 10,937,500
Micron Technology, Inc....................... 35,000* 2,471,875
SCI Systems, Inc.**.......................... 169,100* 5,939,638
------------
24,961,513
------------
ENGINEERING (0.24%)
Fluor Corp................................... 5,000 282,500
Foster Wheeler Corp.......................... 8,000 300,000
------------
582,500
------------
HAZARDOUS WASTE (1.15%)
Handex Environmental Recovery, Inc.**........ 16,000 100,000
TETRA Technologies, Inc.**................... 200,000 2,650,000
------------
2,750,000
------------
HEALTHCARE (4.37%)
HealthCare COMPARE Corp.**................... 80,000* 2,960,000
Healthsource, Inc.**......................... 95,000* 5,035,000
Johnson & Johnson............................ 30,000* 2,445,000
------------
10,440,000
------------
LEISURE & RECREATION (3.74%)
Walt Disney Co., (The)....................... 155,000* 8,931,875
------------
MEDICAL (5.38%)
Boston Scientific Corp.**.................... 230,000* 9,688,750
Community Health Systems, Inc.**............. 100,000* 3,175,000
------------
12,863,750
------------
METALS (3.54%)
Asarco, Inc.................................. 70,000* 2,257,500
Kinross Gold Corp. (Canada)**................ 385,100* 2,863,141
Newmont Gold Co.............................. 37,000* 1,332,000
Prime Resource Group, Inc. (Canada)**........ 140,000* 1,014,846
Santa Fe Pacific Gold Corp................... 100,000* 987,500
------------
8,454,987
------------
OIL & GAS (15.48%)
Cairn Energy USA, Inc.**..................... 147,000* 1,764,000
Chesapeake Energy Corp.**.................... 100,000* 2,925,000
Diamond Offshore Drilling, Inc.**............ 88,000* 2,189,000
Falcon Drilling Co., Inc.**.................. 435,000* 4,513,125
Global Marine, Inc.**........................ 450,000* 2,925,000
Nabors Industries, Inc.**.................... 540,000* 4,657,500
Pride Petroleum Services, Inc.**............. 536,800* 4,697,000
Reading & Bates Corp.**...................... 420,000* 4,830,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
------------------- ---------------- -----
<S> <C> <C>
OIL & GAS (CONTINUED)
Sonat Offshore Drilling Co................... 130,000* $ 4,127,500
Triton Energy Corp.**........................ 93,600* 4,364,100
------------
36,992,225
------------
PUBLISHING (1.29%)
Scholastic Corp.**........................... 50,000* 3,087,500
------------
SOLID WASTE (0.29%)
Brambles Industries Ltd. (Australia)......... 30,000 318,561
Laidlaw, Inc. (Class B)...................... 23,500 211,500
Waste Management Intl., PLC, (ADR)
(United Kingdom)**.......................... 15,000 151,875
------------
681,936
------------
TELECOMMUNICATIONS (10.54%)
America Online, Inc.**....................... 145,000 11,600,000
Cascade Communications Corp.**............... 158,000* 11,257,500
U.S. Order, Inc.**........................... 155,000* 2,325,000
------------
25,182,500
------------
WATER TREATMENT (0.19%)
Compagnie Generale des Eaux (France)......... 1,316 122,243
Lyonnaise Des Eaux Dumez (France )........... 2,000 194,976
Wessex Water, PLC (United Kingdom)........... 25,000 132,148
------------
449,367
------------
TOTAL COMMONS STOCKS
(Cost $167,202,826) 84.69% 202,350,123
------- ------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE
RATE (000'S OMITTED)
---- ---------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (10.74%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets Inc. -
Dated 10-31-95, Due 11-01-95
(secured by U.S. Treasury Bond,
8.75% Due 05-15-17,
and by U.S. Treasury Note, 5.75%
Due 09-30-97) - Note A............ 5.89% $25,672 25,672,000
------------
TOTAL SHORT-TERM INVESTMENTS 10.74% 25,672,000
------- ------------
TOTAL INVESTMENTS 95.43% $228,022,123
======= ============
</TABLE>
* Securities other than short-term investments, newly added to the
portfolio during the period ended October 31,1995.
** Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
PORTFOLIO CONCENTRATION (UNAUDITED)
--------------------------------------------------------------------------------
THE SPECIAL OPPORTUNITIES FUND INVESTS PRIMARILY IN SECURITIES ISSUED IN THE
UNITED STATES OF AMERICA. THE PERFORMANCE OF THE FUND IS CLOSELY TIED TO THE
ECONOMIC AND FINANCIAL CONDITIONS WITHIN THE COUNTRIES IN WHICH IT INVESTS. THE
CONCENTRATION OF INVESTMENTS BY INDUSTRY CATEGORY FOR INDIVIDUAL SECURITIES HELD
BY THE FUND IS SHOWN IN THE SCHEDULE OF INVESTMENTS.
IN ADDITION, CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY VARIOUS
COUNTRIES. THE TABLE BELOW SHOWS THE PERCENTAGES OF THE FUND'S INVESTMENTS AT
OCTOBER 31, 1995 ASSIGNED TO COUNTRY CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
----------------------- ---------------
<S> <C>
Australia.................................................... 0.20%
Canada....................................................... 1.62
France....................................................... 0.13
Hong Kong.................................................... 0.17
Malaysia..................................................... 0.07
Mexico....................................................... 0.04
Netherlands.................................................. 2.59
United Kingdom............................................... 0.12
United States................................................ 79.75
Short-term Investments....................................... 10.74
-----
TOTAL INVESTMENTS 95.43%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust II (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of five series portfolios: John Hancock Special Opportunities Fund (the "Fund,")
John Hancock Global Fund, John Hancock Global Income Fund, John Hancock
Short-Term Strategic Income Fund and John Hancock International Fund. Prior to
January 1, 1995, John Hancock Global Fund was known as John Hancock Freedom
Global Fund, John Hancock Global Income Fund was known as John Hancock Freedom
Global Income Fund and John Hancock International Fund was known as John Hancock
Freedom International Fund.
The Trustees have authorized the issuance of two classes of shares of the
Fund, designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemption, dividends, and liquidation, except that certain
expenses, subject to the approval of the Trustees, may be applied differently to
each class of shares in accordance with current regulations of the
Securities and Exchange Commission. Shareholders of a class which bears
distribution/ service expenses under the terms of a distribution plan, have
exclusive voting rights regarding such distribution plan. Class C shares were
outstanding during the period from July 6, 1994 through April 11, 1995, but the
Trustees terminated Class C shares as of May 1, 1995. Significant accounting
policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described under the heading "Foreign Currency
Translation."
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $5,914,444 of a capital
loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforwards are used by the Fund,
no capital gain distributions will be made. The carryforward expires October 31,
2002.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
be calculated in the same manner, at the same time and will be in the same
amount, except for the effect of expenses that may be applied differently to
each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that offset by the currency amount of the underlying
transaction.
At October 31, 1995, there were no open forward foreign currency exchange
contracts.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or U.S.
government securities, known as "initial margin," equal to a certain percentage
of the value of the financial futures contract being traded. Each day, the
futures contract is valued at the official settlement price of the board of
trade or U.S. commodities exchange. Subsequent payments, known as "variation
margin," to and from the broker are made on a daily basis as the market price of
the financial futures contract fluctuates. Daily variation margin adjustments,
arising from
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
this "mark to market," are recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contract may not
correlate with changes in the value of the underlying securities.
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At October 31, 1995, there were no open positions in financial futures
contracts.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five-year period that began with the commencement of investment
operations of the Fund.
NOTE B --
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to the sum of: (a) 0.80% of the first $500,000,000 of the
Fund's average daily net asset value, (b) 0.75% of the next $500,000,000 and (c)
0.70% of the Fund's average daily net asset value in excess of $1,000,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess, and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
The Adviser has agreed to limit the Fund's expenses, including the
management fee (but not including the transfer agent and 12b-1 fee) further to
the extent required to prevent expenses from exceeding 0.90% of the Fund's
average daily net asset value, exclusive of certain expenses prescribed by state
law. For the period ended October 31, 1995, no reduction in the Adviser's fee
was necessary. The Adviser reserves the right to terminate this agreement at any
time.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. Prior to January 1, 1995 JH
Funds was known as John Hancock Broker Distribution Services, Inc. For the
period ended October 31, 1995, net sales charges received with regard to sales
of Class A shares amounted to $443,675. Out of this amount, $67,560 was retained
and used for printing prospectuses, advertising, sales literature and other
purposes, $156,268 was paid as sales commissions to unrelated broker-dealers and
$219,847 was paid as sales commissions to sales personnel of John Hancock
Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated ("Tucker
Anthony") and Sutro & Co., ("Sutro"), all of which are broker dealers. The
Adviser's indirect parent, John Hancock Mutual Life Insurance Company, is the
indirect sole shareholder of Distributors and John Hancock Freedom Securities
Corporation and its subsidiaries which include Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from CDSC are paid to JH Funds and are used in whole or in part to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended October 31,
1995, contingent deferred sales charges paid to JH Funds amounted to $741,870.
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
Rule 12b-1 under the Investment Company Act of 1940. Accordingly, the Fund will
make payments to JH Funds for distribution and service expenses, at an annual
rate not to exceed 0.30% of Class A average daily net assets and 1.00% of Class
B average daily net assets to reimburse JH Funds for its distribution/service
costs. Up to a maximum of 0.25% of such payments may be service fees as defined
by the amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc. Prior to January 1, 1995, the Fund paid Investor
Services a monthly transfer agent fee equivalent, on an annual basis, to 0.30%
and 0.32% of the average daily net asset value of Class A and Class B shares of
the Fund, respectively, plus out-of-pocket expenses incurred by Fund Services on
behalf of the Fund. For the period January 1, 1995 through September 30, 1995
Class A and Class B shares paid transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses. For the period November
1, 1994 and through April 11, 1995, Class C shares paid a monthly transfer agent
fee equivalent, on an annual basis, to 0.10% of the average daily net asset
value of Class C shares plus out-of-pocket expenses incurred by Fund Services.
All Class C shares were redeemed on April 11, 1995. For the eleven months ended
September 30, 1995 the transfer agent expense, calculated as a class specific
expense was $356,361 for Class A and $497,061 for Class B, respectively. For the
period November 1, 1994 and through April 11, 1995, the transfer agent expense
for Class C shares amounted to $81. Effective October 1, 1995 transfer agent
expense is being treated as a fund expense based on the number of shareholder
accounts in the Fund and certain out-of-pocket expenses.
Edward J. Boudreau, Jr. is a director and officer of the Adviser, and its
affiliates as well as a Trustee of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund will make investments into other John Hancock Funds,
as applicable, to cover its liability for the deferred compensation. Investments
to cover the Fund's deferred compensation liability will be recorded on the
Fund's books as an other asset. The deferred compensation liability and the
investment to cover the liability will be marked to market on a periodic basis
to reflect income earned by the investment.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended October 31, 1995 aggregated $328,853,750 and $327,825,528, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended October 31, 1995.
The cost of investments owned at October 31, 1995 for Federal income tax
purposes was $192,874,826. Gross unrealized appreciation and depreciation of
investments aggregated $40,334,138 and $5,186,841, respectively, resulting in
net unrealized appreciation of $35,147,297.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1995, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments and foreign
currency transactions of $17,231, a decrease in distributions in excess of net
investment income of $2,954,092 and a decrease in capital paid-in of $2,971,323.
This represents the cumulative amount necessary to report these balances on a
tax basis, excluding certain temporary differences, as of October 31, 1995.
Additional adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
asset value of the Fund, are primarily attributable to the treatment of net
operating losses in the computation of distributable income and capital gains
under federal tax rules versus generally accepted accounting principle.
NOTE E --
REORGANIZATION
On November 30, 1994, the shareholders of John Hancock Environmental Fund (JHEF)
approved a plan of reorganization between JHEF and the Fund providing for the
transfer of substantially all of the assets and liabilities of JHEF to the Fund
in exchange solely for Class A shares and Class B shares of the Fund. The
acquisition was accounted for as a tax free exchange of 1,058,125 Class A
shares, and 69,972 Class B shares of John Hancock Special Opportunities Fund for
the net assets of JHEF, which amounted to $7,921,550 and $519,918 for Class A
and Class B shares, respectively, including $941,350 of unrealized depreciation,
after the close of business at December 16, 1994.
18
<PAGE>
John Hancock Funds - Special Opportunities Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Special Opportunities Fund and the Trustees
of John Hancock Freedom Investment Trust II
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of John Hancock Special Opportunities
Fund (the "Fund") (a portfolio of John Hancock Freedom Investment Trust II) at
October 31, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1995 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 14, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during the fiscal year ended October
31, 1995.
The Fund has not paid any distributions of dividends or net realized gains
during the fiscal year.
19
<PAGE>
FREEDOM INVESTMENT TRUST
consisting of five series
which are included herein:
- John Hancock Sovereign U.S. Government Income Fund
- John Hancock Managed Tax-Exempt Fund
- John Hancock Gold & Government Fund
- John Hancock Sovereign Achievers Fund
- John Hancock Regional Bank Fund
and
FREEDOM INVESTMENT TRUST II
consisting of five series,
two of which are included herein:
- John Hancock Global Fund
- John Hancock Global Income Fund
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1996
This Statement of Additional Information provides information about
John Hancock Sovereign U.S. Government Income Fund, John Hancock Managed
Tax-Exempt Fund, John Hancock Gold & Government Fund, John Hancock Sovereign
Achievers Fund, John Hancock Regional Bank Fund, John Hancock Global Fund and
John Hancock Global Income Fund in addition to the information that is contained
in the Funds' Class A and Class B 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 Funds' Prospectuses, a copy of which can be
obtained free of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
1
<PAGE>
TABLE OF CONTENTS
-----------------
Statement of
Additional
Information
Page
ORGANIZATION OF THE FUNDS 3
INVESTMENT OBJECTIVES AND POLICIES 3
---John Hancock Sovereign U.S. Government Income Fund
---John Hancock Managed Tax-Exempt Fund
---John Hancock Gold & Government Fund
---John Hancock Sovereign Achievers Fund
---John Hancock Regional Bank Fund
---John Hancock Global Fund
---John Hancock Global Income Fund
THE FUNDS' OPTIONS TRADING ACTIVITIES 19
THE FUNDS' INVESTMENTS IN FUTURES CONTRACTS 26
CERTAIN INVESTMENT PRACTICES. 31
INVESTMENT RESTRICTIONS 36
TAX STATUS 40
THOSE RESPONSIBLE FOR MANAGEMENT 46
INVESTMENT ADVISORY AND OTHER SERVICES 53
DISTRIBUTION CONTRACTS 56
NET ASSET VALUE 59
INITIAL SALES CHARGE ON CLASS A SHARES 60
DEFERRED SALES CHARGE ON CLASS B SHARES 61
SPECIAL REDEMPTIONS 62
ADDITIONAL SERVICES AND PROGRAMS 62
DESCRIPTION OF THE FUNDS' SHARES 64
CALCULATION OF PERFORMANCE 65
BROKERAGE ALLOCATION 70
DISTRIBUTIONS 73
TRANSFER AGENT SERVICES 75
CUSTODY OF PORTFOLIO 75
INDEPENDENT ACCOUNTANTS 75
APPENDIX A - BOND AND COMMERCIAL 76
PAPER RATINGS 77
FINANCIAL STATEMENTS --
2
<PAGE>
ORGANIZATION OF THE FUNDS
Freedom Investment Trust is a diversified open-end management
investment company organized as a Massachusetts business trust on March 29,
1984. Freedom Investment Trust was originally organized under the name Freedom
Gold & Government Trust. It changed its name to Freedom Investment Trust on July
22, 1985. The Trustees have authority to issue an unlimited number of shares of
beneficial interest of separate series without par value. To date, five series
of Freedom Investment Trust have been authorized for sale to the public by the
Board of Trustees: John Hancock Gold & Government Fund (formerly John Hancock
Freedom Gold & Government Trust), created on March 29, 1984 ("Gold & Government
Fund"), John Hancock Regional Bank Fund (formerly John Hancock Freedom Regional
Bank Fund), created on April 2, 1985 ("Regional Bank Fund"), John Hancock
Sovereign U.S. Government Income Fund (formerly Freedom Government Income Fund),
created on January 16, 1986 ("Government Fund"), John Hancock Sovereign
Achievers Fund (formerly Freedom Equity Value Fund), created on January 16, 1986
("Sovereign Achievers Fund"), and John Hancock Managed Tax-Exempt Fund (formerly
John Hancock Freedom Managed Tax Exempt Fund).
Freedom Investment Trust II (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on March 31,
1986. The Trust currently has five series of shares, John Hancock Global Fund
(formerly John Hancock Freedom Global Fund), created on March 31, 1986 ("Global
Fund"), John Hancock Global Income Fund (formerly John Hancock Freedom Global
Income Fund), created on July 30, 1986 ("Global Income Fund") and John Hancock
Short-Term Strategic Income Fund (formerly John Hancock Freedom Short-Term World
Income Fund), created on July 31, 1990; John Hancock Special Opportunities Fund,
created on November 1, 1993 ("Special Opportunities Fund"), and John Hancock
International Fund (formerly John Hancock Freedom International Fund), created
on January 3, 1994 ("International Fund").
Freedom Investment Trust and Freedom Investment Trust II may be
referred to individually as a "Trust" and collectively as the "Trusts". Gold &
Government Fund, Regional Bank Fund, Government Fund, Sovereign Achievers Fund,
Managed Tax-Exempt Fund, Global Fund and Global Income Fund may be referred to
individually as a "Fund" and collectively as the "Funds."
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each Fund's
investment objectives and policies discussed in each Fund's respective
Prospectus. The Adviser for all the Funds is John Hancock Advisers, Inc. (the
"Adviser"). John Hancock Advisers International Limited ("JH Advisers
International") is the Sub-Adviser for the Global Fund.
3
<PAGE>
John Hancock Sovereign U.S. Government Income Fund
--------------------------------------------------
The Adviser believes that a high current income consistent with
long-term total return may be derived from: (i) interest income from Government
Securities; (ii) income from premiums from expired put and call options on
Government Securities written by the Government Fund; (iii) net gains from
closing purchase and sale transactions with respect to options on Government
Securities; and (iv) net gains from sales of portfolio securities on exercise of
options or otherwise.
Since interest yields on Government Securities and opportunities to
realize net gains from options transactions may vary from time to time because
of general economic and market conditions and many other factors, it is
anticipated that the Government Fund's share price and yield will fluctuate, and
there can be no assurance that the Government Fund's objective will be achieved.
Government Securities
---------------------
U.S. TREASURY SECURITIES. The Government Fund may invest in U.S. Treasury
securities, including Bills, Notes, Bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and differ primarily in their interest rates, the lengths of their
maturities and the times of their issuance.
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Government Fund may also invest in securities issued by
agencies of the U.S. Government or instrumentalities established or sponsored by
the U.S. Government. The obligations, including those which are guaranteed by
Federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Government Fund must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its commitments.
Securities in which the Government Fund may invest but which are not backed by
the full faith and credit of the United States include but are not limited to
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation ("FHLMC") and the United States Postal Service, each of which has
the right to borrow from the United States Treasury to meet its obligations, and
obligations of the Federal Farm Credit System, the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Banks, the obligations of which
may only be satisfied by the individual credit of the issuing agency.
Obligations of the Government National Mortgage Association ("GNMA"), the
Farmers Home Administration and the Export-Import Bank are backed by the full
faith and credit of the United States.
Securities of International Bank for Reconstruction and Development
-------------------------------------------------------------------
The Government Fund may also purchase obligations of the International
Bank for Reconstruction and Development ("World Bank"), which, while technically
not a U.S. Government agency or instrumentality, has the right to borrow from
the participating countries, including the United States.
4
<PAGE>
Mortgage-Related Securities
---------------------------
The Government Fund may invest in mortgage-backed securities, including
those representing an undivided ownership interest in a pool of mortgage loans,
e.g., securities of the GNMA and pass-through securities issued by the FHLMC and
FNMA.
GNMA CERTIFICATES. Certificates of the Government National Mortgage Association
("GNMA Certificates") are mortgage-backed securities, which evidence an
undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds in that the principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA Certificates
that the Government Fund purchases are the "modified pass-through" type.
"Modified pass-through" GNMA Certificates entitle the holder to receive a share
of all interest and principal payments paid and owed on the mortgage pool, net
of fees paid to the "issuer" and GNMA, regardless of whether or not the
mortgagor actually makes the payment.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or the Farmers' Home
Administration ("FMHA"), or guaranteed by the Veterans Administration ("VA").
The GNMA guarantee is backed by the full faith and credit of the United States.
The GNMA is also empowered to borrow without limit from the U.S. Treasury if
necessary to make any payments required under its guarantee.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is likely to
be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before the contractual maturity of the mortgages in the pool.
Foreclosures impose no risk to principal investment because of the GNMA
guarantee. Because they represent the underlying mortgages, GNMA Certificates
may not be an effective means of locking in long-term interest rates due to the
need for the Government Fund to reinvest scheduled and unscheduled principal
payments. At the time principal payments or prepayments are received by the
Government Fund, prevailing interest rates may be higher or lower than the
current yield of the Fund's portfolio.
Statistics published by the FHA indicate that the average life of
single-family dwelling mortgages with 25- to 30-year maturities, the type of
mortgages backing the vast majority of GNMA Certificates, is approximately 12
years. However, because prepayment rates of individual mortgage pools vary
widely, it is not possible to predict accurately the average life of a
particular issue of GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest on GNMA
Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, by the amount of the fees
paid to GNMA and the issuer.
5
<PAGE>
The coupon rate by itself, however, does not indicate the yield which
will be earned on GNMA Certificates. First, GNMA Certificates may be issued at a
premium or discount, rather than at par, and, after issuance, GNMA Certificates
may trade in the secondary market at a premium or discount. Second, interest is
earned monthly, rather than semi-annually as with traditional bonds; monthly
compounding raises the effective yield earned. Finally, the actual yield of a
GNMA Certificate is influenced by the prepayment experience of the mortgage pool
underlying it. For example, if the higher-yielding mortgages from the pool are
prepaid, the yield on the remaining pool will be reduced. Prepayments of
principal by mortgagors (which can be made at any time without penalty) may
increase during periods when interest rates are falling.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation was created in 1970
through enactment of Title III of the Emergency Home Finance Act of 1970. Its
purpose is to promote development of a nationwide secondary market in
conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities,
mortgage participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool. The FHLMC guarantees timely payment of interest on PCs and the full return
of principal.
GMC's also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal once
a year in guaranteed minimum payments.
FNMA SECURITIES. The Federal National Mortgage Association was established in
1938 to create a secondary market in mortgages insured by the FHA.
FNMA ISSUED GUARANTEED MORTGAGE PASS-THROUGH CERTIFICATES ("FNMA CERTIFICATES").
FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate
represents a pro rata share of all interest and principal payments made and owed
on the underlying pool. FNMA guarantees timely payment of interest on FNMA
Certificates and the full return of principal.
COLLATERALIZED MORTGAGE-BACKED OBLIGATIONS ("CMO'S"). CMOs are
fully-collateralized bonds which are the general obligations of the issuer
thereof, either the U.S. Government or a U.S. Government instrumentality. Such
bonds generally are secured by an assignment to a trustee (under the indenture
pursuant to which the bonds are issued) of collateral consisting of a pool of
mortgages. Payments with respect to the underlying mortgages generally are made
to the trustee under the indenture. Payments of principal and interest on the
underlying mortgages are not passed through to the holders of the CMOs as such
(i.e. the character of payments of principal and interest is not passed through,
and therefore payments to holders of CMOs attributable to interest paid and
principal repaid on the underlying mortgages do not necessarily constitute
income and return of capital, respectively, to such holders), but such payments
are dedicated to payment of interest on and repayment of principal of the CMOs.
CMOs often are issued in two or more classes with varying maturities and stated
rates of interest. Because interest and principal payments on the underlying
mortgages are not passed through to holders of CMOs, CMOs of
6
<PAGE>
varying maturities may be secured by the same pool of mortgages, the payments on
which are used to pay interest on each class and to retire successive maturities
in sequence. Unlike other mortgage-backed securities (discussed above), CMOs are
designed to be retired as the underlying mortgages are repaid. In the event of
prepayment on such mortgages, the class of CMO first to mature generally will be
paid down. Therefore, although in most cases the issuer of CMOs will not supply
additional collateral in the event of such prepayment, there will be sufficient
collateral to secure CMOs that remain outstanding.
INVERSE FLOATING RATE SECURITIES. The Government Fund may invest in inverse
floating rate securities. It is the current intention of the Fund to invest no
more than 5% of its net assets in inverse floating rate securities. The interest
rate on an inverse floating rate security resets in the opposite direction from
the market rate of interest to which the inverse floating rate security is
indexed. An inverse floating rate security may be considered to be leveraged to
the extent that its interest rate varies by a multiple of the index rate of
interest. A higher degree of leverage in the inverse floating rate security is
associated with greater volatility in the market value of such security.
The inverse floating rate securities that the Government Fund may
invest in include but are not limited to, an inverse floating rate class of a
government agency issued CMO and a government agency issued yield curve note.
Typically, an inverse floating rate class of a CMO is one of two components
created from the cash flows from a pool of fixed rate mortgages. The other
component is a floating rate security in which the amount of interest payable
varies directly with a market interest rate index. A yield curve note is a fixed
income security that bears interest at a floating rate that is reset
periodically based on an interest rate benchmark. The interest rate resets on a
yield curve note in the opposite direction from the interest rate benchmark.
Portfolio Turnover
------------------
If the Government Fund writes a number of call options and the market
prices of the underlying securities appreciate, or if the Fund writes a number
of put options and the market prices of the underlying securities depreciate,
there may be a substantial turnover of the portfolio. While the Government Fund
will pay commissions in connection with its options transactions, Government
Securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission. Nevertheless, high
portfolio turnover may involve correspondingly greater commissions and other
transaction costs, which will be borne directly by the Fund.
John Hancock Managed Tax-Exempt Fund
------------------------------------
Municipal Securities
--------------------
Municipal securities are issued by or on behalf of states, territories
and possessions of the United States and their political subdivisions, agencies
and instrumentalities to obtain funds for various public purposes. The interest
on these obligations is generally exempt from federal income tax in the hands of
most investors. The two principal classifications of municipal securities are
"Notes" and "Bonds".
7
<PAGE>
MUNICIPAL NOTES. Municipal Notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less. Municipal Notes
include: Project Notes (which carry a U.S. Government guarantee), Tax
Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes and
Construction Loan Notes.
Project Notes are issued by public bodies (called "Local Issuing
Agencies") created under the laws of a state, territory, or U.S. possession.
They have maturities that range up to one year from the date of issuance.
Project Notes are backed by an agreement between the Local Issuing Agency and
the U.S. Department of Housing and Urban Development to provide financing for a
range of programs of financial assistance for housing, redevelopment, and
related needs such as low-income housing programs and urban renewal programs.
While they are the primary obligations of the local public housing agencies or
the local urban renewal agencies, the agreement provides for the additional
security of the full faith and credit of the U.S. Government.
Tax Anticipation Notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. Revenue Anticipation Notes are issued in
expectation of receipt of other types of revenue such as federal revenues
available under the Federal Revenue Sharing Program. Tax Anticipation Notes and
Revenue Anticipation Notes are generally issued in anticipation of various
seasonal revenues such as income, sales, use, and business taxes. Bond
Anticipation Notes are sold to provide interim financing. These notes are
generally issued in anticipation of long-term financing in the market. In most
cases, these monies provide for the repayment of the notes. Construction Loan
Notes are sold to provide construction financing. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the Federal Housing Administration under "Fannie Mae" (the Federal
National Mortgage Association) or "Ginnie Mae" (the Government National Mortgage
Association). There are, of course, a number of other types of notes issued for
different purposes and secured differently from those described above.
MUNICIPAL BONDS. Municipal Bonds, which meet longer term capital needs and
generally have maturities of more than one year when issued, have two principal
classifications: "General Obligation" Bonds and "Revenue" Bonds.
Issuers of General Obligation Bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to fund
a wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of General Obligation Bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate or amount of special assessments.
The principal security for a Revenue Bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
Bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service
8
<PAGE>
reserve fund whose monies may also be used to make principal and interest
payments on the issuer's obligations. Housing finance authorities have a wide
range of security including partially or fully insured, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. In addition to a debt service reserve fund, some authorities provide
further security in the form of a state's ability (without obligation) to make
up deficiencies in the debt service reserve fund. Lease rental revenue bonds
issued by a state or local authority for capital projects are secured by annual
lease rental payments from the state or locality to the authority sufficient to
cover debt service on the authority's obligations.
Industrial Development and Pollution Control Bonds, although nominally
issued by municipal authorities, are generally not secured by the taxing power
of the municipality but are secured by the revenues of the authority derived
from payments by the industrial user.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. Variable and floating rate
municipal obligations are tax-exempt obligations that provide for a periodic
adjustment in the interest rate paid on the obligations. Certain of these
obligations also permit the holder to demand payment of the unpaid principal
balance plus accrued interest upon a specified number of days' notice either
from the issuer or by drawing on a bank letter of credit or comparable guarantee
issued with respect to such obligations. The issuer of such an obligation may
have a corresponding right to prepay in its discretion the outstanding principal
of the obligation plus accrued interest upon notice comparable to that required
for the holder to demand payment.
The principal and accrued interest payable to the Managed Tax-Exempt
Fund on certain floating rate demand obligations is frequently supported by an
irrevocable letter of credit or comparable guarantee of a financial institution
(generally a commercial bank).
The terms of such variable and floating rate municipal obligations
provide that interest rates are adjustable at intervals ranging from weekly up
to annually. Interest rate adjustments on floating rate obligations are based
upon the prime rate of a bank or other appropriate interest rate adjustment
index. Variable and floating rate obligations are subject to the quality
characteristics for municipal obligations described in the Appendix to this
Statement of Additional Information.
OTHER MUNICIPAL SECURITIES. There is, in addition, a variety of hybrid and
special types of municipal securities as well as numerous differences in the
security of municipal securities both within and between the two principal
classifications above.
For the purpose of certain requirements of various of the Fund's
investment restrictions, identification of the "issuer" of a municipal security
depends on the terms and conditions of the security. When the assets and
revenues of a political subdivision are separate from those of the government
which created the subdivision and the security is backed only by the assets and
revenues of the subdivision, the subdivision would be deemed to be the sole
issuer. Similarly, in the case of an industrial development bond, if that bond
is backed only by the assets and revenues of the nongovernmental user, then the
nongovernmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity guarantees the
security, the guarantee would be considered a separate security and would be
treated as an issue of the government or other agency.
9
<PAGE>
Ratings as Investment Criteria
------------------------------
(See Appendix A.) In general, the ratings of Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent the
opinions of these agencies as to the quality of the municipal securities which
they rate. It should be emphasized, however, that such ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Managed Tax-Exempt Fund as initial criteria for the selection of
portfolio securities, but the Fund will also rely upon the independent advice of
the Adviser to evaluate potential investments. Among the factors which will be
considered are the long-term ability of the issuer to pay principal and interest
and general economic trends. Appendix A contains further information concerning
the ratings of Moody's and S&P and their significance.
Subsequent to its purchase by the Managed Tax-Exempt Fund, an issue of
municipal securities may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Managed Tax-Exempt Fund. Neither event
will require the sale of such municipal securities by the Fund, but the Adviser
will consider such event in its determination of whether the Fund should
continue to hold the securities.
Risk Factors
------------
The yields on municipal securities are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions of the municipal securities market, size of a particular
offering, maturity of the obligation, and rating of the issue.
Municipal securities are also subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. There is also
the possibility that as a result of litigation or other conditions the power or
ability of any one or more issuers to pay, when due, principal of and interest
on certain municipal securities may be materially affected.
From time to time, proposals to restrict or eliminate the Federal
income tax-exemption for interest on municipal securities have been introduced
before Congress. If such a proposal were enacted, the availability of municipal
securities for investment by the Managed Tax-Exempt Fund would be adversely
affected. In such event, the Fund would re-evaluate its investment objective and
policies and submit possible changes in its structure for the consideration of
shareholders.
John Hancock Gold & Government Fund
-----------------------------------
The Adviser believes that during periods of increasing inflation or
economic or monetary instability, gold and related assets have served as a
storehouse of value and their prices have tended to increase at least as rapidly
as the rate of inflation. During such periods, interest rates
10
<PAGE>
have tended to increase, causing the market value of debt instruments to
decline. Conversely, during periods of disinflation (when inflationary pressures
are being reversed), the price of high grade debt instruments has tended to
increase while the value of precious metals and related instruments has tended
to decline.
The Adviser's determination as to whether the economy is in an
inflationary or disinflationary environment will be made based upon its
evaluation of numerous economic and monetary factors. These factors will
include, but not necessarily be limited to, the actual and anticipated rate of
change of the Consumer Price Index ("CPI") over specified periods of time,
actual and anticipated changes and rate of changes in the value of the U.S.
dollar in relation to other key foreign currencies (e.g., the German mark, the
British pound and the Japanese yen), actual and anticipated changes, and rate of
changes, in short and long term interest rates and real interest rates (i.e.,
inflation adjusted interest rates), actual and anticipated changes in the money
supply, and actual and anticipated governmental fiscal and monetary policy. It
should be emphasized that the Adviser will not apply a rigid, mechanical
determination in assessing whether the economy is in an inflationary or
disinflationary environment. Rather, its determination will be the result of its
subjective judgment of all factors it deems relevant.
Additional Information on Investments
-------------------------------------
Precious metal and mining securities and currencies can be extremely
volatile at times. Gold mining securities and other precious metal and mining
securities likewise fluctuate with gold, but generally even more so. Mining and
other related securities tend to fluctuate more than gold in a major cycle price
change because operating results will usually be positively or negatively
leveraged by considerable upward or downward movements of the gold price. This
is due to the fact that the costs of mining gold remain relatively fixed, so
that an increase or decrease in the price of gold has a direct effect on the
profits of the company. Also, the prices of precious metals-related securities
are likely to be further affected by changes in the currency value of the
country of domicile relative to the dollar. Additionally, precious metal mining
and other related securities generally will be more volatile than gold in a
major cycle of price change either because of a greater or lesser supply of such
securities relative to gold, or because of economic, speculative or other
factors.
Gold Bullion and Coins
----------------------
The Gold & Government Fund's gold holdings ordinarily will consist of
gold bullion and bullion-type coins, such as South African Krugerrands and
Canadian Maple Leaf coins. The Fund does not expect to acquire coins for their
numismatic value. The Gold & Government Fund may purchase and sell gold coins
through the American Gold Coin Exchange or other appropriate gold coin and
bullion dealers and may purchase gold bullion through any appropriate gold
bullion dealer. No more than 10% of the Fund's portfolio may be invested in gold
bullion or coins. Unlike investments in gold or precious metals securities,
which may produce income in addition to offering potential for capital
appreciation, gold bullion or coins earn no investment income. Furthermore, the
Fund will incur storage or extra costs which may be higher than costs associated
with more traditional forms of investments.
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<PAGE>
U.S. Government Securities
--------------------------
The Gold & Government Fund may invest up to 5% of its total assets in
securities issued or guaranteed as to principal and interest by the U.S.
Government in the form of separately traded principal and interest components of
securities issued or guaranteed by the U.S. Treasury. The principal and interest
components of selected securities are traded independently under the Separate
Trading of Registered Interest and Principal of Securities ("STRIPS") program.
Under the STRIPS program, the principal and interest components are individually
numbered and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Risk Factors
------------
Because of the following considerations, an investment in the Gold &
Government Fund should not be considered a complete investment program.
1. FAILURE TO ANTICIPATE CHANGES IN ECONOMIC CYCLES. The Gold &
Government Fund's investment success will be dependent to a high
degree on the Adviser's ability to anticipate the onset and
termination of inflationary and disinflationary cycles. A failure to
anticipate a disinflationary cycle could result in the Fund's assets
being disproportionately invested in securities of gold or other
mining companies. Conversely, a failure to predict an inflationary
cycle could result in the Fund's assets being disproportionately
invested in U.S. Government securities.
2. UNANTICIPATED ECONOMIC ACTIVITY. The Gold & Government Fund's
investment success will depend to a high degree on the validity of the
premise that the values of securities of gold and precious metals
companies will move in a different direction than the values of U.S.
Government securities during periods of inflation or disinflation. If
the values of both types of securities move down during the same
period of time the value of the shareholder's investment will decline
rather than stabilize or increase, as anticipated, regardless of
whether the Fund is primarily invested in gold or government
securities.
3. CONCENTRATION IN AND VOLATILITY OF MINING STOCKS. The securities of
companies engaged in the exploration for and/or mining and processing
of gold and precious metals have been volatile historically. Mining
and other related securities tend to fluctuate as much as or more than
gold during periods of market instability because operating results
will usually be positively or negatively leveraged by considerable
movements in the price of gold. Such securities are further affected
by changes in value of the currency of the country of domicile. Since
the Gold & Government Fund may from time to time, as set forth in the
Prospectus, invest up to 80% of its total assets in gold and precious
metals mining stocks, its shares may be subject to greater risks and
market fluctuations than other investment companies with investment
portfolios having a broader range of investment alternatives.
12
<PAGE>
4. INVESTMENT IN GOLD BULLION AND COINS. Precious metals prices are
affected by various factors such as economic conditions, political
events and monetary policies. In addition, gold bullion and coins do
not generate income and may subject the Gold & Government Fund to
taxes and insurance, shipping and storage costs. The sole source of
return to the Fund from such investments would be gains realized on
sales; a negative return would be realized if gold is sold at a loss.
