FILE NO. 33-4559
FILE NO. 811-4630
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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. 31 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 32 (X)
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FREEDOM INVESTMENT TRUST II
(Exact Name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, (617) 375-1700
---------
THOMAS H. DROHAN
Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and Address of Agent for Service)
---------
It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
( ) on (date) pursuant to paragraph (b) of Rule 485
( ) 75 days after filing pursuant to paragraph (a) of Rule 485
(X) on August 30, 1996 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 securities under the Securities Act of 1933.
A Rule 24f-2 Notice for the Registrant's most recent fiscal year was filed on
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>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
JOHN HANCOCK
INTERNATIONAL/
GLOBAL FUNDS
[John Hancock's graphic logo. A circle,
diamond, triangle and a cube.]
- --------------------------------------------------------------------------------
PROSPECTUS
AUGUST 30, 1996
This prospectus gives vital information about these funds. For your own benefit
and protection, please read it before you invest, and keep it on hand for future
reference.
Please note that these funds:
- - are not bank deposits
- - are not federally insured
- - are not endorsed by any bank or
government agency
- - are not guaranteed to achieve
their goal(s)
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
GROWTH
GLOBAL FUND
GLOBAL MARKETPLACE FUND
GLOBAL RX FUND
GLOBAL TECHNOLOGY FUND
INTERNATIONAL FUND
PACIFIC BASIN EQUITIES FUND
INCOME
SHORT-TERM STRATEGIC INCOME FUND
WORLD BOND FUND
[John Hancock's graphic logo. A circle, diamond, triangle and a cube.]
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
CONTENTS
- ------------------------------------------------------------------------
A fund-by-fund look (A GRAPHIC IMAGE OF A CIRCLE) GROWTH
at goals, strategies,
risks, expenses and GLOBAL FUND 4
financial history.
GLOBAL MARKETPLACE FUND 6
GLOBAL RX FUND 8
GLOBAL TECHNOLOGY FUND 10
INTERNATIONAL FUND 12
PACIFIC BASIN EQUITIES FUND 14
(A GRAPHIC IMAGE OF A CUBE) INCOME
SHORT-TERM STRATEGIC INCOME FUND 16
WORLD BOND FUND 18
Policies and Your account
instructions for
opening, maintaining Choosing a share class 20
and closing an
account in any How sales charges are calculated 20
international/global
fund. Sales charge reductions and waivers 21
Opening an account 22
Buying shares 23
Selling shares 24
Transaction policies 26
Dividends and account policies 26
Additional investor services 27
Details that apply to FUND DETAILS
the international/
global funds as a group Business structure 28
Sales compensation 29
More about risk 31
FOR MORE INFORMATION BACK COVER
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
OVERVIEW
- --------------------------------------------------------------------------------
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[A graphic image of a bullseye with an arrow in the middle of it.] GOAL AND
STRATEGY The fund's particular investment goals and the strategies it intends to
use in pursuing those goals.
[A graphic image of a black folder that contains a couple sheets of paper.]
PORTFOLIO SECURITIES The primary types of securities in which the fund invests.
Secondary investments are described in "More about risk" at the end of the
prospectus.
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] RISK FACTORS The major risk factors associated with the fund.
[A graphic image of a generic person.] PORTFOLIO MANAGEMENT The individual or
group (including subadvisers, if any) designated by the investment adviser to
handle the fund's day-to-day management.
[A graphic image of a percent symbol.] EXPENSES The overall costs borne by an
investor in the fund, including sales charges and annual expenses.
[A graphic image of a dollar sign.] FINANCIAL HIGHLIGHTS A table showing the
fund's financial performance for up to ten years, by share class. A bar chart
showing total return allows you to compare the fund's historical risk level to
those of other funds.
GOAL OF THE INTERNATIONAL/GLOBAL FUNDS
John Hancock international/global funds invest in securities of foreign and U.S.
markets. Most of the funds invest primarily in stocks and seek long-term growth
of capital. Two funds invest primarily in bonds and seek current income or
maximum total return. Each fund employs its own strategy and has its own
risk/reward profile. Because you could lose money by investing in these funds,
be sure to read all risk disclosure carefully before investing.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
- - are seeking to diversify a portfolio of domestic investments
- - are seeking access to markets that can be less accessible to individual
investors
- - are seeking funds for the growth or income portion of an asset allocation
portfolio
- - are investing for goals that are many years in the future (growth funds)
International/global funds may NOT be appropriate if you:
- - are investing with a shorter time horizon in mind
- - are uncomfortable with an investment whose value may fluctuate
substantially
- - want to limit your exposure to foreign securities
THE MANAGEMENT FIRM
All John Hancock international/global funds are managed by John Hancock
Advisers, Inc. Founded in 1968, John Hancock Advisers is a wholly owned
subsidiary of John Hancock Mutual Life Insurance Company and manages more than
$19 billion in assets.
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
GLOBAL FUND
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: JHGAX
CLASS B: FGLOX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.]
The fund seeks long-term growth of capital. To pursue this goal, the fund
invests primarily in common stocks of foreign and U.S. companies. The fund
maintains a diversified portfolio of company and government securities from
around the world. Under normal circumstances, the fund expects to invest in the
securities markets of at least three countries at any given time, including the
U.S. The fund does not maintain a fixed allocation of assets, either with
respect to securities type or geography.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
Under normal circumstances, the fund invests at least 65% of assets in common
stocks and convertible securities, but may invest in virtually any type of
security, foreign or domestic, including preferred and convertible securities,
warrants and investment-grade debt securities. Not counting short-term
securities, the fund generally expects that no more than 5% of assets will be
invested in debt securities.
For liquidity and flexibility, the fund may place up to 35% of net assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[A grpahic 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 it invests internationally, the fund carries additional risks, including
currency, information, natural event and political risks. These risks, which may
make the fund more volatile than a comparable domestic growth fund, are defined
in "More about risk" starting on page 31. The risks of international investing
are higher in emerging markets such as those of Latin America, Southeast Asia
and Eastern Europe.
To the extent that the fund utilizes higher-risk securities and practices, it
takes on further risks which could adversely affect its performance. Please read
"More about risk" carefully before investing.
MANAGEMENT/SUBADVISER
[A graphic image of a generic person.] John L.F. Wills and David S. Beckwith are
leaders of the fund's portfolio management team. Mr. Wills is a vice president
of the adviser and managing director of the subadviser, John Hancock Advisers
International. He joined John Hancock Funds in 1987. Mr. Beckwith joined John
Hancock in 1985 and is a vice president of the adviser.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<TABLE>
<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
</TABLE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
<S> <C> <C>
Management fee 0.96% 0.96%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.61% 0.61%
Total fund operating expenses 1.87% 2.57%
</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 $106 $146 $258
Class B shares
Assuming redemption
at end of period $ 76 $110 $157 $273
Assuming no redemption $ 26 $ 80 $137 $273
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
4 GROWTH - GLOBAL FUND
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS
[A GRAPHIC IMAGE OF A DOLLAR SIGN.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS B
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR GRAPH]
<CAPTION>
================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1992(1) 1993 1994 1995
================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 11.31 $ 10.55 $ 14.30 $ 14.16
Net investment income(loss) (0.04)(2) (0.10)(2) (0.07)(2) (0.03)(2)
Net realized and unrealized gain(loss) on investments and
foreign currency transactions (0.72) 3.85 1.24 (0.13)
Total from investment operations (0.76) 3.75 1.17 (0.16)
Less distributions:
Distributions from net realized gain on investments
sold and foreign currency transactions -- -- (1.31) (1.33)
Net asset value, end of period $ 10.55 $ 14.30 $ 14.16 $ 12.67
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) (6.72)(4) 35.55 8.64 (0.37)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period(000s omitted)($) 76,980 90,787 100,973 93,597
Ratio of expenses to average net assets(%) 2.47 (5) 2.12 1.98 1.87
Ratio of net investment income(loss) to average net assets(%) (0.60)(5) (0.86) (0.54) (0.23)
Portfolio turnover rate(%) 69 108 61 60
Average brokerage commission rate(6)($) N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(7) 1987(8) 1988 1989 1990 1991
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.60 $13.00 $ 10.42 $ 10.67 $ 13.58 $ 9.94
Net investment income (loss) 0.08 (0.05) 0.01 (0.10) (0.02) (0.01)(2)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 3.32 (2.08) 0.69 3.25 (1.12) 1.35
Total from investment operations 3.40 (2.13) 0.70 3.15 (1.14) 1.34
Less distributions:
Distributions from net investment income -- (0.12) -- (0.01) -- --
Distributions from net realized gain on investments sold and
foreign currency transactions -- (0.33) (0.45) (0.23) (2.50) (0.36)
Total distributions -- (0.45) (0.45) (0.24) (2.50) (0.36)
Net asset value, end of period $ 13.00 $10.42 $ 10.67 $ 13.58 $ 9.94 $ 10.92
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 35.42(4) (16.97)(4) 7.05 30.22 (10.42) 14.04
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 62,264 50,883 34,380 35,596 33,281 28,686
Ratio of expenses to average net assets (%) 2.38(5) 2.56(5) 2.55 2.30 2.46 2.60
Ratio of net investment income (loss) to average net assets (%) 0.99(5) (0.78)(5) 0.09 (0.47) (0.59) (0.12)
Portfolio turnover rate (%) 91 81 142 138 58 106
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1992 1993 1994 1995
================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.92 $ 10.50 $ 14.17 $ 13.93
Net investment income (loss) (0.12)(2) (0.15)(2) (0.15)(2) (0.11)(2)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.30) 3.82 1.22 (0.13)
Total from investment operations (0.42) 3.67 1.07 (0.24)
Less distributions:
Distributions from net investment income -- -- -- --
Distributions from net realized gain on investments sold and
foreign currency transactions -- -- (1.31) (1.33)
Total distributions -- -- (1.31) (1.33)
Net asset value, end of period $ 10.50 $ 14.17 $13.93 $ 12.36
Total investment return at net asset value(3) (%) (3.85) 34.95 7.97 (1.01)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 11,475 19,340 31,822 24,570
Ratio of expenses to average net assets (%) 2.68 2.49 2.59 2.57
Ratio of net investment income (loss) to average net assets (%) (1.03) (1.25) (1.12) (0.89)
Portfolio turnover rate (%) 69 108 61 60
Average brokerage commission rate(6) ($) N/A N/A N/A N/A
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(7) For the period September 2, 1986 (commencement of operations) to May 31,
1987.
(8) For the period June 1, 1987 to October 31, 1987.
</TABLE>
GROWTH - GLOBAL FUND 5
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
GLOBAL MARKETPLACE FUND
REGISTRANT NAME: JOHN HANCOCK WORLD FUND TICKER SYMBOL CLASS A: JHGMX
CLASS B: N/A
- --------------------------------------------------------------------------------
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
primarily in foreign and U.S. equity securities of companies that merchandise
goods and services to consumers. The fund seeks companies of any size that
appear to possess a unique competitive advantage, such as a unique product or
distribution method, new technologies or innovative marketing or sales methods.
Under normal circumstances, the fund invests at least 65% of assets in the
securities of retail companies, and expects to invest in the securities markets
of at least three countries at any given time, including the U.S.
PORTFOLIO SECURITIES
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] The fund invests primarily in the common stocks of U.S. and foreign
companies. It also may invest in warrants, preferred stocks and convertible
securities.
For liquidity and flexibility, the fund may invest up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate.
Because the fund concentrates on a single sector (retailing), its performance
may be disproportionately affected by a few key factors, such as economic
conditions and consumer confidence levels.
Also, because the fund invests internationally, it carries additional risks,
including currency, information, natural event and political risks. These
risks, which may make the fund more volatile than a comparable domestic growth
fund, are defined in "More about risk" starting on page 31.
To the extent that the fund invests in smaller capitalization companies or
utilizes higher-risk securities and practices, it takes on further risks that
could adversely affect its performance. Please read "More about risk" carefully
before investing.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since March 1994, is a senior vice president of the
adviser. She joined the adviser in 1991 and has been in the investment business
since 1986.
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below are based on Class A expenses
for the past year, adjusted to reflect any changes. There were no Class B shares
issued or outstanding during the last fiscal year. Future expenses may be
greater or less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee (after expense limitation)(3) 0.00% 0.00%
12b-1 fee(4) 0.30% 1.00%
Other expenses (after expense limitation)(3) 1.20% 1.20%
Total fund operating expenses
(after expense limitation)(3) 1.50% 2.20%
<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) Reflects the investment adviser's temporary agreement to limit expenses
(except for 12b-1 and transfer agent expenses). Without this limitation,
management fees would be 0.80% for each class, other expenses would be
7.92% for each class and total fund operating expenses would be 9.02% for
Class A and 9.72% for Class B.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
6 GROWTH - GLOBAL MARKETPLACE FUND
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
- --------------------------------------------------------------------------------
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 A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR GRAPH]
<CAPTION>
==============================================================================================
CLASS A - YEAR ENDED AUGUST 31, 1995(1) 1996(2)
==============================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.50 $ 11.49
Net investment income (loss) 0.01(3) (0.05)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 3.01 2.10
Total from investment operations 3.02 2.05
Less distributions:
Dividends from net investment income (0.01) --
Distributions in excess of net investment income (0.02) --
Total distributions (0.03) --
Net asset value, end of period $11.49 $ 13.54
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) 35.61(5) 17.84(5)
Total adjusted investment return at net asset value(4,6)(%) 28.69(5) 11.37(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 712 1,022
Ratio of expenses to average net assets(%) 1.50(7) 1.50(7)
Ratio of adjusted expenses to average net assets(8)(%) 9.00(7) 14.48(7)
Ratio of net investment income (loss) to average net assets(%) 0.06(7) (0.88)(7)
Ratio of adjusted net investment income (loss) to average
net assets(8)(%) (7.44)(7) (13.86)(7)
Portfolio turnover rate (%) 63 86
Fee reduction per share ($) 0.65(3) 0.74(3)
Average brokerage commission rate(9)($) N/A 0.00(10
==============================================================================================
CLASS B - YEAR ENDED AUGUST 31, 1996(11)
==============================================================================================
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 11.95
Net investment income (loss) (0.02)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 1.60
Total from investment operations 1.58
Net asset value, end of period $ 13.53
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) 13.22(5)
Total adjusted investment return at net asset value(4,6)(%) 11.94(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) $ 218
Ratio of expenses to average net assets(%) 2.20(7)
Ratio of adjusted expenses to average net assets(8)(%) 15.18(7)
Ratio of net investment income (loss) to average net assets(%) (1.18)(7)
Ratio of adjusted net investment income (loss) to average net assets(8)(%) (14.16)(7)
Portfolio turnover rate(%) 86
Fee reduction per share ($) 0.74(3)
Average brokerage commission rate(9)($) 0.00(10)
(1) Class A shares commenced operations September 29, 1994.
(2) Six months ended February 29, 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) An estimated total return calculation which does not take into
consideration fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(10) Less than one cent per share.
(11) For the period January 22, 1996 (commencement of operations) to February
29, 1996. (Unaudited.)
</TABLE>
GROWTH - GLOBAL MARKETPLACE FUND 7
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
GLOBAL RX FUND
REGISTRANT NAME: JOHN HANCOCK WORLD FUND TICKER SYMBOL CLASS A: JHGRX
CLASS B: JHRBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.]
The fund seeks long-term growth of capital. To pursue this goal, the fund
invests primarily in equity securities of foreign and U.S. health care
companies. The fund defines health care companies as those deriving at least
half of their gross revenues, or committing at least half of their gross assets,
to health care-related activities. Under normal circumstances, the fund will
invest at least 65% of assets in these companies, including small- and
medium-sized companies. The fund expects to invest in the securities markets of
at least three countries at any given time, including the U.S.
The fund has an independent advisory board composed of scientific and medical
experts to provide advice and consultation on health care developments.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in foreign and domestic common stocks, and may invest in
warrants, preferred stocks and convertible debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate.
Because the fund concentrates on a single sector (health care), and because the
sector has historically been volatile, investors should expect above-average
volatility.
Also, because the fund invests internationally, it carries additional risks,
including currency, information, natural event and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are defined in "More about risk" starting on page 31.
To the extent that the fund invests in smaller capitalization companies
or utilizes higher-risk securities and practices, it takes on further risks that
could adversely affect its performance. Please read "More about risk" carefully
before investing.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person.] Linda I. Miller, leader of the fund's
portfolio management team since November 1995, is a vice president of the
adviser. She joined John Hancock Funds in 1995 and has worked in the investment
business with a focus on the health care industry since 1985.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
Management fee 0.80% 0.80%
12b-1 fee(3) 0.30% 1.00%
Other expenses 1.50% 1.50%
Total fund operating expenses 2.60% 3.30%
<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 $75 $127 $181 $329
Class B shares
Assuming redemption
at end of period $83 $132 $192 $344
Assuming no redemption $33 $102 $172 $344
This example is for comparison purposes only and is not a representation of
the fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
8 GROWTH - GLOBAL RX FUND
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
- --------------------------------------------------------------------------------
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 A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR GRAPH]
<CAPTION>
====================================================================================================================================
CLASS A - YEAR ENDED AUGUST 31, 1992(1) 1993 1994 1995 1996(2)
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.00 $ 13.34 $ 13.38 $ 16.51 $ 21.61
Net investment income (loss) (0.03) (0.23) (0.32) (0.36)(3) (0.12)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 3.37 0.27 3.45 5.46 4.89
Total from investment operations 3.34 0.04 3.13 5.10 4.77
Less distributions:
Distributions from net realized gain on investments sold and
foreign currency transactions -- -- -- -- (0.14)
Net asset value, end of period $ 13.34 $ 13.38 $ 16.51 $ 21.61 $ 26.24
Total investment return at net asset value(4)(%) 33.40(5) 0.30 23.39 30.89 22.16(5)
Total adjusted investment return at net asset value (4,6)(%) 32.11(5) 0.04 -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 14,702 15,647 18,643 24,394 34,719
Ratio of expenses to average net assets(%) 1.98(7) 2.50 2.55 2.56 2.14(7)
Ratio of adjusted expenses to average net assets(8)(%) 3.39(7) 2.76 -- -- --
Ratio of net investment income (loss) to average net assets(%) (0.51)(7) (1.67) (2.01) (1.99) (1.08)(7)
Ratio of adjusted net investment income (loss) to average
net assets(8)(%) (1.92)(7) (1.93) -- -- --
Portfolio turnover rate (%) 48 93 52 38 12
Fee reduction per share ($) 0.085 0.035 -- -- --
Average brokerage commission rate(9) ($) N/A N/A N/A N/A 0.00(10)
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS B - YEAR ENDED AUGUST 31, 1994(1) 1995 1996(2)
====================================================================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $17.29 $16.46 $ 21.35
Net investment income (loss) (0.17)(3) (0.55)(3) (0.19)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.66) 5.44 4.81
Total from investment operations (0.83) 4.89 4.62
Less distributions:
Distributions from net realized gain on investments sold and
foreign currency transactions -- -- (0.14)
Net asset value, end of period $16.46 $21.35 $ 25.83
Total investment return at net asset value(4)(%) (4.80)(5) 29.71 21.73(5)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 1,071 6,333 22,185
Ratio of expenses to average net assets(%) 3.34(7) 3.45 2.79(7)
Ratio of net investment income (loss) to average net assets(%) (2.65)(7) (2.91) (1.65)(7)
Portfolio turnover rate(%) 52 38 12
Average brokerage commission rate(9)($) N/A N/A 0.00(10)
(1) Class A and Class B shares commenced operations on October 1, 1991 and
March 7, 1994, respectively.
(2) Six months ended February 29, 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) An estimated total return calculation which does not take into
consideration fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(10) Less than one cent per share.
</TABLE>
GROWTH - GLOBAL RX FUND 9
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
GLOBAL TECHNOLOGY FUND
<TABLE>
<S> <C>
REGISTRANT NAME: JOHN HANCOCK TECHNOLOGY SERIES, INC.
TICKER SYMBOL CLASS A: NTTFX CLASS B: FGTBX
- -------------------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term growth of capital. To pursue this goal, the fund invests
primarily in equity securities of foreign and U.S. companies that rely
extensively on technology in their product development or operations. Under
normal circumstances, the fund will invest at least 65% of assets in these
companies, and expects to invest in the securities markets if at least three
countries at any given time, including the U.S. Income is a secondary goal.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in foreign and domestic common stocks, and may invest in
warrants, preferred stocks and convertible debt securities. The fund may invest
up to 10% of assets in debt securities of any maturity which are rated as low as
CC/Ca and their unrated equivalents. Bonds rated BBB/Baa or lower are considered
junk bonds.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate.
Because the fund concentrates on a single sector (technology), and because the
sector has historically been volatile, investors should expect above-average
volatility.
Also, because the fund invests internationally, it carries additional risks,
including currency, information, natural event and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are defined in "More about risk" starting on page 31. The risks of international
investing are higher in emerging markets such as those of Latin America, Asia
and Eastern Europe. To the extent that the fund invests in junk bonds, it
further increases the chances for fluctuations in share price and total return.
Please read "More about risk" carefully before investing.
MANAGEMENT/SUBADVISER
[A graphic image of a generic person.] Barry J. Gordon and Marc H. Klee are
responsible for the fund's day-to-day investment management, as they have been
since the fund's inception in 1983. They are principals of American Fund
Advisors, Inc., which was its adviser until 1991. Since 1991, American Fund
Advisors has been the fund's subadviser.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
ANNUAL FUND OPERATING EXPENSES
(AS A % OF AVERAGE NET ASSETS)
Management fee (net of reduction)(3) 0.82% 0.82%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.55% 0.55%
Total fund operating expenses (net of reduction)(3) 1.67% 2.37%
<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 $66 $100 $136 $238
Class B shares
Assuming redemption
at end of period $74 $104 $147 $253
Assuming no redemption $24 $ 74 $127 $253
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) Without reduction, the management fee would be 0.93% for each share class,
and total fund operating expenses would be 1.78% and 2.48% for Class A and
Class B shares, respectively.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
10 GROWTH - GLOBAL TECHNOLOGY FUND
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
- --------------------------------------------------------------------------------
<TABLE>
FINANCIAL HIGHLIGHTS
[A GRAPHIC IMAGE OF A DOLLAR SIGN.] The figures below have
been audited by the fund's independent auditors,
Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR GRAPH]
<CAPTION>
==================================================================================================================================
CLASS A - YEAR ENDED DECEMBER 31, 1986 1987 1988 1989 1990 1991
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 13.57 $ 13.80 $ 13.98 $ 15.31 $ 16.93 $ 12.44
Net investment income (loss) 0.14 0.15 0.15 0.10 (0.04) 0.05
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions 0.25 0.26 1.32 2.43 (3.09) 4.11
Total from investment operations 0.39 0.41 1.47 2.53 (3.13) 4.16
Less distributions:
Dividends from net investment income (0.16) (0.23) (0.14) (0.13) -- (0.04)
Distributions from net realized
gain on investments sold and
foreign currency transactions -- -- -- (0.78) (1.36) (0.96)
Total Distributions (0.16) (0.23) (0.14) (0.91) (1.36) (1.00)
Net asset value, end of period $ 13.80 $ 13.98 $ 15.31 $ 16.93 $ 12.44 $ 15.60
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(2)(%) 2.89 2.84 10.48 16.61 (18.46) 33.05
Total adjusted investment return at
net asset value (2,3)(%) -- -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 56,927 44,224 38,594 40,341 28,864 31,580
Ratio of expenses to average net assets(%) 1.75 1.63 1.75 1.90 2.36 2.32
Ratio of adjusted expenses to average
net assets(4)(%) -- -- -- -- -- --
Ratio of net investment income (loss) to
average net assets(%) 0.77 0.75 0.89 0.60 (0.28) 0.34
Ratio of adjusted net investment income
(loss) to average net assets(4)(%) 0.77 0.75 0.89 0.60 (0.28) 0.34
Portfolio turnover rate (%) 6 9 12 30 38 67
Fee reduction per share ($) -- -- -- -- -- --
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================================================
CLASS A - YEAR ENDED DECEMBER 31, 1992 1993 1994 1995
==================================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 15.60 $ 14.94 $ 17.45(1) $ 17.84
Net investment income (loss) (0.15) (0.21) (0.22)(1) (0.22)(1)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 1.00 4.92 1.87 8.53
Total from investment operations 0.85 4.71 1.65 8.31
Less distributions:
Dividends from net investment income -- -- -- --
Distributions from net realized gain on investments sold and
foreign currency transactions (1.51) (2.20) (1.26) (1.64)
Total Distributions (1.51) (2.20) (1.26) (1.64)
Net asset value, end of period $ 14.94 $ 17.45 $ 17.84 $ 24.51
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(2)(%) 5.70 32.06 9.62 46.53
Total adjusted investment return at net asset value (4,6)(%) 5.53 -- -- 46.41
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 32,094 41,749 52,193 155,001
Ratio of expenses to average net assets(%) 2.05 2.10 2.16 1.67
Ratio of adjusted expenses to average net assets(4)(%) 2.22 -- -- 1.79
Ratio of net investment income (loss) to average net assets(%) (0.88) (1.49) (1.25) (1.01)
Ratio of adjusted net investment income (loss) to average
net assets(4)(%) (1.05) -- -- (1.01)
Portfolio turnover rate (%) 76 86 67 70
Fee reduction per share ($) 0.03 -- -- 0.02
Average brokerage commission rate(5) ($) N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================================================
CLASS B - YEAR ENDED DECEMBER 31, 1994(6) 1995
==================================================================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 17.24 $ 17.68
Net investment income (loss) (0.35)(1) (0.39)(1)
Net realized and unrealized gain (loss) on investments 2.05 8.43
Total from investment operations 1.70 8.04
Less distributions
Distributions from net realized gain on investments sold (1.26) (1.64)
Net asset value, end of period $ 17.68 $ 24.08
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(2)(%) 10.02 45.42
Total adjusted investment return at net asset value(2,3) -- 45.30
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 9,324 35,754
Ratio of expenses to average net assets(%) 2.90(7) 2.41
Ratio of adjusted expenses to average net assets(4)(%) -- 2.53
Ratio of net investment income (loss) to average net assets(%) (1.98)(7) (1.62)
Ratio of adjusted net investment income (loss) to
average net assets(4)(%) -- (1.74)
Portfolio turnover rate 67 70
Fee reduction per share ($) -- 0.03
Average brokerage commission rate(5)($) N/A N/A
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) An estimated total return calculation which does not take into
consideration fee reductions by the adviser during the periods shown.
(4) Unreimbursed, without fee reduction.
(5) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(6) Class B shares commenced operations on January 3, 1994.
(7) Annualized.
</TABLE>
GROWTH - GLOBAL TECHNOLOGY FUND 11
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
INTERNATIONAL FUND
<TABLE>
<S> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: FINAX CLASS B: FINBX
- ----------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term growth of capital. To pursue this goal, the fund invests
primarily in equity securities of foreign companies. Under normal circumstances,
the fund will invest at least 65% of assets in these companies. The fund
maintains a diversified portfolio of company and government securities from
around the world, and generally expects that at any given time it will invest in
securities from at least three non-U.S. countries.
The fund does not maintain a fixed allocation of assets, either with respect to
security type or geography. The fund looks for companies of any size whose
earnings show strong growth or that appear to be undervalued.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
Under normal circumstances, the fund invests primarily in common stocks and
other equity securities, but may invest in virtually any type of security,
foreign or domestic, including preferred and convertible securities, warrants
and investment-grade debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will
fluctuate.
Because it invests internationally, the fund carries additional risks, including
currency, information, natural event and political risks. These risks, which may
make the fund more volatile than a comparable domestic growth fund, are defined
in "More about risk" starting on page 31. The risks of international investing
are higher in emerging markets such as those of Latin America, Asia and Eastern
Europe.
To the extent that the fund invests in smaller capitalization companies or
utilizes higher-risk securities and practices, it takes on further risks which
could adversely affect its performance. Please read "More about risk" carefully
before investing.
MANAGEMENT/SUBADVISER [A graphic image of a generic person.] John L.F. Wills and
David S. Beckwith are leaders of the fund's portfolio management team. Mr. Wills
is a vice president of the adviser and managing director of the subadviser, John
Hancock Advisers International. He joined John Hancock Funds in 1987. Mr.
Beckwith joined John Hancock in 1985 and is a vice president of the adviser.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
===============================================================================
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
===============================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
<CAPTION>
===============================================================================
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
===============================================================================
<S> <C> <C>
Management fee (after expense limitation)(3) 0.00% 0.00%
12b-1 fee(4) 0.30% 1.00%
Other expenses (after expense limitation)(3) 1.42% 1.42%
Total fund operating expenses after expense
limitation)(3) 1.72% 2.42%
</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 $67 $101 $139 $243
- -------------------------------------------------------------------------------
Class B shares
- -------------------------------------------------------------------------------
Assuming redemption
at end of period $75 $105 $149 $258
- -------------------------------------------------------------------------------
Assuming no redemption $25 $ 75 $129 $258
- ----------
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) Reflects the investment adviser's temporary agreement to limit expenses
(except for 12b-1 and transfer agent expenses). Without this limitation,
management fees would be 1.00% for each class, other expenses would be
3.58% for each class and total fund operating expenses would be 4.88% for
Class A and 5.58% for Class B.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
12 GROWTH - INTERNATIONAL FUND
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
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 A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR GRAPH]
<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 $ 8.65
Net investment income (loss) 0.07(2) 0.04
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.08 (0.47)
Total from investment operations 0.15 (0.43)
Less distributions:
Dividends from net investment income -- (0.03)
Distributions from net realized gain on investments
sold and foreign currency transactions -- (0.05)
Total distributions -- (0.08)
Net asset value, end of period $ 8.65 $ 8.14
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 1.77 (4) (4.96)
Total adjusted investment return at net asset value(3,5) (%) (0.52)(4) (8.12)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 4,426 4,215
Ratio of expenses to average net assets (%) 1.50(6) 1.64
Ratio of adjusted expenses to average net assets(7) (%) 3.79(6) 4.80
Ratio of net investment income (loss) to average net assets (%) 1.02(6) 0.56
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) (1.27)(6) (2.60)
Portfolio turnover rate (%) 50 69
Fee reduction per share ($) 0.16(2) 0.25(2)
Average brokerage commission rate(8) ($) N/A N/A
<CAPTION>
================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1994(1) 1995
================================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.50 $ 8.61
Net investment income (loss) 0.02(2) (0.03)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.09 (0.48)
Total from investment operations 0.11 (0.51)
Less distributions:
Distributions from net realized gain on investments
sold and foreign currency transactions -- (0.05)
Net asset value, end of period $ 8.61 $ 8.05
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 1.29(4) (5.89)
Total adjusted investment return at net asset value(3,5) (%) (1.00)(4) (9.05)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 3,948 3,990
Ratio of expenses to average net assets (%) 2.22(6) 2.52
Ratio of adjusted expenses to average net assets(7) (%) 4.51(6) 5.68
Ratio of net investment income (loss) to average net assets (%) 0.31(6) (0.37)
Ratio of adjusted net investment income (loss) to average
net assets(7) (%) (1.98)(6) (3.53)
Portfolio turnover rate (%) 50 69
Fee reduction per share ($) 0.16(2) 0.25(2)
Average brokerage commission rate(8) ($) N/A N/A
- ----------
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) An estimated total return calculation which does not take into consideration fee
reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
</TABLE>
GROWTH - INTERNATIONAL FUND 13
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
PACIFIC BASIN EQUITIES FUND
<TABLE>
<S> <C>
REGISTRANT NAME: JOHN HANCOCK WORLD FUND TICKER SYMBOL CLASS A: JHWPX CLASS B: FPBBX
- ------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.]The fund seeks
long-term growth of capital. To pursue this goal, the fund invests primarily in
a diversified portfolio of equity securities of issuers located in Pacific Basin
countries.
Under normal circumstances, the fund will invest at least 65% of assets in these
companies, with the balance invested in equities of Asian countries not in the
Pacific Basin and in investment-grade debt securities of U.S., Japanese,
Australian and New Zealand issuers.
The fund does not maintain a fixed allocation of assets. The fund may at times
invest less than 65% of assets in Pacific Basin equities.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
Under normal circumstances, the fund invests primarily in common stocks and
other equity securities, but may invest in virtually any type of security,
foreign or domestic, including preferred and convertible securities, warrants
and investment-grade debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate.
Because the fund concentrates on one region, investors should expect
above-average volatility.
Also, because the fund invests internationally, it carries additional risks,
including currency, information, natural event and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are defined in "More about risk" starting on page 31. The risks of international
investing are higher in emerging markets, a category that includes many Pacific
Basin countries.
To the extent that the fund utilizes higher-risk securities practices, it takes
on further risks which could adversely affect its performance. Please read "More
about risk" carefully before investing.
MANAGEMENT/SUBADVISERS
[A graphic image of a generic person.] Day-to-day management of the fund is
carried out jointly by the adviser's international equities portfolio management
team and two subadvisers, Indosuez Asia Advisers Limited and John Hancock
Advisers International Limited. Indosuez is wholly owned by Credit Agricole.
- --------------------------------------------------------------------------------
<TABLE>
INVESTOR EXPENSES
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
===============================================================================
SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B
===============================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
===============================================================================
<CAPTION>
===============================================================================
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
===============================================================================
<S> <C> <C>
Management fee 0.80% 0.80%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.97% 0.97%
Total fund operating expenses 2.07% 2.77%
</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 $70 $112 $156 $278
Class B shares
Assuming redemption
at end of period $78 $116 $166 $293
Assuming no redemption $28 $ 86 $146 $293
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
14 GROWTH - PACIFIC BASIN EQUITIES FUND
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
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 A
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR GRAPH]
<CAPTION>
=====================================================================================================================
CLASS A - YEAR ENDED AUGUST 31, 1988(1) 1989 1990 1991 1992
=====================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.00 $ 9.61 $11.10 $10.34 $ 9.05
Net investment income (loss) 0.01 (0.02) (0.04) (0.01) (0.07)(3)
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions (0.37) 1.75 0.11 (0.33) (0.11)
Total from investment operations (0.36) 1.73 0.07 (0.34) (0.18)
Less distributions:
Dividends from net investment income (0.03) (0.01) -- -- --
Distributions from net realized gain on
investments sold and foreign currency transactions -- (0.23) (0.83) (0.95) --
Total distributions (0.03) (0.24) (0.83) (0.95) --
Net asset value, end of period $ 9.61 $11.10 $10.34 $ 9.05 $ 8.87
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5)(%) (3.61)(6) 18.06 (0.44) (2.15) (1.99)
Total adjusted investment return at net asset value(5,7)(%) (8.05)(6) 15.12 (2.86) (5.19) (5.57)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 4,771 5,116 4,578 4,065 3,222
Ratio of expenses to average net assets(%) 1.75(8) 1.75 2.45 2.75 2.73
Ratio of adjusted expenses to average net assets(9)(%) 6.19(8) 4.69 4.89(8) 5.79 6.31
Ratio of net investment income (loss) to average net assets(%) 0.04(8) (0.15) (0.28) (0.06) (0.82)
Ratio of adjusted net investment income (loss) to average
net assets(9)(%) (4.40) (3.09) (2.70) (3.10) (4.40)
Portfolio turnover rate(%) 148 227 154 151 179
Fee reduction per share ($) 1.15 0.39 0.31 0.24 0.31
Average brokerage commission rate(10)($) N/A N/A N/A N/A N/A
<CAPTION>
=====================================================================================================================
CLASS A - YEAR ENDED AUGUST 31, 1993 1994 1995 1996(2)
=====================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 8.87 $13.27 $15.88 $14.11
Net investment income (loss) (0.11)(3) (0.10)(3) 0.02(3,4) (0.02)(3)
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions 4.51 3.12 (1.24) 1.12
Total from investment operations 4.40 3.02 (1.22) 1.10
Less distributions:
Dividends from net investment income -- -- -- --
Distributions from net realized gain on
investments sold and foreign currency transactions -- (0.41) (0.55) --
Total distributions -- (0.41) (0.55) --
Net asset value, end of period $ 13.27 $15.88 $14.11 $15.21
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5)(%) 49.61 22.82 (7.65) 7.80(6)
Total adjusted investment return at net asset value(5,7)(%) 48.31 -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 14,568 50,261 37,417 43,051
Ratio of expenses to average net assets(%) 2.94 2.43 2.05 2.12(8)
Ratio of adjusted expenses to average net assets(9)(%) 4.24 -- -- --
Ratio of net investment income (loss) to average net assets(%) (0.98) (0.66) 0.13(4) (0.30)(8)
Ratio of adjusted net investment income (loss) to average
net assets(9)(%) (2.28) -- -- --
Portfolio turnover rate(%) 171 68 48 26
Fee reduction per share ($) 0.14 -- -- --
Average brokerage commission rate(10)($) N/A N/A N/A 0.01
<CAPTION>
=====================================================================================================================
CLASS B - YEAR ENDED AUGUST 31, 1994(1) 1995 1996(2)
=====================================================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $15.11 $15.84 $13.96
Net investment income (loss) (0.09)(3) (0.09)(3) (0.08)(3)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.82 (1.24) 1.12
Total from investment operations 0.73 (1.33) 1.04
Less distributions:
Distributions from net realized
gain on investments sold
and foreign currency transactions -- (0.55) --
Net asset value, end of period $15.84 $13.96 $15.00
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(5)(%) (4.83)(6) (8.38) 7.45(6)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 9,480 14,368 30,399
Ratio of expenses to average net assets(%) 3 .00(8) 2.77 2.84(8)
Ratio of net investment income (loss) to
average net assets(%) (1.40)(8) (0.66) (1.09)(8)
Portfolio turnover rate(%) 68 48 26
Average brokerage commission rate(10)($) N/A N/A 0.01
- ----------
(1) Class A and Class B shares commenced operations on September 8, 1987 and
March 7, 1994, respectively.
(2) Six months ended February 29, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) May not accord to amounts shown elsewhere in the financial statements due
to the timing of sales and repurchases of fund shares in relation to
fluctuating market values of the investments of the fund.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) An estimated total return calculation which does not take into
consideration fee reductions by the adviser during the periods shown.
(8) Annualized.
(9) Unreimbursed, without fee reduction.
(10) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
</TABLE>
GROWTH - PACIFIC BASIN EQUITIES FUND 15
<PAGE>
International/global FUNDS IN PROGRESS 6-18-96
<TABLE>
SHORT-TERM STRATEGIC INCOME FUND
<S> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: JHSAX CLASS B: FRSWX
- --------------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks a high level of current income. To pursue this goal, the fund invests
primarily in debt securities issued or guaranteed by:
- foreign governments and corporations
- the U.S. Government, its agencies or instrumentalities
- U.S. corporations
Under normal circumstances, the fund will invest assets in all three of these
sectors, but it may invest up to 100% in any one sector. The fund maintains
an average portfolio maturity of three years or less.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund may invest in all types of debt securities. The fund's U.S. Government
securities may include mortgage-backed securities. The fund may invest less than
35% of assets in securities rated as low as B and their unrated equivalents.
Bonds rated BBB/Baa or lower are considered junk bonds. However, the fund
maintains an average portfolio quality rating of A, which is an investment-grade
rating.
Because the fund is non-diversified, it may invest more than 5% of assets in
securities of a single issuer, but no more than 25% of assets in the securities
of any one foreign government.
The fund also may invest in certain other investments, and may engage in other
investment practices.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] The value of your investment in the fund will fluctuate with changes
in currency exchange rates as well as interest rates. Typically, a rise in
interest rates causes a decline in the market value of fixed income securities.
