Registration No. 33-4559
Registration No. 811-4630
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 30 [x]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 31
(Check appropriate box or boxes.)
Freedom Investment Trust II
(Exact Name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code
(617) 375-1700
THOMAS H. DROHAN
Senior Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[ ] On (date) pursuant to paragraph (b)
[x] 75 days after filing pursuant to paragraph (a)
[ ] On (date) pursuant to paragraph (a) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite number of shares under the Securities Act of 1933.
The Registrant filed the notice required by Rule 24f-2 for its most recent
fiscal year on or about December 26, 1995.
<PAGE>
<TABLE>
<CAPTION>
Item Number Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
------ ------------------ -------------------
<S> <C> <C>
1 Front Cover Page *
2 Overview; Investor Expenses; *
3 Financial Highlights *
4 Overview; Goal and Strategy; Portfolio *
Securities; Risk Factors; Business
Structure; More About Risk
5 Overview; Business Structure; *
Manager/Subadviser; Investor Expenses
6 Choosing a Share Class; Buying Shares; *
Selling Shares; Transaction Policies;
Dividends and Account Policies;
Additional Investor Services
7 Choosing a Share Class; How Sales Charges *
are Calculated; Sales Charge Deductions
and Waivers; Opening an Account; Buying
Shares; Transaction Policies; Additional
Investor Services
8 Selling Shares; Transaction Policies; *
Dividends and Account Policies
9 Not Applicable *
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
13 * Investment Objectives and Policies;
Certain Investment Practices;
Investment Restrictions
14 * Those Responsible for Management
15 * Those Responsible for Management
16 * Investment Advisory; Subadvisory
and Other Services; Distribution
Contract; Transfer Agent Services;
Custody of Portfolio; Independent
Auditors
17 * Brokerage Allocation
18 * Description of Fund's Shares
19 * Net Asset Value; Additional
Services and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of Performance
23 * Financial Statements
</TABLE>
<PAGE>
JOHN HANCOCK
GROWTH
FUNDS
[LOGO]
- -------------------------------------------------------------------------------
PROSPECTUS DISCIPLINED GROWTH FUND
JULY 1, 1996
DISCOVERY FUND
This prospectus gives vital information
about these funds. For your own benefit EMERGING GROWTH FUND
and protection, please read it before
you invest, and keep it on hand for GROWTH FUND
future reference.
REGIONAL BANK FUND
Please note that these funds:
* are not bank deposits SPECIAL EQUITIES FUND
* are not federally insured
* are not endorsed by any bank or SPECIAL OPPORTUNITIES FUND
government agency
* are not guaranteed to achieve
their goal(s)
Like all mutual fund shares, these
securities have not been approved
or disapproved by the Securities
and Exchange Commission or any
state securities commission, nor has
the Securities and Exchange
Commission or any state securities
commission passed upon the accuracy
or adequacy of this prospectus.
Any representation to the contrary [LOGO] JOHN HANCOCK FUNDS
is a criminal offense. A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avanue,
Boston, Massachusetts 02199-7603
<PAGE>
<TABLE>
CONTENTS
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<S> <C> <C>
A fund-by-fund look at goals, DISCIPLINED GROWTH FUND 4
strategies, risks, expenses and
financial history. DISCOVERY FUND 6
EMERGING GROWTH FUND 8
GROWTH FUND 10
REGIONAL BANK FUND 12
SPECIAL EQUITIES FUND 14
SPECIAL OPPORTUNITIES FUND 16
Policies and instructions for opening, YOUR ACCOUNT
maintaining and closing an account Choosing a share class 18
in any growth fund. How sales charges are calculated 18
Sales charge reductions and waivers 19
Opening an account 19
Buying shares 20
Selling shares 21
Transaction policies 22
Dividends and account policies 23
Additional investor services 24
Details that apply to the growth FUND DETAILS
funds as a group. Business structure 25
Sales compensation 26
More about risk 27
Higher risk securities and
practices 29
FOR MORE INFORMATION BACK COVER
</TABLE>
<PAGE>
OVERVIEW
- --------------------------------------------------------------------------------
GOAL OF THE GROWTH FUNDS
John Hancock growth funds seek long-term growth by investing primarily in common
stocks. Each fund employs its own strategy and has its own risk/reward profile.
Because you could lose money by investing in these funds, be sure to read all
risk disclosure carefully before investing.
WHO MAY WANT TO INVEST
John Hancock growth funds may be appropriate for:
- - investors with longer time horizons
- - investors willing to accept higher short-term risk in exchange for higher
potential long-term returns
- - investors who want to diversify their portfolios
- - investors seeking funds for the growth portion of an asset allocation
portfolio
- - retirement investors or others whose goals are many years in the future
Growth funds may NOT be appropriate if you:
- - are investing with a shorter time horizon in mind
- - are uncomfortable with an investment that will go up and down in value
PORTFOLIO MANAGEMENT
All John Hancock growth funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Mutual Life Insurance Company and manages more than $16 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[A graphic image of a bullseye with an arrow in the middle of it.] GOAL AND
STRATEGY The fund's particular investment goals and the strategies it intends
to use in pursuing those goals.
[A graphic image of a black folder that contains a couple sheets of paper.]
PORTFOLIO SECURITIES The primary types of securities in which the fund invests.
Secondary investments are described in "More about risk" at the end of the
prospectus.
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] RISK FACTORS The major risk factors associated with the fund.
[A graphic image of a generic person.] PORTFOLIO MANAGER The individual or
group (including subadvisers, if any) designated by the investment adviser to
handle the fund's day-to-day management.
[A graphic image of a percent symbol.] EXPENSES The overall costs borne by an
investor in the fund, including sales charges and annual expenses.
[A graphic image of a dollar sign.] FINANCIAL HIGHLIGHTS A table showing the
fund's financial performance for up to ten years, by share class. There is also
a bar graph of year-by-year total return which is intended to show the fund's
volatility in recent years.
<PAGE>
DISCIPLINED GROWTH FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME:FREEDOM INVESTMENT TRUST TICKER SYMBOL CLASS A:SVAAX CLASSB:FEQVX
- ----------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
established, growing companies that have demonstrated superior earnings growth
and stability. In normal circumstances the fund will invest at least 65% of its
assets in these companies, without concentration in any one industry. The fund
also looks for the following characteristics:
- - a low level of debt
- - seasoned management
- - a strong market position
The fund invests for income as a secondary goal.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in the common stocks of U.S. companies. It may also
invest in warrants, preferred stocks and investment-grade convertible debt
securities. The fund expects any foreign investments to remain below 10% of
assets. For liquidity and flexibility, the fund may place up to 15% of its net
assets in cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
To a limited extent, the fund also may invest in certain higher risk securities,
and may engage in other investment practices. For details, see "More about risk"
at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market and the success or failure of the
fund's investment strategies. To the extent that the fund invests in restricted
securities, foreign securities, and junk bonds, it takes on additional risks
which could adversely affect its performance.
PORTFOLIO MANAGERS
[A graphic image of a generic person.] Thomas Weary and John Snyder III,
leaders of the fund's portfolio management team, are responsible for the
day-to-day investment management of the fund. A vice president of the investment
adviser, Mr. Weary has been a part of the fund's management team since 1992. He
joined John Hancock in 1983. Mr. Snyder is an executive vice president of the
investment adviser and has been a team member since 1992. He has been an
investment manager since 1971.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic symbol of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.75% 0.75%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.40% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.45% 2.15%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $64 $94 $125 $215
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $72 $97 $135 $231
- --------------------------------------------------------------------------------
Assuming no redemption $22 $67 $115 $231
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
4 DISCIPLINED GROWTH FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<CAPTION>
==========================================================================================================
Class A - year ended October 31, 1992(1) 1993 1994 1995
==========================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.81 $10.99 $12.39 $12.02
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.06(2) 0.08(2) 0.10 0.08(2)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.06) 1.34 0.07 1.29
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 0.00 1.42 0.17 1.37
- ---------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.07) (0.02) (0.10) (0.10)
- ---------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold (1.74) -- (0.44) (0.52)
- ---------------------------------------------------------------------------------------------------------
Distributions from capital paid-in (0.01) -- -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions (1.82) (0.02) (0.54) (0.62)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.99 $12.39 $12.02 $12.77
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) 0.19(4) 12.97 1.35 12.21
- ---------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 1,771 23,372 23,292 27,692
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.73(5) 1.60 1.53 1.46
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets(%) 0.62(5) 0.64 0.83 0.69
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(%) 246 71 60 65
- ---------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================================================
Class B - year ended October 31, 1987(6) 1988 1989 1990 1991 1992 1993 1994 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 10.00 $ 8.34 $ 10.29 $ 11.52 $ 9.22 $ 11.71 $ 10.97 $ 12.31 $ 11.95
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.06 0.13 0.19 0.18 0.07 0.01(2) 0.02(2) 0.03 0.01(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.70) 2.05 1.25 (2.00) 2.67 1.05 1.33 0.07 1.28
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (1.64) 2.18 1.44 (1.82) 2.74 1.06 1.35 0.10 1.29
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment
income (0.02) (0.09) (0.12) (0.20) (0.20) (0.03) (0.01) (0.02) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold -- (0.14) (0.09) (0.28) (0.05) (1.76) -- (0.44) (0.52)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from capital
paid-in -- -- -- -- -- (0.01) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.02) (0.23) (0.21) (0.48) (0.25) (1.80) (0.01) (0.46) (0.55)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.34 $ 10.29 $ 11.52 $ 9.22 $ 11.71 $ 10.97 $ 12.31 $ 11.95 $ 12.69
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE(3) (%) (16.44)(4) 26.69 14.27 (16.46) 30.21 7.22 12.34 0.78 11.51
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 14,016 14,927 23,813 17,714 21,826 23,525 93,853 94,431 86,178
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 2.56(5,7) 2.61(7) 2.30 2.13 2.24 2.27 2.09 2.10 2.11
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 0.93(5,7) 1.46(7) 1.75 1.64 0.66 0.10 0.17 0.25 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 40(5) 54 94 165 217 246 71 60 65
- ---------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission
rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Class B shares commenced operations April 22, 1987.
(7) Net of advisory expense reimbursements per share of $0.01 for the fiscal
year ended October 31, 1988 and less than $.01 for the fiscal year ended
October 31, 1987.
</TABLE>
DISCIPLINED GROWTH FUND 5
<PAGE>
DISCOVERY FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST III TICKER SYMBOL CLASS A:FRDAX CLASS B:FRIDX
- -----------------------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
companies that appear to offer superior growth prospects. Under normal
circumstances, the fund will invest at least 65% of its assets in these
companies. The fund looks for companies that have broad market opportunities
and consistent or accelerating earnings growth. This may include companies that:
- - occupy a profitable market niche
- - have products or technologies that are new, unique or proprietary
- - are in an industry that has a favorable long-term growth outlook
- - have a capable management team with a significant equity stake
The fund does not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in common stocks of U.S. companies and may also
invest in warrants, preferred stocks and investment-grade convertible debt
securities.
For liquidity and flexibility, the fund may place up to 15% of its net assets in
cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The Fund may invest up to 25% of its assets in foreign securities, which carry
additional risks; however, foreign securities typically do not exceed 10% of its
assets. To a limited extent, the fund also may invest in certain higher-risk
securities, including foreign securities, and may engage in other investment
practices. For details, see "More about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart that depicts some peaks and valleys.] The
value of an investment in the fund will fluctuate with the performance of the
stock market. Small and medium-sized company stocks tend to be more volatile
than the market as a whole.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since March 1994, is a senior vice president of the
investment adviser. She joined the investment adviser in 1991 and has worked as
an investment professional since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.75% 0.75%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.80% 0.80%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.85% 2.55%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $68 $105 $145 $256
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $76 $109 $155 $271
- --------------------------------------------------------------------------------
Assuming no redemption $26 $ 79 $135 $271
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
6 DISCOVERY FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below for the period ended July
31, 1992, were audited by the fund's former independent auditors, Price
Waterhouse LLP. Figures for the subsequent years have been audited by the fund's
current independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
================================================================================
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED JULY 31, 1992(1) 1993 1994 1995 1996(2)
====================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.40 $ 8.95 $ 10.81 $ 8.56 $ 12.95
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) (0.05) (0.16) (0.16)(3) (0.17)(3) (0.10)(3)
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (0.40) 2.15 (0.43) 4.83 0.55
- ----------------------------------------------------------------------------------------------------
Total from investment operations (0.45) 1.99 (0.59) 4.66 0.45
- ----------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold -- (0.13) (1.66) (0.27) (0.13)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.95 $ 10.81 $ 8.56 $12.95 $ 13.27
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4)(%) (4.79)(5) 22.33 (6.45) 55.80 3.52(5)
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 3,866 4,692 3,266 5,075 6,583
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.78(6) 2.17 2.01 2.10 1.74(6)
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets(%) (1.20)(6) (1.61) (1.64) (1.73) (1.51)(6)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 138 148 108 118 73
- ----------------------------------------------------------------------------------------------------
Average brokerage commission rate(%) N/A N/A N/A N/A N/A
====================================================================================================
CLASS B - YEAR ENDED JULY 31, 1992(1) 1993 1994 1995 1996(2)
====================================================================================================
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.00 $ 8.87 $ 10.65 $ 8.34 $ 12.54
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) (0.11) (0.23) (0.22)(3) (0.22)(3) (0.14)(3)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.98 2.14 (0.43) 4.69 0.53
- ----------------------------------------------------------------------------------------------------
Total from investment operations 0.87 1.91 (0.65) 4.47 0.39
- ----------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold -- (0.13) (1.66) (0.27) (0.13)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.87 $ 10.65 $ 8.34 $ 12.54 $ 12.80
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 10.88(5) 21.63 (7.18) 54.97 3.15(5)
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 34,636 38,672 26,537 31,645 34,452
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.56(6) 2.86 2.62 2.70 2.43(6)
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets(%) (1.56)(6) (2.26) (2.24) (2.34) (2.20)(6)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(%) 138 148 108 118 73
- ----------------------------------------------------------------------------------------------------
Average brokerage commission rate(%) N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
(1) Class A and Class B shares commenced operations on January 3, 1992 and
August 30, 1991, respectively.
(2) Six months ended January 31, 1996 (unaudited).
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
</TABLE>
DISCOVERY FUND 7
<PAGE>
EMERGING GROWTH FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: JOHN HANCOCK SERIES, INC. TICKER SYMBOL CLASS A:TAEMX CLASS B:TSEGX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
emerging companies (market capitalization of less than $1 billion). In normal
circumstances the fund will invest at least 80% of its assets in a diversified
portfolio of these companies. The fund looks for companies that show rapid
growth but are not yet widely recognized. The fund also may invest in
established companies that, because of new management, products or
opportunities, offer the possibility of accelerating earnings. The fund does
not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in the common stocks of U.S. and foreign emerging
growth companies, although it may invest up to 20% of assets in other types of
companies. The fund may also invest in warrants, preferred stocks and
investment-grade convertible debt securities.
For liquidity and flexibility, the fund may place up to 20% in cash or in
short-term investment-grade securities; in abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. To a limited
extent, the fund also may invest in certain higher-risk securities, including
derivatives, and may engage in other investment practices. For details, see
"More about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market. Stocks of emerging growth companies
carry higher risks than stocks of larger companies. This is because emerging
growth companies:
- - may be in the early stages of development
- - may be dependent on a small number of products or services
- - may lack substantial capital reserves
- - do not have proven track records
In addition, stocks of emerging companies are often traded in low volumes, which
can increase market and liquidity risks.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since February 1996, is a senior vice president of
the investment adviser. She joined the investment adviser in 1991 and has
worked as an investment professional since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.75% 0.75%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.25% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.40% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.40% 2.15%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $64 $92 $123 $210
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $72 $97 $135 $229
- --------------------------------------------------------------------------------
Assuming no redemption $22 $67 $115 $229
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
8 EMERGING GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's current independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
====================================================================================================
<CAPTION>
CLASS A - YEAR ENDED OCTOBER 31, 1991(1) 1992 1993 1994 1995(2)
====================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.12 $ 19.26 $ 20.60 $ 25.89 $ 26.82
- ----------------------------------------------------------------------------------------------------
Net investment income (loss)(3) (0.03) (0.20) (0.16) (0.18) (0.25)
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1.17 1.60 5.45 1.11 9.52
- ----------------------------------------------------------------------------------------------------
Total from investment operations 1.14 1.40 5.29 0.93 9.27
- ----------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------
Distributions from net realized gain on
investments sold -- (0.06) -- -- --
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 19.26 $ 20.60 $ 25.89 $ 26.82 $ 36.09
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE(4) (%) 6.29 7.32 25.68 3.59 34.56
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 38,859 46,137 81,263 131,053 179,481
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 0.33 1.67 1.40 1.44 1.38
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (%) (0.15) (1.03) (0.70) (0.71) (0.83)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 66 48 29 25 23
- ----------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(5) 1988 1989 1990 1991 1992 1993 1994 1995(2)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.89 $ 7.89 $10.54 $ 12.76 $ 11.06 $ 19.22 $ 20.34 $ 25.33 $ 26.04
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(3) (0.0021) 0.09 (0.08) (0.22) (0.30) (0.38) (0.36) (0.36) (0.45)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 0.0021 2.56 2.83 (1.26) 8.46 1.56 5.35 1.07 9.20
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.0000 2.65 2.75 (1.48) 8.16 1.18 4.99 0.71 8.75
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income -- -- (0.04) -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on
investments sold -- -- (0.49) (0.22) -- (0.06) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions -- -- (0.53) (0.22) -- (0.06) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.89 $10.54 $12.76 $ 11.06 $ 19.22 $ 20.34 $ 25.33 $ 26.04 $ 34.79
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 0.00 33.59 27.40 (11.82) 73.78 6.19 24.53 2.80 33.60
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 79 3,232 7,877 11,668 52,743 86,923 219,484 283,435 393,478
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 0.44 5.64 3.51 3.11 2.85 2.64 2.28 2.19 2.11
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to
average net assets (%) (0.41) (2.59) (0.03) -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net expenses to
average net assets (%) 0.03 3.05 3.48 3.11 2.85 2.64 2.28 2.19 2.11
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (%) (0.03) 0.81 (0.67) (1.64) (1.83) (1.99) (1.58) (1.46) (1.55)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 0 252 90 82 66 48 29 25 23
- --------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
(1) Class A shares commenced operations on August 22, 1991. Financial
highlights, including total return, have not been annualized.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Class B shares commenced operations on October 26, 1987. Financial
highlights, including total return, have not been annualized.
</TABLE>
EMERGING GROWTH FUND 9
<PAGE>
GROWTH FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A:JHNGX CLASS B:JHGNX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
stocks that are diversified with regard to industries and issuers. The fund
favors stocks of companies whose operating earnings and revenues have grown more
than twice as fast as the Gross Domestic Product (GDP) over the past five years,
although not all stocks in the fund's portfolio will meet this criterion.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The portfolio invests primarily in the common stocks of U.S. companies. It may
also invest in warrants, preferred stocks and convertible debt securities.
