As filed with the Securities and Exchange Commission on February 29, 1996
Registration No. 33-4559
Registration No. 811-4630
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [x]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 29 [x]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [x]
Amendment No. 30
(Check appropriate box or boxes.)
Freedom Investment Trust II
(Exact Name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code
(617) 375-1700
THOMAS H. DROHAN
Senior Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b)
[x] On March 1, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] On (date) pursuant to paragraph (a) of Rule 485
<TABLE>
Calculation of Regisitration Fees Under the Securities Act of 1993
<CAPTION>
Proposed Maximum Proposed Aggregate
Title of Securities Amount of Shares Offering Price Maximum Amount of
Being Registered Being Registered Per Share Offering Price Registration Fee
<S> <C> <C> <C> <C>
Shares of Beneficial Interest Indefinite $13.26 $290,000 N/A
Shares of Beneficial Interest 6,833,678 $100.00
</TABLE>
1.Registrant continue its election to register an indefinite number of
shares of beneficial interest pursuant to Rule 24e-2 under the investment
Company Act of 1940, as amended.
2.Registrant elects to calculate the maximum aggregate offering price
pursuant ot Rule 24f-2. 24,875,675 shares were redeemed during the fiscal
year ended October 31, 1995. 18,063,867 shares were used for reductions
pursuant to Paragraph (c) of Rule 24f-2 during the current fiscal year.
6,833,678 shares is the amount of redeemed shares used for reduction in this
Amendment. Pursuant to Rule 457(c) under the Securities Act of 1933, the
maximum public offering price of $13.26 per share on February 16, 1996 is
the price used as the basis for calculating the registration fee. While no
fee is required for the 6,811,808 shares, the Registrant has elected to
register, for $100, an additional $290,000 shares (approximately 21,870
shares at $13.26 per share).
Pursuant to Rule 24f-2 under the Investment Company Act of 1940,
Registrant has registered an indefinite number of shares under the
Securities Act of 1933. The Registrant filed the notice required by Rule
24f-2 for its most recent fiscal year on or about December 26, 1995.
1
<PAGE>
<TABLE>
CROSS REFERENCE SHEET
Pursuant to Rule 485(b) under the Securities Act of 1933
<CAPTION>
Item Number Statement of Additional
Form N-1A Part A Prospectus Caption Information Caption
---------------- ------------------ -------------------
<S> <C> <C>
1 Front Cover Page *
2 Expense Information; *
The Fund's Expenses;
Shares Price;
Additional Services and
Programs
3 The Fund's Financial *
History Performance
4 Investment Objectives and *
Policies; Organization and
Management of the Fund
5 Organization and Management *
of the Fund; The Fund's
Expenses
6 Organization and Management of *
Fund; Distribution and Taxes;
How to Redeem Shares;
Additional Services and Programs
7 Who Can Buy Shares; *
How to Buy Shares;
Shares Price; Additional
Services and Programs
8 How to Redeem Shares *
9 Not Applicable *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Item Number Statement of Additional
Form N-1A Part A Prospectus Caption Information Caption
---------------- ------------------ -------------------
<S> <C> <C>
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
13 * Investment Objective and
Policies; Investment
Restrictions
14 * Those Responsible for
Management
15 * Those Responsible for
Management
16 * Investment Advisory and
Other Services;
Distribution Contract;
Transfer Agent Services;
Custody of Portfolio;
Independent Auditors
17 * Brokerage Allocation
18 * Description of the Fund's
Shares
19 * Net Asset Value; Additional
Services and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of Performance
23 * Financial Statements
</TABLE>
<PAGE>
JOHN HANCOCK
GLOBAL FUND
JOHN HANCOCK
GLOBAL INCOME FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
MARCH 1, 1996
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Expense Information........................................................ 2
The Funds' Financial Highlights............................................ 3
Investment Objectives and Policies......................................... 6
Global Fund........................................................... 6
Global Income Fund.................................................... 7
Certain Investment Strategies.............................................. 8
Organization and Management of the Funds................................... 12
Alternative Purchase Arrangements.......................................... 13
The Funds' Expenses........................................................ 14
Dividends and Taxes........................................................ 15
Performance................................................................ 16
How to Buy Shares.......................................................... 18
Share Price................................................................ 19
How to Redeem Shares....................................................... 25
Additional Services and Programs........................................... 27
</TABLE>
This Prospectus sets forth the information about John Hancock Global Fund
("Global Fund") a diversified fund and John Hancock Global Income Fund ("Global
Income Fund") a non-diversified fund, both series of Freedom Investment Trust II
(the "Trust"), that you should know before investing. Please read and retain it
for future reference.
Additional information about the Funds has been filed with the Securities and
Exchange Commission (the "SEC"). You can obtain a copy of the Funds' Statement
of Additional Information, dated March 1, 1995, and incorporated by reference
into this Prospectus, free of charge by writing or telephoning: John Hancock
Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts 02205-9116,
1-800-225-5291 (1-800-554-6713 TDD).
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you understand the various
fees and expenses you will bear, directly or indirectly, when you purchase Fund
shares. The operating expenses included in the table and hypothetical example
below are based on actual fees and expenses for the Class A and Class B shares
of the Funds' fiscal year ended October 31, 1995 adjusted for certain current
fees and expenses. Actual fees and expenses may be greater or less than those
shown.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
-------- --------
<S> <C> <C>
GLOBAL FUND
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price).................... 5.00% None
Maximum sales charge imposed on reinvested dividends..... None None
Maximum deferred sales charge............................ None* 5.00%
Redemption fee(a)........................................ None None
Exchange fee............................................. None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fee(b)........................................ 0.96% 0.96%
12b-1 fee**.............................................. 0.30% 1.00%
Other expenses........................................... 0.61% 0.61%
Total Fund operating expenses............................ 1.87% 2.57%
</TABLE>
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
<C> <C>
GLOBAL INCOME FUND
SHAREHOLDER TRANSACTION EXPENSES
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* 5.00%
Redemption fee(a)........................................ None None
Exchange fee............................................. None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fee........................................... 0.75% 0.75%
12b-1 fee**.............................................. 0.30% 1.00%
Other expenses........................................... 0.43% 0.43%
Total Fund operating expenses............................ 1.48% 2.18%
</TABLE>
- ---------------
* No sales charge is payable at the time of purchase on investments in Class A
shares of $1 million or more, but for these investments a contingent deferred
sales charge may be imposed, as described under the caption "Share Price," in
the event of certain redemption transactions within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of average daily net assets, and the remaining portion will be used to
cover distribution expenses.
(a) Redemption by wire fee (currently $4.00) not included.
(b) The calculation of the management fee is based on average net assets for the
fiscal year ended October 31, 1995. See "The Fund's Expenses."
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- -------- ---------
You would pay the following expenses
for the indicated period of years
on a hypothetical $1,000 investment
assuming a 5% annual return:
Global Fund
Class A shares...................... $ 68 $ 106 $146 $ 258
Class B shares
--Assuming complete redemption at
end of period..................... $ 76 $ 110 $157 $ 273
--Assuming no redemption............ $ 26 $ 80 $137 $ 273
Global Income Fund
Class A shares...................... $ 59 $ 90 $122 $ 214
Class B shares
--Assuming complete redemption at
end of period......................$ 72 $ 98 $137 $ 234
--Assuming no redemption.............$ 22 $ 68 $117 $ 234
(The example should not be considered as a representation of past or future
expenses. Actual expenses may be greater or less than shown.)
The Fund's payment of a distribution fee may result in a long-term shareholder
indirectly paying more than the economic equivalent of the maximum front-end
sales charge permitted under the National Association of Securities Dealers
Rules of Fair Practice.
The management and 12b-1 fees referenced above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement
of Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
2
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
The following table of Financial Highlights has been audited by Price
Waterhouse LLP, the Funds' independent accountants, whose unqualified reports
are included in the Global Fund and Global Income Fund 1995 Annual Reports and
the Funds' Statement of Additional Information. Further information about the
performance of each Fund is contained in each Fund's Annual Report to
Shareholders which may be obtained free of charge by writing or telephoning John
Hancock Investor Services Corporation ("Investor Services") at the address or
telephone number listed on the front page of this Prospectus.
Selected data for each class of shares outstanding throughout each period
indicated are as follows:
<TABLE>
<CAPTION>
Period
Ended
YEAR ENDED OCTOBER 31, May 31,
------------------------------------------------------------------------------------ -------
1995 1994 1993 1992 1991 1990 1989 1988 1987(e) 1987(f)
---- ---- ---- ---- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C>
GLOBAL FUND
CLASS A(a)
PER SHARE OPERATING PERFORMANCE
Net Asset Value,
Beginning of Period............. $14.16 $14.30 $10.55 $11.31
------- -------- ------- -------
Net Investment Loss............. (0.03)** (0.07)** (0.10)** (0.04)**
Net Realized and
Unrealized Gain (Loss) on
Investments and Foreign
Currency Transactions........... (0.13) 1.24 3.85 (0.72)
------- -------- ------- -------
Total from Investment
Operations.................... (0.16) 1.17 3.75 (0.76)
------- -------- ------- -------
Less Distributions:
Distributions from Net
Realized Gain on Investments
Sold and Foreign Currency
Transactions.................. (1.33) (1.31) -- --
------- -------- ------- -------
Net Asset Value, End of Period.. $ 12.67 $ 14.16 $ 14.30 $ 10.55
======= ======== ======= =======
Total Investment Return at
Net Asset Value (b)............. (0.37%) 8.64% 35.55% (6.72%)(h)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted)................. $93,597 $100,973 $90,787 $76,980
------- -------- ------- -------
Ratio of Expenses to Average
Net Assets...................... 1.87% 1.98% 2.12% 2.47%*
Ratio of Net Investment Loss to
Average Net Assets.............. (0.23%) (0.54%) (0.86%) (0.60%)*
Portfolio Turnover Rate......... 60% 61% 108% 69%
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period..... $ 13.93 $ 14.17 $ 10.50 $ 10.92 $ 9.94 $ 13.58 $ 10.67 $ 10.42
------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income (Loss)............. (0.11)** (0.15)** (0.15)** (0.12)** (0.01)** (0.02) (0.10) 0.01
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions............................ (0.13) 1.22 3.82 (0.30) 1.35 (1.12) 3.25 0.69
------- ------- ------- ------- ------- ------- ------- -------
Total from Investment
Operations....................... (0.24) 1.07 3.67 (0.42) 1.34 (1.14) 3.15 0.70
------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
Distributions from Net Investment
Income................................ -- -- -- -- -- -- (0.01) --
Distributions from Net Realized Gain on
Investments Sold and Foreign Currency
Transactions.......................... (1.33) (1.31) -- -- (0.36) (2.50) (0.23) (0.45)
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions............... (1.33) (1.31) -- -- (0.36) (2.50) (0.24) (0.45)
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Period........... $ 12.36 $ 13.93 $ 14.17 $ 10.50 $ 10.92 $ 9.94 $ 13.58 $ 10.67
======= ======= ======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset
Value(b)................................ (1.01%) 7.97% 34.95% (3.85%) 14.04% (10.42%) 30.22% 7.05%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted)......................... $24,570 $31,822 $19,340 $11,475 $28,686 $33,281 $35,596 $34,380
Ratio of Expenses to Average Net
Assets.................................. 2.57% 2.59% 2.49% 2.68% 2.60% 2.46% 2.30% 2.55%
Ratio of Net Investment Income (Loss) to
Average Net Assets...................... (0.89%) (1.12%) (1.25%) (1.03%) (0.12%) (0.59%) (0.47%) 0.09%
Portfolio Turnover Rate.................. 60% 61% 108% 69% 106% 58% 138% 142%
</TABLE>
<TABLE>
<CAPTION>
PERIOD
ENDED
MAY 31,
-------
1987(E) 1987(F)
------- -------
<S> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period..... $ 13.00 $ 9.60
------- -------
Net Investment Income (Loss)............. (0.05) 0.08
Net Realized and Unrealized Gain (Loss)
on
Investments and Foreign Currency
Transactions............................ (2.08) 3.32
------- -------
Total from Investment
Operations....................... (2.13) 3.40
------- -------
Less Distributions:
Distributions from Net Investment
Income................................ (0.12) --
Distributions from Net Realized Gain on
Investments Sold and Foreign Currency
Transactions.......................... (0.33) --
------- -------
Total Distributions............... (0.45) --
------- -------
Net Asset Value, End of Period........... $ 10.42 $ 13.00
======= =======
Total Investment Return at Net Asset
Value(b)................................ (16.97)%(h) 35.42%(h)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted)......................... $50,883 $62,264
Ratio of Expenses to Average Net
Assets.................................. 2.56%* 2.38%*
Ratio of Net Investment Income (Loss) to
Average Net Assets...................... (0.78%)* 0.99%*
Portfolio Turnover Rate.................. 81% 91%
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED
MARCH 31, OCTOBER 31,
1995 --------------------
(UNAUDITED) 1994 1993
----------- -------- --------
<S> <C> <C> <C>
GLOBAL FUND(C)
CLASS C
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.... $14.27 $14.34 $11.75
------ ------ ------
Net Investment Loss..................... -- -- (0.02)
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign
Currency Transactions.................. (0.97) 1.24 2.61
------ ------ ------
Total from Investment
Operations...................... (0.97) 1.24 2.59
------ ------ ------
Less Distributions:
Distributions from Net Realized Gain
on Investments Sold and Foreign
Currency Transactions.............. (1.33) (1.31) --
------ ------
Net Asset Value, End of Period.......... $11.97 $14.27 $14.34
====== ====== ======
Total Investment Return at Net Asset
Value(b)............................... (6.70%)(h) 9.15% 22.04%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's
omitted)............................... $ 795 $ 752 $ 406
Ratio of Expenses to Average Net
Assets................................. 1.37%* 1.42% 1.43% *
Ratio of Net Investment Income (Loss) to
Average Net Assets..................... 0.06%* 0.03% (0.35%)*
Portfolio Turnover Rate................. 60%(d) 61% 108%
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED OCTOBER 31, MAY 31,
-------------------------------------------------------------------------------------- -------
1995 1994 1993 1992(a) 1991 1990 1989 1988 1987(e) 1987(g)
---- ---- ---- ------- ---- ---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<CAPTION>
GLOBAL INCOME FUND
CLASS A
PER SHARE OPERATING
PERFORMANCE
Net Asset Value, Beginning
of Period.................. $ 8.85 $ 9.62 $ 9.76 $ 10.57
------- -------- --------- --------
Net Investment Income....... 0.57** 0.64** 0.76 0.64
Net Realized and Unrealized
Gain (Loss) on Investments,
Options, Financial Futures
Contracts and Foreign
Currency Transactions...... 0.48 (0.78) (0.10) (0.74)
------- -------- --------- --------
Total from Investment
Operations............ 1.05 (0.14) 0.66 (0.10)
------- -------- --------- --------
Less Distributions:
Dividends from Net
Investment Income.......... (0.59) (0.11) (0.38) (0.71)
Distributions in
Excess of Net
Investment Income.......... -- -- (0.04) --
Distributions from
Capital Paid-In............. (0.01) (0.52) (0.38) --
------- -------- --------- --------
Total Distributions..... (0.60) (0.63) (0.80) (0.71)
------- -------- --------- --------
Net Asset Value,
End of Period............... $ 9.30 $ 8.85 $ 9.62 $ 9.76
------- -------- --------- --------
Total Investment Return
at Net Asset Value(b)....... 12.25% (1.30%) 7.14% (0.88%)*
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted)............. $35,334 $ 8,949 $ 12,882 $ 12,880
Ratio of Expenses to
Average Net Assets.......... 1.48% 1.59% 1.46% 1.41%*
Ratio of Net Investment
Income to Average Net Assets 6.43% 7.00% 7.89% 7.64%*
Portfolio Turnover Rate..... 263% 174% 363% 476%
CLASS B
PER SHARE OPERATING
PERFORMANCE
- -------------------
Net Asset Value,
Beginning of Period......... $ 8.85 $ 9.62 $ 9.74 $ 10.44 $ 10.38 $ 10.21 $ 10.98 $ 10.32 $ 10.79 $ 9.60
------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Net Investment Income....... 0.55** 0.59** 0.72 0.78 0.90 0.85 0.83 0.67 0.25 0.31
Net Realized and Unrealized
Gain (Loss) on Investments
Options, Financial Futures
Contracts and Foreign
Currency Transactions...... 0.44 (0.78) (0.09) (0.59) 0.13 0.28 (0.27) 1.13 (0.18) 1.29
------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Total from Investment
Operations............. 0.99 (0.19) 0.63 0.19 1.03 1.13 0.56 1.98 0.07 1.60
------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Less Distributions:
Dividends from Net
Investment Income.......... (0.53) (0.06) (0.33) (0.89) (0.73) (0.85) (0.84) (0.68) (0.28) (0.26)
Distributions from Net
Realized Gainon
Investments.............. -- -- -- -- (0.24) -- (0.49) (0.64) (0.26) (0.15)
Distributions in Excess of
Net Investment Income...... -- -- (0.04) -- -- -- -- -- -- --
Distributions from
Capital Paid-In.......... (0.01) (0.52) (0.38) -- -- (0.11) -- -- -- --
------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Total Distributions..... (0.54) (0.58) (0.75) (0.89) (0.97) (0.96) (1.33) (1.32) (0.54) (0.41)
------- -------- -------- -------- -------- -------- -------- -------- ------- -------
Net Asset Value, End of
Period...................... $ 9.30 $ 8.85 $ 9.62 $ 9.74 $ 10.44 $ 10.38 $ 10.21 $ 10.98 $ 10.32 $ 10.79
======= ======== ======== ======== ======== ======== ======== ======== ======= =======
Total Investment Return
at Net Asset Value(b)....... 11.51% (1.88%) 6.77% 1.72% 10.44% 11.84% 5.74% 20.09% 1.59%* 65.96%*
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted)............. $65,600 $114,656 $197,166 $199,102 $192,687 $186,524 $255,214 $174,833 $58,658 $18,253
Ratio of Expenses to
Average Net Assets......... 2.16% 2.17% 1.91% 1.91% 1.90% 1.82% 1.75% 1.74% 2.19%* 2.41%*
Ratio of Net Investment
Income to Average
Net Asset.................. 6.03% 6.41% 7.45% 7.59% 8.74% 8.67% 8.07% 6.04% 6.32%* 8.69%*
Portfolio Turnover Rate..... 263% 174% 363% 476% 159% 186% 333% 364% 152%* 140%*
<FN>
- ---------------
* On an annualized basis.
** On average month end shares outstanding.
(a) Class A shares commenced operations on January 3, 1992.
(b) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(c) Class C shares commenced operations on May 7, 1993. Net asset value and net assets at the end of the period reflect amounts
prior to the redemption of all shares on March 31, 1995.
(d) For the year ended October 31, 1995.
(e) From June 1, 1987.
(f) From commencement of operations, September 2, 1986.
(g) From commencement of operations, December 17, 1986.
(h) Not annualized.
</FN>
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has a fundamental investment objective with policies and restrictions
to guide its portfolio management. There are market fluctuations and risks in
any investment and therefore there is no assurance that either Fund will achieve
its investment objectives.
GLOBAL FUND
Global Fund's investment objective is to achieve long-term growth of capital
primarily through investment in common stocks of companies domiciled in foreign
countries and in the United States. Any income received on the Fund's
investments will be incidental to the Fund's objective of long-term growth of
capital. Normally, the Fund will invest in the securities markets of at least
three countries, including the United States.
- -------------------------------------------------------------------------------
GLOBAL FUND'S INVESTMENT OBJECTIVE IS TO
ACHIEVE LONG-TERM GROWTH OF CAPITAL PRIMARILY
THROUGH INVESTMENT IN COMMON STOCKS OF
COMPANIES DOMICILED IN FOREIGN COUNTRIES
AND IN THE UNITED STATES.
- -------------------------------------------------------------------------------
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 John Hancock Advisers, Inc. (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 Prospectus, 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 (AAA, AA, A, BBB) or Moody's Investors Service, Inc. (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 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 the 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 John Hancock Advisers International
Limited (the "Sub-Adviser"). 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 the Sub-Adviser
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.
6
<PAGE>
When the Adviser believes that it is appropriate to maintain 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.
GLOBAL INCOME FUND
The Fund's investment objective is to achieve a high total investment return, a
combination of current income and capital appreciation, by investing in a global
portfolio of high quality, fixed income securities. Normally, the Fund will
invest in fixed income securities denominated in at least three currencies or
multi-currency units, including the U.S. Dollar.
- -------------------------------------------------------------------------------
GLOBAL INCOME FUND'S INVESTMENT OBJECTIVE IS TO
ACHIEVE A HIGH TOTAL INVESTMENT RETURN, A
COMBINATION OF CURRENT INCOME AND CAPITAL
APPRECIATION, BY INVESTING IN A GLOBAL PORTFOLIO
OF HIGH QUALITY, FIXED INCOME SECURITIES.
- -------------------------------------------------------------------------------
Under normal circumstances, Global Income 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 and European Coal and Steel Community;
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.
Global Income Fund will invest only in fixed income securities which are rated
either A or better by Standard & Poor's Rating Group or A or better by Moody's
Investors Service, Inc. or securities that the Adviser has determined to be of
similar creditworthiness. In the event a fixed income security is subsequently
downgraded below these ratings, the Adviser will consider this event in its
determination of whether the Fund should continue to hold such securities. See
Appendix A to the Statement of Additional Information for a description of the
various ratings of investment grade debt securities.
Global Income 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
7
<PAGE>
investment involves credit risks associated with the issuer and currency risks
associated with the currency in which the obligation is denominated.
Global Income 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 expects to 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 would be adversely affected.
In selecting fixed income securities for Global Income 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 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.
Global Income 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 any single economic, political or regulatory event, and
to the credit and market risks associated with a single issuer, than would the
shares of a diversified fund.
Global Income Fund's portfolio turnover rate may vary widely from year to year
and may be higher than that of many other mutual funds with total return as an
investment objective. A high rate of portfolio turnover involves correspondingly
higher expenses than a lower rate, which expenses must be borne by the Fund.
CERTAIN INVESTMENT STRATEGIES
OPTIONS TRANSACTIONS. 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. Global Income Fund may also write
(sell) 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.
8
<PAGE>
The Funds may deal in options listed for trading on national securities or
foreign exchanges or traded over-the-counter. The Funds will engage in
over-the-counter options only with member banks of the Federal Reserve System
and primary dealers in U.S. Government securities. The staff of the SEC
considers over-the-counter options to be illiquid except under prescribed
conditions which are discussed in the Statement of Additional Information.
FUTURES CONTRACTS AND OPTIONS ON FUTURES. Both Funds may buy and sell financial
futures contracts and options on futures to hedge against the effects of
fluctuations in securities prices, interest rates, currency exchange rates and
other market conditions and for speculative purposes. The potential loss
incurred by the Funds in writing options on futures is unlimited and may exceed
the amount of the premium received. The Funds' futures contracts and options on
futures will be traded on a U.S. or foreign commodity exchange or board of
trade. The Funds 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 each of
the Funds' net assets. The Funds intend to comply with the CFTC regulations with
respect to speculative transactions. These regulations are discussed further in
the Statement of Additional Information.
STRUCTURED SECURITIES. Global Income 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.
- -------------------------------------------------------------------------------
THE FUND MAY INVEST IN
STRUCTURED DEBT OBLIGATIONS
INDEXED TO VARIOUS FINANCIAL
ASSETS OR RATES.
- -------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSACTIONS. The Funds may enter into forward currency
exchange contracts to hedge against fluctuations in currency exchange rates, to
enhance return or as a substitute for the purchase or sale of currency. For
example, if a portfolio security with an attractive rate of return is
denominated in a currency (including the U.S. dollar) that is not expected to
perform well, a Fund may use forward contracts to offset its exposure to the
non-performing currency while retaining the security. A forward contract
involves an obligation to purchase or sell a specific currency at a future date
at the contract price. There is no
9
<PAGE>
limitation on the value of a Fund's assets that may be committed to forward
contracts or on the term of a forward contract. Forward contracts are subject to
the following risks: (1) that a Fund's performance will be adversely affected by
unexpected changes in currency exchange rates; (2) that the counterparty to a
forward contract will fail to perform its contractual obligations; (3) that a
Fund will be unable to terminate or dispose of its position in a forward
contract; and (4) with respect to hedging transactions in forward contracts,
that there will be imperfect correlation between price changes in the forward
contract and price changes in the hedged portfolio assets.
RESTRICTED SECURITIES. Each Fund may purchase restricted securities, including
those eligible for resale to "qualified institutional buyers" pursuant to Rule
144A under the Securities Act of 1933 (the "Securities Act"). The Trustees will
monitor the Funds' investments in these securities, focusing on certain factors,
including valuation, liquidity and availability of information. Purchases of
other restricted securities are subject to an investment restriction limiting
all the Funds' illiquid securities to not more than 10% of their net assets.
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. When the Funds
lend portfolio securities, there is a risk that the borrower may fail to return
the loaned securities. As a result, the Funds 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 Global Fund not to lend portfolio
securities having a total value in excess of 10% of its total assets. It is a
fundamental policy of Global Income Fund not to lend portfolio securities having
a total value in excess of 30% of its total assets.
REPURCHASE AGREEMENTS AND FORWARD COMMITMENT OR WHEN-ISSUED SECURITIES. The
Funds may enter into repurchase agreements and may purchase securities on a
forward or when-issued basis. In a repurchase agreement, the Funds buy a
security subject to the right and obligation to sell it back to the issuer at a
higher price. These transactions must be fully collateralized at all times, but
involve some credit risk to the Funds if the other party defaults on its
obligations and a Fund is delayed in or prevented from liquidating the
collateral. Each Fund will segregate in a separate account cash or liquid, high
grade debt securities equal in value to its forward commitment and when-issued
securities. Purchasing securities for future delivery or on a when-issued basis
may increase the Funds' overall investment exposure and involves a risk of loss
if the value of the securities declines before the settlement date.
GLOBAL RISKS. Investments in foreign securities may involve certain risks not
present in domestic securities due to exchange controls, less publicly available
information, more volatile or less liquid securities markets, and the
possibility of expropriation, confiscatory taxation or political, economic or
social instability. There may be difficulty in enforcing legal rights outside
the United States. Some foreign companies are not subject to the same uniform
financial reporting
- -------------------------------------------------------------------------------
INVESTMENTS IN FOREIGN SECURITIES MAY
INVOLVE RISKS AND CONSIDERATIONS THAT ARE
NOT PRESENT IN DOMESTIC INVESTMENTS.
- -------------------------------------------------------------------------------
10
<PAGE>
requirements, accounting standards and government supervision as domestic
companies, and foreign exchange markets are regulated differently from the U.S.
stock markets. Security trading practices abroad may offer less protection to
investors such as the Funds. 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. Finally, the expense ratios of international funds generally are
higher than those of domestic funds because there are greater costs associated
with maintaining custody of foreign securities, and the increased research
necessary for international investing results in a higher advisory fee.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens,
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.
INVESTMENT RESTRICTIONS. Each Fund has adopted certain investment restrictions
which are detailed in the Statement of Additional Information, where they are
designated as fundamental or nonfundamental. The investment objectives and
fundamental restrictions may not be changed without shareholder approval. Each
Fund's nonfundamental investment policies and restrictions, can be changed by a
vote of the Trustees without shareholder approval. The Funds' portfolio turnover
rates for recent periods are shown in the section "The Funds' Financial
Highlights."
When choosing brokerage firms to carry out the Funds' transactions, the Adviser
gives primary consideration to execution at the most favorable prices, taking
into account the broker's professional ability and quality of service.
Consideration may also be given to the broker's sales of the Funds' shares.
Pursuant to procedures
- -------------------------------------------------------------------------------
BROKERS ARE CHOSEN BASED ON
BEST PRICE AND EXECUTION.
- -------------------------------------------------------------------------------
11
<PAGE>
established by the Trustees, the Adviser or Sub-Adviser may place securities
transactions with brokers affiliated with the Adviser. These brokers include
Tucker Anthony Incorporated, John Hancock Distributors, Inc. and Sutro &
Company Inc. They are indirectly owned by John Hancock Mutual Life Insurance
Company, (the "Life Company") which in turn indirectly owns the Adviser and
Sub-Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUNDS
Global Fund is a diversified series and Global Income Fund is a non-diversified
series of Freedom Investment Trust II, an open-end management investment company
organized as a Massachusetts business trust in 1986. The Trust reserves the
right to create and issue a number of series of shares, or funds or classes of
those series, which are separately managed and have different investment
objectives. Each Fund is not required to hold annual shareholder meetings,
although special meetings may be held for such purposes as electing or removing
Trustees, changing fundamental policies or approving a management contract. Each
Fund, under certain circumstances will assist in shareholder communications with
other shareholders.
- -------------------------------------------------------------------------------
THE TRUSTEES ELECT OFFICERS AND RETAIN THE
INVESTMENT ADVISER WHO IS RESPONSIBLE FOR
THE DAY-TO-DAY OPERATIONS OF THE FUNDS,
SUBJECT TO THE TRUSTEES' POLICIES AND
SUPERVISION.
- -------------------------------------------------------------------------------
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Funds,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Advisers
International Limited, the "Sub-Adviser," was formed in 1987, as a wholly-owned
subsidiary of the Adviser, is the Sub-Adviser to Global Fund and provides
international investment research and advisory services to institutional
clients. John Hancock Funds, Inc. ("John Hancock Funds") distributes shares for
all of the John Hancock funds directly and through selected broker-dealers
("Selling Brokers"). Freedom Distributors Corporation, a co-distributor of the
Funds, is, along with John Hancock Funds (together with John Hancock Funds, the
"Distributors"), an indirect subsidiary of the Life Company. Certain Fund
officers are also officers of the Adviser and John Hancock Funds. Pursuant to an
order granted by the Securities and Exchange Commission, each Fund has adopted a
deferred compensation plan for its independent Trustees which allows Trustees'
fees to be invested by the Fund in other John Hancock funds.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS,
INC. ADVISES INVESTMENT
COMPANIES HAVING A TOTAL
ASSET VALUE OF MORE THAN
$16 BILLION.
- -------------------------------------------------------------------------------
Investment decisions for Global Income Fund are made by the Fund's co-portfolio
managers Lawrence J. Daly, Anthony A. Goodchild and Janet L. Clay. Prior to
joining the Adviser in 1994, Mr. Daly and Mr. Goodchild were Senior Vice
Presidents at Putnam Investments. Prior to joining the Adviser in 1995, Ms. Clay
was an Assistant Vice President at Putnam Investments and served in various
research positions at Colonial Management Associates.
Day-to-day management of the Global Fund is carried out by David S. Beckwith and
John L.F. Wills. Prior to joining the Adviser in 1992, Mr. Beckwith was
associated with Freedom Capital Management, an affiliate of the Adviser. Mr.
Wills is General Manager of John Hancock Advisers International, Ltd. and has
been associated with John Hancock since 1987.
12
<PAGE>
In order to avoid conflicts with portfolio trades for the Fund, the Adviser, the
Sub-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. A Sub-Adviser'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.
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Funds at a price equal to their net asset value
per share plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge Alternative,"
Class A Shares) or on a contingent deferred basis (see "Contingent Deferred
Sales Charge Alternative," Class B Shares). If you do not specify on your
account application the class of shares you are purchasing, it will be assumed
that you are investing in Class A shares.
- -------------------------------------------------------------------------------
AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO
CHOOSE THE METHOD OF PAYMENT THAT IS BEST
FOR YOU.
- -------------------------------------------------------------------------------
CLASS A SHARES. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount you purchase is $1 million or more. If
you purchase $1 million or more of Class A shares, you will not be subject to an
initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.30% of the
applicable Fund's average daily net assets attributable to the Class A shares.
Certain purchases of Class A shares qualify for reduced initial sales charges.
See "Share Price -- Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS A
SHARES ARE SUBJECT TO AN
INITIAL SALES CHARGE.
- -------------------------------------------------------------------------------
CLASS B SHARES. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the applicable Fund's average daily net
assets attributable to the Class B shares. Investing in Class B shares permits
all your dollars to work from the time you make your investment, but the higher
ongoing distribution fee will cause these shares to have higher expenses than
Class A shares. To the extent that any dividends are paid by a Fund, these
higher expenses will also result in lower dividends than those paid on Class A
shares.
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS B
SHARES ARE SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE.
- -------------------------------------------------------------------------------
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider whether,
during the anticipated life of your Fund investment, the CDSC and accumulated
- -------------------------------------------------------------------------------
YOU SHOULD CONSIDER WHICH
CLASS OF SHARES WILL BE MORE
BENEFICIAL FOR YOU.
- -------------------------------------------------------------------------------
13
<PAGE>
fees on Class B shares would be less than the initial sales charge and
accumulated fees on Class A shares purchased at the same time; and to what
extent this differential would be offset by the Class A shares' lower expenses.
To help you make this determination, the table under the caption "Expense
Information" on the inside cover page of this Prospectus shows examples of the
charges applicable to each class of shares. Class A shares will normally be more
beneficial if you qualify for a reduced sales charge. See "Share
Price -- Qualifying for a Reduced Sales Charge."
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent any
dividends are paid. However, because initial sales charges are deducted at the
time of purchase, you would not have all of your funds invested initially and,
therefore, would initially own fewer shares. If you do not qualify for reduced
initial sales charges and expect to maintain your investment for an extended
period of time, you might consider purchasing Class A shares. This is because
the accumulated distribution and service charges on Class B shares may exceed
the initial sales charge and accumulated distribution and service charges on
Class A shares during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution fees and, for a six-year period, a CDSC.
In the case of Class A shares, the distribution expenses that John Hancock Funds
incurs in connection with the sale of the shares will be paid from the proceeds
of the initial sales charge and the ongoing distribution and service fees. In
the case of Class B shares, the expenses will be paid from the proceeds of the
ongoing distribution and service fees, as well as from the CDSC incurred upon
redemption within six years of purchase. The purpose and function of the the
Class B shares' CDSC and ongoing distribution and service fees are the same as
those of the Class A shares' initial sales charge and ongoing distribution and
service fees.
Dividends, if any, on Class A and Class B shares will be calculated in the same
manner, at the same time and on the same day. They will also be in the same
amount, except for differences resulting from each class bearing only its own
distribution and service fees and shareholder meeting expenses. See "Dividends
and Taxes."
THE FUNDS' EXPENSES
For managing its investment and business affairs, each Fund pays a fee to the
Adviser which is based on a stated percentage of each Fund's average daily net
asset value as follows: (a) for Global Fund, 1% on the first $100 million of
average daily net assets, 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 Global Income
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. For the 1995 fiscal year the
fee was 0.96% and 0.75% of the average daily net asset value of Global Fund and
Global Income Fund,
14
<PAGE>
respectively. With respect to Global Fund, the Adviser pays the Sub-Adviser a
portion of its fee.
The Class A and Class B shareholders of each Fund have adopted distribution
plans (each a "Plan") pursuant to Rule 12b-1 under the Investment Company Act of
1940 (the "1940 Act"). Under these Plans, each Fund will pay distribution and
service fees at an aggregate annual rate of up to 0.30% of each Fund's Class A
shares' average daily net assets and an aggregate annual rate of up to 1.00% of
each Fund's Class B shares' average daily net assets. In each case, up to 0.25%
is for service expenses and the remaining amount is for distribution expenses.
The distribution fees will be used to reimburse the Distributors for their
distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of the
Distributors) engaged in the 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 are paid to the
Distributors to compensate Selling Brokers and others providing personal and
account maintenance services to shareholders.
- -------------------------------------------------------------------------------
THE FUNDS PAY DISTRIBUTION
AND SERVICE FEES FOR
MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
- -------------------------------------------------------------------------------
In the event the Distributors are not fully reimbursed for payments they make or
expenses they incur under the Class A Plan, these expenses will not be carried
beyond one year from the date they were incurred. These unreimbursed expenses
under the Class B Plan will be carried forward together with interest on the
balance of these unreimbursed expenses. For the fiscal year ended October 31,
1995 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 Global Income Fund were not reimbursed or recovered by the
Distributors through the receipt of deferred sales charges or 12b-1 fees in
prior periods.
Information on each Funds' total expenses is in the Funds' Financial Highlights
section of this Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Funds generally declare and distribute dividends representing
all or substantially all net investment income, if any, as follows:
<TABLE>
<CAPTION>
DIVIDENDS DIVIDENDS
DECLARED PAID
--------- ---------
<S> <C> <C>
Global Fund................................................. Annually Annually
Global Income Fund.......................................... Daily Monthly
</TABLE>
Global Fund will distribute all of its taxable income, including both net
realized short-term or long-term capital gains, if any, at least annually.
Global Income Fund may distribute net realized short-term capital gains, if any,
quarterly and will distribute net realized long-term capital gains, if any, at
least annually.
Dividends are reinvested in additional shares of your class unless you elect the
option to receive cash. If you elect the cash option and the U.S. Postal Service
15
<PAGE>
cannot deliver your checks, your election will be converted to the reinvestment
option. Because of the higher expenses associated with Class B shares, any
dividends on these shares will be lower than those on the Class A shares. See
"Share Price."
TAXATION. Dividends from the Funds' net investment income, certain net foreign
exchange gains, and net short-term capital gains are taxable to you as ordinary
income. Dividends from the Funds' net long-term capital gains are taxable as
long-term capital gains. These dividends are taxable whether received in cash or
reinvested in additional shares. Certain dividends may be paid in January of a
given year, but may be taxable as if you received them the previous December.
The Funds will send you a statement by January 31 showing the tax status of the
dividends you received for the prior year.
Each Fund has qualified and intends to continue to qualify, as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As regulated investment companies, the Funds will not be
subject to Federal income tax on any net investment income or net realized
capital gains that are distributed to shareholders within the time periods
prescribed by the Code. When you redeem (sell) or exchange shares, you may
realize a taxable gain or loss.
Each Fund anticipates that it will be subject to foreign withholding or other
foreign taxes on income (possibly including capital gains) on certain foreign
investments, which will reduce the yield on those investments. However, if more
than 50% of a Fund's total assets at the close of its taxable year consists of
securities of foreign corporations and if a Fund so elects, shareholders will
include in their gross incomes their pro-rata shares of qualified foreign taxes
paid by the Fund and may be entitled, subject to certain conditions and
limitations under the Code, to claim a Federal income tax credit or deduction
for their share of these taxes.
On the account application you must certify that your social security or other
taxpayer identification number is correct and that you are not subject to backup
withholding of Federal income tax. If you do not provide this information or are
otherwise subject to this withholding, a Fund may be required to withhold 31% of
your dividends and the proceeds of redemptions and exchanges.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investments in and distributions from the Funds.
Non-U.S. shareholders and tax-exempt shareholders are subject to a different tax
treatment not described above. In many states, a portion of the Fund's dividends
that represents interest received by the Fund on direct U.S. Government
obligations may be exempt from tax. You should consult your tax adviser for
specific advice.
PERFORMANCE
Yield reflects a Fund's rate of income on portfolio investments as a percentage
of the Fund's share price. Yield is computed by annualizing the result of
dividing the net investment income per share over a 30 day period by the maximum
offering price per share on the last day of that period. Yield is also
calculated according to
- -------------------------------------------------------------------------------
EACH FUND MAY ADVERTISE
ITS YIELD AND TOTAL
RETURN.
- -------------------------------------------------------------------------------
16
<PAGE>
accounting methods that are standardized for all stock
and bond funds. Because yield accounting methods differ from the methods used
for other accounting purposes, a Fund's yield may not equal the income paid on
shares or the income reported in the Fund's financial statements.
Total return shows the overall dollar or percentage change in value of a
hypothetical investment in a Fund, assuming the reinvestment of all dividends.
Cumulative total return shows a Fund's performance over a period of time.
Average annual total return shows the cumulative return divided over the number
of years included in the period. Because average annual total return tends to
smooth out variations in a Fund's performance, you should recognize that it is
not the same as actual year-to-year results.
Both total return and yield calculations for Class A shares generally include
the effect of paying the maximum sales charge (except as shown in "The Funds'
Financial Highlights"). Investments at a lower sales charge would result in
higher performance figures. Yield and total return for the Class B shares
reflect deduction of the applicable CDSC imposed on a redemption of shares held
for the applicable period (except as shown in "The Funds' Financial
Highlights"). All calculations assume that all dividends are reinvested at net
asset value on the reinvestment dates during the periods. The total return and
yield of Class A and Class B shares will be calculated separately and, because
each class is subject to certain different expenses, the yield or total return
may differ with respect to each class for the same period. The relative
performance of the Class A and Class B shares will be affected by a variety of
factors, including the higher operating expenses attributable to the Class B
shares, whether the applicable Fund's investment performance is better in the
earlier or later portions of the period measured and the level of net assets of
the classes during the period. The Funds will include the total return of both
classes in any advertisement or promotional materials including Fund performance
data. The value of each Fund's shares, when redeemed, may be more or less than
their original cost. Both yield and total return are a historical calculation
and are not an indication of future performance. See "Factors to Consider in
Choosing an Alternative."
17
<PAGE>
<TABLE>
HOW TO BUY SHARES
- ----------------------------------------------------------------------------------------
<S> <C>
The minimum initial investment is $1,000 ($250 for group investments and
retirement plans).
Complete the Account Application attached to this Prospectus. Indicate whether you
are purchasing Class A or Class B shares. If you do not specify which class of
shares you are purchasing, Investor Services will assume that you are investing in
Class A shares.
- ----------------------------------------------------------------------------------------
OPENING AN ACCOUNT.
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
BY CHECK 1. Make your check payable to John Hancock Investor Services
Corporation.
2. Deliver the completed application and check to your registered
representative, Selling Broker or mail it directly to Investor
Services.
- ----------------------------------------------------------------------------------------
BY WIRE 1. Obtain an account number by contacting your registered
representative, Selling Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Global Fund
John Hancock Global Income Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative, Selling Broker or mail it directly to Investor
Services.
- ----------------------------------------------------------------------------------------
MONTHLY 1. Complete the "Automatic Investing" and "Bank Information"
AUTOMATIC sections on the Account Privileges Application designating a
ACCUMULATION bank account from which funds may be drawn.
PROGRAM
(MAAP) 2. The amount you elect to invest will be withdrawn automatically
from your bank or credit union account.
- ----------------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A
AND CLASS B SHARES.
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
BY TELEPHONE 1. Complete the "Invest-by-Phone" and "Bank Information" sections
on the Account Privileges Application designating a bank
account from which your funds may be drawn. Note that in order
to invest by phone, your account must be in a bank or credit
union that is a member of the Automated Clearing House system
(ACH).
2. After your authorization form has been processed, you may
purchase additional Class A or Class B shares by calling
Investor Services toll-free at 1-800-225-5291.
3. Give the Investor Services representative the name(s) in which
your account is registered, the Fund name, the class of shares
you own, your account number, and the amount you wish to
invest.
4. Your investment normally will be credited to your account the
business day following your phone request.
- ----------------------------------------------------------------------------------------
BY CHECK 1. Either complete the detachable stub included on your account
statement or include a note with your investment listing the
name of the Fund, the class of shares you own, your account
number and the name(s) in which the account is registered.
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to
John Hancock Investor Services Corporation.
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling
Broker.
- ----------------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B
SHARES.
(CONTINUED)
- ----------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------
BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Global Fund
John Hancock Global Income Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
- ----------------------------------------------------------------------------------------
Other Requirements. All purchases must be made in U.S. dollars. Checks written on
foreign banks will delay purchases until U.S. funds are received, and a collection
charge may be imposed. Shares of the Fund are priced at the offering price based
on the net asset value computed after John Hancock Funds receives notification of
the dollar equivalent from the Fund's custodian bank. Wire purchases normally take
two or more hours to complete and, to be accepted the same day, must be received
by 4:00 p.m., New York time. Your bank may charge a fee to wire funds. Telephone
transactions are recorded to verify information. Certificates are not issued
unless a request is made in writing to Investor Services.
- ----------------------------------------------------------------------------------------
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
- ----------------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT STATEMENTS THAT
YOU SHOULD KEEP TO HELP WITH YOUR PERSONAL
RECORDKEEPING.
- ----------------------------------------------------------------------------------------
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ. Securities in the Fund's
portfolio are valued on the basis of market quotations, valuations provided by
independent pricing services or, at fair value as determined in good faith
according to procedures approved by the Trustees. Short-term debt investments
maturing within 60 days are valued at amortized cost which the Board of Trustees
has determined to approximate market value. Foreign securities are valued on the
basis of quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates. If quotations are not readily available or, the value has been materially
affected by events occurring after the closing of a foreign market, assets are
valued by a method that the Trustees believe accurately reflects fair value. The
NAV is calculated once daily as of the close of regular trading on the New York
Stock Exchange (generally at 4:00 p.m., New York time) on each day that the
Exchange is open.
- ----------------------------------------------------------------------------------------
THE OFFERING PRICE OF YOUR SHARES IS THEIR NET ASSET
VALUE PLUS A SALES CHARGE, IF APPLICABLE, WHICH WILL
VARY WITH THE PURCHASE ALTERNATIVE YOU CHOOSE.
- ----------------------------------------------------------------------------------------
Shares of the Funds are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Funds through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the New York
Stock Exchange and transmit it to John Hancock Funds before its close of
business to receive that day's offering price.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering price you pay
for Class A shares of each Fund equals the NAV plus a sales charge as follows.
19
</TABLE>
<PAGE>
<TABLE>
With respect to GLOBAL FUND, the initial sales charge is paid at the following rates:
<CAPTION>
REALLOWANCE
TO
SALES SALES COMBINED SELLING
CHARGE AS CHARGE AS REALLOWANCE BROKER
A A AND SERVICE FEE AS A
PERCENTAGE PERCENTAGE AS PERCENTAGE
OF OF A PERCENTAGE OF OF
AMOUNT INVESTED OFFERING THE AMOUNT OFFERING OFFERING
(INCLUDING SALES CHARGE) PRICE INVESTED PRICE(+) PRICE(*)
- ------------------------------------------ ----------- --------------- ------------
<S> <C> <C> <C> <C>
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to $249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to $499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to $999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
</TABLE>
<TABLE>
With respect to GLOBAL INCOME FUND the initial sales charge is paid at the following rates:
<CAPTION>
REALLOWANCE
TO
SALES SALES COMBINED SELLING
CHARGE AS CHARGE AS REALLOWANCE BROKER
A A AND SERVICE FEE AS A
PERCENTAGE PERCENTAGE AS PERCENTAGE
OF OF A PERCENTAGE OF OF
AMOUNT INVESTED OFFERING THE AMOUNT OFFERING OFFERING
(INCLUDING SALES CHARGE) PRICE INVESTED PRICE(+) PRICE(*)
- ------------------------------------------ ----------- --------------- ------------
<S> <C> <C> <C> <C>
Less than $100,000 4.50% 4.71% 4.00% 3.76%
$100,000 to $249,999 3.75% 3.90% 3.25% 3.01%
$250,000 to $499,999 2.75% 2.83% 2.30% 2.06%
$500,000 to $999,999 2.00% 2.04% 1.75% 1.51%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
<FN>
- ---------------
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. A Selling Broker to whom substantially the entire sales charge is
reallowed may be deemed to be an underwriter under the Securities Act of 1933.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within one year of purchase.
(***) John Hancock Funds may pay a commission and first year's service fee (as
described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of $1 million or more in the aggregate as
follows: 1% on sales to $4,999,999, 0.50% on the next $5 million and 0.25%
on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance, in an amount equal to 0.25% of the net
assets invested in the applicable Fund. Thereafter it pays the service fee
periodically in arrears in an amount up to 0.25% of that Fund's average
annual net assets. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
</FN>
</TABLE>
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
Class A shares of either Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual rate
of up to 0.05% of the daily net assets of the accounts attributable to those
brokers.
Under certain circumstances described below, investors in Class A shares may be
entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge."
CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A
SHARES. Purchases of $1 million or more of either Fund's Class A shares will be
made at net asset value with no initial sales charge, but if the shares are
redeemed within 12 months after the end of the calendar month in which the
20
<PAGE>
purchase was made (the CDSC period), a CDSC will be imposed. The rate of the
CDSC will depend on the amount invested as follows:
<TABLE>
<CAPTION>
AMOUNT INVESTED CDSC RATE
- -------------------------------------------------------------------------
<S> <C>
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
</TABLE>
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of the
Fund account, may purchase Class A shares with no initial sales charge. However,
if the shares are redeemed within 12 months after the end of the calendar year
in which the purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares. Accordingly,
no CDSC will be imposed on increases in account value above the initial purchase
price, including any dividends which have been reinvested in additional Class A
shares.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
Therefore, it will be assumed that the redemption is first made from any shares
in your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver of Contingent Deferred Sales
Charge" below.
QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $100,000 in
Global Income Fund or $50,000 in Global Fund in Class A shares of the Funds, or
a combination of John Hancock funds (except money market funds), you may qualify
for a reduced sales charge on your investments in Class A shares through a
LETTER OF INTENTION. You may also be able to use the ACCUMULATION PRIVILEGE and
COMBINATION PRIVILEGE to take advantage of the value of your previous
investments in shares of the John Hancock funds in meeting the breakpoints for a
reduced sales charge. For the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE,
the applicable sales charge will be based on the total of:
- -------------------------------------------------------------------------------
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE
ON YOUR INVESTMENT IN CLASS A SHARES.
- -------------------------------------------------------------------------------
1. Your current purchase of Class A shares of the applicable Fund;
2. The net asset value (at the close of business on the previous day) of (a)
all Class A shares of the Fund you hold, and (b) all Class A shares of any
other John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
21
<PAGE>
EXAMPLES:
GLOBAL FUND
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000 and, subsequently, invest $30,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 4.50% and not 5.00%. This is
the rate that would otherwise be applicable to investments of less than $50,000.
See "Initial Sales Charge Alternative -- Class A Shares."
GLOBAL INCOME
If you hold Class A shares of a John Hancock fund with a net asset value of
$80,000 and, subsequently, invest $20,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 3.75% and not 4.50%. This is
the rate that would otherwise be applicable to investments of less than
$100,000. See "Initial Sales Charge Alternative -- Class A Shares."
- -------------------------------------------------------------------------------
CLASS A SHARES MAY BE
AVAILABLE WITHOUT A SALES
CHARGE TO CERTAIN
INDIVIDUALS AND
ORGANIZATIONS.
- -------------------------------------------------------------------------------
If you are in one of the following categories, you may purchase Class A shares
of the Funds without paying a sales charge:
- - A Trustee or officer of the Trust; a Director or officer of the Adviser and
its affiliates or Selling Brokers; employees or sales representatives of any
of the foregoing; retired officers, employees or Directors of any of the
foregoing; a member of the immediate family of any of the foregoing; or any
Fund, pension, profit sharing or other benefit plan for the individuals
described above.
- - Any state, county, city or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any registered
investment management company.*
- - A bank, trust company, credit union, savings institution or other depository
institution, its trust departments or common trust funds if it is purchasing
$1 million or more for non-discretionary customers or accounts.*
- - A broker, dealer, financial planner, consultant or registered investment
adviser that has entered into an agreement with John Hancock Funds providing
specifically for the use of Fund shares in fee-based investment products or
services made available to their clients.
- - A former participant in an employee benefit plan with John Hancock Funds, when
he or she withdraws from his or her plan and transfers any or all of his or
her plan distributions directly to the Fund.
- - A member of an approved affinity group financial services plan.*
- ---------------
* For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may also be purchased without an initial sales charge
in connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
22
<PAGE>
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares
are offered at net asset value per share without an initial sales charge, so
that your entire investment will go to work at the time of purchase. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates set forth below. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
shares being redeemed. Accordingly, you will not be assessed a CDSC on increases
in account value above the initial purchase price, including shares derived from
dividend reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
reinvestment of dividends, and next from the shares you have held the longest
during the six-year period. The CDSC is waived on redemptions in certain
circumstances. See the discussion "Waiver of Contingent Deferred Sales Charges"
below.
EXAMPLE:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time, your CDSC will be calculated as follows:
- - Proceeds of 50 shares redeemed at $12 per share $ 600
- - Minus proceeds of 10 shares not subject to CDSC because they
were acquired through dividend reinvestment (10 X $12) - 120
- - Minus appreciation on remaining shares, also not subject
to CDSC (40 X $2)
- 80
----
- - Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
them to defray its expenses related to providing the Funds with distribution
services in connection with the sale of the Class B shares, such as compensating
Selling Brokers for selling these shares. The combination of the CDSC and the
distribution and service fees makes it possible for the Funds to sell Class B
shares without an initial sales charge.
23
<PAGE>
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchase Class B shares of a Fund until the time you redeem them.
Solely for purposes of determining this holding period, any payments you make
during the month will be aggregated and deemed to have been made on the last day
of the month.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED SALES
CHARGE AS A
PERCENTAGE
YEAR IN WHICH CLASS B SHARES OF DOLLAR AMOUNT
REDEEMED FOLLOWING PURCHASE SUBJECT TO CDSC
- -------------------------------------------------------------------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision of
personal and account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid in arrears.
If you purchased Class B shares during 1992 or 1993, the applicable CDSC as a
percentage of the amount redeemed will be: 4% for redemptions during the first
year after purchase, 3.5% for redemptions during the second year, 3% for
redemptions during the third year, 2.5% for redemptions during the fourth year,
2% for redemptions during the fifth year, 1% for redemptions during the sixth
year, and no CDSC for redemptions during the seventh year and thereafter. If you
purchased Class B shares before 1992, the applicable CDSC as a percentage of the
amount redeemed will be: 1% for redemptions during the third, fourth and fifth
years after purchase and no CDSC for redemptions during the sixth year and
thereafter.
WAIVER OF CONTINGENT SALES CHARGES. The CDSC will be waived on redemptions of
Class B shares and of Class A shares that are subject to a CDSC, unless
indicated otherwise, in the circumstances defined below:
- -------------------------------------------------------------------------------
UNDER CERTAIN
CIRCUMSTANCES, THE CDSC ON
CLASS B AND CERTAIN CLASS A SHARE
REDEMPTIONS WILL BE WAIVED.
- -------------------------------------------------------------------------------
- - Redemptions of Class B shares made under Systematic Withdrawal Plan (see "How
to Redeem Shares"), as long as your annual redemptions do not exceed 10% of
your account value at the time you established your Systematic Withdrawal Plan
and 10% of the value of subsequent investments (less redemptions) in that
account at the time you notify Investor Services. This waiver does not apply
to Systematic Withdrawal Plan redemptions of Class A shares that are subject
to a CDSC.
- - Redemptions made to effect distributions from an Individual Retirement Account
either before or after age 59 1/2, as long as the distributions are based on
the 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.
24
<PAGE>
- - Redemptions made to effect mandatory distributions under the Code after age
70 1/2 from a tax-deferred retirement plan.
- - Redemptions made to effect distributions to participants or beneficiaries from
certain employer-sponsored retirement plans including those qualified under
Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the
Code and deferred compensation plans under Section 457 of the Code. The waiver
also applies to certain returns of excess contributions made to these plans.
In all cases, the distributions must be free from penalty under the Code.
- - Redemptions due to death or disability.
- - Redemptions made under the Reinvestment Privilege, as described in "Additional
Services and Programs" of this Prospectus.
- - Redemptions made pursuant to the Fund's right to liquidate your account if you
own fewer than 50 shares.
- - Redemptions made in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
- - Redemptions from certain IRA and retirement plans which purchased shares prior
to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion of
reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased, and will result in lower annual distribution
fees. If you exchanged Class B shares into one of these Funds from another John
Hancock fund, the calculation will be based on the time you purchased the shares
in the original fund. The Funds have been advised that the conversion of Class B
shares to Class A shares of each Fund should not be taxable for Federal income
tax purposes, and should not change your tax basis or tax holding period for the
converted shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. The Fund
may hold payment until reasonably satisfied that investments recently made by
check or Invest-by-Phone have been collected (which may take up to 10 calendar
days).
Once your shares are redeemed, a Fund generally sends you payment on the next
business day. When you redeem your shares you may realize a taxable gain or
loss, depending usually on the difference between what you paid for them and
25
<PAGE>
what you receive for them, subject to certain tax rules. Under unusual
circumstances, a Fund may suspend redemptions or postpone payment for up to
three business days or longer, as permitted by Federal securities laws.
<TABLE>
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION REQUEST,
PLEASE FOLLOW THESE PROCEDURES.
- ---------------------------------------------------------------------------------------
<S> <C>
BY TELEPHONE All Fund shareholders are eligible automatically for the
telephone redemption privilege. Call 1-800-225-5291, from
8:00 A.M. to 4:00 P.M. (New York time), Monday through
Friday, excluding days on which the New York Stock Exchange
is closed. Investor Services employs the following
procedures to confirm that instructions received by
telephone are genuine. Your name, the account number,
taxpayer identification number applicable to the account
and other relevant information may be requested. In
addition, telephone instructions are recorded.
You may redeem up to $100,000 by telephone, but the address
on the account must not have changed for the last 30 days.
A check will be mailed to the exact name(s) and address
shown on the account.
If reasonable procedures, such as those described above,
are not followed, the Funds may be liable for any loss due
to unauthorized or fraudulent telephone instructions. In
all other cases, neither the Funds nor Investor Services
will be liable for any loss or expense for acting upon
telephone instructions made according to the telephone
transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Funds that
are in certificated form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During these times you
should consider placing redemption requests in writing or
using EASI-Line. EASI-Line's telephone number is
1-800-538-8080.
- ---------------------------------------------------------------------------------------
BY WIRE If you have a telephone redemption form on file with the
Funds, redemption proceeds of $1,000 or more can be wired
on the next business day to your designated bank account
and a fee (currently $4.00) will be deducted. You may also
use electronic funds transfer to your assigned bank account
and the funds are usually collectible after two business
days. Your bank may or may not charge a fee for this
service. Redemptions of less than $1,000 will be sent by
check or electronic funds transfer.
This feature may be elected by completing the "Telephone
Redemption" section on the Account Privileges Application
included with this Prospectus.
- ---------------------------------------------------------------------------------------
IN WRITING Send a stock power or "letter of instruction" specifying
the name of the Fund, the dollar amount or the number of
shares to be redeemed, your name, class of shares, your
account number, and the additional requirements listed
below that apply to your particular account.
- ---------------------------------------------------------------------------------------
TYPE OF REGISTRATION REQUIREMENTS
-------------------- ------------
Individual, Joint Tenants, Sole A letter of instruction signed (with titles
Proprietorship, Custodial where applicable) by all persons authorized
(Uniform Gifts or Transfer to to sign for the account, exactly as it is
Minors Act), General Partners registered with the signature(s) guaranteed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized
to act on the account with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the
Trustee(s) with signature guarantees. (If
the Trustee's name is not registered on your
account, also provide a copy of the trust
document, certified within the last 60
days.)
If you do not fall into any of these registration categories please call
1-800-225-5291 for further instructions.
- ---------------------------------------------------------------------------------------
</TABLE>
26
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect you and the Funds by
verifying the signature on your request. It may not be provided by a notary public.
If the net asset value of the shares redeemed is $100,000 or less, John Hancock
Funds may guarantee the signature.
The following institutions may provide you with a signature guarantee, provided
that the institution meets credit standards established by Investor Services: (i)
a bank; (ii) a securities broker or dealer, including a government or municipal
securities broker or dealer, that is a member of a clearing corporation or meets
certain net capital requirements; (iii) a credit union having authority to issue
signature guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national securities exchange, a registered securities exchange or a clearing
agency.
</TABLE>
- -------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR
SIGNATURE.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption. Contact
your broker for instructions.
</TABLE>
- -------------------------------------------------------------------------------
ADDITIONAL INFORMATION
ABOUT REDEMPTIONS.
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your stock
power or a letter of instruction. Unless you specify to the contrary, any
outstanding Class A shares will be redeemed before Class B shares. You may not
redeem certificated shares by telephone. Due to the proportionately high cost
of maintaining smaller accounts, the Funds reserve the right to redeem at net
asset value all shares in an account which holds fewer than 50 shares (except
accounts under retirement plans) and to mail the proceeds to the shareholder or
the transfer agent may impose an annual fee of $10.00. No account will be
involuntarily redeemed or additional fee imposed, if the value of the account is
in excess of the Fund's minimum initial investment. No CDSC will be imposed on
any involuntary redemption of shares. Shareholders will be notified before these
redemptions are to be made or this charge is imposed and will have 30 days to
purchase additional shares to bring their account balance up to the required minimum.
Unless the number of shares acquired by additional purchases and any dividend
reinvestments exceeds the number of shares redeemed, repeated redemptions from a
smaller account may eventually trigger this policy.
- --------------------------------------------------------------------------------
</TABLE>
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock funds that interest you. Read the prospectus
carefully before exchanging your shares. You can exchange shares of each class
of a Fund only for shares of the same class of another John Hancock fund. For
this purpose, John Hancock funds with only one class of shares will be treated
as Class A whether or not they have been so designated.
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES
OF THE FUNDS FOR SHARES OF
THE SAME CLASS OF ANOTHER
JOHN HANCOCK FUND.
- -------------------------------------------------------------------------------
Exchanges between funds which are not subject to a CDSC are based on their
respective net asset values. No sales charge or transaction charge is imposed.
Class B shares of a Fund that are subject to a CDSC may be exchanged for Class B
shares of another John Hancock fund without incurring the CDSC; however, the
shares will be subject to the CDSC schedule of the shares acquired (except that
exchanges into John Hancock Short-Term Strategic Income Fund, John Hancock
Intermediate Maturity Government Fund and John Hancock Limited-Term Government
Fund will be subject to the initial fund's CDSC). For purposes of computing the
CDSC payable upon redemption of shares acquired in an exchange, the holding
period of the original shares is added to the holding period of the shares
acquired in an exchange. However, if you exchange Class B shares purchased prior
to January 1, 1994 for Class B shares of any other John Hancock fund, you will
continue to be subject to the CDSC schedule in effect on your initial purchase
date.
27
<PAGE>
The Funds reserve the right to require you to keep previously exchanged shares
(and reinvested dividends) in a Fund for 90 days before you are permitted a new
exchange. The Funds may also terminate or alter the terms of the exchange
privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal income tax purposes. An exchange may
result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where exchanges can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, each
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely.
Each Fund may also temporarily or permanently terminate the exchange privilege
for any person who makes seven or more exchanges out of the Fund per calendar
year. Accounts under common control or ownership will be aggregated for this
purpose. Although a Fund will attempt to give prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you authorize exchanges automatically by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
28
<PAGE>
IN WRITING
1. In a letter request an exchange and list the following:
- the name and class of the Fund whose shares you currently own
- your account number
- the name(s) in which the account is registered
- the name of the fund in which you wish your exchange to be invested
- the number of shares, all shares or the dollar amount
you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares that you reinvest
in a John Hancock fund that is otherwise subject to a sales charge, as long
as you reinvest within 120 days from the redemption date. If you paid a CDSC
upon a redemption, you may reinvest at net asset value in the same class of
shares from which you redeemed within 120 days. Your account will be credited
with the amount of the CDSC previously charged, and the reinvested shares
will continue to be subject to a CDSC. The holding period of the shares
acquired through reinvestment will include the holding period of the redeemed
shares for purposes of computing the CDSC payable upon a subsequent
redemption.
- -------------------------------------------------------------------------------
IF YOU REDEEM SHARES OF A FUND, YOU MAY BE
ABLE TO REINVEST ALL OR PART OF THE
PROCEEDS IN SHARES OF THAT FUND OR ANOTHER
JOHN HANCOCK FUND WITHOUT PAYING AN
ADDITIONAL SALES CHARGE.
- -------------------------------------------------------------------------------
2. Any portion of your redemption may be reinvested in Fund shares or in shares
of other John Hancock funds, subject to the minimum investment limit of that
fund.
3. To reinvest, you must notify Investor Services in writing. Include the Fund's
name, the account number and class from which your shares were originally
redeemed.
SYSTEMATIC WITHDRAWAL PLAN
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application, which is attached to this Prospectus. You can
also obtain the application from your registered representative or by calling
1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually or
on a selected monthly basis to yourself or any other designated payee.
- -------------------------------------------------------------------------------
YOU CAN PAY ROUTINE BILLS FROM YOUR
ACCOUNT, OR MAKE PERIODIC DISBURSEMENTS OF
FUNDS FROM YOUR RETIREMENT ACCOUNT TO
COMPLY WITH IRS REGULATIONS.
- -------------------------------------------------------------------------------
4. There is no limit on the number of payees you may authorize, but all payments
must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently
with purchases of additional Class A or Class B shares, because you may be
subject to an initial sales charge on purchases of Class A shares or to a
CDSC
29
<PAGE>
on your redemptions of Class B shares. In addition, your redemptions are
taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks, or if deposits to a bank account are returned for any reason.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
1. You can authorize an investment to be withdrawn automatically each month on
your bank, for investment in Fund shares, under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
- -------------------------------------------------------------------------------
YOU CAN MAKE AUTOMATIC INVESTMENTS AND
SIMPLIFY YOUR INVESTING.
- -------------------------------------------------------------------------------
2. You can also authorize automatic investing through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program at any time.
4. There is no charge to you for this program, and there is no cost to the
Funds.
5. If you have payments withdrawn from a bank account and we are notified that
the account has been closed, your withdrawals will be discontinued.
GROUP INVESTMENT PROGRAM
1. An individual account will be established for each participant, but the sales
charge for Class A shares will be based on the aggregate dollar amount of all
participants' investments. To determine how to qualify for this program,
contact your registered representative or call 1-800-225-5291.
- -------------------------------------------------------------------------------
ORGANIZED GROUPS OF AT LEAST FOUR PERSONS
MAY ESTABLISH ACCOUNTS.
- -------------------------------------------------------------------------------
2. The initial aggregate investment of all participants in the group must be at
least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at any
time.
RETIREMENT PLANS
1. You may use either Fund for various types of qualified retirement plans,
including Individual Retirement Accounts, Keogh plans (H.R.10), pension and
profit-sharing plans (including 401(k) plans), Tax-Sheltered Annuity
retirement plans (403(b) plans) and Section 457 plans.
2. The initial investment minimum or aggregate minimum for any of these plans is
$250. However, accounts being established as group IRA, SEP, SARSEP, TSA,
401(k) and Section 457 plans will be accepted without an initial minimum
investment.
30
<PAGE>
(NOTES)
<PAGE>
JOHN HANCOCK JOHN HANCOCK
GLOBAL FUND GLOBAL FUND
A MUTUAL FUND SEEKING TO ACHIEVE
JOHN HANCOCK LONG-TERM GROWTH OF CAPITAL
PRIMARILY THROUGH INVESTMENT IN
GLOBAL INCOME FUND COMMON STOCKS OF COMPANIES
DOMICILED IN FOREIGN COUNTRIES AND
INVESTMENT ADVISER IN THE UNITED STATES.
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603 JOHN HANCOCK
GLOBAL INCOME FUND
INVESTMENT SUB-ADVISER (For Global
Fund)
John Hancock Advisers International A MUTUAL FUND SEEKING TO ACHIEVE
Limited A HIGH TOTAL INVESTMENT RETURN,
34 Dover Street A COMBINATION OF CURRENT INCOME
London, England W1X 3RA AND CAPITAL APPRECIATION BY
INVESTING IN A GLOBAL PORTFOLIO
OF HIGH-QUALITY, FIXED INCOME
SECURITIES.
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603 CLASS A AND CLASS B SHARES
CUSTODIAN PROSPECTUS
State Street Bank and Trust Company MARCH 1, 1996
225 Franklin Street
Boston, Massachusetts 02110 101 HUNTINGTON AVENYE
BOSTON, MASSACHUSETTS 02199-7603
TELEPHONE 1-800-115-5291
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO OBTAIN INFORMATION
ABOUT THE FUNDS
For: Service Information
Telephone Exchange call 1-800-225-5291
Invest-by-Phone
Telephone Redemption
For: TDD call 1-800-554-6713
JHD-0309P 3/96 (LOGO) Printed on Recycled Paper
<PAGE>
FREEDOM INVESTMENT TRUST
consisting of five series
which are included herein:
- John Hancock Sovereign U.S. Government Income Fund
- John Hancock Managed Tax-Exempt Fund
- John Hancock Gold & Government Fund
- John Hancock Sovereign Achievers Fund
- John Hancock Regional Bank Fund
and
FREEDOM INVESTMENT TRUST II
consisting of five series,
two of which are included herein:
- John Hancock Global Fund
- John Hancock Global Income Fund
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1996
This Statement of Additional Information provides information about
John Hancock Sovereign U.S. Government Income Fund, John Hancock Managed
Tax-Exempt Fund, John Hancock Gold & Government Fund, John Hancock Sovereign
Achievers Fund, John Hancock Regional Bank Fund, John Hancock Global Fund and
John Hancock Global Income Fund in addition to the information that is contained
in the Funds' Class A and Class B Shares Prospectus dated March 1, 1996
(together, the "Prospectuses").
This Statement of Additional Information is not a prospectus. It should
be read in conjunction with the Funds' Prospectuses, a copy of which can be
obtained free of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
1
<PAGE>
TABLE OF CONTENTS
-----------------
Statement of
Additional
Information
Page
ORGANIZATION OF THE FUNDS 3
INVESTMENT OBJECTIVES AND POLICIES 3
- ---John Hancock Sovereign U.S. Government Income Fund
- ---John Hancock Managed Tax-Exempt Fund
- ---John Hancock Gold & Government Fund
- ---John Hancock Sovereign Achievers Fund
- ---John Hancock Regional Bank Fund
- ---John Hancock Global Fund
- ---John Hancock Global Income Fund
THE FUNDS' OPTIONS TRADING ACTIVITIES 19
THE FUNDS' INVESTMENTS IN FUTURES CONTRACTS 26
CERTAIN INVESTMENT PRACTICES 31
INVESTMENT RESTRICTIONS 36
TAX STATUS 40
THOSE RESPONSIBLE FOR MANAGEMENT 46
INVESTMENT ADVISORY AND OTHER SERVICES 53
DISTRIBUTION CONTRACTS 56
NET ASSET VALUE 59
INITIAL SALES CHARGE ON CLASS A SHARES 60
DEFERRED SALES CHARGE ON CLASS B SHARES 61
SPECIAL REDEMPTIONS 62
ADDITIONAL SERVICES AND PROGRAMS 62
DESCRIPTION OF THE FUNDS' SHARES 64
CALCULATION OF PERFORMANCE 65
BROKERAGE ALLOCATION 70
DISTRIBUTIONS 73
TRANSFER AGENT SERVICES 75
CUSTODY OF PORTFOLIO 75
INDEPENDENT ACCOUNTANTS 75
APPENDIX A - BOND AND COMMERCIAL 76
PAPER RATINGS 77
FINANCIAL STATEMENTS --
2
<PAGE>
ORGANIZATION OF THE FUNDS
Freedom Investment Trust is a diversified open-end management
investment company organized as a Massachusetts business trust on March 29,
1984. Freedom Investment Trust was originally organized under the name Freedom
Gold & Government Trust. It changed its name to Freedom Investment Trust on July
22, 1985. The Trustees have authority to issue an unlimited number of shares of
beneficial interest of separate series without par value. To date, five series
of Freedom Investment Trust have been authorized for sale to the public by the
Board of Trustees: John Hancock Gold & Government Fund (formerly John Hancock
Freedom Gold & Government Trust), created on March 29, 1984 ("Gold & Government
Fund"), John Hancock Regional Bank Fund (formerly John Hancock Freedom Regional
Bank Fund), created on April 2, 1985 ("Regional Bank Fund"), John Hancock
Sovereign U.S. Government Income Fund (formerly Freedom Government Income Fund),
created on January 16, 1986 ("Government Fund"), John Hancock Sovereign
Achievers Fund (formerly Freedom Equity Value Fund), created on January 16, 1986
("Sovereign Achievers Fund"), and John Hancock Managed Tax-Exempt Fund (formerly
John Hancock Freedom Managed Tax Exempt Fund).
Freedom Investment Trust II (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust on March 31,
1986. The Trust currently has five series of shares, John Hancock Global Fund
(formerly John Hancock Freedom Global Fund), created on March 31, 1986 ("Global
Fund"), John Hancock Global Income Fund (formerly John Hancock Freedom Global
Income Fund), created on July 30, 1986 ("Global Income Fund") and John Hancock
Short-Term Strategic Income Fund (formerly John Hancock Freedom Short-Term World
Income Fund), created on July 31, 1990; John Hancock Special Opportunities Fund,
created on November 1, 1993 ("Special Opportunities Fund"), and John Hancock
International Fund (formerly John Hancock Freedom International Fund), created
on January 3, 1994 ("International Fund").
Freedom Investment Trust and Freedom Investment Trust II may be
referred to individually as a "Trust" and collectively as the "Trusts". Gold &
Government Fund, Regional Bank Fund, Government Fund, Sovereign Achievers Fund,
Managed Tax-Exempt Fund, Global Fund and Global Income Fund may be referred to
individually as a "Fund" and collectively as the "Funds."
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each Fund's
investment objectives and policies discussed in each Fund's respective
Prospectus. The Adviser for all the Funds is John Hancock Advisers, Inc. (the
"Adviser"). John Hancock Advisers International Limited ("JH Advisers
International") is the Sub-Adviser for the Global Fund.
3
<PAGE>
John Hancock Sovereign U.S. Government Income Fund
--------------------------------------------------
The Adviser believes that a high current income consistent with
long-term total return may be derived from: (i) interest income from Government
Securities; (ii) income from premiums from expired put and call options on
Government Securities written by the Government Fund; (iii) net gains from
closing purchase and sale transactions with respect to options on Government
Securities; and (iv) net gains from sales of portfolio securities on exercise of
options or otherwise.
Since interest yields on Government Securities and opportunities to
realize net gains from options transactions may vary from time to time because
of general economic and market conditions and many other factors, it is
anticipated that the Government Fund's share price and yield will fluctuate, and
there can be no assurance that the Government Fund's objective will be achieved.
Government Securities
- ---------------------
U.S. TREASURY SECURITIES. The Government Fund may invest in U.S. Treasury
securities, including Bills, Notes, Bonds and other debt securities issued by
the U.S. Treasury. These instruments are direct obligations of the U.S.
Government and differ primarily in their interest rates, the lengths of their
maturities and the times of their issuance.
SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES. The Government Fund may also invest in securities issued by
agencies of the U.S. Government or instrumentalities established or sponsored by
the U.S. Government. The obligations, including those which are guaranteed by
Federal agencies or instrumentalities, may or may not be backed by the "full
faith and credit" of the United States. In the case of securities not backed by
the full faith and credit of the United States, the Government Fund must look
principally to the agency issuing or guaranteeing the obligation for ultimate
repayment and may not be able to assert a claim against the United States itself
in the event the agency or instrumentality does not meet its commitments.
Securities in which the Government Fund may invest but which are not backed by
the full faith and credit of the United States include but are not limited to
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation ("FHLMC") and the United States Postal Service, each of which has
the right to borrow from the United States Treasury to meet its obligations, and
obligations of the Federal Farm Credit System, the Federal National Mortgage
Association ("FNMA") and the Federal Home Loan Banks, the obligations of which
may only be satisfied by the individual credit of the issuing agency.
Obligations of the Government National Mortgage Association ("GNMA"), the
Farmers Home Administration and the Export-Import Bank are backed by the full
faith and credit of the United States.
Securities of International Bank for Reconstruction and Development
- -------------------------------------------------------------------
The Government Fund may also purchase obligations of the International
Bank for Reconstruction and Development ("World Bank"), which, while technically
not a U.S. Government agency or instrumentality, has the right to borrow from
the participating countries, including the United States.
4
<PAGE>
Mortgage-Related Securities
- ---------------------------
The Government Fund may invest in mortgage-backed securities, including
those representing an undivided ownership interest in a pool of mortgage loans,
e.g., securities of the GNMA and pass-through securities issued by the FHLMC and
FNMA.
GNMA CERTIFICATES. Certificates of the Government National Mortgage Association
("GNMA Certificates") are mortgage-backed securities, which evidence an
undivided interest in a pool of mortgage loans. GNMA Certificates differ from
bonds in that the principal is paid back monthly by the borrower over the term
of the loan rather than returned in a lump sum at maturity. GNMA Certificates
that the Government Fund purchases are the "modified pass-through" type.
"Modified pass-through" GNMA Certificates entitle the holder to receive a share
of all interest and principal payments paid and owed on the mortgage pool, net
of fees paid to the "issuer" and GNMA, regardless of whether or not the
mortgagor actually makes the payment.
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee the timely
payment of principal and interest on securities backed by a pool of mortgages
insured by the Federal Housing Administration ("FHA") or the Farmers' Home
Administration ("FMHA"), or guaranteed by the Veterans Administration ("VA").
The GNMA guarantee is backed by the full faith and credit of the United States.
The GNMA is also empowered to borrow without limit from the U.S. Treasury if
necessary to make any payments required under its guarantee.
LIFE OF GNMA CERTIFICATES. The average life of a GNMA Certificate is likely to
be substantially less than the original maturity of the mortgage pools
underlying the securities. Prepayments of principal by mortgagors and mortgage
foreclosures will usually result in the return of the greater part of principal
investment long before the contractual maturity of the mortgages in the pool.
Foreclosures impose no risk to principal investment because of the GNMA
guarantee. Because they represent the underlying mortgages, GNMA Certificates
may not be an effective means of locking in long-term interest rates due to the
need for the Government Fund to reinvest scheduled and unscheduled principal
payments. At the time principal payments or prepayments are received by the
Government Fund, prevailing interest rates may be higher or lower than the
current yield of the Fund's portfolio.
Statistics published by the FHA indicate that the average life of
single-family dwelling mortgages with 25- to 30-year maturities, the type of
mortgages backing the vast majority of GNMA Certificates, is approximately 12
years. However, because prepayment rates of individual mortgage pools vary
widely, it is not possible to predict accurately the average life of a
particular issue of GNMA Certificates.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest on GNMA
Certificates is lower than the interest rate paid on the VA-guaranteed or
FHA-insured mortgages underlying the Certificates, by the amount of the fees
paid to GNMA and the issuer.
5
<PAGE>
The coupon rate by itself, however, does not indicate the yield which
will be earned on GNMA Certificates. First, GNMA Certificates may be issued at a
premium or discount, rather than at par, and, after issuance, GNMA Certificates
may trade in the secondary market at a premium or discount. Second, interest is
earned monthly, rather than semi-annually as with traditional bonds; monthly
compounding raises the effective yield earned. Finally, the actual yield of a
GNMA Certificate is influenced by the prepayment experience of the mortgage pool
underlying it. For example, if the higher-yielding mortgages from the pool are
prepaid, the yield on the remaining pool will be reduced. Prepayments of
principal by mortgagors (which can be made at any time without penalty) may
increase during periods when interest rates are falling.
FHLMC SECURITIES. The Federal Home Loan Mortgage Corporation was created in 1970
through enactment of Title III of the Emergency Home Finance Act of 1970. Its
purpose is to promote development of a nationwide secondary market in
conventional residential mortgages.
The FHLMC issues two types of mortgage pass-through securities,
mortgage participation certificates ("PCs") and guaranteed mortgage certificates
("GMCs"). PCs resemble GNMA Certificates in that each PC represents a pro rata
share of all interest and principal payments made and owed on the underlying
pool. The FHLMC guarantees timely payment of interest on PCs and the full return
of principal.