International investing particularly in emerging markets carries additional
risks, including information, natural event and political risks. Junk bonds may
carry high credit and market risks and mortgage-backed securities extension and
prepayment risks. These risks are defined in "More about risk" starting on page
31. Please read "More about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person] Anthony A. Goodchild, Lawrence J. Daly and
Janet L. Clay lead the portfolio management team. Messrs. Goodchild and Daly are
senior vice presidents and joined John Hancock Funds in 1994, having been in the
investment business since 1968 and 1972, respectively. Ms. Clay, a second vice
president of the adviser, joined John Hancock Funds in 1995 and has been in the
investment business since 1990.
- -------------------------------------------------------------------------------
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) 3.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 3.00%
Redemption fee(2) none none
Exchange fee none none
<CAPTION>
==============================================================================
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
==============================================================================
<S> <C> <C>
Management fee 0.65% 0.65%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.42% 0.42%
Total fund operating expenses 1.37% 2.07%
</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 $44 $72 $103 $190
CLASS B SHARES
Assuming redemption
at end of period $51 $85 $111 $198
Assuming no redemption $21 $65 $111 $198
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
16 INCOME - SHORT-TERM STRATEGIC INCOME FUND
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
<TABLE>
VOLATILITY, AS INDICATED BY CLASS B
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR GRAPH]
<CAPTION>
===========================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1992(1) 1993 1994 1995
===========================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $9.86 $9.32 $9.12 $8.47
Net investment income (loss) 0.65 0.83(2) 0.76(2) 0.77(2)
Net realized and unrealized gain (loss)
on investments and foreign currency transactions (0.55) (0.20) (0.53) (0.06)
Total from investment operations 0.10 0.63 0.23 0.71
Less distributions:
Dividends from net investment income (0.64) (0.83) (0.62) (0.61)
Distributions in excess of net
investment income -- -- (0.04) --
Distributions in excess of net realized
gain on investments sold -- -- (0.12) --
Distributions from capital paid-in -- -- (0.10) (0.16)
Total distributions (0.64) (0.83) (0.88) (0.77)
Net asset value, end of period $9.32 $9.12 $8.47 $8.41
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) 1.16(4) 6.78 2.64 8.75
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 20,468 11,130 13,091 16,997
Ratio of expenses to average net assets (%) 1.37(4) 1.21 1.26 1.33
Ratio of net investment income (loss) to average
net assets (%) 8.09(4) 8.59 8.71 9.13
Portfolio turnover rate (%) 86 306 150 147
<CAPTION>
===========================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1991(1) 1992 1993 1994 1995
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.00 $ 10.01 $ 9.31 $9.11 $8.46
Net investment income (loss) 0.76 0.87 0.75(2) 0.70(2) 0.70(2)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.01 (0.80) (0.20) (0.53) (0.06)
Total from investment operations 0.77 0.07 0.55 0.17 0.64
Less distributions:
Dividends from net investment income (0.76) (0.77) (0.75) (0.56) (0.56)
Distributions in excess of net
investment income -- -- -- (0.04) --
Distributions in excess of net realized
gain on investments sold -- -- -- (0.12) --
Distributions from capital paid-in -- -- -- (0.10) (0.14)
Total distributions (0.76) (0.77) (0.75) (0.82) (0.70)
Net asset value, end of period $ 10.01 $ 9.31 $ 9.11 $8.46 $8.40
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 8.85(4) 0.64 5.98 1.93 7.97
Total adjusted investment return at net asset value(3,5)(%) 8.81(4) -- -- -- --
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted) ($) 218,562 236,059 142,873 98,390 84,601
Ratio of expenses to average net assets (%) 1.89(4) 2.07 2.01 1.99 2.07
Ratio of adjusted expenses to average net assets(6) (%) 1.93(4) -- -- -- --
Ratio of net investment income (loss)
to average net assets (%) 8.72(4) 8.69 7.81 8.00 8.40
Ratio of adjusted net investment income (loss)
to average net assets(6) (%) 8.68 -- -- -- --
Portfolio turnover rate (%) 22 86 306 150 147
Fee reduction per share ($) 0.0039 -- -- -- --
- ----------
(1) Class A and Class B shares commenced operations on January 3, 1992 and
December 28,1990, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Annualized.
(5) An estimated total return calculation which does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Unreimbursed, without fee reduction.
</TABLE>
INCOME - SHORT-TERM STRATEGIC INCOME FUND 17
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
WORLD BOND FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: FGLAX CLASS B: FGLIX
- ---------------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks a high total investment return--a combination of current income and
capital appreciation. To pursue this goal, the fund invests at least 65% of
assets in debt securities issued or guaranteed by:
- - the U.S. Government, its agencies or instrumentalities
- - foreign governments
- - multinational organizations such as the World Bank
- - foreign corporations and financial institutions
Under normal circumstances, the fund expects to invest in the securities markets
of at least three countries at any given time, including the U.S. The fund does
not maintain a fixed allocation of assets.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund may invest in all types of debt securities, including bonds, debentures,
notes and preferred and convertible securities. Less than 35% of assets may be
invested in junk bonds, emerging market bonds and other lower-rated debt
securities.
Because the fund is non-diversified, it may invest more than 5% of assets in
securities of a single issuer, but no more than 25% of assets in the securities
of any one foreign government.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain other investments, and may engage in other investment
practices.
RISK FACTORS
[A graphic of image of a line chart with a single line that depicts some peaks
and valleys.] As with most income funds, the value of your investment in the
fund will fluctuate with changes in interest rates. Typically, a rise in
interest rates causes a decline in the market value of fixed income securities.
International investing carries additional risks, including currency,
information, natural event and political risks. Junk bonds may carry high credit
and market risks. These risks are defined in "More about risk" starting on page
31. Please read "More about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[A graphic image of a generic person] Anthony A. Goodchild, Lawrence J. Daly and
Janet L. Clay lead the portfolio management team. Messrs. Goodchild and Daly are
senior vice presidents and joined John Hancock Funds in 1994, having been in the
investment business since 1968 and 1972, respectively. Ms. Clay, a second vice
president of the adviser, joined John Hancock Funds in 1995 and has been in the
investment business since 1990.
- -------------------------------------------------------------------------------
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) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
<CAPTION>
===============================================================================
ANNUAL FUND OPERATING EXPENSES (AS A % OF AVERAGE NET ASSETS)
===============================================================================
<S> <C> <C>
Management fee 0.75% 0.75%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.43% 0.43%
Total fund operating expenses 1.48% 2.18%
</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 $59 $90 $122 $214
Class B shares
Assuming redemption
at end of period $72 $98 $137 $234
Assuming no redemption $22 $68 $117 $234
This example is for comparison purposes only and is not a representation of
the fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
</TABLE>
18 INCOME - WORLD BOND FUND
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
<TABLE>
VOLATILITY, AS INDICATED BY CLASS B
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%) [BAR GRAPH]
<CAPTION>
========================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1992(1) 1993 1994 1995
========================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $10.57 $ 9.76 $9.62 $ 8.85
Net investment income (loss) 0.64 0.76 0.64(2) 0.57(2)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (0.74) (0.10) (0.78) 0.48
Total from investment operations (0.10) 0.66 (0.14) 1.05
Less distributions:
Dividends from net investment income (0.71) (0.38) (0.11) (0.59)
Distributions in excess of net
investment income -- (0.04) -- --
Distributions from capital paid-in -- (0.38) (0.52) (0.01)
Total distributions (0.71) (0.80) (0.63) (0.60)
Net asset value, end of period $ 9.76 $ 9.62 $8.85 $ 9.30
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) (0.88)(4) 7.14 (1.30) 12.25
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 12,880 12,882 8,949 35,334
Ratio of expenses to average net assets(%) 1.41 (4) 1.46 1.59 1.48
Ratio of net investment income (loss) to
average net assets(%) 7.64 (4) 7.89 7.00 6.43
Portfolio turnover rate (%) 476 363 174 263
</TABLE>
<TABLE>
<CAPTION>
========================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(5) 1987(6) 1988 1989 1990
========================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.60 $10.79 $ 10.32 $ 10.98 $ 10.21
Net investment income (loss) 0.31 0.25 0.67 0.83 0.85
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 1.29 (0.18) 1.31 (0.27) 0.28
Total from investment operations 1.60 0.07 1.98 0.56 1.13
Less distributions:
Distributions in excess of net investment income -- -- -- -- --
Distributions from net realized gain on investments (0.15) (0.26) (0.64) (0.49) --
Dividends from net investment income (0.26) (0.28) (0.68) (0.84) (0.85)
Distributions from capital paid-in -- -- -- -- (0.11)
Total distributions (0.41) (0.54) (1.32) (1.33) (0.96)
Net asset value, end of period $10.79 $10.32 $ 10.98 $ 10.21 $ 10.38
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) 65.96(4) 1.59(4) 20.09 5.47 11.84
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 18,253 58,658 174,833 255,214 186,524
Ratio of expenses to average net assets(%) 2.41(4) 2.19(4) 1.74 1.75 1.82
Ratio of net investment income (loss) to
average net assets(%) 8.69(4) 6.32(4) 6.04 8.07 8.67
Portfolio turnover rate (%) 140(4) 152(4) 364 333 186
<CAPTION>
========================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1991 1992 1993 1994 1995
========================================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 10.38 $ 10.44 $ 9.74 $ 9.62 $ 8.85
Net investment income (loss) 0.90 0.78 0.72 0.59(2) 0.55(2)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.13 (0.59) (0.09) (0.78) 0.44
Total from investment operations 1.03 0.19 0.63 (0.19) 0.99
Less distributions:
Distributions in excess of net investment income -- -- (0.04) -- --
Distributions from net realized gain on investments (0.24) -- -- -- --
Dividends from net investment income (0.73) (0.89) (0.33) (0.06) (0.53)
Distributions from capital paid-in -- -- (0.38) (0.52) (0.01)
Total distributions (0.97) (0.89) (0.75) (0.58) (0.54)
Net asset value, end of period $ 10.44 $ 9.74 $ 9.62 $ 8.85 $ 9.30
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) 10.44 1.72 6.77 (1.88) 11.51
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 192,687 199,102 197,166 114,656 65,600
Ratio of expenses to average net assets(%) 1.90 1.91 1.91 2.17 2.16
Ratio of net investment income (loss) to
average net assets(%) 8.74 7.59 7.45 6.41 6.03
Portfolio turnover rate (%) 159 476 363 174 263
(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) Annualized.
(5) For the period December 17, 1986 (commencement of operations) to May 31,
1987.
(6) For the period June 1, 1987 to October 31, 1987.
</TABLE>
INCOME - WORLD BOND FUND 19
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
YOUR ACCOUNT
- -------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock international/global funds offer two classes of shares, Class A
and Class B. Each class has its own cost structure, allowing you to choose the
one that best meets your requirements. Your financial representative can help
you decide.
===============================================================================
CLASS A CLASS B
===============================================================================
- - Front-end sales charges, as - No front-end sales charge; all
described below. There are your money goes to work for you
several ways to reduce these right away.
charges, also described below.
- Higher annual expenses than Class
- - Lower annual expenses than A shares.
Class B shares.
- A deferred sales charge, as
described below.
- Automatic conversion to Class A
shares after eight years (five
years for Short-Term Strategic
Income Fund), 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.
- -------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
<TABLE>
CLASS A Sales charges are as follows:
<CAPTION>
===============================================================================
CLASS A SALES CHARGES - SHORT-TERM STRATEGIC INCOME
===============================================================================
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
<S> <C> <C>
Up to $99,999 3.00% 3.09%
$100,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
<CAPTION>
===============================================================================
CLASS A SALES CHARGES - WORLD BOND
===============================================================================
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
<S> <C> <C>
Up to $99,999 4.50% 4.71%
$100,000 - $249,999 3.75% 3.90%
$250,000 - $499,999 2.75% 2.83%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
<CAPTION>
===============================================================================
CLASS A SALES CHARGES - GROWTH FUNDS
===============================================================================
AS A % OF AS A % OF YOUR
YOUR INVESTMENT OFFERING PRICE INVESTMENT
<S> <C> <C>
Up to $49,999 5.00% 5.25%
$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:
<CAPTION>
===============================================================================
CDSC ON $1 MILLION+ INVESTMENTS (ALL FUNDS)
===============================================================================
YOUR INVESTMENT CDSC ON SHARES BEING SOLD
<S> <C>
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
</TABLE>
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
20 YOUR ACCOUNT
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
<TABLE>
CLASS B Shares are offered at their net asset value per share, without any
initial sales charge. However, you may be charged a contingent deferred sales
charge (CDSC) on shares you sell within a certain time after you bought them, as
described in the table below. There is no CDSC on shares acquired through
reinvestment of dividends. The CDSC is based on the original purchase cost or
the current market value of the shares being sold, whichever is less. The longer
the time between the purchase and the sale of shares, the lower the rate of the
CDSC:
<CAPTION>
- -------------------------------------------------------------------------------
CLASS B DEFERRED CHARGES
- -------------------------------------------------------------------------------
YEARS AFTER CDSC ON SHORT-TERM CDSC ON ALL
PURCHASE STRATEGIC INCOME OTHER FUND SHARES
SHARES BEING SOLD BEING SOLD
<S> <C> <C>
1st year 3.00% 5.00%
2nd year 2.00% 4.00%
3rd year 2.00% 3.00%
4th year 1.00% 3.00%
5th year None 2.00%
6th year None 1.00%
After 6 years None None
</TABLE>
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
- -------------------------------------------------------------------------------
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 (see the back cover of this prospectus).
GROUP INVESTMENT PROGRAM Allows established groups of four or more investors to
invest as a group. Each investor has an individual account, but for sales charge
purposes, their investments are lumped together, making the investors
potentially eligible for reduced sales charges. There is no charge, no
obligation to invest (although initial aggregate investments must be at least
$250) and you may terminate the program at any time.
To utilize: contact your financial representative or Investor Services to find
out how to qualify.
CDSC WAIVERS In general, the CDSC for either share class may be waived on
shares you sell for the following reasons:
- - to make payments through certain systematic withdrawal plans
- - to make certain distributions from a retirement plan
- - because of shareholder death or disability
To utilize: contact your financial representative or Investor Services, or
consult the SAI (see the back cover of this prospectus).
REINSTATEMENT PRIVILEGE If you sell shares of a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
To utilize: contact your financial representative or Investor Services.
YOUR ACCOUNT 21
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
- - government entities that are prohibited from paying mutual fund sales
charges
- - financial institutions or common trust funds investing $1 million or more
for non-discretionary accounts
- - selling brokers and their employees and sales representatives
- - financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
- - fund trustees and other individuals who are affiliated with these or other
John Hancock funds
- - individuals transferring assets to a John Hancock growth fund from an
employee benefit plan that has John Hancock funds
- - members of an approved affinity group financial services program
- - clients of AFA, when their funds are transferred directly to Global
Technology from accounts managed by AFA
- - certain insurance company contract holders (one-year CDSC applies)
- - participants in certain plans with at least 100 members (one-year CDSC
applies)
- - certain former shareholders of John Hancock National Aviation & Technology
Fund and Nova Fund.
To utilize: if you think you may be eligible for a sales charge waiver,
contact Investor Services or consult the SAI.
- -------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
- non-retirement account: $1,000
- retirement account: $250
- group investments: $250
- Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Investor Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to
add privileges later.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
22 YOUR ACCOUNT
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
<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 - Make out a check for the investment amount
amount, payable to "John Hancock payable to "John Hancock Investor Services
Investor Services Corporation." Corporation."
- Deliver the check and your completed - Fill out the detachable investment slip from
application to your financial an account statement. If no slip is available,
representative, or mail them to include a note specifying the fund name, your
Investor Services (address below). share class, your account number, and the name(s)
in which the account is registered.
- Deliver the check and your investment slip or
note to your financial representative, or mail
them to Investor Services (address on next page).
BY EXCHANGE
[A graphic image of white arrow outlined in
black that points to the right above a black
that points to the left.]
- Call your financial representative or - Call Investor Services to request an exchange.
Investor Services 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 - Instruct your bank to wire the amount of your
financial representative, or mail it to investment to:
Investor Services. First Signature Bank & Trust
Account # 900000260
- Obtain your account number by calling your Routing # 211475000
financial representative or Investor Services. Specify the fund name, your share class, your
account number and the name(s) in which the
- Instruct your bank to wire the amount of your account is registered. Your bank may charge a
investment to: 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.
ADDRESS
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
PHONE NUMBER
1-800-225-5291
To open or add to an account using the Monthly
Or contact your financial representative Automatic Accumulation Program, see
for instructions and assistance. "Additional investor services."
</TABLE>
YOUR ACCOUNT 23
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
<TABLE>
SELLING SHARES
<CAPTION>
===================================================================================================================
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
===================================================================================================================
<S> <C>
BY LETTER
[A graphic image of the back of an envelope]
- Accounts of any type. - Write a letter of instruction or complete
a stock power indicating the fund name,
- Sales of any amount. your share class, your account number, the
name(s) in which the account is registered
and the dollar value or number of shares you
wish to sell.
- 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
- Sales of up to $100,000. John Hancock Funds 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 - Fill out the "Telephone Redemption" section
(accounts of any type). of your new account application.
- Requests by phone to sell up to $100,000 - To verify that the telephone redemption
(accounts with telephone redemption privilege is in place on an account, or to
privileges). 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
- Sales of any amount. your financial representative or Investor
Services.
- Call Investor Services to request an exchange.
BY CHECK
[A graphic image of a blank check.]
- Short-Term Strategic Income Fund only. - Request checkwriting on your new account
application.
- Any account with checkwriting privileges. - Verify that the shares to be sold were
purchased more than 15 days earlier or were
purchased by wire.
- Sales of over $100. - Write a check for any amount over $100.
ADDRESS
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
PHONE NUMBER
1-800-225-5291
To sell shares through a systematic withdrawal plan, Or contact your financial representative
see "Additional investor services." for instructions and assistance.
</TABLE>
24 YOUR ACCOUNT
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
SELLING SHARES IN WRITING In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
- your address of record has changed within the past 30 days
- you are selling more than $100,000 worth of shares
- you are requesting payment other than by a check mailed to the address
of record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
- a broker or securities dealer
- a federal savings, cooperative or other type of bank
- a savings and loan or other thrift institution
- a credit union
- a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
<TABLE>
<CAPTION>
===================================================================================================================
SELLER REQUIREMENTS FOR WRITTEN REQUESTS
===================================================================================================================
<S> <C>
Owners of individual, joint, sole proprietorship, - Letter of instruction.
UGMA/UTMA (custodial accounts for minors) or - On the letter, the signatures and titles of all
general partner accounts. persons authorized to sign for
the account, exactly as the account is registered.
- Signature guarantee if applicable (see above).
Owners of corporate or association accounts. - Letter of instruction.
- Corporate resolution, certified within the
past 90 days.
- On the letter and the resolution, the
signature of the person(s) authorized to
sign for the account.
- Signature guarantee if applicable (see above).
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 past 60 days.
- Signature guarantee if applicable (see above).
Joint tenancy shareholders whose co-tenants are - Letter of instruction signed by surviving tenant.
deceased.
- Copy of death certificate.
- Signature guarantee if applicable (see above).
Executors of shareholder estates. - Letter of instruction signed by executor.
- Copy of order appointing executor.
- Signature guarantee if applicable (see above).
Administrators, conservators, guardians and - Call 1-800-225-5291 for instructions.
other sellers or account types not listed
above.
</TABLE>
YOUR ACCOUNT 25
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday - Friday. Buy and sell requests are executed
at the next NAV to be calculated after your request is accepted by Investor
Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Investor Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or taxpayer ID number, and other relevant information.
If these measures are not taken, Investor Services is responsible for any losses
that may occur to any account due to an unauthorized telephone call. Also for
your protection, telephone transactions are not permitted on accounts whose
names or addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
EXCHANGES You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
Class B shares will continue to age from the original date and will retain the
same CDSC rate as they had before the exchange, except that the rate will change
to that of the new fund if the new fund's rate is higher. A CDSC rate that has
increased will drop again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
Merrill Lynch customers may exchange shares of any John Hancock fund for shares
of the same class of Merrill Lynch's Summit Cash Reserves Fund. For Class B
shares, the CDSC calculation will not include the time the assets spent in the
Merrill Lynch fund.
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.
ELIGIBILITY BY STATE You may only invest in, or exchange into, fund shares
legally available in your state.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
ACCOUNT STATEMENTS In general, you will receive account statements as follows:
- after every transaction (except a dividend reinvestment) that affects
your account balance
- after any changes of name or address of the registered owner(s)
- in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
26 YOUR ACCOUNT
<PAGE>
DIVIDENDS The income funds generally declare income dividends daily and pay them
monthly. These income dividends begin accruing the day after payment is received
by the fund and continue through the day your shares are actually sold. The
growth funds pay income dividends, if any, annually. All funds distribute
capital gains, if any, annually.
DIVIDEND REINVESTMENTS Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
TAXABILITY OF DIVIDENDS As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Investor Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) MAAP lets you set up
regular investments from your paycheck or bank account to the John Hancock
fund(s) of your choice. You determine the frequency and amount of your
investments, and you can terminate your program at any time. To establish:
- Complete the appropriate parts of your Account 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." Deliver your check and application to
your financial representative or Investor Services.
SYSTEMATIC WITHDRAWAL PLAN This plan may be used for routine bill payment or
periodic withdrawals from your account. To establish:
- Make sure you have at least $5,000 worth of shares in your account.
- Make sure you are not planning to invest more money in this account
(buying shares during a period when you are also selling shares of the
same fund is not advantageous to you, because of sales charges).
- Specify the payee(s). The payee may be yourself or any other party,
and there is no limit to the number of payees you may have, as long as
they are all on the same payment schedule.
- Determine the schedule: monthly, quarterly, semi-annually, annually or
in certain selected months.
- Fill out the relevant part of the account 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, 401(k) plans, 403(b) plans (including
TSAs) and other pension and profit-sharing plans. Using these plans, you can
invest in any John Hancock fund with a low minimum investment of $250 or, for
some group plans, no minimum investment at all. To find out more, call Investor
Services at 1-800-225-5291.
YOUR ACCOUNT 27
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
HOW THE FUNDS ARE ORGANIZED Each John Hancock international/global 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.
[GRAPHIC: A flow chart that contains 8 rectangular-shaped boxes and illustrates
the hierarchy of how the funds are organized. Within the flowchart, there are 5
tiers. The tiers are connected by shaded lines.
Shareholders represent the first tier. There is a shaded vertical arrow on the
left-hand side of the page. The arrow has arrowheads on both ends and is
contained within two horizontal, shared lines. This is meant to highlight tiers
two and three which focus on Distribution and Shareholder Services.
Financial Services Firms and their Representatives are shown on the second tier.
Principal Distributor and Transfer Agent are shown on the third tier.
A shaded vertical arrow on the right-hand side of the page denotes those
entities involved in the Asset Management. The arrow has arrowheads on both
ends and is contained within two horizontal, shaded lines. This fourth tier
includes the Subadvisor, Investment Advisor and the Custodian.
The fifth tier contains the Trustees/Directors.]
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 international/global
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").
28 FUND DETAILS
<PAGE>
ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax and
financial management services. Annual compensation for 1996 will not exceed
0.02% of each fund's average net assets.
PORTFOLIO TRADES In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock Mutual
Life Insurance Company, but only when the adviser believes no other firm offers
a better combination of quality execution (i.e., timeliness and completeness)
and favorable price.
ADVERTISEMENT OF PERFORMANCE The funds may include figures for yield (where
appropriate) and total return in advertisements and other sales materials, as
follows:
DEFINITIONS OF PERFORMANCE MEASURES
MEASURE DEFINITION
Cumulative Overall dollar or percentage change of a hypothetical
total return investment over the stated time period.
Average Cumulative total return divided by the number of years in
annual total the period. The result is an average and is not the same as
return 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.
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 and fee structures, the classes have different performance
results.
INVESTMENT GOALS Except for Global Rx Fund and International Fund, each fund's
investment goal is fundamental and may only be changed with shareholder
approval.
DIVERSIFICATION Except for Short-Term Strategic Income Fund and World Bond Fund,
all international/global funds are diversified.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund in assets ("12b-1" refers to the
federal securities regulation authorizing annual fees of this type). The 12b-1
fee rates vary by fund and by share class, according to Rule 12b-1 plans adopted
by the funds' 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 on the next
page.
<TABLE>
============================================================================
CLASS B UNREIMBURSED DISTRIBUTION EXPENSES(1)
============================================================================
<CAPTION>
UNREIMBURSED AS A % OF
FUND EXPENSES NET ASSETS
<S> <C> <C>
Global $ 750,008 2.74%
Global Marketplace N/A N/A
Global Rx $ 205,352 6.09%
Global Technology $ 987,619 4.34%
International $ 358,785 9.76%
Pacific Basin Equities $ 749,799 6.06%
Short-Term Strategic Income $2,610,556 2.93%
World Bond $4,753,035 5.13%
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
</TABLE>
INITIAL COMPENSATION Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
ANNUAL COMPENSATION Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears. Firms affiliated
with John Hancock, which include Tucker Anthony, Sutro & Company and John
Hancock Distributors, may receive an additional fee of up to 0.05% a year of
their total eligible net assets.
FUND DETAILS 29
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS6-18-96
<TABLE>
<CAPTION>
==================================================================================================================================
CLASS A INVESTMENTS
==================================================================================================================================
MAXIMUM
SALES CHARGE REALLOWANCE FIRST YEAR MAXIMUM
PAID BY INVESTORS OR COMMISSION SERVICE FEE TOTAL COMPENSATION(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
SHORT-TERM STRATEGIC INCOME FUND
Up to $99,999 3.00% 2.26% 0.25% 2.50%
$100,000 - $499,999 2.50% 2.01% 0.25% 2.25%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
WORLD BOND FUND
Up to $99,999 4.50% 3.76% 0.25% 4.00%
$100,000 - $249,999 3.75% 3.01% 0.25% 3.25%
$250,000 - $499,999 2.75% 2.06% 0.25% 2.30%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
GROWTH FUNDS
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 (ALL FUNDS)
First $1M - $4,999,999 -- 1.00% 0.25% 1.24%
Next $1 - $5M above that -- 0.50% 0.25% 0.74%
Next $1 and more above that -- 0.25% 0.25% 0.49%
WAIVER INVESTMENTS(2) -- 0.00% 0.25% 0.25%
CLASS B INVESTMENTS
MAXIMUM
REALLOWANCE MAXIMUM
OR COMMISSION SERVICE FEE TOTAL COMPENSATION
(% of offering price) (% of net investment) (% of offering price)
SHORT-TERM STRATEGIC INCOME FUND
All amounts 2.25% 0.25% 2.50%
ALL OTHER FUNDS
All amounts 3.75% 0.25% 4.00%
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial
institutions, trusts and affinity group members that take advantage of
the sales charge waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to fund
commission payments when there is no initial sales charge.
</TABLE>
30 FUND DETAILS
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS6-18-96
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following page are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock international/global fund will be positive over any period of time --
days, months or years. However, international/global funds as a category have
historically performed better over the long term than comparable domestic funds.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
CORRELATION RISK The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment).
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.
EXTENSION RISK The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.
INFORMATION RISK The risk that key information about a security or market is
inaccurate or unavailable.
INTEREST RATE RISK The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
LEVERAGE RISK Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
- - HEDGED When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position which
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
- - SPECULATIVE To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance.
MANAGEMENT RISK The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than it was worth at an earlier time. Market risk may affect a
single issuer, industry, sector of the economy or the market as a whole. Common
to all stocks and bonds and the mutual funds that invest in them.
NATURAL EVENT RISK The risk of losses attributable to natural disasters, crop
failures and similar events.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in other investments.
POLITICAL RISK The risk of losses directly attributable to government or
political actions of any sort. These actions may range from changes in tax or
trade statutes to expropriation, governmental collapse and war.
PREPAYMENT RISK The risk that unanticipated prepayments may occur, reducing the
value of mortgage-backed securities.
VALUATION RISK The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
FUND DETAILS 31
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS6-18-96
<TABLE>
====================================================================================================================================
HIGHER-RISK SECURITIES AND PRACTICES
====================================================================================================================================
This table shows each fund's investment
limitations as a percentage of portfolio
assets. In each case the principal types
of risk are listed (see previous page for
definitions).
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
* No policy limitation on usage; fund
may be using currently
0 Permitted, but has not typically
BEEN USED
- -- NOT PERMITTED
<CAPTION>
PACIFIC SHORT-TERM
GLOBAL GLOBAL GLOBAL BASIN STRATEGIC WORLD
GLOBAL MARKETPLACE RX TECHNOLOGY INTERNATIONAL EQUITIES INCOME BOND
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
====================================================================================================================================
BORROWING; REVERSE REPURCHASE AGREEMENTS
The borrowing of money from banks or through
reverse repurchase agreements. Leverage,
credit risks. 10 33 1/3 33 1/3 10 33 1/3 33 1/3 10 10
CURRENCY TRADING The direct trading or
holding of foreign currencies as an asset.
Currency risk. * * * * * * * *
REPURCHASE AGREEMENTS The purchase of
a security that must later be sold back
to the issuer at the same price plus
interest. Credit risk. * * * * * * * *
SECURITIES LENDING The lending of
securities to financial institutions,
which provide cash or government
securities as collateral. Credit risk. 10 33 1/3 33 1/3 25 33 1/3 33 1/3 30 30
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. * --
- - Speculative. Speculative leverage, market,
liquidity risks. * --
SHORT-TERM TRADING Selling a security soon
after purchase. A portfolio engaging in
short-term trading will have higher turnover
and transaction expenses. Market risk. * * * * * * * *
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS
The purchase or sale of securities for delivery
at a future date; market value may change before
delivery. Market, opportunity, leverage risks. * * * * * * * *
====================================================================================================================================
CONVENTIONAL SECURITIES
====================================================================================================================================
FOREIGN DEBT SECURITIES Debt securities issued
by foreign governments or companies. Credit,
currency, interest rate, market, political risks. 5 35(1) 35(1) 10 35(1) 35(1) * *
NON-INVESTMENT-GRADE DEBT SECURITIES Debt
securities rated below BBB/Baa are considered
"junk" bonds. Credit, market, interest rate risks,
liquidity, valuation and information risks. -- -- -- 10 -- -- 35 --
RESTRICTED AND ILLIQUID SECURITIES Securities
not traded on the open market. May include
illiquid Rule 144A securities. Liquidity,
valuation, market risks. 15 15 15 15 15 15 15 15
====================================================================================================================================
UNLEVERAGED DERIVATIVE SECURITIES
====================================================================================================================================
ASSET-BACKED SECURITIES Securities backed by
unsecured debt, such as credit card debt; these
securities are often guaranteed or over-
collateralized to enhance their credit quality.
Credit, interest rate risks. -- -- -- -- -- -- -- --
MORTGAGE-BACKED SECURITIES Securities backed by
pools of mortgages, including passthrough
certificates, PACs, TACs and other senior classes
of collateralized mortgage obligations (CMOs).
Credit, extension, prepayment, interest rate risks. -- -- -- -- 0 -- * *
PARTICIPATION INTERESTS Securities representing
an interest in another security or in bank loans.
Credit, interest rate, liquidity, valuation risks. -- -- -- 10 -- -- 15(2) --
(1) No more than 25% of the fund's assets will be invested in securities of any
one foreign country.
(2) Part of the 15% limitation on illiquid securities.
(3) Applies to purchased options only.
</TABLE>
32 FUND DETAILS
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
<TABLE>
===================================================================================================================================
HIGHER-RISK SECURITIES AND PRACTICES(CONT'D)
===================================================================================================================================
<CAPTION>
PACIFIC SHORT-TERM
GLOBAL GLOBAL GLOBAL BASIN STRATEGIC WORLD
GLOBAL MARKETPLACE RX TECHNOLOGY INTERNATIONAL EQUITIES INCOME BOND
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LEVERAGED DERIVATIVE SECURITIES
====================================================================================================================================
Currency contracts Contracts involving the
right or obligation to buy or sell a given
amount of foreign currency at a specified
price and future date.
- - Hedged. Currency, hedged leverage,
correlation, liquidity, opportunity risks. * * * * * * * *
- - Speculative. Currency, speculative leverage,
liquidity risks. 0 0 0 0 -- 0 0 0
FINANCIAL FUTURES AND OPTIONS; SECURITIES AND
INDEX OPTIONS Contracts involving the right
or obligation to deliver or receive assets or
money depending on the performance of one or
more assets or an economic index.
- - Futures and related options. Interest rate,
currency, market, hedged or speculative
leverage, correlation, liquidity, opportunity
risks. * * * 0 * 0 * *
- - Options on securities and indices. Interest
rate, currency, market, hedged or speculative
leverage, correlation, liquidity, credit,
opportunity risks. 5(3) 0 0 5(3) 0 0 5(3) 5(3)
STRUCTURED SECURITIES Indexed and/or leveraged
mortgage-backed and other debt securities,
including principal-only and interest-only
securities, leveraged floating rate securities,
and others. These securities tend to be highly
sensitive to interest rate movements and their
performance may not correlate to these movements
in a conventional fashion. Credit, interest rate,
extension, prepayment, market, speculative
leverage, liquidity, valuation risks. -- -- -- 10 -- -- * *
</TABLE>
<TABLE>
====================================================================================================================================
ANALYSIS OF FUNDS WITH 5% OR MORE IN JUNK BONDS
====================================================================================================================================
<CAPTION>
QUALITY RATING SHORT-TERM
(S&P/MOODY'S)(1) STRATEGIC INCOME FUND
<S> <C> <C>
====================================================================================================================================
INVESTMENT-GRADE BONDS
====================================================================================================================================
AAA 43.3%
AA 10.6%
A 8.4%
BBB 1.7%
BB 8.4%
====================================================================================================================================
JUNK BONDS
====================================================================================================================================
B 13.5%
CCC 5.3%
CC 0.0%
C 0.0%
D 0.0%
% OF PORTFOLIO IN BONDS 91.2%
* Rated by S&P or Moody - Rated by the advisor
(1) In cases where the S&P and Moody's ratings for a given bond issue do not
agree, the issue has been counted in the higher category.
</TABLE>
FUND DETAILS 33
<PAGE>
INTERNATIONAL/GLOBAL FUNDS IN PROGRESS 6-18-96
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
international/global funds:
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/semi-annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (is legally a part of this prospectus).
To request a free copy of the current annual/semi-annual report or SAI, please
write or call:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, MA 02205-9116
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
[LOGO: John Hancock's graphic logo. A circle, diamond, triangle and a cube.]
101 Huntington Avenue
Boston, Massachusetts 02199-7603
[LOGO: John Hancock's script logo.]
<PAGE>
JOHN HANCOCK GLOBAL FUND
JOHN HANCOCK WORLD BOND FUND
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 30, 1996
This Statement of Additional Information provides information
about John Hancock Global Fund and John Hancock World Bond Fund (collectively,
the "Funds") in addition to the information that is contained in the Funds'
combined Prospectus dated August 30, 1996 (the "Prospectus").
This Statement of Additional Information is not a prospectus. It
should be read in conjunction with the Funds' Prospectus, a copy of which can be
obtained free of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
<TABLE>
Page
<S> <C>
Organization of the Funds .............................................................. 3
Investment Objectives and Policies............................................................ 3
- --- John Hancock Global Fund.............................................................. 3
- --- John Hancock World Bond Fund.......................................................... 4
The Funds' Options Trading Activities......................................................... 8
The Funds' Investments in Futures Contracts................................................... 13
Certain Investment Practices ................................................................. 19
Investment Restrictions....................................................................... 24
Tax Status.................................................................................... 27
Those Responsible for Management.............................................................. 31
Investment Advisory and Other Services........................................................ 38
Distribution Contract......................................................................... 40
Net Asset Value............................................................................... 41
Initial Sales Charge on Class A Shares........................................................ 42
Deferred Sales Charge on Class B Shares....................................................... 44
Special Redemptions........................................................................... 48
Additional Services and Programs.............................................................. 48
Description of the Funds' Shares.............................................................. 50
Calculation of Performance.................................................................... 51
Brokerage Allocation.......................................................................... 54
Distributions................................................................................. 57
Transfer Agent Services....................................................................... 58
Custody of Portfolio.......................................................................... 58
Independent Accountants....................................................................... 58
</TABLE>
<PAGE>
Appendix A
- - Bond and Commercial Paper Ratings................................... A-1
Financial Statements ................................................. --
-2-
<PAGE>
ORGANIZATION OF THE FUNDS
Freedom Investment Trust II (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on March 31,
1986. Freedom Investment Trust II currently has five series of shares, John
Hancock Global Fund (formerly John Hancock Freedom Global Fund), created on
March 31, 1986 ("Global Fund"), John Hancock World Bond Fund (formerly John
Hancock Global Income Fund and, prior to that, John Hancock Freedom Global
Income Fund), created on July 30, 1986 ("World Bond Fund"), John Hancock
Short-Term Strategic Income Fund (formerly John Hancock Freedom Short-Term World
Income Fund), created on July 31, 1990; John Hancock Special Opportunities Fund,
created on November 1, 1993 ("Special Opportunities Fund"), and John Hancock
International Fund (formerly John Hancock Freedom International Fund), created
on January 3, 1994 ("International Fund"). The Global Fund and World Bond Fund
may be referred to individually as a "Fund" and collectively as the "Funds."
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each Fund's
investment objectives and policies discussed in the Prospectus. The investment
adviser for the Funds is John Hancock Advisers, Inc. (the "Adviser"). John
Hancock Advisers International Limited ("JH Advisers International") is the Sub-
Adviser for the Global Fund.
GLOBAL FUND
Today, more than two-thirds of the world's stock market value is traded
on stock exchanges located outside of the United States. Europe is poised for
economic change. The European Economic Commission has ratified the economic
directives which will essentially create a single, unified market amongst the
European nations allowing the free movement of goods and services within a
population which is larger than that of the USA. Europe also intends to
participate in the restructuring of the social and economic policies of the
former Soviet Union and other Eastern bloc countries. The Pacific Region, which
includes Japan, Hong Kong, Korea, Taiwan, Thailand, Malaysia and Australia,
has experienced substantial economic growth in recent years. The Global Fund
provides you with access to the stock markets of the world, enabling you to
diversify your investments among a variety of countries, companies and
industrial sectors.
Under normal circumstances, at least 65% of the Global Fund's total
assets will consist of common stocks and securities convertible into common
stock. However, if deemed advisable by the Adviser, the Fund may invest in any
other type of security including preferred stocks, warrants, bonds, notes and
other debt securities (including Eurodollar securities) or obligations of
domestic or foreign governments and their political subdivisions. As of the date
of this Statement of Additional Information, it is the intention of the Fund
generally to invest no more than 5% of its assets in debt securities (other than
short-term securities). The Fund will only invest in investment grade debt
securities, which are securities rated within the four highest rating categories
of Standard & Poor's Rating Group ("S&P") (AAA, AA, A, BBB) or Moody's Investors
Service, Inc. ("Moody's") (Aaa, Aa, A, Baa). Investments in the lowest
investment grade rating category may have speculative characteristics and
therefore may involve higher risks. Investment grade debt
-3-
<PAGE>
securities are subject to market fluctuations and changes in interest rates;
however, the risk of loss of income and principal is generally expected to be
less than with lower quality debt securities. In the event a debt security is
downgraded below investment grade, the Adviser will consider this event in its
determination of whether the Fund should continue to hold the security. See
Appendix A to this Statement of Additional Information for a description of the
various ratings of investment grade debt securities.
The global allocation of assets is not fixed, and will vary from time
to time based on the judgment of the Adviser and JH Advisers International.
Global Fund will maintain a flexible investment policy and will invest in a
diversified portfolio of securities of companies and governments located
throughout the world. In making the allocation of assets among various countries
and geographic regions, the Adviser and JH Advisers International ordinarily
consider such factors as prospects for relative economic growth between foreign
countries; expected levels of inflation and interest rates; government policies
influencing business conditions; and other pertinent financial, tax, social,
political, currency and national factors -- all in relation to the prevailing
prices of the securities in each country or region.