The price of gold has historically been subject to dramatic upward and
downward price movements over short periods of time. In the event of a
substantial decrease in the price of gold, the Gold & Government Fund
would incur realized or unrealized losses on its investment in gold
bullion. In the event of a substantial increase in the price of gold,
the Fund may be forced to liquidate a portion of its holdings of gold
bullion to ensure that the value thereof does not increase to the
extent that, at the close of any fiscal quarter, more than 25% of the
value of the Fund's total assets are invested in securities of any one
issuer or more than 50% of its total assets are invested in gold
bullion in order to remain qualified under the Internal Revenue Code
as a regulated investment company. Therefore, the Fund may be forced
to partially liquidate its holdings of gold bullion even if the
Adviser anticipates further increases in the price of gold.
Furthermore, Gold & Government Fund may derive no more than 10% of its
gross income in any taxable year from gross gains from transactions in
gold bullion to remain so qualified and therefore may be required
either to dispose of or continue to hold gold bullion when it would
not otherwise do so for investment reasons.
5. TAX OR CURRENCY LAWS. Changes in the tax or currency laws of the
U.S. and of foreign countries, such as imposition of withholding or
other taxes or exchange controls on foreign currencies may increase
the cost of, or inhibit the Gold & Government Fund's ability to
pursue, its investment program.
6. UNPREDICTABLE INTERNATIONAL MONETARY POLICIES, ECONOMIC AND
POLITICAL CONDITIONS. There is the possibility that under unusual
international monetary or political conditions the Gold & Government
Fund's assets might be less liquid or that the change in value of its
assets might be more volatile than would be the case with other
investments. In particular, because the price of gold may be affected
by unpredictable international monetary policies and economic
conditions there may be greater likelihood of a more dramatic impact
upon the market prices of securities of companies mining, processing
or dealing in gold than changes which would occur in other industries.
Although Gold & Government Fund expects to take delivery of its
investments in the United States, any investment where delivery takes place
outside of the United States will be conducted in compliance with any applicable
United States and foreign currency restrictions and other laws limiting the
amount and types of foreign investments. Since the Adviser expects to make
substantially all of the Fund's purchases and sales of securities and gold
bullion in the U.S. markets and in U.S. dollars, the Adviser does not believe
that it will be materially affected by changes in exchange rates, currency
convertibility and repatriation except to the extent the Fund holds foreign
currencies, including gold coins, as part of its cash position. However, changes
in governmental administrations or of economic or monetary policies, in the
United States or abroad, or changed circumstances in dealings between nations
could result in investment losses to the Fund and otherwise affect the Fund's
operations adversely.
13
<PAGE>
7. FOREIGN SECURITIES. Although the Adviser does not believe the risk
to be substantial, foreign issuers of securities in many countries are
subject to less stringent standards of disclosure and regulatory
controls than are found in the United States which may result in less
reliable and less detailed information being available to the Gold &
Government Fund than would be the case with United States companies.
In addition, investments in foreign issuers may be affected by
fluctuating exchange rates and adverse changes in foreign investment
or exchange control regulation. However, the Fund's policy of
generally investing in American depository receipts ("ADRs") or other
securities which can be sold for United States dollars and for which
market quotations are readily available in New York may minimize some
of these risks. (ADRs are certificates issued by United States banks
representing the right to receive securities of a foreign issuer
deposited in that bank or a correspondent bank.)
Portfolio Turnover
------------------
Gold & Government Fund's rate of portfolio turnover may vary widely
from year to year, and may be higher than many other mutual funds with similar
investment objectives. Nevertheless, high portfolio turnover in any given year
will result in the Fund's payment of above-average amounts of commissions and
other transaction costs and may result in the realization of greater amounts of
net short-term capital gains, distributions from which will be taxable to
shareholders as ordinary income.
John Hancock Sovereign Achievers Fund
-------------------------------------
Foreign Investments
-------------------
While Sovereign Achievers Fund may invest in some foreign securities,
such investments are expected to constitute less than 10% of the Fund's
portfolio. Although the Adviser does not believe the risk to be substantial,
foreign issuers of securities in many countries are subject to less stringent
standards of disclosure and regulatory controls than are found in the United
States which may result in less reliable and less detailed information being
available to the Fund than would be the case with United States companies. In
addition, investments in foreign issuers may be affected by fluctuating exchange
rates and adverse changes in foreign investment or exchange control regulation.
However, Sovereign Achievers Fund's policy of generally investing in American
depository receipts ("ADRs") or other securities which can be sold for United
States dollars and for which market quotations are readily available in New York
may minimize some of these risks. ADRs are certificates issued by United States
banks representing the right to receive securities of a foreign issuer deposited
in that bank or a correspondent bank.
John Hancock Regional Bank Fund
-------------------------------
The Adviser believes that the ongoing deregulation of the banking
industry continues to provide new opportunities for banks. As deregulation
continues and interstate banking becomes more likely, some Regional Banks may
become attractive acquisition candidates for large money center banks or other
Regional Banks. Typically, acquisitions accelerate the capital appreciation of
the shares of the company to be acquired.
14
<PAGE>
In addition, Regional Banks located in sections of the country
experiencing strong economic growth are likely to participate in and benefit
from such growth through increased deposits and earnings. Many banks which are
actively and aggressively managed and are expanding services as deregulation
opens up new opportunities also show potential for capital appreciation.
The Adviser will seek to invest in those Regional Banks it believes are
well positioned to take advantage of the changes in the banking industry. A
Regional Bank may be well positioned for a number of reasons. It may be an
attractive acquisition for a bank wishing to strengthen its presence in the
geographic region or to expand into interstate activities, or it may be planning
on a regional merger to strengthen its position in the geographic area. The
Regional Bank may be located in a geographic region with strong economic growth
and be actively seeking to participate in such growth, or it may be expanding
into financial services previously unavailable to it (due to an easing of
regulatory constraints) in order to become a full service financial center.
Risk Factors
------------
Banks, finance companies and other financial services organizations are
subject to extensive governmental regulations which may limit both the amounts
and types of loans and other financial commitments which may be made and the
interest rates and fees which may be charged. The profitability of these
concerns is largely dependent upon the availability and cost of capital funds,
and has shown significant recent fluctuation as a result of volatile interest
rate levels. Volatile interest rates will also affect the market value of debt
securities held by the Regional Bank Fund. In addition, general economic
conditions are important to the operations of these concerns, with exposure to
credit losses resulting from possible financial difficulties of borrowers
potentially having an adverse effect.
John Hancock Global Fund and
----------------------------
John Hancock Global Income Fund
-------------------------------
Today, more than two-thirds of the world's stock market value is traded
on stock exchanges located outside of the United States. Europe is poised for
economic change. The European Economic Commission has ratified the economic
directives which will essentially create a single, unified market amongst the
European nations allowing the free movement of goods and services within a
population which is larger than that of the USA. Europe also intends to
participate in the restructuring of the social and economic policies of the
former Soviet Union and other Eastern bloc countries. The Pacific Region, which
includes Japan, Hong Kong, Korea, Taiwan, Thailand, Singapore, Malaysia and
Australia, has experienced substantial economic growth in recent years. The
Global Fund provides you with access to the stock markets of the world, enabling
you to diversify your investments among a variety of countries, companies and
industrial sectors.
15
<PAGE>
In general, the securities in which Global Income Fund may invest
include debt obligations issued or guaranteed by United States or foreign
governments, political subdivisions thereof (including states, provinces and
municipalities) or their agencies and instrumentalities ("governmental
entities"), or issued or guaranteed by international organizations designated or
supported by governmental entities to promote economic reconstruction or
development ("supranational entities"), or issued by corporations or financial
institutions. Examples of supranational entities include the International Bank
for Reconstruction and Development (the "World Bank"), the European Steel and
Coal Community, the Asian Development Bank and the Inter-American Development
Bank. The governmental members, or "stockholders", usually make initial capital
contributions to the supranational entity and in many cases are committed to
make additional capital contributions if the supranational entity is unable to
repay its borrowings. Securities issued by supranational entities may be
denominated in U.S. dollars, a foreign currency or a multi-national currency
unit such as the European Currency Unit ("ECU"). The ECU is a composite currency
consisting of specified amounts of each of the currencies of the member
countries of the European Economic Community. Securities of corporations and
financial institutions in which the Fund may invest include corporate and
commercial obligations, such as medium-term notes and commercial paper, which
may be indexed to foreign currency exchange rates. In accordance with guidelines
promulgated by the Staff of the Securities and Exchange Commission, the Fund
will consider as an industry any category of such supranational entities which
may have been designated by the Commission.
American Depository Receipts and European Depository Receipts
-------------------------------------------------------------
In addition to purchasing equity securities of foreign issuers in
foreign markets, Global Fund and the Global Income Fund may invest in American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or other
securities convertible into securities of corporations domiciled in foreign
countries. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets and EDRs,
in bearer form, are designed for use in European securities markets. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying securities. EDRs are European receipts evidencing a
similar arrangement. It is the current intention of JH Advisers International
that no more than 5% of the Global Fund's assets will be invested in ADRs and
EDRs.
Foreign Currency Transactions
-----------------------------
Global Fund and Global Income Fund will conduct their foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
amount of currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are usually traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for such trades.
16
<PAGE>
The Global Fund and the Global Income Fund may enter into forward
foreign currency exchange contracts to enhance return, as a substitute for the
purchase or sale of currency or to hedge against fluctuations in currency
exchange rates. The Funds' hedging transactions in forward contracts may include
the following. A Fund may enter into a contract for the purchase or sale of a
security denominated in a foreign currency to "lock-in" the United States dollar
price of the security. By entering into a forward contract for a fixed amount of
dollars for the purchase or sale of the amount of foreign currency involved in
the underlying transactions, a Fund will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
United States dollar and that foreign currency during the period between the
date on which the security is purchased or sold and the date on which payment is
made or received.
When the Adviser or JH Advisers International believes that the
currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, a Fund may enter into a forward contract to
sell or buy the amount of the former foreign currency approximating the value of
some or all of that Fund's portfolio securities denominated in such foreign
currency. This second investment practice is generally referred to as
"cross-hedging". The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible since the future
value of securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain.
In addition, the Funds may enter into forward contracts for non-hedging
purposes. For example, if a portfolio security with an attractive rate of return
is denominated in a currency (including the U.S. dollar) that is not expected to
perform well, a Fund may use forward contracts to offset its exposure to the
non-performing currency while retaining the security.
Under normal circumstances, consideration of the prospects for currency
exchange rates will be incorporated into a Fund's long-term investment decisions
made with regard to overall investment strategies. However, each Fund believes
that it is important to have the flexibility to enter into forward contracts
when it determines that the best interests of the Fund will thereby be served.
State Street Bank and Trust Company, the Funds' custodian, will place cash or
liquid debt securities into a segregated account of each Fund in an amount equal
to the value of that Fund's total assets committed to the consummation of
forward foreign currency exchange contracts involving the purchase of foreign
currency. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts.
At the maturity of a forward contract, a Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. There can be no assurance, however, that either Fund will be
able to effect such a closing purchase transaction.
17
<PAGE>
It is impossible to forecast the market value of a particular portfolio
security at the expiration of the contract. Accordingly, it may be necessary for
a Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency that the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign currency.
If either the Global Fund or the Global Income Fund retains the
portfolio security and engages in an offsetting transaction, that Fund will
incur a gain or a loss (as described below) to the extent that there has been
movement in forward contract prices. Should forward prices decline during the
period between a Fund's entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, such Fund will realize a gain to the extent
that the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Fund
will suffer a loss to the extent that the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.
The Funds are not required to enter into forward contracts with regard
to their foreign currency-denominated securities. It also should be realized
that this method of protecting the value of a Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange which one can achieve at some future point in time. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time, they tend to limit any
potential gain which might result should the value of such currency increase.
Although the Global Fund and the Global Income Fund value their assets
daily in terms of United States dollars, neither Fund intends to convert its
holdings of foreign currencies into United States dollars on a daily basis. A
Fund will do so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell the currency
to the dealer.
Portfolio Turnover
------------------
The Global Income Fund's portfolio turnover rate may vary widely from
year to year and may be higher than that of many other mutual funds with similar
investment objectives. For example, if the Global Income Fund writes a
substantial number of call options and the market prices of the underlying
securities appreciate, or if it writes a substantial number of put options and
the market prices of the underlying securities depreciate, there may be a very
substantial turnover of the portfolio. While the Fund will pay commissions in
connection with its options transactions, government securities are generally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. Nevertheless, high portfolio turnover may involve
correspondingly greater commissions and other transaction costs, which will be
borne directly by the Fund.
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<PAGE>
THE FUNDS' OPTIONS TRADING ACTIVITIES
The following information supplements the discussion in the
Prospectuses regarding options transactions in which the Funds may engage.
A call option gives the purchaser of the option the right to buy, and
the writer the obligation to sell (if the option is exercised), the underlying
security or asset at the exercise price during the option period. Conversely, a
put option gives the purchaser the right to sell, and the writer the obligation
to buy, (if the option is exercised) the underlying security or asset at the
exercise price during the option period.
The principal reason for writing covered call options on a portfolio
security or foreign currency is to attempt to realize through the receipt of
premiums a greater return than would be realized on the security or foreign
currency alone. A covered call option writer, in return for the premium, has
given up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price so long as its obligation
continues, but has retained the risk of loss should the price of the security
decline. The call option writer has no control over when it may be required to
sell its securities, since it may be assigned an exercise notice at any time
prior to the termination of its obligation as a writer. If an option expires,
the writer realizes a gain in the amount of the premium. Such a gain, of course,
may be offset by a decline in the market value of the underlying security during
the option period. If a call option is exercised, the writer realizes a gain or
loss from the sale of the underlying security or currency.
It is the policy of each Fund to meet the requirements of the Internal
Revenue Code to qualify as a regulated investment company to prevent double
taxation of the Fund and its investors. One of these requirements is that less
than 30% of a Fund's gross income for each taxable year must be derived from
gross gains from the sale or other disposition of certain financial assets,
including stocks, securities, and most options, futures and forward contracts,
held for less than three months. The extent to which the Funds may engage in
options, futures and forward transactions may be materially limited by this 30%
test.
Gold & Government Fund, Global Income Fund, Sovereign Achievers Fund, and
-------------------------------------------------------------------------
Regional Bank Fund
------------------
Call Options
------------
Each Fund may trade in options, including purchasing calls and writing
covered calls. Gold & Government Fund may write covered call options and
purchase put and call options on gold bullion, U.S. Government securities and
equity securities in which it may invest. Call options ("calls") may be written
(i.e., sold) by each Fund if (i) the calls are listed on a domestic exchange or
are traded over-the-counter; and (ii) the calls are covered, i.e., the Fund owns
the assets subject to the call (or other assets acceptable for escrow
arrangements) while the call is outstanding.
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<PAGE>
Each Fund may write call options to obtain additional income. When a
Fund writes a call it receives a premium and agrees to sell the callable
securities to the purchaser of the call, if the option is exercised during the
call period, at a fixed exercise price (which may differ from the market price)
regardless of market price changes during the call period. Thus, in exchange for
the premium received, the Fund foregoes any possible profit from an increase in
market price over the exercise price.
When a Fund writes a call option, an amount equal to the premium
received by it is included in that Fund's Statement of Assets and Liabilities as
an asset and as an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of the option
written. The premium paid by a Fund for the purchase of a call or put option is
included in the assets section of the Statement of Assets and Liabilities as an
investment and subsequently adjusted to the current market value of the option.
The current market value of a purchased or written option is the last sale price
on the principal exchange on which such option is traded or, in the absence of a
sale or in the case of an unlisted option, the mean between the last bid and
offering prices.
To terminate its obligation on a call which it has written, each Fund
may purchase a call in a "closing purchase transaction." (As discussed below,
each Fund may also purchase calls other than as part of such transactions.) A
profit or loss will be realized depending on the amount of option transaction
costs and whether the premium previously received is more or less than the price
of the call purchased. A profit may also be realized if the call lapses
unexercised, because the Fund retains the underlying security and the premium
received. Any such profits are considered short-term gains for federal tax
purposes and, when distributed by the Fund, are taxable as ordinary income.
Each Fund may purchase calls only if the calls are listed on a domestic
exchange or traded over-the-counter. Each Fund will purchase call options to
attempt to obtain capital appreciation. When a Fund buys a call, it pays a
premium and has the right to buy the callable securities from the seller of a
call during a period at a fixed exercise price. The Fund benefits only if the
market price of the callable securities is above the call price during the call
period and the call is either exercised or sold at a profit. If the call is not
exercised or sold (whether or not at a profit), it will become worthless at its
expiration date and the Fund will lose its premium payment and the right to
purchase the underlying security.
In the case of Gold & Government Fund, hedging by writing covered call
options on gold bullion is similar to hedging through the use of similar options
on securities as described above. In addition, Gold & Government Fund may
purchase call options on gold bullion if it desires to achieve a more rapid
exposure to anticipated increases in the price of gold mining shares or gold
bullion than is practical by buying such assets.
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<PAGE>
Put Options
-----------
Any of the Funds may purchase put options ("puts") if they are listed
on a domestic exchange or traded over-the-counter. None of the Funds may write
(sell) puts, but may resell puts previously purchased by it to third parties who
are not broker-dealers. When a Fund buys a put, it pays a premium and has the
right to sell the underlying assets to the seller of the put during the put
period at a fixed exercise price.
Each Fund may buy puts related to securities it owns ("protective
puts") or to securities it does not own ("nonprotective puts"). Buying a
protective put permits the Fund to protect itself during the put period against
a decline in the value of the underlying securities below the exercise price by
selling them through the exercise of the put. Thus, protective puts will assist
the Funds in achieving their investment objectives of capital appreciation by
protecting them against a decline in the market value of their portfolio
securities.
Buying a non-protective put permits each Fund, if the market price of
the underlying securities is below the put price during the put period, either
to resell the put or to buy the underlying securities and sell them at the
exercise price. A non-protective put can enable each Fund to achieve
appreciation during a period when the price of securities underlying such put is
declining. If the market price of the underlying securities is above the
exercise price and as a result, the put is not exercised or resold (whether or
not at a profit), the put will become worthless at its expiration date.
In the case of the Gold & Government Fund, hedging by purchasing put
options on gold bullion is similar to hedging through the use of similar options
on securities as described above.
Government Fund
---------------
Writing Covered Options on Government Securities
------------------------------------------------
The Government Fund may write (sell) covered call options and covered
put options on all or any part of the Fund's portfolio of Government Securities.
The Government Fund may write (i.e., sell) options which are traded on
registered securities exchanges ("Exchanges") and may also write options on
Government Securities which are traded over-the-counter. A call option gives the
purchaser of the option the right to buy, and the writer the obligation to sell,
the underlying security at the exercise price if the option is exercised during
the option period. Conversely, a put option gives the purchaser the right to
sell, and the writer the obligation to buy (if the option is exercised) the
underlying security at the exercise price during the option period. The Fund may
also write straddles (combinations of covered puts and calls on the same
underlying security).
The Government Fund writes only "covered" options. This means that as
long as the Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option, except that, in the case of call
options on U.S. Treasury Bills, the Fund might own U.S. Treasury Bills of a
different series from those underlying the call option, but with a principal
amount corresponding to the option contract amount and a maturity date no later
than that of the securities deliverable under the call option. See "Risk Factors
Applicable to Options" below.
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<PAGE>
The Government Fund will be considered "covered" with respect to a put
option it writes if, as long as it is obligated as the writer of a put option,
it deposits and maintains with its Custodian, cash, Government Securities or
other high-grade debt obligations having a value equal to or greater than the
exercise price of the option.
So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker-dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time that the writer effects a closing purchase
transaction by purchasing an option covering the same underlying security and
having the same exercise price and expiration date ("of the same series") as the
one previously sold. Once an option has been exercised, the writer may not
execute a closing purchase transaction. To secure the obligation to deliver the
underlying security in the case of a call option, the writer of the option is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the Options Clearing Corporation (the "OCC"), an
institution created to interpose itself between buyers and sellers of options.
Technically, the OCC assumes the other side of every purchase and sale
transaction on an Exchange and, by doing so, gives its guarantee to the
transaction.
The principal reason for writing options on a securities portfolio is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. In return for the premium,
the covered call option writer has given up the opportunity for profit from a
price increase in the underlying security above the exercise price as so long as
the option remains open, but retains the risk of loss should the price of the
security decline. Conversely, the put option writer gains a profit, in the form
of the premium, so long as the price of the underlying security remains above
the exercise price, but assumes an obligation to purchase the underlying
security from the buyer of the put option at the exercise price, even though the
security may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes a gain in the amount of the
premium. Such a gain may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security. If a put option is exercised, the writer must
fulfill his obligation to purchase the underlying security at the exercise
price, which will usually exceed the then-market value of the underlying
security.
Because the Government Fund can write only covered options, it may at
times be unable to write additional options unless it sells a portion of its
portfolio holdings to obtain new debt securities against which it can write
options. This may result in higher portfolio turnover and correspondingly
greater brokerage commissions and other transaction costs.
To the extent that a secondary market is available on the Exchanges,
the covered option writer may close out options it has written prior to the
assignment of an exercise notice by purchasing, in a closing purchase
transaction, an option of the same series as the option previously written. If
the cost of such a closing purchase, plus transaction costs, is greater than the
premium received upon writing the original option, the writer will incur a loss
in the transaction.
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<PAGE>
The extent to which the Government Fund may write covered call and put
options and enter into so-called "straddle" transactions may be limited by the
Code's requirements for qualification as a regulated investment company and the
Fund's intention to qualify as such.
Purchasing Put Options on Government Securities
-----------------------------------------------
The Government Fund may purchase put options on optionable Government
Securities in anticipation of a price decline in the underlying security. This
contemplates the purchase of put options at a time when the Fund does not own
the underlying security and it seeks to benefit from an anticipated decline in
the market price of the underlying security. If the put option is not sold when
it has remaining value, and if the market price of the underlying security
remains equal to or greater than the exercise price during the life of the put
option, the Fund will lose its entire investment in the put option. Further,
unless the put option is sold in a closing sale transaction, in order for the
purchase of a put option to be profitable, the market price of the underlying
security must decline sufficiently below the exercise price to cover the premium
and transaction costs.
The Government Fund may also purchase put options ("protective puts")
to protect its holdings in an underlying security against a substantial decline
in market value. Such hedge protection is provided only during the life of the
put option when the Fund as the holder of the put option is able to sell the
underlying security at the exercise price regardless of any decline in the
underlying security's market price. By using put options in this manner, the
Fund will reduce any profit it might otherwise have realized in its underlying
security by the premium paid for the put option and by transaction costs.
The Government Fund will not invest more than 5% of its net assets in
put options.
Risk Factors Applicable to Options (Government Fund, Gold & Government Fund and
-------------------------------------------------------------------------------
Global Income Fund Only)
------------------------
ON TREASURY BONDS AND NOTES. Because trading interest in Treasury Bonds
and Notes tends to center on the most recently auctioned issues, the Exchanges
will not indefinitely continue to introduce new series of options with
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each series of Bonds or Notes will thus be phased out as new options are
listed on the more recent issues, and a full range of expiration dates will not
ordinarily be available for every series on which options are traded.
ON TREASURY BILLS. Because the deliverable Treasury Bill changes from
week to week, writers of Treasury Bill call options cannot provide in advance
for their potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Government Fund or the Gold & Government
Fund holds a long position in Treasury Bills with a principal amount
corresponding to the option contract size, such Fund may be hedged from a risk
standpoint. In addition, each Fund will maintain in a segregated account with
its custodian Treasury Bills maturing no later than those which would be
deliverable in the event of an assignment of an exercise notice to ensure that
it can meet its open options obligations.
23
<PAGE>
ADDITIONAL RISKS OF OPTIONS ON GOVERNMENT SECURITIES. The Gold &
Government Fund, the Government Fund and the Global Income Fund may purchase and
sell options on Government Securities including securities issued by the
Government National Mortgage Association. Certain options on Government
Securities are traded "over-the-counter" rather than on an exchange. This means
that each of these Funds will enter into such options with particular
broker-dealers who make markets in these options. With respect to options not
traded on an exchange, there is the additional risk that a Fund may not be able
to enter into a closing transaction with the other party to the option on
satisfactory terms or that such other party may be unable to fulfill its
contractual obligations. However, the Adviser or JH Advisers International, as
the case may be, will enter into transactions in non-listed options only with
responsible dealers where it does not believe that the foregoing factors present
a material risk. There is no assurance that the Funds will be able to effect
closing transactions at any particular time or at an acceptable price. A Fund's
ability to terminate options positions in Government Securities may involve the
risk that broker-dealers participating in such transactions will fail to meet
their obligations to the Fund. The Funds will purchase options on Government
Securities only from broker-dealers whose debt securities are investment grade
(as determined by the Boards of Trustees).
All Funds
---------
Put and Call Options: General
--------------------- -------
A call option position may be closed out only on an exchange which
provides a secondary market for options of the same series or, in the case of an
over-the-counter option, only with the other party to the transaction. In
general, exchange-traded options are third-party contracts (i.e. performance of
the parties' obligations is guaranteed by an exchange or clearing corporation)
with standardized strike prices and expiration dates. Over-the-counter
transactions are two-party contracts with price and terms negotiated by the
buyer and seller. There is no assurance that the Funds will be able to close out
options acquired or sold over-the-counter.
The Funds will acquire only those over-the-counter options for which
management believes the Funds can receive on each business day at least two
separate bids or offers (one of which will be from an entity other than a party
to the option) or those over-the-counter options valued by an independent
pricing service. The Funds will write and purchase over-the-counter options only
with member banks of the Federal Reserve System and primary dealers in U.S.
Government securities or their affiliates which have capital of at least $50
million or whose obligations are guaranteed by an entity having capital of at
least $50 million. The SEC has taken the position that over-the-counter options
are illiquid securities, subject to the restriction that illiquid securities are
limited to not more than 10% of a Fund's assets. The SEC, however, has a partial
exemption from the above restrictions on transactions in over-the-counter
options. The SEC allows a Fund to exclude from the 10% limitation on illiquid
securities a portion of the value of the over-the-counter options written by the
fund, provided that certain conditions are met. First, the other party to the
over-the-counter options has to be a primary U.S. Government securities dealer
designated as such by the Federal Reserve Bank. Second, the Funds would have
24
<PAGE>
an absolute contractual right to repurchase the over-the-counter options at a
formula price. If the above conditions are met, a Fund must treat as illiquid
only that portion of the over-the-counter option's value (and the value of its
underlying securities) which is equal to the formula price for repurchasing the
over-the-counter option, less the over-the-counter option's intrinsic value.
Although the Funds will generally purchase or write only those
exchange-traded options for which there appears to be an active secondary
market, there can be no assurance that a liquid secondary market on an exchange
will exist for any particular option, or at any particular time. In the event
that no liquid secondary market exists, it might not be possible to effect
closing transactions in particular options. If Fund cannot close out an
exchange-traded or over-the-counter option which it holds, it would have to
exercise such option in order to realize any profit and would incur transaction
costs on the purchase or sale of underlying assets. If the Government Fund, Gold
& Government Fund, Sovereign Achievers Fund, Regional Bank Fund, Global Fund or
Global Income Fund, as covered call option writers, are unable to effect a
closing purchase transaction, they will not be able to sell the underlying
assets until the option expires or they deliver the underlying asset upon
exercise. Accordingly, these Funds may run the risk of either foregoing the
opportunity to sell the underlying asset at a profit or being unable to sell the
underlying asset as its price declines.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) an exchange may impose restrictions on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the exchanges and the Options
Clearing Corporation have had only limited experience with the trading of
certain options and the facilities of an exchange or the Options Clearing
Corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
The put and call options activities of Government Fund, Gold &
Government Fund, Sovereign Achievers Fund, Regional Bank Fund, Global Fund and
Global Income Fund may affect their turnover rates and the amount of brokerage
commissions paid by them. The exercise of calls written by these Funds may cause
them to sell portfolio securities or other assets at times and amounts
controlled by the holder of a call, thus increasing the Funds' portfolio
turnover rates and brokerage commission payments. The exercise of puts purchased
by the Fund may also cause the sale of securities or other assets, also
increasing turnover. Although such exercise is within the Funds' control,
holding a protective put might cause the Funds to sell the underlying securities
or other assets for reasons which would not exist in the absence of the put.
Holding a non-protective put might cause the purchase of the underlying
securities or other assets to permit the Funds to exercise the put. The put and
call activities of Gold & Government Fund will be restricted by the limited
availability of options relating to mining securities and foreign investments
that are listed on domestic exchanges or quoted at some future date on NASDAQ.
25
<PAGE>
A Fund will pay a brokerage commission each time it buys or sells a put
or call or buys or sells a security in connection with the exercise of a put or
call. Such commissions may be higher than those which would apply to direct
purchases or sales of equity securities.
There is no limit as to how many times either the Global Fund's or the
Global Income Fund's options positions may be replaced and therefore the
potential risks to each Fund may be greater than 5% of its net assets.
Successful use by the Adviser or JH Advisers International of options on
securities, foreign currencies and/or forward foreign currency exchange
contracts will be based upon predictions by the Adviser or JH Advisers
International as to anticipated movements of foreign currency exchange rates
and/or interest rates.
The Funds' Custodian, or a securities depository acting for it, will
act as the Funds' escrow agent as to the securities on which they have written
calls, or as to other securities acceptable for such escrow, so that pursuant to
the rules of the Options Clearing Corporation and certain exchanges, no margin
deposit will be required of the Funds. Until the securities are released from
escrow, they cannot be sold by the Funds; this release will take place on the
expiration of the call or the Funds' entering into a closing purchase
transaction. For information on the valuation of the puts and calls, see "Net
Asset Value."
Managed-Tax Exempt Fund
-----------------------
The Managed Tax-Exempt Fund does not engage in any options related
transactions except options on interest rate futures contracts and municipal
bond index futures contracts as described in "The Funds' Investments in Futures
Contracts" below.
THE FUNDS' INVESTMENTS IN FUTURES CONTRACTS
The following information supplements the discussion in the
Prospectuses regarding investment by certain Funds in futures contracts and
related options.
INTEREST RATE FUTURES CONTRACTS. The Government Fund, Managed Tax-Exempt Fund,
Gold & Government Fund and Global Income Fund may invest in interest rate
futures contracts and related options that are traded on a United States or
foreign exchange or board of trade.
Currently, interest rate futures contracts can be purchased and sold with
respect to U.S. Treasury bonds, U.S. Treasury notes, Government National
Mortgage Association mortgage-backed certificates, U.S. Treasury bills and
ninety-day commercial paper.
The purpose of the purchase or sale of interest rate futures contracts
by the Funds will be to protect the Funds from fluctuations in interest rates
without necessarily buying or selling fixed income securities. For example, if a
Fund owns bonds and interest rates are expected to increase, that Fund might
sell futures contracts on debt securities having characteristics similar to
those held in the portfolio. Such a sale would have much the effect as selling
an equivalent value of the
26
<PAGE>
bonds owned by the Fund. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of the futures
contracts to the Fund would increase at approximately the same rate, thereby
keeping the net asset value of the Fund from declining as much as it otherwise
would have.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against having to make an
anticipated purchase of bonds at the higher prices subsequently expected to
prevail. Since the fluctuations in the value of appropriately selected futures
contracts should be similar to that of the bonds that will be purchased, a Fund
could take advantage of the anticipated rise in the cost of the bonds without
actually buying them until the market has stabilized. At this time, that Fund
could make the intended purchase of the bonds in the cash market and the futures
contracts could be liquidated. To the extent a Fund enters into futures
contracts for this purpose, it will maintain in a segregated account assets
sufficient to cover its obligations with respect to such futures contracts,
which will consist of cash or U.S. Government or other high quality debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial and variation margin payments made by the Fund with respect to such
futures contracts.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. The Managed Tax-Exempt Fund may invest
in municipal bond index futures contracts that are traded on a United States
exchange or board of trade. Such investments may be made by the Fund solely for
the purposes of hedging against changes in the value of its portfolio securities
due to anticipated changes in interest rates and market conditions, and not for
purposes of speculation.
A municipal bond index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to
the difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was originally
written. No physical delivery of the underlying municipal bonds in the index is
made.
The purpose of the acquisition or sale of a municipal bond index
futures contract by the Managed Tax-Exempt Fund, as the holder of long-term
municipal securities, is to protect the Fund from fluctuations in interest rates
on municipal securities without actually buying or selling long-term municipal
securities. For example, if the Fund owns long-term bonds and interest rates are
expected to increase, it might sell municipal bond index futures contracts. Such
a sale would have much the same effect as selling some of the long-term bonds in
the Fund's portfolio. If interest rates increase as anticipated by the Adviser,
the value of certain long-term municipal securities in the portfolio would
decline, but the value of the Fund's futures contracts would increase at
approximately the same rate, thereby keeping the net asset value of the Fund
from declining as much as it otherwise would have. Of course, since the value of
the municipal securities in the Managed Tax-Exempt Fund's portfolio may exceed
the value of the futures contracts sold by the Fund, an increase in the value of
the futures contracts might only mitigate - but not totally offset - the decline
in the value of the portfolio.
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Similarly, when it is expected that interest rates may decline,
municipal bond index futures contracts could be purchased to hedge against the
Managed Tax-Exempt Fund's anticipated purchases of long-term municipal
securities at higher prices. Since the rate of fluctuation in the value of
municipal bond index futures contracts should be similar to that of long-term
bonds, the Fund could take advantage of the anticipated rise in the value of
long-term bonds without actually buying them until the market had stabilized. At
that time, the futures contracts could be liquidated and the Fund's cash could
be used to buy long-term bonds in the cash market. The Managed Tax-Exempt Fund
could accomplish similar results by selling municipal securities with long
maturities and investing in municipal securities with short maturities when
interest rates are expected to increase or buying municipal securities with long
maturities and selling municipal securities with short maturities when interest
rates are expected to decline. However, in circumstances when the market for
municipal securities may not be as liquid as that for the municipal bond index
futures contracts, the ability to invest in such contracts could enable the Fund
to react more quickly to anticipated changes in market conditions or interest
rates.
GOLD BULLION FUTURES CONTRACTS. The Gold & Government Fund may invest in gold
bullion futures contracts and related options that are traded on a United States
exchange or board of trade. Such investments may be made by the Gold &
Government Fund solely for the purpose of hedging against changes in the value
of its portfolio securities due to anticipated changes in gold prices, interest
rates or market conditions, and not for the purposes of speculation.
Generally, futures contracts on gold bullion are similar to the
interest rate futures contracts discussed above. By entering into gold bullion
futures contracts, the Fund will be able to establish the rate at which it will
be entitled to purchase set amounts of gold bullion in a future month. By
selling such futures, the Fund can establish the price it will receive in the
delivery month for a specified amount of gold bullion, or the Fund can attempt
to "lock in" the value of some or all of the gold bullion held in its portfolio
at a particular time.
FOREIGN CURRENCY FUTURES CONTRACTS. The Global Income Fund may invest in foreign
currency futures contracts and related options that are traded on a United
States foreign exchange or board of trade.
Foreign currency futures contracts can be purchased and sold with
respect to the British Pound, Deutsche Mark, Japanese Yen and other currencies
or groups of currencies in which securities held by the Global Income Fund are
denominated or which are sufficiently correlated with such currencies as to
constitute an appropriate vehicle for hedging.
Generally, foreign currency futures contracts are similar to the
interest rate futures contracts discussed above. By entering into foreign
currency futures contracts, the Global Income Fund will be able to establish the
rate at which it will be entitled to exchange U.S. dollars (or another foreign
currency) for another currency in a future month. By selling currency futures,
the Fund can establish the number of dollars (or another foreign currency) it
will receive in the delivery month for a certain amount of a foreign currency
against the U.S. dollar (or another foreign currency), or the Fund can attempt
to "lock in" the U.S. dollar value (or other foreign currency value) of some or
all of the securities held in its portfolio and denominated in that
28
<PAGE>
currency. By purchasing currency futures, the Fund can establish the number of
dollars it will be required to pay for a specified amount of a foreign currency
in the delivery month. For example, if the Fund intends to buy securities in the
future and expects the U.S. dollar to decline against the relevant foreign
currency during the period before the purchase is effected, the Fund can attempt
to "lock in" the price in U.S. dollars of the securities it intends to acquire.
FOREIGN DEBT SECURITIES FUTURES CONTRACTS. The Global Income Fund may also
invest in foreign debt futures contracts that are traded on a U.S. exchange or
board of trade or, consistent with U.S. Commodity Futures Trading Commission
regulations, traded on foreign exchanges. Such investments may be made solely
for the purpose of hedging against changes in the value of its portfolio
securities due to anticipated changes in interest rates, foreign currency
exchange rates or market conditions, and not for the purpose of speculation.
Foreign debt futures contracts are similar to the interest rate futures
contracts discussed above. By purchasing a futures contract, the Global Income
Fund will legally obligate itself to accept delivery of the underlying foreign
debt security and pay the agreed price; by selling a foreign debt futures
contract, it will legally obligate itself to make delivery of the security
against payment of the agreement price. Futures contracts for the purchase and
sale of foreign debt futures contracts currently are actively traded on the
London International Financial Futures Exchange, the Tokyo Stock Exchange and
the Paris Stock Exchange.
RISK FACTORS. Unlike the purchase or sale of a security, no consideration is
paid or received by a Fund upon the purchase or sale of a futures contract.