GMC's also represent a pro rata interest in a pool of mortgages.
However, these instruments pay interest semi-annually and return principal once
a year in guaranteed minimum payments.
FNMA SECURITIES. The Federal National Mortgage Association was established in
1938 to create a secondary market in mortgages insured by the FHA.
FNMA ISSUED GUARANTEED MORTGAGE PASS-THROUGH CERTIFICATES ("FNMA CERTIFICATES").
FNMA Certificates resemble GNMA Certificates in that each FNMA Certificate
represents a pro rata share of all interest and principal payments made and owed
on the underlying pool. FNMA guarantees timely payment of interest on FNMA
Certificates and the full return of principal.
COLLATERALIZED MORTGAGE-BACKED OBLIGATIONS ("CMO'S"). CMOs are
fully-collateralized bonds which are the general obligations of the issuer
thereof, either the U.S. Government or a U.S. Government instrumentality. Such
bonds generally are secured by an assignment to a trustee (under the indenture
pursuant to which the bonds are issued) of collateral consisting of a pool of
mortgages. Payments with respect to the underlying mortgages generally are made
to the trustee under the indenture. Payments of principal and interest on the
underlying mortgages are not passed through to the holders of the CMOs as such
(i.e. the character of payments of principal and interest is not passed through,
and therefore payments to holders of CMOs attributable to interest paid and
principal repaid on the underlying mortgages do not necessarily constitute
income and return of capital, respectively, to such holders), but such payments
are dedicated to payment of interest on and repayment of principal of the CMOs.
CMOs often are issued in two or more classes with varying maturities and stated
rates of interest. Because interest and principal payments on the underlying
mortgages are not passed through to holders of CMOs, CMOs of
6
<PAGE>
varying maturities may be secured by the same pool of mortgages, the payments on
which are used to pay interest on each class and to retire successive maturities
in sequence. Unlike other mortgage-backed securities (discussed above), CMOs are
designed to be retired as the underlying mortgages are repaid. In the event of
prepayment on such mortgages, the class of CMO first to mature generally will be
paid down. Therefore, although in most cases the issuer of CMOs will not supply
additional collateral in the event of such prepayment, there will be sufficient
collateral to secure CMOs that remain outstanding.
INVERSE FLOATING RATE SECURITIES. The Government Fund may invest in inverse
floating rate securities. It is the current intention of the Fund to invest no
more than 5% of its net assets in inverse floating rate securities. The interest
rate on an inverse floating rate security resets in the opposite direction from
the market rate of interest to which the inverse floating rate security is
indexed. An inverse floating rate security may be considered to be leveraged to
the extent that its interest rate varies by a multiple of the index rate of
interest. A higher degree of leverage in the inverse floating rate security is
associated with greater volatility in the market value of such security.
The inverse floating rate securities that the Government Fund may
invest in include but are not limited to, an inverse floating rate class of a
government agency issued CMO and a government agency issued yield curve note.
Typically, an inverse floating rate class of a CMO is one of two components
created from the cash flows from a pool of fixed rate mortgages. The other
component is a floating rate security in which the amount of interest payable
varies directly with a market interest rate index. A yield curve note is a fixed
income security that bears interest at a floating rate that is reset
periodically based on an interest rate benchmark. The interest rate resets on a
yield curve note in the opposite direction from the interest rate benchmark.
Portfolio Turnover
- ------------------
If the Government Fund writes a number of call options and the market
prices of the underlying securities appreciate, or if the Fund writes a number
of put options and the market prices of the underlying securities depreciate,
there may be a substantial turnover of the portfolio. While the Government Fund
will pay commissions in connection with its options transactions, Government
Securities are generally traded on a "net" basis with dealers acting as
principal for their own accounts without a stated commission. Nevertheless, high
portfolio turnover may involve correspondingly greater commissions and other
transaction costs, which will be borne directly by the Fund.
John Hancock Managed Tax-Exempt Fund
------------------------------------
Municipal Securities
- --------------------
Municipal securities are issued by or on behalf of states, territories
and possessions of the United States and their political subdivisions, agencies
and instrumentalities to obtain funds for various public purposes. The interest
on these obligations is generally exempt from federal income tax in the hands of
most investors. The two principal classifications of municipal securities are
"Notes" and "Bonds".
7
<PAGE>
MUNICIPAL NOTES. Municipal Notes are generally used to provide for short-term
capital needs and generally have maturities of one year or less. Municipal Notes
include: Project Notes (which carry a U.S. Government guarantee), Tax
Anticipation Notes, Revenue Anticipation Notes, Bond Anticipation Notes and
Construction Loan Notes.
Project Notes are issued by public bodies (called "Local Issuing
Agencies") created under the laws of a state, territory, or U.S. possession.
They have maturities that range up to one year from the date of issuance.
Project Notes are backed by an agreement between the Local Issuing Agency and
the U.S. Department of Housing and Urban Development to provide financing for a
range of programs of financial assistance for housing, redevelopment, and
related needs such as low-income housing programs and urban renewal programs.
While they are the primary obligations of the local public housing agencies or
the local urban renewal agencies, the agreement provides for the additional
security of the full faith and credit of the U.S. Government.
Tax Anticipation Notes are sold to finance working capital needs of
municipalities. They are generally payable from specific tax revenues expected
to be received at a future date. Revenue Anticipation Notes are issued in
expectation of receipt of other types of revenue such as federal revenues
available under the Federal Revenue Sharing Program. Tax Anticipation Notes and
Revenue Anticipation Notes are generally issued in anticipation of various
seasonal revenues such as income, sales, use, and business taxes. Bond
Anticipation Notes are sold to provide interim financing. These notes are
generally issued in anticipation of long-term financing in the market. In most
cases, these monies provide for the repayment of the notes. Construction Loan
Notes are sold to provide construction financing. After the projects are
successfully completed and accepted, many projects receive permanent financing
through the Federal Housing Administration under "Fannie Mae" (the Federal
National Mortgage Association) or "Ginnie Mae" (the Government National Mortgage
Association). There are, of course, a number of other types of notes issued for
different purposes and secured differently from those described above.
MUNICIPAL BONDS. Municipal Bonds, which meet longer term capital needs and
generally have maturities of more than one year when issued, have two principal
classifications: "General Obligation" Bonds and "Revenue" Bonds.
Issuers of General Obligation Bonds include states, counties, cities,
towns and regional districts. The proceeds of these obligations are used to fund
a wide range of public projects including the construction or improvement of
schools, highways and roads, water and sewer systems and a variety of other
public purposes. The basic security of General Obligation Bonds is the issuer's
pledge of its faith, credit, and taxing power for the payment of principal and
interest. The taxes that can be levied for the payment of debt service may be
limited or unlimited as to rate or amount of special assessments.
The principal security for a Revenue Bond is generally the net revenues
derived from a particular facility or group of facilities or, in some cases,
from the proceeds of a special excise or other specific revenue source. Revenue
Bonds have been issued to fund a wide variety of capital projects including:
electric, gas, water and sewer systems; highways, bridges and tunnels; port and
airport facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds varies widely, many provide additional
security in the form of a debt service
8
<PAGE>
reserve fund whose monies may also be used to make principal and interest
payments on the issuer's obligations. Housing finance authorities have a wide
range of security including partially or fully insured, rent subsidized and/or
collateralized mortgages, and/or the net revenues from housing or other public
projects. In addition to a debt service reserve fund, some authorities provide
further security in the form of a state's ability (without obligation) to make
up deficiencies in the debt service reserve fund. Lease rental revenue bonds
issued by a state or local authority for capital projects are secured by annual
lease rental payments from the state or locality to the authority sufficient to
cover debt service on the authority's obligations.
Industrial Development and Pollution Control Bonds, although nominally
issued by municipal authorities, are generally not secured by the taxing power
of the municipality but are secured by the revenues of the authority derived
from payments by the industrial user.
VARIABLE AND FLOATING RATE MUNICIPAL OBLIGATIONS. Variable and floating rate
municipal obligations are tax-exempt obligations that provide for a periodic
adjustment in the interest rate paid on the obligations. Certain of these
obligations also permit the holder to demand payment of the unpaid principal
balance plus accrued interest upon a specified number of days' notice either
from the issuer or by drawing on a bank letter of credit or comparable guarantee
issued with respect to such obligations. The issuer of such an obligation may
have a corresponding right to prepay in its discretion the outstanding principal
of the obligation plus accrued interest upon notice comparable to that required
for the holder to demand payment.
The principal and accrued interest payable to the Managed Tax-Exempt
Fund on certain floating rate demand obligations is frequently supported by an
irrevocable letter of credit or comparable guarantee of a financial institution
(generally a commercial bank).
The terms of such variable and floating rate municipal obligations
provide that interest rates are adjustable at intervals ranging from weekly up
to annually. Interest rate adjustments on floating rate obligations are based
upon the prime rate of a bank or other appropriate interest rate adjustment
index. Variable and floating rate obligations are subject to the quality
characteristics for municipal obligations described in the Appendix to this
Statement of Additional Information.
OTHER MUNICIPAL SECURITIES. There is, in addition, a variety of hybrid and
special types of municipal securities as well as numerous differences in the
security of municipal securities both within and between the two principal
classifications above.
For the purpose of certain requirements of various of the Fund's
investment restrictions, identification of the "issuer" of a municipal security
depends on the terms and conditions of the security. When the assets and
revenues of a political subdivision are separate from those of the government
which created the subdivision and the security is backed only by the assets and
revenues of the subdivision, the subdivision would be deemed to be the sole
issuer. Similarly, in the case of an industrial development bond, if that bond
is backed only by the assets and revenues of the nongovernmental user, then the
nongovernmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity guarantees the
security, the guarantee would be considered a separate security and would be
treated as an issue of the government or other agency.
9
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Ratings as Investment Criteria
- ------------------------------
(See Appendix A.) In general, the ratings of Moody's Investors Service,
Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent the
opinions of these agencies as to the quality of the municipal securities which
they rate. It should be emphasized, however, that such ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Managed Tax-Exempt Fund as initial criteria for the selection of
portfolio securities, but the Fund will also rely upon the independent advice of
the Adviser to evaluate potential investments. Among the factors which will be
considered are the long-term ability of the issuer to pay principal and interest
and general economic trends. Appendix A contains further information concerning
the ratings of Moody's and S&P and their significance.
Subsequent to its purchase by the Managed Tax-Exempt Fund, an issue of
municipal securities may cease to be rated or its rating may be reduced below
the minimum required for purchase by the Managed Tax-Exempt Fund. Neither event
will require the sale of such municipal securities by the Fund, but the Adviser
will consider such event in its determination of whether the Fund should
continue to hold the securities.
Risk Factors
- ------------
The yields on municipal securities are dependent on a variety of
factors, including general economic and monetary conditions, money market
factors, conditions of the municipal securities market, size of a particular
offering, maturity of the obligation, and rating of the issue.
Municipal securities are also subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Code, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations or upon the ability of municipalities to levy taxes. There is also
the possibility that as a result of litigation or other conditions the power or
ability of any one or more issuers to pay, when due, principal of and interest
on certain municipal securities may be materially affected.
From time to time, proposals to restrict or eliminate the Federal
income tax-exemption for interest on municipal securities have been introduced
before Congress. If such a proposal were enacted, the availability of municipal
securities for investment by the Managed Tax-Exempt Fund would be adversely
affected. In such event, the Fund would re-evaluate its investment objective and
policies and submit possible changes in its structure for the consideration of
shareholders.
John Hancock Gold & Government Fund
-----------------------------------
The Adviser believes that during periods of increasing inflation or
economic or monetary instability, gold and related assets have served as a
storehouse of value and their prices have tended to increase at least as rapidly
as the rate of inflation. During such periods, interest rates
10
<PAGE>
have tended to increase, causing the market value of debt instruments to
decline. Conversely, during periods of disinflation (when inflationary pressures
are being reversed), the price of high grade debt instruments has tended to
increase while the value of precious metals and related instruments has tended
to decline.
The Adviser's determination as to whether the economy is in an
inflationary or disinflationary environment will be made based upon its
evaluation of numerous economic and monetary factors. These factors will
include, but not necessarily be limited to, the actual and anticipated rate of
change of the Consumer Price Index ("CPI") over specified periods of time,
actual and anticipated changes and rate of changes in the value of the U.S.
dollar in relation to other key foreign currencies (e.g., the German mark, the
British pound and the Japanese yen), actual and anticipated changes, and rate of
changes, in short and long term interest rates and real interest rates (i.e.,
inflation adjusted interest rates), actual and anticipated changes in the money
supply, and actual and anticipated governmental fiscal and monetary policy. It
should be emphasized that the Adviser will not apply a rigid, mechanical
determination in assessing whether the economy is in an inflationary or
disinflationary environment. Rather, its determination will be the result of its
subjective judgment of all factors it deems relevant.
Additional Information on Investments
- -------------------------------------
Precious metal and mining securities and currencies can be extremely
volatile at times. Gold mining securities and other precious metal and mining
securities likewise fluctuate with gold, but generally even more so. Mining and
other related securities tend to fluctuate more than gold in a major cycle price
change because operating results will usually be positively or negatively
leveraged by considerable upward or downward movements of the gold price. This
is due to the fact that the costs of mining gold remain relatively fixed, so
that an increase or decrease in the price of gold has a direct effect on the
profits of the company. Also, the prices of precious metals-related securities
are likely to be further affected by changes in the currency value of the
country of domicile relative to the dollar. Additionally, precious metal mining
and other related securities generally will be more volatile than gold in a
major cycle of price change either because of a greater or lesser supply of such
securities relative to gold, or because of economic, speculative or other
factors.
Gold Bullion and Coins
- ----------------------
The Gold & Government Fund's gold holdings ordinarily will consist of
gold bullion and bullion-type coins, such as South African Krugerrands and
Canadian Maple Leaf coins. The Fund does not expect to acquire coins for their
numismatic value. The Gold & Government Fund may purchase and sell gold coins
through the American Gold Coin Exchange or other appropriate gold coin and
bullion dealers and may purchase gold bullion through any appropriate gold
bullion dealer. No more than 10% of the Fund's portfolio may be invested in gold
bullion or coins. Unlike investments in gold or precious metals securities,
which may produce income in addition to offering potential for capital
appreciation, gold bullion or coins earn no investment income. Furthermore, the
Fund will incur storage or extra costs which may be higher than costs associated
with more traditional forms of investments.
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<PAGE>
U.S. Government Securities
- --------------------------
The Gold & Government Fund may invest up to 5% of its total assets in
securities issued or guaranteed as to principal and interest by the U.S.
Government in the form of separately traded principal and interest components of
securities issued or guaranteed by the U.S. Treasury. The principal and interest
components of selected securities are traded independently under the Separate
Trading of Registered Interest and Principal of Securities ("STRIPS") program.
Under the STRIPS program, the principal and interest components are individually
numbered and separately issued by the U.S. Treasury at the request of depository
financial institutions, which then trade the component parts independently.
Risk Factors
- ------------
Because of the following considerations, an investment in the Gold &
Government Fund should not be considered a complete investment program.
1. FAILURE TO ANTICIPATE CHANGES IN ECONOMIC CYCLES. The Gold &
Government Fund's investment success will be dependent to a high
degree on the Adviser's ability to anticipate the onset and
termination of inflationary and disinflationary cycles. A failure to
anticipate a disinflationary cycle could result in the Fund's assets
being disproportionately invested in securities of gold or other
mining companies. Conversely, a failure to predict an inflationary
cycle could result in the Fund's assets being disproportionately
invested in U.S. Government securities.
2. UNANTICIPATED ECONOMIC ACTIVITY. The Gold & Government Fund's
investment success will depend to a high degree on the validity of the
premise that the values of securities of gold and precious metals
companies will move in a different direction than the values of U.S.
Government securities during periods of inflation or disinflation. If
the values of both types of securities move down during the same
period of time the value of the shareholder's investment will decline
rather than stabilize or increase, as anticipated, regardless of
whether the Fund is primarily invested in gold or government
securities.
3. CONCENTRATION IN AND VOLATILITY OF MINING STOCKS. The securities of
companies engaged in the exploration for and/or mining and processing
of gold and precious metals have been volatile historically. Mining
and other related securities tend to fluctuate as much as or more than
gold during periods of market instability because operating results
will usually be positively or negatively leveraged by considerable
movements in the price of gold. Such securities are further affected
by changes in value of the currency of the country of domicile. Since
the Gold & Government Fund may from time to time, as set forth in the
Prospectus, invest up to 80% of its total assets in gold and precious
metals mining stocks, its shares may be subject to greater risks and
market fluctuations than other investment companies with investment
portfolios having a broader range of investment alternatives.
12
<PAGE>
4. INVESTMENT IN GOLD BULLION AND COINS. Precious metals prices are
affected by various factors such as economic conditions, political
events and monetary policies. In addition, gold bullion and coins do
not generate income and may subject the Gold & Government Fund to
taxes and insurance, shipping and storage costs. The sole source of
return to the Fund from such investments would be gains realized on
sales; a negative return would be realized if gold is sold at a loss.
The price of gold has historically been subject to dramatic upward and
downward price movements over short periods of time. In the event of a
substantial decrease in the price of gold, the Gold & Government Fund
would incur realized or unrealized losses on its investment in gold
bullion. In the event of a substantial increase in the price of gold,
the Fund may be forced to liquidate a portion of its holdings of gold
bullion to ensure that the value thereof does not increase to the
extent that, at the close of any fiscal quarter, more than 25% of the
value of the Fund's total assets are invested in securities of any one
issuer or more than 50% of its total assets are invested in gold
bullion in order to remain qualified under the Internal Revenue Code
as a regulated investment company. Therefore, the Fund may be forced
to partially liquidate its holdings of gold bullion even if the
Adviser anticipates further increases in the price of gold.
Furthermore, Gold & Government Fund may derive no more than 10% of its
gross income in any taxable year from gross gains from transactions in
gold bullion to remain so qualified and therefore may be required
either to dispose of or continue to hold gold bullion when it would
not otherwise do so for investment reasons.
5. TAX OR CURRENCY LAWS. Changes in the tax or currency laws of the
U.S. and of foreign countries, such as imposition of withholding or
other taxes or exchange controls on foreign currencies may increase
the cost of, or inhibit the Gold & Government Fund's ability to
pursue, its investment program.
6. UNPREDICTABLE INTERNATIONAL MONETARY POLICIES, ECONOMIC AND
POLITICAL CONDITIONS. There is the possibility that under unusual
international monetary or political conditions the Gold & Government
Fund's assets might be less liquid or that the change in value of its
assets might be more volatile than would be the case with other
investments. In particular, because the price of gold may be affected
by unpredictable international monetary policies and economic
conditions there may be greater likelihood of a more dramatic impact
upon the market prices of securities of companies mining, processing
or dealing in gold than changes which would occur in other industries.
Although Gold & Government Fund expects to take delivery of its
investments in the United States, any investment where delivery takes place
outside of the United States will be conducted in compliance with any applicable
United States and foreign currency restrictions and other laws limiting the
amount and types of foreign investments. Since the Adviser expects to make
substantially all of the Fund's purchases and sales of securities and gold
bullion in the U.S. markets and in U.S. dollars, the Adviser does not believe
that it will be materially affected by changes in exchange rates, currency
convertibility and repatriation except to the extent the Fund holds foreign
currencies, including gold coins, as part of its cash position. However, changes
in governmental administrations or of economic or monetary policies, in the
United States or abroad, or changed circumstances in dealings between nations
could result in investment losses to the Fund and otherwise affect the Fund's
operations adversely.
13
<PAGE>
7. FOREIGN SECURITIES. Although the Adviser does not believe the risk
to be substantial, foreign issuers of securities in many countries are
subject to less stringent standards of disclosure and regulatory
controls than are found in the United States which may result in less
reliable and less detailed information being available to the Gold &
Government Fund than would be the case with United States companies.
In addition, investments in foreign issuers may be affected by
fluctuating exchange rates and adverse changes in foreign investment
or exchange control regulation. However, the Fund's policy of
generally investing in American depository receipts ("ADRs") or other
securities which can be sold for United States dollars and for which
market quotations are readily available in New York may minimize some
of these risks. (ADRs are certificates issued by United States banks
representing the right to receive securities of a foreign issuer
deposited in that bank or a correspondent bank.)
Portfolio Turnover
- ------------------
Gold & Government Fund's rate of portfolio turnover may vary widely
from year to year, and may be higher than many other mutual funds with similar
investment objectives. Nevertheless, high portfolio turnover in any given year
will result in the Fund's payment of above-average amounts of commissions and
other transaction costs and may result in the realization of greater amounts of
net short-term capital gains, distributions from which will be taxable to
shareholders as ordinary income.
John Hancock Sovereign Achievers Fund
-------------------------------------
Foreign Investments
- -------------------
While Sovereign Achievers Fund may invest in some foreign securities,
such investments are expected to constitute less than 10% of the Fund's
portfolio. Although the Adviser does not believe the risk to be substantial,
foreign issuers of securities in many countries are subject to less stringent
standards of disclosure and regulatory controls than are found in the United
States which may result in less reliable and less detailed information being
available to the Fund than would be the case with United States companies. In
addition, investments in foreign issuers may be affected by fluctuating exchange
rates and adverse changes in foreign investment or exchange control regulation.
However, Sovereign Achievers Fund's policy of generally investing in American
depository receipts ("ADRs") or other securities which can be sold for United
States dollars and for which market quotations are readily available in New York
may minimize some of these risks. ADRs are certificates issued by United States
banks representing the right to receive securities of a foreign issuer deposited
in that bank or a correspondent bank.
John Hancock Regional Bank Fund
-------------------------------
The Adviser believes that the ongoing deregulation of the banking
industry continues to provide new opportunities for banks. As deregulation
continues and interstate banking becomes more likely, some Regional Banks may
become attractive acquisition candidates for large money center banks or other
Regional Banks. Typically, acquisitions accelerate the capital appreciation of
the shares of the company to be acquired.
14
<PAGE>
In addition, Regional Banks located in sections of the country
experiencing strong economic growth are likely to participate in and benefit
from such growth through increased deposits and earnings. Many banks which are
actively and aggressively managed and are expanding services as deregulation
opens up new opportunities also show potential for capital appreciation.
The Adviser will seek to invest in those Regional Banks it believes are
well positioned to take advantage of the changes in the banking industry. A
Regional Bank may be well positioned for a number of reasons. It may be an
attractive acquisition for a bank wishing to strengthen its presence in the
geographic region or to expand into interstate activities, or it may be planning
on a regional merger to strengthen its position in the geographic area. The
Regional Bank may be located in a geographic region with strong economic growth
and be actively seeking to participate in such growth, or it may be expanding
into financial services previously unavailable to it (due to an easing of
regulatory constraints) in order to become a full service financial center.
Risk Factors
- ------------
Banks, finance companies and other financial services organizations are
subject to extensive governmental regulations which may limit both the amounts
and types of loans and other financial commitments which may be made and the
interest rates and fees which may be charged. The profitability of these
concerns is largely dependent upon the availability and cost of capital funds,
and has shown significant recent fluctuation as a result of volatile interest
rate levels. Volatile interest rates will also affect the market value of debt
securities held by the Regional Bank Fund. In addition, general economic
conditions are important to the operations of these concerns, with exposure to
credit losses resulting from possible financial difficulties of borrowers
potentially having an adverse effect.
John Hancock Global Fund and
----------------------------
John Hancock Global Income Fund
-------------------------------
Today, more than two-thirds of the world's stock market value is traded
on stock exchanges located outside of the United States. Europe is poised for
economic change. The European Economic Commission has ratified the economic
directives which will essentially create a single, unified market amongst the
European nations allowing the free movement of goods and services within a
population which is larger than that of the USA. Europe also intends to
participate in the restructuring of the social and economic policies of the
former Soviet Union and other Eastern bloc countries. The Pacific Region, which
includes Japan, Hong Kong, Korea, Taiwan, Thailand, Singapore, Malaysia and
Australia, has experienced substantial economic growth in recent years. The
Global Fund provides you with access to the stock markets of the world, enabling
you to diversify your investments among a variety of countries, companies and
industrial sectors.
15
<PAGE>
In general, the securities in which Global Income Fund may invest
include debt obligations issued or guaranteed by United States or foreign
governments, political subdivisions thereof (including states, provinces and
municipalities) or their agencies and instrumentalities ("governmental
entities"), or issued or guaranteed by international organizations designated or
supported by governmental entities to promote economic reconstruction or
development ("supranational entities"), or issued by corporations or financial
institutions. Examples of supranational entities include the International Bank
for Reconstruction and Development (the "World Bank"), the European Steel and
Coal Community, the Asian Development Bank and the Inter-American Development
Bank. The governmental members, or "stockholders", usually make initial capital
contributions to the supranational entity and in many cases are committed to
make additional capital contributions if the supranational entity is unable to
repay its borrowings. Securities issued by supranational entities may be
denominated in U.S. dollars, a foreign currency or a multi-national currency
unit such as the European Currency Unit ("ECU"). The ECU is a composite currency
consisting of specified amounts of each of the currencies of the member
countries of the European Economic Community. Securities of corporations and
financial institutions in which the Fund may invest include corporate and
commercial obligations, such as medium-term notes and commercial paper, which
may be indexed to foreign currency exchange rates. In accordance with guidelines
promulgated by the Staff of the Securities and Exchange Commission, the Fund
will consider as an industry any category of such supranational entities which
may have been designated by the Commission.
American Depository Receipts and European Depository Receipts
- -------------------------------------------------------------
In addition to purchasing equity securities of foreign issuers in
foreign markets, Global Fund and the Global Income Fund may invest in American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or other
securities convertible into securities of corporations domiciled in foreign
countries. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets and EDRs,
in bearer form, are designed for use in European securities markets. ADRs are
receipts typically issued by a United States bank or trust company evidencing
ownership of the underlying securities. EDRs are European receipts evidencing a
similar arrangement. It is the current intention of JH Advisers International
that no more than 5% of the Global Fund's assets will be invested in ADRs and
EDRs.
Foreign Currency Transactions
- -----------------------------
Global Fund and Global Income Fund will conduct their foreign currency
exchange transactions either on a spot (i.e., cash) basis at the spot rate
prevailing in the foreign currency exchange market, or through entering into
forward contracts to purchase or sell foreign currencies. A forward foreign
currency exchange contract involves an obligation to purchase or sell a specific
amount of currency at a future date, which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at the time
of the contract. These contracts are usually traded in the interbank market
conducted directly between currency traders (usually large commercial banks) and
their customers. A forward contract generally has no deposit requirement, and no
commissions are charged at any stage for such trades.
16
<PAGE>
The Global Fund and the Global Income Fund may enter into forward
foreign currency exchange contracts to enhance return, as a substitute for the
purchase or sale of currency or to hedge against fluctuations in currency
exchange rates. The Funds' hedging transactions in forward contracts may include
the following. A Fund may enter into a contract for the purchase or sale of a
security denominated in a foreign currency to "lock-in" the United States dollar
price of the security. By entering into a forward contract for a fixed amount of
dollars for the purchase or sale of the amount of foreign currency involved in
the underlying transactions, a Fund will be able to protect itself against a
possible loss resulting from an adverse change in the relationship between the
United States dollar and that foreign currency during the period between the
date on which the security is purchased or sold and the date on which payment is
made or received.
When the Adviser or JH Advisers International believes that the
currency of a particular foreign country may suffer or enjoy a substantial
movement against another currency, a Fund may enter into a forward contract to
sell or buy the amount of the former foreign currency approximating the value of
some or all of that Fund's portfolio securities denominated in such foreign
currency. This second investment practice is generally referred to as
"cross-hedging". The precise matching of the forward contract amounts and the
value of the securities involved will not generally be possible since the future
value of securities in foreign currencies will change as a consequence of market
movements in the value of these securities between the date on which the forward
contract is entered into and the date it matures. The projection of short-term
currency market movement is extremely difficult, and the successful execution of
a short-term hedging strategy is highly uncertain.
In addition, the Funds may enter into forward contracts for non-hedging
purposes. For example, if a portfolio security with an attractive rate of return
is denominated in a currency (including the U.S. dollar) that is not expected to
perform well, a Fund may use forward contracts to offset its exposure to the
non-performing currency while retaining the security.
Under normal circumstances, consideration of the prospects for currency
exchange rates will be incorporated into a Fund's long-term investment decisions
made with regard to overall investment strategies. However, each Fund believes
that it is important to have the flexibility to enter into forward contracts
when it determines that the best interests of the Fund will thereby be served.
State Street Bank and Trust Company, the Funds' custodian, will place cash or
liquid debt securities into a segregated account of each Fund in an amount equal
to the value of that Fund's total assets committed to the consummation of
forward foreign currency exchange contracts involving the purchase of foreign
currency. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts.
At the maturity of a forward contract, a Fund may either sell the
portfolio security and make delivery of the foreign currency, or it may retain
the security and terminate its contractual obligation to deliver the foreign
currency by purchasing an "offsetting" contract with the same currency trader
obligating it to purchase, on the same maturity date, the same amount of the
foreign currency. There can be no assurance, however, that either Fund will be
able to effect such a closing purchase transaction.
17
<PAGE>
It is impossible to forecast the market value of a particular portfolio
security at the expiration of the contract. Accordingly, it may be necessary for
a Fund to purchase additional foreign currency on the spot market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency that the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign currency.
If either the Global Fund or the Global Income Fund retains the
portfolio security and engages in an offsetting transaction, that Fund will
incur a gain or a loss (as described below) to the extent that there has been
movement in forward contract prices. Should forward prices decline during the
period between a Fund's entering into a forward contract for the sale of a
foreign currency and the date it enters into an offsetting contract for the
purchase of the foreign currency, such Fund will realize a gain to the extent
that the price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the Fund
will suffer a loss to the extent that the price of the currency it has agreed to
purchase exceeds the price of the currency it has agreed to sell.
The Funds are not required to enter into forward contracts with regard
to their foreign currency-denominated securities. It also should be realized
that this method of protecting the value of a Fund's portfolio securities
against a decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities. It simply establishes a rate of
exchange which one can achieve at some future point in time. Additionally,
although such contracts tend to minimize the risk of loss due to a decline in
the value of the hedged currency, at the same time, they tend to limit any
potential gain which might result should the value of such currency increase.
Although the Global Fund and the Global Income Fund value their assets
daily in terms of United States dollars, neither Fund intends to convert its
holdings of foreign currencies into United States dollars on a daily basis. A
Fund will do so from time to time, and investors should be aware of the costs of
currency conversion. Although foreign exchange dealers do not charge a fee for
conversion, they do realize a profit based on the difference (the "spread")
between the prices at which they are buying and selling various currencies.
Thus, a dealer may offer to sell a foreign currency to a Fund at one rate, while
offering a lesser rate of exchange should the Fund desire to resell the currency
to the dealer.
Portfolio Turnover
- ------------------
The Global Income Fund's portfolio turnover rate may vary widely from
year to year and may be higher than that of many other mutual funds with similar
investment objectives. For example, if the Global Income Fund writes a
substantial number of call options and the market prices of the underlying
securities appreciate, or if it writes a substantial number of put options and
the market prices of the underlying securities depreciate, there may be a very
substantial turnover of the portfolio. While the Fund will pay commissions in
connection with its options transactions, government securities are generally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. Nevertheless, high portfolio turnover may involve
correspondingly greater commissions and other transaction costs, which will be
borne directly by the Fund.
18
<PAGE>
THE FUNDS' OPTIONS TRADING ACTIVITIES
The following information supplements the discussion in the
Prospectuses regarding options transactions in which the Funds may engage.
A call option gives the purchaser of the option the right to buy, and
the writer the obligation to sell (if the option is exercised), the underlying
security or asset at the exercise price during the option period. Conversely, a
put option gives the purchaser the right to sell, and the writer the obligation
to buy, (if the option is exercised) the underlying security or asset at the
exercise price during the option period.
The principal reason for writing covered call options on a portfolio
security or foreign currency is to attempt to realize through the receipt of
premiums a greater return than would be realized on the security or foreign
currency alone. A covered call option writer, in return for the premium, has
given up the opportunity for profit from a price increase in the underlying
security or currency above the exercise price so long as its obligation
continues, but has retained the risk of loss should the price of the security
decline. The call option writer has no control over when it may be required to
sell its securities, since it may be assigned an exercise notice at any time
prior to the termination of its obligation as a writer. If an option expires,
the writer realizes a gain in the amount of the premium. Such a gain, of course,
may be offset by a decline in the market value of the underlying security during
the option period. If a call option is exercised, the writer realizes a gain or
loss from the sale of the underlying security or currency.
It is the policy of each Fund to meet the requirements of the Internal
Revenue Code to qualify as a regulated investment company to prevent double
taxation of the Fund and its investors. One of these requirements is that less
than 30% of a Fund's gross income for each taxable year must be derived from
gross gains from the sale or other disposition of certain financial assets,
including stocks, securities, and most options, futures and forward contracts,
held for less than three months. The extent to which the Funds may engage in
options, futures and forward transactions may be materially limited by this 30%
test.
Gold & Government Fund, Global Income Fund, Sovereign Achievers Fund, and
- -------------------------------------------------------------------------
Regional Bank Fund
- ------------------
Call Options
------------
Each Fund may trade in options, including purchasing calls and writing
covered calls. Gold & Government Fund may write covered call options and
purchase put and call options on gold bullion, U.S. Government securities and
equity securities in which it may invest. Call options ("calls") may be written
(i.e., sold) by each Fund if (i) the calls are listed on a domestic exchange or
are traded over-the-counter; and (ii) the calls are covered, i.e., the Fund owns
the assets subject to the call (or other assets acceptable for escrow
arrangements) while the call is outstanding.
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<PAGE>
Each Fund may write call options to obtain additional income. When a
Fund writes a call it receives a premium and agrees to sell the callable
securities to the purchaser of the call, if the option is exercised during the
call period, at a fixed exercise price (which may differ from the market price)
regardless of market price changes during the call period. Thus, in exchange for
the premium received, the Fund foregoes any possible profit from an increase in
market price over the exercise price.
When a Fund writes a call option, an amount equal to the premium
received by it is included in that Fund's Statement of Assets and Liabilities as
an asset and as an equivalent liability. The amount of the liability is
subsequently marked to market to reflect the current market value of the option
written. The premium paid by a Fund for the purchase of a call or put option is
included in the assets section of the Statement of Assets and Liabilities as an
investment and subsequently adjusted to the current market value of the option.
The current market value of a purchased or written option is the last sale price
on the principal exchange on which such option is traded or, in the absence of a
sale or in the case of an unlisted option, the mean between the last bid and
offering prices.
To terminate its obligation on a call which it has written, each Fund
may purchase a call in a "closing purchase transaction." (As discussed below,
each Fund may also purchase calls other than as part of such transactions.) A
profit or loss will be realized depending on the amount of option transaction
costs and whether the premium previously received is more or less than the price
of the call purchased. A profit may also be realized if the call lapses
unexercised, because the Fund retains the underlying security and the premium
received. Any such profits are considered short-term gains for federal tax
purposes and, when distributed by the Fund, are taxable as ordinary income.
Each Fund may purchase calls only if the calls are listed on a domestic
exchange or traded over-the-counter. Each Fund will purchase call options to
attempt to obtain capital appreciation. When a Fund buys a call, it pays a
premium and has the right to buy the callable securities from the seller of a
call during a period at a fixed exercise price. The Fund benefits only if the
market price of the callable securities is above the call price during the call
period and the call is either exercised or sold at a profit. If the call is not
exercised or sold (whether or not at a profit), it will become worthless at its
expiration date and the Fund will lose its premium payment and the right to
purchase the underlying security.
In the case of Gold & Government Fund, hedging by writing covered call
options on gold bullion is similar to hedging through the use of similar options
on securities as described above. In addition, Gold & Government Fund may
purchase call options on gold bullion if it desires to achieve a more rapid
exposure to anticipated increases in the price of gold mining shares or gold
bullion than is practical by buying such assets.
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<PAGE>
Put Options
-----------
Any of the Funds may purchase put options ("puts") if they are listed
on a domestic exchange or traded over-the-counter. None of the Funds may write
(sell) puts, but may resell puts previously purchased by it to third parties who
are not broker-dealers. When a Fund buys a put, it pays a premium and has the
right to sell the underlying assets to the seller of the put during the put
period at a fixed exercise price.
Each Fund may buy puts related to securities it owns ("protective
puts") or to securities it does not own ("nonprotective puts"). Buying a
protective put permits the Fund to protect itself during the put period against
a decline in the value of the underlying securities below the exercise price by
selling them through the exercise of the put. Thus, protective puts will assist
the Funds in achieving their investment objectives of capital appreciation by
protecting them against a decline in the market value of their portfolio
securities.
Buying a non-protective put permits each Fund, if the market price of
the underlying securities is below the put price during the put period, either
to resell the put or to buy the underlying securities and sell them at the
exercise price. A non-protective put can enable each Fund to achieve
appreciation during a period when the price of securities underlying such put is
declining. If the market price of the underlying securities is above the
exercise price and as a result, the put is not exercised or resold (whether or
not at a profit), the put will become worthless at its expiration date.
In the case of the Gold & Government Fund, hedging by purchasing put
options on gold bullion is similar to hedging through the use of similar options
on securities as described above.
Government Fund
- ---------------
Writing Covered Options on Government Securities
------------------------------------------------
The Government Fund may write (sell) covered call options and covered
put options on all or any part of the Fund's portfolio of Government Securities.
The Government Fund may write (i.e., sell) options which are traded on
registered securities exchanges ("Exchanges") and may also write options on
Government Securities which are traded over-the-counter. A call option gives the
purchaser of the option the right to buy, and the writer the obligation to sell,
the underlying security at the exercise price if the option is exercised during
the option period. Conversely, a put option gives the purchaser the right to
sell, and the writer the obligation to buy (if the option is exercised) the
underlying security at the exercise price during the option period. The Fund may
also write straddles (combinations of covered puts and calls on the same
underlying security).
The Government Fund writes only "covered" options. This means that as
long as the Fund is obligated as the writer of a call option, it will own the
underlying securities subject to the option, except that, in the case of call
options on U.S. Treasury Bills, the Fund might own U.S. Treasury Bills of a
different series from those underlying the call option, but with a principal
amount corresponding to the option contract amount and a maturity date no later
than that of the securities deliverable under the call option. See "Risk Factors
Applicable to Options" below.
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<PAGE>
The Government Fund will be considered "covered" with respect to a put
option it writes if, as long as it is obligated as the writer of a put option,
it deposits and maintains with its Custodian, cash, Government Securities or
other high-grade debt obligations having a value equal to or greater than the
exercise price of the option.
So long as the obligation of the writer continues, the writer may be
assigned an exercise notice by the broker-dealer through whom the option was
sold. The exercise notice would require the writer to deliver, in the case of a
call, or take delivery of, in the case of a put, the underlying security against
payment of the exercise price. This obligation terminates upon expiration of the
option, or at such earlier time that the writer effects a closing purchase
transaction by purchasing an option covering the same underlying security and
having the same exercise price and expiration date ("of the same series") as the
one previously sold. Once an option has been exercised, the writer may not
execute a closing purchase transaction. To secure the obligation to deliver the
underlying security in the case of a call option, the writer of the option is
required to deposit in escrow the underlying security or other assets in
accordance with the rules of the Options Clearing Corporation (the "OCC"), an
institution created to interpose itself between buyers and sellers of options.
Technically, the OCC assumes the other side of every purchase and sale
transaction on an Exchange and, by doing so, gives its guarantee to the
transaction.
The principal reason for writing options on a securities portfolio is
to attempt to realize, through the receipt of premiums, a greater return than
would be realized on the underlying securities alone. In return for the premium,
the covered call option writer has given up the opportunity for profit from a
price increase in the underlying security above the exercise price as so long as
the option remains open, but retains the risk of loss should the price of the
security decline. Conversely, the put option writer gains a profit, in the form
of the premium, so long as the price of the underlying security remains above
the exercise price, but assumes an obligation to purchase the underlying
security from the buyer of the put option at the exercise price, even though the
security may fall below the exercise price, at any time during the option
period. If an option expires, the writer realizes a gain in the amount of the
premium. Such a gain may, in the case of a covered call option, be offset by a
decline in the market value of the underlying security during the option period.
If a call option is exercised, the writer realizes a gain or loss from the sale
of the underlying security. If a put option is exercised, the writer must
fulfill his obligation to purchase the underlying security at the exercise
price, which will usually exceed the then-market value of the underlying
security.
Because the Government Fund can write only covered options, it may at
times be unable to write additional options unless it sells a portion of its
portfolio holdings to obtain new debt securities against which it can write
options. This may result in higher portfolio turnover and correspondingly
greater brokerage commissions and other transaction costs.
To the extent that a secondary market is available on the Exchanges,
the covered option writer may close out options it has written prior to the
assignment of an exercise notice by purchasing, in a closing purchase
transaction, an option of the same series as the option previously written. If
the cost of such a closing purchase, plus transaction costs, is greater than the
premium received upon writing the original option, the writer will incur a loss
in the transaction.
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<PAGE>
The extent to which the Government Fund may write covered call and put
options and enter into so-called "straddle" transactions may be limited by the
Code's requirements for qualification as a regulated investment company and the
Fund's intention to qualify as such.
Purchasing Put Options on Government Securities
-----------------------------------------------
The Government Fund may purchase put options on optionable Government
Securities in anticipation of a price decline in the underlying security. This
contemplates the purchase of put options at a time when the Fund does not own
the underlying security and it seeks to benefit from an anticipated decline in
the market price of the underlying security. If the put option is not sold when
it has remaining value, and if the market price of the underlying security
remains equal to or greater than the exercise price during the life of the put
option, the Fund will lose its entire investment in the put option. Further,
unless the put option is sold in a closing sale transaction, in order for the
purchase of a put option to be profitable, the market price of the underlying
security must decline sufficiently below the exercise price to cover the premium
and transaction costs.
The Government Fund may also purchase put options ("protective puts")
to protect its holdings in an underlying security against a substantial decline
in market value. Such hedge protection is provided only during the life of the
put option when the Fund as the holder of the put option is able to sell the
underlying security at the exercise price regardless of any decline in the
underlying security's market price. By using put options in this manner, the
Fund will reduce any profit it might otherwise have realized in its underlying
security by the premium paid for the put option and by transaction costs.
The Government Fund will not invest more than 5% of its net assets in
put options.
Risk Factors Applicable to Options (Government Fund, Gold & Government Fund and
- -------------------------------------------------------------------------------
Global Income Fund Only)
- ------------------------
ON TREASURY BONDS AND NOTES. Because trading interest in Treasury Bonds
and Notes tends to center on the most recently auctioned issues, the Exchanges
will not indefinitely continue to introduce new series of options with
expirations to replace expiring options on particular issues. Instead, the
expirations introduced at the commencement of options trading on a particular
issue will be allowed to run their course, with the possible addition of a
limited number of new expirations as the original ones expire. Options trading
on each series of Bonds or Notes will thus be phased out as new options are
listed on the more recent issues, and a full range of expiration dates will not
ordinarily be available for every series on which options are traded.
ON TREASURY BILLS. Because the deliverable Treasury Bill changes from
week to week, writers of Treasury Bill call options cannot provide in advance
for their potential exercise settlement obligations by acquiring and holding the
underlying security. However, if the Government Fund or the Gold & Government
Fund holds a long position in Treasury Bills with a principal amount
corresponding to the option contract size, such Fund may be hedged from a risk
standpoint. In addition, each Fund will maintain in a segregated account with
its custodian Treasury Bills maturing no later than those which would be
deliverable in the event of an assignment of an exercise notice to ensure that
it can meet its open options obligations.
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<PAGE>
ADDITIONAL RISKS OF OPTIONS ON GOVERNMENT SECURITIES. The Gold &
Government Fund, the Government Fund and the Global Income Fund may purchase and
sell options on Government Securities including securities issued by the
Government National Mortgage Association. Certain options on Government
Securities are traded "over-the-counter" rather than on an exchange. This means
that each of these Funds will enter into such options with particular
broker-dealers who make markets in these options. With respect to options not
traded on an exchange, there is the additional risk that a Fund may not be able
to enter into a closing transaction with the other party to the option on
satisfactory terms or that such other party may be unable to fulfill its
contractual obligations. However, the Adviser or JH Advisers International, as
the case may be, will enter into transactions in non-listed options only with
responsible dealers where it does not believe that the foregoing factors present
a material risk. There is no assurance that the Funds will be able to effect
closing transactions at any particular time or at an acceptable price. A Fund's
ability to terminate options positions in Government Securities may involve the
risk that broker-dealers participating in such transactions will fail to meet
their obligations to the Fund. The Funds will purchase options on Government
Securities only from broker-dealers whose debt securities are investment grade
(as determined by the Boards of Trustees).
All Funds
- ---------
Put and Call Options: General
--------------------- -------
A call option position may be closed out only on an exchange which
provides a secondary market for options of the same series or, in the case of an
over-the-counter option, only with the other party to the transaction. In
general, exchange-traded options are third-party contracts (i.e. performance of
the parties' obligations is guaranteed by an exchange or clearing corporation)
with standardized strike prices and expiration dates. Over-the-counter
transactions are two-party contracts with price and terms negotiated by the
buyer and seller. There is no assurance that the Funds will be able to close out
options acquired or sold over-the-counter.
The Funds will acquire only those over-the-counter options for which
management believes the Funds can receive on each business day at least two
separate bids or offers (one of which will be from an entity other than a party
to the option) or those over-the-counter options valued by an independent
pricing service. The Funds will write and purchase over-the-counter options only
with member banks of the Federal Reserve System and primary dealers in U.S.
Government securities or their affiliates which have capital of at least $50
million or whose obligations are guaranteed by an entity having capital of at
least $50 million. The SEC has taken the position that over-the-counter options
are illiquid securities, subject to the restriction that illiquid securities are
limited to not more than 10% of a Fund's assets. The SEC, however, has a partial
exemption from the above restrictions on transactions in over-the-counter
options. The SEC allows a Fund to exclude from the 10% limitation on illiquid
securities a portion of the value of the over-the-counter options written by the
fund, provided that certain conditions are met. First, the other party to the
over-the-counter options has to be a primary U.S. Government securities dealer
designated as such by the Federal Reserve Bank. Second, the Funds would have
24
<PAGE>
an absolute contractual right to repurchase the over-the-counter options at a
formula price. If the above conditions are met, a Fund must treat as illiquid
only that portion of the over-the-counter option's value (and the value of its
underlying securities) which is equal to the formula price for repurchasing the
over-the-counter option, less the over-the-counter option's intrinsic value.
Although the Funds will generally purchase or write only those
exchange-traded options for which there appears to be an active secondary
market, there can be no assurance that a liquid secondary market on an exchange
will exist for any particular option, or at any particular time. In the event
that no liquid secondary market exists, it might not be possible to effect
closing transactions in particular options. If Fund cannot close out an
exchange-traded or over-the-counter option which it holds, it would have to
exercise such option in order to realize any profit and would incur transaction
costs on the purchase or sale of underlying assets. If the Government Fund, Gold
& Government Fund, Sovereign Achievers Fund, Regional Bank Fund, Global Fund or
Global Income Fund, as covered call option writers, are unable to effect a
closing purchase transaction, they will not be able to sell the underlying
assets until the option expires or they deliver the underlying asset upon
exercise. Accordingly, these Funds may run the risk of either foregoing the
opportunity to sell the underlying asset at a profit or being unable to sell the
underlying asset as its price declines.
Reasons for the absence of a liquid secondary market on an exchange
include the following: (i) there may be insufficient trading interest in certain
options; (ii) an exchange may impose restrictions on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options or underlying securities; (iv) unusual or unforeseen circumstances may
interrupt normal operations on an exchange; (v) the exchanges and the Options
Clearing Corporation have had only limited experience with the trading of
certain options and the facilities of an exchange or the Options Clearing
Corporation may not at all times be adequate to handle current trading volume;
or (vi) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options), in which event the secondary market on
that exchange (or in that class or series of options) would cease to exist,
although outstanding options that had been issued by the Options Clearing
Corporation as a result of trades on that exchange would continue to be
exercisable in accordance with their terms.
The put and call options activities of Government Fund, Gold &
Government Fund, Sovereign Achievers Fund, Regional Bank Fund, Global Fund and
Global Income Fund may affect their turnover rates and the amount of brokerage
commissions paid by them. The exercise of calls written by these Funds may cause
them to sell portfolio securities or other assets at times and amounts
controlled by the holder of a call, thus increasing the Funds' portfolio
turnover rates and brokerage commission payments. The exercise of puts purchased
by the Fund may also cause the sale of securities or other assets, also
increasing turnover. Although such exercise is within the Funds' control,
holding a protective put might cause the Funds to sell the underlying securities
or other assets for reasons which would not exist in the absence of the put.
Holding a non-protective put might cause the purchase of the underlying
securities or other assets to permit the Funds to exercise the put. The put and
call activities of Gold & Government Fund will be restricted by the limited
availability of options relating to mining securities and foreign investments
that are listed on domestic exchanges or quoted at some future date on NASDAQ.
25
<PAGE>
A Fund will pay a brokerage commission each time it buys or sells a put
or call or buys or sells a security in connection with the exercise of a put or
call. Such commissions may be higher than those which would apply to direct
purchases or sales of equity securities.
There is no limit as to how many times either the Global Fund's or the
Global Income Fund's options positions may be replaced and therefore the
potential risks to each Fund may be greater than 5% of its net assets.
Successful use by the Adviser or JH Advisers International of options on
securities, foreign currencies and/or forward foreign currency exchange
contracts will be based upon predictions by the Adviser or JH Advisers
International as to anticipated movements of foreign currency exchange rates
and/or interest rates.
The Funds' Custodian, or a securities depository acting for it, will
act as the Funds' escrow agent as to the securities on which they have written
calls, or as to other securities acceptable for such escrow, so that pursuant to
the rules of the Options Clearing Corporation and certain exchanges, no margin
deposit will be required of the Funds. Until the securities are released from
escrow, they cannot be sold by the Funds; this release will take place on the
expiration of the call or the Funds' entering into a closing purchase
transaction. For information on the valuation of the puts and calls, see "Net
Asset Value."
Managed-Tax Exempt Fund
- -----------------------
The Managed Tax-Exempt Fund does not engage in any options related
transactions except options on interest rate futures contracts and municipal
bond index futures contracts as described in "The Funds' Investments in Futures
Contracts" below.
THE FUNDS' INVESTMENTS IN FUTURES CONTRACTS
The following information supplements the discussion in the
Prospectuses regarding investment by certain Funds in futures contracts and
related options.
INTEREST RATE FUTURES CONTRACTS. The Government Fund, Managed Tax-Exempt Fund,
Gold & Government Fund and Global Income Fund may invest in interest rate
futures contracts and related options that are traded on a United States or
foreign exchange or board of trade.
Currently, interest rate futures contracts can be purchased and sold with
respect to U.S. Treasury bonds, U.S. Treasury notes, Government National
Mortgage Association mortgage-backed certificates, U.S. Treasury bills and
ninety-day commercial paper.
The purpose of the purchase or sale of interest rate futures contracts
by the Funds will be to protect the Funds from fluctuations in interest rates
without necessarily buying or selling fixed income securities. For example, if a
Fund owns bonds and interest rates are expected to increase, that Fund might
sell futures contracts on debt securities having characteristics similar to
those held in the portfolio. Such a sale would have much the effect as selling
an equivalent value of the
26
<PAGE>
bonds owned by the Fund. If interest rates did increase, the value of the debt
securities in the portfolio would decline, but the value of the futures
contracts to the Fund would increase at approximately the same rate, thereby
keeping the net asset value of the Fund from declining as much as it otherwise
would have.
Similarly, when it is expected that interest rates may decline, futures
contracts may be purchased to attempt to hedge against having to make an
anticipated purchase of bonds at the higher prices subsequently expected to
prevail. Since the fluctuations in the value of appropriately selected futures
contracts should be similar to that of the bonds that will be purchased, a Fund
could take advantage of the anticipated rise in the cost of the bonds without
actually buying them until the market has stabilized. At this time, that Fund
could make the intended purchase of the bonds in the cash market and the futures
contracts could be liquidated. To the extent a Fund enters into futures
contracts for this purpose, it will maintain in a segregated account assets
sufficient to cover its obligations with respect to such futures contracts,
which will consist of cash or U.S. Government or other high quality debt
securities from its portfolio in an amount equal to the difference between the
fluctuating market value of such futures contracts and the aggregate value of
the initial and variation margin payments made by the Fund with respect to such
futures contracts.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. The Managed Tax-Exempt Fund may invest
in municipal bond index futures contracts that are traded on a United States
exchange or board of trade. Such investments may be made by the Fund solely for
the purposes of hedging against changes in the value of its portfolio securities
due to anticipated changes in interest rates and market conditions, and not for
purposes of speculation.
A municipal bond index futures contract is an agreement pursuant to
which two parties agree to take or make delivery of an amount of cash equal to
the difference between the value of the index at the close of the last trading
day of the contract and the price at which the index contract was originally
written. No physical delivery of the underlying municipal bonds in the index is
made.
The purpose of the acquisition or sale of a municipal bond index
futures contract by the Managed Tax-Exempt Fund, as the holder of long-term
municipal securities, is to protect the Fund from fluctuations in interest rates
on municipal securities without actually buying or selling long-term municipal
securities. For example, if the Fund owns long-term bonds and interest rates are
expected to increase, it might sell municipal bond index futures contracts. Such
a sale would have much the same effect as selling some of the long-term bonds in
the Fund's portfolio. If interest rates increase as anticipated by the Adviser,
the value of certain long-term municipal securities in the portfolio would
decline, but the value of the Fund's futures contracts would increase at
approximately the same rate, thereby keeping the net asset value of the Fund
from declining as much as it otherwise would have. Of course, since the value of
the municipal securities in the Managed Tax-Exempt Fund's portfolio may exceed
the value of the futures contracts sold by the Fund, an increase in the value of
the futures contracts might only mitigate - but not totally offset - the decline
in the value of the portfolio.
27
<PAGE>
Similarly, when it is expected that interest rates may decline,
municipal bond index futures contracts could be purchased to hedge against the
Managed Tax-Exempt Fund's anticipated purchases of long-term municipal
securities at higher prices. Since the rate of fluctuation in the value of
municipal bond index futures contracts should be similar to that of long-term
bonds, the Fund could take advantage of the anticipated rise in the value of
long-term bonds without actually buying them until the market had stabilized. At
that time, the futures contracts could be liquidated and the Fund's cash could
be used to buy long-term bonds in the cash market. The Managed Tax-Exempt Fund
could accomplish similar results by selling municipal securities with long
maturities and investing in municipal securities with short maturities when
interest rates are expected to increase or buying municipal securities with long
maturities and selling municipal securities with short maturities when interest
rates are expected to decline. However, in circumstances when the market for
municipal securities may not be as liquid as that for the municipal bond index
futures contracts, the ability to invest in such contracts could enable the Fund
to react more quickly to anticipated changes in market conditions or interest
rates.
GOLD BULLION FUTURES CONTRACTS. The Gold & Government Fund may invest in gold
bullion futures contracts and related options that are traded on a United States
exchange or board of trade. Such investments may be made by the Gold &
Government Fund solely for the purpose of hedging against changes in the value
of its portfolio securities due to anticipated changes in gold prices, interest
rates or market conditions, and not for the purposes of speculation.
Generally, futures contracts on gold bullion are similar to the
interest rate futures contracts discussed above. By entering into gold bullion
futures contracts, the Fund will be able to establish the rate at which it will
be entitled to purchase set amounts of gold bullion in a future month. By
selling such futures, the Fund can establish the price it will receive in the
delivery month for a specified amount of gold bullion, or the Fund can attempt
to "lock in" the value of some or all of the gold bullion held in its portfolio
at a particular time.
FOREIGN CURRENCY FUTURES CONTRACTS. The Global Income Fund may invest in foreign
currency futures contracts and related options that are traded on a United
States foreign exchange or board of trade.
Foreign currency futures contracts can be purchased and sold with
respect to the British Pound, Deutsche Mark, Japanese Yen and other currencies
or groups of currencies in which securities held by the Global Income Fund are
denominated or which are sufficiently correlated with such currencies as to
constitute an appropriate vehicle for hedging.
Generally, foreign currency futures contracts are similar to the
interest rate futures contracts discussed above. By entering into foreign
currency futures contracts, the Global Income Fund will be able to establish the
rate at which it will be entitled to exchange U.S. dollars (or another foreign
currency) for another currency in a future month. By selling currency futures,
the Fund can establish the number of dollars (or another foreign currency) it
will receive in the delivery month for a certain amount of a foreign currency
against the U.S. dollar (or another foreign currency), or the Fund can attempt
to "lock in" the U.S. dollar value (or other foreign currency value) of some or
all of the securities held in its portfolio and denominated in that
28
<PAGE>
currency. By purchasing currency futures, the Fund can establish the number of
dollars it will be required to pay for a specified amount of a foreign currency
in the delivery month. For example, if the Fund intends to buy securities in the
future and expects the U.S. dollar to decline against the relevant foreign
currency during the period before the purchase is effected, the Fund can attempt
to "lock in" the price in U.S. dollars of the securities it intends to acquire.
FOREIGN DEBT SECURITIES FUTURES CONTRACTS. The Global Income Fund may also
invest in foreign debt futures contracts that are traded on a U.S. exchange or
board of trade or, consistent with U.S. Commodity Futures Trading Commission
regulations, traded on foreign exchanges. Such investments may be made solely
for the purpose of hedging against changes in the value of its portfolio
securities due to anticipated changes in interest rates, foreign currency
exchange rates or market conditions, and not for the purpose of speculation.
Foreign debt futures contracts are similar to the interest rate futures
contracts discussed above. By purchasing a futures contract, the Global Income
Fund will legally obligate itself to accept delivery of the underlying foreign
debt security and pay the agreed price; by selling a foreign debt futures
contract, it will legally obligate itself to make delivery of the security
against payment of the agreement price. Futures contracts for the purchase and
sale of foreign debt futures contracts currently are actively traded on the
London International Financial Futures Exchange, the Tokyo Stock Exchange and
the Paris Stock Exchange.
RISK FACTORS. Unlike the purchase or sale of a security, no consideration is
paid or received by a Fund upon the purchase or sale of a futures contract.
Initially, a Fund will be required to deposit with the broker an amount of cash
or cash equivalents, known as "initial margin", as a type of performance bond or
good faith deposit which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied. The required
amount of initial margin is subject to change by the board of trade or exchange
on which the contract is traded and members of such board of trade or exchange
may charge a higher amount. Subsequent payments, known as "variation margin", to
and from the broker, will be made on a daily basis as the price of the futures
contract fluctuates making long and short positions in the contract more or less
valuable, a process known as marking-to-market. At any time prior to the
expiration of the contract, a Fund may elect to close the position, which will
operate to terminate the Fund's existing position in the futures contract.
There are several risks in connection with the use of futures contracts
as a hedging device. Successful use of futures contracts by the Funds is subject
to the Adviser's ability to predict correctly movements in the direction of
interest rates, gold prices or foreign currency exchange rates, as the case may
be. A decision of whether, when and how to hedge involves the exercise of skill
and judgment and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected trends in such rates and prices. In
addition, there can be no assurance that there will be a correlation between
movements in the price of the futures contracts and movements in the price of
the related securities, gold or foreign currencies which are the subject of the
hedge. The degree of imperfection or correlation depends upon various
circumstances such as, for example, variations in speculative market demand for
futures contracts and the specific securities, gold or foreign currencies being
hedged and upon the securities, gold or foreign currencies, as the case may be,
underlying the futures contracts.
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Although the Funds intend to purchase or sell futures contracts only if
there is an active market for such contracts, there is no assurance that a
liquid market will exist for the contract at any particular time. Most domestic
futures exchanges and boards of trade limit the amount of fluctuation permitted
in futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular contract,
no trades may be made that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and therefore does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. It is possible that futures contract prices could move to
the daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of the futures position and subjecting
some futures traders to substantial losses. In such event, it will not be
possible to close a futures position, and in the event of adverse price
movements, a Fund would be required to make daily cash payments of variation
margin. In such circumstances, an increase in the value of the portion of the
portfolio being hedged, if any, may partially or completely offset losses on the
futures contract. However, as described above, there is no guarantee that the
price of the securities, gold or foreign currencies, as the case may be, will,
in fact, correlate with the price movements in the respective futures contracts
and thus provide an offset to losses on such futures contracts.
If a Fund has hedged against the possibility of an increase in interest
rates, gold prices or foreign currency rates adversely affecting the value of
the securities, gold bullion or foreign currencies held in its portfolio and
rates decrease instead, the Fund will lose part or all of the benefit of the
increased value of the respective securities, gold bullion or foreign currencies
which it has hedged because it will have offsetting losses in its futures
positions. In addition, in such situations, if a Fund has insufficient cash, it
may have to sell securities to meet daily variation margin requirements. Such
sales of securities may, but will not necessarily, be at increased prices which
reflect the decline in interest rates, gold prices or foreign currency exchange
rates, as the case may be. The Funds may have to sell securities at a time when
it may be disadvantageous to do so.
OPTIONS ON INTEREST RATE, GOLD BULLION AND FOREIGN CURRENCY FUTURES CONTRACTS.
An option on a futures contract, as contrasted with the direct investment in
such a contract, gives the purchaser the right, in return for the premium paid,
to assume a position in the futures contract at a specified exercise price at
any time prior to the expiration of the option. The potential loss related to
the purchase of an option on a futures contract is limited to the premium paid
for the option (plus transaction costs).
The Funds may purchase and write put and call options on interest rate,
gold bullion and foreign currency futures contracts, as the case may be, that
are traded on a United States exchange or board of trade as a hedge against the
value of their portfolio securities due to anticipated changes in interest
rates, gold prices, foreign currency exchange rates or market conditions, and
may enter into closing transactions with respect to such options to terminate
existing positions.
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In addition to the risks which apply to futures transactions generally
as described above, there are additional risks relating to options on futures
contracts. The ability to establish and close out positions on such options will
be subject to the existence of a liquid market. In addition, the purchase or
sale of put or call options will be based upon predictions as to anticipated
interest rate trends, gold bullion or foreign currency valuation trends, as the
case may be, by the Adviser which could prove to be incorrect. Even if the
expectations of the Adviser are correct, there may be an imperfect correlation
between the change in the value of the options and of the portfolio securities
hedged. In addition, the ability of the Funds to trade in futures contracts may
be materially limited by the requirements of the Internal Revenue Code.
When a Fund writes a call option or put option it will be required to
deposit initial margin and variation margin pursuant to broker's requirements
similar to those applicable to futures contracts. In addition, net option
premiums received for writing options will be included as initial margin
deposits.
There is no limit as to how many times the Gold & Government Fund's or
the Global Income Fund's options positions may be replaced, and, therefore, the
potential risks to those Funds may be greater than 5% of their net assets.
Successful use by the Adviser of options will be based upon predictions by the
Adviser as to anticipated movements of interest rates, gold prices and/or
foreign currency exchange rates.
CERTAIN INVESTMENT PRACTICES
The following information supplements the discussion of the Funds'
investment strategies and techniques in the Prospectuses.
Investment in Foreign Securities
- --------------------------------
Because of the following considerations, shares of the Global Fund and
the Global Income Fund should not be considered a complete investment program.
There is generally less publicly available information about foreign companies
and other issuers comparable to reports and ratings that are published about
issuers in the United States. Foreign issuers are also generally not subject to
uniform accounting and auditing and financial reporting standards, practices and
requirements comparable to those applicable to United States issuers.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on exchanges located in the countries in which the
respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Similarly, volume
and liquidity in most foreign bond markets is less than in the United States and
at times, volatility of price can be greater than in the United States. Fixed
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commissions on foreign exchanges are generally higher than negotiated
commissions on United States exchanges, although each Fund will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less government supervision and regulation of securities exchanges,
brokers and listed issuers than in the United States.
With respect to certain foreign countries, there is the possibility of
adverse changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of a
Fund, political or social instability, or diplomatic developments which could
affect United States investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
The dividends and interest payable on certain of the Global Fund's and
the Global Income Fund's foreign portfolio securities may be subject to foreign
withholding taxes, thus reducing the net amount of income available for
distribution to each Fund's shareholders. See "Tax Status".
Investors should understand that the expense ratio of each of the
Global Fund and the Global Income Fund can be expected to be higher than that of
investment companies investing in domestic securities since the expenses of the
Funds, such as the cost of maintaining the custody of foreign securities and the
rate of advisory fees paid by the Funds, are higher.
Repurchase Agreements
- ---------------------
The Funds may also enter into repurchase agreements with domestic
broker-dealers, banks and financial institutions, but Government Fund, Managed
Tax-Exempt Fund, Gold & Government Fund, Sovereign Achievers Fund, Global Fund
and Global Income Fund may not invest more than 10% and Regional Bank Fund may
not invest more than 5% of their respective net assets in repurchase agreements
having maturities of greater than seven days.
A repurchase agreement is a contract pursuant to which a Fund, against
receipt of securities of at least equal value including accrued interest, agrees
to advance a specified sum to a broker-dealer, bank or financial institution
which agrees to reacquire the securities at a mutually agreed upon time and
price. Repurchase agreements, which are usually for periods of one week or less,
enable a Fund to invest its cash reserves at fixed rates of return. A Fund may
enter into repurchase agreements with domestic broker-dealers, banks and other
financial institutions, provided the Fund's custodian always has possession of
securities serving as collateral whose market value at least equals the amount
of the institution's repurchase obligation. The Global Fund and the Global
Income Fund will only enter into repurchase agreements which are collateralized
at all times by U.S. Government obligations. To minimize the risk of loss the
Funds will enter into repurchase agreements only with institutions and dealers
which the Boards of Trustees of the Trusts consider to be creditworthy. If an
institution enters an insolvency proceeding, the resulting delay in liquidation
of the securities serving as collateral could cause the relevant Fund some loss,
as well as legal expense, if the value of the securities declined prior to
liquidation.
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When-Issued and Delayed Delivery Securities
- -------------------------------------------
As stated in the Prospectus, the Managed Tax-Exempt Fund may purchase
and sell municipal securities and the Gold & Government Fund and the Global
Income Fund may purchase and sell fixed income securities (including GNMA, FHLMC
and FNMA Certificates) on a when-issued or delayed delivery basis. When-issued
or delayed delivery transactions arise when securities are purchased or sold by
a Fund with payment and delivery taking place in the future in order to secure
what is considered to be an advantageous price and yield. However, the yield on
a comparable security available when delivery takes place may vary from the
yield on the security at the time that the when-issued or delayed delivery
transaction was entered into. When a Fund engages in when-issued and delayed
delivery transactions, it relies on the seller or buyer, as the case may be, to
consummate the sale. Failure to do so may result in the Fund missing the
opportunity of obtaining a price or yield considered to be advantageous.
When-issued and delayed delivery transactions may be expected to settle within
three months from the date the transactions are entered into. However, no
payment or delivery is made by the Fund until it receives delivery or payment
from the other party to the transaction.
To the extent that a Fund remains substantially fully invested at the
same time that it has purchased when-issued securities, as it would normally
expect to do, there may be greater fluctuations in its net assets than if the
Fund set aside cash to satisfy its purchase commitment.
When a Fund purchases securities on a when-issued basis, it will
maintain in a segregated account with its Custodian cash, Government Securities
or other high-grade debt obligations readily convertible into cash having an
aggregate value equal to the amount of such purchase commitments until payment
is made. If necessary, additional assets will be placed in the account daily so
that the value of the account will equal or exceed the amount of the Fund's
purchase commitment. The Government Fund, the Global Income Fund and the Managed
Tax-Exempt Fund will likewise segregate securities they sell on a delayed
delivery basis.
The Managed Tax-Exempt Fund expects that commitments to purchase
when-issued securities will not normally exceed 25% of its net asset value.
Stand-By Commitments
- --------------------
When the Managed Tax-Exempt Fund exercises a stand-by commitment that
it has acquired from a dealer with respect to a municipal security held in its
portfolio, the dealer will normally pay to the Managed Tax-Exempt Fund an amount
equal to: (1) the Fund's acquisition cost of the municipal securities (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (2) all interest accrued
on the securities since the last interest payment date or the date the
securities were purchased by the Fund, whichever is later. The Fund's right to
exercise stand-by commitments would be unconditional and unqualified. A stand-by
commitment would not be transferable by the Managed Tax-Exempt Fund, although it
could sell the underlying municipal securities to a third party at any time.
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The Managed Tax-Exempt Fund intends to enter into stand-by commitments
only with those banks which, in the opinion of the Adviser, present minimal
credit risk. The Managed Tax-Exempt Fund may pay for stand-by commitments either
separately, in cash or by paying a higher price for portfolio securities which
are acquired subject to such a commitment (thus reducing the yield to maturity
otherwise available for the same securities). The total amount paid for
outstanding stand-by commitments held by the Managed Tax-Exempt Fund is not
expected to exceed 1/2 of 1% of the Fund's total asset value calculated
immediately after each stand-by commitment is acquired. The Fund intends to
acquire stand-by commitments solely to facilitate portfolio liquidity and does
not intend to exercise its rights thereunder for trading purposes. The
acquisition of a stand-by commitment would not ordinarily affect the valuation
or maturity of the underlying municipal securities. Stand-by commitments
acquired by the Managed Tax-Exempt Fund would be valued at zero in determining
net asset value. Where the Fund paid directly or indirectly for a stand-by
commitment, its cost would be amortized over the period the commitment is held
by the Fund. Although Federal income tax law may not be entirely clear in
certain cases, the Fund intends to take the position that it is the owner of
municipal securities it holds subject to stand-by commitments.
Leverage Through Borrowing
- --------------------------
The Government Fund may borrow from banks to increase its portfolio
holdings of Government Securities. Such borrowings will be unsecured. The 1940
Act requires the Fund to maintain continuous asset coverage of not less than
300% with respect to such borrowings. This allows the Fund to borrow for such
purposes an amount (when taken together with any borrowings for temporary
extraordinary or emergency purposes as described below) equal to as much as 50%
of the value of its net assets (not including such borrowings). If such asset
coverage should decline to less than 300% due to market fluctuations or other
reasons, the Fund may be required to sell some of its portfolio holdings within
three days in order to reduce the Fund's debt and restore the 300% asset
coverage, even though it may be disadvantageous from an investment standpoint to
sell securities at that time. Leveraging will exaggerate any increase or
decrease in the net asset value of the Fund's portfolio, and in that respect may
be considered a speculative practice. Money borrowed for leveraging will be
subject to interest costs which may or may not exceed the investment return
received from the securities purchased.
The Fund may also borrow money for temporary extraordinary or emergency
purposes. Such borrowings may not exceed 5% of the value of the Fund's total
assets when the loan is made. The Fund may pledge up to 10% of the lesser of
cost or value of its total assets to secure such borrowings.
Trading of Securities
- ---------------------
The Government Fund may trade those Government Securities which are not
covering outstanding options positions and are not on loan to broker-dealers if
the Fund's Adviser believes that there are opportunities to exploit
differentials in prices and yields or fluctuations in interest rates, consistent
with its investment objective.
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Investment in Rule 144A Securities and Other Restricted Securities
- ------------------------------------------------------------------
The Funds may purchase restricted securities eligible for resale to
"qualified institutional buyers" pursuant to Rule 144A under the Securities Act
of 1933 and other securities for which market quotations are not readily
available if the Funds' Boards of Trustees or the Adviser have determined under
Board-approved guidelines that such restricted securities are liquid. The Boards
of Trustees will determine as a question of fact the liquidity of Rule 144A
securities in each Fund's portfolio using the guidelines set forth below.
In their determination of liquidity, the Boards of Trustees will
consider the following factors, among others: (1) the frequency of trades and
quotes for the security, (2) the number of dealers willing to purchase or sell
the security and the number of other potential purchasers, (3) dealer
undertakings to make a market in the security, and (4) the nature of the
security and the nature of the marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). In accordance with Rule 144A, each Board intends to delegate its
responsibility to the Adviser to determine the liquidity of each restricted
security purchased by the Funds pursuant to Rule 144A, subject to the Board's
oversight and review. The foregoing investment practice could have the effect of
increasing the level of illiquidity in the Fund to the extent that qualified
institutional buyers become for a time uninterested in purchasing the Rule 144A
securities. The Funds will not invest more than 5% of their total assets in Rule
144A securities without first supplementing the prospectuses and providing
additional information to shareholders.
The Funds may acquire other restricted securities including securities
for which market quotations are not readily available. These securities may be
sold only in privately negotiated transactions or in public offerings with
respect to which a registration statement is in effect under the Securities Act
of 1933. Where registration is required, a Fund may be obligated to pay all or
part of the registration expenses and a considerable period may elapse between
the time of the decision to sell and the time the Fund may be permitted to sell
a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a Fund might obtain a less favorable
price than prevailed when it decided to sell. Restricted securities will be
priced at fair value as determined in good faith by the Funds' Boards of
Trustees. If through the appreciation of restricted securities or the
depreciation of unrestricted securities, a Fund should be in a position where
more than 10% of the value of its assets is invested in illiquid securities
(including repurchase agreements which mature in more than seven days and
options which are traded over-the-counter and their underlying securities), the
Fund will bring its holdings of illiquid securities below the 10% limitation.
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INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
- -----------------------------------
The following investment restrictions will not be changed without
approval of a majority of the Fund's outstanding voting securities which, as
used in the Prospectuses and this Statement of Additional Information, means
approval by the lesser of (1) 67% or more of the Fund's shares represented at a
meeting if at least 50% of the Fund's outstanding shares are present in person
or by proxy at the meeting or (2) 50% of the Fund's outstanding shares.
A Fund may not:
1. PURCHASES ON MARGIN AND SHORT SALES. Purchase securities on margin
or sell short, except that a Fund may obtain such short term credits
as are necessary for the clearance of securities transactions. The
deposit or payment by a Fund of initial or maintenance margin in
connection with futures contracts or related options transactions is
not considered the purchase of a security on margin.
2. BORROWING. Borrow money, except from banks temporarily for
extraordinary or emergency purposes (not for leveraging or investment)
and then in an aggregate amount not in excess of (a) 5% of the value
of the Fund's net assets at the time of such borrowing with respect to
the Gold & Government Fund, Regional Bank Fund and Sovereign Achievers
Fund; (b) 10% of the value of the Fund's total assets at the time of
such borrowing with respect to the Managed Tax-Exempt Fund, Global
Fund and Global Income Fund, provided that the Fund will not purchase
securities for investment while borrowings equaling 5% or more of the
Fund's total assets are outstanding; and (c) with respect to the
Government Fund, 33 1/3% of the value of the Fund's total assets
(including the amount borrowed) less liabilities (not including the
amount borrowed).
3. UNDERWRITING SECURITIES. Act as an underwriter of securities of
other issuers, except to the extent that it may be deemed to act as an
underwriter in certain cases when disposing of restricted securities.
(See also Restriction 14.)
4. SENIOR SECURITIES. Issue senior securities except as appropriate to
evidence indebtedness which a Fund is permitted to incur, provided
that, to the extent applicable, (i) the purchase and sale of futures
contracts or related options, (ii) collateral arrangements with
respect to futures contracts, related options, forward foreign
currency exchange contracts or other permitted investments of a Fund
as described in the Prospectus, including deposits of initial and
variation margin, and (iii) the establishment of separate classes of
shares of a Fund for providing alternative distribution methods are
not considered to be the issuance of senior securities for purposes of
this restriction.
5. WARRANTS. With respect to the Managed Tax-Exempt Fund and
Government Fund, invest in marketable warrants to purchase common
stock; with respect to the Gold & Government Fund, Regional Bank Fund
and Sovereign Achievers Fund, invest more than 5% of the value of the
Fund's net assets in marketable warrants to purchase common
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<PAGE>
stock; and with respect to the Global Fund and the Global Income Fund,
invest more than 5% of the Fund's total assets in warrants, whether or
not the warrants are listed on the New York or American Stock
Exchanges, or more than 2% of the value of the Fund's total assets in
warrants which are not listed on those exchanges. Warrants acquired in
units or attached to securities are not included in this restriction.
6. SINGLE ISSUER LIMITATION/DIVERSIFICATION. Purchase securities of
any one issuer, except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, if immediately after
such purchase more than 5% of the value of a Fund's total assets would
be invested in such issuer or the Fund would own or hold more than 10%
of the outstanding voting securities of such issuer; provided,
however, that with respect to all Funds, up to 25% of the value of a
Fund's total assets may be invested without regard to these
limitations. This restriction does not apply to Global Income Fund,
which is a non-diversified fund under the 1940 Act.
7. SINGLE CLASS OF ISSUER LIMITATION. Acquire more than 5% of any
class of securities of an issuer, except securities issued or
guaranteed by the U.S. Government or its agencies or
instrumentalities. For this purpose, all outstanding bonds, preferred
stocks, and other evidences of indebtedness shall be deemed a single
class regardless of maturities, priorities, coupon rates, series,
designations, conversion rights, security or other differences. This
Restriction does not apply to the Managed Tax-Exempt Fund or Global
Income Fund.
8. REAL ESTATE. Purchase or sell real estate although a Fund may
purchase and sell securities which are secured by real estate,
mortgages or interests therein, or issued by companies which invest in
real estate or interests therein; provided, however, that no Fund will
purchase real estate limited partnership interests.
9. COMMODITIES; COMMODITY FUTURES; OIL AND GAS EXPLORATION AND
DEVELOPMENT PROGRAMS. Purchase or sell commodities or commodity
futures contracts or interests in oil, gas or other mineral
exploration or development programs, except a Fund (other than the
Regional Bank Fund) may engage in such forward foreign currency
contracts and/or purchase or sell such futures contracts and options
thereon as described in the Prospectus.
10. MAKING LOANS. Make loans, except that a Fund may purchase or hold
debt instruments and may enter into repurchase agreements (subject to
Restriction 14) in accordance with its investment objectives and
policies and, with respect to the Sovereign Achievers Fund, Government
Fund, Global Fund and Global Income Fund, make loans of portfolio
securities provided that as a result, no more than 5% of the Sovereign
Achievers Fund's total assets, 10% of the Global Fund's total assets
and 30% of the total assets of the Government Fund or Global Income
Fund, taken at current value would be so loaned.
11. SECURITIES OF OTHER INVESTMENT COMPANIES. Purchase securities of
other open-end investment companies, except in connection with a
merger, consolidation, acquisition or reorganization; or purchase more
than 3% of the total outstanding voting stock of any closed-end
investment company if more than 5% of a Fund's total assets would be
invested
37
<PAGE>
in securities of any closed-end investment company, or more than 10%
of the Fund's total assets would be invested in securities of any
closed-end investment companies in general. In addition, a Fund may
not invest in the securities of closed-end investment companies except
by purchase in the open market involving only customary broker's
commissions.
12. INDUSTRY CONCENTRATION. Purchase any securities which would cause
more than 25% of the market value of a Fund's total assets at the time
of such purchase to be invested in the securities of one or more
issuers having their principal business activities in the same
industry, provided that there is no limitation with respect to
investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities; provided that,
notwithstanding the foregoing, (A) the Gold & Government Fund will
invest more than 25% of its total assets in gold and gold mining
industries, and will not at any time have less than 65% of its total
assets invested in some combination of gold and gold mining securities
and obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities; and (B) the Regional Bank Fund will
invest more than 25% of its total assets in issuers in the banking
industry; all as more fully set forth in the Prospectus. For purposes
of this Restriction, with respect to the Managed Tax-Exempt Fund,
state and municipal governments and their political subdivisions are
not considered members of any industry. With respect to Managed
Tax-Exempt Fund, this limitation shall not be applicable to
investments in Tax-Exempt securities issued by any state and municipal
governments and their political subdivisions. With respect to Global
Income Fund, this restriction will apply to obligations of a foreign
government unless the Securities and Exchange Commission permits their
exclusion.