When the Adviser believes that adverse market conditions are present,
for temporary defensive purposes, the Fund may hold or invest all or part of its
assets in cash and in domestic and foreign money market instruments, including
but not limited to, governmental obligations, certificates of deposit, bankers'
acceptances, commercial paper, short-term corporate debt securities and
repurchase agreements.
Any income received on the Fund's investments will be incidental to the
Fund's objective of long-term growth of capital.
WORLD BOND FUND
Under normal circumstances, World Bond Fund will invest primarily (at
least 65% of total assets) in fixed income securities issued or guaranteed by:
(i) the U.S. Government, its agencies or instrumentalities; (ii) foreign
governments (including foreign states, provinces and municipalities) or their
political subdivisions, authorities, agencies or instrumentalities; (iii)
international organizations backed or jointly owned by more than one national
government, such as the International Bank for Reconstruction and Development,
European Investment Bank, Asian Development Bank, European Coal and Steel
Community and Inter-American Development Bank; and (iv) foreign corporations or
financial institutions. The term "fixed income securities" includes debt
obligations of all types, including bonds, debentures, notes and stocks such as
preferred stocks. A fixed income security may itself be convertible into or
exchangeable for equity securities, or may carry with it the right to acquire
equity securities evidenced by warrants attached to the security or acquired as
part of a unit with a security. The Fund has registered as a "non-diversified"
fund so that it will be able to invest more than 5% of its assets in obligations
of a single foreign government or other issuer. The Fund will not invest more
than 25% of its total assets in securities issued by any one foreign government.
World Bond Fund may invest less than 35% of its total assets in fixed
income securities which are high yield risk securities in the lower rating
categories of the established rating services. These securities are rated Baa or
lower by Moody's or BBB or
-4-
<PAGE>
lower by S&P. The Fund may invest in securities rated as low as Ca by Moody's or
CC by S&P, which may indicate that the obligations are speculative to a high
degree and in default. These securities are generally referred to as "emerging
market" or "junk" bonds. See the Appendix attached to this Statement of
Additional Information for a description of the characteristics of the various
ratings categories. The Fund is not obligated to dispose of securities whose
issuers subsequently are in default or which are downgraded below the minimum
ratings noted above. The credit ratings of Moody's and S&P (the "Rating
Agencies") may not be changed by the Rating Agencies in a timely fashion to
reflect subsequent economic events. These credit ratings evaluate credit risk
but not general market risk. The Fund may also invest in unrated securities
which, in the opinion of the Adviser, offer comparable yields and risks to the
rated securities in which the Fund may invest.
World Bond Fund may invest in fixed income securities denominated in
any currency or a multi-national currency unit. The European Currency Unit
("ECU") is a composite currency consisting of specified amounts of each of the
currencies of ten member countries of the European Economic Community. The Fund
may also invest in fixed income securities denominated in the currency of one
country although issued by a governmental entity, corporation or financial
institution of another country. For example, the Fund may invest in a Japanese
yen-denominated fixed income security issued by a United States corporation.
This type of investment involves credit risks associated with the issuer and
currency risks associated with the currency in which the obligation is
denominated.
World Bond Fund will maintain a flexible investment policy and its
portfolio assets may be shifted among fixed income securities denominated in
various foreign currencies that the Adviser will provide relatively high rates
of income or potential capital appreciation in U.S. Dollars. As with all debt
securities, the prices of the Fund's portfolio securities will generally
increase when interest rates decline and decrease when interest rates rise.
Similarly, if the foreign currency in which a portfolio security is denominated
appreciates against the U.S. Dollar, the total investment return from that
security will be enhanced further. Conversely, if the foreign currency in which
a portfolio security is denominated depreciates against the U.S. Dollar, total
investment return from that security will be adversely affected.
With respect to the international organizations described above, the
governmental members of such organizations, or "stockholders," usually make
initial capital contributions to the organization and in many cases are
committed to make additional capital contributions if the organization is unable
to repay its borrowings. In accordance with guidelines promulgated by the Staff
of the Securities and Exchange Commission, the Fund will consider as an industry
any category of international organizations designated by the Commission.
The Fund may invest in corporate and commercial obligations, such as
medium-term notes and commercial paper, which may be indexed to foreign currency
exchange rates.
In selecting fixed income securities for World Bond Fund's portfolio,
the Adviser ordinarily considers such factors as the strengths and weaknesses of
the currencies in which the securities are denominated; expected levels of
inflation and interest rates; government policies influencing business
conditions; the financial condition of the issuer; and other
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pertinent financial, tax, social, political and national factors. The average
maturity of the Fund's portfolio securities will vary based upon the Adviser's
assessment of economic and market conditions.
When the Adviser determines that adverse market conditions are present,
for temporary defensive purposes, the Fund may hold or invest all or part of its
assets in cash and in domestic and foreign money market instruments, including
but not limited to governmental obligations, certificates of deposit, bankers'
acceptances, commercial paper, short-term corporate debt securities and
repurchase agreements.
World Bond Fund is a "non-diversified" fund in order to permit more
than 5% of its assets to be invested in the obligations of any one issuer. Since
a relatively high percentage of the Fund's assets may be invested in the
obligations of a limited number of issuers, the value of the Fund's shares may
be more susceptible to a single economic, political or regulatory event, and to
the credit and market risks associated with a single issuer.
AMERICAN DEPOSITORY RECEIPTS AND EUROPEAN DEPOSITORY RECEIPTS
In addition to purchasing equity securities of foreign issuers in
foreign markets, Global Fund and World Bond Fund may invest in American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or other
securities convertible into securities of corporations domiciled in foreign
countries. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets and EDRs,
in bearer form, are designed for use in European securities markets. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying securities. EDRs are European receipts evidencing a
similar arrangement. It is the current intention of JH Advisers International
that no more than 5% of the Global Fund's assets will be invested in ADRs and
EDRs.
FOREIGN CURRENCY TRANSACTIONS
Global Fund and World Bond Fund will conduct their foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
amount of currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are usually traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for such trades. There is no limitation on
the value of a Fund's assets that may be committed to forward contracts or on
the term of a forward contract.
The Global Fund and the World Bond Fund may enter into forward foreign
currency exchange contracts to hedge against fluctuations in currency exchange
rates. In addition, World Bond Fund may enter into forward foreign currency
exchange contracts to enhance return or as a substitute for the purchase or sale
of currency. The Funds' hedging transactions in forward contracts may include
the following. A Fund may enter into a
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contract for the purchase or sale of a security denominated in a foreign
currency to "lock-in" the United States dollar price of the security. By
entering into a forward contract for a fixed amount of dollars for the purchase
or sale of the amount of foreign currency involved in the underlying
transactions, a Fund will be able to protect itself against a possible loss
resulting from an adverse change in the relationship between the United States
dollar and that foreign currency during the period between the date on which the
security is purchased or sold and the date on which payment is made or received.
When the Adviser or JH Advisers International believes that the
currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, a Fund may enter into a forward contract to
sell or buy the amount of the former foreign currency approximating the value of
some or all of that Fund's portfolio securities denominated in such foreign
currency. This second investment practice is generally referred to as
"cross-hedging". The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible since the future
value of securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain.
In addition, the World Bond Fund may enter into forward contracts for
speculative purposes. For example, if a portfolio security with an attractive
rate of return is denominated in a currency (including the U.S. dollar) that is
not expected to perform well, World Bond Fund may use forward contracts to
offset its exposure to the non-performing currency while retaining the security.
Under normal circumstances, consideration of the prospects for currency
exchange rates will be incorporated into a Fund's long-term investment decisions
made with regard to overall investment strategies. However, each Fund believes
that it is important to have the flexibility to enter into forward contracts
when it determines that the best interests of the Fund will thereby be served.
State Street Bank and Trust Company, the Funds' custodian, will place cash or
liquid debt securities into a segregated account of each Fund in an amount equal
to the value of that Fund's total assets committed to the consummation of
forward foreign currency exchange contracts involving the purchase of foreign
currency. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts.
At the maturity of a forward contract, a Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. There can be no assurance, however, that either Fund will be
able to effect such a closing purchase transaction.
It is impossible to forecast the market value of a particular portfolio
security at the expiration of the contract. Accordingly, it may be necessary for
a Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency that the Fund is
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obligated to deliver and if a decision is made to sell the security and make
delivery of the foreign currency.
If either the Global Fund or the World Bond Fund retains the portfolio
security and engages in an offsetting transaction, that Fund will incur a gain
or a loss (as described below) to the extent that there has been movement in
forward contract prices. Should forward prices decline during the period between
a Fund's entering into a forward contract for the sale of a foreign currency and
the date it enters into an offsetting contract for the purchase of the foreign
currency, such Fund will realize a gain to the extent that the price of the
currency it has agreed to sell exceeds the price of the currency it has agreed
to purchase. Should forward prices increase, the Fund will suffer a loss to the
extent that the price of the currency it has agreed to purchase exceeds the
price of the currency it has agreed to sell.
The Funds are not required to enter into forward contracts with regard
to their foreign currency-denominated securities. It also should be realized
that this method of protecting the value of a Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange which one can achieve at some future point in time. Additionally,
although these contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time, they tend to limit any
potential gain which might result should the value of such currency increase.
Although the Global Fund and the World Bond Fund value their assets
daily in terms of United States dollars, neither Fund intends to convert its
holdings of foreign currencies into United States dollars on a daily basis. A
Fund will do so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell the currency
to the dealer.
Forward contracts are also subject to the following risks: (i) that a
Fund's performance will be adversely affected by unexpected changes in currency
exchange rates; (ii) that the counterparty to a forward contract will fail to
perform its contractual obligations; and (iii) that a Fund will be unable to
terminate or dispose of its position in a forward contract.
PORTFOLIO TURNOVER
The World Bond Fund's portfolio turnover rate may vary widely from year
to year and may be higher than that of many other mutual funds with similar
investment objectives. For example, if the World Bond Fund writes a substantial
number of call options and the market prices of the underlying securities
appreciate, or if it writes a substantial number of put options and the market
prices of the underlying securities depreciate, there may be a very substantial
turnover of the portfolio. While the Fund will pay commissions in connection
with its options transactions, government securities are generally traded on a
"net" basis with dealers acting as principal for their own accounts without a
stated commission. Nevertheless, high portfolio turnover may involve
correspondingly greater commissions and other transaction costs, which will be
borne directly by the Fund.
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THE FUNDS' OPTIONS TRADING ACTIVITIES
The following information supplements the discussion in the Prospectus
regarding options transactions in which the Funds may engage.
A call option gives the purchaser of the option the right to buy, and
the writer the obligation to sell (if the option is exercised), the underlying
security or asset at the exercise price during the option period. Conversely, a
put option gives the purchaser the right to sell, and the writer the obligation
to buy, (if the option is exercised) the underlying security or asset at the
exercise price during the option period.
The principal reason for writing covered call options on a portfolio
security or foreign currency is to attempt to realize through the receipt of
premiums a greater return than would be realized on the security or foreign
currency alone. A covered call option writer, in return for the premium, has
given up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price so long as its obligation
continues, but has retained the risk of loss should the price of the security
decline. The call option writer has no control over when it may be required to
sell its securities, since it may be assigned an exercise notice at any time
prior to the termination of its obligation as a writer. If an option expires,
the writer realizes a gain in the amount of the premium. Such a gain, of course,
may be offset by a decline in the market value of the underlying security during
the option period. If a call option is exercised, the writer realizes a gain or
loss from the sale of the underlying security or currency.
It is the policy of each Fund to meet the requirements of the Internal
Revenue Code of 1986, as amended (the "Code") to qualify as a regulated
investment company to prevent double taxation of the Fund and its investors. One
of these requirements is that less than 30% of a Fund's gross income for each
taxable year must be derived from gross gains from the sale or other disposition
of certain financial assets, including stocks, securities, and most options,
futures and forward contracts, held for less than three months. The extent to
which the Funds may engage in options, futures and forward transactions may be
materially limited by this 30% test.
Each Fund may invest up to 5% of its assets, taken at market value at
the time of investment, in call and put options on domestic and foreign
securities and foreign currencies.
WORLD BOND FUND
Call Options
World Bond Fund may trade in options, including purchasing calls and
writing covered calls. Call options ("calls") may be written (i.e., sold) by the
Fund if (i) the calls are listed on a domestic exchange or are traded
over-the-counter; and (ii) the calls are covered, i.e., the Fund owns the assets
subject to the call (or other assets acceptable for escrow arrangements) while
the call is outstanding. The Fund may write covered call options with respect to
all or part of its portfolio securities and covered put options to the extent
that cover for these options does not exceed 25% of the Fund's net assets.
World Bond Fund may write call options to obtain additional income.
When the Fund writes a call it receives a premium and agrees to sell the
callable securities to the purchaser of the
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call, if the option is exercised during the call period, at a fixed exercise
price (which may differ from the market price) regardless of market price
changes during the call period. Thus, in exchange for the premium received, the
Fund foregoes any possible profit from an increase in market price over the
exercise price.
When the Fund writes a call option, an amount equal to the premium
received by it is included in the Fund's Statement of Assets and Liabilities as
an asset and as an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of the option
written. The premium paid by the Fund for the purchase of a call or put option
is included in the assets section of the Statement of Assets and Liabilities as
an investment and subsequently adjusted to the current market value of the
option. The current market value of a purchased or written option is the last
sale price on the principal exchange on which such option is traded or, in the
absence of a sale or in the case of an unlisted option, the mean between the
last bid and offering prices.
To terminate its obligation on a call which it has written, World Bond
Fund may purchase a call in a "closing purchase transaction." (As discussed
below, the Fund may also purchase calls other than as part of such
transactions.) A profit or loss will be realized depending on the amount of
option transaction costs and whether the premium previously received is more or
less than the price of the call purchased. A profit may also be realized if the
call lapses unexercised, because the Fund retains the underlying security and
the premium received. Any such profits are considered short-term gains for
federal tax purposes and, when distributed by the Fund, are taxable as ordinary
income.
World Bond Fund may purchase calls only if the calls are listed on a
domestic exchange or traded over-the-counter. The Fund will purchase call
options to attempt to obtain capital appreciation. When the Fund buys a call, it
pays a premium and has the right to buy the callable securities from the seller
of a call during a period at a fixed exercise price. The Fund benefits only if
the market price of the callable securities is above the call price during the
call period and the call is either exercised or sold at a profit. If the call is
not exercised or sold (whether or not at a profit), it will become worthless at
its expiration date and the Fund will lose its premium payment and the right to
purchase the underlying security.
Put Options
World Bond Fund may purchase put options ("puts") if they are listed on
a domestic exchange or traded over-the-counter. The Fund may not write (sell)
puts, but may resell puts previously purchased by it to third parties who are
not broker-dealers. When the Fund buys a put, it pays a premium and has the
right to sell the underlying assets to the seller of the put during the put
period at a fixed exercise price.
World Bond Fund may buy puts related to securities it owns ("protective
puts") or to securities it does not own ("non-protective puts"). Buying a
protective put permits the Fund to protect itself during the put period against
a decline in the value of the underlying securities below the exercise price by
selling them through the exercise of the put. Thus, protective puts will assist
the Fund in achieving its investment objectives of capital appreciation by
protecting it against a decline in the market value of their portfolio
securities.
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Buying a non-protective put permits the Fund, if the market price of
the underlying securities is below the put price during the put period, either
to resell the put or to buy the underlying securities and sell them at the
exercise price. A non-protective put can enable the Fund to achieve appreciation
during a period when the price of securities underlying such put is declining.
If the market price of the underlying securities is above the exercise price and
as a result, the put is not exercised or resold (whether or not at a profit),
the put will become worthless at its expiration date.
RISK FACTORS APPLICABLE TO OPTIONS (WORLD BOND FUND ONLY)
On Treasury Bonds and Notes. Because trading interest in Treasury Bonds
and Notes tends to center on the most recently auctioned issues, the Exchanges
will not indefinitely continue to introduce new series of options with
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each series of Bonds or Notes will thus be phased out as new options are
listed on the more recent issues, and a full range of expiration dates will not
ordinarily be available for every series on which options are traded.
On Treasury Bills. Because the deliverable Treasury Bill changes from
week to week, writers of Treasury Bill call options cannot provide in advance
for their potential exercise settlement obligations by acquiring and holding the
underlying security. In addition, the Fund will maintain in a segregated account
with its custodian Treasury Bills maturing no later than those which would be
deliverable in the event of an assignment of an exercise notice to ensure that
it can meet its open options obligations.
Additional Risks of Options On Government Securities. The World Bond
Fund may purchase and sell options on Government Securities including securities
issued by the Government National Mortgage Association. Certain options on
Government Securities are traded "over-the-counter" rather than on an exchange.
This means that the Fund will enter into such options with particular
broker-dealers who make markets in these options. With respect to options not
traded on an exchange, there is the additional risk that the Fund may not be
able to enter into a closing transaction with the other party to the option on
satisfactory terms or that such other party may be unable to fulfill its
contractual obligations. However, the Adviser or JH Advisers International, as
the case may be, will enter into transactions in non-listed options only with
responsible dealers where it does not believe that the foregoing factors present
a material risk. There is no assurance that the Fund will be able to effect
closing transactions at any particular time or at an acceptable price. The
Fund's ability to terminate options positions in Government Securities may
involve the risk that broker-dealers participating in such transactions will
fail to meet their obligations to the Fund. The Fund will purchase options on
Government Securities only from broker-dealers whose debt securities are
investment grade (as determined by the Boards of Trustees).
GLOBAL FUND AND WORLD BOND FUND
Put and Call Options: General
A call option position may be closed out only on an exchange which
provides a secondary market for options of the same series or, in the case of an
over-the-counter option, only with the
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other party to the transaction. In general, exchange-traded options are
third-party contracts (i.e. performance of the parties' obligations is
guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. Over-the-counter transactions are two-party
contracts with price and terms negotiated by the buyer and seller. There is no
assurance that the Funds will be able to close out options acquired or sold
over-the-counter.
The Funds will acquire only those over-the-counter options for which
management believes the Funds can receive on each business day at least two
separate bids or offers (one of which will be from an entity other than a party
to the option) or those over-the-counter options valued by an independent
pricing service. The Funds will write and purchase over-the-counter options only
with member banks of the Federal Reserve System and primary dealers in U.S.
Government securities or their affiliates which have capital of at least $50
million or whose obligations are guaranteed by an entity having capital of at
least $50 million. The SEC has taken the position that over-the-counter options
are illiquid securities, subject to the restriction that illiquid securities are
limited to not more than 15% of a Fund's assets. The SEC, however, has a partial
exemption from the above restrictions on transactions in over-the-counter
options. The SEC allows a Fund to exclude from the 15% limitation on illiquid
securities a portion of the value of the over-the-counter options written by the
fund, provided that certain conditions are met. First, the other party to the
over-the-counter options has to be a primary U.S. Government securities dealer
designated as such by the Federal Reserve Bank. Second, the Funds would have an
absolute contractual right to repurchase the over-the-counter options at a
formula price. If the above conditions are met, a Fund must treat as illiquid
only that portion of the over-the-counter option's value (and the value of its
underlying securities) which is equal to the formula price for repurchasing the
over-the-counter option, less the over-the-counter option's intrinsic value.
Although the Funds will generally purchase or write only those
exchange-traded options for which there appears to be an active secondary
market, there can be no assurance that a liquid secondary market on an exchange
will exist for any particular option, or at any particular time. In the event
that no liquid secondary market exists, it might not be possible to effect
closing transactions in particular options. If a Fund cannot close out an
exchange-traded or over-the-counter option which it holds, it would have to
exercise such option in order to realize any profit and would incur transaction
costs on the purchase or sale of underlying assets. If a Fund, as a covered call
option writer, is unable to effect a closing purchase transaction, it will not
be able to sell the underlying assets until the option expires or it delivers
the underlying asset upon exercise. Accordingly, these Funds may run the risk of
either foregoing the opportunity to sell the underlying asset at a profit or
being unable to sell the underlying asset as its price declines.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) an exchange may impose restrictions on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the exchanges and the Options
Clearing Corporation have had only limited experience with the trading of
certain options and the facilities of an exchange or the Options Clearing
Corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
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Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
The put and call options activities of the Funds may affect their
turnover rates and the amount of brokerage commissions paid by them. The
exercise of calls written by the Funds may cause them to sell portfolio
securities or other assets at times and amounts controlled by the holder of a
call, thus increasing the Funds' portfolio turnover rates and brokerage
commission payments. The exercise of puts purchased by the Fund may also cause
the sale of securities or other assets, also increasing turnover. Although such
exercise is within the Funds' control, holding a protective put might cause the
Funds to sell the underlying securities or other assets for reasons which would
not exist in the absence of the put. Holding a non-protective put might cause
the purchase of the underlying securities or other assets to permit the Funds to
exercise the put.
A Fund will pay a brokerage commission each time it buys or sells a put
or call or buys or sells a security in connection with the exercise of a put or
call. Such commissions may be higher than those which would apply to direct
purchases or sales of equity securities.
There is no limit as to how many times either Funds' options positions
may be replaced and therefore the potential risks to each Fund may be greater
than 5% of its net assets. Successful use by the Adviser or JH Advisers
International of options on securities, foreign currencies and/or forward
foreign currency exchange contracts will be based upon predictions by the
Adviser or JH Advisers International as to anticipated movements of foreign
currency exchange rates and/or interest rates.
The Funds' Custodian, or a securities depository acting for it, will
act as the Funds' escrow agent as to the securities on which they have written
calls, or as to other securities acceptable for such escrow, so that pursuant to
the rules of the Options Clearing Corporation and certain exchanges, no margin
deposit will be required of the Funds. Until the securities are released from
escrow, they cannot be sold by the Funds; this release will take place on the
expiration of the call or the Funds' entering into a closing purchase
transaction. For information on the valuation of the puts and calls, see "Net
Asset Value."
THE FUNDS' INVESTMENTS IN FUTURES CONTRACTS
The following information supplements the discussion in the Prospectus
regarding investment by the Funds in futures contracts and related options.
Financial Futures Contracts. To the extent set forth in the Prospectus,
the Funds may buy and sell futures contracts (and related options) on stocks,
stock indices, debt securities, currencies, interest rate indices, and/or other
instruments. Each 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, a Fund may
be able to hedge its exposure more effectively and perhaps at a lower cost by
using financial futures contracts. Global Fund may enter into financial futures
contracts solely for hedging purposes and World Bond Fund may enter into
financial futures contracts for hedging and speculative purposes, in each case
to the extent permitted by regulations of the Commodity Futures Trading
Commission ("CFTC").
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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 Funds 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 a 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 a 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. Each 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 a 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 lending by the Funds but is instead a settlement between the Funds
and the broker of the amount one would owe the other if the financial futures
contract expired. In computing net asset value, the Funds will mark to market
their respective 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
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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 Funds 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 Funds, an incorrect market prediction could result in
a loss on both the hedged securities in the respective 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 Funds engage 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 Funds 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 a 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 Funds may buy and sell options on financial futures contracts on
stocks, stock indices, debt securities, currencies, interest rate indices,
and/or other instruments. 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 Funds would be required to deposit with
their 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
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purchased by a Fund may expire worthless, in which case a Fund would lose the
premium it paid for the option. The potential loss incurred by a Fund in writing
options on futures is unlimited and may exceed the amount of the premium
received.
World Bond Fund will not engage in a futures or options transactions
for speculative purposes, if immediately thereafter, the sum of initial margin
deposits on existing positions and premiums required to establish speculative
positions in futures contracts and options on futures would exceed 5% of the
Fund's net assets.
Other Considerations. Global Fund will only engage in futures and
options transactions for bona fide hedging purposes, and World Bond Fund will
engage in futures and options transactions for bona fide hedging and speculative
purposes, in each case to the extent permitted by CFTC regulations. A 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 above with respect to World Bond Fund and except as stated
below, the Funds' 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 Funds own, or futures contracts will
be purchased to protect the Funds 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 Funds 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 Funds 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 a 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 Funds 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 respective 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 Funds 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.
Interest Rate Futures Contracts. The Funds may invest in interest rate
futures contracts and related options that are traded on a United States or
foreign exchange or board of trade.
Currently, interest rate futures contracts can be purchased and sold
with respect to U.S. Treasury bonds, U.S. Treasury notes, Government National
Mortgage Association mortgage-backed certificates, U.S. Treasury bills and
ninety-day commercial paper.
The purpose of the purchase or sale of interest rate futures contracts
by the Funds will be to protect the Funds from fluctuations in interest rates
without necessarily buying or selling fixed income securities. For example, if a
Fund owns bonds and interest rates are expected to increase,
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that Fund might sell futures contracts on debt securities having characteristics
similar to those held in the portfolio. Such a sale would have much the same
effect as selling an equivalent value of the bonds owned by the Fund. If
interest rates did increase, the value of the debt securities in the portfolio
would decline, but the value of the futures contracts to the Fund would increase
at approximately the same rate, thereby keeping the net asset value of the Fund
from declining as much as it otherwise would have.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against having to make an
anticipated purchase of bonds at the higher prices subsequently expected to
prevail. Since the fluctuations in the value of appropriately selected futures
contracts should be similar to that of the bonds that will be purchased, a Fund
could take advantage of the anticipated rise in the cost of the bonds without
actually buying them until the market has stabilized. At this time, that Fund
could make the intended purchase of the bonds in the cash market and the futures
contracts could be liquidated. To the extent a Fund enters into futures
contracts for this purpose, it will maintain in a segregated account assets
sufficient to cover its obligations with respect to such futures contracts,
which will consist of cash or U.S. Government or other high quality debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial and variation margin payments made by the Fund with respect to such
futures contracts.
World Bond Fund may also purchase or sell interest rate futures
contracts for speculative purposes.
Foreign Currency Futures Contracts. The Funds may invest in foreign
currency futures contracts and related options that are traded on a United
States foreign exchange or board of trade.
Foreign currency futures contracts can be purchased and sold with
respect to the British Pound, Deutsche Mark, Japanese Yen and other currencies
or groups of currencies in which securities held by the Funds are denominated or
which are sufficiently correlated with such currencies as to constitute an
appropriate vehicle for hedging.
Generally, foreign currency futures contracts are similar to the
interest rate futures contracts discussed above. By entering into foreign
currency futures contracts, the Funds will be able to establish the rate at
which they will be entitled to exchange U.S. dollars (or another foreign
currency) for another currency in a future month. By selling currency futures,
the Funds can establish the number of dollars (or another foreign currency) they
will receive in the delivery month for a certain amount of a foreign currency
against the U.S. dollar (or another foreign currency), or the Funds can attempt
to "lock in" the U.S. dollar value (or other foreign currency value) of some or
all of the securities held in their portfolios and denominated in that currency.
By purchasing currency futures, the Funds can establish the number of dollars
they will be required to pay for a specified amount of a foreign currency in the
delivery month. For example, if a Fund intends to buy securities in the future
and expects the U.S. dollar to decline against the relevant foreign currency
during the period before the purchase is effected, the Fund can attempt to "lock
in" the price in U.S. dollars of the securities it intends to acquire.
Foreign Debt Securities Futures Contracts. The Funds may also invest in
foreign debt futures contracts that are traded on a U.S. exchange or board of
trade or, consistent with CFTC regulations, traded on foreign exchanges. Such
investments may be made by Global Fund solely
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for the purpose of hedging against changes in the value of its portfolio
securities due to anticipated changes in interest rates, foreign currency
exchange rates or market conditions, and not for the purpose of speculation.
Such investments may be made by World Bond Fund for hedging and speculative
purposes.
Foreign debt futures contracts are similar to the interest rate futures
contracts discussed above. By purchasing a futures contract, the Funds will
legally obligate themselves to accept delivery of the underlying foreign debt
security and pay the agreed price; by selling a foreign debt futures contract,
they will legally obligate themselves to make delivery of the security against
payment of the agreement price. Futures contracts for the purchase and sale of
foreign debt futures contracts currently are actively traded on the London
International Financial Futures Exchange, the Tokyo Stock Exchange and the Paris
Stock Exchange.
Risk Factors. Unlike the purchase or sale of a security, no
consideration is paid or received by a Fund upon the purchase or sale of a
futures contract. Initially, a Fund will be required to deposit with the broker
an amount of cash or cash equivalents, known as "initial margin", as a type of
performance bond or good faith deposit which is returned to the Fund upon
termination of the futures contract, assuming all contractual obligations have
been satisfied. The required amount of initial margin is subject to change by
the board of trade or exchange on which the contract is traded and members of
such board of trade or exchange may charge a higher amount. Subsequent payments,
known as "variation margin", to and from the broker, will be made on a daily
basis as the price of the futures contract fluctuates making long and short
positions in the contract more or less valuable, a process known as
marking-to-market. At any time prior to the expiration of the contract, a Fund
may elect to close the position, which will operate to terminate the Fund's
existing position in the futures contract.
There are several risks in connection with the use of futures contracts
as a hedging device. Successful use of futures contracts by the Funds is subject
to the Adviser's ability to predict correctly movements in the direction of
interest rates or foreign currency exchange rates, as the case may be. A
decision of whether, when and how to hedge involves the exercise of skill and
judgment and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected trends in such rates and prices. In
addition, there can be no assurance that there will be a correlation between
movements in the price of the futures contracts and movements in the price of
the related securities or foreign currencies which are the subject of the hedge.
The degree of imperfection or correlation depends upon various circumstances
such as, for example, variations in speculative market demand for futures
contracts and the specific securities or foreign currencies being hedged and
upon the securities or foreign currencies, as the case may be, underlying the
futures contracts.
Although the Funds intend to purchase or sell futures contracts only if
there is an active market for such contracts, there is no assurance that a
liquid market will exist for the contract at any particular time. Most domestic
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular contract,
no trades may be made that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. It is possible that futures contract prices could move to
the daily limit for several consecutive trading
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days with little or no trading, thereby preventing prompt liquidation of the
futures position and subjecting some futures traders to substantial losses. In
such event, it will not be possible to close a futures position, and in the
event of adverse price movements, a Fund would be required to make daily cash
payments of variation margin. In such circumstances, an increase in the value of
the portion of the portfolio being hedged, if any, may partially or completely
offset losses on the futures contract. However, as described above, there is no
guarantee that the price of the securities or foreign currencies, as the case
may be, will, in fact, correlate with the price movements in the respective
futures contracts and thus provide an offset to losses on such futures
contracts.
If a Fund has hedged against the possibility of an increase in interest
rates or foreign currency rates adversely affecting the value of the securities
or foreign currencies held in its portfolio and rates decrease instead, the Fund
will lose part or all of the benefit of the increased value of the respective
securities or foreign currencies which it has hedged because it will have
offsetting losses in its futures positions. In addition, in such situations, if
a Fund has insufficient cash, it may have to sell securities to meet daily
variation margin requirements. Such sales of securities may, but will not
necessarily, be at increased prices which reflect the decline in interest rates
or foreign currency exchange rates, as the case may be. The Funds may have to
sell securities at a time when it may be disadvantageous to do so.
Options on Interest Rate and Foreign Currency Futures Contracts. An
option on a futures contract, as contrasted with a direct investment in a
futures contract, gives the purchaser the right, in return for the premium paid,
to assume a position in the futures contract at a specified exercise price at
any time prior to the expiration of the option. The potential loss related to
the purchase of an option on a futures contract is limited to the premium paid
for the option (plus transaction costs).
The Funds may purchase and write put and call options on interest rate
and foreign currency futures contracts, as the case may be, that are traded on a
United States exchange or board of trade as a hedge against the value of their
portfolio securities due to anticipated changes in interest rates, foreign
currency exchange rates or market conditions, and may enter into closing
transactions with respect to such options to terminate existing positions. World
Bond Fund may also purchase and write these options for speculative purposes.
In addition to the risks which apply to futures transactions generally
as described above, there are additional risks relating to options on futures
contracts. The ability to establish and close out positions on such options will
be subject to the existence of a liquid market. In addition, the purchase or
sale of put or call options will be based upon predictions as to anticipated
interest rate trends or foreign currency valuation trends, as the case may be,
by the Adviser which could prove to be incorrect. Even if the expectations of
the Adviser are correct, there may be an imperfect correlation between the
change in the value of the options and of the portfolio securities hedged. In
addition, the ability of the Funds to trade in futures contracts may be
materially limited by the requirements of the Code.
When a Fund writes a call option or put option it will be required to
deposit initial margin and variation margin pursuant to broker's requirements
similar to those applicable to futures contracts. In addition, net option
premiums received for writing options will be included as initial margin
deposits.
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There is no limit as to how many times the Funds' options positions may
be replaced, and, therefore, the potential risks to the Funds may be greater
than 5% of their net assets. Successful use by the Adviser of options will be
based upon predictions by the Adviser as to anticipated movements of interest
rates and/or foreign currency exchange rates.
CERTAIN INVESTMENT PRACTICES
The following information supplements the discussion of the Funds'
investment strategies and techniques in the Prospectus.
INVESTMENT IN FOREIGN SECURITIES
Investments in foreign securities may involve certain risks not present
in domestic securities. Because of the following considerations, shares of the
Global Fund and the World Bond Fund should not be considered a complete
investment program. There is generally less publicly available information about
foreign companies and other issuers comparable to reports and ratings that are
published about issuers in the United States. There may be difficulty in
enforcing legal rights outside 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.
Security trading practices abroad may offer less protection to
investors such as the Funds. It is contemplated that most foreign securities
will be purchased in over-the-counter markets or on exchanges located in the
countries in which the respective principal offices of the issuers of the
various securities are located, if that is the best available market. Foreign
securities markets are generally not as developed or efficient as those in the
United States. While growing in volume, they usually have substantially less
volume than the New York Stock Exchange, and securities of some foreign issuers
are less liquid and more volatile than securities of comparable United States
issuers. Similarly, volume and liquidity in most foreign bond markets is less
than in the United States and at times, volatility of price can be greater than
in the United States. Fixed commissions on foreign exchanges are generally
higher than negotiated commissions on United States exchanges, although each
Fund will endeavor to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
securities exchanges, brokers and listed issuers than in the United States. In
addition, foreign securities may be denominated in the currency of the country
in which the issuer is located. Consequently, changes in the foreign exchange
rate will affect the value of the Funds' shares and dividends.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of a
Fund, political or social instability, or diplomatic developments which could
affect United States investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
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The dividends and interest payable on certain of the Funds' foreign
portfolio securities may be subject to foreign withholding taxes, thus reducing
the net amount of income available for distribution to each Fund's shareholders.
See "Tax Status".
Investors should understand that the expense ratio of each of the
Global Fund and the World Bond Fund will be higher than that of investment
companies investing in domestic securities since the expenses of the Funds, such
as the cost of maintaining the custody of foreign securities and the rate of
advisory fees paid by the Funds, are higher.
These risks may be intensified in the case of investments in emerging
markets or countries with limited or developing capital markets. These countries
are located in the Asia-Pacific region, Eastern Europe, Latin and South America
and Africa. Security prices in these markets can be significantly more volatile
than in more developed countries, reflecting the greater uncertainties of
investing in less established markets and economies. Political, legal and
economic structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens,
inflation rates or currency exchange rates. Local securities markets may trade a
small number of securities and may be unable to respond effectively to increases
in trading volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. The Funds may be required to establish special
custodial or other arrangements before making certain investments in those
countries. Securities of issuers located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
LOWER RATED SECURITIES (WORLD BOND FUND ONLY)
Debt securities that are 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 market price and liquidity of
lower rated fixed income securities generally respond to short-term corporate
and market developments to a greater extent than the price and liquidity of
higher rated securities, because these developments are perceived to have a more
direct relationship to the ability of an issuer of lower rated securities to
meet its ongoing debt obligations. Although the Adviser seeks to minimize these
risks through diversification, investment analysis and attention to current
developments in interest rates and economic conditions, there can be no
assurance that the Adviser will be successful in limiting the Fund's exposure to
the risks associated with lower rated securities. Because the World Bond Fund
may invest in securities in the lower rated categories, the achievement of the
Fund's goals is more dependent on the Adviser's ability than would be the case
if the Fund were investing in securities in the higher rated categories.
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Reduced volume and liquidity in the high yield high risk bond market or
the reduced availability of market quotations may make it more difficult to
dispose of the World Bond Fund's investments in high yield high risk securities
and to value accurately these assets. The reduced availability of reliable,
objective data may increase the Fund's reliance on management's judgment in
valuing high yield high risk bonds. In addition, the Fund's investments in high
yield high risk 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 risk inherent in all securities.
REPURCHASE AGREEMENTS
A repurchase agreement is a contract under which a Fund acquires a
security for a relatively short period (usually not more than 7 days) subject to
the obligation of the seller to repurchase and the Fund to resell such security
at a fixed time and price (representing the Fund's cost plus interest). A 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
a Fund enters into repurchase agreements.
Repurchase transactions must be fully collateralized at all times. Each
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, a Fund could experience delays in or be
prevented from 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.
FORWARD COMMITMENT AND WHEN-ISSUED SECURITIES
The Funds 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. A 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, a Fund contracts to purchase securities for a
fixed price at a future date beyond customary settlement time.
When a 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 a 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.
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On the date a 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, a Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
RESTRICTED SECURITIES
Each 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, a 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 a 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 a Fund
if qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
A 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 1933 Act. Where
registration is required, a Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time a Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, a Fund might obtain a less favorable price
than prevailed when it decided to sell. Restricted securities will be priced at
fair market value as determined in good faith by the Funds' Trustees. If through
the appreciation of restricted securities or the depreciation of unrestricted
securities, a 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), a Fund will bring its
holdings of illiquid securities below the 15% limitation.
LENDING OF SECURITIES
The Funds 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 Funds may
reinvest any cash collateral in short-term securities and money market funds.
When the Funds lend portfolio securities, there is a risk that the borrower may
fail to return the securities involved in the transaction. As a result, the
Funds may incur a loss or, in the event of the borrower's bankruptcy, the Funds
may be delayed in or prevented
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from liquidating the collateral. It is a fundamental policy of Global Fund and
World Bond Fund not to lend portfolio securities having a total value exceeding
10% and 30%, respectively, of its total assets.
STRUCTURED SECURITIES (WORLD BOND FUND ONLY)
World Bond Fund may invest in structured notes, bonds or debentures,
the value of the principal of and/or interest on which is to be determined by
reference to changes in the value of specific currencies, interest rates,
commodities, indices or other financial indicators (the "Reference") or the
relative change in two or more References. The interest rate or the principal
amount payable upon maturity or redemption may be increased or decreased
depending upon changes in the applicable Reference. The terms of the structured
securities may provide that in certain circumstances no principal is due at
maturity and, therefore, may result in the loss of the Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, the change in
interest rate or the value of the security at maturity may be a multiple of the
change in the value of the Reference. Consequently, structured securities entail
a greater degree of market risk than other types of debt obligations. Structured
securities may also be more volatile, less liquid and more difficult to
accurately price than less complex fixed income investments.
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 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) more than 50% of the Fund's outstanding
shares.
A Fund may not:
1. Purchases on Margin and Short Sales. Purchase securities on margin
or sell short, except that a Fund may obtain such short term credits as are
necessary for the clearance of securities transactions. The deposit or payment
by a Fund of initial or maintenance margin in connection with futures contracts
or related options transactions is not considered the purchase of a security on
margin.
2. Borrowing. Borrow money, except from banks temporarily for
extraordinary or emergency purposes (not for leveraging or investment) and then
in an aggregate amount not in excess of 10% of the value of the Fund's total
assets at the time of such borrowing, provided that the Fund will not purchase
securities for investment while borrowings equaling 5% or more of the Fund's
total assets are outstanding.