For liquidity and flexibility, the fund may invest up to 35% of its net assets
in short-term investment-grade securities; in abnormal market conditions, it may
invest more than 35% in these securities as a defensive tactic. To a limited
extent, the fund may also invest in certain higher risk securities, and may
engage in other investment practices. For details, see "More about risk" at the
end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market and the success or failure of the
fund's investment strategies. To the extent that the fund invests in restricted
securities, foreign securities, and junk bonds, it takes on additional risks
which could adversely affect its performance.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since September 1995, is a senior vice president of
the investment adviser. She joined the investment adviser in 1991 and has worked
as an investment professional since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.80% 0.80%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.40% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.50% 2.20%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $95 $128 $220
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption
at end of period $72 $99 $138 $236
- --------------------------------------------------------------------------------
Assuming no redemption $22 $69 $118 $236
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
10 GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS A - YEAR ENDED DECEMBER 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.50 $ 14.03 $ 12.34 $ 13.33 $ 15.18 $ 12.93 $ 17.48 $ 17.32 $ 17.40 $ 15.89
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.11 0.22 0.23 0.28 0.16 0.04 (0.06) (0.11) (0.10) (0.09)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1.79 0.64 1.16 3.81 (1.47) 5.36 1.10 2.33 (1.21) 4.40
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.90 0.86 1.39 4.09 (1.31) 5.40 1.04 2.22 (1.31) 4.31
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.17) (0.28) (0.23) (0.29) (0.16) (0.04) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments sold (2.20) (2.27) (0.17) (1.95) (0.78) (0.81) (1.20) (2.14) (0.20) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.37) (2.55) (0.40) (2.24) (0.94) (0.85) (1.20) (2.14) (0.20) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.03 $12.34 $13.33 $ 15.18 $ 12.93 $ 17.48 $ 17.32 $ 17.40 $ 15.89 $ 19.51
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 13.83 6.03 11.23 30.96 (8.34) 41.68 6.06 13.03 (7.50) 27.17
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 87,468 86,426 101,497 105,014 102,416 145,287 153,057 162,937 146,466 241,700
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.03 1.00 1.06 0.96 1.46 1.44 1.60 1.56 1.65 1.48
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 0.77 1.41 1.76 1.73 1.12 0.27 (0.36) (0.67) (0.64) (0.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 62 68 47 61 102 82 71 68 52 68
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
===============================================================================
CLASS B - YEAR ENDED DECEMBER 31, 1994(2) 1995
===============================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------
Net asset value, beginning of period $17.16(3) $ 15.83(1)
- -------------------------------------------------------------------------------
Net investment income (loss) (0.20)(1) (0.26)
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.93) 4.37
- --------------------------------------------------------------------------------
Total from investment operations (1.13) 4.11
- --------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold (0.20) (0.69)
- --------------------------------------------------------------------------------
Net asset value, end of period $15.83 $ 19.25
- --------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) (6.56)(5) 26.01
- --------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 3,807 15,913
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.38(6) 2.31
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (%) (1.25)(6) (1.39)
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 52 68
- --------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A
(1) Based on the average of the shares outstanding at the end of each month.
(2) Class B shares commenced operations on January 3, 1994.
(3) Initial price at commencement of operations.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
</TABLE>
GROWTH FUND 11
<PAGE>
REGIONAL BANK FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST TICKER SYMBOL CLASS A:FRBAX CLASS B:FRBFX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
regional banks and lending institutions, including:
- - commercial and industrial banks
- - savings and loan associations
- - bank holding companies
These financial institutions provide full-service banking, have primarily
domestic assets, and are typically based outside of New York City and Chicago.
They may or may not be members of the Federal Reserve, and their deposits may or
may not be FDIC-insured. In normal circumstances the fund will invest at least
65% of its assets in these companies; it may invest up to 35% of assets in other
financial services companies, including lending companies and money center
banks. Because regional banks typically pay regular dividends, moderate income
is an investment goal.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in the common stocks of U.S. and foreign companies.
It may also invest in warrants, preferred stocks, and investment-grade
convertible debt securities.
For liquidity and flexibility, the fund may place up to 15% of its net assets in
cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
To a limited extent, the fund may also invest in certain higher risk securities,
including derivatives, and may engage in other investment practices. For
details, see "More about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate.
Because the fund concentrates in a single industry, its performance is largely
dependent on the industry's performance, which may differ in direction and
degree from that of the overall stock market. Falling interest rates or
deteriorating economic conditions can adversely affect the performance of bank
stocks, while rising interest rates will cause a decline in the value of any
debt securities the fund holds.
PORTFOLIO MANAGER
[A graphic image of a generic person.] James K. Schmidt joined John Hancock in
1985 and has served as the fund's portfolio manager since its inception that
year. A senior vice president of the investment adviser, he has worked as an
investment professional since 1974.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.78% 0.78%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.31% 0.31%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.39% 2.09%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $63 $92 $122 $209
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $71 $95 $132 $224
- --------------------------------------------------------------------------------
Assuming no redemption $21 $65 $112 $224
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
12 REGIONAL BANK FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
===================================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1992(1) 1993 1994 1995
===================================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.47 $ 17.47 $ 21.62 $ 21.52
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.21 0.26(2) 0.39(2) 0.52(2)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.98 5.84 0.91 5.92
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.19 6.10 1.30 6.44
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.19) (0.26) (0.34) (0.48)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold -- (1.69) (1.06) (0.34)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.19) (1.95) (1.40) (0.82)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.47 $ 21.62 $ 21.52 $ 27.14
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 31.26(4) 37.45 6.44 31.00
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 31,306 94,158 216,978 486,631
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.41(5) 1.35 1.34 1.39
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.64(5) 1.29 1.78 2.23
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 53 35 13 14
- -----------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(6) 1987(7) 1988 1989 1990 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.51 $ 12.68 $ 10.02 $ 11.89 $ 13.00 $ 8.13 $ 13.76 $ 17.44 $ 21.56 $ 21.43
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.20 0.05 0.16 0.20 0.30 0.29 0.18 0.15(2) 0.23(2) 0.36(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment 1.74 (2.17) 3.12 2.02 (4.19) 5.68 4.56 5.83 0.91 5.89
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.94 (2.12) 3.28 2.22 (3.89) 5.97 4.74 5.98 1.14 6.25
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.26) (0.04) (0.15) (0.16) (0.19) (0.34) (0.28) (0.17) (0.21) (0.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments sold (1.51) (0.50) (1.26) (0.95) (0.76) -- (0.78) (1.69) (1.06) (0.34)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from capital paid-in -- -- -- -- (0.03) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.77) (0.54) (1.41) (1.11) (0.98) (0.34) (1.06) (1.86) (1.27) (0.66)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.68 $ 10.02 $ 11.89 $ 13.00 $ 8.13 $ 13.76 $ 17.44 $ 21.56 $ 21.43 $ 27.02
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(3) (%) 17.44 (17.36)(4) 36.89 20.46 (32.29) 75.35 37.20 36.71 5.69 30.11
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted)($) 54,626 38,721 50,965 81,167 38,992 52,098 56,016 171,808 522,207 1,236,447
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.48 2.47(5) 2.17 1.99 1.99 2.04 1.96 1.88 2.06 2.09
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) 1.62 0.73(5) 1.50 1.67 2.51 2.65 1.21 0.76 1.07 1.53
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 89 58(5) 87 85 56 75 53 35 13 14
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Year ended March 31, 1987.
(7) For the period April 1, 1987 to October 31, 1987.
</TABLE>
REGIONAL BANK FUND 13
<PAGE>
SPECIAL EQUITIES FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: JOHN HANCOCK SPECIAL EQUITIES FUND TICKER SYMBOL CLASS A:JHNSX CLASS B:SPQBX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
small-capitalization companies and companies in situations offering unusual or
non-recurring opportunities. In normal circumstances the fund will invest at
least 65% of its assets in a diversified portfolio of these companies. The fund
looks for companies that dominate an emerging industry or hold a growing market
share in a fragmented industry, and that have demonstrated earnings and revenue
growth of at least 25%, self-financing capabilities and strong management. The
fund does not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in the common stocks of U.S. and foreign companies.
It may also invest in warrants, preferred stocks and investment-grade
convertible debt securities.
For liquidity and flexibility, the fund may place up to 35% of its net assets in
cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest more than 35% in these securities as a defensive
tactic. To a limited extent, the fund also may invest in certain higher risk
securities, and may engage in other investment practices. For details, see "More
about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market. Stocks of small-capitalization and
special-situation companies carry higher risks than stocks of larger companies.
This is because these companies:
- - may lack proven track records
- - may be dependent on a small number of products or services
- - may be undercapitalized
- - may have highly priced stocks which are sensitive to adverse news
In addition, stocks of these companies are often traded in low volumes, which
can increase market and liquidity risks.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Michael P. DiCarlo is responsible for the
fund's day-to-day investment management. He has served as the fund's portfolio
manager since 1988, and has worked as an investment professional since 1984. He
is currently one of three principals in DFS Advisors, LLC, which was founded in
1996 and serves as subadviser to the fund.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee(3) 0.82% 0.82%
- --------------------------------------------------------------------------------
12b-1 fee(4) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.38% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.50% 2.22%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $95 $128 $220
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $73 $99 $139 $237
- --------------------------------------------------------------------------------
Assuming no redemption $23 $69 $119 $237
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Includes a subadviser fee equal to 25% of the management fee.
(4) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
14 SPECIAL EQUITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited
by the fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.21 $ 6.08 $ 4.30 $ 4.89 $ 6.38 $ 4.97 $ 9.71 $ 10.99 $ 16.13 $ 16.11
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(1) (0.03) (0.03) 0.04 0.01 (0.12) (0.10) (0.19)(2) (0.20)(2) (0.21)(2) (0.18)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 0.93 (1.26) 0.55 1.53 (1.27) 4.84 2.14 5.43 0.19 6.22
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.90 (1.29) 0.59 1.54 (1.39) 4.74 1.95 5.23 (0.02) 6.04
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.02) -- -- (0.05) (0.02) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments sold (0.01) (0.45) -- -- -- -- (0.67) (0.09) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from capital paid-in -- (0.04) -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.03) (0.49) -- (0.05) (0.02) -- (0.67) (0.09) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.08 $ 4.30 $ 4.89 $ 6.38 $ 4.97 $ 9.71 $ 10.99 $ 16.13 $ 16.11 $ 22.15
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(1,3) (%) 17.38 (28.68) 13.72 31.82 (21.89) 95.37 20.25 47.83 (0.12) 37.49
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 13,780 10,637 11,714 12,285 8,166 19,713 44,665 296,793 310,625 555,655
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets(1) (%) 1.50 1.50 1.50 1.50 2.63 2.75 2.24 1.84 1.62 1.48
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets(1) (%) (0.57) (0.57) 0.82 0.47 (1.58) (2.12) (1.91) (1.49) (1.40) (0.97)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 64 93 91 115 113 163 114 33 66 82
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1993(4) 1994 1995
=========================================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.30 $ 16.08 $ 15.97
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.18)(2) (0.30)(2) (0.31)(2)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.96 0.19 6.15
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 3.78 (0.11) 5.84
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.08 $ 15.97 $ 21.81
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 30.73(5) (0.68) 36.57
- ---------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 158,281 191,979 454,934
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.34(6) 2.25 2.20
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) (2.03)(6) (2.02) (1.69)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 66 82
- ---------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A
(1) Reflects expense limitation in effect during the years ended October 31, 1986 through
1991 (see note B to the financial statements in the Statement of Additional Information).
As a result of such limitations, expenses of the Fund for the years ended October 31,
1986, 1987, 1988, 1989, 1990, and 1991 reflect reductions of $.09, $.04, $.07, $.03, $.02 and
$.002 respectively. Absent of such limitation, for the years ended October 31, 1986,
1987, 1988, 1989, 1990, and 1991, the ratio of net expenses would have been 3.47%, 2.23%,
2.94%, 2.57%, 2.95%, and 2.79% respectively, and the ratio of net investment income
(loss) to average net assets would have been (2.55%), (1.30%), (0.62%), (0.60%), (1.90%)
and (2.16%), respectively. Without the limitation, total investment return would be
lower.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Class B shares commenced operations on March 1, 1993.
(5) Not annualized.
(6) Annualized.
</TABLE>
SPECIAL EQUITIES FUND 15
<PAGE>
SPECIAL OPPORTUNITIES FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A:SPOAX CLASS B:SPOBX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
those economic sectors that appear to have a higher earning potential.
Under normal circumstances, at least 90% of the fund's equity securities will be
invested within five or fewer sectors (e.g. financial services, energy,
technology). Up to 25% may be invested in any one sector. The inclusion and
weighting of any sector is determined on the basis of macroeconomic factors as
well as the outlook for that sector. The fund may add or drop sectors. Because
the fund may invest more than 5% of its assets in a single issuer, it is
classified as a non-diversified fund.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in common stocks of U.S. and foreign companies of
any size. It may also invest in warrants, preferred stocks, convertible debt
securities, U.S. Government securities and corporate bonds rated at least
BBB/Baa, or equivalent.
To a limited extent, the fund also may invest in certain higher risk securities,
and may engage in other investment practices. For details, see "More about risk"
at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] By focusing on a relatively small number of industries or issuers,
the fund runs the risk that any factor influencing those industries or issuers
will have a major effect on performance. The fund may invest in companies with
smaller market capitalizations, which represent higher near-term risks than
larger capitalization companies. The fund's use of derivatives could expose it
to losses substantially in excess of the purchase or sale price of the
derivative. These factors make the fund likely to experience higher volatility
than most other types of growth funds.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Kevin R. Baker is leader of the portfolio
management for the fund. A second vice president of John Hancock Advisers, he
has been an active member of the fund's management team since joining the
investment adviser in 1994. He has worked as an investment professional since
1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.80% 0.80%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.49% 0.49%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.59% 2.29%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $ 98 $132 $229
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $73 $102 $143 $245
- --------------------------------------------------------------------------------
Assuming no redemption $23 $ 72 $123 $245
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
16 SPECIAL OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by
the fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
==================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1994(1) 1995
==================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.50 $ 7.93
- ----------------------------------------------------------------------------------
Net investment income (loss) (0.03)(2) (0.07)(2)
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.54) 1.46
- ----------------------------------------------------------------------------------
Total from investment operations (0.57) 1.39
- ----------------------------------------------------------------------------------
Net asset value, end of period $ 7.93 $ 9.32
- ----------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) (6.71)(3) 17.53
- ----------------------------------------------------------------------------------
Total adjusted investment return at
net asset value(5) (%) (6.83)(6) --
- ----------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 92,325 101,562
- ----------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.50 1.59
- ----------------------------------------------------------------------------------
Ratio of adjusted expenses to average
net assets(5) (%) 1.62 --
- ----------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (0.41) (0.87)
- ----------------------------------------------------------------------------------
Ratio of adjusted net investment loss
to average net assets(5) (%) (0.53) --
- ----------------------------------------------------------------------------------
Portfolio turnover rate (%) 57 155
- ----------------------------------------------------------------------------------
Expense reimbursement per share (%) 0.01(2) --
- ----------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A
==================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1994(1) 1995
==================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.50 $ 7.87
- ----------------------------------------------------------------------------------
Net investment income (loss) (0.09)(2) (0.13)(2)
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.54) 1.45
- ----------------------------------------------------------------------------------
Total from investment operations (0.63) 1.32
- ----------------------------------------------------------------------------------
Net asset value, end of period $ 7.87 $ 9.19
- ----------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) (7.41)(3) 16.77
- ----------------------------------------------------------------------------------
Total adjusted investment return at
net asset value(5) (%) (7.53)(6) --
- ----------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 131,983 137,363
- ----------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.22 2.30
- ----------------------------------------------------------------------------------
Ratio of adjusted expenses to average
net assets(5) (%) 2.34 --
- ----------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to
average net assets (%) (1.13) (1.55)
- ----------------------------------------------------------------------------------
Ratio of adjusted net investment loss to
average net assets(5) (%) (1.25) --
- ----------------------------------------------------------------------------------
Portfolio turnover rate (%) 57 155
- ----------------------------------------------------------------------------------
Expense reimbursement per share (%) 0.01(2) --
- ----------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A
(1) Class A and B shares commenced operations on November 1, 1993.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Without the reimbursement, total investment return would be lower.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Unreimbursed, without expense reduction.
(6) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the adviser during the periods shown.
</TABLE>
SPECIAL OPPORTUNITIES FUND 17
<PAGE>
YOUR ACCOUNT
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
<TABLE>
All John Hancock growth funds offer two classes of shares, Class A and Class B.
Each class has its own cost structure, allowing you to choose the one that best
meets your requirements. Your financial representative can help you decide.
<CAPTION>
================================================================================
CLASS A CLASS B
================================================================================
<S> <C>
- - Front-end sales charges, as - No front-end sales charge; all
described below. There are of your money goes to work for
several ways to reduce these you right away.
charges, also described below.
- Higher annual expenses than
- - Lower annual expenses than Class A shares.
Class B shares.
- A deferred sales charge on
shares you sell within six
years of purchase, as
described below.
- Automatic conversion to
Class A shares after eight
years, thus reducing
future annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
Special Equities Fund offers Class C shares, which have their own sales charge
and expense structure and are available to financial institutions only. Call
Investor Services or contact your financial representative for more information.
</TABLE>
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
<TABLE>
CLASS A Sales charges are as follows:
================================================================================
CLASS A SALES CHARGES
================================================================================
<CAPTION>
AS A % OF AS A % OF YOUR
YOUR INVESTMENTS OFFERING PRICE INVESTMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
Up to $49,999 5.00% 5.26%
- --------------------------------------------------------------------------------
$50,000 - $99,999 4.50% 4.71%
- --------------------------------------------------------------------------------
$100,000 - $249,999 3.50% 3.63%
- --------------------------------------------------------------------------------
$250,000 - $499,999 2.50% 2.56%
- --------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 2.04%
- --------------------------------------------------------------------------------
$1,000,000 and over See below
</TABLE>
<TABLE>
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no
front-end sales charge. However, there is a contingent deferred sales charge
(CDSC) on any shares sold within one year of purchase, as follows:
================================================================================
CDSC ON $1 MILLION+ INVESTMENT
================================================================================
<CAPTION>
YOUR INVESTMENT CDSC ON SHARES BEING SOLD
- --------------------------------------------------------------------------------
<S> <C>
First $1M - $4,999,999 1.00%
- --------------------------------------------------------------------------------
Next $1 - $5M above that 0.50%
- --------------------------------------------------------------------------------
Next $1M or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month.
</TABLE>
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
CLASS B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. There is no CDSC on
shares acquired through reinvestment of dividends. The CDSC is based on the
original purchase cost or the current market value of the shares being sold,
whichever is less. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
<TABLE>
================================================================================
CLASS B DEFERRED CHARGES
================================================================================
<CAPTION>
YEARS AFTER PURCHASE CDSC ON SHARES BEING SOLD
- --------------------------------------------------------------------------------
<S> <C>
1 year 5.0%
- --------------------------------------------------------------------------------
2 years 4.0%
- --------------------------------------------------------------------------------
3 or 4 years 3.0%
- --------------------------------------------------------------------------------
5 years 2.0%
- --------------------------------------------------------------------------------
6 years 1.0%
- --------------------------------------------------------------------------------
7 or more years None
- --------------------------------------------------------------------------------
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
</TABLE>
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
18 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES There are several ways you can combine
multiple purchases of Class A shares in John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
- - Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
- - Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
- - Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section on your application, or contact
your financial representative or Investor Services to add these options to an
existing account.
GROUP INVESTMENT PROGRAM Allows four or more accountholders to declare
themselves a group. Each has an individual account, but for sales charge
purposes, their investments are lumped together, making the investors
potentially eligible for reduced sales charges. There is no charge, no
obligation to invest (although initial aggregate investments must be at least
$250), and you may terminate the program at any time.
To utilize: contact your financial representative or Investor Services to find
out how to qualify.
CDSC WAIVERS In general, the CDSC for either share class may be waived on
shares you sell for the following reasons:
- - to make payments through certain Systematic Withdrawal Plans
- - to make distributions from a retirement plan
- - because of shareholder death or disability
To utilize: contact your financial representative or Investor Services.
REINSTATEMENT PRIVILEGE If you sell shares in a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
To utilize: contact your financial representative or Investor Services.
WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
- - government entities who are prohibited from paying mutual fund sales
charges
- - financial institutions or common trust funds investing $1 million or more
for non-discretionary accounts
- - selling brokers and their employees and sales representatives
- - financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
- - fund trustees and other individuals who are affiliated with these or other
John Hancock funds
- - individuals transferring assets to a John Hancock growth fund from an
employee benefit plan that has John Hancock funds
To utilize: if you think you may be eligible for a sales charge waiver, contact
Investor Services or consult the SAI (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock growth funds are as follows:
- non-retirement account: $1,000
- retirement account: $250
- group investments: $250
- Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
3 Complete the appropriate parts of the Account Application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Investor Services at 1-800-225-5291.
4 Complete the appropriate parts of the Account Privileges Application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges
later on.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
YOUR ACCOUNT 19
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
BUYING SHARES
===============================================================================================================================
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BY CHECK
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a blank check.]