Nonfundamental Investment Restrictions
- --------------------------------------
The following restrictions are designated as nonfundamental and may be
changed by the Board of Trustees without shareholder approval.
A Fund may not:
13. OPTIONS TRANSACTIONS. Write, purchase, or sell puts, calls or
combinations thereof except that a Fund may write, purchase or sell
puts and calls on securities as described in the Prospectuses, and the
Global Income Fund may purchase or sell puts and calls on foreign
currencies as described in the Prospectus.
14. ILLIQUID SECURITIES. Purchase or otherwise acquire any security
if, as a result, more than 10% of a Fund's net assets (taken at
current value) would be invested in securities that are illiquid by
virtue of the absence of a readily available market or legal or
contractual restrictions on resale. This policy includes repurchase
agreements maturing in more than seven days. This policy does not
include restricted securities eligible for resale pursuant to Rule
144A under the Securities Act of l933 which the Board of Trustees or
the Adviser has determined under Board-approved guidelines are liquid.
15. ACQUISITION FOR CONTROL PURPOSES. Purchase securities of any
issuer for the purpose of exercising control or management, except in
connection with a merger, consolidation, acquisition or
reorganization.
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16. UNSEASONED ISSUERS. Purchase securities of any issuer with a
record of less than three years continuous operations, including
predecessors, if such purchase would cause the investments of a Fund
in all such issuers to exceed 5% of the total assets of the Fund taken
at market value, except this restriction shall not apply to (i)
obligations of the U.S. Government, its agencies or instrumentalities
and (ii) securities of such issuers which are rated by at least one
nationally recognized statistical rating organization. With respect to
Managed Tax-Exempt Fund, this restriction shall not apply to municipal
obligations for the payment of which is pledged the faith, credit and
taxing power of any person authorized to issue such securities. With
respect to the Global Income Fund, this restriction shall not apply to
obligations issued or guaranteed by any foreign government or its
agencies or instrumentalities.
17. BENEFICIAL OWNERSHIP OF OFFICERS AND DIRECTORS OF FUND AND
ADVISEr. Purchase or retain the securities of any issuer if those
officers or trustees of a Fund or officers or directors of the Adviser
who each own beneficially more than 1/2 of 1% of the securities of
that issuer together own more than 5% of the securities of such
issuer.
18. HYPOTHECATING, MORTGAGING AND PLEDGING ASSETS. Hypothecate,
mortgage or pledge any of its assets except (a) with respect to the
Gold & Government Fund, Regional Bank Fund, Sovereign Achievers Fund
and Managed Tax-Exempt Fund, to secure loans as a temporary measure
for extraordinary purposes and (b) with respect to Government Fund,
Global Fund and Global Income Fund, as may be necessary in connection
with permitted borrowings and then not in excess of 5% of the Fund's
total assets, taken at cost. For the purpose of this restriction, (i)
forward foreign currency exchange contracts are not deemed to be a
pledge of assets, (ii) the purchase or sale of securities by a Fund on
a when-issued or delayed delivery basis and collateral arrangements
with respect to the writing of options on debt securities or on
futures contracts are not deemed to be a pledge of assets; and (iii)
the deposit in escrow of underlying securities in connection with the
writing of call options is not deemed to be a pledge of assets.
19. JOINT TRADING ACCOUNTS. Participate on a joint or joint and
several basis in any trading account in securities (except for a joint
account with other funds managed by the Adviser for repurchase
agreements permitted by the Securities and Exchange Commission
pursuant to an exemptive order).
20. Notwithstanding any investment restriction to the contrary, the
Fund may, in connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/Directors, purchase
securities of other investment companies within the John Hancock Group
of Funds provided that, as a result, (i) no more than 10% of the
Fund's assets would be invested in securities of all other investment
companies, (ii) such purchase would not result in more than 3% of the
total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets
would be invested in any one such investment company.
39
<PAGE>
If a percentage restriction is adhered to at the time of investment, a
later increase or decrease in percentage resulting from a change in values of
portfolio securities or amounts of net assets will not be considered a violation
of any of the foregoing restrictions (with the exception of Restriction 2
permitting Government Fund to borrow up to 33 1/3%, and Sovereign Achievers Fund
to borrow up to 5% of the value of their total assets).
The Global Income Fund has registered as a "non-diversified" investment
company under the Investment Company Act of 1940. However, the Fund intends to
limit its investments to the extent required by the diversification requirements
of the Internal Revenue Code. See "Taxes".
In addition, it is a fundamental policy of the Managed Tax-Exempt Fund
that the Managed Tax-Exempt Fund will invest at least 80% of its total assets in
municipal securities with varying maturities, the interest from which is, in the
opinion of bond counsel for the issuer, exempt from federal income tax.
TAX STATUS
Each Fund is treated as a separate entity for accounting and tax
purposes. Each Fund has qualified and elected to be treated as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and intends to continue to so qualify for each taxable
year. As such and by complying with the applicable provisions of the Code
regarding the sources of its income, the timing of its distributions, and the
diversification if its assets, each Fund will not be subject to Federal income
tax on taxable income (including net short-term and long-term capital gains from
the disposition of portfolio securities or the right to when-issued securities
prior to issuance or the lapse, exercise, delivery under or closing out of
certain options, futures and forward contracts, income from repurchase
agreements and other taxable securities, income attributable to accrued market
discount, and a portion of the discount from certain stripped tax-exempt
obligations or their coupons) which is distributed to shareholders at least
annually in accordance with the timing requirements of the Code.
Each Fund will be subject to a 4% nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. Each
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Funds' Prospectuses whether taken in shares or in cash. Amounts
that are not allowable as a deduction in computing taxable income, including
expenses associated with earning tax-exempt interest income, do not reduce
current E&P for this purpose. Distributions, if any, in excess of an investor's
tax basis in Fund shares and thereafter (after such basis is reduced to zero)
will generally give rise to capital gains. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
Federal income tax purposes in each share so received equal to the amount of
cash they would have received had they elected to receive the distributions in
cash, divided by the number of shares received.
40
<PAGE>
Distributions of tax-exempt interest ("exempt-interest dividend")
timely designated as such by the Managed Tax-Exempt Fund to its shareholders
will be treated as tax-exempt interest under the Code, provided that such Fund
qualifies as a regulated investment company and at least 50% of the value of its
assets at the end of each quarter of its taxable year is invested in tax-exempt
obligations. Shareholders are required to report their receipt of tax-exempt
interest, including such distributions, on their Federal income tax returns. The
portion of the Managed Tax-Exempt Fund's distributions designated as
exempt-interest dividends may differ from the actual percentage that its
tax-exempt income comprised of its total income during the period of any
particular shareholder's investment. This Fund will report to Shareholders the
amount designated as exempt-interest dividends for each year.
Interest income from certain types of tax-exempt bonds that are private
activity bonds in which the Managed Tax-Exempt Fund may invest is treated as an
item of tax preference for purposes of the Federal alternative minimum tax. To
the extent that the Managed Tax-Exempt Fund invests in these types of tax-exempt
bonds, shareholders will be required to treat as an item of tax preference for
Federal alternative minimum purposes that part of such Fund's exempt-interest
dividends which is derived from interest on these tax-exempt bonds.
Exempt-interest dividends derived from interest income from all tax-exempt bonds
may be included in corporate "adjusted current earnings" for purposes of
computing the alternative minimum tax liability, if any, of corporate
shareholders of the Managed Tax-Exempt Fund.
If a Fund invests in stock of certain non-U.S. corporations that
receive at least 75% of their annual gross income from passive sources (such as
interest producing investments, dividends, rents, royalties or capital gain) or
hold at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), that Fund could be subject to Federal
income tax and additional interest charges on "excess distributions" received
from these passive foreign investment companies, even if all income or gain
actually received by the Fund is timely distributed to its shareholders. The
Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election would require the applicable
Fund to recognize taxable income or gain without concurrent receipt of cash. Any
Fund that is permitted to acquire stock in foreign corporations may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
41
<PAGE>
Foreign exchange gains and losses realized by a Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency futures and options, foreign currency forward
contracts, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount, timing and character of distributions to shareholders. Any such
transactions that are not directly related to a Fund's investment in stock or
securities, possibly including speculative currency positions or currency
derivatives not used for hedging purposes, may increase the amount of gain it is
deemed to recognize from the sale of certain investments held for less than
three months, which gain is limited under the Code to less than 30% of its
annual gross income, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
least 90% of its annual gross income. Income from investments in commodities,
such as gold and certain related derivative instruments, is also not treated as
qualifying income under this test. If the net foreign exchange loss for a year
treated as ordinary loss under Section 988 were to exceed a Fund's investment
company taxable income computed without regard to such loss (i.e., all of the
Fund's net income other than any excess of net long-term capital gain over net
short-term capital loss) the resulting overall ordinary loss for such year would
not be deductible by the Fund or its shareholders in future years.
Some Funds may be subject to withholding and other taxes imposed by
foreign countries with respect to their investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax credits with respect
to such taxes, subject to certain provisions and limitations contained in the
Code. Specifically, if more than 50% of the value of a Fund's total assets at
the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may file an election with the Internal Revenue Service
Pursuant to which shareholders of the Fund will be required to (i) include in
ordinary gross income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even though not
actually received by them, and (ii) treat such respective pro rata portions as
foreign income taxes paid by them.
If a Fund makes this election, shareholders may then deduct such pro
rata portions of foreign income taxes in computing their taxable incomes, or
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign income taxes paid by the Fund, although
such shareholders will be required to include their share of such taxes in gross
income. Shareholders who claim a foreign tax credit for such foreign taxes may
be required to treat a portion of dividends received from the Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credits. Tax-exempt shareholders will ordinarily not benefit from this
elections. Each year that a Fund files the election described above, its
shareholders will be notified of the amount of (i) each shareholder's pro rata
share of foreign income taxes paid by the Fund and (ii) the portion of Fund
dividends which represents income from each foreign country. A Fund that cannot
or does not make this election may deduct such taxes in computing its taxable
income.
42
<PAGE>
For each Fund, the amount of net realized short-term and long-term
capital gains, if any, in any given year will vary depending upon the Adviser's
current investment strategy and whether the Adviser believes it to be in the
best interest of the Fund to dispose of portfolio securities or enter into
options or futures transactions that will generate capital gains. At the time of
an investor's purchase of Fund shares, a portion of the purchase price is often
attributable to realized or unrealized appreciation in the Fund's portfolio or
undistributed taxable income of the Fund. Consequently, subsequent distributions
on those shares from such appreciation or income may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption of shares of a Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his basis in his shares. Such gain or loss will be treated as capital gain
or loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, depending upon the shareholder's tax holding period for
the shares. A sales charge paid in purchasing Class A shares of a Fund cannot be
taken into account for purposes of determining gain or loss on the redemption or
exchange of such shares of the Fund or another John Hancock Fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to the Automatic Dividend Reinvestment Plan.
In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be disallowed to the extent of all
exempt-interest dividends paid with respect to such shares and will be treated
as a long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain with respect to such shares.
Although its present intention is to distribute all net short-term and
long-term capital gains, if any, each Fund reserves the right to retain and
reinvest all or any portion of its "net capital gain", which is the excess, as
computer for Federal income tax purposes, of net long-term capital gain over net
short-term capital loss in any year. The Funds will not in any event distribute
net long-term capital gains realized in any year to the extend that a capital
loss is carried forward from prior years against such gain. To the extent such
excess was retained and not exhausted by the carryforward of prior years'
capital losses, it would be subject to Federal income tax in the hands of a
Fund. Each shareholder would be treated for Federal income tax purposes as if
such Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder of the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain income in his return for his taxable year in which the last day of
the Fund's taxable year falls, (b) be entitled either to a tax credit on his
return for, or a refund of, his pro rata share of the taxes paid by the Fund,
and (c) be entitled to increase the adjusted tax basis for his shares in the
Fund by the difference between his pro rata share of such excess and his pro
rata share of such taxes.
43
<PAGE>
For Federal income tax purposes, each Fund is permitted to carryforward
a net capital loss in any year to offset its own net capital gains, if any,
during the eight years following the year of the loss. To the extent subsequent
net capital gains are offset by such losses, they would not result in Federal
income tax liability to the applicable Fund, as noted above, would not be
distributed as such to shareholders. The capital loss carryforwards for each of
the Funds are as follows: John Hancock Sovereign U.S. Government Income Fund has
$43,025,223 of capital loss carryforwards which will expire October 31, 1997 --
$282,637, October 31, 2002 -- $16,549,431 and October 31, 2003 -- $26,193,155.
John Hancock Managed Tax Exempt Fund has no capital loss carryforwards. John
Hancock Gold & Government Fund has $11,789,591 of capital loss carryforwards
which will expire October 31, 2002 -- $8,066,420 and October 31, 2003 --
$3,723,171. John Hancock Sovereign Achievers Fund has no capital loss
carryforwards. John Hancock Regional Bank Fund has no capital loss
carryforwards. John Hancock Global Fund has no capital loss carryforwards. John
Hancock Global Income Fund has $3,413,372 which will expire October 31, 2002.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Managed Tax-Exempt Fund will not be deductible for Federal income
tax purposes to the extent it is deemed related to exempt-interest dividends
paid by such Fund. Pursuant to published guidelines, the Internal Revenue
Service may deem indebtedness to have been incurred for the purpose of
purchasing or carrying shares of this Fund even though the borrowed funds may
not be directly traceable to the purchase of shares.
For purposes of the dividends received deduction available to
corporations, dividends received by a Fund, if any, from U.S. domestic
corporations in respect of any share of stock held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and designated by the Fund may be treated as
qualifying dividends. Only Sovereign Achievers Fund and Regional Bank Fund would
generally have any significant portion of its distributions treated as
qualifying dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their shares of
the applicable Fund in order to qualify for the deduction and, if they borrow to
acquire such shares, may be denied a portion of the dividends received
deduction. The entire qualifying dividend, including the otherwise deductible
amount, will be included in determining the excess (if any) of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its alternative minimum tax liability, if any.
Additionally, any corporate shareholder should consult its tax adviser regarding
the possibility that its tax basis in its shares may be reduced, for Federal
income tax purposes, by reason of "extraordinary dividends" received with
respect to the shares, for the purpose of computing its gain or loss on
redemption or other disposition of the shares.
44
<PAGE>
Investment in debt obligations that are at risk of or in default
presents special tax issues for any Fund that may hold such obligations. Tax
rules are not entirely clear about issues such as when the Fund may cease to
accrue interest, original issue discount, or market discount, when and to what
extent deductions may be taken for bad debts or worthless securities, how
payments received on obligations in default should be allocated between
principal and income, and whether exchanges of debt obligations in a workout
context are taxable. These and other issues will be addressed by any Fund that
may hold such obligations in order to reduce the risk of distributing
insufficient income to preserve its status as a regulated investment company and
seek to avoid becoming subject to Federal income or excise tax.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Limitations imposed by the Code on regulated investment companies like
the Funds may restrict each Fund's ability to enter into futures, options, and
forward transactions.
Certain options, futures and forward foreign currency transactions
undertaken by a fund may cause the Fund to recognize gains or losses from
marking to market even though its positions have not been sold or terminated and
affect the character as long-term or short-term (or, in the case of certain
currency forward, options and futures, as ordinary income or loss) and timing of
some capital gains and losses realized by the Fund. Also, certain of a Fund's
losses on its transactions involving options, futures or forward contracts
and/or offsetting portfolio positions may be deferred rather than being taken
into account currently in calculating the Fund's taxable income. Certain of the
applicable tax rules may be modified if a Fund is eligible and chooses to make
one or more of certain tax elections that may be available. These transactions
may therefore affect the amount, timing and character of a Fund's distributions
to shareholders. The Funds will take into account the special tax rules
(including consideration of available elections) applicable to options, futures
or forward contracts in order to minimize any potential adverse tax
consequences.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions. Dividends, capital gain distributions, and ownership
of or gains realized on the redemption (including an exchange) of Fund shares
may also be subject to state and local taxes. Shareholders should consult their
own tax advisers as to the Federal, state or local tax consequences of ownership
of shares of, and receipt of distributions from, the Funds in their particular
circumstances.
45
<PAGE>
Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in a Fund is effectively connected will be subject to U.S.
Federal income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable a tax treaty) on amounts treated as
ordinary dividends from a Fund and, unless an effective IRS Form W-8 or
authorized substitute is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in any Fund.
The Funds are not subject to Massachusetts corporate excise or
franchise taxes, provided that a fund qualifies as a regulated investment
company under the Code, it will also not be required to pay any Massachusetts
income tax.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of each Fund is managed by its Trustees, who elect
officers who are responsible for the day-to-day operations of the Trust and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers and directors of the Adviser or officers
and Directors of the Funds' principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
The following table sets forth the principal occupation of employment
of the Trustees and principal officers of the Funds during the past five years:
46
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
---------------- WITH REGISTRANTS DURING PAST 5 YEARS
---------------- -------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive Officer, the
Adviser and The Berkeley Financial Group
("The Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM Capital");
John Hancock Advisers International
Limited ("Advisers International"); John
Hancock Funds, Inc., ("John Hancock
Funds"); John Hancock Investor Services
Corporation ("Investor Services") and
Sovereign Asset Management Corporation
("SAMCorp") (herein after the Adviser,
The Berkeley Group, NM Capital, Advisers
International, John Hancock Funds,
Investor Services and SAMCorp are
collectively referred to as the
"Affiliated Companies"); Chairman, First
Signature Bank & Trust; Director, John
Hancock Freedom Securities Corp., John
Hancock Capital Corp., New England/Canada
Business Council; Member, Investment
Company Institute Board of Governors;
Director, Asia Strategic Growth Fund,
Inc.; Trustee, Museum of Science;
President, the Adviser (until July 1992);
Chairman, John Hancock Distributors, Inc.
until April 1994.
<FN>
- ------------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee
may generally exercise most powers of the Trustees between regularly
scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</FN>
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
---------------- WITH REGISTRANTS DURING PAST 5 YEARS
---------------- -------------------
<S> <C> <C>
Douglas M. Costle Trustee (1, 2) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow, Institute
Woodstock, Vermont 05091 for Sustainable Communities, Montpelier,
Vermont, since 1991. Dean Vermont Law School,
until 1991. Director, Air and Water
Technologies Corporation (environmental
services and equipment), Niagara Mohawk Power
Company (electric services) and MITRE Corporation
(governmental consulting services).
Leland O. Erdahl Trustee (1, 2) President and Director of Nature Quality
8046 Mackenzie Court Ingredients Company, Inc. and Sante Fe
Las Vegas, NV 89129 Ingredients Company, Inc. , private food
processing companies. Director of Uranium
Resources, Inc. President of Stolar, Inc.
from 1987 to 1991 and President of
Albuquerque Uranium Corporation from 1985
to 1992. Director of Freeport-McMoRan
Copper & Gold Company, Inc., Hecla Mining
Company, Canyon Resources Corporation and
Original Sixteen to One Mines, Inc. From
1984 to 1987 and 1991, management
consultant.
<FN>
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee
may generally exercise most powers of the Trustees between regularly
scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</FN>
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS POSITION(S) HELD PRINCIPAL OCCUPATION(S)
---------------- WITH REGISTRANTS DURING PAST 5 YEARS
---------------- -------------------
<S> <C> <C>
Richard A. Farrell Trustee(1, 2) President of Farrell, Healer & Co., a venture
Venture Capital Partners capital management firm, since 1980. Prior to
160 Federal Street that date, Mr. Farrell headed the venture
23rd Floor capital group at Bank of Boston Corporation.
Boston, MA 02110
William F. Glavin Trustee (1, 2) President, Babson College; Vice Chairman, Xerox
Babson College Corporation until June 1989. Director, Caldor
Horn Library Inc. and Inco Ltd.
Babson Park, MA 02157
Dr. John A. Moore Trustee (1, 2) President and Chief Executive Officer, Institute
Institute for Evaluating for Evaluating Health Risks, a nonprofit
Health Risks institution, since September 1989. Assistant
1629 K Street NW Administrator of the Office of Pesticides and
Suite 402 Toxic Substances at the Environmental Protection
Washington, DC 20006 Agency from December 1983 to July 1989.
Patti McGill Peterson Trustee (1, 2) President, St. Lawrence University; Director,
St. Lawrence University Niagara Mohawk Power Corporation and Security
110 Vilas Hall Mutual Life.
Canton, NY 13617
John W. Pratt Trustee (1, 2) Professor of Business Administration at Harvard
2 Gray Gardens East University Graduate School of Business
Cambridge, MA 02138 Administration (Since 1961).
Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment Officer, the
Investment Officer (4) Adviser; President (until December 1994).
<FN>
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee
may generally exercise most powers of the Trustees between regularly
scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</FN>
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH REGISTRANTS DURING PAST 5 YEARS
- ---------------- ---------------- -------------------
<S> <C> <C>
Anne C. Hodsdon President (4) President and Chief Operating Officer,
the Adviser; Executive Vice President,
the Adviser (until December 1994); Senior
Vice President; the Adviser (until
December 1993).
James B. Little Senior Vice President, Senior Vice President, the Adviser.
Chief Financial Officer
Thomas H. Drohan Senior Vice President and Senior Vice President and Secretary, the
Secretary Adviser.
John A. Morin Vice President Vice President, the Adviser.
Susan S. Newton Vice President, Assistant Vice President and Assistant Secretary,
Secretary and Compliance the Adviser.
Officer
James J. Stokowski Vice President and Vice President, the Adviser.
Treasurer
<FN>
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee
may generally exercise most powers of the Trustees between regularly
scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</FN>
</TABLE>
50
<PAGE>
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
<TABLE>
The following table provides information regarding the compensation
paid by the Funds and the other investment companies in the John Hancock Fund
Complex to the Independent Trustees for their services. Mr. Boudreau, and each
of the officers of the Funds are interested persons of the Adviser, are
compensated by the Adviser and receive no compensation from the Funds for their
services.
<CAPTION>
AGGREGATE COMPENSATION
----------------------
SOVEREIGN U.S.
--------------
INDEPENDENT TRUSTEES GOVERNMENT* MANAGED TAX-EXEMPT* GOLD & GOVERNMENT*
- -------------------- ----------- -------------------- ------------------
<S> <C> <C> <C>
William A. Barron, III** $ 9,344 $ 4,232 $ 704
Douglas M. Costle 9,344 4,232 704
Leland O. Erdahl 9,344 4,232 704
Richard A. Farrell 9,690 4,388 731
William F. Glavin 2,774 1,275 84
Patrick Grant** 9,805 4,440 740
Ralph Lowell, Jr.** 9,344 4,232 704
Dr. John A. Moore 9,344 4,232 704
Patti McGill Peterson 9,344 4,232 704
John W. Pratt 9,344 4,232 704
------- ------- ------
Totals $87,677 $39,727 $6,483
</TABLE>
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION
----------------------
SOVEREIGN
---------
INDEPENDENT TRUSTEES ACHIEVERS* REGIONAL BANK* GLOBAL* GLOBAL INCOME*
- -------------------- ---------- -------------- ------- --------------
<S> <C> <C> <C> <C>
William A. Barron, III** $ 2,105 $ 13,754 $ 2,283 $ 2,190
Douglas M. Costle 2,105 13,754 2,283 2,190
Leland O. Erdahl 2,105 13,754 2,283 2,190
Richard A. Farrell 2,183 14,218 2,367 2,271
William F. Glavin 630 4,214 670 651
Patrick Grant** 2,208 14,372 2,395 2,299
Ralph Lowell, Jr.** 2,105 13,754 2,283 2,190
Dr. John A. Moore 2,105 13,754 2,283 2,190
Patti McGill Peterson 2,105 13,754 2,283 2,190
John W. Pratt 2,105 13,754 2,283 2,190
------- -------- ------- -------
Totals $19,756 $129,082 $21,413 $20,551
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
PENSION OR RETIREMENT BENEFITS TOTAL COMPENSATION FROM FUNDS AND
ACCRUED AS PART OF EACH FUND'S JOHN HANCOCK FUND COMPLEX TO
INDEPENDENT TRUSTEES EXPENSES* TRUSTEES(1)
- -------------------- --------- -----------
(TOTAL OF 12 FUNDS)
<S> <C> <C>
William A. Barron, III* $ $ 41,750
Douglas M. Costle - 41,750
Leland O. Erdahl - 41,750
Richard A. Farrell - 43,250
William F. Glavin 20,715 37,500
Patrick Grant** - 43,750
Ralph Lowell, Jr.** - 41,750
Dr. John A. Moore - 41,750
Patti McGill Peterson - 41,750
John W. Pratt - 41,750
------- --------
Totals $20,715 $416,750
<FN>
(1)The total compensation paid the John Hancock Fund Complex to the Independent
Trustees is as of calendar year ended December 31, 1995.
*Compensation made for the fiscal year ended October 31, 1995.
**As of January 1, 1996, Messrs. Barron, Grant and Lowell resigned as Trustees.
</FN>
</TABLE>
The nominees of the Funds may at times be the record holders of in
excess of 5% of shares of any one or more Funds by virtue of holding shares in
"street name." As of January 31, 1996 the officers and trustees of the Trusts as
a group owned less than 1% of the outstanding shares of each class of each of
the Funds.
As of January 31, 1996, the following shareholders beneficially owned
5% of or more of the outstanding shares of the Funds listed below:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL
NUMBER OF SHARES OF OUTSTANDING SHARES OF THE
NAME AND ADDRESS OF SHAREHOLDER FUND AND CLASS OF SHARES BENEFICIAL INTEREST OWNED CLASS OF THE FUND
- ------------------------------- ------------------------ ------------------------- -------------------------
<S> <C> <C> <C>
Merrill Lynch Pierce Fenner & Smith Regional Bank Fund 2,631,321 13.19%
Inc. Class A
Attn: Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
Merrill Lynch Pierce Fenner & Regional Bank Fund 16,653,759 31.16%
Smith Inc. Class B
Attn: Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
</TABLE>
52
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for each of the Funds is John Hancock Advisers,
Inc., a Massachusetts corporation (the "Adviser"), with offices at 101
Huntington Avenue, Boston, Massachusetts 02199-7603. The Adviser is a registered
investment advisory firm which maintains a securities research department, the
efforts of which will be made available to the Funds.
The Adviser was organized in 1968 and presently has more than $16
billion in assets under management in its capacity as investment adviser to the
Funds and the other mutual funds and publicly traded investment companies in the
John Hancock group of funds having a combined total of approximately 1,080,000
shareholders. The Adviser is an affiliate of John Hancock Mutual Life Insurance
Company (the "Life Company"), one of the most recognized and respected financial
institutions in the nation. With total assets under management of more than $80
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries high ratings from Standard & Poor's and A.M.
Best's. Founded in 1862, the Life Company has been serving clients for over 130
years.
The Trusts have entered into investment advisory agreements (the
"Advisory Agreements") dated as of November 6, 1986 as amended and restated
January 1, 1994 between Freedom Investment Trust and the Adviser, and dated as
of June 26, 1986 as amended and restated January 1, 1994 between Freedom
Investment Trust II and the Adviser. Pursuant to the Advisory Agreements, the
Adviser agreed to act as investment adviser and manager to the Funds. As manager
and investment adviser, the Adviser will: (a) furnish continuously an investment
program for each of the Funds and determine, subject to the overall supervision
and review of the Boards of Trustees, which investments should be purchased,
held, sold or exchanged, (b) provide supervision over all aspects of each Fund's
operations except those which are delegated to a custodian, transfer agent or
other agent, and (c) provide each of the Funds with such executive,
administrative and clerical personnel, officers and equipment as are deemed
necessary for the conduct of their business.
As compensation for its services under the Advisory Agreements, the
Adviser receives from each Fund a fee computed and paid monthly based upon the
following annual rates: (a) for each of Regional Bank Fund and Gold & Government
Fund, 0.80% of each respective Fund's first $500 million of average daily net
assets, and 0.75% of average daily net assets over $500 million; (b) for the
Sovereign Achievers Fund, 0.75% of the Fund's first $500 million of average
daily net assets, and 0.65% of average daily net assets in excess of that
amount; (c) for Government Fund, 0.50% of the Fund's first $500 million of
average daily net assets, and 0.45% of average daily net assets in excess of
that amount; (d) for Managed Tax-Exempt Fund, 0.60% of the Fund's first $250
million of average daily net assets, 0.50% of the next $500 million of average
daily net assets, and 0.45% of average daily net assets in excess of that
amount; (e) for Global Fund, 1% on the first $100 million of average daily net
assets of the Fund, 0.80% on the next $200 million of average net assets, 0.75%
on the next $200 million of average net assets and 0.625% of average net assets
in excess of $500 million; and (f) for the Global Income Fund 0.75% on the first
$250 million of average daily net assets, and 0.70% of average net assets in
excess of $250 million. The rates for some Funds are higher than those for
others because of the extensive amount of research required to manage such
portfolios in comparison to the portfolios of other Funds.
53
<PAGE>
The Global Fund and the Adviser have entered into a sub-investment
management contract with John Hancock Advisers International Limited under which
John Hancock Advisers International, subject to the review of the Trustees and
the overall supervision of the Adviser, is responsible for providing the Fund
with advice with respect to that portion of the assets invested in countries
other than the United States and Canada. As compensation for its services under
the Sub-Advisory Agreement, JH Advisers International receives from the Adviser
a monthly fee equal to 0.70% on an annual basis of the average daily net asset
value of the Global Fund for each calendar month up to $200 million of average
daily net assets; and 0.6375% on an annual basis of the average daily net asset
value over $200 million. The Sub-Adviser, with offices located at 34 Dover
Street, London, England W1X 3RA, is a wholly-owned subsidiary of the Adviser
formed in 1987 to provide international investment research and advisory
services to U.S. institutional clients.
The Adviser has entered into a service agreement with Sovereign Asset
Management Corporation ("SAMCorp"), which is an indirect wholly-owned subsidiary
of the Life Company. The service agreement provides that SAMCorp will provide to
the Adviser certain portfolio management services with respect to the equity
securities held in the portfolio of the Sovereign Achievers Fund. The service
agreement further provides that the Adviser will remain ultimately responsible
for all of its obligations under the investment management contract between the
Adviser and the Sovereign Achievers Fund. Subject to the supervision of the
Adviser, SAMCorp furnishes the Sovereign Achievers Fund with recommendations
with respect to the purchase, holding and disposition of equity securities in
the Sovereign Achievers Fund's portfolio; furnishes the Sovereign Achievers Fund
with research, economic and statistical data in connection with the Sovereign
Achievers Fund's equity investments; and places orders for transactions in
equity securities. The Adviser pays to SAMCorp 40% of the monthly investment
management fee received by the Adviser with respect to the equity securities
held in the portfolio of the Sovereign Achievers Fund during such month. The
fees paid by the Sovereign Achievers Fund to the Adviser under the investment
management contract are not affected by this arrangement.
All expenses which are not specifically paid by the Adviser and which
are incurred in the operation of the Fund (including fees of Trustees of the
Fund who are not "interested persons," as such term is defined in the Investment
Company Act, but excluding certain distribution-related activities required to
be paid by the Adviser or John Hancock Funds) and the continuous public offering
of the shares of the Fund are borne by the Fund. Class expenses properly
allocable to either Class A or Class B shares will be borne exclusively by such
class of shares, subject to certain conditions imposed by the Internal Revenue
Service with respect to multiple-class structures.
The State of California imposes a limitation on the expenses of the
Funds. The Advisory Agreement provides that if, in any fiscal year, the total
expenses of a Fund (excluding taxes, interest, brokerage commissions and
extraordinary items, but including the management fee) exceed the expense
limitations applicable to a Fund imposed by the securities regulations of any
state in which it is then registered to sell shares, the Adviser will reduce
it's fee for that Fund in the amount of that excess up to the amount of its
management fee during that fiscal year. The Adviser and JH Advisers
International have agreed that if, in any fiscal year, the total expenses of the
Global Fund (excluding taxes, interest, brokerage commissions and extraordinary
items, but
54
<PAGE>
including the Adviser's fee and the portion thereof paid to JH Advisers
International) exceed the expense limitations applicable to such Fund, the
Adviser and JH Advisers International will each reduce it's fee for that Fund in
the amount of that excess up to the amount of its fee during that fiscal year.
Although there is no certainty that any limitations will be in effect in the
future, the California limitation on an annual basis currently is 2.5% of the
first $30 million of average net assets, 2.0% of the next $70 million of net
assets and 1.5% of the remaining net assets.
The continuation of the Advisory Agreement for Freedom Investment Trust
was last approved on May 1, 1995 by all of the Trustees, including all of the
Trustees who are not parties to the Advisory Agreement or "interested persons"
of any such party. The shareholders of Gold & Government Fund, Regional Bank
Fund and Government Fund also approved the Advisory Agreement on November 6,
1986. The Advisory Agreement was approved by the respective shareholders of the
Sovereign Achievers Fund and the Managed Tax-Exempt Fund on February 26, 1988.
An amendment to the Advisory Agreement to increase the fee payable thereunder
effective January 1, 1994, was approved by the respective shareholders of Gold &
Government Fund and Regional Bank Fund on October 28, 1993. The Advisory
Agreement will continue in effect from year to year, provided that its
continuance is approved annually both (i) by the holders of a majority of the
outstanding voting securities of the Trust or by the Board of Trustees, and (ii)
by a majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" of any such party. The Advisory Agreement may be terminated
on 60 days written notice by any party and will terminate automatically if it is
assigned.
For the fiscal year ended October 31, 1993, Freedom Investment Trust
paid the Adviser an investment advisory fee of $6,061,838 pursuant to the
Advisory Agreement. Of this amount, $451,050 was attributable to the Gold &
Government Fund, $1,354,664 was attributable to the Regional Bank Fund,
$2,862,505 was attributable to the Government Fund, $583,838 was attributable to
the Sovereign Achievers Fund and $809,781 was attributable to the Managed
Tax-Exempt Fund. Under the terms of the Advisory Agreement the Adviser may
voluntarily not impose all or part of its management fees. During the year ended
October 31, 1993, for the Managed Tax-Exempt Fund, the Adviser agreed not to
impose management fees in the amount of $733,749.
For the fiscal year ended October 31, 1994, Freedom Investment Trust
paid the Adviser, the Funds' previous Adviser, an investment advisory fee of
$9,390,998 pursuant to the Advisory Agreement. Of this amount, $530,798 was
attributable to the Gold & Government Fund, $3,686,366 was attributable to the
Regional Bank Fund, $2,839,185 was attributable to the Government Fund, $902,465
was attributable to the Sovereign Achievers Fund and $1,432,184 was attributable
to the Managed Tax-Exempt Fund. During the year ended October 31, 1994, for the
Managed Tax-Exempt Fund, the Adviser agreed not to impose management fees in the
amount of $131,878. The Adviser's expense limitation may be discontinued at any
time.
For the fiscal year ended October 31, 1995, Freedom Investment Trust
paid the Adviser and Freedom Capital, the Funds' previous Adviser, an investment
advisory fee of $12,627,864 pursuant to the Advisory Agreement. Of this amount,
$354,905 was attributable to the Gold & Government Fund, $7,644,892 was
attributable to the Regional Bank Fund, $2,514,147 was
55
<PAGE>
attributable to the Government Fund, $1,247,519 was attributable to the Managed
Tax-Exempt Fund, and $866,401 was attributable to the Sovereign Achievers Fund.
Under the terms of the Advisory Agreement the Adviser may voluntarily not impose
all or part of its management fees. During the year ended October 31, 1995, for
the Managed Tax-Exempt Fund the Adviser and Freedom Capital agreed not to impose
management fees in the amount of $113,411.
The continuation of the Advisory Agreement for the Global Fund and for
the Global Income Fund were approved on May 1, 1995 by all of the Trustees of
Freedom Investment Trust II, including all of the Trustees who are not parties
to the Agreements or "interested persons" of any such party. The current
Sub-Advisory Agreement between the Adviser and JH Advisers International was
approved by all of the Trustees of Freedom Investment Trust II on June 25, 1992
and became effective on August 1, 1992. The shareholders of each Fund approved
the Advisory Agreement with respect to each Fund on May 8, 1987 and the
shareholders of the Global Fund approved the Sub-Advisory Agreement on September
25, 1992. An amendment to the Advisory Agreement to increase the fee payable
thereunder effective January 1, 1994 was approved by the shareholders of Global
Income Fund on October 28, 1993. The Agreements will continue in effect for a
period of two years from the date of their execution and thereafter from year to
year, provided that their continuance is approved annually both (i) by the
holders of a majority of the outstanding voting securities of each Fund or by
the Board of Trustees of Freedom Investment Trust II, and (ii) by a majority of
the Trustees who are not parties to the Agreements or "interested persons" of
any such party. The Agreements may be terminated on 60 days' written notice by
either party and will terminate automatically if they are assigned.
For the fiscal year ended October 31, 1993, Freedom Investment Trust II
paid the Adviser investment advisory fees of $922,722 with respect to the Global
Fund and $1,441,163 with respect to the Global Income Fund. For the fiscal year
ended October 31, 1994, Freedom Investment Trust II the Adviser investment
advisory fees of $1,175,313 with respect to the Global Fund and $1,207,673 with
respect to the Global Income Fund. For the fiscal year ended October 31, 1995,
Freedom Investment Trust II paid the Adviser and Freedom Capital, the Funds'
previous Adviser, investment advisory fees of $1,169,884 with respect to the
Global Fund and $840,527 with respect to the Global Income Fund.
DISTRIBUTION CONTRACT
Freedom Investment Trust and Freedom Investment Trust II have entered
into Distribution Agreements with John Hancock Funds, Inc. and Freedom
Distributors Corporation (together the "Distributors") whereby the Distributors
act as exclusive selling agent of the Funds, selling shares of each class of
each Fund on a "best efforts" basis. Shares of each class of each Fund are sold
to selected broker-dealers (the "Selling Brokers") who have entered into selling
agency agreements with the Distributors.
56
<PAGE>
The Distributors accept orders for the purchase of the shares of the
Funds which are continually offered at net asset value next determined, plus an
applicable sales charge, if any. In connection with the sale of Class A or Class
B shares of the Funds, the Distributors and Selling Brokers receive compensation
in the form of a sales charge imposed, in the case of Class A shares at the time
of sale or, in the case of Class B shares, on a deferred basis. The sales
charges are discussed further in the Prospectuses.
The Trustees have adopted Distribution Plans with respect to Class A
and Class B shares ("the Plans"), pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Under the Plans, each Fund will pay distribution and
service fees at an aggregate annual rate of up to 0.30% and 1.00% respectively,
of the Fund's daily net assets attributable to shares of that class. However,
the service fee will not exceed 0.25% of the applicable Fund's average daily net
assets attributable to each class of shares. The distribution fees reimburse the
Distributors for their distribution costs incurred in the promotion of sales of
the Funds'shares, and the service fees compensate Selling Brokers for providing
personal and account maintenance services to shareholders. In the event that the
Distributors are not fully reimbursed for expenses they incur under the Class B
Plan in any fiscal year, the Distributors may carry these expenses forward,
provided, however, that the Trustees may terminate the Class B Plan and thus any
Fund's obligation to make further payments at any time. Accordingly, the Funds
do not treat unreimbursed expenses relating to the Class B shares as a
liability. The Plans were approved by a majority of the voting securities of
each Fund. The Plans and all amendments were approved by the Trustees, including
a majority of the Trustees who are not interested persons of the applicable Fund
and who have no direct or indirect financial interest in the operation of the
Plans (the "Independent Trustees"), by votes cast in person at meetings called
for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, the Distributors provide the
Funds with a written report of the amounts expended under the Plans and the
purpose for which these expenditures were made. The Trustees review these
reports on a quarterly basis.
Each of the Plans provides that it will continue in effect only so long
as its continuance is approved at least annually by a majority of both the
Trustees and the Independent Trustees. Each of the Plans provides that it may be
terminated without penalty, (a) by vote of a majority of the Independent
Trustees, (b) by a vote of a majority of the applicable Fund's outstanding
shares of the applicable class in each case upon 60 day's written notice to the
Distributors and (c) automatically in the event of assignment. Each of the Plans
further provides that it may not be amended to increase the maximum amount of
the fees for the services described therein without the approval of a majority
of the outstanding shares of the class of the applicable Fund which has
57
<PAGE>
voting rights with respect to the Plan. And finally, each of the Plans provides
that no material amendment tot he Plan will, in any event, be effective unless
it is approved by a vote of the Trustees and the Independent Trustees of the
applicable Fund. The holders of Class A and Class B shares have exclusive voting
rights with respect to the Plan applicable to their respective class of shares.
In adopting the Plans the Trustees concluded that, in their judgment, there is a
reasonable likelihood that the plans will benefit the holders of the applicable
of shares of each Fund.
<TABLE>
During the fiscal year ended October 31, 1995, the Funds paid the
Distributors the following amounts of expenses with respect to the Class A
shares and Class B shares of each of the Funds:
<CAPTION>
Expense Items
-------------
Printing and Interest,
Mailing of Carrying or
Prospectuses to Expense of Compensation to Other Finance
Advertising New Shareholders Distributors Selling Brokers Charges
----------- ---------------- ------------ --------------- -------
<S> <C> <C> <C> <C> <C>
Government Fund
---------------
Class A Shares $ 63,551 $ 4,397 $ 182,706 $ 754,114 NONE
Class B Shares $ 63,450 $ 2,609 $ 190,722 $ 822,022 $ 598,399
Managed Tax-Exempt Fund
-----------------------
Class A Shares
Class B Shares $ 11,757 $ 515 $ 32,699 $ 38,407 NONE
$ 72,409 $ 0 $ 184,775 $ 981,260 $ 731,696
Gold & Government Fund
----------------------
Class A Shares $ 10,961 $ 0 $ 10,149 $ 28,882 NONE
Class B Shares $ 27,231 $ 0 $ 36,262 $ 202,288 $ 10,819
Sovereign Achievers Fund
------------------------
Class A Shares $ 10,326 $ 1,951 $ 24,700 $ 37,502 NONE
Class B Shares $ 40,251 $ 6,420 $ 93,473 $ 370,936 $ 361,952
Regional Bank Fund
------------------
Class A Shares $151,794 $ 9,160 $ 599,005 $ 89,574 NONE
Class B Shares $904,125 $54,026 $3,220,715 $1,018,102 $1,831,112
</TABLE>
58
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Global Fund
-----------
Class A Shares $50,361 $9,469 $75,361 $145,419 NONE
Class B Shares $47,508 $2,409 $70,676 $ 80,744 $ 69,530
Global Income Fund
------------------
Class A Shares $10,013 $3,810 $20,681 $ 23,930 NONE
Class B Shares $59,062 $1,035 $70,074 $270,650 $516,687
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's
shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations
furnished by a principal market maker or a pricing service, both of which
generally utilize electronic data processing techniques to determine valuations
for normal institutional size trading units of debt securities without exclusive
reliance upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National
Market Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned categories for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days
or less are generally valued at amortized cost which approximates market value.
If market quotations are not readily available or if in the opinion of the
Adviser any quotation or price is not representative of true market value, the
fair value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time ( 12:00 noon, New York time) on
the date of any determination of a Fund's NAV.
A Fund will not price its securities on the following national
holidays: New Year's Day; Presidents' Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day; and Christmas Day. On any day an
international market is closed and the New York Stock Exchange is open, any
foreign securities will be valued at the prior day's close with the current
day's exchange rate. Trading of foreign securities may take place on Saturdays
and U.S. business holidays on which a Fund's NAV is not calculated.
Consequently, a Fund's portfolio securities may trade and the NAV of the Fund's
redeemable securities may be significantly affected on days when a shareholder
has no access to the Fund.
59
<PAGE>
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the
Funds are described in the Funds' Prospectuses. Methods of obtaining reduced
sales charges referred to generally in the Prospectuses are described in detail
below. In calculating the sales charge applicable to current purchases of Class
A shares, the investor is entitled to cumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Funds, owned by the investor, or if Investor Services is notified by the
investor's dealer or the investor at the time of the purchase, the cost of the
Class A shares owned.
COMBINED PURCHASES. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his or her spouse and their children under the age of 21,
purchasing securities for his, her or their own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
WITHOUT SALES CHARGES. As described in the Prospectuses, Class A shares of the
Funds may be sold without a sales charge to certain persons described in the
Prospectuses.
ACCUMULATION PRIVILEGE. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current account value of the Class A shares already
held by such person.
COMBINATION PRIVILEGE. Reduced sales charges (according to the schedule set
forth in the Prospectuses) are also available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares and
shares of all other John Hancock funds which carry a sales charge.
LETTER OF INTENTION. The reduced sales charges are also applicable to
investments made over a specified period pursuant to a Letter of Intention (the
"LOI"), which should be read carefully prior to its execution by an investor.
The Fund offers two options regarding the specified period for making
investments under the LOI. All investors have the option of making their
investments over a specified period of thirteen (13) months. Investors who are
using the Fund as a funding medium for a qualified retirement plan, however, may
opt to make the necessary investments called for by the LOI over a forty-eight
(48) month period. These qualified retirement plans include group IRA, SEP,
SARSEP, TSA, 401(k), ISA and Section 457 plans. Such an investment (including
accumulations and combinations) must aggregate $100,000 or more invested during
the specified period from the date of the LOI or from a date within ninety (90)
days prior thereto, upon written request to Investor Services. The sales charge
applicable to all amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If such aggregate
amount is not actually invested, the difference in the sales charge actually
paid and the sales charge payable had the LOI not been in effect is due
60
<PAGE>
from the investor. However, for the purchases actually made within the specified
period the sales charge applicable will not be higher than that which would have
applied (including accumulations and combinations) had the LOI been for the
amount actually invested.
The LOI authorizes Investor Services to hold in escrow a number of
Class A shares (approximately 5% of the aggregate) sufficient to make up any
difference in sales charges on the amount intended to be invested and the amount
actually invested, until such investment is completed within the specified
period, at which time the escrow shares will be released. If the total
investment specified in the LOI is not completed, the Class A shares held in
escrow may be redeemed and the proceeds used as required to pay such sales
charge as may be due. By signing the LOI, the investor authorizes Investor
Services to act as his or her attorney-in-fact to redeem any escrowed shares and
adjust the sales charge, if necessary. A LOI does not constitute a binding
commitment by an investor to purchase, or by the Funds to sell, any additional
Class A shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per
share without the imposition of an initial sales charge so that the Funds will
receive the full amount of the purchase price.
CONTINGENT DEFERRED SALES CHARGE. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectuses as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. Accordingly, no CDSC will be imposed on increases in
account value above the initial purchase prices, including Class B shares
derived from reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of
years from the time of payment for the purchase of Class B shares until the time
of redemption of such shares. Solely for purposes of determining this number all
payments during a month will be aggregated and deemed to have been made on the
last day of the month.
Proceeds from the CDSC are paid to John Hancock Funds not "the
Distributors" and are used in whole or in part by John Hancock Funds to defray
its expenses related to providing distribution-related services to the Funds in
connection with the sale of the Class B shares, such as the payment of
compensation to select Selling Brokers for selling Class B shares. The
combination of the CDSC and the distribution and service fees facilitates the
ability of the Funds to sell the Class B shares without a sales charge being
deducted at the time of the purchase. See the Prospectuses for additional
information regarding the CDSC.
61
<PAGE>
SPECIAL REDEMPTIONS
Although they would not normally do so, the Funds have the right to pay the
redemption price of shares of the Funds in whole or in part in portfolio
securities as prescribed by the Trustees. If the shareholder were to sell
portfolio securities received in this fashion, he would incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The Funds
have, however, elected to be governed by Rule 18f-1 under the Investment Company
Act. Under that rule, the Funds must redeem their shares for cash except to the
extent that the redemption payments to any shareholder during any 90-day period
would exceed the lesser of $250,000 or 1% of the applicable Fund's net asset
value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE. As described more fully in the Prospectuses, the Funds
permit exchanges of shares of any class of a Fund for shares of the same class
in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are
based on their respective net asset values. No sales charge or transaction
charge is imposed. Shares of the Funds which are subject to a CDSC may be
exchanged into shares of any of the other John Hancock funds that are subject to
a CDSC without incurring the CDSC; however, the shares acquired in an exchange
will be subject to the CDSC schedule of the shares acquired if and when such
shares are redeemed (except that shares exchanged into John Hancock Short-Term
Strategic Income Fund, John Hancock Intermediate Maturity Government Fund and
John Hancock Limited-Term Government Fund will retain the exchanged fund's CDSC
schedule). For purposes of computing the CDSC payable upon redemption of shares
acquired in an exchange, the holding period of the original shares is added to
the holding period of the shares acquired in an exchange.
Shares of each class may be exchanged only for shares of the same class in
another John Hancock fund.
If a shareholder exchanges Class B shares purchased prior to January 1,
1994 (except John Hancock Short-Term Strategic Income Fund) for Class B shares
of any other John Hancock fund, the acquired shares will continue to be subject
to the CDSC schedule that was in effect when the exchanged shares were
purchased.
Each Fund reserves the right to require that previously exchanged shares
(and reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange. The Funds may also terminate or alter the terms of the
exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and
the purchase of shares of another for Federal income tax purposes. An exchange
may result in a taxable gain or loss. See "Tax Status."
62
<PAGE>
To make an exchange, the account registration in both the existing and
new account, must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the Prospectuses, each Fund
permits the establishment of a Systematic Withdrawal Plan. Payments under this
plan represent proceeds from the redemption of shares of the applicable Fund.
Since the redemption price of the shares of a Fund may be more or less than the
shareholder's cost, depending upon the market value of the securities owned by
the Fund at the time of redemption, the distribution of cash pursuant to this
plan may result in realization of gain or loss for purposes of Federal, state
and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares could be
disadvantageous to a shareholder because of the initial sales charge payable on
such purchases of Class A shares and the CDSC imposed on redemptions of Class B
shares and because redemptions are taxable events. Therefore, a shareholder
should not purchase Class A or Class B shares at the same time a Systematic
Withdrawal Plan is in effect. The Funds reserve the right to modify or
discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior
written notice to such shareholder, or to discontinue the availability of such
plan in the future. The shareholder may terminate the plan at any time by giving
proper notice to Investor Services.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This program is explained in
the Prospectuses. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month
indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the processing date of any investment.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund shares may, within
120 days after the date of redemption, reinvest without payment of a sales
charge any part of the redemption proceeds in shares of the same class of the
same Fund or in any other John Hancock funds, subject to the minimum investment
limit in that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
the same Fund or in Class A shares of another John Hancock fund. If a CDSC was
paid upon a redemption, a shareholder may reinvest the proceeds from this
redemption at net asset value in additional shares of the class from which the
redemption was made. The shareholder's account
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<PAGE>
will be credited with the amount of any CDSC charged upon the prior redemption
and the new shares will continue to be subject to the CDSC. The holding period
of the shares acquired through reinvestment will, for purposes of computing the
CDSC payable upon a subsequent redemption, include the holding period of the
redeemed shares. The Funds may modify or terminate the reinvestment privilege at
any time.
A redemption or exchange of Fund shares is a taxable transaction for
Federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
DESCRIPTION OF THE FUNDS' SHARES
The Trustees of the Trust are responsible for the management and
supervision of the Funds. The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of the
Fund, without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this Statement
of Additional Information, the Trustees have authorized the issuance of a new
Fund named, John Hancock Financial Industries Fund, Class A and Class B, under
Freedom Investment Trust.
The shares of each class of a Fund represent an equal proportionate
interest in the aggregate net assets attributable to the classes of the Fund.
Class A and Class B shares of the Funds will be sold exclusively to members of
the public (other than the institutional investors described in the
Prospectuses) at net asset value. A sales charge will be imposed either at the
time of the purchase, for Class A shares, or on a contingent deferred basis, for
Class B shares. For Class A shares, no sales charge is payable at the time of
purchase on investments of $1 million or more, but for such investments a CDSC
may be imposed in the event of certain redemption transactions within one year
of purchase.
Class A and Class B shares have certain exclusive voting rights on
matters relating to their respective distribution plans. The different classes
of a Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except that (i) the distribution and service fees relating the
Class A and Class B shares will be borne exclusively by that class (ii) Class B
shares will pay higher distribution and service fees than Class A shares and
(iii) Class A and Class B shares will bear any other class expenses properly
allocable to such class of shares, subject to the conditions set forth in a
private letter ruling that each Fund has received from the Internal Revenue
Service relating to its multiple-class structure. Similarly, the net asset value
per share may vary depending on whether Class A or Class B shares are purchased.
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<PAGE>
In the event of liquidation, shareholders are entitled to share pro rata in
the net assets of the applicable Fund available for distribution to such
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, by the Trusts, except as set
forth below.
Unless otherwise required by the Investment Company Act or the Declaration
of Trust, each Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares, and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the Trust. However, each Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations or affairs of
the Fund. The Declaration of Trust also provides for indemnification out of the
Funds' assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. Liability is therefore
limited to circumstances in which a Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
CALCULATION OF PERFORMANCE
The following information supplements the discussion in the Prospectuses
regarding performance information.
TOTAL RETURN. Average annual total return is determined separately for each
class of shares.
Set forth below are tables showing the performance on a total return basis
(i.e., with all dividends and distributions reinvested) of a hypothetical $1,000
investment in the Class A and Class B shares of the Gold & Government Fund,
Regional Bank Fund, Government Fund, Managed Tax-Exempt Fund, Sovereign
Achievers Fund, Global Fund and Global Income Fund. The performance information
for each Fund is stated for the fiscal year ended October 31, 1995 and for the
five year period ended October 31, 1995 with respect to the Class B shares of
each Fund for the one year period of Class A shares of each Fund and for the
period from the commencement of operations (indicated by an asterisk), or the
ten year period, of the Class A and Class B shares of each Fund to October 31,
1995.
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<PAGE>
<TABLE>
<CAPTION>
Gold & Government Fund
----------------------
<S> <C> <C> <C> <C>
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
(10.40%) (0.64%) (11.02%) 2.65% 5.59%
Regional Bank Fund
------------------
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
24.46% 25.58% 25.11% 35.11% 19.97%
Government Income Fund
----------------------
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
11.05% 5.29% 9.34% 8.03% 8.20%
Managed Tax-Exempt Fund
-----------------------
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
8.56% 5.82% 7.96% 6.22% 8.31%
Sovereign Achievers Fund
------------------------
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
6.62% 5.40% 6.51% 12.17% 7.23%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Global Fund
-----------
<S> <C> <C> <C> <C>
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
(5.38%) 7.09% (5.96%) 9.30% 9.31%
Global Income Fund
------------------
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended 9/26/84* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
7.15% 3.13% 6.61% 5.34% 9.14%
<FN>
* Commencement of operations.
</FN>
</TABLE>
The "distribution rate" is determined by annualizing the result of
dividing the declared dividends of a Fund during the period stated by the
maximum offering price and net asset value at the end of the period. Excluding a
Fund's sales load from the distribution rate produces a higher rate.
Total return is computed by finding the average annual compounded rates
of return over the designated periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
[GRAPHIC OMITTED]
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1 year, 5 years, and life-of-fund
periods.
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<PAGE>
This calculation assumes that the maximum sales charge for Class A
shares of 5% for Gold & Government Fund, Sovereign Achievers Fund, Regional Bank
Fund and Global Fund and 4.5% for Government Income Fund, Managed Tax-Exempt
Fund, and Global Income Fund is included in the initial investment or, for Class
B shares, the applicable CDSC is applied at the end of the period. This
calculation also assumes that all dividends and distributions are reinvested at
net asset value on the reinvestment dates during the period.
In addition to average annual total returns, the Funds may quote
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
Total returns may be quoted with or without taking the Funds' sales charge on
Class A shares or the CDSC on Class B shares into account. Excluding the Funds'
sales charge on Class A shares and the CDSC on Class B shares from a total
return calculation produces a higher total return figure.
Yield. Yield is determined separately for Class A and Class B shares. The yields
for the Class A shares of the Gold & Government Fund, Government Fund, Managed
Tax-Exempt Fund and Global Income Fund for the thirty days ended October 31,
1995 were 1.42%, 5.62%, 4.74% and 5.80%, respectively. The yields for the Class
B shares of the Gold & Government Fund, Government Fund, Managed Tax-Exempt Fund
and Global Income Fund for the thirty days ended October 31, 1995 were 0.87%,
5.24%, 4.32% and 5.21%, respectively.
Yield is computed by dividing the net investment income per share
earned during a specified 30 day period by the maximum offering price per share
on the last day of such period, according to the following formula:
[GRAPHIC OMITTED]
Where: a= dividends and interest earned during the period
b= net expenses accrued for the period
c= the average daily number of share outstanding during the period
that were entitled to receive dividends
d= the maximum offering price per share on the last day of the
period.
To calculate interest earned (for the purpose of "a" above) on debt
obligations, a Fund computes the yield to maturity of each obligation held by
the Fund based on the market value of the obligation (including actual accrued
interest) at the close of last business day of the period, or, with respect to
obligations purchased during the period, the purchase price (plus actual accrued
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<PAGE>
interest). The yield to maturity is then divided by 360 and the quotient is
multiplied by the market value of the obligation (including actual accrued
interest) to determine the interest income on the obligation for each day of the
subsequent period that the obligation is in the portfolio.
Managed Tax-Exempt Fund only. In the case of a tax-exempt obligation
issued without original issue discount and having a current market discount, the
coupon rate of interest is used in lieu of the yield to maturity. Where, in the
case of a tax-exempt obligation with original issue discount, the discount based
on the current market value exceeds the then-remaining portion of original issue
discount (market discount), the yield to maturity is the imputed rate based on
the original issue discount calculation. Where, in the case of a tax-exempt
obligation with original issue discount, the discount based on the current
market value is less than the then-remaining portion of original issue discount
(market premium), the yield to maturity is based on the market value.
Government Fund and Gold & Government Fund only. With respect to the
treatment of discount and premium on mortgage or other receivables-backed
obligations which are expected to be subject to monthly payments of principal
and interest ("paydowns") each Fund accounts for gain or loss attributable to
actual monthly paydowns as an increase or decrease to interest income during the
period.
Global Income Fund only. To calculate interest earned (for the purpose
of "a" above) on foreign debt obligations, the Fund computes the yield to
maturity of each obligation based on the local foreign currency market value of
the obligation (including actual accrued interest) at the beginning of the
period, or, with respect to obligations purchased during the period, the
purchase price plus accrued interest. The yield to maturity is then divided by
360 and the quotient is multiplied by the current market value of the obligation
(including actual accrued interest in local currency denomination), then
converted to U.S. dollars using exchange rates from the close of the last
business day of the period to determine the interest income on the obligation
for each day of the subsequent period that the obligation is in the portfolio.
Applicable foreign withholding taxes, net of reclaim, are included in the "b"
expense component.
Solely for the purpose of computing yield, each Fund recognizes
dividend income by accruing 1/360 of the stated dividend rate of a security each
day that a security is in the portfolio.
Undeclared earned income, computed in accordance with generally
accepted accounting principles, may be subtracted from the maximum offering
price. Undeclared earned income is the net investment income which, at the end
of the base period, has not been declared as a dividend, but is reasonably
expected to be declared as a dividend shortly thereafter.
All accrued expenses are taken to account as described later herein.
From time to time, in reports and promotional literature, the Funds'
total return and yield will be compared to indices of mutual funds such as
Lipper Analytical Services, Inc.'s "Lipper-Mutual Performance Analysis," a
monthly publication which tracks net assets, total return, and yield on mutual
funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C.
Towers are also used for comparison purposes, as well as Russell and Wilshire
indices.
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<PAGE>
Performance rankings and ratings reported periodically in national
financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL
STREET JOURNAL, MORNINGSTAR, STANGER'S and BARRON'S, etc. may also be utilized.
The performance of the Funds is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Funds for any period in the future. The performance of any Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales, and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Funds' performances.
BROKERAGE ALLOCATION
Each Advisory Agreement authorizes the Adviser (subject to the control
of the Boards of Trustees) to select brokers and dealers to execute purchases
and sales of portfolio securities and gold bullion and coins. It directs the
Adviser to use its best efforts to obtain the best overall terms for the Funds,
taking into account such factors as price (including dealer spread), the size,
type and difficulty of the transaction involved, and the financial condition and
execution capability of the broker or dealer.
The Sub-Advisory Agreement between the Adviser and JH Advisers
International authorizes JH Advisers International (subject to the control of
the Board of Trustees of Freedom Investment Trust II) to provide the Global Fund
with a continuing and suitable investment program with respect to investments by
the Fund in countries other than the United States and Canada.
To the extent that the execution and price offered by more than one
dealer are comparable, the Adviser or JH Advisers International, as the case may
be, may, in their discretion, decide to effect transactions in portfolio
securities with dealers on the basis of the dealer's sales of shares of the
Funds or with dealers who provide the Funds, the Adviser or JH Advisers
International with services such as research and the provision of statistical or
pricing information. In addition, the Funds may pay brokerage commissions to
brokers or dealers in excess of those otherwise available upon a determination
that the commission is reasonable in relation to the value of the brokerage
services provided, viewed in terms of either a specific transaction or overall
brokerage services provided with respect to the Funds' portfolio transactions by
such broker or dealer. Any such research services would be available for use on
all investment advisory accounts of the Adviser or JH Advisers International.
The Funds may from time to time allocate brokerage on the basis of sales of
their shares. Review of compliance with these policies, including evaluation of
the overall reasonableness of brokerage commissions paid, is made by the Board
of Trustees.
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<PAGE>
The Adviser places all orders for purchases and sales of portfolio
securities of the Funds. In selecting broker-dealers, the Adviser may consider
research and brokerage services furnished to them. The Adviser may use this
research information in managing the Funds' assets, as well as assets of other
clients.
Municipal securities, foreign debt securities and Government Securities
are generally traded on the over-the-counter market on a "net" basis without a
stated commission, through dealers acting for their own account and not as
brokers. The Managed Tax-Exempt Fund, Global Income Fund, Sovereign Government
Fund and Gold & Government Fund (with respect to Government Securities in its
portfolio) will primarily engage in transactions with these dealers or deal
directly with the issuer. Prices paid to the dealer will generally include a
"spread", which is the difference between the prices at which the dealer is
willing to purchase and sell the specific security at that time.
During the fiscal year ended October 31, 1993, Freedom Investment Trust
paid $161,459 in negotiated brokerage commissions on behalf of the Funds of
which $22,233 was attributable to the Gold & Government Fund, $3,000 was
attributable to Sovereign Government Fund, $49,951 was attributable to the
Regional Bank Fund and $86,275 was attributable to the Sovereign Achievers Fund.
During the fiscal year ended October 31, 1994, Freedom Investment Trust paid
$833,722 in brokerage commissions on behalf of the Funds, of which $10,051 was
attributable to the Managed Tax-Exempt Fund, $512,936 was attributed to the
Regional Bank Fund, $232,625 was attributable to the Sovereign Achievers Fund,
$48,650 was attributable to the Gold & Government Fund and $29,450 was
attributable to Sovereign Government Fund. During the fiscal year ended October
31, 1995, Freedom Investment Trust paid $1,043,663 in negotiated brokerage
commissions on behalf of the Funds of which $109,757 was attributable to the
Gold & Government Fund, $589,066 was attributable to the Regional Bank Fund and
$237,015 was attributable to the Sovereign Achievers Fund and $107,825 was
attributable to Sovereign U.S. Government Income Fund.
During the fiscal year ended October 31, 1993, Freedom Investment Trust
II paid $806,269 in brokerage commissions on behalf of the Global Fund and none
on behalf of the Global Income Fund. During the fiscal year ended October 31,
1994, Freedom Investment Trust II paid $509,845 in brokerage commissions on
behalf of the Global Fund and no brokerage commissions on behalf of the Global
Income Fund. During the fiscal year ended October 31, 1995, Freedom Investment
Trust II paid $525,839 in negotiated brokerage commissions on behalf of the
Global Fund and $24,400 on behalf of the Global Income Fund.
When a Fund engages in an option transaction, ordinarily the same
broker will be used for the purchase or sale of the option and any transactions
in the securities to which the option relates. The writing of calls and the
purchase of puts and calls by a Fund will be subject to limitations established
(and changed from time to time) by each of the Exchanges governing the maximum
number of puts and calls covering the same underlying security which may be
written or purchased by a single investor or group of investors acting in
concert, regardless of whether the options are written or purchased on the same
or different Exchanges, held or written in one or more accounts or through one
or more brokers. Thus, the number of options which a Fund may
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<PAGE>
write or purchase may be affected by options written or purchased by other
investment companies and other investment advisory clients of the Adviser and
its affiliates or JH Advisers International. An Exchange may order the
liquidation of positions found to be in violation of these limits, and it may
impose certain other sanctions.
In the U.S. Government securities market, securities are generally
traded on a "net" basis with dealers acting as principal for their own account
without a stated commission, although the price of the security usually includes
a profit to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid.
Municipal securities are generally traded on the over-the-counter
market on a "net" basis without a stated commission, through dealers acting for
their own account and not as brokers. The Managed Tax-Exempt Fund will primarily
engage in transactions with these dealers or deal directly with the issuer.
Prices paid to a municipal securities dealer will generally include a "spread",
which is the difference between the prices at which the dealer is willing to
purchase and sell the specific security at that time.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
two of which, Tucker Anthony Incorporated ("Tucker Anthony"), John Hancock
Distributors, Inc. and Sutro & Company, Inc. ("Sutro"), are broker dealers
(together, "Affiliated Brokers"). The Trusts' Boards of Trustees have
established that any portfolio transaction for the Funds may be executed through
Affiliated Brokers if, in the judgment of the Adviser or JH Advisers
International, as the case may be, the use of Affiliated Brokers is likely to
result in price and execution at least as favorable as those of other qualified
brokers, and if, in the transaction, Affiliated Brokers charges the Funds a
commission rate consistent with those charged by Affiliated Brokers to
comparable unaffiliated customers in similar transactions. Affiliated Brokers
will not participate in commissions in brokerage given by a Fund to other
brokers or dealers and neither will receive any reciprocal brokerage business
resulting therefrom. Over-the-counter purchases and sales are transacted
directly with principal market makers except in those cases in which better
prices and executions may be obtained elsewhere. Affiliated Brokers will not
receive any brokerage commissions for orders they execute for a Fund in the
over-the-counter market. A Fund will in no event effect principal transactions
with Affiliated Brokers in the over-the-counter securities in which Affiliated
Brokers makes a market.
Approximately 0.5% of Freedom Investment Trust's aggregate dollar
amount of transactions involving the payment of commissions were effected
through Tucker Anthony for the fiscal year ended October 31, 1993. During the
fiscal year ended October 31, 1993, Freedom Investment Trust paid $7,303 in
brokerage commissions to Tucker Anthony, $6,620 of which was attributable to
Gold & Government Trust and $683 of which was attributable to Regional Bank
Fund. Commissions paid to Tucker Anthony represent approximately 3.5% of the
total brokerage commissions paid by Freedom Investment Trust for the fiscal year
ended October 31, 1993. During the fiscal year ended October 31, 1994, Freedom
Investment Trust paid $3,962 in brokerage commissions to Tucker Anthony, $1,750
of which was attributable to Gold & Government Fund. Commissions paid to Tucker
Anthony represent approximately 0.5% of the total brokerage commissions paid by
Freedom Investment Trust for the fiscal year ended October
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<PAGE>
31, 1994. Approximately 2% of Freedom Investment Trust's aggregate dollar amount
of transactions involving the payment of commissions were effected through
Tucker Anthony for the fiscal year ended October 31, 1994. During the fiscal
year ended October 31, 1995, Freedom Investment Trust paid $2,800 in brokerage
commissions to Tucker Anthony which was attributable to Regional Bank Fund.
Commissions paid to Tucker Anthony represent less than 1% of the total brokerage
commissions paid by Freedom Investment Trust for the fiscal year ended October
31, 1995.
During the fiscal periods ended October 31, 1993, 1994 and 1995 no
brokerage commissions were paid to Affiliated Brokers in connection with the
portfolio transactions of either the Global Fund or the Global Income Fund.
Other investment advisory clients advised by the Adviser or JH Advisers
International, as the case may be, may also invest in the same securities as a
Fund. When these clients buy or sell the same securities at substantially the
same time, the Adviser or JH Advisers International may average the transactions
as to price and allocate the amount of available investments in a manner which
the Adviser or JH Advisers International believes to be equitable to each
client, including the Funds. In some instances, this investment procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtainable for it. On the other hand, to the extent permitted by law,
the Adviser or JH Advisers International may aggregate the securities to be sold
as permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended October 31,
1995, Regional Bank paid $159,705, Sovereign Achievers paid $36,176, Gold &
Government paid $16,150, Global paid $4,704 and Special Opportunities paid
$70,270.
DISTRIBUTIONS
Government Fund, Managed Tax-Exempt Fund and Global Income Fund declare
dividends from net investment income daily and pay dividends monthly.
Distribution of net long-term capital gains, if any, recognized on other
portfolio investments for the fiscal year, which ends October 31, will be made
at least annually.
Quarterly each shareholder of Government Fund, Managed Tax-Exempt Fund
and Global Income Fund will receive a statement setting forth the amount of the
monthly or daily dividends, as the case may be, paid that month from net
investment income for the preceding period. If any of such monthly or daily
dividends were made from sources other than (i) net income for the current or
preceding fiscal year, or accumulated undistributed net income, or both (not
including in either case profits or losses from the sale of securities or other
assets) or (ii) accumulated
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<PAGE>
undistributed net profits from the sale of securities or other assets (in each
case determined in accordance with generally accepted accounting principles),
such statement will indicate what portion of the distribution per share was made
from the sources referred to in (i) and (ii) above and from paid-in surplus or
other capital sources.
A shareholder of Government Fund, Managed Tax-Exempt Fund and/or Global
Income Fund will not be credited with a monthly or daily dividend, as the case
may be, until payment for shares purchased is received by the Funds' transfer
agent. Dividends normally will be paid in the form of additional full and
fractional shares at the net asset value determined on the payment date, unless
the shareholder elects to receive dividends in cash as described in the
respective Prospectus. If a shareholder redeems the entire value of his account
in any of these Funds, the amount of dividends declared but unpaid on his shares
through the date preceding the date of redemption will be paid on the next
succeeding dividend payment date.
Gold & Government Fund and Regional Bank Fund. Each Fund will
distribute net short-term capital gains, if any, quarterly, and net long-term
capital gains, if any, at least annually after the close of their fiscal year
(October 31). Sovereign Achievers Fund will distribute net short-term capital
gains, if any, semi-annually, and net long-term capital gains, if any, at least
annually after the close of their fiscal year (October 31).
MANAGED TAX-EXEMPT FUND. Dividends from net investment income are
declared daily and paid monthly. You will not be credited with a daily dividend
or become a shareholder until payment for shares of a Fund is received by Fund
Services, the Funds' transfer agent. The net investment income of the Fund for
dividend purposes consists of interest earned on portfolio securities, less
expenses, in each case computed since the most recent determination of the net
asset value. If you redeem the entire value of your account in a Fund, you will
receive a separate amount by check or wire representing all dividends declared
but unpaid, in addition to the net asset value of the shares redeemed. The Funds
will distribute net realized short-term capital gains, if any, quarterly and the
Fund will distribute net realized long-term capital gains, if any, at least
annually after the close of our fiscal year (October 31).
Certain realized gains or losses on the sale or retirement of
international bonds held by the Global Income Fund, to the extent attributable
to fluctuations in currency exchange rates, as well as certain other gains or
losses attributable to exchange rate fluctuations, must be treated as ordinary
income or loss for federal income tax purposes. Such income or loss may increase
or decrease (or possibly eliminate) the Fund's investment income available for
distribution. If, under rules governing the tax treatment of foreign currency
gains and losses, the Fund's investment income available for distribution is
decreased or eliminated, all or a portion of the dividends declared by the Fund
may be treated for federal income tax purposes as a return of capital or, in
some circumstances, as capital gain. Your tax basis in your Global Income Fund
shares will be reduced to the extent that an amount distributed to you is
treated as a return of capital and distributions after your basis has been
reduced on zero will generally be treated as capital gains.
The per share dividends on the Class B shares will be lower than the
per share dividends on the Class A shares of the Funds as a result of the higher
distribution fee applicable with respect to the Class B shares.
74
<PAGE>
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation ("Investor Services"), P.O.
Box 9116, Boston, MA 02205-9116 a wholly-owned indirect subsidiary of the Life
Company is the transfer and dividend paying agent for the Funds. The Gold &
Government Fund, Regional Bank Fund, Sovereign Achievers Fund and Global Fund
pays Investor Services an annual fee of $16.00 for each Class A shareholder and
of $18.50 for each Class B shareholder. The Government Fund and Global Income
Fund pay Investor Services an annual fee of $20.00 for each Class A shareholder
and $22.50 for each Class B shareholder. The Managed Tax Exempt Fund pays
Investor Services an annual fee of $19.00 for each Class A shareholder and
$21.50 for each Class B shareholder. Each Fund also pays certain out-of-pocket
expenses and these expenses are aggregated and charged to each Fund and
allocated to each class on the basis of the relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Funds are held pursuant to a custodian
agreement between the Trust and Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts 02110. Under the custodian agreement, Investors
Bank & Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Funds are Price Waterhouse LLP, 160
Federal Street, Boston, Massachusetts, 02110. Price Waterhouse LLP audits and
renders an opinion on each Fund's annual financial statements and reviews each
Fund's annual Federal income tax return.
75
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS*
Moody's Bond ratings
- --------------------
Bonds. "Bonds which are rated 'Aaa' are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most likely to impair
the fundamentally strong position of such issues.
"Bonds which are rated 'Aa' are judged to be of high quality by all standards.
Together with the 'Aaa' group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities or fluctuation of
protective elements may be of grater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in 'Aaa'
securities . "Bonds which are rated 'A' possess many favorable investment
attributes and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
"Bonds which are rated 'Baa' are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Bonds which are rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position,
characterizes bonds in this class.
"Bonds which are rated 'B' generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue. Should
no rating be assigned, the reason may be one of the following: (i) an
application for rating was not received or accepted; (ii) the issue or issuer
belongs to a group of securities that are not rated as a matter of policy; (iii)
there is a lack of essential data pertaining to the issue or issuer; or (iv) the
issue was privately placed, in which case the rating is not published in Moody's
publications.
- ------------
*As described by the rating companies themselves.
76
<PAGE>
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Standard & Poor's Bond ratings
- ------------------------------
"AAA. Debt rated 'AAA' has the highest rating by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
"AA. Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
"A. Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB. Debt rated 'BBB' is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Debt rated "BB," OR "B," is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and pay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major risk exposures to adverse conditions.
UNRATED. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper Ratings
- --------------------------------
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"P-1 -- "Prime-1" indicates the highest quality repayment capacity of the rated
issues.
"P-2 -- "Prime-2" indicates that the issuer has a strong capacity for repayment
of short-term promissory obligations. Earnings trends and coverage ratios, while
sound, will be more subjective to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained."
77
<PAGE>
Standard & Poor's Commercial Paper Ratings
- ------------------------------------------
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Standard & Poor's two highest commercial paper rating categories
are as follows:
"A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
"A-2 -- Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1."