Initially, a Fund will be required to deposit with the broker an amount of cash
or cash equivalents, known as "initial margin", as a type of performance bond or
good faith deposit which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. The required
amount of initial margin is subject to change by the board of trade or exchange
on which the contract is traded and members of such board of trade or exchange
may charge a higher amount. Subsequent payments, known as "variation margin", to
and from the broker, will be made on a daily basis as the price of the futures
contract fluctuates making long and short positions in the contract more or less
valuable, a process known as marking-to-market. At any time prior to the
expiration of the contract, a Fund may elect to close the position, which will
operate to terminate the Fund's existing position in the futures contract.
There are several risks in connection with the use of futures contracts
as a hedging device. Successful use of futures contracts by the Funds is subject
to the Adviser's ability to predict correctly movements in the direction of
interest rates, gold prices or foreign currency exchange rates, as the case may
be. A decision of whether, when and how to hedge involves the exercise of skill
and judgment and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected trends in such rates and prices. In
addition, there can be no assurance that there will be a correlation between
movements in the price of the futures contracts and movements in the price of
the related securities, gold or foreign currencies which are the subject of the
hedge. The degree of imperfection or correlation depends upon various
circumstances such as, for example, variations in speculative market demand for
futures contracts and the specific securities, gold or foreign currencies being
hedged and upon the securities, gold or foreign currencies, as the case may be,
underlying the futures contracts.
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<PAGE>
Although the Funds intend to purchase or sell futures contracts only if
there is an active market for such contracts, there is no assurance that a
liquid market will exist for the contract at any particular time. Most domestic
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular contract,
no trades may be made that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. It is possible that futures contract prices could move to
the daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of the futures position and subjecting
some futures traders to substantial losses. In such event, it will not be
possible to close a futures position, and in the event of adverse price
movements, a Fund would be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may partially or completely offset losses on the
futures contract. However, as described above, there is no guarantee that the
price of the securities, gold or foreign currencies, as the case may be, will,
in fact, correlate with the price movements in the respective futures contracts
and thus provide an offset to losses on such futures contracts.
If a Fund has hedged against the possibility of an increase in interest
rates, gold prices or foreign currency rates adversely affecting the value of
the securities, gold bullion or foreign currencies held in its portfolio and
rates decrease instead, the Fund will lose part or all of the benefit of the
increased value of the respective securities, gold bullion or foreign currencies
which it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if a Fund has insufficient cash, it
may have to sell securities to meet daily variation margin requirements. Such
sales of securities may, but will not necessarily, be at increased prices which
reflect the decline in interest rates, gold prices or foreign currency exchange
rates, as the case may be. The Funds may have to sell securities at a time when
it may be disadvantageous to do so.
OPTIONS ON INTEREST RATE, GOLD BULLION AND FOREIGN CURRENCY FUTURES CONTRACTS.
An option on a futures contract, as contrasted with the direct investment in
such a contract, gives the purchaser the right, in return for the premium paid,
to assume a position in the futures contract at a specified exercise price at
any time prior to the expiration of the option. The potential loss related to
the purchase of an option on a futures contract is limited to the premium paid
for the option (plus transaction costs).
The Funds may purchase and write put and call options on interest rate,
gold bullion and foreign currency futures contracts, as the case may be, that
are traded on a United States exchange or board of trade as a hedge against the
value of their portfolio securities due to anticipated changes in interest
rates, gold prices, foreign currency exchange rates or market conditions, and
may enter into closing transactions with respect to such options to terminate
existing positions.
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In addition to the risks which apply to futures transactions generally
as described above, there are additional risks relating to options on futures
contracts. The ability to establish and close out positions on such options will
be subject to the existence of a liquid market. In addition, the purchase or
sale of put or call options will be based upon predictions as to anticipated
interest rate trends, gold bullion or foreign currency valuation trends, as the
case may be, by the Adviser which could prove to be incorrect. Even if the
expectations of the Adviser are correct, there may be an imperfect correlation
between the change in the value of the options and of the portfolio securities
hedged. In addition, the ability of the Funds to trade in futures contracts may
be materially limited by the requirements of the Internal Revenue Code.
When a Fund writes a call option or put option it will be required to
deposit initial margin and variation margin pursuant to broker's requirements
similar to those applicable to futures contracts. In addition, net option
premiums received for writing options will be included as initial margin
deposits.
There is no limit as to how many times the Gold & Government Fund's or
the Global Income Fund's options positions may be replaced, and, therefore, the
potential risks to those Funds may be greater than 5% of their net assets.
Successful use by the Adviser of options will be based upon predictions by the
Adviser as to anticipated movements of interest rates, gold prices and/or
foreign currency exchange rates.
CERTAIN INVESTMENT PRACTICES
The following information supplements the discussion of the Funds'
investment strategies and techniques in the Prospectuses.
Investment in Foreign Securities
--------------------------------
Because of the following considerations, shares of the Global Fund and
the Global Income Fund should not be considered a complete investment program.
There is generally less publicly available information about foreign companies
and other issuers comparable to reports and ratings that are published about
issuers in the United States. Foreign issuers are also generally not subject to
uniform accounting and auditing and financial reporting standards, practices and
requirements comparable to those applicable to United States issuers.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on exchanges located in the countries in which the
respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Similarly, volume
and liquidity in most foreign bond markets is less than in the United States and
at times, volatility of price can be greater than in the United States. Fixed
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commissions on foreign exchanges are generally higher than negotiated
commissions on United States exchanges, although each Fund will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less government supervision and regulation of securities exchanges,
brokers and listed issuers than in the United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of a
Fund, political or social instability, or diplomatic developments which could
affect United States investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
The dividends and interest payable on certain of the Global Fund's and
the Global Income Fund's foreign portfolio securities may be subject to foreign
withholding taxes, thus reducing the net amount of income available for
distribution to each Fund's shareholders. See "Tax Status".
Investors should understand that the expense ratio of each of the
Global Fund and the Global Income Fund can be expected to be higher than that of
investment companies investing in domestic securities since the expenses of the
Funds, such as the cost of maintaining the custody of foreign securities and the
rate of advisory fees paid by the Funds, are higher.
Repurchase Agreements
---------------------
The Funds may also enter into repurchase agreements with domestic
broker-dealers, banks and financial institutions, but Government Fund, Managed
Tax-Exempt Fund, Gold & Government Fund, Sovereign Achievers Fund, Global Fund
and Global Income Fund may not invest more than 10% and Regional Bank Fund may
not invest more than 5% of their respective net assets in repurchase agreements
having maturities of greater than seven days.
A repurchase agreement is a contract pursuant to which a Fund, against
receipt of securities of at least equal value including accrued interest, agrees
to advance a specified sum to a broker-dealer, bank or financial institution
which agrees to reacquire the securities at a mutually agreed upon time and
price. Repurchase agreements, which are usually for periods of one week or less,
enable a Fund to invest its cash reserves at fixed rates of return. A Fund may
enter into repurchase agreements with domestic broker-dealers, banks and other
financial institutions, provided the Fund's custodian always has possession of
securities serving as collateral whose market value at least equals the amount
of the institution's repurchase obligation. The Global Fund and the Global
Income Fund will only enter into repurchase agreements which are collateralized
at all times by U.S. Government obligations. To minimize the risk of loss the
Funds will enter into repurchase agreements only with institutions and dealers
which the Boards of Trustees of the Trusts consider to be creditworthy. If an
institution enters an insolvency proceeding, the resulting delay in liquidation
of the securities serving as collateral could cause the relevant Fund some loss,
as well as legal expense, if the value of the securities declined prior to
liquidation.
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When-Issued and Delayed Delivery Securities
-------------------------------------------
As stated in the Prospectus, the Managed Tax-Exempt Fund may purchase
and sell municipal securities and the Gold & Government Fund and the Global
Income Fund may purchase and sell fixed income securities (including GNMA, FHLMC
and FNMA Certificates) on a when-issued or delayed delivery basis. When-issued
or delayed delivery transactions arise when securities are purchased or sold by
a Fund with payment and delivery taking place in the future in order to secure
what is considered to be an advantageous price and yield. However, the yield on
a comparable security available when delivery takes place may vary from the
yield on the security at the time that the when-issued or delayed delivery
transaction was entered into. When a Fund engages in when-issued and delayed
delivery transactions, it relies on the seller or buyer, as the case may be, to
consummate the sale. Failure to do so may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous.
When-issued and delayed delivery transactions may be expected to settle within
three months from the date the transactions are entered into. However, no
payment or delivery is made by the Fund until it receives delivery or payment
from the other party to the transaction.
To the extent that a Fund remains substantially fully invested at the
same time that it has purchased when-issued securities, as it would normally
expect to do, there may be greater fluctuations in its net assets than if the
Fund set aside cash to satisfy its purchase commitment.
When a Fund purchases securities on a when-issued basis, it will
maintain in a segregated account with its Custodian cash, Government Securities
or other high-grade debt obligations readily convertible into cash having an
aggregate value equal to the amount of such purchase commitments until payment
is made. If necessary, additional assets will be placed in the account daily so
that the value of the account will equal or exceed the amount of the Fund's
purchase commitment. The Government Fund, the Global Income Fund and the Managed
Tax-Exempt Fund will likewise segregate securities they sell on a delayed
delivery basis.
The Managed Tax-Exempt Fund expects that commitments to purchase
when-issued securities will not normally exceed 25% of its net asset value.
Stand-By Commitments
--------------------
When the Managed Tax-Exempt Fund exercises a stand-by commitment that
it has acquired from a dealer with respect to a municipal security held in its
portfolio, the dealer will normally pay to the Managed Tax-Exempt Fund an amount
equal to: (1) the Fund's acquisition cost of the municipal securities (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (2) all interest accrued
on the securities since the last interest payment date or the date the
securities were purchased by the Fund, whichever is later. The Fund's right to
exercise stand-by commitments would be unconditional and unqualified. A stand-by
commitment would not be transferable by the Managed Tax-Exempt Fund, although it
could sell the underlying municipal securities to a third party at any time.
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The Managed Tax-Exempt Fund intends to enter into stand-by commitments
only with those banks which, in the opinion of the Adviser, present minimal
credit risk. The Managed Tax-Exempt Fund may pay for stand-by commitments either
separately, in cash or by paying a higher price for portfolio securities which
are acquired subject to such a commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid for
outstanding stand-by commitments held by the Managed Tax-Exempt Fund is not
expected to exceed 1/2 of 1% of the Fund's total asset value calculated
immediately after each stand-by commitment is acquired. The Fund intends to
acquire stand-by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading purposes. The
acquisition of a stand-by commitment would not ordinarily affect the valuation
or maturity of the underlying municipal securities. Stand-by commitments
acquired by the Managed Tax-Exempt Fund would be valued at zero in determining
net asset value. Where the Fund paid directly or indirectly for a stand-by
commitment, its cost would be amortized over the period the commitment is held
by the Fund. Although Federal income tax law may not be entirely clear in
certain cases, the Fund intends to take the position that it is the owner of
municipal securities it holds subject to stand-by commitments.
Leverage Through Borrowing
--------------------------
The Government Fund may borrow from banks to increase its portfolio
holdings of Government Securities. Such borrowings will be unsecured. The 1940
Act requires the Fund to maintain continuous asset coverage of not less than
300% with respect to such borrowings. This allows the Fund to borrow for such
purposes an amount (when taken together with any borrowings for temporary
extraordinary or emergency purposes as described below) equal to as much as 50%
of the value of its net assets (not including such borrowings). If such asset
coverage should decline to less than 300% due to market fluctuations or other
reasons, the Fund may be required to sell some of its portfolio holdings within
three days in order to reduce the Fund's debt and restore the 300% asset
coverage, even though it may be disadvantageous from an investment standpoint to
sell securities at that time. Leveraging will exaggerate any increase or
decrease in the net asset value of the Fund's portfolio, and in that respect may
be considered a speculative practice. Money borrowed for leveraging will be
subject to interest costs which may or may not exceed the investment return
received from the securities purchased.
The Fund may also borrow money for temporary extraordinary or emergency
purposes. Such borrowings may not exceed 5% of the value of the Fund's total
assets when the loan is made. The Fund may pledge up to 10% of the lesser of
cost or value of its total assets to secure such borrowings.
Trading of Securities
---------------------
The Government Fund may trade those Government Securities which are not
covering outstanding options positions and are not on loan to broker-dealers if
the Fund's Adviser believes that there are opportunities to exploit
differentials in prices and yields or fluctuations in interest rates, consistent
with its investment objective.
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Investment in Rule 144A Securities and Other Restricted Securities
------------------------------------------------------------------
The Funds may purchase restricted securities eligible for resale to
"qualified institutional buyers" pursuant to Rule 144A under the Securities Act
of 1933 and other securities for which market quotations are not readily
available if the Funds' Boards of Trustees or the Adviser have determined under
Board-approved guidelines that such restricted securities are liquid. The Boards
of Trustees will determine as a question of fact the liquidity of Rule 144A
securities in each Fund's portfolio using the guidelines set forth below.
In their determination of liquidity, the Boards of Trustees will
consider the following factors, among others: (1) the frequency of trades and
quotes for the security, (2) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers, (3) dealer
undertakings to make a market in the security, and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). In accordance with Rule 144A, each Board intends to delegate its
responsibility to the Adviser to determine the liquidity of each restricted
security purchased by the Funds pursuant to Rule 144A, subject to the Board's
oversight and review. The foregoing investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing the Rule 144A
securities. The Funds will not invest more than 5% of their total assets in Rule
144A securities without first supplementing the prospectuses and providing
additional information to shareholders.
The Funds may acquire other restricted securities including securities
for which market quotations are not readily available. These securities may be
sold only in privately negotiated transactions or in public offerings with
respect to which a registration statement is in effect under the Securities Act
of 1933. Where registration is required, a Fund may be obligated to pay all or
part of the registration expenses and a considerable period may elapse between
the time of the decision to sell and the time 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, a Fund might obtain a less favorable
price than prevailed when it decided to sell. Restricted securities will be
priced at fair value as determined in good faith by the Funds' Boards of
Trustees. If through the appreciation of restricted securities or the
depreciation of unrestricted securities, a Fund should be in a position where
more than 10% of the value of its assets is invested in illiquid securities
(including repurchase agreements which mature in more than seven days and
options which are traded over-the-counter and their underlying securities), the
Fund will bring its holdings of illiquid securities below the 10% limitation.
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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 the Fund's outstanding shares are present in person
or by proxy at the meeting or (2) 50% of the Fund's outstanding shares.
A Fund may not:
1. PURCHASES ON MARGIN AND SHORT SALES. Purchase securities on margin
or sell short, except that a Fund may obtain such short term credits
as are necessary for the clearance of securities transactions. The
deposit or payment by a Fund of initial or maintenance margin in
connection with futures contracts or related options transactions is
not considered the purchase of a security on margin.
2. BORROWING. Borrow money, except from banks temporarily for
extraordinary or emergency purposes (not for leveraging or investment)
and then in an aggregate amount not in excess of (a) 5% of the value
of the Fund's net assets at the time of such borrowing with respect to
the Gold & Government Fund, Regional Bank Fund and Sovereign Achievers
Fund; (b) 10% of the value of the Fund's total assets at the time of
such borrowing with respect to the Managed Tax-Exempt Fund, Global
Fund and Global Income Fund, provided that the Fund will not purchase
securities for investment while borrowings equaling 5% or more of the
Fund's total assets are outstanding; and (c) with respect to the
Government Fund, 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (not including the
amount borrowed).
3. UNDERWRITING SECURITIES. Act as an underwriter of securities of
other issuers, except to the extent that it may be deemed to act as an
underwriter in certain cases when disposing of restricted securities.
(See also Restriction 14.)
4. SENIOR SECURITIES. Issue senior securities except as appropriate to
evidence indebtedness which a Fund is permitted to incur, provided
that, to the extent applicable, (i) the purchase and sale of futures
contracts or related options, (ii) collateral arrangements with
respect to futures contracts, related options, forward foreign
currency exchange contracts or other permitted investments of a Fund
as described in the Prospectus, including deposits of initial and
variation margin, and (iii) the establishment of separate classes of
shares of a Fund for providing alternative distribution methods are
not considered to be the issuance of senior securities for purposes of
this restriction.
5. WARRANTS. With respect to the Managed Tax-Exempt Fund and
Government Fund, invest in marketable warrants to purchase common
stock; with respect to the Gold & Government Fund, Regional Bank Fund
and Sovereign Achievers Fund, invest more than 5% of the value of the
Fund's net assets in marketable warrants to purchase common
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<PAGE>
stock; and with respect to the Global Fund and the Global Income Fund,
invest more than 5% of the Fund's total assets in warrants, whether or
not the warrants are listed on the New York or American Stock
Exchanges, or more than 2% of the value of the Fund's total assets in
warrants which are not listed on those exchanges. Warrants acquired in
units or attached to securities are not included in this restriction.
6. SINGLE ISSUER LIMITATION/DIVERSIFICATION. Purchase securities of
any one issuer, except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, if immediately after
such purchase more than 5% of the value of a Fund's total assets would
be invested in such issuer or the Fund would own or hold more than 10%
of the outstanding voting securities of such issuer; provided,
however, that with respect to all Funds, up to 25% of the value of a
Fund's total assets may be invested without regard to these
limitations. This restriction does not apply to Global Income Fund,
which is a non-diversified fund under the 1940 Act.
7. SINGLE CLASS OF ISSUER LIMITATION. Acquire more than 5% of any
class of securities of an issuer, except securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities. For this purpose, all outstanding bonds, preferred
stocks, and other evidences of indebtedness shall be deemed a single
class regardless of maturities, priorities, coupon rates, series,
designations, conversion rights, security or other differences. This
Restriction does not apply to the Managed Tax-Exempt Fund or Global
Income Fund.
8. REAL ESTATE. Purchase or sell real estate although a Fund may
purchase and sell securities which are secured by real estate,
mortgages or interests therein, or issued by companies which invest in
real estate or interests therein; provided, however, that no Fund will
purchase real estate limited partnership interests.
9. COMMODITIES; COMMODITY FUTURES; OIL AND GAS EXPLORATION AND
DEVELOPMENT PROGRAMS. Purchase or sell commodities or commodity
futures contracts or interests in oil, gas or other mineral
exploration or development programs, except a Fund (other than the
Regional Bank Fund) may engage in such forward foreign currency
contracts and/or purchase or sell such futures contracts and options
thereon as described in the Prospectus.
10. MAKING LOANS. Make loans, except that a Fund may purchase or hold
debt instruments and may enter into repurchase agreements (subject to
Restriction 14) in accordance with its investment objectives and
policies and, with respect to the Sovereign Achievers Fund, Government
Fund, Global Fund and Global Income Fund, make loans of portfolio
securities provided that as a result, no more than 5% of the Sovereign
Achievers Fund's total assets, 10% of the Global Fund's total assets
and 30% of the total assets of the Government Fund or Global Income
Fund, taken at current value would be so loaned.
11. SECURITIES OF OTHER INVESTMENT COMPANIES. Purchase securities of
other open-end investment companies, except in connection with a
merger, consolidation, acquisition or reorganization; or purchase more
than 3% of the total outstanding voting stock of any closed-end
investment company if more than 5% of a Fund's total assets would be
invested
37
<PAGE>
in securities of any closed-end investment company, or more than 10%
of the Fund's total assets would be invested in securities of any
closed-end investment companies in general. In addition, a Fund may
not invest in the securities of closed-end investment companies except
by purchase in the open market involving only customary broker's
commissions.
12. INDUSTRY CONCENTRATION. Purchase any securities which would cause
more than 25% of the market value of a Fund's total assets at the time
of such purchase to be invested in the securities of one or more
issuers having their principal business activities in the same
industry, provided that there is no limitation with respect to
investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; provided that,
notwithstanding the foregoing, (A) the Gold & Government Fund will
invest more than 25% of its total assets in gold and gold mining
industries, and will not at any time have less than 65% of its total
assets invested in some combination of gold and gold mining securities
and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; and (B) the Regional Bank Fund will
invest more than 25% of its total assets in issuers in the banking
industry; all as more fully set forth in the Prospectus. For purposes
of this Restriction, with respect to the Managed Tax-Exempt Fund,
state and municipal governments and their political subdivisions are
not considered members of any industry. With respect to Managed
Tax-Exempt Fund, this limitation shall not be applicable to
investments in Tax-Exempt securities issued by any state and municipal
governments and their political subdivisions. With respect to Global
Income Fund, this restriction will apply to obligations of a foreign
government unless the Securities and Exchange Commission permits their
exclusion.
Nonfundamental Investment Restrictions
--------------------------------------
The following restrictions are designated as nonfundamental and may be
changed by the Board of Trustees without shareholder approval.
A Fund may not:
13. OPTIONS TRANSACTIONS. Write, purchase, or sell puts, calls or
combinations thereof except that a Fund may write, purchase or sell
puts and calls on securities as described in the Prospectuses, and the
Global Income Fund may purchase or sell puts and calls on foreign
currencies as described in the Prospectus.
14. ILLIQUID SECURITIES. Purchase or otherwise acquire any security
if, as a result, more than 10% of a Fund's net assets (taken at
current value) would be invested in securities that are illiquid by
virtue of the absence of a readily available market or legal or
contractual restrictions on resale. This policy includes repurchase
agreements maturing in more than seven days. This policy does not
include restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of l933 which the Board of Trustees or
the Adviser has determined under Board-approved guidelines are liquid.
15. ACQUISITION FOR CONTROL PURPOSES. Purchase securities of any
issuer for the purpose of exercising control or management, except in
connection with a merger, consolidation, acquisition or
reorganization.
38
<PAGE>
16. UNSEASONED ISSUERS. Purchase securities of any issuer with a
record of less than three years continuous operations, including
predecessors, if such purchase would cause the investments of a Fund
in all such issuers to exceed 5% of the total assets of the Fund taken
at market value, except this restriction shall not apply to (i)
obligations of the U.S. Government, its agencies or instrumentalities
and (ii) securities of such issuers which are rated by at least one
nationally recognized statistical rating organization. With respect to
Managed Tax-Exempt Fund, this restriction shall not apply to municipal
obligations for the payment of which is pledged the faith, credit and
taxing power of any person authorized to issue such securities. With
respect to the Global Income Fund, this restriction shall not apply to
obligations issued or guaranteed by any foreign government or its
agencies or instrumentalities.
17. BENEFICIAL OWNERSHIP OF OFFICERS AND DIRECTORS OF FUND AND
ADVISEr. Purchase or retain the securities of any issuer if those
officers or trustees of a Fund or officers or directors of the Adviser
who each own beneficially more than 1/2 of 1% of the securities of
that issuer together own more than 5% of the securities of such
issuer.
18. HYPOTHECATING, MORTGAGING AND PLEDGING ASSETS. Hypothecate,
mortgage or pledge any of its assets except (a) with respect to the
Gold & Government Fund, Regional Bank Fund, Sovereign Achievers Fund
and Managed Tax-Exempt Fund, to secure loans as a temporary measure
for extraordinary purposes and (b) with respect to Government Fund,
Global Fund and Global Income Fund, as may be necessary in connection
with permitted borrowings and then not in excess of 5% of the Fund's
total assets, taken at cost. For the purpose of this restriction, (i)
forward foreign currency exchange contracts are not deemed to be a
pledge of assets, (ii) the purchase or sale of securities by a Fund on
a when-issued or delayed delivery basis and collateral arrangements
with respect to the writing of options on debt securities or on
futures contracts are not deemed to be a pledge of assets; and (iii)
the deposit in escrow of underlying securities in connection with the
writing of call options is not deemed to be a pledge of assets.
19. JOINT TRADING ACCOUNTS. Participate on a joint or joint and
several basis in any trading account in securities (except for a joint
account with other funds managed by the Adviser for repurchase
agreements permitted by the Securities and Exchange Commission
pursuant to an exemptive order).
20. 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.
39
<PAGE>
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amounts of net assets will not be considered a violation
of any of the foregoing restrictions (with the exception of Restriction 2
permitting Government Fund to borrow up to 33 1/3%, and Sovereign Achievers Fund
to borrow up to 5% of the value of their total assets).
The Global Income Fund has registered as a "non-diversified" investment
company under the Investment Company Act of 1940. However, the Fund intends to
limit its investments to the extent required by the diversification requirements
of the Internal Revenue Code. See "Taxes".
In addition, it is a fundamental policy of the Managed Tax-Exempt Fund
that the Managed Tax-Exempt Fund will invest at least 80% of its total assets in
municipal securities with varying maturities, the interest from which is, in the
opinion of bond counsel for the issuer, exempt from federal income tax.
TAX STATUS
Each Fund is treated as a separate entity for accounting and tax
purposes. Each Fund has qualified and elected to be treated as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and intends to continue to so qualify for each taxable
year. As such and by complying with the applicable provisions of the Code
regarding the sources of its income, the timing of its distributions, and the
diversification if its assets, each Fund will not be subject to Federal income
tax on taxable income (including net short-term and long-term capital gains from
the disposition of portfolio securities or the right to when-issued securities
prior to issuance or the lapse, exercise, delivery under or closing out of
certain options, futures and forward contracts, income from repurchase
agreements and other taxable securities, income attributable to accrued market
discount, and a portion of the discount from certain stripped tax-exempt
obligations or their coupons) which is distributed to shareholders at least
annually in accordance with the timing requirements of the Code.
Each Fund will be subject to a 4% nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. Each
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Funds' Prospectuses whether taken in shares or in cash. Amounts
that are not allowable as a deduction in computing taxable income, including
expenses associated with earning tax-exempt interest income, do not reduce
current E&P for this purpose. Distributions, if any, in excess of an investor's
tax basis in Fund shares and thereafter (after such basis is reduced to zero)
will generally give rise to capital gains. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
Federal income tax purposes in each share so received equal to the amount of
cash they would have received had they elected to receive the distributions in
cash, divided by the number of shares received.
40
<PAGE>
Distributions of tax-exempt interest ("exempt-interest dividend")
timely designated as such by the Managed Tax-Exempt Fund to its shareholders
will be treated as tax-exempt interest under the Code, provided that such Fund
qualifies as a regulated investment company and at least 50% of the value of its
assets at the end of each quarter of its taxable year is invested in tax-exempt
obligations. Shareholders are required to report their receipt of tax-exempt
interest, including such distributions, on their Federal income tax returns. The
portion of the Managed Tax-Exempt Fund's distributions designated as
exempt-interest dividends may differ from the actual percentage that its
tax-exempt income comprised of its total income during the period of any
particular shareholder's investment. This Fund will report to Shareholders the
amount designated as exempt-interest dividends for each year.
Interest income from certain types of tax-exempt bonds that are private
activity bonds in which the Managed Tax-Exempt Fund may invest is treated as an
item of tax preference for purposes of the Federal alternative minimum tax. To
the extent that the Managed Tax-Exempt Fund invests in these types of tax-exempt
bonds, shareholders will be required to treat as an item of tax preference for
Federal alternative minimum purposes that part of such Fund's exempt-interest
dividends which is derived from interest on these tax-exempt bonds.
Exempt-interest dividends derived from interest income from all tax-exempt bonds
may be included in corporate "adjusted current earnings" for purposes of
computing the alternative minimum tax liability, if any, of corporate
shareholders of the Managed Tax-Exempt Fund.
If a Fund invests in stock of certain non-U.S. corporations that
receive at least 75% of their annual gross income from passive sources (such as
interest producing investments, dividends, rents, royalties or capital gain) or
hold at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), that Fund could be subject to Federal
income tax and additional interest charges on "excess distributions" received
from these passive foreign investment companies, even if all income or gain
actually received by the Fund is timely distributed to its shareholders. The
Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election would require the applicable
Fund to recognize taxable income or gain without concurrent receipt of cash. Any
Fund that is permitted to acquire stock in foreign corporations may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
41
<PAGE>
Foreign exchange gains and losses realized by a Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency futures and options, foreign currency forward
contracts, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount, timing and character of distributions to shareholders. Any such
transactions that are not directly related to a Fund's investment in stock or
securities, possibly including speculative currency positions or currency
derivatives not used for hedging purposes, may increase the amount of gain it is
deemed to recognize from the sale of certain investments held for less than
three months, which gain is limited under the Code to less than 30% of its
annual gross income, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
least 90% of its annual gross income. Income from investments in commodities,
such as gold and certain related derivative instruments, is also not treated as
qualifying income under this test. If the net foreign exchange loss for a year
treated as ordinary loss under Section 988 were to exceed a Fund's investment
company taxable income computed without regard to such loss (i.e., all of the
Fund's net income other than any excess of net long-term capital gain over net
short-term capital loss) the resulting overall ordinary loss for such year would
not be deductible by the Fund or its shareholders in future years.
Some Funds may be subject to withholding and other taxes imposed by
foreign countries with respect to their investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax credits with respect
to such taxes, subject to certain provisions and limitations contained in the
Code. Specifically, if more than 50% of the value of a Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may file an election with the Internal Revenue Service
Pursuant to which shareholders of the Fund will be required to (i) include in
ordinary gross income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even though not
actually received by them, and (ii) treat such respective pro rata portions as
foreign income taxes paid by them.
If a Fund makes this election, shareholders may then deduct such pro
rata portions of foreign income taxes in computing their taxable incomes, or
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign income taxes paid by the Fund, although
such shareholders will be required to include their share of such taxes in gross
income. Shareholders who claim a foreign tax credit for such foreign taxes may
be required to treat a portion of dividends received from the Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credits. Tax-exempt shareholders will ordinarily not benefit from this
elections. Each year that a Fund files the election described above, its
shareholders will be notified of the amount of (i) each shareholder's pro rata
share of foreign income taxes paid by the Fund and (ii) the portion of Fund
dividends which represents income from each foreign country. A Fund that cannot
or does not make this election may deduct such taxes in computing its taxable
income.
42
<PAGE>
For each Fund, the amount of net realized short-term and long-term
capital gains, if any, in any given year will vary depending upon the Adviser's
current investment strategy and whether the Adviser believes it to be in the
best interest of the Fund to dispose of portfolio securities or enter into
options or futures transactions that will generate capital gains. At the time of
an investor's purchase of Fund shares, a portion of the purchase price is often
attributable to realized or unrealized appreciation in the Fund's portfolio or
undistributed taxable income of the Fund. Consequently, subsequent distributions
on those shares from such appreciation or income may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption of shares of a Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his basis in his shares. Such gain or loss will be treated as capital gain
or loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, depending upon the shareholder's tax holding period for
the shares. A sales charge paid in purchasing Class A shares of a Fund cannot be
taken into account for purposes of determining gain or loss on the redemption or
exchange of such shares of the Fund or another John Hancock Fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to the Automatic Dividend Reinvestment Plan.
In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be disallowed to the extent of all
exempt-interest dividends paid with respect to such shares and will be treated
as a long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain with respect to such shares.
Although its present intention is to distribute all net short-term and
long-term capital gains, if any, each Fund reserves the right to retain and
reinvest all or any portion of its "net capital gain", which is the excess, as
computer for Federal income tax purposes, of net long-term capital gain over net
short-term capital loss in any year. The Funds will not in any event distribute
net long-term capital gains realized in any year to the extend that a capital
loss is carried forward from prior years against such gain. To the extent such
excess was retained and not exhausted by the carryforward of prior years'
capital losses, it would be subject to Federal income tax in the hands of a
Fund. Each shareholder would be treated for Federal income tax purposes as if
such Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder of the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain income in his return for his taxable year in which the last day of
the Fund's taxable year falls, (b) be entitled either to a tax credit on his
return for, or a refund of, his pro rata share of the taxes paid by the Fund,
and (c) be entitled to increase the adjusted tax basis for his shares in the
Fund by the difference between his pro rata share of such excess and his pro
rata share of such taxes.
43
<PAGE>
For Federal income tax purposes, each Fund is permitted to carryforward
a net capital loss in any year to offset its own net capital gains, if any,
during the eight years following the year of the loss. To the extent subsequent
net capital gains are offset by such losses, they would not result in Federal
income tax liability to the applicable Fund, as noted above, would not be
distributed as such to shareholders. The capital loss carryforwards for each of
the Funds are as follows: John Hancock Sovereign U.S. Government Income Fund has
$43,025,223 of capital loss carryforwards which will expire October 31, 1997 --
$282,637, October 31, 2002-- $16,549,431 and October 31, 2003 -- $26,193,155.
John Hancock Managed Tax Exempt Fund has no capital loss carryforwards. John
Hancock Gold & Government Fund has $11,789,591 of capital loss carryforwards
which will expire October 31, 2002 -- $8,066,420 and October 31, 2003 --
$3,723,171. John Hancock Sovereign Achievers Fund has no capital loss
carryforwards. John Hancock Regional Bank Fund has no capital loss
carryforwards. John Hancock Global Fund has no capital loss carryforwards. John
Hancock Global Income Fund has $3,413,372 which will expire October 31, 2002.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Managed Tax-Exempt Fund will not be deductible for Federal income
tax purposes to the extent it is deemed related to exempt-interest dividends
paid by such Fund. Pursuant to published guidelines, the Internal Revenue
Service may deem indebtedness to have been incurred for the purpose of
purchasing or carrying shares of this Fund even though the borrowed funds may
not be directly traceable to the purchase of shares.
For purposes of the dividends received deduction available to
corporations, dividends received by a Fund, if any, from U.S. domestic
corporations in respect of any share of stock held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and designated by the Fund may be treated as
qualifying dividends. Only Sovereign Achievers Fund and Regional Bank Fund would
generally have any significant portion of its distributions treated as
qualifying dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their shares of
the applicable Fund in order to qualify for the deduction and, if they borrow to
acquire such shares, may be denied a portion of the dividends received
deduction. The entire qualifying dividend, including the otherwise deductible
amount, will be included in determining the excess (if any) of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its alternative minimum tax liability, if any.
Additionally, any corporate shareholder should consult its tax adviser regarding
the possibility that its tax basis in its shares may be reduced, for Federal
income tax purposes, by reason of "extraordinary dividends" received with
respect to the shares, for the purpose of computing its gain or loss on
redemption or other disposition of the shares.
44
<PAGE>
Investment in debt obligations that are at risk of or in default
presents special tax issues for any Fund that may hold such obligations. Tax
rules are not entirely clear about issues such as when the Fund may cease to
accrue interest, original issue discount, or market discount, when and to what
extent deductions may be taken for bad debts or worthless securities, how
payments received on obligations in default should be allocated between
principal and income, and whether exchanges of debt obligations in a workout
context are taxable. These and other issues will be addressed by any Fund that
may hold such obligations in order to reduce the risk of distributing
insufficient income to preserve its status as a regulated investment company and
seek to avoid becoming subject to Federal income or excise tax.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Limitations imposed by the Code on regulated investment companies like
the Funds may restrict each Fund's ability to enter into futures, options, and
forward transactions.
Certain options, futures and forward foreign currency transactions
undertaken by a fund may cause the Fund to recognize gains or losses from
marking to market even though its positions have not been sold or terminated and
affect the character as long-term or short-term (or, in the case of certain
currency forward, options and futures, as ordinary income or loss) and timing of
some capital gains and losses realized by the Fund. Also, certain of a Fund's
losses on its transactions involving options, futures or forward contracts
and/or offsetting portfolio positions may be deferred rather than being taken
into account currently in calculating the Fund's taxable income. Certain of the
applicable tax rules may be modified if a Fund is eligible and chooses to make
one or more of certain tax elections that may be available. These transactions
may therefore affect the amount, timing and character of a Fund's distributions
to shareholders. The Funds will take into account the special tax rules
(including consideration of available elections) applicable to options, futures
or forward contracts in order to minimize any potential adverse tax
consequences.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions. Dividends, capital gain distributions, and ownership
of or gains realized on the redemption (including an exchange) of Fund shares
may also be subject to state and local taxes. Shareholders should consult their
own tax advisers as to the Federal, state or local tax consequences of ownership
of shares of, and receipt of distributions from, the Funds in their particular
circumstances.
45
<PAGE>
Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in a Fund is effectively connected will be subject to U.S.
Federal income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable a tax treaty) on amounts treated as
ordinary dividends from a Fund and, unless an effective IRS Form W-8 or
authorized substitute is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in any Fund.
The Funds are not subject to Massachusetts corporate excise or
franchise taxes, provided that a fund qualifies as a regulated investment
company under the Code, it will also not be required to pay any Massachusetts
income tax.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of each Fund is managed by its Trustees, who elect
officers who are responsible for the day-to-day operations of the Trust and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers and directors of the Adviser or officers
and Directors of the Funds' principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
The following table sets forth the principal occupation of employment
of the Trustees and principal officers of the Funds during the past five years:
46
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
---------------- WITH REGISTRANTS DURING PAST 5 YEARS
---------------- -------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive Officer, the
Adviser and The Berkeley Financial Group
("The Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM Capital");
John Hancock Advisers International
Limited ("Advisers International"); John
Hancock Funds, Inc., ("John Hancock
Funds"); John Hancock Investor Services
Corporation ("Investor Services") and
Sovereign Asset Management Corporation
("SAMCorp") (herein after the Adviser,
The Berkeley Group, NM Capital, Advisers
International, John Hancock Funds,
Investor Services and SAMCorp are
collectively referred to as the
"Affiliated Companies"); Chairman, First
Signature Bank & Trust; Director, John
Hancock Freedom Securities Corp., John
Hancock Capital Corp., New England/Canada
Business Council; Member, Investment
Company Institute Board of Governors;
Director, Asia Strategic Growth Fund,
Inc.; Trustee, Museum of Science;
President, the Adviser (until July 1992);
Chairman, John Hancock Distributors, Inc.
until April 1994.