- - Make out a check for the investment amount, payable - Make out a check for the investment amount payable
to "John Hancock Investor Services Corporation." to "John Hancock Investor Services Corporation."
- - Deliver the check and your completed application to - Fill out the detachable investment slip from an account
your financial representative, or mail to Investor Services statement. If no slip is available, include a note specifying
(address on next page). the fund name, your share class, your account number,
and the name(s) in which the account is registered.
- Deliver the check and your investment slip or note to
your financial representative, or mail to Investor Services
(address on next page).
- ---------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- ---------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a white arrow outlined in black that points to the right above a black that points to the left.]
- - Call your financial representative or Investor Services - Call Investor Services to request an exchange.
to request an exchange.
- ---------------------------------------------------------------------------------------------------------------------------------
BY WIRE
- ---------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a jagged white arrow outlined in black that points upwards at a 45 degree angle.]
- - Deliver your completed application to your financial - Instruct your bank to wire the amount of your
representative, or mail it to Investor Services. investment to:
First Signature Bank & Trust
- - Obtain your account number by calling your financial Account #900000260
representative or Investor Services. Routing #211475000
Specify the fund name, your share class, your account
- - Instruct your bank to wire the amount of your number, and the name(s) in which the account is registered.
investment to: Your bank may charge a fee to wire funds.
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your choice of share class, the new
account number, and the name(s) in which the account is
registered. Your bank may charge a fee to wire funds.
- -------------------------------------------------------------------------------------------------------------------------------
BY PHONE
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a telephone.]
See "By wire" and "By exchange." - Verify that your bank or credit union is a member of
the Automated Clearing House (ACH) system.
- Complete the "Invest-By-Phone" and "Bank Information"
sections on your Account Privileges Application.
- Call Investor Services to verify that these features are in
place on your account.
- Tell the Investor Services representative the fund name,
your share class, your account number, the name(s)
in which the account is registered, and the amount of
your investment.
To open or add to an account using the Monthly Automatic Accumulation Program, see "Additional investor services."
</TABLE>
20 YOUR ACCOUNT
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
SELLING SHARES
===============================================================================================================================
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BY LETTER
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of the back of an envelope.]
- - Accounts of any type. - Write a letter of instruction or stock power indicating
the fund name, your share class, your account number,
- - Sales of any amount. the name(s) in which the account is registered, and the
dollar value or number of shares you wish to sell.
- Include all signatures and any additional documents
that may be required (see next page).
- Mail the materials to Investor Services.
- A check will be mailed to the name(s) and address in
which the account is registered, or otherwise according
to your letter of instruction.
- -------------------------------------------------------------------------------------------------------------------------------
BY PHONE
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a telephone.]
- - Most accounts. - For automated service 24 hours a day using your
Touch-Tone phone, call the John Hancock Funds
- - Sales of up to $100,000. EASI-Line at 1-800-338-8080.
- To place your order with a representative at John
Hancock Funds, call Investor Services between 8 a.m. and
4 p.m. on most business days.
- -------------------------------------------------------------------------------------------------------------------------------
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a jagged white arrow outlined in black that points upwards at a 45 degree angle.]
- - Requests by letter to sell any amount (accounts of - Fill out the "Telephone redemption" section of your
any type). new account application.
- - Requests by phone to sell up to $100,000 (accounts - To verify that the telephone redemption privilege is in
with telephone redemption privileges). place on an account, or to request the forms to add it
to an existing account, call Investor Services.
- Amounts of $1,000 or more will be wired on the next
business day. A $4 fee will be deducted from your
account.
- Amounts of less than $1,000 may be sent by EFT or by
check. Funds from EFT transactions are generally available
by the second business day. Your bank may charge
a fee for this service.
- -------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a white arrow outlined in black that points to the right above a black that points to the left.]
- - Accounts of any type. - Obtain a current prospectus for the fund into which
you are exchanging by calling your financial representative
- - Sales of any amount. Investor Services.
- Call Investor Services to request an exchange.
============================================
Address for opening an account
John Hancock Investor Services Corporation
P.O. Box 9115 Boston, MA 02205-9115
Address for all other transactions
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
Phone number for all transactions
1-800-225-5291
Or contact your financial representative for To sell shares through a systematic withdrawal plan,
instructions and assistance see "Additional investor services."
============================================
</TABLE>
YOUR ACCOUNT 21
<PAGE>
SELLING SHARES IN WRITING In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will
need a signature guarantee if:
- - your address of record has changed within the past 30 days
- - you are selling more than $100,000 worth of shares
- - you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
- - you are an executor
You can generally obtain a signature guarantee from the following sources:
- - a broker or securities dealer
- - a federal savings, cooperative or other type of bank
- - a savings and loan or other thrift institution
- - a credit union
- - a securities exchange or clearing agency
A notary public cannot provide a signature guarantee.
<TABLE>
<CAPTION>
===================================================================================================================================
SELLER REQUIREMENTS FOR WRITTEN REQUESTS [A graphic image of the back of
an envelope.]
===================================================================================================================================
<S> <C>
Owners of individual, joint, sole proprietorship, UGMA/UTMA - Letter of instruction
(custodial accounts for minors) or general partner accounts.
- On the letter, the signatures and titles of all persons authorized
to sign for the account, exactly as the account is registered.
- -----------------------------------------------------------------------------------------------------------------------------------
Owners of corporate or association accounts. - Letter of instruction.
- Corporate resolution.
- On the letter and the resolution, the signature of the
person(s) authorized to sign for the account.
- -----------------------------------------------------------------------------------------------------------------------------------
Owners or trustees of trust accounts. - Letter of instruction.
- On the letter, the signature(s) of the trustee(s).
- If the names of all trustees are not registered on the account,
please also provide a copy of the trust document certified
within the last 60 days.
- -----------------------------------------------------------------------------------------------------------------------------------
Joint tenancy shareholders whose co-tenants are deceased. - Letter of instruction signed by surviving tenant.
- Copy of death certificate.
- -----------------------------------------------------------------------------------------------------------------------------------
Executors of shareholder estates. - Letter of instruction signed by executor.
- Copy of order appointing executor.
- -----------------------------------------------------------------------------------------------------------------------------------
Administrators, conservators, guardians and other sellers or - Call 1-800-225-5291 for instructions.
account types not listed above.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22 YOUR ACCOUNT
<PAGE>
- -------------------------------------------------------------------------------
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges, as described earlier.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday-Friday. Buy and sell requests are executed
at the next NAV to be calculated after your request is accepted by Investor
Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Investor Services will take
measures to verify the identity of the caller, such as asking for name,
account number, Social Security or taxpayer ID number, and other relevant
information. If these measures are not taken, Investor Services is responsible
for any losses that may occur to any account due to an unauthorized telephone
call. Also for your protection, telephone transactions are not permitted on
accounts whose names or addresses have changed within the past 30 days.
Proceeds from telephone transactions can only be mailed to the address of
record.
EXCHANGES You may exchange shares of your John Hancock fund for shares of the
same class in any other John Hancock fund. You will not be charged any front-end
sales charges, and in general any CDSC calculations will be based on the date of
your original investment (although the CDSC will generally be that of the fund
with the higher rates). Class B shares that are exchanged into a fund that has
no CDSC will retain their original CDSC terms.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
CERTIFICATED SHARES Most shares are electronically recorded. If you wish to
have certificates for your shares, please write to Investor Services.
Certificated shares can only be sold by returning the certificates to Investor
Services, along with a letter of instruction or a stock power and a signature
guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten calendar days after
the purchase.
FOREIGN CURRENCIES Purchases must be made in U.S. dollars. Purchases in foreign
currencies must be converted, which may result in a fee and delayed execution.
- -------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
ACCOUNT STATEMENTS In general, you will receive account statements as follows:
- - after every transaction (except a dividend reinvestment) that affects your
account balance
- - after any changes of name or address of the registered owner(s)
- - every quarter during which there is a transaction, an automatic
investment/withdrawal plan activity or a dividend reinvestment
- - in all other circumstances, once a year
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS The funds generally distribute most or all of their net earnings in
the form of dividends.Capital gains dividends, if any, are typically paid once
a year. Most of the funds do not typically pay income dividends, with the
exception of Disciplined Growth Fund and Regional Bank Fund, which typically
pay income dividends quarterly and semi-annually respectively.
YOUR ACCOUNT 23
<PAGE>
DIVIDEND REINVESTMENTS Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
TAXABILITY OF DIVIDENDS As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, any dividends you receive from a fund, whether reinvested or taken
as cash, are considered taxable. Dividends from a fund's long-term capital gains
are taxable as capital gains; dividends from other sources are generally taxable
as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, your fund's transfer agent
may charge you $10 a year to maintain your account. You will not be charged a
CDSC if your account is closed for this reason, and your account will not be
closed if its drop in value is due to fund performance or the effects of sales
charges.
- -------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) Lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
- - Complete the appropriate parts of your Account Privileges Application.
- - If you are using MAAP to open an account, make out a check ($25 minimum)
for your first investment amount payable to "John Hancock Investor Services
Corporation" and deliver your check and application to your financial
services representative or Investor Services.
SYSTEMATIC WITHDRAWAL PLAN May be used for routine bill payment or periodic
withdrawals from your account. To establish:
- - Make sure you have at least $5,000 worth of shares in your account.
- - Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
- - Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they are
all on the same payment schedule.
- - Determine the schedule: monthly, quarterly, semi-annually, annually, or in
certain selected months.
- - Fill out the relevant part of the Account Privileges Application. To add a
Systematic Withdrawal Plan to an existing account, contact your financial
representative or Investor Services.
RETIREMENT PLANS John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, SARSEPs, TSAs, 401(k) plans, 403(b) plans, and
other pension and profit-sharing plans. Using these plans, you can invest in any
John Hancock fund with a low minimum investment of $250 or, for some group
plans, no minimum investment at all. To find out more, call Investor Services at
1-800-225-5291.
24 YOUR ACCOUNT
<PAGE>
FUND DETAILS
- -------------------------------------------------------------------------------
BUSINESS STRUCTURE
HOW THE FUNDS ARE ORGANIZED Each John Hancock growth fund is an open-end
management investment company or a series of such a company.
Each fund is supervised by a Board of Trustees or a Board of Directors, an
independent body which has ultimate responsibility for the fund's activities.
The board retains various companies to carry out the fund's operations,
including the investment adviser, custodian, transfer agent, and others (see
diagram). The board has the right, and the obligation, to terminate the fund's
relationship with any of these companies and to retain a different company if
the board believes that it is in the shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock growth funds may include
individuals who are affiliated with the investment adviser. However, the
majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract, or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
[A flow chart that contains 9 rectangular-shaped boxes and illustrates the
hierarchy of how the funds are organized. Within the flowchart, there are 5
tiers. The tiers are connected by shaded lines.
Shareholders represent the first tier. There is a shaded vertical arrow on the
left-hand side of the page. The arrow has arrowheads on both ends and is
contained within two horizontal, shaded lines. This is meant to highlight
tiers two and three which focus on Distribution and Shareholder Services.
Financial Services Firms and their Representatives is shown on the second
tier. Principal Distributor and Transfer Agent are shown on the third tier.
A shaded vertical arrow on the right-hand side of the page denotes those
entities involved in Asset Management. The arrow has arrowheads on both ends
and is contained within two horizontal, shaded lines. This fourth tier
includes the Subadvisor, Investment Advisor and the Custodian.
The fifth tier contains the Trustees/Directors.]
FUND DETAILS 25
<PAGE>
ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax and
financial management services. Annual compensation for 1996 is estimated to be
0.01875% of each fund's average net assets.
PORTFOLIO TRADES In placing portfolio trades, the adviser may give preference to
brokerage firms that market the fund's shares or that are affiliated with John
Hancock Mutual Life Insurance Company, but only in cases where no other firm
appears to offer a better combination of quality execution (i.e., timeliness and
completeness) and favorable price.
<TABLE>
ADVERTISEMENT OF PERFORMANCE The funds may include figures for yield (where
appropriate) and total return in advertisements and other sales materials, as
follows:
<CAPTION>
===============================================================================
DEFINITIONS OF PERFORMANCE MEASURES
===============================================================================
Measure Definition
<S> <C>
Cumulative total Overall dollar or percentage change of a
return hypothetical investment over the stated time
period.
Average annual Cumulative total return divided by the
total return number of years in the period. The result is
an average and is not the same as the actual
year-to-year results.
Yield A measure of income, calculated by taking
the net investment income per share for a
30-day period, dividing it by the offering
price per share on the last day of the period
(if there is more than one offering price, the
highest price is used), and annualizing the
result. While this is the standard accounting
method for calculating yield, it does not
reflect the fund's actual bookkeeping; as a
result, the income reported or paid by the
fund may be different.
</TABLE>
All performance figures assume that dividends are reinvested, and show the
effect of all applicable sales charges. Class A performance figures generally
are calculated using the maximum sales charge. Because each share class has its
own sales charge structure, the classes have different performance results.
- -------------------------------------------------------------------------------
SALES COMPENSATION As part of their business strategies, the funds, along with
John Hancock Funds, pay compensation to financial services firms that sell the
funds' shares. These firms typically pass along a portion of this compensation
to your financial representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund in assets (the name refers to the
federal securities regulation that authorizes annual fees of this type). The
12b-1 fee rates vary by fund and by share class, according to Rule 12b-1 plans
adopted by the funds' respective boards. The sales charges and 12b-1 fees paid
by investors are detailed in the fund-by-fund information. The portions of these
expenses that are reallowed to financial services firms are shown below.
INITIAL COMPENSATION Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives
the first year's service fee at this time.
From time to time, as an additional incentive to these firms, John Hancock Funds
may increase the reallowance on Class A shares to as much as the entire
front-end sales charge.
ANNUAL COMPENSATION Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears. Firms affiliated
with John Hancock, which include Tucker Anthony, Sutro & Company and John
Hancock Distributors, may receive an additional fee of up to 0.05% a year of
their total eligible net assets.
STATE REGISTRATION OF FUNDS You may only invest in or exchange into funds that
are registered in the state in which you live.
INVESTMENT GOALS Except for Special Opportunities Fund and Emerging Growth Fund,
each fund's investment goal is fundamental, meaning that it may only be changed
with shareholder approval.
26 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
CLASS A INVESTMENTS
==========================================================================================================================
MAXIMUM
SALES CHARGE REALLOWANCE MAXIMUM
PAID BY INVESTORS OR COMMISSION SERVICE FEE TOTAL COMPENSATION (1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Up to $49,999 5.00% 4.01% 0.25% 4.25%
- --------------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
- --------------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
- --------------------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
- --------------------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
- --------------------------------------------------------------------------------------------------------------------------
Regular investments of
$1 million or more
- --------------------------------------------------------------------------------------------------------------------------
First $1M - $4,999,999 -- 1.00% 0.25% 1.24%
- --------------------------------------------------------------------------------------------------------------------------
Next $1 - $5M above that -- 0.50% 0.25% 0.74%
- --------------------------------------------------------------------------------------------------------------------------
Next $1M and more above that -- 0.25% 0.25% 0.49%
- --------------------------------------------------------------------------------------------------------------------------
Waiver investments(2) -- 0.00% 0.25% 0.25%
==========================================================================================================================
CLASS B INVESTMENTS
==========================================================================================================================
MAXIMUM
REALLOWANCE MAXIMUM
OR COMMISSION SERVICE FEE TOTAL COMPENSATION (1)
(% of offering price) (% of net investment) (% of offering price)
- --------------------------------------------------------------------------------------------------------------------------
All amounts 3.75% 0.25% 4.00%
- --------------------------------------------------------------------------------------------------------------------------
(1) Reallowance/commission percentages and service fee percentages are calculated from different amounts, and therefore
may not equal total compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions and trusts that take advantage of the sales
charge waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to fund commission payments when there is no initial sales charge.
</TABLE>
FUND DETAILS 27
<PAGE>
- -------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the Trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following page are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies which may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock growth fund will be positive over any period of time -- days, months, or
years. However, stock funds as a category have historically performed better
over the long term than bond or money market funds.
Below are definitions of the types of investment risk associated with higher
risk securities and practices:
CORRELATION RISK The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated leverage risk.
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
CURRENCY RISK The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments, and may widen any losses.
INFORMATION RISK The risk that key information about a security or market is
inaccurate or unavailable.
INTEREST RATE RISK The risk of losses attributable to the behavior of interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
LEVERAGE RISK Associated with securities or practices (such as borrowing) that
"leverage" small changes in the value of a given index or security into large
changes.
- - HEDGED When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position which
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
- - SPECULATIVE To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative affect on fund management or
performance.
MANAGEMENT RISK The risk that strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk operates on all levels of a market; it may
affect a single issuer, industry, sector of the economy or the market as a
whole. Common to all stocks and bonds and the mutual funds that invest in them.
NATURAL EVENT RISK The risk of losses attributable to natural disasters, crop
failures and similar events.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in other investments.
POLITICAL RISK The risk of losses directly attributable to government or
political actions of any sort. These actions may range from changes in tax or
trade statutes to expropriation, governmental collapse and war.
VALUATION RISK The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
28 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
HIGHER RISK SECURITIES AND PRACTICES
====================================================================================================================================
This table shows each funs's investment limitations as
a percent of portfolio assets italic type if gross
assets, roman type if net assets). "NPL" indicates there
is no policy limit. In each case the principal types of DISICI-
risk are listed (see previous page for definitions). PLINED EMERGING REGIONAL SPECIAL SPECIAL
GROWTH DISCOVERY GROWTH GROWTH BANK EQUITIES OPPORTUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
REPURCHASE AGREEMENTS The purchase of a security that must
later be sold back to the issuer at the same price plus
interest. Credit risk. NPL NPL NPL NPL NPL NPL NPL
REVERSE REPURCHASE AGREEMENTS The sale of a security that
must later be bought back at the same price minus interest.
Leverage, credit risks. 33.3% 5% 33.3% 33.3% 33.3% 33.3% 33.3%
SECURITIES LENDING The lending of securities to financial
institutions, which provide cash or government securities as
collateral. Credit risk. 5% 33.3% 30% 33.3% 0% 33.3% 33.3%
SHORT SALES The selling of securities which have been
borrowed on the expectation that the market price will drop.
- - Hedged. Hedged leverage, market, correlation, liquidity,
opportunity risks. 0% NPL NPL NPL 0% NPL NPL
- - Speculative. Speculative leverage, market, liquidity risks. 0% 0% 0% 0% 0% 0% 5%
SHORT-TERM TRADING Selling a security soon after purchase.
A portfolio engaging in short-term trading will have higher
turnover and transaction expenses. Market risk. NPL NPL NPL NPL NPL NPL NPL
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. Market, opportunity, leverage
risks. NPL NPL NPL NPL NPL NPL NPL
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES -- NON-DERIVATIVE
NON-INVESTMENT GRADE CONVERTIBLE SECURITIES Debt securities
that convert into equity securities at a future time.
Convertibles rated below BBB/Baa are considered "junk" bonds.
Credit, market, interest rate risks, liquidity, valuation and
information risks. 0% 0% 10% 5% 0% 0% 0%
FOREIGN EQUITIES
- - Stocks issued by foreign corporations. Market, currency,
information, natural event, political risks. 0% 25% NPL 0% 0% NPL NPL
- - American or European depository receipts, which are
dollar-denominated securities typically issued by American
or European banks and are based on ownership of securities
issued by a foreign corporation. Market, currency, information,
natural event, political risks. 10% 25% NPL 15% 0% NPL NPL
RESTRICTED AND ILLIQUID SECURITIES Securities not traded on the
open market. May include illiquid Rule 144A securities.
Liquidity, market risks. 15% 15% 10% 15% 10% 15% 15%
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES -- DERIVATIVE
FINANCIAL FUTURES AND OPTIONS; SECURITIES AND INDEX OPTIONS
Contracts involving the right or obligation to deliver or
receive assets or money depending on the performance of one or
more assets or an economic index.