3. Underwriting Securities. Act as an underwriter of securities of
other issuers, except to the extent that it may be deemed to act as an
underwriter in certain cases when disposing of restricted securities. (See also
Restriction 12.)
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4. Senior Securities. Issue senior securities except as appropriate to
evidence indebtedness which a Fund is permitted to incur, provided that, to the
extent applicable, (i) the purchase and sale of futures contracts or related
options, (ii) collateral arrangements with respect to futures contracts, related
options, forward foreign currency exchange contracts or other permitted
investments of a Fund as described in the Prospectus, including deposits of
initial and variation margin, and (iii) the establishment of separate classes of
shares of a Fund for providing alternative distribution methods are not
considered to be the issuance of senior securities for purposes of this
restriction.
5. Warrants. Invest more than 5% of the Fund's total assets in
warrants, whether or not the warrants are listed on the New York or American
Stock Exchanges, or more than 2% of the value of the Fund's total assets in
warrants which are not listed on those exchanges. Warrants acquired in units or
attached to securities are not included in this restriction.
6. Single Issuer Limitation/Diversification. Purchase securities of any
one issuer, except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, if immediately after such purchase more than 5%
of the value of a Fund's total assets would be invested in such issuer or the
Fund would own or hold more than 10% of the outstanding voting securities of
such issuer; provided, however, that with respect to each Fund, up to 25% of the
value of the Fund's total assets may be invested without regard to these
limitations. This restriction does not apply to World Bond Fund, which is a
non-diversified fund under the 1940 Act.
7. Real Estate. Purchase or sell real estate although a Fund may
purchase and sell securities which are secured by real estate, mortgages or
interests therein, or issued by companies which invest in real estate or
interests therein; provided, however, that no Fund will purchase real estate
limited partnership interests.
8. Commodities; Commodity Futures; Oil and Gas Exploration and
Development Programs. Purchase or sell commodities or commodity futures
contracts or interests in oil, gas or other mineral exploration or development
programs, except a Fund may engage in such forward foreign currency contracts
and/or purchase or sell such futures contracts and options thereon as described
in the Prospectus.
9. Making Loans. Make loans, except that a Fund may purchase or hold
debt instruments and may enter into repurchase agreements (subject to
Restriction 12) in accordance with its investment objectives and policies and
make loans of portfolio securities provided that as a result, no more than 10%
of the Global Fund's total assets and 30% of the total assets of the World Bond
Fund, taken at current value would be so loaned.
10. Industry Concentration. Purchase any securities which would cause
more than 25% of the market value of a Fund's total assets at the time of such
purchase to be invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that there is no
limitation with respect to investments in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities. With respect to World
Bond Fund, this restriction will apply to obligations of a foreign government
unless the Securities and Exchange Commission permits their exclusion.
-25-
<PAGE>
Nonfundamental Investment Restrictions
The following restrictions are designated as nonfundamental and may be
changed by the Board of Trustees without shareholder approval.
A Fund may not:
11. Options Transactions. Write, purchase, or sell puts, calls or
combinations thereof except that a Fund may write, purchase or sell puts and
calls on securities as described in the Prospectus, and the World Bond Fund may
purchase or sell puts and calls on foreign currencies as described in the
Prospectus.
12. Illiquid Securities. Purchase or otherwise acquire any security if,
as a result, more than 15% of a Fund's net assets (taken at current value) would
be invested in securities that are illiquid by virtue of the absence of a
readily available market or legal or contractual restrictions on resale. This
policy includes repurchase agreements maturing in more than seven days. This
policy does not include restricted securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933 which the Board of Trustees or the
Adviser has determined under Board-approved guidelines are liquid.
13. Acquisition for Control Purposes. Purchase securities of any issuer
for the purpose of exercising control or management, except in connection with a
merger, consolidation, acquisition or reorganization.
14. Unseasoned Issuers. Purchase securities of any issuer with a record
of less than three years continuous operations, including predecessors, if such
purchase would cause the investments of a Fund in all such issuers to exceed 5%
of the total assets of the Fund taken at market value, except this restriction
shall not apply to (i) obligations of the U.S. Government, its agencies or
instrumentalities and (ii) securities of such issuers which are rated by at
least one nationally recognized statistical rating organization. With respect to
the World Bond Fund, this restriction shall not apply to obligations issued or
guaranteed by any foreign government or its agencies or instrumentalities.
15. Beneficial Ownership of Officers and Directors of Fund and Adviser.
Purchase or retain the securities of any issuer if those officers or trustees of
a Fund or officers or directors of the Adviser who each own beneficially more
than 1/2 of 1% of the securities of that issuer together own more than 5% of the
securities of such issuer.
16. Hypothecating, Mortgaging and Pledging Assets. Hypothecate,
mortgage or pledge any of its assets except as may be necessary in connection
with permitted borrowings and then not in excess of 5% of the Fund's total
assets, taken at cost. For the purpose of this restriction, (i) forward foreign
currency exchange contracts are not deemed to be a pledge of assets, (ii) the
purchase or sale of securities by a Fund on a when-issued or delayed delivery
basis and collateral arrangements with respect to the writing of options on debt
securities or on futures contracts are not deemed to be a pledge of assets; and
(iii) the deposit in escrow of underlying securities in connection with the
writing of call options is not deemed to be a pledge of assets.
-26-
<PAGE>
17. Joint Trading Accounts. Participate on a joint or joint and several
basis in any trading account in securities (except for a joint account with
other funds managed by the Adviser for repurchase agreements permitted by the
Securities and Exchange Commission pursuant to an exemptive order).
18. Securities of Other Investment Companies. Purchase a security if,
as a result, (i) more than 10% of the Fund's total assets would be invested in
the securities of other investment companies, (ii) the Fund would hold more than
3% of the total outstanding voting securities of any one investment company, or
(iii) more than 5% of the Fund's total assets would be invested in the
securities of any one investment company. These limitations do not apply to (a)
the investment of cash collateral, received by the Fund in connection with
lending the Fund's portfolio securities, in the securities of open-end
investment companies or (b) the purchase of shares of any investment company in
connection with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company. Subject to the
above percentage limitations, the Fund may, in connection with the John Hancock
Group of Funds Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John Hancock Group
of Funds. The Fund may not purchase the shares of any closed-end investment
company except in the open market where no commission or profit to a sponsor or
dealer results from the purchase, other than customary brokerage fees.
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amounts of net assets will not be considered a violation
of any of the foregoing restrictions.
The World Bond Fund has registered as a "non-diversified" investment
company under the Investment Company Act of 1940, as amended (the "Investment
Company Act"). However, the Fund intends to limit its investments to the extent
required by the diversification requirements of the Code. See "Taxes".
TAX STATUS
Each Fund is treated as a separate entity for accounting and tax
purposes. Each Fund has qualified and elected to be treated as a "regulated
investment company" under Subchapter M of the Code, and intends to continue to
so qualify for each taxable year. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions, and the diversification if its assets, each Fund will not be
subject to Federal income tax on taxable income (including net short-term and
long-term capital gains from the disposition of portfolio securities or the
right to when-issued securities prior to issuance or the lapse, exercise,
delivery under or closing out of certain options, futures and forward contracts,
income from repurchase agreements and other taxable securities, income
attributable to accrued market discount, and a portion of the discount from
certain stripped tax-exempt obligations or their coupons) which is distributed
to shareholders at least annually in accordance with the timing requirements of
the Code.
Each Fund will be subject to a 4% nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. Each
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
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<PAGE>
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Funds' Prospectuses whether taken in shares or in cash. Amounts
that are not allowable as a deduction in computing taxable income, including
expenses associated with earning tax-exempt interest income, do not reduce
current E&P for this purpose. Distributions, if any, in excess of an investor's
tax basis in Fund shares and thereafter (after such basis is reduced to zero)
will generally give rise to capital gains. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
Federal income tax purposes in each share so received equal to the amount of
cash they would have received had they elected to receive the distributions in
cash, divided by the number of shares received.
If a Fund invests in stock of certain non-U.S. corporations that
receive at least 75% of their annual gross income from passive sources (such as
interest producing investments, dividends, rents, royalties or capital gain) or
hold at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), that Fund could be subject to Federal
income tax and additional interest charges on "excess distributions" received
from these passive foreign investment companies, even if all income or gain
actually received by the Fund is timely distributed to its shareholders. The
Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election would require the applicable
Fund to recognize taxable income or gain without concurrent receipt of cash. Any
Fund that is permitted to acquire stock in foreign corporations may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
Foreign exchange gains and losses realized by a Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency futures and options, foreign currency forward
contracts, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount, timing and character of distributions to shareholders. Any such
transactions that are not directly related to a Fund's investment in stock or
securities, possibly including speculative currency positions or currency
derivatives not used for hedging purposes, may increase the amount of gain it is
deemed to recognize from the sale of certain investments held for less than
three months, which gain is limited under the Code to less than 30% of its
annual gross income, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
least 90% of its annual gross income. Income from investments in commodities,
such as gold and certain related derivative instruments, is also not treated as
qualifying income under this test. If the net foreign exchange loss for a year
treated as ordinary loss under Section 988 were to exceed a Fund's investment
company taxable income computed without regard to such loss (i.e., all of the
Fund's net income other than any excess of net long-term capital gain over net
short-term capital loss) the resulting overall ordinary loss for such year would
not be deductible by the Fund or its shareholders in future years.
Some Funds may be subject to withholding and other taxes imposed by
foreign countries with respect to their investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax credits with respect
to such taxes, subject to certain provisions and limitations contained in the
Code. Specifically, if more than 50% of the value of a Fund's total assets at
the close of any
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<PAGE>
taxable year consists of stock or securities of foreign corporations, the Fund
may file an election with the Internal Revenue Service Pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Fund even though not actually
received by them, and (ii) treat such respective pro rata portions as foreign
income taxes paid by them.
If a Fund makes this election, shareholders may then deduct such pro
rata portions of foreign income taxes in computing their taxable incomes, or
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign income taxes paid by the Fund, although
such shareholders will be required to include their share of such taxes in gross
income. Shareholders who claim a foreign tax credit for such foreign taxes may
be required to treat a portion of dividends received from the Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credits. Tax-exempt shareholders will ordinarily not benefit from this
elections. Each year that a Fund files the election described above, its
shareholders will be notified of the amount of (i) each shareholder's pro rata
share of foreign income taxes paid by the Fund and (ii) the portion of Fund
dividends which represents income from each foreign country. A Fund that cannot
or does not make this election may deduct such taxes in computing its taxable
income.
For each Fund, the amount of net realized short-term and long-term
capital gains, if any, in any given year will vary depending upon the Adviser's
current investment strategy and whether the Adviser believes it to be in the
best interest of the Fund to dispose of portfolio securities or enter into
options or futures transactions that will generate capital gains. At the time of
an investor's purchase of Fund shares, a portion of the purchase price is often
attributable to realized or unrealized appreciation in the Fund's portfolio or
undistributed taxable income of the Fund. Consequently, subsequent distributions
on those shares from such appreciation or income may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption of shares of a Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his basis in his shares. Such gain or loss will be treated as capital gain
or loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, depending upon the shareholder's tax holding period for
the shares. A sales charge paid in purchasing Class A shares of a Fund cannot be
taken into account for purposes of determining gain or loss on the redemption or
exchange of such shares of the Fund or another John Hancock Fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to the Automatic Dividend Reinvestment Plan.
In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be disallowed to the extent of all
exempt-interest dividends paid with respect to such shares and will be treated
as a long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain with respect to such shares.
-29-
<PAGE>
Although its present intention is to distribute all net short-term and
long-term capital gains, if any, each Fund reserves the right to retain and
reinvest all or any portion of its "net capital gain", which is the excess, as
computer for Federal income tax purposes, of net long-term capital gain over net
short-term capital loss in any year. The Funds will not in any event distribute
net long-term capital gains realized in any year to the extend that a capital
loss is carried forward from prior years against such gain. To the extent such
excess was retained and not exhausted by the carryforward of prior years'
capital losses, it would be subject to Federal income tax in the hands of a
Fund. Each shareholder would be treated for Federal income tax purposes as if
such Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder 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 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, each Fund is permitted to carryforward
a net capital loss in any year to offset its own net capital gains, if any,
during the eight years following the year of the loss. To the extent subsequent
net capital gains are offset by such losses, they would not result in Federal
income tax liability to the applicable Fund, as noted above, would not be
distributed as such to shareholders. The capital loss carryforwards for each of
the Funds are as follows: (i) Global Fund has no capital loss carryforwards; and
(ii) World Bond Fund has $3,413,372 which will expire October 31, 2002.
For purposes of the dividends received deduction available to
corporations, dividends received by a Fund, if any, from U.S. domestic
corporations in respect of any share of stock held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their shares of
the applicable Fund in order to qualify for the deduction and, if they borrow to
acquire such shares, may be denied a portion of the dividends received
deduction. The entire qualifying dividend, including the otherwise deductible
amount, will be included in determining the excess (if any) of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its alternative minimum tax liability, if any.
Additionally, any corporate shareholder should consult its tax adviser regarding
the possibility that its tax basis in its shares may be reduced, for Federal
income tax purposes, by reason of "extraordinary dividends" received with
respect to the shares, for the purpose of computing its gain or loss on
redemption or other disposition of the shares.
Investment in debt obligations that are at risk of or in default
presents special tax issues for any Fund that may hold such obligations. Tax
rules are not entirely clear about issues such as when the Fund may cease to
accrue interest, original issue discount, or market discount, when and to what
extent deductions may be taken for bad debts or worthless securities, how
payments received on obligations in default should be allocated between
principal and income, and whether exchanges of debt obligations in a workout
context are taxable. These and other issues will be addressed by any Fund that
may hold such obligations in order to reduce the risk of distributing
insufficient income to preserve its status as a regulated investment company and
seek to avoid becoming subject to Federal income or excise tax.
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<PAGE>
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Limitations imposed by the Code on regulated investment companies like
the Funds may restrict each Fund's ability to enter into futures, options, and
forward transactions.
Certain options, futures and forward foreign currency transactions
undertaken by a fund may cause the Fund to recognize gains or losses from
marking to market even though its positions have not been sold or terminated and
affect the character as long-term or short-term (or, in the case of certain
currency forward, options and futures, as ordinary income or loss) and timing of
some capital gains and losses realized by the Fund. Also, certain of a Fund's
losses on its transactions involving options, futures or forward contracts
and/or offsetting portfolio positions may be deferred rather than being taken
into account currently in calculating the Fund's taxable income. Certain of the
applicable tax rules may be modified if a Fund is eligible and chooses to make
one or more of certain tax elections that may be available. These transactions
may therefore affect the amount, timing and character of a Fund's distributions
to shareholders. The Funds will take into account the special tax rules
(including consideration of available elections) applicable to options, futures
or forward contracts in order to minimize any potential adverse tax
consequences.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions. Dividends, capital gain distributions, and ownership
of or gains realized on the redemption (including an exchange) of Fund shares
may also be subject to state and local taxes. Shareholders should consult their
own tax advisers as to the Federal, state or local tax consequences of ownership
of shares of, and receipt of distributions from, the Funds in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in a Fund is effectively connected will be subject to U.S.
Federal income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from a Fund and, unless an effective IRS Form W-8 or authorized
substitute is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in any Fund.
The Funds are not subject to Massachusetts corporate excise or
franchise taxes, provided that a fund qualifies as a regulated investment
company under the Code, it will also not be required to pay any Massachusetts
income tax.
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<PAGE>
THOSE RESPONSIBLE FOR MANAGEMENT
The business of each Fund is managed by its Trustees, who elect
officers who are responsible for the day-to-day operations of the Trust and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers and directors of the Adviser or officers
and Directors of the Funds' principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
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<PAGE>
The following table sets forth the principal occupation of employment
of the Trustees and principal officers of the Funds during the past five years:
NAME, ADDRESS POSITIONS HELD PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH THE FUND DURING THE PAST FIVE YEARS
*Edward J. Boudreau, Jr. Chairman(1,2) Chairman and Chief Executive
101 Huntington Avenue Officer, the Adviser and The
Boston, Massachusetts Berkeley Financial Group ("The
October 1944 Berkeley Chairman, NM Capital
Management, Inc. ("NM
Capital"); John Hancock
Advisers International Limited
("Advisers International");
John Hancock Funds; John
Hancock Investor Services
Corporation ("Investor
Services") and Sovereign Asset
Management Corporation
("SAMCorp"); (herein after the
Adviser, the Berkeley Group,
NM Capital, Advisers
International, John Hancock
Funds, Investor Services and
SAMCorp are collectively
referred to as the "Affiliated
Companies"); Chairman, First
Signature Bank & Trust;
Director, John Hancock Freedom
Securities Corp., John Hancock
Capital Corp. and New
England/Canada Business
Council; Member, Investment
Company Institute Board of
Governors; Director, Asia
Strategic Growth Fund, Inc.;
Trustee, Museum of Science;
Vice Chairman and President,
the Adviser (until July 1992);
Chairman John Hancock
Distributors, Inc. (until
April, 1994).
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* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee.
(2) A Member of the Investment Committee.
(3) A Member of the Audit and Administration Committees.
<PAGE>
NAME, ADDRESS POSITIONS HELD PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH THE FUND DURING THE PAST FIVE YEARS
Dennis S. Aronowitz Trustee(3) Professor of Law, Boston
Boston University University School of Law;
Boston, Massachusetts Trustee, Brookline Savings
June 1931 Bank.
Richard P. Chapman, Jr. Trustee(1,3) President, Brookline Savings
160 Washington Street Bank; Director Federal Home
Brookline, Massachusetts Loan Bank of Boston (lending);
February 1935 Director, Lumber Insurance
Companies (fire and casualty
insurance); Trustee,
Northeastern University
(education); Director,
Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee(3) Vice President, Senior Banker
20 Buttonwood Place and Senior Credit Officer,
Saddle River, New Jersey Citibank, N.A. (retired
January 1933 September 1991); Executive
Vice President, Citadel Group
Representatives, Inc., EVP
Resource Evaluation, Inc.
(consulting) (until October
1993); Trustee, the Hudson
City Savings Bank (since
1995).
Douglas M. Costle Trustee(1,3) Director, Chairman of the
RR2 Box 480 Board and Distinguished Senior
Woodstock, Vermont 05091 Fellow, Institute for
July 1939 Sustainable Communities,
Montpelier, Vermont (since
1991). Dean Vermont Law School
(until 1991); Director, Air
and Water Technologies
Corporation (environmental
services and equipment),
Niagara Mohawk Power Company
(electric services) and
Mitretek Systems (governmental
consulting services).
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* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee.
(2) A Member of the Investment Committee.
(3) A Member of the Audit and Administration Committees.
<PAGE>
NAME, ADDRESS POSITIONS HELD PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH THE FUND DURING THE PAST FIVE YEARS
Leland O. Erdahl Trustee(3) Director of Santa Fe
9449 Navy Blue Court Ingredients Company of
Las Vegas, NV 89117 California, Inc. and Santa Fe
December 1928 Ingredients Company, Inc.
(private food processing
companies); Director of
Uranium Resources, Inc.;
President of Stolar, Inc.
(from 1987-1991) and President
of Albuquerque Uranium
Corporation (from 1985-1992);
Director of Freeport-McMoRan
Copper & Gold Company Inc.,
Hecla Mining Company, Canyon
Resources Corporation and
Original Sixteen to One Mine,
Inc. (from 1984-1987 and from
1991 to 1995) (management
consultant).
Richard A. Farrell Trustee(3) President of Farrell, Healer &
Farrell, Healer & Co. (venture capital
Company, Inc. management firm) (since 1980);
160 Federal Street Prior to 1980, headed the
23rd Floor venture capital group at Bank
Boston, MA 02110 of Boston Corporation.
November 1932
Gail D. Fosler Trustee(3) Vice President and Chief
4104 Woodbine Street Economist, The Conference
Chevy Chase, MD Board (non-profit economic and
December 1947 business research).
William F. Glavin Trustee(3) President, Babson College;
Babson College Vice Chairman, Xerox
Horn Library Corporation (until June 1989);
Babson Park, MA 02157 Director, Caldor Inc., Reebok,
March 1931 Ltd. (since 1994), and Inco
Ltd.
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* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee.
(2) A Member of the Investment Committee.
(3) A Member of the Audit and Administration Committees.
<PAGE>
NAME, ADDRESS POSITIONS HELD PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH THE FUND DURING THE PAST FIVE YEARS
*Anne C. Hodsdon Trustee and President and Chief Operating
101 Huntington Avenue President(1,2) Officer, the Adviser;
Boston, Massachusetts Executive Vice President, the
April 1953 Adviser (until December 1994);
Senior Vice President; the
Adviser (until December 1993);
Vice President, the Adviser
(until 1991).
Dr. John A. Moore Trustee(3) President and Chief Executive
Institute for Evaluating Officer, Institute for
Health Risks Evaluating Health Risks
1101 Vermont Avenue N.W. (nonprofit institution) (since
Suite 608 September 1989).
Washington, DC 20005
February 1939
Patti McGill Peterson Trustee(3) President, St. Lawrence
St. Lawrence University University; Director, Niagara
110 Vilas Hall Mohawk Power Corporation
Canton, NY 13617 (electric utility) and
May 1943 Security Mutual Life
(insurance).
John W. Pratt Trustee(3) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961)
*Richard S. Scipione Trustee(1) General Counsel, the Life
John Hancock Place Company; Director, the
P.O. Box 111 Adviser, the Affiliated
Boston, Massachusetts Companies, John Hancock
August 1937 Distributors, Inc., JH
Networking Insurance Agency,
Inc., John Hancock
Subsidiaries, Inc. and John
Hancock Property and Casualty
Insurance and its affiliates
(until November, 1993).
Edward J. Spellman, CPA Trustee(3) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL
November 1932
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* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee.
(2) A Member of the Investment Committee.
(3) A Member of the Audit and Administration Committees.
<PAGE>
NAME, ADDRESS POSITIONS HELD PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH THE FUND DURING THE PAST FIVE YEARS
*Robert G. Freedman Vice Chairman and Vice Chairman and Chief
101 Huntington Avenue Chief Investment Investment Officer, the
Boston, Massachusetts Officer(2) Adviser; President, the
July 1938 Adviser (until December 1994);
Director, the Adviser,
Advisers International, John
Hancock Funds, Investor
Services, SAMCorp. and NM
Capital; Senior Vice
President, The Berkley Group.
*James B. Little Senior Vice Senior Vice President, the
101 Huntington Avenue President and Adviser, The Berkeley Group,
Boston, Massachusetts Chief Financial John Hancock Funds and
February 1935 Officer Investor Services; Senior Vice
President and Chief Financial
Officer, each of the John
Hancock funds.
*John A. Morin Vice President Vice President [AND
101 Huntington Avenue SECRETARY], the Adviser; Vice
Boston, Massachusetts President, Investor Services,
July 1950 John Hancock Funds and each of
the John Hancock funds;
Compliance Officer, certain
John Hancock funds, Counsel,
the Life Company; Vice
President and Assistant
Secretary, The Berkeley Group.
*Susan S. Newton Vice President Vice President and Secretary,
101 Huntington Avenue and Secretary the Adviser; Vice President
Boston, Massachusetts and Secretary, certain John
March 1950 Hancock funds; Vice President
and Secretary, John Hancock
Funds, Investor Services and
John Hancock Distributors,
Inc. (until 1994); Secretary,
SAMCorp; Vice President, The
Berkeley Group.
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* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee.
(2) A Member of the Investment Committee.
(3) A Member of the Audit and Administration Committees.
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<PAGE>
NAME, ADDRESS POSITIONS HELD PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH THE FUND DURING THE PAST FIVE YEARS
*James J. Stokowski Vice President Vice President, the Adviser;
101 Huntington Avenue and Treasurer Vice President and Treasurer,
Boston, Massachusetts each of the John Hancock
November 1946 funds.
- ------------
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940.
(1) A Member of the Executive Committee.
(2) A Member of the Investment Committee.
(3) A Member of the Audit and Administration Committees.
<PAGE>
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
The following table provides information regarding the compensation
paid by the Funds and the other investment companies in the John Hancock Fund
Complex to the Independent Trustees for their services. Trustees not listed
below were not Trustees of these Funds as of the end of the Funds' last
completed fiscal years. The three non-Independent Trustees, Messrs. Boudreau and
Scipione and Ms. Hodsdon, and each of the officers of the Funds are interested
persons of the Adviser, are compensated by the Adviser and receive no
compensation from the Funds for their services.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
From the Funds(1)
TOTAL COMPENSATION
FROM THE FUNDS AND
GLOBAL WORLD BOND JOHN HANCOCK FUND
INDEPENDENT TRUSTEES FUND FUND COMPLEX TO TRUSTEES(2)
<S> <C> <C> <C>
William A. Barron, III* $ 2,283 2,190 $ 41,750
Douglas M. Costle 2,283 2,190 41,750
Leland O. Erdahl 2,283 2,190 41,750
Richard A. Farrell 2,367 2,271 43,250
William F. Glavin+ 2,082 2,020 37,500
Patrick Grant* 2,395 2,299 43,750
Ralph Lowell, Jr.* 2,283 2,190 41,750
Dr. John A. Moore 2,283 2,190 41,750
Patti McGill Peterson 2,283 2,190 41,750
John W. Pratt 2,283 2,190 41,750
-------- -------- --------
Totals $ 22,825 $ 21,920 $416,750
</TABLE>
(1) Compensation is for the fiscal year ended October 31, 1995.
(2) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of calendar year ended December 31, 1995. As
of such date there were 61 funds in the John Hancock Fund Complex, of
which each of these Independent Trustees served 12.
* As of the date of this document, these persons no longer serve as
Trustees of the Funds.
+ As of December 31, 1995, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Fund Complex for
Mr. Glavin was $32,061 under the John Hancock Deferred Compensation
Plan for Independent Trustees.
-37-
<PAGE>
The nominees of the Funds may at times be the record holders of in
excess of 5% of shares of either of the Funds by virtue of holding shares in
"street name." As of May 31, 1996 the officers and trustees of the Trust as a
group owned less than 1% of the outstanding shares of each class of each of the
Funds.
As of May 31, 1996, no person or entity owned beneficially or of record
5% or more of the outstanding shares of the Funds.
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for each of the Funds is John Hancock Advisers,
Inc., a Massachusetts corporation (the "Adviser"), with offices at 101
Huntington Avenue, Boston, Massachusetts 02199-7603. The Adviser is a registered
investment advisory firm which maintains a securities research department, the
efforts of which will be made available to the Funds.
The Adviser was organized in 1968 and presently has more than $18
billion in assets under management in its capacity as investment adviser to the
Funds and the other mutual funds and publicly traded investment companies in the
John Hancock group of funds having a combined total of approximately 1,080,000
shareholders. The Adviser is an affiliate of John Hancock Mutual Life Insurance
Company (the "Life Company"), one of the most recognized and respected financial
institutions in the nation. With total assets under management of more than $80
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries high ratings from S&P and A.M. Best's. Founded in
1862, the Life Company has been serving clients for over 130 years.
The Trust has entered into an investment advisory agreement (the
"Advisory Agreements") on behalf of each Fund, each dated as of July 1, 1996,
between the Trust and the Adviser. Pursuant to the Advisory Agreements, the
Adviser agreed to act as investment adviser and manager to the Funds. As manager
and investment adviser, the Adviser will: (a) furnish continuously an investment
program for each of the Funds and determine, subject to the overall supervision
and review of the Boards of Trustees, which investments should be purchased,
held, sold or exchanged, and (b) provide supervision over all aspects of each
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
As compensation for its services under the Advisory Agreements, the
Adviser receives from each Fund a fee computed and paid monthly based upon the
following annual rates: (a) for Global Fund, 1% on the first $100 million of
average daily net assets of the Fund, 0.80% on the next $200 million of average
daily net assets, 0.75% on the next $200 million of average daily net assets and
0.625% of average daily net assets in excess of $500 million; and (b) for World
Bond Fund, 0.75% on the first $250 million of average daily net assets, and
0.70% of average daily net assets in excess of $250 million.
The Global Fund and the Adviser have entered into a sub-investment
management contract with JH Advisers International under which JH Advisers
International, subject to the review of the Trustees and the overall supervision
of the Adviser, is responsible for providing the Fund with advice with respect
to that portion of the assets invested in countries other than the United States
and Canada. JH Advisers International, with offices located at 34 Dover Street,
London, England W1X 3RA, is a wholly-owned subsidiary of the Adviser formed in
1987 to provide international investment research and advisory services to U.S.
institutional clients.
-38-
<PAGE>
As compensation for its services under the Sub-Advisory Agreement, JH Advisers
International receives from the Adviser a monthly fee equal to 0.70% on an
annual basis of the average daily net asset value of the Global Fund for each
calendar month up to $200 million of average daily net assets; and 0.6375% on an
annual basis of the average daily net asset value over $200 million. Global Fund
is not responsible for paying JH Advisers International's fee.
The Funds bear all costs of their organization and operation, including
expenses of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plans of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Funds (including an allowable portion of the cost of the
Adviser's employees rendering such services to the Funds); the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association memberships; insurance premiums; and any
extraordinary expenses.
The State of California imposes a limitation on the expenses of the
Funds. Each Advisory Agreement provides that if, in any fiscal year, the total
expenses of the respective Funds (excluding taxes, interest, brokerage
commissions and extraordinary items, but including the management fee) exceed
the expense limitations applicable to the Fund imposed by the securities
regulations of any state in which it is then registered to sell shares, the
Adviser will reduce its fee for that Fund to the extent required by these
limitations. The Adviser and JH Advisers International have agreed that if, in
any fiscal year, the total expenses of the Global Fund (excluding taxes,
interest, brokerage commissions and extraordinary items, but including the
Adviser's fee and the portion thereof paid to JH Advisers International) exceed
the expense limitations applicable to such Fund, the Adviser and JH Advisers
International will each reduce it's fee for that Fund in the amount of that
excess up to the amount of its fee during that fiscal year. Although there is no
certainty that any limitations will be in effect in the future, the California
limitation on an annual basis currently is 2.5% of the first $30 million of
average net assets, 2.0% of the next $70 million of net assets and 1.5% of the
remaining net assets.
Each Advisory Agreement was approved on March 5, 1996 by all of the
Trustees, including all of the Trustees who are not parties to the Advisory
Agreements or "interested persons" of any such party. The shareholders of the
Funds also approved their respective Fund's Advisory Agreement on June 26, 1996.
The Advisory Agreements will continue in effect from year to year, provided that
their continuance is approved annually both (i) by the holders of a majority of
the outstanding voting securities of the respective Fund or by the Board of
Trustees, and (ii) by a majority of the Trustees who are not parties to the
subject Advisory Agreement or "interested persons" of any such party. The
Advisory Agreements may be terminated on 60 days written notice by any party and
will terminate automatically if assigned.
-39-
<PAGE>
For the fiscal years ended October 31, 1993, 1994 and 1995, the Trust
paid the Adviser, on behalf of Global Fund, an investment advisory fee of
$922,722, $1,175,313 and $1,169,884, respectively.
For the fiscal years ended October 31, 1993, 1994 and 1995, the Trust
paid the Adviser, on behalf of World Bond Fund, investment advisory fees of
$1,441,163, $1,207,673 and $840,527, respectively.
DISTRIBUTION CONTRACT
The Trust has entered into Distribution Agreements with John Hancock
Funds, Inc. and Freedom Distributors Corporation (together the "Distributors")
whereby the Distributors act as exclusive selling agents of the Funds, selling
shares of each class of each Fund on a "best efforts" basis. Shares of each
class of each Fund are sold to selected broker-dealers (the "Selling Brokers")
who have entered into selling agency agreements with the Distributors.
The Distributors accept orders for the purchase of the shares of the
Funds which are continually offered at net asset value next determined, plus an
applicable sales charge, if any. In connection with the sale of Class A or Class
B shares of the Funds, the Distributors and Selling Brokers receive compensation
in the form of a sales charge imposed, in the case of Class A shares at the time
of sale or, in the case of Class B shares, on a deferred basis. The sales
charges are discussed further in the Prospectus.
The Trustees have adopted Distribution Plans with respect to Class A
and Class B shares ("the Plans"), pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Under the Plans, each Fund will pay distribution and
service fees at an aggregate annual rate of up to 0.30% and 1.00% respectively,
of the Fund's daily net assets attributable to shares of that class. However,
the service fee will not exceed 0.25% of the applicable Fund's average daily net
assets attributable to each class of shares. The distribution fees will be used
to reimburse the Distributors for their distribution expenses, including but not
limited to: (i) initial and ongoing sales compensation to Selling Brokers and
others (including affiliates of the Distributors) engaged in the sale of each
Fund's shares; (ii) marketing, promotional and overhead expenses incurred in
connection with the distribution of each Fund's shares; and (iii) with respect
to Class B shares only, interest expenses on unreimbursed distribution expenses.
The service fees will be used to compensate Selling Brokers and others for
providing personal and account maintenance services to shareholders. In the
event that the Distributors are not fully reimbursed for payments they make or
expenses they incur under the Class A Plan, these expenses will not be carried
beyond one year from the date they were incurred. These unreimbursed expenses
under the Class B Plan will be carried forward together with interest on the
balance of these unreimbursed expenses, 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 Funds do not treat unreimbursed expenses
relating to the Class B shares as a liability. For the fiscal year ended October
31, 1995, an aggregate of $750,008 and $4,753,035 of distribution expenses or
2.74% and 5.13%, respectively, of the average net assets of the Class B shares
of each of Global Fund and World Bond Fund were not reimbursed or recovered by
the Distributors through the receipt of deferred sales charges or 12b-1 fees in
prior periods.
-40-
<PAGE>
The Plans were approved by a majority of the voting securities of each
Fund. The Plans and all amendments were approved by the Trustees, including a
majority of the Trustees who are not interested persons of the applicable Fund
and who have no direct or indirect financial interest in the operation of the
Plans (the "Independent Trustees"), by votes cast in person at meetings called
for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, the Distributors provide the
Funds with a written report of the amounts expended under the Plans and the
purpose for which these expenditures were made. The Trustees review these
reports on a quarterly basis.
Each of the Plans provides that it will continue in effect only so long
as its continuance is approved at least annually by a majority of both the
Trustees and the Independent Trustees. Each of the Plans provides that it may be
terminated without penalty, (a) by vote of a majority of the Independent
Trustees, (b) by a vote of a majority of the applicable Fund's outstanding
shares of the applicable class in each case upon 60 day's written notice to the
Distributors and (c) automatically in the event of assignment. Each of the Plans
further provides that it may not be amended to increase the maximum amount of
the fees for the services described therein without the approval of a majority
of the outstanding shares of the class of the applicable Fund which has 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
applicable Fund. The holders of Class A and Class B shares have exclusive voting
rights with respect to the Plan applicable to their respective class of shares.
In adopting the Plans the Trustees concluded that, in their judgment, there is a
reasonable likelihood that the Plans will benefit the holders of the applicable
shares of each Fund.
During the fiscal year ended October 31, 1995, the Funds paid the
Distributors the following amounts of expenses with respect to the Class A
shares and Class B shares of each of the Funds:
<TABLE>
<CAPTION>
Expense Items
Printing and
Mailing of
Prospectuses Compensation Interest,
to New Expenses of to Selling Other Finance
Advertising Shareholders Distributors Brokers Charges
Global Fund
<S> <C> <C> <C> <C> <C>
Class A Shares $ 50,361 $ 9,469 $ 75,361 $145,419 None
Class B Shares $ 47,509 $ 2,409 $ 70,676 $ 80,744 $ 69,530
World Bond Fund
Class A Shares $ 10,013 $ 3,810 $ 20,681 $ 23,930 None
Class B Shares $ 59,062 $ 1,035 $ 70,074 $270,650 $516,687
</TABLE>
-41-
<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 or NASDAQ National
Market Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned categories for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days
or less are generally valued at amortized cost which approximates market value.
If market quotations are not readily available or if in the opinion of the
Adviser any quotation or price is not representative of true market value, the
fair value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
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 their value. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time ( 12:00
noon, New York time) on the date of any determination of a Fund's NAV.
A Fund will not price its securities on the following national
holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. On any day an
international market is closed and the New York Stock Exchange is open, any
foreign securities will be valued at the prior day's close with the current
day's exchange rate. Trading of foreign securities may take place on Saturdays
and U.S. business holidays on which a Fund's NAV is not calculated.
Consequently, a Fund's portfolio securities may trade and the NAV of the Fund's
redeemable securities may be significantly affected on days when a shareholder
has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Class A shares of the Funds are offered at a price equal to their net
asset value plus a sales charge which, at the option of the purchaser, may be
imposed either at the time of purchase (the "initial sales charge alternative")
or on a contingent deferred basis (the "deferred sales charge alternative").
Share certificates will not be issued unless requested by the shareholder in
writing, and then they will only be issued for full shares. The Trustees of each
Fund reserve the right to change or waive each Fund's minimum investment
requirements and to reject any order to purchase shares (including purchase by
exchange) when in the judgment of the Adviser such rejection is in the
respective Fund's best interest.
-42-
<PAGE>
The sales charges applicable to purchases of Class A shares of the
Funds are described in the Funds' 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, the investor is entitled to cumulate current purchases with the greater
of the current value (at offering price) of the Class A shares of the Funds,
owned by the investor, or if Investor Services is notified by the investor's
dealer or the investor at the time of the purchase, the cost of the Class A
shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his or her spouse and their children under the age of 21,
purchasing securities for his, her or their own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
Without Sales Charges. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
- - Any state, county or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment
laws from paying a sales charge or commission when it purchases shares
of any registered investment management company.
- - A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if
it is purchasing $1 million or more for non-discretionary customers or
accounts.
- - A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, mother, father, sister, brother, mother-in-law,
father-in-law) of any of the foregoing; or any fund, pension, profit
sharings or other benefit plan for the individuals described above.
- - A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into an agreement with John Hancock
Funds providing specifically for the use of a Fund's shares in
fee-based investment products or services made available to their
clients.
- - A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to a Fund.
- - A member of an approved affinity group financial services plan.
- - Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed defined contribution plans with at least 100 eligible
employees at the inception of the subject Fund's account, may purchase
Class A shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which
the purchase was made, a CDSC will be imposed at the following rate:
-43-
<PAGE>
AMOUNT INVESTED CDSC RATE
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts to $10 million and over 0.25%
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current account value of the Class A shares already
held by such person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Prospectus) are also available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares and
shares of all other John Hancock funds which carry a sales charge.
Letter of Intention. The reduced sales charges are also applicable to
investments made over a specified period pursuant to a Letter of Intention (the
"LOI"), which should be read carefully prior to its execution by an investor.
The Funds offer two options regarding the specified period for making
investments under the LOI. All investors have the option of making their
investments over a specified period of thirteen (13) months. Investors who are
using a Fund as a funding medium for a qualified retirement plan, however, may
opt to make the necessary investments called for by the LOI over a forty-eight
(48) month period. These qualified retirement plans include group IRA, SEP,
SARSEP, TSA, 401(k), ISA and Section 457 plans. Such an investment (including
accumulations and combinations) must aggregate $100,000 or more invested during
the specified period from the date of the LOI or from a date within ninety (90)
days prior thereto, upon written request to Investor Services. The sales charge
applicable to all amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If such aggregate
amount is not actually invested, the difference in the sales charge actually
paid and the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made within the specified period
the sales charge applicable will not be higher than that which would have
applied (including accumulations and combinations) had the LOI been for the
amount actually invested.
The LOI authorizes Investor Services to hold in escrow a number of
Class A shares (approximately 5% of the aggregate) sufficient to make up any
difference in sales charges on the amount intended to be invested and the amount
actually invested, until such investment is completed within the specified
period, at which time the escrow shares will be released. If the total
investment specified in the LOI is not completed, the Class A shares held in
escrow may be redeemed and the proceeds used as required to pay such sales
charge as may be due. By signing the LOI, the investor authorizes Investor
Services to act as his or her attorney-in-fact to redeem any escrowed shares and
adjust the sales charge, if necessary. A LOI does not constitute a binding
commitment by an investor to purchase, or by the Funds to sell, any additional
Class A shares and may be terminated at any time.