------------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee
may generally exercise most powers of the Trustees between regularly
scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
---------------- WITH REGISTRANTS DURING PAST 5 YEARS
---------------- -------------------
<S> <C> <C>
Douglas M. Costle Trustee (1, 2) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow, Institute
Woodstock, Vermont 05091 for Sustainable Communities, Montpelier,
Vermont, since 1991. Dean Vermont Law School,
until 1991. Director, Air and Water
Technologies Corporation (environmental
services and equipment), Niagara Mohawk Power
Company (electric services) and MITRE Corporation
(governmental consulting services).
Leland O. Erdahl Trustee (1, 2) President and Director of Nature Quality
8046 Mackenzie Court Ingredients Company, Inc. and Sante Fe
Las Vegas, NV 89129 Ingredients Company, Inc. , private food
processing companies. Director of Uranium
Resources, Inc. President of Stolar, Inc.
from 1987 to 1991 and President of
Albuquerque Uranium Corporation from 1985
to 1992. Director of Freeport-McMoRan
Copper & Gold Company, Inc., Hecla Mining
Company, Canyon Resources Corporation and
Original Sixteen to One Mines, Inc. From
1984 to 1987 and 1991, management
consultant.
-----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee
may generally exercise most powers of the Trustees between regularly
scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
---------------- WITH REGISTRANTS DURING PAST 5 YEARS
---------------- -------------------
<S> <C> <C>
Richard A. Farrell Trustee(1, 2) President of Farrell, Healer & Co., a venture
Venture Capital Partners capital management firm, since 1980. Prior to
160 Federal Street that date, Mr. Farrell headed the venture
23rd Floor capital group at Bank of Boston Corporation.
Boston, MA 02110
William F. Glavin Trustee (1, 2) President, Babson College; Vice Chairman, Xerox
Babson College Corporation until June 1989. Director, Caldor
Horn Library Inc. and Inco Ltd.
Babson Park, MA 02157
Dr. John A. Moore Trustee (1, 2) President and Chief Executive Officer, Institute
Institute for Evaluating for Evaluating Health Risks, a nonprofit
Health Risks institution, since September 1989. Assistant
1629 K Street NW Administrator of the Office of Pesticides and
Suite 402 Toxic Substances at the Environmental Protection
Washington, DC 20006 Agency from December 1983 to July 1989.
Patti McGill Peterson Trustee (1, 2) President, St. Lawrence University; Director,
St. Lawrence University Niagara Mohawk Power Corporation and Security
110 Vilas Hall Mutual Life.
Canton, NY 13617
John W. Pratt Trustee (1, 2) Professor of Business Administration at Harvard
2 Gray Gardens East University Graduate School of Business
Cambridge, MA 02138 Administration (Since 1961).
Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment Officer, the
Investment Officer (4) Adviser; President (until December 1994).
-----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee
may generally exercise most powers of the Trustees between regularly
scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
---------------- WITH REGISTRANTS DURING PAST 5 YEARS
---------------- -------------------
<S> <C> <C>
Anne C. Hodsdon President (4) President and Chief Operating Officer,
the Adviser; Executive Vice President,
the Adviser (until December 1994); Senior
Vice President; the Adviser (until
December 1993).
James B. Little Senior Vice President, Senior Vice President, the Adviser.
Chief Financial Officer
Thomas H. Drohan Senior Vice President and Senior Vice President and Secretary, the
Secretary Adviser.
John A. Morin Vice President Vice President, the Adviser.
Susan S. Newton Vice President, Assistant Vice President and Assistant Secretary,
Secretary and Compliance the Adviser.
Officer
James J. Stokowski Vice President and Vice President, the Adviser.
Treasurer
-----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee
may generally exercise most powers of the Trustees between regularly
scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</TABLE>
50
<PAGE>
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
<TABLE>
The following table provides information regarding the compensation
paid by the Funds and the other investment companies in the John Hancock Fund
Complex to the Independent Trustees for their services. Mr. Boudreau, and each
of the officers of the Funds are interested persons of the Adviser, are
compensated by the Adviser and receive no compensation from the Funds for their
services.
<CAPTION>
AGGREGATE COMPENSATION
----------------------
SOVEREIGN U.S.
--------------
INDEPENDENT TRUSTEES GOVERNMENT* MANAGED TAX- EXEMPT* GOLD & GOVERNMENT*
-------------------- ----------- -------------------- ------------------
<S> <C> <C> <C>
William A. Barron, III** $ 9,344 $ 4,232 $ 704
Douglas M. Costle 9,344 4,232 704
Leland O. Erdahl 9,344 4,232 704
Richard A. Farrell 9,690 4,388 731
William F. Glavin 2,774 1,275 84
Patrick Grant** 9,805 4,440 740
Ralph Lowell, Jr.** 9,344 4,232 704
Dr. John A. Moore 9,344 4,232 704
Patti McGill Peterson 9,344 4,232 704
John W. Pratt 9,344 4,232 704
------- ------- ------
Totals $87,677 $39,727 $6,483
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
----------------------
SOVEREIGN
---------
INDEPENDENT TRUSTEES ACHIEVERS* REGIONAL BANK* GLOBAL* GLOBAL INCOME*
-------------------- ---------- -------------- ------- --------------
<S> <C> <C> <C> <C>
William A. Barron, III** $ 2,105 $ 13,754 $ 2,283 $ 2,190
Douglas M. Costle 2,105 13,754 2,283 2,190
Leland O. Erdahl 2,105 13,754 2,283 2,190
Richard A. Farrell 2,183 14,218 2,367 2,271
William F. Glavin 630 4,214 670 651
Patrick Grant** 2,208 14,372 2,395 2,299
Ralph Lowell, Jr.** 2,105 13,754 2,283 2,190
Dr. John A. Moore 2,105 13,754 2,283 2,190
Patti McGill Peterson 2,105 13,754 2,283 2,190
John W. Pratt 2,105 13,754 2,283 2,190
------- -------- ------- -------
Totals $19,756 $129,082 $21,413 $20,551
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
PENSION OR RETIREMENT BENEFITS TOTAL COMPENSATION FROM FUNDS AND
ACCRUED AS PART OF EACH FUND'S JOHN HANCOCK FUND COMPLEX TO
INDEPENDENT TRUSTEES EXPENSES* TRUSTEES(1)
-------------------- --------- -----------
(TOTAL OF 12 FUNDS)
<S> <C> <C>
William A. Barron, III* $ $ 41,750
Douglas M. Costle - 41,750
Leland O. Erdahl - 41,750
Richard A. Farrell - 43,250
William F. Glavin 20,715 37,500
Patrick Grant** - 43,750
Ralph Lowell, Jr.** - 41,750
Dr. John A. Moore - 41,750
Patti McGill Peterson - 41,750
John W. Pratt - 41,750
------- --------
Totals $20,715 $416,750
(1)The total compensation paid the John Hancock Fund Complex to the Independent
Trustees is as of calendar year ended December 31, 1995.
*Compensation made for the fiscal year ended October 31, 1995.
**As of January 1, 1996, Messrs. Barron, Grant and Lowell resigned as Trustees.
</TABLE>
The nominees of the Funds may at times be the record holders of in
excess of 5% of shares of any one or more Funds by virtue of holding shares in
"street name." As of January 31, 1996 the officers and trustees of the Trusts as
a group owned less than 1% of the outstanding shares of each class of each of
the Funds.
As of January 31, 1996, the following shareholders beneficially owned
5% of or more of the outstanding shares of the Funds listed below:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF SHARES OF OUTSTANDING SHARES OF THE
NAME AND ADDRESS OF SHAREHOLDER FUND AND CLASS OF SHARES BENEFICIAL INTEREST OWNED CLASS OF THE FUND
------------------------------- ------------------------ ------------------------- -------------------------
<S> <C> <C> <C>
Merrill Lynch Pierce Fenner & Smith Regional Bank Fund 2,631,321 13.19%
Inc. Class A
Attn: Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
Merrill Lynch Pierce Fenner & Regional Bank Fund 16,653,759 31.16%
Smith Inc. Class B
Attn: Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
</TABLE>
52
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for each of the Funds is John Hancock Advisers,
Inc., a Massachusetts corporation (the "Adviser"), with offices at 101
Huntington Avenue, Boston, Massachusetts 02199-7603. The Adviser is a registered
investment advisory firm which maintains a securities research department, the
efforts of which will be made available to the Funds.
The Adviser was organized in 1968 and presently has more than $16
billion in assets under management in its capacity as investment adviser to the
Funds and the other mutual funds and publicly traded investment companies in the
John Hancock group of funds having a combined total of approximately 1,080,000
shareholders. The Adviser is an affiliate of John Hancock Mutual Life Insurance
Company (the "Life Company"), one of the most recognized and respected financial
institutions in the nation. With total assets under management of more than $80
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries high ratings from Standard & Poor's and A.M.
Best's. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Trusts have entered into investment advisory agreements (the
"Advisory Agreements") dated as of November 6, 1986 as amended and restated
January 1, 1994 between Freedom Investment Trust and the Adviser, and dated as
of June 26, 1986 as amended and restated January 1, 1994 between Freedom
Investment Trust II and the Adviser. Pursuant to the Advisory Agreements, the
Adviser agreed to act as investment adviser and manager to the Funds. As manager
and investment adviser, the Adviser will: (a) furnish continuously an investment
program for each of the Funds and determine, subject to the overall supervision
and review of the Boards of Trustees, which investments should be purchased,
held, sold or exchanged, (b) provide supervision over all aspects of each Fund's
operations except those which are delegated to a custodian, transfer agent or
other agent, and (c) provide each of the Funds with such executive,
administrative and clerical personnel, officers and equipment as are deemed
necessary for the conduct of their business.
As compensation for its services under the Advisory Agreements, the
Adviser receives from each Fund a fee computed and paid monthly based upon the
following annual rates: (a) for each of Regional Bank Fund and Gold & Government
Fund, 0.80% of each respective Fund's first $500 million of average daily net
assets, and 0.75% of average daily net assets over $500 million; (b) for the
Sovereign Achievers Fund, 0.75% of the Fund's first $500 million of average
daily net assets, and 0.65% of average daily net assets in excess of that
amount; (c) for Government Fund, 0.50% of the Fund's first $500 million of
average daily net assets, and 0.45% of average daily net assets in excess of
that amount; (d) for Managed Tax-Exempt Fund, 0.60% of the Fund's first $250
million of average daily net assets, 0.50% of the next $500 million of average
daily net assets, and 0.45% of average daily net assets in excess of that
amount; (e) for Global Fund, 1% on the first $100 million of average daily net
assets of the Fund, 0.80% on the next $200 million of average net assets, 0.75%
on the next $200 million of average net assets and 0.625% of average net assets
in excess of $500 million; and (f) for the Global Income Fund 0.75% on the first
$250 million of average daily net assets, and 0.70% of average net assets in
excess of $250 million. The rates for some Funds are higher than those for
others because of the extensive amount of research required to manage such
portfolios in comparison to the portfolios of other Funds.
53
<PAGE>
The Global Fund and the Adviser have entered into a sub-investment
management contract with John Hancock Advisers International Limited under which
John Hancock Advisers International, subject to the review of the Trustees and
the overall supervision of the Adviser, is responsible for providing the Fund
with advice with respect to that portion of the assets invested in countries
other than the United States and Canada. As compensation for its services under
the Sub-Advisory Agreement, JH Advisers International receives from the Adviser
a monthly fee equal to 0.70% on an annual basis of the average daily net asset
value of the Global Fund for each calendar month up to $200 million of average
daily net assets; and 0.6375% on an annual basis of the average daily net asset
value over $200 million. The Sub-Adviser, with offices located at 34 Dover
Street, London, England W1X 3RA, is a wholly-owned subsidiary of the Adviser
formed in 1987 to provide international investment research and advisory
services to U.S. institutional clients.
The Adviser has entered into a service agreement with Sovereign Asset
Management Corporation ("SAMCorp"), which is an indirect wholly-owned subsidiary
of the Life Company. The service agreement provides that SAMCorp will provide to
the Adviser certain portfolio management services with respect to the equity
securities held in the portfolio of the Sovereign Achievers Fund. The service
agreement further provides that the Adviser will remain ultimately responsible
for all of its obligations under the investment management contract between the
Adviser and the Sovereign Achievers Fund. Subject to the supervision of the
Adviser, SAMCorp furnishes the Sovereign Achievers Fund with recommendations
with respect to the purchase, holding and disposition of equity securities in
the Sovereign Achievers Fund's portfolio; furnishes the Sovereign Achievers Fund
with research, economic and statistical data in connection with the Sovereign
Achievers Fund's equity investments; and places orders for transactions in
equity securities. The Adviser pays to SAMCorp 40% of the monthly investment
management fee received by the Adviser with respect to the equity securities
held in the portfolio of the Sovereign Achievers Fund during such month. The
fees paid by the Sovereign Achievers Fund to the Adviser under the investment
management contract are not affected by this arrangement.
All expenses which are not specifically paid by the Adviser and which
are incurred in the operation of the Fund (including fees of Trustees of the
Fund who are not "interested persons," as such term is defined in the Investment
Company Act, but excluding certain distribution-related activities required to
be paid by the Adviser or John Hancock Funds) and the continuous public offering
of the shares of the Fund are borne by the Fund. Class expenses properly
allocable to either Class A or Class B shares will be borne exclusively by such
class of shares, subject to certain conditions imposed by the Internal Revenue
Service with respect to multiple-class structures.
The State of California imposes a limitation on the expenses of the
Funds. The Advisory Agreement provides that if, in any fiscal year, the total
expenses of a Fund (excluding taxes, interest, brokerage commissions and
extraordinary items, but including the management fee) exceed the expense
limitations applicable to a Fund imposed by the securities regulations of any
state in which it is then registered to sell shares, the Adviser will reduce
it's fee for that Fund in the amount of that excess up to the amount of its
management fee during that fiscal year. The Adviser and JH Advisers
International have agreed that if, in any fiscal year, the total expenses of the
Global Fund (excluding taxes, interest, brokerage commissions and extraordinary
items, but
54
<PAGE>
including the Adviser's fee and the portion thereof paid to JH Advisers
International) exceed the expense limitations applicable to such Fund, the
Adviser and JH Advisers International will each reduce it's fee for that Fund in
the amount of that excess up to the amount of its fee during that fiscal year.
Although there is no certainty that any limitations will be in effect in the
future, the California limitation on an annual basis currently is 2.5% of the
first $30 million of average net assets, 2.0% of the next $70 million of net
assets and 1.5% of the remaining net assets.
The continuation of the Advisory Agreement for Freedom Investment Trust
was last approved on May 1, 1995 by all of the Trustees, including all of the
Trustees who are not parties to the Advisory Agreement or "interested persons"
of any such party. The shareholders of Gold & Government Fund, Regional Bank
Fund and Government Fund also approved the Advisory Agreement on November 6,
1986. The Advisory Agreement was approved by the respective shareholders of the
Sovereign Achievers Fund and the Managed Tax-Exempt Fund on February 26, 1988.
An amendment to the Advisory Agreement to increase the fee payable thereunder
effective January 1, 1994, was approved by the respective shareholders of Gold &
Government Fund and Regional Bank Fund on October 28, 1993. The Advisory
Agreement will continue in effect from year to year, provided that its
continuance is approved annually both (i) by the holders of a majority of the
outstanding voting securities of the Trust or by the Board of Trustees, and (ii)
by a majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any such party. The Advisory Agreement may be terminated
on 60 days written notice by any party and will terminate automatically if it is
assigned.
For the fiscal year ended October 31, 1993, Freedom Investment Trust
paid the Adviser an investment advisory fee of $6,061,838 pursuant to the
Advisory Agreement. Of this amount, $451,050 was attributable to the Gold &
Government Fund, $1,354,664 was attributable to the Regional Bank Fund,
$2,862,505 was attributable to the Government Fund, $583,838 was attributable to
the Sovereign Achievers Fund and $809,781 was attributable to the Managed
Tax-Exempt Fund. Under the terms of the Advisory Agreement the Adviser may
voluntarily not impose all or part of its management fees. During the year ended
October 31, 1993, for the Managed Tax-Exempt Fund, the Adviser agreed not to
impose management fees in the amount of $733,749.
For the fiscal year ended October 31, 1994, Freedom Investment Trust
paid the Adviser, the Funds' previous Adviser, an investment advisory fee of
$9,390,998 pursuant to the Advisory Agreement. Of this amount, $530,798 was
attributable to the Gold & Government Fund, $3,686,366 was attributable to the
Regional Bank Fund, $2,839,185 was attributable to the Government Fund, $902,465
was attributable to the Sovereign Achievers Fund and $1,432,184 was attributable
to the Managed Tax-Exempt Fund. During the year ended October 31, 1994, for the
Managed Tax-Exempt Fund, the Adviser agreed not to impose management fees in the
amount of $131,878. The Adviser's expense limitation may be discontinued at any
time.
For the fiscal year ended October 31, 1995, Freedom Investment Trust
paid the Adviser and Freedom Capital, the Funds' previous Adviser, an investment
advisory fee of $12,627,864 pursuant to the Advisory Agreement. Of this amount,
$354,905 was attributable to the Gold & Government Fund, $7,644,892 was
attributable to the Regional Bank Fund, $2,514,147 was
55
<PAGE>
attributable to the Government Fund, $1,247,519 was attributable to the Managed
Tax-Exempt Fund, and $866,401 was attributable to the Sovereign Achievers Fund.
Under the terms of the Advisory Agreement the Adviser may voluntarily not impose
all or part of its management fees. During the year ended October 31, 1995, for
the Managed Tax-Exempt Fund the Adviser and Freedom Capital agreed not to impose
management fees in the amount of $113,411.
The continuation of the Advisory Agreement for the Global Fund and for
the Global Income Fund were approved on May 1, 1995 by all of the Trustees of
Freedom Investment Trust II, including all of the Trustees who are not parties
to the Agreements or "interested persons" of any such party. The current
Sub-Advisory Agreement between the Adviser and JH Advisers International was
approved by all of the Trustees of Freedom Investment Trust II on June 25, 1992
and became effective on August 1, 1992. The shareholders of each Fund approved
the Advisory Agreement with respect to each Fund on May 8, 1987 and the
shareholders of the Global Fund approved the Sub-Advisory Agreement on September
25, 1992. An amendment to the Advisory Agreement to increase the fee payable
thereunder effective January 1, 1994 was approved by the shareholders of Global
Income Fund on October 28, 1993. The Agreements will continue in effect for a
period of two years from the date of their execution and thereafter from year to
year, provided that their continuance is approved annually both (i) by the
holders of a majority of the outstanding voting securities of each Fund or by
the Board of Trustees of Freedom Investment Trust II, and (ii) by a majority of
the Trustees who are not parties to the Agreements or "interested persons" of
any such party. The Agreements may be terminated on 60 days' written notice by
either party and will terminate automatically if they are assigned.
For the fiscal year ended October 31, 1993, Freedom Investment Trust II
paid the Adviser investment advisory fees of $922,722 with respect to the Global
Fund and $1,441,163 with respect to the Global Income Fund. For the fiscal year
ended October 31, 1994, Freedom Investment Trust II the Adviser investment
advisory fees of $1,175,313 with respect to the Global Fund and $1,207,673 with
respect to the Global Income Fund. For the fiscal year ended October 31, 1995,
Freedom Investment Trust II paid the Adviser and Freedom Capital, the Funds'
previous Adviser, investment advisory fees of $1,169,884 with respect to the
Global Fund and $840,527 with respect to the Global Income Fund.
DISTRIBUTION CONTRACT
Freedom Investment Trust and Freedom Investment Trust II have entered
into Distribution Agreements with John Hancock Funds, Inc. and Freedom
Distributors Corporation (together the "Distributors") whereby the Distributors
act as exclusive selling agent of the Funds, selling shares of each class of
each Fund on a "best efforts" basis. Shares of each class of each Fund are sold
to selected broker-dealers (the "Selling Brokers") who have entered into selling
agency agreements with the Distributors.
56
<PAGE>
The Distributors accept orders for the purchase of the shares of the
Funds which are continually offered at net asset value next determined, plus an
applicable sales charge, if any. In connection with the sale of Class A or Class
B shares of the Funds, the Distributors and Selling Brokers receive compensation
in the form of a sales charge imposed, in the case of Class A shares at the time
of sale or, in the case of Class B shares, on a deferred basis. The sales
charges are discussed further in the Prospectuses.
The Trustees have adopted Distribution Plans with respect to Class A
and Class B shares ("the Plans"), pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Under the Plans, each Fund will pay distribution and
service fees at an aggregate annual rate of up to 0.30% and 1.00% respectively,
of the Fund's daily net assets attributable to shares of that class. However,
the service fee will not exceed 0.25% of the applicable Fund's average daily net
assets attributable to each class of shares. The distribution fees reimburse the
Distributors for their distribution costs incurred in the promotion of sales of
the Funds'shares, and the service fees compensate Selling Brokers for providing
personal and account maintenance services to shareholders. In the event that the
Distributors are not fully reimbursed for expenses they incur under the Class B
Plan in any fiscal year, the Distributors may carry these expenses forward,
provided, however, that the Trustees may terminate the Class B Plan and thus any
Fund's obligation to make further payments at any time. Accordingly, the Funds
do not treat unreimbursed expenses relating to the Class B shares as a
liability. The Plans were approved by a majority of the voting securities of
each Fund. The Plans and all amendments were approved by the Trustees, including
a majority of the Trustees who are not interested persons of the applicable Fund
and who have no direct or indirect financial interest in the operation of the
Plans (the "Independent Trustees"), by votes cast in person at meetings called
for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, the Distributors provide the
Funds with a written report of the amounts expended under the Plans and the
purpose for which these expenditures were made. The Trustees review these
reports on a quarterly basis.
Each of the Plans provides that it will continue in effect only so long
as its continuance is approved at least annually by a majority of both the
Trustees and the Independent Trustees. Each of the Plans provides that it may be
terminated without penalty, (a) by vote of a majority of the Independent
Trustees, (b) by a vote of a majority of the applicable Fund's outstanding
shares of the applicable class in each case upon 60 day's written notice to the
Distributors and (c) automatically in the event of assignment. Each of the Plans
further provides that it may not be amended to increase the maximum amount of
the fees for the services described therein without the approval of a majority
of the outstanding shares of the class of the applicable Fund which has
57
<PAGE>
voting rights with respect to the Plan. And finally, each of the Plans provides
that no material amendment tot he Plan will, in any event, be effective unless
it is approved by a vote of the Trustees and the Independent Trustees of the
applicable Fund. The holders of Class A and Class B shares have exclusive voting
rights with respect to the Plan applicable to their respective class of shares.
In adopting the Plans the Trustees concluded that, in their judgment, there is a
reasonable likelihood that the plans will benefit the holders of the applicable
of shares of each Fund.
<TABLE>
During the fiscal year ended October 31, 1995, the Funds paid the
Distributors the following amounts of expenses with respect to the Class A
shares and Class B shares of each of the Funds:
<CAPTION>
Expense Items
-------------
Printing and Interest,
Mailing of Carrying or
Prospectuses to Expense of Compensation to Other Finance
Advertising New Shareholders Distributors Selling Brokers Charges
----------- ---------------- ------------ --------------- -------
<S> <C> <C> <C> <C> <C>
Government Fund
---------------
Class A Shares $ 63,551 $ 4,397 $ 182,706 $ 754,114 NONE
Class B Shares $ 63,450 $ 2,609 $ 190,722 $ 822,022 $ 598,399
Managed Tax-Exempt Fund
-----------------------
Class A Shares
Class B Shares $ 11,757 $ 515 $ 32,699 $ 38,407 NONE
$ 72,409 $ 0 $ 184,775 $ 981,260 $ 731,696
Gold & Government Fund
----------------------
Class A Shares $ 10,961 $ 0 $ 10,149 $ 28,882 NONE
Class B Shares $ 27,231 $ 0 $ 36,262 $ 202,288 $ 10,819
Sovereign Achievers Fund
------------------------
Class A Shares $ 10,326 $ 1,951 $ 24,700 $ 37,502 NONE
Class B Shares $ 40,251 $ 6,420 $ 93,473 $ 370,936 $ 361,952
Regional Bank Fund
------------------
Class A Shares $151,794 $ 9,160 $ 599,005 $ 89,574 NONE
Class B Shares $904,125 $54,026 $3,220,715 $1,018,102 $1,831,112
</TABLE>
58
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Global Fund
-----------
Class A Shares $50,361 $9,469 $75,361 $145,419 NONE
Class B Shares $47,508 $2,409 $70,676 $ 80,744 $ 69,530
Global Income Fund
------------------
Class A Shares $10,013 $3,810 $20,681 $ 23,930 NONE
Class B Shares $59,062 $1,035 $70,074 $270,650 $516,687
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's
shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations
furnished by a principal market maker or a pricing service, both of which
generally utilize electronic data processing techniques to determine valuations
for normal institutional size trading units of debt securities without exclusive
reliance upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National
Market Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned categories for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days
or less are generally valued at amortized cost which approximates market value.
If market quotations are not readily available or if in the opinion of the
Adviser any quotation or price is not representative of true market value, the
fair value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time ( 12:00 noon, New York time) on
the date of any determination of a Fund's NAV.
A Fund will not price its securities on the following national
holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. On any day an
international market is closed and the New York Stock Exchange is open, any
foreign securities will be valued at the prior day's close with the current
day's exchange rate. Trading of foreign securities may take place on Saturdays
and U.S. business holidays on which a Fund's NAV is not calculated.
Consequently, a Fund's portfolio securities may trade and the NAV of the Fund's
redeemable securities may be significantly affected on days when a shareholder
has no access to the Fund.
59
<PAGE>
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the
Funds are described in the Funds' Prospectuses. Methods of obtaining reduced
sales charges referred to generally in the Prospectuses are described in detail
below. In calculating the sales charge applicable to current purchases of Class
A shares, the investor is entitled to cumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Funds, owned by the investor, or if Investor Services is notified by the
investor's dealer or the investor at the time of the purchase, the cost of the
Class A shares owned.
COMBINED PURCHASES. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his or her spouse and their children under the age of 21,
purchasing securities for his, her or their own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
WITHOUT SALES CHARGES. As described in the Prospectuses, Class A shares of the
Funds may be sold without a sales charge to certain persons described in the
Prospectuses.
ACCUMULATION PRIVILEGE. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current account value of the Class A shares already
held by such person.
COMBINATION PRIVILEGE. Reduced sales charges (according to the schedule set
forth in the Prospectuses) are also available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares and
shares of all other John Hancock funds which carry a sales charge.
LETTER OF INTENTION. The reduced sales charges are also applicable to
investments made over a specified period pursuant to a Letter of Intention (the
"LOI"), which should be read carefully prior to its execution by an investor.
The Fund offers two options regarding the specified period for making
investments under the LOI. All investors have the option of making their
investments over a specified period of thirteen (13) months. Investors who are
using the Fund as a funding medium for a qualified retirement plan, however, may
opt to make the necessary investments called for by the LOI over a forty-eight
(48) month period. These qualified retirement plans include group IRA, SEP,
SARSEP, TSA, 401(k), ISA and Section 457 plans. Such an investment (including
accumulations and combinations) must aggregate $100,000 or more invested during
the specified period from the date of the LOI or from a date within ninety (90)
days prior thereto, upon written request to Investor Services. The sales charge
applicable to all amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If such aggregate
amount is not actually invested, the difference in the sales charge actually
paid and the sales charge payable had the LOI not been in effect is due
60
<PAGE>
from the investor. However, for the purchases actually made within the specified
period the sales charge applicable will not be higher than that which would have
applied (including accumulations and combinations) had the LOI been for the
amount actually invested.
The LOI authorizes Investor Services to hold in escrow a number of
Class A shares (approximately 5% of the aggregate) sufficient to make up any
difference in sales charges on the amount intended to be invested and the amount
actually invested, until such investment is completed within the specified
period, at which time the escrow shares will be released. If the total
investment specified in the LOI is not completed, the Class A shares held in
escrow may be redeemed and the proceeds used as required to pay such sales
charge as may be due. By signing the LOI, the investor authorizes Investor
Services to act as his or her attorney-in-fact to redeem any escrowed shares and
adjust the sales charge, if necessary. A LOI does not constitute a binding
commitment by an investor to purchase, or by the Funds to sell, any additional
Class A shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per
share without the imposition of an initial sales charge so that the Funds will
receive the full amount of the purchase price.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectuses as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. Accordingly, no CDSC will be imposed on increases in
account value above the initial purchase prices, including Class B shares
derived from reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares. Solely for purposes of determining this number all
payments during a month will be aggregated and deemed to have been made on the
last day of the month.
Proceeds from the CDSC are paid to John Hancock Funds not "the
Distributors" and are used in whole or in part by John Hancock Funds to defray
its expenses related to providing distribution-related services to the Funds in
connection with the sale of the Class B shares, such as the payment of
compensation to select Selling Brokers for selling Class B shares. The
combination of the CDSC and the distribution and service fees facilitates the
ability of the Funds to sell the Class B shares without a sales charge being
deducted at the time of the purchase. See the Prospectuses for additional
information regarding the CDSC.
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<PAGE>
SPECIAL REDEMPTIONS
Although they would not normally do so, the Funds have the right to pay the
redemption price of shares of the Funds in whole or in part in portfolio
securities as prescribed by the Trustees. If the shareholder were to sell
portfolio securities received in this fashion, he would incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Funds
have, however, elected to be governed by Rule 18f-1 under the Investment Company
Act. Under that rule, the Funds must redeem their shares for cash except to the
extent that the redemption payments to any shareholder during any 90-day period
would exceed the lesser of $250,000 or 1% of the applicable Fund's net asset
value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE. As described more fully in the Prospectuses, the Funds
permit exchanges of shares of any class of a Fund for shares of the same class
in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are
based on their respective net asset values. No sales charge or transaction
charge is imposed. Shares of the Funds which are subject to a CDSC may be
exchanged into shares of any of the other John Hancock funds that are subject to
a CDSC without incurring the CDSC; however, the shares acquired in an exchange
will be subject to the CDSC schedule of the shares acquired if and when such
shares are redeemed (except that shares exchanged into John Hancock Short-Term
Strategic Income Fund, John Hancock Intermediate Maturity Government Fund and
John Hancock Limited-Term Government Fund will retain the exchanged fund's CDSC
schedule). For purposes of computing the CDSC payable upon redemption of shares
acquired in an exchange, the holding period of the original shares is added to
the holding period of the shares acquired in an exchange.
Shares of each class may be exchanged only for shares of the same class in
another John Hancock fund.
If a shareholder exchanges Class B shares purchased prior to January 1,
1994 (except John Hancock Short-Term Strategic Income Fund) for Class B shares
of any other John Hancock fund, the acquired shares will continue to be subject
to the CDSC schedule that was in effect when the exchanged shares were
purchased.
Each Fund reserves the right to require that previously exchanged shares
(and reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange. The Funds may also terminate or alter the terms of the
exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and
the purchase of shares of another for Federal income tax purposes. An exchange
may result in a taxable gain or loss. See "Tax Status."
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<PAGE>
To make an exchange, the account registration in both the existing and
new account, must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the Prospectuses, each Fund
permits the establishment of a Systematic Withdrawal Plan. Payments under this
plan represent proceeds from the redemption of shares of the applicable Fund.
Since the redemption price of the shares of a Fund may be more or less than the
shareholder's cost, depending upon the market value of the securities owned by
the Fund at the time of redemption, the distribution of cash pursuant to this
plan may result in realization of gain or loss for purposes of Federal, state
and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares could be
disadvantageous to a shareholder because of the initial sales charge payable on
such purchases of Class A shares and the CDSC imposed on redemptions of Class B
shares and because redemptions are taxable events. Therefore, a shareholder
should not purchase Class A or Class B shares at the same time a Systematic
Withdrawal Plan is in effect. The Funds reserve the right to modify or
discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior
written notice to such shareholder, or to discontinue the availability of such
plan in the future. The shareholder may terminate the plan at any time by giving
proper notice to Investor Services.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This program is explained in
the Prospectuses. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month
indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the processing date of any investment.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund shares may, within
120 days after the date of redemption, reinvest without payment of a sales
charge any part of the redemption proceeds in shares of the same class of the
same Fund or in any other John Hancock funds, subject to the minimum investment
limit in that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
the same Fund or in Class A shares of another John Hancock fund. If a CDSC was
paid upon a redemption, a shareholder may reinvest the proceeds from this
redemption at net asset value in additional shares of the class from which the
redemption was made. The shareholder's account
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<PAGE>
will be credited with the amount of any CDSC charged upon the prior redemption
and the new shares will continue to be subject to the CDSC. The holding period
of the shares acquired through reinvestment will, for purposes of computing the
CDSC payable upon a subsequent redemption, include the holding period of the
redeemed shares. The Funds may modify or terminate the reinvestment privilege at
any time.
A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
DESCRIPTION OF THE FUNDS' SHARES
The Trustees of the Trust are responsible for the management and
supervision of the Funds. The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of the
Fund, without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this Statement
of Additional Information, the Trustees have authorized the issuance of a new
Fund named, John Hancock Financial Industries Fund, Class A and Class B, under
Freedom Investment Trust.
The shares of each class of a Fund represent an equal proportionate
interest in the aggregate net assets attributable to the classes of the Fund.
Class A and Class B shares of the Funds will be sold exclusively to members of
the public (other than the institutional investors described in the
Prospectuses) at net asset value. A sales charge will be imposed either at the
time of the purchase, for Class A shares, or on a contingent deferred basis, for
Class B shares. For Class A shares, no sales charge is payable at the time of
purchase on investments of $1 million or more, but for such investments a CDSC
may be imposed in the event of certain redemption transactions within one year
of purchase.
Class A and Class B shares have certain exclusive voting rights on
matters relating to their respective distribution plans. The different classes
of a Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except that (i) the distribution and service fees relating the
Class A and Class B shares will be borne exclusively by that class (ii) Class B
shares will pay higher distribution and service fees than Class A shares and
(iii) Class A and Class B shares will bear any other class expenses properly
allocable to such class of shares, subject to the conditions set forth in a
private letter ruling that each Fund has received from the Internal Revenue
Service relating to its multiple-class structure. Similarly, the net asset value
per share may vary depending on whether Class A or Class B shares are purchased.
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<PAGE>
In the event of liquidation, shareholders are entitled to share pro rata in
the net assets of the applicable Fund available for distribution to such
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, by the Trusts, except as set
forth below.
Unless otherwise required by the Investment Company Act or the Declaration
of Trust, each Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares, and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the Trust. However, each Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations or affairs of
the Fund. The Declaration of Trust also provides for indemnification out of the
Funds' assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. Liability is therefore
limited to circumstances in which a Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
CALCULATION OF PERFORMANCE
The following information supplements the discussion in the Prospectuses
regarding performance information.
TOTAL RETURN. Average annual total return is determined separately for each
class of shares.
Set forth below are tables showing the performance on a total return basis
(i.e., with all dividends and distributions reinvested) of a hypothetical $1,000
investment in the Class A and Class B shares of the Gold & Government Fund,
Regional Bank Fund, Government Fund, Managed Tax-Exempt Fund, Sovereign
Achievers Fund, Global Fund and Global Income Fund. The performance information
for each Fund is stated for the fiscal year ended October 31, 1995 and for the
five year period ended October 31, 1995 with respect to the Class B shares of
each Fund for the one year period of Class A shares of each Fund and for the
period from the commencement of operations (indicated by an asterisk), or the
ten year period, of the Class A and Class B shares of each Fund to October 31,
1995.
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<PAGE>
<TABLE>
<CAPTION>
Gold & Government Fund
----------------------
<S> <C> <C> <C> <C>
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
(10.40%) (0.64%) (11.02%) 2.65% 5.59%
Regional Bank Fund
------------------
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
24.46% 25.58% 25.11% 35.11% 19.97%
Government Income Fund
----------------------
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
11.05% 5.29% 9.34% 8.03% 8.20%
Managed Tax-Exempt Fund
-----------------------
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
8.56% 5.82% 7.96% 6.22% 8.31%
Sovereign Achievers Fund
------------------------
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
6.62% 5.40% 6.51% 12.17% 7.23%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Global Fund
-----------
<S> <C> <C> <C> <C>
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
(5.38%) 7.09% (5.96%) 9.30% 9.31%
Global Income Fund
------------------
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
7.15% 3.13% 6.61% 5.34% 9.14%
* Commencement of operations.
</TABLE>
The "distribution rate" is determined by annualizing the result of
dividing the declared dividends of a Fund during the period stated by the
maximum offering price and net asset value at the end of the period. Excluding a
Fund's sales load from the distribution rate produces a higher rate.
Total return is computed by finding the average annual compounded rates
of return over the designated periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
[GRAPHIC OMITTED]
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1 year, 5 years, and life-of-fund
periods.
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<PAGE>
This calculation assumes that the maximum sales charge for Class A
shares of 5% for Gold & Government Fund, Sovereign Achievers Fund, Regional Bank
Fund and Global Fund and 4.5% for Government Income Fund, Managed Tax-Exempt
Fund, and Global Income Fund is included in the initial investment or, for Class
B shares, the applicable CDSC is applied at the end of the period. This
calculation also assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period.
In addition to average annual total returns, the Funds may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the Funds' sales charge on
Class A shares or the CDSC on Class B shares into account. Excluding the Funds'
sales charge on Class A shares and the CDSC on Class B shares from a total
return calculation produces a higher total return figure.