- - Futures and related options. Market, hedged or speculative
leverage, correlation, liquidity, opportunity risks. NPL NPL NPL NPL NPL NPL NPL
- - Options on securities and indices. Market, hedged or
speculative leverage, correlation, liquidity, opportunity
risks. 5% 5%(1) 10%(1) NPL 5% NPL NPL
CURRENCY CONTRACTS Contracts involving the right or obligation
to buy or sell a given amount of foreign currency at a specified
price and future date.
- - Hedged. Currency, hedged leverage, correlation, liquidity,
opportunity risks. 0% 25% NPL NPL 0% NPL NPL
- - Speculative. Currency, speculative leverage, liquidity risks. 0% 0% 0% 0% 0% 0% 0%
(1) Applies to purchases only.
</TABLE>
FUND DETAILS 29
<PAGE>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
Growth Funds:
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from the portfolio manager, and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/semi-annual report is included in the SAI.
The Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated by reference into this prospectus (is
legally part of this prospectus).
To request a free copy of the current annual/semi-annual report or the SAI,
please write or call:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, MA 02205-9116
Telephone: 1-800-225-5291
TDD: 1-800-544-6713
Email: http://jhancockfunds.com
[LOGO] JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avenue
Boston, Massachusetts 02199-7603
[LOGO]
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JOHN HANCOCK GROWTH FUND
Class A and Class B Shares
Statement of Additional Information
July 1, 1996
This Statement of Additional Information provides information about John Hancock
Growth Fund (the "Fund") in addition to the information that is contained in the
Fund's Class A and Class B Shares Prospectus, dated July 1, 1996 (the
"Prospectus").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, copies of which can be obtained free of
charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Statement of Additional
Information Page
Organization of the Fund 2
Investment Objective and Policies 2
Investment Restrictions 10
Those Responsible for Management 13
Investment Advisory and 18
Other Services
Distribution Contract 20
Net Asset Value 21
Initial Sales Charge On Class A 22
Shares
Deferred Sales Charge On Class B 23
Shares
Special Redemptions 24
Additional Services and Programs 25
Description of the Fund's Shares 26
Tax Status 27
Calculation of Performance 30
Brokerage Allocation 31
Transfer Agent Services 33
Custody of Portfolio 33
Independent Auditors 33
Appendix 34
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ORGANIZATION OF THE FUND
John Hancock Growth Fund (the "Fund") is organized as a separate, diversified
series of Freedom Investment Trust II (the "Trust"), an open-end management
investment company organized as a Massachusetts business trust under the laws of
The Commonwealth of Massachusetts. The Trust was organized in 1986. Prior to
July 1996, the Fund was a series of John Hancock Capital Series (know as John
Hancock Growth Fund prior to October 1993). John Hancock Advisers, Inc. (the
"Adviser") is the Fund's investment adviser. The Adviser is an indirect
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (the "Life
Company").
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is to seek long-term capital appreciation.
The types of securities the Fund invests in are more fully described in the
Prospectus.
Purchases and sales of securities will be made whenever necessary in
management's view to achieve the objectives of the Fund. Management believes
that unsettled market and economic conditions during certain periods require
greater portfolio turnover in pursuing the Fund's objective than would otherwise
be the case.
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
seven days) subject to the obligation of the seller to repurchase and the Fund
to resell such security at a fixed time and price (representing the Fund's cost
plus interest). The Fund will enter into repurchase agreements only with member
banks of the Federal Reserve System and with "primary dealers" in U.S.
Government securities. The Adviser will continuously monitor the
creditworthiness of the parties with whom the Fund enters into repurchase
agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities and could experience losses, including the
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 the expense of
enforcing its rights.
Restricted Securities. The Fund may invest in restricted securities, including
those eligible for resale to certain institutional investors pursuant to Rule
144A under the Securities Act of 1933 and foreign securities acquired in
accordance with Regulation S under the Securities Act of 1933. The Fund will not
invest more than 15% of its net assets in illiquid investments, which includes
repurchase agreements maturing in more than seven days, OTC options, securities
that are not readily marketable and restricted securities. However, if the Board
of Trustees determines, based upon a continuing review of the trading markets
for specific Rule 144A securities, that they are liquid then such securities may
be purchased without regard to the 15% limit. The Board of Trustees may adopt
guidelines and delegate to the Adviser the daily function of determining and
monitoring the liquidity of restricted securities. The Board, however, will
retain sufficient oversight and be ultimately responsible for the
determinations. The Board will carefully monitor the Fund's investments in these
securities, focusing on such important factors, among others, as valuation,
liquidity and availability of information. This investment practice could have
the effect of increasing the level of illiquidity in the Fund to the extent that
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
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The Fund may acquire other restricted securities including securities for which
market quotations are not readily available. These securities may be sold only
in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the Securities Act of 1933.
Where registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair market value as determined in good faith by the Fund's
Trustees. If through the appreciation of restricted securities or the
depreciation of unrestricted securities, the Fund should be in a position where
more than 15% of the value of its assets is invested in illiquid securities
(including repurchase agreements which mature in more than seven days and
options which are traded over-the-counter and their underlying securities), the
Fund will bring its holdings of illiquid securities below the 15% limitation.
Lower Rated Bonds. The Fund may invest in debt securities rated as low as C by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("S&P") and unrated securities deemed of equivalent quality by the Adviser.
These securities are speculative to a high degree and often have very poor
prospects of attaining real investment standing. Lower rated securities are
generally referred to as junk bonds. No more than 5% of the Fund's net assets,
however, will be invested in securities rated lower than BBB by S&P or Baa by
Moody's. In addition, no more than 5% of the Fund's net assets may be invested
in securities rated BBB or Baa and unrated securities deemed of equivalent
quality. See the Appendix attached to this Statement of Additional Information
which describes the characteristics of the securities in the various ratings
categories. The Fund may invest in comparable quality unrated securities which,
in the opinion of the Adviser, offer comparable yields and risks to those
securities which are rated.
Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the ability of the issuer to make payments of
interest and principal. The high yield fixed income market is relatively new and
its growth occurred during a period of economic expansion. The market has not
yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities generally
respond to short term corporate and market developments to a greater extent than
do the price and liquidity of higher rated securities because such developments
are perceived to have a more direct relationship to the ability of an issuer of
such lower rated securities to meet its ongoing debt obligations. The market
prices of zero coupon bonds are affected to a greater extent by interest rate
changes, and thereby tend to be more volatile than securities which pay interest
periodically. Increasing rate note securities are typically refinanced by the
issuers within a short period of time.
Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations will make it more difficult to dispose of the
bonds and to value accurately the Fund's assets. The reduced availability of
reliable, objective data may increase the Fund's reliance on management's
judgment in valuing high yield bonds. In addition, the Fund's investments in
high yield securities may be susceptible to adverse publicity and investor
perceptions, whether or not justified by fundamental factors. The Fund's
investments, and consequently its net asset value, will be subject to the market
fluctuations and risks inherent in all securities.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank or securities firm with an agreement that the Fund will buy
back the securities at a fixed future date at a fixed price plus an agreed
amount of "interest" which may be reflected in the repurchase price. Reverse
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repurchase agreements are considered to be borrowings by the Fund. The Fund will
use proceeds obtained from the sale of securities pursuant to reverse repurchase
agreements to purchase other investments. The use of borrowed funds to make
investments is a practice known as "leverage," which is considered speculative.
Use of reverse repurchase agreements is an investment technique that is intended
to increase income. Thus, the Fund will enter into a reverse repurchase
agreement only when the Adviser determines that the interest income to be earned
from the investment of the proceeds is greater than the interest expense of the
transaction. However, there is a risk that interest expense will nevertheless
exceed the income earned. Reverse repurchase agreements involve the risk that
the market value of securities purchased by the Fund with proceeds of the
transaction may decline below the repurchase price of the securities sold by the
Fund which it is obligated to repurchase. The Fund will also continue to be
subject to the risk of a decline in the market value of the securities sold
under the agreements because it will reacquire those securities upon effecting
their repurchase. To minimize various risks associated with reverse repurchase
agreements, the Fund will establish and maintain with the Fund's custodian a
separate account consisting of highly liquid, marketable securities in an amount
at least equal to the repurchase prices of the securities (plus any accrued
interest thereon) under such agreements. In addition, the Fund will not enter
into reverse repurchase agreements and other borrowings exceeding in the
aggregate 33 1/3% of the market value of its total assets. The Fund will enter
into reverse repurchase agreements only with selected registered broker/dealers
or with federally insured banks or savings and loan associations which are
approved in advance as being creditworthy by the Board of Trustees. Under
procedures established by the Board of Trustees, the Adviser will monitor the
creditworthiness of the firms involved.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities. When the Fund
lends portfolio securities, there is a risk that the borrower may fail to return
the securities involved in the transaction. As a result, the Fund may incur a
loss or, in the event of the borrower's bankruptcy, the Fund may be delayed in
or prevented from liquidating the collateral. It is a fundamental policy of the
Fund not to lend portfolio securities having a total value exceeding 33 1/3% of
its total assets.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in
order to obtain what is considered to be an advantageous price and yield at the
time of the transaction. For when-issued transactions, no payment is made until
delivery is due, often a month or more after the purchase. In a forward
commitment transaction, the Fund contracts to purchase securities for a fixed
price at a future date beyond customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
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value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, the Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
Short 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 the security increases between those dates. The amount of any gain
will be decreased, and the amount of any loss increased, by the amount of any
premium or interest or dividends the Fund may be required to pay in connection
with a short sale. The successful use of short selling as a hedging device may
be 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 SEC, if the Fund engages in
short sales, 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 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. Except for
short sales against the box, the amount of the Fund's net assets that may be
committed to short sales is limited and the securities in which short sales are
made must be listed on a national securities exchange.
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 for a taxable year in order for
the Fund to qualify as a regulated investment company under the Code for that
year.
Short Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income. Short
term trading may have the effect of increasing portfolio turnover rate. A high
rate of portfolio turnover (100% or greater) involves corresponding higher
transaction expenses and may make it more difficult for the Fund to qualify as a
regulated investment company for federal income tax purposes.
American Depository Receipts and European Depository Receipts. The Fund may
invest up to 15% of its portfolio in securities of foreign issuers 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
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American bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs are receipts issued in Europe which
evidence a similar ownership arrangement. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information, including financial
information, in the United States. Generally, ADRs are designed for use in the
United States securities markets and EDRs are designed for use in European
securities markets.
Financial Futures Contracts. To the extent set forth in the Prospectus, the Fund
may buy and sell futures contracts (and related options) on stocks, stock
indices, debt securities, currencies, interest rate indices, and other
instruments. The Fund may hedge its portfolio by selling or purchasing financial
futures contracts as an offset against the effects of changes in interest rates
or in security or foreign currency values. Although other techniques could be
used to reduce exposure to market fluctuations, the Fund may be able to hedge
its exposure more effectively and perhaps at a lower cost by using financial
futures contracts. The Fund may enter into financial futures contracts for
hedging and other non-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. Currently, financial futures
contracts are based on interest rate instruments such as long-term U.S. Treasury
bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA")
modified pass-through mortgage-backed securities, three-month U.S. Treasury
bills, 90-day commercial paper, bank certificates of deposit and Eurodollar
certificates of deposit. It is expected that if other financial futures
contracts are developed and traded the Fund may engage in transactions in such
contracts.
Although some 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 and delivery
month). Other financial futures contracts, such as futures contracts on
securities indices, by their terms call for cash settlements. If the offsetting
purchase price is less than the Fund's original sale price, the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the Fund's original purchase price, the Fund realizes a
gain, or if it is less, the Fund realizes a loss. The transaction costs must
also be included in these calculations. The Fund will pay a commission in
connection with each purchase or sale of financial futures contracts, including
a closing transaction. For a discussion of the Federal income tax considerations
of trading in financial futures contracts, see the information under the caption
"Tax Status" below.
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," ranging upward from 1.1% of the value of
the financial futures contract being traded. 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 Funds
expect to earn interest income on their initial margin deposits. Each day, the
futures contract is valued at the official settlement price of the board of
trade or exchange on which it is traded. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. This process is known
as "mark to market." Variation margin does not represent a borrowing or
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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 market its open financial
futures positions.
Successful hedging depends on a strong correlation between the market for the
underlying securities and the futures contract market for those securities.
There are several factors that will probably prevent this correlation from being
a perfect one, and even a correct forecast of general interest rate trends may
not result in a successful hedging transaction. There are significant
differences between the securities and futures markets which could create an
imperfect correlation between the markets and which could affect the success of
a given hedge. The degree of imperfection of correlation depends on
circumstances such as variations in speculative market demand for financial
futures and debt securities, including technical influences in futures trading
and differences between the financial instruments being hedged and the
instruments underlying the standard financial futures contracts available for
trading 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 unexpected market or interest rate trends. The Fund will bear the
risk that the price of the securities being hedged will not move in complete
correlation with the price of the futures contracts used as a hedging
instrument. Although the Adviser believes that the use of financial futures
contracts will benefit the Fund, an incorrect market prediction could result in
a loss on both the hedged securities in the Fund's portfolio and the hedging
vehicle 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 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 consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses.
Finally, although the Fund engages in financial futures transactions only on
boards of trade or exchanges where there appears to be an adequate secondary
market, there is no assurance that a liquid market will exist for a particular
futures 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 must continue to
meet margin requirements until the position is closed.
Options on Financial Futures Contracts. To the extent set forth in the
Prospectus, the Fund may buy and sell options on financial futures contracts on
stocks, stock indices, debt securities, currencies, interest rate indices, and
other instruments. An option on a futures contract gives the
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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 them. Options on futures contracts
involve risks similar to the risks of transactions in financial futures
contracts. Also, an option purchased by the Fund may expire worthless, in which
case the Fund would lose the premium it paid for the option.
Other Considerations. The Fund will engage in futures and options
transactions for bona fide hedging or other non-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 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, the Fund intends to purchase. As evidence of this
hedging intent, the Fund expect that on 75% or more of the occasions on which
they take 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 contract or
option position is closed out. However, in particular cases, when it is
economically advantageous for the Fund to do so, a long futures position may be
terminated or an option may expire without the corresponding purchase of
securities or other assets.
As an alternative to literal compliance with the bona fide hedging definition, a
CFTC regulation permits the Fund to elect to comply with a different test, under
which the aggregate initial margin and premiums required to establish nonhedging
positions in futures contracts and options on futures will not exceed 5% of the
net asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. The Fund will engage in
transactions in futures contracts only to the extent such transactions are
consistent with the requirements of the Code for maintaining their
qualifications as regulated investment companies for Federal income tax
purposes.
When the Fund purchases financial futures contracts, or writes put options or
purchases call options thereon, cash or liquid, high grade debt securities will
be deposited in a segregated account with the Fund's custodian in an amount
that, together with the amount of initial and variation margin held in the
account of the broker, equals the market value of the futures contracts.
Options Transactions. To the extent set forth in the Prospectus, 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 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 may 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 exercise price of the covering call is greater than the exercise
price of the call written, in the latter case only if
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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.
As the writer of a covered put option, the Fund will write a put option only
with respect to securities it intends to acquire for its portfolio and will
maintain in a segregated account with its custodian bank 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 may 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.
When 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 its 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
short-term 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 in the value 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
-9-
<PAGE>
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
management believes the Fund can receive on each business day at least two
separate bids or offers (one of which will be from an entity other than a party
to the option) or those 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 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 OTC options are subject to the Fund's 15% restriction on
illiquid investments. The SEC, however, 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 must have an
absolute contractual right to repurchase the OTC options at a formula price. If
the above conditions are met, the Fund may 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.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of the Fund's outstanding voting securities
which, as used in the Prospectus, 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.
The Fund observes the following fundamental investment restrictions.
The Fund may not:
(1) Purchase or sell real estate or any interest therein, except that the Fund
may invest in securities of corporate entities secured by real estate or
marketable interests therein or issued by companies that invest in real estate
or interests therein.
(2) Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Funds total
assets taken at market value, (2) enter into repurchase agreements, and (3)
purchase all or a portion of securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, bank loan participation
interests, bank certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the original issuance
of the securities.
(3) Invest in commodities or in commodity contracts or in puts, calls, or
combinations of both except options on securities, securities indices, currency
and other financial instruments, futures contracts on securities, securities
indices, currency and other financial instruments, options on such futures
contracts, forward commitments, forward foreign currency exchange contracts,
interest rate or currency swaps, securities index put or call warrants and
repurchase agreements entered into in accordance with the Fund's investment
policies.
(4) Purchase securities of an issuer (other than the U.S. Government, its
agencies or instrumentalities), if (i) such purchase would cause more than 5% of
the Fund's total assets taken at market value to be invested in the securities
of such issuer, or (ii) such purchase would at the time result in more than 10%
of the outstanding voting securities of such issuer being held by the Fund.
-10
(5) 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.
(6) Borrow money, except from banks as a temporary measure for extraordinary
emergency purposes in amounts not to exceed 33 1/3% of the Fund's total assets
(including the amount borrowed) taken at market value. The Fund will not use
leverage to attempt to increase income. The Fund will not purchase securities
while outstanding borrowings exceed 5% of the Fund's total assets.
(7) Pledge, mortgage or hypothecate its assets, except to secure indebtedness
permitted by paragraph (6) 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.
(8) Purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after such purchase, the value of
its investments in such industry would exceed 25% of its total assets taken at
market value at the time of each investment. This limitation does not apply to
investments in obligations of the U.S. Government or any of its agencies or
instrumentalities.
(9) Issue senior securities, except as permitted by paragraphs (2), (3) and (6)
above. 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, forward commitments, forward foreign
currency exchange contracts and repurchase agreements entered into in accordance
with the Fund's investment policy, and the pledge, mortgage or hypothecation of
the Fund's assets within the meaning of paragraph (7) above are not deemed to be
senior securities.
In connection with the lending of portfolio securities under item (2) above,
such loans must at all times be fully collateralized by cash or securities of
the U.S. Government or its agencies or instrumentalities, and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Any cash collateral will consist of short-term high quality debt
instruments. Securities used as collateral must be marked to market daily.
Nonfundamental Investment Restrictions
The following restrictions are designated as nonfundamental and may be changed
by the Trustees without shareholder approval.
The Fund may not:
(a) purchase securities on margin or make short sales, except in connection with
arbitrage transactions, or unless by virtue of its ownership of other
securities, the Fund has the right to obtain securities equivalent in kind and
amount to the securities sold and, if the right is conditional, the sale is made
upon the same conditions, except that the Fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities.
(b) purchase securities of any company with a record of less than three years'
continuous operation, if such purchase would cause the Fund's investment in such
company taken at cost to exceed 5% of the Fund's total assets taken at market
value.
(c) invest for the purpose of exercising control over or management of any
company.
-11-
<PAGE>
(d) purchase a security if, as a result, (i) more than 10% of the Fund's total
assets would be invested in securities of other investment companies, (ii) such
purchase would result in more than 3% of the total outstanding voting securities
of any one such investment company being held by the Fund, or (iii) more than 5%
of the Fund's total assets would be invested in any securities of any one such
investment company. The Fund may not invest in the securities of any other
open-end investment company.
(e) 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.
(f) invest in interests in oil, gas or other mineral leases or exploration or
development programs, provided that this restriction shall not prohibit the
acquisition of securities of companies engaged in the production or transmission
of oil, gas or other minerals.
(g) purchase warrants if as a result (i) more than 5% of the Fund's net assets,
valued at the lower of cost or market value, would be invested in warrants or
(ii) more than 2% of its net assets would be invested in warrants, valued as
aforesaid, which are not traded on the New York Stock Exchange or American Stock
Exchange, provided that for these purposes, warrants acquired in units or
attached to securities will be deemed to be without value.
(h) purchase any security, including any repurchase agreement maturing in more
than seven days, which is not readily marketable, if more than 15% of the net
assets of the Fund, taken at market value, would be invested in such securities.
(The staff of the Securities and Exchange Commission may consider
over-the-counter options to be illiquid securities subject to the 15% limit).
(i) purchase interests in real estate limited partnerships.
(j) Notwithstanding any investment restriction to the contrary, the Fund may, in
connection with the John Hancock Group of Funds Deferred Compensation Plan for
Independent Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds provided that, as a result, (i)
no more than 10% of the Fund's assets would be invested in securities of all
other investment companies, (ii) such purchase would not result in more than 3%
of the total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets would be
invested in any one such investment company.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interests of the Fund and its shareholders, the Fund may cease offering shares
in the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved 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 values of the Fund's assets will not be
considered a violation of the restriction.