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.
-44-
<PAGE>
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per
share without the imposition of an initial sales charge so that the Funds will
receive the full amount of the purchase price.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the 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. No CDSC
will be imposed on shares derived from reinvestment of dividends or capital
gains distributions.
Class B shares are not available to full-service defined contribution
plans administered by Investor Services or the Life Company that had more than
100 eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares. Solely for purposes of determining this number all
payments during a month will be aggregated and deemed to have been made on the
first day of the month.
In determining whether a CDSC applies to a redemption, the calculation
will be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
have held beyond the six-year CDSC redemption period or those you acquired
through dividend and capital gain reinvestment, and next from the shares you
have held the longest during the six-year period. For this purpose, the amount
of any increase in a share's value above its initial purchase price is not
regarded as a share exempt from CDSC. Thus, when a share that has appreciated in
value is redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. Upon redemption, appreciation is effective only on a per share
basis for those shares being redeemed. Appreciation of shares cannot be redeemed
CDSC free at the account level.
When requesting a redemption for a specific dollar amount please
indicate if you require the proceeds to equal the dollar amount requested. If
not indicated, only the specified dollar amount will be redeemed from your
account and the proceeds will be less any applicable CDSC.
-45-
<PAGE>
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
<TABLE>
<S> <C>
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
* Amount subject to CDSC $ 400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds not "the
Distributors" and are used in whole or in part by John Hancock Funds to defray
its expenses related to providing distribution-related services to the Funds in
connection with the sale of the Class B shares, such as the payment of
compensation to select Selling Brokers for selling Class B shares. The
combination of the CDSC and the distribution and service fees facilitates the
ability of the Funds to sell the Class B shares without a sales charge being
deducted at the time of the purchase. See the Prospectus for additional
information regarding the CDSC.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Funds' right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other plans qualified under
the Code) unless otherwise noted.
* Redemptions made to effect mandatory distributions under the Internal
Revenue Code after age 70 1/2.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans such as 401(k),
403(b), 457. In all cases, the distribution must be free from penalty
under the Code.
* Redemptions made to effect distributions from an Individual Retirement
Account either before age 59 1/2 or after age 59 1/2, as long as the
distributions are based on your life expectancy or the joint-and-last
survivor life expectancy of you and your
-46-
<PAGE>
beneficiary. These distributions must be free from penalty under the
Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares
prior to May 15, 1995.
For non-retirement accounts (please see above for retirement account waivers):
* Redemptions of Class B shares made under a periodic withdrawal plan,
as long as your annual redemptions do not exceed 10% of your account
value at the time you established your periodic withdrawal plan and
10% of the value of subsequent investments (less redemptions) in that
account at the time you notify Investor Services. (Please note, this
waiver does not apply to periodic withdrawal plan redemptions of
Class A shares that are subject to a CDSC.)
Please see matrix for reference.
<TABLE>
<CAPTION>
CDSC Waiver Matrix for Class B Shares
Type of 401(a) Plan 403(b) 457 IRA, IRA Non-retirement
Distribution (401(k), Rollover
MPP, PSP)
- ------------ ----------- ------- -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
Over 70 1/2 Waived Waived Waived Waived for 10% of account
mandatory value annually in
distributions periodic payments
Between Wavied Wavied Waived Only Life 10% of account
59 1/2 and Expectancy value annually in
70 1/2 periodic payments
Under Waived for Waived for Waived for Waived for 10% of account
59 1/2 rollover, or annuity annuity annuity value annually in
annuity payments payments payments periodic payments
payments.
Not waived if
paid directly
to
participant.
Loans Waived Waived N/A N/A N/A
Termination Not Waived Not Waived Not Waived Not Waived N/A
of Plan
Return of Waived Waived Waived Waived N/A
Excess
</TABLE>
-47-
<PAGE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services at the time you make your redemption. The waiver will be
granted once Investor Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although they would not normally do so, the Funds have the right to pay
the redemption price of shares of the Funds in whole or in part in portfolio
securities as prescribed by the Trustees. If the shareholder were to sell
portfolio securities received in this fashion, he would incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Funds
have, however, elected to be governed by Rule 18f-1 under the Investment Company
Act. Under that rule, the Funds must redeem their shares for cash except to the
extent that the redemption payments to any shareholder during any 90-day period
would exceed the lesser of $250,000 or 1% of the applicable Fund's net asset
value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. As described more fully in the Prospectus, the Funds permit
exchanges of shares of any class of a Fund for shares of the same class in any
other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are
based on their respective net asset values. No sales charge or transaction
charge is imposed. Shares of the Funds which are subject to a CDSC may be
exchanged into shares of any of the other John Hancock funds that are subject to
a CDSC without incurring the CDSC; however, the shares acquired in an exchange
will be subject to the CDSC schedule of the shares acquired if and when such
shares are redeemed (except that shares exchanged into John Hancock Short-Term
Strategic Income Fund, John Hancock Intermediate Maturity Government Fund and
John Hancock Limited-Term Government Fund will retain the exchanged fund's CDSC
schedule). For purposes of computing the CDSC payable upon redemption of shares
acquired in an exchange, the holding period of the original shares is added to
the holding period of the shares acquired in an exchange.
Shares of each class may be exchanged only for shares of the same class
in another John Hancock fund.
If a shareholder exchanges Class B shares purchased prior to January 1,
1994 (except John Hancock Short-Term Strategic Income Fund) for Class B shares
of any other John Hancock fund, the acquired shares will continue to be subject
to the CDSC schedule that was in effect when the exchanged shares were
purchased.
Each Fund reserves the right to require that previously exchanged
shares (and reinvested dividends) be in the Fund for 90 days before a
shareholder is permitted a new exchange. The Funds may also terminate or alter
the terms of the exchange privilege upon 60 days' notice to shareholders.
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<PAGE>
An exchange of shares is treated as a redemption of shares of one fund
and the purchase of shares of another for Federal income tax purposes. An
exchange may result in a taxable gain or loss. See "Tax Status."
To make an exchange, the account registration in both the existing and
new account, must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Systematic Withdrawal Plan. As described briefly in the Prospectus, each Fund
permits the establishment of a Systematic Withdrawal Plan. Payments under this
plan represent proceeds from the redemption of shares of the applicable Fund.
Since the redemption price of the shares of a Fund may be more or less than the
shareholder's cost, depending upon the market value of the securities owned by
the Fund at the time of redemption, the distribution of cash pursuant to this
plan may result in realization of gain or loss for purposes of Federal, state
and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares could be
disadvantageous to a shareholder because of the initial sales charge payable on
such purchases of Class A shares and the CDSC imposed on redemptions of Class B
shares and because redemptions are taxable events. Therefore, a shareholder
should not purchase Class A or Class B shares at the same time a Systematic
Withdrawal Plan is in effect. The Funds reserve the right to modify or
discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior
written notice to such shareholder, or to discontinue the availability of such
plan in the future. The shareholder may terminate the plan at any time by giving
proper notice to Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is explained in
the 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 processing date of any investment.
Reinvestment Privilege. A shareholder who has redeemed Fund shares may, within
120 days after the date of redemption, reinvest without payment of a sales
charge any part of the redemption proceeds in shares of the same class of the
same Fund or in any other John Hancock funds, subject to the minimum investment
limit in that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
the same Fund or in Class A shares of another John Hancock fund. If a CDSC was
paid upon a redemption, a shareholder may reinvest the proceeds from this
redemption at net asset value in additional shares of the class from which the
redemption was made. The shareholder's account 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 Funds may
modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
DESCRIPTION OF THE FUNDS' SHARES
The Trustees of the Trust are responsible for the management and
supervision of the Funds. The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of the
Fund, without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this Statement
of Additional Information, the Trustees have authorized the issuance of two
classes of shares of the Funds, designated as Class A and Class B.
The shares of each class of a Fund represent an equal proportionate
interest in the aggregate net assets attributable to the classes of the Fund.
Class A and Class B shares of the Funds will be sold exclusively to members of
the public (other than the institutional investors described in the Prospectus)
at net asset value. A sales charge will be imposed either at the time of the
purchase, for Class A shares, or on a contingent deferred basis, for Class B
shares. For Class A shares, no sales charge is payable at the time of purchase
on investments of $1 million or more, but for such investments a CDSC may be
imposed in the event of certain redemption transactions within one year of
purchase.
Class A and Class B shares have certain exclusive voting rights on
matters relating to their respective distribution plans. The different classes
of a Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except that (i) the distribution and service fees relating to
the Class A and Class B shares will be borne exclusively by that class (ii)
Class B shares will pay higher distribution and service fees than Class A shares
and (iii) Class A and Class B shares will bear any other class expenses properly
allocable to such class of shares, subject to the conditions set forth in a
private letter ruling that each Fund has received from the Internal Revenue
Service relating to its multiple-class structure. Similarly, the net asset value
per share may vary depending on whether Class A or Class B shares are purchased.
In the event of liquidation, shareholders are entitled to share pro
rata in the net assets of the applicable Fund available for distribution to such
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, by the Trust, except as set
forth below.
Unless otherwise required by the Investment Company Act or the
Declaration of Trust, each Fund has no intention of holding annual meetings of
shareholders. Fund shareholders may
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<PAGE>
remove a Trustee by the affirmative vote of at least two-thirds of the Trust's
outstanding shares, and the Trustees shall promptly call a meeting for such
purpose when requested to do so in writing by the record holders of not less
than 10% of the outstanding shares of the Trust. Shareholders may, under certain
circumstances, communicate with other shareholders in connection with a request
for a special meeting of shareholders. However, at any time that less than a
majority of the Trustees holding office were elected by the shareholders, the
Trustees will call a special meeting of shareholders for the purpose of electing
Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the Trust. However, each Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations or affairs of
the Fund. The Declaration of Trust also provides for indemnification out of the
Funds' assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. Liability is therefore
limited to circumstances in which a Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
Pursuant to an order granted by the Securities and Exchange Commission,
the Trust has adopted a defined compensation plan for its Independent Trustees
which allows Trustee's fees to be invested by the Funds in other John Hancock
funds.
In order to avoid conflicts with portfolio trades for the Fund, the
Adviser, JH Advisers International 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. JH Advisers International's restrictions may differ where appropriate,
as long as they maintain the same intent. These restrictions are a continuation
of the basic principle that the interests of the Fund and its shareholders come
first.
CALCULATION OF PERFORMANCE
The following information supplements the discussion in the Prospectus
regarding performance information.
Total Return. Average annual total return is determined separately for
each class of shares.
Set forth below are tables showing the performance on a total return
basis (i.e., with all dividends and distributions reinvested) of a hypothetical
$1,000 investment in the Class A and Class B shares of the Funds. The
performance information for each Fund is stated for the year ended April 30,
1996 and, with respect to each class of shares of each Fund, for the period from
the commencement of operations (indicated by an asterisk). With respect to Class
B shares of each Fund, performance information is also stated for the five year
period ended April 30, 1996.
-51-
<PAGE>
Global Fund
<TABLE>
<CAPTION>
Class A Class A Class B Class B Class B
Shares Shares Shares Shares Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/02/86* to
4/30/96 4/30/96 4/30/96 4/30/96 4/30/96
------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
1.02% 9.08% 11.02% 10.05% 9.86%
</TABLE>
<TABLE>
World Bond Fund
Class A Class A Class B Class B Class B
Shares Shares Shares Shares Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 12/17/86* to
4/30/96 4/30/96 4/30/96 4/30/96 4/30/96
------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
0.71% 2.91% 0.26% 4.58% 8.66%
</TABLE>
* Commencement of operations.
The "distribution rate" is determined by annualizing the result of
dividing the declared dividends of a Fund during the period stated by the
maximum offering price and net asset value at the end of the period. Excluding a
Fund's sales load from the distribution rate produces a higher rate.
Total return is computed by finding the average annual compounded rates
of return over the designated periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
n
----------------
T = \/ ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1 year, 5 years, and life-of-fund periods.
This calculation assumes that the maximum sales charge for Class A
shares of 5% for Global Fund and 4.50% for World Bond Fund is included in the
initial investment or, for
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<PAGE>
Class B shares, the applicable CDSC is applied at the end of the period. This
calculation also assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period.
In addition to average annual total returns, the Funds may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the Funds' sales charge on
Class A shares or the CDSC on Class B shares into account. Excluding the Funds'
sales charge on Class A shares and the CDSC on Class B shares from a total
return calculation produces a higher total return figure.
WORLD BOND FUND
Yield. Yield is determined separately for Class A and Class B shares. The yields
for the Class A and Class B shares of the World Bond Fund for the thirty days
ended April 30, 1996 were 5.20% and 4.75%, respectively.
Yield is computed by dividing the net investment income per share
earned during a specified 30 day period by the maximum offering price per share
on the last day of such period, according to the following formula:
a-b 6
Yield = 2 [( --- + 1) - 1]
cd
Where: a= dividends and interest earned during the period
b= net expenses accrued for the period
c= the average daily number of share outstanding during the period that
were entitled to receive dividends
d= the maximum offering price per share on the last day of the period.
To calculate interest earned (for the purpose of "a" above) on debt
obligations, World Bond Fund computes the yield to maturity of each obligation
held by the Fund based on the market value of the obligation (including actual
accrued interest) at the close of last business day of the period, or, with
respect to obligations purchased during the period, the purchase price (plus
actual accrued interest). The yield to maturity is then divided by 360 and the
quotient is multiplied by the market value of the obligation (including actual
accrued interest) to determine the interest income on the obligation for each
day of the subsequent period that the obligation is in the portfolio.
To calculate interest earned (for the purpose of "a" above) on foreign
debt obligations, the Fund computes the yield to maturity of each obligation
based on the local foreign currency market value of the obligation (including
actual accrued interest) at the beginning of the period, or, with respect to
obligations purchased during the period, the purchase price plus accrued
interest. The yield to maturity is then divided by 360 and the quotient is
multiplied by the current
-53-
<PAGE>
market value of the obligation (including actual accrued interest in local
currency denomination), then converted to U.S. dollars using exchange rates from
the close of the last business day of the period to determine the interest
income on the obligation for each day of the subsequent period that the
obligation is in the portfolio. Applicable foreign withholding taxes, net of
reclaim, are included in the "b" expense component.
Solely for the purpose of computing yield, the Fund recognizes dividend
income by accruing 1/360 of the stated dividend rate of a security each day that
a security is in the portfolio.
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be declared as a dividend shortly thereafter.
All accrued expenses are taken to account as described later herein.
From time to time, in reports and promotional literature, the Funds'
total return and/or yield will be compared to indices of mutual funds such as
Lipper Analytical Services, Inc.'s "Lipper-Mutual Performance Analysis," a
monthly publication which tracks net assets, total return, and yield on mutual
funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C.
Towers are also used for comparison purposes, as well as Russell and Wilshire
indices.
Performance rankings and ratings reported periodically in national
financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL
STREET JOURNAL, MORNINGSTAR, STANGER'S and BARRON'S, etc. may also be utilized.
The performance of the Funds is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Funds for any period in the future. The performance of any Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales, and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Funds' performances.
BROKERAGE ALLOCATION
Each Advisory Agreement authorizes the Adviser (subject to the control
of the Boards of Trustees) to select brokers and dealers to execute purchases
and sales of portfolio securities. It directs the Adviser to use its best
efforts to obtain the best overall terms for the Funds, taking into account such
factors as price (including dealer spread), the size, type and difficulty of the
transaction involved, and the financial condition and execution capability of
the broker or dealer.
The Sub-Advisory Agreement between the Adviser and JH Advisers
International authorizes JH Advisers International (subject to the control of
the Board of Trustees of the Trust) to provide the Global Fund with a continuing
and suitable investment program with respect to investments by the Fund in
countries other than the United States and Canada.
-54-
<PAGE>
To the extent that the execution and price offered by more than one
dealer are comparable, the Adviser or JH Advisers International, as the case may
be, may, in their discretion, decide to effect transactions in portfolio
securities with dealers on the basis of the dealer's sales of shares of the
Funds or with dealers who provide the Funds, the Adviser or JH Advisers
International with services such as research and the provision of statistical or
pricing information. In addition, the Funds may pay brokerage commissions to
brokers or dealers in excess of those otherwise available upon a determination
that the commission is reasonable in relation to the value of the brokerage
services provided, viewed in terms of either a specific transaction or overall
brokerage services provided with respect to the Funds' portfolio transactions by
such broker or dealer. Any such research services would be available for use on
all investment advisory accounts of the Adviser or JH Advisers International.
The Funds may from time to time allocate brokerage on the basis of sales of
their shares. Review of compliance with these policies, including evaluation of
the overall reasonableness of brokerage commissions paid, is made by the Board
of Trustees.
The Adviser places all orders for purchases and sales of portfolio
securities of the Funds. In selecting broker-dealers, the Adviser may consider
research and brokerage services furnished to them. The Adviser may use this
research information in managing the Funds' assets, as well as assets of other
clients.
Municipal securities, foreign debt securities and Government Securities
are generally traded on the over-the-counter market on a "net" basis without a
stated commission, through dealers acting for their own account and not as
brokers. The World Bond Fund (with respect to Government Securities in its
portfolio) will primarily engage in transactions with these dealers or deal
directly with the issuer. Prices paid to the dealer will generally include a
"spread", which is the difference between the prices at which the dealer is
willing to purchase and sell the specific security at that time.
During the fiscal years ended October 31, 1993, 1994 and 1995, the
Trust paid $806,269, $509,845 and $525,839 in brokerage commissions on behalf of
the Global Fund. During the fiscal years ended October 31, 1993, 1994 and 1995,
the Trust paid $0, $0 and $24,400 in brokerage commissions on behalf of the
World Bond Fund.
When a Fund engages in an option transaction, ordinarily the same
broker will be used for the purchase or sale of the option and any transactions
in the securities to which the option relates. The writing of calls and the
purchase of puts and calls by a Fund will be subject to limitations established
(and changed from time to time) by each of the Exchanges governing the maximum
number of puts and calls covering the same underlying security which may be
written or purchased by a single investor or group of investors acting in
concert, regardless of whether the options are written or purchased on the same
or different Exchanges, held or written in one or more accounts or through one
or more brokers. Thus, the number of options which a Fund may write or purchase
may be affected by options written or purchased by other investment companies
and other investment advisory clients of the Adviser and its affiliates or JH
Advisers International. An Exchange may order the liquidation of positions found
to be in violation of these limits, and it may impose certain other sanctions.
In the U.S. Government securities market, securities are generally
traded on a "net" basis with dealers acting as principal for their own account
without a stated commission, although the price of the security usually includes
a profit to the dealer. On occasion, certain money market
-55-
<PAGE>
instruments and agency securities may be purchased directly from the issuer, in
which case no commissions or premiums are paid.
Municipal securities are generally traded on the over-the-counter
market on a "net" basis without a stated commission, through dealers acting for
their own account and not as brokers. Prices paid to a municipal securities
dealer will generally include a "spread", which is the difference between the
prices at which the dealer is willing to purchase and sell the specific security
at that time.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
two of which, Tucker Anthony Incorporated ("Tucker Anthony"), John Hancock
Distributors, Inc. and Sutro & Company, Inc. ("Sutro"), are broker dealers
(together, "Affiliated Brokers"). The Trust's Board of Trustees has established
that any portfolio transaction for the Funds may be executed through Affiliated
Brokers if, in the judgment of the Adviser or JH Advisers International, as the
case may be, the use of Affiliated Brokers is likely to result in price and
execution at least as favorable as those of other qualified brokers, and if, in
the transaction, Affiliated Brokers charges the Funds a commission rate
consistent with those charged by Affiliated Brokers to comparable unaffiliated
customers in similar transactions. Affiliated Brokers will not participate in
commissions in brokerage given by a Fund to other brokers or dealers and neither
will receive any reciprocal brokerage business resulting therefrom.
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere. Affiliated Brokers will not receive any brokerage
commissions for orders they execute for a Fund in the over-the-counter market. A
Fund will in no event effect principal transactions with Affiliated Brokers in
the over-the-counter securities in which Affiliated Brokers makes a market.
During the fiscal periods ended October 31, 1993, 1994 and 1995 no
brokerage commissions were paid to Affiliated Brokers in connection with the
portfolio transactions of either the Global Fund or the World Bond Fund.
Other investment advisory clients advised by the Adviser or JH Advisers
International, as the case may be, may also invest in the same securities as a
Fund. When these clients buy or sell the same securities at substantially the
same time, the Adviser or JH Advisers International may average the transactions
as to price and allocate the amount of available investments in a manner which
the Adviser or JH Advisers International believes to be equitable to each
client, including the Funds. In some instances, this investment procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtainable for it. On the other hand, to the extent permitted by law,
the Adviser or JH Advisers International may aggregate the securities to be sold
or purchased for a Fund with those to be sold or purchased for other clients
managed by it in order to obtain best execution.
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the Fund may pay to a broker which provides brokerage and research services to
the Fund an amount of disclosed commission in excess of the commission which
another broker would have charged for effecting that transaction. This practice
is subject to a good faith determination by the trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended October 31,
1995, Global Fund paid $4,704.
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<PAGE>
DISTRIBUTIONS
Global Fund declares and pays dividends from net investment income
annually. World Bond Fund declares dividends from net investment income daily
and pays dividends monthly. Distribution by each Fund of net long-term capital
gains, if any, recognized on other portfolio investments for the fiscal year,
which ends October 31, will be made at least annually.
Each shareholders of Global Fund will receive an annual statement
setting forth the amount of the annual dividends paid that year from net
investment income for the preceding period. Each shareholder of World Bond Fund
will receive a quarterly statement setting forth the amount of the monthly or
daily dividends, as the case may be, paid that month from net investment income
for the preceding period. If any of such annual dividends in the case of Global
Fund or monthly or daily dividends in the case of World Bond Fund were made from
sources other than (i) net income for the current or preceding fiscal year, or
accumulated undistributed net income, or both (not including in either case
profits or losses from the sale of securities or other assets) or (ii)
accumulated undistributed net profits from the sale of securities or other
assets (in each case determined in accordance with generally accepted accounting
principles), such statement will indicate what portion of the distribution per
share was made from the sources referred to in (i) and (ii) above and from
paid-in surplus or other capital sources.
A shareholder of either Fund will not be credited with a dividend until
payment for shares purchased is received by the Funds' transfer agent. Dividends
normally will be paid in the form of additional full and fractional shares at
the net asset value determined on the payment date, unless the shareholder
elects to receive dividends in cash as described in the Prospectus. If a
shareholder redeems the entire value of his account in a Fund, the amount of
dividends declared but unpaid on his shares through the date preceding the date
of redemption will be paid on the next succeeding dividend payment date.
Certain realized gains or losses on the sale or retirement of
international bonds held by the Funds, to the extent attributable to
fluctuations in currency exchange rates, as well as certain other gains or
losses attributable to exchange rate fluctuations, must be treated as ordinary
income or loss for federal income tax purposes. Such income or loss may increase
or decrease (or possibly eliminate) a Fund's investment income available for
distribution. If, under rules governing the tax treatment of foreign currency
gains and losses, a Fund's investment income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gain. Your tax basis in your Fund shares will be
reduced to the extent that an amount distributed to you is treated as a return
of capital and distributions after your basis has been reduced to zero will
generally be treated as capital gains.
The per share dividends on the Class B shares will be lower than the
per share dividends on the Class A shares of the Funds as a result of the higher
distribution fee applicable with respect to the Class B shares.
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<PAGE>
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation ("Investor Services"), P.O.
Box 9116, Boston, MA 02205-9116, a wholly-owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Funds. Global Fund
pays Investor Services an annual fee of $16.00 for each Class A shareholder and
of $18.50 for each Class B shareholder. The World Bond Fund pays Investor
Services an annual fee of $20.00 for each Class A shareholder and $22.50 for
each Class B shareholder. Each Fund also pays certain out-of-pocket expenses and
these expenses are aggregated and charged to each Fund and allocated to each
class on the basis of the relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Funds are held pursuant to a custodian
agreement between the Trust and State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02111. Under the custodian agreement,
State Street Bank & Trust Company performs custody, portfolio and fund
accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Funds are Price Waterhouse LLP, 160
Federal Street, Boston, Massachusetts, 02110. Price Waterhouse LLP audits and
renders an opinion on each Fund's annual financial statements and reviews each
Fund's annual Federal income tax return.
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<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS*
Moody's Bond ratings
Bonds. "Bonds which are rated 'AAA' are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most likely to impair
the fundamentally strong position of such issues.
"Bonds which are rated 'AA' are judged to be of high quality by all standards.
Together with the 'Aaa' group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities or fluctuation of
protective elements may be of grater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in 'Aaa'
securities . "Bonds which are rated 'A' possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
"Bonds which are rated 'BAA' are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Bonds which are rated 'BA' are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position,
characterizes bonds in this class.
"Bonds which are rated 'B' generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue. Should
no rating be assigned, the reason may be one of the following: (i) an
application for rating was not received or accepted; (ii) the issue or issuer
belongs to a group of securities that are not rated as a matter of policy; (iii)
there is a lack of essential data pertaining to the issue or issuer; or (iv) the
issue was privately placed, in which case the rating is not published in Moody's
publications.
- ------------
*As described by the rating companies themselves.
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Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Standard & Poor's Bond ratings
"AAA. Debt rated 'AAA' has the highest rating by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
"AA. Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
"A. Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB. Debt rated 'BBB' is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Debt rated "BB," OR "B," is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and pay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major risk exposures to adverse conditions.
UNRATED. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper Ratings
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"P-1 -- "Prime-1" indicates the highest quality repayment capacity of the rated
issues.
"P-2 -- "Prime-2" indicates that the issuer has a strong capacity for repayment
of short-term promissory obligations. Earnings trends and coverage ratios, while
sound, will be more subjective to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained."
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<PAGE>
Standard & Poor's Commercial Paper Ratings
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Standard & Poor's two highest commercial paper rating categories
are as follows:
"A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
"A-2 -- Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1."
<PAGE>
JOHN HANCOCK INTERNATIONAL FUND
Class A and Class B Shares
Statement of Additional Information
August 30, 1996
This Statement of Additional Information provides information about John
Hancock International Fund (the "Fund") in addition to the information that is
contained in the Fund's Class A and Class B Shares Prospectus dated August 30,
1996 (the "Prospectus").
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Fund's Prospectus, a copy of which may be obtained
free of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Statement of
Additional
Information
Page
ORGANIZATION OF THE FUND 2
INVESTMENT OBJECTIVE AND POLICIES 2
CERTAIN INVESTMENT PRACTICES 2
INVESTMENT RESTRICTIONS 15
THOSE RESPONSIBLE FOR MANAGEMENT 19
INVESTMENT ADVISORY AND OTHER SERVICES 28
DISTRIBUTION CONTRACT 31
NET ASSET VALUE 33
INITIAL SALES CHARGE ON CLASS A SHARES 34
DEFERRED SALES CHARGE ON CLASS B SHARES 36
SPECIAL REDEMPTIONS 39
ADDITIONAL SERVICES AND PROGRAMS 40
DESCRIPTION OF THE FUND'S SHARES 41
<PAGE>
TAX STATUS 43
CALCULATION OF PERFORMANCE 48
BROKERAGE ALLOCATION 49
TRANSFER AGENT SERVICES 51
CUSTODY OF PORTFOLIO 51
INDEPENDENT AUDITORS 52
APPENDIX A - DESCRIPTION OF BOND RATINGS 52
FINANCIAL STATEMENTS --
ORGANIZATION OF THE FUND
John Hancock International Fund (the "Fund") is a series of Freedom
Investment Trust II (the "Trust"), an open-end management investment company
organized as a Massachusetts business trust under the laws of The Commonwealth
of Massachusetts. The Fund commenced operations on January 3, 1994. John Hancock
Advisers, Inc. (the "Adviser") is an indirect wholly-owned subsidiary of John
Hancock Mutual Life Insurance Company (the "Life Company"), a Massachusetts life
insurance company chartered in 1862, with national headquarters at John Hancock
Place, Boston, Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to provide long-term growth of capital.
The Fund seeks to achieve its investment objective by investing primarily in
foreign equity securities. The Fund's investments will be subject to the market
fluctuations and risks inherent in all securities. There is no assurance that
the Fund will achieve its investment objective. Reference is made to "Goal and
Strategy" and "Risk Factors" in the Prospectus.
CERTAIN INVESTMENT PRACTICES
The Fund normally will invest substantially all of its assets in equity
securities, such as common stock, preferred stock and securities convertible
into common and preferred stock. However, if deemed advisable by the Adviser,
the Fund may invest in any other type of security including warrants, bonds,
notes and other debt securities (including Eurodollar securities) or obligations
of domestic or foreign governments and their political subdivisions, or domestic
or foreign corporations.
In making the allocation of assets among various countries and geographic
regions, the Adviser and John Hancock Advisers International Limited (the
"Sub-Adviser") ordinarily consider such factors as prospects for relative
economic growth between foreign countries; expected levels of inflation and
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interest rates; government policies influencing business conditions; and other
pertinent financial, tax, social, political, currency, and national factors-all
in relation to the prevailing prices of the securities in each country or
region.
The Fund will not restrict its investments to any particular size company
and, consequently, the portfolio may include the securities of small and
relatively less well-known companies. The securities of small and medium-sized
companies may be subject to more volatile market movements than the securities
of larger, more established companies or the stock market averages in general.
Securities which are convertible may be rated as low as BBB or Baa by
Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service, Inc.
("Moody's"), respectively. Debt securities and convertible securities rated Baa
or BBB are considered medium grade obligations with speculative characteristics,
and adverse economic conditions or changing circumstances may weaken capacity to
pay interest and repay principal. If the rating of a debt security or a
convertible security is reduced below Baa or BBB, the Adviser will consider
whatever action is appropriate consistent with the Fund's investment objectives
and policies.
Foreign Securities. Investments in foreign securities may involve risks and
considerations not present in domestic investments. Since foreign securities
generally may be denominated and pay interest or dividends in foreign
currencies, the value of the assets of the Fund attributable to such investment
as measured in U.S. dollars may be affected favorably or unfavorably by changes
in the relationship of the U.S. dollar to other currency rates. The Fund may
incur costs in connection with the conversion of foreign currencies into U.S.
dollars and may be adversely affected by restrictions on the conversion or
transfer of foreign currencies. There may also be difficulty in enforcing legal
rights outside the United States. In addition, there may be less publicly
available information about foreign companies than U.S. companies. Foreign
companies may not be subject to accounting, auditing, and financial reporting
standards, practices and requirements comparable to those applicable to U.S.
companies.
Foreign securities markets, while growing in volume, have for the most part
substantially less volume than U.S. securities markets and securities of foreign
companies are generally less liquid and at times their prices may be more
volatile than securities of comparable U.S. companies. Foreign stock exchanges,
brokers and listed companies are generally subject to less government
supervision and regulation than those in the U.S. The customary settlement time
for non-U.S. securities is less frequent than in the U.S., which could affect
the liquidity of the Fund's investments. Finally, the expense ratios of
international funds generally are higher than those of domestic funds because
there are greater costs associated with maintaining custody of foreign
securities, and the increased research necessary for international investing
results in a higher advisory fee.
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<PAGE>
In some countries, there is the possibility of expropriation or
confiscation taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions or other adverse political, social or diplomatic
developments that could affect investments in these countries.
The above-described risks may be intensified in the case of investments in
emerging markets or countries with limited or developing capital markets. These
countries are located in the Asia-Pacific region, Eastern Europe, Latin and
South America and Africa. Security prices in these markets can be significantly
more volatile than in more developed countries, reflecting the greater
uncertainties of investing in less established markets and economies. Political,
legal and economic structures in many of these emerging market countries may be
undergoing significant evolution and rapid development, and they may lack the
social, political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens,
unstable currencies or inflation rates. Local securities markets may trade a
small number of securities and may be unable to respond effectively to increases
in trading volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. The Fund may be required to establish special
custodial or other arrangements before making certain investments in those
countries. Securities of issuers located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
Prices on exchanges located in developing countries tend to be volatile and, in
the past, securities traded on those exchanges have offered a greater potential
for gain (and loss) than securities traded on exchanges in the U.S. and more
developed countries.
Short-term Trading. 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 intends to use short-term trading of securities as a means of managing
its portfolio to achieve its investment objective. The Fund, in reaching a
decision to sell one security and purchase another security at approximately the
same time, will take into account a number of factors, including the quality
ratings, interest rates, yields, maturity dates, call prices, and refunding and
sinking fund provisions of the securities under consideration, as well as
historical yield spreads and current economic information. The success of
short-term trading will depend upon the ability of the Fund to evaluate
particular securities, to anticipate relevant market factors, including trends
of interest rates and earnings and variations from such trends, to obtain
4
<PAGE>
relevant information, to evaluate it promptly, and to take advantage of its
evaluations by completing transactions on a favorable basis. It is expected that
the expenses involved in short-term trading, which would not be incurred by an
investment company which does not use this portfolio technique, will be
significantly less than the profits and other benefits which will accrue to
shareholders.
The portfolio turnover rate will depend on a number of factors, including
the fact that the Fund intends to continue to qualify as a regulated investment
company under the Internal Revenue Code of 1986, as amended (the "Code").
Accordingly, the Fund intends to limit its short-term trading so that, for each
taxable year, less than 30% of the Fund's gross income will be derived from
gross gains on the sale or other disposition of stock securities and certain
other investments held for less than three months. This limitation, which must
be met by all mutual funds in order to obtain such Federal tax treatment, at
certain times may prevent the Fund from realizing capital gains on some
securities held for less than three months. Under normal market conditions, the
Fund's portfolio turnover rate for the current fiscal year is expected to be no
more than 100%.
The Fund does not generally consider the length of time it has held a
particular security in making its investment decisions. Under certain market
conditions, the Fund's portfolio turnover rate may be higher than that of other
mutual funds. A high portfolio turnover rate involves correspondingly greater
brokerage expense which will be borne by the Fund and may, under certain
circumstances, make it more difficult for the Fund to qualify as a regulated
investment company under the Code.
Repurchase Agreements. A repurchase agreement is a contract under which the
Fund would acquire a security for a relatively short period (usually not more
than 7 days) subject to the obligation of the seller to repurchase and the Fund
to resell such security at a fixed time and price (representing the Fund's cost
plus interest). The Fund will enter into repurchase agreements only with member
banks of the Federal Reserve System and with "primary dealers" in U.S.
Government securities. The Adviser will continuously monitor the
creditworthiness of the parties with whom it enters into repurchase agreements.
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 or be
prevented from liquidating the underlying securities and could experience
losses, including the possible decline in the value of the underlying securities
during the period in which the Fund seeks to enforce its rights thereto,
5
<PAGE>
possible subnormal levels of income and lack of access to income during this
period, and the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse
repurchase agreements which involve the sale of U.S. Government securities held
in its portfolio to a bank with an agreement that the Fund will buy back the
securities at a fixed future date at a fixed price plus an agreed amount of
"interest" which may be reflected in the repurchase price. Reverse repurchase
agreements are considered to be borrowings by the Fund. Reverse repurchase
agreements involve the risk that the market value of securities purchased by the
Fund with proceeds of the transaction may decline below the repurchase price of
the securities sold by the Fund which it is obligated to repurchase. The Fund
will also continue to be subject to the risk of a decline in the market value of
the securities sold under the agreements because it will reacquire those
securities upon effecting their repurchase. To minimize various risks associated
with reverse repurchase agreements, the Fund will establish and maintain with
the Fund's custodian a separate account consisting of highly liquid, marketable
securities in an amount at least equal to the repurchase prices of the
securities (plus any accrued interest thereon) under such agreements. In
addition, the Fund will not enter into reverse repurchase agreements and other
borrowings exceeding in the aggregate 33_% of the market value of its total
assets. The Fund will enter into reverse repurchase agreements only with
federally insured banks or savings and loan associations which are approved in
advance as being creditworthy by the Board of Trustees. Under procedures
established by the Board of Trustees, the Adviser will monitor the
creditworthiness of the banks involved.
American Depository Receipts; European Depository Receipts. The Fund may
invest in the securities of foreign issuers in the form of sponsored or
unsponsored American Depository Receipts ("ADRs"), European Depository Receipts
("EDRs") or other securities convertible into securities of foreign issuers.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted but rather in the currency of the
market in which they are traded. 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 by banks or
depositories which evidence a similar ownership arrangement. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets and EDRs, in
bearer form, are designed for use in European securities markets. Issuers of the
shares underlying unsponsored ADRs are not contractually obligated to disclose
material information in the United States and, therefore, there may not be a
correlation between that information and the market value of the unsponsored
ADR.
Financial Futures Contracts. The Fund may hedge its portfolio by selling or
purchasing financial futures contracts as an offset against the effect of
6
<PAGE>
expected changes in interest rates or in security or foreign currency values or
in other market conditions. Although other techniques could be used to reduce
the Fund's exposure to interest rate 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 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 other
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 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 transaction costs must also be included in these calculations. The
Fund will pay a commission in connection with each purchase or sale of financial
futures contracts, including a closing transaction.
At the time the Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or U.S.
Government securities, known as "initial margin," 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 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 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.
7
<PAGE>
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 market behavior or unexpected 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 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.
8
<PAGE>
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 will be required to
continue to meet margin requirements until the position is closed.
Options on Financial Futures Contracts. The Fund may purchase and write
call and put options on financial 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. In addition, the potential loss incurred by the Fund in writing
options on futures is unlimited and may exceed the amount of the premium
received.
Restrictions on Use of Futures Transactions and Options. The Fund intends
to comply with CFTC Regulation 4.5 and thereby avoid the status of "commodity
pool operator." In doing so, when the Fund engages in futures transactions and
options thereon for hedging purposes in an attempt to protect against a price
increase on securities which the Fund holds or intends to purchase later, it is
anticipated that the Fund will complete at least 75% of such intended purchases.
Alternatively, Regulation 4.5 permits the Fund to elect to comply with a
different test, under which the Fund will not enter into a futures contract or
purchase an option thereon for speculative purposes if immediately thereafter
the initial margin deposits and premiums required to establish speculative
positions in futures contracts and options on futures would exceed 5% of the
Fund's total assets. The Fund will not engage in a futures or options
transaction for speculative purposes if, immediately thereafter, the sum of
initial margin deposits on existing positions and premiums required to establish
speculative positions in futures contracts and options on futures would exceed
5% of the Fund's net assets.
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When the Fund purchases a futures contract, or writes a put option or
purchases a call option thereon, cash and high grade liquid 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 its broker, equals the market value of the futures contract.
Forward Foreign Currency Transactions. The foreign currency exchange
transactions of the Fund may be conducted on a spot i.e., cash basis at the spot
rate for purchasing or selling currency prevailing in the foreign exchange
market. The Fund may also deal in forward foreign currency contracts involving
currencies of the different countries in which it will invest as a hedge against
possible variations in the foreign exchange rate between these currencies. This
is accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
The Fund's dealings in forward foreign currency exchange contracts will be
limited to hedging either specified transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency
contracts with respect to specific receivable or payable of the Fund accruing in
connection with the purchase and sale of its portfolio securities denominated in
foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in such
foreign currencies. The Fund will not attempt to hedge all of its foreign
portfolio positions and will enter into such transactions only to the extent, if
any, deemed appropriate by the Adviser. The Fund will not engage in speculative
forward foreign currency exchange transactions.