Yield. Yield is determined separately for Class A and Class B shares. The yields
for the Class A shares of the Gold & Government Fund, Government Fund, Managed
Tax-Exempt Fund and Global Income Fund for the thirty days ended October 31,
1995 were 1.42%, 5.62%, 4.74% and 5.80%, respectively. The yields for the Class
B shares of the Gold & Government Fund, Government Fund, Managed Tax-Exempt Fund
and Global Income Fund for the thirty days ended October 31, 1995 were 0.87%,
5.24%, 4.32% and 5.21%, respectively.
Yield is computed by dividing the net investment income per share
earned during a specified 30 day period by the maximum offering price per share
on the last day of such period, according to the following formula:
[GRAPHIC OMITTED]
Where: a= dividends and interest earned during the period
b= net expenses accrued for the period
c= the average daily number of share outstanding during the period
that were entitled to receive dividends
d= the maximum offering price per share on the last day of the
period.
To calculate interest earned (for the purpose of "a" above) on debt
obligations, a Fund computes the yield to maturity of each obligation held by
the Fund based on the market value of the obligation (including actual accrued
interest) at the close of last business day of the period, or, with respect to
obligations purchased during the period, the purchase price (plus actual accrued
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<PAGE>
interest). The yield to maturity is then divided by 360 and the quotient is
multiplied by the market value of the obligation (including actual accrued
interest) to determine the interest income on the obligation for each day of the
subsequent period that the obligation is in the portfolio.
Managed Tax-Exempt Fund only. In the case of a tax-exempt obligation
issued without original issue discount and having a current market discount, the
coupon rate of interest is used in lieu of the yield to maturity. Where, in the
case of a tax-exempt obligation with original issue discount, the discount based
on the current market value exceeds the then-remaining portion of original issue
discount (market discount), the yield to maturity is the imputed rate based on
the original issue discount calculation. Where, in the case of a tax-exempt
obligation with original issue discount, the discount based on the current
market value is less than the then-remaining portion of original issue discount
(market premium), the yield to maturity is based on the market value.
Government Fund and Gold & Government Fund only. With respect to the
treatment of discount and premium on mortgage or other receivables-backed
obligations which are expected to be subject to monthly payments of principal
and interest ("paydowns") each Fund accounts for gain or loss attributable to
actual monthly paydowns as an increase or decrease to interest income during the
period.
Global Income Fund only. To calculate interest earned (for the purpose
of "a" above) on foreign debt obligations, the Fund computes the yield to
maturity of each obligation based on the local foreign currency market value of
the obligation (including actual accrued interest) at the beginning of the
period, or, with respect to obligations purchased during the period, the
purchase price plus accrued interest. The yield to maturity is then divided by
360 and the quotient is multiplied by the current market value of the obligation
(including actual accrued interest in local currency denomination), then
converted to U.S. dollars using exchange rates from the close of the last
business day of the period to determine the interest income on the obligation
for each day of the subsequent period that the obligation is in the portfolio.
Applicable foreign withholding taxes, net of reclaim, are included in the "b"
expense component.
Solely for the purpose of computing yield, each Fund recognizes
dividend income by accruing 1/360 of the stated dividend rate of a security each
day that a security is in the portfolio.
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be declared as a dividend shortly thereafter.
All accrued expenses are taken to account as described later herein.
From time to time, in reports and promotional literature, the Funds'
total return and yield will be compared to indices of mutual funds such as
Lipper Analytical Services, Inc.'s "Lipper-Mutual Performance Analysis," a
monthly publication which tracks net assets, total return, and yield on mutual
funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C.
Towers are also used for comparison purposes, as well as Russell and Wilshire
indices.
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<PAGE>
Performance rankings and ratings reported periodically in national
financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL
STREET JOURNAL, MORNINGSTAR, STANGER'S and BARRON'S, etc. may also be utilized.
The performance of the Funds is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Funds for any period in the future. The performance of any Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales, and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Funds' performances.
BROKERAGE ALLOCATION
Each Advisory Agreement authorizes the Adviser (subject to the control
of the Boards of Trustees) to select brokers and dealers to execute purchases
and sales of portfolio securities and gold bullion and coins. It directs the
Adviser to use its best efforts to obtain the best overall terms for the Funds,
taking into account such factors as price (including dealer spread), the size,
type and difficulty of the transaction involved, and the financial condition and
execution capability of the broker or dealer.
The Sub-Advisory Agreement between the Adviser and JH Advisers
International authorizes JH Advisers International (subject to the control of
the Board of Trustees of Freedom Investment Trust II) to provide the Global Fund
with a continuing and suitable investment program with respect to investments by
the Fund in countries other than the United States and Canada.
To the extent that the execution and price offered by more than one
dealer are comparable, the Adviser or JH Advisers International, as the case may
be, may, in their discretion, decide to effect transactions in portfolio
securities with dealers on the basis of the dealer's sales of shares of the
Funds or with dealers who provide the Funds, the Adviser or JH Advisers
International with services such as research and the provision of statistical or
pricing information. In addition, the Funds may pay brokerage commissions to
brokers or dealers in excess of those otherwise available upon a determination
that the commission is reasonable in relation to the value of the brokerage
services provided, viewed in terms of either a specific transaction or overall
brokerage services provided with respect to the Funds' portfolio transactions by
such broker or dealer. Any such research services would be available for use on
all investment advisory accounts of the Adviser or JH Advisers International.
The Funds may from time to time allocate brokerage on the basis of sales of
their shares. Review of compliance with these policies, including evaluation of
the overall reasonableness of brokerage commissions paid, is made by the Board
of Trustees.
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<PAGE>
The Adviser places all orders for purchases and sales of portfolio
securities of the Funds. In selecting broker-dealers, the Adviser may consider
research and brokerage services furnished to them. The Adviser may use this
research information in managing the Funds' assets, as well as assets of other
clients.
Municipal securities, foreign debt securities and Government Securities
are generally traded on the over-the-counter market on a "net" basis without a
stated commission, through dealers acting for their own account and not as
brokers. The Managed Tax-Exempt Fund, Global Income Fund, Sovereign Government
Fund and Gold & Government Fund (with respect to Government Securities in its
portfolio) will primarily engage in transactions with these dealers or deal
directly with the issuer. Prices paid to the dealer will generally include a
"spread", which is the difference between the prices at which the dealer is
willing to purchase and sell the specific security at that time.
During the fiscal year ended October 31, 1993, Freedom Investment Trust
paid $161,459 in negotiated brokerage commissions on behalf of the Funds of
which $22,233 was attributable to the Gold & Government Fund, $3,000 was
attributable to Sovereign Government Fund, $49,951 was attributable to the
Regional Bank Fund and $86,275 was attributable to the Sovereign Achievers Fund.
During the fiscal year ended October 31, 1994, Freedom Investment Trust paid
$833,722 in brokerage commissions on behalf of the Funds, of which $10,051 was
attributable to the Managed Tax-Exempt Fund, $512,936 was attributed to the
Regional Bank Fund, $232,625 was attributable to the Sovereign Achievers Fund,
$48,650 was attributable to the Gold & Government Fund and $29,450 was
attributable to Sovereign Government Fund. During the fiscal year ended October
31, 1995, Freedom Investment Trust paid $1,043,663 in negotiated brokerage
commissions on behalf of the Funds of which $109,757 was attributable to the
Gold & Government Fund, $589,066 was attributable to the Regional Bank Fund and
$237,015 was attributable to the Sovereign Achievers Fund and $107,825 was
attributable to Sovereign U.S. Government Income Fund.
During the fiscal year ended October 31, 1993, Freedom Investment Trust
II paid $806,269 in brokerage commissions on behalf of the Global Fund and none
on behalf of the Global Income Fund. During the fiscal year ended October 31,
1994, Freedom Investment Trust II paid $509,845 in brokerage commissions on
behalf of the Global Fund and no brokerage commissions on behalf of the Global
Income Fund. During the fiscal year ended October 31, 1995, Freedom Investment
Trust II paid $525,839 in negotiated brokerage commissions on behalf of the
Global Fund and $24,400 on behalf of the Global Income Fund.
When a Fund engages in an option transaction, ordinarily the same
broker will be used for the purchase or sale of the option and any transactions
in the securities to which the option relates. The writing of calls and the
purchase of puts and calls by a Fund will be subject to limitations established
(and changed from time to time) by each of the Exchanges governing the maximum
number of puts and calls covering the same underlying security which may be
written or purchased by a single investor or group of investors acting in
concert, regardless of whether the options are written or purchased on the same
or different Exchanges, held or written in one or more accounts or through one
or more brokers. Thus, the number of options which a Fund may
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<PAGE>
write or purchase may be affected by options written or purchased by other
investment companies and other investment advisory clients of the Adviser and
its affiliates or JH Advisers International. An Exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose certain other sanctions.
In the U.S. Government securities market, securities are generally
traded on a "net" basis with dealers acting as principal for their own account
without a stated commission, although the price of the security usually includes
a profit to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid.
Municipal securities are generally traded on the over-the-counter
market on a "net" basis without a stated commission, through dealers acting for
their own account and not as brokers. The Managed Tax-Exempt Fund will primarily
engage in transactions with these dealers or deal directly with the issuer.
Prices paid to a municipal securities dealer will generally include a "spread",
which is the difference between the prices at which the dealer is willing to
purchase and sell the specific security at that time.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
two of which, Tucker Anthony Incorporated ("Tucker Anthony"), John Hancock
Distributors, Inc. and Sutro & Company, Inc. ("Sutro"), are broker dealers
(together, "Affiliated Brokers"). The Trusts' Boards of Trustees have
established that any portfolio transaction for the Funds may be executed through
Affiliated Brokers if, in the judgment of the Adviser or JH Advisers
International, as the case may be, the use of Affiliated Brokers is likely to
result in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Affiliated Brokers charges the Funds a
commission rate consistent with those charged by Affiliated Brokers to
comparable unaffiliated customers in similar transactions. Affiliated Brokers
will not participate in commissions in brokerage given by a Fund to other
brokers or dealers and neither will receive any reciprocal brokerage business
resulting therefrom. Over-the-counter purchases and sales are transacted
directly with principal market makers except in those cases in which better
prices and executions may be obtained elsewhere. Affiliated Brokers will not
receive any brokerage commissions for orders they execute for a Fund in the
over-the-counter market. A Fund will in no event effect principal transactions
with Affiliated Brokers in the over-the-counter securities in which Affiliated
Brokers makes a market.
Approximately 0.5% of Freedom Investment Trust's aggregate dollar
amount of transactions involving the payment of commissions were effected
through Tucker Anthony for the fiscal year ended October 31, 1993. During the
fiscal year ended October 31, 1993, Freedom Investment Trust paid $7,303 in
brokerage commissions to Tucker Anthony, $6,620 of which was attributable to
Gold & Government Trust and $683 of which was attributable to Regional Bank
Fund. Commissions paid to Tucker Anthony represent approximately 3.5% of the
total brokerage commissions paid by Freedom Investment Trust for the fiscal year
ended October 31, 1993. During the fiscal year ended October 31, 1994, Freedom
Investment Trust paid $3,962 in brokerage commissions to Tucker Anthony, $1,750
of which was attributable to Gold & Government Fund. Commissions paid to Tucker
Anthony represent approximately 0.5% of the total brokerage commissions paid by
Freedom Investment Trust for the fiscal year ended October
72
<PAGE>
31, 1994. Approximately 2% of Freedom Investment Trust's aggregate dollar amount
of transactions involving the payment of commissions were effected through
Tucker Anthony for the fiscal year ended October 31, 1994. During the fiscal
year ended October 31, 1995, Freedom Investment Trust paid $2,800 in brokerage
commissions to Tucker Anthony which was attributable to Regional Bank Fund.
Commissions paid to Tucker Anthony represent less than 1% of the total brokerage
commissions paid by Freedom Investment Trust for the fiscal year ended October
31, 1995.
During the fiscal periods ended October 31, 1993, 1994 and 1995 no
brokerage commissions were paid to Affiliated Brokers in connection with the
portfolio transactions of either the Global Fund or the Global Income Fund.
Other investment advisory clients advised by the Adviser or JH Advisers
International, as the case may be, may also invest in the same securities as a
Fund. When these clients buy or sell the same securities at substantially the
same time, the Adviser or JH Advisers International may average the transactions
as to price and allocate the amount of available investments in a manner which
the Adviser or JH Advisers International believes to be equitable to each
client, including the Funds. In some instances, this investment procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtainable for it. On the other hand, to the extent permitted by law,
the Adviser or JH Advisers International may aggregate the securities to be sold
as permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended October 31,
1995, Regional Bank paid $159,705, Sovereign Achievers paid $36,176, Gold &
Government paid $16,150, Global paid $4,704 and Special Opportunities paid
$70,270.
DISTRIBUTIONS
Government Fund, Managed Tax-Exempt Fund and Global Income Fund declare
dividends from net investment income daily and pay dividends monthly.
Distribution of net long-term capital gains, if any, recognized on other
portfolio investments for the fiscal year, which ends October 31, will be made
at least annually.
Quarterly each shareholder of Government Fund, Managed Tax-Exempt Fund
and Global Income Fund will receive a statement setting forth the amount of the
monthly or daily dividends, as the case may be, paid that month from net
investment income for the preceding period. If any of such monthly or daily
dividends were made from sources other than (i) net income for the current or
preceding fiscal year, or accumulated undistributed net income, or both (not
including in either case profits or losses from the sale of securities or other
assets) or (ii) accumulated
73
<PAGE>
undistributed net profits from the sale of securities or other assets (in each
case determined in accordance with generally accepted accounting principles),
such statement will indicate what portion of the distribution per share was made
from the sources referred to in (i) and (ii) above and from paid-in surplus or
other capital sources.
A shareholder of Government Fund, Managed Tax-Exempt Fund and/or Global
Income Fund will not be credited with a monthly or daily dividend, as the case
may be, until payment for shares purchased is received by the Funds' transfer
agent. Dividends normally will be paid in the form of additional full and
fractional shares at the net asset value determined on the payment date, unless
the shareholder elects to receive dividends in cash as described in the
respective Prospectus. If a shareholder redeems the entire value of his account
in any of these Funds, the amount of dividends declared but unpaid on his shares
through the date preceding the date of redemption will be paid on the next
succeeding dividend payment date.
Gold & Government Fund and Regional Bank Fund. Each Fund will
distribute net short-term capital gains, if any, quarterly, and net long-term
capital gains, if any, at least annually after the close of their fiscal year
(October 31). Sovereign Achievers Fund will distribute net short-term capital
gains, if any, semi-annually, and net long-term capital gains, if any, at least
annually after the close of their fiscal year (October 31).
MANAGED TAX-EXEMPT FUND. Dividends from net investment income are
declared daily and paid monthly. You will not be credited with a daily dividend
or become a shareholder until payment for shares of a Fund is received by Fund
Services, the Funds' transfer agent. The net investment income of the Fund for
dividend purposes consists of interest earned on portfolio securities, less
expenses, in each case computed since the most recent determination of the net
asset value. If you redeem the entire value of your account in a Fund, you will
receive a separate amount by check or wire representing all dividends declared
but unpaid, in addition to the net asset value of the shares redeemed. The Funds
will distribute net realized short-term capital gains, if any, quarterly and the
Fund will distribute net realized long-term capital gains, if any, at least
annually after the close of our fiscal year (October 31).
Certain realized gains or losses on the sale or retirement of
international bonds held by the Global Income Fund, to the extent attributable
to fluctuations in currency exchange rates, as well as certain other gains or
losses attributable to exchange rate fluctuations, must be treated as ordinary
income or loss for federal income tax purposes. Such income or loss may increase
or decrease (or possibly eliminate) the Fund's investment income available for
distribution. If, under rules governing the tax treatment of foreign currency
gains and losses, the Fund's investment income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gain. Your tax basis in your Global Income Fund
shares will be reduced to the extent that an amount distributed to you is
treated as a return of capital and distributions after your basis has been
reduced on zero will generally be treated as capital gains.
The per share dividends on the Class B shares will be lower than the
per share dividends on the Class A shares of the Funds as a result of the higher
distribution fee applicable with respect to the Class B shares.
74
<PAGE>
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation ("Investor Services"), P.O.
Box 9116, Boston, MA 02205-9116 a wholly-owned indirect subsidiary of the Life
Company is the transfer and dividend paying agent for the Funds. The Gold &
Government Fund, Regional Bank Fund, Sovereign Achievers Fund and Global Fund
pays Investor Services an annual fee of $16.00 for each Class A shareholder and
of $18.50 for each Class B shareholder. The Government Fund and Global Income
Fund pay Investor Services an annual fee of $20.00 for each Class A shareholder
and $22.50 for each Class B shareholder. The Managed Tax Exempt Fund pays
Investor Services an annual fee of $19.00 for each Class A shareholder and
$21.50 for each Class B shareholder. Each Fund also pays certain out-of-pocket
expenses and these expenses are aggregated and charged to each Fund and
allocated to each class on the basis of the relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Funds are held pursuant to a custodian
agreement between the Trust and Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts 02110. Under the custodian agreement, Investors
Bank & Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Funds are Price Waterhouse LLP, 160
Federal Street, Boston, Massachusetts, 02110. Price Waterhouse LLP audits and
renders an opinion on each Fund's annual financial statements and reviews each
Fund's annual Federal income tax return.
75
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS*
Moody's Bond ratings
--------------------
Bonds. "Bonds which are rated 'Aaa' are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most likely to impair
the fundamentally strong position of such issues.
"Bonds which are rated 'Aa' are judged to be of high quality by all standards.
Together with the 'Aaa' group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities or fluctuation of
protective elements may be of grater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in 'Aaa'
securities . "Bonds which are rated 'A' possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
"Bonds which are rated 'Baa' are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Bonds which are rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position,
characterizes bonds in this class.
"Bonds which are rated 'B' generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue. Should
no rating be assigned, the reason may be one of the following: (i) an
application for rating was not received or accepted; (ii) the issue or issuer
belongs to a group of securities that are not rated as a matter of policy; (iii)
there is a lack of essential data pertaining to the issue or issuer; or (iv) the
issue was privately placed, in which case the rating is not published in Moody's
publications.
------------
*As described by the rating companies themselves.
76
<PAGE>
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Standard & Poor's Bond ratings
------------------------------
"AAA. Debt rated 'AAA' has the highest rating by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
"AA. Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
"A. Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB. Debt rated 'BBB' is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Debt rated "BB," OR "B," is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and pay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major risk exposures to adverse conditions.
UNRATED. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper Ratings
--------------------------------
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"P-1 -- "Prime-1" indicates the highest quality repayment capacity of the rated
issues.
"P-2 -- "Prime-2" indicates that the issuer has a strong capacity for repayment
of short-term promissory obligations. Earnings trends and coverage ratios, while
sound, will be more subjective to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained."
77
<PAGE>
Standard & Poor's Commercial Paper Ratings
------------------------------------------
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Standard & Poor's two highest commercial paper rating categories
are as follows:
"A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
"A-2 -- Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1."
78
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Gold & Government Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
--------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
United States government and agencies
obligations (cost - $16,415,727) ........................ $ 16,199,018
Common stocks (cost - $12,705,916) ........................ 13,954,615
Preferred stocks (cost - $2,521,200) ...................... 2,520,000
Short-term investments (cost - $334,000) .................. 334,000
Corporate savings account ................................. 745
-----------
33,008,378
Receivable for shares sold ................................. 977
Receivable for investments sold ............................ 1,810,885
Interest receivable ........................................ 472,857
Dividends receivable ....................................... 26,880
Other assets ............................................... 7,553
-----------
Total Assets ............................. 35,327,530
-----------------------------------------------------------
LIABILITIES:
Payable for shares repurchased ............................. 19,743
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ....................................... 35,150
Accounts payable and accrued expenses ...................... 54,038
-----------
Total Liabilities ........................ 108,931
-----------------------------------------------------------
NET ASSETS:
Capital paid-in ............................................ 46,354,966
Accumulated net realized loss on investments,
financial futures contracts and foreign
currency transactions ..................................... (12,267,172)
Net unrealized appreciation of investments ................. 1,030,790
Undistributed net investment income ........................ 100,015
----------
Net Assets ............................... $ 35,218,599
===========================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $18,299,704 / 1,386,291 .......................... $ 13.20
=============================================================================
Class B - $16,918,895 / 1,284,093 .......................... $ 13.18
=============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($13.20 x 105.26%) ............................... $ 13.89
=============================================================================
</TABLE>
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON OCTOBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET LOSSES FOR THE PERIOD
STATED.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended October 31, 1995
-------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest ...................................................... $ 1,669,566
Dividends (net of foreign withholding taxes
of $9,576) ................................................... 202,310
---------
1,871,876
---------
Expenses:
Investment management fee - Note B ........................... 354,905
Distribution/service fee - Note B
Class A .................................................... 49,874
Class B .................................................... 274,154
Transfer agent fee - Note B .................................. 112,262
Custodian fee ................................................ 42,500
Auditing fee ................................................. 37,003
Printing ..................................................... 19,830
Registration and filing fees ................................. 9,605
Trustees' fees ............................................... 7,397
Miscellaneous ................................................ 1,828
Legal fees ................................................... 1,051
---------
Total Expenses .............................. 910,409
-----------------------------------------------------------
Net Investment Income ....................... 961,467
-----------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS, FINANCIAL FUTURES CONTRACTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized loss on investments sold ......................... ( 3,599,702)
Net realized loss on financial futures contracts .............. ( 139,109)
Net realized loss on foreign currency transactions ............ ( 1,590)
Change in net unrealized appreciation/depreciation
of investments and financial futures contracts ............... ( 277,671)
---------
Net Realized and Unrealized
Loss on Investments, Financial
Futures Contracts and
Foreign Currency Transactions ............... ( 4,018,072)
------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ................... ($3,056,605)
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Gold & Government Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
-----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------
1995 1994
------------ -----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ............................................................................. $ 961,467 $ 2,406,590
Net realized loss on investments sold, financial futures contracts
and foreign currency transactions ................................................................ (3,740,401) (7,084,743)
Change in net unrealized appreciation/depreciation of investments
and financial futures contracts .................................................................. (277,671) (3,014,455)
------------ -----------
Net Decrease in Net Assets Resulting from Operations ............................................. (3,056,605) (7,692,608)
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.3546 and $0.6674 per share, respectively) .......................................... (461,398) (803,396)
Class B - ($0.2571 and $0.5659 per share, respectively) .......................................... (471,583) (1,761,166)
Distributions from net realized gain on investments sold and financial futures contracts
Class A - (none and $0.2390 per share, respectively) ............................................. ----- (291,352)
Class B - (none and $0.2390 per share, respectively) ............................................. ----- (753,474)
------------ -----------
Total Distributions to Shareholders ............................................................ (932,981) (3,609,388)
------------ -----------
FROM FUND SHARE TRANSACTIONS -- NET* ................................................................ (16,252,479) (5,494,834)
------------ -----------
NET ASSETS:
Beginning of period ............................................................................... 55,460,664 72,257,494
------------ -----------
End of period (including undistributed net investment
income of $100,015 and $73,119, respectively) .................................................... $ 35,218,599 $55,460,664
============ ===========
</TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
1995 1994
--------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ........................................................ 910,305 12,990,091 310,979 $ 4,916,203
Shares issued to shareholders in reinvestment of distributions ..... 26,761 375,618 57,814 900,802
---------- ------------ ---------- -----------
937,066 13,365,709 368,793 5,817,005
Less shares repurchased ............................................ (698,341) (9,602,941) (426,433) (6,603,119)
---------- ------------ ---------- -----------
Net increase (decrease) ............................................ 238,725 $ 3,762,768 (57,640) $ (786,114)
========== ============ ========== ===========
CLASS B
Shares sold ........................................................ 985,367 $ 13,372,127 557,733 $ 8,893,162
Shares issued to shareholders in reinvestment of distributions ..... 24,145 334,553 117,910 1,843,490
---------- ------------ ---------- -----------
1,009,512 13,706,680 675,643 10,736,652
Less shares repurchased ............................................ (2,446,361) (33,721,927) (1,026,605) (15,445,372)
---------- ------------ ---------- -----------
Net decrease ....................................................... (1,436,849) $(20,015,247) (350,962) $(4,708,720)
========== ============ ========== ===========
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS YEAR. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS PAID TO
SHAREHOLDERS, AND ANY INCREASE OR DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE
FUND. THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES SOLD, REINVESTED AND
REDEEMED DURING THE LAST TWO PERIODS, ALONG WITH THE CORRESPONDING DOLLAR VALUE.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Gold & Government Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
-------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------
1995 1994 1993 1992(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period..................................... $ 14.35 $ 16.91 $ 15.19 $ 15.31
------- ------- ------- -------
Net Investment Income.................................................... 0.37 0.63 0.76** 0.72
Net Realized and Unrealized Gain (Loss) on Investments, Financial
Futures Contracts, Foreign Currency
Transactions and Written Options.... ( 1.17) ( 2.28) 1.76 ( 0.21)
------- ------- ------- -------
Total from Investment Operations...................................... ( 0.80) ( 1.65) 2.52 0.51
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income..................................... ( 0.35) ( 0.67) ( 0.80) ( 0.63)
Distributions in excess of Net Realized Gains
on Investments Sold, Written Options and
Financial Futures Contracts............................................ ----- (0.24) ----- -----
------- ------- ------- -------
Total Distributions................................................... ( 0.35) ( 0.91) ( 0.80) ( 0.63)
------- ------- ------- -------
Net Asset Value, End of Period........................................... $ 13.20 $ 14.35 $ 16.91 $ 15.19
======= ======= ======= =======
Total Investment Return at Net Asset Value (c)........................... (5.66%) (10.10%) 17.10% 3.44%(b)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................ $18,300 $16,469 $20,385 $17,593
Ratio of Expenses to Average Net Assets.................................. 1.60% 1.53% 1.59% 1.68%*
Ratio of Net Investment Income to Average Net Assets..................... 2.72% 4.02% 4.84% 5.49%*
Portfolio Turnover Rate.................................................. 55% 147% 118% 209%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DIVIDENDS AND TOTAL INVESTMENT RETURNS OF THE FUND. IT SHOWS HOW THE
FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Gold & Government Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................... $ 14.33 $ 16.89 $ 15.17 $ 15.13 $ 14.51
------- ------- ------- ------- -------
Net Investment Income.............................................. 0.25 0.53 0.69** 0.83 0.87+
Net Realized and Unrealized Gain (Loss) on Investments, Financial
Futures Contracts, Foreign Currency Transactions and
Written Options.................................................. ( 1.14) ( 2.28) 1.76 0.11 0.76
------- ------- ------- ------- -------
Total from Investment Operations................................ ( 0.89) ( 1.75) 2.45 0.94 1.63
------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income............................... ( 0.26) ( 0.57) ( 0.73) ( 0.90) ( 1.01)
Distributions in excess of Net Realized
Gain on Investments Sold, Written
Options and Financial Futures Contracts........................... ----- ( 0.24) ----- ----- -----
------- ------- ------- ------- -------
Total Distributions................................................ ( 0.26) ( 0.81) ( 0.73) ( 0.90) ( 1.01)
------- ------- ------- ------- -------
Net Asset Value, End of Period..................................... $ 13.18 $ 14.33 $ 16.89 $15.17 $ 15.13
======= ======= ======= ======= =======
Total Investment Return at Net Asset Value (c)..................... ( 6.32%) (10.70%) 16.56% 6.42% 11.78%+
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted).......................... $16,919 $38,992 $51,872 $36,103 $56,928
Ratio of Expenses to Average Net Assets............................ 2.32% 2.18% 2.11% 1.63% 1.82%+
Ratio of Net Investment Income to Average Net Assets............... 1.83% 3.41% 4.29% 5.56% 5.96%+
Portfolio Turnover Rate............................................ 55% 147% 118% 209% 134%
</TABLE>
* On an annualized basis.
** On average month end shares outstanding.
(a) Class A shares commenced operations on January 3, 1992.
(b) Not annualized.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
+ Reflects expense limitations in effect during the year indicated (see Note
B). As a result of such limitations, expenses of Class B shares for the year
ended, October 31, 1991 reflect reductions of $0.01 per share. Absent of
such reductions, for the year ended October 31, 1991, the ratio of expenses
to average net assets would have been 1.91% and the ratio of net investment
income to average net assets would have been 5.87%. Without the
reimbursement, total investment return would be lower.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Gold & Government Fund
SCHEDULE OF INVESTMENTS
October 31, 1995
--------------------------------------------------------------------------------
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY GOLD
& GOVERNMENT FUND ON OCTOBER 31, 1995. IT'S DIVIDED INTO FOUR MAIN CATEGORIES:
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS, COMMON STOCKS, PREFERRED STOCKS AND
SHORT-TERM INVESTMENTS. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S
"CASH" POSITION, ARE LISTED LAST.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S MARKET
ISSUER, DESCRIPTION RATE DATE OMITTED) VALUE
------------------- ---- ---- ------- -----
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AND AGENCIES OBLIGATIONS
GOVERNMENTAL--U.S. (46.00%)
United States Treasury, Note................................... 9.375% 04-15-96 $3,000 $3,049,680
United States Treasury, Note................................... 9.000 05-15-98 6,300 6,787,242
United States Treasury, Bond................................... 13.125 05-15-01 2,000 2,681,240
United States Treasury, Bond................................... 13.375 08-15-01 2,700 3,680,856
----------
TOTAL U.S. GOVERNMENT
AND AGENCIES OBLIGATIONS
(Cost $16,415,727) (46.00)% 16,199,018
------ ----------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
------ -- ------
<S> <C> <C>
COMMON STOCKS
GOLD AND MINING PRODUCTS (39.62%)
Battle Mountain Gold Co......................................... 55,000 419,375
Hecla Mining Co.**.............................................. 200,000 1,475,000
Hemlo Gold Mines, Inc. (Canada)................................. 50,000 412,500
Kinross Gold Corp. (Canada)**................................... 500,000 3,625,000
Newmont Gold Co................................................. 35,000* 1,260,000
Pan American Silver Corp. (Canada)**............................ 100,000* 662,500
Placer Dome, Inc. (Canada) ..................................... 32,000 700,000
Prime Resource Group Inc. (Canada)**............................ 281,800 2,042,740
Santa Fe Pacific Gold Corp...................................... 100,000 987,500
Stillwater Mining Co.**......................................... 100,000* 1,687,500
TVX Gold, Inc. (Canada)**....................................... 105,000 682,500
----------
TOTAL COMMON STOCKS
(Cost $ 12,705,916) (39.62)% 13,954,615
------- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Gold & Government Fund
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS
GOLD AND MINING PRODUCTS (7.16%)
Freeport-McMoRan Copper & Gold, Inc., Ser SILV**.......................................... 120,000 $2,520,000
----------
TOTAL PREFERRED STOCKS
(Cost $ 2,521,200) (7.16%) 2,520,000
------ ----------
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
INTEREST MATURITY (000'S
RATE DATE OMITTED)
---- ---- --------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.95%)
Investment in a joint repurchase agreement
transaction with SBC Capital Markets Inc.--
Dated 10-31-95, Due 11-01-95
(secured by U.S. Treasury Bond, 8.75%
Due 05-15-17, U.S. Treasury Note, 5.750%
Due 09-30-97) Note A............................................ 5.890% 11-01-95 $ 334 334,000
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%.............................................. 745
-----------
TOTAL SHORT-TERM INVESTMENTS (00.95)% 334,745
------ -----------
TOTAL INVESTMENTS (93.73)% $33,008,378
====== ===========
* Securities, other than short-term investments, newly added to the portfolio
during the period ended October 31, 1995.
** Non-income producing security.
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Gold & Government Fund
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust (the "Trust") is an open-end investment management
company, registered under the Investment Company Act of 1940. The Trust consists
of five series portfolios: John Hancock Gold & Government Fund (the "Fund"),
John Hancock Regional Bank Fund, John Hancock Sovereign U.S. Government Income
Fund, John Hancock Sovereign Achievers Fund and John Hancock Managed Tax-Exempt
Fund. Prior to January 1, 1995, John Hancock Gold & Government Fund was known as
John Hancock Freedom Gold & Government Fund and John Hancock Regional Bank Fund
was known as John Hancock Freedom Regional Bank Fund.
The Trustees have authorized the issuance of two classes of shares of the
Fund, designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemption, dividends, and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission. Shareholders of a class which bears distribution/service
expenses under the terms of a distribution plan, have exclusive voting rights
regarding such distribution plan. Significant accounting policies of the Fund
are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $11,789,591 of capital
loss carryforwards available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforwards are used by the Fund,
no capital gain distribution will be made. The carryforwards expire as follows:
October 31, 2002 -- $8,066,420, and October 31, 2003 -- $3,723,171
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis. Foreign income may be subject to foreign
withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund 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 the effect of expenses that may be applied
differently to each class as explained previously. EXPENSES The majority of the
expenses of the Trust are directly identifiable to an individual Fund. Expenses
which are not readily identifiable to a specific Fund are allocated in such a
manner as deemed
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Gold & Government Fund
equitable, taking into consideration, among other things the nature and type of
expense and the relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract is valued at the official settlement price on the
board of trade or U.S. commodities exchange. Subsequent payments, known as
"variation margin", to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At October 31, 1995, there were no open position in financial futures
contracts.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the stock market.
Writing puts and buying calls will tend to increase the
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Gold & Government Fund
Fund's exposure to the underlying instrument and buying puts and writing calls
will tend to decrease the Fund's exposure to the underlying instrument, or hedge
other Fund investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms, or if the Fund is unable to offset a contract with a counterparty on a
timely basis ("liquidity risk"). Exchange-traded options have minimal credit
risk as the exchanges act as counterparties to each transaction, and only
present liquidity risk in highly unusual market conditions. To minimize credit
and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended October 31,
1995.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to the sum of (a) 0.80% of the first $500,000,000 of the
Fund's average daily net asset value and (b) 0.75% of the Fund's average daily
net asset value in excess of $500,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess, and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
John Hancock Funds, Inc. ("JH Funds"), a wholly-owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-Distributors for
shares of the Fund. Prior to January 1, 1995, JH Funds was known as John Hancock
Broker Distribution Services, Inc. For the period ended October 31, 1995, net
sales charges received on sales of Class A shares amounted to $3,733. Out of
this amount, $557 was retained and used for printing prospectuses, advertising,
sales literature and other purposes, $1,128 was paid as sales commissions to
unrelated broker-dealers and $2,048 was paid as sales commissions to sales
personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony
Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of which
are broker dealers. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company, is the indirect sole shareholder of Distributors and John
Hancock Freedom Securities Corporation and its subsidiaries, which include FDC,
Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended October 31,
1995 the contingent deferred sales charges paid to JH Funds amounted to $66,652.
In addition, to reimburse the Co-Distributors for the services they provide
as distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to the
Co-Distributors for distribution and service expenses, at an annual rate not
exceed 0.30% of Class A
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Gold & Government Fund
average daily net assets and 1.00% of Class B average daily net assets to
reimburse the Co-Distributors for their distribution/service costs. Up to a
maximum of 0.25% of such payments may be service fees as defined by the amended
Rules of Fair Practice of the National Association of Securities Dealers. Under
the amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances. In order to comply with this
rule, the 12b-1 fee on Class B shares was decreased to 0.95% effective August 1,
1995 and decreased to 0.90% effective October 1, 1995.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc. Prior to January 1, 1995, the Fund paid a monthly
transfer agent fee equivalent, on an annual basis, to 0.23% and 0.25% of the
average daily net asset value of Class A and Class B shares of the Fund,
respectively, plus out of pocket expenses incurred by Investor Services on
behalf of the Fund.
For the period January 1, 1995 and through September 30, 1995 Class A and
Class B shares paid transfer agent fees based on the number of shareholder
accounts and certain out-of-pocket expenses. For the eleven months ended
September 30, 1995 the transfer agent expense, calculated as a class specific
expense was $34,231 for Class A and $70,396 for Class B, respectively. Effective
October 1, 1995 transfer agent expense is being treated as a fund expense based
on the number of shareholder accounts in the Fund and certain out-of-pocket
expenses.
Edward J. Boudreau, Jr. is a director and officer of the Adviser and its
affiliates, as well as a Trustee of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. Effective with the fees paid for 1995, the
unaffiliated Trustees may elect to defer for tax purposes their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund will make investments into other John Hancock funds, as applicable, to
cover its liability with regard to the deferred compensation. Investments to
cover the Fund's deferred compensation liability will be recorded on the Fund's
books as an other asset. The deferred compensation liability will be marked to
market on a periodic basis and income earned by the investment will be recorded
on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other then obligations of the
U.S. government and its agencies and short-term securities, during the period
ended October 31, 1995, aggregated $4,466,153 and $17,809,838, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $19,566,429 and $17,879,328, respectively, during the period
ended October 31, 1995.
The cost of investments owned at October 31, 1995 for Federal Income Tax
purposes was $32,438,784. Gross unrealized appreciation and depreciation of
investments aggregated $2,191,951 and $1,623,102, respectively, resulting in net
unrealized appreciation of $568,849.
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended October 31, 1995, the Fund has reclassified $1,590 from
accumulated net realized loss on investments sold to undistributed net
investment income. This represents the amount necessary to report these balances
on a tax basis, excluding certain temporary differences, as of October 31, 1995.
Additional adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net asset value of the Fund, are
primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles.
17
<PAGE>
John Hancock Funds - Gold & Government Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Gold & Government Fund and the Trustees of
Freedom Investment Trust
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of John Hancock Gold & Government Fund
(the "Fund") (formerly known as John Hancock Freedom Gold & Government Fund) (a
portfolio of Freedom Investment Trust) at October 31, 1995, and the results of
its operations, the changes in its net assets and the financial highlights for
the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 14, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund during its fiscal year ended October
31, 1995.