-12-
<PAGE>
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees of the Trust, 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
and directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
October 1944 Officer, the Adviser and The
Berkeley Financial Group ("The
Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited; ("Advisers
International"); John Hancock
Funds, Inc., ("John Hancock
Funds"); John Hancock Investor
Services Corporation ("Investor
Services"), Transamerica Fund
Management Company ("TFMC") and
Sovereign Asset Management
Corporation ("SAMCorp");
(hereinafter the Adviser, the
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Investor Services
and SAMCorp are collectively
referred to as the "Affiliated
Companies"); Chairman, First
Signature Bank & Trust; Director,
John Hancock Freedom Securities
Corp., John Hancock Capital Corp.,
New England/Canada Business
Council; Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; President, the Adviser
(until July 1992); Chairman, John
Hancock Distributors, Inc.
("Distributors") until April 1994.
Dennis S. Aronowitz Trustee (1,2) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank.
June 1931
-13-
<PAGE>
Richard P. Chapman, Jr. Trustee (1,2) President, Brookline Savings Bank.
160 Washington Street Director, Federal Home Loan Bank of
Brookline, Massachusetts Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee (1,2) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, New Jersey N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation Inc.
(consulting, October 1991 - October
1993); Trustee, the Hudson City
Savings Bank (until October 1995).
Douglas M. Costle Trustee (1,2,3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, Vermont 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991). Dean Vermont Law
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) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991) and
President of Albuquerque
Uranium Corporation (from
1985-1992); Director of
Freeport-McMoRan Copper & Cold
Company Inc., Hecla Mining Company,
Canyon Resources Corporation and
Original Sixteen to One Mine, Inc.
(from 1984-1987 and from 1991 to
1995)(management consultant).
-14-
<PAGE>
Richard A. Farrell Trustee (1,2) President of Farrell, Healer & Co.,
Farrell, Healer & Company, Inc. (venture capital management firm
160 Federal Street -- 23rd Floor (since 1980); Prior to 1980, headed
Boston, MA 02110 the venture capital group at Bank
November 1932 of Boston Corporation.
Gail D. Fosler Trustee (1,2) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD economic and business research).
December 1947
William F. Glavin Trustee (1,2) President, Babson College; Vice
Babson College Chairman, Xerox Corporation until
Horn Library June 1989; Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994), and Inco
March 1931 Ltd.
Bayard Henry Trustee (1,2) Corporate Advisor; Director,
31 Milk Street Fiduciary Trust Company (a trust
Boston, Massachusetts company); Director, Groundwater
July 1931 Technology, Inc. (remediation);
Samuel Cabot, Inc.; Advisor,
Kestrel Venture Management.
Dr. John A. Moore Trustee (1,2) President and Chief Executive
Institute for Evaluating Officer, Institute for Evaluating
Health Risks Health Risks, (nonprofit
1101 Vermont Avenue N.W. institution) ( since September
Suite 608 1989).
Washington, DC 20005
February 1939
Patti McGill Peterson Trustee (1,2) President, St. Lawrence University;
St. Lawrence University Director, Niagara Mohawk Power
110 Vilas Hall Corporation and Security Mutual
Canton, NY 13617 Life.
May 1943
John W. Pratt Trustee (1,2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
*Richard S. Scipione Trustee (3) General Counsel, the Life Insurance
John Hancock Place Company; Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking
August 1937 Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp, NM Capital and John
Hancock Property and Casualty
Insurance and its affiliates (until
November, 1993); Trustee; The
Berkeley Group;
-15-
<PAGE>
Edward J. Spellman, CPA Trustee (1,2,4) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL
November 1932
</TABLE>
The executive officers of the Trust and their principal occupations during the
past five years are set forth below. Unless otherwise indicated, the business
address of each is 101 Huntington Avenue, Boston, Massachusetts 02199.
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment
July 1938 Investment Officer (4) Officer, the Adviser; President
(until December 1994).
Anne C. Hodsdon Trustee and President (4) President and Chief Operating
August 1953 Officer, the Adviser; Executive
Vice President, the Adviser (until
December 1994); Senior Vice
President; the Adviser (until
December 1993); Vice President, the
Adviser, 1991.
James B. Little Senior Vice President, Senior Vice President, the Adviser.
February 1935 Chief Financial Officer
Thomas H. Drohan Senior Vice President Senior Vice President and
December 1936 and Secretary Secretary, the Adviser.
John A. Morin Vice President Vice President, the Adviser.
July 1950
Susan S. Newton Vice President, Assistant Vice President and Assistant
March 1950 Secretary and Compliance Secretary, the Adviser.
Officer
James J. Stokowski Vice President and Vice President, the Adviser.
November 1946 Treasurer
</TABLE>
- -----------
* 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 Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the 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>
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the directors and officers may also be officers
and/or directors or trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services for each Fund's fiscal year. The three
non-Independent Trustees, Ms. Hodsdon, Messrs. Boudreau and Scipione, and each
of the officers of the Funds are interested persons of the Adviser, are
compensated by the Adviser/or affiliated companies and receive no compensation
from the Fund for their services.
<TABLE>
<CAPTION>
Total Compensation From
Pensions or Retirement Estimated Annual the Fund and John Hancock
Aggregate Compensation Benefits Accrued as Part Benefits Upon Fund Complex to Trustees(1)
Independent Trustees From the Fund of the Fund's Expenses Retirement (Total of 19 Funds)
- -------------------- ------------- ---------------------- ---------- -------------------
<S> <C> <C> <C>
Dennis S. Aronowitz $ 2,366 - $ - $ 61,050
Richard P. Chapman, Jr. 722 $1,719- - 62,800
William J. Cosgrove 722 1,644 - 61,050
Gail D. Fosler 3,366 - - 60,800
Bayard Henry 2,282 - - 58,850
Edward J. Spellman 2,366 - - 61,050
William A. Barron, III+ 0 0 - 0
Douglas M. Costle 0 0 - 0
Leland O. Erdahl 0 0 - 0
Richard A. Farrell 0 0 - 0
William F. Glavin 0 0 - 0
Patrick Grant+ 0 0 - 0
Ralph Lowell, Jr. 0 0 - 0
Dr. John A. Moore 0 0 - 0
Patti McGill Peterson 0 0 - 0
John W. Pratt 0 0 - 0
$10,824 $3,363 $ - $365,600
</TABLE>
* Compensation made for the fiscal year ended December 31, 1995.
(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.
+ This person has resigned as a Trustee of the Fund as of the date of this
Statement of Additional Information.
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 March 13, 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 March 31, 1996 the following shareholders beneficially owned 5% of or more
of the outstanding shares of the Funds listed below:
-17-
<PAGE>
<TABLE>
<CAPTION>
Number of shares Percentage of total
Name and Address Fund and Class of beneficial outstanding shares of
of Shareholder of Shares interest owned the class of the Fund
- -------------- --------- -------------- ---------------------
<S> <C> <C> <C>
Continental Trust Cop. Cust Class B Shares 221,458 24.57%
C/F County Employee's
Annuity & Ben Fund of Cook
County IL., 231 LaSalle
Chicago, IL 60697-0001
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Prospectus, the Fund receives its investment advice from the
Adviser. Investors should refer to the Prospectus for a description of certain
information concerning the investment management contract. Each of the Trustees
and principal officers of the Trust who is also an affiliated person of the
Adviser is named above, together with the capacity in which such person is
affiliated with the Trust and the Adviser.
As described in the Prospectus under the caption "Organization and Management of
the Fund," the Fund has entered into an investment management contract with the
Adviser. Under the investment management contract, the Adviser provides the Fund
with (i) a continuous investment program, consistent with the Fund's stated
investment objective and policies, (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. The
Adviser is responsible for the management of the Fund's portfolio assets.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more other funds or clients are selling the same security. If opportunities for
purchase or sale of securities by the Adviser for the Fund or for other funds or
clients for which the Adviser renders investment advice arise for consideration
at or about the same time, transactions in such securities will be made, insofar
as feasible, for the respective funds or clients in a manner deemed equitable to
all of them. To the extent that transactions on behalf of more than one client
of the Adviser or its affiliates may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
No person other than the Adviser and its directors and employees regularly
furnishes advice to the Fund with respect to the desirability of the Fund's
investing in, purchasing or selling securities. The Adviser may from time to
time receive statistical or other similar factual information, and information
regarding general economic factors and trends, from the Life Company and its
affiliates.
Under the terms of the investment management contract 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 other
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, but excluding certain distribution related
-18-
<PAGE>
activities required to be paid by the Adviser or John Hancock Funds) and the
continuous public offering of the shares of the Fund are borne by the Fund.
As discussed in the Prospectus and as provided by the investment management
contract, the Fund pays the Adviser monthly an investment management fee, which
is accrued daily, based on a stated percentage of the average of the daily net
assets of the Fund as follows:
Net Asset Value Annual Rate
--------------- -----------
First $250, 000, 0000 0.80%
Next $250,000,000 0.75%
Amount over $500,000,000 0.70%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to re-impose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
On December 31, 1995, the net assets of the Fund were $257,612,642. For the
years ended December 31, 1993, 1994 and 1995, the Adviser received fees of
$784,618, $1,231,294 and $1,561,020 respectively. The advisory fee reflect a
different advisory fee schedule that was in effect before January 1, 1994.
If the total of all ordinary business expenses of the Fund for any fiscal year
exceeds limitations prescribed in any state in which shares of the Fund are
qualified for sale, the fee payable to the Adviser will be reduced to the extent
required by these limitations. At this time, the most restrictive limit on
expenses imposed by a state requires that expenses charged to the Fund in any
fiscal year may not exceed 2 1/2% of the first $30,000,000 of the Fund's average
net assets, 2% of the next $70,000,000 of such net assets and 1 1/2% of the
remaining average net assets. When calculating the above limit, the Fund may
exclude interest, brokerage commissions and extraordinary expenses.
Pursuant to its investment management contract, the Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the 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 Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-
7603, 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 a combined total of over
1,080,000 shareholders. The Adviser is an affiliate of the Life Company, one of
the most recognized and respected financial institutions in the nation. With
total assets under management of $80 billion, the Life Company is one of the ten
largest life insurance companies in the United States, and carries high ratings
with S&P's and A. M. Best's. Founded in 1862, the Life Company has been serving
clients for over 130 years.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a name or any other name indicating that it is
advised
-19-
<PAGE>
by or otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the non-exclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or affiliate thereof
shall be the investment adviser.
The investment management contract and the distribution contract discussed below
continue in effect from year to year if approved annually by vote of a majority
of the Independent Trustees (as defined below), 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. Each
contract automatically terminates upon assignment. Each contract may be
terminated without penalty on 60 days' notice at the option of either party to
the respective contract or by vote of a majority of the outstanding voting
securities of the Fund.
DISTRIBUTION CONTRACT
The Fund has a distribution contract with John Hancock Funds pertaining to each
class of shares. Under the contract, John Hancock Funds is obligated to use its
best efforts to sell shares on behalf of the Fund. Shares of the Fund are also
sold by selected broker-dealers (the "Selling Brokers") which have entered into
selling agency agreements with John Hancock Funds. John Hancock Funds accepts
orders for the purchase of the shares of the Fund which are continually offered
at net asset value next determined, plus any applicable sales charge. In
connection with the sale of Class A or Class B shares of the Fund, John Hancock
Funds and Selling Brokers receive compensation in the form of a sales charge
imposed, in the case of Class A shares, at the time of sale or, in the case of
Class B shares, on a deferred basis. The sales charges are listed in the Fund's
Class A and Class B Shares Prospectus (the "Class A and Class B Prospectus").
The Fund's Trustees adopted Distribution Plans with respect to Class A and Class
B shares (together, the Plans) pursuant to Rule 12b-1 under the Investment
Company Act. Under the Plans, the Fund will pay distribution and service fees at
an aggregate annual rate of up to 0.30% and 1.00%, respectively, of the Fund's
daily net assets attributable to shares of that Class. However, the service fee
will not exceed 0.25% of the Fund's daily net assets attributable to each class
of shares. The distribution fees will be used to reimburse the Distributor for
its distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of the
Distributor) engaged in the sale of Fund shares; (ii) marketing, promotional and
overhead expenses incurred in connection with the distribution of Fund shares;
and (iii) with respect to Class B shares only, interest expenses on unreimbursed
distribution expenses. The service fees will be used to compensate Selling
Brokers for providing personal and account maintenance services to shareholders.
In the event that John Hancock Funds is not fully reimbursed for expenses
incurred by it under the Class B
Plan in any fiscal year, John Hancock Funds may carry these expenses forward,
provided, however that the Trustees may terminate the Class B Plan and thus the
Fund's obligation to make further payments at any time. Accordingly, the Fund
does not treat unreimbursed expenses relating to the Class B shares as a
liability of the Fund. The Plans were approved by a majority of the voting
securities of the applicable class of the Fund. The Plans were approved by a
majority of the voting securities of the applicable class of the Fund. Both
Plans and all amendments were approved by a majority of the Trustees, including
a majority of the Trustees who are not interested persons of the Fund and who
have no direct or indirect financial interest in the operation of the Plans (the
"Independent Trustees"), by votes cast in person at meetings called for the
purpose of voting on these Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plan and the purpose for
which these expenditures were made. The Trustees review these reports on a
quarterly basis.
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During the fiscal year ended December 31, 1995 the Fund paid Investor Services
the following amounts of expenses with respect to the Class A and Class B shares
of the Fund:
Expense Items
<TABLE>
<CAPTION>
Printing and Mailing
of Prospectus to New Compensation to Expenses of John Interest Carrying or
Advertising Shareholders Selling Brokers Hancock Funds Other Finance Charges
----------- ------------ --------------- ------------- ---------------------
<S> <C> <C> <C> <C>
Growth Fund
- -----------
Class A shares $52,118 $14,899 $394,891 $97,474 $ 0
Class B shares $10,264 $ 1,531 $ 40,221 $15,914 $14,661
</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 may be terminated without penalty
(a) by vote of a majority of the Independent Trustees, (b) by a majority of the
Fund's outstanding shares of the applicable class upon 60 days' written notice
to John Hancock Funds and (c) automatically in the event of assignment. Each of
the Plans further provides that it may not be amended to increase the maximum
amount of the fees for the services described therein without the approval of a
majority of the outstanding shares of the class of the Fund which has voting
rights with respect to the Plan. 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 a majority of both the Trustees and the Independent Trustees of the
Fund. The holders of Class A and Class B shares have exclusive voting rights
with respect to the Plan applicable to their respective class of shares. In
adopting the Plans, the Trustees concluded that, in their judgment, there is a
reasonable likelihood that each of the Plans will benefit the holders of the
applicable class of shares of the Fund.
When the Fund seeks an Independent Trustee to fill a vacancy or as a nominee for
election by shareholders, the selection or nomination of the Independent Trustee
is, under resolutions adopted by the Trustees contemporaneously with their
adoption of the Plans, committed to the discretion of the Committee on
Administration of the Trustees. The members of the Committee on Administration
are all Independent Trustees and are identified in this Statement of Additional
Information under the 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 or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
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<PAGE>
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 a 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 Class A and Class B Prospectus. Methods of obtaining
reduced sales charges referred to generally in the Class A and Class B
Prospectus are described in detail below. In calculating the sales charge
applicable to current purchases of Class A shares of the Fund, the investor is
entitled to cumulate current purchases with the greater of the current value (at
offering price) of the Class A shares of the Fund owned by the investor, or if
Investor Services is notified by the investor's dealer or the investor at the
time of the purchase, the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his spouse and their children under the age of 21, purchasing
securities for his or their own account, (b) a trustee
or other fiduciary purchasing for a single trust, estate or fiduciary account
and (c) certain groups of four or more individuals making use of salary
deductions or similar group methods of payment whose funds are combined for the
purchase of mutual fund shares. Further information about combined purchases,
including certain restrictions on combined group purchases, is available from
Investor Services or a Selling Broker's representative.
Without Sales Charges. As described in the Class A and Class B Prospectus, Class
A shares of the Fund may be sold without a sales charge to certain persons
described in the prospectus.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or value of the Class A shares already held by such
person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Class A and Class B Prospectus) also are available to an investor
based on the aggregate amount of his concurrent and prior investments in Class A
shares of the Fund and shares of all other John Hancock funds which carry a
sales charge.
Letter of Intention. The reduced sales charges are also applicable to
investments made over a specified period pursuant to a Letter of Intention (the
"LOI"), which should be read carefully prior to its execution by an investor.
The Fund offers two options regarding the specified period for
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<PAGE>
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), 403(b) and Section 457 plans. Such an investment (including
accumulations and combinations) must aggregate $50,000 or more invested during
the specified period from the date of the LOI or from a date within ninety (90)
days prior thereto, upon written request to Investor Services. The sales charge
applicable to all amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If such aggregate
amount is not actually invested, the difference in the sales charge actually
paid and the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made within the specified period
(either 13 or 48 months) the sales charge applicable will not be higher than
that which would have applied (including accumulations and combinations) had the
LOI been for the amount actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient Class A shares
(approximately 5% of the aggregate) to make up any difference in sales charges
on the amount intended to be invested and the amount actually invested, until
such investment is completed within the specified period, at which time the
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 attorney-in-fact to
redeem any escrowed Class A shares and adjust the sales charge, if necessary. An
LOI does not constitute a binding commitment by an investor to purchase, or by
the Fund to sell, any additional Class A shares and may be terminated at any
time.
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge (CDSC)
at the rates set forth in the Class A and Class B Prospectus as a percentage of
the dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the current market value or the original purchase cost of
the Class B shares being redeemed. Accordingly, no CDSC will be imposed on
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 the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the 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 Class
A and Class B Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to CDSC,
unless indicated otherwise, in the circumstances defined below:
- - Redemptions of Class B shares made under a Systematic Withdrawal Plan, 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.
- - 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 Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of this Prospectus.
- - Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
- - Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
- - Redemptions from certain IRA and retirement plans that purchase 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.
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 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
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<PAGE>
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 Prospectuses, 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 Class A and Class B
Prospectus, the Fund permits the establishment of a Systematic Withdrawal Plan.
Payments under this plan represent proceeds from the redemption of shares of the
Fund. Since the redemption price of the shares of the Fund may be more or less
than the shareholder's cost, depending upon the market value of the securities
owned by the Fund at the time of redemption, the distribution of cash pursuant
to this plan may result in realization of gain or loss for purposes of Federal,
state and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares of the Fund
could be disadvantageous to a shareholder because of the initial sales charge
payable on such purchases of Class A shares and
the CDSC imposed on redemptions of Class B shares and because redemptions are
taxable events. Therefore, a shareholder should not purchase Class A or Class B
shares at the same time that 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 fully
in the Class A and Class B Prospectus. The program, as it relates to automatic
investment checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic Accumulation
Program may be revoked by Investor Services without prior notice if any
investment is not honored by the 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 due date of any investment.
Reinvestment Privilege. A shareholder who has redeemed Fund shares may, within
120 days after the date of redemption, reinvest without payment of a sales
charge any part of the redemption proceeds in shares of the same class of the
Fund or any of the other John Hancock funds, subject to the minimum investment
limit of that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
the Fund or in Class A shares of any of the other John Hancock funds. If a CDSC
was paid upon a redemption, a shareholder may reinvest the proceeds from this
redemption at net asset value in additional shares of the class from which the
redemption was made. The shareholder's account will be credited with the amount
of any CDSC charged upon the prior redemption and the new shares will continue
to be subject to the CDSC. The holding period of the shares acquired through
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<PAGE>
reinvestment will, for purposes of computing the CDSC payable upon a subsequent
redemption, include the holding period of the redeemed shares. The Fund may
modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "Tax
Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and one other
series. Additional series may be added in the future. The Declaration of Trust
also authorizes the Trustees to classify and
reclassify the shares of the Fund, or any other series of the Trust, into one or
more classes. As of the date of this Statement of Additional Information, the
Trustees have authorized the issuance of two classes of shares of the Fund,
designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. The holders
of Class A and Class B shares have certain exclusive voting rights on matters
relating to their respective Rule 12b-1 distribution plans. The different
classes of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and will be in the same amount,
except that (i) the distribution and service fees relating to Class A and Class
B shares will be borne exclusively by that class, (ii) Class B shares will pay
higher distribution and service fees than Class A shares and (iii) each of Class
A and Class B shares will bear any class expenses properly allocable to that
class of shares. Similarly, the net asset value per share may vary depending on
whether Class A shares or Class B shares are purchased.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the class of the Fund available for distribution
to these shareholders. Shares entitle their holders to one vote per share, are
freely transferable and have no preemptive, subscription or conversion rights.