If the Fund purchases a forward contract, its custodian bank will segregate
cash or high grade, liquid debt securities in a separate account of the Fund in
an amount equal to the value of the Fund's total assets committed to the
consummation of such forward contract. Those assets will be valued at market
daily and if the value of the securities in the separate account declines,
additional cash or securities will be placed in the account so that the value of
the account will be equal to the amount of the Fund's commitment with respect to
such contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency exchange transactions
varies with such factors as the currency involved, the length of the contract
period and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
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Options Transactions. The Fund may write listed and over-the-counter
covered call options and covered put options on securities in order to earn
additional income from the premiums received. In addition, the Fund may purchase
listed and over-the-counter call and put options. The extent to which covered
options will be used by the Fund will depend upon market conditions and the
availability of alternative strategies. The Fund may write listed covered and
over-the-counter call and put options on up to 100% of its net assets.
The Fund will write listed and over-the-counter call options only if they
are "covered", which means that the Fund owns or has the immediate right to
acquire the securities underlying the options without additional cash
consideration upon conversion or exchange of other securities held in its
portfolio. A call option written by the Fund will also be "covered" if the Fund
holds on a share-for-share basis a covering call on the same securities where
(i) the exercise price of the covering call held is equal to or less than the
exercise price of the call written or the difference is maintained by the Fund
in cash or high grade, liquid debt obligations in a segregated account with the
Fund's custodian, and (ii) the covering call expires at the same time as the
call written. If a covered call option is not exercised, the Fund would keep
both the option premium and the underlying security. If the covered call option
written by the Fund is exercised and the exercise price, less the transaction
costs, exceeds the cost of the underlying security, the Fund would realize a
gain in addition to the amount of the option premium it received. If the
exercise price, less transaction costs, is less than the cost of the underlying
security, the Fund's loss would be reduced by the amount of the option premium.
The Fund will write a covered put option only with respect to securities it
intends to acquire for the Fund's portfolio and will maintain in a segregated
account with the Fund's custodian cash or high grade, liquid debt securities
with a value equal to the price at which the underlying security may be sold to
the Fund in the event the put option is exercised by the purchaser. The Fund can
also write a "covered" put option by purchasing on a share-for-share basis a put
on the same security as the put written by the Fund if the exercise price of the
covering put held is equal to or greater than the exercise price of the put
written and the covering put expires at the same time 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.
11
<PAGE>
If the writer of an exchange-traded option wishes to terminate its
obligation prior to exercise, it may effect a "closing purchase transaction".
This is accomplished by buying an option of the same series as the option
previously written. The effect of the purchase is that the Fund's position will
be offset by the Options Clearing Corporation. The Fund may not effect a closing
purchase transaction after it has been notified of the exercise of an option.
There is no guarantee that a closing purchase transaction can be effected.
Although the Fund will generally write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange or board of trade will exist for any particular
option or at any particular time, and for some options no secondary market on an
exchange may exist.
In the case of a written call option, effecting a closing transaction will
permit the Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. In the case of a
written put option, it will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
securities. Also, effecting a closing transaction will permit the cash or
proceeds from the concurrent sale of any securities subject to the option to be
used for other investments. If the Fund desires to sell a particular security
from its portfolio on which it has written a call option, it will effect a
closing transaction prior to or concurrent with the sale of the security.
The Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option.
The Fund will realize a loss from a closing transaction if the cost of the
closing transaction is more than the premium received for writing the option.
However, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security owned by the Fund.
Over-the-Counter Options. The Fund may engage in options transactions on
exchanges and in the over-the-counter markets. In general, exchange-traded
options are third-party contracts (i.e., performance of the parties' obligations
is guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. Over-the-counter ("OTC") transactions are two-party
contracts with price and terms negotiated by the buyer and seller. The Fund will
acquire only those OTC options for which the Adviser believes the Fund can
receive on each business day at least two separate bids or offers (one of which
will be from an entity other than a party to the option) or those OTC options
valued by an independent pricing service. The Fund will write and purchase OTC
options only with member banks of the Federal Reserve System and primary dealers
in U.S. Government securities or their affiliates. The Securities and Exchange
Commission (the "SEC") takes the position that OTC options are illiquid
securities subject to the Fund's 15% limitation on illiquid securities. The SEC
12
<PAGE>
allows the Fund to exclude from the 15% limitation on illiquid securities a
portion of the value of the OTC options written by the Fund, provided that
certain conditions are met. First, the other party to the OTC options has to be
a primary U.S. Government securities dealer designated as such by the Federal
Reserve Bank. Second, the Fund would have an absolute contractual right to
repurchase the OTC options at a formula price. If the above conditions are met,
a Fund must treat as illiquid only that portion of the OTC option's value (and
the value of its underlying securities) which is equal to the formula price for
repurchasing the OTC option, less the OTC option's intrinsic value.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities, issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities
which provide monthly payments which are, in effect, a "pass-through" of the
monthly interest and principal payments (including any prepayments) made by the
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.
When-Issued Securities. "When-issued" refers to securities whose terms are
available and for which a market exists, but which have not yet been issued. No
payment is made with respect to a when-issued transaction until delivery is due,
often a month or more after the purchase.
The Fund will engage in when-issued transactions with respect to securities
purchased for its portfolio in order to obtain an advantageous price and yield
at the time of the transactions. When the Fund engages in a when-issued
transaction, it relies on the seller to consummate the transaction. The failure
of the issuer or seller to consummate the transaction may result in the Fund's
losing the opportunity to obtain a price and yield considered to be
advantageous. On the date the Fund enters into an agreement to purchase
13
<PAGE>
securities on a when-issued basis, the Fund will segregate in a separate account
cash or liquid, high grade debt securities equal in value to the when-issued
commitment. These assets will be valued daily at market, and additional cash or
liquid, high grade debt securities will be segregated in a separate account to
the extent that the total value of the assets in the account declines below the
amount of the when-issued commitment.
Forward Commitments. The Fund may purchase securities on a forward
commitment basis. 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 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 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
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 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
14
<PAGE>
of any premium or interest the Fund may be required to pay in connection with a
short sale. The successful use of short selling as a hedging device may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the Securities and Exchange
Commission, if the Fund engages in short sales of the type referred to in
nonfundamental Investment Restriction No. (b) below, it must put in a segregated
account (not with the broker) an amount of cash or U.S. Government securities
equal to the difference between (a) the market value of the securities sold
short at the time they were sold short and (b) any cash or U.S. Government
securities required to be deposited as collateral with the broker in connection
with the short sale (not including the proceeds from the short sale). In
addition, until the Fund replaces the borrowed security, it must daily maintain
the segregated account at such a level that (1) the amount deposited in it plus
the amount deposited with the broker as collateral will equal the current market
value of the securities sold short, and (2) the amount deposited in it plus the
amount deposited with the broker as collateral will not be less than the market
value of the securities at the time they were sold short.
Short selling may produce higher than normal portfolio turnover which may
result in increased transaction costs to the Fund and may result in gross 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 (see
"Taxation").
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 5% of the
value 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.
Restricted Securities. The Fund may purchase restricted securities,
including those eligible for resale to "qualified institutional buyers" pursuant
to Rule 144A under the Securities Act of 1933 (the "Securities Act"). The
Trustees will monitor the Fund's investments in these securities, focusing on
certain factors, including valuation, liquidity and availability of information.
Purchases of other restricted securities are subject to an investment
restriction limiting all the Fund's illiquid securities to not more than 15% of
its net assets.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
15
<PAGE>
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the loaned securities. As a result, the Fund may
incur a loss or in the event of the borrower's bankruptcy may be delayed in or
prevented from liquidating the collateral. It is a fundamental policy of the
Fund not to lend portfolio securities having a total value in excess of 33_% 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 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) more than 50% of the outstanding shares.
The Fund observes the following fundamental restrictions:
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 future contracts, forward commitments, forward foreign
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 (j) below are not deemed to be
senior securities.
(2) Borrow money, except from banks as a temporary measure for
extraordinary emergency purposes in amounts not to exceed 33 1/3 % of the Fund's
total assets (including the amount borrowed) taken at market value.
(3) 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.
(4) Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities of corporate or governmental entities secured by
real estate or marketable interests therein or issued by companies that invest
in real estate or interests therein.
16
<PAGE>
(5) Make loans, except that the Fund may purchase or hold debt instruments
in accordance with the Fund's investment policies and may make loans of
portfolio securities provided that as a result no more than 33 1/3% of the
Fund's total assets taken at current value would be so loaned. The Fund does
not, for this purpose, consider the purchase of repurchase agreements, bank
certificates of deposit, bank loan participation agreements, bankers'
acceptances, a portion of an issue of publicly distributed bonds, debentures or
other securities, whether or not the purchase is made upon the original issuance
of the securities, to be the making of a loan.
(6) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except interest rate futures contracts, options on
securities, securities indices, currency and other financial instruments and
options on such futures contracts, forward foreign currency exchange contracts,
forward commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment policies.
(7) 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.
In connection with the lending of portfolio securities under item (5)
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.
Nonfundamental Investment Restrictions
The following restrictions, as well as the Fund's investment objective, 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 (except for a joint account with other funds managed by the
Adviser for repurchase agreements permitted by the SEC pursuant to an exemptive
order). The "bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the management of the Adviser to
save commissions or to average prices among them is not deemed to result in a
securities trading account.
17
<PAGE>
(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 value, 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 Fund or directors or officers of the Adviser or
any investment management subsidiary of the Adviser individually owns
beneficially more than 0.5% and together own beneficially more than 5% of the
securities of such issuer.
(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.
18
<PAGE>
(i) 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.
(j) Pledge, mortgage, or hypothecate its assets, except as may be necessary
in connection with permitted borrowings and then only if such pledging,
mortgaging or hypothecating does not exceed 33% of the Fund's total assets taken
at market value. For the purpose of this restriction, (i) forward foreign
currency exchange contracts are not deemed to be a pledge of assets, (ii) the
purchase or sale of securities by the Fund on a when-issued or delayed delivery
basis and collateral arrangements with respect to the writing of options on debt
securities or on futures contracts are not deemed to be a pledge of assets, and
(iii) the deposit in escrow of underlying securities in connection with the
writing of call options is not deemed to be a pledge of assets.
(k) Purchase interests in real estate limited partnerships.
(l) Purchase securities while outstanding borrowings, other than reverse
repurchase agreements, exceed 5% of the Fund's total assets.
(m) Notwithstanding any investment restriction to the contrary, the Fund
may, in connection with the John Hancock Group of Funds Deferred Compensation
Plan for Independent Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds provided that, as a result, (i)
no more than 10% of the Fund's assets would be invested in securities of all
other investment companies, (ii) such purchase would not result in more than 3%
of the total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets would be
invested in any one such investment company.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
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 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.
19
<PAGE>
In accordance with the guidelines of the Arkansas Securities Department,
until such guidelines no longer require, the Fund will not purchase securities
(excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act 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 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.
In accordance with the guidelines of the Ohio Securities Department, until
such guidelines no longer require, the Fund will not invest more than 15% of its
total assets in securities of issuers which are restricted as to disposition,
including securities eligible for resale pursuant to Rule 144A under the
Securities Act.
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 Trust and who execute
policies formulated by the Trustees. Several of the officers and Trustees of the
Trust are also officers and directors of the Adviser or officers and directors
of the Fund's principal distributor, John Hancock Funds, Inc. ("John Hancock
Funds").
The following table sets forth the principal occupations of the Trustees
and principal officers of the Trust during the past five years. Unless otherwise
indicated, the business address of each is 101 Huntington Avenue, Boston,
Massachusetts 02199.
20
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (1,2) Chairman and Chief Executive
October 1944 Officer, the Adviser and The
Berkeley Financial Group ("The
Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited ("Advisers
International"); John Hancock
Funds; John Hancock Investor
Services Corporation ("Investor
Services") and Sovereign Asset
Management Corporation ("SAMCorp");
(hereinafter the Adviser, the
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Investor Services
and SAMCorp are collectively
referred to as the "Affiliated
Companies"); Chairman, First
Signature Bank & Trust; Director,
John Hancock Freedom Securities
Corp., John Hancock Capital Corp.
and New England/Canada Business
Council; Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; Vice Chairman and
President, the Adviser (until July
1992); Chairman, John Hancock
Distributors, Inc. (until April
1994).
Dennis S. Aronowitz Trustee (3) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank.
June 1931
- -------------------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
21
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Richard P. Chapman, Jr. Trustee (1,3) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, Massachusetts Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee (3) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, New Jersey N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc., EVP
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
Douglas M. Costle Trustee (1,3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, Vermont 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991); Dean, Vermont Law
School (until 1991); Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
Mitretek Systems (governmental
consulting services).
- -------------------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
22
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Leland O. Erdahl Trustee (3) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987- 1991) and
President of Albuquerque Uranium
Corporation (from 1985- 1992);
Director of Freeport-McMoRan Copper
& Gold Company Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original Sixteen to
One Mine, Inc. (from 1984-1987 and
from 1991 to 1995) (management
consultant).
Richard A. Farrell Trustee (3) President of Farrell, Healer & Co.,
Farrell, Healer & Company, Inc. (venture capital management firm)
160 Federal Street (since 1980); Prior to 1980, headed
23rd Floor the venture capital group at Bank
Boston, MA 02110 of Boston Corporation.
November 1932
Gail D. Fosler Trustee (3) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD economic and business research).
December 1947
William F. Glavin Trustee (3) President, Babson College; Vice
Babson College Chairman, Xerox Corporation (until
Horn Library June 1989); Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994), and Inco
March 1931 Ltd.
- -------------------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
23
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
*Anne C. Hodsdon Trustee and President (1,2) President and Chief Operating
April 1953 Officer, the Adviser; Executive
Vice President, The Adviser (until
December 1994); Senior Vice
President; the Adviser (until
December 1993); Vice President, the
Adviser (until 1991).
Dr. John A. Moore Trustee (3) President and Chief Executive
Institute for Evaluating Officer, Institute for Evaluating
Health Risks Health Risks, (nonprofit
1101 Vermont Avenue N.W. institution) ( since September
Suite 608 1989).
Washington, DC 20005
February 1939
Patti McGill Peterson Trustee (3) President, St. Lawrence University;
St. Lawrence University Director, Niagara Mohawk Power
110 Vilas Hall Corporation (electric utility) and
Canton, NY 13617 Security Mutual Life (insurance).
May 1943
John W. Pratt Trustee (3) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
*Richard S. Scipione Trustee (1) General Counsel, the Life Company;
John Hancock Place Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking
August 1937 Insurance Agency, Inc., John
Hancock Subsidiaries, Inc., John
Hancock Property and Casualty
Insurance and its affiliates (until
November, 1993).
- -------------------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
24
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Fort Lauderdale, FL
November 1932
*Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment
July 1938 Investment Officer (2) Officer, the Adviser; President,
the Adviser (until December 1994);
Director, the Adviser, Advisers
International, John Hancock Funds,
Investor Services, SAMCorp., and NM
Capital; Senior Vice President, The
Berkeley Group.
*James B. Little Senior Vice President, Senior Vice President, the Adviser,
February 1935 Chief Financial Officer The Berkeley Group, John Hancock
Funds and Investor Services; Senior
Vice President and Chief Financial
Officer, each of the John Hancock
funds.
*John A. Morin Vice President Vice President [and Secretary], the
July 1950 Adviser; Vice President, Investor
Services, John Hancock Funds and
each of the John Hancock funds;
Compliance Officer, certain John
Hancock funds; Counsel, the Life
Company; Vice President and
Assistant Secretary, The Berkeley
Group.
- -------------------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
25
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrant During Past 5 Years
- ----------------- --------------- -------------------
*Susan S. Newton Vice President, Secretary Vice President and Assistant
March 1950 Secretary, the Adviser; Vice
President and Secretary, certain
John Hancock funds; Vice President
and Secretary, John Hancock Funds,
Investor Services and John Hancock
Distributors, Inc. (until 1994);
Secretary, SAMCorp; Vice President,
The Berkeley Group.
*James J. Stokowski Vice President and Treasurer Vice President, the Adviser; Vice
November 1946 President and Treasurer, each of
the John Hancock funds.
</TABLE>
- -------------------------------
* An "interested person" of the Trust, as such term is defined in the
Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
26
<PAGE>
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
The following table provides information regarding the compensation paid by
the Funds and the other investment companies in the John Hancock Fund Complex to
the Independent Trustees for their services. The Trustees not listed below were
not Trustees of the Fund as of the end of the Fund's last completed fiscal year.
The three non-independent Trustees, Messrs. Boudreau and Scipione and Ms.
Hodsdon and each of the officers of the Fund are interested persons of the
Adviser, are compensated by the Adviser and receive no compensation from the
Fund for their services.
Total Compensation
From the Fund and
Aggregate Compensation John Hancock Fund
Independent Trustees From the Fund 1 Complex to Trustees 2
- -------------------- --------------- ---------------------
William Barron, III* $ 136 $ 41,750
Douglas M. Costle 136 41,750
Leland O. Erdahl 136 41,750
Richard A. Farrell 143 43,250
William F. Glavin+ 123 37,500
Patrick Grant* 144 43,750
Ralph Lowell, Jr.* 136 41,750
Dr. John A. Moore 136 41,750
Patti McGill Peterson 136 41,750
John W. Pratt 136 41,750
------ --------
$1,362 $416,750
1 Compensation is for the fiscal year ended October 31, 1995.
2 The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1995. As
of this date there were sixty-one funds in the John Hancock Fund Complex of
which each of these Independent Trustees served twelve.
* As of January 1, 1996, Messrs. Barron, Grant and Lowell resigned as
Trustees.
+ As of December 31, 1995, the value of the aggregate accrued deferred
compensation amount from all Funds in the John Hancock Fund Complex for Mr.
Glavin was $32,061 under the John Hancock Deferred Compensation Plan for
Independent Trustees.
As of May 31, 1996, the officers and Trustees of the Fund as a group owned
less than 1% of the outstanding shares of the Fund. As of May 31, 1996, the
27
<PAGE>
following shareholders beneficially owned 5% or more of the outstanding shares
of the Fund:
<TABLE>
<CAPTION>
Percentage of Total
Number of Shares Outstanding
Class of Beneficial Shares of the Class
Name and Address of Shareholder of Shares Interest Owned of the Fund
- ------------------------------- --------- -------------- -----------
<S> <C> <C> <C>
William G. Musselman Class A 32,566 5.42%
Marice Musselman, Joint Tenant
1632 Tulip Court
Longmont, CO 80501-2453
Southern Industrial Corp. & Class A 61,906 10.30%
King Provision Corp 401(k)
Marc A. Carolson
Vice President, Finance
101 Huntington Ave.
Boston, MA 02199-7603
Prudential Securities Inc., FBO Class B 92,182 9.70%
County Employees Annuity
Benefit Fund #3
c/o CTC Illinois Trust Company
Attn: Al Szewczyk
Chicago, IL 60604
Merrill Lynch Pierce Fenner & Class B 88,797 9.34%
Smith, Inc.
Attn: Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
</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 and below for a
description of certain information concerning the investment management
contract. Each of the Trustees and principal officers of the Fund who is also an
affiliated person of the Adviser is named above, together with the capacity in
which such person is affiliated with the Fund and the Adviser.
The Adviser acts as investment adviser for the Fund . The Adviser is 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.
28
<PAGE>
The Adviser was organized in 1968 and presently has more than $18 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 approximately 1,080,000
shareholders. The Adviser is an affiliate of the Life Company, one of the most
recognized and respected financial institutions in the nation. With total assets
under management of $80 billion, the Life Company is one of the ten largest life
insurance companies in the United States, and carries high ratings from S&P and
A.M. Best's. Founded in 1862, the Life Company has been serving clients for over
130 years.
The Trust has entered into an investment advisory agreement (the"Advisory
Agreement") on behalf of the Fund dated as of July 1, 1996, between the Trust
and the Adviser. Pursuant to the Advisory Agreement, the Adviser agreed to act
as investment adviser and manager to the Fund. As manager and investment
adviser, the Adviser will: (a) furnish continuously an investment program for
the Fund and determine, subject to the overall supervision and review of the
Board of Trustees, which investments should be purchased, held, sold or
exchanged, and (b) provide supervision over all aspects of the Fund's operations
except those which are delegated to a custodian, transfer agent or other agent.
As compensation for its services under the Advisory Agreement, the Adviser
receives from the Fund a fee computed and paid monthly based on a stated
percentage of the Fund's average daily net assets as follows:
Net Asset Value Annual Rate
--------------- -----------
First $250 million 1.00%
Next $250 million 0.80%
Next $250 million 0.75%
Amounts over $750 million 0.625%
The Fund and the Adviser have entered into a sub-investment management
contract with the Sub-Adviser under which the Sub-Adviser, subject to the review
of the Trustees and the overall supervision of the Adviser, is responsible for
providing the Fund with advice with respect to that portion of the assets
invested in countries other than the United States and Canada. The Sub-Adviser,
with offices located at 34 Dover Street, London, England W1X 3RA, is a
wholly-owned subsidiary of the Adviser formed in 1987 to provide international
investment research and advisory services to U.S. institutional clients. As
compensation for its services under the Sub- Advisory Agreement, the Sub-Adviser
receives from the Adviser a portion of its monthly fee equal to 0.70% on an
29
<PAGE>
annual basis of the average daily net asset value of the Fund for each calendar
month up to $200 million of average daily net assets; and 0.6375% on an annual
basis of the average daily net asset value over $200 million. The Fund is not
responsible for paying the Sub-Adviser's fee.
The Fund bears all costs of its organization and operation, including
expenses of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plans of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of the
Adviser's employees rendering such services to the Fund); the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association memberships; insurance premiums; and any
extraordinary expenses.
The State of California imposes a limitation on the expenses of the Fund.
The Advisory Agreement provides that if, in any fiscal year, the total expenses
of the Fund (excluding taxes, interest, brokerage commissions and extraordinary
items, but including the management fee) exceed the expense limitations
applicable to the Fund imposed by the securities regulations of any state in
which it is then registered to sell shares, the Adviser will reduce it's fee for
that Fund to the extent required by these limitations. The Adviser and the
Sub-Adviser have agreed that if, in any fiscal year, the total expenses of the
Fund (excluding taxes, interest, brokerage commissions and extraordinary items,
but including the Adviser's fee and the portion thereof paid to the Sub-Adviser)
exceed the expense limitations applicable to the Fund, the Adviser and the
Sub-Adviser will each reduce it's fee for the Fund in the amount of that excess
and will make any additional arrangements necessary to eliminate remaining
excess expenses. Although there is no certainty that any limitations will be in
effect in the future, the California limitation on an annual basis currently is
2.5% of the first $30 million of average net assets, 2.0% of the next $70
million of net assets and 1.5% of the remaining net assets.
The Adviser has temporarily agreed to limit the Fund's expenses (excluding
12b-1 and transfer agent expenses) to 0.90% of the Fund's average daily net
assets. The Adviser reserves the right to terminate this limitation in the
future.
30
<PAGE>
The Advisory Agreement was approved on March 5, 1996 by all of the
Trustees, including all of the Trustees who are not parties to the Advisory
Agreement or "interested persons" of any such party. The shareholders of the
Fund also approved the Fund's Advisory Agreement on June 26, 1996. The Advisory
Agreement will continue in effect from year to year, provided that its
continuance is approved annually both (i) by the holders of a majority of the
outstanding voting securities of the Fund or by the Board of Trustees, and (ii)
by a majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any such party. The Advisory Agreement may be terminated
on 60 days written notice by any party and will terminate automatically if
assigned.
For the fiscal year ended October 31, 1995 and the period ended October 31,
1994, the Adviser's management fee was $80,348 and $44,740, respectively. After
expense reductions by the Adviser, the Adviser's management fees for the fiscal
year ended October 31, 1995 and the period ended October 31, 1994 were $0.
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 the net
asset value next determined, plus an applicable sales charge. In connection with
the sale of Class A or Class B shares, John Hancock Funds and Selling Brokers
receive compensation in the form of a sales charge imposed, in the case of Class
A shares at the time of sale or, in the case of Class B shares, on a deferred
basis. The sales charges are discussed further in the Prospectus.
The Fund's Trustees adopted Distribution Plans with respect to Class A and
Class B shares ("the Plans"), pursuant to Rule 12b-1 under the Investment
Company Act. Under the Class A Plan and the Class B Plan, the Fund will pay
distribution and service fees at an aggregate annual rate of up to 0.30% and
1.00%, respectively, of the Fund's daily net assets attributable to shares of
that class. However, the service fee will not exceed 0.25% of the Fund's average
daily net assets attributable to each class of shares. The distribution fees
reimburse John Hancock Funds for its distribution costs incurred in the
promotion of sales of Fund shares, 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 compensate Selling
31
<PAGE>
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 A Plan, these expenses will not be carried beyond
one year from the date they were incurred. 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. For the fiscal year ended October 31, 1995, an aggregate of $358,785 of
distribution expenses or 9.76% 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 thesereports
on a quarterly basis. During the fiscal year ended October 31, 1995, the Fund
paid John Hancock Funds the following amount of expenses with respect to the
Class A and Class B shares of the Fund:
<TABLE>
<CAPTION>
Expense Items
Printing and Mailing Interest, Carrying
of Prospectuses to Compensation to Expenses of John or Other Finance
Advertising New Shareholders Selling Brokers Hancock Funds Charges
----------- ---------------- --------------- ------------- -------
<S> <C> <C> <C> <C> <C>
International
- -------------
Class A shares $ 5,298 $239 $1,284 $ 6,250 $ 0
Class B shares $11,208 $ 0 $1,569 $13,716 $10,285
</TABLE>
Each of the Plans provides that it will continue in effect only as long as
its continuance is approved at least annually by a majority of both the Trustees
and the Independent Trustees. Each of the Plans provides that it may be
terminated without penalty, (a) by vote of a majority of the Independent
Trustees, (b) by a vote of a majority of the Fund's outstanding shares of the
applicable class 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
32
<PAGE>
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
shares 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 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 the Fund's
shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished
by a principal market maker or a pricing service, both of which generally
utilize electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned categories for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or
less are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinionof the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary
market in which they are traded. Any assets or liabilities expressed in terms of
33
<PAGE>
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
The Fund will not price its securities on the following national holidays:
New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day. On any day an international
market is closed and the New York Stock Exchange is open, any foreign securities
will be valued at the prior day's close with the current day's exchange rate.
Trading of foreign securities may take place on Saturdays and U.S. business
holidays on which the Fund's NAV is not calculated. Consequently, the Fund's
portfolio securities may trade and the NAV of the Fund's redeemable securities
may be significantly affected on days when a shareholder has no access to the
Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Class A shares of the Fund are offered at a price equal to their net asset
value plus a sales charge which, at the option of the purchaser, may be imposed
either at the time of purchase (the "initial sales charge alternative") or on a
contingent deferred basis (the "deferred sales charge alternative"). Share
certificates will not be issued unless requested by the shareholder in writing,
and then they will only be issued for full shares. The Trustees reserve the
right to change or waive the Fund's minimum investment requirements and to
reject any order to purchase shares (including purchase by exchange) when in the
judgement of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares of the Fund, the
investor is entitled to 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 John Hancock Investor Services Corporation ("Investor
Services"), the Fund's transfer agent, 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 her 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
34
<PAGE>
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. Class A shares may be offered without a front-end
sales charge or CDSC to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or agency
of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any
registered investment management company.
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if it
is purchasing $1 million or more for non-discretionary customers or
accounts.
o A Trustee or officer of the Trust; a Director or officer of the Adviser and
its affiliates or Selling Brokers; employees or sales representatives of
any of the foregoing; retired officers, employees or Directors of any of
the foregoing; a member of the immediate family (spouse, children, mother,
father, sister, brother, mother-in-law, father-in-law) of any of the
foregoing; or any fund, pension, profit sharing or other benefit plan for
the individuals described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
following rate:
Amount Invested CDSC Rate
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
35
<PAGE>
Accumulation Privilege. Investors (including investors combining purchases)
who are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current account value of the Class A shares already
held by such person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the 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. Reduced sales charges are also applicable to
investments made over a specified period pursuant to a Letter of Intention (the
"LOI"), which should be read carefully prior to its execution by an investor.
The Fund offers two options regarding the specified period for making
investments under the LOI. All investors have the option of making their
investments over a specified period of thirteen (13) months. Investors who are
using the Fund as a funding medium for a qualified retirement plan, however, may
opt to make the necessary investments called for by the LOI over a forty-eight
(48) month period. These qualified retirement plans include group IRAs, 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 beinvested 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
within 13 or 48 months, the sales charge applicable will not be higher than that
which would have applied (including accumulations and combinations) had the LOI
been for the amount actually invested.
The LOI authorizes Investor Services to hold in escrow a number of Class A
shares (approximately 5% of the aggregate) 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 Class A shares will be released. If the total investment specified in
the LOI is not completed, the Class A shares held in escrow may be redeemed and
the proceeds used as required to pay such sales charge as may be due. By signing
the LOI, the investor authorizes Investor Services to act as his or her
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
36
<PAGE>
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.
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. No CDSC will be imposed on shares derived from reinvestment of
dividends or capital gains distributions.
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining this number, all
payments during a month will be aggregated and deemed to have been made on the
first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
37
<PAGE>
have held beyond the six-year CDSC redemption period or those you acquired
through dividend and capital gain reinvestment, and next from the shares you
have held the longest during the six-year period. For this purpose, the amount
of any increase in a share's value above its initial purchase price is not
regarded as a share exempt from CDSC. Thus, when a share that has appreciated in
value is redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. Upon redemption, appreciation is effective only on a per share
basis for those shares being redeemed. Appreciation of shares cannot be redeemed
CDSC free at the account level.
When requesting a redemption for a specific dollar amount please indicate
if you require the proceeds to equal the dollar amount requested. If not
indicated, only the specified dollar amount will be redeemed from your account
and the proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole
or in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
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 a CDSC,
unless indicated otherwise, in the circumstances defined below:
38
<PAGE>
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies. * Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other plans qualified under
the Code) unless otherwise noted.
* Redemptions made to effect mandatory distributions under the Internal
Revenue Code after age 70 1/2.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans such as 401k, 403b, 457. In all
cases, the distribution must be free from penalty under the Code.
* Redemptions made to effect distributions from an Individual Retirement
Account either before age 59 1/2 or after age 59 1/2, as long as the
distributions are based on your life expectancy or the joint-and-last
survivor life expectancy of you and your beneficiary. These distributions
must be free from penalty under the Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
For non-retirement accounts (please see above for retirement account waivers):
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 10% of your account value at
the time you established your periodic withdrawal planand 10% of the value
of subsequent investments (less redemptions) in that account at the time
you notify Investor Services. (Please note, this waiver does not apply to
periodic withdrawal plan redemptions of Class A shares that are subject to
a CDSC.)
Please see matrix for reference.
39
<PAGE>
CDSC Waiver Matrix for Class B Funds
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
401(a) Plan
Type of (401(k), MPP, IRA, IRA
Distribution PSP) 403(b) 457 Rollover Non-retirement
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- ------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived 10% of account
value annually
in periodic
payments
- ------------------------------------------------------------------------------------------------------
Between 59 1/2 Only Life 10% of account
and 70 1/2 Waived Waived Waived Expectancy value annually
in periodic
payments
- ------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived for
rollover, or
annuity
payments. Not 10% of account
waived if paid Waived for Waived for Waived for value annually
directly to annuity annuity annuity in periodic
participant. payments payments payments payments
- ------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ------------------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ------------------------------------------------------------------------------------------------------
Return of Waived Waived Waived Waived N/A
Excess
- ------------------------------------------------------------------------------------------------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services at the time you make your redemption. The waiver will be
granted once Investor Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When a shareholder sells portfolio
securities received in this fashion, he would incur a brokerage charge. Any such
securities would be valued for the purposes of making such payment at the same
value as used in determining net asset value. The 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.
40
<PAGE>
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 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 a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan in the future. The shareholder may terminate the plan at any time by
giving proper notice to Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is explained
more fully in the Prospectus. The program, as it relates to automatic investment
checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any checks.
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 any part of the
redemption proceeds in shares of the same class of the Fund or in any other John
Hancock fund, subject to the minimum investment limit of that fund. The proceeds
41
<PAGE>
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 charged 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,
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Fund are responsible for the management and supervision
of the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series without
shareholder action. As of the date of this Statement of Additional Information,
the Trustees have authorized shares of the Fund and four other series. The
Trustees have authority, without the necessity of a shareholder vote, to
classify the shares of any series into one or more classes. As of the date of
this Statement of Additional Information, the Trustees have authorized the
issuance of three classes of shares of the Fund, designated as Class A, Class B
and Class C. Class C shares of the Fund are no longer sold.
The shares of each class of the Fund represent an equal proportionate
interest in the aggregate net assets allocable to that class of the Fund. Class
A and Class B shares of the Fund will be sold exclusively to members of the
public (other than the institutional investors described in the Prospectus) at
net asset value. A sales charge will be imposed at the time of the purchase for
Class A shares. Class B shares bear the expense of the CDSC arrangement and any
expense (including the higher distribution expenses) resulting from this sales
arrangement. For Class A shares, no sales charge is payable at the time of
purchase on investments of $1 million or more, but for such investments a CDSC
may be imposed in the event of certain redemption transactions within one year
of purchase. The Class A and Class B shares have certain exclusive voting rights
on matters relating to their respective distribution plans. The different
42
<PAGE>
classes of the Funds 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 such class,
(ii) Class B shares will pay higher distribution and service fees than Class A
shares and (iii) each class of shares will bear any other class expenses
properly attributable to that class of shares, subject to certain conditions
imposed by the Internal Revenue Service in issuing rulings to funds with a
multiple-class structure.
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 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 a request for a special meeting of shareholders.
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.
Pursuant to an order granted by the SEC, the Trust has adopted a defined
contribution plan for its Independent Trustees which allows Trustees' fees to be
invested by the Fund in other John Hancock funds.
43
<PAGE>
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 Freedom Investment Trust II, including the Fund, is treated
as a separate entity for tax purposes. The Fund has qualified and elected to be
treated as a "regulated investment company" under Subchapter M of the Code, and
intends to continue to so qualify for each taxable year. As such and by
complying with the applicable provisions of the Code regarding the sources of
its income, the timing of its distributions, and the diversification of its
assets, the Fund will not be subject to Federal income tax on taxable income
(including net 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, rents, royalties or capital gain) or hold at
lease 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
44
<PAGE>
passive foreign investment companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require the applicable Fund to
recognize taxable income or gain without concurrent receipt of cash.
Accordingly, the Fund may limit 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 loses 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, possibly including speculative currency positions or currency
derivatives not used for hedging purposes, may increase the amount of gain it is
deemed to recognize from the sale of certain investments held for less than
three months, which gain is limited under the Code to less than 30% of its
annual gross income, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
lease 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,
45
<PAGE>
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 short-term and long-term capital gains, if any, in any
given year will vary depending upon the Adviser's current investment strategy
and whether the Adviser believes it to be in the best interest of the Fund to
dispose of portfolio securities or enter into options or futures transactions
that will generate capital gains. At the time of an investor's purchase of Fund
shares, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable income
of the Fund. Consequently, subsequent distributions 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. Such disregarded load 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 will be disallowed to the extent the shares disposed of
are replaced 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 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.
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<PAGE>
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 shares of
such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a
net capital loss in any year to offset its 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 $531,550 of capital loss carryforwards, which expire
October 31, 2003, 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.
Because the Fund is not generally anticipated to invest a significant portion of
its assets in the stock of such U.S. corporations, it is unlikely that a
substantial portion of its distributions will qualify for the dividends received
deduction. Corporate shareholders must meet the minimum holding period
requirement stated above (46 or 91 days) with respect to their shares of the
Fund in order to qualify for the deduction and, if they borrow to acquire such
shares, may be denied a portion of the dividends received deduction. The entire
qualifying dividend, including the otherwise deductible amount, will be included
in determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, if any. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
tax basis in its shares may be reduced, for Federal income tax purposes, by
47
<PAGE>
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.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Limitations imposed by the Code on regulated investment companies like the
Fund may restrict the Fund's ability to enter into futures, options, and forward
transactions.
Certain options, futures and forward foreign currency transactions
undertaken by the Fund may cause the Fund to recognize gains or losses from
marking to market even though its positions have not been sold or terminated and
affect the character as long-term or short-term (or, in the case of certain
currency forwards, options and futures, as ordinary income or loss) and timing
of some capital gains and losses realized by the Fund. Also, certain of the
Fund's losses on its transactions involving options, futures or forward
contracts and/or offsetting portfolio positions may be deferred rather than
being taken into account currently in calculating the Fund's taxable income.
Certain of the applicable tax rules may be modified if the Fund is eligible and
chooses to make one or more of certain tax elections that may be available.
These transactions may therefore affect the amount, timing and character of the
Fund's distributions to shareholders. The Fund will take into account the
special tax rules (including consideration of available elections) applicable to
options, futures or forward contracts in order to minimize any potential adverse
tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local 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 hat described above. These investors
may be subject to nonresident alien withholding tax at the rate of 30% (or a
lower rate under an applicable tax treaty) on amounts treated as ordinary
48
<PAGE>
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 for Class A shares of the Fund for the 1
year ended April 30, 1996 and from commencement of operations on January 3, 1994
was 5.46% and 0.09%, respectively.
The average annual total return for Class B shares of the Fund for the 1
year ended April 30, 1996 and from commencement of operations on January 3, 1994
was 5.05% and 0.31%, respectively.
In the case of Class A or Class B shares, this calculation assumes the
maximum sales charge of 5.0% is included in the initial investment or the CDSC
is applied at the end of the period. This calculation also assumes that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1 year and life of the fund periods.
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
49
<PAGE>
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 will also be
utilized.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors, including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities;sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by officers of the Fund pursuant to
recommendations made by an investment committee of the Adviser, which consists
of officers and directors of the Adviser and 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 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 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 in the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
50
<PAGE>
services, including primarily the availability and value of research information
and to a lesser extent statistical assistance furnished to the Adviser or
Sub-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 or Sub-Adviser. The receipt of research
information is not expected to reduce significantly the expenses of the Adviser
or Sub-Adviser. The research information and statistical assistance furnished by
brokers and dealers may benefit the Life Company or other advisory clients of
the Adviser or Sub-Adviser, and, conversely, brokerage commissions and spreads
paid by other advisory clients of the Adviser or Sub-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, 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 ending October 31, 1995 and 1994, negotiated brokerage
commissions were paid on portfolio transactions in the amount of $47,714 and
$50,807, 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 fiscal year ended October 31,
1995, the Fund did not pay commissions as compensation to any 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,
three of which, Tucker Anthony Incorporated, John Hancock Distributors, Inc. and
Sutro & Company, Inc., are broker-dealers ("Affiliated Brokers"). Pursuant to
procedures established by the Trustees and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio transactions with or
through affiliated brokers. During the years ending October 31, 1995 and 1994,
the Fund did not execute any portfolio transitions 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
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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 which are 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. Commissions on transactions with Affiliated Brokers must
comply with Rule 17e-1 of the Investment Company 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 an
investment adviser to the Fund, the obligation to provide investment management
services, which includes elements of research and related investment skills such
research and related skills will not be used by the Affiliated 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, P.O. Box 9116, Boston, MA
02205- 9116, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent of 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 of shares of the Fund 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 State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110. Under the custodian agreement, State Street Bank
and Trust Company performs custody, portfolio and fund accounting services.
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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 of the Fund's annual financial statements and review the Fund's annual
Federal income tax return.
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APPENDIX A
DESCRIPTION OF BOND RATINGS
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
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the fundamentally strong position of such issues. Generally speaking, the safety
of obligations of this class is so absolute that with the occasional exception
of oversupply in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
The market value of Aa bonds is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers of
rating symbols Aa, A and Baa are to give investors a more precise indication of
relative debt quality in each of the historically defined categories.