Shareholders will receive a 1995 U.S. Treasury Department Form 1099-DIV in
January of 1996. This will reflect the total of all distributions which are
taxable for the calendar year 1995.
For the fiscal year ending October 31, 1995, 15.95% of the ordinary income
distributions qualify for the dividends received deduction.
18
<PAGE>
John Hancock Special Opportunities Fund
Proforma Combined Statement of Assets and Liabilities
October 31, 1995
(Unaudited)
<TABLE>
<CAPTION>
Special Gold & Pro
Opportunities Government Forma
Fund Fund Adjustments Combined
---- ---- ----------- --------
<S> <C> <C> <C>
Assets:
Investments, at value 228,022,123 33,008,378 - 261,030,501
Receivable for shares sold 241,136 977 - 242,113
Receivable for investments sold 24,025,617 1,810,885 - 25,836,502
Interest Receivable 4,211 472,857 - 477,068
Dividends Receivable 67,410 26,880 - 94,290
Deferred Organization Expenses 78,290 0 - 78,290
Other assets 726 7,553 - 8,279
----------- ----------- ----------- -----------
Total Assets 252,439,513 35,327,530 - 287,767,043
Liabilities:
Temporary overdraft of cash 243,454 0 - 243,454
Payable for investments purchased 12,750,625 0 - 12,750,625
Payable for shares repurchased 129,854 19,743 - 149,597
Payable to JH Advisers, Inc. and Affiliates 326,416 35,150 - 361,566
Accounts payable and accrued expenses 63,754 54,038 - 117,792
----------- ----------- ----------- -----------
Total Liabilities 13,514,103 108,931 - 13,623,034
Net Assets:
Capital paid-in 209,681,269 46,354,966 - 256,036,235
Accumulated net realized loss on
investments, financial futures contracts
and foreign currency transactions (5,914,444) (12,267,172) - (18,181,616)
Net unrealized appreciation of investments
and foreign currency transactions 35,158,585 1,030,790 - 36,189,375
Undistributed net investment income 0 100,015 - 100,015
---------- ----------- ----------- -----------
===========
Net Assets 238,925,410 35,218,599 - 274,144,009
=========== =========== =========== ===========
Net Assets:
Special Opportunities Fund
Class A 101,561,612 - 18,299,704 (a) 119,861,316
Class B 137,363,798 - 16,918,895 (a) 154,282,693
Gold & Government Fund
Class A - 18,299,704 (18,299,704)(a) 0
Class B - 16,918,895 (16,918,895)(a) 0
------------------ -----------
========== ===========
238,925,410 35,218,599 0 274,144,009
================== =========== ========== ===========
Shares Outstanding:
Special Opportunities Fund
Class A 10,902,887 - 1,964,518 (a) 12,867,405
Class B 14,949,105 - 1,841,259 (a) 16,790,364
Gold & Government Fund
Class A - 1,386,291 (1,386,291)(a) 0
Class B - 1,284,093 (1,284,093)(a) 0
Net Asset Value Per Share:
Special Opportunities Fund
Class A $9.32 - - $9.32
Class B $9.19 - - $9.19
Gold & Government Fund
Class A - $13.20 -
Class B - $13.18 -
See Notes to Proforma Combined Financial Statements
John Hancock Special Opportunities Fund
Projected Proforma Combined Statement of Operations
October 31, 1995
(Unaudited)
Special Gold & Pro
Opportunities Government Forma
Fund Fund Adjustments Combined
---- ---- ----------- --------
Investment Income
Interest & Dividends(net of foreign
withholding taxes) $ 1,715,816 $ 1,871,876 $ $3,587,692
Expenses
Management Fee 1,870,771 354,905 0 (b) $ 2,225,676
Distribution/Service Fee
Class A 296,691 49,874 0 346,565
Class B 1,348,679 274,154 0 1,622,833
Transfer Agent Fee 945,811 112,262 0 1,058,073
Registration & Filing Fees 0 9,605 0 9,605
Custodian Fee 44,422 42,500 (23,447)(c) 63,475
Auditing 23,300 37,003 (20,303)(c) 40,000
Legal Fees 16,506 1,051 0 17,557
Trustee Fees 44,135 7,397 0 51,532
Printing 47,581 19,830 (16,853)(c) 50,558
Organization Expense 26,046 0 0 26,046
Miscellaneous 5,966 1,828 (1,948)(c) 5,846
----------- ----------- -------- -----------
Gross Fund Total Expenses 4,669,908 910,409 (62,551) 5,517,766
----------- ----------- -------- -----------
Less Expense Reductions 0 0 0 0
Less Expense Reimbursement 0 0 0 0
----------- ----------- -------- -----------
Net Fund Total Expenses 4,669,908 910,409 (62,551) 5,517,766
----------- ----------- -------- -----------
Net Investment Income/(Loss) $(2,954,092) $ 961,467 $ 62,551 $(1,930,074)
----------- ----------- -------- -----------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contract and Foreign Currency
Transactions:
Net Realized gain/(loss) on investments sold 17,052,914 (3,599,702) 0 13,453,212
Net Realized loss on futures contracts 0 ( 139,109) 0 (139,109)
Net Realized loss on foreign currency
transactions (17,231) ( 1,590) 0 (18,821)
Change in appreciation/(depreciation)
of investments and financial
futures contracts 23,246,748 ( 277,671) 0 22,969,077
Change in appreciation/(depreciation)
of foreign currency transactions 11,288 0 0 11,288
----------- ----------- -------- -----------
Net Realized and Unrealized Gain on
Investments, Futures Contracts and
Foreign Currency Transactions 40,293,719 (4,018,072) 0 36,275,647
----------- ----------- -------- -----------
Net Increase/(Decrease) in Net Assets
Resulting from Operations $37,339,627 $(3,056,605) $ 62,551 $34,345,573
=========== =========== ======== ===========
</TABLE>
See Notes to Proforma Combined Financial Statements
<PAGE>
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS - (UNAUDITED)
OCTOBER 31, 1995
Pro forma information is intended to provide shareholders of John Hancock Gold &
Government Fund (JHGG) with information about the impact of the proposed merger
by indicating how the merger might have affected information had the merger been
consummated as of October 31, 1994.
The pro forma combined statements of assets and liabilities and results of
operations as of October 31, 1995, have been prepared to reflect the merger of
Special Opportunities Fund (JHSOP) and JHGG after giving effect to pro forma
adjustments described in the notes listed below.
(a) Acquisition by JHSOP of all of the net assets of JHGGand issuance of JHSOP
Class A and Class B shares in exchange for all of the outstanding Class A
and Class B shares, respectively of JHGG.
(b) The investment advisory fee was adjusted to reflect the application of the
fee structure in effect for JHSOP: 0.80% of the first $500,000,000 of the
Fund's average daily net asset value, 0.75% of the next $500,000,000 and
0.70% of the Fund's average daily net asset value in excess of
$1,000,000,000.
(c) The actual expenses incurred by JHSOP and JHGG for various expenses
included on a pro forma basis were reduced to reflect the estimated savings
arising from the merger.
<PAGE>
SCHEDULE OF INVESTMENTS
October 31, 1995 (Unaudited)
--------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Gold & Government Fund and the Special Opportunities Fund combined on October
31, 1995.
<TABLE>
------------------------------------------------------------------------------------------------------------------------------------
Gold & Government Special Opportunities Combined
------------------------------------------------------------------------------------------------------------------------------------
Par Par
% of Interest Value Value
Net Rate Maturity (000's Market Market (000's Market
State-Issuer-Description Assets % Date Shares Omitted) Value* Shares Value Shares Omitted) Value
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AND
AGENCIES OBLIGATIONS
Governmental-U.S. 5.91%
United States Treasury, Note 9.375% 04/15/96 $3,000 $3,049,680 $3,000 $ 3,049,680
United States Treasury, Note 9.000% 05/15/98 6,300 6,787,242 6,300 6,787,242
United States Treasury, Bond 13.125% 05/15/01 2,000 2,681,240 2,000 2,681,240
United States Treasury, Bond 13.375% 08/15/01 2,700 3,680,856 2,700 3,680,856
--------- -----------
TOTAL U.S.GOVERNMENT AND AGENCIES
OBLIGATIONS (Cost $16,415,727) 5.91%
16,199,018 16,199,018
---------- ----------
COMMON STOCKS
Audio/Video 2.26%
Polygram NV (Netherlands)
100,000 $6,200,000 100,000 6,200,000
Broadcasting 0.30% ---------- ---------
New World Communications
Group,Inc.** 49,900 823,350 49,900 823,350
----------
Computers 16.74%
HBO & Co 35,000 2,476,250 35,000 2,476,250
Intuit, Inc.** 259,900 18,712,800 259,900 18,712,800
Microsoft Corp.** 75,000 7,500,000 75,000 7,500,000
Parametric Technology Co.** 35,000 2,340,625 35,000 2,340,625
Sun Microsystems, Inc.** 52,000 4,056,000 52,000 4,056,000
3Com Corp.** 230,000 10,810,000 230,000 10,810,000
---------- ----------
45,895,675 45,895,675
---------- ----------
Construction 0.21%
Australian National Industries,
Ltd. (Australia) 200,000 156,680 200,000 156,680
CEMEX SA (Class B) American
Depository Receipt (ADR)(Mexico) 18,812 60,466 18,812 60,466
Ekran Berhad (Malaysia) 70,000 177,548 70,000 177,548
Hopewell Holdings (Hong Kong) 200,000 126,100 200,000 126,100
Tolmex SA de CV (Mexico)** 11,000 41,749 11,000 41,749
---------- ----------
562,543 562,543
----------- ----------
Diversified Operations 4.92%
CUC International Inc.** 375,000 12,984,375 375,000 12,984,375
Hutchinson Whampoa (Hong Kong) 50,000 275,485 50,000 275,485
Ogden Corp. 10,000 227,500 10,000 227,500
---------- ----------
13,487,360 13,487,360
---------- ----------
Electrical 0.00%
Consolidated Electric Power 1,503 3,042 1,503 3,042
Asia Ltd.(Hong Kong) ---------- ----------
Electronics 9.11%
HADCO Corp.** 85,000 2,380,000 85,000 2,380,000
<PAGE>
------------------------------------------------------------------------------------------------------------------------------------
Gold & Government Special Opportunities Combined
------------------------------------------------------------------------------------------------------------------------------------
Par Par
% of Interest Value Value
Net Rate Maturity (000's Market Market (000's Market
State-Issuer-Description Assets % Date Shares Omitted) Value* Shares Value Shares Omitted) Value
------------------------------------------------------------------------------------------------------------------------------------
Helix Technology Corp. 86,200 $ 3,232,500 86,200 $ 3,232,500
Linear Technology Corp. 250,000 10,937,500 250,000 10,937,500
Micron Technology, Inc. 35,000 2,471,875 35,000 2,471,875
SCI Systems, Inc.** 169,100 5,939,638 169,100 5,939,638
----------- ------------
24,961,513 24,961,513
----------- ------------
Engineering 0.21%
Fluor Corp. 5,000 282,500 5,000 282,500
Foster Wheeler Corp. 8,000 300,000 8,000 300,000
----------- ------------
582,500 582,500
----------- ------------
Hazardous Waste 1.00%
Handex Environmental Recovery,
Inc.** 16,000 100,000 16,000 100,000
TETRA Technologies, Inc.** 200,000 2,650,000 200,000 2,650,000
----------- ------------
2,750,000 2,750,000
----------- ------------
Healthcare 3.81%
HealthCare COMPARE Corp.** 80,000 2,960,000 80,000 2,960,000
Healthsource, Inc.** 95,000 5,035,000 95,000 5,035,000
Johnson & Johnson 30,000 2,445,000 30,000 2,445,000
----------- ------------
10,440,000 10,440,000
----------- ------------
Leisure & Recreation 3.26%
Walt Disney Co.,(The) 155,000 8,931,875 155,000 8,931,875
----------- ------------
Medical 4.69%
Boston Scientific Corp.** 230,000 9,688,750 230,000 9,688,750
Community Health Systems, Inc.** 100,000 3,175,000 100,000 3,175,000
----------- ------------
12,863,750 12,863,750
----------- ------------
Metals,Gold and Mining Products 8.17%
Asarco, Inc. 70,000 2,257,500 70,000 2,257,500
Battle Mountain Gold Co. 55,000 419,375 55,000 419,375
Hecla Mining Co.** 200,000 1,475,000 200,000 1,475,000
Hemlo Gold Mines, Inc. (Canada) 50,000 412,500 50,000 412,500
Kinross Gold Corp. (Canada)** 500,000 3,625,000 385,100 6,488,141 885,100 2,863,141
Newmont Gold Co. 35,000 1,260,000 37,000 1,332,000 72,000 2,592,000
Pan American Silver Corp.
(Canada)** 100,000 662,500 100,000 662,500
Placer Dome, Inc. (Canada) 32,000 700,000 32,000 700,000
Prime Resource Group, Inc.
(Canada)** 281,800 2,042,740 140,000 1,014,846 421,800 3,057,586
Santa Fe Pacific Gold Corp. 100,000 987,500 100,000 987,500 200,000 1,975,000
Stillwater Mining Co.** 100,000 1,687,500 100,000 1,687,500
TVX Gold, Inc. (Canada)** 105,000 682,500 105,000 682,500
---------- ----------- ------------
13,954,615 8,454,987 22,409,602
---------- ----------- ------------
Oil & Gas 13.49%
Cairn Energy USA, Inc.** 147,000 1,764,000 147,000 1,764,000
Chesapeake Energy Corp.** 100,000 2,925,000 100,000 2,925,000
Diamond Offshore Drilling,
Inc.** 88,000 2,189,000 88,000 2,189,000
Falcon Drilling Co.,Inc.** 435,000 4,513,125 435,000 4,513,125
Global Marine, Inc.** 450,000 2,925,000 450,000 2,925,000
Nabors Industries, Inc.** 540,000 4,657,500 540,000 4,657,500
Pride Petroleum Services,
Inc.** 536,800 4,697,000 536,800 4,697,000
Reading & Bates Corp.** 420,000 4,830,000 420,000 4,830,000
Sonat Offshore Drilling Co. 130,000 4,127,500 130,000 4,127,500
Triton Energy Corp.** 93,600 4,364,100 93,600 4,364,100
----------- ------------
36,992,225 36,992,225
----------- ------------
<PAGE>
------------------------------------------------------------------------------------------------------------------------------------
Gold & Government Special Opportunities Combined
------------------------------------------------------------------------------------------------------------------------------------
Par Par
% of Interest Value Value
Net Rate Maturity (000's Market Market (000's Market
State-Issuer-Description Assets % Date Shares Omitted) Value* Shares Value Shares Omitted) Value
------------------------------------------------------------------------------------------------------------------------------------
Publishing 1.13%
Scholastic Corp.** 50,000 3,087,500 50,000 3,087,500
------------ ------------
Solid Waste 0.25%
Brambles Industries Ltd.
(Australia) 30,000 318,561 30,000 318,561
Laidlaw, Inc.(Class B) 23,500 211,500 23,500 211,500
Waste Management Intl., PLC,
(ADR)(United Kingdom)** 15,000 $ 151,875 15,000 $ 151,875
------------ ------------
681,936 681,936
------------ ------------
Telecommunications 9.19%
America Online, Inc.** 145,000 11,600,000 145,000 11,600,000
Cascade Communications Corp.** 158,000 11,257,500 158,000 11,257,500
U.S. Order, Inc.** 155,000 2,325,000 155,000 2,325,000
------------ ------------
25,182,500 25,182,500
------------ ------------
Water Treatment 0.16%
Compagnie Generale des Eaux
(France) 1,316 122,243 1,316 122,243
Lyonnaise Des Eaux Dumez
(France) 2,000 194,976 2,000 194,976
Wessex Water, PLC
(United Kingdom) 25,000 132,148 25,000 132,148
------------ ------------
449,367 449,367
------------ ------------
TOTAL COMMON STOCKS 78.90%
(Cost $179,908,742) 13,954,615 202,350,123 216,304,738
------------ ------------
Gold and Mining Products 0.92%
Freeport-McMoran Copper & Gold,
Inc. Ser SILV ** 120,000 2,520,000 120,000 2,520,000
----------- ------------
TOTAL PREFERRED STOCKS 0.92%
(Cost $2,521,200) 2,520,000 2,520,000
----------- ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement 9.49%
Investment in a joint repurchase
agreement transaction with SBC
Capital Markets Inc.-Dated
10-31-95, Due 11-01-95 (secured
by U.S. Treasury Bond, 8.75%
Due 05-15-17, U.S. Treasury
Note,5.750% Due 09-30-97) 5.89% 11/1/95 $334 $ 334,000 $25,672 $ 25,672,000 $26,006 $ 26,006,000
------------ ------------
Corporate Savings Account 0.00%
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00% 745 745
----------- ------------
TOTAL SHORT-TERM INVESTMENTS 9.49%
334,745 25,672,000 26,006,745
=========== ============ ============
TOTAL INVESTMENTS 95.22%
$33,008,378 $228,022,123 $261,030,501
=========== ============ ============
Combined Net Assets
$35,218,599 $238,925,410 $274,144,009
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
<PAGE>
* Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or, at fair
value as determined in good faith in accordance with procedures approved by
the Trustees. Short -term debt investments maturing within 60 days are
valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars.
** Non-income producing security.
The percentages shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
<PAGE>
PART C
FREEDOM INVESTMENT TRUST II
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 27 of the Registration
Statement of Freedom Investment Trust II (the "Registrant") on Form N-1A under
the Securities Act of 1933 and the Investment Company Act of 1940 (File Nos.
33-4559 and 811-4630), which information is incorporated herein by reference.
ITEM 16. EXHIBITS:
1.1 Registrant's Master Trust Filed as Exhibit 1 to
Agreement, as amended Registrant's Registration
Statement on Form N-1A and
incorporated herein by
reference to post-effective
amendment no. 28 (File Nos.
811-4630 and 33-4559 on
February 27, 1995; accession no.
0000950146-95-000057)("PEA 28").
1.2 Amendment to Master Trust Filed as Exhibit 1.1 to
Agreement Registrant's Registration
Statement on Form N-1A as filed
on February 9, 1996 (file nos.
811-4630 and 33-4559, accession
no. 0000950146-96-000307) and
incorporated herein by reference.
2. Amended By-Laws of Filed as Exhibit 2 to PEA 28 and
Registrant. incorporated herein by reference.
3. Not applicable.
4. Agreement and Plan of Filed herewith as Exhibit A to
Reorganization between the the Proxy Statement and Prospectus
Registrant and Freedom included as Part A of this
Investment Trust on behalf Registration Statement.
of John Hancock Gold &
Government Fund.
5. Not applicable.
<PAGE>
6. Investment Management Filed as Exhibit 5 to PEA 28 and
Contract between the incorporated herein by reference.
Registrantand John Hancock
Advisers, Inc.
7.1 Distribution Agreement Filed as Exhibit 6 to PEA 28 and
among the Registrant and incorporated herein by reference.
John Hancock Funds, Inc.
(formerly named John
Hancock Broker Distribution
Services, Inc.) and Freedom
Distributors Corporation.
7.2 Form of Soliciting Dealer Filed as Exhibit 6.1 to PEA 28
Agreement between John and incorporated herein by
Hancock Funds, Inc. and reference.
Selected Dealers.
7.3 Form of Financial Filed as Exhibit 6.2 to PEA 28
Institution Sales and and incorporated herein by
Service Agreement. reference.
8. Not applicable.
9. Master Custodian Agreement Filed as Exhibit 8.1 to PEA 28
between John Hancock Mutual and incorporated by reference
Funds (including Registrant) herein.
and Investors Bank & Trust
Company.
10. Class A and Class B Filed as Exhibit 15 to PEA 28 and
Distribution Plan between incorporated herein by reference.
Registrant and John Hancock
Funds, Inc.
11. Opinion as to legality of Filed herewith as Exhibit 11.
shares, and consent.
12. Form of opinion as to tax Filed herewith as Exhibit 12.
matters, and consent.
13. Not applicable.
14.1 Consent of Price Waterhouse Filed herewith as Exhibit 14.1.
LLP regarding the audited
financial statements of
Registrant.
14.2 Consent of Price Waterhouse Filed herewith as Exhibit 14.2.
LLP regarding the audited
financial statement of John
Hancock Gold & GovernmentFund.
15. Not applicable.
2
<PAGE>
16. Powers of Attorney. Filed as addendum to signature
pages of PEA 28 and incorporated
herein by reference.
17. Declaration of the Registrant Filed herewith as Exhibit 17.
pursuant to Rule 24f-2 under
the Investment Company Act of
1940.
18. Prospectus of John Hancock Filed herewith as Exhibit 18.
Gold & Government Fund dated
March 1, 1996.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) under the Securities Act of 1933,
as amended (the "1933 Act"), the reoffering prospectus will contain the
information called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and The
Commonwealth of Massachusetts, on the 15th day of May, 1996.
FREEDOM INVESTMENT TRUST II
By: Edward J. Boudreau, Jr.*
Edward J. Boudreau, Jr.
Chairman, Chief Executive
Officer and Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
Signature Title Date
<S> <C> <C>
Edward J. Boudreau, Jr.* Chairman and Chief ) May 15, 1996
------------------------
Edward J. Boudreau, Jr. Executive Officer )
(Principal Executive )
Officer) )
)
)
/s/ James B. Little Senior Vice President ) May 15, 1996
-----------------------
James B. Little and Chief Financial )
Officer (Principal )
Financial and )
Accounting Officer) )
)
Trustees:
Douglas Costle* Trustee )
Douglas Costle )
)
)
Leland O. Erdahl* Trustee )
Leland O. Erdahl )
4
<PAGE>
)
)
Richard A. Farrell* Trustee )
Richard A. Farrell )
)
)
William F. Glavin* Trustee )
William F. Glavin )
)
)
Dr. John A. Moore* Trustee )
-----------------------
Dr. John A. Moore )
)
)
Patti McGill Peterson* Trustee )
Patti McGill Peterson )
)
)
John W. Pratt* Trustee )
John W. Pratt )
)
)
*By:/s/ Thomas H. Drohan May 15, 1996
--------------------
Thomas H. Drohan
Attorney-in-fact
</TABLE>
5
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement.
Exhibit No. Description
4. Agreement and Plan of Reorganization
between the Registrant and Freedom Investment Trust
on behalf of John Hancock Gold & Government Fund
(filed as Exhibit A to Part A of this Registration
Statement).
11. Opinion as to legality of shares, and
consent.
12. Form of opinion as to tax matters, and
consent.
14 Consent of Price Waterhouse LLP
17. Declaration of the Registrant pursuant to
Rule 24f-2 under the Investment Company Act of 1940.
18. Prospectus of John Hancock Gold & Government
Fund dated March 1, 1996.
May 17, 1996
John Hancock Freedom Investment Trust
on behalf of John Hancock Gold & Government Fund
101 Huntington Avenue
Boston, MA 02199
Ladies and Gentlemen:
In connection with the filing of a registration statement under the Securities
Act of 1993, as amended (the "Act"), on Form N-14, with respect to the shares of
beneficial interest of John Hancock Freedom Investment Trust II, a Massachusetts
business trust (the "Fund"), it is the opinion of the undersigned that these
shares when issued will be legally issued, fully paid and nonassessable.
In connection with this opinion it should be noted that the Fund is an entity of
the type generally known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of a Massachusetts business trust may be held
personally liable for the obligations of the trust. However, the Fund's
Declaration of Trust disclaims shareholder liability for obligations of the Fund
and indemnifies any shareholder of the Fund, with such indemnification to be
paid solely out of the assets of the Fund. Therefore, the shareholder's risk is
limited to circumstances in which the assets of the Fund are insufficient to
meet the obligations asserted against such assets.
The undersigned hereby consents to the filing of a copy of this opinion, as an
exhibit to the Fund's registration statement on Form N-14, with the Securities
and Exchange Commission and with the various state securities administrators.
Sincerely,
JOHN HANCOCK ADVISERS, INC.
/s/ Alfred P. Ouellette
Alfred P. Ouellette
Assistant Secretary
Member of Massachusetts Bar
APO/dmm
_______________________ , 1996
Board of Trustees
Freedom Investment Trust II
101 Huntington Avenue
Boston, Massachusetts 02199
Board of Trustees
Freedom Investment Trust
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Members of the Boards of Trustees:
You have requested our opinion regarding the federal income tax
consequences of the acquisition by John Hancock Special Opportunities Fund
("Acquiring Fund"), a series of Freedom Investment Trust II ("Trust II"), of all
of the assets of John Hancock Gold & Government Fund ("Acquired Fund"), a series
of Freedom Investment Trust ("Trust"), in exchange solely for (i) the assumption
by Acquiring Fund of all of the liabilities of Acquired Fund and (ii) the
issuance of Class A and Class B voting shares of beneficial interest of
Acquiring Fund (the "Acquiring Fund Shares") to Acquired Fund, followed by the
distribution by Acquired Fund, in liquidation of Acquired Fund, of the Acquiring
Fund Shares to the shareholders of Acquired Fund and the termination of Acquired
Fund (the foregoing together constituting the "reorganization" or the
"transaction").
In rendering this opinion, we have examined and relied upon (i) the
prospectus for the Class A and Class B shares of Acquired Fund, dated March 1,
1996, (ii) the statement of additional information for the Class A and Class B
shares of Acquired Fund, dated March 1, 1996, (iii) the prospectus for the Class
A and Class B shares of Acquiring Fund, dated March 1, 1996, as supplemented
April 3, 1996, (iv) the statement of additional information for the Class A and
Class B shares of Acquiring Fund, dated March 1, 1996, (v) the registration
statement on Form N-14 of Acquiring Fund relating to the transaction (the
"Registration Statement") filed with the Securities and Exchange Commission (the
"SEC") on May 17, 1996, (vi) the proxy statement and prospectus relating to the
<PAGE>
Boards of Trustees
Freedom Investment Trust II
Freedom Investment Trust
___________________, 1996
Page 2
transaction dated June 24, 1996 (the "Proxy Statement"), (vii) the Agreement and
Plan of Reorganization, made as of June 24, 1996, between Trust II, on behalf of
Acquiring Fund, and Trust, on behalf of Acquired Fund (the "Agreement"), (viii)
the representation letters on behalf of Acquiring Fund and Acquired Fund
referred to below and (ix) such other documents as we deemed appropriate. We
have assumed that the parties to the Agreement have acted and will act in
accordance with the terms of the Agreement and all other documents relating to
the transaction.
The conclusions expressed herein represent our judgment regarding the
proper treatment of Acquiring Fund, Acquired Fund and the shareholders of
Acquired Fund on the basis of our analysis of the Internal Revenue Code of 1986,
as amended (the "Code"), case law, Treasury regulations and the rulings and
other pronouncements of the Internal Revenue Service (the "Service") which exist
at the time this opinion is rendered. Such authorities are subject to
prospective or retroactive change, and we do not undertake any responsibility to
advise you of any such change. Our opinion represents our best judgment
regarding the issues presented and is not binding upon the Service or any court.
Moreover, our opinion does not provide any assurance that a position taken in
reliance on such opinion will not be challenged by the Service and does not
constitute any representation or warranty that such position, if so challenged,
will not be rejected by a court.
FACTS
We understand the facts relating to the transaction to be as described
hereinafter.
Acquiring Fund is a series of a Massachusetts business trust, Trust II,
which was established under a Declaration of Trust dated March 31, 1986 and is
registered as an open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act"). Trust II has five separate series (including
Acquiring Fund), each of which is treated as a separate corporation and
regulated investment company pursuant to Section 851(h) of the Code. Acquiring
Fund commenced operations on November 1, 1993. The investment objective of
Acquiring Fund is to seek long-term capital appreciation. Acquiring Fund seeks
to achieve its objective by emphasizing investments in equity securities of
issuers in various economic sectors. The equity securities in which Acquiring
Fund invests consist primarily of common stocks of U.S. and foreign issuers but
may also include preferred stocks, convertible debt securities and warrants. The
economic sectors in which Acquiring Fund invests include, but are not limited
to, the following sectors: automotive and housing, consumer goods and services,
defense and aerospace, energy, financial services, health care, heavy industry,
<PAGE>
Boards of Trustees
Freedom Investment Trust II
Freedom Investment Trust
________________, 1996
Page 3
leisure and entertainment, machinery and equipment, precious metals, retailing,
technology, transportation, utilities, foreign and environmental.
Acquired Fund is a series of a Massachusetts business trust, Trust, which
was established under a Declaration of Trust dated March 29, 1984 and is
registered as an open-end investment company under the 1940 Act. Trust has five
separate series (including Acquired Fund), each of which is treated as a
separate corporation and regulated investment company pursuant to Section 851(h)
of the Code. Acquired Fund was created on March 29, 1984. The investment
objective of Acquired Fund is to achieve capital appreciation and preservation
of the purchasing power of shareholders' capital. Moderate income is a secondary
objective. Acquired Fund seeks to achieve its objectives by investing at least
65% of its total assets in some combination of gold and gold mining securities
and U.S. Government securities, with the relative mix of these types of
securities depending upon the investment adviser's assessment of whether
inflation or disinflation exists or is anticipated.
The steps comprising the reorganization, as set forth in the Agreement, are
as follows:
(i) Acquired Fund will transfer to Acquiring Fund all of its
assets (consisting, without limitation, of portfolio securities and instruments,
dividend and interest receivables, cash and other assets). In exchange for the
assets transferred to it, Acquiring Fund will (A) assume all of the liabilities
of Acquired Fund (comprising all of its known and unknown liabilities and
referred to hereinafter as the "Acquired Fund Liabilities") and (B) issue
Acquiring Fund Shares to Acquired Fund that have an aggregate net asset value
equal to the value of the assets transferred to Acquiring Fund by Acquired Fund,
less the value of the Acquired Fund Liabilities assumed by Acquiring Fund.
(ii) Promptly after the transfer of its assets to Acquiring Fund,
Acquired Fund will distribute in liquidation the Acquiring Fund Shares it
receives in the exchange to Acquired Fund shareholders pro rata in exchange for
their surrender of their shares of beneficial interest of Acquired Fund
("Acquired Fund Shares"). In these exchanges, holders of Acquired Fund Shares
designated as Class A ("Class A Acquired Fund Shares") will receive Acquiring
Fund Shares designated as Class A ("Class A Acquiring Fund Shares"), and holders
of Acquired Fund Shares designated as Class B ("Class B Acquired Fund Shares")
will receive Acquiring Fund Shares designated as Class B ("Class B Acquiring
Fund Shares").
<PAGE>
Boards of Trustees
Freedom Investment Trust II
Freedom Investment Trust
________________, 1996
Page 4
(iii) After such exchanges, liquidation and distribution, the
existence of Acquired Fund will be promptly terminated in accordance with
Massachusetts law.
The Agreement and the transactions contemplated thereby were approved by
the Board of Trustees of Trust II, on behalf of Acquiring Fund, at a meeting
held on March 26, 1996. Acquiring Fund shareholders are not required and were
not asked to approve the transaction. The Agreement and the transactions
contemplated thereby were approved by the Board of Trustees of Trust, on behalf
of Acquired Fund, at a meeting held on March 5, 1996, subject to the approval of
Acquired Fund shareholders. Acquired Fund shareholders approved the transaction
at a meeting held on August 14, 1996.
Massachusetts law does not provide dissenters' rights for Acquired Fund
shareholders in the transaction. Additionally, it is the position of the
Division of Investment Management of the SEC that appraisal rights, in contexts
such as the reorganization, are inconsistent with Rule 22c-1 under the 1940 Act
and are therefore preempted and invalidated by such rule. Consequently, Acquired
Fund shareholders will not have dissenters' or appraisal rights in the
transaction.
Our opinions set forth below are subject to the following factual
assumptions being true and correct (including statements relating to future
actions and facts represented to be to the best knowledge of management, whether
or not known). Authorized representatives of Acquiring Fund and Acquired Fund
have represented to us by letters of even date herewith that the following
assumptions are true and correct:
(a) Acquiring Fund has no plan or intention to redeem or otherwise
reacquire any of the Acquiring Fund Shares received by shareholders of Acquired
Fund in the transaction except in connection with its legal obligation under
Section 22(e) of the 1940 Act as a registered open-end investment company to
redeem its own shares.
(b) After the transaction, Acquiring Fund will continue the historic
business of Acquired Fund and will use all of the assets acquired from Acquired
Fund, which are Acquired Fund's historic business assets, i.e., assets not
acquired as part of or in contemplation of the transaction, in the ordinary
course of a business.
(c) Acquiring Fund has no plan or intention to sell or otherwise dispose of
any assets of Acquired Fund acquired in the transaction, except for dispositions
made in the ordinary course of its business (i.e., dispositions resulting from
<PAGE>
Boards of Trustees
Freedom Investment Trust II
Freedom Investment Trust
_________________, 1996
Page 5
investment decisions made after the reorganization on the basis of investment
considerations independent of the reorganization) or to maintain its
qualification as a regulated investment company under Subchapter M of the Code.
(d) The shareholders of Acquiring Fund and the shareholders of Acquired
Fund will bear their respective expenses, if any, in connection with the
transaction.
(e) Acquiring Fund and Acquired Fund will each bear its own expenses
incurred in connection with the transaction. Any liabilities of Acquired Fund
attributable to such expenses that remain unpaid on the closing date of the
transaction and are assumed by Acquiring Fund in the transaction are
attributable to Acquired Fund's expenses that are solely and directly related to
the transaction in accordance with the guidelines established in Rev. Rul.
73-54, 1973-1 C.B. 187.
(f) There is no indebtedness between Acquiring Fund and Acquired Fund.
(g) Acquired Fund has elected to be treated as a regulated investment
company under Subchapter M of the Code, has qualified as a regulated investment
company for each taxable year since its inception, and qualifies as such for its
final taxable year ending on the closing date of the transaction.
(h) Acquiring Fund has elected to be treated as a regulated investment
company under Subchapter M of the Code, has qualified as a regulated investment
company for each taxable year since its inception, and qualifies as such as of
the date of the transaction.
(i) Neither Acquiring Fund nor Acquired Fund is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
(j) Acquiring Fund does not own and since its inception has not owned,
directly or indirectly, any shares of Acquired Fund.
(k) Acquiring Fund will not pay cash in lieu of fractional shares in
connection with the transaction.
(l) As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund in exchange for the assets of
Acquired Fund is approximately equal to the fair market value of the assets of
Acquired Fund received by Acquiring Fund, minus the value of the Acquired Fund
Liabilities assumed by Acquiring Fund.
<PAGE>
Boards of Trustees
Freedom Investment Trust II
Freedom Investment Trust
________________, 1996
Page 6
(m) Acquired Fund shareholders will not be in control (within the meaning
of Sections 368(a)(2)(H) and 304(c) of the Code, which provide that control
means the ownership of shares possessing at least 50% of the total combined
voting power of all classes of shares that are entitled to vote or at least 50%
of the total value of shares of all classes) of Acquiring Fund after the
transaction.
(n) The principal business purposes of the transaction are to combine the
assets of Acquiring Fund and Acquired Fund in order to capitalize on economies
of scale in expenses such as the costs of accounting, legal, insurance,
custodial, and administrative services, to eliminate the potential adverse
effects on each fund's asset growth of competing with the other fund, and to
increase diversification.
(o) As of the date of the transaction, the fair market value of the Class A
Acquiring Fund Shares received by each holder of Class A Acquired Fund Shares is
approximately equal to the fair market value of the Class A Acquired Fund Shares
surrendered by such shareholder, and the fair market value of the Class B
Acquiring Fund Shares received by each holder of Class B Acquired Fund Shares is
approximately equal to the fair market value of the Class B Acquired Fund Shares
surrendered by such shareholder.
(p) There is no plan or intention on the part of any shareholder of
Acquired Fund that owns beneficially 5% or more of the Acquired Fund Shares and,
to the best knowledge of management of Acquired Fund, there is no plan or
intention on the part of the remaining shareholders of Acquired Fund to sell,
redeem, exchange or otherwise dispose of a number of the Acquiring Fund Shares
received in the transaction that would reduce the aggregate ownership of the
Acquiring Fund Shares by former Acquired Fund shareholders to a number of shares
having a value, as of the date of the transaction, of less than fifty percent
(50%) of the value of all of the formerly outstanding Acquired Fund Shares as of
the same date. Shares of Acquired Fund and Acquiring Fund held by Acquired Fund
shareholders and sold, redeemed, exchanged or otherwise disposed of prior or
subsequent to the transaction as part of the plan of reorganization are taken
into account for purposes of this representation.
(q) Acquired Fund assets transferred to Acquiring Fund comprise at least
ninety percent (90%) of the fair market value of the net assets and at least
seventy percent (70%) of the fair market value of the gross assets held by
Acquired Fund immediately prior to the transaction. For purposes of this
representation, amounts used by Acquired Fund to pay its outstanding
liabilities, including reorganization expenses, and all redemptions and
distributions (except for redemptions in the ordinary course of business upon
<PAGE>
Boards of Trustees
Freedom Investment Trust II
Freedom Investment Trust
________________, 1996
Page 7
demand of a shareholder that Acquired Fund is required to make as an open-end
investment company pursuant to Section 22(e) of the 1940 Act and regular, normal
dividends, which dividends include any final distribution of previously
undistributed investment company taxable income and net capital gain for
Acquired Fund's final taxable year ending on the closing date of the
transaction) made by Acquired Fund immediately preceding the transaction are
taken into account as assets of Acquired Fund held immediately prior to the
transaction.