78
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON OCTOBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $94,227,986)............................ $114,555,783
Bonds (cost - $450,000)....................................... 387,000
Joint repurchase agreement (cost - $1,243,000)................ 1,243,000
------------
116,185,783
Cash........................................................... 28,955
Foreign currency, at value (cost - $17,415).................... 17,436
Receivable for shares sold..................................... 29,674
Receivable for investments sold................................ 1,967,069
Interest receivable............................................ 2,275
Dividends receivable........................................... 109,329
Foreign tax receivable......................................... 127,128
Prepaid expenses............................................... 4,884
------------
Total Assets................................. 118,472,533
------------------------------------------------------------
LIABILITIES:
Payable for shares repurchased................................. 41,678
Foreign tax payable............................................ 44,074
Payable to John Hancock Advisers, Inc. and
affiliates - Note B........................................... 140,923
Accounts payable and accrued expenses.......................... 78,536
------------
Total Liabilities............................ 305,211
------------------------------------------------------------
NET ASSETS:
Capital paid-in................................................ 89,749,452
Accumulated net realized gain on investments and
foreign currency transactions................................. 8,178,513
Net unrealized appreciation of investments and
foreign currency transactions................................. 20,239,357
------------
Net Assets................................... $118,167,322
============================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $93,597,600/7,386,947................................ $ 12.67
==============================================================================
Class B - $24,569,722/1,987,986................................ $ 12.36
==============================================================================
MAXIMUM OFFERING PRICE PER SHARE *
Class A - ($12.67 x 105.26%)................................... $ 13.34
==============================================================================
<FN>
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
** All Class C shares were redeemed on March 31, 1995.
</FN>
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
Year ended October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding
taxes of $238,137)............................................ $ 1,857,264
Interest....................................................... 144,294
-----------
2,001,558
-----------
Expenses:
Investment management fee - Note B............................ 1,169,884
Distribution/service fee - Note B
Class A..................................................... 280,610
Class B..................................................... 270,868
Transfer agent fee - Note B................................... 429,087
Custodian fee................................................. 177,008
Auditing fee.................................................. 35,000
Registration and filing fees.................................. 32,872
Printing...................................................... 30,301
Trustees' fees................................................ 23,924
Miscellaneous................................................. 5,322
Legal fees.................................................... 1,997
-----------
Total Expenses............................... 2,456,873
------------------------------------------------------------
Net Investment Loss.......................... (455,315)
------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments sold.......................... 8,116,459
Net realized loss on foreign currency transactions............. (408,732)
Change in net unrealized appreciation/depreciation
of investments................................................ (8,546,361)
Change in net unrealized appreciation/depreciation of
foreign currency transactions................................. 104,979
-----------
Net Realized and Unrealized
Loss on Investments and
Foreign Currency Transactions................ (733,655)
------------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations.................... $(1,188,970)
============================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------
INCREASE (DECREASE) IN NET ASSETS: 1995 1994
------------ ------------
<S> <C> <C>
FROM OPERATIONS:
Net investment loss.................................................................. $ (455,315) $ (804,218)
Net realized gain on investments sold and foreign currency transactions.............. 7,707,727 13,362,429
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions.............................................................. (8,441,382) (2,685,194)
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations..................... (1,188,970) 9,873,017
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gain on investments sold and foreign
currency transactions
Class A - ($1.3307 and $1.3069 per share, respectively)............................. (9,441,512) (8,324,136)
Class B - ($1.3307 and $1.3069 per share, respectively)............................. (3,043,184) (1,992,338)
Class C** - ($1.3307 and $1.3069 per share, respectively)........................... (73,482) (39,722)
------------ ------------
Total Distributions to Shareholders............................................... (12,558,178) (10,356,196)
------------ ------------
FROM FUND SHARE TRANSACTIONS-- NET*.................................................... (1,632,583) 23,496,918
------------ ------------
NET ASSETS:
Beginning of period.................................................................. 133,547,053 110,533,314
------------ ------------
End of period ....................................................................... $118,167,322 $133,547,053
============ ============
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------
1995 1994
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold...................................................... 881,102 $ 10,949,764 1,101,077 $ 15,133,189
Shares issued to shareholders in reinvestment of distributions... 781,667 9,168,928 600,746 8,080,042
---------- ------------ ---------- ------------
1,662,769 20,118,692 1,701,823 23,213,231
Less shares repurchased.......................................... (1,407,258) (17,445,162) (917,934) (12,478,014)
---------- ------------ ---------- ------------
Net increase..................................................... 255,511 $ 2,673,530 783,889 $ 10,735,217
========== ============ ========== ============
CLASS B
Shares sold...................................................... 546,939 $ 6,634,570 1,382,515 $ 18,646,101
Shares issued to shareholders in reinvestment of distributions... 239,739 2,759,391 126,915 1,687,968
---------- ------------ ---------- ------------
786,678 9,393,961 1,509,430 20,334,069
Less shares repurchased.......................................... (1,082,302) (13,070,250) (590,659) (7,901,948)
---------- ------------ ---------- ------------
Net increase (decrease).......................................... (295,624) $ (3,676,289) 918,771 $ 12,432,121
========== ============ ========== ============
CLASS C**
Shares sold...................................................... 10,813 $ 130,313 21,769 $ 293,927
Shares issued to shareholders in reinvestment of distributions... 6,201 73,482 2,938 39,640
---------- ------------ ---------- ------------
17,014 203,795 24,707 333,567
Less shares repurchased.......................................... (69,733) (833,619) (303) (3,987)
---------- ------------ ---------- ------------
Net increase (decrease).......................................... (52,719) $ (629,824) 24,404 $ 329,580
========== ============ ========== ============
<FN>
** All Class C shares were redeemed on March 31, 1995.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the period indicated, investment returns, key ratios
and supplemental data are listed as follows:
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CLASS A (a)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................ $ 14.16 $ 14.30 $ 10.55 $ 11.31
------- -------- ------- -------
Net Investment Loss......................................... (0.03)(b) (0.07)(b) (0.10)(b) (0.04)(b)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions......................... (0.13) 1.24 3.85 (0.72)
------- -------- ------- -------
Total from Investment Operations.......................... (0.16) 1.17 3.75 (0.76)
------- -------- ------- -------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold
and Foreign Currency Transactions......................... (1.33) (1.31) -- --
------- -------- ------- -------
Net Asset Value, End of Period.............................. $ 12.67 $ 14.16 $ 14.30 $ 10.55
======= ======== ======= =======
Total Investment Return at Net Asset Value (d).............. (0.37%) 8.64% 35.55% (6.72%)
RATIO AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................... $93,597 $100,973 $90,787 $76,980
Ratio of Expenses to Average Net Assets..................... 1.87% 1.98% 2.12% 2.47%*
Ratio of Net Investment Loss to Average Net Assets.......... (0.23%) (0.54%) (0.86%) (0.60%)*
Portfolio Turnover Rate..................................... 60% 61% 108% .69%
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................ $ 13.93 $ 14.17 $ 10.50 $ 10.92 $ 9.94
------- -------- ------- ------- -------
Net Investment Loss......................................... (0.11)(b) (0.15)(b) (0.15)(b) (0.12)(b) (0.01)(b)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions......................... (0.13) 1.22 3.82 (0.30) 1.35
------- -------- ------- ------- -------
Total from Investment Operations.......................... (0.24) 1.07 3.67 (0.42) 1.34
------- -------- ------- ------- -------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold
and Foreign Currency Transactions......................... (1.33) (1.31) -- -- (0.36)
------- -------- ------- ------- -------
Net Asset Value, End of Period.............................. $ 12.36 $ 13.93 $ 14.17 $ 10.50 $ 10.92
======= ======== ======= ======= =======
Total Investment Return at Net Asset Value (d).............. (1.01%) 7.97% 34.95% (3.85%) 14.04%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................... $24,570 $ 31,822 $19,340 $11,475 $28,686
Ratio of Expenses to Average Net Assets..................... 2.57% 2.59% 2.49% 2.68% 2.60%
Ratio of Net Investment Loss to Average Net Assets.......... (0.89%) (1.12%) (1.25%) (1.03%) (0.12%)
Portfolio Turnover Rate..................................... 60% 61% 108% 69% 106%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- --------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PERIOD ENDED YEAR ENDED OCTOBER 31,
MARCH 31, 1995 ----------------------
(UNAUDITED) 1994 1993
------ ------ ------
<S> <C> <C> <C>
CLASS C (c)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period................................................. $14.27 $14.34 $11.75
------ ------ ------
Net Investment Loss.................................................................. -- -- (0.02)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
Transactions....................................................................... (0.97) 1.24 2.61
------ ------ ------
Total from Investment Operations................................................... (0.97) 1.24 2.59
------ ------ ------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold and Foreign Currency
Transactions....................................................................... (1.33) (1.31) --
------ ------ ------
Net Asset Value, End of Period....................................................... $11.97 $14.27 $14.34
====== ====== ======
Total Investment Return at Net Asset Value (d)....................................... (6.70%) 9.15% 22.04%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)............................................ $ 795 $ 752 $ 406
Ratio of Expenses to Average Net Assets.............................................. 1.37%* 1.42% 1.43%*
Ratio of Net Investment Income (Loss) to Average Net Assets.......................... 0.06%* 0.03% ( 0.35%)*
Portfolio Turnover Rate.............................................................. 60%(e) 61% 108%
<FN>
* On an annualized basis.
(a) Class A shares commenced operations on January 3, 1992.
(b) On average month end shares outstanding.
(c) Class C shares commenced operations on May 7, 1993. Net asset value and net assets at the end of the period reflect amounts
prior to the redemption of all shares on March 31, 1995.
(d) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(e) For the year ended October 31, 1995.
</FN>
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DISTRIBUTIONS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW
THE FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
GLOBAL FUND ON OCTOBER 31, 1995. IT'S DIVIDED INTO THREE MAIN CATEGORIES: COMMON
STOCKS, BONDS AND SHORT-TERM INVESTMENTS. COMMON STOCKS AND BONDS ARE FURTHER
BROKEN DOWN BY COUNTRY. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE FUND'S
"CASH" POSITION, ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
October 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
COMMON STOCKS
AUSTRALIA (7.08%)
Broken Hill Proprietary Co., Ltd.
(Diversified Operations)..................... 131,500 $ 1,780,980
Newcrest Mining Ltd.
(Gold Mining & Products)..................... 250,000* 1,028,336
News Corp. Ltd. (The) (Publishing)............ 345,000 1,739,717
Renison Goldfields Consolidated Ltd.
(Metal Processing & Products)................ 323,900 1,361,920
Western Mining Corp. Holdings Ltd.
(Metal Processing & Products)................ 383,750 2,461,285
------------
8,372,238
------------
CHILE (1.24%)
Santa Isabel S.A., American Depositary
Receipts (ADR) (Retail)**.................... 64,600* 1,461,575
------------
DENMARK (1.10%)
Tele Danmark AS (Telecommunications).......... 25,000* 1,303,990
------------
FINLAND (2.46%)
Metra Oy (Machinery).......................... 34,000* 1,472,832
Nokia AB (Telecommunications)................. 25,000* 1,430,219
------------
2,903,051
------------
FRANCE (2.71%)
LVMH Moet Henessey Louis Vuitton
(Beverages).................................. 9,250 1,840,504
Societe Nationale Elf Aquitaine
(Oil & Gas).................................. 20,000 1,361,935
------------
3,202,439
------------
GERMANY (3.38%)
Bayer AG (Chemicals).......................... 4,000 1,063,939
Bayerische Motoren Werke AG
(Automobile/Trucks).......................... 2,400* 1,287,298
Mannesmann AG
(Diversified Operations)..................... 5,000* 1,645,709
------------
3,996,946
------------
HONG KONG (6.05%)
Cheung Kong (Holdings) Ltd. (Real Estate)..... 250,000 1,409,780
CITIC Pacific Ltd. (Diversified Operations)... 500,000 1,561,752
HSBC Holdings Ltd. (Banks).................... 100,200 1,457,959
Swire Pacific Ltd. (Diversified Operations)... 200,000 1,500,317
Wharf Holdings Ltd.
(Diversified Operations)..................... 360,000* 1,215,257
------------
7,145,065
------------
INDONESIA (0.71%)
PT Tambang Timah, Global Depositary
Receipts (Metal Process & Products)**........ 70,000* 841,750
------------
ITALY (2.35%)
Banca Commerciale Italiana S.P.A.
(Banks)...................................... 480,000* 935,006
Olivetti & C. S.P.A. (Computers)**............ 1,450,000* 1,082,497
Telecom Italia S.P.A.
(Telecommunications)......................... 500,000* 759,097
------------
2,776,600
------------
JAPAN (11.66%)
Fanuc Ltd. (Machinery)........................ 35,000 1,515,714
Fujisawa Pharmaceutical Co., Ltd. (Drugs)..... 130,000* 1,265,751
Itochu Corp. (Diversified Operations)......... 300,000 1,777,213
Jusco Co., Ltd (Retail)....................... 70,000 1,642,309
Matsushita Electric Industrial Co., Ltd.
(Electronics)................................ 120,000 1,700,963
Nippon Television Network Corp.
(Broadcasting)............................... 3,600* 858,693
Oki Electric Industry Co., Ltd.
(Telecommunications)**....................... 110,000* 1,018,329
Sanwa Bank Ltd. (Banks)....................... 60,000* 1,020,578
Sony Corp. (Electronics)...................... 32,000 1,438,975
TDK Corp. (Electronics)....................... 30,000* 1,545,530
------------
13,784,055
------------
LUXEMBOURG (1.12%)
Scandinavian Broadcasting System (ADR)
(Broadcasting)**............................. 55,000 1,320,000
------------
MALAYSIA (1.24%)
Resorts World Berhad
(Leisure & Recreation)....................... 300,000 1,463,991
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
MEXICO (0.47%)
Telefonos de Mexico S.A. de C.V. (ADR)
(Telecommunications)......................... 20,000 $ 550,000
------------
NETHERLANDS (2.74%)
Gucci Group N.V. (Shoes & Related
Apparel)**................................... 20,000* 600,000
Koninklijke P.T.T. Nederland
(Telecommunications)......................... 46,800 1,646,216
Polygram N.V. ADR (Audio/Video)............... 16,000 992,000
------------
3,238,216
------------
NEW ZEALAND (2.47%)
Carter Holt Harvey Ltd. (Paper)............... 700,000 1,672,718
Telecom Corporation of New Zealand
(Telecommunications)......................... 300,000 1,245,627
------------
2,918,345
------------
NORWAY (1.97%)
Orkla AS (Diversified Operations)............. 45,000* 2,326,963
------------
PAKISTAN (0.18%)
Crescent Textile Mills (Textile)**............ 283,676 213,488
------------
SINGAPORE (2.95%)
Hongkong Land Holdings Ltd.
(Real Estate)................................ 500,000* 900,000
Jardine Matheson Holdings Ltd.
(Diversified Operations)..................... 130,000* 793,000
Keppel Corp.
(Diversified Operations)..................... 218,000 1,789,667
------------
3,482,667
------------
SPAIN (1.75%)
Fomento de Construcciones y Contratas
SA (Construction)............................ 6,000 423,743
Repsol SA (Oil & Gas)......................... 55,000 1,642,497
------------
2,066,240
------------
SWEDEN (5.22%)
Atlas Copco AB (Machinery).................... 127,500 1,929,607
Hennes & Mauritz AB (Retail).................. 19,500* 1,274,433
Investor AB (Diversified Operations).......... 37,500* 1,335,534
Telefonaktiebolaget (LM) Ericsson
(Telecommunications)......................... 77,000 1,634,943
------------
6,174,517
------------
SWITZERLAND (1.47%)
Ciba-Geigy AG (Drugs)......................... 2,000 1,731,701
------------
THAILAND (1.88%)
Bangkok Bank (Banks).......................... 150,000 1,549,771
Italian-Thai Development Public Co., Ltd.
(Construction)............................... 60,000* 677,131
------------
2,226,902
------------
UNITED KINGDOM (7.33%)
Carlton Communications PLC
(Broadcasting)............................... 110,000 1,675,652
Dixons Group PLC (Retail)..................... 300,000* 1,816,601
Glaxo Wellcome PLC (Drugs).................... 140,000* 1,888,063
Reed International PLC (Publishing)........... 100,000* 1,520,949
Thorn EMI PLC (Leisure & Recreation).......... 75,500 1,758,285
------------
8,659,550
------------
UNITED STATES (27.41%)
Adaptec, Inc. (Computers)**................... 25,000 1,112,500
America Online, Inc. (Computers)**............ 22,000* 1,760,000
Bell Sports Corp. (Leisure & Recreation)**.... 47,000 440,625
BMC Software, Inc. (Computers)**.............. 25,000* 890,625
Capital Cities/ABC, Inc. (Broadcasting)....... 10,000* 1,186,250
cisco Systems, Inc. (Computers)**............. 24,000 1,860,000
Cobra Golf, Inc. (Leisure & Recreation)**..... 15,000 390,000
Coca-Cola Co. (The) (Beverages)............... 40,000 2,875,000
CUC International Inc. (Retail)**............. 50,625 1,752,891
Disney (Walt) Co. (The)
(Leisure & Recreation)....................... 21,600 1,244,700
Home Depot, Inc. (The) (Retail)............... 35,000 1,303,750
Intel Corp. (Electronics)..................... 15,000* 1,048,125
Intuit, Inc. (Computers)**.................... 10,000* 720,000
Johnson & Johnson (Drugs)..................... 30,000 2,445,000
Micron Technology, Inc. (Electronics)......... 12,500* 882,812
Nabisco Holdings Corp. (Class A) (Food)....... 25,000* 671,875
New World Communications Group, Inc.
(Broadcasting)**............................. 12,500* 206,250
Nine West Group, Inc. (Shoes &
Related Apparel)**........................... 30,000* 1,335,000
Softkey International, Inc. (Computers)**..... 20,000* 630,000
Tommy Hilfiger Corp. (Retail)**............... 39,400 1,502,125
Triton Energy Corp. (Oil & Gas)**............. 15,000* 699,375
U.S. Order, Inc. (Telecommunications)**....... 50,000* 750,000
UUNET Technologies, Inc. (Computers)**........ 20,000* 1,215,000
Viacom, Inc. (Class B) (Broadcasting)**....... 30,307 1,515,350
Viking Office Products, Inc. (Office
Equipment & Supplies)**...................... 23,000 1,023,500
Wal-Mart Stores, Inc. (Retail)................ 38,000 821,750
WorldCom, Inc. (Telecommunications)**......... 64,766* 2,112,991
------------
32,395,494
------------
TOTAL COMMON STOCKS
(Cost $94,227,986) (96.94%) 114,555,783
------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- ---- --------------- -----
<S> <C> <C> <C>
BONDS
PERU (0.33%)
Tele 2000 S.A. (Telecommunications)
Conv. Note 04-14-97................ 9.750% $ 450 $ 387,000
------------
TOTAL BONDS
(Cost $450,000) (0.33%) 387,000
----- ------------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (1.05%)
Investment in a joint repurchase
agreement transaction with SBC
Capital Markets Inc. -
Dated 10-31-95,
Due 11-01-95 (secured by
U.S. Treasury Bond, 8.75%
Due 05-15-17, and by
U.S. Treasury Note, 5.75%
Due 09-30-97) Note A............... 5.890 1,243 1,243,000
------------
TOTAL SHORT-TERM INVESTMENTS (1.05%) 1,243,000
------ ------------
TOTAL INVESTMENTS (98.32%) $116,185,783
====== ============
<FN>
* Securities, other than short-term investments, newly added to the portfolio
during the year ended October 31, 1995.
** Non-income producing security.
</FN>
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
INDUSTRY DIVERSIFICATION (UNAUDITED)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE FUND PRIMARILY INVESTS IN SECURITIES ISSUED BY COMPANIES OF OTHER COUNTRIES.
THE PERFORMANCE OF THE FUND IS CLOSELY TIED TO THE ECONOMIC CONDITIONS WITHIN
THE COUNTRIES IT INVESTS. THE CONCENTRATION OF INVESTMENTS BY COUNTRY FOR
INDIVIDUAL SECURITIES HELD BY THE FUND IS SHOWN IN THE SCHEDULE OF INVESTMENTS.
IN ADDITION, THE CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY VARIOUS
INDUSTRY GROUPS. THE TABLE BELOW SHOWS THE PERCENTAGES OF THE FUND'S INVESTMENTS
AT OCTOBER 31, 1995 ASSIGNED TO THE VARIOUS INVESTMENT CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE OF SECURITIES AS A
INVESTMENT CATEGORIES % OF FUNDS NET ASSETS
<S> <C>
Audio/Video ................................................ 0.84%
Automobile/Trucks .......................................... 1.09
Banks ...................................................... 4.20
Beverages .................................................. 3.99
Broadcasting ............................................... 5.72
Chemicals .................................................. 0.90
Computers .................................................. 7.85
Construction ............................................... 0.93
Diversified Operations ..................................... 13.31
Drugs ...................................................... 6.20
Electronics ................................................ 5.60
Food ....................................................... 0.57
Gold Mining & Products ..................................... 0.87
Leisure & Recreation ....................................... 4.48
Machinery .................................................. 4.16
Metal Processing & Products ................................ 3.95
Office Equipment & Supplies ................................ 0.87
Oil & Gas .................................................. 3.13
Paper ...................................................... 1.42
Publishing ................................................. 2.76
Real Estate ................................................ 1.95
Retail ..................................................... 9.80
Shoes & Related Apparel .................................... 1.64
Telecommunications ......................................... 9.81
Textile .................................................... 0.18
Utilities .................................................. 1.05
Short-Term Investments ..................................... 1.05
-----
TOTAL INVESTMENTS 98.32%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust II (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of five series portfolios: John Hancock Global Fund (the "Fund"), John Hancock
Special Opportunities Fund, John Hancock Global Income Fund, John Hancock
Short-Term Strategic Income Fund and John Hancock International Fund. Prior to
January 1, 1995, the Fund was known as John Hancock Freedom Global Fund, John
Hancock Global Income Fund was known as John Hancock Freedom Global Income Fund
and John Hancock International Fund was known as John Hancock Freedom
International Fund.
The Trustees have authorized the issuance of two classes of shares of the
Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemption, dividends, and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission. Shareholders of a class which bears
distribution/service expenses under the terms of a distribution plan, have
exclusive voting rights regarding such distribution plan. Class C shares were
outstanding during the period from November 1, 1994 through March 31, 1995. The
Trustees abolished Class C shares as of May 1, 1995. Significant accounting
policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt instruments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, net currency exchange gains and
losses from sales of foreign debt securities must be treated as ordinary income
even though such items are gains and losses for accounting purposes.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will be calculated in the same manner, at the
same time and will be in the same amount, except for the effect of expenses that
may be applied differently to each class as explained previously.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that offset by the currency amount of the underlying
transaction.
At October 31, 1995, there were no open forward foreign currency exchange
contracts.
NOTE B --
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
The Adviser is solely responsible for advising the Fund with respect to
investments in the United States and Canada. The Fund and the Adviser also have
a sub-investment management contract with John Hancock Advisers International
Limited (the "Sub-Adviser"), a wholly-owned subsidiary of the Adviser, under
which the Sub-Adviser, subject to the review of the Trustees and overall
supervision of the Adviser, provides the Fund with investment management
services andadvice with respect to the portion of the Fund's assets invested in
countries other than the United States and Canada.
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to the sum of: (a) 1.00% of the first $100,000,000 of the
Fund's average daily net asset value, (b)
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
0.80% of the next $200,000,000, (c) 0.75% of the next $200,000,000 and (d)
0.625% of the Fund's average daily net asset value in excess of $500,000,000.
The Adviser pays the Sub-Adviser a fee equivalent, on an annual basis to the sum
of (a) 0.70% of the first $200,000,000 of the Fund's average daily net asset
value and (b) 0.6375% of the Fund's average daily net asset value in excess of
$200,000,000. The Fund is not responsible for the payment of the Sub-Adviser's
fee.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess, and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-Distributors for
shares of the Fund. Prior to January 1, 1995 JH Funds was known as John Hancock
Broker Distribution Services, Inc. For the period ended October 31, 1995, net
sales charges received with regard to sales of Class A shares amounted to
$132,895. Out of this amount, $19,426 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $31,246 was paid
as sales commissions to unrelated broker-dealers and $82,223 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro &
Co., ("Sutro"), all of which are broker dealers. The Adviser's indirect parent,
John Hancock Mutual Life Insurance Company, is the indirect sole shareholder of
Distributors and John Hancock Freedom Securities Corporation and its
subsidiaries which include FDC, Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from CDSC are paid to JH Funds and are used in whole or in part to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended October 31,
1995, contingent deferred sales charges paid to JH Funds amounted to $61,845.
In addition, to reimburse the Co-Distributors for the services they provide
as distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to the
Co-Distributors for distribution and service expenses, at an annual rate not
exceed 0.30% of Class A average daily net assets and 1.00% of Class B average
daily net assets to reimburse the Co-Distributors for their distribution/service
costs. Up to a maximum of 0.25% of such payments may be service fees as defined
by the amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances. In order to
comply with this rule, the 12b-1 fee was decreased on Class B shares to 0.95%
effective August 1, 1995.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc.
Prior to January 1, 1995, the Fund paid Investor Services a monthly
transfer agent fee equivalent, on an annual basis, to 0.36% and 0.30% of the
average daily net asset value of Class A and Class B shares of the Fund,
respectively, plus out-of-pocket expenses incurred by Fund Services on behalf of
the Fund. For the period November 1, 1994 and through March 31, 1995, Class C
shares paid a monthly transfer agent fee equivalent, on an annual basis, to
0.10% of the average daily net asset value of Class C shares plus out-of-pocket
expenses incurred by Fund Services. All Class C shares were redeemed on March
31, 1995. For the period January 1, 1995 and through September 30, 1995 Class A
and Class B shares paid transfer agent fees based on the number of shareholder
accounts and certain out-of-pocket
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Fund
expenses. For the eleven months ended September 30, 1995 the transfer agent
expense, calculated as a class specific expense was $315,372 for Class A and
$90,903 for Class B, respectively. Effective October 1, 1995 transfer agent
expense is being treated as a fund expense based on the number of shareholder
accounts in the Fund and certain out-of-pocket expenses.
Edward J. Boudreau, Jr. is a director and officer of the Adviser and its
affiliates as well as a Trustee of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. Effective with the fees paid for 1995, the
unaffiliated Trustees may elect to defer for tax purposes their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund will make investments into other John Hancock Funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover the
Fund's deferred compensation liability will be recorded on the Fund's books as
an other asset. The deferred compensation liability and the investment to cover
the liability will be marked to market on a periodic basis to reflect income
earned by the investment.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
securities, during the period ended October 31, 1995 aggregated $72,187,511 and
$85,985,846, respectively. There were no purchases or sales of obligations of
the U.S. government and its agencies during the period ended October 31, 1995.
The cost of investments owned at October 31, 1995 (including the joint
repurchase agreement) for Federal income tax purposes was $95,920,986. Gross
unrealized appreciation and depreciation of investments aggregated $25,830,467
and $5,565,670, respectively, resulting in net unrealized appreciation of
$20,264,797.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1995, the Fund reclassified amounts to reflect
a decrease in accumulated net investment loss of $455,315, an increase in
accumulated net realized gain on investments of $470,656 and a decrease in
capital paid-in of $925,971. This represents the amount necessary to report
these balances on a tax basis, excluding certain temporary differences, as of
October 31, 1995. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net asset value of
the Fund, are primarily attributable to the treatment of net operating losses in
the computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principle.
19
<PAGE>
John Hancock Funds - Global Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Global Fund and the Trustees of Freedom
Investment Trust II
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of John Hancock Global Fund (the
"Fund") (formerly known as John Hancock Freedom Global Fund) (a portfolio of
Freedom Investment Trust II) at October 31, 1995, and the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at October
31, 1995 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 18, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during the fiscal year ended October
31, 1995.
The Fund designated distributions to shareholders of $9,813,715 as a
long-term capital gain dividend. These amounts were reported 1994 U.S. Treasury
Department Form 1099-DIV in January 1995 representing their proportionate share.
It is anticipated that there will be a distribution from net realized gains from
sales of securities to shareholders of record on December 22, 1995, and payable
on December 29, 1995. Shareholders will receive a 1995 U.S. Treasury Department
Form 1099-DIV in January 1996 representing their proportionate share.
None of the distributions qualify for the dividends received deduction
available to corporations.
20
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Income Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON OCTOBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Bonds (cost - $94,928,370)........................................................................ $ 97,871,238
Options (premium paid - $100,400)................................................................. 61,440
Joint repurchase agreement (cost - $1,781,000).................................................... 1,781,000
------------
99,713,678
Cash............................................................................................... 1,255
Interest receivable................................................................................ 2,008,394
Foreign tax receivable............................................................................. 80,926
Other assets....................................................................................... 5,547
------------
Total Assets..................................................................... 101,809,800
===============================================================================================
LIABILITIES:
Payable for closed forward foreign currency exchange contracts - Note A............................ 553,791
Dividend payable................................................................................... 14,582
Payable for shares repurchased..................................................................... 37,393
Payable for open forward foreign currency exchange contracts - Note A.............................. 61,906
Payable to John Hancock Advisers, Inc. and affiliates - Note B..................................... 91,481
Accounts payable and accrued expenses.............................................................. 116,245
------------
Total Liabilities................................................................ 875,398
===============================================================================================
NET ASSETS:
Capital paid-in.................................................................................... 105,805,124
Accumulated net realized loss on investments, options, foreign currency transactions
and financial futures contracts.................................................................... ( 6,383,189)
Net unrealized appreciation of investments, options and foreign currency transactions.............. 2,859,361
Distributions in excess of net investment income................................................... ( 1,346,894)
------------
Net Assets....................................................................... $100,934,402
===============================================================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial interest outstanding - unlimited number of
shares authorized with no par value, respectively)
Class A - $35,334,449/3,797,761.................................................................... $ 9.30
=================================================================================================================
Class B - $65,599,953/7,050,732.................................................................... $ 9.30
=================================================================================================================
MAXIMUM OFFERING PRICE PER SHARE *
Class A - ($9.30 x 104.71%)........................................................................ $ 9.74
=================================================================================================================
</TABLE>
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Income Fund
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
STATEMENT OF OPERATIONS
Year ended October 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $50,188)............................................. $ 9,125,784
-----------
Expenses:
Distribution/service fee - Note B
Class A......................................................................................... 58,434
Class B......................................................................................... 917,508
Investment management fee - Note B................................................................ 840,527
Transfer agent fee - Note B....................................................................... 243,567
Auditing fee...................................................................................... 73,000
Custodian fee..................................................................................... 70,711
Trustees' fees.................................................................................... 26,685
Registration and filing fees...................................................................... 26,452
Printing.......................................................................................... 25,876
Miscellaneous..................................................................................... 9,211
-----------
Total Expenses................................................................... 2,291,971
-----------------------------------------------------------------------------------------------
Net Investment Income............................................................ 6,833,813
-----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY TRANSACTIONS
AND FINANCIAL FUTURES CONTRACTS
Net realized gain on investments sold.............................................................. 394,294
Net realized loss on foreign currency transactions................................................. ( 2,502,803)
Net realized loss on financial futures contracts................................................... (98,550)
Change in net unrealized appreciation/depreciation of investments.................................. 8,452,758
Change in net unrealized appreciation/depreciation of foreign currency transactions................ ( 368,758)
Change in net unrealized appreciation/depreciation of financial futures contracts.................. ( 211,785)
-----------
Net Realized and Unrealized Gain on Investments, Foreign Currency
Transactions and Financial Futures Contracts.................................... 5,665,156
-----------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations............................. $12,498,969
===============================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Income Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------
1995 1994
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income................................................................ $ 6,833,813 $ 10,542,529
Net realized loss on investments sold, foreign currency
transactions and financial futures contracts ....................................... ( 2,207,059) ( 8,918,471)
Change in net unrealized appreciation/depreciation of
investments, foreign currency transactions and financial futures contracts.......... 7,872,215 ( 6,180,526)
------------ ------------
Net Increase (Decrease)in Net Assets Resulting from Operations...................... 12,498,969 ( 4,556,468)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.5914 and $0.1140 per share, respectively)............................. ( 1,232,555) ( 133,439)
Class B - ($0.5322 and $0.0605 per share, respectively)............................. ( 5,493,085) ( 1,025,278)
Distributions from capital paid-in
Class A - ($0.0095 and $0.5200 per share, respectively)............................. ( 19,824) ( 607,771)
Class B - ($0.0086 and $0.5200 per share, respectively)............................. ( 88,349) ( 8,776,041)
------------ ------------
Total Distributions to Shareholders............................................... ( 6,833,813) ( 10,542,529)
------------ ------------
FROM FUND SHARE TRANSACTIONS--NET*.................................................... ( 28,335,863) ( 71,343,632)
------------ ------------
NET ASSETS:
Beginning of period.................................................................. 123,605,109 210,047,738
------------ ------------
End of period (including distributions in excess of net investment
income of ($1,346,894) and undistributed net investment income of
$506,675, respectively) ............................................................ $100,934,402 $123,605,109
============ ============
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
1995 1994
------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold......................................................... 3,261,257 $29,997,448 224,553 $ 2,054,490
Shares issued to shareholders in reinvestment of distributions...... 82,340 752,217 48,398 440,545
---------- ----------- ---------- ------------
3,343,597 30,749,665 272,951 2,495,035
Less shares repurchased............................................. ( 556,804) ( 5,095,717) ( 600,757) ( 5,483,405)
---------- ----------- ---------- ------------
Net increase (decrease)............................................. 2,786,793 $25,653,948 ( 327,806) ($ 2,988,370)
========== =========== ========== ============
CLASS B
Shares sold......................................................... 304,724 $ 2,763,541 912,315 $ 8,546,729
Shares issued to shareholders in reinvestment of distributions...... 306,687 2,775,841 520,773 4,747,762
---------- ----------- ---------- ------------
611,411 5,539,382 1,433,088 13,294,491
Less shares repurchased............................................. (6,520,105) ( 59,529,193) (8,973,138) ( 81,649,753)
---------- ----------- ---------- ------------
Net decrease........................................................ (5,908,694) ($53,989,811) (7,540,050) ($68,355,262)
========== =========== ========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Income Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
1995 1994 1993 1992(a) 1991
------- --------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ............................. $ 8.85 $ 9.62 $ 9.76 $ 10.57
------- --------- --------- ---------
Net Investment Income ............................................ 0.57** 0.64** 0.76 0.64
Net Realized and Unrealized Gain (Loss) on Investments, Options,
Financial Futures Contracts and Foreign Currency Transactions .. 0.48 ( 0.78) ( 0.10) ( 0.74)
------- --------- --------- ---------
Total from Investment Operations .............................. 1.05 ( 0.14) 0.66 ( 0.10)
------- --------- --------- ---------
Less Distributions:
Dividends from Net Investment Income ............................. ( 0.59) ( 0.11) ( 0.38) ( 0.71)
Distributions in Excess of Net Investment Income ................. -- -- ( 0.04) --
Distributions from Capital Paid-In ............................... ( 0.01) ( 0.52) ( 0.38) --
------- --------- --------- ---------
Total Distributions ........................................... ( 0.60) ( 0.63) ( 0.80) ( 0.71)
------- --------- --------- ---------
Net Asset Value, End of Period ................................... $ 9.30 $ 8.85 $ 9.62 $ 9.76
======= ========= ========= =========
Total Investment Return at Net Asset Value (b) ................... 12.25% ( 1.30%) 7.14% ( 0.88%)*
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ........................ $35,334 $ 8,949 $ 12,882 $ 12,880
Ratio of Expenses to Average Net Assets .......................... 1.48% 1.59% 1.46% 1.41%*
Ratio of Net Investment Income to Average Net Assets ............. 6.43% 7.00% 7.89% 7.64%*
Portfolio Turnover Rate .......................................... 263% 174% 363% 476%
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.............................. $ 8.85 $ 9.62 $ 9.74 $ 10.44 $ 10.38
------- --------- --------- --------- --------
Net Investment Income............................................. 0.55** 0.59** 0.72 0.78 0.90
Net Realized and Unrealized Gain (Loss) on Investments, Options,
Financial Futures Contracts and Foreign Currency Transactions... 0.44 ( 0.78) ( 0.09) ( 0.59) 0.13
------- --------- --------- --------- --------
Total from Investment Operations............................... 0.99 ( 0.19) 0.63 0.19 1.03
------- --------- --------- --------- --------
Less Distributions:
Dividends from Net Investment Income.............................. ( 0.53) ( 0.06) ( 0.33) ( 0.89) ( 0.73)
Distributions from Net Realized Gain on Investments............... -- -- -- -- ( 0.24)
Distributions in Excess of Net Investment Income.................. -- -- ( 0.04) -- --
Distributions from Capital Paid-In................................ ( 0.01) ( 0.52) ( 0.38) -- --
------- --------- --------- --------- -------
Total Distributions............................................ ( 0.54) ( 0.58) ( 0.75) ( 0.89) ( 0.97)
------- --------- --------- --------- -------
Net Asset Value, End of Period.................................... $ 9.30 $ 8.85 $ 9.62 $ 9.74 $10.44
======= ========= ========= ========= =======
Total Investment Return at Net Asset Value (b).................... 11.51% (1.88)% 6.77% 1.72% 10.44%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)......................... $65,600 $114,656 $197,166 $199,102 $192,687
Ratio of Expenses to Average Net Assets........................... 2.16% 2.17% 1.91% 1.91% 1.90%
Ratio of Net Investment Income to Average Net Assets.............. 6.03% 6.41% 7.45% 7.59% 8.74%
Portfolio Turnover Rate........................................... 263% 174% 363% 476% 159%
* On an annualized basis.
** On average month end shares outstanding.
(a) Class A shares commenced operations on January 3, 1992.
(b) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Income Fund
The Schedule of Investments is a complete list of all securities owned by the
Global Income Fund on October 31, 1995. It's divided into three main categories:
bonds, options and short-term investments. The bonds are further broken down by
currency denomination.
<TABLE>
SCHEDULE OF INVESTMENTS
October 31, 1995
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER RATE OMITTED)# VALUE
- ------ -------- --------- ------
<S> <C> <C> <C>
BONDS
Australia (4.15%)
Government of Australia, 02-15-06............................................... 10.000% 5,110* $ 4,192,832
-----------
Canada (2.71%)
Government of Canada, 04-01-02.................................................. 8.500 3,450* 2,731,531
-----------
Denmark (2.67%)
Kingdom of Denmark, 12-15-04.................................................... 7.000 15,500* 2,694,196
-----------
France (7.73%)
Government of France, 04-25-05.................................................. 7.500 37,572* 7,803,682
-----------
Germany (11.90%)
Federal Republic of Germany, 07-22-02........................................... 8.000 11,500 8,998,934
Federal Republic of Germany, 01-03-05........................................... 7.375 4,000* 3,008,671
-----------
12,007,605
-----------
Italy (3.83%)
Republic of Italy, 12-01-99..................................................... 9.500 6,500,000* 3,861,071
-----------
Spain (3.59%)
Government of Spain, 03-25-00................................................... 12.250 418,290* 3,624,575
-----------
Sweden (2.04%)
Kingdom of Sweden, 04-20-09..................................................... 9.000 14,000* 2,057,645
-----------
United Kingdom (6.21%)
United Kingdom Treasury Bonds, 09-25-09......................................... 8.000 4,000* 6,271,740
-----------
United States (52.14%)
Government National Mortgage Association
30 Yr SF Pass Thru Ctf, 11-15-23............................................... 6.500 2,074* 2,016,732
30 Yr SF Pass Thru Ctf, 12-15-23............................................... 6.500 3,751* 3,647,611
Norsk Hydro, 04-15-12........................................................... 9.000 6,000 7,089,132
United States Treasury Bonds, 08-15-25.......................................... 6.875 9,390* 10,078,099
United States Treasury Notes, 08-15-05##........................................ 6.500 28,770* 29,794,787
-----------
52,626,361
-----------
TOTAL BONDS
(Cost $94,928,370) (96.97)% 97,871,238
====== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Income Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EXPIRATION
CURRENCY CURRENCY DATE/STRIKE MARKET
PURCHASED SOLD PRICE VALUE
- --------- -------- ----------- ------
OPTIONS
CAD 16,640,000..................................... USD 12,800,000 February 96/1.30 $ 61,440
---------
TOTAL OPTIONS
(Premium paid $100,400) (0.06)% 61,440
--------- ---------
PAR VALUE
INTEREST (000'S
RATE OMITTED)#
-------- ---------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (1.76%)
Investment in a joint repurchase agreement
transaction with SBC Capital Markets -
Dated 10-31-95, Due 11-01-95 (secured by
U.S. Treasury Bond, 8.750% Due 05-15-17, and
by U.S. Treasury Note, 5.75% Due 09-30-97)
Note A......................................................................... 5.89% 1,781 1,781,000
-----------
TOTAL SHORT-TERM INVESTMENTS ( 1.76)% 1,781,000
--------- -----------
TOTAL INVESTMENTS ( 98.79)% $99,713,678
========= ===========
* Securities other than short-term investments, newly added to the portfolio
during the year ended October 31, 1995.
# Par value of foreign bonds are expressed in local currency.
## A portion of this security is segregated as collateral for an open forward
currency contract.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
CAD Canadian Dollar
USD US Dollar
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Global Income Fund
PORTFOLIO CONCENTRATION (UNAUDITED)
- --------------------------------------------------------------------------------
THE FUND PRIMARILY INVESTS IN BONDS ISSUED BY COMPANIES AND GOVERNMENTS OF OTHER
COUNTRIES. THE PERFORMANCE OF THE FUND IS CLOSELY TIED TO THE ECONOMIC
CONDITIONS WITHIN THE COUNTRIES IN WHICH IT INVESTS. THE CONCENTRATION OF
INVESTMENT BY COUNTRY OF DENOMINATION FOR INDIVIDUAL SECURITIES HELD BY THE FUND
IS SHOWN IN THE SCHEDULE OF INVESTMENTS. IN ADDITION, THE CONCENTRATION OF
INVESTMENTS CAN BE AGGREGATED BY VARIOUS INVESTMENT CATEGORIES. THE TABLE BELOW
SHOWS THE PERCENTAGES OF THE FUND'S INVESTMENTS AT OCTOBER 31, 1995 ASSIGNED TO
THE VARIOUS INVESTMENT CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE OF SECURITIES
INVESTMENT CATEGORIES AS A % OF NET ASSETS
--------------------- --------------------------
<S> <C>
Governmental - Foreign.................................... 44.83%
Governmental - United States.............................. 45.12
Utilities................................................. 7.02
Options................................................... 0.06
Short-term investments.................................... 1.76
-----
TOTAL INVESTMENTS 98.79%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Income Fund
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust II (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of five series portfolios: John Hancock Global Income Fund (the "Fund"), John
Hancock Global Fund, John Hancock International Fund, John Hancock Short-Term
Strategic Income Fund and John Hancock Special Opportunities Fund. Prior to
January 1, 1995, the Fund was known as John Hancock Freedom Global Income Fund,
John Hancock Global Fund was known as John Hancock Freedom Global Fund and John
Hancock International Fund was known as John Hancock Freedom International Fund.
The Trustees have authorized the issuance of two classes of shares of the
Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends, and liquidation, except that
certain expenses subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission. Shareholders of a class which bears
distribution/service expenses under terms of a distribution plan, have exclusive
voting rights to such distribution plan. Significant accounting policies of the
Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below. The Fund may invest in indexed securities whose value is linked either
directly or inversely to changes in foreign currencies, interest rates,
commodities, indices or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity.
Net realized gains and losses on sales of investments are determined on the
identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, net currency exchange gains and
losses from sales of foreign debt securities must be treated as ordinary income
even though such items are gains and losses for accounting purposes. The Fund
has $3,413,372 of a capital loss carryforward available, to the extent provided
by regulations, to offset future net realized capital gains. If such
carryforward is used by the Fund, no capital gains distribution will be made.
The carryforward expires October 31, 2002.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis. Foreign income may be subject to foreign
withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principals.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Income Fund
Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees, if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on
the date of any determination of the net asset value of the Fund. Transactions
affecting statement of operations accounts and net realized gain/(loss) on
investments are translated at the rates prevailing at the dates of the
transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that offset by the currency amount of the underlying
transaction.
Open foreign currency forward buy contracts at October 31, 1995 were as
follows:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY COVERED BY CONTRACT DATE DEPRECIATION
- -------- ------------------- ---------- ------------
<S> <C> <C> <C>
Japanese Yen 739,687,500 NOV 95 $(61,906)
========
</TABLE>
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract is valued at the
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Income Fund
official settlement price on the board of trade or U.S. commodities exchange.
Subsequent payments, known as "variation margin", to and from the broker are
made on a daily basis as the market price of the financial futures contract
fluctuates. Daily variation margin adjustments, arising from this "mark to
market", will be recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At October 31, 1995, there were no open positions in financial futures
contracts.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the stock market.
Writing puts and buying calls will tend to increase the Fund's exposure to the
underlying instrument and buying puts and writing calls will tend to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms, or if the Fund is unable to offset a contract with a counterparty on a
timely basis ("liquidity risk"). Exchange-traded options have minimal credit
risk as the exchanges act as counterparties to each transaction, and only
present liquidity risk in highly unusual market conditions. To minimize credit
and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended October 31,
1995.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
purchased from either the date of issue or the date of purchase over the life of
the security, as required by the Internal Revenue Code.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.75% of the first $250,000,000 of the Fund's
average daily net asset value and (b) 0.70% of the Fund's average daily net
asset value in excess of $250,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Income Fund
The current limits are 2.5% of the first $30,000,000 of the Fund's average daily
net asset value, 2.0% of the next $70,000,000, and 1.5% of the remaining average
daily net asset value.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-Distributors for
shares of the Fund. Prior to January 1, 1995 JH Funds was known as John Hancock
Broker Distribution Services, Inc. For the period ended October 31, 1995, net
sales charges received with regard to sales of Class A shares amounted to
$23,002. Out of this amount, $1,220 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $5,766 was paid
as sales commissions to unrelated brokers-dealers and $16,016 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro &
Co., ("Sutro"), all of which are broker dealers. The Adviser's indirect parent,
John Hancock Mutual Life Insurance Company, is the indirect sole shareholder of
Distributors and John Hancock Freedom Securities Corporation and its
subsidiaries which include FDC, Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from CDSC are paid to JH Funds and are used in whole or in part to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended October 31,
1995, contingent deferred sales charges paid to JH Funds amounted to $205,763.
In addition, to reimburse the Co-Distributors for the services they provide
as distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to the
Co-Distributors for distribution and service expenses, at an annual rate not to
exceed 0.30% of Class A average daily net assets and 0.95% (1.00% prior to
August 1, 1995) of Class B average daily net assets to reimburse the
Co-Distributors for their distribution/service costs. Effective November 1,
1995, the rate was increased back to 1.00%. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair Practice of
the National Association of Securities Dealers. Under the amended Rules of Fair
Practice, curtailment of a portion of the Fund's 12b-1 payments could occur
under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc.
Prior to January 1, 1995, the Fund paid Investor Services a monthly transfer
agent fee equivalent, on an annual basis, to 0.21% and 0.16% of the average
daily net asset value of Class A and Class B shares of the Fund, respectively,
plus out-of-pocket expenses incurred by Fund Services on behalf of the Fund. For
the period January 1, 1995 through September 30, 1995 Class A and Class B shares
paid transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses. For the eleven months ended September 30, 1995 the
transfer agent expense, calculated as a class specific expense was $37,916 for
Class A and $182,740 for Class B, respectively. Effective October 1, 1995
transfer agent expense is being treated as a fund expense based on the number of
shareholder accounts in the Fund and certain out-of-pocket expenses.
Edward J. Boudreau, Jr. is a director and officer of the Adviser and its
affiliates, as well as a Trustee of the Fund. The Adviser owns 10,772 shares of
beneficial interest of the Fund. The compensation of unaffiliated Trustees is
borne by the Fund. Effective with the fees paid for 1995, the unaffiliated
Trustees may elect to defer for tax purposes their receipt of this compensation
under the John Hancock Group of Funds Deferred Compensation Plan. The Fund will
make investments into other John Hancock funds, as applicable, to cover its
liability for the deferred compensation. Investments to cover the Fund's
deferred compensation liability will be recorded on the Fund's books as an other
asset. The deferred compensation liability will be marked to market
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Income Fund
on a periodic basis and income earned by the investment will be recorded on the
Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other then obligations of the
U.S. government and its agencies and short-term securities, during the period
ended October 31, 1995, aggregated $136,853,065 and $200,711,522, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $146,047,710 and $107,529,709, respectively, during the
period ended October 31, 1995.
The cost of investments owned at October 31, 1995 (including the joint
repurchase agreement) for Federal income tax purposes was $98,144,750. Gross
unrealized appreciation and depreciation of investments aggregated $1,576,334
and $68,846, respectively, resulting in net unrealized appreciation of
$1,507,488.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1995, the Fund reclassified amounts to reflect
a decrease in accumulated net realized loss on investments of $455,395, a
decrease in accumulated net investment income of $1,853,569 and an increase in
capital paid-in of $1,398,174. This represents the amount necessary to report
these balances on a tax basis, excluding certain temporary differences, as of
October 31, 1995. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net asset value of
the Fund, are primarily attributable to the treatment of net operating losses in
the computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
19
<PAGE>
John Hancock Funds - Global Income Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Global Income Fund and the Trustees of
Freedom Investment Trust II
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of John Hancock Global Income Fund
(the "Fund") (formerly known as John Hancock Freedom Global Income Fund) (a
portfolio of Freedom Investment Trust II) at October 31, 1995, and the results
of its operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1995 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 18, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during the fiscal year ended October
31, 1995.
None of the distributions qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 1995 U.S. Treasury Department Form 1099-DIV in
January of 1996. This will reflect the total of all distributions which are
taxable for calendar year 1995.
20
<PAGE>
NOTES
John Hancock Funds - Global Income Fund
21
<PAGE>
John Hancock
Special Opportunities Fund
Class A and Class B Shares
Prospectus
March 1, 1996
-----------------------------------------------------------------------------
TABLE OF CONTENTS
Page
-------
Expense Information 2
The Fund's Financial Highlights 3
Investment Objective and Policies and Certain Risk Considerations 5
Organization and Management of the Fund 10
Alternative Purchase Arrangements 11
The Fund's Expenses 12
Dividends and Taxes 13
Performance 14
How to Buy Shares 15
Share Price 16
How to Redeem Shares 22
Additional Services and Programs 24
This Prospectus sets forth information about John Hancock Special
Opportunities Fund (the "Fund"), a non-diversified series of Freedom
Investment Trust II, (the "Trust") that you should know before investing.
Please read and retain it for future reference.
Additional information about the Fund has been filed with the Securities
and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's
Statement of Additional Information, dated March 1, 1996, and incorporated by
reference into this Prospectus, free of charge by writing or telephoning:
John Hancock Investor Services Corporation, P.O. Box 9116, Boston,
Massachusetts 02205-9116, 1-800-225-5291 (1-800-544-6713 TDD).
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you understand the
various fees and expenses you will bear, directly or indirectly, when you
purchase Fund shares. The operating fees and expenses included in the table
and hypothetical example below are based on actual fees and expenses for the
Class A and Class B shares of the Fund for the fiscal year ended October 31,
1995, adjusted to reflect current fees and expenses. Actual fees and expenses
may be greater or less than those indicated.
Class A Class B
Shares Shares
------- ---------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a
percentage of offering price) 5.00% None
Maximum sales charge imposed on reinvested dividends None None
Maximum deferred sales charge None* 5.00%
Redemption fee+ None None
Exchange fee None None
Annual Fund Operating Expenses (as a percentage of
average net assets)
Management fee 0.80% 0.80%
12b-1 fee** 0.30% 1.00%
Other expenses 0.49% 0.49%
----- -------
Total Fund operating expenses 1.59% 2.29%
* No sales charge is payable at the time of purchase on investments in Class
A shares of $1 million or more, but for these investments a contingent
deferred sales charge may be imposed, as described under the caption
"Share Price, " in the event of certain redemption transactions within one
year of purchase.
** The amount of the 12b-1 plan used to cover service expenses will be up to
0.25% of average daily net assets, and the remaining portion will be used
to cover distribution expenses.
+ Redemption by wire fee (currently $4.00) not included.
1 3 5 10
Example Year Years Years Years
- ------- --- ---- ---- -------
You would pay the following expenses for the
indicated period of years on a
hypothetical $1,000 investment,
assuming 5% annual return:
Class A Shares $65 $ 98 $132 $229
Class B Shares
--Assuming complete redemption at end of
period $73 $102 $143 $245
--Assuming no redemption $23 $ 72 $123 $245
(The example should not be considered as a representation of past or
future investment returns. Actual expenses may be greater or less than
shown.)
The Fund's payment of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the
maximum front-end sales charge permitted under the National Association of
Securities Dealers Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained
in this Prospectus under the caption "The Fund's Expenses" and in the
Statement of Additional Information under the captions "Investment Advisory
and Other Services" and "Distribution Contract."
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following Table of Financial Highlights has been audited by Price
Waterhouse LLP, the Fund's independent accountants, whose unqualified report
is included in the Fund's 1995 Annual Report and is included in the Statement
of Additional Information. Further information about the performance of the
Fund is contained in the Fund's Annual Report to Shareholders which may be
obtained free of charge by writing or telephoning John Hancock Investor
Services Corporation ("Investor Services") at the address or telephone number
listed on the front page of this Prospectus.
Selected data for each class of shares outstanding throughout each period
indicated is as follows:
<TABLE>
<CAPTION>
For the Period
November 1, 1993
Year Ended (Commencement of
October 31, Operations) to
1995 October 31, 1994
------------- --------------------
CLASS A
- -------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 7.93 $ 8.50
----------- ------------------
Net Investment Loss (0.07)(b) (0.03)(b)
Net Realized and Unrealized Gain (Loss) on Investments 1.46 (0.54)
----------- ------------------
Total from Investment Operations 1.39 (0.57)
Net Asset Value, End of Period $ 9.32 $ 7.93
=========== ==================
Total Investment Return at Net Asset Value 17.53% (6.71%)(f)
Total Adjusted Investment Return at Net Asset Value (a) -- (6.83%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $101,562 $ 92,325
Ratio of Expenses to Average Net Assets * * 1.59% 1.50%
Ratio of Adjusted Expenses to Average Net Assets (a) -- 1.62%
Ratio of Net Investment Loss to Average Net Assets (0,87%) (0.41%)
Ratio of Adjusted Net Investment Loss to Average Net Assets
(a) -- (0.53%)
Portfolio Turnover Rate 155% 57%
* * Expense Reimbursement Per Share -- $ 0.01(b)
CLASS B
- -------
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 7.87 $ 8.50
----------- ------------------
Net Investment Loss (0.13)(b) (0.09)(b)
Net Realized and Unrealized Gain (Loss) on Investments 1.45 (0.54)
----------- ------------------
Total from Investment Operations 1.32 (0.63)
----------- ------------------
Net Asset Value, End of Period $ 9.19 $ 7.87
=========== ==================
Total Investment Return at Net Asset Value (d) 16.77% (7.41%)(f)
Total Adjusted Investment Return at Net Asset Value (a) -- (7.53%)(c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $137,363 $131,983
Ratio of Expenses to Average Net Assets * * 2.30% 2.22%*
Ratio of Adjusted Expenses to Average Net Assets (a) -- 2.34%*
Ratio of Net Investment Loss to Average Net Assets (1.55%) (1.13%)*
Ratio of Adjusted Net Investment Loss to Average Net Assets
(a) -- (1.25%)*
Portfolio Turnover Rate 155% 57%
* * Expense Reimbursement Per Share -- $ 0.01(b)
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
For the Period
Period July 6, 1994
Ended (Commencement of
April 11, Operations) to
1995 October 31, 1994
CLASS C (e)
- ----------
<S> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $7.94 $7.60
------ -----------
Net Investment Income 0.01 --
Net Realized and Unrealized Gain on Investments 0.29 (d) 0.34(d)
Total from Investment Operations 0.30 0.34
Net Asset Value, End of Period $8.24 $7.94
====== ===========
Total Investment Return at Net Asset Value 3.40 % (4.47%)
------ -----------
Total Adjusted Investment Return at Net Asset Value (a) -- (4.85%)(c)
====== ===========
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $218 $ 165
Ratio of Expenses to Average Net Assets * * 0.98 %* 1.01%*
Ratio of Adjusted Expenses to Average Net Assets (a) -- 1.39%*
Ratio of Net Investment Income to Average Net Assets 0.23 %* 0.03%*
Ratio of Adjusted Net Investment Income to Average Net Assets
(a) -- (0.35%)*
Portfolio Turnover Rate N/A 57%
* * Expense Reimbursement Per Share -- $ 0.01(b)
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis without expense reduction.
(b) On average month end shares outstanding.
(c) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the adviser during the periods shown.
(d) May not accord to amounts shown elsewhere in the financial statements.
(e) Per share operating performance and the ratios and supplemental data are
calculated as of April 11, 1995, the date on which Class C shares were
redeemed.
(f) Without the reimbursement, total investment return would be lower.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
AND CERTAIN RISK CONSIDERATIONS
The investment objective of
the Fund is long-term capital
appreciation.
The investment objective of the Fund is long-term capital appreciation. The
Fund seeks to achieve its objective by emphasizing investments in equity
securities of issuers in various economic sectors. There are market
fluctuations and risks in any investment and therefore there is no assurance
that the Fund will realize its objective.
The Fund emphasizes issuers in
certain economic sectors.
The equity securities in which the Fund invests consist primarily of common
stocks of U.S. and foreign issuers but may also include preferred stocks,
convertible debt securities and warrants. The Fund seeks to achieve its
investment objective by varying the relative weighting of its portfolio
securities among various economic sectors based upon both macroeconomic
factors and the outlook for each particular sector. John Hancock Advisers,
Inc. (the "Adviser") selects equity securities for the Fund from various
economic sectors, including, but not limited to, the following: automotive
and housing, consumer goods and services, defense and aerospace, energy,
financial services, health care, heavy industry, leisure and entertainment,
machinery and equipment, precious metals, retailing, technology,
transportation, utilities, foreign and environmental. The Fund may modify
these sectors if the Adviser believes that they no longer represent
appropriate investments for the Fund, or if other sectors offer better
opportunities for investment. See the Appendix to the Statement of Additional
Information for a further description of the sectors in which the Fund
invests.
The Adviser will adjust the Fund's relative weighting among the sectors in
response to changes in economic and market conditions. The Fund may focus on
as many as five of the foregoing economic sectors at any time. Under normal
market conditions, at least 90% of the Fund's investments in equity
securities will be invested in the equity securities of issuers in five or
fewer of the sectors. Subject to the Fund's policy of investing not more than
25% of its total assets in any one industry, issuers in any one sector may
represent all of the Fund's net assets. Due to the Fund's emphasis on a few
sectors, the Fund may be subject to a greater degree of volatility than a
fund that is structured in a more diversified manner. However, the Fund
retains the flexibility to invest its assets in a broader group of sectors if
a narrower range of investments is not desirable. This flexibility may offer
greater diversification than a fund that is limited to investing in a single
sector or industry. The Fund may hold securities of issuers in fewer than all
of the sectors at any given time.
In selecting securities for the Fund's portfolio, the Adviser will determine
the allocation of assets among equity securities, fixed income securities and
cash, the sectors that will be emphasized at any given time, the distribution
of securities among the various sectors, the specific industries within each
sector and the specific securities within each industry. In making the sector
analysis, the Adviser considers the general economic environment, the outlook
for real economic growth in the United States and abroad, trends and
developments within specific sectors and the outlook for interest rates and
the securities markets. A sector is a "special opportunity" when, in the
opinion of the Adviser, the issuers in that sector have a high earnings
potential. In selecting particular issuers, the Adviser considers
price/earnings ratios, ratios of market to book value, earnings growth,
product innovation, market share, management quality and capitalization.
5
<PAGE>
The Fund's investments may include securities of both large, widely traded
companies and smaller, less well-known issuers. The Fund seeks growth
companies that either occupy a dominant position in an emerging or
established industry or have a significant and growing market share in a
large, fragmented industry. The Fund seeks to invest in those companies with
potential for high growth, stable earnings, ability to self-finance, a
position of industry leadership and strong visionary management. Higher risks
are often associated with investments in companies with smaller market
capitalizations. These companies may have limited product lines, market and
financial resources, or they may be dependent upon smaller or less
experienced management groups. In addition, trading volume for these
securities may be limited. Historically, the market price for these
securities has been more volatile than for securities of companies with
greater capitalization. However, securities of companies with smaller
capitalization may offer greater potential for capital appreciation, since
they may be overlooked and thus undervalued by investors.
The Fund may also invest in
fixed income securities in
pursuing its investment
objective or for temporary
defensive purposes.
The Fund may also invest in the following fixed income securities: U.S.
Government securities and convertible and non-convertible corporate preferred
stocks and debt securities. The market value of fixed income securities
varies inversely with changes in the prevailing levels of interest rates. The
market value of convertible securities, while influenced by the prevailing
level of interest rates, is also affected by the changing value of the equity
securities into which they are convertible. The Fund may purchase fixed
income debt securities with stated maturities of up to thirty years. The
corporate fixed income securities in which the Fund may invest will be rated
at least BBB by Standard & Poors' Ratings Group ("S&P") or Baa by Moody's
Investors Service, Inc. ("Moody's") or, if unrated, determined to be of
comparable quality by the Adviser. Debt securities rated Baa or BBB are
considered medium grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken capacity to
pay interest and repay principal. If the rating of a debt security is reduced
below Baa or BBB, the Adviser will consider whatever action is appropriate
consistent with the Fund's investment objectives and policies.
The Fund is classified as a non-diversified fund. The Fund is classified as a
"non-diversified" fund to permit investment of more than 5% of its assets in
the obligations of any one issuer. Since a relatively high percentage of the
Fund's assets may be invested in the obligations of a limited number of
issuers, the value of the Fund's shares may be more susceptible to any single
economic, political or regulatory event, and to credit and market risks
associated with a single issuer, than would the shares of a diversified fund.
The Fund may employ certain
investment strategies to help
achieve its investment
objectives.
Foreign Securities. The Fund may invest in securities of foreign issuers,
including securities in the form of sponsored or unsponsored American
Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") or other
securities convertible into securities of foreign issuers. ADRs are receipts
typically issued by an American bank or trust company, which evidence
ownership of underlying securities issued by a foreign corporation. EDRs are
receipts issued in Europe which evidence a similar ownership arrangement.
Generally, ADRs are designed for use in United States securities markets and
EDRs are designed for use in European securities markets. Issuers of
unsponsored ADRs are not contractually obligated to disclose material
information
6
<PAGE>
in the United States and, therefore, there may not be a correlation between
that information and the market value of the ADR.
Foreign Currencies. Due to its investments in foreign securities, the Fund
may hold a portion of its assets in foreign currencies. As a result, the Fund
may enter into forward foreign currency contracts to protect against changes
in foreign currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract. Although hedging
strategies might reduce the risk of loss due to a decline in the value of the
hedged foreign currency, they may also limit any potential gain which might
result from an increase in the value of the currency.
Futures Contracts and Options on Futures. The Fund may buy and sell financial
futures contracts and options on futures to hedge against the effects of
fluctuations in securities prices, interest rates, currency exchange rates
and other market conditions and for speculative purposes. The potential loss
incurred by the Fund in writing options on futures is unlimited and may
exceed the amount of the premium received. The Fund's futures contracts and
options on futures will be traded on a U.S. or foreign commodity exchange or
board of trade. The Fund will not engage in a futures or options transaction
for speculative purposes, if immediately thereafter, the sum of initial
margin deposits on existing positions and premiums required to establish
speculative positions in futures contracts and options on futures would
exceed 5% of the Fund's net assets. The Fund intends to comply with the CFTC
regulations with respect to its speculative transactions. These regulations
are discussed further in the Statement of Additional Information.
Options Transactions. The Fund may write (sell) listed and over-the-counter
covered call and put options on securities in which it may invest, and on
indices composed of securities in which it may invest. The Fund may also
purchase put and call options on these securities and indices. All call
options written by the Fund are covered, which means that the Fund will own
the securities subject to the option as long as the option is outstanding.
All put options written by the Fund are also covered, which means that the
Fund will have deposited with its custodian cash, or liquid high grade debt
securities with a value at least equal to the exercise price of the put
option. Call and put options written by the Fund will also be considered to
be covered, to the extent that the Fund's liabilities under these options are
wholly or partially offset by its rights under call and put options purchased
by the Fund. The Fund will treat purchased over-the-counter options and
assets used to cover written over-the-counter options as illiquid securities.
However, with respect to options written with primary dealers in U.S.
Government securities pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount of illiquid securities may be
calculated with reference to the formula price.
While transactions in options and futures contracts may reduce certain risks,
they may entail other risks. Certain risks arise due to the imperfect
correlations between movements in the price of the contracts, and movements
in the prices of the securities or currency that underly the contract. In
addition, the Fund could be prevented from opening, or realizing the benefits
of closing out, a futures or options position because of position limits or
limits on daily price fluctuations imposed by an exchange. There can be no
assurance that a liquid secondary market will exist for any option or futures
7
<PAGE>
contract. The Fund's ability to hedge successfully will depend on the
Adviser's ability to predict accurately the future direction of securities
and currency markets and interest rates. Transactions in futures contracts
involve brokerage costs, require margin deposits, and require the Fund to
segregate liquid high grade debt securities in an amount equal to the value
of contracts that involve the purchase of the underlying asset or its
economic equivalent. The potential loss from writing options is potentially
unlimited and may exceed the amount of the premium received.
Short Sales. The Fund may engage in short sales "against the box", as well as
short sales to hedge against or profit from an anticipated decline in the
value of a security. When the Fund engages in a short sale, it will place in
a segregated account, cash or U.S. government securities in accordance with
applicable regulatory requirements. These will be marked to market daily. See
the Statement of Additional Information.
Restricted Securities. The Fund may purchase restricted securities, including
those eligible for resale to "qualified institutional buyers" pursuant to
Rule 144A under the Securities Act of 1933 (the "Securities Act"). The
Trustees will monitor the Fund's investments in these securities, focusing on
certain factors, including valuation, liquidity and availability of
information. Purchases of other restricted securities are subject to an
investment restriction limiting all the Fund's illiquid securities to not
more than 15% of its net assets.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements.
The Fund may reinvest any cash collateral in short-term securities. When the
Fund lends portfolio securities, there is a risk that the borrower may fail
to return the loaned securities. As a result, the Fund may incur a loss or in
the event of the borrower's bankruptcy may be delayed in or prevented from
liquidating the collateral. It is a fundamental policy of the Fund not to
lend portfolio securities having a total value in excess of 33-1/3% of its
total assets.
Repurchase Agreements, Forward Commitments and When-Issued Securities. The
Fund may enter into repurchase agreements and may purchase securities on a
forward commitment or when-issued basis. In a repurchase agreement, the Fund
buys a security subject to the right and obligation to sell it back to the
issuer at a higher price. These transactions must be fully collateralized at
all times, but involve some credit risk to the Fund if the other party
defaults on its obligation and the Fund is delayed in or prevented from
liquidating the collateral. The Fund will segregate in a separate account
cash or liquid, high grade debt securities equal in value to its forward
commitments and when-issued securities. Purchasing securities for future
delivery or on a when-issued basis may increase the Fund's overall investment
exposure and involves a risk of loss if the value of the securities declines
before the settlement date.
Short-Term Trading. Short-term trading means the purchasing and subsequent
sale of a security after it has been held for a relatively brief period of
time. The Fund engages in short-term trading in response to changes in
interest rates, securities prices or other economic trends and developments.
8
<PAGE>
Investment in foreign
securities may involve risks
that are not present in
domestic investments.
Global Risks. Investments in foreign securities may involve certain risks not
present in domestic securities due to exchange controls, less publicly
available information, more volatile or less liquid securities markets, and
the possibility of expropriation, confiscatory taxation or political,
economic or social instability. There may be difficulty in enforcing legal
rights outside the United States. Some foreign companies are not subject to
the same uniform financial reporting requirements, accounting standards and
government supervision as domestic companies, and foreign exchange markets
are regulated differently from the U.S. stock market. Security trading
practices abroad may offer less protection to investors such as the Fund. In
addition, foreign securities may be denominated in the currency of the
country in which the issuer is located. Consequently, changes in foreign
exchange rates will affect the value of the Fund's shares and dividends.
Finally, the expense ratios of international funds generally are higher than
those of domestic funds because there are greater costs associated with
maintaining custody of foreign securities and the increased research
necessary for international investing results in a higher advisory fee.
These risks may be intensified in the case of investments in emerging markets
or countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America
and Africa. Security prices in these markets can be significantly more
volatile than in more developed countries, reflecting the greater
uncertainties of investing in less established markets and economies.
Political, legal and economic structures in many of these emerging market
countries may be undergoing significant evolution and rapid development, and
they may lack the social, political, legal and economic stability
characteristic of more developed countries. Emerging market countries may
have failed in the past to recognize private property rights. They may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions on
repatriation of assets, and may have less protection of property rights than
more developed countries. Their economies may be predominantly based on only
a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rate and currency exchange rates. Local securities markets may
trade a small number of securities and may be unable to respond effectively
to increases in trading volume, potentially making prompt liquidation of
substantial holdings difficult or impossible at times. The Fund may be
required to establish special custodial or other arrangements before making
certain investments in those countries. Securities of issuers located in
these countries may have limited marketability and may be subject to more
abrupt or erratic price movements.
Investment Restrictions. The Fund has adopted certain investment restrictions
which are detailed in the Statement of Additional Information, where they are
designated as fundamental or nonfundamental. Fundamental investment
restrictions may not be changed without shareholder approval. All other
investment policies and restrictions are nonfundamental and can be changed by
a vote of the Trustees without shareholder approval. Portfolio turnover rates
of the Fund for recent years are shown in the section "The Fund's Financial
Highlights."
9
<PAGE>
Brokers are chosen based on
best price and execution.
When choosing brokerage firms to carry out the Fund's transactions, the
Adviser gives primary consideration to execution at the most favorable
prices, taking into account the broker's professional ability and quality of
service. Consideration may also be given to the broker's sales of Fund
shares. Pursuant to procedures established by the Trustees, the Adviser may
place securities transactions with brokers affiliated with the Adviser. These
brokers include Tucker Anthony Incorporated, John Hancock Distributors, Inc.
and Sutro & Company, Inc. They are indirectly owned by John Hancock Mutual
Life Insurance Company, (the "Life Company"), which in turn indirectly owns
the Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Trustees elect officers
and retain the investment
adviser, who is responsible
for the day-to-day operations
of the Fund, subject to the
Trustees' policies and
supervision.
The Fund is a non-diversified series of Freedom Investment Trust II, an
open-end management investment company organized as a Massachusetts business
trust in 1986. The Fund has an unlimited number of authorized shares of
beneficial interest. The Trust's Declaration of Trust permits the Trustees to
create, classify and reclassify the shares into one or more classes. The
Trustees have authorized the issuance of two classes of the Fund, designated
Class A and Class B. The shares of each class represent an interest in the
same portfolio of investments of the Fund and have equal rights as to voting,
redemption, dividends and liquidation. However, each class bears different
distribution and transfer agent fees and Class A and Class B shareholders
have exclusive voting rights with respect to their distribution plans.
The Fund is not required to hold annual shareholder meetings, although
special meetings may be held for such purposes as electing or removing
Trustees, changing fundamental policies or approving a management contract.
The Fund, under certain circumstances, will assist in shareholder
communications with other shareholders.
John Hancock Advisers, Inc.
advises investment companies
having a total asset value of
more than $16 billion.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary
of the Life Company, a financial services company. The Adviser provides the
Fund, and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds,
Inc. ("John Hancock Funds"), an indirect subsidiary of the Life Company,
distributes shares for all of the John Hancock funds through selected
broker-dealers ("Selling Brokers"). Certain Fund officers are also officers
of the Adviser and John Hancock Funds. Pursuant to an order granted by the
Securities and Exchange Commission, the Fund has adopted a deferred
compensation plan for its independent Trustees which allows Trustees' fees to
be invested by the Fund in other John Hancock funds.
Day-to-day management of the Fund is carried out by Michael P. DiCarlo and
Kevin R. Baker. Mr. DiCarlo also manages John Hancock Special Equities Fund
and other John Hancock funds. Mr. DiCarlo is Executive Vice President of the
Adviser and has been associated with the Adviser since 1984. Prior to joining
the Adviser in 1994, Mr. Baker was President of Baker Capital Management. He
also worked as a registered representative for Kidder Peabody.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities
trading by personnel of the Adviser and its affiliates. Some of these
restrictions are: pre-clearance for all personal trades and a ban on the
purchase of initial public offerings, as well as contributions
10
<PAGE>
to specified charities of profits on securities held for less than 91 days.
These restrictions are a continuation of the basic principle that the
interests of the Fund and its shareholders come first.
ALTERNATIVE PURCHASE ARRANGEMENTS
An alternative purchase plan
allows you to choose the
method of purchase that is
best for you.
You can purchase shares of the Fund at a price equal to their net asset value
per share, plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge
Alternative--Class A Shares") or on a contingent deferred basis (see
"Contingent Deferred Sales Charge Alternative--Class B Shares"). If you do
not specify on your account application the class of shares you are
purchasing, it will be assumed that you are investing in Class A shares.
Investments in Class A shares
are subject to an initial
sales charge.
Class A Shares. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount you purchase is $1 million or more. If
you purchase $1 million or more of Class A shares you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.30% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price-Qualifying for a Reduced Sales Charge."
Investments in Class B shares
are subject to a contingent
deferred sales charge.
Class B Shares. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them
within six years of purchase (the "contingent deferred sales charge" or the
"CDSC"). Class B shares are subject to ongoing distribution and service fees
at a combined annual rate of up to 1.00% of the Fund's average daily net
assets attributable to the Class B shares. Investing in Class B shares
permits all of your dollars to work from the time you make your investment,
but the higher ongoing distribution fee will cause these shares to have
higher expenses than Class A shares. To the extent that any dividends are
paid by the Fund, these higher expenses will also result in lower dividends
than those paid on Class A shares.
Class B shares are not available to full-service defined contribution plans
administered by John Hancock Investor Services Corporation ("Investor
Services") or The Life Company that had more than 100 eligible employees at
the inception of the Fund account.
Factors to Consider in Choosing an Alternative
You should consider which
class of shares will be more
beneficial for you.
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares, given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider
whether, during the anticipated life of your Fund investment, the CDSC and
accumulated fees on Class B shares would be less than the initial sales
charge and accumulated fees on Class A shares purchased at the same time, and
to what extent this differential would be offset by the Class A shares' lower
expenses. To help you make this determination, the table under the caption
"Expense Information" on the inside cover page of this Prospectus shows
examples of the charges applicable to each class of shares. Class A shares
will normally be more beneficial if you qualify for reduced sales charges.
See "Share Price--Qualifying for a Reduced Sales Charge."
11
<PAGE>
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent
any dividends are paid. However, because initial sales charges are deducted
at the time of purchase, you would not have all of your funds invested
initially and, therefore, would initially own fewer shares. If you do not
qualify for reduced initial sales charges and expect to maintain your
investment for an extended period of time, you might consider purchasing
Class A shares. This is because the accumulated distribution and service
charges on Class B shares may exceed the initial sales charge and accumulated
distribution and service charges on Class A shares during the life of your
investment.
Alternatively, you might determine than it is more advantageous to purchase
Class B shares in order to have all your funds invested initially. However,
you will be subject to higher distribution fees and, for a six-year period, a
CDSC.
In the case of Class A shares, distribution expenses that John Hancock Funds
incurs in connection with the sale of shares will be paid from the proceeds
of the initial sales charge and the ongoing distribution and service fees. In
the case of Class B shares, expenses will be paid from the proceeds of the
ongoing distribution and service fees, as well as from the CDSC incurred upon
redemption within six years of purchase. The purpose and function of the
Class B shares' CDSC and ongoing distribution and service fees are the same
as those of the Class A shares' initial sales charge and ongoing distribution
and service fees.
Dividends, if any, on Class A and Class B shares will be calculated in the
same manner, at the same time and on the same day. They will also be in the
same amount, except for differences resulting from each class bearing only
its own distribution and service fees and shareholder meeting expenses. See
"Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly fee
to the Adviser which is based on a stated percentage of the Fund's average
daily net asset value as follows: 0.80% on the first $500 million of average
daily net assets of the Fund, 0.75% on the next $500 million of average net
assets and 0.70% of average net assets in excess of $1 billion. The
investment management fee paid by the Fund is higher than the fee paid by
most mutual funds, but is believed to be comparable to the fee paid by those
funds with a similar investment objective.
The Fund pays distribution and
service fees for marketing and
sales-related shareholder
servicing.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, the Fund will pay distribution and service
fees at an aggregate annual rate of up to 0.30% of the Class A shares'
average daily net assets and an aggregate annual rate of up to 1.00% of the
Class B shares' average daily net assets. In each case, up to 0.25% is for
service expenses and the remaining amount is for distribution expenses. The
distribution fees will be used to reimburse John Hancock Funds for its
distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of
John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing,
promotional and overhead expenses incurred in connection with the
distribution of Fund shares; and (iii) with respect to Class B shares only,
interest expenses on unreimbursed distri
12
<PAGE>
bution expenses. The service fees are paid to compensate Selling Brokers and
others providing personal and account maintenance services to shareholders.
In the event John Hancock Funds is not fully reimbursed for payments it makes
or expenses it incurs under the Class A Plan, these expenses will not be
carried beyond one year from the date they were incurred. These unreimbursed
expenses under the Class B Plan will be carried forward together with
interest on the balance of these unreimbursed expenses.
For the fiscal year ended October 31, 1995 an aggregate of $6,051,842 of
distribution expenses or 4.49%, of the average net assets of the Class B
shares of the Fund, was not reimbursed or recovered by John Hancock Funds
through the receipt of deferred sales charges or 12b-1 fees in prior periods.
Information on the Fund's total expenses is in the Fund's Financial
Highlights section of this Prospectus.
DIVIDENDS AND TAXES
Dividends. The Fund generally declares and distributes dividends representing
all or substantially all net investment income, if any, at least annually.
The Fund will generally also distribute net short-term or long-term capital
gains, if any, at least annually.
Dividends are reinvested in additional shares of your class unless you elect
the option to receive cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
reinvestment in additional shares option. Because of the higher expenses
associated with Class B shares, any dividend on these shares will be lower
than those on the Class A shares. See "Share Price".
Taxation. Dividends from the Fund's net investment income, certain net
foreign currency gains and net short-term capital gains are taxable to you as
ordinary income. Dividends from the Fund's net long-term capital gains are
taxable as long-term capital gains. These dividends are taxable whether
received in cash or reinvested in additional shares. Certain dividends may be
paid in January of a given year but may be taxable to you as if you received
them the prior December. Corporate shareholders may be entitled to take the
corporate dividends received deduction for dividends received by the Fund
from U.S. domestic corporations, subject to certain restrictions under the
Internal Revenue Code. The Fund will send you a statement by January 31
showing the tax status of the dividends you received for the prior year.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). As a regulated investment company, the Fund will not
be subject to the Federal income taxes on any net investment income or net
realized capital gains that are distributed to its shareholders within the
time period prescribed by the Code. When you redeem (sell) or exchange
shares, you may realize a taxable gain or loss.
On the account application you must certify that your social security or
other taxpayer identification number is correct and that you are not subject
to backup withholding of Federal income tax. If you do not provide this
information or are otherwise subject to this withholding, the Fund may be
required to withhold 31% of your dividends and the proceeds of redemptions or
exchanges.
13
<PAGE>
The Fund anticipates that it will be subject to foreign withholding taxes or
other foreign taxes on income (possibly including in some cases capital
gains) on certain of its foreign investments, which will reduce the yield on
these investments. However, if more than 50% of the Fund's total assets at
the close of its taxable year consists of stock or securities of foreign
corporations and if the Fund so elects, shareholders will include in their
gross incomes their pro-rata shares of qualified foreign taxes paid by the
Fund and may be entitled, subject to certain conditions and limitations under
the Code, to claim a Federal income tax credit or deduction for their share
of these taxes.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investments in and distributions from the Fund.
Non-U.S. shareholders and tax-exempt shareholders are subject to a different
tax treatment not described above. In many states, a portion of the Fund's
dividends that represent interest received by the Fund on direct U.S.
Government obligations may be exempt from tax. You should consult your tax
adviser for specific advice.
PERFORMANCE
The Fund may advertise its
total return.
Total return shows the overall dollar or percentage change in value of a
hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period
of time. Average annual total return shows the cumulative return divided over
the number of years included in the period. Because average annual total
return tends to smooth out variations in the Fund's performance, you should
recognize that it is not the same as actual year-to-year results.
Total return calculations for Class A shares generally include the effect of
paying the maximum sales charge (except as shown in "The Fund's Financial
Highlights"). Investments at lower sales charges would result in higher
performance figures. Total return for the Class B shares reflect deduction of
the applicable CDSC imposed on a redemption of shares held for the applicable
period (except as shown in "The Fund's Financial Highlights"). All
calculations assume that dividends are reinvested at net asset value on the
reinvestment dates during the periods. The total return for Class A and Class
B shares will be calculated separately and, because each class is subject to
different expenses, the total return may differ with respect to each class
for the same period. The relative performance of the Class A and Class B
shares will be affected by a variety of factors, including the higher
operating expenses attributable to the Class B shares, whether the Fund's
investment performance is better in the earlier or later portions of the
period measured and the level of net assets of the classes during the period.
The Fund will include the total return of both classes in any advertisement
or promotional materials including Fund's performance data. The value of the
Fund's shares, when redeemed, may be more or less than their original cost.
Total return is a historical calculation and is not an indication of future
performance. See "Factors to Consider in Choosing an Alternative."
14
<PAGE>
HOW TO BUY SHARES
Opening an account.
Buying additional Class A and
Class B shares
<TABLE>
<CAPTION>
<S> <C>
The minimum initial investment is $1,000 ($250 for group investments and
retirement plans). Complete the Account Application attached to this Prospectus.
Indicate whether you are purchasing Class A or Class B shares. If you do not
specify which class of shares you are purchasing, Investor Services will assume
you are investing in Class A shares.
- ----------------------------------------------------------------------------------------------------------
By Check: 1. Make your check payable to John Hancock Investor Services Corporation.
2. Deliver the completed application and check to your registered representative,
Selling Broker, or mail it directly to Investor Services.
- ----------------------------------------------------------------------------------------------------------
By Wire: 1. Obtain an account number by contacting your registered representative or Selling
Broker or by calling 1-800-225-5291.
2. Instruct your Bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to:
John Hancock Special Opportunities Fund
[Class A or Class B shares]
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered representative or Selling
Broker or mail it directly to Investor Services.
- ----------------------------------------------------------------------------------------------------------
Monthly Automatic 1. Complete the "Automatic Investing" and "Bank Information" sections on the
Accumulation Account Privileges Application, designating a bank account from which your funds
Program (MAAP) may be drawn.