When issued, shares are fully paid and non-assessable, except as set forth
below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Trust has no intention of holding annual meetings of shareholders.
Trust shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the trust. However, the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or
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<PAGE>
affairs of the Fund. The Declaration of Trust also provides for indemnification
out of the Fund's assets for all losses and expenses of any shareholder held
personally liable for reason of being or having been a shareholder. Liability is
therefore limited to circumstances in which the Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate entity
for accounting and tax purposes. 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") and intends to continue
to so qualify for each taxable year. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timing of its distributions and the diversification of its assets, the Fund will
not be subject to Federal income tax on taxable income (including net realized
capital gains) which is distributed to shareholders at least annually in
accordance with the timing requirements of the Code.
The Fund will be subject to a four percent nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Fund's Prospectus, whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital gains.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for Federal income tax purposes in each share so received
equal to the amount of cash that they would have received had they elected to
receive the distribution in cash, divided by the number of shares received.
The Fund may be subject to foreign taxes on its income from investments in
certain ADRs representing foreign securities. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Because more than 50%
of the Fund's assets at the close of any taxable year will not consist of stocks
or securities of foreign corporation, the Fund will be unable to pass such taxes
through to shareholders (as additional income) along with a corresponding
entitlement to a foreign tax credit or deduction.
If the fund acquires ADRs representing stock in certain non-U.S. corporations
that receive at least 75% of their annual gross income from passive sources
(such as interest, dividends, rents royalties or capital gain) or hold at least
50% of their asset in investments producing such passive income ("passive
foreign investment companies"), the Fund could be subject to Federal income tax
and additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to it shareholders any credit or
deduction for such a tax. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election would require the Fund to
recognize taxable
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<PAGE>
income or gain without the concurrent receipt of cash. The Fund may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return for these investments.
The amount of net realized capital gains, if any, in any given year will result
from sales of securities made with a view to the maintenance of a portfolio
believed by the Fund's management to be most likely to attain the Fund's
objective. Such sales, and any resulting gains or losses, may therefore vary
considerably from year to year. At the time of an investor's purchase of shares
of the Fund, 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 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 (including by exercise of the exchange privilege) a
shareholder will ordinarily realize a taxable gain or loss depending upon his
basis in his shares. Such gain or loss will be treated as capital gain or loss
if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, depending upon the shareholder's 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 Class
A shares of the Fund or another John Hancock fund are subsequently acquired
without payment of a sales charge pursuant to the reinvestment or exchange
privilege. This disregarded charge will result in an increase in the
shareholder's tax basis in the Class A shares subsequently acquired. Also, any
loss realized on a redemption or exchange may be disallowed to the extent the
shares disposed of are replaced with other shares of the Fund within a period of
61 days beginning 30 days before and ending 30 days after the shares are
disposed of, such as pursuant to 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 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 capital gains, if any,
the Fund reserves the right to retain and reinvest all or any portion of the
excess, as computed for Federal income tax purposes, of net long-term capital
gain over net short-term capital loss in any year. The Fund will not in any
event distribute net 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 carry forward of
prior years' capital losses, it would be subject to Federal income tax in the
hands of the Fund. Each shareholder would be treated for Federal income tax
purposes as if the Fund had distributed to him on the last day of its taxable
year his pro rata share of such excess, and he had paid his pro rata share of
the taxes paid by the Fund and reinvested the remainder in the Fund.
Accordingly, each shareholder would (a) include his pro rata share of such
excess as long-term capital gain in his return for his taxable year in which the
last day of the Fund's taxable year falls, (b) be entitled either to a tax
credit on his return for, or to a refund of, his pro rata share of the taxes
paid by the Fund, and (c) be entitled to increase the adjusted tax basis for his
shares in the Fund by the difference between his pro rata share of such excess
and his pro rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and, as noted above, would not be distributed as such to
shareholders. Presently, there are no realized capital loss carry forwards
available to offset future net realized capital gains.
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If the Fund invests in 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), the Fund will be required to accrue income on
such investments prior to the receipt of the corresponding cash payments.
However,
the Fund must distribute, at least 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 or in default present 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 the event it acquires or holds any such obligations,
in order to reduce the risk of distributing insufficient income to reserve its
status as a regulated investment company and seeks to avoid becoming subject to
Federal income or excise tax.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their shares of
the Fund in order to qualify for the deduction and, if they borrow to acquire
such shares, may be denied a portion of the dividends received deduction. The
entire qualifying dividend, including the otherwise-deductible amount, will be
included in determining the excess (if any) of a corporate shareholder's
adjusted current earnings over its alternative minimum taxable income, which may
increase its alternative minimum tax liability. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
basis in its shares may be reduced, for Federal income tax purposes, by reason
of "extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options, futures and forward contracts may
also require the Fund to recognize income or gain without a concurrent receipt
of cash. However, the Fund must distribute to shareholders for each taxable year
substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although it may in its sole discretion provide relevant
information to shareholders.
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The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number or if the IRS or a broker notifies the Fund that the
number furnished by the shareholder is incorrect or that the shareholder is
subject to backup withholding as a result of failure to report interest or
dividend income. A Fund may refuse to accept an application that does not
contain any required taxpayer identification number or certification that the
number provided is correct. If the backup withholding provisions are applicable,
any such distributions and proceeds, whether taken in cash or reinvested in
shares, will be reduced by the amounts required to be withheld. Any amounts
withheld may be credited against a shareholder's U.S. federal income tax
liability. Investors should consult their tax advisers about the applicability
of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The foregoing discussion relates solely to Federal income tax law as applicable
to U.S. persons (i.e., U.S. citizens and 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 exchanges) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, 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
The average annual total return on Class A shares of the Fund for the 1 year, 5
year and 10 year periods ended December 31, 1995 was 20.82%, 13.69% and 11.76%,
respectively and reflect payment of the maximum sales charge of 5.0%. The
average annual total return on Class B shares of the Fund for the 1 year period
ended December 31, 1995 and since inception on January 1, 1994 was 21.01% and
6.69%, respectively, and reflects the applicable contingent deferred sales
charge.
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Total return is computed by finding the average annual compounded rate of return
over the 1 year, 5 year and 10 year periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
_______
T = \n/ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1 year, 5 year, and 10 year
periods.
In the case of Class A shares or Class B shares, this calculation assumes the
maximum sales charge of 5.00% is included in the initial investment or the CDSC
is applied at the end of the period, respectively. This calculation also assumes
that all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments and/or a series of redemptions over any time period. Total returns
may be quoted with or without taking the Fund's 5.00% sales charge on Class A
shares or the CDSC on Class B shares into account. The "distribution rate" is
determined by annualizing the result of dividing the declared dividends of the
Fund during the period stated by the maximum offering price or net asset value
at the end of the period. Excluding the Fund's sales charge on Class A shares
and the CDSC on Class B shares from a total return calculation produces a higher
total return figure.
From time to time, in reports and promotional literature, the Fund's total
return 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 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 rankings and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may also be
utilized.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
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BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by its investment committee, which consists of officers and
directors of the Adviser and affiliates and officers and Trustees who are
interested persons of the Fund. Orders for purchases and sales of securities are
placed in a manner which, in the opinion of the Adviser, will offer the best
price and market for the execution of each such transaction. Purchases from
underwriters of portfolio securities may include a commission or commissions
paid by the issuer, and transactions with dealers serving as market makers
reflect a spread. 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 as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and, to a
lesser extent, statistical assistance furnished to the Adviser of the Fund and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Insurance Company or other advisory clients of the Adviser, and, conversely,
brokerage commissions and spreads paid by other advisory clients of the Adviser
may result in research information and statistical assistance beneficial to the
Fund. The Fund will not make commitments to allocate portfolio transactions upon
any prescribed basis. While the Fund's officers will be primarily responsible
for the allocation of the Fund's brokerage business, their policies and
practices in this regard must be consistent with the foregoing and will at all
times be subject to review by the Trustees. For the years ended on December 31,
1995, 1994 and 1993, the Fund paid negotiated brokerage commissions in the
amount of $334,672, $236,226, and $244,879, 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 commission 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 December 31, 1995, the
Fund directed commissions in the amount of $46,158 to compensate brokers for
research services such as industry, economic and company reviews and evaluations
of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
two of which, Tucker Anthony Incorporated ("Tucker Anthony") and Sutro &
Company, Inc. ("Sutro"), are broker-dealers ("Affiliated Brokers"). Pursuant to
procedures established by the Trustees and consistent with the above
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policy of obtaining best net results, the Fund may execute portfolio
transactions with or through Tucker Anthony or Sutro. During the year ended
December 31, 1995, the Fund did not execute any portfolio transactions with
Affiliated Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Trustees believe to be contemporaneously charged by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with an
Affiliated Broker if the Fund would have to pay a commission rate less favorable
than the Affiliated Broker's contemporaneous charges for comparable transactions
for its other most favored, but unaffiliated, customers, except for accounts for
which the Affiliated Broker acts as clearing broker for another brokerage firm,
and any customers of the Affiliated Broker not comparable to the Fund as
determined by a majority of the Trustees who are not "interested persons" (as
defined in the Investment Company Act) of the Fund, the Adviser or the
Affiliated Broker. Because the Adviser, which is affiliated with the Affiliated
Brokers, has, as an investment adviser to the Fund, the obligation to provide
investment management services, which include elements of research and related
investment skills, such research and related skills will not be used by the
Affiliated Broker as a basis for negotiating commissions at a rate higher than
that determined in accordance with the above criteria. The Fund will not effect
principal transactions with Affiliated Brokers.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA 02205-
9116, a wholly owned indirect subsidiary of the Life Insurance Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Investor Services
an annual fee for Class A of $16.00 per shareholder account and for Class B
shares of $18.50 plus certain out-of-pocket expenses. These expenses are
aggregated and charged to the Fund allocated to each class on the basis of the
relative net asset value.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund 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 Fund are Ernst & Young LLP, 200 Clarendon
Street, Boston, Massachusetts 02116. Ernst & Young audits and renders an opinion
of the Fund's annual financial statements and prepares the Fund's annual Federal
income tax return.
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APPENDIX
Moody's describes its lower ratings for corporate bonds as follows:
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represented obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
S&P describes its lower ratings for corporate bonds as follows:
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.
Debt rated BB, B, CCC, or CC is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. 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
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's describes its three highest ratings for commercial paper as follows:
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Issuers rated P-1 (or related supporting institutions) have a superior capacity
for repayment of short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics: (1) leading market
positions in well-established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structures with moderate reliance on
debt and ample asset protections; (4) broad margins in earnings coverage of
fixed financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of
alternate liquidity.
Issuers rated P- (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P describes its three highest ratings for commercial paper as follows:
A-1. This designation indicated that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
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JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
Class A and Class B Shares
Statement of Additional Information
July 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 combined Growth Funds' Prospectus dated July 1, 1996
(the "Prospectus"). The Fund is a series portfolio of Freedom Investment Trust
II (the "Trust").
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Prospectus, a copy of which 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................................................ 2
Investment Objective and Policies....................................... 2
Investment Restrictions................................................. 12
Those Responsible for Management........................................ 15
Investment Advisory and Other Services.................................. 21
Distribution Contract................................................... 22
Net Asset Value......................................................... 24
Initial Sales Charge on Class A Shares.................................. 24
Deferred Sales Charge on Class B Shares................................. 25
Special Redemptions..................................................... 27
Additional Services and Programs........................................ 27
Descriptions of the Fund's Shares....................................... 28
Tax Status.............................................................. 29
Calculation of Performance.............................................. 33
Brokerage Allocation.................................................... 34
Transfer Agent Services................................................. 35
Custody of Portfolio.................................................... 35
Independent Auditors.................................................... 36
Appendix A - Economic Sectors and Description of Bond Ratings........... A-1
Financial Statements
<PAGE>
ORGANIZATION OF THE FUND
The Fund is a non-diversified series of 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. The Fund's investment manager is John Hancock
Advisers, Inc. (the "Adviser"), an indirect wholly-owned subsidiary of John
Hancock Mutual Life Insurance Company (the "Life Company"), a Massachusetts life
insurance company chartered in 1862, with national headquarters at John Hancock
Place, Boston, Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's goals,
strategies and risks that appears in the Prospectus.
Investment Strategy. 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 riskes 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 capitalizations. 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 Adviser select 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 Appendix A to this
Statement of Additional Information for a further description of the sectors in
which the Fund may invest.
The Adviser will adjust the Fund's relative weighting among the sectors in
response to changes in economic and market conditions. 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 investin 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
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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.
Investment in Fixed Income Securities. The Fund may invest in the follwing 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 levels 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 & Poor's 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.
Ratings as Investment Criteria. In general, the ratings of Moody's and S&P
represent the opinions of these agencies as to the quality of the securities
which they rate. It should be emphasized, however, that such ratings are
relative and subjective and are not absolute standards of quality. These ratings
will be used by the Fund as initial criteria for the selection of corporate debt
securities. Among the factors which will be considered are the long-term ability
of the issuer to pay principal and interest and general economic trends.
Appendix A contains further information concerning the ratings of Moody's and
S&P and their significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of the foregoing events will require the sale of such
securities by the Fund, but the Adviser will consider such event in its
determination of whether the Fund should continue to hold the securities.
Investment in Foreign Securities. The Fund may invest in the securities of
foreign issuers, including securities in the form of sponsored or unsponsored
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs) or
other securities convertible into securities of foreign issuers. ADRs are
receipts typically issued by an American bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation. EDRs are
receipts issued in Europe which evidence a similar ownership arrangement.
Issuers of unsponsored ADRs are not contractually obligated to disclose material
information, including financial information, in the United States. Generally,
ADRs are designed for use in the United States securities markets and EDRs are
designed for use in European securities markets.
Investments in foreign securities may involve a greater degree of risk than
those in domestic securities. There is generally less publicly available
information about foreign companies and other issuers comparable to reports and
ratings that are published about issuers in the United States. Foreign issuers
are also generally not subject to uniform accounting and auditing and financial
reporting standards, practices and requirements comparable to those
applicable to United States issuers. Also, foreign regulation may differ
considerably from domestic regulation of stock exchanges, brokers and
securities.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly. Therefore, the Fund's investments
on foreign
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<PAGE>
exchanges may be less liquid and subject to the risk of fluctuating currency
exchange rates pending settlement.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on exchanges located in the countries in which the
respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States' economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and balance
of payments position.
The dividends and interest payable on certain of the Fund's foreign portfolio
securities, as well as, in some cases, capital gains, may be subject to foreign
withholding or other foreign taxes, thus reducing the net amount of income or
gains available for distribution to the Fund's shareholders.
Repurchase Agreements. A repurchase agreement is a contract under which the Fund
acquires a security for a relatively short period (usually note more than 7
days) subject to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's cost
plus interest). The Fund will enter into repurchase agreements only with member
banks of the Federal Reserve System and with "primary dealers" in U.S.
Government securities. The Adviser will continuously monitor the
creditworthiness of the parties with whom the Fund enter into repurchase
agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income and lack of
access to income during this period and the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank or securities firm with an agreement that the Fund will buy
back the securities at a fixed future date at a fixed price plus an agreed
amount of "interest" which may be reflected in the repurchase price. Reverse
repurchase agreements are considered to be borrowings by the Fund. The Fund will
use proceeds obtained from the sale of securities pursuant to reverse repurchase
agreements to purchase other investments. The use of borrowed funds to make
investments is a practice known as "leverage," which is considered speculative.
Use of reverse repurchase agreements is an investment technique that is intended
to increase income. Thus, the Fund will enter into a reverse repurchase
agreement only when the Adviser determines that the interest income to be earned
from the investment of the proceeds is greater than the interest expense of the
transaction. However, there is a risk that
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<PAGE>
interest expense will nevertheless exceed the income earned. Reverse repurchase
agreements involve the risk that the market value of securities purchased by the
Fund with proceeds of the transaction may decline below the repurchase price of
the securities sold by the Fund which it is obligated to repurchase. The Fund
will also continue to be subject to the risk of a decline in the market value of
the securities sold under the agreements because it will reacquire those
securities upon effecting their repurchase. To minimize various risks associated
with reverse repurchase agreements, the Fund will establish and maintain with
the Fund's custodian a separate account consisting of highly liquid, marketable
securities in an amount at least equal to the repurchase prices of the
securities (plus any accrued interest thereon) under such agreements. In
addition, the Fund will not enter into reverse repurchase agreements and other
borrowings exceeding in the aggregate 33 1/3% of the market value of its total
assets. The Fund will enter into reverse repurchase agreements only with
selected registered broker/dealers or with federally insured banks or savings
and loan associations which are approved in advance as being creditworthy by the
Board of Trustees. Under procedures established by the Board of Trustees, the
Adviser will monitor the creditworthiness of the firms involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including securities offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. However, the Fund will not invest more than 15% of
its assets in illiquid investments, which include repurchase agreements maturing
in more than seven days, securities that are not readily marketable and
restricted securities. However, if the Board of Trustees determines, based upon
a continuing review of the trading markets for specific Rule 144A securities,
that they are liquid, then such securities may be purchased without regard to
the 15% limit. The Trustees may adopt guidelines and delegate to the Adviser the
daily function of determining the monitoring and liquidity of restricted
securities. The Trustees, however, will retain sufficient oversight and be
ultimately responsible for the determinations. The Trustees will carefully
monitor the Fund's investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of information.
This investment practice could have the effect of increasing the level of
illiquidity in the Fund if qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
The Fund may acquire other restricted securities including securities for which
market quotations are not readily available. These securities may be sold only
in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the Securities Act of 1933.
Where registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than
prevailed when it decided to sell. Restricted securities will be priced at fair
market value as determined in good faith by the Fund's Trustees. If through the
appreciation of restricted securities or the depreciation of unrestricted
securities, the Fund should be in a position where more than 15% of the value of
its assets is invested in illiquid securities (including repurchase agreements
which mature in more than seven days and options which are traded
over-the-counter and their underlying securities), the Fund will bring its
holdings of illiquid securities below the 15% limitation.
Foreign Currency Transactions. Due to its investments in foreign securities, the
Fund may hold a portion of its assets in foreign currencies. The foreign
currency 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 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
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set at the time of the contract. The Fund's dealings in forward foreign currency
contracts will be limited to hedging either specific transactions or portfolio
positions. The Fund will not attempt to hedge all of its foreign portfolio
positions. The Fund will not engage in speculative forward currency
transactions.
If the Fund enters into a forward contract to purchase foreign currency, its
custodian bank will segregate cash or liquid high-grade liquid debt securities
(i.e. securities rated in one of the top three rating categories by Moody's or S
& P 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 assets in
the separate account declines, additional cash or liquid assets will be placed
in the account so that the value of the account will equal the amount of the
Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as that 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.
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. For a discussion
of the Federal income tax considerations of trading in futures contracts, see
the information under the caption "Tax Status" below.
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."
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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 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 consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses.
-7-
<PAGE>
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.
The Fund may purchase and write call and put options on financial futures
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 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 (the "Code"), 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 liquid, high grade debt
securities (i.e., securities rated in one of the top three ratings categories by
Moody's or S&P) 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.
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<PAGE>
Options Transactions. The Fund may write (sell) listed and over-the-counter
covered call options and covered put options on securities in which it may
invest, and on indices composed of securities in which it may invest. In
addition, the Fund may purchase listed and over-the-counter call and put options
on these securities and indices. 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
liquid, high grade 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 liquid, high grade 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.
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
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<PAGE>
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.