(r) The Acquired Fund Liabilities assumed by Acquiring Fund plus the
liabilities, if any, to which the transferred assets are subject were incurred
by Acquired Fund in the ordinary course of its business or are expenses of the
transaction.
(s) The fair market value of the Acquired Fund assets transferred to
Acquiring Fund equals or exceeds the sum of the Acquired Fund Liabilities
assumed by Acquiring Fund and the amount of liabilities, if any, to which the
transferred assets are subject.
(t) Acquired Fund does not pay compensation to any shareholder-employee.
OPINION
On the basis of and subject to the foregoing and in reliance upon the
representations described above, and provided that any statement of fact
represented to be made to the best knowledge of management of Acquired Fund or
Acquiring Fund is in fact true and correct (whether or not known), we are of the
opinion that
(a) The acquisition by Acquiring Fund of all of the assets of Acquired Fund
solely in exchange for the issuance of Acquiring Fund Shares to Acquired Fund
and the assumption of all of the Acquired Fund Liabilities by Acquiring Fund,
followed by the distribution by Acquired Fund, in liquidation of Acquired Fund,
of Acquiring Fund Shares to Acquired Fund shareholders in exchange for their
Acquired Fund Shares and the termination of Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code.
Acquiring Fund and Acquired Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by Acquired Fund upon (i) the
transfer of all of its assets to Acquiring Fund solely in exchange for the
issuance of Acquiring Fund Shares to Acquired Fund and the assumption of all of
the Acquired Fund Liabilities by Acquiring Fund and (ii) the distribution by
<PAGE>
Boards of Trustees
Freedom Investment Trust II
Freedom Investment Trust
_________________, 1996
Page 8
Acquired Fund of such Acquiring Fund Shares to the shareholders of Acquired Fund
(Sections 361(a) and 361(c) of the Code).
(c) No gain or loss will be recognized by Acquiring Fund upon the receipt
of the assets of Acquired Fund solely in exchange for the issuance of Acquiring
Fund Shares to Acquired Fund and the assumption of all of the Acquired Fund
Liabilities by Acquiring Fund (Section 1032(a) of the Code).
(d) The basis of the assets of Acquired Fund acquired by Acquiring Fund
will be, in each instance, the same as the basis of such assets in the hands of
Acquired Fund immediately prior to the transfer (Section 362(b) of the Code).
(e) The tax holding period of the assets of Acquired Fund in the hands of
Acquiring Fund will, in each instance, include Acquired Fund's tax holding
period for those assets (Section 1223(2) of the Code).
(f) The shareholders of Acquired Fund will not recognize gain or loss upon
the exchange of all of their Acquired Fund Shares solely for Acquiring Fund
Shares as part of the transaction (Section 354(a)(l) of the Code).
(g) The basis of the Acquiring Fund Shares received by the Acquired Fund
shareholders in the transaction will be the same as the basis of the Acquired
Fund Shares surrendered in exchange therefor (Section 358(a)(1) of the Code).
(h) The tax holding period of the Acquiring Fund Shares received by
Acquired Fund shareholders will include, for each shareholder, the tax holding
period for the Acquired Fund Shares surrendered in exchange therefor, provided
the Acquired Fund Shares were held as capital assets on the date of the exchange
(Section 1223(1) of the Code).
No opinion is expressed or implied regarding the federal income tax
consequences to Acquiring Fund, Acquired Fund or Acquired Fund shareholders of
any conditions existing at the time of, effects resulting from, or other aspects
of the transaction except as expressly set forth above.
Very truly yours,
Hale and Dorr
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Proxy Statement and Prospectus constituting
part of the Registration Statement on Form N-14 (File No. 33-4559) (the
"Registration Statement") of our report dated December 14, 1995, relating to the
financial statements and financial highlights appearing in the October 31, 1995
Annual Report to Shareholders of John Hancock Special Opportunities Fund which
appears in such Proxy Statement and Prospectus. We also consent to the reference
to us under the heading "Experts" in the Prospectus and Proxy Statement. We also
consent to the use in the Statement of Additional Information constituting part
of the Registration Statement of our report dated December 14, 1995, relating to
the financial statements and financial highlights appearing in the October 31,
1995 Annual Report to Shareholders of John Hancock Gold & Government Fund which
appears in such Statement of Additional Information. We also consent to the
references to us under the heading "The Fund's Financial Highlights" in the
Prospectus of John Hancock Special Opportunities Fund, dated March 1, 1996,
which appears in the Proxy Statement and Prospectus, under the heading
"Independent Auditors" in the Statement of Additional Information of John
Hancock Special Opportunities Fund, dated March 1. 1996, which is included in
the Registration Statement, and under the headings "The Funds' Financial
Highlights" in the Prospectus of John Hancock Gold & Government Fund dated March
1, 1996, and "Independent Auditors" in the Statement of Additional Information
of John Hancock Gold & Government Fund dated March 1, 1996, which are included
in the Registration Statement.
PRICE WATERHOUSE LLP
Boston, Massachusetts
May 16, 1996
As filed with the Securities and Exchange Commission on August 14, 1986
1933 Act File No. 33-4559
1940 Act File No. 811-4630
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /____/
------
Pre-Effective Amendment No. __ /____/
------
Post-Effective Amendment No. _1_ /__X_/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2
----- ------
/__X_/
(Check appropriate box or boxes)
FREEDOM INVESTMENT TRUST II
(Exact Name of Registrant)
Three Center Plaza, Boston, MA 02108 (Address of Principal Executive Office)
(617) 523-3170
(Registrant's Telephone Number)
Hugh A. Dunlap, Jr., President
Freedom Investment Trust II
Three Center Plaza
Boston, Massachusetts 02108
(Name and Address of Agent for Service)
copy to:
Edward T. O'Dell, Jr., P.C.
Goodwin, Procter & Hoar
Exchange Place
Boston, Massachusetts 02109
Approximate date of proposed public offering:
-----
/__X_/ on October 13, 1986 pursuant to paragraph (a) of Rule 485
Registrant hereby declares its intention to register an indefinite number
of shares of beneficial interest, no par value, of the Freedom Global Income
Plus Fund series pursuant to Rule 24f-2(a)(1) under the Investment Company Act
of 1940, as amended. Registrant has heretofore declared its intention to
register an indefinite number of shares of beneficial interest, no par value, of
the Freedom Global Fund series pursuant to Rule 24f-2(a)(1) under the Investment
Company Act of 1940, as amended.
Exhibit Index may be found on Page ____
JOHN HANCOCK
REGIONAL BANK FUND
JOHN HANCOCK
GOLD & GOVERNMENT FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
MARCH 1, 1996
--------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expense Information................................................................... 2
The Funds' Financial Highlights....................................................... 4
Investment Objectives and Policies.................................................... 6
Regional Bank Fund............................................................... 6
Gold & Government Fund........................................................... 7
Certain Investment Strategies......................................................... 10
Organization and Management of the Funds.............................................. 11
Alternative Purchase Arrangements..................................................... 13
The Funds' Expenses................................................................... 14
Dividends and Taxes................................................................... 15
Performance........................................................................... 16
How to Buy Shares..................................................................... 18
Share Price........................................................................... 19
How to Redeem Shares.................................................................. 25
Additional Services and Programs...................................................... 27
</TABLE>
This Prospectus sets forth information about the John Hancock Regional Bank
Fund ("Regional Bank Fund" or the "Fund"), and John Hancock Gold & Government
Fund ("Gold & Government Fund" or the "Fund") each a diversified series of
Freedom Investment Trust (the "Trust"), that you should know before investing.
Please read and retain it for future reference.
Additional information about the Funds has been filed with the Securities and
Exchange Commission (the "SEC"). You can obtain a copy of the Funds' Statement
of Additional Information, dated March 1, 1996, and incorporated by reference
into this Prospectus, free of charge by writing or telephoning: John Hancock
Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116,
1-800-225-5291 (1-800-554-6713 TDD).
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you understand the various
fees and expenses you will bear, directly or indirectly, when you purchase
shares of either Fund. The operating expenses included in the table and the
hypothetical example below are based on actual fees and expenses for the Class A
and Class B shares of the Fund for the fiscal year ended October 31, 1995
adjusted to reflect certain current fees and expenses. Actual fees and expenses
may be greater or less than those shown.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
---------- --------
<S> <C> <C>
GOLD & GOVERNMENT FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage of offering price).............................. 5.00% None
Maximum sales charge imposed on reinvested dividends....................................................... None None
Maximum deferred sales charge.............................................................................. None* 5.00%
Redemption fee(a).......................................................................................... None None
Exchange fee............................................................................................... None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fee............................................................................................. 0.80% 0.80%
12b-1 fee**................................................................................................ 0.30% 1.00%
Other expenses............................................................................................. 0.52% 0.52%
Total Fund operating expenses.............................................................................. 1.62% 2.32%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
---------- --------
<S> <C> <C>
REGIONAL BANK FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a percentage of offering price).............................. 5.00% None
Maximum sales charge imposed on reinvested dividends....................................................... None None
Maximum deferred sales charge.............................................................................. None* 5.00%
Redemption fee(a).......................................................................................... None None
Exchange fee............................................................................................... None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fee(b).......................................................................................... 0.78% 0.78%
12b-1 fee**................................................................................................ 0.30% 1.00%
Other expenses............................................................................................. 0.31% 0.31%
Total Fund operating expenses.............................................................................. 1.39% 2.09%
</TABLE>
---------------
<TABLE>
<S> <C>
* No sales charge is payable at the time of purchase on investments in Class A shares of $1 million or more, but for these
investments a contingent deferred sales charge may be imposed, as described under the caption "Share Price," in the event
of certain redemption transactions within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to 0.25% of average daily net assets, and the
remaining portion will be used to cover distribution expenses.
(a) Redemption by wire fee (currently $4.00) not included.
(b) The calculation of the management fee is based on average net assets for the fiscal year ended October 31, 1995. See "The
Fund's Expenses."
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment assuming a 5% annual return:
GOLD & GOVERNMENT FUND
Class A shares.............................................................. $66 $ 99 $135 $235
Class B shares
--Assuming complete redemption at end of period............................. $74 $102 $144 $248
--Assuming no redemption.................................................... $24 $ 72 $124 $248
REGIONAL BANK FUND
Class A shares.............................................................. $63 $ 92 $122 $209
Class B shares
--Assuming complete redemption at end of period............................. $71 $ 95 $132 $224
--Assuming no redemption.................................................... $21 $ 65 $112 $224
</TABLE>
(The example should not be considered as a representation of past or future
expenses. Actual expenses may be greater or less than shown.)
Each Fund's payment of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the maximum
front-end sales charge permitted under the National Association of Securities
Dealers Rules of Fair Practice.
The management and 12b-1 fees referenced above are more fully explained in
this Prospectus under the caption "The Funds' Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
3
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
The following table of Financial Highlights has been audited by Price
Waterhouse LLP, the Funds' independent accountants, whose unqualified reports
are included in the Funds' 1995 Annual Reports and are included in the Funds'
Statement of Additional Information. Further information about the performance
of the Funds is contained in each Fund's Annual Report to shareholders which may
be obtained free of charge by writing or telephoning John Hancock Investor
Services Corporation ("Investor Services"), at the address or telephone number
listed on the front page of this Prospectus.
Selected data for each class of shares outstanding throughout each period
indicated is as follows:
REGIONAL BANK FUND
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
---------- -------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A**
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period.............................. $ 21.52 $ 21.62 $ 17.47 $ 13.47
---------- -------- -------- -------
Net Investment Income................ 0.52*** 0.39*** 0.26*** 0.21
Net Realized and Unrealized Gain on
Investments......................... 5.92 0.91 5.84 3.98
---------- -------- -------- -------
Total from Investment
Operations.................... 6.44 1.30 6.10 4.19
---------- -------- -------- -------
Less Distributions:
Dividends from Net Investment
Income............................ (0.48) (0.34) (0.26) (0.19)
Distributions from Net Realized Gain
on
Investments Sold.................. (0.34) (1.06) (1.69) --
---------- -------- -------- -------
Total Distributions............. (0.82) (1.40) (1.95) (0.19)
---------- -------- -------- -------
Net Asset Value, End of Period....... $ 27.14 $ 21.52 $ 21.62 $ 17.47
=========== ========= ========= ========
Total Investment Return at Net Asset
Value(a)............................ 31.00% 6.44% 37.45% 31.26%(b)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's
omitted)............................ $ 486,631 $216,978 $ 94,158 $31,306
Ratio of Expenses to Average Net
Assets.............................. 1.39% 1.34% 1.35% 1.41%*
Ratio of Net Investment Income to
Average Net Assets.................. 2.23% 1.78% 1.29% 1.64%*
Portfolio Turnover Rate.............. 14% 13% 35% 53%
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period.............................. $ 21.43 $ 21.56 $ 17.44 $ 13.76 $ 8.13 $ 13.00 $ 11.89 $10.02
---------- -------- -------- ------- ------- ------- ------- -------
Net Investment Income................ 0.36*** 0.23*** 0.15*** 0.18 0.29 0.30 0.20 0.16
Net Realized and Unrealized Gain on
Investments......................... 5.89 0.91 5.83 4.56 5.68 (4.19) 2.02 3.12
---------- -------- -------- ------- ------- ------- ------- -------
Total from Investment
Operations.................... 6.25 1.14 5.98 4.74 5.97 (3.89) 2.22 3.28
---------- -------- -------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment
Income............................ (0.32) (0.21) (0.17) (0.28) (0.34) (0.19) (0.16) (0.15)
Distributions from Net Realized Gain
on
Investments Sold.................. (0.34) (1.06) (1.69) (0.78) -- (0.76) (0.95) (1.26)
Distributions from Capital
Paid-In........................... -- -- -- -- -- (0.03) -- --
---------- -------- -------- ------- ------- ------- ------- -------
Total Distributions............. (0.66) (1.27) (1.86) (1.06) (0.34) (0.98) (1.11) (1.41)
---------- -------- -------- ------- ------- ------- ------- -------
Net Asset Value, End of Period....... $ 27.02 $ 21.43 $ 21.56 $ 17.44 $ 13.76 $ 8.13 $ 13.00 $11.89
=========== ========= ========= ======== ======== ======== ======== ========
Total Investment Return at Net Asset
Value(a)............................ 30.11% 5.69% 36.71% 37.20% 75.35% (32.29%) 20.46% 36.89%
<CAPTION>
PERIOD ENDED
---------------------
MARCH 31, MARCH 31,
1987(C) 1987 1986(D)
------- --------- ---------
<S> <C> <C> <C>
CLASS A**
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period..............................
Net Investment Income................
Net Realized and Unrealized Gain on
Investments.........................
Total from Investment
Operations....................
Less Distributions:
Dividends from Net Investment
Income............................
Distributions from Net Realized Gain
on
Investments Sold..................
Total Distributions.............
Net Asset Value, End of Period.......
Total Investment Return at Net Asset
Value(a)............................
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's
omitted)............................
Ratio of Expenses to Average Net
Assets..............................
Ratio of Net Investment Income to
Average Net Assets..................
Portfolio Turnover Rate..............
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period.............................. $ 12.68 $ 12.51 $ 9.40
------- --------- ---------
Net Investment Income................ 0.05 0.20 0.17
Net Realized and Unrealized Gain on
Investments......................... (2.17) 1.74 3.02
------- --------- ---------
Total from Investment
Operations.................... (2.12) 1.94 3.19
------- --------- ---------
Less Distributions:
Dividends from Net Investment
Income............................ (0.04) (0.26) (0.08)
Distributions from Net Realized Gain
on
Investments Sold.................. (0.50) (1.51) --
Distributions from Capital
Paid-In........................... -- -- --
------- --------- ---------
Total Distributions............. (0.54) (1.77) (0.08)
------- --------- ---------
Net Asset Value, End of Period....... $ 10.02 $ 12.68 $ 12.51
======== ========== ==========
Total Investment Return at Net Asset
Value(a)............................ (17.36%)(b) 17.44% 34.08%(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's
omitted)............................ $1,236,447 $522,207 $171,808 $56,016 $52,098 $38,992 $81,167 $50,965
Ratio of Expenses to Average Net
Assets.............................. 2.09% 2.06% 1.88% 1.96% 2.04% 1.99% 1.99% 2.17%
Ratio of Net Investment Income to
Average Net Assets.................. 1.53% 1.07% 0.76% 1.21% 2.65% 2.51% 1.67% 1.50%
Portfolio Turnover Rate.............. 14% 13% 35% 53% 75% 56% 85% 87%
<CAPTION>
RATIOS AND SUPPLEMENTAL DATA
<S> <C> <C> <C>
Net Assets, End of Period (000's
omitted)............................ $38,721 $54,626 $48,602
Ratio of Expenses to Average Net
Assets.............................. 2.47%* 1.48% 1.33%*
Ratio of Net Investment Income to
Average Net Assets.................. 0.73%* 1.62% 3.13%*
Portfolio Turnover Rate.............. 58%* 89% 86%*
</TABLE>
---------------
* On an annualized basis.
** Class A shares commenced operations on January 3, 1992.
*** On an average month-end shares outstanding.
(a) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(b) Not annualized.
(c) From April 1, 1987.
(d) From commencement of operations, October 4, 1985.
4
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------------------------
GOLD & GOVERNMENT FUND 1995 1994 1993 1992(A) 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period.............................. $ 14.35 $ 16.91 $ 15.19 $ 15.31
------- ------- ------- -------
Net Investment Income................. 0.37 0.63 0.76** 0.72
Net Realized and Unrealized Gain
(Loss) on Investments, Financial
Futures Contracts and Written
Options............................. (1.17) (2.28) 1.76 (0.21)
------- ------- ------- -------
Total from Investment Operations.. (0.80) (1.65) 2.52 0.51
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income.. (0.35) (0.67) (0.80) (0.63)
------- ------- ------- -------
Distributions in Excess of Net
Realized Gains on Investments Sold,
Written Options and Financial
Futures Contracts................... -- (0.24)
------- -------
Total Distributions................... (0.35) (0.91) (0.80) (0.63)
========
Net Asset Value, End of Period........ $ 13.20 $ 14.35 $ 16.91 $ 15.19
======== ======== ======== ========
Total Investment Return at Net
Asset Value(c)...................... (5.66%) (10.10%) 17.10% 3.44%(b)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted)..................... $18,300 $16,469 $20,385 $17,593
Ratio of Expenses to Average Net
Assets.............................. 1.60% 1.53% 1.59% 1.68%*
Ratio of Net Investment Income to
Average Net Assets.................. 2.72 4.02% 4.84% 5.49%*
Portfolio Turnover Rate............... 55% 147% 118% 209%
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period.............................. $ 14.33 $ 16.89 $ 15.17 $ 15.13 $ 14.51 $ 15.45 $ 14.96 $ 14.98
------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income................. 0.25 0.53 0.69** 0.83 0.87+ 0.91+ 1.00 0.86
Net Realized and Unrealized Gain
(Loss) on Investments, Financial
Futures Contracts and Written
Options............................. (1.14) (2.28) 1.76 0.11 0.76 (0.81) 0.65 0.26
------- ------- ------- ------- ------- ------- ------- -------
Total from Investment Operations.. (0.89) (1.75) 2.45 0.94 1.63 0.10 1.65 1.12
------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income.. (0.26) (0.57) (0.73) (0.90) (1.01) (1.04) (0.92) (0.74)
Distributions in Excess of Net
Realized Gain on Investments
Sold, Written Options and
Financial Futures Contracts..... -- (0.24) -- -- -- -- (0.24) (0.40)
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions............. (0.26) (0.81) (0.73) (0.90) (1.01) (1.04) (1.16) (1.14)
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Period........ $ 13.18 $ 14.33 $ 16.89 $ 15.17 $ 15.13 $ 14.51 $ 15.45 $ 14.96
======== ======== ======== ======== ======== ======== ======== ========
Total Investment Return at Net
Asset Value(c)...................... (6.32%) (10.70%) 16.56% 6.42% 11.78%+ 0.55%+ 11.73% 7.82%
RATIO AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's
omitted)............................ $16,919 $38,992 $51,872 $36,103 $56,928 $65,498 $63,569 $77,925
Ratio of Expenses to Average Net
Assets.............................. 2.32% 2.18% 2.11% 1.63% 1.82%+ 1.90%+ 1.59% 1.92%
Ratio of Net Investment Income to
Average Net Assets.................. 1.83% 3.41% 4.29% 5.56% 5.96%+ 6.03%+ 6.70% 5.69%
Portfolio Turnover Rate............... 55% 147% 118% 209% 134% 171% 124% 108%
<CAPTION>
PERIOD ENDED
-------------------
MARCH MARCH
31, 31,
1987(D) 1987 1986
-------- -------- --------
<S> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period..............................
Net Investment Income.................
Net Realized and Unrealized Gain
(Loss) on Investments, Financial
Futures Contracts and Written
Options.............................
Total from Investment Operations..
Less Distributions:
Dividends from Net Investment Income..
Distributions in Excess of Net
Realized Gains on Investments Sold,
Written Options and Financial
Futures Contracts...................
Total Distributions...................
Net Asset Value, End of Period........
Total Investment Return at Net
Asset Value(c)......................
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitt
Ratio of Expenses to Average Net Asset
Ratio of Net Investment Income to
Average Net Assets..................
Portfolio Turnover Rate...............
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of
Period.............................. $ 16.56 $ 16.20 $ 14.71
-------- -------- --------
Net Investment Income................. 0.39 1.01 1.12
Net Realized and Unrealized Gain
(Loss) on Investments, Financial
Futures Contracts and Written
Options............................. (1.02 ) 1.07 1.61
-------- -------- --------
Total from Investment Operations.. (0.63 ) 2.08 2.73
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income.. (0.40 ) (1.06 ) (1.20 )
Distributions in Excess of Net
Realized Gain on Investments
Sold, Written Options and
Financial Futures Contracts..... (0.55 ) (0.66 ) (0.04 )
-------- -------- --------
Total Distributions............. (0.95 ) (1.72 ) (1.24 )
-------- -------- --------
Net Asset Value, End of Period........ $ 14.98 $ 16.56 $ 16.20
========= ========= =========
Total Investment Return at Net
Asset Value(c)...................... (6.00%*) 13.93% 19.69%
RATIO AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitt $80,459 $70,833 $39,469
Ratio of Expenses to Average Net Asset 2.13%* 1.68% 1.45%
Ratio of Net Investment Income to
Average Net Assets.................. 4.22%* 6.06% 7.46%
Portfolio Turnover Rate............... 161% 159% 336%
</TABLE>
---------------
<TABLE>
<C> <S>
* On an annualized basis.
** On average month end shares outstanding.
(a) Class A shares commenced operations on January 3, 1992.
(b) Not annualized.
(c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
+ Reflects expense limitations in effect during the years indicated. As a result of such limitations expenses of Class B
shares for the years ended October 31, 1991 and 1990 reflect reductions of $0.01 and less than $0.01, per share,
respectively. Absent of such reductions, for the years ended October 31, 1991 and 1990, the ratio of expenses to average net
assets would have been 1.91% and 1.93%, respectively, and the ratio of net investment income to average net assets would
have been 5.87% and 6.00%, respectively. Without the reimbursement, total investment return would be lower.
(d) From April 1, 1987.
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has a fundamental investment objective with policies and restrictions
to guide its portfolio management. There are market fluctuations and risks in
any investment and therefore there is no assurance that either Fund will achieve
its investment objectives.
REGIONAL BANK FUND
The Fund's investment objective is to achieve capital appreciation from a
portfolio of equity securities of regional banks and lending institutions.
Moderate income is a secondary objective. Under ordinary circumstances, the Fund
will invest at least 65% of its total assets in equity securities, including
common stock and securities convertible into common stock (such as convertible
bonds, convertible preferred stock, and warrants), of regional commercial banks,
industrial banks, consumer banks, savings and loans and bank holding companies
that receive a substantial portion of their income from banks.
-------------------------------------------------------------------------------
THE FUND INVESTS IN EQUITY
SECURITIES OF REGIONAL BANKS
AND LENDING INSTITUTIONS.
-------------------------------------------------------------------------------
A regional bank is one that provides full service banking (i.e., savings
accounts, checking accounts, commercial lending and real estate lending), whose
assets are primarily of domestic origin, and which typically has a principal
office outside of New York City and Chicago. Regional Bank Fund may invest in
banks that are not members of the Federal Reserve System or whose deposits are
not insured by the Federal Deposit Insurance Corporation (including any state or
federally chartered savings and loan association). Although the Adviser will
primarily seek opportunities for capital appreciation, many of the regional
banks in which the Fund may invest pay regular dividends. Accordingly, the Fund
also expects to receive moderate income.
Regional Bank Fund may invest some or all of its assets that are not invested in
equity securities of regional banks in the equity securities of financial
services companies, companies with significant lending operations or "money
center" banks. A "money center" bank is one with a strong international banking
business and a significant percentage of international assets, which is
typically located in New York or Chicago. The Fund may invest up to 5% of its
net assets in a combination of below-investment grade debt securities of banks
and non-financial services equities.
To avoid the need to sell equity securities in the portfolio to provide funds
for redemption, and to provide flexibility to Regional Bank Fund to take
advantage of investment opportunities, the Fund may invest up to 15% of its net
assets in short-term (less than one year) investment grade (i.e., rated at the
time of purchase AAA, AA, A or BBB by Standard & Poor's Rating Group or Aaa, Aa,
A or Baa by Moody's Investors Service, Inc.) debt securities of corporations
(such as commercial paper, notes, bonds or debentures), certificates of deposit,
deposit accounts, obligations of the U.S. Government, its agencies and
instrumentalities, or repurchase agreements which are fully-collateralized by
U.S. Government obligations, including repurchase agreements that mature in more
than seven days. When the Adviser believes that financial conditions warrant, it
may invest up to 80% of the Fund's assets in these securities rated in the three
highest categories,
6
<PAGE>
for temporary defensive purposes. Medium grade obligations (i.e., those rated
BBB or Baa) lack outstanding investment characteristics and in fact have
speculative characteristics as well and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments. In the event a debt security is subsequently downgraded
below medium grade, the Adviser will consider this event in its determination of
whether the Fund should continue to hold the security. See Appendix A to the
Statement of Additional Information for a description of the various ratings of
investment grade debt securities.
The Fund may write (sell) covered call options and may purchase put and call
options. These investment techniques are discussed in more detail below under
"Certain Investment Strategies" and in the Statement of Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS. Since the Fund's investments will be
concentrated in the banking industry, it will be subject to risks in addition to
those that apply to the general equity market. Events may occur which
significantly affect the entire banking industry. Thus, the Fund's share value
may at times increase or decrease at a faster rate than the share value of a
mutual fund with investments in many industries. In addition, despite some
measure of deregulation, banks and other lending institutions are still subject
to extensive governmental regulation which limits their activities. The
availability and cost of funds to these entities is crucial to their
profitability. Consequently, volatile interest rates and general economic
conditions can adversely affect their financial performance and condition. The
market value of the debt securities in the Fund's portfolio will also tend to
vary in an inverse relationship with changes in interest rates. For example, as
interest rates rise, the market value of debt securities tends to decline.
Regional Bank Fund is not a complete investment program. Because the Fund's
investments are concentrated in the banking industry, an investment in the Fund
may be subject to greater market fluctuations than a fund that does not
concentrate in a particular industry. Thus, it is recommended that an investment
in this Fund be considered only one portion of your overall investment
portfolio.
GOLD & GOVERNMENT FUND
The Fund's investment objective is to achieve capital appreciation and
preservation of the purchasing power of your capital. Moderate income is a
secondary objective.
The Fund will at all times invest at least 65% of its total assets in some
combination of gold and gold mining securities and U.S. Government securities.
John Hancock Advisers, Inc. (the "Adviser") will seek to anticipate oncoming
inflationary and disinflationary economic cycles, and will attempt to achieve
Gold & Government Fund's investment objective of capital appreciation and
preservation of purchasing power, as follows:
-------------------------------------------------------------------------------
THE FUND'S INVESTMENT
OBJECTIVE IS TO ACHIEVE
CAPITAL APPRECIATION AND
PRESERVATION OF THE
PURCHASING POWER OF
YOUR CAPITAL.
-------------------------------------------------------------------------------
- During periods of actual or anticipated inflation, concentrate its
investments principally in gold or other precious metal mining shares as
described below.
7
<PAGE>
- During periods of actual or anticipated disinflation, move from investments
in gold or other precious metals mining shares to a concentration of
investments in U.S. Government and government agency fixed-income
securities.
The Adviser believes that this investment strategy enhances Gold & Government
Fund's potential to achieve its investment objective of capital appreciation
over that which could be achieved by remaining fully invested in gold (and other
precious metals) mining shares. The Adviser does so by seeking to avoid the
decline in the price of gold and other precious metal mining shares that
typically occurs during periods of disinflation, while at the same time,
obtaining the benefit of the increase in value of debt instruments that
typically occurs when interest rates decline during periods of disinflation. The
Adviser's determination as to whether the economy is in an inflationary or
disinflationary environment will be made based upon its evaluation of numerous
economic and monetary factors.
When, by reason of a rising rate of change in the CPI, rising interest rates,
and/or a decline in the value of the U.S. dollar, an inflationary cycle is
expected by the Adviser, Gold & Government Fund will invest at least 25% and up
to 80% of the value of its total assets in the equity securities (common stock,
preferred stock and securities convertible into common and preferred stock) of
companies engaged in the exploration for, mining and processing of, or dealing
in gold and other precious metals such as silver. The Fund may purchase
securities of mining companies located throughout the world, including in
particular the United States, Canada, South Africa and Australia. The Fund may
purchase sponsored or unsponsored American depositary receipts ("ADRs") rather
than the actual security of a foreign company. An ADR is a certificate issued by
a United States bank representing the right to receive securities of a foreign
issuer deposited in that bank or a correspondent bank. Although the Fund
anticipates purchasing most of its gold mining securities on United States
markets, it may from time to time purchase them on foreign markets. In addition,
the Fund may invest up to 10% of the value of its total assets directly in gold,
particularly gold bullion and gold coins.
-------------------------------------------------------------------------------
HOW THE FUND INVESTS
DURING AN INFLATIONARY CYCLE.
-------------------------------------------------------------------------------
When, by reason of a declining rate of change in the CPI, declining interest
rates, and/or an increase in the value of the U.S. dollar, a disinflationary
cycle is anticipated, the Fund may invest up to 90% of its assets in debt
instruments of the U.S. Government and its agencies having varied maturities
("U.S. Government securities"). These U.S. Government securities will be
obligations issued or guaranteed as to both principal and interest by the U.S.
Government or backed by the full faith and credit of the United States. In
addition to direct obligations of the U.S. Treasury such as Treasury bonds and
bills, U.S. Government securities include securities and mortgage-backed
securities issued or guaranteed by different agencies such as: Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United
States, Small Business Administration, Government National Mortgage Association,
Federal National Mortgage Association and Federal Home Loan Mortgage
Corporation. The Fund may also invest in securities issued by the U.S.
Government in the form of separately traded principal and interest components of
securities guaranteed by the U.S. Treasury. Because these obligations do not pay
current income, their value may experience more
-------------------------------------------------------------------------------
HOW THE FUND
INVESTS DURING A
DISINFLATIONARY CYCLE.
-------------------------------------------------------------------------------
8
<PAGE>
volatility when interest rates change than that of other U.S. Government
securities that have similar yields and maturities.
The Fund may invest up to 10% of its net assets in repurchase agreements, which
are fully collateralized by U.S. Government securities, including repurchase
agreements that mature in more than seven days. The Fund may write covered call
options and may purchase put and call options on gold bullion, U.S. Government
securities and equity securities. The Fund may also invest in futures contracts
in gold bullion, financial futures contracts with respect to U.S. Treasury
obligations and related options on such futures contracts. These investment
techniques are discussed in more detail below under "Certain Investment
Strategies" and in the Statement of Additional Information. RISK FACTORS AND
SPECIAL CONSIDERATIONS. The Fund's investment success will depend to a high
degree on the Adviser's ability to anticipate the onset and termination of
inflationary and disinflationary cycles. A failure to anticipate a
disinflationary cycle could result in the Fund's assets being disproportionately
invested in securities of gold or other mining companies. Conversely, a failure
to predict an inflationary cycle could result in the Fund's assets being
disproportionately invested in U.S. Government securities. The securities of
companies engaged in the exploration for, mining and processing of gold and
precious metals have been volatile historically. Mining and other related
securities tend to fluctuate as much as or more than gold during periods of
market instability because operating results will usually be positively or
negatively leveraged by considerable movements in the price of gold. These
securities are further affected by changes in the currency of the country of
domicile. Since the Fund may from time to time, as set forth above, invest up to
80% of its total assets in gold and precious metals mining stocks, the Fund may
be subject to greater risks and market fluctuations than other mutual funds with
portfolios having a broader range of investment alternatives. The Fund's
holdings of gold bullion, if any, will not generate any current income, and
appreciation in the market price of gold is the sole manner in which the Fund
will be able to realize gains on such investment. Investments in foreign
securities may involve certain risks. See "Certain Investment Strategies."
If Gold & Government Fund writes (sells) a substantial number of call options
and the market prices of the underlying securities appreciate, or if the Fund
writes a substantial number of put options and the market prices of the
underlying securities depreciate, there may be a very substantial turnover of
the portfolio. A high rate of portfolio turnover involves correspondingly
greater brokerage expense which will be borne by the Fund and may, under certain
circumstances, make it more difficult for the Fund to qualify as a regulated
investment company under the Internal Revenue Code. See the Statement of
Additional Information for a further discussion of these special considerations.
9
<PAGE>
CERTAIN INVESTMENT STRATEGIES
OPTIONS TRANSACTIONS. Gold & Government Fund may purchase call and put options
and write (sell) covered call options on gold bullion, U.S. Government
securities and equity securities in which it may invest. The Fund may not invest
more than 5% of its assets in purchased put and call options. The Fund may write
(sell) covered call options on all or part of its portfolio assets, without
limit. Regional Bank Fund may invest up to 5% of its assets may be invested in
purchased put and call options and may write (sell) covered call options on up
to 30% of its portfolio securities.
The Funds may deal in options listed for trading on a national securities
exchange or traded over-the-counter. The Funds will engage in over-the-counter
options only with member banks of the Federal Reserve System and primary dealers
in U.S. Government securities. The staff of the Securities and Exchange
Commission considers over-the-counter options to be illiquid except under
prescribed conditions, which are discussed in the Statement of Additional
Information.
FUTURES CONTRACTS AND OPTIONS ON FUTURES. Gold & Government Fund may buy and
sell gold bullion and financial futures contracts and options on futures to
hedge against the effects of fluctuations in securities prices, interest rates,
currency exchange rates and other market conditions and for speculative
purposes. The potential loss incurred by the Fund in writing options on futures
is unlimited and may exceed the amount of the premium received. All of the
Fund's futures contracts and options on futures will be traded on a U.S.
commodity exchange or board of trade. The Gold & Government Fund will not engage
in a futures or options transaction for speculative purposes, if immediately
thereafter, the sum of initial margin deposits on existing positions and
premiums required to establish speculative positions in futures contracts and
options on futures would exceed 5% of the Fund's net assets. The Fund intends to
comply with the CFTC regulations with respect to its speculative transactions.
These regulations are discussed further in the Statement of Additional
Information.
REPURCHASE AGREEMENTS. In a repurchase agreement, a Fund buys a security
subject to the right and obligation to sell it back at a higher price. These
transactions must be fully collateralized at all times, but they involve some
credit risk to the Fund if the other party defaults on its obligations and the
Fund is delayed in or prevented from liquidating the collateral.
RESTRICTED SECURITIES. Each Fund may purchase restricted securities, including
those eligible for resale to "qualified institutional buyers" pursuant to Rule
144A under the Securities Act of 1933 (the "Securities Act"). The Trustees will
monitor the Funds' investments in these securities, focusing on certain factors,
including valuation, liquidity and availability of information. Purchases of
other restricted securities are subject to an investment restriction limiting
all the Funds' illiquid securities to not more than 10% of each Fund's net
assets.
FOREIGN ISSUERS. Gold & Government Fund may purchase securities of foreign
issuers. Investments in foreign securities may involve a greater degree of risk
than investments in domestic securities due to exchange controls, less publicly
10
<PAGE>
available information, more volatile or less liquid securities markets, and the
possibility of expropriation, confiscatory taxation or political, economic or
social instability. Some foreign companies are not generally subject to the same
uniform accounting, auditing and financial reporting requirements as domestic
companies, and foreign regulation of stock exchanges, brokers and securities may
differ considerably from domestic regulation thereof. Additionally, 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 net investment income and gains, if any, to be
distributed to shareholders by the Fund. Securities transactions effected in
some foreign markets may not be settled promptly. Therefore, the Fund's
investments in these markets may be less liquid and subject to the risk of
fluctuating currency exchange rates pending settlement.
INVESTMENT RESTRICTIONS. Each Fund has adopted certain investment restrictions
which are detailed in the Statement of Additional Information, where they are
designated as fundamental or nonfundamental. The Funds' investment objectives
and fundamental restrictions may not be changed without shareholder approval.
All other investment policies and restrictions are nonfundamental and can be
changed by a vote of the Trustees without shareholder approval. Portfolio
turnover rates for recent years are shown in the section "The Funds' Financial
Highlights."
When choosing brokerage firms to carry out the Funds' transactions, the Adviser
gives primary consideration to execution at the most favorable prices, taking
into account the broker's professional ability and quality of service.
Consideration may also be given to the broker's sales of the Funds' shares.
Pursuant to procedures established by the Trustees, the Adviser may place
securities transactions with brokers affiliated with the Adviser. These brokers
include Tucker Anthony Incorporated, John Hancock Distributors, Inc. and Sutro &
Company Inc. They are indirectly owned by John Hancock Mutual Life Insurance
Company, (the "Life Company"), which in turn indirectly owns the Adviser.