2. The amount you elect to invest will be automatically withdrawn from your bank or
credit union account.
- ----------------------------------------------------------------------------------------------------------
By Telephone: 1. Complete the "Invest-By-Phone" and "Bank Information" sections on the Account
Privileges Application designating a bank account from which your funds may be
drawn. Note that in order to invest by phone, your account must be in a bank or
credit union that is a member of the Automated Clearing House System (ACH).
2. After your authorization form has been processed, you may purchase additional
Class A and Class B shares by calling Investor Services toll-free at
1-800-225-5291.
3. Give the Investor Services representative the name(s) in which your account is
registered, the Fund name, the class of shares you own, your account number and the
amount you wish to invest.
4. Your investment normally will be credited to your account the business day
following your phone request.
15
<PAGE>
- ----------------------------------------------------------------------------------------------------------
By Check: 1. Either complete the detachable stub included on your account statement or
include a note with your investment listing the name of the Fund, the class of
shares you own, your account number and the name(s) in which the account is
registered.
2. Make your check payable to John Hancock Investor Services Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling Broker.
- ----------------------------------------------------------------------------------------------------------
By Wire: Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA No. 211475000
For credit to:
John Hancock Special Opportunities Fund
[Class A or Class B shares]
Your Account Number
Name(s) under which account is registered.
Other Requirements. All purchases must be made in U.S. dollars. Checks written
on foreign banks will delay purchases until U.S. funds are received, and a
collection charge may be imposed. Shares of the Fund are priced at the offering
price based on the net asset value computed after John Hancock Funds receives
notification of the dollar equivalent from the Fund's custodian bank. Wire
purchases normally take two or more hours to complete and, to be accepted the
same day, must be received by 4:00 P.M., New York time. Your bank may charge a
fee to wire funds. Telephone transactions are recorded to verify information.
Certificates are not issued unless a request is made in writing to Investor
Services.
</TABLE>
Buying additional Class A and Class B shares.
(continued)
You will receive account
statements that you should
keep to help with your
personal recordkeeping.
You will receive a statement of your account after any transaction that
affects your share balance or registration (statements related to
reinvestment of dividends and automatic investment/withdrawal plans will be
sent to you quarterly). A tax information statement will be mailed to you by
January 31 of each year.
SHARE PRICE
The offering price of your
shares is their net asset
value plus a sales charge, if
applicable, which will vary
with the purchase alternative
you choose.
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of
outstanding shares of that class. The NAV of each class can differ.
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or at fair
value as determined in good faith according to procedures approved by the
Trustees. Short-term debt investments maturing within 60 days are valued at
amortized cost which the Board of Trustees has determined to approximate
market value. Foreign securities are valued on the basis of quotations from
the primary market in which they are traded, and are translated from the
local currency into U.S. dollars using current exchange rates. If quotations
are not readily available or, the value has been materially affected by
events occurring after the closing of a foreign market, assets are valued by
a method that the Trustees believe accurately reflects fair value. The NAV is
calculated once daily as of the close of regular trading on the New York
Stock Exchange (generally at 4:00 p.m., New York time) on each day that the
Exchange is open.
16
<PAGE>
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment is received in good order by John Hancock Funds. If you
buy shares of the Fund through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the New York
Stock Exchange and transmit it to John Hancock Funds before its close of
business to receive that day's offering price.
Initial Sales Charge Alternative--Class A Shares. The offering price you pay
for Class A shares of the Fund equals the NAV plus sales charge as follows:
Combined
Reallowance
Sales Sales and Reallowance
Charge Charge Service to Selling
as a as a Fee as a Broker as a
Percentage Percentage Percentage Percentage
Amount Invested of of the of of
(Including Sales Offering Amount Offering Offering
Charge) Price Invested Price(+) Price(*)
- --------------------- -------- -------- --------- -----------
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to $249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to $499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to $999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%(***)
0.00%((**)) 0.00%((**)) (***)
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales charge. A
Selling Broker to whom substantially the entire sales charge is reallowed may
be deemed to be an underwriter under the Securities Act of 1933.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within one year of purchase.
(***) John Hancock Funds may pay a commission and first year's service fee (as
described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of $1 million or more in the aggregate as
follows: 1% on sales to $4,999,999, plus 0.50% on the next $5 million, and
0.25% on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance, in an amount equal to 0.25% of the net
assets invested in the Fund. Thereafter it pays the service fee
periodically in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in
additional Class A shares of the Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual
rate of up to 0.05% of the daily net assets of the accounts attributable to
these brokers.
Under certain circumstances described below, investors in Class A shares may
be entitled to pay reduced sales charges. See "Qualifying For a Reduced Sales
Charge."
17
<PAGE>
Contingent Deferred Sales Charge--Investments of $1 Million or More in Class
A Shares. Purchases of $1 million or more of the Fund's Class A shares will
be made at net asset value with no initial sales charge, but if the shares
are redeemed within 12 months after the beginning of the calendar month in
which the purchase was made (the CDSC period), a CDSC will be imposed. The
rate of the CDSC will depend on the amount invested as follows:
Amount Invested CDSC Rate
- -------------------------------- ----------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
above rate.
The CDSC will be assessed on an amount equal to the lesser of the current
market value or the original purchase cost of the redeemed Class A shares.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends which have been reinvested in
additional Class A shares.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. Therefore, it will be assumed that the redemption is first made from
any shares in your account that are not subject to the CDSC. The CDSC is
waived on redemptions in certain circumstances. See "Waiver of Contingent
Deferred Sales Charges" below.
Qualifying for a Reduced Sales Charge.
You may qualify for a reduced
sales charge on your
investment in Class A Shares.
If you invest more than $50,000 in Class A shares of the Fund or combination
of John Hancock funds (except money market funds), you may qualify for a
reduced sales charge on your investments in Class A shares through a LETTER
OF INTENTION. You may also be able to use the ACCUMULATION PRIVILEGE and
COMBINATION PRIVILEGE to take advantage of the value of your previous
investments in shares of the John Hancock funds in meeting the breakpoints
for a reduced sales charge. For the ACCUMULATION PRIVILEGE and COMBINATION
PRIVILEGE, the applicable sales charge will be based on the total of:
1. Your current purchase of Class A shares of the Fund;
2. The net asset value (at the close of business on the previous day) of (a)
all Class A shares of the Fund you hold, and (b) all Class A shares of any
other John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
Example:
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000 and, subsequently, invest $30,000 in Class A shares of the Fund, the
sales charge
18
<PAGE>
on this subsequent investment would be 4.50% and not 5.00%. This is the rate
that would otherwise be applicable to investments of less than $50,000. See
"Initial Sales Charge Alternative--Class A Shares."
If you are in one of the following categories, you may purchase Class A
shares of the Fund without paying a sales charge:
Class A shares may be
available without a sales
charge to certain individuals
and organizations.
(bullet) A Trustee or officer of the Trust; a Director or officer of the
Adviser and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees
or Directors of any of the foregoing; a member of the immediate
family of any of the foregoing; or any Fund, pension, profit sharing
or other benefit plan for the individuals described above.
(bullet) Any state, county, city or any instrumentality, department,
authority, or agency of these entities that is prohibited by
applicable investment laws from paying a sales charge or commission
when it purchases shares of any registered investment management
company.*
(bullet) A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds
if it is purchasing $1 million or more for non-discretionary
customers or accounts.*
(bullet) A broker, dealer, financial planner, consultant or registered
investment adviser that has entered into an agreement with John
Hancock Funds providing specifically for the use of Fund shares in
fee-based investment products or services made available to their
clients.
(bullet) A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers
any or all of his or her plan distributions directly to the Fund.
(bullet) A member of an approved affinity group financial services plan.*
* For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may also be purchased without an initial sales
charge in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
Contingent Deferred Sales Charge Alternative--Class B Shares. Class B shares
are offered at net asset value per share without an initial sales charge, so
that your entire investment will go to work at the time of purchase. However,
Class B shares redeemed within six years of purchase will be subject to a
CDSC at the rates set forth below. The charge will be assessed on an amount
equal to the lesser of the current market value or the original purchase cost
of the shares being redeemed. Accordingly, you will not be assessed a CDSC on
increases in account value above the initial purchase price, including shares
derived from dividend reinvestments.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. It will be
19
<PAGE>
assumed that your redemption comes first from shares you have held beyond the
six-year CDSC redemption period or those you acquired through reinvestment of
dividends, and next from the shares you have held the longest during the
six-year period. The CDSC is waived on redemptions in certain circumstances.
See the discussion "Waiver of Contingent Deferred Sales Charges" below.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time, your CDSC will be calculated as
follows:
<TABLE>
<CAPTION>
<S> <C>
(bullet) Proceeds of 50 shares redeemed at $12 per share $ 600
(bullet) Minus proceeds of 10 shares not subject to CDSC because they were acquired
through dividend reinvestment (10 X $12) -120
(bullet) Minus appreciation on remaining shares, also not subject to CDSC (40 X $2) -80
---
(bullet) Amount subject to CDSC $ 400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds
uses them to defray its expenses related to providing the Fund with
distribution services in connection with the sale of the Class B shares, such
as compensating Selling Brokers for selling these shares. The combination of
the CDSC and the distribution and service fees makes it possible for the Fund
to sell the Class B shares without an initial sales charge.
The amount of the CDSC, if any, will vary depending on the number of years
from the time you purchase your Class B shares until the time you redeem
them. Solely for purposes of determining this holding period, any payments
you make during the month will be aggregated and deemed to have been made on
the last day of the month.
Contingent Deferred Sales
Year in Which Class B Shares Charge As a Percentage of
Redeemed Following Purchase Amount Redeemed
- ------------------------------ ---------------------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision
of personal and account maintenance services to shareholders during the
twelve months following the sale, and thereafter the service fee is paid in
arrears.
Under certain circumstances,
the CDSC on Class B and
certain Class A share
redemptions will be waived.
Waiver of Contingent Deferred Sales Charges. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a
CDSC, unless indicated otherwise, in the circumstances defined below:
(bullet) Redemptions of Class B shares made under a Systematic Withdrawal
Plan (see "How to Redeem Shares"), as long as your annual
redemptions do not exceed 10%
20
<PAGE>
of your account value at the time you established your Systematic
Withdrawal Plan and 10% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor
Services. This waiver does not apply to Systematic Withdrawal Plan
redemptions of Class A shares that are subject to a CDSC.
(bullet) Redemptions made to effect distributions from an Individual
Retirement Account either before or after age 59-1/2, as long as the
distributions are based on your life expectancy or the
joint-and-last survivor life expectancy of you and your beneficiary.
These distributions must be free from penalty under the Code.
(bullet) Redemptions made to effect mandatory distributions under the Code
after age 70-1/2 from a tax-deferred retirement plan.
(bullet) Redemptions made to effect distributions to participants or
beneficiaries from certain employer-sponsored retirement plans
including those qualified under Section 401(a) of the Code,
custodial accounts under Section 403(b)(7) of the Code and deferred
compensation plans under Section 457 of the Code. The waiver also
applies to certain returns of excess contributions made to these
plans. In all cases, the distributions must be free from penalty
under the Code.
(bullet) Redemptions due to death or disability.
(bullet) Redemptions made under the Reinvestment Privilege, as described in
"Additional Services and Programs" of this Prospectus.
(bullet) Redemptions made pursuant to the Fund's right to liquidate your
account if you own fewer than 50 shares.
(bullet) Redemptions made in connection with certain liquidation, merger or
acquisition transactions involving other investment companies or
personal holding companies.
(bullet) Redemptions from certain IRA and retirement plans which purchased
shares prior to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must
notify Investor Services either directly or through your Selling Broker at
the time you make your redemption. The waiver will be granted once Investor
Services has confirmed that you are entitled to the waiver.
Conversion of Class B Shares. Your Class B shares and an appropriate portion
of reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased, and will result in lower annual distribution
fees. If you exchanged Class B shares into this Fund from another John
Hancock fund, the calculation will be based on the time you purchased the
shares in the original fund were purchased. The Fund has been advised that
the conversion of Class B shares to Class A shares should not be taxable for
Federal income tax purposes and should not change your tax basis or tax
holding period for the converted shares.
21
<PAGE>
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your
shares will be redeemed at the next NAV calculated after your redemption
request is received in good order by Investor Services, less any applicable
CDSC. The Fund may hold payment until reasonably satisfied that investments
recently made by check or Invest-by-Phone have been collected (which may
take up to 10 calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the
next business day. When you redeem your shares you may realize a taxable gain
or loss, depending usually on the difference between what you paid for them
and what you receive for them, subject to certain tax rules. Under unusual
circumstances, the Fund may suspend redemptions or postpone payment for up to
three business days or longer, as permitted by Federal securities laws.
22
<PAGE>
To assure acceptance of your
redemption request, please
follow these procedures.
<TABLE>
<S> <C>
By Telephone: All shareholders of the Fund are eligible automatically for the telephone redemption
privilege. Call 1-800-225-5291 from 8:00 A.M. to 4:00 P.M. (Eastern Time), Monday through
Friday, excluding days on which the New York Stock Exchange is closed. Investor Services
employs the following procedures to confirm that instructions received by telephone are
genuine. Your name, the account number, taxpayer identification number applicable to the
account and other relevant information may be requested. In addition, telephone
instructions are recorded.
You may redeem up to $100,000, but the address on the account must not have changed for
the last thirty days. A check will be mailed to the exact name(s) and address shown on
the account.
If reasonable procedures, such as those described above, are not followed, the Fund may
be liable for any loss due to unauthorized or fraudulent telephone instructions. In all
other cases, neither the Fund nor Investor Services will be liable for any loss or
expense for acting upon telephone instructions made according to the telephone
transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other tax-qualified retirement plans or
shares of the Fund that are in certificated form.
During periods of extreme economic conditions or market changes, telephone requests may
be difficult to implement due to a large volume of calls. During these times, you should
consider placing redemption requests in writing or use EASI-Line. EASI-Line's telephone
number is 1-800-338-8080.
By Wire: If you have a telephone redemption form on file with the Fund, redemption proceeds of
$1,000 or more can be wired on the next business day to your designated bank account and
a fee (currently $4.00) will be deducted. You may also use electronic funds transfer to
your assigned bank account and the funds are usually collectible after two business days.
Your bank may or may not charge a fee for this service. Redemptions of less than $1,000
will be sent by check or electronic funds transfer.
This feature may be elected by completing the "Telephone Redemption" section on the
Account Privileges Application that is included with this Prospectus.
In Writing: Send a stock power or letter of instruction specifying the name of the Fund, the dollar
amount or the number of shares to be redeemed, your name, class of shares, your account
number, and the additional requirements listed below that apply to your particular
account.
Type of
Registration Requirements
Individual, A letter of instruction signed with titles by all persons
Joint Tenants, authorized to sign for the account, exactly as it is
Sole Proprietorship, registered with the signature(s) guaranteed.
(Uniform Gifts or
Transfer to Minor
Act), General
Partners
Corporation, A letter of instruction and a corporate resolution, signed by
Association person(s) authorized to act on the account with the
signature(s) guaranteed.
Trusts A letter of instruction signed by the Trustee(s) with
signature guarantees. (If the Trustee(s) name is not
registered on your account, also provide a copy of the trust
document, certified within the last 60 days.)
If you do not fall into any of these registration categories, (i.e., Executors,
Administrators, Conservators of Guardians) please call 1-800-225-5291 for
further instructions.
</TABLE>
23
<PAGE>
Who may guarantee your
signature.
Additional information about
redemptions.
<TABLE>
<CAPTION>
<S> <C>
A signature guarantee is a widely accepted way to protect you and the Funds by verifying the signature
on your request. It may not be provided by a notary public. If the net asset value of the shares
redeemed is $100,000 or less, John Hancock Funds may guarantee the signature. The following
institutions may provide you with a signature guarantee, provided that the institution meets credit
standards established by Investor Services: (i) a bank; (ii) a securities broker or dealer, including a
government or municipal securities broker or dealer, that is a member of a clearing corporation or
meets certain net capital requirements; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan association, a cooperative bank, a
federal savings bank or association; or (v) a national securities exchange, a registered securities
exchange or a clearing agency.
Through Your Broker: Your broker may be able to initiate the redemption. Contact your broker for
instructions.
If you have certificates for your shares, you must submit them with your stock power or a letter of
instruction. Unless you specify to the contrary, any outstanding Class A shares will be redeemed before
Class B shares. You may not redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining small accounts, the Fund reserves the right to
redeem at net asset value all shares in an account which holds fewer than 50 shares (except accounts
under retirement plans) and to mail the proceeds to the shareholder or the transfer agent may impose an
annual fee of $10.00. No account will be involuntarily redeemed or additional fee imposed, if the value
of the account is in excess of the Fund's minimum initial investment. No CDSC will be imposed on
involuntary redemption of shares.
Shareholders will be notified before these redemptions are to be made or this fee is imposed and will
have 30 days to purchase additional shares to bring their account balance to the required minimum.
Unless the number of shares acquired by additional purchases and any dividend reinvestments exceeds the
number of shares redeemed, repeated redemptions from a smaller account may eventually trigger this
policy.
If you have certificates for your shares, you must submit them with your stock power or a letter of
instruction. Unless you specify to the contrary, any outstanding Class A shares will be redeemed before
Class B shares. Redemptions of certificated shares may not be made by telephone.
</TABLE>
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege
You may exchange shares of the
Fund for shares of the same
class of another John Hancock
fund.
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of
investment goals. Contact your registered representative or Selling Broker
and request a prospectus for the John Hancock fund that interests you. Read
the prospectus carefully before exchanging your shares. You can exchange
shares of each class of the Fund only for shares of the same class of another
John Hancock fund. For this purpose, John Hancock funds with only one class
of shares will be treated as Class A whether or not they have been so
designated.
Exchanges between funds which are not subject to a CDSC are based on their
respective net asset values. No sales charge or transaction charge is
imposed. Class B shares of the Fund that are subject to a CDSC may be
exchanged into Class B shares of another John Hancock fund without incurring
the CDSC; however, these shares will be subject to the CDSC schedule of the
shares acquired (except that exchanges into John Hancock Short-Term Strategic
Income Fund, John Hancock Intermediate Maturity Government Fund and John
Hancock Limited-Term Government Fund will be subject to the initial Fund's
CDSC). For purposes of computing the CDSC payable upon
24
<PAGE>
redemption of shares acquired in an exchange, the holding period of the
original shares is added to the holding period of the shares acquired in an
exchange. However if you exchange Class B shares purchased prior to January
1, 1994 for Class B shares of any other John Hancock fund, you will continue
to be subject to the CDSC schedule in effect on your initial purchase date.
The Fund reserves the right to require you to keep previously exchanged
shares (and reinvested dividends) in the Fund for 90 days before you are
permitted a new exchange. The Fund may also terminate or alter the terms of
the exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and
the purchase of shares of another for Federal income tax purposes. An
exchange may result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers
and investment advisers may exchange their clients' Fund shares, subject to
the terms of those agreements and John Hancock Funds' right to reject or
suspend those exchanges at any time. Because of the restrictions and
procedures under those agreements, the exchanges may be subject to timing
limitations and other restrictions that do not apply to exchanges requested
by shareholders directly, as described above.
Because Fund performance and shareholders can be hurt by excessive trading,
the Fund reserves the right to terminate the exchange privilege for any
person or group that, in John Hancock Funds' judgment, is involved in a
pattern of exchanges that coincide with a "market timing" strategy that may
disrupt the Fund's ability to invest effectively according to its investment
objective and policies, or might otherwise affect the Fund and its
shareholders adversely. The Fund may also temporarily or permanently
terminate the exchange privilege for any person who makes seven or more
exchanges out of the Fund per calendar year. Accounts under common control or
ownership will be aggregated for this purpose. Although the Fund will attempt
to give prior notice whenever it is reasonably able to do so, it may impose
these restrictions at any time.
By Telephone:
1. When you complete the application for your initial purchase of Fund
shares, you authorize exchanges automatically by telephone, unless you
check the box indicating that you do not wish to authorize telephone
exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable
to the account and other relevant information may be requested. In
addition, telephone instructions are recorded.
25
<PAGE>
In Writing:
1. In a letter request an exchange and list the following:
--name and class of the Fund whose shares you currently own
--your account number
--name(s) in which the account is registered
--name of the fund in which you wish your exchange to be invested
--the number of shares, all shares or the dollar amount you wish to
exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Reinvestment Privilege
If you redeem shares of the
Fund, you may be able to
reinvest all or part of the
proceeds in shares of this
Fund or another John Hancock
fund without paying an
additional sales charge.
1. You will not be subject to a sales charge on Class A shares that you
reinvest in a John Hancock fund that is otherwise subject to a sales
charge, as long as you reinvest within 120 days from the redemption date.
If you paid a CDSC upon a redemption, you may reinvest at net asset value
in the same class of shares from which you redeemed within 120 days. Your
account will be credited with the amount of the CDSC previously charged,
and the reinvested shares will continue to be subject to a CDSC. The
holding period of the shares acquired through reinvestment for purposes of
computing the CDSC payable upon a subsequent redemption will include the
holding period of the redeemed shares.
2. Any portion of your redemption may be reinvested in Fund shares or in
shares of other John Hancock funds, subject to the minimum investment
limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the
Fund's name, account number and class from which the shares were
originally redeemed.
Systematic Withdrawal Plan
You can pay routine bills from
your account, or make periodic
disbursements from your
retirement account to comply
with IRS regulations.
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You
can also obtain the application from your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually
or on a selected monthly basis, to yourself or any other designated payee.
4. There is no limit on the number of payees you may authorize, but all
payments must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares,
because you may be subject to an initial sales charge on your purchases of
Class A shares or to a CDSC on your redemptions of Class B shares. In
addition, your redemptions are taxable events.
26
<PAGE>
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks or if deposits to a bank account are returned for any reason.
You can make automatic
investments and simplify your
investing.
Monthly Automatic Accumulation Program (MAAP)
1. You can authorize an investment to be withdrawn automatically each month
on your bank for investment in Fund shares under the "Automatic Investing"
and "Bank Information" sections on the Account Privileges Application.
2. You can also authorize automatic investing through payroll deduction by
completing the "Direct Deposit Investing" section of the Account
Privileges Application.
3. You can terminate your Monthly Automatic Accumulation Program at any time.
4. There is no charge to you for this program, and there is no cost to the
Fund.
5. If you have payments withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
Group Investment Program (Class A only)
Organized groups of at least
four persons may establish
accounts.
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate
dollar amount of all participants' investments. To determine how to
qualify for this program, contact your registered representative or call
1-800-225-5291.
2. The initial aggregate investments of all participants in the group must be
at least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum and you may terminate the program at
any time.
Retirement Plans
1. You may use the Fund for various types of qualified retirement plans,
including Individual Retirement Accounts, Keogh plans (H.R.10), pension
and profit sharing plans (including 401(k) Plans), Tax Sheltered Annuity
retirement plans (403(b) plans or TSA plans ), and Section 457 plans.
2. The initial investment minimum or aggregate minimum for any of these plans
is $250. However, accounts being established as group IRA, SEP, SARSEP,
TSA, 401(k) and Section 457 plans will be accepted without an initial
minimum investment.
27
<PAGE>
[COVER]
JOHN HANCOCK
SPECIAL OPPORTUNITIES FUND
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Custodian
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
Transfer Agent
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Independent Auditors
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For: Service Information
Telephone Exchange call 1-800-225-5291
Investment-by-Phone
Telephone Redemption
For: TDD call 1-800-554-6713
JHD-3900P 3/96
JOHN HANCOCK
SPECIAL
OPPORTUNITIES
FUND
Prospectus
March 1, 1996
A mutual fund seeking long-term
capital appreciation.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-225-5291
["Recycle" symbol] Printed on Recycled Paper
<PAGE>
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
Class A and Class B Shares
Statement of Additional Information
March 1, 1996
This Statement of Additional Information provides information about John
Hancock Special Opportunities Fund (the "Fund") in addition to the information
that is contained in the Fund's Class A and Class B Prospectus dated March 1,
1996 (the "Prospectus").
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Fund's Prospectus, a copy of which may be obtained
free of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Page
----
ORGANIZATION OF THE FUND................................................ 1
INVESTMENT OBJECTIVE AND POLICIES....................................... 1
CERTAIN INVESTMENT PRACTICES............................................ 1
INVESTMENT RESTRICTIONS................................................. 10
THOSE RESPONSIBLE FOR MANAGEMENT................................... 14
INVESTMENT ADVISORY AND OTHER SERVICES.................................. 20
DISTRIBUTION CONTRACT................................................... 21
NET ASSET VALUE......................................................... 23
INITIAL SALES CHARGE ON CLASS A SHARES.................................. 23
DEFERRED SALES CHARGE ON CLASS B SHARES................................. 25
SPECIAL REDEMPTIONS..................................................... 26
ADDITIONAL SERVICES AND PROGRAMS........................................ 26
DESCRIPTION OF THE FUND'S SHARES........................................ 27
TAX STATUS.............................................................. 28
CALCULATION OF PERFORMANCE.............................................. 33
BROKERAGE ALLOCATION.................................................... 34
TRANSFER AGENT SERVICES................................................. 36
CUSTODY OF PORTFOLIO.................................................... 36
INDEPENDENT AUDITORS.................................................... 36
APPENDIX A - ECONOMIC SECTORS AND DESCRIPTION OF BOND RATINGS........... A-1
FINANCIAL STATEMENTS.................................................... --
<PAGE>
ORGANIZATION OF THE FUND
John Hancock Special Opportunities Fund ("the Fund") is a series of
Freedom Investment Trust II (the "Trust"), an open-end management investment
company organized as a Massachusetts business trust on March 31, 1986, under the
laws of The Commonwealth of Massachusetts. The Fund commenced operations on
September 7, 1993. John Hancock Advisers, Inc. (the "Adviser") is an indirect
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (the "Life
Company"), a Massachusetts life insurance company chartered in 1862, with
national headquarters at John Hancock Place, Boston, Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to seek long-term capital appreciation.
The Fund seeks to achieve its objective by emphasizing investments in equity
securities of issuers in various economic sectors. There are market fluctuations
and risks in any investment and therefore there can be no assurance that the
investment objective of the Fund will be realized.
CERTAIN INVESTMENT PRACTICES
When-Issued Securities. "When-issued" refers to securities whose terms are
available and for which a market exists, but which have not yet been issued. No
payment is made with respect to a when-issued transaction, until delivery is
due, often a month or more after the purchase.
The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain an advantageous price
and yield at the time of the transactions. When the Fund engages in a
when-issued transaction, it relies on the seller to consummate the transaction.
The failure of the issuer or seller to consummate the transaction may result in
the Fund's losing the opportunity to obtain a price and yield considered to be
advantageous. On the date the Fund enters into an agreement to purchase
securities on a when-issued basis, the Fund will segregate in a separate account
cash or liquid, high grade debt securities equal in value to the when-issued
commitment. These assets will be valued daily at market, and additional cash or
liquid, high grade debt securities will be segregated in a separate account to
the extent that the total value of the assets in the account declines below the
amount of the when-issued commitment.
Repurchase Agreements. A repurchase agreement is a contract under which
the Fund would acquire a security for a relatively short period (usually not
more than 7 days) subject to the obligation of the seller to repurchase and the
Fund to resell such security at a fixed time and price (representing the Fund's
cost plus interest). The Fund will enter into repurchase agreements only with
member banks of the Federal Reserve System and with "primary dealers" in U.S.
Government securities. The Adviser will continuously monitor the
creditworthiness of the parties with whom it enters into repurchase agreements.
1
<PAGE>
The Fund has established a procedure providing that the securities serving
as collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities and could experience losses, including
possible decline in the value of the underlying securities during the period
while the Fund seeks to enforce its rights thereto, possible subnormal levels of
income and lack of access to income during this period, and expense of enforcing
its rights.
Financial Futures Contracts. The Fund may hedge its portfolio by selling
or purchasing financial futures contracts as an offset against the effect of
expected changes in interest rates or in security or foreign currency values.
Although other techniques could be used to reduce the Fund's exposure to
interest rate, securities market and currency fluctuations, the Fund may be able
to hedge its exposure more effectively and at a lower cost by using financial
futures contracts. The Fund will enter into financial futures contracts for
hedging purposes and for speculative purposes to the extent permitted by
regulations of the Commodity Futures Trading Commission ("CFTC").
Financial futures contracts have been designed by boards of trade which
have been designated "contract markets" by the CFTC. Futures contracts are
traded on these markets in a manner that is similar to the way a stock is traded
on a stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. It is expected that if new types
of financial futures contracts are developed and traded the Fund may engage in
transactions in such contracts.
Although financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts are
closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts (same exchange, underlying security or currency and
delivery month). If the offsetting purchase price is less than the Fund's
original sale price, the Fund realizes a gain, or if it is more, the Fund
realizes a loss. Conversely, if the offsetting sale price is more than the
Fund's original purchase price, the Fund realizes a gain, or if it is less, the
Fund realizes a loss. The Fund's transaction costs must also be included in
these calculations. The Fund will pay a commission in connection with each
purchase or sale of financial futures contracts, including a closing
transaction.
At the time the Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or U.S.
Government securities, known as "initial margin." The margin required for a
financial futures contract is set by the board of trade or exchange on which the
contract is traded and may be modified during the term of the contract. The
initial margin is in the nature of a performance bond or good faith deposit on
the financial futures contract which is returned to the Fund upon termination of
the contract, assuming all contractual obligations have been satisfied. The Fund
expects to earn interest income on its initial margin deposits. Each day, the
futures contract is valued at the official settlement price of the board of
2
<PAGE>
trade or exchange on which it is traded. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. This process is known
as "mark to market." Variation margin does not represent a borrowing or lending
by the Fund but is instead a settlement between the Fund and the broker of the
amount one would owe the other if the financial futures contract expired. In
computing net asset value, the Fund will mark to the market its open financial
futures positions.
Successful hedging depends on the extent of correlation between the market
for the underlying securities and the futures contract market for those
securities or currency. There are several factors that will probably prevent
this correlation from being perfect, and even a correct forecast of general
interest rate, securities market or currency trades may not result in a
successful hedging transaction. There are significant differences between the
securities or currency markets and the futures markets which could create an
imperfect correlation between the markets and which could affect the success of
a given hedge. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for financial
futures and debt and equity securities, including technical influences in
futures trading and differences between the financial instruments being hedged
and the instruments underlying the standard financial futures contracts
available for trading in such respects as interest rate levels, maturities and
creditworthiness of issuers. The degree of imperfection may be increased where
the underlying debt securities are lower-rated, and, thus, subject to greater
fluctuation in price than higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise of
skill and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected interest rate, securities market
or currency trends. The Fund will bear the risk that the price of the securities
being hedged will not move in complete correlation with the price of the futures
contracts used as a hedging instrument. Although the Adviser believes that the
use of financial futures contracts will benefit the Fund, an incorrect
prediction could result in a loss on both the hedged securities or currency in
the Fund's portfolio and the futures position so that the Fund's return might
have been better had hedging not been attempted. However, in the absence of the
ability to hedge, the Adviser might have taken portfolio actions in anticipation
of the same market movements with similar investment results but, presumably, at
greater transaction costs. The low margin deposits required for futures
transactions permit an extremely high degree of leverage. A relatively small
movement in the price of instruments underlying a futures contract may result in
losses or gains in excess of the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount the price of a futures contract may vary either up or down
from the previous day's settlement price, at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day
and, therefore, does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several
3
<PAGE>
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
Finally, although the Fund engages in financial futures transactions only
on boards or trade or exchanges where there appears to be an adequate secondary
market, there is no assurance that a liquid market will exist for a particular
futures contract at any given time. The liquidity of the market depends on
participants closing out contracts rather than making or taking delivery. In the
event participants decide to make or take delivery, liquidity in the market
could be reduced. In addition, the Fund could be prevented from executing a buy
or sell order at a specified price or closing out a position due to limits on
open positions or daily price fluctuation limits imposed by the exchanges or
boards of trade. If the Fund cannot close out a position, it will be required to
continue to meet margin requirements until the position is closed.
Options on Financial Futures Contracts. The Fund may purchase and write
call and put options on financial contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. The Fund would be required
to deposit with its custodian initial and variation margin with respect to put
and call options on futures contracts written by it.
Options on futures contracts involve risks similar to the risks relating
to transactions in financial futures contracts. Also, an option purchased by the
Fund may expire worthless, in which case the Fund would lose the premium paid
therefor.
Other Considerations. The Fund will engage in futures and related options
transactions only for bona fide hedging or speculative purposes to the extent
permitted by CFTC regulations. The Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, the Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities or the currency in which they are denominated that the Fund owns,
or futures contracts will be purchased to protect the Fund against an increase
in the price of securities or the currency in which they are denominated it
intends to purchase. As evidence of this hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities or assets denominated in the related currency in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits the Fund to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish speculative positions in futures contracts and
4
<PAGE>
options on futures will not exceed 5 percent of the net asset value of the
Fund's portfolio, after taking into account unrealized profits and losses on any
such positions and excluding the amount by which such options were in-the-money
at the time of purchase. The Fund will engage in transactions in futures
contracts and related options only to the extent such transactions are
consistent with the requirements of the Internal Revenue Code of 1986, as
amended, for maintaining its qualification as a regulated investment company for
Federal income tax purposes.
When the Fund purchases a futures contract, writes a put option thereon or
purchases a call option thereon, an amount of cash or high grade, liquid debt
securities (i.e., securities rated in one of the top three ratings categories by
Moody's Investors Service, Inc. or Standard & Poor's Corporation) will be
deposited in a segregated account with the Fund's custodian which is equal to
the underlying value of the futures contract reduced by the amount of initial
and variation margin held in the account of its broker.
Options Transactions. The Fund may write listed and over-the-counter
covered call options and covered put options on securities in order to earn
additional income from the premiums received. In addition, the Fund may purchase
listed and over-the-counter call and put options. The extent to which covered
options will be used by the Fund will depend upon market conditions and the
availability of alternative strategies. The Fund may write listed covered and
over-the-counter call and put options on up to 100% of its net assets.
The Fund will write listed and over-the-counter call options only if they
are "covered", which means that the Fund owns or has the immediate right to
acquire the securities underlying the options without additional cash
consideration upon conversion or exchange of other securities held in its
portfolio. A call option written by the Fund will also be "covered" if the Fund
holds on a share-for-share basis a covering call on the same securities where
(i) the exercise price of the covering call held is equal to or less than the
exercise price of the call written or the difference is maintained by the Fund
in cash or high grade, liquid debt obligations in a segregated account with the
Fund's custodian, and (ii) the covering call expires at the same time as the
call written. If a covered call option is not exercised, the Fund would keep
both the option premium and the underlying security. If the covered call option
written by the Fund is exercised and the exercise price, less the transaction
costs, exceeds the cost of the underlying security, the Fund would realize a
gain in addition to the amount of the option premium it received. If the
exercise price, less transaction costs, is less than the cost of the underlying
security, the Fund's loss would be reduced by the amount of the option premium.
The Fund will write a covered put option only with respect to securities
it intends to acquire for the Fund's portfolio and will maintain in a segregated
account with the Fund's custodian cash or high grade, liquid debt securities
with a value equal to the price at which the underlying security may be sold to
the Fund in the event the put option is exercised by the purchaser. The Fund can
also write a "covered" put option by purchasing on a share-for-share basis a put
on the same security as the put written by the Fund if the exercise price of the
covering put held is equal to or greater than the exercise price of the put
written and the covering put expires at the same time as or later than the put
written.
5
<PAGE>
In writing listed and over-the-counter covered put options on securities,
the Fund would earn income from the premiums received. If a covered put option
is not exercised, the Fund would keep the option premium and the assets
maintained to cover the option. If the option is exercised and the exercise
price, including transaction costs, exceeds the market price of the underlying
security, the Fund would realize a loss, but the amount of the loss would be
reduced by the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate its
obligation prior to exercise, it may effect a "closing purchase transaction".
This is accomplished by buying an option of the same series as the option
previously written. The effect of the purchase is that the Fund's position will
be offset by the Options Clearing Corporation. The Fund may not effect a closing
purchase transaction after it has been notified of the exercise of an option.
There is no guarantee that a closing purchase transaction can be effected.
Although the Fund will generally write only those options for which there
appears to be an active secondary market, there is no assurance that a liquid
secondary market on an exchange or board of trade will exist for any particular
option or at any particular time, and for some options no secondary market on an
exchange may exist.
In the case of a written call option, effecting a closing transaction will
permit the Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. In the case of a
written put option, it will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
securities. Also, effecting a closing transaction will permit the cash or
proceeds from the concurrent sale of any securities subject to the option to be
used for other investments. If the Fund desires to sell a particular security
from its portfolio on which it has written a call option, it will effect a
closing transaction prior to or concurrent with the sale of the security.
The Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option.
The Fund will realize a loss from a closing transaction if the cost of the
closing transaction is more than the premium received for writing the option.
However, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security owned by the Fund.
Over-the-Counter Options. The Fund may engage in options transactions on
exchanges and in the over-the-counter markets. In general, exchange-traded
options are third-party contracts (i.e., performance of the parties' obligations
is guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. Over-the-counter ("OTC") transactions are two-party
contracts with price and terms negotiated by the buyer and seller. The Fund will
acquire only those OTC options for which the Adviser believes the Fund can
receive on each business day at least two separate bids or offers (one of which
will be from an entity other than a party to the option) or those OTC options
valued by an independent pricing service. The Fund will write and purchase OTC
options only with member banks of the Federal Reserve System and primary dealers
in U.S. Government securities or their affiliates. The Securities and Exchange
Commission (the "SEC") takes the position that OTC options are illiquid
securities
6
<PAGE>
subject to the Fund's 15% limitation on illiquid securities. The SEC allows the
Fund to exclude from the 15% limitation on illiquid securities a portion of the
value of the OTC options written by the Fund, provided that certain conditions
are met. First, the other party to the OTC options has to be a primary U.S.
Government securities dealer designated as such by the Federal Reserve Bank.
Second, the Fund would have an absolute contractual right to repurchase the OTC
options at a formula price. If the above conditions are met, a Fund must treat
as illiquid only that portion of the OTC option's value (and the value of its
underlying securities) which is equal to the formula price for repurchasing the
OTC option, less the OTC option's intrinsic value.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities, issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities
which provide monthly payments which are, in effect, a "pass-through" of the
monthly interest and principal payments (including any prepayments) made the by
individual borrowers on the pooled mortgage loans. Collateralized mortgage
obligations ("CMOs") in which the Fund may invest are securities issued by a
U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates.
Forward Foreign Currency Transactions. The foreign currency exchange
transactions of the Fund may be conducted on a spot (i.e., cash) basis at the
spot rate for purchasing or selling currency prevailing in the foreign exchange
market. The Fund may also deal in forward foreign currency exchange contracts
involving currencies of the different countries in which it will invest as a
hedge against possible variations in the foreign exchange rate between these
currencies. This is accomplished through contractual agreements to purchase or
sell a specified currency at a specified future date and price set at the time
of the contract. The Fund's dealings in forward foreign currency exchange
contracts will be limited to hedging either specified transactions or portfolio
positions. Transaction hedging is the purchase or sale of forward foreign
currency contracts with respect to specific receivables or payables of the Fund
accruing in connection with the purchase and sale of its portfolio securities
denominated in foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in such foreign currencies. The Fund will not attempt to hedge all of its
foreign portfolio positions and will enter into such transactions only to the
extent, if any, deemed
7
<PAGE>
appropriate by the Adviser. The Fund will not engage in speculative forward
foreign currency exchange transactions.
If the Fund purchases a forward contract, its custodian bank will
segregate cash or high grade, liquid debt securities in a separate account of
the Fund in an amount equal to the value of the Fund's total assets committed to
the consummation of such forward contract. Those assets will be valued at market
daily and if the value of the securities in the separate account declines,
additional cash or securities will be placed in the account so that the value of
the account will be equal to the amount of the Fund's commitment with respect to
such contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency exchange transactions
varies with such factors as the currency involved, the length of the contract
period and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
Foreign Securities. Investments in foreign securities may involve risk and
considerations not present in domestic investments. Since foreign securities
generally may be quoted and pay interest or dividends in foreign currencies, the
value of the assets of the Fund as measured in U.S. dollars will be affected
favorably or unfavorably by changes in the relationship of the U.S. dollar and
other currency rates. The Fund may incur costs in connection with the conversion
of foreign currencies into U.S. dollars and may be adversely affected by
restrictions on the conversion or transfer of foreign currencies. In addition,
there may be less publicly available information about foreign companies than
U.S. companies. Foreign companies may not be subject to accounting, auditing,
and financial reporting standards, practices and requirements comparable to
those applicable to U.S.
companies.
Foreign securities markets, while growing in volume, have for the most
part substantially less volume than U.S. securities markets and securities of
foreign companies are generally less liquid and at times their prices may be
more volatile than securities of comparable U.S. companies. Foreign stock
exchanges, brokers and listed companies are generally subject to less government
supervision and regulation than those in the U.S. The customary settlement time
for non-U.S. securities is less frequent than in the U.S., which could affect
the liquidity of the Fund's investments.
The Fund may invest in companies located in developing countries which,
compared to the U.S. and other developed countries, may have relatively unstable
governments, economies based on only a few industries and securities markets
which trade only a small number of securities. Prices on exchanges located in
developing countries tend to be volatile and, in the past, securities
8
<PAGE>
traded on those exchanges have offered a greater potential for gain (and loss)
than securities traded on exchanges in the U.S. and more developed countries.
In some countries, there is the possibility of expropriation or
confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions or other adverse political, social or diplomatic
developments that could affect investments in these countries.
Short Sales. The Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. The Fund may also engage in
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, the Fund must borrow the security sold
short to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. Until the security is replaced, the Fund is required to pay to the
lender any accrued interest and may be required to pay a premium.
The Fund will realize a gain if the security declines in price between the
date of the short sale and the date on which the Fund replaces the borrowed
security. On the other hand, the Fund will incur a loss as a result of the short
sale if the price of security increases between those dates. The amount of any
gain will be decreased, and the amount of any loss increased, by the amount of
any premium or interest the Fund may be required to pay in connection with a
short sale. The successful use of short selling as a hedging device may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the Securities and Exchange
Commission, if the Fund engages in short sales of the type referred to in
non-fundamental Investment Restriction No. (b) below, it must put in a
segregated account (not with the broker) an amount of cash or U.S. Government
securities equal to the difference between (a) the market value of the
securities sold short at the time they were sold short and (b) any cash or U.S.
Government securities required to be deposited as collateral with the broker in
connection with the short sale (not including the proceeds from the short sale).
In addition, until the Fund replaces the borrowed security, it must daily
maintain the segregated account at such a level that (1) the amount deposited in
it plus the amount deposited with the broker as collateral will equal the
current market value of the securities sold short, and (2) the amount deposited
in it plus the amount deposited with the broker as collateral will not be less
than the market value of the securities at the time they were sold short.
Short selling may produce higher than normal portfolio turnover which may
result in increased transaction costs to the Fund and may result in gains from
the sale of securities deemed to have been held for less than three months,
which gains must be less than 30% of the Fund's gross income in order for the
Fund to qualify for regulated investment company pass-through tax treatment
under the Internal Revenue Code of 1986, as amended.
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<PAGE>
The Fund does not intend to enter into short sales (other than those
"against the box") if immediately after such sale the aggregate of the value of
all collateral plus the amount in such segregated account exceeds the value of
5% of the Fund's net assets. A short sale is "against the box" to the extent
that the Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of a majority of the Fund's outstanding voting
securities which, as used in the Prospectus and this Statement of Additional
Information means approval by the lesser of (1) 67% or more of the Fund's
outstanding shares represented at a meeting if at least 50% of the Fund's
outstanding shares are present in person or by proxy at the meeting, or (2) 50%
of the Fund's outstanding shares.
The Fund may not:
(1) Issue senior securities, except as permitted by paragraph (2) below.
For purposes of this restriction, the issuance of shares of beneficial interest
in multiple classes or series, the purchase or sale of options, futures
contracts and options on futures contracts, interest rate or currency swaps,
forward commitments, forward foreign currency exchange contracts and repurchase
agreements entered into in accordance with the Fund's investment policies, and
the pledge, mortgage or hypothecation of the Fund's assets within the meaning of
paragraph (3) below are not deemed to be senior securities.
(2) Borrow money, except from banks as a temporary measure for
extraordinary or emergency purposes, except pursuant to reverse repurchase
agreements, in amounts not to exceed 33-1/3% of the Fund's total assets
(including the amount borrowed) taken at market value.
(3) Pledge, mortgage, or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if such pledging,
mortgaging or hypothecating does not exceed 33-1/3% of the Fund's total assets
taken at market value.
(4) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities secured by real estate or marketable interests
therein or issued by companies that invest in real estate or interests therein
and may retain or sell real estate acquired due to the ownership of securities.
(6) Make loans, except that the Fund may (a) lend portfolio securities in
an amount that does not exceed 33-1/3% of such Fund's total assets; (b) enter
into repurchase agreements; and (c) purchase bank certificates of deposit, bank
loan participation agreements, bankers'
10
<PAGE>
acceptances or all or a portion of an issue of debt securities, whether or not
the purchase is made upon the original issuance of the securities.
(7) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except financial futures contracts, options on securities,
securities indices, currency and other financial instruments, options on futures
contracts, forward foreign currency exchange contracts, forward commitments,
interest rate or currency swaps, warrants and repurchase agreements entered into
in accordance with the Fund's investment policies.
(8) Purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after such purchase, the value of
the Fund's investments in such industry would exceed 25% of its total assets
taken at market value at the time of each investment. For purposes of this
restriction, telephone, water, gas and electric public utilities are each
regarded as separate industries and wholly-owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parent. This limitation
does not apply to investments by the Fund in obligations of the U.S. Government
or any of its agencies or instrumentalities.
In connection with the lending of portfolio securities under item (6)
above, such loans must at all times be fully collateralized and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Securities used as collateral must be marked to market daily.
Notwithstanding the foregoing fundamental investment restrictions, or any
investment policy or non-fundamental investment restriction of the Fund, the
Fund may invest all or part of its assets in an open-end management investment
company with substantially the same investment objectives, policies and
restrictions as the Fund.
Non-fundamental Investment Restrictions. The following restrictions
are designated as non-fundamental and may be changed by the Board of Trustees
without shareholder approval.
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the management of the Adviser to
save commissions or to average prices among them is not deemed to result in a
securities trading account.
(b) Make short sales of securities or maintain a short position unless (i)
at all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issuer as, and equal in
amount to, the securities sold short; (ii) for the purpose of hedging the Fund's
exposure to an actual or anticipated market decline in the value of its
investments; or (iii) in order to profit from an anticipated decline in the
value of a security.
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<PAGE>
(c) Purchase a security if, as a result, (i) more than 10% of the Fund's
assets would be invested in securities of closed-end investment companies, (ii)
such purchase would result in more than 3% of the total outstanding voting
securities of any one such closed-end investment company being held by the Fund,
or (iii) more than 5% of the Fund's assets would be invested in any one such
closed-end investment company.
(d) Purchase securities of any issuer which, together with any
predecessor, has a record of less than three years' continuous operations prior
to the purchase if such purchase would cause investments of the Fund in all such
issuers to exceed 5% of the value of the total assets of the Fund.
(e) Invest for the purpose of exercising control over or management
of any company.
(f) Purchase warrants of any issuer, if, as a result of such purchases,
more than 2% of the value of the Fund's total assets would be invested in
warrants which are not listed on the New York Stock Exchange or the American
Stock Exchange or more than 5% of the value of the total assets of the Fund
would be invested in warrants generally, whether or not so listed. For these
purposes, warrants are to be valued at the lesser of cost or market, but
warrants acquired by the Fund in units with or attached to debt securities shall
be deemed to be without value.
(g) Knowingly purchase or retain securities of an issuer if one or more of
the Trustees or officers of the Trust or directors or officers of the Adviser or
any investment management subsidiary of the Adviser individually owns
beneficially more than 0.5% and together own beneficially more than 5% of the
securities of such issuer.
(h) Purchase interests in oil, gas or other mineral leases or exploration
programs; however, this policy will not prohibit the acquisition of securities
of companies engaged in the production or transmission of oil, gas or other
minerals.
(i) Purchase interests in real estate limited partnerships.
(j) Purchase any security, including any repurchase agreement maturing in
more than seven days, which is not readily marketable, if more than 15% of the
net assets of the Fund, taken at market value, would be invested in such
securities.
(k) Purchase securities while outstanding borrowings, other than reverse
repurchase agreements, exceed 5% of the Fund's total assets.
(l) Notwithstanding any investment restriction to the contrary, the Fund
may, in connection with the John Hancock Group of Funds Deferred Compensation
Plan for Independent Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds provided that, as a result, (i)
no more than 10% of the Fund's assets would be invested in securities of all
other investment companies, (ii) such purchase would not result in more than 3%
of the total outstanding voting securities of any one such investment company
12
<PAGE>
being held by the Fund and (iii) no more than 5% of the Fund's assets would be
invested in any one such investment company.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interest of the Fund and its shareholders, the Fund may cease offering shares in
the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Trustees may, at their sole discretion, revoke such policy.
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
The Fund agrees that, in accordance with the guidelines of the Arkansas
Securities Department and the statutes of the State of Wisconsin, until such
guidelines and statutes no longer require, it will not purchase securities
(excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 that have been determined by the Trustees to be
liquid based upon the trading markets for the securities) of issuers which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933 if by any reason thereof the value of its aggregate
investment in such classes of securities will exceed 10% of its total assets.
The Fund agrees that, in accordance with Texas Blue Sky Regulations, until
such regulations no longer require, the value of securities of any one issuer in
which the Fund is short may not exceed the lesser of 2% of the value of the
Fund's net assets or 2% of the securities of any class of any such issuer.
The Fund agrees that, in accordance with the Ohio Securities Division and until
such regulations are no longer required, it will comply with Rule
1301:6-3-09(E)(9) by not investing in the securities of other open-end and
closed-end investment companies except by purchase in the open market where no
commission or profit to a sponsor or dealer results from the purchase other than
the customary broker's commission, or except when the purchase is part of a plan
of merger, consolidation, reorganization or acquisition.
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<PAGE>
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees who elect officers who
are responsible for the day-to-day operations of the Fund and who execute
policies formulated by the Trustees. Several of the officers and Trustees of the
Trust are also officers and Directors of the Adviser, or officers or Directors
of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
The following table sets forth the principal occupation of the Trustees
and principal officers of the Trust during the past five years. Unless otherwise
indicated, the business address of each is 101 Huntington Avenue, Boston,
Massachusetts 02199.
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Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
---------------- ---------------- -------------------
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
Officer, the Adviser and The
Berkeley Financial Group
("The Berkeley Group");
Chairman, NM Capital
Management, Inc. ("NM
Capital"); John Hancock
Advisers International
Limited ("Advisers
International"); John Hancock
Funds, Inc., ("John Hancock
Funds"); John Hancock
Investor Services Corporation
("Investor Services") and
Sovereign Asset Management
Corporation ("SAMCorp")
(herein after the Adviser,
The Berkeley Group, NM
Capital, Advisers
International, John Hancock
Funds, Investor Services and
SAMCorp are collectively
referred to as the
"Affiliated Companies");
Chairman, First Signature
Bank & Trust; Director, John
Hancock Freedom Securities
Corp., John Hancock Capital
Corp., New England/Canada
Business Council; Member,
Investment Company Institute
Board of Governors; Director,
Asia Strategic Growth Fund,
Inc.; Trustee, Museum of
Science; President, the
Adviser (until July 1992);
Chairman, John Hancock
Distributors, Inc. until
April 1994.
- ------------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
15
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
---------------- ---------------- -------------------
Douglas M. Costle Trustee (1, 2) Director, Chairman of the
RR2 Box 480 Board and Distinguished
Woodstock, Vermont Senior Fellow, Institute for
05091 Sustainable Communities,
Montpelier, Vermont, since 1991.
Dean Vermont Law School, until
1991. Director, Air and Water
Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
MITRE Corporation (governmental
consulting services).
Leland O. Erdahl Trustee (1, 2) President and Director of
8046 Mackenzie Court Nature Quality Ingredients
Las Vegas, NV 89129 Company, Inc. and Sante Fe
Ingredients Company, Inc.,
private food processing
companies. Director of
Uranium Resources, Inc.
President of Stolar, Inc.
from 1987 to 1991 and
President of Albuquerque
Uranium Corporation from
1985 to 1992. Director of
Freeport-McMoRan Copper &
Gold Company, Inc., Hecla
Mining Company, Canyon
Resources Corporation and
Original Sixteen to One
Mines, Inc. From 1984 to
1987 and 1991, management
consultant.
Richard A. Farrell Trustee(1, 2) President of Farrell, Healer
Venture Capital Partners & Co., a venture capital
160 Federal Street management firm, since
23rd Floor 1980. Prior to that date,
Boston, MA 02110 Mr. Farrell headed the
venture capital group at
Bank of Boston Corporation.
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
16
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
- ---------------- ---------------- -------------------
William F. Glavin Trustee (1, 2) President, Babson College;
Babson College Vice Chairman, Xerox
Horn Library Corporation until June
Babson Park, MA 02157 1989. Director, Caldor Inc.
and Inco Ltd.
Dr. John A. Moore Trustee (1, 2) President and Chief
Institute for Evaluating Executive Officer, Institute
Health Risks for Evaluating Health Risks,
1629 K Street NW a nonprofit institution,
Suite 402 since September 1989.
Washington, DC 20006 Assistant Administrator of
the Office of Pesticides and
Toxic Substances at the
Environmental Protection
Agency from December 1983 to
July 1989.
Patti McGill Peterson Trustee (1, 2) President, St. Lawrence
St. Lawrence University University; Director,
110 Vilas Hall Niagara Mohawk Power
Canton, NY 13617 Corporation and Security
Mutual Life.
John W. Pratt Trustee (1, 2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School
of Business Administration
(Since 1961).
Robert G. Freedman Vice Chairman and Vice Chairman and Chief
Chief Investment Investment Officer, the
Officer (4) Adviser; President (until
December 1994).
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
17
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
- ---------------- ---------------- -------------------
Anne C. Hodsdon President (4) President and Chief
Operating Officer, the
Adviser; Executive Vice
President, the Adviser
(until December 1994);
Senior Vice President; the
Adviser (until December
1993).
James B. Little Senior Vice Senior Vice President, the
President, Chief Adviser.
Financial Officer
Thomas H. Drohan Senior Vice Senior Vice President and
President and Secretary, the Adviser.
Secretary
John A. Morin Vice President Vice President, the Adviser.
Susan S. Newton Vice President, Vice President and Assistant
Assistant Secretary, the Adviser.
Secretary and
Compliance Officer
James J. Stokowski Vice President and Vice President, the Adviser.
Treasurer
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
18
<PAGE>
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which
John Hancock Advisers, Inc. serves as Adviser.
The following table provides information regarding the compensation paid
by the Funds and the other investment companies in the John Hancock Fund Complex
to the Independent Trustees for their services. Mr. Boudreau and each of the
officers of the Funds are interested persons of the Adviser, are compensated by
the Adviser and received no compensation for the Funds for their services.
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement from Funds
Aggregate Benefits Estimated and John
Compensation Accrued as Annual Hancock Fund
Independent from the Part of the Benefits Upon Complex to
Trustees Fund* Fund's Expenses* Retirement Trustees(1)
- -------- ----------- ---------------- ------------- -----------
(Total of 12
Funds)
<S> <C> <C> <C> <C>
William Barron, $ 4,239 $ - $ - $ 41,750
III**
Douglas M. Costle $ 4,239 - - 41,750
Leland O. Erdahl $ 4,239 - - 41,750
Richard A. $ 4,396 - - 43,250
Farrell
William F. Glavin $ 1,240 2,599 - 37,500
Patrick Grant** $ 4,447 - - 43,750
Ralph Lowell, $ 4,239 - - 41,750
Jr.**
Dr. John A. Moore $ 4,239 - - 41,750
Patti McGill $ 4,239 - - 41,750
Peterson
John W. Pratt $ 4,239 - - 41.750
------- ------ ------ ------
$39,756 $2,599 $ - $ 416,750
</TABLE>
*Compensation made for the fiscal year ended October 31, 1995.
**As of January 1, 1996, Messrs. Barron, Grant and Lowell resigned as
Trustees.
(1)The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1995.
As of the January 31, 1996, the officers and Trustees of the Trust as a
group owned less than 1% of the outstanding shares of each class of the Fund and
to the knowledge of the registrant, no persons owned of record or beneficially
5% or more of any class of registrant's outstanding securities.
19
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for the Fund is John Hancock Advisers, Inc., a
Massachusetts corporation (the "Adviser"), with offices at 101 Huntington
Avenue, Boston, Massachusetts 02199-7603. The Adviser is a registered investment
advisory firm which maintains a securities research department, the efforts of
which will be made available to the Fund.
The Adviser was organized in 1968 and presently has more than $16 billion
in assets under management in its capacity as investment adviser to the Fund and
the other mutual funds and publicly traded investment companies in the John
Hancock group of funds having approximately 1,080,000 shareholders. The Adviser
is an affiliate of the Life Company, one of the most recognized and respected
financial institutions in the nation. With total assets under management of more
than $80 billion, the Life Company is one of the ten largest life insurance
companies in the United States, and carries high ratings from Standard & Poor's
and A.M. Best's. Founded in 1862, the Life Company has been serving clients for
over 130 years.
The Trust, on behalf of the Fund, has entered into an advisory agreement
with the Adviser, under which the Adviser provides the Fund with (i) a
continuous investment program, consistent with the Fund's stated investment
objective and policies, (ii) supervision of all aspects of the Fund's operations
except those that are delegated to a custodian, transfer agent or other agent
and (iii) such executive, administrative and clerical personnel, officers and
equipment as are necessary for the conduct of its business.
Under the terms of the advisory agreement with the Fund, the Adviser
provides the Fund with office space, supplies and other facilities required for
the business of the Fund. The Adviser pays the compensation of all officers and
employees of the Trust, and pays the expenses of clerical services relating to
the administration of the Fund. All expenses which are not specifically paid by
the Adviser and which are incurred in the operation of the Fund (including fees
of Trustees of the Trust who are not "interested persons," as such term is
defined in the Investment Company Act) are borne by the Fund.
The Fund pays the Adviser monthly an advisory fee, which is accrued daily,
based on a stated percentage of the Fund's average daily net asset value as
follows: .80% on the first $500 million of average daily net assets of the Fund,
.75% on the next $500 million of average net assets and .70% of average net
assets in excess of $1 billion.
If the total of all ordinary business expenses of the Fund for any fiscal
year exceeds the limitations prescribed by any state in which shares of the Fund
are qualified for sale, the fee payable to the Adviser will be reduced to the
extent of such excess and the Adviser will make any additional arrangements
necessary to eliminate remaining excess expenses. At this time, the most
restrictive limit on expenses imposed by a state requires that expenses charged
to the Fund in any fiscal year not exceed 2-1/2% of the first $30,000,000 of the
Fund's average net assets, 2% of the next $70,000,000 of such net assets, and
1-1/2% of the remaining average net assets. When
20
<PAGE>
calculating the above limit, the Fund may exclude interest, brokerage
commissions and extraordinary expenses.
Pursuant to the advisory agreement, the Adviser is not liable to the Fund
or its shareholders for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which the investment
management contract relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Adviser in the performance of
its duties or from reckless disregard by the Adviser of its obligations and
duties under the investment management contract.
The advisory agreement was last approved May 1, 1995 and will continue in
effect year to year thereafter if approved annually by vote of a majority of the
Trustees of the Trust who are not interested persons of one of the parties to
the contract, cast in person at a meeting called for the purpose of voting on
such approval, and by either the Trustees or the holders of a majority of the
Fund's outstanding voting securities. The agreement will automatically terminate
upon assignment. The agreement may be terminated without penalty on 60 days'
notice at the option of either party to the contract or by vote of a majority of
the outstanding voting securities of the Fund.
For the fiscal year ended October 31, 1995, the Fund paid the Adviser an
investment advisory fee of $1,870,771.
DISTRIBUTION CONTRACT
The Fund has entered into a distribution contract with John Hancock Funds. Under
the contract, John Hancock Funds is obligated to use its best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined plus an applicable sales charge, if any. In connection
with the sale of Class A or Class B shares, John Hancock Funds and Selling
Brokers receive compensation in the form of a sales charge imposed, in the case
of Class A shares at the time of sale or, in the case of Class B shares, on a
deferred basis. The sales charges are discussed further in the Prospectus.
The Fund's Trustees have adopted Distribution Plans with respect to Class A and
Class B shares ("the "Plans"), pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Under the Plans, the Fund will pay distribution and service
fees at an aggregate annual rate of up to 0.30% and 1.00% respectively, of the
Fund's daily net assets attributable to shares of that class. However, the
service fee will not exceed 0.25% of the Fund's average daily net assets
attributable to each class of shares. The distribution fees reimburse John
Hancock Funds for its distribution costs incurred in the promotion of sales of
Fund shares, and the service fees compensate Selling Brokers for providing
personal and account maintenance services to shareholders. In the event that
John Hancock Funds is not fully reimbursed for expenses incurred by it under the
Class B Plan in any fiscal year, John Hancock Funds may carry these expenses
forward, provided, however, that the Trustees may terminate the Class B Plan and
thus the Fund's obligation to make further payments at any time. Accordingly,
the Fund does not treat unreimbursed expenses
21
<PAGE>
relating to the Class B shares as a liability of the Fund. The Plans were
approved by a majority of the voting securities of the Fund. The Plans and all
amendments were approved by the Trustees, including a majority of the Trustees
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plans (the "Independent Trustees"),
by votes cast in person at meetings called for the purpose of voting on such
Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis.
During the fiscal year ended October 31, 1995, the Funds paid John Hancock Funds
the following amounts of expenses with respect to the Class A and Class B shares
of the Fund:
<TABLE>
<CAPTION>
Expense Items
-------------
Printing and Expenses Interest,
Mailing of Compensation of John Carrying or
Prospectus to to Selling Hancock Other Finance
Advertising New Shareholders Brokers Funds Charges
----------- ---------------- ------- ----- -------
Special Opportunities
- ---------------------
<S> <C> <C> <C> <C> <C>
Class A shares $ 56,577 $4,108 $102,392 $133,915 $ 0
Class B shares $112,118 $ 0 $372,081 $294,995 $569,564
</TABLE>
Each of the Plans provides that it will continue in effect only so long as its
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. Each of the Plans provides that it may be terminated
without penalty, (a) by vote of a majority of the Independent Trustees, (b) by a
vote of a majority of the Fund's outstanding shares of the applicable class in
each case upon 60 days' written notice to John Hancock Funds and (c)
automatically in the event of assignment. Each of the Plans further provides
that it may not be amended to increase the maximum amount of the fees for the
services described therein without the approval of a majority of the outstanding
shares of the class of the Fund which has voting rights with respect to the
Plan. And finally, each of the Plans provides that no material amendment to the
Plan will, in any event, be effective unless it is approved by a vote of the
Trustees and the Independent Trustees of the Fund. The holders of Class A and
Class B shares have exclusive voting rights with respect to the Plan applicable
to their respective class of shares. In adopting the Plans the Trustees
concluded that, in their judgment, there is a reasonable likelihood that the
Plans will benefit the holders of the applicable class of shares of the Fund.
When the Trust seeks an Independent Trustee to fill a vacancy or as a nominee
for election by shareholders, the selection or nomination of the Independent
Trustee is, under resolutions adopted by the Trustees contemporaneously with
their adoption of the Plan, committed to the discretion of the Committee on
22
<PAGE>
Administration of the Trustees. The members of the Committee on Administration
are all Independent Trustees and are identified in this Statement of Additional
Information under the heading "Those Responsible for Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's
shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished
by a principal market maker or a pricing service, both of which generally
utilize electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange of NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned categories for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the mean between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or
less are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of a Fund's NAV.
A Fund will not price its securities on the following national holidays:
New Year's Day; Presidents' Day, Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day. On any day an international
market is closed and the New York Stock Exchange is open, any foreign securities
will be valued at the prior day's close with the current day's exchange rate.
Trading of foreign securities may take place on Saturdays and U.S. business
holidays on which a Fund's NAV is not calculated. Consequently, a Fund's
portfolio securities may trade and the NAV of the Fund's redeemable securities
may be significantly affected on days when a shareholder has no access to the
Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund
are described in the Fund's Prospectus. Methods of obtaining reduced sales
charges referred to generally in the Prospectus are described in detail below.
In calculating the sales charge applicable to current purchases of Class A
shares of the Fund, the investor is entitled to cumulate current purchases with
the greater of the current value (at offering price) of the Class A shares of
the Fund owned by the investor, or if Investor Services is notified by the
investor's dealer or the investor at the
23
<PAGE>
time of the purchase, the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to
purchases of Class A shares made at one time, the purchases will be combined if
made by (a) an individual, his or her spouse and their children under the age of
21, purchasing securities for his or their own account, (b) a trustee or other
fiduciary purchasing for a single Fund, estate or fiduciary account, and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
Without Sales Charge. As described in the Prospectus, Class A shares
of the Fund may be sold without a sales charge to persons described in the
Prospectus.
Accumulation Privilege. Investors (including investors combining
purchases) who are already Class A shareholders may also obtain the benefit of
the reduced sales charge by taking into account not only the amount then being
invested but also the purchase price or value of the Class A shares already held
by such persons.
Combination Privilege. Reduced sales charges (according to the schedule
set forth in the Prospectus) also are available to an investor purchasing Class
A shares based on the aggregate amount of his concurrent and prior investments
in Class A shares of the Fund and shares of all other John Hancock funds which
carry a sales charge.
Letter of Intention. Reduced sales charges are also applicable to
investments in Class A shares made over a specified period pursuant to a Letter
of Intention ("LOI"), which should be read carefully prior to its execution by
an investor. The Fund offers two options regarding the specified period for
making investments under the LOI. All investors have the option of making their
investments over a period of thirteen months. Investors who are using the Fund
as a funding medium for a qualified retirement plan, however, may opt to make
the necessary investments called for by the LOI over a 48 month period. These
qualified retirement plans include group IRA's, SEP, SARSEP, TSA, 401(k) plans,
and Section 457 plans. Such an investment (including accumulations and
combinations) must aggregate $25,000 or more invested during the specified
period from the date of the Letter or from a date within ninety days prior
thereto, upon written request to Investor Services. The sales load applicable to
all amounts invested under the LOI is computed as if the aggregate amount
intended to be invested had been invested immediately. If such aggregate amount
is not actually invested, the difference in the sales load actually paid and the
sales load payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made in with the specified period (either 13
or 48 months), the sales load applicable will not be higher than that which
would have been applied (including accumulations and combinations) had the LOI
been for the amount actually invested.
The LOI authorizes the Investor Services to hold in escrow a number of
Class A shares (approximately 5% of the aggregate) sufficient to make up any
difference in sales charges on the amount intended to be invested and the amount
actually invested, until such investment is
24
<PAGE>
completed within the thirteen-month period, at which time the escrowed Class A
shares will be released. If the total investment specified in the LOI is not
completed, the shares held in escrow may be redeemed and the proceeds used as
required to pay such sales charge as may be due. By signing the LOI, the
investor authorizes Investor Services to act as his or her attorney-in-fact to
redeem any escrowed Class A shares and adjust the sales charge, if necessary. A
LOI does not constitute a binding commitment by an investor to purchase, or by
the Fund to sell, any additional shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so that the Fund will receive
the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
six years of purchase will be subject to a contingent deferred sales charge
("CDSC") at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B shares being redeemed. Accordingly, no CDSC will be imposed on increases
in account value above the initial purchase prices, including increases in
account value derived from reinvestment of dividends or capital gains
distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining this number of
years, all payments during a month will be aggregated and deemed to have been
made on the last day of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are used in
whole or in part by John Hancock Funds to defray its expenses related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, such as the payment of compensation to select Selling
Brokers for selling Class B shares. The combination of the CDSC and the
distribution and service fees facilitates the ability of the Fund to sell the
Class B shares without a sales charge being deducted at the time of the
purchase. See the Prospectus for additional information regarding the CDSC.
25
<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he or she would incur a brokerage charge.
Any such securities would be valued for the purposes of making such payment at
the same value as used in determining net asset value. The Fund has, however,
elected to be governed by Rule 18f-1 under the Investment Company Act. Under
that rule, the Fund must redeem its shares for cash except to the extent that
the redemption payments to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of
such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. As described more fully in the Prospectus, the Fund
permits exchanges of shares of any class of the Fund for shares of the same
class in any other John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Prospectus, the
Fund permits the establishment of a Systematic Withdrawal Plan. Payments under
this plan represent proceeds arising from the redemption of the Fund's shares.
Since the redemption price of the shares of the Fund may be more or less than
the shareholder's cost, depending upon the market value of the securities owned
by the Fund at the time of redemption, the distribution of cash pursuant to this
plan may result in realization of gain or loss for purposes of federal, state
and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares of the Fund
could be disadvantageous to a shareholder because of the sales charge payable on
such purchases of Class A shares and upon redemption of Class B shares and
because redemptions are taxable events. Therefore, a shareholder should not
purchase Class A or Class B shares at the same time as a Systematic Withdrawal
Plan is in effect. The Fund reserves the right to modify or discontinue the
Systematic Withdrawal Plan of any shareholder on 30 days' prior written notice
to such shareholder, or to discontinue the availability of such plan in the
future. The shareholder may terminate the plan at any time by giving proper
notice to Investor Services.
Monthly Automatic Accumulation Program (MAAP). This program is explained
more fully in the Prospectus. The program, as it relates to automatic investment
checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any checks.
26
<PAGE>
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the processing date of any investment.
Reinvestment Privilege. A shareholder who has redeemed Fund shares may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in the same class of the Fund
or in any of the other John Hancock funds, subject to the minimum investment
limits of that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
the Fund or in Class A shares of any of the other John Hancock funds. If a CDSC
was paid upon a redemption, a shareholder may reinvest the proceeds from such
redemption at net asset value in additional shares of the class from which the
redemption was made. Such shareholder's account will be credited with the amount
of any CDSC charge upon the prior redemption. The holding period of the shares
acquired through reinvestment will, for purposes of computing the CDSC payable
upon a subsequent redemption, include the holding period of the redeemed shares.
The Fund may modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for
federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated as described under the heading "Tax
Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and
supervision of the Fund. The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of the
Fund, without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this Statement
of Additional Information, the Trustees have authorized shares of the Fund and
four other series. The Declaration of Trust also authorizes the Trustees to
classify and reclassify the shares of the Fund, or any new series of the Fund,
into one or more classes.
The shares of each class of the Fund represent an equal proportionate
interest in the aggregate net assets attributable to that class of the Fund.
Class B shares bear the expense of the CDSC arrangement and any expenses
(including the higher distribution expenses) resulting from this sales
arrangement. Holders of Class A shares and Class B shares have certain exclusive
voting rights on matters relating to their respective distribution plans. The
different classes of the Fund may bear different expenses relating to the cost
of holding shareholder meetings necessitated by the exclusive voting rights of
any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares
will be calculated in the same manner, at the same time and on the same day and
will be in the same amount, except that (i) the distribution and service fees
relating to Class A and Class B shares will be borne
27
<PAGE>
exclusively by that class (ii) Class B shares will pay higher distribution and
service fees than Class A shares and (iii) each of Class A shares and Class B
shares will bear any other class expenses properly allocable to such class of
shares, subject to certain conditions imposed by the Internal Revenue Service in
issuing rulings to funds with a multiple-class structure. Similarly, the net
asset value per share may vary depending on whether Class A and Class B shares
are purchased.
In the event of liquidation, shareholders are entitled to share pro rata in
the net assets of the Fund available for distribution to such shareholders.
Shares entitle their holders to one vote per share, are freely transferable and
have no preemptive, subscription or conversion rights. When issued, shares are
fully paid and non-assessable, by the Trust, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration
of Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the Trust. However, the Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations or affairs of
the Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any Fund shareholder held
personally liable by reason of being or having been a shareholder. Liability is
therefore limited to circumstances in which the Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
TAX STATUS
Each series of Freedom Investment Trust II, including the Fund, is treated
as a separate entity for accounting and tax purposes. The Fund has qualified and
elected to be treated as a "regulated investment company" under Subchapter M of
the Internal Revenue Code of 1986, as amended (the "Code"), and intends to
continue to so qualify for each taxable year. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timing of its distributions, and the diversification of its assets, the Fund
will not be subject to Federal income tax on taxable income (including net
short-term and long-term capital gains) which is distributed to shareholders at
least annually in accordance with the timing requirements of the Code.
The Fund will be subject to a 4% non deductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
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Distributions from the Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Fund's Prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital gains.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for Federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
If the Fund invests in stock of certain non-U.S. corporations that receive
at least 75% of their annual gross income from passive sources (such as interest
producing investments, dividends, rents, royalties or capital gain) or hold at
least 50% of their assets in investments producing such passive income ("passive
foreign investment companies"), the Fund could be subject to Federal income tax
and additional interest charges on "excess distributions" received from these
passive foreign investment companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections, if available, ameliorate these adverse tax
consequences. Accordingly, the Fund may limit its investments in passive foreign
investment companies to minimize its tax liability, or maximize its return from
these investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency futures and options, foreign currency forward
contracts, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount, timing and character of distributions to shareholders. Any such
transactions that are not directly related to the Fund's investment in stock or
securities, possible including speculative currency positions or currency
derivatives not used for hedging purposes, may increase the amount of gain it is
deemed to recognize from the sale of certain investments held for less than
three months, which gain is limited under the Code to less than 30% of its
annual gross income, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
least 90% of its annual gross income. If the net foreign exchange loss for a
year treated as ordinary loss under Section 988 were to exceed the Fund's
investment company taxable income computed without regard to such loss (i.e.,
all of the Fund's net income other than any excess of net long-term capital gain
over net short-term capital loss) the resulting overall ordinary loss for such
year would not be deductible by the Fund or its shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
Investors may be entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in the Code.
Specifically, if more than 50% of the value of the Fund's total assets at the
close of any
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taxable year consists of stock or securities of foreign corporations, the Fund
may file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends actually received) their pro rata
shares of foreign income taxes paid by the Fund even though not actually
received by them, and (ii) treat such respective pro rata portions as foreign
income taxes paid by them.
If the election is made, shareholders may then deduct such pro rata
portions of foreign income taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign income taxes paid by the Fund, although
such shareholders will be required to include their share of such taxes in gross
income. Shareholders who claim a foreign tax credit for such foreign taxes may
be required to treat a portion of dividends received from the Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credit. Tax-exempt shareholders will ordinarily not benefit from this election.
Each year that the Fund files the election described above, its shareholders
will be notified of the amount of (i) each shareholder's pro rata share of
foreign income taxes paid by the Fund and (ii) the portion of Fund dividends
which represents income from each foreign country.
The amount of net realized short-term and long-term capital gains, if any,
in any given year will vary depending upon the Adviser's current investment
strategy and whether the Adviser believes it to be in the best interest of the
Fund to dispose of portfolio securities or enter into options or futures
transactions that will generate capital gains. At the time of an investor's
purchase of Fund shares, a portion of the purchase price is often attributable
to realized or unrealized appreciation in the Fund's portfolio or undistributed
taxable income of the Fund. Consequently, subsequent distributions on these
shares from such appreciation or income may be taxable to such investor even if
the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the
exchange privilege) a shareholder may realize a taxable gain or loss depending
upon his basis in his shares. Such gain or loss will be treated as capital gain
or loss if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, depending upon the shareholder's tax holding period for
the shares. A sales charge paid in purchasing Class A shares of the Fund cannot
be taken into account for purposes of determining gain or loss on the redemption
or exchange of such shares within 90 days after their purchase to the extent
shares of the Fund or another John Hancock fund are subsequently acquired
without payment of a sales charge pursuant to the reinvestment or exchange
privilege. This disregarded charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Also, any loss
realized on a redemption or exchange may be disallowed to the extent the shares
disposed of are replaced with other shares of the Fund within a period of 61
days beginning 30 days before and ending 30 days after the shares are disposed
of, such as pursuant to the Automatic Dividend Reinvestment Plan. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term
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capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
Although its present intention is to distribute all net short-term and
long-term capital gains, if any, the Fund reserves the right to retain and
reinvest all or any portion of its "net capital gain," which is the excess, as
computed for Federal income tax purposes, of net long-term capital gain over net
short-term capital loss in any year. The Fund will not in any event distribute
net long-term capital gains realized in any year to the extent that a capital
loss is carried forward from prior years against such gain. To the extent such
excess was retained and not exhausted by the carryforward of prior years'
capital losses, it would be subject to Federal income tax in the hands of the
Fund. Each shareholder would be treated for Federal income tax purposes as if
the Fund had distributed to him on the last day of its taxable year his pro rata
share of such excess, and he had paid his pro rata share of the taxes paid by
the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder
would (a) include his pro rata share of such excess as long-term capital gain
income in his return for his taxable year in which the last day of the Fund's
taxable year falls, (b) be entitled either to a tax credit on his return for, or
to a refund of, his pro rata share of the taxes paid by the Fund, and (c) be
entitled to increase the adjusted tax basis for his shares in the Fund by the
difference between his pro rata share of such excess and his pro rata share of
such taxes.
For Federal income tax purposes, the Fund is permitted to carryforward a
net capital loss in any year to offset its net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund has $5,914,444 of capital loss carryforwards, which
expire October 31, 2002, available to offset future capital gains.
For purposes of the dividends received deduction available to
corporations, dividends received by the Fund, from U.S. domestic corporations in
respect of any share of stock held by the Fund, for U.S. Federal income tax
purposes, for at least 46 days (91 days in the case of certain preferred stock)
and distributed and designated by the Fund may be treated as qualifying
dividends. Corporate shareholders must meet the minimum holding period
requirement stated above (46 or 91 days) with respect to their shares of the
Fund in order to qualify for the deduction and, if they borrow to acquire such
shares, may be denied a portion of the dividends received deduction. The entire
qualifying dividend, including the otherwise deductible amount, will be included
in determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability, if any. Additionally, any corporate
shareholder should consult its tax adviser regarding the possibility that its
tax basis in its shares may be reduced, for Federal income tax purposes, by
reason of "extraordinary dividends" received with respect to the shares, for the
purpose of computing its gain or loss on redemption or other disposition of the
shares.
The Fund accrues income on certain PIKs, zero coupon securities or certain
increasing rate securities (and, in general, any other securities with original
issue discount or with market discount if the Fund elects to include market
discount in income currently) prior to the receipt of
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the corresponding cash payments. However, the Fund must distribute, at lease
annually, all or substantially all of its net income, including such accrued
income, to shareholders to qualify as a regulated investment company under the
Code and avoid Federal income and excise taxes. Therefore, the Fund may have to
dispose of its portfolio securities under disadvantageous circumstances to
generate cash, or may have to leverage itself by borrowing the cash, to satisfy
distribution requirements.
Investment in debt obligations that are at risk of our in default presents
special tax issues for the Fund. Tax rules are not entirely clear about issues
such as when the Fund may cease to accrue interest, original issue discount, or
market discount, when and to what extent deductions may be taken for bad debts
or worthless securities, how payments received on obligations in default should
be allocated between principal and income, and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fund in order to reduce the risk of distributing insufficient
income to preserve its status as a regulated investment company and seek to
avoid becoming subject to Federal income or excise tax.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Limitations imposed by the Code on regulated investment companies like the
Fund may restrict the Fund's ability to enter into futures, options, and forward
transactions.