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
probable credit status upon completion of that act or fulfillment of that
condition.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
CLASS A AND CLASS B SHARES
JOHN HANCOCK SHORT-TERM STRATEGIC INCOME FUND
AUGUST 30, 1996
This Statement of Additional Information provides information about John Hancock
Short-Term Strategic Income Fund (the "Fund") in addition to the information
that is contained in the Fund's Class A and Class B Prospectus (the
"Prospectus"), dated August 30, 1996.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Fund's Prospectus, a copy of which can be obtained free
of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Statement of
Additional Information
Page
<S> <C>
ORGANIZATION OF THE FUND 2
INVESTMENT OBJECTIVES AND POLICIES 2
CERTAIN INVESTMENT PRACTICES 16
INVESTMENT RESTRICTIONS 18
THOSE RESPONSIBLE FOR MANAGEMENT 22
INVESTMENT ADVISORY AND OTHER SERVICES 29
DISTRIBUTION CONTRACT 32
NET ASSET VALUE 34
INITIAL SALES CHARGE ON CLASS A SHARES 34
DEFERRED SALES CHARGE ON CLASS B SHARES 37
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SPECIAL REDEMPTIONS 40
ADDITIONAL SERVICES AND PROGRAMS 41
DESCRIPTION OF THE FUND'S SHARES 42
TAX STATUS 44
CALCULATION OF PERFORMANCE 49
BROKERAGE ALLOCATION 51
TRANSFER AGENCY SERVICES 53
CUSTODY OF PORTFOLIO 53
INDEPENDENT AUDITORS 53
APPENDIX A - DESCRIPTION OF BOND RATINGS 54
COMMERCIAL PAPER RATINGS 56
FINANCIAL STATEMENTS --
</TABLE>
ORGANIZATION OF THE FUND
John Hancock Short-Term Strategic Income Fund (the "Fund") is a series of
Freedom Investment Trust II (the "Trust") an open-end management investment
company organized as a Massachusetts business trust on March 31, 1986. The Fund
commenced operations on July 31, 1990. John Hancock Advisers, Inc. (the
"Adviser") is an indirect wholly-owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"), a Massachusetts life insurance company
chartered in 1862, with national headquarters at John Hancock Place, Boston,
Massachusetts.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of the Fund's
investment objective and policies discussed in the Prospectus.
General. The Fund may invest in all types of debt securities, including
debt obligations issued or guaranteed by United States or foreign governments,
political subdivisions thereof (including states, provinces and municipalities)
or their agencies and instrumentalities ("Governmental entities"), or issued or
guaranteed by international organizations designated or supported by
governmental entities to promote economic reconstruction or development
("supranational entities"), or issued by corporations or financial institutions.
Examples of supranational entities include the International Bank for
Reconstruction and Development (the "World Bank"), the European Steel and Coal
Community, the Asian Development Bank and the Inter-American Development Bank.
The governmental members, or "stockholders," usually make initial capital
contributions to the supranational entity and in many cases are committed to
make additional capital contributions if the supranational entity is unable to
repay its borrowings. Securities
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issued by supranational entities may be denominated in U.S. dollars, a foreign
currency or a multi-national currency unit. Securities of corporations and
financial institutions in which the Fund may invest include corporate and
commercial obligations, such as medium-term notes and commercial paper, which
may be indexed to foreign currency exchange rates. In accordance with guidelines
promulgated by the Staff of the Securities and Exchange Commission, the Fund
will consider as an industry any category of such supranational entities which
may have been designated by the Commission. There is no fixed allocation among
the foregoing types of securities.
The maximum average dollar weighted maturity of the Fund is three years.
This maturity is calculated by including average maturities, prepayments,
refunds, redemptions and call dates. The debt securities in which the Fund may
invest include bonds, debentures, notes (including variable and floating rate
instruments), preferred and preference stock, zero coupon bonds, payment-in-kind
securities or increasing rate note securities.
The Fund may invest in debt obligations denominated in the U.S. dollar or
in non-U.S. currencies issued or guaranteed by foreign corporations, certain
supernational entities (as described above), and foreign governments (including
political subdivisions having taxing authority) or their agencies or
instrumentalities. The Fund may also invest in debt obligations issued by U.S.
corporations denominated in non-U.S. currencies.
Foreign Securities. The percentage of the Fund's assets that will be
allocated to foreign securities will vary depending on the relative yields of
foreign and U.S. securities, the economies of foreign countries, the condition
of such countries financial markets, the interest rate climate of such countries
and the relationship of such countries' currency to the U.S. dollar. These
factors are judged on the basis of fundamental economic criteria (e.g., relative
inflation levels and trends, growth rate forecasts, balance of payments status
and economic policies) as well as technical and political data. The Fund may
invest in any country where the Adviser believes there is a potential to achieve
the Fund's investment objective. The Fund may invest in securities of issuers in
industrialized Western European countries (including Scandinavian countries) and
in Canada, Japan, Australia and New Zealand, as well as in emerging markets or
countries with limited or developing capital markets. Investments in securities
of issuers in emerging markets generally involve more risk and may be considered
highly speculative, as described in more detail below.
The value of portfolio securities denominated in foreign currencies may
increase or decrease in response to changes in currency exchange rates. The Fund
will incur costs in connection with converting between currencies. Foreign
companies may not be subject to accounting standards and government supervision
comparable to those applicable to U.S. companies, and there is often less
publicly available information about their operations. Foreign markets generally
provide less liquidity than U.S.
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<PAGE>
markets (and thus potentially greater price volatility), and typically provide
fewer regulatory protections for investors. Foreign securities can also be
affected by political or financial instability abroad. Additional costs could be
incurred in connection with the Fund's international investment activities.
Foreign brokerage commissions are generally higher than in the U.S. Expenses may
also be incurred on currency exchanges when the Fund changes investments from
one country to another. Increased custodian costs as well as administrative
difficulties (such as the need to use foreign custodians) may be associated with
the maintenance of assets in foreign jurisdictions.
These risks may be intensified in the case of investments in emerging
markets or countries with limited or developing capital markets. These countries
are located in the Asia-Pacific region, Eastern Europe, Latin and South America
and Africa. Security prices in these markets can be significantly more volatile
than in more developed countries, reflecting the greater uncertainties of
investing in less established markets and economies. Political, legal and
economic structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of business, restrictions of foreign ownership, or
prohibitions or repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominately based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates or currency rates. Local securities markets may trade a small
number of securities and may be unable to respond effectively to increases in
trading volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. The Fund may be required to establish special
custodian or other arrangements before making certain investments in those
countries. Securities of issuers located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
Money Market Securities. The Fund's shorter-term investments may be
money market securities. Money market securities include short-term obligations
issued or guaranteed by the U.S. Government or foreign governments or issued by
such governments' respective agencies and instrumentalities, bank money market
instruments including certificates of deposit, banker's acceptances and deposit
notes and certain other short-term obligations such as short-term commercial
paper. With respect to bank money market instruments, the obligations may be
issued by U.S. or foreign depository institutions, foreign branches or
subsidiaries of U.S. depository institutions ("Eurodollar" obligations), U.S.
branches or subsidiaries of foreign depository institutions ("Yankee dollar"
obligations) or foreign branches or subsidiaries of foreign depository
institutions. Eurodollar and Yankee dollar obligations and obligations of
branches or subsidiaries of
4
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foreign depository institutions may be general obligations of the parent bank or
may be limited to the issuing branch or subsidiary by the terms of the specific
obligations or by government regulation. Foreign subsidiaries of U.S. depository
institutions and U.S. and foreign subsidiaries of foreign depository
institutions may be considered investment companies under the Investment Company
Act of 1940 (the "Investment Company Act").
Mortgage-Backed Securities. The Fund may invest in Government National
Mortgage Association (Ginnie Mae), Federal National Mortgage Association (Fannie
Mae) and Federal Home Mortgage Loan Corporation (Freddie Macs) mortgage-backed
securities and other U.S. Government securities, including real estate mortgage
investment companies ("REMICs") and Collateralized Mortgage Obligations ("CMOs")
representing ownership interests in mortgage pools. Certain U.S. Government
securities, including U.S. treasury bills, notes and bonds, and Ginnie Maes, are
supported by the full faith and credit of the United States or by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of Freddie Mac and Fannie Mae. 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 by the individual borrowers on the pooled
mortgage loans. 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.
The Government National Mortgage Association is a wholly-owned corporate
instrumentality of the United States within the Department of Housing and Urban
Development. Fannie Mae, a federally chartered and privately owned corporation,
issues pass-through securities which are guaranteed as to payment of principal
and interest by Fannie Mae. Freddie Mac, a corporate instrumentality of the
Untied States, issues participation certificates which represent an interest in
mortgages from Freddie Mac's portfolio. Freddie Mac guarantees the timely
payment of interest and the ultimate collection of principal. As is the case
with Ginnie Mae Certificates, the actual maturity of and realized yield on
particular Fannie Mae and Freddie Mac mortgage-based securities will vary based
on the prepayment experience of the underlying pool of mortgages. Generally, the
issuers of mortgaged-backed and receivable-backed bonds, notes or pass-through
certificates are special purpose entities and do not have any significant assets
other than the assets securing such obligations.
Instruments backed by pools of mortgages and receivables may be subject
to unscheduled prepayments of principal prior to maturity. During periods of
declining interest rates, principle and interest on mortgage-backed securities
may be prepaid at faster than expected rates, with the proceeds of these
prepayments being invested in lower-yielding securities. In this situation,
mortgage-backed securities may be less effective at maintaining yields than
traditional debt obligations of similar maturity. Conversely, in a rising
interest rate environment, a declining prepayment rate will extend the average
life of many mortgage-backed securities. Extending the average
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life of a mortgage-backed security increases the risk of depreciation due to
future increases in market interest rates. Moreover, prepayments of securities
purchased at a premium could result in a realized loss.
Indexed Obligations. Indexed notes and commercial paper typically
provide that the principal amount is adjusted upwards or downwards (but not
below zero) at maturity to reflect fluctuations in the exchange rate between two
currencies during the period the obligation is outstanding, depending on the
terms of the specific security. In selecting the two currencies, the Adviser
will consider the correlation and relative yields of various currencies. The
Fund will purchase an indexed obligation using the currency in which it is
denominated and, at maturity, will receive interest and principal payments
thereon in that currency. The amount of principal payable by the issuer at
maturity, however, will vary (i.e., increase or decrease) in response to the
change (if any) in the exchange rates between the two specified currencies
during the period from the date the instrument is issued to its maturity date.
The potential for realizing gains as a result of changes in foreign currency
exchange rates may enable the Fund to hedge the currency in which the obligation
is denominated (or to effect cross-hedges against other currencies) against a
decline in the U.S. Dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. However,
there can be no assurance that the Fund's hedging strategies will be effective.
The Fund will purchase such indexed obligations to generate current income or
for hedging purposes and will not speculate in such obligations. As of the date
of this Statement of Additional Information, the Fund has no present intention
to invest in these obligations.
Obligations of Foreign Governmental Entities. The obligations of foreign
governmental entities have various kinds of government support and include
obligations issued or guaranteed by foreign governmental entities with taxing
power. These obligations may or may not be supported by the full faith and
credit of a foreign government. The Fund will invest in foreign government
securities of issuers considered stable by the Adviser, based on its analysis of
factors such as general political or economic conditions relating to the
government and the likelihood of expropriation, nationalization, freezes or
confiscation of private property. The Adviser does not believe that the credit
risk inherent in the obligations of stable foreign governments is significantly
greater than that of U.S. Government securities.
Multi-National Currency Unit Securities. As indicated above, the Fund
may invest in securities denominated in a multi-national currency unit. An
illustration of a multi-national currency unit is the European Currency Unit
(the "ECU"), which is a "basket" consisting of specified amounts of the
currencies of the member states of the European Community, a Western European
economic cooperative organization that includes France, West Germany, The
Netherlands and the United Kingdom. The specific amounts of currencies
comprising the ECU may be adjusted by the Council of Ministers of the European
Community to reflect changes in relative values of the underlying currencies.
The Adviser does not believe that such adjustments will adversely affect holders
of ECU-
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denominated obligations or the marketability of such securities. European
supranational entities, in particular, issue ECU-denominated obligations. The
Fund may invest in securities denominated in the currency of one nation although
issued by a governmental entity, corporation or financial institution of another
nation. For example, the Fund may invest in a British Pound sterling-denominated
obligation issued by a United States corporation. Such investments involve
credit risks associated with the issuer and currency risks associated with the
currency in which the obligation is denominated.
The Fund may invest in fixed and floating rate loans ("Loans") arranged
through private negotiations between a foreign entity and one or more financial
institutions ("Lenders"). The majority of the Fund's investments in Loans in
emerging markets is expected to be in the form of participations in Loans
("Participations") and assignments of portions of Loans from third parties
("Assignments"). Participations typically will result in the Fund having a
contractual relationship only with the Lender not with the borrower. As a
result, the Fund will assume the credit risk of both the borrower and the Lender
that is selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the Fund may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
The Fund will acquire Participations only if the Lender interpositioned between
the Fund and the borrower is determined by the Adviser to be creditworthy.
The secondary market for Participations and Assignments is limited to
certain institutional investors, which could adversely affect the value of these
securities and make it more difficult to assign a value to them (see
"Participations" below).
Financial Futures Contracts and Options on Futures. The Fund may buy and
sell financial futures contracts and options on futures to hedge against the
effects of fluctuations in securities prices, interest rates, currency exchange
rates and other market conditions and for speculative purposes. The Fund may
hedge its portfolio by selling interest rate and currency futures contracts as
an offset against the effect of expected increases in interest rates or declines
in foreign currency values and by purchasing such futures contracts as an offset
against the effect of expected declines in interest rates or increase in foreign
currency values. Although other techniques could be used to reduce the Fund's
exposure to interest rate and currency fluctuations, the Fund may be able to
hedge its exposure more effectively and perhaps at a lower cost by using futures
contracts. The Fund will enter into futures contracts for hedging and
non-hedging purposes to the extent permitted by regulations of the Commodity
Futures Trading Commission ("CFTC").
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
interest rate and currency futures
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<PAGE>
contracts are developed and traded the Fund may engage in transactions in such
contracts.
Although futures contracts by their terms call for actual delivery or
acceptance of interest rate instruments or currency, in most cases the contracts
are closed out prior to delivery by offsetting purchases or sales of matching
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 transaction costs must also be included in these calculations. The
Fund will pay a commission in connection with each purchase or sale of futures
contracts, including a closing out 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 futures contract, it is required to
deposit with its custodian a specified amount of cash or U.S. Government
securities, known as "initial margin." The margin required for a 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 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 futures contract fluctuates. This process is known as "mark to the
market." Variation margin does not represent a borrowing or lending by the Fund
but is instead settlement between the Fund and the broker of the amount one
would owe the other if the futures position was closed out. In computing net
asset value, the Fund will mark to the market its open futures positions. The
Fund will maintain with its custodian bank, State Street Bank and Trust Co., a
segregated asset account consisting of cash or cash equivalents in an amount
sufficient to cover its obligations with respect to open futures contracts.
Successful hedging depends on a strong correlation between the market for
the underlying securities or currency and the futures contract market for those
securities or currency. There are several factors that will probably prevent
this correlation from being a perfect one and even a correct forecast of general
interest rate or currency trends may not result in a successful hedging
transaction. There are significant differences between the securities or
currency and futures markets which could create an imperfect correlation between
the markets and which could cause a given hedge not to achieve its objectives.
The degree of imperfection of correlation depends on circumstances such as:
variations in speculative market demand for interest rate futures and debt
securities, including technical influences in futures trading and differences
between the financial
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instruments being hedged and the instruments underlying the standard interest
rate 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 or currency
volatility. The Fund will bear the risk that the price of the securities or
currency 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 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 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. In addition, the low margin deposits 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 that 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 movement 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 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 will be required to
continue to meet margin requirements until the position is closed.
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Other Considerations. The Fund will engage in futures and related
options transactions only for bona fide hedging or non-hedging 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 non-hedging 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.
The potential loss incurred by the Fund in writing options on futures is
unlimited and may exceed the amount of the premium received. The Fund will not
engage in a futures or options transaction for speculative purposes, if
immediately thereafter, the sum of initial margin deposits on existing positions
and premiums required to establish speculative positions in futures contracts
and options on futures would exceed 5% of the Fund's net assets.
When the Fund purchases a futures contract, writes a put option thereon
or purchases a call option thereon, an amount of cash or high grade, liquid debt
securities (i.e., securities rated in one of the top three ratings categories by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Corporation
("Standard & Poor's") 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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Options Transactions. The Fund may write listed and over-the-counter
covered call options and covered put options on debt and equity securities and
foreign currency 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 written by the Fund. The extent to which covered options will be used by
the Fund will depend upon market conditions, the availability of alternative
strategies, and the future movement of interest rates. The Fund may write listed
covered and over-the-counter call and put options on up to 100% of its net
assets. In addition, the Fund may purchase listed and over-the-counter call and
put options on securities and currency with an aggregate value not exceeding 5%
of the Fund's total 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 debt 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 if the difference is maintained by the Fund
in cash, U.S. Treasury bills or high grade short-term 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 debt securities it intends to acquire for the Fund's
portfolio and will maintain in a segregated account with its custodian bank
cash, U.S. Government securities, or high-grade short-term 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 where 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 or later than the put
written.
In writing listed over-the-counter covered put options on debt
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,
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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 his
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 of the underlying security owned by the Fund.
Over-the-Counter Options. The Fund may engage in options transactions on
exchanges and in the over-the-counter markets. In general, exchange-traded
options are third-party contracts (i.e. performance of the parties' obligations
is guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. Over-the-counter ("OTC") transactions are
two-party contracts with price and terms negotiated by the buyer and seller. The
Fund will 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 Securities
and Exchange Commission (the "SEC") has taken the position that OTC options are
illiquid securities subject to the restriction that illiquid securities are
limited to not more than 10% of the Fund's assets. The SEC, however, has a
partial exemption from the above
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restrictions on transactions in OTC options. The SEC allows a fund to exclude
from the 10% limitation on illiquid securities a portion of the value of the OTC
options written by the Fund, provided that certain conditions are met. First,
the other party to the OTC options has to be a primary U.S. Government
securities dealer designated as such by the Federal Reserve Bank. Second, the
Fund would have an absolute contractual right to repurchase the OTC options at a
formula price. If the above conditions are met, a fund must treat as illiquid
only that portion of the OTC option's value (and the value of its underlying
securities) which is equal to the formula price for repurchasing the OTC option,
less the OTC option's intrinsic value.
While transactions in options contracts may reduce certain risks, they
may entail other risks. Certain risks arise due to the imperfect correlations
between movements in the price of options and movements in the prices of the
securities or currency underlying the contract. The Fund's ability to use
options to hedge or earn income successfully will depend on the Adviser's
ability to predict accurately the future direction of interest rate changes,
currency rate fluctuations and other market factors. In addition, the Fund could
be prevented from opening or realizing the benefits of closing out an options
position because of position limits or limits on daily price fluctuations
imposed by an exchange.
The investment practices described above are not fundamental and may be
changed by the Trustees without shareholder approval.
Lower Rated High Yield "High Risk" Debt Obligations. As discussed in the
Fund's Prospectus, the Fund seeks high current income and may invest in high
yielding, fixed income securities rated Baa, Ba or B by Moody's or BBB, BB or B
by Standard & Poor's. The Fund will, however, maintain an average portfolio
quality rating of A by Standard & Poor's and Moody's. Ratings are based largely
on the historical financial condition of the issuer. Consequently, the rating
assigned to any particular security is not necessarily a reflection of the
issuer's current financial condition, which may be better or worse than the
rating would indicate. The Fund may also invest in unrated securities which, in
the opinion of the Adviser, offer comparable yields and risks to rated
securities.
Lower rated securities are sometimes referred to as junk bonds. See the
Appendix attached to this Statement of Additional Information which describes
the characteristics of the securities in the various ratings categories. The
Fund is not obligated to dispose of securities whose issuers subsequently are in
default or which are downgraded below the above-stated ratings. The credit
ratings of Moody's and Standard & Poor's, such as those ratings described here,
may not be changed by Moody's and Standard & Poor's in a timely fashion to
reflect subsequent economic events. The credit ratings of securities do not
reflect an evaluation of market risk. 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
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ratings reflect a greater possibility of an adverse change in financial
condition affecting the issuer's ability to make payments of interest and
principal. The market price and liquidity of lower rated fixed income securities
generally respond more to short-term corporate and market developments than do
those of higher rated securities, because these developments are perceived to
have a more direct relationship to the ability of an issuer of lower rated
securities to meet its ongoing debt obligations. The Adviser seeks to minimize
these risks through diversification, investment analysis and attention to
current developments in interest rates and economic conditions.
Reduced volume and liquidity in the high yield high risk 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 risk bonds. In addition, the Fund's
investments in high yield high risk 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 risk inherent in all securities.
The Fund may invest in pay-in-kind (PIK) securities, which pay interest
in either cash or additional securities, at the issuer's option, for a specified
period. The Fund also may invest in zero coupon bonds, which have a determined
interest rate, but payment of the interest is deferred until maturity of the
bonds. Both types of bonds may be more speculative and volatile and subject to
greater fluctuations in value than securities which pay interest periodically
and in cash, due to changes in interest rates. Increasing rate note securities
are typically refinanced by the issuers within a short period of time.
The market value of debt securities which carry no equity participation
usually reflects yields generally available on securities of similar quality and
type. When such yields decline, the market value of a portfolio already invested
at higher yields can be expected to rise if such securities are protected
against early call. In general, in selecting securities for its portfolio, the
Fund intends to seek protection against early call. Similarly, when such yields
increase, the market value of a portfolio already invested at lower yields can
be expected to decline. The Fund's portfolio may include debt securities which
sell at substantial discounts from par. These securities are low coupon bonds
which, during periods of high interest rates, because of their lower acquisition
cost tend to sell on a yield basis approximating current interest rates.
Effect of Options and Futures Transactions on Qualification as Regulated
Investment Company. It is the policy of the Fund to meet the requirements of
the Code to qualify as a regulated investment company to prevent double taxation
of the Fund and its investors. One of those requirements is that less than 30%
of the Fund's gross income must be derived from gains from the sale or other
disposition of securities (including
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option's and futures) held for less than three months. The extent to which the
Fund may engage in options and futures transactions may be materially limited by
this 30% test.
Foreign Currency Transactions. 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 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.
Time Deposits. The Fund's time deposits are non-negotiable deposits
maintained for up to seven days at a stated interest rate. The Fund intends to
invest only in those Time Deposits which mature in under seven days. If the Fund
purchases Time Deposits maturing in seven days or more, it will treat those
longer-term Time Deposits as illiquid.
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Portfolio Turnover. The Fund's portfolio turnover rate may vary widely
from year to year and may be higher than that of many other mutual funds with
similar investment objectives. Management anticipates that the annual turnover
in the Fund will not be in excess of 400%. An annual turnover rate of 400%
occurs, for example, when all of the securities in the Fund's portfolio are
replaced four times in a period of one year. A high rate of portfolio turnover
involves correspondingly greater brokerage expenses which will be borne by the
Fund and may, under certain circumstances, make it more difficult for the Fund
to qualify as a regulated investment company under the Code. Portfolio turnover
rates of the Fund for recent periods are shown in the "Financial Highlights"
section of the Prospectus.
CERTAIN INVESTMENT PRACTICES
The following information supplements the discussion of the Fund's
investment strategies and techniques in the Prospectus.
Repurchase Agreements. A repurchase agreement is a contract under which
the Fund would acquire a security for a relatively short period (usually not
more than 7 days) subject to the obligation of the seller to repurchase and the
Fund to resell such security at a fixed time and price (representing the Fund's
cost plus interest). The Fund will enter into repurchase agreements only with
member banks of the Federal Reserve System and with "primary dealers" in U.S.
Government securities. The Adviser or a Sub-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 or be
prevented from liquidating the underlying securities and could experience
losses, including possible decline in the value of 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.
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
10% 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
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144A securities, that they are liquid, then such securities may be purchased
without regard to the 10% limit. The Trustees may adopt guidelines and delegate
to the Adviser the daily function of determining and monitoring the liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
Forward Commitment and When-Issued Securities. The Fund may purchase
securities on a when-issued or forward commitment basis. "When-issued" refers to
securities whose terms are available and for which a market exists, but which
have not been issued. The Fund will engage in when-issued transactions with
respect to securities purchased for its portfolio in order to obtain what is
considered to be an advantageous price and yield at the time of the transaction.
For when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions,
it relies on the seller to consummate the transaction. The failure of the issuer
or seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, the Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
Participation Interests. The Fund may acquire participation interests in
senior floating rate loans that are made primarily to U.S. and foreign
companies. Participation interests, which may take the form of interests in, or
assignments of, the loans, are acquired from banks who have made loans or are
members of a lending syndicate. The Fund's investments in participation
interests are subject to its 10% limitation on investments in illiquid
securities. The Fund may purchase only those participation interests that have a
floating rate that is automatically adjusted at least once every 180 days.
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Structured Securities. The Fund may invest in structured notes, bonds or
debentures, the value of the principal of and/or interest on which is to be
determined by reference to changes in the value of specific currencies, interest
rates, commodities, indices or other financial indicators (the "Reference") or
the relative change in two or more References. The interest rate or the
principal amount payable upon maturity or redemption may be increased or
decreased depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal is
due at maturity and, therefore, may result in the loss of the Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, the change in
interest rate or the value of the security at maturity may be a multiple of the
change in the value of the Reference. Consequently, structured securities entail
a greater degree of market risk than other types of debt obligations. Structured
securities may also be more volatile, less liquid and more difficult to
accurately price than less complex fixed income investments.
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
and money market funds. When the Fund lends portfolio securities, there is a
risk that the borrower may fail to return the loaned securities. As a result,
the Fund may incur a loss or in the event of the borrower's bankruptcy may be
delayed in or prevented from liquidating the collateral. It is a policy of the
Fund not to lend portfolio securities having a total value in excess of 30% of
its total assets.
Non-diversified. The Fund is a "non-diversified" fund in order to permit
more than 5% of its assets to be invested in the obligations of any one issuer.
Since a relatively high percentage of the assets or the Fund may be invested in
the obligations of a limited number of issuers, the value of the shares of the
Fund may be more susceptible to any single economic, political or regulatory
event and to credit and market risks associated with a single issuer than would
the shares of a diversified fund. The Fund intends to limit its investments to
the extent required by the diversification requirements of the Code. See "Tax
Status."
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
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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) more
than 50% of the Fund's outstanding shares.
The Fund may not:
1. Purchases on Margin and Short Sales. Purchase securities on margin or
sell short, except that the Fund may obtain such short term credits as
are necessary for the clearance of securities transactions. The deposit
or payment by the Fund of initial or maintenance margin in connection
with futures contracts or related options transactions is not considered
the purchase of a security on margin.
2. Borrowing. Borrow money, except from banks temporarily for
extraordinary or emergency purposes (not for leveraging or investment)
and then in an aggregate amount not in excess of 10% of the value of the
Fund's total assets at the time of such borrowing, provided that the Fund
will not purchase securities for investment while borrowings equaling 5%
or more of the Fund's total assets are outstanding.
3. Underwriting Securities. Act as an underwriter of securities of other
issuers, except to the extent that it may be deemed to act as an
underwriter in certain cases when disposing of restricted securities.
(See also Restriction 12.)
4. Senior Securities. Issue senior securities except as appropriate to
evidence indebtedness which the Fund is permitted to incur, provided that
(i) the purchase and sale of futures contracts or related options, (ii)
collateral arrangements with respect to futures contracts, related
options, forward foreign currency exchange contracts or other permitted
investments of the Fund as described in the Prospectus, including
deposits of initial and variation margin, and (iii) the establishment of
separate classes of shares of the Fund for providing alternative
distribution methods are not considered to be the issuance of senior
securities for purposes of this restriction.
5. Warrants. Invest more than 5% of its total assets in warrants, whether
or not the warrants are listed on the New York or American Stock
Exchanges, or more than 2% of the value of the total assets of the Fund
in warrants which are not listed on those exchanges. Warrants acquired in
units or attached to securities are not included in this restriction.
6. Real Estate. Purchase or sell real estate although the Fund may
purchase and sell securities which are secured by real estate, mortgages
or interests therein, or issued by companies which invest in real estate
or interests therein; provided, however, that the Fund will not purchase
real estate limited partnership interests.
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7. Commodities; Commodity Futures; Oil and Gas Exploration and
Development Programs. Purchase or sell commodities or commodity futures
contracts or interests in oil, gas or other mineral exploration or
development programs, except the Fund may engage in such forward foreign
currency contracts and/or purchase or sell such futures contracts and
options thereon as described in the Prospectus.
8. Making Loans. Make loans, except that the Fund may purchase or hold
debt instruments and may enter into repurchase agreements (subject to
Restriction 11) in accordance with its investment objectives and policies
and make loans of portfolio securities provided that as a result, no more
than 30% of the total assets of the Fund taken at current value would be
so loaned.
9. Securities of Other Investment Companies. Purchase securities of other
open-end investment companies, except in connection with a merger,
consolidation, acquisition or reorganization; or purchase more than 3% of
the total outstanding voting stock of any closed-end investment company
if more than 5% of the Fund's total assets would be invested in
securities of any closed-end investment company, or more than 10% of the
Fund's total assets would be invested in securities of any closed-end
investment companies in general. In addition, the Fund may not invest in
the securities of closed-end investment companies except by purchase in
the open market involving only customary broker's commissions.
10. Industry Concentration. Purchase any securities which would cause
more than 25% of the market value of the Fund's total assets at the time
of such purchase to be invested in the securities of one or more issuers
having their principal business activities in the same industry, provided
that there is no limitation with respect to investments in obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. This restriction will apply to obligations of a
foreign government unless the SEC permits their exclusion.
Nonfundamental Investment Restrictions
The following restrictions are designated as nonfundamental and may be
changed by the Board of Trustees without shareholder approval:
The Fund may not:
11. Illiquid Securities. Purchase or otherwise acquire any security if,
as a result, more than 10% of the Fund's net assets (taken at current
value) would be invested in securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual
restrictions on resale. This policy includes repurchase agreements
maturing in more than seven days. This policy
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does not include restricted securities eligible for resale pursuant to
Rule 144A under the Securities Act of 1933 which the Board of Trustees
or the Adviser has determined under Board-approved guidelines are liquid.
12. Acquisition for Control Purposes. Purchase securities of any issuer
for the purpose of exercising control or management, except in connection
with a merger, consolidation, acquisition or reorganization.
13. Unseasoned Issuers. Purchase securities of any issuer with a record
of less than three years continuous operations, including predecessors,
if such purchase would cause the investments of the Fund in all such
issuers to exceed 5% of the total assets of the Fund taken at market
value, except this restriction shall not apply to (i) obligations of the
U.S. Government, its agencies or instrumentalities and (ii) securities of
such issuers which are rated by at least one nationally recognized
statistical rating organization. This restriction shall not apply to
obligations issued or guaranteed by any foreign government or its
agencies or instrumentalities. This restriction shall not apply to
issuers of mortgage-backed and receivable-backed bonds, notes or
pass-through certificates.
14. Beneficial Ownership of Officers and Directors of Fund and Adviser.
Purchase or retain the securities of any issuer if those officers or
trustees of the Fund or officers or directors of the Adviser who each own
beneficially more than 1/2 of 1% of the securities of that issuer
together own more than 5% of the securities of such issuer.
15. Hypothecating, Mortgaging and Pledging Assets. Hypothecate, mortgage
or pledge any of its assets except as may be necessary in connection with
permitted borrowings and then not in excess of 5% of the Fund's total
assets, taken at cost. For the purpose of this restriction, (i) forward
foreign currency exchange contracts are not deemed to be a pledge of
assets, (ii) collateral arrangements with respect to the writing of
options on debt securities or on futures contracts are not deemed to be a
pledge of assets; and (iii) the deposit in escrow of underlying
securities in connection with the writing of call options is not deemed
to be a pledge of assets.
16. Joint Trading Accounts. Participate on a joint or joint and several
basis in any trading account in securities (except for a joint account
with other funds managed by the Adviser for repurchase agreements
permitted by the SEC pursuant to an exemptive order).
17. Purchase interests in oil, gas or other mineral exploration programs;
however, this policy will not prohibit the acquisition of securities of
companies engaged in the production of transmission of oil, gas, or other
minerals.
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18. 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 that 5% of the Fund's assets would be invested in
any one such investment company.
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.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions on investment policy
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 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 restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees, who elect officers
who are responsible for the day-to-day operations of the Trust and who execute
policies formulated by the Trustees. Several of the officers and Trustees of the
Trust are also officers and Directors of the Adviser or officers and Directors
of the Fund's principal distributor, John Hancock Funds, Inc. ("John Hancock
Funds").
The following table sets forth the principal occupation or employment of
the Trustees and principal officers of the Fund during the past five years.
Unless otherwise
22
<PAGE>
noted, the business address of each Trustee and officer is 101 Huntington
Avenue, Boston, Massachusetts 02199.
23
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH REGISTRANT DURING PAST 5 YEARS
- ----------------- --------------- -------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (2,3) 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) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank.
June 1931
</TABLE>
- ------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act.
(1) Member of the Audit and Administration Committees of the Trust.
(2) 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.
(3) Member of the Investment Committee of the Adviser.
24
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH REGISTRANT 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) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, New Jersey N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc., EVP
Resource Evaluation Inc.
(consulting)(until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
Douglas M. Costle Trustee (1,2) 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 Mitretek Systems
(governmental consulting
services).
</TABLE>
- ------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act.
(1) Member of the Audit and Administration Committees of the Trust.
(2) 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.
(3) Member of the Investment Committee of the Adviser.
25
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH REGISTRANT DURING PAST 5 YEARS
- ----------------- --------------- -------------------
<S> <C> <C>
Leland O. Erdahl Trustee (1) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991) and
President of Albuquerque Uranium
Corporation (from 1985-1992);
Director of Freeport-McMoRan Copper
& Gold Company Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original Sixteen to
One Mine, Inc. (from 1984-1987 and
from 1991 to 1995) (management
consultant).
Richard A. Farrell Trustee (1) President of Farrell, Healer & Co.
Farrell, Healer & Company, Inc. (venture capital management firm)
160 Federal Street -- 23rd Floor (since 1980); Prior to 1980,
Boston, MA 02110 headed the venture capital group at
November 1932 Bank of Boston Corporation.
Gail D. Fosler Trustee (1) 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) 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.
</TABLE>
- ------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act.
(1) Member of the Audit and Administration Committees of the Trust.
(2) 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.
(3) Member of the Investment Committee of the Adviser.
26
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH REGISTRANT DURING PAST 5 YEARS
- ----------------- --------------- -------------------
<S> <C> <C>
*Anne C. Hodsdon Trustee and President and Chief Operating
April 1953 President (2,3) Officer, the Adviser; Executive
Vice President, the Adviser (until
December 1994); Senior Vice President,
the Adviser (until December 1993); Vice
President, the Adviser (until 1991).
Dr. John A. Moore Trustee (1) President and Chief Executive
Institute for Evaluating Health Officer, Institute for Evaluating
Risks Health Risks (nonprofit institution)
1101 Vermont Avenue N.W. (since September 1989).
Suite 608
Washington, DC 20005
February 1939
Patti McGill Peterson Trustee (1) President, St. Lawrence University;
St. Lawrence University Director, Niagara Mohawk Power
110 Vilas Hall Corporation (electric utility) and
Canton, NY 13617 Security Mutual Life (insurance).
May 1943
John W. Pratt Trustee (1) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
*Richard S. Scipione Trustee (2) General Counsel, the Life Company;
John Hancock Place Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking
August 1937 Insurance Agency, Inc., John
Hancock Subsidiaries, Inc. and John
Hancock Property and Casualty
Insurance and its affiliates (until
November, 1993).
</TABLE>
- ------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act.
(1) Member of the Audit and Administration Committees of the Trust.
(2) 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.
(3) Member of the Investment Committee of the Adviser.
27
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH REGISTRANT DURING PAST 5 YEARS
- ----------------- --------------- -------------------
<S> <C> <C>
Edward J. Spellman, CPA Trustee (1) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Fort Lauderdale, FL
November 1932
*Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
July 1938 Officer (3) Officer, the Adviser; President,
the Adviser (until December 1994);
Director, the Adviser, Advisers
International, John Hancock Funds,
Investor Services, SAMCorp. and NM
Capital; Senior Vice President, The
Berkley Group.
*James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
February 1935 Financial Officer The Berkeley Group, John Hancock
Funds and Investor Services; Senior
Vice President and Chief Financial
Officer, each of the John Hancock
funds.
*John A. Morin Vice President Vice President [and Secretary] the
July 1950 Adviser; Vice President, Investor
Services, John Hancock Funds and each of the
John Hancock funds; Compliance Officer,
certain John Hancock funds; Counsel, the Life
Company; Vice President and Assistant
Secretary, The Berkeley Group.
</TABLE>
- ------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act.
(1) Member of the Audit and Administration Committees of the Trust.
(2) 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.
(3) Member of the Investment Committee of the Adviser.
28
<PAGE>
<TABLE>
<CAPTION>
NAME, ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
AND DATE OF BIRTH WITH REGISTRANT DURING PAST 5 YEARS
- ----------------- --------------- -------------------
<S> <C> <C>
*Susan S. Newton Vice President and Secretary Vice President and Assistant
March 1950 Secretary, the Adviser; Vice
President and Secretary, certain
John Hancock funds; Vice President
and Secretary, John Hancock Funds,
Investor Services and John Hancock
Distributors, Inc. (until 1994);
Secretary, SAMCorp; Vice President,
The Berkeley Group.
*James J. Stokowski Vice President and Treasurer Vice President, the Adviser; Vice
November 1946 President and Treasurer, each of
the John Hancock funds.
</TABLE>
As of May 31, 1996, the officers and Trustees of the Fund as a group
owned less than 1% of the outstanding shares of each class of the Fund and to
the knowledge of the registrant, no persons owned of record or beneficially 5%
or more of any class of the registrant's outstanding securities.
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
Advisers 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. The Trustees not listed below
were not Trustees of the Fund as of the end of the Fund's last completed fiscal
year. The three non-Independent Trustees, Messrs. Mr. Boudreau and Scipione and
Ms. Hodsdon, and each of the officers of the Fund are interested persons of the
Adviser, are compensated by the Adviser and receive no compensation from the
Fund for their services.
- ------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act.
(1) Member of the Audit and Administration Committees of the Trust.
(2) 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.
(3) Member of the Investment Committee of the Adviser.
29
<PAGE>
<TABLE>
<CAPTION>
TOTAL COMPENSATION
FROM THE FUND
AGGREGATE COMPENSATION AND JOHN HANCOCK FUND
FROM THE FUND(1) COMPLEX TO TRUSTEES(2)
---------------- ----------------------
<S> <C> <C>
William A Barron III* $ 2,003 $ 41,750
Douglas M. Costle 2,003 41,750
Leland O. Erdahl 2,003 41,750
Richard A. Farrell 2,078 43,250
William F. Glavin+ 3,086 37,500
Patrick Grant* 2,103 43,750
Ralph Lowell, Jr.* 2,003 41,750
Dr. John A. Moore 2,003 41,750
Patti McGill Peterson 2,003 41,750
John W. Pratt 2,003 41,750
----- ------
$21,288 $416,750
</TABLE>
(1) Compensation is for the fiscal year ended October 31, 1995.
(2) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of calendar year ended December 31, 1995. As of
such date there were 61 funds in the John Hancock Fund Complex, of which
each of these Independent Trustees served 12.
* As of January 1, 1996, Messrs. Barron, Grant and Lowell resigned as
Trustees.
+ As of December 31, 1995 the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Fund Complex for Mr.
Glavin was $32,061 under the John Hancock Deferred Compensation Plan for
Independent Trustees.