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 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 has to have an absolute contractual right to repurchase the OTC options at
a formula price. If the above conditions are met, the 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.
While transactions in options (including options on financial 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, an options position because of position limits on
daily price fluctuations imposed by an exchange. There can be no assurance that
a liquid secondary market will exist for any option. 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. The
potential loss from writing options is potentially unlimited and may exceed the
amount of the premium received.
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.
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<PAGE>
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.
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 SEC, if the Fund engages in
short sales of the type referred to in non-fundamental Investment Restriction
(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 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.
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 as a regulated investment
company under the Code.
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.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the
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<PAGE>
purchase. In a forward commitment transaction, the Fund contracts to purchase
securities for a fixed price at a future date beyond customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, the Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
Short Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income. Short
term trading may have the effect of increasing portfolio turnover rate. A high
rate of portfolio turnover (100% or greater) involves corresponding higher
transaction expenses and may make it more difficult for a fund to qualify as a
regulated investment company for federal income tax purposes.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities. When the Fund
lends portfolio securities, there is a risk that the borrower may fail to return
the securities involved in the transaction. As a result, the Fund may incur a
loss or, in the event of the borrower's bankruptcy, the Fund may be delayed in
or prevented from liquidating the collateral. It is a fundamental policy of the
Fund not to lend portfolio securities having a total value exceeding 33 1/3% of
its total assets.
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.
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<PAGE>
(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' 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.
Nonfundamental Investment Restrictions. The following restrictions are
designated as nonfundamental and may be changed by the Board of Trustees without
shareholder approval.
The Fund may not:
(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
-13-
<PAGE>
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.
(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
being
-14-
<PAGE>
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.
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").
-15-
<PAGE>
The following table sets forth the principal occupation or employment of the
Trustees and principal officers of the Fund during the past five years.
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
October 1944 Officer, the Adviser and The
Berkeley Financial Group ("The
Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited; ("Advisers
International"); John Hancock
Funds, Inc., ("John Hancock
Funds"); John Hancock Investor
Services Corporation ("Investor
Services"), and Sovereign Asset
Management Corporation ("SAMCorp");
(hereinafter the Adviser, the
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Investor Services
and SAMCorp are collectively
referred to as the "Affiliated
Companies"); Chairman, First
Signature Bank & Trust; Director,
John Hancock Freedom Securities
Corp., John Hancock Capital Corp.,
New England/Canada Business
Council; Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; President, the Adviser
(until July 1992); Chairman, John
Hancock Distributors, Inc.
("Distributors") until April 1994.
Dennis S. Aronowitz Trustee (1,2) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank.
June 1931
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
Richard P. Chapman, Jr. Trustee (1,2) President, Brookline Savings Bank.
160 Washington Street Director, Federal Home Loan Bank of
Brookline, Massachusetts Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee (1,2) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, New Jersey N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation Inc.
(consulting, October 1991 - October
1993); Trustee, the Hudson City
Savings Bank (until October 1995).
Douglas M. Costle Trustee (1,2,3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, Vermont 05091 Institute for Sustainable
July 1939 Communities, Montpelier,
Vermont(since 1991). Dean, Vermont
Law 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) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991) and
President of Albuquerque Uranium
Corporation (from 1985-1992);
Director of Freeport-McMoRan Copper
& Cold Company Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original Sixteen to
One Mine, Inc. (from 1984-1987 and
from 1991 to 1995)(management
consultant).
</TABLE>
-17-
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
Richard A. Farrell Trustee (1,2) President of Farrell, Healer & Co.,
Farrell, Healer & Company, Inc. (venture capital management firm
160 Federal Street -- 23rd Floor (since 1980); Prior to 1980, headed
Boston, MA 02110 the venture capital group at Bank
of Boston Corporation.
November 1932
Gail D. Fosler Trustee (1,2) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD economic and business research).
March 1931
William F. Glavin Trustee (1,2) President, Babson College; Vice
Babson College Chairman, Xerox Corporation until
Horn Library June 1989; Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994), and Inco
March 1931 Ltd.
Bayard Henry Trustee (1,2) Corporate Advisor; Director,
31 Milk Street Fiduciary Trust Company (a trust
Boston, Massachusetts company); Director, Groundwater
July 1931 Technology, Inc. (remediation);
Samuel Cabot, Inc.; Advisor,
Kestrel Venture Management.
Dr. John A. Moore Trustee (1,2) President and Chief Executive
Institute for Evaluating Health Risks Officer, Institute for Evaluating
1101 Vermont Avenue N.W. Health Risks, (nonprofit
Suite 608 institution) ( since September
Washington, DC 20005 1989).
February 1939
Patti McGill Peterson Trustee (1,2) President, St. Lawrence University;
St. Lawrence University Director, Niagara Mohawk Power
110 Vilas Hall Corporation and Security Mutual
Canton, NY 13617 Life.
May 1943
John W. Pratt Trustee (1,2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
*Richard S. Scipione Trustee (3) General Counsel, the Life Insurance
John Hancock Place Company; Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking Insurance
August 1937 Agency, Inc., John Hancock Subsidiaries,
Inc., SAMCorp, NM Capital and John Hancock
Property and Casualty Insurance and its
affiliates (until November, 1993); Trustee;
The Berkeley Group;
Edward J. Spellman, CPA Trustee (1,2,4) Partner, KPMG Peat Marwick LLP (retired
259C Commercial Bld. June 1990).
Lauderdale, FL
November 1932
</TABLE>
The executive officers of the Trust and their principal occupations during the
past five years are set forth below. Unless otherwise indicated, the business
address of each is 101 Huntington Avenue, Boston, Massachusetts 02199.
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment
July 1938 Investment Officer (4) Officer, the Adviser; President
(until December 1994).
Anne C. Hodsdon Trustee and President (4) President and Chief Operating
August 1953 Officer, the Adviser; Executive
Vice President, the Adviser (until
December 1994); Senior Vice
President; the Adviser (until
December 1993); Vice President, the
Adviser, 1991.
James B. Little Senior Vice President, Chief Senior Vice President, the Adviser.
February 1935 Financial Officer
Thomas H. Drohan Senior Vice President and Secretary Senior Vice President and Secretary,
December 1936 the Adviser.
John A. Morin Vice President Vice President, the Adviser.
July 1950
Susan S. Newton Vice President, Assistant Secretary Vice President and Assistant
March 1950 and Compliance Officer Secretary, the Adviser.
-19-
<PAGE>
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
November 1946
</TABLE>
- -----------
* 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 Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the 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.
As of March 31, 1996, the officers and trustees of the Fund as a group
beneficially owned less than 1% of the Fund's outstanding shares. At that date,
no person owned of record or beneficially as much as 5% of the outstanding
shares of the Fund.
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services for the Fund's most recently completed
fiscal year. The three non-Independent Trustees, Ms. Hodson, Messrs. Boudreau
and Scipione, and each of the officers of the Fund are interested persons of the
Adviser, and/or affiliates are compensated by the Adviser and receive no
compensation from the Fund for their services.
<TABLE>
<CAPTION>
Independent Trustees Pensions or Total Compensation
Retirement From the Fund and
Aggregate Benefits Accrued Estimated Annual John Hancock Fund
Compensation as Part of the Benefits Upon Complex to Trustees1
from the Fund Fund's Expenses Retirement (Total of Funds)
<S> <C> <C>
Dennis S. Aronowitz* $ 0 -- -- $ 61,050
William A. Barron, III**+ $ 4,239 -- -- $ 41,750
Richard P. Chapman, Jr.* $ 0 -- -- $ 62,800
William J. Cosgrove* $ 0 -- -- $ 61,050
Douglas M. Costle** $ 4,239 -- -- $ 41,750
Leland O. Erdahl** $ 4,239 -- -- $ 41,750
Richard A. Farrell** $ 4,396 -- -- $ 43,250
Gail D. Fosler* $ 0 -- -- $ 60,800
William F. Glavin** $ 1,240 $2,599 -- $ 37,500
Patrick Grant**+ $ 4,447 -- -- $ 43,750
Bayard Henry* $ 0 -- -- $ 58,850
Ralph Lowell, Jr.**+ $ 4,239 -- -- $ 41,750
Dr. John A. Moore** $ 4,239 -- -- $ 41,750
Patti McGill Peterson** $ 4,239 -- -- $ 41,750
John W. Pratt** $ 4,239 -- -- $ 41,750
Edward J. Spellman* $ 0 -- -- $ 61,050
------- --------
$39,756 $2,599 $782,350
</TABLE>
-21-
<PAGE>
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.
* Trustees of 17 funds in the John Hancock Complex. As of the Fund's most
recently completed fiscal year, these persons were not yet Trustees of the
Fund and did not receive any compensation from the Fund during such fiscal
year.
** Trustees of 10 funds in the John Hancock Complex.
+ As of the date of this document, these persons no longer serve as Trustees
of the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for the Fund is the Adviser, a Massachusetts corporation
with offices at 101 Huntington Avenue, Boston, Massachusetts 02199-7603. The
Adviser is a registered investment advisory firm which maintains a securities
research department, the efforts of which will be made available to the Fund.
The Adviser was organized in 1968 and presently has 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/Freedom group of funds having approximately 1,060,000 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 $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
-21-
<PAGE>
fiscal year not exceed 2 1/2% of the first $30,000,000 of the Fund's average net
assets, 2% of the next $70,000,000 of such net assets, and 1 1/2% of the
remaining average net assets. When calculating the above limit, the Fund may
exclude interest, brokerage commissions and extraordinary expenses.
Pursuant to 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 approved by the Fund's shareholders on June 26, 1996
and will continue in effect until July 1, 1998 and from 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 years ended October 31, 1995 and 1994, the Fund paid the Adviser
an investment advisory fee of $1,870,771 and $1,122,685, respectively.
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. 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 distribution
expenses. The service fees will be used to compensate Selling Brokers for
providing personal and account maintenance services to shareholders. In the
event John Hancock Funds is not fully reimbursed for payments or expenses it
incurs under the Class A Plan, these expenses will not be carried beyond twelve
months from the date they were incurred. Unreimbursed expenses under the Class B
Plan will be carried forward together with interest on the balance of these
unreimbursed expenses. The Fund does not treat unreimbursed expenses relating to
the Class B shares as a liability of the Fund. For the fiscal year
-22-
<PAGE>
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.
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 Fund paid John Hancock Funds
the following amounts of expenses with respect to the Class A and Class B shares
of the Fund:
Expense Items
<TABLE>
<CAPTION>
Printing and Mailing of Interest, Carrying
Prospectus to New Compensation to Expenses of or Other Finance
Advertising Shareholders Selling Brokers John Hancock Funds Charges
----------- ------------ --------------- ------------------ -------
<S> <C> <C> <C> <C> <C>
Class A shares $ 56,577 $4,108 $102,392 $133,614 $ 0
Class B shares $112,118 $ 0 $372,081 $294,916 $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
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."
-23-
<PAGE>
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. Foreign securities are valued on
the basis of quotations from the primary market in which they are traded. 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.
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 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 time of the purchase, the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his or her spouse and their children under the age of 21,
purchasing securities for his or their own account, (b) a trustee or other
fiduciary purchasing for a single trust estate or fiduciary account, and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information
-24-
<PAGE>
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), 403(b)
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 within 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 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 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.
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
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.
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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.
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 CDSCs,
unless indicated otherwise, in the circumstances defined below:
- - Redemptions of Class B shares made under a Systematic Withdrawal Plan, 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.
- - 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 Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of this Prospectus.
- - Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
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- - Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
- - Redemptions from certain IRA and retirement plans that purchase 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.
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.
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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 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. As of the date of this Statement of Additional Information, the
Trustees have authorized the issuance of two classes of shares of the Fund,
designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. 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 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
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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 the Trust, 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.
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,
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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 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
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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 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
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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 the corresponding cash
payments. However, the Fund must distribute, at least 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 or 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
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institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their 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 these figures 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:
Where:
P = a hypothetical initial investment 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 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 ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may also be
utilized.
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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 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 securities.
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<PAGE>
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
three of which, Tucker Anthony Incorporated, John Hancock Distributors, Inc. and
Sutro & Company, Inc. (the "Affiliated Brokers"), are broker-dealers. Pursuant
to procedures established by the Trustees and consistent with the above policy
of obtaining best net results, the Fund may execute portfolio transactions with
or through Affiliated Brokers. 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.
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 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.
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<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 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
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<PAGE>
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 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
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<PAGE>
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.
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.
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<PAGE>
DESCRIPTION OF BOND RATINGS1
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.
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.
- ----------
1 As described by the rating companies themselves.
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<PAGE>
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.
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.
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<PAGE>
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements listed below are included in and
incorporated by reference into Part B of the Registration Statement from the
1995 Annual Report to Shareholders for the year ended October 31, 1995 (filed
electronically on January 3, 1996; file nos. 811-4630 and 33-4559; accession
number 0000950135-96-000052) and December 31, 1995 (filed electronically on
February 26, 1996; file nos. 811-1677 and 2-29502; accession number
0000950135-96-001151).
Freedom Investment Trust II
John Hancock Special Opportunities Fund
Statement of Assets and Liabilities as of October 31, 1995.
Statement of Operations for the year ended October 31, 1995.
Statement of Changes in Net Assets for each of the two years in the
period ended October 31, 1995.
Financial Highlights for each of the years ended October 31, 1995.
Schedule of Investments as of October 31, 1995.
Notes to Financial Statements.
John Hancock Growth Fund
Statement of Assets and Liabilities as of December 31, 1995.
Statement of Operations for the year ended December 31, 1995.
Statement of Changes in Net Assets for each of the two years in the
period ended December 31, 1995.
Financial Highlights for each of the 10 years ended December 31, 1995.
Schedule of Investments as of December 31, 1995.
Notes to Financial Statements.
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit
Index hereto and are incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common control
with Registrant.
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<PAGE>
Item 26. Number of Holders of Securities
As of March 29, 1996 the number of record holders of shares of Registrant
was as follows:
Title of Class Number of Record Holders
-------------- ------------------------
Class A Class B
------- -------
John Hancock Global Fund 14,520 3,611
John Hancock Global Income Fund 2,651 4,119
John Hancock Short-Term Strategic Income Fund 1,878 4,139
John Hancock International Fund 978 1,236
John Hancock Special Opportunities Fund 17,112 20,268
John Hancock Growth Fund 30,440 2,200
Item 27. Indemnification
(a) Under Article VI of the Registrant's Master Trust Agreement each of its
Trustees and Officers or person serving in such capacity with another entity at
the request of the Registrant ("Covered Person") shall be indemnified against
all liabilities, including, but not limited to, amounts paid in satisfaction of
judgments, in compromises or as fines or penalties, and expenses, including
reasonable legal and accounting fees, in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with which
such person may be or may have been threatened, while in office or thereafter,
by reason of being or having been such a Trustee or officer, director or
trustee, except with respect to any matter as to which it has been determined
that such Covered Person (i) did not act in good faith in the reasonable belief
that such Covered Person's action was in or not opposed to the best interests of
the Trust or (ii) had acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office (either and both of the conduct described in (i) and
(ii) being referred to hereafter as "Disabling Conduct"). A determination that
the Covered Person is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable by reason of Disabling
Conduct, (ii) dismissal of a court action or an administrative proceeding
against a Covered Person for insufficiency of evidence of Disabling Conduct, or
(iii) a reasonable determination, based upon a review of the facts, that the
indemnitee was not liable by reason of Disabling Conduct by (a) a vote of a
majority of a quorum of Trustees who are neither "interested persons" of the
Trust as defined in section 2(a)(19) of the 1940 Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion.
(b) Under the Distribution Agreement. Under Section 12 of the Distribution
Agreement, John Hancock Funds, Inc. ("John Hancock Funds" ) has agreed to
indemnify the Registrant and its Trustees, officers and controlling persons
against claims arising out of certain acts and statements of John Hancock Funds.
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<PAGE>
Section 9(a) of the By-Laws of the Insurance Company provides, in effect,
that the Insurance Company will, subject to limitations of law, indemnify each
present and former director, officer and employee of the of the Insurance
Company who serves as a Trustee or officer of the Registrant at the direction or
request of the Insurance Company against litigation expenses and liabilities
incurred while acting as such, except that such indemnification does not cover
any expense or liability incurred or imposed in connection with any matter as to
which such person shall be finally adjudicated not to have acted in good faith
in the reasonable belief that his action was in the best interests of the
Insurance Company. In addition, no such person will be indemnified by the
Insurance Company in respect of any liability or expense incurred in connection
with any matter settled without final adjudication unless such settlement shall
have been approved as in the best interests of the Insurance Company either by
vote of the Board of Directors at a meeting composed of directors who have no
interest in the outcome of such vote, or by vote of the policyholders. The
Insurance Company may pay expenses incurred in defending an action or claim in
advance of its final disposition, but only upon receipt of an undertaking by the
person indemnified to repay such payment if he should be determined to be
entitled to indemnification.
Article IX of the respective By-Laws of John Hancock Funds and the Adviser
provide as follows:
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and the liability was not
incurred by reason of gross negligence or reckless disregard of the duties
involved in the conduct of his office, and expenses in connection therewith may
be advanced by the Corporation, all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such as person."
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Trustees, officers and controlling persons of
Registrant pursuant to the Registrant's Amended and Restated Articles of
Incorporation, Article 10.1 of the Registrant's By-Laws, The underwriting
Agreement, the By-Laws of Distributors, the Adviser, or the Insurance Company or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether indemnification by it
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<PAGE>
is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and other Connections of Investment Adviser
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of the Investment
Adviser, reference is made to Forms ADV (801-8124) filed under the Investment
Advisers Act of 1940, herein incorporated by reference.
Item 29. Principal Underwriters
(a) The Funds have two distributors (except Growth Fund, Special Opportunties
Fund and International Fund, which have one, John Hancock Funds). One
distributor, Freedom Distributors Corporation ("Freedom") also acts as
co-distributor with Tucker Anthony Incorporated for two other registered
investment companies: Freedom Group of Tax Exempt Funds and Freedom Mutual
Fund. John Hancock Funds acts as principal underwriter for the Registrant
and also serves as principal underwriter or distributor of shares for John
Hancock Cash Reserve, Inc., John Hancock Bond Fund, John Hancock Current
Interest, John Hancock Series, Inc., John Hancock Tax-Free Bond Fund, John
Hancock California Tax-Free Income Fund, John Hancock Capital Series, John
Hancock Limited-Term Government Fund, John Hancock Tax-Exempt Income Fund,
John Hancock Sovereign Investors Fund, Inc., John Hancock Special Equities
Fund, John Hancock Sovereign Bond Fund, John Hancock Tax-Exempt Series,
John Hancock Strategic Series, John Hancock Technology Series, Inc., John
Hancock World Fund, John Hancock Investment Trust, John Hancock
Institutional Series Trust, Freedom Investment Trust, Freedom Investment
Trust II and Freedom Investment Trust III.
(b) The following table lists, for each director and officer of John Hancock
Funds, the information indicated.
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<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices with
Business Address Underwriter Registrant
---------------- ----------- ----------
<S> <C> <C>
Edward J. Boudreau, Jr. Chairman, President and Chief Chairman
101 Huntington Avenue Executive Officer
Boston, Massachusetts
Robert H. Watts Director, Executive Vice President None
John Hancock Place and Chief Compliance Officer
P.O. Box 111
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Foster L. Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
David F. D'Allesandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Robert G. Freedman Director Vice Chairman and Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Thomas H. Drohan Senior Vice President Senior Vice President
101 Huntington Avenue and Secretary
Boston, Massachusetts
David A. King Director and Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
James W. McLaughlin Senior Vice President and Chief None
101 Huntington Avenue Financial Officer
Boston, Massachusetts
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices with
Business Address Underwriter Registrant
---------------- ----------- ----------
<S> <C> <C>
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
Michael T. Carpenter Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Charles H. Womack Senior Vice President None
6501 Americas Parkway
Albuquerque, New Mexico
Anthony P. Petrucci Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President and Secretary Vice President, Assistant
101 Huntington Avenue Secretary and Compliance Officer
Boston, Massachusetts
Keith Harstein Vice President None
101 Huntington Avenue
Boston, Massachuetts
Griselda Lyman Vice President None
101 Huntington Avenue
Boston, Massachusetts
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices with
Business Address Underwriter Registrant
---------------- ----------- ----------
<S> <C> <C>
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John Goldsmith Director None
One Beacon Street
Boston, Massachusetts
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
</TABLE>
(b) The name of each director and officer of Freedom, together with the
offices held by such person with Freedom and the Registrant, are set forth
below.