Certain options, futures and forward foreign currency transactions
undertaken by the Fund may cause the Fund to recognize gains or losses from
marking to market even though its positions have not been sold or terminated and
affect the character as long-term or short-term (or, in the case of certain
currency forwards, options and futures, as ordinary income or loss) and timing
of some capital gains and losses realized by the Fund. Also, certain of the
Fund's losses on its transactions involving options, futures or forward
contracts and/or offsetting portfolio positions may be deferred rather than
being taken into account currently in calculating the Fund's taxable income.
Certain of the applicable tax rules may be modified if the Fund is eligible and
chooses to make one or more of certain tax elections that may be available.
These transactions may therefore affect the amount, timing and character of the
Fund's distributions to shareholders. The Fund will take into account the
special tax rules (including consideration of available elections) applicable to
options, futures or forward contracts in order to minimize any potential adverse
tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local
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taxes. Shareholders should consult their own tax advisers as to the Federal,
state or local tax consequences of ownership of shares of, and receipt of
distributions from, the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their Fund investment is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividends from the Fund and, unless an effective IRS Form W-8 or
authorized substitute is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company under
the Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
Total Return
The average annual total return for Class A shares of the Fund for the 1
year period ended October 31, 1995 and from commencement of operations on
November 1, 1993 was 11.62% and 2.05%, respectively and reflect payment of the
maximum sales charge of 5.00%.
The average annual total return for Class B shares of the Fund for the 1
year period ended October 31, 1995 and from commencement of operations on
November 1, 1993 was 11.77% and 1.55%, respectively with the CDSC applied at the
end of the period.
Average annual total return is determined separately for Class A and Class
B shares. Total return is computed by finding the average annual compounded
rates of return over the designated periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
[GRAPHIC OMITTED]
Where:P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the designated period
assuming a hypothetical $1,000 payment made at the beginning
of the designated period
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper-Mutual
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Fund Performance Analysis", a monthly publication which tracks net assets, total
return, and yield on equity mutual funds in the United States. Ibottson and
Associates, CDA Weisenberger and F.C. Towers are also used for comparison
purposes as well as the Russell and Wilshire Indices.
Performance ranking and rating reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may also be
utilized.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors, including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemption of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by officers of the Trust pursuant
to recommendations made by an investment committee of the Adviser, which
consists of officers and directors of the Adviser and its affiliates, and
officers and Trustees who are interested persons of the Trust. Orders for
purchases and sales of securities are placed in a manner which, in the opinion
of the officers of the Fund, will offer the best price and market for the
execution of each such transaction. Purchases from underwriters of portfolio
securities may include a commission or commissions paid by the issuer and
transactions with dealers serving as market makers reflect a "spread."
Investments in debt securities are generally traded on a net basis through
dealers acting for their own account as principals and not as brokers; no
brokerage commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing primary
policy, the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of the Fund a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in
the selection of brokers and dealers, and in the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research information
and to a lesser extent statistical assistance furnished to the Adviser, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other
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advisory clients of the Adviser, and, conversely, brokerage commissions and
spreads paid by other advisory clients of the Adviser may result in research
information and statistical assistance beneficial to the Fund. The Fund will
make no commitment to allocate portfolio transactions upon any prescribed basis.
While the Adviser will be primarily responsible for the allocation of the Fund's
brokerage business, the policies and practices of the Adviser in this regard
must be consistent with the foregoing and will at all times be subject to review
by the Trustees. For the years ended October 31, 1995 and 1994, the Fund paid
negotiated brokerage commissions of $843,682 and $326,247, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the
Fund may pay a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the year ended October 31, 1995,
the Fund paid commissions of $70,270 to compensate brokers for research services
such as industry and company reviews and evaluations of the securities.
The Adviser's indirect parent, the Life Company is the indirect sole
shareholder of John Hancock Distributors, Inc. ("Distributors"), a broker-dealer
and John Hancock Freedom Securities Corporation and its two broker-dealer
subsidiaries, Tucker Anthony Incorporated and Sutro & Company, Inc. ("Sutro"),
each, (an "Affiliated Broker"). Pursuant to procedures established by the
Trustees and consistent with the above policy of obtaining best net results, the
Fund may execute portfolio transactions with through Affiliated Brokers. For the
fiscal year ended October 31, 1995, the Fund paid no commissions to Affiliated
Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Trustees believe to be contemporaneously charged by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with an
Affiliated Broker if the Fund would have to pay a commission rate less favorable
than the Affiliated Broker's contemporaneous charges for comparable transactions
for its other most favored, but unaffiliated, customers except for accounts for
which the Affiliated Broker acts as clearing broker and comparable to the Fund
as determined by a majority of the Trustees who are not interested persons (as
defined in the Investment Company Act) of the Trust, the Adviser or the
Affiliated Broker. Commissions on transactions with Affiliated Brokers must
comply with Rule 17e-1 of the 1940 Act and must be fair and reasonable to
shareholders as determined in good faith by the Trustees. Because the Adviser,
which is affiliated with the Affiliated Brokers, has, as investment adviser to
the Fund, the obligation to provide investment management services, which
includes elements of research and related investment skills, such research and
related skills will not be used by the Affiliated Brokers as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria. The Fund will not effect principal transactions with
Affiliated Brokers.
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Other investment advisory clients advised by the Adviser may also invest
in the same securities as the Fund. When these clients buy or sell the same
securities at substantially the same time, the Adviser may average the
transactions as to price and allocate the amount of available investments in a
manner which the Adviser believes to be equitable to each client, including the
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtainable for
it. On the other hand, to the extent permitted by law, the Adviser may aggregate
the securities to be sold or purchased for the Fund with those to be sold or
purchased for other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation ("Investor Services"), P.O. Box
9116, Boston, MA 02205-9116, a wholly-owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Fund. The Fund pays
an annual fee for of $16.00 for each Class A shareholder and $18.50 for each
Class B shareholder, plus certain out-of-pocket expenses. These expenses are
aggregated and charged to the Fund and allocated to each class on the basis of
the relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian
agreement between the Trust and Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts 02110. Under the custodian agreement, State Street
Bank and Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts, 02110. Price Waterhouse LLP audits and renders an
opinion on the Fund's annual financial statements and reviews the Fund's annual
Federal income tax return.
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APPENDIX A
ECONOMIC SECTORS AND DESCRIPTION OF BOND RATINGS
ECONOMIC SECTORS
The Fund seeks to achieve its investment objective by varying the
weighting of its portfolio among the following sixteen economic sectors:
1. Automotive and Housing Sector: companies engaged in the design,
production and sale of automobiles, automobile parts, mobile homes and related
products, and in the design, construction, renovation and refurbishing of
residential dwellings. The value of automobile industry securities is affected
by foreign competition, consumer confidence, consumer debt and installment loan
rates. The housing construction industry is affected by the level of consumer
confidence, consumer debt, mortgage rates and the inflation outlook.
2. Consumer Goods and Services Sector: companies engaged in
providing consumer goods and services such as: the design, processing,
production and storage of packaged, canned, bottled and frozen foods and
beverages; and the design, production and sale of home furnishings, appliances,
clothing, accessories, cosmetics and perfumes. Certain such companies are
subject to government regulation affecting the permissibility of using various
food additives and production methods, which regulations could affect company
profitability. Also, the success of food- and fashion-related products may be
strongly affected by fads, marketing campaigns and other factors affecting
supply and demand.
3. Defense and Aerospace Sector: companies engaged in the research,
manufacture or sale of products or services related to the defense and aerospace
industries, such as: air transport; data processing or computer-related
services; communications systems; military weapons and transportation; general
aviation equipment, missiles, space launch vehicles and spacecraft; units for
guidance, propulsion and control of flight vehicles; and airborne and
ground-based equipment essential to the test, operation and maintenance of
flight vehicles. Since such companies rely largely on U.S. (and other)
governmental demand for their products and services, their financial conditions
are heavily influenced by Federal (and other governmental) defense spending
policies.
4. Energy Sector: companies in the energy field, including oil, gas,
electricity and coal as well as nuclear, geothermal, oil shale and solar sources
of energy. The business activities of companies comprising this sector may
include: production, generation, transmission, marketing, control or measurement
of energy or energy fuels; provision of component parts or services to companies
engaged in such activities; energy research or experimentation; environmental
activities related to the solution of energy problems; and activities
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resulting from technological advances or research discoveries in the energy
field. The value of such companies' securities varies based on the price and
supply of energy fuels and may be affected by events relating to international
politics, energy conservation, the success of exploration projects, and the tax
and other regulatory policies of various governments.
5. Financial Services Sector: companies providing financial services
to consumers and industry, such as: commercial banks and thrift institutions;
consumer and industrial finance companies; securities brokerage companies;
leasing companies; and firms in all segments of the insurance field (such as
multiline, property and casualty, and life insurance). These kinds of companies
are subject to extensive governmental regulations, some of which regulations are
currently being studied by Congress. The profitability of these groups may
fluctuate significantly as a result of volatile interest rates and general
economic conditions.
6. Health Care Sector: companies engaged in the design, manufacture
or sale of products or services used in connection with health care or medicine,
such as: pharmaceutical companies; firms that design, manufacture, sell or
supply medical, dental and optical products, hardware or services; companies
involved in biotechnology, medical diagnostic and biochemical research and
development; and companies involved in the operation of health care facilities.
Many of these companies are subject to government regulation, which could affect
the price and availability of their products and services. Also, products and
services in this sector could quickly become obsolete.
7. Heavy Industry Sector: companies engaged in the research,
development, manufacture or marketing of products, processes or services related
to the agriculture, chemicals, containers, forest products, non-ferrous metals,
steel and pollution control industries, such as: synthetic and natural
materials, for example, chemicals, plastics, fertilizers, gases, fibers,
flavorings and fragrances; paper, wood products; steel and cement. Certain
companies in this sector are subject to regulation by state and Federal
authorities, which could require alteration or cessation of production of a
product, payment of fines or cleaning of a disposal site. In addition, since
some of the materials and processes used by these companies involve hazardous
components, there are risks associated with their production, handling and
disposal. The risk of product obsolescence is also present.
8. Leisure and Entertainment Sector: companies engaged in the
design, production or distribution of goods or services in the leisure industry,
such as: television and radio broadcast or manufacture; motion pictures and
photography: recordings and musical instruments; publishing; sporting goods,
camping and recreational equipment; sports arenas; toys and games; amusement and
theme parks; travel-related services and airlines; hotels and motels; fast food
and other restaurants; and gaming casinos. Many products produced by companies
in this sector -- for example, video and electronic games -- may quickly become
obsolete.
9. Machinery and Equipment Sector: companies engaged in the
research, development or manufacture of products, processes or services relating
to electrical equipment, machinery, pollution control and construction services,
such as: transformers, motors, turbines, hand tools, earth-moving equipment and
waste disposal services. The profitability of most
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companies in this group may fluctuate significantly in response to capital
spending and general economic conditions. Since some of the materials and
processes used by these companies involve hazardous components, there are risks
associated with their production, handling and disposal. The risk of product
obsolescence is also present.
10. Precious Metals Sector: companies engaged in exploration,
mining, processing or dealing in gold, silver, platinum, diamonds or other
precious metals or companies which, in turn, invest in companies engaged in
these activities. A significant portion of this sector may be represented by
securities of foreign companies, and investors should understand the special
risks related to such an investment emphasis. Also, such securities depend
heavily on prices in metals, some of which may experience extreme price
volatility based on international economic and political developments.
11. Retailing Sector: companies engaged in the retail distribution
of home furnishings, food products, clothing, pharmaceuticals, leisure products
and other consumer goods, such as: department stores; supermarkets; and retail
chains specializing in particular items such as shoes, toys or pharmaceuticals.
The value of securities in this sector will fluctuate based on consumer spending
patterns, which depend on inflation and interest rates, level of consumer debt
and seasonal shopping habits. The success or failure of a particular company in
this highly competitive sector will depend on such company's ability to predict
rapidly changing consumer tastes.
12. Technology Sector: companies which are expected to have or
develop products, processes or services which will provide or will benefit
significantly from technological advances and improvements or future automation
trends in the office and factory, such as: semiconductors; computers and
peripheral equipment; scientific instruments; computer software;
telecommunications; and electronic components, instruments and systems. Such
companies are sensitive to foreign competition and import tariffs. Also, many
products produced by companies in this sector may quickly become obsolete.
13. Transportation Sector: companies involved in the provision of
transportation of people and products, such as: airlines, railroads and trucking
firms. Revenues of companies in this sector will be affected by fluctuations in
fuel prices resulting from domestic and international events, and government
regulation of fares.
14. Utilities Sector: companies in the public utilities industry and
companies deriving a substantial majority of their revenues through supplying
public utilities such as: companies engaged in the manufacture, production,
generation, transmission and sale of gas and electric energy; and companies
engaged in the communications field, including telephone, telegraph, satellite,
microwave and the provision of other communication facilities to the public. The
gas and electric public utilities industries are subject to various
uncertainties, including the outcome of political issues concerning the
environment, prices of fuel for electric generation, availability of natural
gas, and risks associated with the construction and operation of nuclear power
facilities.
A3
<PAGE>
15. Foreign Sector: companies whose primary business activity takes
place outside of the United States. The securities of foreign companies would be
heavily influenced by the strength of national economies, inflation levels and
the value of the U.S. dollar versus foreign currencies. Investments in the
Foreign Sector will be subject to certain risks not generally associated with
domestic investments. Such investments may be favorably or unfavorably affected
by changes in interest rates, currency exchange rates and exchange control
regulations, and costs may be incurred in connection with conversions between
currencies. In addition, investments in foreign countries could be affected by
less favorable tax provisions, less publicly available information, less
securities regulation, political or social instability, limitations on the
removal of funds or other assets of the Fund, expropriation of assets,
diplomatic developments adverse to U.S. investments and difficulties in
enforcing contractual obligations.
16. Environmental Sector: companies that are engaged in the
research, development, manufacture or distribution of products, processes or
services related to pollution control, waste management or pollution/waste
remediation, or that provide alternative energies such as natural gas, water
utilities and clean renewable fuels such as solar, geothermal and hydropower,
various technologies that make coal burning cleaner, notably scrubbers, emission
monitoring and control equipment, biodegradable products and materials, or new
biotechnological products favoring the environment such as non-chemical
pesticides. These companies may have broadly-diversified business segments or
lines of business, only one or several of which are in the environmental sector.
DESCRIPTION OF BOND RATINGS(1)
Standard & Poor's Bond Ratings
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
- ----------
As described by the rating companies themselves.
A4
<PAGE>
To provide more detailed indications of credit quality, the ratings AA to
BBB may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
A provisional rating, indicated by "p" following a rating, is sometimes
used by Standard & Poor's. It assumes the successful completion of the project
being financed by the issuance of the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
Moody's Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Generally speaking, the safety
of obligations of this class is so absolute that with the occasional exception
of oversupply in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
The market value of Aa bonds is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers of
rating symbols Aa, A and Baa are to give investors a more precise indication of
relative debt quality in each of the historically defined categories.
A5
<PAGE>
Conditional ratings, indicated by "Con", are sometimes given when the
security for the bond depends upon the completion of some act or the fulfillment
of some condition. Such bonds, are given a conditional rating that denotes their
probably credit statute upon completion of that act or fulfillment of that
condition.
A6
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON OCTOBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $167,202,826).......................... $ 202,350,123
Joint repurchase agreement (cost - $25,672,000).............. 25,672,000
-------------
228,022,123
Receivable for shares sold.................................... 241,136
Receivable for investments sold............................... 24,025,617
Interest receivable........................................... 4,211
Dividends receivable.......................................... 67,410
Deferred organization expenses - Note A....................... 78,290
Other assets.................................................. 726
-------------
Total Assets................................ 252,439,513
-----------------------------------------------------------
LIABILITIES:
Temporary overdraft of cash................................... 243,454
Payable for shares repurchased................................ 129,854
Payable for investments purchased............................. 12,750,625
Payable to John Hancock Advisers, Inc. and
affiliates - Note B.......................................... 326,416
Accrued fees and expenses..................................... 63,754
-------------
Total Liabilities........................... 13,514,103
-----------------------------------------------------------
NET ASSETS:
Capital paid-in............................................... 209,681,269
Accumulated net realized loss on investments and
foreign currency transactions................................ ( 5,914,444)
Net unrealized appreciation of investments and
foreign currency transactions................................ 35,158,585
-----------
Net Assets.................................. $ 238,925,410
===========================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $101,561,612/10,902,887............................. $ 9.32
=============================================================================
Class B - $137,363,798/14,949,105............................. $ 9.19
=============================================================================
MAXIMUM OFFERING PRICE PER SHARE *
Class A - ($9.32 x 105.26%)................................... $ 9.81
=============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
** Class C shares commenced operations on July 6, 1994. All shares were
redeemed on April 11, 1995.
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest...................................................... $ 1,047,280
Dividends (net of foreign withholding taxes
of $53,585).................................................. 668,536
-------------
1,715,816
-------------
Expenses:
Investment management fee - Note B........................... 1,870,771
Distribution/service fee - Note B
Class A.................................................... 296,691
Class B.................................................... 1,348,679
Transfer agent fee - Note B.................................. 945,811
Printing..................................................... 47,581
Custodian fee................................................ 44,422
Trustees' fees............................................... 44,135
Organization expense - Note A................................ 26,046
Auditing fee................................................. 23,300
Legal fees................................................... 16,506
Miscellaneous................................................ 5,966
-------------
Total Expenses.............................. 4,669,908
- -------------------------------------------------------------------------------
Net Investment Loss......................... ( 2,954,092)
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS:
Net realized gain on investments sold......................... 17,052,914
Net realized loss on foreign currency transactions ........... ( 17,231)
Change in net unrealized appreciation/depreciation
of investments............................................... 23,246,748
Change in net unrealized appreciation/depreciation
of foreign currency transactions............................. 11,288
-------------
Net Realized and Unrealized
Gain on Investments and Foreign
Currency Transactions....................... 40,293,719
-----------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations................... $ 37,339,627
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment loss....................................................................... ($ 2,954,092) ($ 1,363,789)
Net realized gain (loss) on investments sold and foreign currency transactions............ 17,035,683 ( 22,967,358)
Change in net unrealized appreciation/depreciation of investments and foreign currency
transactions............................................................................ 23,258,036 12,841,899
------------ ------------
Net Incease (Decrease) in Net Assets Resulting from Operations........................... 37,339,627 ( 11,489,248)
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET*........................................................ ( 22,887,222) 235,962,253
------------ ------------
NET ASSETS:
Beginning of period....................................................................... 224,473,005 --
------------ ------------
End of period............................................................................. $238,925,410 $224,473,005
============ ============
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
OCTOBER 31, 1995 OCTOBER 31, 1994
------------------------- --------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold........................................................ 3,199,395 $27,308,044 20,116,435 $167,224,012
Shares issued in reorganization - Note E........................... 1,058,125 7,921,550 -- --
---------- ------------ ----------- -------------
4,257,520 35,229,594 20,116,435 167,224,012
Less shares repurchased............................................ (5,001,778) ( 42,409,032) ( 8,469,290) ( 70,395,194)
---------- ------------ ----------- -------------
Net increase (decrease)............................................ ( 744,258) ($ 7,179,438) 11,647,145 $ 96,828,818
========== ============ =========== =============
CLASS B
Shares sold........................................................ 2,612,144 $21,533,048 19,318,988 $159,278,074
Shares issued in reorganization - Note E........................... 69,972 519,918 -- --
---------- ------------ ----------- -------------
2,682,116 22,052,966 19,318,988 159,278,074
Less shares repurchased............................................ (4,494,039) ( 37,589,041) ( 2,557,960) ( 20,304,549)
---------- ------------ ----------- -------------
Net increase (decrease)............................................ (1,811,923) ($15,536,075) 16,761,028 $138,973,525
========== ============ =========== =============
CLASS C**
Shares sold........................................................ 11,302 $ 89,560 21,556 $ 166,302
Less shares repurchased............................................ ( 32,055) ( 261,269) ( 803) ( 6,392)
---------- ------------ ----------- -------------
Net increase (decrease)............................................ ( 20,753) ($ 171,709) 20,753 $ 159,910
========== ============ =========== =============
** Class C shares commenced operations on July 6, 1994. All shares were redeemed
on April 11, 1995.
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE REFLECTS
EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, AND ANY INCREASE OR
DECREASE IN MONEY SHAREHOLDERS INVESTED IN THE FUND. THE FOOTNOTE ILLUSTRATES
THE NUMBER OF FUND SHARES SOLD DURING THE PERIOD, ALONG WITH THE CORRESPONDING
DOLLAR VALUE.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the period indicated, investment returns, key
ratios and supplemental data are listed as follows:
- ----------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD NOVEMBER 1, 1993
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
OCTOBER 31, 1995 TO OCTOBER 31, 1994
---------------- -------------------------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................. $ 7.93 $ 8.50
-------- --------
Net Investment Loss.............................................. (0.07)(b) (0.03)(b)
Net Realized and Unrealized Gain (Loss) on Investments........... 1.46 (0.54)
-------- --------
Total from Investment Operations................................ 1.39 (0.57)
-------- --------
Net Asset Value, End of Period................................... $ 9.32 $ 7.93
======== ========
Total Investment Return at Net Asset Value....................... 17.53% (6.71%)(f)
Total Adjusted Investment Return at Net Asset Value (a).......... -- (6.83%)(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)........................ $101,562 $ 92,325
Ratio of Expenses to Average Net Assets **....................... 1.59% 1.50%
Ratio of Adjusted Expenses to Average Net Assets (a)............. -- 1.62%
Ratio of Net Investment Loss to Average Net Assets............... (0.87%) (0.41%)
Ratio of Adjusted Net Investment Loss to Average Net Assets (a).. -- (0.53%)
Portfolio Turnover Rate.......................................... 155% 57%
** Expense Reimbursement Per Share............................... -- $ 0.01(b)
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................. $ 7.87 $ 8.50
-------- --------
Net Investment Loss.............................................. (0.13)(b) (0.09)(b)
Net Realized and Unrealized Gain (Loss) on Investments........... 1.45 (0.54)
-------- --------
Total from Investment Operations................................ 1.32 (0.63)
-------- --------
Net Asset Value, End of Period................................... $ 9.19 $ 7.87
======== ========
Total Investment Return at Net Asset Value....................... 16.77% (7.41%)(f)
Total Adjusted Investment Return at Net Asset Value (a).......... -- (7.53%)(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)........................ $137,363 $131,983
Ratio of Expenses to Average Net Assets **....................... 2.30% 2.22%*
Ratio of Adjusted Expenses to Average Net Assets (a)............. -- 2.34%*
Ratio of Net Investment Loss to Average Net Assets............... (1.55%) (1.13%)*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a).. -- (1.25%)*
Portfolio Turnover Rate.......................................... 155% 57%
** Expense Reimbursement Per Share............................... -- $ 0.01(b)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD JULY 6, 1994
PERIOD ENDED (COMMENCEMENT OF OPERATIONS)
APRIL 11, 1995 TO OCTOBER 31, 1994
-------------- ----------------------------
<S> <C> <C>
CLASS C (e)
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................... $ 7.94 $ 7.60
-------- --------
Net Investment Income.............................................. 0.01 --
Net Realized and Unrealized Gain on Investments.................... 0.29(d) 0.34(d)
-------- --------
Total From Investment Operations.................................. 0.30 0.34
-------- --------
Net Asset Value, End of Period..................................... $ 8.24 $ 7.94
======== ========
Total Investment Return at Net Asset Value......................... 3.40% (4.47%)
Total Adjusted Investment Return at Net Asset Value (a)............ -- (4.85%)(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).......................... $ 218 $ 165
Ratio of Expenses to Average Net Assets **......................... 0.98%* 1.01% *
Ratio of Adjusted Expenses to Average Net Assets (a)............... -- 1.39% *
Ratio of Net Investment Income to Average Net Assets............... 0.23%* 0.03% *
Ratio of Adjusted Net Investment Income to Average Net Assets (a).. -- (0.35%)*
Portfolio Turnover Rate............................................ N/A 57%
** Expense Reimbursement Per Share................................. -- $ 0.01(b)
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis without expense reduction.
(b) On average month end shares outstanding.
(c) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the adviser during the periods shown.
(d) May not accord to amounts shown elsewhere in the financial statements.
(e) Per share operating performance and the ratios and supplemental data are
calculated as of April 11, 1995, the date on which Class C shares were
redeemed.
(f) Without the reimbursement, total investment return would be lower.
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT LOSS, GAINS (LOSSES),
AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET ASSET VALUE
FOR A SHARE HAS CHANGED SINCE THE COMMENCEMENT OF OPERATIONS. ADDITIONALLY,
IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE FINANCIAL STATEMENTS
ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
SPECIAL OPPORTUNITIES FUND ON OCTOBER 31, 1995. IT'S DIVIDED INTO TWO MAIN
CATEGORIES: COMMON STOCKS AND SHORT-TERM INVESTMENTS. THE COMMON STOCKS ARE
FURTHER BROKEN DOWN BY INDUSTRY GROUPS. SHORT-TERM INVESTMENTS, WHICH REPRESENT
THE FUND'S "CASH" POSITION, ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
October 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
COMMON STOCKS
AUDIO/VIDEO (2.59%)
Polygram NV (Netherlands).................... 100,000* $ 6,200,000
------------
BROADCASTING (0.34%)
New World Communications Group, Inc.**....... 49,900* 823,350
------------
COMPUTERS (19.21%)
HBO & Co..................................... 35,000* 2,476,250
Intuit, Inc.**............................... 259,900* 18,712,800
Microsoft Corp.**............................ 75,000 7,500,000
Parametric Technology Co.**.................. 35,000* 2,340,625
Sun Microsystems, Inc.**..................... 52,000* 4,056,000
3Com Corp.**................................. 230,000* 10,810,000
------------
45,895,675
------------
CONSTRUCTION (0.24%)
Australian National Industries, Ltd.
(Australia)................................. 200,000 156,680
CEMEX SA (Class B) American Depositary
Receipt (ADR) (Mexico)...................... 18,812 60,466
Ekran Berhad (Malaysia)...................... 70,000 177,548
Hopewell Holdings (Hong Kong)................ 200,000 126,100
Tolmex SA de CV (Mexico)**................... 11,000 41,749
------------
562,543
------------
DIVERSIFIED OPERATIONS (5.65%)
CUC International Inc.**..................... 375,000 12,984,375
Hutchinson Whampoa (Hong Kong)............... 50,000 275,485
Ogden Corp................................... 10,000 227,500
------------
13,487,360
------------
ELECTRICAL (0.00%)
Consolidated Electric Power Asia Ltd.
(Hong Kong)................................. 1,503 3,042
------------
ELECTRONICS (10.45%)
HADCO Corp.**................................ 85,000* 2,380,000
Helix Technology Corp........................ 86,200 3,232,500
Linear Technology Corp....................... 250,000* 10,937,500
Micron Technology, Inc....................... 35,000* 2,471,875
SCI Systems, Inc.**.......................... 169,100* 5,939,638
------------
24,961,513
------------
ENGINEERING (0.24%)
Fluor Corp................................... 5,000 282,500
Foster Wheeler Corp.......................... 8,000 300,000
------------
582,500
------------
HAZARDOUS WASTE (1.15%)
Handex Environmental Recovery, Inc.**........ 16,000 100,000
TETRA Technologies, Inc.**................... 200,000 2,650,000
------------
2,750,000
------------
HEALTHCARE (4.37%)
HealthCare COMPARE Corp.**................... 80,000* 2,960,000
Healthsource, Inc.**......................... 95,000* 5,035,000
Johnson & Johnson............................ 30,000* 2,445,000
------------
10,440,000
------------
LEISURE & RECREATION (3.74%)
Walt Disney Co., (The)....................... 155,000* 8,931,875
------------
MEDICAL (5.38%)
Boston Scientific Corp.**.................... 230,000* 9,688,750
Community Health Systems, Inc.**............. 100,000* 3,175,000
------------
12,863,750
------------
METALS (3.54%)
Asarco, Inc.................................. 70,000* 2,257,500
Kinross Gold Corp. (Canada)**................ 385,100* 2,863,141
Newmont Gold Co.............................. 37,000* 1,332,000
Prime Resource Group, Inc. (Canada)**........ 140,000* 1,014,846
Santa Fe Pacific Gold Corp................... 100,000* 987,500
------------
8,454,987
------------
OIL & GAS (15.48%)
Cairn Energy USA, Inc.**..................... 147,000* 1,764,000
Chesapeake Energy Corp.**.................... 100,000* 2,925,000
Diamond Offshore Drilling, Inc.**............ 88,000* 2,189,000
Falcon Drilling Co., Inc.**.................. 435,000* 4,513,125
Global Marine, Inc.**........................ 450,000* 2,925,000
Nabors Industries, Inc.**.................... 540,000* 4,657,500
Pride Petroleum Services, Inc.**............. 536,800* 4,697,000
Reading & Bates Corp.**...................... 420,000* 4,830,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
OIL & GAS (CONTINUED)
Sonat Offshore Drilling Co................... 130,000* $ 4,127,500
Triton Energy Corp.**........................ 93,600* 4,364,100
------------
36,992,225
------------
PUBLISHING (1.29%)
Scholastic Corp.**........................... 50,000* 3,087,500
------------
SOLID WASTE (0.29%)
Brambles Industries Ltd. (Australia)......... 30,000 318,561
Laidlaw, Inc. (Class B)...................... 23,500 211,500
Waste Management Intl., PLC, (ADR)
(United Kingdom)**.......................... 15,000 151,875
------------
681,936
------------
TELECOMMUNICATIONS (10.54%)
America Online, Inc.**....................... 145,000 11,600,000
Cascade Communications Corp.**............... 158,000* 11,257,500
U.S. Order, Inc.**........................... 155,000* 2,325,000
------------
25,182,500
------------
WATER TREATMENT (0.19%)
Compagnie Generale des Eaux (France)......... 1,316 122,243
Lyonnaise Des Eaux Dumez (France )........... 2,000 194,976
Wessex Water, PLC (United Kingdom)........... 25,000 132,148
------------
449,367
------------
TOTAL COMMONS STOCKS
(Cost $167,202,826) 84.69% 202,350,123
------- ------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE
RATE (000'S OMITTED)
---- ---------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (10.74%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets Inc. -
Dated 10-31-95, Due 11-01-95
(secured by U.S. Treasury Bond,
8.75% Due 05-15-17,
and by U.S. Treasury Note, 5.75%
Due 09-30-97) - Note A............ 5.89% $25,672 25,672,000
------------
TOTAL SHORT-TERM INVESTMENTS 10.74% 25,672,000
------- ------------
TOTAL INVESTMENTS 95.43% $228,022,123
======= ============
</TABLE>
* Securities other than short-term investments, newly added to the
portfolio during the period ended October 31,1995.
** Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
PORTFOLIO CONCENTRATION (UNAUDITED)
- --------------------------------------------------------------------------------
THE SPECIAL OPPORTUNITIES FUND INVESTS PRIMARILY IN SECURITIES ISSUED IN THE
UNITED STATES OF AMERICA. THE PERFORMANCE OF THE FUND IS CLOSELY TIED TO THE
ECONOMIC AND FINANCIAL CONDITIONS WITHIN THE COUNTRIES IN WHICH IT INVESTS. THE
CONCENTRATION OF INVESTMENTS BY INDUSTRY CATEGORY FOR INDIVIDUAL SECURITIES HELD
BY THE FUND IS SHOWN IN THE SCHEDULE OF INVESTMENTS.
IN ADDITION, CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY VARIOUS
COUNTRIES. THE TABLE BELOW SHOWS THE PERCENTAGES OF THE FUND'S INVESTMENTS AT
OCTOBER 31, 1995 ASSIGNED TO COUNTRY CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ---------------
<S> <C>
Australia.................................................... 0.20%
Canada....................................................... 1.62
France....................................................... 0.13
Hong Kong.................................................... 0.17
Malaysia..................................................... 0.07
Mexico....................................................... 0.04
Netherlands.................................................. 2.59
United Kingdom............................................... 0.12
United States................................................ 79.75
Short-term Investments....................................... 10.74
-----
TOTAL INVESTMENTS 95.43%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust II (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of five series portfolios: John Hancock Special Opportunities Fund (the "Fund,")
John Hancock Global Fund, John Hancock Global Income Fund, John Hancock
Short-Term Strategic Income Fund and John Hancock International Fund. Prior to
January 1, 1995, John Hancock Global Fund was known as John Hancock Freedom
Global Fund, John Hancock Global Income Fund was known as John Hancock Freedom
Global Income Fund and John Hancock International Fund was known as John Hancock
Freedom International Fund.
The Trustees have authorized the issuance of two classes of shares of the
Fund, designated as Class A and Class B. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemption, dividends, and liquidation, except that certain
expenses, subject to the approval of the Trustees, may be applied differently to
each class of shares in accordance with current regulations of the
Securities and Exchange Commission. Shareholders of a class which bears
distribution/ service expenses under the terms of a distribution plan, have
exclusive voting rights regarding such distribution plan. Class C shares were
outstanding during the period from July 6, 1994 through April 11, 1995, but the
Trustees terminated Class C shares as of May 1, 1995. Significant accounting
policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described under the heading "Foreign Currency
Translation."
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $5,914,444 of a capital
loss carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. If such carryforwards are used by the Fund,
no capital gain distributions will be made. The carryforward expires October 31,
2002.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares will
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
be calculated in the same manner, at the same time and will be in the same
amount, except for the effect of expenses that may be applied differently to
each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that offset by the currency amount of the underlying
transaction.
At October 31, 1995, there were no open forward foreign currency exchange
contracts.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or U.S.
government securities, known as "initial margin," equal to a certain percentage
of the value of the financial futures contract being traded. Each day, the
futures contract is valued at the official settlement price of the board of
trade or U.S. commodities exchange. Subsequent payments, known as "variation
margin," to and from the broker are made on a daily basis as the market price of
the financial futures contract fluctuates. Daily variation margin adjustments,
arising from
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
this "mark to market," are recorded by the Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contract may not
correlate with changes in the value of the underlying securities.
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At October 31, 1995, there were no open positions in financial futures
contracts.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five-year period that began with the commencement of investment
operations of the Fund.
NOTE B --
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to the sum of: (a) 0.80% of the first $500,000,000 of the
Fund's average daily net asset value, (b) 0.75% of the next $500,000,000 and (c)
0.70% of the Fund's average daily net asset value in excess of $1,000,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess, and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
The Adviser has agreed to limit the Fund's expenses, including the
management fee (but not including the transfer agent and 12b-1 fee) further to
the extent required to prevent expenses from exceeding 0.90% of the Fund's
average daily net asset value, exclusive of certain expenses prescribed by state
law. For the period ended October 31, 1995, no reduction in the Adviser's fee
was necessary. The Adviser reserves the right to terminate this agreement at any
time.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. Prior to January 1, 1995 JH
Funds was known as John Hancock Broker Distribution Services, Inc. For the
period ended October 31, 1995, net sales charges received with regard to sales
of Class A shares amounted to $443,675. Out of this amount, $67,560 was retained
and used for printing prospectuses, advertising, sales literature and other
purposes, $156,268 was paid as sales commissions to unrelated broker-dealers and
$219,847 was paid as sales commissions to sales personnel of John Hancock
Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated ("Tucker
Anthony") and Sutro & Co., ("Sutro"), all of which are broker dealers. The
Adviser's indirect parent, John Hancock Mutual Life Insurance Company, is the
indirect sole shareholder of Distributors and John Hancock Freedom Securities
Corporation and its subsidiaries which include Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from CDSC are paid to JH Funds and are used in whole or in part to defray its
expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended October 31,
1995, contingent deferred sales charges paid to JH Funds amounted to $741,870.
In addition, to reimburse JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
Rule 12b-1 under the Investment Company Act of 1940. Accordingly, the Fund will
make payments to JH Funds for distribution and service expenses, at an annual
rate not to exceed 0.30% of Class A average daily net assets and 1.00% of Class
B average daily net assets to reimburse JH Funds for its distribution/service
costs. Up to a maximum of 0.25% of such payments may be service fees as defined
by the amended Rules of Fair Practice of the National Association of Securities
Dealers. Under the amended Rules of Fair Practice, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc. Prior to January 1, 1995, the Fund paid Investor
Services a monthly transfer agent fee equivalent, on an annual basis, to 0.30%
and 0.32% of the average daily net asset value of Class A and Class B shares of
the Fund, respectively, plus out-of-pocket expenses incurred by Fund Services on
behalf of the Fund. For the period January 1, 1995 through September 30, 1995
Class A and Class B shares paid transfer agent fees based on the number of
shareholder accounts and certain out-of-pocket expenses. For the period November
1, 1994 and through April 11, 1995, Class C shares paid a monthly transfer agent
fee equivalent, on an annual basis, to 0.10% of the average daily net asset
value of Class C shares plus out-of-pocket expenses incurred by Fund Services.
All Class C shares were redeemed on April 11, 1995. For the eleven months ended
September 30, 1995 the transfer agent expense, calculated as a class specific
expense was $356,361 for Class A and $497,061 for Class B, respectively. For the
period November 1, 1994 and through April 11, 1995, the transfer agent expense
for Class C shares amounted to $81. Effective October 1, 1995 transfer agent
expense is being treated as a fund expense based on the number of shareholder
accounts in the Fund and certain out-of-pocket expenses.
Edward J. Boudreau, Jr. is a director and officer of the Adviser, and its
affiliates as well as a Trustee of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund will make investments into other John Hancock Funds,
as applicable, to cover its liability for the deferred compensation. Investments
to cover the Fund's deferred compensation liability will be recorded on the
Fund's books as an other asset. The deferred compensation liability and the
investment to cover the liability will be marked to market on a periodic basis
to reflect income earned by the investment.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended October 31, 1995 aggregated $328,853,750 and $327,825,528, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended October 31, 1995.
The cost of investments owned at October 31, 1995 for Federal income tax
purposes was $192,874,826. Gross unrealized appreciation and depreciation of
investments aggregated $40,334,138 and $5,186,841, respectively, resulting in
net unrealized appreciation of $35,147,297.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1995, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments and foreign
currency transactions of $17,231, a decrease in distributions in excess of net
investment income of $2,954,092 and a decrease in capital paid-in of $2,971,323.
This represents the cumulative amount necessary to report these balances on a
tax basis, excluding certain temporary differences, as of October 31, 1995.
Additional adjustments may be needed in subsequent reporting periods. These
reclassifications, which have no impact on the net
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Special Opportunities Fund
asset value of the Fund, are primarily attributable to the treatment of net
operating losses in the computation of distributable income and capital gains
under federal tax rules versus generally accepted accounting principle.
NOTE E --
REORGANIZATION
On November 30, 1994, the shareholders of John Hancock Environmental Fund (JHEF)
approved a plan of reorganization between JHEF and the Fund providing for the
transfer of substantially all of the assets and liabilities of JHEF to the Fund
in exchange solely for Class A shares and Class B shares of the Fund. The
acquisition was accounted for as a tax free exchange of 1,058,125 Class A
shares, and 69,972 Class B shares of John Hancock Special Opportunities Fund for
the net assets of JHEF, which amounted to $7,921,550 and $519,918 for Class A
and Class B shares, respectively, including $941,350 of unrealized depreciation,
after the close of business at December 16, 1994.
18
<PAGE>
John Hancock Funds - Special Opportunities Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Special Opportunities Fund and the Trustees
of John Hancock Freedom Investment Trust II
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of John Hancock Special Opportunities
Fund (the "Fund") (a portfolio of John Hancock Freedom Investment Trust II) at
October 31, 1995, and the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1995 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 14, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during the fiscal year ended October
31, 1995.
The Fund has not paid any distributions of dividends or net realized gains
during the fiscal year.
19
<PAGE>
JOHN HANCOCK
INTERNATIONAL FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
MARCH 1, 1996
- ------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
Expense Information .................................................... 2
The Fund's Financial Highlights ........................................ 3
Investment Objective and Policies ...................................... 4
Organization and Management of the Fund ................................ 8
Alternative Purchase Arrangements ...................................... 9
The Fund's Expenses .................................................... 10
Dividends and Taxes .................................................... 11
Performance ............................................................ 12
How to Buy Shares ...................................................... 13
Share Price ............................................................ 15
How to Redeem Shares ................................................... 20
Additional Services and Programs ....................................... 22
This Prospectus sets forth information about John Hancock International
Fund (the "Fund"), a diversified series of Freedom Investment Trust II (the
"Trust"), that you should know before investing. Please read and retain it for
future reference.
Additional information about the Fund has been filed with the Securities
and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's
Statement of Additional Information, dated March 1, 1996, and incorporated by
reference into this Prospectus, free of charge by writing or telephoning: John
Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts
02205-9116, 1-800-225-5291, (1-800-554-6713 TDD).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you understand the
various fees and expenses you will bear, directly or indirectly, when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on actual fees and expenses for the Class
A and Class B shares of the Fund for the fiscal year ended October 31, 1995,
adjusted to reflect current fees and expenses. Actual fees and expenses may be
greater or less than those indicated.
<TABLE>
<CAPTION>
CLASS A CLASS B
SHARES SHARES
---------------- ---------------
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases (as a
percentage of offering price) ...................... 5.00% None
Maximum sales charge imposed on reinvested dividends . None None
Maximum deferred sales charge ........................ None(1) 5.00%(1)
Redemption fee(3) ................................... None None
Exchange fee ......................................... None None
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fee ....................................... 1.00% 1.00%
12b-1 fee(2) ........................................ 0.30% 1.00%
Other expenses ....................................... 3.58% 3.58%
---- ----
Total gross Fund operating expenses .................. 4.88% 5.58%
Management fee waiver and expense reimbursement ...... (3.16%) (3.16%)
---- ----
Total net Fund operating expenses(4) ................. 1.72%(4) 2.42%
==== ====
<FN>
(1) No sales charge is payable at the time of purchase on investments in Class A shares of $1 million or more, but for these
investments a contingent deferred sales charge may be imposed, as described under the caption "Share Price," in the event of
certain redemption transactions within one year of purchase.
(2) The amount of the 12b-1 fee used to cover service expenses will be up to 0.25% of the Fund's average daily net assets, and
the remaining portion will be used to cover distribution expenses. See "The Fund's Expenses."
(3) Redemption by wire fee (currently $4.00) not included.
(4) Total net Fund operating expenses in the table reflect estimated expenses, net of the Adviser's reimbursement or waiver of
the management fee and other expenses (but not including the transfer agent fee and the 12b-1 fee) in excess of 0.90% of the
Fund's average daily net assets.
</FN>
</TABLE>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
EXAMPLE: ------ ------- ------- --------
You would pay the following expenses
for the indicated period of years on
a hypothetical $1,000 investment,
assuming 5% annual return:
Class A Shares ........................ $66 $ 99 $135 $235
Class B Shares
--Assuming complete redemption at end
of period ....................... $75 $105 $149 $256
--Assuming no redemption ............ $25 $ 75 $129 $256
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.)
The Fund's payment of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the maximum
front-end sales charge permitted under the National Association of Securities
Dealers Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained
in this Prospectus under the caption "The Fund's Expenses" and in the
Statement of Additional Information under the captions "Investment Advisory
and Other Services" and "Distribution Contract."
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following table of Financial Highlights has been audited by Price
Waterhouse LLP, the Fund's independent accountants, whose unqualified report
is included in the Fund's 1995 Annual Report and is included in the Statement
of Additional Information. Further information about the performance of the
Fund is contained in the Fund's Annual Report to shareholders which may be
obtained free of charge by writing or telephoning John Hancock Investor
Services Corporation ("Investor Services") at the address or telephone number
listed on the front page of this Prospectus.
Selected data for each class of shares outstanding throughout the period
indicated is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD JANUARY 3, 1994
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
OCTOBER 31, 1995 TO OCTOBER 31, 1994
----------------- ------------------------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ............................. $ 8.65 $ 8.50
------ ------
Net Investment Income ............................................ 0.04 0.07(3)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions .................................. (0.47) 0.08
------ ------
Total from Investment Operations ............................. (0.43) 0.15
------ ------
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 ................................... $ 8.14 $ 8.65
====== ======
Total Investment Return at Net Asset Value(4) ............... (4.96%) 1.77%(5)
Total Adjusted Investment Return at Net Asset Value(4)(6)..... (8.12%) (0.52%)(5)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ........................ $4,215 $4,426
Ratio of Expenses to Average Net Assets** ........................ 1.64% 1.50%(1)
Ratio of Adjusted Expenses to Average Net Assets(2) ............. 4.80% 3.79%(1)
Ratio of Net Investment Income to Average Net Assets ............. 0.56% 1.02%(1)
Ratio of Adjusted Net Investment Loss to Average Net Assets(2).... (2.60%) (1.27%)(1)
Portfolio Turnover Rate .......................................... 69% 50%
**Expense Reimbursement Per Share ................................ $ 0.25(3) $ 0.16(3)
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ............................. $ 8.61 $ 8.50
------ ------
Net Investment Income (Loss) ..................................... (0.03) 0.02(b)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions .............................................. (0.48) 0.09
------ ------
Total from Investment Operations ............................. (0.51) 0.11
------ ------
Less Distributions:
Distributions from Net Realized Gains on Investments Sold and
Foreign Currency Transactions ............................. (0.05) --
------ ------
Net Asset Value, End of Period ................................... $ 8.05 $ 8.61
====== ======
Total Investment Return at Net Asset Value(4) ............... (5.89%) 1.29%(5)
Total Adjusted Investment Return at Net Asset Value(4)(6)..... (9.05%) (1.00%)(5)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ........................ $3,990 $3,948
Ratio of Expenses to Average Net Assets** ........................ 2.52% 2.22%(1)
Ratio of Adjusted Expenses to Average Net Assets(2)............... 5.68% 4.51%(1)
Ratio of Net Investment Income (Loss) to Average Net Assets ...... (0.37%) 0.31%(1)
Ratio of Adjusted Net Investment Loss to Average Net Assets(2).... (3.53%) (1.98%)(1)
Portfolio Turnover Rate .......................................... 69% 50%
**Expense Reimbursement Per Share ................................ $ 0.25(3) $ 0.16(3)
<FN>
(1) On an annualized basis.
(2) On an unreimbursed basis.
(3) On average month end shares outstanding.
(4) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(5) Not annualized.
(6) An estimated total return calculation which takes into consideration fees and expenses waived or borne by the Adviser during
the periods shown.
</FN>
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES AND CERTAIN RISK CONSIDERATIONS
THE INVESTMENT OBJECTIVE OF THE FUND IS LONG-TERM GROWTH OF CAPITAL THROUGH
INVESTMENT PRIMARILY IN FOREIGN EQUITY SECURITIES.
The Fund's investment objective is long-term growth of capital. The Fund seeks
to achieve its investment objective by investing primarily in foreign equity
securities. There are market fluctuations and risks in any investment and
therefore there is no assurance that the Fund will achieve its investment
objective.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in equity securities of issuers located in various countries around
the world. Generally, the Fund's portfolio will contain securities of issuers
from at least three countries other than the United States. 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 John Hancock Advisers, Inc.
(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.
THE GLOBAL ALLOCATION OF ASSETS IS NOT FIXED, AND WILL VARY FROM TIME TO TIME
BASED ON THE JUDGMENT OF THE FUND'S ADVISER AND SUB-ADVISER.
The 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 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 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.
In choosing investments for the Fund, the Adviser generally looks for
companies whose earnings show a strong growth trend or companies whose current
market value per share is undervalued. 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.
It is the intention of the Fund generally to invest in debt securities only
for temporary defensive purposes. Accordingly, when the Adviser believes
unfavorable investment conditions exist requiring the Fund to assume a
temporary defensive investment posture, the Fund may hold cash or invest all
or a portion of its assets in short-term domestic as well as foreign
instruments, including: short-term U.S. Government securities and repurchase
agreements in connection with such instruments; bank certificates of deposit,
bankers' acceptances, time deposits and letters of credit; and commercial
paper (including so called Section 4(2) paper rated at least A-1 or A-2 by
Standard & Poor's Ratings Group ("S&P") or P-1 or P-2 by Moody's Investors
Service, Inc. ("Moody's") or if unrated considered by the Adviser to be of
comparable value). The Fund's temporary defensive investments may also
include: debt obligations of U.S. companies rated at least BBB or Baa by S&P
or Moody's, respectively, or, if unrated, of comparable quality in the opinion
of the Adviser; commercial paper and corporate debt obligations not satisfying
the above credit standards if they are (a) subject to demand features or puts
or (b) guaranteed as to principal and interest by a domestic or foreign bank
having total assets in excess of $1 billion, by a corporation whose commercial
paper may be purchased by the Fund, or by a foreign government having an
existing debt security rated at least BBB or Baa by S&P or Moody's,
respectively; and other short-term investments which the Trustees of the Trust
determine present minimal credit risks and which are of "high quality" as
determined by any major rating service or, in the case of an instrument that
is not rated, of comparable quality as determined by the Adviser. Securities
which are convertible may be rated as low as BBB or Baa by S&P or 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.
THE FUND MAY EMPLOY CERTAIN INVESTMENT STRATEGIES TO HELP ACHIEVE ITS INVESTMENT
OBJECTIVES.
FOREIGN SECURITIES. The Fund may invest in securities of foreign and United
States issuers which are issued in or outside of the U.S., including sponsored
or unsponsored American Depositary Receipts ("ADRs"), European Depositary
Receipts ("EDRs") or other securities convertible into securities of
corporations in which the Fund is permitted to invest. ADRs are receipts
typically issued by an American bank or trust company. ADR's evidence
ownership of underlying securities issued by a foreign corporation, and are
designed for trading in United States securities markets. EDRs are receipts
issued in Europe which evidence a similar ownership arrangement. 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.
FOREIGN CURRENCIES. The Fund will not speculate in foreign currencies or in
forward foreign currency exchange contracts, but will enter into such
transactions only in connection with its hedging strategy, to protect against
changes in foreign currency exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date at a price set at the time of the contract. Although
hedging strategies might reduce the risk of loss due to a decline in the value
of the hedged foreign currency, they may also limit any potential gain that
might result from an increase in the value of the currency.
FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may buy and sell financial
futures contracts and options on futures to hedge against the effects of
fluctuations in securities prices, interest rates, currency exchange rates and
other market conditions and for speculative purposes. The potential loss
incurred by the Fund in writing options on futures is unlimited and may exceed
the amount of the premium received. The Fund's futures contracts and options
on futures will be traded on a U.S. or foreign commodity exchange or board of
trade. The Fund will not engage in a futures or options transaction for
speculative purposes, if immediately thereafter, the sum of initial margin
deposits on existing positions and premiums required to establish speculative
positions in futures contracts and options on futures would exceed 5% of the
Fund's net assets. The Fund intends to comply with the CFTC regulations with
respect to its speculative transactions. These regulations are discussed
further in the Statement of Additional Information.
SHORT SALES. The Fund may engage in short sales "against the box", as well as
short sales to hedge against or profit from an anticipated decline in the
value of a security. When the Fund engages in a short sale, it will place in a
segregated account, cash or U.S. Government securities in accordance with
applicable regulatory requirements. These will be marked to market daily. See
the Statement of Additional Information.
RESTRICTED SECURITIES. The Fund may purchase restricted securities, including
those eligible for resale to "qualified institutional buyers" pursuant to Rule
144A under the Securities Act of 1933 (the "Securities Act"). The Trustees
will monitor the Fund's investments in these securities, focusing on certain
factors, including valuation, liquidity and availability of information.
Purchases of other restricted securities are subject to an investment
restriction limiting all the Fund's illiquid securities to not more than 15%
of its net assets.
LENDING OF SECURITIES. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements.
The Fund may reinvest any cash collateral in short-term securities. When the
Fund lends portfolio securities, there is a risk that the borrower may fail to
return the loaned securities. As a result, the Fund may incur a loss or in the
event of the borrower's bankruptcy may be delayed in or prevented from
liquidating the collateral. It is a fundamental policy of the Fund not to lend
portfolio securities having a total value in excess of 33 1/3% of its total
assets.
REPURCHASE AGREEMENTS, FORWARD COMMITMENTS AND WHEN-ISSUED SECURITIES. The
Fund may enter into repurchase agreements and may purchase securities on a
forward commitment or when-issued basis. In a repurchase agreement, the Fund
buys a security subject to the right and obligation to sell it back to the
issuer at a higher price. These transactions must be fully collateralized at
all times, but involve some credit risk to the Fund if the other party
defaults on its obligations and the Fund is delayed in or prevented from
liquidating the collateral. The Fund will segregate in a separate account cash
or liquid, high grade debt securities equal in value to its forward
commitments and when-issued securities. Purchasing securities for future
delivery or on a when-issued basis may increase the Fund's overall investment
exposure and involves a risk of loss if the value of the securities declines
before the settlement date.
SHORT-TERM TRADING. Short-term trading means the purchase and subsequent sale
of a security after it has been held for a relatively brief period of time.
The Fund engages in short-term trading in response to changes in interest
rates or other economic trends and developments. 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 Internal Revenue Code.
INVESTMENT RESTRICTIONS. The Fund has adopted certain investment restrictions
which are detailed in the Statement of Additional Information where they are
designated as fundamental or nonfundamental. Fundamental investment
restrictions may not be changed without shareholder approval. All other
investment policies and restrictions, are nonfundamental and can be changed by
a vote of the Trustees without shareholder approval. Portfolio turnover rates
of the Fund are shown in the section "The Fund's Financial Highlights."
INVESTMENTS IN FOREIGN SECURITIES MAY INVOLVE RISKS AND CONSIDERATIONS THAT ARE
NOT PRESENT IN DOMESTIC INVESTMENTS.
GLOBAL RISKS. Investments in foreign securities may involve certain risks not
present in domestic securities due to exchange controls, less publicly
available information, more volatile or less liquid securities markets, and
the possibility of expropriation, confiscatory taxation or political, economic
or social instability. There may be difficulty in enforcing legal rights
outside the United States. Some foreign companies are not subject to the same
uniform financial reporting requirements, accounting standards and government
supervision as domestic companies, and foreign exchange markets are regulated
differently from the U.S. stock market. Security trading practices abroad may
offer less protection to investors such as the Fund. In addition, foreign
securities may be denominated in the currency of the country in which the
issuer is located. Consequently, changes in foreign exchange rates will affect
the value of the Fund's shares and dividends. Finally, the expense ratios of
international funds generally are higher than those of domestic funds because
there are greater costs associated with maintaining custody of foreign
securities, and the increased research necessary for international investing
results in a higher advisory fee.
These risks may be intensified in the case of investments in emerging markets
or countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America
and Africa. Security prices in these markets can be significantly more
volatile than in more developed countries, reflecting the greater
uncertainties of investing in less established markets and economies.
Political, legal and economic structures in many of these emerging market
countries may be undergoing significant evolution and rapid development, and
they may lack the social, political, legal and economic stability
characteristic of more developed countries. Emerging market countries may have
failed in the past to recognize private property rights. They may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions on repatriation
of assets, and may have less protection of property rights than more developed
countries. Their economies may be predominantly based on only a few
industries, may be highly vulnerable to changes in local or global trade
conditions, and may suffer from extreme and volatile debt burdens, 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.
BROKERS ARE CHOSEN BASED ON BEST PRICE AND EXECUTION.
When choosing brokerage firms to carry out the Fund's transactions, the
Adviser gives primary consideration to execution at the most favorable prices,
taking into account the broker's professional ability and quality of service.
Consideration may also be given to the broker's sales of Fund shares. Pursuant
to procedures established by the Trustees, the Adviser or Sub-Adviser may
place securities transactions with brokers affiliated with the Adviser. These
brokers include Tucker Anthony Incorporated, John Hancock Distributors, Inc.
and Sutro & Company, Inc. They are indirectly owned by John Hancock Mutual
Life Insurance Company (the "Life Company"), which in turn indirectly owns the
Adviser and Sub-Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
THE TRUSTEES ELECT OFFICERS AND RETAIN THE INVESTMENT ADVISER WHO IS RESPONSIBLE
FOR THE DAY-TO-DAY OPERATIONS OF THE FUND, SUBJECT TO THE TRUSTEES' POLICIES AND
SUPERVISION.
The Fund is a diversified series of Freedom Investment Trust II, an open-end
management investment company organized as a Massachusetts business trust in
1986. The Fund has an unlimited number of authorized shares of beneficial
interest. The Trust's Declaration of Trust permits the Trustees to create,
classify and reclassify the shares into one or more classes. Accordingly, the
Trustees have authorized the issuance of three classes of the Fund, designated
Class A, Class B and Class C, although Class C is no longer offered for sale.
The shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights as to voting, redemption,
dividends and liquidation. However, each class bears different distribution
fees and Class A and Class B shareholders have exclusive voting rights with
respect to their distribution plans.
The Fund is not required to hold annual shareholder meetings, although special
meetings may be held for such purposes as electing or removing Trustees,
changing fundamental investment restrictions and policies or approving a
management contract. The Fund, under certain circumstances, will assist in
shareholder communication with other shareholders.
JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF MORE THAN $16 BILLION.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Fund,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. Formed in 1987, the
Sub-Adviser to the Fund is a wholly-owned subsidiary of the Adviser, and
provides international investment research and advisory services to
institutional clients. John Hancock Funds, Inc. ("John Hancock Funds")
distributes shares for all of the John Hancock funds through selected broker-
dealers ("Selling Brokers"). Certain Fund officers are also officers of the
Adviser and John Hancock Funds. Pursuant to an order granted by the Securities
and Exchange Commission, the Fund has adopted a deferred compensation plan for
its independent Trustees which allows Trustees' fees to be invested by the
Fund in other John Hancock funds.
Day-to-day management of the Fund is carried out by David S. Beckwith and John
L.F. Wills. Prior to joining the Adviser in 1992, Mr. Beckwith was associated
with Freedom Capital Management, an affiliate of the Adviser. Mr. Wills is
general manager of John Hancock Advisers International, Ltd. and has been
associated with John Hancock since 1987.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser,
the Sub-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: preclearance 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. A Sub-Adviser'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.
ALTERNATIVE PURCHASE ARRANGEMENTS
AN ALTERNATIVE PURCHASE PLAN ALLOWS YOU TO CHOOSE THE METHOD OF PAYMENT THAT IS
BEST FOR YOU.
You can purchase shares of the Fund at a price equal to their net asset value
per share plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge Alternative --
Class A Shares") or on a contingent deferred basis (see "Contingent Deferred
Sales Charge Alternative -- Class B Shares"). If you do not specify on your
account application the class of shares you are purchasing, it will be assumed
that you are investing in Class A shares.
INVESTMENTS IN CLASS A SHARES ARE SUBJECT TO AN INITIAL SALES CHARGE.
CLASS A SHARES. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount you purchase is $1 million or more. If
you purchase $1 million or more of Class A shares, you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.30% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price -- Qualifying for a Reduced Sales Charge."
INVESTMENTS IN CLASS B SHARES ARE SUBJECT TO A CONTINGENT DEFERRED SALES CHARGE.
CLASS B SHARES. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all
your dollars to work from the time you make your investment, but the higher
ongoing distribution fee will cause these shares to have higher expenses than
Class A shares. To the extent that any dividends are paid, these higher
expenses will also result in lower dividends than those paid on Class A
shares.
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE
YOU SHOULD CONSIDER WHICH CLASS OF SHARES WILL BE MORE BENEFICIAL FOR YOU.
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider
whether, during the anticipated life of your Fund investment, the CDSC and
accumulated fees on Class B shares would be less than the initial sales charge
and accumulated fees on Class A shares purchased at the same time; and to what
extent this differential would be offset by the Class A shares' lower
expenses. To help you make this determination, the table under the caption
"Expense Information" on the inside cover page of this Prospectus gives
examples of the charges applicable to each class of shares. Class A shares
will normally be more beneficial if you qualify for reduced sales charges. See
"Share Price-Qualifying for a Reduced Sales Charge."
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent any
dividends are paid. However, because initial sales charges are deducted at the
time of purchase, you would not have all of your funds invested initially and,
therefore, would initially own fewer shares. If you do not qualify for reduced
initial sales charges and expect to maintain your investment for an extended
period of time, you might consider purchasing Class A shares. This is because
the accumulated distribution and service charges on Class B shares may exceed
the initial sales charge and accumulated distribution and service charges on
Class A shares during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution fees and, for a six-year period, a CDSC.
In the case of Class A shares, the distribution expenses that John Hancock
Funds incurs in connection with the sale of the shares will be paid from the
proceeds of the initial sales charge and the ongoing distribution and service
fees. In the case of Class B shares, the expenses will be paid from the
proceeds of the ongoing distribution and service fees, as well as from the
CDSC incurred upon redemption within six years of purchase. The purpose and
function of the Class B shares' CDSC and ongoing distribution and service fees
are the same as those of the Class A shares' initial sales charge and ongoing
distribution and service fees.
Dividends, if any, on Class A and Class B shares will be calculated in the
same manner, at the same time and on the same day. They will also be in the
same amount, except for differences resulting from each class bearing only its
own distribution and service fees and shareholder meeting expenses. See
"Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly fee
to the Adviser which is based on a percentage of the Fund's average daily net
asset value, as follows: 1.00% on the first $250 million of average daily net
assets, 0.80% on the next $250 million of average net assets, 0.75% on the
next $250 million of average net assets and 0.625% of average net assets in
excess of $750 million. The investment management fee paid by the Fund is
higher than the fees paid by most mutual funds but comparable to fees paid by
those funds with a similar investment objective.
The Adviser pays the Sub-Adviser a portion of its fee at the annual rate of
0.70% of the first $200 million of the Fund's average daily net assets and
0.6375% of any amount over $200 million. The Fund is not responsible for
payment of the Sub-Adviser's fee.
The Adviser has reduced Fund expenses, including the management fee (but not
including the transfer agent fee and the 12b-1 fee), to 0.90% of the Fund's
average daily net assets. The Adviser reserves the right to terminate this
reduction in the future.
THE FUND PAYS DISTRIBUTION AND SERVICE FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, the Fund will pay distribution and service
fees at an aggregate annual rate of up to 0.30% of the Class A shares' average
daily net assets and an aggregate annual rate of up to 1.00% of the Class B
shares' average daily net assets. In each case, up to 0.25% is for service
expenses and the remaining amount is for distribution expenses. The
distribution fees will be used to reimburse John Hancock Funds for its
distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of John
Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional
and overhead expenses incurred in connection with the distribution of Fund
shares and (iii) with respect to Class B shares only, interest expenses on
unreimbursed distribution expenses. The service fees are paid to compensate
Selling Brokers and others providing personal and account maintenance services
to shareholders.
In the event John Hancock Funds is not fully reimbursed for payments it makes
or expenses it incurs under the Class A Plan, these expenses will not be
carried beyond one year from the date they were incurred. These unreimbursed
expenses under the Class B Plan will be carried forward together with interest
on the balance of these unreimbursed expenses.
For the fiscal year ended October 31, 1995 an aggregate of $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.
Information on the Fund's total expenses is in the Financial Highlights
section of this Prospectus.
DIVIDENDS AND TAXES
DIVIDENDS. The Fund generally declares and distributes dividends representing
all or substantially all net investment income, if any, at least annually. The
Fund will also distribute realized net short-term or long-term capital gains,
if any, at least annually.
Dividends are reinvested in additional shares of your class unless you elect
the option to receive cash. If you elect the cash option and the U.S. Postal
Service cannot deliver your checks, your election will be converted to the
reinvestment option. Because of the higher expenses associated with Class B
shares, any dividends on these shares will be lower than on the Class A
shares. See "Share Price."
TAXATION. Dividends from the Fund's net investment income, certain net foreign
exchange gains and net short-term capital gains are taxable to you as ordinary
income. Dividends from the Fund's net long-term capital gains are taxable as
long-term capital gains. These dividends are taxable whether received in cash
or reinvested in additional shares. Certain dividends may be paid in January
of a given year, but may be taxable as if you received them the previous
December. The Fund will send you a statement by January 31 showing the tax
status of the dividends you received for the prior year.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Fund will not be
subject to Federal income tax on any net investment income and net realized
capital gains that are distributed to its shareholders within the time period
prescribed by the Code. When you redeem (sell) or exchange shares, you may
realize a taxable gain or loss.
The Fund anticipates that it will be subject to foreign withholding taxes or
other foreign taxes on income (possibly including capital gains) on certain
foreign investments which will reduce the yield on those investments.
However, if more than 50% of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations and if the Fund so
elects, shareholders will include in their gross incomes their pro-rata shares
of qualified foreign taxes paid by the Fund and may be entitled, subject to
certain conditions and limitations under the Code, to claim a Federal income
tax credit or deduction for their share of these taxes.
On the account application, you must certify that your social security or
other taxpayer identification number you provide is correct and that you are
not subject to backup withholding of Federal income tax. If you do not provide
this information or are otherwise subject to this withholding, the Fund may be
required to withhold 31% of your dividends and the proceeds of redemptions and
exchanges.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investments in and distributions from the Fund.
Non-U.S. shareholders and tax-exempt shareholders are subject to a different
tax treatment not described above. In many states, a portion of the Fund's
dividends that represents interest received by the Fund on direct U.S.
Government obligations may be exempt from tax. You should consult your tax
adviser for specific advice.
PERFORMANCE
THE FUND MAY ADVERTISE ITS TOTAL RETURN.
Total return shows the overall dollar or percentage change in value of a
hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period
of time. Average annual total return shows the cumulative return divided by
the number of years included in the period. Because average annual total
return tends to smooth out variations in performance, you should recognize
that it is not the same as actual year-to-year results.
Total return calculations for Class A shares generally include the effect of
paying the maximum sales charge (except as shown in "The Fund's Financial
Highlights"). Investments at lower sales charges would result in higher
performance figures. Total return calculations for the Class B shares reflect
deduction of the applicable CDSC imposed on a redemption of shares held for
the applicable period (except as shown in "The Fund's Financial Highlights").
All calculations assume that all dividends are reinvested at net asset value
on the reinvestment dates during the periods. The total return of Class A and
Class B shares will be calculated separately, and, because each class of
shares is subject to different expenses, total return may differ with respect
to each class for the same period. The relative performance of the Class A and
Class B shares will be affected by a variety of factors, including the higher
operating expenses attributable to the Class B shares, whether the Fund's
investment performance is better in the earlier or later portions of the
period measured and the level of net assets of the classes during the period.
The Fund will include the total return of both classes in any advertisement or
promotional materials including the Fund's performance data. The value of the
Fund's shares, when redeemed, may be more or less than their original cost.
Total returns is a historical calculation and is not an indication of future
performance. See "Factors to Consider in Choosing an Alternative".
HOW TO BUY SHARES
OPENING AN ACCOUNT.
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The minimum initial investment is $1,000 ($250 for group investments and
the Account Application attached to this Prospectus. Indicate whether you are
purchasing Class A or Class B shares. If you do not specify which class of
shares you are purchasing, Investor Services will assume that you are
investing in Class A shares.
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BY CHECK 1. Make your check payable to John Hancock Investor
Services Corporation.
2. Deliver the completed application and check to your
registered representative, Selling Broker or mail it
directly to Investor Services.
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BY WIRE 1. Obtain an account number by contacting your registered
representative, Selling Broker or by calling
1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For Credit To: John Hancock International Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative, Selling Broker or mail it directly to
Investor Services.
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BUYING ADDITIONAL CLASS A AND CLASS B SHARES.
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MONTHLY AUTOMATIC 1. Complete the "Automatic Investing" and "Bank
ACCUMULATION Information" sections on the Account Privileges
PROGRAM (MAAP) Application designating a bank account from which
funds may be drawn.
2. The amount you elect to invest will be withdrawn
automatically from your bank or credit union account.
BUYING ADDITIONAL CLASS A AND CLASS B SHARES. (CONTINUED)
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BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank Information"
sections on the Privileges Application designating a bank
account from which your funds may be drawn. Note that in
order to invest by phone, your account must be in a bank
or credit union that is a member of the Automated
Clearing House system (ACH).
2. After your authorization form has been processed, you
may purchase additional Class A or Class B shares by
calling Investor Services toll-free at 1-800-225-5291.
3. Give the Investor Services representative the name(s)
in which your account is registered, the Fund name, the
class of shares you own, your account number, and the
amount you wish to invest.
4. Your investment normally will be credited to your
account the business day following your phone request.
- ------------------------------------------------------------------------------
BY CHECK 1. Either complete the detachable stub included on your
account statement or include a note with your investment
listing the name of the Fund, the class of shares you
own, your account number and the name(s) in which the
account is registered.
2. Make your check payable to John Hancock Investor
Services Corporation
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or
Selling Broker.
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BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit To: John Hancock International Fund
(Class A or Class B shares)
Your account number
Name(s) under which account is registered
- ------------------------------------------------------------------------------
OTHER REQUIREMENTS: All purchases must be made in U.S. dollars. Checks written
on foreign banks will delay purchases until U.S. funds are received, and a
collection charge may be imposed. Shares of the Fund are priced at the offering
price at the net asset value computed after John Hancock Funds receives
notification of the dollar equivalent from the Fund's custodian bank. Wire
purchases normally take two or more hours to complete and, to be accepted the
same day, must be received by 4:00 p.m. New York time. Your bank may charge a
fee to wire funds. Telephone transactions are recorded to verify information.
Certificates are not issued unless a request is made in writing to Investor
Services.
- ------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT STATEMENTS THAT YOU SHOULD KEEP TO HELP WITH YOUR
PERSONAL RECORDKEEPING.
You will receive a statement of your account after any transaction that
affects your share balance or registration (statements related to reinvestment
of dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
SHARE PRICE
THE OFFERING PRICE OF YOUR SHARES IS THEIR NET ASSET VALUE PLUS A SALES CHARGE,
IF APPLICABLE, WHICH WILL VARY WITH THE PURCHASE ALTERNATIVE YOU CHOOSE.
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net asset value of each class by the number of
outstanding shares of that class. The NAV of each class can differ. Securities
in the Fund's portfolio are valued on the basis of market quotations,
valuations provided by independent pricing services or, at fair value as
determined in good faith according to procedures approved by the Trustees.
Short-term debt investments maturing within 60 days are valued at amortized
cost which the Board of Trustees has determined to approximate market value.
Foreign securities are valued on the basis of quotations from the primary
market in which they are traded, and are translated from the local currency
into U.S. dollars using current exchange rates. If quotations are not readily
available, or the value has been materially affected by events occurring after
the closing of a foreign market, assets are valued by a method that the
Trustees believe accurately reflects fair value. The NAV is calculated once
daily as of the close of regular trading on the New York Stock Exchange
(generally at 4:00 p.m., New York time) on each day that the Exchange is open.
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Fund through a Selling Broker, the Selling Broker
must receive your investment before the close of regular trading on the New
York Stock Exchange and transmit it to John Hancock Funds before its close of
business to receive that day's offering price.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge as follows:
<TABLE>
<CAPTION>
COMBINED
SALES CHARGE REALLOWANCE REALLOWANCE TO
SALES CHARGE AS A PERCENTAGE AND SERVICE FEE SELLING BROKER AS
AMOUNT INVESTED AS A PERCENTAGE OF OF THE AS A PERCENTAGE A PERCENTAGE OF
(INCLUDING SALES CHARGE) OF OFFERING PRICE AMOUNT INVESTED OF OFFERING PRICE(4) OFFERING PRICE(1)
- ----------------------- ------------------ --------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to $249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to $499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to $999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%(2) 0.00%(2) (3) 0.00%(3)
(1) Upon notice to Selling Brokers with whom it has sales agreements, John Hancock Funds may reallow an amount up
to the full applicable sales charge. A Selling Broker to whom substantially the entire sales charge is reallowed
may be deemed to be an underwriter under the Securities Act of 1933.
(2) No sales charge is payable at the time of purchase of Class A shares of $1 million or more, but a CDSC may be imposed
in the event of certain redemption transactions made within one year of purchase.
(3) John Hancock Funds may pay a commission and first year's service fee (as described in (4) below) to Selling Brokers
who initiate and are responsible for purchases of $1 million or more in aggregate as follows: 1% on sales up to $4,999,999,
0.50% on the next $5 million and 0.25% on $10 million and over.
(4) At the time of sale, John Hancock Funds pays to Selling Brokers the first year's service fee in advance, in an amount equal
to 0.25% of the net assets invested in the Fund. Thereafter, it pays the service fee periodically in arrears in an amount up
to 0.25% of the Fund's average annual net assets. Selling Brokers receive the fee as compensation for providing personal and
account maintenance services to shareholders.
</TABLE>
Sales charges ARE NOT APPLIED to any dividends that are reinvested in additional
Class A shares of the Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual
rate of up to 0.05% of the daily net assets of the accounts attributable to
these brokers.
Under certain circumstances as described below, investors in Class A shares
may be entitled to pay reduced sales charges. See "Qualifying for a Reduced
Sales Charge".
CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS
A SHARES. Purchases of $1 million or more in Class A shares will be made at
net asset value with no initial sales charge, but if the shares are redeemed
within 12 months after the end of the calendar month in which the purchase was
made, (the CDSC period), a CDSC will be imposed. The rate of the CDSC will
depend on the amount invested as follows:
AMOUNT INVESTED CDSC RATE
- --------------- ---------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Existing full service clients the Life Company who were group annuity contract
holders as of September 1, 1994 and participant directed defined contribution
plans with at least 100 eligible employees at the inception of the Fund
account, may purchase Class A shares with no initial sales charge. However, if
the shares are redeemed within 12 months after the end of the calendar year in
which the purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current
market value or the original purchase cost of the redeemed Class A shares.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends which have been reinvested in
additional Class A shares.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
Therefore, it will be assumed that redemption is first made from any shares in
your account that are not subject to the CDSC. The CDSC is waived on
redemptions in certain circumstances. See "Waiver of Contingent Deferred Sales
Charge" below.
YOU MAY QUALIFY FOR A REDUCED SALES CHARGE ON YOUR INVESTMENT IN CLASS A SHARES.
QUALIFYING FOR A REDUCED SALES CHARGE. If you invest more than $50,000 in
Class A shares of the Fund or a combination of John Hancock funds (except
money market funds), you may qualify for a reduced sales charge on your
investments in Class A shares through a LETTER OF INTENTION. You may also be
able to use the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE to take
advantage of the value of your previous investments in shares of John Hancock
funds in meeting the breakpoints for a reduced sales charge. For the
ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE, the applicable sales charge
will be based on the total of:
1. Your current purchase of Class A shares of the Fund;
2. The net asset value (at the close of business on the previous day) of (a)
all Class A shares of the Fund you hold, and (b) all Class A shares of any
other John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
EXAMPLE
If you hold Class A shares of a John Hancock fund with a net asset value of
$20,000 and, subsequently, invest $30,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 4.50% and not 5.00%. This
is the rate that would otherwise be applicable to investments of less than
$50,000. See "Initial Sales Charge Alternative -- Class A Shares."
CLASS A SHARES MAY BE AVAILABLE WITHOUT A SALES CHARGE TO CERTAIN INDIVIDUALS
AND ORGANIZATIONS.
If you are in one of the following categories, you may purchase Class A shares
of the Fund without paying a sales charge:
* A Trustee or officer of the Trust; a Director or officer of the Adviser and
its affiliates or Selling Brokers; employees or sales representatives of any
of the foregoing; retired officers, employees or Directors of any of the
foregoing; a member of the immediate family of any of the foregoing; or any
Fund, pension, profit sharing or other benefit plan for the individuals
described above.
* Any state, county, city or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment laws
from paying a sales charge or commission when it purchases shares of any
registered investment management company.*
* A bank, trust company, credit union, savings institution or other depository
institution, its trust departments or common trust funds if it is purchasing
$1 million or more for non-discretionary customers or accounts.*
* A broker, dealer, financial planner, consultant or registered investment
adviser that has entered into an agreement with John Hancock Funds providing
specifically for the use of Fund shares in fee-based investment products or
services made available to their clients.
* A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his/her plan distributions directly to the Fund.
* A member of an approved affinity group financial services plan.*
- ----------
* For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may also be purchased without an initial sales
charge in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares
are offered at net asset value per share without a sales charge, so that your
entire initial investment will go to work at the time of purchase. However,
Class B shares redeemed within six years of purchase will be subject to a CDSC
at the rates set forth below. This charge will be assessed on an amount equal
to the lesser of the current market value or the original purchase cost of the
shares being redeemed. Accordingly, you will not be assessed a CDSC on
increases in account value above the initial purchase price, including shares
derived from reinvested dividends.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
reinvestment of dividends, and next from the shares you have held the longest
during the six-year period. The CDSC is waived on redemptions in certain
circumstances. See the discussion "Waiver of Contingent Deferred Sales
Charges" below.
EXAMPLE:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time, the 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
because they were acquired through
dividend reinvestment (10 x $12) -120
* Minus appreciation on remaining shares, also not
subject to CDSC (40 x $2) - 80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
them to defray its expenses related to providing the Fund with distribution
services in connection with the sale of the Class B shares, such as
compensating Selling Brokers for selling these shares. The combination of the
CDSC and the distribution and service fees makes it possible for the Fund to
sell Class B shares without an initial sales charge.
The amount of the CDSC, if any, will vary depending on the number of years
from the time you purchase your Class B shares until the time you redeem them.
Solely for purposes of determining this holding period, any payment you make
during the month will be aggregated and deemed to have been made on the last
day of the month.
CONTINGENT DEFERRED SALES
YEAR IN WHICH CLASS B SHARES CHARGE AS A PERCENTAGE OF
REDEEMED FOLLOWING PURCHASE AMOUNT REDEEMED
- --------------------------- -------------------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision
of personal and account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid in arrears.
UNDER CERTAIN CIRCUMSTANCES, THE CDSC ON CLASS B AND CLASS A SHARE REDEMPTIONS
WILL BE WAIVED.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a
CDSC, unless indicated otherwise, in the circumstances defined below:
* Redemptions of Class B shares made under a Systematic Withdrawal Plan (see
"How to Redeem Shares"), as long as your annual redemptions do not exceed
10% of your account value at the time you established your Systematic
Withdrawal Plan and 10% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor Services. This
waiver does not apply to Systematic Withdrawal Plan redemptions of Class A
shares that are subject to a CDSC.
* Redemptions made to effect distributions from an Individual Retirement
Account either before or after age 59 1/2, as long as the distributions are
based on your life expectancy or the joint-and-last survivor life
expectancy of you and your beneficiary. These distributions must be free
from penalty under the Code.
* Redemptions made to effect mandatory distributions under the Code after age
70 1/2 from a tax-deferred retirement plan.
* Redemptions made to effect distributions to participants or beneficiaries
from certain employer-sponsored retirement plans including those qualified
under Section 401(a) of the Code, custodial accounts under Section 403(b)
(7) of the Code and deferred compensation plans under Section 457 of the
Code. The waiver also applies to certain returns of excess contributions
made to these plans. In all cases, the distributions must be free from
penalty under the Code.
* Redemptions due to death or disability.
* Redemptions made under the Reinvestment Privilege, as described in
"Additional Services and Programs" of this Prospectus.
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own fewer than 50 shares.
* Redemptions made in connection with certain liquidation, merger or
acquisition transactions involving other investment companies or personal
holding companies.