The nominees of the Fund may at times be the record holders of in
excess of 5% of shares of the Fund by virtue of holding shares in "street name."
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 and below for a
description of certain information concerning the investment management
contract. Each of the
30
<PAGE>
Trustees and principal officers of the Fund who is also an affiliated person of
the Adviser is named above, together with the capacity in which such person is
affiliated with the Fund and the Adviser.
The Adviser acts as investment adviser for the Fund. The Adviser is 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 $18
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 approximately 1,080,000
shareholders. The Adviser is an affiliate of the Life Company, one of the most
recognized and respected financial institutions in the nation. With total assets
under management of $80 billion, the Life Company is one of the ten largest life
insurance companies in the United States, and carries high ratings from Standard
and Poor's and A.M. Best's. Founded in 1862, the Life Company has been serving
clients for over 130 years.
The Trust has entered into an investment advisory agreement
(the "Advisory Agreement") on behalf of the Fund dated as of July 1, 1996,
between the Trust and the Adviser. Pursuant to the Advisory Agreement, the
Adviser agreed to act as investment adviser and manager to the Fund. As manager
and investment adviser, the Adviser will: (a) furnish continuously an investment
program for the Fund and determine, subject to the overall supervision and
review of the Board of Trustees, which investments should be purchased, held,
sold or exchanged, and (b) provide supervision over all aspects of the Fund's
operations except those which are delegated to a custodian, transfer agent or
other agent.
As compensation for its services under the Advisory Agreement, the
Adviser receives from the Fund a fee computed and paid monthly based on a stated
percentage of the Fund's average daily net assets as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Net Asset Value Annual Rate
--------------- -----------
First $500 million 0.65%
Amounts over $500 million 0.60%
</TABLE>
The Fund bears all costs of its organization and operation, including
expenses of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares;
31
<PAGE>
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plans of distribution;
fees and expenses of custodians including those for keeping books and accounts
and calculating the net asset value of shares; fees and expenses of transfer
agents and dividend disbursing agents; legal, accounting, financial, management,
tax and auditing fees and expenses of the Fund (including an allocable portion
of the cost of the Adviser's employees rendering such services to the Fund); the
compensation and expenses of Trustees who are not otherwise affiliated with the
Trust, the Adviser or any of their affiliates; expenses of Trustees' and
shareholders' meetings; trade association memberships; insurance premiums; and
any extraordinary expenses.
The State of California imposes a limitation on the expenses of the
Fund. The Advisory Agreement provides that if, in any fiscal year, the total
expenses of the Fund (excluding taxes, interest, brokerage commissions and
extraordinary items, but including the management fee) exceed the expense
limitations applicable to the Fund imposed by the securities regulations of any
state in which it is then registered to sell shares, the Adviser will reduce
it's fee for that Fund to the extent required by these limitations. The Adviser
has agreed that if, in any fiscal year, the total expenses of the Fund
(excluding taxes, interest, brokerage commissions and extraordinary items, but
including the Adviser's fee) exceed the expense limitations applicable to the
Fund, the Adviser will reduce its fee for the Fund in the amount of that excess
up to the amount of its fee during that fiscal year. Although there is no
certainty that any limitations will be in effect in the future, the California
limitation on an annual basis currently is 2.5% of the first $30 million of
average net assets, 2.0% of the next $70 million of net assets and 1.5% of the
remaining net assets.
The Advisory Agreement was approved on March 5, 1996 by all of the
Trustees, including all of the Trustees who are not parties to the Advisory
Agreement or "interested persons" of any such party. The shareholders of the
Fund also approved the Fund's Advisory Agreement on June 26, 1996. The Advisory
Agreement will continue in effect from year to year, provided that continuance
is approved annually both (i) by the holders of a majority of the outstanding
voting securities of the Fund or by the Board of Trustees, and (ii) by a
majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any such party. The Advisory Agreement may be terminated
on 60 days written notice by any party and will terminate automatically if
assigned.
For the fiscal years ended October 31, 1993, 1994 and 1995, the Trust
paid the Adviser, on behalf of the Fund, an investment advisory fee of
$1,094,128, $774,309 and $682,732, respectively.
DISTRIBUTION CONTRACT
Freedom Investment Trust II has entered into a Distribution Agreement
with John
32
<PAGE>
Hancock Funds and Freedom Distributors Corporation (together the "Distributors")
on a "best efforts" basis. Class A and Class B shares of the Fund are sold to
dealers who have entered into dealer agreements with the Distributors (the
"Selling Brokers").
The Distributors accept 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 of the Fund, the Distributors and Selling Brokers receive compensation
in the form of a sales charge imposed, in the case of Class A shares at the time
of sale or, in the case of Class B shares, on a deferred basis. The sales
charges are discussed further in the Prospectus.
The Fund's Trustees adopted Distribution Plans with respect to Class A
and Class B shares ("the Plans"), pursuant to Rule 12b-1 under the Investment
Company Act. Under the Class A Plan and Class B Plan, the Fund will pay
distribution and service fees at an aggregate annual rate of up to 0.30% and
1.00%, respectively, of the Fund's daily net assets attributable to shares of
that class. However, the service fee will not exceed 0.25% of the Fund's average
daily net assets attributable to each class of shares. The distribution fees
reimburse Distributors for their distribution costs incurred in the promotion of
sales Fund shares, including but not limited to: (i) initial and ongoing sales
compensation to Selling Brokers and others (including affiliates of the
Distributors) 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 compensate Selling Brokers
for providing personal and account maintenance services to shareholders. In the
event that the Distributors are not fully reimbursed for expenses they incur
under the Class A Plan, these expenses will not be carried beyond one year from
the date they were incurred. In the event the Distributors are not fully
reimbursed for expenses they incur under the Class B Plan in any fiscal year,
the Distributors may carry these expenses forward, provided, however, that the
Trustees may terminate the Class B Plan and thus 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. For the
fiscal year ended October 31, 1995, an aggregate of $2,610,556 of distribution
expenses or 2.93% of the average net assets of the Class B shares of the Fund
was not reimbursed or recovered by the Distributors 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 meeting called for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, the Distributors provide the
Fund with a written report of the amounts expended under the Plans and the
purpose for which
33
<PAGE>
these expenditures were made. The Trustees review these reports on a quarterly
basis.
Each of the Plans provides that it will continue in effect only as long
as its continuance is approved at least annually by a majority of both the
Trustees and the Independent Trustees. Each of the Plans provides that it may be
terminated without penalty, (a) by vote of a majority of the Independent
Trustees, (b) by a vote of a majority of the Fund's outstanding shares of the
applicable class in each case upon 60 day's written notice to the Distributors
and (c) automatically in the event of assignment. Each of the Plans further
provides that it may not be amended to increase the maximum amount of the fees
for the services described therein without the approval of a majority of the
outstanding shares of the class of the 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 classes of shares of
the Fund.
During the fiscal year ended October 31, 1995, with respect to the
Class A shares and Class B shares of the Fund, the Fund paid the Distributors
the following amounts of expenses:
<TABLE>
<CAPTION>
Expense Class A Class B
Items Shares Shares
----- ------ ------
<S> <C> <C>
Advertising $ 8,300 $ 46,173
Printing and Mailing of Prospectuses to
New Shareholders $ 942 $ 4,543
Compensation to Selling Brokers $11,899 $ 391,996
Expenses of Distributor $26,988 $ 154,649
Interest, Carrying or Other Finance Charges $ 0 $281,712
</TABLE>
34
<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 or NASDAQ National
Market Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days
or less are generally valued at amortized cost which approximates market value.
If market quotations are not readily available or if in the opinion of the
Adviser any quotation or price is not representative of true market value, the
fair value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the
primary market in which they are traded. Any assets or liabilities expressed in
terms of foreign currencies are translated into U.S. dollars by the custodian
bank based on London currency exchange quotations as of 5:00 p.m. London time
(12:00 noon, New York time) on the date of any determination of a Fund's NAV. If
quotations are not readily available, or the value has been materially affected
by events occurring after the closing of a foreign market, assets are valued by
a method that the Trustees believe accurately reflects fair value.
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 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
Class A shares of the Fund are offered at a price equal to their net
asset value plus a sales charge which, at the option of the purchaser, may be
imposed
35
<PAGE>
either at the time of purchase (the "initial sales charge alternative") or on a
contingent deferred basis (the "deferred sales charge alternative"). Share
certificates will not be issued unless requested by the shareholder in writing,
and then they will only be issued for full shares. The Trustees reserve the
right to change or waive the Fund's minimum investment requirements and to
reject any order to purchase shares (including purchase by exchange) when in the
judgment of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund
are described in the Fund's Prospectus. Methods of obtaining a reduced sales
charge 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, or if John Hancock Investor Services Corporation ("Investor Services") is
notified by the investor's dealer or the investor at the time of the purchase,
the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to
purchases of Class A shares made at one time, the purchases will be combined if
made by (a) an individual, his or her spouse and their children under the age of
21, purchasing securities for his, her or their own account, (b) a trustee or
other fiduciary purchasing for a single trust, estate or fiduciary account and
(c) certain groups of four or more individuals making use of salary deductions
or similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
Without Sales Charge. Class A shares may be offered without a front-end
sales charge or CDSC to various individuals and institutions as follows:
- - Any state, county or any instrumentality, department, authority, or agency
of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any
registered investment management company.
- - A bank, trust company, credit union, savings institution or other depository
institution, its trust departments or common trust funds if it is purchasing
$1 million or more for non-discretionary customers or accounts.
- - A Trustee or officer of the Trust; a Director or officer of the Adviser and
its affiliates or Selling Brokers; employees or sales representatives of any
of the foregoing; retired officers, employees or Directors of any of the
foregoing; a member of the immediate family (spouse, children, mother,
father, sister, brother, mother-in-law, father-in-law) of any of the
foregoing; or any fund, pension, profit sharings or other benefit plan for
the individuals described above.
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<PAGE>
- - A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds providing
specifically for the use of Fund shares in fee-based investment products or
services made available to their clients.
- - A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
- - A member of an approved affinity group financial services plan.
- - Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
following rate:
<TABLE>
<CAPTION>
<S> <C> <C>
AMOUNT INVESTED CDSC RATE
--------------- ---------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
</TABLE>
Accumulation Privilege. Investors (including investors combining purchases)
who are already Class A shareholders may also obtain the benefit of a reduced
sales charge by taking into account not only the amount then being invested
but also the purchase price or current account 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 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 made over a specified period pursuant to a Letter of Intention (the
"LOI"), which should be read carefully prior to its execution by an investor.
The Fund offers two options regarding the specified period for making
investments under the LOI. All investors have the option of making their
investments over a specified period of thirteen (13) months. Investors who are
using the Fund as a funding medium for a qualified retirement plan, however, may
opt to make the necessary investments called for by the LOI over a forty-eight
(48) month period. These qualified retirement plans include group IRA, SEP,
SARSEP, TSA, 401(k) and Section 457 plans. Such an investment (including
accumulations and combinations) must aggregate $100,000 or more invested during
the
37
<PAGE>
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
13 or 48 months the sales charge applicable will not be higher than that which
would have applied (including accumulations and combinations) had the LOI been
for the amount actually invested.
The LOI authorizes Investor Services to hold in escrow a sufficient
Class A shares (approximately 3% 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 Class A shares will be released. If the total investment
specified in the LOI is not completed, the Class A shares held in escrow may be
redeemed and the proceeds used as required to pay such sales charge as may be
due. By signing the LOI, the investor authorizes Investor Services to act as his
or her attorney-in-fact to redeem any escrowed Class A shares and adjust the
sales charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
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.
Contingent Deferred Sales Charge. Class B shares which are redeemed within four
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates
38
<PAGE>
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 Class B shares derived from
reinvestment of dividends or capital gains distributions. No CDSC will be
imposed on shares derived from reinvestment of dividends or capital gains
distributions.
Class B shares are not available to full-service defined contribution
plans administered by Investor Services or the Life Company that had more than
100 eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares. Solely for purposes of determining this number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
In determining whether a CDSC applies to a redemption, the calculation
will be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
have held beyond the six-year CDSC redemption period or those you acquired
through dividend and capital gain reinvestment, and next from the shares you
have held the longest during the six-year period. For this purpose, the amount
of any increase in a share's value above its initial purchase price is not
regarded as a share exempt from CDSC. Thus, when a share that has appreciated in
value is redeemed during the CDSC period, a CDSC is assessed only on its initial
purchase price. Upon redemption, appreciation is effective only on a per share
basis for those shares being redeemed. Appreciation of shares cannot be redeemed
CDSC free at the account level.
When requesting a redemption for a specific dollar amount please
indicate if you require the proceeds to equal the dollar amount requested. If
not indicated, only the specified dollar amount will be redeemed from your
account and the proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject
to CDSC (dividend reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
* Amount subject to CDSC $400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds and are used in
whole or in part by John Hancock Funds to defray their 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 CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other plans qualified under
the Code) unless otherwise noted.
* Redemptions made to effect mandatory distributions under the Internal
Revenue Code after age 70 1/2.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans such as 401k, 403b, 457. In all
cases, the distribution must be free from penalty under the Code.
* Redemptions made to effect distributions from an Individual Retirement
Account either before age 59 1/2 or after age 59 1/2, as long as the
distributions are based on your life expectancy or the joint-and-last
survivor life expectancy
40
<PAGE>
of you and your beneficiary. These distributions must be free from penalty under
the Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
For non-retirement accounts (please see above for retirement account waivers):
* Redemptions of Class B shares made under a periodic withdrawal plan, as long
as your annual redemptions do not exceed 10% of your account value at the
time you established your periodic withdrawal plan and 10% of the value of
subsequent investments (less redemptions) in that account at the time you
notify Investor Services. (Please note, this waiver does not apply to
periodic withdrawal plan redemptions of Class A shares that are subject to a
CDSC.)
Please see matrix for reference.
CDSC Waiver Matrix for Class B Funds
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Type of 401(a) Plan 403(b) 457 IRA, IRA Non-retirement
Distribution (401(k), MPP, Rollover
PSP)
Death or Waived Waived Waived Waived Waived
Disability
Over 70 1/2 Waived Waived Waived Waived for 10% of account
mandatory value annually
distributions in periodic
payments
Between 59 1/2 Waived Waived Waived Only Life 10% of account
and 70 1/2 Expectancy value annually
Under 59 1/2 Waived for Waived for Waived for Waived for 10% of account
rollover, or annuity payments annuity payments annuity payments value annually
annuity in periodic
payments. Not payments
waived if paid
directly to
participant.
Loans Waived Waived N/A N/A N/A
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
Hardships Not Waived Not Waived N/A N/A N/A
Return of Excess Waived Waived Waived Waived N/A
</TABLE>
41
<PAGE>
IF YOU QUALIFY FOR A CDSC WAIVER UNDER ONE OF THESE SITUATIONS, YOU MUST NOTIFY
INVESTOR SERVICES AT THE TIME YOU MAKE YOUR REDEMPTION. THE WAIVER WILL BE
GRANTED ONCE INVESTOR SERVICES HAS CONFIRMED THAT YOU ARE ENTITLED TO THE
WAIVER.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he or she would incur a brokerage charge.
Any such securities would be valued for the purposes of making such payment at
the same value as used in determining net asset value. The Fund has, however,
elected to be governed by Rule 18f-1 under the Investment Company Act. Under
that rule, the Fund must redeem its shares for cash except to the extent that
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 Fund shares. Since
the redemption price of the Fund shares may be more or less than the
shareholder's cost, depending upon the market value of the securities owned by
the Fund at the time of redemption, the distribution of cash pursuant to this
plan may result in realization of gain or loss for purposes of Federal, state
and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares of the Fund
could be disadvantageous to a shareholder because of the initial sales charge
payable on such purchases of Class A shares and the CDSC imposed on redemptions
of Class B shares and because redemptions are taxable events. Therefore, a
shareholder should not purchase Class A or Class B shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan in the future. The shareholder may terminate the plan at any time by
giving proper notice to Investor Services.
42
<PAGE>
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:
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 shares of the
Fund may, within 120 days after the date of redemption, reinvest without payment
of a sales charge any part of the redemption proceeds in shares of the same
class of the Fund or in any 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 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
43
<PAGE>
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 the classes of the Fund.
Class A and Class B shares of the Fund will be sold exclusively to members of
the public (other than the institutional investors described in the Prospectus)
at net asset value. A sales charge will be imposed either at the time of the
purchase, for Class A shares, or on a contingent deferred basis, for Class B
shares. For Class A shares, no sales charge is payable at the time of purchase
on investments of $1 million or more, but for such investments a CDSC may be
imposed in the event of certain redemption transactions within one year of
purchase.
Class A and Class B shares each have 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 and Class B shares will bear any other
class expenses properly allocable to such class of shares, subject to the
conditions set forth in a private letter ruling that the Fund has received from
the Internal Revenue Service relating to its multiple-class structure.
Similarly, the net asset value per share may vary depending on whether Class A
or Class B shares are purchased.
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 requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding
44
<PAGE>
office were elected by the shareholders, the Trustees will call a special
meeting of shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the Trust. However, the Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations or affairs of
the Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any Fund shareholder held
personally liable by reason of being or having been a shareholder. Liability is
therefor limited to circumstances in which the Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
PURSUANT TO AN ORDER GRANTED BY THE SEC, THE FUND HAS ADOPTED A
DEFERRED COMPENSATION PLAN FOR ITS INDEPENDENT TRUSTEES WHICH ALLOWS TRUSTEES'
FEES TO BE INVESTED BY THE FUND IN OTHER JOHN HANCOCK FUNDS.
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 Freedom Investment Trust II, including the Fund, is
treated as a separate entity for tax purposes. The Fund has qualified and
elected to be treated as a "regulated investment company" under Subchapter M of
the Code and intends to continue to so qualify for each taxable year. As such
and by complying with the applicable provisions of the Code regarding the
sources of its income, the timing of its distributions, and the diversification
of its assets, the Fund will not be subject to Federal income tax on taxable
income (including net realized capital gains) 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% percent 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, as computed for Federal
income tax purposes, will be taxable as described
45
<PAGE>
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, dividend by the number of shares received.
If the Fund invests in stock of certain non-U.S. corporations that
receive at least 75% of their annual gross income from passive sources (such as
interest producing investments, dividends, rents, royalties or capital gain) or
hold at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), the Fund could be subject to Federal
income tax and additional interest charges on "excess distributions" received
from these passive foreign investment companies, even if all income or gain
actually received by the Fund is timely distributed to its shareholders. The
Fund would not be able to pass through to its shareholders any credit or
deduction for such tax. Certain elections if available ameliorate these adverse
tax consequences. Accordingly, the Fund may limit its investment in passive
foreign investment companies to minimize 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, possibly including speculative currency positions or
currency derivatives not used for hedging purposes, may increase the amount of
gain it is deemed to recognize from the sale of certain investments held for
less than three months, which gain is limited under the Code to less than 30% of
its annual gross income, and could under future Treasury regulations produce
income not among the types of "qualifying income" from which the Fund must
derive at least 90% of its annual gross income. 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
46
<PAGE>
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 portions of foreign income taxes paid by the Fund,
although such shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit for such foreign
taxes may be required to treat a portion of dividends received from the Fund as
a separate category of income for purposes of computing the limitations on the
foreign tax credit. Tax-exempt shareholders will ordinarily not benefit from
this election. Each year that the Fund files the election described above, its
shareholders will be notified of the amount of (i) each shareholder's pro rata
share of foreign income taxes paid by the Fund and (ii) the portion of Fund
dividends which represents income from each foreign country.
The amount of net realized short-term and long-term capital gains, if
any, in any given year will vary depending upon the Adviser's current investment
strategy and whether the Adviser believes it to be in the best interest of the
Fund to dispose of portfolio securities or enter into options or futures
transactions that will generate capital gains. At the time of an investor's
purchase of Fund shares, a portion of the purchase price is often attributable
to realized or unrealized appreciation in the Fund's portfolio or undistributed
taxable income of the Fund. Consequently, subsequent distributions on those
shares from such appreciation or income may be taxable to such investor even if
the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption of shares of (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
47
<PAGE>
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 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 gain
realized in any year to the extent that a capital loss is carried forward from
prior years against such gain. To the extent such excess was retained and not
exhausted by the carryforward of prior years' capital losses, it would be
subject to Federal income tax in the hands of the Fund. 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 shares 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 shares 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 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 $29,216,361 of capital loss carryforwards,
available, to the extent provided by regulations to offset net capital gains. Of
these, $1,001,257 expire October 31, 1999, $ 17,243,199 expire October 31, 2000,
$ 3,127,414 expire October 31, 2001, $ 2,740,548 expire October 31, 2002 and
$5,103,943 expire October 31, 2003.
Only a very small portion, if any, of the distributions from the Fund
is expected to qualify for the dividends-received deduction for corporations,
subject to the limitations applicable under the Code. The qualifying portion is
limited to properly
48
designated distributions derived from dividend income (if any) the Fund receives
from certain stock in U.S. domestic corporations.
The Fund accrues income on certain PIKs, zero coupon securities or
certain increasing rate securities (and, in general, 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 payments received by the Fund with respect to loan
participations, such as commitment fees or facility fees, may not be treated as
qualifying income under the 90% requirement referred to above if they are not
properly treated as interest under the Code.
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
49
<PAGE>
applicable tax rules may be modified if the Fund is eligible and chooses to make
one or more of certain tax elections that may be available. These transactions
may therefore affect the amount, timing and character of the Fund's
distributions to shareholders. The Fund will take into account the special tax
rules (including consideration of available elections) applicable to options,
futures or forward contracts in order to minimize any potential adverse tax
consequences.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions. Dividends, capital gain distributions, and ownership
of or gains realized on the or 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 nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund and, unless an effective IRS Form W-8 or authorized
substitute 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
For the 30-day period ended April 30, 1996, the annualized yield on
Class A and Class B shares of the Fund was 6.77% and 6.28%, respectively. The
average annual total return of the Class A and for Class B shares of the Fund
for the 1 year period ended April 30, 1996 was 6.68% and 6.25%, respectively.
For the period ended April 30, 1996, the average annual total return for Class A
shares from commencement of operations on January 3, 1992 and for Class B shares
from commencement of operations on December 28, 1990 was 4.74% and 5.27%,
respectively.
50
<PAGE>
The Fund's yield is computed by dividing net investment income per
share determined for a 30-day period by the maximum offering price per share
(which includes the full sales charge) on the last day of the period, according
to the following standard formula:
[(a-b ) (6) )]
Yield = 2 [(--- + 1) - 1)]
[(cd ) )]
Where:
<TABLE>
<CAPTION>
<S> <C>
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the period that would be entitled to receive
dividends.
d = the maximum offering price per share on the last day of the period (NAV where applicable).
</TABLE>
The "distribution rate" is determined by annualizing the result of
dividing the declared dividends of the Fund during the period stated by the
maximum offering price or net asset value at the end of the period. Excluding
the Fund's sales load from the distribution rate produces a higher rate.
The Fund's total return is computed by finding the average annual
compounded rate of return over the 1 year and life of fund periods that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
T= [square roof of (ERV divided by P)]-1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
51
<PAGE>
ERV = ending redeemable value of a hypothetical $1,000 investment made at the
beginning of the 1 year and life-of-the fund periods.
In the case of Class A or Class B shares, this calculation assumes the
maximum sales charge of 3.00% is included in the initial investment or the CDSC
applied at the end of the period. This calculation also assumes that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period.
In addition to average annual total returns, the 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 3.00% sales charge
on Class A shares or the 3.00% CDSC on Class B shares into account. Excluding
the Fund's sales charge on Class A shares and the CDSC on Class B shares from a
total return calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's
total return will be compared to indices of mutual funds such as Lipper
Analytical Services, Inc.'s "Lipper-Mutual Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on mutual funds in
the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes, as well as the Russell and Wilshire indices.
Performance rankings and ratings reported periodically in national
financial publications such as Money Magazine, Forbes, Business Week, The Wall
Street Journal, Morningstar, Stangers and Barron's will 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
Fund performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and
the allocation of brokerage commissions are made by officers of the Fund
pursuant to recommendations made by an investment committee of the Adviser,
which consists of officers and directors of the Adviser and its affiliates, and
officers and Trustees who are interested persons of the Fund. Orders for
purchases and sales of securities are placed
52
<PAGE>
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 of the Fund, and their value and expected contribution to the
performance of the Fund. It is not possible to place a dollar value on
information and services to be received from brokers and dealers, since it is
only supplementary to the research efforts of the Adviser. The receipt of
research information is not expected to reduce significantly the expenses of the
Adviser. The research information and statistical assistance furnished by
brokers and dealers may benefit the Life Company or other advisory clients of
the Adviser, and conversely, brokerage commissions and spreads paid by other
advisory clients of the Adviser may result in research information and
statistical assistance beneficial to the Fund. The Fund will make no commitment
to allocate portfolio transactions upon any prescribed basis. While the Adviser
will be primarily responsible for the allocation of the Fund's brokerage
business, 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 October 31, 1995, 1994 and 1993, no negotiated brokerage
commissions were paid on portfolio transactions.
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the Fund may pay a broker which provides brokerage and research services to the
Fund an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended October 31,
1995, the Fund did not pay commissions as compensation
53
<PAGE>
to any 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 policy of
obtaining best net results, the Fund may execute portfolio transactions with or
through Tucker Anthony or Sutro. During the years ending October 31, 1995 and
1994, 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 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 Brokers acts as of the Trustees who
are not interested persons (as defined in the Investment Company Act) of the
Fund, the Adviser or the Affiliated Broker. Because the Adviser, which is
affiliated with the Affiliated Brokers, has, as an investment adviser to the
Fund, the obligation to provide investment management services, which includes
elements of research and related investment skills, such research and related
skills will not be used by the Affiliated 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.
TRANSFER AGENCY SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205- 9116, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays an annual fee of
$20.00 for each Class A shareholder and $22.50 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.
54
<PAGE>
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian
agreement between the Trust and State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110. Under the custodian agreement,
State Street Bank and Trust Company performs custody, portfolio and fund
accounting services.
INDEPENDENT AUDITORS
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.
55
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS*
Moody's Bond ratings
Bonds. "Bonds which are rated 'Aaa' are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most likely to impair
the fundamentally strong position of such issues.
"Bonds which are rated 'Aa' are judged to be of high quality by all standards.
Together with the 'Aaa' group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in 'Aaa'
securities.
"Bonds which are rated 'A' possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Bonds which are rated 'Baa' are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Bonds which are rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position,
characterizes bonds in this class.
"Bonds which are rated 'B' generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue. Should
no rating be assigned,
- ------------
(*) As described by the rating companies themselves.
56
<PAGE>
the reason may be one of the following: (i) an application for rating was not
received or accepted; (ii) the issue or issuer belongs to a group of securities
that are not rated as a matter of policy; (iii) there is a lack of essential
data pertaining to the issue or issuer; or (iv) the issue was privately placed,
in which case the rating is not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Standard & Poor's Bond ratings
"AAA. Debt rated 'AAA' has the highest rating by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
"AA. Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
"A. Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB. Debt rated 'BBB' is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Debt rated "BB," OR "B," is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and pay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major risk exposures to adverse conditions.
UNRATED. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
57
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper Ratings
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"P-1 -- 'Prime-1' indicates the highest quality repayment capacity of the rated
issues.
"P-2 -- 'Prime-2' indicates that the issuer has a strong capacity for repayment
of short-term promissory obligations. Earnings trends and coverage ratios,
while sound, will be more subjective to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained."
Standard & Poor's Commercial Paper Ratings
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Standard & Poor's two highest commercial paper rating categories
are as follows:
"A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
"A-2 -- Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1."
58
<PAGE>
QUALITY DISTRIBUTION
The average weighted quality distribution of the portfolio for the fiscal year
ended October 31, 1995:
<TABLE>
<CAPTION>
Security Rating Average % of Rating Assigned Rating Assigned % of
- --------------- ------- ---- --------------- --------------- ----
- by Advisor Value Portfolio by Adviser % of Portfolio by Service Portfolio
------------ ----- --------- ---------- -------------- ---------- ---------
Quality
- -------
Distribution:
- ------------
Total Fund
- ----------
<S> <C> <C> <C> <C> <C> <C>
AAA $38,014,504 36.2% $2,654,595 2.5% $35,359,909 33.7%
AA 10,709,092 10.2% 3,017,187 2.9% 7,691,905 7.3%
A 9,576,309 9.2% 9,498,716 9.1% 77,593 0.1%
BBB 1,575,192 1.5% 381,346 0.4% 1,193,846 1.1%
BB 13,226,155 12.7% 7,402,050 7.1% 5,824,105 5.6%
B 21,092,160 20.1% 12,943,618 12.3% 8,148,542 7.8%
CCC 4,154,231 4.0% 0 0.0% 4,154,231 4.0%
CC 0 0.0% 0 0.0% 0 0.0%
C 0 0.0% 0 0.0% 0 0.0%
D 53,846 0.1% 53,846 0.1% 0 0.0%
NR 3,627,603 3.4% 3,627,603 3.4% 0 0.0%
Debt 102,029,092 97.4% $39,578,961 37.8% $62,450,131 59.6%
Securities
Equity 0 0.0%
Securities
Short-Term 2,751,984 2.6%
Securities
Total 104,781,076 100.0%
Portfolio
Other Assets - 593,205
Net
Net Assets $105,374,281
</TABLE>
59
<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); and 1996 Freedom Investment Trust II, Semi-Annual Report
to Shareholders for the period ended April 30, 1996 (filed electronically on
July 1, 1996: file nos. 811-4630 and 33-4559; accession numbers
0001010521-96-000111, 0001010521-96-000109, 0001010521-96-000110,
0001010521-96-000112 .
Freedom Investment Trust II
John Hancock Global Fund
John Hancock Short-Term Strategic Fund
John Hancock Global Income Fund
John Hancock International 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.
Statement of Assets and Liabilities as of April 30, 1996.
Statement of Operations for the year ended April 30, 1996.
Statement of Changes in Net Assets for each of the two years in the
period ended April 30, 1996.
Financial Highlights for each of the years ended April 30, 1996.
Schedule of Investments as of April 30, 1996.
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.
C-1
<PAGE>
Item 26. Number of Holders of Securities
As of May 31, 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 18,609 5,958
John Hancock Global Income Fund 3,830 10,587
John Hancock Short-Term Strategic Income Fund 1,587 8,960
John Hancock International Fund 17,803 20,916
John Hancock Special Opportunities Fund 30,256 2,383
John Hancock Growth Fund
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.
C-2
<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
C-3
<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 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.
C-4
<PAGE>
<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
26th day of June, 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
- ----------------------- (Principal Executive Officer)
Edward J. Boudreau, Jr.
/s/ James B. Little Senior Vice President and Chief June 26, 1996
- ----------------------- Financial Officer (Principal
James B. Little 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
- -----------------------
John A. Moore
* Trustee
- -----------------------
Patti McGill Peterson
* Trustee
- -----------------------
John W. Pratt
*By: /s/Thomas H. Drohan June 26, 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 Global Fund+
27.1B John Hancock Global Fund+
27.2A John Hancock Short-Term Strategic Fund+
27.2B John Hancock Short-Term Strategic Fund+
27.3A John Hancock Global Income Fund+
27.3B John Hancock Global Income Fund+
27.4A John Hancock International Fund+
27.4B John Hancock International 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
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statements of Additional Information constituting parts of this Post Effective
Amendment No. 31 to the Registration Statement on Form N-1A (the "Registration
Statement") of our reports dated December 18, 1995, relating to the financial
statements and financial highlights appearing in the October 31, 1995 Annual
Reports to Shareholders of John Hancock Global Fund, John Hancock World Bond
Fund (formerly John Hancock Global Income Fund), John Hancock Short-Term
Strategic Income Fund, and John Hancock International Fund (the "Funds"), each a
series of Freedom Investment Trust II, which financial statements and financial
highlights are also incorporated by reference into the Registration Statement.
We also consent to the references to us under the headings "Independent
Auditors" in such Statements of Additional Information and under the headings
"Financial Highlights" in such Prospectuses.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
June 27, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> JOHN HANCOCK GLOBAL 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> 95,920,986
<INVESTMENTS-AT-VALUE> 116,185,783
<RECEIVABLES> 2,235,475
<ASSETS-OTHER> 76,715
<OTHER-ITEMS-ASSETS> 20,239,357
<TOTAL-ASSETS> 118,472,533
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 305,211
<TOTAL-LIABILITIES> 305,211
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,749,452
<SHARES-COMMON-STOCK> 7,386,947
<SHARES-COMMON-PRIOR> 7,131,436
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,178,513
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,239,357
<NET-ASSETS> 118,167,322
<DIVIDEND-INCOME> 1,857,264
<INTEREST-INCOME> 144,294
<OTHER-INCOME> 0
<EXPENSES-NET> 2,456,873
<NET-INVESTMENT-INCOME> (455,315)
<REALIZED-GAINS-CURRENT> 7,707,727
<APPREC-INCREASE-CURRENT> (8,441,382)
<NET-CHANGE-FROM-OPS> (1,188,970)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 9,441,512
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 881,102
<NUMBER-OF-SHARES-REDEEMED> 1,407,258
<SHARES-REINVESTED> 781,667
<NET-CHANGE-IN-ASSETS> (15,379,731)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12,558,308
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,175,313
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,572,386
<AVERAGE-NET-ASSETS> 93,536,864
<PER-SHARE-NAV-BEGIN> 14.30
<PER-SHARE-NII> (0.07)
<PER-SHARE-GAIN-APPREC> 1.24
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.31
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.16
<EXPENSE-RATIO> 1.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> JOHN HANCOCK GLOBAL FUND - CLASS B
<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> 95,920,986
<INVESTMENTS-AT-VALUE> 116,185,783
<RECEIVABLES> 2,235,475
<ASSETS-OTHER> 76,715
<OTHER-ITEMS-ASSETS> 20,239,357
<TOTAL-ASSETS> 118,472,533
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 305,211
<TOTAL-LIABILITIES> 305,211
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 89,749,452
<SHARES-COMMON-STOCK> 1,987,986
<SHARES-COMMON-PRIOR> 2,283,610
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 8,178,513
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 20,239,357
<NET-ASSETS> 118,167,322
<DIVIDEND-INCOME> 1,857,264
<INTEREST-INCOME> 144,294
<OTHER-INCOME> 0
<EXPENSES-NET> 2,456,873
<NET-INVESTMENT-INCOME> (455,315)
<REALIZED-GAINS-CURRENT> 7,707,727
<APPREC-INCREASE-CURRENT> (8,441,382)
<NET-CHANGE-FROM-OPS> (1,188,970)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 3,043,184
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 546,939
<NUMBER-OF-SHARES-REDEEMED> 1,082,302
<SHARES-REINVESTED> 239,739
<NET-CHANGE-IN-ASSETS> (15,379,731)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 12,558,308
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,175,313
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,572,386
<AVERAGE-NET-ASSETS> 27,402,165
<PER-SHARE-NAV-BEGIN> 14.17
<PER-SHARE-NII> (0.15)
<PER-SHARE-GAIN-APPREC> 1.22
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.31
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.93
<EXPENSE-RATIO> 2.59
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> JOHN HANCOCK SHORT-TERM STRATEGIC INCOME 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> 99,459,492
<INVESTMENTS-AT-VALUE> 100,295,989
<RECEIVABLES> 2,524,930
<ASSETS-OTHER> 97,382
<OTHER-ITEMS-ASSETS> 811,116
<TOTAL-ASSETS> 102,892,920
<PAYABLE-FOR-SECURITIES> 1,051,208
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 244,126
<TOTAL-LIABILITIES> 1,295,334
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132,543,123
<SHARES-COMMON-STOCK> 2,020,156
<SHARES-COMMON-PRIOR> 1,545,084
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,275,819)
<ACCUMULATED-NET-GAINS> (30,480,834)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 811,116
<NET-ASSETS> 101,597,586
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,992,443
<OTHER-INCOME> 0
<EXPENSES-NET> 2,056,314
<NET-INVESTMENT-INCOME> 8,936,129
<REALIZED-GAINS-CURRENT> (5,911,889)
<APPREC-INCREASE-CURRENT> 5,061,667
<NET-CHANGE-FROM-OPS> 8,085,907
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,163,444
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 299,463
<NUMBER-OF-SHARES-SOLD> 1,378,812
<NUMBER-OF-SHARES-REDEEMED> 1,027,565
<SHARES-REINVESTED> 123,825
<NET-CHANGE-IN-ASSETS> (9,883,293)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (24,568,945)
<OVERDISTRIB-NII-PRIOR> (1,275,819)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 682,732
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,056,314
<AVERAGE-NET-ASSETS> 16,042,625
<PER-SHARE-NAV-BEGIN> 8.47
<PER-SHARE-NII> 0.77
<PER-SHARE-GAIN-APPREC> (0.06)
<PER-SHARE-DIVIDEND> 0.61
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.16
<PER-SHARE-NAV-END> 8.41
<EXPENSE-RATIO> 1.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> JOHN HANCOCK SHORT-TERM STRATEGIC INCOME FUND - CLASS B
<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> 99,459,492
<INVESTMENTS-AT-VALUE> 100,295,989
<RECEIVABLES> 2,524,930
<ASSETS-OTHER> 97,382
<OTHER-ITEMS-ASSETS> 811,116
<TOTAL-ASSETS> 102,892,920
<PAYABLE-FOR-SECURITIES> 1,051,208
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 244,126
<TOTAL-LIABILITIES> 1,295,334
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 132,543,123
<SHARES-COMMON-STOCK> 10,068,537
<SHARES-COMMON-PRIOR> 11,627,397
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,275,819)
<ACCUMULATED-NET-GAINS> (30,480,834)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 811,116
<NET-ASSETS> 101,597,586
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 10,992,443
<OTHER-INCOME> 0
<EXPENSES-NET> 2,056,314
<NET-INVESTMENT-INCOME> 8,936,129
<REALIZED-GAINS-CURRENT> (5,911,889)
<APPREC-INCREASE-CURRENT> 5,061,667
<NET-CHANGE-FROM-OPS> 8,085,907
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,943,424
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 1,529,798
<NUMBER-OF-SHARES-SOLD> 2,159,157
<NUMBER-OF-SHARES-REDEEMED> 4,211,675
<SHARES-REINVESTED> 493,658
<NET-CHANGE-IN-ASSETS> (9,883,293)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (24,568,945)
<OVERDISTRIB-NII-PRIOR> (1,275,819)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 682,732
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,056,314
<AVERAGE-NET-ASSETS> 88,992,997
<PER-SHARE-NAV-BEGIN> 8.46
<PER-SHARE-NII> 0.70
<PER-SHARE-GAIN-APPREC> (0.06)
<PER-SHARE-DIVIDEND> 0.56
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0.14
<PER-SHARE-NAV-END> 8.40
<EXPENSE-RATIO> 2.07
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> JOHN HANCOCK GLOBAL INCOME 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> 96,809,770
<INVESTMENTS-AT-VALUE> 99,713,678
<RECEIVABLES> 2,089,320
<ASSETS-OTHER> 51,349
<OTHER-ITEMS-ASSETS> 2,859,361
<TOTAL-ASSETS> 101,809,800
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 875,398
<TOTAL-LIABILITIES> 875,398
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 104,406,950
<SHARES-COMMON-STOCK> 3,797,761
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<NUMBER> 022
<NAME> JOHN HANCOCK GLOBAL INCOME FUND - CLASS B
<S> <C>
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<TABLE> <S> <C>
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<NUMBER> 051
<NAME> JOHN HANCOCK INTERNATIONAL FUND - CLASS A
<S> <C>
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<NUMBER> 052
<NAME> JOHN HANCOCK INTERNATIONAL FUND - CLASS B
<S> <C>
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