-------------------------------------------------------------------------------
BROKERS ARE CHOSEN BASED ON
BEST PRICE AND EXECUTION.
-------------------------------------------------------------------------------
ORGANIZATION AND MANAGEMENT OF THE FUNDS
Each Fund is a diversified series of Freedom Investment Trust (the "Trust") an
open-end management investment company organized as a Massachusetts business
trust in 1984. The Trust reserves the right to create and issue a number of
series of shares, or funds or classes thereof, which are separately managed and
have different investment objectives. The Funds are not required to hold annual
shareholder meetings, although special meetings may be held for such purposes as
electing or removing Trustees, changing fundamental policies or approving a
management contract. Each Fund, under certain circumstances, will assist in
shareholder communications with other shareholders.
-------------------------------------------------------------------------------
THE TRUSTEES ELECT OFFICERS
AND RETAIN THE INVESTMENT
ADVISER WHO IS RESPONSIBLE
FOR THE DAY-TO-DAY
OPERATIONS OF THE FUNDS,
SUBJECT TO THE TRUSTEES'
POLICIES AND SUPERVISION.
-------------------------------------------------------------------------------
11
<PAGE>
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Funds,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds, Inc.
("John Hancock Funds") distributes shares for all of the John Hancock funds
directly and through selected broker-dealers ("Selling Brokers"). Freedom
Distributors Corporation, a co-distributor of the Funds, is, along with John
Hancock Funds, (together with John Hancock Funds, the "Distributors") an
indirect subsidiary of the Life Company. Certain Fund officers are also officers
of the Adviser and John Hancock Funds. Pursuant to an order granted by the
Securities and Exchange Commission, each Fund has adopted a deferred
compensation plan for its independent Trustees which allows Trustees' fees to be
invested by the Fund in other John Hancock funds.
-------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS,
INC. ADVISES INVESTMENT
COMPANIES HAVING A
TOTAL ASSET VALUE OF MORE
THAN $16 BILLION.
-------------------------------------------------------------------------------
Ann M. McDonley and Kevin R. Baker are co-portfolio managers of Gold &
Government Fund. Ms. McDonley joined the Adviser in 1992 as a fixed income
derivatives specialist. Prior to 1992, she was Vice President and Treasurer of
First Signature Bank & Trust Company, an indirect subsidiary of the Life
Company. Prior to joining the Adviser in 1994 Mr. Baker was President of Baker
Capital Management. He also worked as a registered representative for Kidder
Peabody.
James K. Schmidt is portfolio manager of Regional Bank Fund as well as two
closed-end funds, The Southeastern Thrift and Bank Fund, Inc. and John Hancock
Bank and Thrift Opportunity Fund. He has been portfolio manager of Regional Bank
Fund since its inception. He joined John Hancock in 1985.
In order to avoid conflicts with portfolio trades for the Funds, the Adviser and
each 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.
12
<PAGE>
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of each Fund at a price equal to their net asset value
per share plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge Alternative,"
Class A Shares) or on a contingent deferred basis (see "Contingent Deferred
Sales Charge Alternative," Class B Shares). If you do not specify on your
account application the class of shares you are purchasing, it will be assumed
that you are investing in Class A shares.
-------------------------------------------------------------------------------
AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO
CHOOSE THE METHOD OF PAYMENT THAT IS BEST
FOR YOU.
-------------------------------------------------------------------------------
CLASS A SHARES. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount you purchase is $1 million or more. If
you purchase $1 million or more of Class A shares, you will not be subject to an
initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.30% of a
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for a reduced initial sales charge. See
"Share Price -- Qualifying for a Reduced Sales Charge."
-------------------------------------------------------------------------------
INVESTMENTS IN CLASS A
SHARES ARE SUBJECT TO AN
INITIAL SALES CHARGE.
-------------------------------------------------------------------------------
CLASS B SHARES. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of a Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all your
dollars to work from the time you make your investment, but the higher ongoing
distribution fee will cause these shares to have higher expenses than Class A
shares. To the extent that any dividends are paid, these higher expenses will
also result in lower dividends than those paid on Class A shares.
-------------------------------------------------------------------------------
INVESTMENTS IN CLASS B
SHARES ARE SUBJECT TO A
CONTINGENT DEFERRED SALES
CHARGE.
-------------------------------------------------------------------------------
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.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider whether,
during the anticipated life of your Fund investment, the CDSC and accumulated
fees on Class B shares would be less than the initial sales charge and
accumulated fees on Class A shares purchased at the same time; and to what
extent this differential would be offset by the Class A shares' lower expenses.
To help you make this determination, the table under the caption "Expense
Information" on the inside cover page of this Prospectus shows examples of the
charges applicable to each class of shares. Class A shares will normally be more
beneficial if you qualify for reduced sales charges. See "Share
Price -- Qualifying for a Reduced Sales Charge."
-------------------------------------------------------------------------------
YOU SHOULD CONSIDER WHICH
CLASS OF SHARES WILL BE MORE
BENEFICIAL FOR YOU.
-------------------------------------------------------------------------------
13
<PAGE>
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent any
dividends are paid. However, because initial sales charges are deducted at the
time of purchase, you would not have all of your funds invested initially and,
therefore, would initially own fewer shares. If you do not qualify for reduced
initial sales charges and expect to maintain your investment for an extended
period of time, you might consider purchasing Class A shares. This is because
the accumulated distribution and service charges on Class B shares may exceed
the initial sales charge and accumulated distribution and service charges on
Class A shares during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution charges and, for a six-year period, a CDSC.
In the case of Class A shares, the distribution expenses that John Hancock Funds
incurs in connection with the sale of the shares will be paid from the proceeds
of the initial sales charge and the ongoing distribution and service fees. In
the case of Class B shares, the expenses will be paid from the proceeds of the
ongoing distribution and service fees, as well as from the CDSC incurred upon
redemption within six years of purchase. The purpose and function of the CDSC
and ongoing distribution and service fees are the same as those of the Class A
shares' initial sales charge and ongoing distribution and service fees.
Dividends, if any, on Class A and Class B shares will be calculated in the same
manner, at the same time and on the same day. They will also be in the same
amount except for differences resulting from each class bearing only its own
distribution and service fees and shareholder meeting expenses. See "Dividends
and Taxes."
THE FUNDS' EXPENSES
For managing its investment and business affairs, each Fund pays a monthly fee
to the Adviser based upon the average daily net asset value of such Fund at the
annual rate of 0.80% of each respective Fund's first $500 million of average
daily net assets and 0.75% of average daily net assets in excess of $500
million. For the 1995 fiscal year the fee was 0.80% of Gold and Government
Fund's average daily net assets and 0.78% of Regional Bank's average net assets.
The Class A and Class B shareholders of each Fund have adopted distribution
plans (each a "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). Under these Plans, each Fund will pay distribution and
service fees at an aggregate annual rate of up to 0.30% of each Fund's Class A
shares' average daily net assets and at an aggregate annual rate of up to 1.00%
of each Fund's Class B shares' average daily net assets. In each case, up to
0.25% is for service expenses and the remaining amount is for distribution
expenses. The distribution fees will be used to reimburse the Distributors for
their distribution expenses, including but not limited to: (i) initial and
ongoing sales compensation to Selling Brokers and others (including affiliates
of the Distributors) engaged in
-------------------------------------------------------------------------------
THE FUNDS PAY
DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND
SALES RELATED SHAREHOLDER
SERVICING.
-------------------------------------------------------------------------------
14
<PAGE>
the sale of each Funds' shares; (ii) marketing,
promotional and overhead expenses incurred in connection with the distribution
of each Funds' shares; and (iii) with respect to Class B shares only, interest
expenses on unreimbursed distribution expenses. The service fees are paid the
Distributors to compensate Selling Brokers and others providing personal and
account maintenance services to shareholders.
In the event the Distributors are not fully reimbursed for payments they make or
expenses they incur under the Class A Plan, these expenses will not be carried
beyond one year from the date they were incurred. These unreimbursed expenses
under the Class B Plan will be carried forward together with interest on the
balance of these unreimbursed expenses.
For the fiscal year ended October 31, 1995, for Gold & Government Fund and
Regional Bank Fund, respectively, an aggregate of $17,354 and $41,492,867 of
distribution expenses or 0.06% and 5.9% of the average net assets of the Class B
shares was not reimbursed or recovered by the Distributors through the receipt
of deferred sales charges or 12b-1 fees in prior periods.
Information on each Fund's total expenses is in the Financial Highlights section
of this Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Funds generally declare and distribute dividends representing
all or substantially all net investment income. Each Fund may distribute net
short-term capital gains, if any, quarterly, and will distribute net long-term
capital gains, if any, at least annually.
Dividends are reinvested in additional shares of your class unless you elect the
option to receive cash. If you elect the cash option and the U.S. Postal Service
cannot deliver your checks, your election will be converted to the reinvestment
option. Because of the higher expenses associated with Class B shares, any
dividends on these shares will be lower than those on the Class A shares. See
"Share Price."
TAXATION. Dividends from the Funds' net investment income, certain net foreign
exchange gains and net short-term capital gains are taxable to you as ordinary
income and dividends from the Funds' net long-term capital gains are taxable as
long-term capital gain. These dividends are taxable whether received in cash or
reinvested in additional shares. Corporate shareholders may be entitled to take
a corporate dividends received deduction for dividends paid by the Funds
attributable to the dividends they receive from U.S. domestic corporations,
subject to certain restrictions in the Internal Revenue Code of 1986, as amended
(the "Code"). Certain dividends may be paid in January of a given year but may
be taxable as if you received them the previous December. The Funds will send
you a statement by January 31 showing the tax status of the dividends you
received for the prior year.
Each Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Code. As a regulated investment
15
<PAGE>
company, neither Fund will be subject to Federal income taxes on any net
investment income or net realized capital gains that are distributed to its
shareholders within the time period prescribed by the Code. When you redeem
(sell) or exchange shares, you may realize a taxable gain or loss.
Gold & Government Fund anticipates that it will be subject to foreign
withholding taxes or other foreign taxes on income (possibly including capital
gains) on certain foreign investments which will reduce the yield on those
investments. However, if more than 50% of the Fund's total assets at the close
of its taxable year consists of securities of foreign corporations and if the
Fund so elects, shareholders will include in their gross incomes their pro-rata
shares of qualified foreign taxes paid by the Fund and may be entitled subject
to certain conditions and limitations under the Code, to claim a Federal income
tax credit or deduction for their share of these taxes.
On the account application you must certify that your social security or other
taxpayer identification number you provide is correct and that you are not
subject to backup withholding of Federal income tax. If you do not provide this
information or are otherwise subject to this withholding, a Fund may be required
to withhold 31% of your dividends and the proceeds of redemptions or exchanges.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investments in and distributions from a Fund.
Non-U.S. shareholders and tax-exempt shareholders are subject to a different tax
treatment not described above. In many states, a portion of the Fund's dividends
that represents interest received by the Fund on direct U.S. Government
obligations may be exempt from tax. You should consult your tax adviser for
specific advice.
PERFORMANCE
Yield reflects a Fund's rate of income on portfolio investments as a percentage
of its share price. Yield is computed by annualizing the result of dividing the
net investment income per share over a 30 day period by the maximum offering
price per share on the last day of that period. Yield is also calculated
according to accounting methods that are standardized for all stock and bond
funds. Because yield accounting methods differ from the methods used for other
accounting purposes, a Fund's yield may not equal the income paid on your shares
or the income reported in the Fund's financial statements.
-------------------------------------------------------------------------------
THE FUNDS MAY ADVERTISE
THEIR YIELD AND TOTAL RETURN.
-------------------------------------------------------------------------------
A Fund's total return shows the overall dollar or percentage change in value, of
a hypothetical investment in a Fund, assuming the reinvestment of all dividends.
Cumulative total return shows a Fund's performance over a period of time.
Average annual total return shows the cumulative return of the respective class
of shares of a Fund divided over the number of years included in the period.
Because average annual total return tends to smooth out variations in a Fund's
performance, you should recognize that it is not the same as actual year-to-year
results.
Both total return and yield calculations for Class A shares generally include
the effect of paying the maximum sales charge (except as shown in the "The
Funds' Financial Highlights"). Investments at lower sales charges would result
in higher
16
<PAGE>
performance figures. Yield and total return for the Class B shares reflect
deduction of the applicable CDSC imposed on a redemption of shares held for the
applicable period (except as shown in "The Funds' Financial Highlights"). All
calculations assume that all dividends are reinvested at net asset value on the
reinvestment dates during the periods. Yield and total return of Class A and
Class B shares will be calculated separately and, because each class is subject
to certain different expenses, the yield and total return may differ with
respect to each class for the same period. The relative performance of the Class
A and Class B shares will be affected by a variety of factors, including the
higher operating expenses attributable to the Class B shares, whether the Fund's
investment performance is better in the earlier or later portions of the period
measured and the level of net assets of the classes during the period. Each Fund
will include the total return and yield of both classes in any advertisement or
promotional materials including Fund performance data. The value of a Fund's
shares, when redeemed, may be more or less than their original cost. Both yield
and total return are historical calculations and not an indication of future
performance. See "Factors to Consider in Choosing an Alternative."
17
<PAGE>
HOW TO BUY SHARES
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
-------------------------------------------------------------------------------
OPENING AN ACCOUNT.
-------------------------------------------------------------------------------
The minimum initial investment is $1,000 ($250 for group investments and
retirement plans).
Complete the Account Application attached to the Prospectus. Indicate whether you
are purchasing Class A or Class B shares. If you do not specify which class of
shares you are purchasing, Investor Services will assume that you are investing in
Class A shares.
---------------------------------------------------------------------------------
BY CHECK 1. Make your check payable to John Hancock Investor Services
Corporation.
2. Deliver the completed application and check to your registered
representative, Selling Broker or mail it directly to Investor
Services.
---------------------------------------------------------------------------------
BY WIRE 1. Obtain an account number by contacting your registered
representative, Selling Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: [NAME OF FUND]
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative, Selling Broker or mail it directly to Investor
Services.
---------------------------------------------------------------------------------
</TABLE>
-------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A
AND CLASS B SHARES.
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
1. Complete the "Automatic Investing" and "Bank Information"
sections on the Account Privileges Application designating
a bank account from which your funds may be drawn.
MONTHLY
AUTOMATIC 2. The amount you elect to invest will be withdrawn automatically
ACCUMULATION from your bank or credit union account.
PROGRAM
(MAAP)
</TABLE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
BY TELEPHONE 1. Complete the "Invest-by-Phone" and "Bank Information" sections
on the Account Privileges Application designating a bank
account from which your funds may be drawn. Note that in order
to invest by phone, your account must be in a bank or credit
union that is a member of the Automated Clearing House system
(ACH).
2. After your authorization form has been processed, you may
purchase additional Class A or Class B shares by calling
Investor Services toll-free at 1-800-225-5291.
3. Give the Investor Services representative the name(s) in which
your account is registered, the Fund name, the class of shares
you own, your account number, and the amount you wish to
invest.
4. Your investment normally will be credited to your account the
business day following your phone request.
---------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
BY CHECK 1. Either complete the detachable stub included on your account
statement or include a note with your investment listing the
name of the Fund, the class of shares you own, your account
number and the name(s) in which the account is registered.
</TABLE>
-------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A
AND CLASS B SHARES.
(CONTINUED)
-------------------------------------------------------------------------------
<TABLE>
<S> <C>
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling
Broker.
</TABLE>
<TABLE>
<S> <C>
---------------------------------------------------------------------------------
BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: [NAME OF FUND]
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
---------------------------------------------------------------------------------
Other Requirements. All purchases must be made in U.S. dollars. Checks written on
foreign banks will delay purchases until U.S. funds are received, and a collection
charge may be imposed. Shares of the Fund are priced at the offering price based
on the net asset value computed after John Hancock Funds receives notification of
the dollar equivalent from the Fund's custodian bank. Wire purchases normally take
two or more hours to complete and, to be accepted the same day, must be received
by 4:00 p.m., New York time. Your bank may charge a fee to wire funds. Telephone
transactions are recorded to verify information. Certificates are not issued
unless a request is made in writing to Investor Services.
---------------------------------------------------------------------------------
</TABLE>
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
-------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT
STATEMENTS THAT YOU SHOULD
KEEP TO HELP WITH YOUR
PERSONAL RECORDKEEPING.
-------------------------------------------------------------------------------
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ. Securities in the Funds'
portfolios are valued on the basis of market quotations, valuations provided by
independent pricing services or, at fair value as determined in good faith
according to procedures approved by the Trustees. Short-term debt investments
maturing within 60 days are valued at amortized cost which the Board of Trustees
has determined to approximate market value. Foreign securities are valued on the
basis of quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates. If quotations are not readily available, or the value have been
materially affected by events occurring after the closing of a foreign market,
assets are valued by a method that the Trustees believe accurately reflects fair
value. The NAV is calculated once daily as of the close of regular trading on
the New York Stock Exchange (generally at 4:00 p.m., New York time) on each day
that the Exchange is open.
-------------------------------------------------------------------------------
THE OFFERING PRICE OF YOUR
SHARES IS THEIR NET ASSET
VALUE PLUS A SALES CHARGE,
IF APPLICABLE, WHICH WILL
VARY WITH THE PURCHASE
ALTERNATIVE YOU CHOOSE.
-------------------------------------------------------------------------------
19
<PAGE>
Shares of the Funds are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Funds through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the New York
Stock Exchange and transmit it to John Hancock Funds before its close of
business to receive that day's offering price.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering price you pay
for Class A shares of each Fund equals the NAV plus a sales charge as follows.
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE REALLOWANCE TO
AS AS COMBINED SELLING BROKER
A PERCENTAGE A PERCENTAGE REALLOWANCE AS A PERCENTAGE
AMOUNT INVESTED OF OF AND SERVICE FEE AS OF
(INCLUDING SALES OFFERING THE AMOUNT A PERCENTAGE OF OFFERING
CHARGE) PRICE INVESTED OFFERING PRICE(+) PRICE(*)
------------------- ------------- ------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to
$249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to
$499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to
$999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
</TABLE>
---------------
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. A Selling Broker to whom substantially the entire sales charge is
reallowed or who receives these incentives may be deemed to be an
underwriter under the Securities Act of 1933.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within one year of purchase.
(***) John Hancock Funds may pay a commission and first year's service fee (as
described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of Class A shares of $1 million or more in the
aggregate as follows: 1% on sales to $4,999,999, 0.50% on the next $5
million and 0.25% on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance, in an amount equal to 0.25% of the net
assets invested in the Fund. Thereafter, it pays the service fee
periodically in arrears in an amount up to 0.25% of the average annual net
assets of the Fund. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
Class A shares of either Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual rate
of up to 0.05% of the daily net assets of accounts attributable to such brokers.
Under certain circumstances as described below, investors in Class A shares may
be entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge."
CONTINGENT DEFERRED SALES CHARGE ON CLASS A SHARES -- INVESTMENTS OF $1 MILLION
OR MORE IN CLASS A SHARES. Purchases of $1 million or more of Class A shares
will be made at net asset value with no initial sales charge, but if the shares
are redeemed within 12 months after the end of the calendar month in
20
<PAGE>
which the purchase was made (the CDSC period), a CDSC will be imposed. The rate
of the CDSC will depend on the amount invested as follows:
<TABLE>
<CAPTION>
AMOUNT INVESTED CDSC RATE
-------------------------------------------------------------- ---------
<S> <C>
$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%
</TABLE>
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994 and participant directed defined
contribution plans with at least 100 eligible employees at the inception of the
Fund account, may purchase Class A shares with no initial sales charge. However,
if the shares are redeemed within 12 months after the end of the calendar year
in which the purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares. Accordingly,
no CDSC will be imposed on increases in account value above the initial purchase
price, including any dividends which have been reinvested in additional Class A
shares.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
Therefore, it will be assumed that the redemption is first made from any shares
in your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver of Contingent Deferred Sales
Charge" below.
QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $50,000 in Class
A shares of the Funds or combination of John Hancock funds (except money market
funds), you may qualify for a reduced sales charge on your investments in Class
A shares through a LETTER OF INTENTION. You may also be able to use the
ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE to take advantage of the value
of your previous investments in shares of the John Hancock funds in meeting the
breakpoints for a reduced sales charge. For the ACCUMULATION PRIVILEGE and
COMBINATION PRIVILEGE, the applicable sales charge will be based on the total
of:
-------------------------------------------------------------------------------
YOU MAY QUALIFY FOR A
REDUCED SALES CHARGE ON
YOUR INVESTMENT IN
CLASS A SHARES.
-------------------------------------------------------------------------------
1. Your current purchase of Class A shares of the applicable Fund;
2. The net asset value (at the close of business on the previous day) of (a) all
Class A shares of that Fund you hold, and (b) all Class A shares of any other
John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
EXAMPLE:
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000 and, subsequently, invest $30,000 in Class A shares of either Fund, the
sales charge on this subsequent investment would be 4.50% and not 5.00%. This
21
<PAGE>
is the rate that would otherwise be applicable to investments of less than
$50,000. See "Initial Sales Charge Alternative -- Class A Shares."
If you are in one of the following categories, you may purchase Class A shares
of the Funds without paying a sales charge:
- 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 of any of the foregoing; or any
Fund, pension, profit sharing or other benefit plan for the individuals
described above.
-------------------------------------------------------------------------------
CLASS A SHARES MAY BE
AVAILABLE WITHOUT A
SALES CHARGE TO
CERTAIN INDIVIDUALS
AND ORGANIZATIONS.
-------------------------------------------------------------------------------
- Any state, county, city 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.*
- 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 broker, dealer, financial planner, consultant or registered investment
adviser that has entered into an agreement with John Hancock Funds providing
specifically for the use of Fund shares in fee-based investment products or
services made available to their clients.
- 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.*
---------------
* For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Funds may also be purchased without an initial sales
charge in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding companies.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares
are offered at net asset value per share without an initial sales charge so that
your entire investment will go to work at the time of purchase. However, Class B
shares redeemed within six years of purchase will be subject to a CDSC at the
rates set forth below. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the shares
being redeemed. Accordingly, you will not be assessed a CDSC on increases in
account value above the initial purchase price, including shares derived from
dividend reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
reinvestment of dividends, and next from the shares you have held the longest
during the six-year period. The CDSC is waived on redemptions in certain
22
<PAGE>
circumstances. See the discussion "Waiver of Contingent Deferred Sales Charges"
below.
EXAMPLE:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time, your CDSC will be calculated as follows:
<TABLE>
<S> <C>
- Proceeds of 50 shares redeemed at $12 per share $ 600
- Minus proceeds of 10 shares not subject to CDSC because they were
acquired through dividend reinvestment (10 x $12) -120
- Minus appreciation on remaining shares, also not subject to CDSC (40 x
$2) -80
------
- Amount subject to CDSC $ 400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
them to defray its expenses related to providing the Funds with distribution
services in connection with the sale of the Class B shares, such as compensating
Selling Brokers for selling these shares. The combination of the CDSC and the
distribution and service fees makes it possible for the Funds to sell Class B
shares without an initial sales charge.
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchase your Class B shares until the time you redeemed them.
Solely for purposes of determining this holding period, any payments you make
during the month will be aggregated and deemed to have been made on the last day
of the month.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED SALES
CHARGE AS A
YEAR IN WHICH CLASS B SHARES PERCENTAGE
REDEEMED FOLLOWING PURCHASE OF AMOUNT REDEEMED
------------------------------------------------------------ ------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision of
personal and account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid in arrears.
If you purchased Class B shares during 1992 or 1993, the applicable CDSC as a
percentage of the amount redeemed will be: 4% for redemptions during the first
year after purchase, 3.5% for redemptions during the second year, 3% for
redemptions during the third year, 2.5% for redemptions during the fourth year,
2% for redemptions during the fifth year, 1% for redemptions during the sixth
year, and
23
<PAGE>
no CDSC for redemptions during the seventh year and thereafter. If you purchased
Class B shares before 1992, the applicable CDSC as a percentage of the amount
redeemed will be: 1% for redemptions during the third, fourth and fifth year
after purchase and no CDSC for redemptions during the sixth year and thereafter.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC
unless indicated otherwise, in the circumstances defined below:
- Redemptions of Class B shares made under a Systematic Withdrawal Plan (see
"How to Redeem Shares"), as long as your annual redemptions do not exceed 10%
of your account value at the time you established your Systematic Withdrawal
Plan and 10% of the value of subsequent investments (less redemptions) in that
account at the time you notify Investor Services. This waiver does not apply
to Systematic Withdrawal Plan redemptions of Class A shares that are subject
to a CDSC.
-------------------------------------------------------------------------------
UNDER CERTAIN
CIRCUMSTANCES, THE CDSC ON
CLASS B AND CLASS A SHARE
REDEMPTIONS WILL BE WAIVED.
-------------------------------------------------------------------------------
- Redemptions made to effect distributions from an Individual Retirement Account
either before or after age 59 1/2, as long as the distributions are based on
your life expectancy or the joint-and-last survivor life expectancy of you and
your beneficiary. These distributions must be free from penalty under the
Code.
- Redemptions made to effect mandatory distributions under the Code after age
70 1/2 from a tax-deferred retirement plan.
- Redemptions made to effect distributions to participants or beneficiaries from
certain employer-sponsored retirement plans including those qualified under
section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the
Code and deferred compensation plans under Section 457 of the Code. The waiver
also applies to certain returns of excess contributions made to these plans.
In all cases, the distributions must be free from penalty under the Code.
- Redemptions due to death or disability.
- Redemptions made under the Reinvestment Privilege, as described in "Additional
Services and Programs" of this Prospectus.
- Redemptions made pursuant to a Fund's right to liquidate your account if you
own fewer than 50 shares.
- Redemptions made in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
- Redemptions from certain IRA and retirement plans which purchased shares prior
to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of
reinvested dividends on those shares will be converted into Class A shares
24
<PAGE>
automatically. This will occur no later than the month following eight years
after the shares were purchased, and will result in lower annual distribution
fees. If you exchanged Class B shares into either Fund from another John Hancock
fund, the calculation will be based on the time you purchased the shares in the
original fund. The Funds have been advised that the conversion of Class B shares
to Class A shares of the Fund should not be taxable for Federal income tax
purposes and should not change your tax basis or holding period for the
converted shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. A Fund
may hold payment until reasonably satisfied that investments recently made by
check or Invest-by-Phone have been collected (which may take up to 10 calendar
days).
Once your shares are redeemed, a Fund generally sends you payment on the next
business day. When you redeem your shares, you may realize a taxable gain or
loss, depending usually on the difference between what you paid for them and
what you receive for them, subject to certain tax rules. Under unusual
circumstances, a Fund may suspend redemptions or postpone payment for up to
three business days or longer, as permitted by Federal securities laws.
25
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
BY TELEPHONE All Fund shareholders are eligible automatically for the
telephone redemption privilege. Call 1-800-225-5291, from
8:00 A.M. to 4:00 P.M. (New York time), Monday through
Friday, excluding days on which the New York Stock Exchange
is closed. Investor Services employs the following
procedures to confirm that instructions received by
telephone are genuine. Your name, the account number,
taxpayer identification number applicable to the account
and other relevant information may be requested. In
addition, telephone instructions are recorded.
You may redeem up to $100,000 by telephone, but the address
on the account must not have changed for the last 30 days.
A check will be mailed to the exact name(s) and address
shown on the account.
</TABLE>
-------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF
YOUR REDEMPTION REQUEST,
PLEASE FOLLOW THESE
PROCEDURES.
<TABLE>
<S> <C>
-------------------------------------------------------------------------------
If reasonable procedures, such as those described above,
are not followed, the Funds may be liable for any loss due
to unauthorized or fraudulent telephone instructions. In
all other cases, neither the Funds nor Investor Services
will be liable for any loss or expense for acting upon
telephone instructions made according to the telephone
transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of a Fund that are
in certificated form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During these times you
should consider placing redemption requests in writing or
use EASI-Line. EASI-Line's telephone number is
1-800-338-8080.
---------------------------------------------------------------------------------
BY WIRE If you have a telephone redemption form on file with a
Fund, redemption proceeds of $1,000 or more can be wired on
the next business day to your designated bank account and a
fee (currently $4.00) will be deducted. You may also use
electronic funds transfer to your assigned bank account and
the funds are usually collectible after two business days.
Your bank may or may not charge a fee for this service.
Redemptions of less than $1,000 will be sent by check or
electronic funds transfer.
This feature may be elected by completing the "Telephone
Redemption" section on the Account Privileges Application
that is included with this Prospectus.
---------------------------------------------------------------------------------
IN WRITING Send a stock power or "letter of instruction" specifying
the name of the Fund, the dollar amount or the number of
shares to be redeemed, your name, class of shares, your
account number, and the additional requirements listed
below that apply to your particular account.
---------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
TYPE OF REGISTRATION REQUIREMENTS
---------------- -----------
Individual, Joint Tenants, Sole A letter of instruction signed (with titles
Proprietorship, Custodial where applicable) by all persons authorized
(Uniform Gifts or Transfer to to sign for the account, exactly as it is
Minors Act), General Partners registered with the signature(s) guaranteed
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized
to act on the account with the signature(s)
guaranteed
Trusts A letter of instruction signed by the
Trustee(s) with the signature guaranteed.
(If the Trustee's name is not registered on
your account, also provide a copy of the
trust document, certified within the last 60
days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
---------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
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A signature guarantee is a widely accepted way to protect you and the
Funds by verifying the signature on your request. It may not be provided
by a notary public. If the net asset value of the shares redeemed is
$100,000 or less, John Hancock Funds may guarantee the signature. The
following institutions may provide you with a signature guarantee,
provided that the institution meets credit standards established by
Investor Services: (i) a bank; (ii) a securities broker or dealer,
including a government or municipal securities broker or dealer, that is
a member of a clearing corporation or meets certain net capital
requirements; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association;
or (v) a national securities exchange, a registered securities exchange
or a clearing agency.
-------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR
SIGNATURE.
-------------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
-------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your
stock power or a letter of instruction. Unless you specify to the
contrary, any outstanding Class A shares will be redeemed before Class B
shares. You may not redeem certificated shares by telephone.
-------------------------------------------------------------------------------
ADDITIONAL INFORMATION
ABOUT REDEMPTIONS.
-------------------------------------------------------------------------------
Due to the proportionately high cost of maintaining smaller accounts, the
Fund reserves the right to redeem at net asset value all shares in an
account which holds fewer than 50 shares (except accounts under
retirement plans) and to mail the proceeds to the shareholder or the
transfer agent may impose an annual fee of $10.00. No account will be
involuntarily redeemed or additional fee imposed, if the value of the
account is in excess of the Fund's minimum investment. No CDSC will be
imposed on involuntary redemption of shares. Shareholders will be
notified before these redemptions are to be made or this fee is imposed
and will have 30 days to purchase additional shares to bring their
account balance up to the required minimum. Unless the number of shares
acquired by additional purchases and any dividend reinvestments exceeds
the number of shares redeemed, repeated redemptions from a smaller
account may eventually trigger this policy.
-----------------------------------------------------------------------------
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock funds that interest you. Read the prospectus
carefully before exchanging your shares. You can exchange shares of each class
of a Fund only for shares of the same class of another John Hancock fund. For
this purpose, John Hancock funds with only one class of shares will be treated
as Class A whether or not they have been so designated.
-------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF
EITHER FUNDS FOR SHARES OF
THE SAME CLASS OF ANOTHER
JOHN HANCOCK FUND.
-------------------------------------------------------------------------------
Exchanges between funds which are not subject to a CDSC are based on their
respective net asset values. No sales charge or transaction charge is imposed.
Class B shares of either Fund that are subject to a CDSC may be exchanged into
Class B shares of another John Hancock fund without incurring the CDSC; however,
these shares will be subject to the CDSC schedule of the shares acquired (except
that exchanges into John Hancock Short-Term Strategic Income Fund, John Hancock
Intermediate Maturity Government Fund and John Hancock Limited-Term Government
Fund will be subject to the initial fund's CDSC). For purposes of computing the
CDSC payable upon redemption of shares acquired in an exchange, the holding
period of the original shares is added to the holding period of the shares
acquired in an exchange. However, if you exchange Class B shares purchased prior
to January 1, 1994 for Class B shares of any other John Hancock fund, you will
continue to be subject to the CDSC schedule in effect on your initial purchase
date.
27
<PAGE>
Each Fund reserves the right to require you to keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted a
new exchange. The Funds may also terminate or alter the terms of the exchange
privilege to shareholders upon 60 days' notice.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal income tax purposes. An exchange may
result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their client's Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, each
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt each
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely. The
Funds may also temporarily or permanently terminate the exchange privilege for
any person who makes seven or more exchanges out of a Fund per calendar year.
Accounts under common control or ownership will be aggregated for this purpose.
Although the Funds will attempt to give prior notice whenever it is reasonably
able to do so, they may impose these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you authorize exchanges automatically by telephone unless you check the box
indicating that you do not wish to authorize the telephone exchange
privilege.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
28
<PAGE>
IN WRITING
1. In a letter request an exchange and list the following:
-- the name and class of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or dollar amount
you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares that you reinvest
in a John Hancock fund that is otherwise subject to a sales charge, as long
as you reinvest within 120 days from the redemption date. If you paid a CDSC
upon a redemption, you may reinvest at net asset value in the same class of
shares from which you redeemed within 120 days. Your account will be credited
with the amount of the CDSC previously charged, and the reinvested shares
will continue to be subject to a CDSC. The holding period of the shares
acquired through reinvestment for purposes of computing the CDSC payable upon
a subsequent redemption will include the holding period of the redeemed
shares.
-------------------------------------------------------------------------------
IF YOU REDEEM SHARES OF EITHER FUND, YOU
MAY BE ABLE TO REINVEST ALL OR PART OF THE
PROCEEDS IN SHARES OF THAT FUND OR ANOTHER
JOHN HANCOCK FUND WITHOUT PAYING AN
ADDITIONAL SALES CHARGE.
-------------------------------------------------------------------------------
2. Any portion of the redemption may be reinvested in Fund shares or in shares
of any of the other John Hancock funds, subject to the minimum investment
limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the
Fund(s) name, the account number and class from which your shares were
originally redeemed.
SYSTEMATIC WITHDRAWAL PLAN
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You can
also obtain the Application from your registered representative or by calling
1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually or
on a selected monthly basis to yourself or any other designated payee.
-------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS
FROM YOUR ACCOUNT, OR MAKE
PERIODIC DISBURSEMENTS FROM
YOUR RETIREMENT ACCOUNT
TO COMPLY WITH IRS
REGULATIONS.
-------------------------------------------------------------------------------
4. There is no limit on the number of payees you may authorize, but all payments
must be made at the same time or intervals.
29
<PAGE>
5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently
with purchases of additional Class A or Class B shares because you may be
subject to initial sales charges on purchases of Class A shares or to a CDSC
on your redemptions of Class B shares. In addition, your redemptions are
taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks, or if deposits to a bank account are returned for any reason.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
1. You can authorize an investment to be withdrawn automatically each month on
your bank, for investment in Fund shares, under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
-------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC
INVESTMENTS AND SIMPLIFY
YOUR INVESTING.
-------------------------------------------------------------------------------
2. You can also authorize automatic investing through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program at any time.
4. There is no charge to you for this program, and there is no cost to the
Funds.
5. If you have payments withdrawn from a bank account and we are notified that
the account has been closed, withdrawals will be discontinued.
GROUP INVESTMENT PROGRAM
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for this
program, contact your registered representative or call 1-800-225-5291.
-------------------------------------------------------------------------------
ORGANIZED GROUPS OF AT
LEAST FOUR PERSONS MAY
ESTABLISH ACCOUNTS.
-------------------------------------------------------------------------------
2. The initial aggregate investment of all participants in the group must be at
least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at any
time.
RETIREMENT PLANS
1. You may use either Fund for various types of qualified retirement plans,
including Individual Retirement Accounts, Keogh plans (H.R.10), pension and
profit sharing plans (including 401(k) plans), Tax Sheltered Annuity
retirement plans (403(b) plans), and Section 457 plans.
2. The initial investment minimum or aggregate minimum for any of these plans is
$250. However, accounts being established as group IRA, SEP, SARSEP, TSA,
401(k) and Section 457 plans will be accepted without an initial minimum
investment.
30
<PAGE>
(NOTES)
<PAGE>
JOHN HANCOCK GOLD
& GOVERNMENT FUND
JOHN HANCOCK
REGIONAL BANK FUND
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITOR
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For: Service Information
Telephone Exchange call 1-800-225-5291
Invest-by-Phone
Telephone Redemption
For: TDD call 1-800-554-6713
JHD-0104P 3/96 [RECYCLE LOGO]
Printed on Recycled Paper
JOHN HANCOCK GOLD
& GOVERNMENT FUND
A MUTUAL FUND SEEKING TO
ACHIEVE CAPITAL APPRECIATION
AND PRESERVATION OF THE
PURCHASING POWER OF THE
INVESTOR'S CAPITAL.
JOHN HANCOCK REGIONAL
BANK FUND
A MUTUAL FUND SEEKING TO
ACHIEVE CAPITAL APPRECIATION
FROM A PORTFOLIO OF EQUITY
SECURITIES OF REGIONAL BANKS
AND LENDING INSTITUTIONS.
CLASS A AND CLASS B SHARES
PROSPECTUS
MARCH 1, 1996
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
TELEPHONE 1-800-225-5291