* Redemptions from certain IRA and retirement plans which purchased shares
prior to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must
notify Investor Services either directly or through your Selling Broker at the
time you make your redemption. The waiver will be granted once Investor
Services has confirmed that you are entitled to the waiver.
CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion
of reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following eight years
after the shares were purchased, and will result in lower annual distribution
fees. If you exchanged Class B shares into this Fund from another John Hancock
fund, the calculation will be based on the time you purchased the shares in
the original fund. The Fund has been advised that the conversion of Class B
shares to Class A shares should not be taxable for Federal income tax purposes
and should not change a your tax basis or tax holding period for the converted
shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your
shares will be redeemed at the next NAV calculated after your redemption
request is received in good order by Investor Services, less any applicable
CDSC. The Fund may hold payment until reasonably satisfied that investments
recently made by check or Invest-by-Phone have been collected (which may take
up to 10 calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the
next business day. When you redeem your shares you may realize a taxable gain
or loss, depending usually on the difference between what you paid for them
and what you receive for them, subject to certain tax rules. Under unusual
circumstances, the Fund may suspend redemptions or postpone payment for up to
three business days or longer, as permitted by Federal securities laws.
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION REQUEST, PLEASE FOLLOW THESE PROCEDURES.
- ------------------------------------------------------------------------------
BY TELEPHONE All Fund shareholders are eligible automatically for the
telephone privilege. Call 1-800-225-5291, from 8:00 A.M.
to 4:00 P.M. (New York time), Monday through Friday,
excluding days on which the New York Stock Exchange is
closed. Investor Services employs the following
procedures to confirm that instructions received by
telephone are genuine. Your name, the account number,
taxpayer identification number applicable to the account
and other relevant information may be requested. In
addition, telephone instructions are recorded.
You may redeem up to $100,000 by telephone, but the
address on the account must not have changed for the last
thirty days. A check will be mailed to the exact name(s)
shown on the account.
If reasonable procedures, such as those described above,
are not followed, the Fund may be liable for any loss due
to unauthorized or fraudulent telephone instructions. In
all other cases, neither the Fund nor Investor Services
will be liable for any loss or expense for acting upon
telephone instructions made according to the telephone
transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Fund that
are in certificated form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During these times you
should consider placing redemption requests in writing or
using EASI-Line. EASI-Line's telephone number is 1-800-
338-8080.
- ------------------------------------------------------------------------------
BY WIRE If you have a telephone redemption form on file with the
Fund, redemption proceeds of $1,000 or more can be wired
on the next business day to your designated bank account
and a fee (currently $4.00) will be deducted. You may
also use electronic funds transfer to your assigned bank
account and the funds are usually collectible after two
business days. Your bank may or may not charge for this
service. Redemptions of less than $1,000 will be sent by
check or electronic funds transfer.
This feature may be elected by completing the Telephone
Redemption section on the Account Privileges Application
included with this Prospectus.
- ------------------------------------------------------------------------------
IN WRITING Send a stock power or "letter of instruction" specifying
the name of the Fund, the dollar amount or the number of
shares to be redeemed, your name, class of shares, your
account number and the additional requirements listed
below that apply to your particular account.
- ------------------------------------------------------------------------------
TYPE OF REGISTRATION REQUIREMENTS
- -------------------- ------------
Individual, Joint Tenant, Sole A letter of instruction signed (with
Proprietorship, Custodial titles, where applicable) by all
(Uniform Gifts or Transfer to person(s) authorized to sign for the
Minors Act), General Partner. account, exactly as it is
registered, with the signature(s)
guaranteed.
Corporation, Association A letter of instruction and a
corporate resolution, signed by
person(s) authorized to act on the
account, with the signature(s)
guaranteed.
Trusts A letter of instruction signed by
the Trustee(s) with a signature
guarantee. (If the Trustee's name is
not registered on your account, also
provide a copy of the trust
document, certified within the last
60 days.)
If you do not fall into any of these registration categories please call
1-800-225-5291 for further instructions.
WHO MAY GUARANTEE YOUR SIGNATURE.
- ------------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect on your request. It
may not be provided by a notary public. If the net asset value of the shares
redeemed is $100,000 or less, John Hancock Funds may guarantee the signature.
The following institutions may provide you with a signature guarantee, provided
that the institution meets credit standards established by Investor Services:
(i) a bank; (ii) a securities broker or dealer, including a government or
municipal securities broker or dealer, that is a member of a clearing
corporation or meets certain net capital requirements; (iii) a credit union
having authority to issue signature guarantees; (iv) a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association; or (v) a national securities exchange, a registered
securities exchange or a clearing agency.
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
- ------------------------------------------------------------------------------
THROUGH YOUR BROKER Your broker may be able to initiate the redemption.
Contact your broker for instructions.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS. (CONTINUED)
If you have certificates for your shares, you must submit them with your stock
power or a letter of instruction. Unless you specify to the contrary, any
outstanding Class A shares will be redeemed before Class B shares. You may not
redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining smaller accounts, the Fund
reserves the right to redeem at net asset value all shares in an account which
holds fewer than 50 shares (except accounts under retirement plans) and to mail
the proceeds to the shareholder or the transfer agent may impose an annual fee
of $10.00. No account will be involuntarily redeemed or additional fee imposed,
if the value of the account is in excess of the Fund's minimum initial
investment. No CDSC will be imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or this
fee is imposed and will have 30 days to purchase additional shares to bring
their account balance up to the required minimum. Unless the number of shares
acquired by additional purchases and any dividend reinvestments exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this policy.
- ------------------------------------------------------------------------------
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
YOU MAY EXCHANGE SHARES OF THE FUND FOR SHARES OF THE SAME CLASS OF ANOTHER JOHN
HANCOCK FUND.
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of
investment goals. Contact your registered representative or Selling Broker and
request a prospectus for the John Hancock funds that interest you. Read the
prospectus carefully before exchanging your shares. You can exchange shares of
each class of the Fund only for shares of the same class of another John
Hancock fund. For this purpose, John Hancock funds with only one class of
shares will be treated as Class A whether or not they have been so designated.
Exchanges between funds with shares which are not subject to a CDSC are based
on their respective net asset values. No sales charge or transaction charge is
imposed. Class B shares of the Fund that are subject to a CDSC may be
exchanged for Class B shares of another John Hancock fund without incurring
the CDSC; however, the shares will be subject to the CDSC schedule of the
shares acquired (except that exchanges into John Hancock Short-Term Strategic
Income Fund, John Hancock Intermediate Maturity Government Fund and John
Hancock Limited-Term Government Fund will be subject to the initial fund's
CDSC). For purposes of computing the CDSC payable upon redemption of shares
acquired in an exchange, the holding period of the original shares is added to
the holding period of the shares acquired in an exchange. However, if you
exchange Class B shares purchased prior to January 1, 1994 for Class B shares
of any other John Hancock fund, you will continue to be subject to the CDSC
schedule in effect on your initial purchase date.
The Fund reserves the right to require that you keep previously exchanged
shares (and reinvested dividends) in the Fund for 90 days before you are
permitted a new exchange. The Fund may also terminate or alter the terms of
the exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal income tax purposes. An exchange may
result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers
and investment advisers may exchange their clients' Fund shares, subject to
the terms of those agreements and John Hancock Funds' right to reject or
suspend those exchanges at any time. Because of the restrictions and
procedures under those agreements, the exchanges may be subject to timing
limitations and other restrictions that do not apply to exchanges requested by
shareholders directly, as described above.
Because Fund performance and shareholders can be hurt by excessive trading,
the Fund reserves the right to terminate the exchange privilege for any person
or group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely.
The Fund may also temporarily or permanently terminate the exchange privilege
for any person who makes seven or more exchanges out of the Fund per calendar
year. Accounts under common control or ownership will be aggregated for this
purpose. Although the Fund will attempt to give prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
IN WRITING
1. In a letter request an exchange and list the following:
-- the name and class of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or the dollar amount you wish to
exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
REINVESTMENT PRIVILEGE
IF YOU REDEEM SHARES OF THE FUND, YOU MAY BE ABLE TO REINVEST ALL OR PART OF THE
PROCEEDS IN THE FUND OR ANOTHER JOHN HANCOCK FUND WITHOUT PAYING AN ADDITIONAL
SALES CHARGE.
1. You will not be subject to a sales charge on Class A shares that you
reinvest in a John Hancock fund that is otherwise subject to a sales
charge, as long as you reinvest within 120 days from the redemption date.
If you paid a CDSC upon a redemption, you may reinvest at net asset value
in the same class of shares from which you redeemed within 120 days. Your
account will be credited with the amount of the CDSC previously charged,
and the reinvested shares will continue to be subject to a CDSC. The
holding period of the shares acquired through reinvestment, for purposes of
computing the CDSC payable upon a subsequent redemption will include the
holding period of the redeemed shares.
2. Any portion of your redemption may be reinvested in Fund shares or in
shares of other John Hancock funds, subject to the minimum investment limit
of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the
Fund's name, account number and class from which your shares were
originally redeemed.
SYSTEMATIC WITHDRAWAL PLAN
YOU CAN PAY ROUTINE BILLS FROM YOUR ACCOUNT OR MAKE PERIODIC DISBURSEMENTS FROM
YOUR RETIREMENT ACCOUNT TO COMPLY WITH IRS REGULATIONS.
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You
can also obtain the application from your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually or
annually or on a selected monthly basis, to yourself or any other
designated payee.
4. There is no limit on the number of payees you may authorize, but all
payments must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan
concurrently with purchases of Class A or Class B shares, because you may
be subject to an initial sales charges on your purchases of Class A shares
or to a CDSC on your redemptions of Class B shares. In addition, your
redemptions are taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks, or if deposits to a bank account are returned for any reason.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
YOU CAN MAKE AUTOMATIC INVESTMENTS AND SIMPLIFY YOUR INVESTING.
1. You can authorize an investment to be withdrawn automatically each month on
your bank, for investment in Fund shares, under the "Automatic Investing"
and "Bank Information" sections of the Account Privileges Application.
2. You can also authorize automatic investing through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program at any time.
4. There is no charge to you for this program, and there is no cost to the
Fund.
5. If you have payments withdrawn from a bank account and we are notified that
the account has been closed, your withdrawals will be discontinued.
GROUP INVESTMENT PROGRAM
ORGANIZED GROUPS OF AT LEAST FOUR PERSONS MAY ESTABLISH ACCOUNTS.
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate
dollar amount of all participants' investments. To determine how to qualify
for this program, contact your registered representative or call 1-800-225-
5291.
2. The initial aggregate investment of all participants in the group must be
at least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at
any time.
RETIREMENT PLANS
1. You may use the Fund for various types of qualified retirement plans, such
as Individual Retirement Accounts, Keogh plans (H.R. 10), pension and
profit sharing plans (including 401(k) plans), Tax-Sheltered Annuity
retirement plans (403(b) Plans), and Section 457 plans.
2. The initial investment minimum or aggregate minimum for any of these plans
is $250. However, accounts being established as group IRA, SEP, SARSEP,
TSA, 401(k) and Section 457 plans will be accepted without an initial
minimum investment.
<PAGE>
JOHN HANCOCK INTERNATIONAL FUND
Class A and Class B Shares
Statement of Additional Information
March 1, 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 March 1,
1996 (the "Prospectus").
This Statement of Additional Information is not a prospectus. It should be
read in conjunction with the Fund's Prospectus, a copy of which may be obtained
free of charge by writing or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Statement of
Additional
Information
Page
----
ORGANIZATION OF THE FUND
2
INVESTMENT OBJECTIVE AND POLICIES
2
CERTAIN INVESTMENT PRACTICES
2
INVESTMENT RESTRICTIONS
11
THOSE RESPONSIBLE FOR MANAGEMENT
15
INVESTMENT ADVISORY AND OTHER SERVICES
21
DISTRIBUTION CONTRACT
23
NET ASSET VALUE
25
INITIAL SALES CHARGE ON CLASS A SHARES
26
DEFERRED SALES CHARGE ON CLASS B SHARES
27
SPECIAL REDEMPTIONS
28
ADDITIONAL SERVICES AND PROGRAMS
28
DESCRIPTION OF THE FUND'S SHARES
29
TAX STATUS
30
CALCULATION OF PERFORMANCE
35
BROKERAGE ALLOCATION
36
TRANSFER AGENT SERVICES
38
CUSTODY OF PORTFOLIO
38
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INDEPENDENT AUDITORS
38
APPENDIX A - DESCRIPTION OF BOND RATINGS
39
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 "Investment
Objective and Policies and Certain Risk Considerations" in the Prospectus.
CERTAIN INVESTMENT PRACTICES
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. In addition, there may be less publicly
available information about foreign companies than U.S. companies. Foreign
companies may not be subject to accounting, auditing, and financial reporting
standards, practices and requirements comparable to those applicable to U.S.
companies.
Foreign securities markets, while growing in volume, have for the most
part substantially less volume than U.S. securities markets and securities of
foreign companies are generally less liquid and at times their prices may be
more volatile than securities of comparable U.S. companies. Foreign stock
exchanges, brokers and listed companies are generally subject to less government
supervision and regulation than those in the U.S. The customary settlement time
for non-U.S. securities is less frequent than in the U.S., which could affect
the liquidity of the Fund's investments.
The Fund may invest in companies located in developing countries which,
compared to the U.S. and other developed countries, may have relatively unstable
governments, economies based on only a few industries and securities markets
which trade only a small number of securities.
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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.
In some countries, there is the possibility of expropriation or
confiscator taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions or other adverse political, social or diplomatic
developments that could affect investments in these countries.
Short-term Trading. 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 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. 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.
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
liquidating the underlying
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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, possible subnormal levels of income and lack of
access to income during this period, and the expense of enforcing its rights.
American Depository Receipts; European Depository Receipts. As discussed
in the Prospectus, the Fund may invest in the securities of foreign issuers in
the form of 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.
Financial Futures Contracts. The Fund may hedge its portfolio by selling
or purchasing financial futures contracts as an offset against the effect of
expected changes in interest rates or in security or foreign currency values.
Although other techniques could be used to reduce the Fund's exposure to
interest rate 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 (FTC).
Financial futures contracts have been designed by boards of trade which
have been designated "contract markets" by the FTC. 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
4
<PAGE>
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.
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
5
<PAGE>
daily limit governs only price movements during a particular trading day
and, therefore, does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses.
Finally, although the Fund engages in financial futures transactions only
on boards of trade or exchanges where there appears to be an adequate secondary
market, there is no assurance that a liquid market will exist for a particular
futures contract at any given time. The liquidity of the market depends on
participants closing out contracts rather than making or taking delivery. In the
event participants decide to make or take delivery, liquidity in the market
could be reduced. In addition, the Fund could be prevented from executing a buy
or sell order at a specified price or closing out a position due to limits on
open positions or daily price fluctuation limits imposed by the exchanges or
boards of trade. If the Fund cannot close out a position, it 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.
Restrictions on Use of Futures Transactions and Options. The Fund intends
to comply with FTC 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.
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.
6
<PAGE>
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.
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
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<PAGE>
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.
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
8
<PAGE>
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
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
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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
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.
Short Sales. The Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. The Fund may also engage in
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, the Fund must borrow the security sold
short to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. Until the security is replaced, the Fund is required to pay to the
lender any accrued interest and may be required to pay a premium.
The Fund will realize a gain if the security declines in price between the
date of the short sale and the date on which the Fund replaces the borrowed
security. On the other hand, the Fund will incur a loss as a result of the short
sale if the price of the security increases between those dates. The amount of
any gain will be decreased, and the amount of any loss increased, by the amount
of any premium or interest 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.
10
<PAGE>
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 Internal Revenue
Code of 1986, as amended. (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.
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) 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.
11
<PAGE>
(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 of 1933.
(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.
(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 Securities and Exchange
Commission pursuant to an exemptive
12
<PAGE>
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.
(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.
(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.
13
<PAGE>
(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.
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 of 1933 that have been determined by the Trustees to be
liquid based upon the trading markets for the securities) of issuers which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933 if by any reason thereof the value of its aggregate
investment in such classes of securities will exceed 10% of its total assets.
14
<PAGE>
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 of 1933.
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.
15
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
---------------- ---------------- -------------------
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
Officer, the Adviser and The
Berkeley Financial Group
("The Berkeley Group");
Chairman, NM Capital
Management, Inc. ("NM
Capital"); John Hancock
Advisers International
Limited ("Advisers
International"); John Hancock
Funds, Inc., ("John Hancock
Funds"); John Hancock
Investor Services Corporation
("Investor Services") and
Sovereign Asset Management
Corporation ("SAMCorp")
(herein after the Adviser,
The Berkeley Group, NM
Capital, Advisers
International, John Hancock
Funds, Investor Services and
SAMCorp are collectively
referred to as the
"Affiliated Companies");
Chairman, First Signature
Bank & Trust; Director, John
Hancock Freedom Securities
Corp., John Hancock Capital
Corp., New England/Canada
Business Council; Member,
Investment Company Institute
Board of Governors; Director,
Asia Strategic Growth Fund,
Inc.; Trustee, Museum of
Science; President, the
Adviser (until July 1992);
Chairman, John Hancock
Distributors, Inc. until
April 1994.
- ------------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
16
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
---------------- ---------------- -------------------
Douglas M. Costle Trustee (1, 2) Director, Chairman of the Board
RR2 Box 480 and Distinguished Senior
Woodstock, Vermont Fellow, Institute for
05091 Sustainable Communities,
Montpelier, Vermont, since 1991.
Dean Vermont Law School, until
1991. Director, Air and Water
Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
MITRE Corporation (governmental
consulting services).
Leland O. Erdahl Trustee (1, 2) President and Director of
8046 Mackenzie Court Nature Quality Ingredients
Las Vegas, NV 89129 Company, Inc. and Sante Fe
Ingredients Company, Inc.,
private food processing
companies. Director of Uranium
Resources, Inc. President of
Stolar, Inc. from 1987 to 1991
and President of Albuquerque
Uranium Corporation from 1985
to 1992. Director of
Freeport-McMoRan Copper & Gold
Company, Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original
Sixteen to One Mines, Inc.
From 1984 to 1987 and 1991,
management consultant.
Richard A. Farrell Trustee(1, 2) President of Farrell, Healer &
Venture Capital Partners Co., a venture capital
160 Federal Street management firm, since 1980.
23rd Floor Prior to that date, Mr. Farrell
Boston, MA 02110 headed the venture capital
group at Bank of Boston
Corporation.
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
17
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
- ---------------- ---------------- -------------------
William F. Glavin Trustee (1, 2) President, Babson College;
Babson College Vice Chairman, Xerox
Horn Library Corporation until June
Babson Park, MA 02157 1989. Director, Caldor Inc.
and Inco Ltd.
Dr. John A. Moore Trustee (1, 2) President and Chief
Institute for Evaluating Executive Officer, Institute
Health Risks for Evaluating Health Risks,
1629 K Street NW a nonprofit institution,
Suite 402 since September 1989.
Washington, DC 20006 Assistant Administrator of
the Office of Pesticides and
Toxic Substances at the
Environmental Protection
Agency from December 1983 to
July 1989.
Patti McGill Peterson Trustee (1, 2) President, St. Lawrence
St. Lawrence University University; Director,
110 Vilas Hall Niagara Mohawk Power
Canton, NY 13617 Corporation and Security
Mutual Life.
John W. Pratt Trustee (1, 2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School
of Business Administration
(Since 1961).
Robert G. Freedman Vice Chairman and Vice Chairman and Chief
Chief Investment Investment Officer, the
Officer (4) Adviser; President (until
December 1994).
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
18
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
- ---------------- ---------------- -------------------
Anne C. Hodsdon President (4) President and Chief
Operating Officer, the
Adviser; Executive Vice
President, the Adviser
(until December 1994);
Senior Vice President; the
Adviser (until December
1993);
James B. Little Senior Vice Senior Vice President, the
President, Chief Adviser.
Financial Officer
Thomas H. Drohan Senior Vice Senior Vice President and
President and Secretary, the Adviser.
Secretary
John A. Morin Vice President Vice President, the Adviser.
Susan S. Newton Vice President, Vice President and Assistant
Assistant Secretary, the Adviser.
Secretary and
Compliance Officer
James J. Stokowski Vice President and Vice President, the Adviser.
Treasurer
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
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.
19
<PAGE>
The following table provides information regarding the compensation paid by the
Funds and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Mr. Boudreau and each of the officers
of the Funds are interested persons of the Adviser, are compensated by the
Adviser and receive no compensation from the Funds for their services.
<TABLE>
<CAPTION>
Total
Compensation
Pension or From the
Retirement Fund and
Benefits John Hancock
Aggregate Accrued as Estimated Fund Complex
Compensation Part of the Annual to Trustees(1)
Independent From the Fund's Benefits Upon (Total of 12
Trustees Fund* Expenses* Retirement Funds)
- -------- ----- --------- ---------- ------
<S> <C> <C> <C> <C>
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 28 95 - 37,500
Patrick Grant** 144 - - 43,750
Ralph Lowell, Jr.** 136 - - 41,750
Dr. John A. Moore 136 - - 41,750
Patti McGill 136 - - 41,750
Peterson
John W. Pratt 136 - - 41,750
-------------------------------------------------------- ----------
$ 1,267 $ 95 $ - $416,750
</TABLE>
(1)The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1995.
*Compensation made for the fiscal year ended October 31, 1995.
**As of January 1, 1996, Messrs. Barron, Grant and Lowell resigned as
Trustees.
As of January 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 January 31,
1996, the following shareholders beneficially owned 5% or more of the
outstanding shares of the Fund:
20
<PAGE>
Number of Percentage of
Shares of Total Outstanding
Name and Address of Class of Beneficial Shares of the
Shareholder Shares Interest Owned Class of the Fund
------------------- -------- -------------- -----------------
John Hancock Advisers, Inc. Class A 58,826 10.57%
Attn: Chris Meyer
101 Huntington Ave.
Boston, MA 02199-7603
Southern Industrial Corp. & Class A 32,765 5.89%
King Provision Corp 401(k)
Marc A. Carolson
Vice President, Finance
101 Huntington Ave.
Boston, MA 02199-7603
County Employees Annuity Class B 92,182 11.63%
Benefit Fund #3
c/o Continental Bank
Attn: Pat Harms
231 S LaSalle St., 18th Flr
Chicago, IL 60604-1407
Merrill Lynch Pierce Fenner & Class B 82,218 10.37%
Smith, Inc.
Attn: Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
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.
As described in the Prospectus under the caption "Organization and
Management of the Fund," the Trust, on behalf of the Fund, has entered into an
investment management contract with the Adviser. Under the investment management
contract, the Adviser provides the Fund with a
21
<PAGE>
continuous investment program, consistent with the Fund's stated investment
objective and policies. The Adviser is responsible for the management of the
Fund's portfolio assets.
No person other than the Adviser and John Hancock Advisers International
Limited ("JH Advisers International") and its directors and employees regularly
furnish advice to the Fund with respect to the desirability of the Fund's
investing in, purchasing or selling securities. The Adviser may from time to
time receive statistical or other similar factual information, and information
regarding general economic factors and trends, from the Life Company and its
affiliates.
Under the terms of the investment management contract with the Fund, the
Adviser provides the Fund with office space, supplies and other facilities
required for the business of the Fund.
All expenses which are not specifically paid by the Adviser and which are
incurred in the operation of the Fund (including fees of Trustees of the Trust
who are not "interested persons," as such term is defined in the Investment
Company Act, but excluding certain distribution-related activities required to
be paid by the Adviser or John Hancock Funds) and the continuous public offering
of the shares of the Fund are borne by the Fund. Class expenses properly
allocable to either Class A or Class B shares will be borne exclusively by such
class of shares, subject to conditions of the Internal Revenue Service with
respect to multiple-class structures.
As provided by the investment management contract, the Fund pays the
Adviser monthly an investment management fee, which is based on a stated
percentage of the Fund's average daily net assets as follows:
Net Asset Value Annual Rate
-----------------------------------------
First $250 million 1.00%
Next $250 million .80%
Next $250 million .75%
Amounts over $750 million .625%
The 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. As compensation for its services under the Sub-Advisory Agreement, JH
Advisers International receives from the Adviser a monthly fee equal to .70% on
an 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 .6375% on an
annual basis of the average daily net asset value over $200 million. 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.
22
<PAGE>
If the total of all ordinary business expenses of the Fund for any fiscal
year exceeds the limitations prescribed in any state in which shares of the Fund
are qualified for sale, the fee payable to the Adviser and JH Advisers
International will be reduced to the extent of such excess and the Adviser and
JH Advisers International will make any additional arrangements necessary to
eliminate remaining excess expenses. At this time, the most restrictive limit on
expenses imposed by a state requires that expenses charged to the Fund in any
fiscal year not exceed 2-1/2% of the first $30,000,000 of the Fund's average net
assets, 2% of the next $70,000,000 of such net assets, and 1-1/2% of the
remaining average net assets. When calculating the above limit, the Fund may
exclude interest, brokerage commissions and extraordinary expenses.
Pursuant to its investment management contract, the Adviser is not liable
to the Fund or its shareholders for any error of judgment or mistake of law or
for any loss suffered by the Fund in connection with the matters to which the
investment management contract relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser in the
performance of its duties or from reckless disregard by the Adviser of its
obligations and duties under the investment management contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and presently has more than $16 billion in
assets under management in its capacity as investment adviser to the Fund and
the other mutual funds and publicly traded investment companies in the John
Hancock group of funds having a combined total of approximately 1,080,000
shareholders. The Adviser is an indirect wholly-owned subsidiary of the Life
Company, one of the most recognized and respected financial institutions in the
nation. With total assets under management of more than $80 billion, the Life
Company is one of the ten largest life insurance companies in the United States,
and carries high ratings from S&P and A. M. Best. Founded in 1862, the Life
Company has been serving clients for over 130 years.
The investment management contract continues in effect from year to year
if approved annually by vote of a majority of the Trustees who are not
interested persons of one of the parties to the contract, cast in person at a
meeting called for the purpose of voting on such approval, and by either the
Trustees or the holders of a majority of the Fund's outstanding voting
securities. The contract automatically terminates upon assignment and may be
terminated without penalty on 60 days' notice at the option of either party to
the contract or by vote of a majority of the outstanding voting securities of
the Fund.
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
23
<PAGE>
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
of 1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% and 1.00% respectively, of the Fund's daily
net assets attributable to shares of that class. However, the service fee will
not exceed 0.25% of the Fund's average daily net assets attributable to each
class of shares. The distribution fees reimburse John Hancock Funds for its
distribution costs incurred in the promotion of sales of Fund shares, and the
service fees compensate Selling Brokers for providing personal and account
maintenance services to shareholders. In the event that John Hancock Funds is
not fully reimbursed for expenses incurred by it under the Class B Plan in any
fiscal year, John Hancock Funds may carry these expenses forward, provided,
however, that the Trustees may terminate the Class B Plan and thus the Fund's
obligation to make further payments at any time. Accordingly, the Fund does not
treat unreimbursed expenses relating to the Class B shares as a liability of the
Fund. The Plans were approved by a majority of the voting securities of the
Fund. The Plans and all amendments were approved by the Trustees, including a
majority of the Trustees who are not interested persons of the Fund and who have
no direct or indirect financial interest in the operation of the Plans (the
"Independent Trustees"), by votes cast in person at meetings called for the
purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis During the fiscal year ended October 31, 1995, the 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 Interest,
and Mailing Carrying or
of Expenses of Other
Prospectuses Compensation John Finance
to New to Selling Hancock Charges
Advertising Shareholders Brokers Funds Other
----------- ------------ ----------- ---------- ----------
International
- -------------
<S> <C> <C> <C> <C> <C>
Class A $ 5,299 $ 239 $1,284 $ 6,250 $ 0
shares
Class B $11,208 $ 0 $1,569 $13,716 $12,313
shares
</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)
24
<PAGE>
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 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 Plan, committed to the discretion of the Committee on
Administration of the Trustees. The members of the Committee on Administration
are all Independent Trustees and are identified in this Statement of Additional
Information under the heading "Those Responsible for Management."
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 aske prices.
Short-term debt investments which have a remaining maturity of 60 days or
less are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of a Fund's NAV.
A Fund will not price its securities on the following national holidays:
New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day. On any day an international
market is closed and the New York Stock
25
<PAGE>
Exchange is open, any foreign securities will be valued at the prior day's close
with the current day's exchange rate. Trading of foreign securities may take
place on Saturdays and U.S. business holidays on which a Fund's NAV is not
calculated. Consequently, a Fund's portfolio securities may trade and the NAV of
the Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund
are described in the Prospectus. Methods of obtaining reduced sales charges
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares
of the Fund, the investor is entitled to cumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Fund owned by the Investor, or if Investor Services is notified by the
investor's dealer or the investor at the time of the purchase, the cost of the
Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to
purchases of Class A shares made at one time, the purchases will be combined if
made by (a) an individual, his or her spouse and their children under the age of
21, purchasing securities for his or 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
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
Without Sales Charges. As described in the Prospectus, Class A shares
of the Fund may be sold without a sales charge to the persons described in
the Prospectus.
Accumulation Privilege. Investors (including investors combining
purchases) who are already Class A shareholders may also obtain the benefit of
the reduced sales charge by taking into account not only the amount then being
invested but also the purchase price or 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
26
<PAGE>
include group IRAs, SEP, SARSEP, TSA, 401(k), 403(b) and Section 457 plans. Such
an investment (including accumulations and combinations) must aggregate $25,000
or more invested during the specified period from the date of the 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 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.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so that the Fund will receive
the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
six years of purchase will be subject to a contingent deferred sales charge
("CDSC") at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B shares being redeemed. Accordingly, no CDSC will be imposed on increases
in account value above the initial purchase prices, including increases in
account value derived from reinvestment of dividends or capital gains
distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining this number, all
payments during a month will be aggregated and deemed to have been made on the
last day of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are used in
whole or in part by John Hancock Funds to defray its expenses related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, such as the payment of compensation to select Selling
Brokers for selling Class B shares. The combination of the CDSC
27
<PAGE>
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.
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.
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.
28
<PAGE>
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
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,
and any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Fund are responsible for the management and
supervision of the Fund. The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of the
Fund without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series without 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.
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
B shares bear the expense of the CDSC arrangement and any expense (including the
higher distribution expenses) resulting from this sales arrangement. The Class A
and Class B shares have certain exclusive voting rights on matters relating to
their respective distribution plans. The different 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.
29
<PAGE>
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 act or
obligations of the Trust. However, the Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations or affairs of
the Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any Fund shareholder held
personally liable by reason of being or having been a shareholder. Liability is
therefore limited to circumstances in which the Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
TAX STATUS
Each series of Freedom Investment Trust II, including the Fund, is treated
as a separate entity for tax purposes. The Fund has qualified and elected to be
treated as a "regulated investment company" under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and intends to continue to so
qualify for each taxable year. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, the Fund will not be
subject to Federal income tax on taxable income (including net short-term and
long-term capital gains) which is distributed to shareholders at least annually
in accordance with the timing requirements of the Code.
30
<PAGE>
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
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.
31
<PAGE>
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
Investors may be entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in the Code.
Specifically, if more than 50% of the value of the Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, the Fund may file an election with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to (i) include in
ordinary gross income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even though not
actually received by them, and (ii) treat such respective pro rata portions as
foreign income taxes paid by them.
If the election is made, shareholders may then deduct such pro rata
portions of foreign income taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign income taxes paid by the Fund, although
such shareholders will be required to include their share of such taxes in gross
income. Shareholders who claim a foreign tax credit for such foreign taxes may
be required to treat a portion of dividends received from the Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credit. Tax-exempt shareholders will ordinarily not benefit from this election.
Each year that the Fund files the election described above, its shareholders
will be notified of the amount of (i) each shareholder's pro rata share of
foreign income taxes paid by the Fund and (ii) the portion of Fund dividends
which represents income from each foreign country.
The amount of net 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
32
<PAGE>
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.
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
33
<PAGE>
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.
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
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.
34
<PAGE>
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 October 31, 1995 and from commencement of operations on January 3,
1994 was (9.76%) and (4.55%), respectively.
The average annual total return for Class B shares of the Fund for the 1
year ended October 31, 1995 and from commencement of operations on January 3,
1994 was (10.60%) and (5.29%), 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.
[GRAPHIC OMITTED]
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the 1 year 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
funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C.
Towers are also used for comparison purposes, as well 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
35
<PAGE>
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
services, including primarily the availability and value of research information
and to a lesser extent statistical assistance furnished to the Adviser or JH
Advisers International, 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 JH Advisers
International. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser or JH Advisers International. The
research information and statistical assistance furnished by brokers and dealers
may benefit the Life Insurance Company or other advisory clients of the Adviser
or JH Advisers International, and, conversely, brokerage commissions and spreads
paid by other advisory clients of the Adviser or JH Advisers International 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.
36
<PAGE>
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
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 1940 Act and must be fair and reasonable to
shareholders as determined in good faith by the Trustees. Because the Adviser,
which is affiliated with the Affiliated Brokers, has, as 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
37
<PAGE>
with those to be sold or purchased for other clients managed by it in order to
obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation ("Investor Services"), P.O. Box
9116, Boston, MA 02205-9116, a wholly-owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent 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 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.
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.
38
<PAGE>
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
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
39
<PAGE>
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.
40
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
- ----------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $7,337,029).............................................. $7,622,806
Bonds (cost - $50,000)......................................................... 43,000
Joint repurchase agreement (cost - $647,000)................................... 647,000
----------
8,312,806
Cash............................................................................ 18,705
Foreign currency, at value (cost - $1,134)...................................... 1,135
Receivable for shares sold...................................................... 27,969
Foreign taxes receivable........................................................ 7,939
Dividends and interest receivable............................................... 8,500
Receivable from John Hancock Advisers, Inc. - Note B............................ 183,189
Deferred organization expenses - Note A......................................... 73,153
----------
Total Assets.................................................. 8,633,396
--------------------------------------------------------------------------
LIABILITIES:
Payable for shares repurchased.................................................. 3,456
Payable to John Hancock Advisers, Inc. and affiliates - Note B.................. 237,717
Accounts payable and accrued expenses........................................... 187,260
----------
Total Liabilities............................................. 428,433
--------------------------------------------------------------------------
NET ASSETS:
Capital paid-in................................................................. 8,457,906
Accumulated net realized loss on investments and foreign currency transactions.. (531,550)
Net unrealized appreciation of investments and foreign currency transactions.... 278,607
----------
Net Assets.................................................... $8,204,963
==========================================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial interest outstanding -
unlimited number of shares authorized with no par value, respectively)
Class A - $4,215,377/518,038.................................................... $ 8.14
============================================================================================
Class B - $3,989,586/495,350.................................................... $ 8.05
============================================================================================
MAXIMUM OFFERING PRICE PER SHARE *
Class A - ($8.14 x 105.26%)..................................................... $ 8.57
============================================================================================
</TABLE>
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON OCTOBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended October 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $18,197).............................................. $ 148,360
Interest............................................................................................. 26,504
---------
174,864
---------
Expenses:
Investment management fee - Note B.................................................................. 80,348
Distribution/service fee - Note B
Class A........................................................................................... 13,071
Class B........................................................................................... 36,778
Transfer agent fee - Note B......................................................................... 42,083
Custodian fee....................................................................................... 91,327
Printing............................................................................................ 54,559
Registration and filing fees........................................................................ 47,437
Organization expense - Note A....................................................................... 23,017
Auditing fee........................................................................................ 21,000
Legal fees.......................................................................................... 8,195
Trustees' fees...................................................................................... 482
Miscellaneous....................................................................................... 167
---------
Total Expenses..................................................................... 418,464
Less expenses reimbursable by John Hancock Advisers, Inc. - Note B................. (254,219)
---------
Net Expenses....................................................................... 164,245
----------------------------------------------------------------------------------------------
Net Investment Income.............................................................. 10,619
----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized loss on investments sold................................................................ (534,486)
Net realized loss on foreign currency transactions................................................... (29,195)
Change in net unrealized appreciation/depreciation of investments.................................... 42,840
Change in net unrealized appreciation/depreciation of foreign currency transactions.................. 3,248
---------
Net Realized and Unrealized Loss on Investments and Foreign Currency Transactions.. (517,593)
----------------------------------------------------------------------------------------------
Net Decrease in Net Assets Resulting from Operations............................... $(506,974)
==============================================================================================
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD
JANUARY 3, 1994
YEAR ENDED (COMMENCEMENT
OCTOBER 31, OF OPERATIONS) TO
1995 OCTOBER 31, 1994
---------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.................................................................... $ 10,619 $ 31,295
Net realized gain (loss) on investments sold and foreign currency transactions........... (563,681) 26,883
Change in net unrealized appreciation/depreciation of investments and foreign currency
transactions........................................................................... 46,088 232,519
---------- ----------
Net Increase (Decrease) in Net Assets Resulting from Operations......................... (506,974) 290,697
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.0268 and none per share, respectively).................................... (14,822) --
Distributions from net realized gain on investments sold
Class A - ($0.0512 and none, respectively).............................................. (28,343) --
Class B - ($0.0512 and none, respectively).............................................. (25,719) --
---------- ----------
Total Distributions to Shareholders................................................... (68,884) --
---------- ----------
FROM FUND SHARE TRANSACTIONS-- NET*........................................................ 407,315 7,582,809
---------- ----------
NET ASSETS:
Beginning of period...................................................................... 8,373,506 --
Initial investment by John Hancock Advisers, Inc. - Note A............................... -- 500,000
---------- ----------
End of period (including undistributed net investment income of none and $14,822,
respectively)......................................................................... $8,204,963 $8,373,506
========== ==========
</TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
YEAR ENDED FOR THE PERIOD JANUARY 3, 1994
OCTOBER 31, (COMMENCEMENT OF OPERATIONS)
1995 TO OCTOBER 31, 1994
---------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ------- ----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold........................................................ 284,149 $ 2,274,882 535,016 $4,456,147
Shares issued to shareholders in reinvestment of distributions..... 4,863 38,128 -- --
-------- ----------- ------- ----------
289,012 2,313,010 535,016 4,456,147
Less shares repurchased............................................ (282,754) (2,241,182) (82,060) (683,928)
Initial Investment by John Hancock Advisers, Inc. - Note A......... -- -- 58,824 500,000
-------- ----------- ------- ----------
Net increase....................................................... 6,258 $ 71,828 511,780 $4,272,219
======== =========== ======= ==========
CLASS B
Shares sold........................................................ 255,410 $ 2,065,161 512,942 $4,260,033
Shares issued to shareholders in reinvestment of distributions..... 2,888 22,582 -- --
-------- ----------- ------- ----------
258,298 2,087,743 512,942 4,260,033
Less shares repurchased............................................ (221,662) (1,752,256) (54,228) (449,443)
-------- ----------- ------- ----------
Net increase....................................................... 36,636 $ 335,487 458,714 $3,810,590
======== =========== ======= ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FOR THE PERIOD JANUARY 3, 1994
OCTOBER 31, (COMMENCEMENT OF OPERATIONS)
1995 TO OCTOBER 31, 1994
----------- ------------------------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period..................................... $ 8.65 $ 8.50
------ ------
Net Investment Income.................................................... 0.04 0.07(b)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions (0.47) 0.08
------ ------
Total from Investment Operations........................................ (0.43) 0.15
------ ------
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........................................... $ 8.14 $ 8.65
====== ======
Total Investment Return at Net Asset Value (c)........................... (4.96%) 1.77%(d)
Total Adjusted Investment Return at Net Asset Value (c)(e)............... (8.12%) (0.52%)(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................ $4,215 $4,426
Ratio of Expenses to Average Net Assets **............................... 1.64% 1.50%*
Ratio of Adjusted Expenses to Average Net Assets (a)..................... 4.80% 3.79%*
Ratio of Net Investment Income to Average Net Assets..................... 0.56% 1.02%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a).......... (2.60%) (1.27%)*
Portfolio Turnover Rate.................................................. 69% 50%
** Expense Reimbursement Per Share....................................... $ 0.25(b) $ 0.16(b)
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT INCOME, AND TOTAL
INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET ASSET VALUE FOR A
SHARE HAS CHANGED SINCE THE COMMENCEMENT OF OPERATIONS. ADDITIONALLY, IMPORTANT
RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE FINANCIAL STATEMENTS ARE
EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED FOR THE PERIOD JANUARY 3, 1994
OCTOBER 31, (COMMENCEMENT OF OPERATIONS)
1995 TO OCTOBER 31, 1994
----------- ------------------------------
<S> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................................... $ 8.61 $ 8.50
------ ------
Net Investment Income (Loss)....................................................... (0.03) 0.02(b)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
Transactions..................................................................... (0.48) 0.09
------ ------
Total from Investment Operations.................................................. (0.51) 0.11
------ ------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold and Foreign Currency
Transactions.................................................................... (0.05) --
------ ------
Net Asset Value, End of Period..................................................... $ 8.05 $ 8.61
====== ======
Total Investment Return at Net Asset Value (c)..................................... (5.89%) 1.29%(d)
Total Adjusted Investment Return at Net Asset Value (c)(e)......................... (9.05%) (1.00%)(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).......................................... $3,990 $3,948
Ratio of Expenses to Average Net Assets **......................................... 2.52% 2.22%*
Ratio of Adjusted Expenses to Average Net Assets (a)............................... 5.68% 4.51%*
Ratio of Net Investment Income (Loss) to Average Net Assets........................ (0.37%) 0.31%*
Ratio of Adjusted Net Investment Loss to Average Net Assets (a).................... (3.53%) (1.98%)*
Portfolio Turnover Rate............................................................ 69% 50%
** Expense Reimbursement Per Share................................................. $ 0.25(b) $ 0.16(b)
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) On average month end shares outstanding.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
(d) Not annualized.
(e) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the Adviser during the periods shown.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
INTERNATIONAL FUND ON OCTOBER 31, 1995. IT'S DIVIDED INTO THREE MAIN CATEGORIES:
COMMON STOCKS, BONDS AND SHORT-TERM INVESTMENTS. COMMON STOCKS AND BONDS ARE
FURTHER BROKEN DOWN BY COUNTRY. SHORT-TERM INVESTMENTS, WHICH REPRESENT THE
FUND'S "CASH" POSITION, ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
October 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
COMMON STOCKS
AUSTRALIA (7.46%)
Amcor Ltd. (Paper) ............................. 15,000 $ 112,432
Broken Hill Proprietary Co., Ltd. ..............
(Diversified Operations) ...................... 9,350 126,632
Newcrest Mining Ltd. ...........................
(Gold Mining & Products) ...................... 20,000* 82,267
News Corp. Ltd. (The) (Publishing) ............. 29,900 150,776
Western Mining Corp. Holdings Ltd. .............
(Metal Processing & Products) ................. 21,875 140,301
----------
612,408
----------
CHILE (2.21%)
Santa Isabel S.A., American Depositary
Receipts (ADR) (Retail)** ..................... 8,000* 181,000
----------
DENMARK (2.22%)
Tele Danmark AS
(ADR) (Telecommunications) .................... 3,500* 182,559
----------
FINLAND (2.80%)
Metra AB (Machinery) ........................... 2,000* 86,637
Nokia AB (Telecommunications) .................. 2,500* 143,022
----------
229,659
----------
FRANCE (4.61%)
LVMH Moet Henessey Louis Vuitton
(Beverages) ................................... 780 155,199
Renault SA (ADR) (Automobile/Trucks)**(R) ...... 3,000* 93,000
Societe Centrale Union des Assurances
de Paris (Insurance) .......................... 5,000 129,854
----------
378,053
----------
GERMANY (4.01%)
Bayer AG (Chemicals) ........................... 400 106,394
Bayerische Motoren Werke AG
(Automobile/Trucks) ........................... 200* 107,275
Mannesmann AG (Diversified Operations) ......... 350* 115,200
----------
328,869
----------
HONG KONG (8.51%)
Cheung Kong (Holdings) Ltd. (Real Estate) ...... 20,000 112,783
CITIC Pacific Ltd. (Diversified Operations) .... 45,000 140,558
HSBC Holdings Ltd. (Banks) ..................... 7,800 113,494
Hutchison Whampoa Ltd. .........................
(Diversified Operations) ...................... 22,000 121,215
Swire Pacific Ltd. (Diversified Operations) .... 14,500 108,773
Wharf Holdings Ltd. (Diversified Operations) ... 30,000* $ 101,271
----------
698,094
----------
INDONESIA (1.46%)
PT Tambang Timah, Global Depositary Receipts
(Metal Processing & Products)** .............. 10,000* 120,250
----------
ITALY (1.68%)
Banca Commerciale Italiana S.p.A. (Banks) ...... 40,000* 77,917
Olivetti & C. S.p.A. (Computers)** ............. 80,000* 59,724
----------
137,641
----------
JAPAN (15.84%)
Fanuc Ltd. (Machinery) ......................... 3,000* 129,918
Fujisawa Pharmaceutical Co., Ltd. (Drugs) ...... 20,000* 194,731
Itochu Corp. (Diversified Operations) .......... 15,000 88,861
Jusco Co., Ltd. (Retail) ....................... 6,000 140,769
Matsushita Electric Industrial Co., Ltd. .......
(Electronics) ................................. 10,000 141,747
Nippon Television Network Corp. ................
(Broadcasting) ................................ 500* 119,263
Oki Electric Industry Co., Ltd. ................
(Telecommunications)** ........................ 10,000* 92,575
Sanwa Bank Ltd. (Banks) ........................ 6,000* 102,058
Sony Corp. (Electronics) ....................... 3,000 134,904
TDK Corp. (Electronics) ........................ 3,000* 154,553
----------
1,299,379
----------
Malaysia (2.92%)
Resorts World Berhad (Leisure & Recreation) .... 30,000 146,399
United Engineers Berhad (Engineering) .......... 15,000* 93,270
----------
239,669
----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
MEXICO (0.87%)
Telefonos de Mexico S.A. de C.V. (ADR)
(Telecommunications) .......................... 2,600 $ 71,500
----------
NETHERLANDS (4.00%)
Koninklijke P.T.T. Nederland
(Telecommunications) .......................... 4,000* 140,702
Polygram N.V. (ADR)(Audio/Video) .............. 3,000 187,286
----------
327,988
----------
NEW ZEALAND (2.61%)
Carter Holt Harvey Ltd. (Paper) ................ 46,200 110,399
Telecom Corporation of New Zealand
(Telecommunications) .......................... 25,000 103,802
----------
214,201
----------
NORWAY (1.89%)
Orkla AS (Diversified Operations) .............. 3,000* 155,131
----------
PAKISTAN (0.23%)
Crescent Textile Mills (Textile)** ............. 25,127 18,910
----------
SINGAPORE (6.39%)
Fraser & Neave Ltd. ............................
(Diversified Operations) ...................... 12,000 141,826
Hongkong Land Holdings Ltd. ....................
(Real Estate) ................................. 45,000 81,000
Jardine Matheson Holdings Ltd. .................
(Diversified Operations) ...................... 10,000* 61,000
Keppel Corp. (Diversified Operations) .......... 18,000 147,771
United Overseas Bank Ltd. (Banks) .............. 10,600* 93,022
----------
524,619
----------
SPAIN (1.45%)
Repsol SA (Oil & Gas) .......................... 4,000 119,454
----------
SWEDEN (5.40%)
Atlas Copco AB (Machinery) ..................... 6,250 94,589
Hennes & Mauritz AB (Retail) ................... 2,000* 130,711
Investor AB (Diversified Operations) ........... 2,500* 89,036
Telefonaktiebolaget (LM) Ericsson
(Telecommunications) .......................... 6,050 128,460
----------
442,796
----------
SWITZERLAND (5.32%)
BBC Brown Boveri AG (Engineering) .............. 750 169,118
Ciba-Geigy AG (Drugs) .......................... 200 173,170
SMH AG (Leisure & Recreation) .................. 700* 94,028
----------
436,316
----------
THAILAND (1.68%)
Bangkok Bank (Banks) ........................... 9,000* 92,986
Italian-Thai Development Public Co., Ltd. ......
(Construction) ................................ 4,000* 45,142
----------
138,128
----------
United Kingdom (9.34%)
Carlton Communications PLC (Broadcasting) ...... 10,000 $ 152,332
Dixons Group PLC (Retail) ...................... 35,000* 211,937
Glaxo Wellcome PLC (Drugs) ..................... 15,000* 202,293
Reed International PLC (Publishing) ............ 7,000* 106,466
Thorn EMI PLC (Leisure & Recreation) ........... 4,000 93,154
----------
766,182
----------
TOTAL COMMON STOCKS
(Cost $7,337,029) (92.90%) 7,622,806
------ ----------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE
RATE (000'S OMITTED)
---- ---------------
<S> <C> <C> <C>
BONDS
PERU (0.52%)
Tele 2000 S.A.
(Telecommunications)
Conv. Note 04-14-97 (R)......... 9.750% $ 50 43,000
-------
TOTAL BONDS
(Cost $50,000) (0.52%) 43,000
------- ---------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (7.89%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets Inc. -
Dated 10-31-95, Due 11-01-95
(secured by U.S. Treasury Bond,
8.75% Due 05-15-17, and by
U.S. Treasury Note, 5.75%
Due 09-30-97) Note A............ 5.890 647 647,000
---------
TOTAL SHORT-TERM INVESTMENTS (7.89%) 647,000
------- ---------
TOTAL INVESTMENTS (101.31%) $8,312,806
======= =========
* Securities, other than short-term investments, newly added to the portfolio
during the year ended October 31, 1995.
** Non-income producing security.
(R) Security is exempt from registration under rule 144A of the Securities
Act of 1933. Such securities may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. See Note A
of the Notes to Financial Statements for valuation policy. Rule
144A securities amounted to $136,000 as of October 31, 1995.
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - International Fund
INDUSTRY DIVERSIFICATION (UNAUDITED)
- --------------------------------------------------------------------------------
THE FUND PRIMARILY INVESTS IN SECURITIES ISSUED BY COMPANIES OF OTHER COUNTRIES.
THE PERFORMANCE OF THE FUND IS CLOSELY TIED TO THE ECONOMIC CONDITIONS WITHIN
THE COUNTRIES IT INVESTS. THE CONCENTRATION OF INVESTMENTS BY COUNTRY FOR
INDIVIDUAL SECURITIES HELD BY THE FUND IS SHOWN IN THE SCHEDULE OF INVESTMENTS.
IN ADDITION, THE CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY VARIOUS
INDUSTRY GROUPS. THE TABLE BELOW SHOWS THE PERCENTAGES OF THE FUND'S INVESTMENTS
AT OCTOBER 31, 1995 ASSIGNED TO THE VARIOUS INVESTMENT CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE OF SECURITIES AS A
INVESTMENT CATEGORIES % OF FUND NET ASSETS
<S> <C>
Audio/Video.................................... 2.28%
Automobile/Trucks.............................. 2.44
Banks.......................................... 5.84
Beverages...................................... 1.89
Broadcasting................................... 3.31
Chemicals...................................... 1.30
Computers...................................... 0.73
Construction................................... 0.55
Diversified Operations......................... 17.03
Drugs.......................................... 6.95
Electronics.................................... 5.25
Engineering.................................... 3.20
Gold Mining & Products......................... 1.00
Insurance...................................... 1.58
Leisure & Recreation........................... 4.07
Machinery...................................... 3.79
Metal Processing & Products.................... 3.17
Oil & Gas...................................... 1.46
Paper.......................................... 2.72
Publishing..................................... 3.13
Real Estate.................................... 2.36
Retail......................................... 8.10
Telecommunications............................. 11.04
Textile........................................ 0.23
Short-Term Investments......................... 7.89
------
TOTAL INVESTMENTS 101.31%
======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust II (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of five series portfolios: John Hancock International Fund (the "Fund"), John
Hancock Global Fund, John Hancock Global Income Fund, John Hancock Special
Opportunities Fund, and John Hancock Short-Term Strategic Income Fund. Prior to
January 1, 1995, John Hancock International Fund was known as John Hancock
Freedom International Fund, John Hancock Global Fund was known as John Hancock
Freedom Global Fund and John Hancock Global Income Fund was known as John
Hancock Freedom Global Income Fund.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemption, dividends, and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission. Shareholders of a class which bears
distribution/service expenses under the terms of a distribution plan, have
exclusive voting rights regarding such distribution plan. Significant accounting
policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt instruments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
pur chase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis. Capital gains realized
on some foreign securities are subject to foreign taxes and are accrued, as
applicable.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $531,550 of capital loss
carryforward available, to the extent provided by regulations, to offset future
net realized capital gains. If such carryforwards are used by the Fund, no
capital gain distributions will be made. The carryforward expires October 31,
2003. For federal income tax purposes, net currency exchange gains and losses
for sales of foreign debt securities must be treated as ordinary income even
though such items are gains and losses for accounting purposes.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
regulations, which may differ from generally accepted accounting principles.
Dividends paid by the Fund with respect to each class of shares will be
calculated in the same manner, at the same time and will be in the same amount,
except for the effect of expenses that may be applied differently to each class
as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees, if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar. These
contracts involve market or credit risk in excess of the unrealized gain or loss
reflected in the Fund's Statement of Assets and Liabilities. The Fund may also
purchase and sell forward contracts to facilitate the settlement of foreign
currency denominated portfolio transactions, under which it intends to take
delivery of the foreign currency. Such contracts normally involve no market risk
other than that offset by the currency amount of the underlying transaction.
There were no open forward foreign currency exchange contracts at October 31,
1995.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/loss on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities, resulting
from changes in the exchange rate.
DEFERRED ORGANIZATION EXPENSES Expenses incurred in connection with the
organization of the Fund have been capitalized and are being charged to the
Fund's operations ratably over a five-year period that began with the
commencement of investment operations of the Fund.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
The Adviser is solely responsible for advising the Fund with respect to
investments in the United States and Canada. The Fund and the Adviser also have
a sub-investment management contract with John Hancock Advisers International
Limited (the "Sub-Adviser"), a wholly-owned subsidiary of the Adviser, under
which the Sub-Adviser,
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
subject to the review of the Trustees and overall supervision of the Adviser,
provides the Fund with investment management services and advice with respect to
the portion of the Fund's assets invested in countries other than the United
States and Canada.
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to the sum of (a) 1.00% of the first $250,000,000 of the
Fund's average daily net asset value, (b) 0.80% of the next $250,000,000, (c)
0.75% of the next $250,000,000 and (d) 0.625% of the Fund's average daily net
asset value in excess of $750,000,000. The Adviser pays the Sub-Adviser a fee
equivalent, on an annual basis to the sum of (a) 0.70% of the first $200,000,000
of the Fund's average daily net asset value and (b) 0.6375% of the Fund's
average daily net asset value in excess of $200,000,000. The Fund is not
responsible for payment of the Sub-Adviser's fee.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess, and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000, and 1.5% of
the remaining average daily net asset value.
The Adviser has agreed to limit Fund expenses, including the management fee
(but not including the transfer agent fee and the 12b-1 fee), to 0.90% of the
Fund's average daily net assets. Accordingly, the reduction in the Adviser's fee
amounted to $254,219 for the period ended October 31, 1995. The Adviser reserves
the right to terminate this reduction in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. Prior to January 1, 1995, JH
Funds was known as John Hancock Broker Distribution Services, Inc. For the
period ended October 31, 1995, JH Funds received net sales charges of $21,905
with regard to sales of Class A shares. Out of this amount, $3,910 was retained
and used for printing prospectuses, advertising, sales literature and other
purposes, $3,174 was paid as sales commissions to unrelated broker-dealers and
$14,821 was paid as sales commissions to sales personnel of John Hancock
Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated ("Tucker
Anthony") and Sutro & Co., Inc. ("Sutro"). The Adviser's indirect parent, John
Hancock Mutual Life Insurance Company, is the indirect sole shareholder of
Distributors and John Hancock Freedom Securities Corporation and its
subsidiaries which include Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended October 31,
1995, contingent deferred sales charges received by JH Funds amounted to
$27,200.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds, for distribution and service expenses at an annual rate not to exceed
0.30% of the Fund's average daily net assets attributable to Class A shares and
1.00% of the Fund's average daily net assets attributable to Class B shares to
reimburse JH Funds for its distribution/service costs. Up to a maximum of 0.25%
of these payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the amended
Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1 payments
could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - International Fund
Prior to January 1, 1995, the Fund paid Investor Services a monthly transfer
fee equivalent, on an annual basis, to 0.30% and 0.32% of the average daily net
asset value of Class A and Class B shares of the Fund, respectively, plus
out-of-pocket expenses incurred by Fund Services on behalf of the Fund. For the
period January 1, 1995 and through September 30, 1995 Class A and Class B shares
paid transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses. For the eleven months ended September 30, 1995 the
transfer agent expense, calculated as a class specific expense was $17,261 for
Class A and $18,620 for Class B, respectively. Effective October 1, 1995
transfer agent expense is being treated as a fund expenses based on the number
of shareholder accounts in the Fund and certain out-of-pocket expenses.
Edward J. Boudreau, Jr. is a director and officer of the Adviser, and its
affiliates, as well as a Trustee of the Fund. The Adviser owns 58,824 Class A
shares of beneficial interest of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. Effective with the fees paid for 1995, the
unaffiliated Trustees may elect to defer for tax purposes their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund will make investments into other John Hancock Funds, as applicable, to
cover its liability as regards to the deferred compensation. Investments to
cover the Fund's deferred compensation liability will be recorded on the Fund's
books as an other asset. The deferred compensation liability will be marked to
market on a periodic basis and income earned by the investment will be recorded
on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended October 31, 1995 aggregated $5,835,294 and $5,282,495, respectively. There
were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended October 31, 1995.
The cost of investments owned at October 31, 1995 for federal income tax
purposes was $8,034,029. Gross unrealized appreciation and depreciation of
investments aggregated $728,075 and $449,298, respectively, resulting in net
unrealized appreciation of $278,777.
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended October 31, 1995, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of $32,130, a
decrease in undistributed net investment income of $10,619 and a decrease in
capital paid-in of $21,511. This represents the amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of October
31, 1995. Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles.
19
<PAGE>
John Hancock Funds - International Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock International Fund and the Trustees of
Freedom Investment Trust II
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of John Hancock International Fund
(the "Fund") (formerly known as John Hancock Freedom International Fund) (a
portfolio of Freedom Investment Trust II) at October 31, 1995, and the results
of its operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 18, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended October 31,
1995.
With respect to the Fund's ordinary taxable income for the fiscal year ended
October 31, 1995, 100% of the dividends qualify for the corporate dividends
received deduction.
Shareholders will receive a 1995 U.S. Treasury Department Form 1099-DIV in
January of 1996. This will reflect the total of all distributions which are
taxable for the calendar year 1995.
20
<PAGE>
JOHN HANCOCK
SHORT-TERM STRATEGIC INCOME FUND
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Custodian
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
Transfer Agent
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Independent Auditor
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO OBTAIN INFORMATION
ABOUT THE FUNDS
For: Service Information
Telephone Exchange call 1-800-225-5291
Invest-by-Phone
Telephone Redemption
For: TDD call 1-800-554-6713
JHD-3200P 3-96 EPrinted on Recycled Paper
JOHN HANCOCK
SHORT-TERM STRATEGIC
INCOME FUND
A mutual fund seeking a high level of
current income.
Class A and Class B Shares
Prospectus
March 1, 1996
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-225-5291
<PAGE>
John Hancock
Short-Term Strategic
Income Fund
Class A and Class B Shares
Prospectus
March 1, 1996
TABLE OF CONTENTS
Page
-------
Expense Information 2
The Fund's Financial Highlights 3
Investment Objective and Policies 4
Organization and Management of the Fund 9
Alternative Purchase Arrangements 10
The Fund's Expenses 12
Dividends and Taxes 12
Performance 13
How to Buy Shares 14
Share Price 15
How to Redeem Shares 21
Additional Services and Programs 23
This Prospectus sets forth information about John Hancock Short-Term
Strategic Income Fund (the "Fund"), a non-diversified series of Freedom
Investment Trust II (the "Trust"), that you should know before investing.
Please read and retain it for future reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the "SEC"). You can obtain a copy of the Fund's
Statement of Additional Information, dated March 1, 1996, and incorporated by
reference into this Prospectus, free of charge by writing or telephoning:
John Hancock Investor Services Corporation, P.O. Box 9116, Boston,
Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713 TDD).
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THE FUND MAY INVEST UP TO 67% OF ITS ASSETS IN LOWER RATED BONDS, COMMONLY
KNOWN AS "JUNK BONDS," THAT ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS,
THAN THOSE FOUND IN HIGHER RATED SECURITIES. INVESTORS SHOULD CAREFULLY
CONSIDER THESE RISKS BEFORE INVESTING. SEE "INVESTMENT OBJECTIVE AND
POLICIES, P. 4."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you understand the
various fees and expenses you will bear, directly or indirectly, when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on actual fees and expenses for the
Class A and Class B shares of the Fund for the fiscal year ended October 31,
1995 adjusted to reflect certain current fees and expenses. Actual fees and
expenses may be greater or less than those indicated.
Class A Class B
Shares Shares
------- ---------
Shareholder Transaction Expenses
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 3.00% None
Maximum sales charge imposed on
reinvested dividends None None
Maximum deferred sales charge None* 3.00%
Redemption fee+ None None
Exchange fee None None
Annual Fund Operating Expenses
(As a percentage of average net
assets)
Management fee 0.65% 0.65%
12b-1 fee** 0.30% 1.00%
Other expenses 0.42% 0.42%
Total Fund operating expenses 1.37% 2.07%
*No sales charge is payable at the time of purchase on investments in Class
A shares of $1 million or more, but for these investments a contingent
deferred sales charge of up to 1.00% may be imposed, as described under the
caption "Share Price," in the event of certain redemption transactions
within one year of purchase.
**The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average daily net assets, and the remaining portion
will be used to cover distribution expenses. See "The Fund's Expenses."
+Redemption by wire fee (currently $4.00) not included.
1 3 5 10
Example: Year Years Years Years
You would pay the following expenses for the
indicated period of years on a
hypothetical $1,000 investment assuming 5%
annual return:
Class A shares $44 $72 $103 $190
Class B shares
--Assuming complete redemption at end of
period $51 $85 $111 $198
--Assuming no redemption $21 $65 $111 $198
The example should not be considered as a representation of past or future
expenses or future investment returns. Actual expenses may be greater or less
than those shown.)
The Fund's payment of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the
maximum front-end sales charge permitted under the National Association of
Securities Dealers Rules of Fair Practice.
The management and 12b-1 fees referenced above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement
of Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contracts."
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following table of Financial Highlights has been audited by Price
Waterhouse LLP, the Fund's independent accountants, whose unqualified report
is included in the Fund's 1995 Annual Report and is included in the Fund's
Statement of Additional Information. Further information about the
performance of the Fund is contained in the Fund's Annual Report to
shareholders which may be obtained free of charge by writing or telephoning
John Hancock Investor Services Corporation ("Investor Services"), at the
address or telephone number listed on the front page of this Prospectus.
Selected data for each class of shares outstanding throughout each period
indicated are as follows:
<TABLE>
<CAPTION>
Year Ended October 31,
---------------------------------------------------
CLASS A 1995 1994 1993 1992(a) 1991(b)
------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of
Period $ 8.47 $ 9.12 $ 9.32 $ 9.86
---- ---- ----- -----
Net Investment Income 0.77** 0.76** 0.83** 0.65
Net Realized and Unrealized Loss
on Investments
and Foreign Currency
Transactions (0.06) (0.53) (0.20) (0.55)
---- ---- ----- -----
Total from Investment Operations 0.71 0.23 0.63 0.10
---- ---- ----- -----
Less Distributions:
Dividends from Net Investment
Income (0.61) (0.62) (0.83) (0.64)
Distributions in Excess of Net
Investment Income -- (0.04) -- --
Distributions in Excess of Net
Realized Gain on Investments Sold -- (0.12) -- --
Distribution from Capital Paid-in (0.16) (0.10) -- --
---- ---- ----- -----
Total Distributions (0.77) (0.88) (0.83) (0.64)
---- ---- ----- -----
Net Asset Value, End of Period $ 8.41 $ 8.47 $ 9.12 $ 9.32
==== ==== ===== =====
Total Investment Return at Net
Asset Value (c) 8.75% 2.64% 6.78% 1.16%*
---- ---- ----- -----
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $16,997 $13,091 $11,130 $20,468
Ratio of Expenses to Average Net
Assets 1.33% 1.26% 1.21% 1.37%*
Ratio of Net Investment Income to
Average Net Assets 9.13% 8.71% 8.59% 8.09%*
Portfolio Turnover Rate 147% 150% 306% 86%
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of
Period $ 8.46 $ 9.11 $ 9.31 $10.01 $10.00
---- ---- ----- ----- -------
Net Investment Income 0.70** 0.70** 0.75** 0.87 0.76+
Net Realized and Unrealized Gain
(Loss) on Investments
and Foreign Currency
Transactions (0.06) (0.53) (0.20) (0.80) 0.01
---- ---- ----- ----- -------
Total from Investment Operations 0.64 0.17 0.55 0.07 0.77
---- ---- ----- ----- -------
Less Distributions:
Dividends from Net Investment
Income (0.56) (0.56) (0.75) (0.77) (0.76)
---- ---- ----- ----- -------
Distribution in Excess of Net
Investment Income -- (0.04) -- -- --
Distributions in Excess of Net
Realized Gain on Investments Sold -- (0.12) -- -- --
Distribution from Capital Paid-in (0.14) (0.10) -- -- --
---- ---- ----- ----- -------
Total Distributions (0.70) (0.82) (0.75) (0.77) (0.76)
---- ---- ----- ----- -------
Net Asset Value, End of Period $ 8.40 $ 8.46 $ 9.11 $ 9.31 $10.01
==== ==== ===== ===== =======
Total Investment Return at Net
Asset Value 7.97% 1.93% 5.98% 0.64% 8.85%*+
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $84,601 $98,390 $142,873 $236,059 $218,562
---- ---- ----- ----- -------
Ratio of Expenses to Average Net
Assets 2.07% 1.99% 2.01% 2.07% 1.89%*+
---- ---- ----- ----- -------
Ratio of Net Investment Income to
Average Net Assets 8.40% 8.00% 7.81% 8.69% 8.72%*+
Portfolio Turnover Rate 1.47% 150% 306% 86% 22%
</TABLE>
* On an annualized basis.
** On average month end shares outstanding.
+ Reflects expense limitation in effect for the period ended October 31,
1991. As a result of such limitation, expenses for Class B shares reflect
a reduction of $0.0039 per share. Absent of such reduction, for the year
ended October 31, 1991 the ratio of expenses to average net assets would
have been 1.93% and the ratio of net investment income to average net
assets would have been 8.68%. Without the reimbursement, total investment
return would have been 8.81%. This is an estimated total return
calculation which takes into consideration fees and expenses waived or
borne by the Adviser during the periods shown.
(a) Class A shares commenced operations on January 3, 1992.
(b) Class B shares commenced operations on December 28, 1990.
(c) Total investment return assumes dividend reinvestment and does not
reflect the effect of sales charges.
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the
Fund is a high level of current
income.
The investment objective of the Fund is a high level of current income. The
Fund will seek to achieve this objective by investing primarily in: (i)
foreign government and corporate debt securities, (ii) U.S. Government
securities and (iii) corporate debt securities of U.S. issuers. There is no
fixed allocation among the types of securities listed above, and there can be
no assurance that the Fund will achieve its investment objective.
The Fund may invest in all types of debt 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. Under normal circumstances, the Fund's
assets will be invested in each of the foregoing three sectors. This
diversification among sectors allows the Fund to limit its exposure to any
single sector. However, the Fund may invest up to 100% of its total assets in
any one sector.
Time Deposits. These are non-negotiable bank deposits maintained for up to
seven days at a stated interest rate. Time deposits may be withdrawn on
demand, although early withdrawals may be subject to penalties.
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 (such as the World Bank), 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. No more than 25% of the
Fund's total assets, at the time of purchase, will be invested in government
securities of any one foreign country.
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 REMICs and 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. 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. 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
4
<PAGE>
prepayment rate will extend the average life of many mortgage-backed
securities. Extending the average life of a mortgage-backed security
increases the risk of depreciation due to future increases in market interest
rates.
The Fund may invest in fixed
income securities that are in the
lower ratings categories or are
unrated.
The Fund may invest in securities rated as low as B by Moody's Investors
Service Inc. ("Moody's") or Standard & Poor's Ratings Group ("Standard &
Poor's") (collectively, the "Rating Agencies"), but will maintain a
dollar-weighted average portfolio quality rating of A by the Rating Agencies.
The Fund may invest in unrated securities which, in the opinion of the Fund's
investment adviser, John Hancock Advisers, Inc. (the "Adviser"), offer
comparable yields and risks to rated securities.
Risk Factors Associated With Lower Rated Securities. Lower rated securities
(rated lower than Baa by Moody's or BBB by Standard & Poor's), are sometimes
referred to as junk bonds. See the Appendix attached to this Prospectus 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 the Rating Agencies, such as those ratings
described here, may not be changed by the Rating Agencies 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 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 market prices of zero coupon and
payment-in-kind bonds are affected to a greater extent by interest rate
changes, and thereby tend to be more volatile than securities which pay
interest periodically and in cash. Increasing rate note securities are
typically refinanced by the issuers within a short period of time.
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 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.
The Fund may employ certain
investment strategies to help
achieve its investment
objectives.
Securities of Foreign Issuers. 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. 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
5
<PAGE>
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 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.
Foreign Currencies. Due to its investments in foreign securities, the Fund
may hold a portion of its assets in foreign currencies. As a result, the Fund
may enter into forward foreign currency contracts to protect against changes
in foreign currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a price set at the time of the contract. Although hedging
strategies might reduce the risk of loss due to a decline in the value of the
hedged foreign currency, they may also limit any potential gain which might
result from an increase in the value of that currency.
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.
Restricted Securities. The Fund may purchase restricted securities, including
those eligible for resale to "qualified institutional buyers" pursuant to
Rule 144A under
6
<PAGE>
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 a restriction limiting all the
Fund's illiquid securities to not more than 10% of its net assets.
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.
Futures Contracts and Options on Futures. The Fund may buy and sell financial
futures contracts and options on futures to hedge against the effects of
fluctuations in securities prices, interest rates, currency exchange rates
and other market conditions and for speculative purposes. The potential loss
incurred by the Fund in writing options on futures is unlimited and may
exceed the amount of the premium received. The Fund's futures contracts and
options on futures will be traded on a U.S. or foreign commodity exchange or
board of trade. The Fund will not engage in a futures or options transaction
for speculative purposes, if immediately thereafter, the sum of initial
margin deposits on existing positions and premiums required to establish
speculative positions in futures contracts and options on futures would
exceed 5% of the Fund's net assets. The Fund intends to comply with the CFTC
regulations with respect to its speculative transactions. These regulations
are discussed further in the Statement of Additional Information.
Options Transactions. To earn income from the premiums received, the Fund may
write (sell) listed and over-the-counter covered call options and covered put
options on debt and equity securities and foreign currency. The Fund may
write listed and over-the-counter covered 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 SEC
considers over-the-counter options to be illiquid except under prescribed
conditions, which are discussed in detail in the Statement of Additional
Information.
While transactions in options and futures contracts may reduce certain risks,
they may entail other risks. Certain risks arise due to the imperfect
correlations between
7
<PAGE>
movements in the price of options and futures contracts and movements in the
prices of the securities or currency underlying the contract. The Fund's
ability to use futures contracts and 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. There is no assurance that a liquid market for futures
and options will always exist. In addition, the Fund could be prevented from
opening or realizing the benefits of closing out a futures or options
position because of position limits or limits on daily price fluctuations
imposed by an exchange. The potential loss from writing options on futures
transactions is potentially unlimited and may exceed the amount of the
premium received.
Repurchase Agreements, Forward Commitments or When-Issued Securities. The
Fund may enter into repurchase agreements and may purchase securities on a
forward commitment or when-issued basis. In a repurchase agreement, the Fund
buys a security subject to the right and obligation to sell it back to the
seller at a higher price. These transactions must be fully collateralized at
all times, but involve some certain risk to the Fund if the other party
defaults on its obligations and the Fund is delayed in or prevented from
liquidating the collateral. The Fund will segregate in a separate account
cash or liquid, high grade debt securities equal in value to its forward
commitments and when-issued securities. Purchasing debt securities for future
delivery or on a when-issued basis may increase the Fund's overall investment
exposure and involves a risk of loss if the value of the securities declines
before the settlement date.
You will receive account
statements which you should keep
to help with your personal
recordkeeping.
Defensive Investments. When the Adviser believes unfavorable investment
conditions exist requiring the Fund to assume a temporary defensive
investment posture, the Fund may hold cash or invest all or a portion of its
assets in short-term instruments, including short-term U.S. Government
securities and repurchase agreements; bank certificates of deposit, bankers'
acceptances, time deposits and letters of credit; and commercial paper
(including so called Section 4(2) paper rated at least A-1 or A-2 by Standard
& Poor's or P-1 or P-2 by Moody's or if unrated considered by the Adviser to
be of comparable value). The Fund's temporary defensive investments may also
include: debt obligations of U.S. companies rated at least BBB or Baa by
Standard & Poor's or Moody's, respectively; or, if unrated, of comparable
quality in the opinion of the Adviser; commercial paper and corporate debt
obligations not satisfying the above credit standards if they are (a) subject
to demand features or puts or (b) guaranteed as to principal and interest by
a domestic or foreign bank having total assets in excess of $1 billion, by a
corporation whose commercial paper may be purchased by the Fund, or by a
foreign government having an existing debt security rated least BBB or Baa by
Standard & Poor's or Moody's, respectively; and other short-term investments
which the Trustees of the Trust determine present minimal credit risks and
which are of "high quality" as determined by any major rating service or in
the case of an instrument that is not rated, of comparable quality as
determined by the Trustees.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements.
The Fund may reinvest any cash collateral in short-term securities. When the
Fund lends portfolio securities, there is a risk that the borrower may fail
to return the loaned securities. As a result,
8
<PAGE>
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.
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 Internal Revenue Code. Portfolio
turnover rates of the Fund for recent periods are shown in the section "The
Fund's Financial Highlights".
Investment Restrictions. The Fund has adopted certain investment restrictions
which are detailed in the Statement of Additional Information, where they are
designated as fundamental or nonfundamental. The investment objectives and
fundamental restrictions may not be changed without shareholder approval. All
other investment policies and restrictions are nonfundamental and can be
changed by a vote of the Trustees without shareholder approval.
Brokers are chosen based on best
price and execution.
When choosing brokerage firms to carry out the Fund's transactions, the
Adviser gives primary consideration to execution at the most favorable
prices, taking into account the broker's professional ability and quality of
service. Consideration may also be given to the broker's sales of Fund
shares. Pursuant to procedures established by the Trustees, the Adviser may
place securities transactions with brokers affiliated with the Adviser. These
brokers include Tucker Anthony Incorporated, John Hancock Distributors, Inc.
and Sutro & Company, Inc. They are indirectly owned by John Hancock Mutual
Life Insurance Company (the "Life Company"), which in turn indirectly owns
the Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Trustees elect officers and
retain the investment adviser who
is repsonsible for the day-to-day
operations of the Fund, subject
to the Trustees' policies and
supervision.
The Fund (formerly named John Hancock Freedom Short-Term World Income Fund)
is a non-diversified series of Freedom Investment Trust II (the "Trust"), an
open-end management investment company organized as a Massachusetts business
trust in 1986. The Trust's Declaration of Trust permits the Trustees, without
shareholder's approval, to create and classify shares of beneficial interest
into separate series of the Trust. The Fund is not required to hold annual
shareholder meetings, although special meetings may be held for such purposes
as electing or removing Trustees, changing fundamental policies or approving
a management contract. The Fund, under certain circumstances, will assist in
shareholder communications with other shareholders.
9
<PAGE>
John Hancock Advisers, Inc.
advises investment companies
having a total asset value of
more than $16 billion.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary
of the Life Company, a financial services company. The Adviser provides the
Fund, and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services, John Hancock Funds,
Inc. ("John Hancock Funds") distributes shares for all of the John Hancock
funds directly and through selected broker-dealers ("Selling Brokers").
Freedom Distributors Corporation, a co-distributor of the Funds, is, along
with John Hancock Funds (together with John Hancock Funds, the
"Distributors"), an indirect subsidiary of the Life Company. Certain Fund
officers are also officers of the Adviser and John Hancock Funds. Pursuant to
an order granted by the Securities and Exchange Commission, 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.
Investment decisions are made by the Fund's co-portfolio managers Lawrence J.
Daly, Anthony A. Goodchild and Janet L. Clay. Prior to joining the Adviser in
1994, Mr. Daly and Mr. Goodchild were Senior Vice Presidents at Putnam
Investments. Prior to joining the Adviser in 1995, Ms. Clay was an Assistant
Vice President at Putnam Investments and served in various research positions
at Colonial Management Associates.
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.
ALTERNATIVE PURCHASE ARRANGEMENTS
An alternative purchase plan
allows you to choose the method
of payment that is best for you.
You can purchase shares of the Fund at a price equal to their net asset value
per share, plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge
Alternative--Class A Shares") or on a contingent deferred basis (see
"Contingent Deferred Sales Charge Alternative--Class B Shares"). If you do
not specify on your account application the class of shares you are
purchasing, it will be assumed that you are investing in Class A shares.
Investments in Class A shares are
subject to an initial sales
charge.
You can pay routine bills from your account, or make periodic disbursements
from your retirement account to comply with IRS regulations.
Class A Shares. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount you purchase is $1 million or more. If
you purchase $1 million or more of Class A shares, you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.30% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price--Qualifying for a Reduced Sales Charge."
Investments in Class B shares are
subject to a contingent deferred
sales charge.
Class B Shares. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them
within four years of purchase (the "contingent deferred sales charge" or the
"CDSC"). Class B shares are subject to ongoing distribution and service fees
at a combined annual rate of up to 1.00% of the
10
<PAGE>
Fund's average daily net assets attributable to the Class B shares. Investing
in Class B shares permits all of your dollars to work from the time you make
your investment, but the higher ongoing distribution fee will cause these
shares to have higher expenses than Class A shares. To the extent that any
dividends are paid by the Fund, these higher expenses will also result in
lower dividends than those paid on Class A shares.
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
Factors to Consider in Choosing an Alternative
You should consider which class
of shares would be more
beneficial for you.
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider
whether, during the anticipated life of your Fund investment, the CDSC and
accumulated fees on Class B shares would be less than the initial sales
charge and accumulated fees on Class A shares purchased at the same time, and
to what extent this differential would be offset by the Class A shares' lower
expenses. To help you make this determination, the table under the caption
"Expense Information" on the inside cover page of this Prospectus shows
examples of the charges applicable to each class of shares. Class A shares
will normally be more beneficial if you qualify for a reduced sales charge.
See "Share Price--Qualifying for a Reduced Sales Charge."
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent
any dividends are paid. However, because initial sales charges are deducted
at the time of purchase, you would not have all of your funds invested
initially and, therefore, would initially own fewer shares. If you do not
qualify for reduced initial sales charges and expect to maintain your
investment for an extended period of time, you might consider purchasing
Class A shares. This is because the accumulated distribution and service
charges on Class B shares may exceed the initial sales charge and accumulated
distribution and service charges on Class A shares during the life of your
investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you
will be subject to higher distribution fees and, for a four-year period, a
CDSC.