C-7
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices with Positions and Offices with
Business Address Underwriter Registrant
---------------- ----------- ----------
<S> <C> <C>
John J. Danello President, Director None
One Beacon Street and Clerk
Boston, Massachusetts
Thomas J. Brown Treasurer and Director None
One Beacon Street
Boston, Massachusetts
Dexter A. Dodge Vice President None
One Beacon Street
Boston, Massachusetts
</TABLE>
(b) Subadviser
Registrant's subadviser, John Hancock Advisers International Limited
("JHAIL"), 34 Dover Street, WIX 3RA, London, England, also acts as investment
adviser, to other Investment Company clients. Information pertaining to the
officers and directors of JHAIL and their affiliations is set forth in the Form
ADV of JHAIL (File No. 801 - 29498) which is hereby incorporated by reference.
(c) None.
Item 30. Location of Accounts and Records
Registrant maintains the records required to be maintained by it under Rules
31a-1 (a), 31a-a(b), and 31a-2(a) under the Investment Company Act of 1940 at
its principal executive offices at 101 Huntington Avenue, Boston Massachusetts
02199-7603. Certain records, including records relating to Registrant's
shareholders and the physical possession of its securities, may be maintained
pursuant to Rule 31a-3 at the main office of Registrant's Transfer Agent and
Custodian.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus with respect to a series of the Registrant is delivered with a copy
of the latest annual report to shareholders with respect to that series upon
request and without charge.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
15th day of April, 1996.
FREEDOM INVESTMENT TRUST II
By: *
Edward J. Boudreau, Jr.
Chairman
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman
Edward J. Boudreau, Jr. (Principal Executive Officer)
/s/James B. Little
James B. Little Senior Vice President and Chief April 15, 1996
Financial Officer (Principal
Financial and Accounting Officer)
* Trustee
Douglas M. Costle
* Trustee
Leland O. Erdahl
* Trustee
Richard A. Farrell
* Trustee
William F. Glavin
C-9
<PAGE>
Signature Title Date
--------- ----- ----
Trustee
Anne C. Hodsdon
* Trustee
John A. Moore
* Trustee
Patti McGill Peterson
* Trustee
John W. Pratt
*By: /s/Thomas H. Drohan April 15, 1996
-------------------
Thomas H. Drohan, Attorney-in-Fact under Powers of
Attorney dated June 25, 1992, incorporated by
reference to Post-Effective Amendment No. 8 and
dated December 14, 1992, and August 17, 1993,
incorporated by reference to Post-Effective
Amendment No. 23.
C-10
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
99.B1 Master Trust Agreement (Agreement and Declaration of Trust)
amended and restated dated September 10, 1991; Amendment
No. 1 to the Master Trust Agreement dated June 25, 1992;
Amendment to the Master Trust Agreement dated August 3,
1993; Amendment to the Master Trust Agreement dated October
15, 1993; Amendment to the Master Trust Agreement dated
December 13, 1993.*
99.B1.1 Amendment to the Master Trust Agreement Abolition of Class C
Shares of Beneficial Interest of John Hancock Global Fund and
John Hancock Special Opportunities Fund dated May 1, 1995.**
99.B2 By-Laws as amended September 16, 1992.*
99.B3 None.
99.B4 Specimen share certificate for International Fund (Classes A ,
B and C).*
99.B4.1 Specimen share certificate for Global Fund (Classes A, B
and C).*
99.B4.2 Specimen share certificate for Global Income Fund (Classes A
and B).*
99.B4.3 Specimen share certificate for Special Opportunities Fund
(Classes A, B and C).*
99.B4.4 Specimen share certificate for Short-Term Strategic Income Fund
(Classes A and B).*
99.B4.5 Designation of Classes dated December 13, 1993.*
99.B4.6 Designation of Classes dated September 7, 1993.*
99.B4.7 Designation of Classes dated December 14, 1992.*
99.B5 Advisory Agreement restated January 1, 1994.*
99.B5.1 Sub-Advisory Agreement with John Hancock Advisers International
Limited dated October 1, 1992 for International Fund.*
99.B5.2 Sub-Advisory Agreement with John Hancock Advisers International
Limited for Global Fund.*
C-11
<PAGE>
99.B6 Distribution Agreement with John Hancock Broker Distribution
Services, Inc. and Freedom Distributors Corporation.*
99.B6.1 Form of Soliciting Dealer Agreement between John Hancock Broker
Distribution Services, Inc. and Selected Dealers. *
99.B6.2 Form of Financial Institution Sales & Service Agreement.*
99.B7 None.
99.B8 Custodian Contract with State Street Bank and Trust Company
dated July 15, 1994.*
99.B8.1 Custodian Contract with Investors Bank and Trust Company Bank,
dated December 15, 1994.*
99.B9 Transfer Agency and Service Agreement with John Hancock Fund
Services, Inc.*
99.B9.1 Accounting & Legal Services Agreement between John Hancock
Advisers, Inc. and John Hancock Growth Fund as of January 1,
1996.+
99.B10 Legal opinion and consent of Goodwin, Procter & Hoar dated June
10, 1986.*
99.B10.1 Legal opinion and consent of Goodwin, Procter & Hoar dated
August 13, 1986.*
99.B10.2 Legal opinion and consent of Goodwin, Procter & Hoar dated
September 10, 1990.*
99.B10.3 Legal opinion and consent of Goodwin, Procter & Hoar dated
December 20, 1991.*
99.B10.4 Legal opinion and consent of Goodwin, Procter & Hoar dated
December 22, 1992.*
99.B10.5 Legal opinion and consent of Goodwin, Procter & Hoar dated
November 1, 1993.*
99.B10.6 Legal opinion and consent of Goodwin, Procter & Hoar dated
November 2, 1993.* .
99.B10.7 Legal opinion and consent of Goodwin, Procter & Hoar dated
November 2, 1993.* .
99.B10.4 Legal opinion and consent of Goodwin, Procter & Hoar dated
January 3, 1994.*
99.B10.8 None
C-12
<PAGE>
99.B11 Consents of Auditors.+
99.B11.1 Consent of Morningstar Mutual Fund Values.*
99.B12 Not Applicable
13.B13 None
99.B15 Plan of Distribution pursuant to Rule 12b-1 as amended and
restated January 1, 1994.*
99.B16 Working papers showing yield and total return.*
99.B16.1 Working papers showing yield and total return for John Hancock
Growth Fund***
27.1A John Hancock Growth Fund
27.1B John Hancock Growth Fund
27.2A John Hancock Special Opportunities Fund
27.2B John Hancock Special Opportunities Fund
* Previously filed electronically with post-effective amendment number 28
(file nos. 811-4630; 33-4559) on February 27, 1995, accession number
0000950146-95-000057.
** Previously filed with post-effective amendment number 29 (file nos.
811-4630; 33-4559) on February 9, 1996, accession number
0000950146-96-000307.
*** Previously filed with post-effective amendment number 44 (file nos.
811-1677; 2-29502) on April 26, 1995 accession number 0000950146-95-000180.
+ Filed herewith.
C-13
ACCOUNTING & LEGAL SERVICES AGREEMENT
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Sir:
The John Hancock Funds listed on Schedule A (the "Funds") have selected John
Hancock Advisers, Inc. (the "Administrator") to provide certain accounting and
legal services for the Funds, as more fully set forth below, and you are willing
to provide such services under the terms and conditions hereinafter set forth.
Accordingly, the Funds agree with you as follows:
1. Services. Subject to the general supervision of the Board of
Trustees/Directors of the Funds, you will provide certain tax,
accounting and legal services (the "Services") to the Funds. You will,
to the extent such services are not required to be performed by you
pursuant to an investment advisory agreement, provide:
(A) such tax, accounting, recordkeeping and financial management
services and functions as are reasonably necessary for the
operation of each Fund. Such services shall include, but shall
not be limited to, supervision, review and/or preparation and
maintenance of the following books, records and other documents:
(1) journals containing daily itemized records of all purchases
and sales, and receipts and deliveries of securities and all
receipts and disbursements of cash and all other debits and
credits, in the form required by Rule 31a-1(b) (1) under the Act;
(2) general and auxiliary ledgers reflecting all asset,
liability, reserve, capital, income and expense accounts, in the
form required by Rules 31a-1(b) (2) (i)-(iii) under the Act; (3)
a securities record or ledger reflecting separately for each
portfolio security as of trade date all "long" and "short"
positions carried by each Fund for the account of the Funds, if
any, and showing the location of all securities long and the
off-setting position to all securities short, in the form
required by Rule 31a-1(b) (3) under the Act; (4) a record of all
portfolio purchases or sales, in the form required by Rule
31a-1(b) (6) under the Act; (5) a record of all puts, calls,
spreads, straddles and all other options, if any, in which any
Fund has any direct or indirect interest or which the Funds have
granted or guaranteed, in the form required by Rule 31a-1(b) (7)
under the Act; (6) a record of the proof of money balances in all
ledger accounts maintained pursuant to this Agreement, in the
form required by Rule 31a-1(b) (8) under the Act; (7) price
make-up sheets and such records as are necessary to reflect the
determination of each Funds' net asset value; and (8) arrange
for, or participate in (a) the preparation for the Fund of all
required tax returns, (b) the preparation and submission of
reports to existing shareholders and (c) the preparation of
financial data or reports required by the Securities and Exchange
Commission and other regulatory authorities;
<PAGE>
(B) certain legal services as are reasonably necessary for the
operation of each Funds. Such services shall include, but shall
not be limited to; (1) maintenance of each Fund's registration
statement and federal and state registrations; (2) preparation of
certain notices and proxy materials furnished to shareholders of
the Funds; (3) preparation of periodic reports of each Fund to
regulatory authorities, including Form N-SAR and Rule 24f-2 legal
opinions; (4) preparation of materials in connection with
meetings of the Board of Trustees/Directors of the Funds; (5)
preparation of written contracts, distribution plans, compliance
procedures, corporate and trust documents and other legal
documents; (6) research advice and consultation about certain
legal, regulatory and compliance issues, (7) supervision,
coordination and evaluation of certain services provided by
outside counsel.
(C) provide the Funds with staff and personnel to perform such
accounting, bookkeeping and legal services as are reasonably
necessary to effectively service the Fund. Without limiting the
generality of the foregoing, such staff and personnel shall be
deemed to include officers of the Administrator, and persons
employed or otherwise retained by the Administrator to provide or
assist in providing of the services to the Fund.
(D) maintain all books and records relating to the foregoing
services; and
(E) provide the Funds with all office facilities to perform tax,
accounting and legal services under this Agreement.
2. Compensation of the Administrator. The Funds shall reimburse the
Administrator for: (1) a portion of the compensation, including all
benefits, of officers and employees of the Administrator based upon the
amount of time that such persons actually spend in providing or assisting
in providing the Services to the Funds (including necessary supervision and
review); and (2) such other direct and indirect expenses, including, but
not limited to, those listed in paragraph (1) above, incurred on behalf of
the Fund that are associated with the providing of the Services and (3) 10%
of the reimbursement amount. In no event, however, shall such reimbursement
exceed levels that are fair and reasonable in light of the usual and
customary charges made by others for services of the same nature and
quality. Compensation under this Agreement shall be calculated and paid
monthly in a arrears.
3. No Partnership or Joint Venture. The Funds and you are not partners of or
joint ventures with each other and nothing herein shall be construed so as
to make you such partners or joint venturers or impose any liability as
such on any of you.
4. Limitation of Liability of the Administrator. You shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
Funds in connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on your part in the performance of your duties or from reckless
disregard by you of your obligations and duties under this Agreement. Any
person, even though also employed by you, who may be or become an employee
of and paid by the Funds shall be deemed, when acting within the scope of
his or her employment by the Funds, to be acting in such employment solely
for the Funds and not as your employee or agent.
2
<PAGE>
5. Duration and Termination of this Agreement. This Agreement shall remain in
force until the second anniversary of the date upon which this Agreement
was executed by the parties hereto, and from year to year thereafter, but
only so long as such continuance is specifically approved at least annually
by a majority of the Trustees/Directors. This Agreement may, on 60 days'
written notice, be terminated at any time without the payment of any
penalty by the Funds by vote of a majority of the Trustees/Directors, or by
you. This Agreement shall automatically terminate in the event of its
assignment.
6. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver
or termination is sought.
7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts without
regard to the choice of law provisions thereof.
8. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument. A copy of the Declaration of Trust of each Fund
organized as Massachusetts business trusts is on file with the Secretary of
State of the Commonwealth of Massachusetts. The obligations of each such
Fund are not personally binding upon, nor shall resort be had to the
private property of, any of the Trustees, shareholders, officers, employees
or agents of the Fund, but only the Fund's property shall be bound.
Yours very truly,
JOHN HANCOCK FUNDS (See Schedule A)
By: /s/ James B. Little
Senior Vice President
The foregoing contract is
hereby agreed to as of the
date hereof.
JOHN HANCOCK ADVISERS, INC.
By:
/s/ Anne C. Hodsdon
President
3
<PAGE>
January 1, 1996
SCHEDULE A
John Hancock Capital Series
- John Hancock Growth Fund
- John Hancock Special Value Fund
John Hancock Limited Term Government Fund
John Hancock Sovereign Bond Fund John
Hancock Sovereign Investors Fund, Inc.
- John Hancock Sovereign Investors Fund
- John Hancock Sovereign Balanced Fund
John Hancock Special Equities Fund
John Hancock Strategic Series
- John Hancock Independence Diversified Core Equity Fund
- John Hancock Strategic Income Fund
- John Hancock Utilities Fund
John Hancock Tax-Exempt Income Fund
John Hancock World Fund
- John Hancock Pacific Basin Equities Fund
- John Hancock Global Rx Fund
- John Hancock Global Marketplace Fund
John Hancock Cash Reserve, Inc.
John Hancock Series, Inc.
- John Hancock Emerging Growth Fund
- John Hancock Global Resources Fund
- John Hancock Government Income Fund
- John Hancock High Yield Bond Fund
- John Hancock High Yield Tax-Free Fund
- John Hancock Money Market Fund
John Hancock Institutional Series Trust
- John Hancock Active Bond Fund
- John Hancock Dividend Performers Fund
- John Hancock Fundamental Value Fund
- John Hancock Global Bond Fund
- John Hancock International Equity Fund
- John Hancock Multi-Sector Growth Fund
- John Hancock Small Capitalization Equity Fund
- John Hancock Independence Diversified Core Equity Fund II
- John Hancock Independence Value Fund
- John Hancock Independence Balanced Fund
- John Hancock Independence Medium Capitalization Fund
- John Hancock Independence Growth Fund
John Hancock Declartion Trust
- John Hancock V.A. 500 Index Fund
- John Hancock V.A. Discovery Fund
- John Hancock V.A. Diversified Core Equity Fund
- John Hancock V.A. Emerging Equities Fund
- John Hancock V.A. Global Income Fund
- John Hancock V.A. International Fund
- John Hancock V.A. Money Market Fund
- John Hancock V.A. Sovereign Bond Fund
- John Hancock V.A. Strategic Income Fund
- John Hancokc V.A. Sovereign Investors Fund
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Post Effective Amendment No. 30 to the registration
statement on Form N-1A (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 Statement of Additional
Information and to the incorporation by reference of our report into the
Prospectus which constitutes part of this Registration Statement. We also
consent to the reference to us under the heading "Independent Auditors" in such
Statement of Additional Information and to the references to us under the
headings "Financial Highlights" and "Fund Details" in such Prospectuses.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
April 12, 1996
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" in the John Hancock Growth Funds prospectus and "Independent
Auditors" in the John Hancock Growth Fund Class A and Class B Shares Statement
of Additional Information and to the use of our report on the financial
statements and financial highlights of the John Hancock Growth Fund dated
February 9, 1996, in this Post-Effective Amendment Number 30 to Registration
Statement (Form N-1A No. 33-4559) dated July 1, 1996.
/s/ERNST & YOUNG LLP
Boston, Massachusetts
April 12, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> JOHN HANCOCK GROWTH FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 173,447,205
<INVESTMENTS-AT-VALUE> 258,562,523
<RECEIVABLES> 4,434,080
<ASSETS-OTHER> 29,679
<OTHER-ITEMS-ASSETS> 85,113,318
<TOTAL-ASSETS> 263,026,282
<PAYABLE-FOR-SECURITIES> 5,028,850
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 384,791
<TOTAL-LIABILITIES> 5,413,641
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 172,385,747
<SHARES-COMMON-STOCK> 12,388,361
<SHARES-COMMON-PRIOR> 9,218,162
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 111,577
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 85,115,318
<NET-ASSETS> 257,612,642
<DIVIDEND-INCOME> 1,202,907
<INTEREST-INCOME> 785,627
<OTHER-INCOME> 0
<EXPENSES-NET> 2,962,115
<NET-INVESTMENT-INCOME> (973,581)
<REALIZED-GAINS-CURRENT> 9,207,214
<APPREC-INCREASE-CURRENT> 30,638,725
<NET-CHANGE-FROM-OPS> 38,872,358
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 8,391,968
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,459,976
<NUMBER-OF-SHARES-REDEEMED> 2,691,827
<SHARES-REINVESTED> 902,050
<NET-CHANGE-IN-ASSETS> 105,765,178
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (151,405)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,561,020
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,962,115
<AVERAGE-NET-ASSETS> 186,460,651
<PER-SHARE-NAV-BEGIN> 15.89
<PER-SHARE-NII> (0.09)
<PER-SHARE-GAIN-APPREC> 4.40
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.69)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.51
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> JOHN HANCOCK GROWTH FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 173,447,205
<INVESTMENTS-AT-VALUE> 258,562,523
<RECEIVABLES> 4,434,080
<ASSETS-OTHER> 29,679
<OTHER-ITEMS-ASSETS> 85,113,318
<TOTAL-ASSETS> 263,026,282
<PAYABLE-FOR-SECURITIES> 5,028,850
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 384,791
<TOTAL-LIABILITIES> 5,413,641
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 172,385,747
<SHARES-COMMON-STOCK> 826,498
<SHARES-COMMON-PRIOR> 240,447
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 111,577
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 85,115,318
<NET-ASSETS> 257,612,642
<DIVIDEND-INCOME> 1,202,907
<INTEREST-INCOME> 785,627
<OTHER-INCOME> 0
<EXPENSES-NET> 2,962,115
<NET-INVESTMENT-INCOME> (973,581)
<REALIZED-GAINS-CURRENT> 9,207,214
<APPREC-INCREASE-CURRENT> 30,638,725
<NET-CHANGE-FROM-OPS> 38,872,358
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 552,264
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 805,246
<NUMBER-OF-SHARES-REDEEMED> 246,690
<SHARES-REINVESTED> 27,495
<NET-CHANGE-IN-ASSETS> 105,765,178
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (151,405)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,561,020
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,962,115
<AVERAGE-NET-ASSETS> 8,259,125
<PER-SHARE-NAV-BEGIN> 15.83
<PER-SHARE-NII> (0.26)
<PER-SHARE-GAIN-APPREC> 4.37
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.69)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.25
<EXPENSE-RATIO> 2.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> JOHN HANCOCK SPECIAL OPPORTUNITIES FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 192,874,826
<INVESTMENTS-AT-VALUE> 228,022,123
<RECEIVABLES> 24,338,374
<ASSETS-OTHER> 67,728
<OTHER-ITEMS-ASSETS> 35,158,585
<TOTAL-ASSETS> 252,439,513
<PAYABLE-FOR-SECURITIES> 12,750,625
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 763,478
<TOTAL-LIABILITIES> 13,514,103
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 209,681,269
<SHARES-COMMON-STOCK> 10,902,887
<SHARES-COMMON-PRIOR> 11,647,145
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,914,444)
<OVERDISTRIBUTION-GAINS> 0
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