In the case of Class A shares, the distribution expenses that John Hancock
Funds incurs in connection with the sale of the shares will be paid from the
proceeds of the initial sales charge and the ongoing distribution and service
fees. In the case of Class B shares, the expenses will be paid from the
proceeds of the ongoing distribution and service fees, as well as from the
CDSC incurred upon redemption within four years of purchase. The purpose and
function of the Class B shares' CDSC and ongoing distribution and service
fees are the same as those of the Class A shares' initial sales charge and
ongoing distribution and service fees.
Dividends, if any, on Class A and Class B shares will be calculated in the
same manner, at the same time and on the same day. They will also be in the
same amount, except for differences resulting from each class bearing only
its own distribution and service fees and shareholder meeting expenses. See
"Dividends and Taxes."
11
<PAGE>
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a fee to the
Adviser which is based on a stated percentage of the Fund's average daily net
asset value as follows: 0.65% on the first $500 million of average daily net
assets and 0.60% on average daily net assets in excess of $500 million. For
the 1995 fiscal year the fee was 0.65% of the Fund's average daily net
assets.
The Fund pays distribution and
service fees for marketing and
sales-related shareholder
servicing.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, the Fund will pay distribution and service
fees at an aggregate annual rate of up to 0.30% of the Class A shares'
average daily net assets and an aggregate annual rate of up to 1.00%, of the
Class B shares' average daily net assets. In each case, up to 0.25% is for
service expenses and the remaining amount is for distribution expenses. The
distribution fees will be used to reimburse 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 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 are paid to the
Distributors to compensate Selling Brokers and others providing personal and
account maintenance services to shareholders.
In the event the Distributors are not fully reimbursed for payments they make
or expenses they incur under the Class A Plan, these expenses will not be
carried beyond one year from the date they were incurred. These unreimbursed
expenses under the Class B Plan will be carried forward together with
interest on the balance of these unreimbursed expenses.
For the fiscal year ended October 31, 1995, 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.
Information on the Fund's total expenses is in the Fund's Financial
Highlights section of this Prospectus.
DIVIDENDS AND TAXES
Dividends. Dividends from the Fund's net investment income are generally
declared daily and distributed monthly. The Fund will distribute net realized
long-term and short-term capital gains, if any, at least annually. Dividends
are reinvested in additional shares of your class unless you elect the option
to receive cash. If you elect the cash option and the U.S. Postal Service
cannot deliver your checks, your election will be converted to the
reinvestment option. Because of the higher expenses associated with Class B
shares, any dividends on these shares will be lower than those on the Class A
shares. See "Share Price."
Taxation. Dividends from the Fund's net investment income, certain net
foreign currency gains, and net short-term capital gains are taxable to you
as ordinary income. Dividends from the Fund's net long-term capital gains are
taxable as long-term capital gains. These
12
<PAGE>
dividends are taxable whether received in cash or reinvested in additional
shares. Certain dividends may be paid in January of a given year, but may be
taxable as if you received them the previous December. The Fund will send you
a statement by January 31 showing the tax status of the dividends you
received for the prior year.
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). As a regulated investment company, the Fund
will not be subject to Federal income tax on any net investment income or net
realized capital gains that are distributed to its shareholders within the
time periods prescribed by the Code. When you redeem (sell) or exchange
shares, you may realize a taxable gain or loss.
On the account application, you must certify that your social security or
other taxpayer identification number is correct and that you are not
subject to backup withholding of Federal income tax. If you do not provide
this information or are otherwise subject to this withholding, the Fund may
be required to withhold 31% of your dividends and the proceeds of redemptions
and exchanges.
The Fund anticipates that it will be subject to foreign withholding taxes or
other foreign taxes on income (possibly including capital gains) on certain
foreign investments, which will reduce the yield on those investments.
However, if more than 50% of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations and if the Fund
so elects, shareholders will include in their gross incomes their pro-rata
shares of qualified foreign taxes paid by the Fund and may be entitled,
subject to certain conditions and limitations under the Code, to claim a
Federal income tax credit or deduction for their share of these taxes.
In addition to Federal taxes, you may be subject to state and local or
foreign taxes with respect to your investments in and distributions from the
Fund. Non-U.S. shareholders and tax-exempt shareholders are subject to a
different tax treatment not described above. In many states, a portion of the
Fund's dividends that represents interest received by the Fund on direct U.S.
Government obligations may be exempt from tax. You should consult your tax
adviser for specific advice.
PERFORMANCE
The Fund may advertise its yield
and total return.
Total return shows the overall dollar or percentage change in value of a
hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period
of time. Average annual total return shows the cumulative return divided over
the number of years included in the period. Because average annual total
return tends to smooth out variations in performance, you should recognize
that it is not the same as actual year-to-year results.
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of its share price. Yield is computed by annualizing the results
of dividing the net investment income per share over a 30 day period by the
maximum offering price per share on the last day of that period. Yield is
also calculated according to accounting methods that are standardized for all
stock and bond funds. Because yield accounting methods differ from the
methods used for other accounting purposes, the Fund's yield may not equal
the income paid on your shares or the income reported in the Fund's financial
statements.
13
<PAGE>
Both total return and yield calculations for Class A shares generally include
the effect of paying the maximum sales charge (except as shown in "The Fund's
Financial Highlights"). Investments at lower sales charges would result in
higher performance figures. Yield and total return for the Class B shares
reflect deduction of the applicable CDSC imposed on a redemption of shares
held for the applicable period (except as shown in "The Fund's Financial
Highlights"). All calculations assume that all dividends are reinvested at
net asset value on the reinvestment dates during the periods. Yield and total
return of Class A and Class B shares will be calculated separately and,
because each class is subject to different expenses, the yield and total
return may differ with respect to each class for the same period. The
relative performance of the Class A and Class B shares will be affected by a
variety of factors, including the higher operating expenses attributable to
the Class B shares, whether the Fund's investment performance is better in
the earlier or later portions of the period measured and the level of net
assets of the classes during the period. The Fund will include the total
return of both classes in any advertisement or promotional materials
including the Fund's performance data. The value of the Fund's shares, when
redeemed, may be more or less than their original cost. Both yield and total
return are historical calculations and are not an indication of future
performance. See "Factors to Consider in Choosing an Alternative."
HOW TO BUY SHARES
Opening an account.
The minimum initial investment is $1,000 ($250 for group investments
and retirement plans).
Complete the Account Application attached to this Prospectus. Indicate
whether you are purchasing Class A or Class B shares. If you do not
specify which class of shares you are purchasing, Investor Services
will assume that you are investing in Class A shares.
By Check 1. Make your check payable to John Hancock Investor
Services Corporation.
2. Deliver the completed application and check to
your registered representative, Selling Broker or
mail it directly to Investor Services.
By Wire 1. Obtain an account number by contacting your
registered representative, Selling Broker or by
calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Short-Term Strategic
Income Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your
registered representative, Selling Broker or mail
it directly to Investor Services.
Buying additional Class A
and Class B shares.
Monthly
Automatic 1. Complete the "Automatic Investing" and "Bank
Accumulation Information" sections on the Account Privileges
Program Application designating a bank account from which
(MAAP) funds may be drawn.
2. The amount you elect to invest will be withdrawn
automatically from your bank or credit union
account.
14
<PAGE>
Buying additional Class A
and Class B shares.
(continued)
By Telephone 1. Complete the "Invest-By-Phone" and "Bank
Information" sections on the Account Privileges
Application designating a bank account from which
your funds may be drawn. Note that in order to
invest by phone, your account must be in a bank
or credit union that is a member of the Automated
Clearing House system (ACH).
2. After your authorization form has been processed,
you may purchase additional Class A or Class B
shares by calling Investor Services toll-free at
1-800-225-5291.
3. Give the Investor Services representative the
name(s) in which your account is registered, the
Fund name, the class of shares you own, your
account number, and the amount you wish to
invest.
4. Your investment normally will be credited to your
account the business day following your phone
request.
By Check 1. Either complete the detachable stub included on
your account statement or include a note with
your investment listing the name of the Fund, the
class of shares you own, your account number and
the name(s) in which the account is registered.
2. Make your check payable to John Hancock Investor
Services Corporation.
3. Mail the account information and check to:
John Hancock Investor Services, Inc.
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative
or Selling Broker.
By Wire Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Short-Term Strategic
Income Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
Other Requirements. All purchases must be made in U.S. dollars. Checks
written on foreign banks will delay purchases until U.S. funds are
received, and a collection charge may be imposed. Shares of the Fund
are priced at the offering price based on the net asset value
computed after John Hancock Funds receives notification of the dollar
equivalent from the Fund's custodian bank. Wire purchases normally
take two or more hours to complete and, to be accepted the same day,
must be received by 4:00 p.m., New York time. Your bank may charge a
fee to wire funds. Telephone transactions are recorded to verify
information. Certificates are not issued unless a request is made in
writing to Investor Services.
You will receive account
statements that you should keep
to help with your personal
recordkeeping.
You will receive a statement of your account after any transaction that
affects your share balance or registration (statements related to
reinvestment of dividends and automatic investment/withdrawal plans will be
sent to you quarterly). A tax information statement will be mailed to you by
January 31 of each year.
SHARE PRICE
The offering price of your shares
is their net asset value plus a
sales charge, if applicable,
which will vary with the pruchase
alternative you choose.
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of
outstanding shares of that class. The NAV of each class can differ.
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services, or at fair
value as determined in good faith according to procedures approved by the
Trustees. Short-term debt investments maturing within 60 days are valued
15
<PAGE>
at amortized cost which the Board of Trustees has determined to approximate
market value. Foreign securities are valued on the basis of quotations from
the primary market in which they are traded, and are translated from the
local currency into U.S. dollars using current exchange rates. If quotations
are not readily available, or the value has been materially affected by
events occurring after the closing of a foreign market, assets are valued by
a method that the Trustees believe accurately reflects fair value. The NAV is
calculated once daily as of the close of regular trading on the New York
Stock Exchange (generally at 4:00 p.m., New York time) on each day that the
Exchange is open.
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock
Funds. If you buy shares of the Fund through a Selling Broker, the Selling
Broker must receive your investment before the close of regular trading on
the New York Stock Exchange and transmit it to John Hancock Funds before its
close of business to receive that day's offering price.
Initial Sales Charge Alternative--Class A Shares. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge, as
follows.
<TABLE>
<CAPTION>
Sales Sales Combined
Charge as Charge as Reallowance Reallowance to
a a and Service Selling Broker
Percentage Percentage Fees as as a Percentage
Amount Invested of of a Percentage of of
(including Sales Offering the Amount Offering Offering
Charge) Price Invested Price(+) Price(*)
- --------------------- ----------- ----------- --------------- ----------------
<S> <C> <C> <C> <C>
Less than $100,000 3.00% 3.09% 2.50% 2.26%
$100,000 to $499,999 2.50% 2.56% 2.25% 2.01%
$500,000 to $999,999 2.00% 2.04% 1.75% 1.51%
$1,000,000 and over 0.00%(**)) 0.00%(**)) (*** )) 0.00%(***))
</TABLE>
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales charge. A
Selling Broker to whom substantially the entire sales charge is reallowed may
be deemed to be an underwriter under the Securities Act of 1933.
(**) No sales charge is payable at the time of purchase of Class A shares of
$1 million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within one year of purchase.
(***) John Hancock Funds may pay a commission and the first year's service
fee (as described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of $1 million or more in the aggregate as follows:
1% on sales to $4,999,999, 0.50% on the next $5 million and 0.25% on $10
million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the
first year's service fee in advance, in an amount equal to 0.25% of the net
assets invested in the Fund. Thereafter, it pays the service fee periodically
in arrears in an amount up to 0.25% of the Fund's average annual net assets.
Selling Brokers receive the fee as compensation for providing personal and
account maintenance services to shareholders.
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<PAGE>
Sales charges ARE NOT APPLIED to any dividends that are reinvested in
additional Class A shares of the Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual
rate of up to 0.05% of the daily net assets of the accounts attributable to
these brokers.
Under certain circumstances described below, investors in Class A shares may
be entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge."
Contingent Deferred Sales Charge--Investments of $1 million or more in Class
A Shares. Purchases of $1 million or more of the Fund's Class A shares will
be made at net asset value with no initial sales charge, but if the shares
are redeemed within 12 months after the end of the calendar month in which
the purchase was made (the CDSC period), a CDSC will be imposed. The rate of
the CDSC will depend on the amount invested as follows:
Amount Invested CDSC Rate
- ----------------------------------- ----------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
above rate.
The CDSC will be assessed on an amount equal to the lesser of the current
market value or the original purchase cost of the redeemed Class A shares.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends which have been reinvested in
additional Class A shares.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. Therefore, it will be assumed that the redemption is first made from
any shares in your account that are not subject to the CDSC. The CDSC is
waived on redemptions in certain circumstances. See "Waiver of Contingent
Deferred Sales Charge" below.
You may qualify for a reduced
sales charge on your investment
in Class A shares.
Qualifying for a Reduced Sales Charge. If you invest more than $100,000 in
Class A shares of the Fund or combination of John Hancock funds (except money
market funds), you may qualify for a reduced sales charge on your investments
in Class A shares through a LETTER OF INTENTION. You may also be able to use
the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE to take advantage of the
value of your previous investments in shares of the John Hancock funds in
meeting the breakpoints for a reduced sales charge. For the ACCUMULATION and
COMBINATION PRIVILEGE, the applicable sales charge will be based on the total
of:
1. Your current purchase of Class A shares of the Fund;
2. The net asset value (at the close of business on the previous day) of (a)
all Class A shares of the Fund you hold, and (b) all Class A shares of any
other John Hancock funds you hold; and
17
<PAGE>
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
Example:
If you hold Class A shares of a John Hancock fund with a net asset value of
$80,000 and, subsequently, invest $20,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 2.50% and not 3.00%. This
is the rate that would otherwise be applicable to investments of less than
$100,000. See "Initial Sales Charge Alternative--Class A Shares."
Class A shares may be available
without a sales charge to certain
individuals and organizations.
If you are in one of the following categories, you may purchase Class A
shares of the Fund without paying a sales charge:
(bullet) A Trustee or officer of the Trust; a Director or officer of the
Adviser and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees
or Directors of any of the foregoing; a member of the immediate
family of any of the foregoing; or any Fund, pension, profit sharing
or other benefit plan for the individuals described above.
(bullet) Any state, county, city or any instrumentality, department,
authority, or agency of these entities that is prohibited by
applicable investment laws from paying a sales charge or commission
when it purchases shares of any registered investment management
company.*
(bullet) A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds
if it is purchasing $1 million or more for non-discretionary
customers or accounts.*
(bullet) A broker, dealer, financial planner or consultant or registered
investment adviser that has entered into an agreement with John
Hancock Funds providing specifically for the use of Fund shares in
fee-based investment products or services made available to their
clients.
(bullet) A former participant in an employee benefit plan with John Hancock
Funds, when he or she withdraws from his or her plan and transfers
any or all of his or her plan distributions directly to the Fund.
(bullet) A member of an approved affinity group financial services plan.*
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may also be purchased without an initial sales
charge in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
Contingent Deferred Sales Charge Alternative--Class B Shares. Class B shares
are offered at net asset value per share without an initial sales charge, so
that your entire investment will go to work at the time of purchase. However
Class B shares redeemed within four years of purchase will be subject to a
CDSC at the rates set forth below. The charge will be assessed on an amount
equal to the lesser of the current market
18
<PAGE>
value or the original purchase cost of the shares being redeemed.
Accordingly, you will not be assessed a CDSC on increases in account value
above the initial purchase price, including shares derived from dividend
reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
have held beyond the four-year CDSC redemption period or those you acquired
through reinvestment of dividends, and next from the shares you have held the
longest during the four-year period. The CDSC is waived on redemptions in
certain circumstances. See "Waiver of Contingent Deferred Sales Charges"
below.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time, your CDSC will be calculated as
follows:
(bullet) Proceeds of 50 shares redeemed at $12 per
share $ 600
(bullet) Minus proceeds of 10 shares not subject to
CDSC because they were acquired through
dividend reinvestment (10 x $12) -120
(bullet) Minus appreciation on remaining shares, also
not subject to CDSC (40 x $2) -80
------
(bullet) Amount subject to CDSC $ 400
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds
uses all of them to defray its expenses related to providing the Fund with
distribution services in connection with the sale of the Class B shares, such
as compensating Selling Brokers for selling these shares. The combination of
the CDSC and the distribution and service fees makes it possible for the Fund
to sell Class B shares without an initial sales charge.
The amount of the CDSC, if any, will vary depending on the number of years
from the time you purchase your Class B shares until the time you redeem
them. Solely for purposes of determining this holding period, any payments
you make during the month will be aggregated and deemed to have been made on
the last day of the month.
Contingent
Deferred Sales
Charge As a
Percentage of
Year In Which Class B Shares Amount
Redeemed Following Purchase Redeemed
- ------------------------------ ----------------
First 3.0%
Second 2.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
A commission equal to 2.25% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision
of personal and account maintenance services to shareholders during the
twelve months following the sale, and thereafter the service fee is paid in
arrears.
19
<PAGE>
If you purchased Class B shares prior to January 1, 1994, the applicable CDSC
as a percentage of the amount redeemed will be: 3% for redemptions during the
first year after purchase, 2% for redemptions during the second year, 1% for
redemptions during the third year, and no CDSC for the fourth year and
thereafter.
Under certain circumstances, the
CDSC on Class B and certain Class
A share redemptions will be
waived.
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.
(bullet) Redemptions of Class B shares made under a Systematic Withdrawal
Plan (see "How To Redeem Shares"), as long as your annual
redemptions do not exceed 10% of your account value at the time you
established your Systematic Withdrawal Plan and 10% of the value of
subsequent investments (less redemptions) in that account at the
time you notify Investor Services. This waiver does not apply to
Systematic Withdrawal Plan redemptions of Class A shares that are
subject to a CDSC.
(bullet) Redemptions made to effect distributions from an Individual
Retirement Account either before or after age 59-1/2, as long as the
distributions are based on your life expectancy or the
joint-and-last survivor life expectancy of you and your beneficiary.
These distributions must be free from penalty under the (the Code).
(bullet) Redemptions made to effect mandatory distributions under the Code
after age 70-1/2 from a tax-deferred retirement plan.
(bullet) Redemptions made to effect distributions to participants or
beneficiaries from certain employer-sponsored retirement plans
including those qualified under Section 401(a) of the Code,
custodial accounts under Section 403(b)(7) of the Code and deferred
compensation plans under Section 457 of the Code. The waiver also
applies to certain returns of excess contributions made to these
plans. In all cases, the distributions must be free from penalty
under the Code.
(bullet) Redemptions due to death or disability.
(bullet) Redemptions made under the Reinvestment Privilege, as described in
"Additional Services and Programs" of this Prospectus.
(bullet) Redemptions made pursuant to the Fund's right to liquidate your
account if you own fewer than 50 shares.
(bullet) Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal
holding companies.
(bullet) Redemptions from certain IRA and retirement plans purchasing shares
prior to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must
notify Investor Services either directly or through your Selling Broker at
the time you make your redemption. The waiver will be granted once Investor
Services has confirmed that you are entitled to the waiver.
20
<PAGE>
Conversion of Class B Shares. Your Class B shares and an appropriate portion
of reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur no later than the month following five years
after the shares were purchased, and will result in lower annual distribution
fees. If you exchanged Class B shares into this Fund from another John
Hancock fund, the calculation will be based on the time you purchased shares
in the original fund. The Fund has been advised that the conversion of Class
B shares to Class A shares should not be taxable for Federal income tax
purposes and should not change your tax basis or tax holding period for the
converted shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your
shares will be redeemed at the next NAV calculated after your redemption
request is received in good order by Investor Services, less any applicable
CDSC. The Fund may hold payment until reasonably satisfied that investments
recently made by check or Invest-by-Phone have been collected (which may take
up to 10 calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the
next business day. When you redeem your shares, you may realize a taxable
gain or loss, depending usually on the difference between what you paid for
them and what you receive for them, subject to certain tax rules. Under
unusual circumstances, the Fund may suspend redemptions or postpone payment
for up to three business days or longer, as permitted by Federal securities
laws.
To assure acceptance of your
recemption request, please follow
these procedures.
By Telephone All Fund shareholders are eligible automatically for
the telephone redemption privilege. Call
1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New
York time), Monday through Friday, excluding days on
which the New York Stock Exchange is closed.
Investor Services employs the following procedures
to confirm that instructions received by telephone
are genuine. Your name, the account number, taxpayer
identification number applicable to the account and
other relevant information may be requested. In
addition, telephone instructions are recorded.
You may redeem up to $100,000, but the address on
the account must not have changed for the last 30
days. A check will be mailed to the exact name(s)
and address shown on the account.
If reasonable procedures, such as those described
above, are not followed, the Fund may be liable for
any loss due to unauthorized or fraudulent telephone
instructions. In all other cases, neither the Fund
nor Investor Services will be liable for any loss or
expense for acting upon telephone instructions made
according to the telephone transaction procedures
mentioned above.
Telephone redemption is not available for IRAs or
other tax-qualified retirement plans or shares of
the Fund that are in certificated form.
During periods of extreme economic conditions or
market changes, telephone requests may be difficult
to implement due to a large volume of calls. During
these times, you should consider placing redemption
requests in writing or using EASI-Line. EASI-Line's
telephone number is 1-800-338-8080.
21
<PAGE>
By Wire If you have a telephone redemption form on file with
the Fund, redemption proceeds of $1,000 or more can
be wired on the next business day to your designated
bank account and a fee (currently $4.00) will be
deducted. You may also use electronic funds transfer
to your assigned bank account and the funds are
usually collectible after two business days. Your
bank may or may not charge a fee for this service.
Redemptions of less than $1,000 will be sent by
check or electronic funds transfer.
This feature may be elected by completing the
"Telephone Redemption" section on the Account
Privileges Application that is included with this
Prospectus.
In Writing Send a stock power or "letter of instruction"
specifying the name of the Fund, the dollar amount
or the number of shares to be redeemed, your name,
class of shares, your account number, and the
additional requirements listed below that apply to
your particular account.
- ------------------------------------------------------------------------
By Check You may elect the checkwriting option on the account
(Class A application, which allows you to write checks in
shares only) amounts from a minimum of $100. Checks may not be
written against shares in your account which have
been purchased within the last 15 days, except for
shares purchased by wire transfer (which are
immediately available), or for Fund shares that are
in certificate form.
You should make sure that there are sufficient
shares in the account to cover the amount of any
check drawn, since the net asset value of shares
will fluctuate. If insufficient shares are in the
account, the check will be returned marked
"insufficient funds" and no shares will be redeemed.
It is not possible to determine in advance the total
value of your account so as to write a check for the
value of the entire account because dividends
declared on shares held in the account or prior
redemptions and possible changes in net asset value
may cause the account to change in amount.
Accordingly, you should not close your account by
writing a check. Shareholders may not maintain a
Systematic Withdrawal Plan and utilize the
checkwriting service at the same time.
Type of
Registration Requirements
- ------------------------------------------------------------------------
Individual,
Joint
Tenants, Sole
Proprietorship,
Custodial
(Uniform
Gifts or
Transfer to A letter of instruction signed (with titles where
Minors Act), applicable) by all persons authorized to sign for
General the account, exactly as it is registered with the
Partners signature(s) guaranteed.
Corporation, A letter of instruction and a corporate resolution,
Association signed by person(s) authorized to act on the account
with the signature(s) guaranteed.
Trusts A letter of instruction signed by the Trustee(s)
with the signature(s) guaranteed. (If the Trustee's
name is not registered on your account, also provide
a copy of the trust document, certified within the
last 60 days.)
If you do not fall into any of these registration categories, please
call 1-800-225-5291 for further instructions.
Who may guarantee your
signature.
A signature guarantee is a widely accepeted way to protect you and the
Fund by verifying the signature on your request. It may not be
provided by a notary public. If the net asset value of the shares
redeemed is $100,000 or less, John Hancock Funds may guarantee the
signature. The following institutions may provide you with a signature
guarantee, provided that the institution meets credit standards
established by Investor Services: (i) a bank; (ii) a securities broker
or dealer, including a government or municipal securities broker or
dealer, that is a member of a clearing corporation or meets certain
net capital requirements; (iii) a credit union having authority to
issue signature guarantees; (iv) a savings and loan association, a
building and loan association, a cooperative bank, a federal savings
bank or association; or (v) a national securities exchange, a
registered securities exchange or a clearing agency.
22
<PAGE>
Additional information
about redemptions
Through Your Your broker may be able to initiate the redemption.
Broker. Contact your broker for instructions.
If you have certificates for your shares, you must submit them with your
stock power or a letter of instruction. Unless you specify to the
contrary, any outstanding Class A shares will be redeemed before Class
B shares. You may not redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining smaller accounts,
the Fund reserves the right to redeem at net asset value all shares in
an account which holds fewer than 50 shares (except accounts under
retirement plans) and to mail the proceeds to the shareholder or the
transfer agent may impose an annual fee of $10.00. No account will be
involuntarily redeemed or additional fee imposed, if the value of the
account is in excess of the Fund's minimum initial investment. No CDSC
will be imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or
this fee is imposed and will have 30 days to purchase additional
shares to bring their account balance up to the required minimum.
Unless the number of shares acquired by additional purchases and any
dividend reinvestments exceeds the number of shares redeemed, repeated
redemptions from a smaller account may eventually trigger this policy.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege choose.
You may exchange shares of the
Fund for shares of the same class
of another John Hancock fund.
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of
investment goals. Contact your registered representative or Selling Broker
and request a prospectus for the John Hancock funds that interest you. Read
the prospectus carefully before exchanging your shares. You can exchange
shares of each class of the Fund only for shares of the same class of another
John Hancock fund. For this purpose, John Hancock funds with only one class
of shares will be treated as Class A whether or not they have been so
designated.
Exchanges between funds with shares which are not subject to a CDSC are based
on their respective net asset values. No sales charge or transaction charge
is imposed. Class B shares of the Fund that are subject to a CDSC may be
exchanged into Class B shares of another John Hancock fund without incurring
the CDSC; however, these shares will be subject to the CDSC schedule of the
shares acquired (except that exchanges into the Fund, John Hancock
Intermediate Maturity Government Fund and John Hancock Limited-Term
Government Fund will be subject to the initial fund's CDSC). For purposes of
computing the CDSC payable upon redemption of shares acquired in an exchange,
the holding period of the original shares is added to the holding period of
the shares acquired in an exchange. However, if you exchange Class B shares
purchased prior to January 1, 1994 for Class B shares of any other John
Hancock fund, you will continue to be subject to the CDSC schedule in effect
on your initial purchase date.
The Fund reserves the right to require that you keep previously exchanged
shares (and reinvested dividends) in the Fund for 90 days before you are
permitted a new exchange. The Fund may also terminate or alter the terms of
the exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and
the purchase of shares of another for Federal income tax purposes. An
exchange may result in a taxable gain or loss.
23
<PAGE>
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers
and investment advisers may exchange their clients' Fund shares, subject to
the terms of those agreements and John Hancock Funds' right to reject or
suspend those exchanges at any time. Because of the restrictions and
procedures under those agreements, the exchanges may be subject to timing
limitations and other restrictions that do not apply to exchanges requested
by shareholders directly, as described above.
Because Fund performance and shareholders can be hurt by excessive trading,
the Fund reserves the right to terminate the exchange privilege for any
person or group that, in John Hancock Funds' judgment, is involved in a
pattern of exchanges that coincide with a "market timing" strategy that may
disrupt the Fund's ability to invest effectively according to its investment
objective and policies, or might otherwise affect the Fund and its
shareholders adversely. The Fund may also temporarily or permanently
terminate the exchange privilege for any person who makes seven or more
exchanges out of the Fund per calendar year. Accounts under common control or
ownership will be aggregated for this purpose. Although the Fund will attempt
to give prior notice whenever it is reasonably able to do so, it may impose
these restrictions at any time.
By Telephone
1. When you complete the application for your initial purchase of Fund
shares, you authorize exchanges automatically by telephone unless you
check the box indicating that you do not wish to authorize telephone
exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable
to the account and other relevant information may be requested. In
addition, telephone instructions are recorded.
In Writing
1. In a letter request an exchange and list the following:
--the name and class of the Fund whose shares you currently own
--your account number
--the name(s) in which the account is registered
--the name of the fund in which you wish your exchange to be invested
--the number of shares, all shares or the dollar amount you wish to
exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
24
<PAGE>
Reinvestment Privilege
If you redeem shares fo the Fund,
you may be able to reinvest all
or part of the proceeds in shares
of this Fund or another John
Hancock fund without paying an
additional sales charge.
1. You will not be subject to a sales charge on Class A shares that you
reinvest in a John Hancock fund that is otherwise subject to a sales
charge, as long as you reinvest within 120 days from the redemption date.
If you paid a CDSC upon a redemption, you may reinvest at net asset value
in the same class of shares from which you redeemed within 120 days. Your
account will be credited with the amount of the CDSC previously charged,
and the reinvested shares will continue to be subject to a CDSC. The
holding period of the shares acquired through reinvestment, for purposes
of computing any CDSC payable upon a subsequent redemption will include
the holding period of the redeemed shares.
2. Any portion of your redemption may be reinvested in Fund shares or in
shares of other John Hancock funds, subject to the minimum investment
limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the
Fund's name, account number and class from which your shares were
originally redeemed.
Systematic Withdrawal Plan
You can pay routine bills from
your account, or make periodic
disbursements from your
retirement account to comply with
IRS regulations.
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application, which is attached to this Prospectus. You
can also obtain the application from your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually,
annually or on a selected monthly basis, to yourself or any other
designated payee.
4. There is no limit on the number of payees you may authorize, but all
payments must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares,
because you may be subject to an initial sales charge on your purchases of
Class A shares or to a CDSC on your redemptions of Class B shares. In
addition, your redemptions are taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks, or if deposits to a bank account are returned for any reason.
Monthly Automatic Accumulation Program (MAAP)
You can make automatic
investments and simplify your
investing.
1. You can authorize an investment to be withdrawn automatically each month
on your bank, for investment in Fund shares, under the "Automatic
Investing" and "Bank Information" sections of the Account Privileges
Application.
2. You can also authorize automatic investment through payroll deduction by
completing the "Direct Deposit Investing" section of the Account
Privileges Application.
3. You can terminate your Monthly Automatic Accumulation Program at any time.
25
<PAGE>
4. There is no charge to you for this program, and there is no cost to the
Fund.
5. If you have payments withdrawn from a bank account and we are notified
that the account has been closed, withdrawals will be discontinued.
Group Investment Program
Organized groups of at least four
persons may establish accounts.
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate
dollar amount of all participants' investments. To determine how to
qualify for this program, contact your registered representative or call
1-800-225-5291.
2. The initial aggregate investment of all participants in the group must be
at least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at
any time.
Retirement Plans
1. You may use the Fund for various types of qualified retirement plans,
including Individual Retirement Accounts, Keogh plans (H.R. 10); pension
and profit sharing plans (including 401(k) plans), Tax Sheltered Annuity
retirement plans (403(b) plans), and Section 457 plans.
2. The initial investment minimum or aggregate minimum for any of these plans
is $250. However, accounts being established as group IRA, SEP, SARSEP,
TSA, 401(k) and Section 457 plans will be accepted without an initial
minimum investment.
APPENDIX
As described in the Prospectus, the Fund may invest in debt securities in the
lower rating categories (that is, rated Baa, Ba or B by Moody's or BBB, BB or
B by Standard & Poor's, or are unrated).
Moody's describes its lower ratings for corporate bonds as follows:
Bonds which are rated Baa are considered as medium grade obligations, i.e.
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any
great length of time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
26
<PAGE>
Standard & Poor's describes its lower ratings for corporate bonds as follows:
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated BB, B, CCC, or CC is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's describes its two highest ratings for commercial paper as follows:
Issuers rated P-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. P-1 repayment
capacity will normally be evidenced by the following characteristics: (1)
leading market positions in well-established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structures with
moderate reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash
generation; and (5) well established access to a range of financial markets
and assured sources of alternate liquidity.
Issuers rated P-2 (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is
maintained.
Standard & Poor's describes its two highest ratings for commercial paper as
follows:
A-1. This designation indicates that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
27
<PAGE>
Quality Distribution
The average weighted quality distribution of the portfolio for the fiscal
year ended October 31, 1995:
<TABLE>
<CAPTION>
Rating Rating
Security Rating - Average % of Assigned % of Assigned % of
by Advisor Value Portfolio by Adviser Portfolio by Service Portfolio
- -------------------- ---------- -------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Quality
Distribution:
Total Fund
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 Securities 102,029,092 97.4% $39,578,961 37.8% $62,450,131 59.6%
Equity Securities 0 0.0%
Short-Term
Securities 2,751,984 2.6%
--------
Total Portfolio 104,781,076 100.0%
Other Assets--Net 593,205
--------
Net Assets $105,374,281
========
</TABLE>
28
<PAGE>
(Notes)
29
<PAGE>
(Notes)
30
<PAGE>
(Notes)
31
<PAGE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Class A and Class B Shares
JOHN HANCOCK SHORT-TERM STRATEGIC INCOME FUND
March 1, 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, dated March 1,
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
Statement of
Additional
Information
Page
ORGANIZATION OF THE FUND 2
INVESTMENT OBJECTIVES AND POLICIES 2
CERTAIN INVESTMENT PRACTICES 10
INVESTMENT RESTRICTIONS 11
THOSE RESPONSIBLE FOR MANAGEMENT 14
INVESTMENT ADVISORY AND OTHER SERVICES 19
DISTRIBUTION CONTRACT 21
NET ASSET VALUE 22
INITIAL SALES CHARGE ON CLASS A SHARES 22
DEFERRED SALES CHARGE ON CLASS B SHARES 24
SPECIAL REDEMPTIONS 25
ADDITIONAL SERVICES AND PROGRAMS 25
DESCRIPTION OF THE FUND'S SHARES 26
TAX STATUS 27
CALCULATION OF PERFORMANCE 31
BROKERAGE ALLOCATION 33
TRANSFER AGENCY SERVICES 34
1
<PAGE>
CUSTODY OF PORTFOLIO 34
INDEPENDENT ACCOUNTANTS. 34
APPENDIX A - DESCRIPTION OF BOND AND 35
COMMERCIAL PAPER RATINGS 37
FINANCIAL STATEMENTS --
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 securities in which the Fund may invest include debt obligations
issued or guaranteed by United States or foreign governments, political
subdivisions thereof (including states, provinces and municipalities) or their
agencies and instrumentalities ("Governmental entities"), or issued or
guaranteed by international organizations designated or supported by
governmental entities to promote economic reconstruction or development
("supranational entities"), or issued by corporations or financial institutions.
Examples of supranational entities include the International Bank for
Reconstruction and Development (the "World Bank"), the European Steel and Coal
Community, the Asian Development Bank and the Inter-American Development Bank.
The governmental members, or "stockholders", usually make initial capital
contributions to the supranational entity and in many cases are committed to
make additional capital contributions if the supranational entity is unable to
repay its borrowings. Securities issued by supranational entities may be
denominated in U.S. dollars, a foreign currency or a multi-national currency
unit. 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.
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 in the Prospectus.
2
<PAGE>
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. The other
risks associated with foreign investments are disclosed in the Fund's
Prospectus.
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 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 1940 Act.
Mortgage-Backed Securities. Ginnie Mae Certificates, issued by the Government
National Mortgage Association, are mortgage-backed securities of the modified
pass-through type, which means that both interest and principal payments
(including prepayments) are passed through monthly to the holders of the
Certificates. The National Housing Act provides that the full faith and credit
of the United States is pledged to the timely payment of principal and interest
by Ginnie Maes of amounts due on these Ginnie Mae Certificates. The Government
National Mortgage Association is a wholly-owned corporate instrumentality of the
United States within the Department of Housing and Urban Development.
In addition to Ginnie Mae Certificates, the Fund may invest in
mortgage-backed securities issued by the Federal National Mortgage Association
(Fannie Maes) and by the Federal Home Loan Mortgage Corporation (Freddie Macs).
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. Securities
guaranteed by Fannie Mae and Freddie Mac are not backed by the full faith and
credit of the United States.
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. When the obligations are
prepaid, the Fund must reinvest the prepaid amounts in securities the yields of
which reflect interest rates prevailing at the time. Therefore, the Fund's
ability to maintain a portfolio which includes high yielding asset-backed
securities will be adversely affected to the extent that prepayments of
principal must be reinvested in securities which have lower yields than the
prepaid obligations. Moreover, prepayments of securities purchased at a premium
could result in a realized loss.
3
<PAGE>
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-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
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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.
Financial Futures Contracts. 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 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.
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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 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 for maintaining its qualification as a
regulated investment company for federal income tax purposes.
When the Fund purchases a futures contract, writes a put option thereon or
purchases a call option thereon, an amount of cash or high grade, liquid debt
securities (i.e., securities rated in one of the top three ratings categories by
Moody's Investors Service, Inc. ("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.
Options Transactions. The Fund may write listed covered put options on debt and
equity 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 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.
The Fund will write listed and over-the counter call options only if they
are "covered," which means that the Funds 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
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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, 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.
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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 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.
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. 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 values of lower-rated securities generally fluctuate more than those
of high-rated securities. In addition, the lower rating reflects a greater
possibility of an adverse change in financial condition affecting the ability of
the issuer to make payments of interest and principal. The Adviser seeks to
minimize these risks through diversification, investment analysis and attention
to current developments in interest rates and economic conditions. Because the
Fund invests 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.
As noted in the Fund's Prospectus, 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 subject to greater fluctuations in value than securities which
pay interest periodically and in cash, due to changes in interest rates.
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
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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
Internal Revenue 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 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.
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.
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. Nevertheless, high portfolio turnover may involve
correspondingly greater commissions and other transaction costs, which will be
borne directly by the Fund.
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
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 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
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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.
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) 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 Securities and Exchange Commission permits their
exclusion.
Nonfundamental Investment Restrictions
The following restrictions are designated as nonfundamental and may be
changed by the Board of Trustees without shareholder approval:
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 does not include restricted securities eligible
for resale pursuant to Rule 144A under the Securities Act of l933 which
the Board of Trustees or the Adviser has determined under Board-approved
guidelines are liquid.
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.
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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 Securities and Exchange Commission 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.
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 has registered as a "non-diversified" investment company under
the Investment Company Act of 1940. However, the Fund intends to limit its
investments to the extent required by the diversification requirements of the
Internal Revenue Code. See "Tax Status."
The Fund agrees that, in accordance with the Ohio Securities Division and
until such regulations are no longer required, it will comply with Rule
1301:6-3-09(E)(9) by not investing in the securities of other open-end and
closed-end investment companies except by purchase in the open market where no
commission or profit to a sponsor or dealer results from the purchase other than
the customary broker's commission, or except when the purchase is part of a plan
of merger, consolidation, reorganization or acquisition.
13
<PAGE>
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:
14
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
---------------- ---------------- -------------------
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
Officer, the Adviser and The
Berkeley Financial Group
("The Berkeley Group");
Chairman, NM Capital
Management, Inc. ("NM
Capital"); John Hancock
Advisers International
Limited ("Advisers
International"); John Hancock
Funds, Inc., ("John Hancock
Funds"); John Hancock
Investor Services Corporation
("Investor Services") and
Sovereign Asset Management
Corporation ("SAMCorp")
(herein after the Adviser,
The Berkeley Group, NM
Capital, Advisers
International, John Hancock
Funds, Investor Services and
SAMCorp are collectively
referred to as the
"Affiliated Companies");
Chairman, First Signature
Bank & Trust; Director, John
Hancock Freedom Securities
Corp., John Hancock Capital
Corp., New England/Canada
Business Council; Member,
Investment Company Institute
Board of Governors; Director,
Asia Strategic Growth Fund,
Inc.; Trustee, Museum of
Science; President, the
Adviser (until July 1992);
Chairman, John Hancock
Distributors, Inc. until
April 1994.
- ------------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
15
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
---------------- ---------------- -------------------
Douglas M. Costle Trustee (1, 2) Director, Chairman of the
RR2 Box 480 Board and Distinguished
Woodstock, Vermont Senior Fellow, Institute for
05091 Sustainable Communities,
Montpelier, Vermont, since 1991.
Dean Vermont Law School, until
1991. Director, Air and Water
Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
MITRE Corporation (governmental
consulting services).
Leland O. Erdahl Trustee (1, 2) President and Director of
8046 Mackenzie Court Nature Quality Ingredients
Las Vegas, NV 89129 Company, Inc. and Sante Fe
Ingredients Company, Inc.,
private food processing
companies. Director of
Uranium Resources, Inc.
President of Stolar, Inc.
from 1987 to 1991 and
President of Albuquerque
Uranium Corporation from
1985 to 1992. Director of
Freeport-McMoRan Copper &
Gold Company, Inc., Hecla
Mining Company, Canyon
Resources Corporation and
Original Sixteen to One
Mines, Inc. From 1984 to
1987 and 1991, management
consultant.
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
16
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
---------------- ---------------- -------------------
Richard A. Farrell Trustee (1, 2) President of Farrell, Healer
Venture Capital Partners & Co., a venture capital
160 Federal Street management firm, since
23rd Floor 1980. Prior to that date,
Boston, MA 02110 Mr. Farrell headed the
venture capital group at
Bank of Boston Corporation.
William F. Glavin Trustee (1, 2) President, Babson College;
Babson College Vice Chairman, Xerox
Horn Library Corporation until June
Babson Park, MA 02157 1989. Director, Caldor Inc.
and Inco Ltd.
Dr. John A. Moore Trustee (1, 2) President and Chief
Institute for Evaluating Executive Officer, Institute
Health Risks for Evaluating Health Risks,
1629 K Street NW a nonprofit institution,
Suite 402 since September 1989.
Washington, DC 20006 Assistant Administrator of
the Office of Pesticides and
Toxic Substances at the
Environmental Protection
Agency from December 1983 to
July 1989.
Patti McGill Peterson Trustee (1, 2) President, St. Lawrence
St. Lawrence University University; Director,
110 Vilas Hall Niagara Mohawk Power
Canton, NY 13617 Corporation and Security
Mutual Life.
John W. Pratt Trustee (1, 2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School
of Business Administration
(Since 1961).
Robert G. Freedman Vice Chairman and Vice Chairman and Chief
Chief Investment Investment Officer, the
Officer (4) Adviser; President (until
December 1994).
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
17
<PAGE>
Position(s) Held Principal Occupation(s)
Name and Address With Registrants During Past 5 Years
---------------- ---------------- -------------------
Anne C. Hodsdon President (4) President and Chief
Operating Officer, the
Adviser; Executive Vice
President, the Adviser
(until December 1994);
Senior Vice President; the
Adviser (until December
1993).
James B. Little Senior Vice Senior Vice President, the
President, Chief Adviser.
Financial Officer
Thomas H. Drohan Senior Vice Senior Vice President and
President and Secretary, the Adviser.
Secretary
John A. Morin Vice President Vice President, the Adviser.
Susan S. Newton Vice President, Vice President and Assistant
Assistant Secretary, the Adviser.
Secretary and
Compliance Officer
James J. Stokowski Vice President and Vice President, the Adviser.
Treasurer
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive
Committee may generally exercise most powers of the Trustees between
regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
18
<PAGE>
As of January 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 Funds and the other investment companies in the John Hancock Fund Complex
to the Independent Trustees for their services. Mr. Boudreau, and each of the
officers of the Funds are interested persons of the Adviser, are compensated by
the Adviser and receive no compensation from the Funds for their services.
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits From The Fund
Accrued as Estimated and John
Aggregate Part of The Annual Hancock Fund
Compensation Fund's Benefits Upon Complex to
From The Fund* Expenses* Retirement Trustees(1)
-------------- --------- ---------- -------------------
(Total of 11 Funds)
<S> <C> <C> <C> <C>
William A Barron $ 2,003 $ - $ - $ 41,750
III**
Douglas M. Costle 2,003 - - 41,750
Leland O. Erdahl 2,003 - - 41,750
Richard A. Farrell 2,078 - - 43,250
William F. Glavin 1,835 1,251 - 37,500
Patrick Grant** 2,103 - - 43,750
Ralph Lowell, Jr.** 2,003 - - 41,750
Dr. John A. Moore 2,003 - - 41,750
PattiMcGill Peterson 2,003 - - 41,750
John W. Pratt 2,003 - - 41,750
-------- ----------- ------ ---------
$ 20,037 $1,251 $ - $416,750
</TABLE>
*Compensation made for the fiscal year ended October 31, 1995.
(1)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 January 1, 1996, Messrs. Barron, Grant and Lowell resigned as
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
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and presently has more than $16 billion in
assets under management in its capacity as investment adviser to the Fund and
the other mutual funds and publicly traded investment companies in the John
Hancock group of funds having a combined total of over 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
19
<PAGE>
management of more than $80 billion, the Life Company is one of the ten
largest life insurance companies in the United States, and carries high ratings
from Standard & Poor's and A.M. Best's. Founded in 1862, the Life Company has
been serving clients for over 130 years.
The Trust has entered into an investment advisory agreement dated as of
June 26, 1986 between Freedom Investment Trust II and Freedom Capital Management
Corporation ("Freedom Capital"), the Fund's former investment adviser (the
"Advisory Agreement") which Advisory Agreement was transferred to John Hancock
Advisers, Inc. on July 1, 1992 pursuant to a Transfer and Assumption Agreement
dated as of such date. 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, (b) provide supervision over all aspects of the Fund's operations
except those which are delegated to a custodian, transfer agent or other agent,
and (c) provide the Fund with such executive, administrative and clerical
personnel, officers and equipment as are deemed necessary for the conduct of
their business.
As compensation for its services under the Advisory Agreement, the Adviser
receives from the Fund a fee computed and paid monthly at the annual rate of
0.65% of the first $500 million of the average daily net assets of the Fund and
0.60% on the value of the average daily net assets in excess of $500 million.
From time to time, the Adviser may reduce its fee or make other
arrangements to limit the Fund's expenses to a specified percentage of average
daily net assets. The Adviser retains the right to reimpose a fee and recover
any other payments to the extent that at the end of any fiscal year, the Fund's
actual expenses fall below the limit.
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 Plan 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 independent accountants, legal counsel,
transfer agents and dividend disbursing agents; the compensation and expenses of
Trustees who are not otherwise affiliated with the Trust, the Adviser or John
Hancock 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 pay or reimburse
monthly the Fund for that excess up to the amount of its management fee during
that fiscal year. Although there is no certainty that any limitations will be in
effect in the future, the California limitation on an annual basis currently is
2.5% of the first $30 million of average net assets, 2.0% of the next $70
million of net assets and 1.5% of the remaining net assets.
The continuation of the Advisory Agreement for the Trust was last approved
on May 1, 1995 by all of the Trustees of Freedom Investment Trust II, including
all of the Trustees who are not parties to the Advisory Agreement or "interested
persons" of any such party. The Advisory Agreement was approved by the
shareholders of the Fund on September 6, 1991 and an amendment to the Advisory
Agreement to increase the fee payable thereunder was approved by the
shareholders of the Fund on October 28, 1993. The Advisory Agreement will
continue in
20
<PAGE>
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 either party and will terminate automatically if it is
assigned.
DISTRIBUTION CONTRACT
Freedom Investment Trust II has entered into a Distribution Agreement with
John Hancock Funds, Inc. 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 of 1940. Under the Plans, the Fund will pay distribution and service
fees at an aggregate annual rate of up to 0.30% and 1.00% respectively, of the
Fund's daily net assets attributable to shares of that class. However, the
service fee will not exceed 0.25% of the Fund's average daily net assets
attributable to each class of shares. The distribution fees reimburse
Distributors for their distribution costs incurred in the promotion of sales
Fund shares, and the service fees compensate Selling Brokers for providing
personal and account maintenance services to shareholders. In the event that the
Distributors are not fully reimbursed for expenses they incur under the Class B
Plan in any fiscal year, the Distributors may carry these expenses forward,
provided, however, that the Trustees may terminate the Class B Plan and thus the
Fund's obligation to make further payments at any time. Accordingly, the Fund
does not treat unreimbursed expenses relating to the Class B shares as a
liability of the Fund. The Plans were approved by a majority of the voting
securities of the 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 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
21
<PAGE>
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:
Expense Class A Class B
Items Shares Shares
- ------- ------- --------
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
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.
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 with the current Day's
exchange rate. Trading of foreign securities may take place on Saturdays and
U.S. business holidays on which a Fund's NAV is not calculated. consequently, a
Fund's portfolio securities may trade and the NAV of the Fund's redeemable
securities may be significantly affected on days when a shareholder has no
access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchase of Class A shares of the Fund are
described in the Fund's Prospectus. Methods of obtaining a reduced sales charges
referred to generally in the
22
<PAGE>
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 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. As described in the Prospectus, Class A shares of the Fund
may be sold without a sales charge to certain persons described in the
Prospectus.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of 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.
23
<PAGE>
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 specified
period from the date of the LOI or from a date within ninety (90) days prior
thereto, upon written request to Fund 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.
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 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.
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 last day
of the month.
24
<PAGE>
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.
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.
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.
25
<PAGE>
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 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 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 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
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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 and Class B shares are
purchased.
In the event of liquidation, shareholders are entitled to share pro rata
in the net assets of the Fund available for distribution to such shareholders.
Shares entitle their holders to one vote per share, are freely transferable and
have no preemptive, subscription or conversion rights. When issued, shares are
fully paid and non-assessable, by the Trust, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration
of Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with a requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for act 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.
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 Internal
Revenue Code of 1986, as amended (the "Code") and intends to continue to so
qualify for each taxable year. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions, and the diversification of its assets, the Fund will not be
subject to Federal income tax on taxable income (including net realized capital
gains) which is distributed to shareholders at least annually in accordance with
the timing requirements of the Code.
Distributions from the Fund's current or accumulated earnings and profits
(E & P) 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 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.
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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 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.
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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 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
rate 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.
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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 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 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
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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 October 31, 1995, the annualized yield on Class
A and Class B shares of the Fund was 8.37% and 7.96%, respectively. The average
annual total return of the Class A and for Class B shares of the Fund for the 1
year period ended October 31, 1995 was 5.52% and 4.97%, respectively. For the
period ended October 31, 1995, 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 4.28% and 4.85%,
respectively.
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:
[GRAPHIC OMITTED]
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during
the period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period (NAV where applicable).
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.
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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:
[GRAPHIC OMITTED]
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the 1 year 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.
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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 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 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.
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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 ("Investor Services"), P.O.
Box 9116, Boston, MA 02205-9116, a wholly-owned indirect subsidiary of the Life
Company is the transfer and dividend paying agent for the Fund. The Fund pays an
annual fee of $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.
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.
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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, 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.
35
<PAGE>
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Standard & Poor's Bond ratings
"AAA. Debt rated 'AAA' has the highest rating by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
"AA. Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
"A. Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB. Debt rated 'BBB' is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Debt rated "BB," or "B," is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and pay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major risk exposures to adverse conditions.
Unrated. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
36
<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."
37
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments at value - Note C:
Bonds (cost - $96,872,492) .................................................. $ 97,708,989
Joint repurchase agreement (cost - $2,587,000) .............................. 2,587,000
-------------
100,295,989
Cash ......................................................................... 47,740
Interest receivable .......................................................... 2,524,930
Deferred organization expenses - Note A ...................................... 8,623
Other assets ................................................................. 15,638
-------------
Total Assets ............................................... 102,892,920
----------------------------------------------------------------------------
LIABILITIES:
Dividend payable ............................................................. 15,650
Payable for shares repurchased ............................................... 52,270
Payable for investments purchased ............................................ 1,051,208
Payable to John Hancock Advisers, Inc. and affiliates - Note B ............... 69,523
Accounts payable and accrued expenses ........................................ 106,683
-------------
Total Liabilities .......................................... 1,295,334
----------------------------------------------------------------------------
NET ASSETS:
Capital paid-in .............................................................. 130,018,481
Accumulated net realized loss on investments and foreign
currency transactions ........................................................ (29,216,361)
Net unrealized appreciation of investments and foreign
currency transactions ........................................................ 811,116
Distributions in excess of net investment income ............................. (15,650)
-------------
Net Assets ................................................. $ 101,597,586
============================================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial interest outstanding -
unlimited number of shares authorized with no par value, respectively)
Class A - $16,996,512/2,020,156 .............................................. $ 8.41
================================================================================================
Class B - $84,601,074 / 10,068,537 ........................................... $ 8.40
================================================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($8.41 x 103.09%) .................................................. $ 8.67
================================================================================================
</TABLE>
* On single retail sales of less than $100,000. On sales of $100,000 or more and
on group sales the offering price is reduced.
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON OCTOBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE PER SHARE AND THE MAXIMUM OFFERING PRICE AS OF
THAT DATE.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year ended October 31, 1995
- -------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $5,127) ................................ $ 10,992,443
------------
Expenses:
Distribution/service fee - Note B
Class A ........................................................................... 48,128
Class B ........................................................................... 879,073
Investment management fee - Note B .................................................. 682,732
Transfer agent fee - Note B ......................................................... 187,299
Custodian fee ....................................................................... 99,641
Auditing fee ........................................................................ 62,800
Registration and filing fees ........................................................ 24,393
Printing ............................................................................ 23,228
Trustees' fees ...................................................................... 21,608
Organization expense - Note A ....................................................... 15,702
Miscellaneous ....................................................................... 5,970
Legal fees .......................................................................... 5,740
------------
Total Expenses ..................................................... 2,056,314
--------------------------------------------------------------------------------------
Net Investment Income .............................................. 8,936,129
--------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investments sold ................................................ (5,505,804)
Net realized loss on foreign currency transactions ................................... (406,085)
Change in net unrealized appreciation/depreciation of investments .................... 4,079,849
Change in net unrealized appreciation/depreciation of foreign currency transactions... 981,818
------------
Net Realized and Unrealized Loss on Investments and Foreign
Currency Transactions .............................................. (850,222)
--------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations ............... $ 8,085,907
======================================================================================
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income ........................................................ $ 8,936,129 $ 9,910,079
Net realized loss on investments sold and foreign currency transactions ...... (5,911,889) (5,810,926)
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions ........................................................ 5,061,667 (1,902,026)
------------- -------------
Net Increase in Net Assets Resulting from Operations ........................ 8,085,907 2,197,127
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.6084 and $0.6224 per share, respectively) ..................... (1,163,444) (693,087)
Class B - ($0.5592 and $0.5649 per share, respectively) ..................... (5,943,424) (7,303,157)
Dividends in excess of net investment income
Class A - (none and $0.0428 per share, respectively) ........................ -- (47,616)
Class B - (none and $0.0393 per share, respectively) ........................ -- (508,661)
Distributions in excess of net realized gain on investments sold
Class A - (none and $0.1154 per share, respectively) ........................ -- (114,916)
Class B - (none and $0.1154 per share, respectively) ........................ -- (1,691,979)
Distributions from capital paid-in
Class A - ($0.1566 and $0.0966 per share, respectively) ..................... (299,463) (107,572)
Class B - ($0.1439 and $0.0966 per share, respectively) ..................... (1,529,798) (1,249,943)
------------- -------------
Total Distributions to Shareholders ....................................... (8,936,129) (11,716,931)
------------- -------------
FROM FUND SHARE TRANSACTIONS-- NET* ............................................ (9,033,071) (33,002,925)
------------- -------------
NET ASSETS:
Beginning of period .......................................................... 111,480,879 154,003,608
------------- -------------
End of period (including distributions in excess of net investment income of
$15,650 and $1,275,819, respectively) ........................................ $ 101,597,586 $ 111,480,879
============= =============
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------
1995 1994
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold .................................................... 1,378,812 $ 11,536,477 932,145 $ 8,040,859
Shares issued to shareholders in reinvestment of distributions.. 123,825 1,038,224 74,101 644,945
----------- ------------ ----------- ------------
1,502,637 12,574,701 1,006,246 8,685,804
Less shares repurchased ........................................ (1,027,565) (8,585,443) (681,111) (6,037,753)
----------- ------------ ----------- ------------
Net increase ................................................... 475,072 $ 3,989,258 325,135 $ 2,648,051
=========== ============ =========== ============
CLASS B
Shares sold .................................................... 2,159,157 $ 18,090,152 1,599,938 $ 13,816,191
Shares issued to shareholders in reinvestment of distributions.. 493,658 4,130,850 681,528 5,955,744
----------- ------------ ----------- ------------
2,652,815 22,221,002 2,281,466 19,771,935
Less shares repurchased ........................................ (4,211,675) (35,243,331) (6,332,319) (55,422,911)
----------- ------------ ----------- ------------
Net decrease ................................................... (1,558,860) $(13,022,329) (4,050,853) $(35,650,976)
=========== ============ =========== ============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
-------------------------------------------
CLASS A 1995 1994 1993 1992(a)
------- ------- ------- -------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................................... $ 8.47 $ 9.12 $ 9.32 $ 9.86
------- ------- ------- -------
Net Investment Income..................................................... 0.77** 0.76** 0.83** 0.65
Net Realized and Unrealized Loss on Investments and Foreign
Currency Transactions..................................................... (0.06) (0.53) (0.20) (0.55)
------- ------- ------- -------
Total from Investment Operations......................................... 0.71 0.23 0.63 0.10
------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income...................................... (0.61) (0.62) (0.83) (0.64)
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........................................ (0.16) (0.10) -- --
------- ------- ------- -------
Total Distributions...................................................... (0.77) (0.88) (0.83) (0.64)
------- ------- ------- -------
Net Asset Value, End of Period............................................ $ 8.41 $ 8.47 $ 9.12 $ 9.32
======= ======= ======= =======
Total Investment Return at Net Asset Value (c)............................ 8.75% 2.64% 6.78% 1.16%*
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................. $16,997 $13,091 $11,130 $20,468
Ratio of Expenses to Average Net Assets................................... 1.33% 1.26% 1.21% 1.37%*
Ratio of Net Investment Income to Average Net Assets...................... 9.13% 8.71% 8.59% 8.09%*
Portfolio Turnover Rate................................................... 147% 150% 306% 86%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT LOSS, GAINS (LOSSES),
AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET ASSET VALUE
FOR A SHARE HAS CHANGED SINCE THE COMMENCEMENT OF OPERATIONS. ADDITIONALLY,
IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE FINANCIAL STATEMENTS
ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
FINANCIAL HIGHLIGHTS (continued)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31,
---------------------------------------------------------
CLASS B 1995 1994 1993 1992 1991(b)
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period .............................. $ 8.46 $ 9.11 $ 9.31 $ 10.01 $ 10.00
------- ------- -------- -------- --------
Net Investment Income ............................................. 0.70** 0.70** 0.75** 0.87 0.76+
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions .................................... (0.06) (0.53) (0.20) (0.80) 0.01
------- ------- -------- -------- --------
Total from Investment Operations ................................. 0.64 0.17 0.55 0.07 0.77
------- ------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income .............................. (0.56) (0.56) (0.75) (0.77) (0.76)
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 ................................ (0.14) (0.10) -- -- --
------- ------- -------- -------- --------
Total Distributions .............................................. (0.70) (0.82) (0.75) (0.77) (0.76)
------- ------- -------- -------- --------
Net Asset Value, End of Period .................................... $ 8.40 $ 8.46 $ 9.11 $ 9.31 $ 10.01
======= ======= ======== ======== ========
Total Investment Return at Net Asset Value (c) .................... 7.97% 1.93% 5.98% 0.64% 8.85%*+
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ......................... $84,601 $98,390 $142,873 $236,059 $218,562
Ratio of Expenses to Average Net Assets ........................... 2.07% 1.99% 2.01% 2.07% 1.89%*+
Ratio of Net Investment Income to Average Net Assets .............. 8.40% 8.00% 7.81% 8.69% 8.72%*+
Portfolio Turnover Rate ........................................... 147% 150% 306% 86% 22%
* On an annualized basis.
** On average month end shares outstanding.
+ Reflects expense limitation in effect for the period ended October 31,
1991. As a result of such limitation, expenses for Class B shares reflect a
reduction of $0.0039 per share. Absent of such reduction, for the year
ended October 31, 1991 the ratio of expenses to average net assets would
have been 1.93% and the ratio of net investment income to average net
assets would have been 8.68%. Without the reimbursement, total investment
return would have been 8.81%. This is an estimated total return calculation
which takes into consideration fees and expenses waived or borne by the
Adviser during the periods shown.
(a) Class A shares commenced operations on January 3, 1992.
(b) Class B shares commenced operations on December 28, 1990.
(c) Total investment return assumes dividend reinvestment and does not reflect
the effect of sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
SCHEDULE OF INVESTMENTS
October 31, 1995
- -------------------------------------------------------------------------------
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
SHORT-TERM STRATEGIC INCOME FUND ON OCTOBER 31, 1995. IT'S DIVIDED INTO TWO MAIN
CATEGORIES: BONDS AND SHORT-TERM INVESTMENTS. BONDS ARE FURTHER BROKEN DOWN BY
CURRENCY DENOMINATION.
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S
ISSUER, DESCRIPTION RATE OMITTED)# MARKET VALUE
- ------------------- -------- --------- ------------
<S> <C> <C> <C>
BONDS
CHILEAN PESO (4.87%)
*Citibank, N.A., Nassau
Time Deposit 11-09-95
(Time deposit with redemption
linked to Chilean Peso,
Fx rates) *** ...................... 12.900% 827,000 $1,989,894
*Citibank, N.A., Nassau
Time Deposit 11-20-95
(Time deposit with redemption
linked to CLP Fx rates) *** ........ 12.500 414,400 997,113
*Citibank, N.A., Nassau
Time Deposit 03-15-96
(Time deposit with redemption
linked to CLP Fx rates) *** ........ 13.000 817,000 1,965,832
----------
4,952,839
----------
CZECH KORUNA (1.52%)
*SKOFIN, Foreign Corp.
Bond 02-09-98 ...................... 11.625 40,000 1,544,933
----------
ITALIAN LIRA (.99%)
*Government of Italy, BTPS
Government Bond
12-01-97 ........................... 9.500 1,650,000 1,008,707
----------
MEXICAN PESO (1.78%)
*Mexican Cetes, Government
Bond 02-01-96 ...................... 0.000 14,481 1,805,719
----------
NEW ZEALAND DOLLAR (3.95%)
*Government of New Zealand,
Government Bond 11-15-96 ........... 9.000 6,000 4,010,879
----------
SWEDISH KRONA (1.03%)
*Kingdom of Sweden,
Government Bond
01-23-97 ........................... 10.750 6,800 1,045,806
----------
SOUTH AFRICAN RAND (3.95%)
*Transnet Ltd., Foreign Corp.
Bond 04-01-97 ...................... 12.500 1,000 267,979
*Transnet Ltd., Foreign Corp.
Bond 02-15-99 ...................... 11.500 4,000 1,019,055
*Republic of South Africa,
Government Bond
09-21-98 ........................... 14.650** 10,000 2,728,046
----------
4,015,080
----------
UNITED STATES DOLLAR (78.08%)
*Abbey National Treasury
Services, (United Kingdom),
Floating Rate Euronotes
03-08-99 ........................... 5.813%** 2,000 1,995,400
*Banco Central De Costa Rica,
Series A, (Costa Rica),
Foreign Corp Bond
05-21-05 ........................... 6.766** 1,504 1,158,450
*Banco Central De Costa Rica,
Series B, (Costa Rica),
Foreign Corp Bond
05-21-05 ........................... 6.766** 1,504 1,113,315
Banco Central Do Brazil,
(Brazil), Foreign Corp Bond
10-15-99 ........................... 6.750** 8,143 7,613,568
*Banco Credibanco S.A.,
(Brazil), Foreign Corp.
Bond 11-25-97 ...................... 11.625 1,376 1,379,440
*Banco Nacional Comercio,
(Mexico), Foreign Corp.
Bond 06-23-97 (R) .................. 10.875** 1,000 1,006,250
*Bridas Corp., Corp. Bond
11-15-99 ........................... 12.500 1,000 945,000
*Centrais Electricas Brasileiras
SA, (Brazil), Foreign Corp.
Bond 10-30-98 (R) .................. 10.000 1,000 996,250
*Empresas ICA Sociedad
Controladora, (Mexico),
Foreign Corp Bond
08-02-96 ........................... 8.125** 2,000 1,900,000
Essar Gujarat Ltd., (India),
Foreign Agency
07-15-99 (R) ....................... 8.400** 4,000 3,970,000
Government of Barbados,
(Barbados), Government
Bond 06-09-97 (R) .................. 10.500 1,000 1,010,000
IMO Industries, Inc., Sub
Deb 08-15-97 ....................... 12.250 933 937,665
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
INTEREST (000'S
ISSUER, DESCRIPTION RATE OMITTED)# MARKET VALUE
- ------------------- -------- --------- ------------
<S> <C> <C> <C>
UNITED STATES DOLLAR (CONTINUED)
*Kingdom of Denmark,
(Denmark), Government
Bond 09-18-97.................... 5.750%** 4,000 $ 3,998,800
*Mexican Tesobonos,
(Mexico), Government Bond
12-21-95......................... 0.000 2,779 2,748,737
NWA Inc., Note 11-30-00 .......... 12.091 3,137 3,231,126
*Petroleo Brasileiro,
(Brazil), Foreign Corp
Bond 06-08-98.................... 10.213** 2,000 2,035,000
*PT Semen Cibinong,
(Indonesia), Foreign Corp.
Bond 12-15-98.................... 9.000 2,000 2,040,000
*Republic of Argentina,
(Argentina), Government
Bond 11-01-99.................... 10.950 1,000 1,000,000
*Republic of Panama,
(Panama), Government
Bond 05-10-02.................... 7.250** 5,250 4,305,000
*Siderar S.A.I.C., (Argentina),
Foreign Corp. Bond
10-18-97 (R)..................... 11.000 1,000 997,500
*Student Loan Marketing
Association, Government
Agency 09-28-98.................. 5.640** 5,000 4,966,250
*Student Loan Marketing
Association, Government
Agency 12-01-95.................. 5.705** 17,000 16,977,900
*Transportacion Maritima
Mexicana, (Mexico), Foreign
Corp Bond 10-28-97............... 9.750 1,500 1,455,000
*Tubos de Acero de Mexico,
(Mexico), 12-08-99............... 13.750 2,500 2,462,500
USAfrica Airways, Inc., Unit
(Sr Note 05-31-99 and
Warrant), (r)+................... 12.000 1,000 350,000
USAir, Inc., Sr Notes 07-01-03 10.000 3,000 2,730,000
*U.S. Treasury Note,
Government Note
10-31-97......................... 5.625 6,000 6,001,875
------------
79,325,026
------------
TOTAL BONDS (Cost $96,872,492) (96.17%) 97,708,989
------- ------------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (2.55%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets -
Dated 10-31-95, Due 11-01-95
(secured by U.S. Treasury Bond,
8.750% Due 05-15-17, and by
U.S. Treasury Note, 5.750%
Due 09-30-97) - Note A 5.890% 2,587 $ 2,587,000
------------
TOTAL SHORT-TERM INVESTMENTS (2.55%) 2,587,000
------ ------------
TOTAL INVESTMENTS (98.72%) $100,295,989
====== ============
NOTES TO SCHEDULE OF INVESTMENTS
* Securities, other than short-term investments, newly added to the portfolio
during the period ended October 31, 1995.
** Represents rate in effect on October 31, 1995.
*** An indexed security's value is linked to changes in foreign currencies,
interest rates or other reference instruments. Indexed securities amounted
to $4,952,839 or 4.87% of the Fund's net assets as of October 31, 1995.
# Par value of non US$ denominated foreign bonds is expressed in local
currency for each country listed.
(R) Security is exempt from registration under rule 144A of the Securities Act
of 1933. Such securities may be resold, normally to qualified institutional
buyers, in transactions exempt from registration. See Note A of the Notes
to Financial Statements for valuation policy. Rule 144A securities amounted
to $7,980,000 or 7.85% as of October 31, 1995.
(r) Direct placement securities are restricted to resale. They have been valued
using procedures approved by the Trustees after considerations of
restrictions as to resale, financial condition and prospects of the issuer,
general market conditions and pertinent information in accordance with the
Fund's By-Laws and the Investment Company Act of 1940, as amended. The Fund
has limited rights to registration under the Securities Act of 1933 with
respect to these restricted securities.
+ Non-income producing.
</TABLE>
Additional information on each restricted security is as follows:
<TABLE>
<CAPTION>
VALUE AS A
PERCENTAGE VALUE AT
ACQUISITION ACQUISITION OF FUND'S OCTOBER 31,
DATE COST NET ASSETS 1995
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
USAfrica Airways, Inc.,
Unit (Sr Note
05-31-99 and
Warrant) 10-13-94 $1,000,000 0.34% $350,000
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
PORTFOLIO CONCENTRATION (Unaudited)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
THE FUND PRIMARILY INVESTS IN BONDS ISSUED BY COMPANIES AND GOVERNMENTS OF OTHER
COUNTRIES. THE PERFORMANCE OF THE FUND IS CLOSELY TIED TO THE ECONOMIC CONDITION
WITHIN THE COUNTRIES IN WHICH IT INVESTS. THE CONCENTRATION OF INVESTMENTS BY
CURRENCY DENOMINATION FOR INDIVIDUAL SECURITIES HELD BY THE FUND IS SHOWN IN THE
SCHEDULE OF INVESTMENTS. IN ADDITION, CONCENTRATION OF INVESTMENTS CAN BE
AGGREGATED BY VARIOUS INVESTMENT CATEGORIES. THE TABLE BELOW SHOWS THE
PERCENTAGES OF THE FUND'S INVESTMENTS AT OCTOBER 31, 1995 ASSIGNED TO THE
VARIOUS INVESTMENT CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE AS A
INVESTMENT CATEGORIES % OF NET ASSETS
<S> <C>
Automobile/Trucks ............................................ 1.52%
Banks ........................................................ 18.92
Building Products ............................................ 2.01
Construction ................................................. 1.87
Electronics .................................................. 0.92
Finance ...................................................... 0.98
Governmental -- Foreign ...................................... 23.29
Governmental -- U.S. Agencies ................................ 27.51
Oil & Gas .................................................... 2.00
Steel ........................................................ 6.33
Transportation ............................................... 8.91
Utility ...................................................... 1.91
Short-term investments ....................................... 2.55
-----
TOTAL INVESTMENTS 98.72%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust II (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of five series portfolios: John Hancock Short-Term Strategic Income Fund (the
"Fund"), John Hancock Global Fund, John Hancock Global Income Fund, John Hancock
International Fund, and John Hancock Special Opportunities Fund. Prior to
January 1, 1995, John Hancock Global Fund was known as John Hancock Freedom
Global Fund, John Hancock Global Income Fund was known as John Hancock Freedom
Global Income Fund and John Hancock International Fund was known as John Hancock
Freedom International Fund.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends, and liquidation, except that
certain expenses subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission. Shareholders of a class which bears
distribution/service expenses under terms of a distribution plan, have exclusive
voting rights to such distribution plan. Significant accounting policies of the
Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below. The Fund may invest in indexed securities whose value is linked either
directly or inversely to changes in foreign currencies, interest rates,
commodities, indices or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, net currency exchange gains and
losses from sales of foreign debt securities must be treated as ordinary income
even though such items are gains and losses for accounting purposes. The Fund
has $29,216,361 capital loss carryforwards available, to the extent provided by
regulations, to offset future net realized capital gains. If such carryforwards
are used by the Fund, no capital gains distribution will be made. The
carryforwards expire as follows: October 31, 1999 -- $1,001,257, October 31,
2000 -- $17,243,199, October 31, 2001 -- $3,127,414, October 31, 2002 --
$2,740,548 and October 31, 2003 -- $5,103,943. Expired capital loss
carryforwards are reclassified to capital paid-in, in the year of expiration.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Interest income on investment securities
is recorded on the accrual basis. Foreign income may be subject to foreign
withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
Such distributions are determined in conformity with income tax regulations,
which may differ from generally accepted accounting principals. Dividends paid
by the Fund with respect to each class of shares will be calculated in the same
manner, at the same time and will be in the same amount, except for the effect
of expenses that may be applied differently to each class as explained
previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees, if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss from
investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains or losses arise from changes in the
value of assets and liabilities other than investments in securities at fiscal
year end, resulting from changes in the exchange rate.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that offset by the currency amount of the underlying
transaction.
There were no open forward foreign currency exchange contracts at October
31, 1995.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin", equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract is valued at the official settlement price on the
board of trade or U.S. commodities exchange. Subsequent payments, known as
"variation margin", to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuation imposed by an exchange.
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts. At
October 31, 1995, there were no open position in financial futures contracts.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call over-the-counter
options will be valued at the average of the "asked" prices obtained from two
independent brokers. Upon the writing of a call or put option, an amount equal
to the premium received by the Fund will be included in the Statement of Assets
and Liabilities as an asset and corresponding liability. The amount of the
liability will be subsequently marked-to-market to reflect the current market
value of the written option.
The Fund may use option contracts to manage its exposure to the stock
market. Writing puts and buying calls will tend to increase the Fund's exposure
to the underlying instrument and buying puts and writing calls will tend to
decrease the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to
the premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contract's
terms, or if the Fund is unable to offset a contract with a counterparty on a
timely basis ("liquidity risk"). Exchange-traded options have minimal credit
risk as the exchanges act as counterparties to each transaction, and only
present liquidity risk in highly unusual market conditions. To minimize credit
and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended October 31,
1995.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
purchased from either the date of issue or the date of purchase over the life of
the security, as required by the Internal Revenue Code.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged to the Fund's operations
ratably over a five-year period that began with the commencement of operations
of the Fund.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH
AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.65% of the first $500,000,000 of the Fund's
average daily net asset value and (b) 0.60% of the Fund's average daily net
asset value in excess of $500,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
2.5% of the first $30,000,000 of the Fund's average daily net asset value, 2.0%
of the next $70,000,000, and 1.5% of the remaining average daily net asset
value.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-Distributors for
shares of the Fund. Prior to January 1, 1995 JH Funds was known as John Hancock
Broker Distribution Services, Inc. For the period ended October 31, 1995, net
sales charges received with regard to sales of Class A shares amounted to
$128,857. Out of this amount, $15,493 was retained and used for printing
prospectuses, advertising, sales literature and other purposes, $28,408 was paid
as sales commissions to unrelated broker-dealers and $84,956 was paid as sales
commissions to sales personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro &
Co., ("Sutro"), all of which are broker dealers. The Adviser's indirect parent,
John Hancock Mutual Life Insurance Company, is the indirect sole shareholder of
Distributors and John Hancock Freedom Securities Corporation and its
subsidiaries which include FDC, Tucker Anthony and Sutro.
Class B shares which are redeemed within four years of purchase (three
years for purchases prior to January 1, 1994) will be subject to a contingent
deferred sales charge ("CDSC") at declining rates beginning at 3.0% of the
lesser of the current market value at the time of redemption or the original
purchase cost of the shares being redeemed. Proceeds from CDSC are paid to JH
Funds and are used in whole or in part to defray its expenses related to
providing distribution related services to the Fund in connection with the sale
of Class B shares. For the period ended October 31, 1995, contingent deferred
sales charges paid to JH Funds amounted to $85,980.
In addition, to reimburse the Co-Distributors for the services they provide
as distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to the
Co-Distributors for distribution and service expenses, at an annual rate not
exceed 0.30% of Class A average daily net assets and 0.95% (1.00% prior to
August 1, 1995) of Class B average daily net assets to reimburse the
Co-Distributors for their distribution/service costs. Effective November 1,
1995, the rate was increased back to 1.00%. Up to a maximum of 0.25% of such
payments may be service fees as defined by the amended Rules of Fair Practice of
the National Association of Securities Dealers. Under the amended Rules of Fair
Practice, curtailment of a portion of the Fund's 12b-1 payments could occur
under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc.
Prior to January 1, 1995, the Fund paid Investor Services a monthly
transfer agent fee equivalent, on an annual basis, to 0.10% and 0.13% of the
average daily net asset value of Class A and Class B shares of the Fund,
respectively, plus out-of-pocket expenses incurred by Fund Services on behalf of
the Fund. For the period January 1, 1995 through September 30, 1995 Class A and
Class B shares paid transfer agent fees based on the number of shareholder
accounts and certain out-of-pocket expenses. For the eleven months ended
September 30, 1995 the transfer agent expense, calculated as a class specific
expense was $19,452 for Class A and $154,232 for Class B, respectively.
Effective October 1, 1995 transfer agent expense is being treated as a fund
expense based on the number of shareholder accounts in the Fund and certain
out-of-pocket expenses.
Edward J. Boudreau, Jr., is a director and officer of the Adviser and its
affiliates, as well as a Trustee of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund. Effective with the fees paid for 1995, the
unaffiliated Trustees may elect to defer for tax purposes their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund will make investments into other John Hancock funds, as applicable, to
cover its liability for the deferred compensation. Investments to cover the
Fund's deferred compensation liability will be recorded on the
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Short-Term Strategic Income Fund
Fund's books as an other asset. The deferred compensation liability will be
marked to market on a periodic basis and income earned by the investment will be
recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other then obligations of the
U.S. government and its agencies and short-term securities, during the period
ended October 31, 1995, aggregated $122,630,736 and $102,644,309, respectively.
Purchases and proceeds from sales of obligations of the U.S. government and its
agencies aggregated $28,056,506 and $53,849,653, respectively, during the period
ended October 31, 1995.
The cost of investments owned at October 31, 1995 (including the joint
repurchase agreement) for Federal income tax purposes was $99,459,492. Gross
unrealized appreciation and depreciation of investments aggregated $2,329,264
and $1,492,767, respectively, resulting in net unrealized appreciation of
$836,497.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1995, the Fund has reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of
$1,264,473, a decrease in accumulated net investment loss of $1,260,169 and a
decrease in capital paid-in of $2,524,642. This represents the cumulative amount
necessary to report these balances on a tax basis, excluding certain temporary
differences, as of October 31, 1995. Additional adjustments may be needed in
subsequent reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to the treatment of
net operating losses in the computation of distributable income and capital
gains under federal tax rules versus generally accepted accounting principle.
20
<PAGE>
John Hancock Funds - Short-Term Strategic Income Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Short-Term Strategic Income Fund and the
Trustees of Freedom Investment Trust II
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of John Hancock Short-Term Strategic
Income Fund (the "Fund") (a portfolio of Freedom Investment Trust II) at October
31, 1995, and the results of its operations, the changes in its net assets and
the financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 1995 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 18, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund during the fiscal year ended October
31, 1995.
None of the distributions qualify for the dividends received deduction
available to corporations.
Shareholders will be mailed a 1995 U.S. Treasury Department Form 1099-DIV
in January of 1996. This will reflect the total of all distributions which are
taxable for calendar year 1995.
21
<PAGE>
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in the Registration Statement:
Freedom Investment Trust II
John Hancock Global Fund
John Hancock Global Income Fund
John Hancock International Fund
John Hancock Special Opportunities Fund
John Hancock Short-Term Strategic Income 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 10 years ended
October 31, 1995. Schedule of Investments as of October 31, 1995.
Notes to Financial Statements. Schedule of Investment as of October
31, 1995
(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.
Item 26. Number of Holders of Securities
As of January 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 14,733 3,537
John Hancock Global Income Fund 2,785 4,353
John Hancock Short-Term Strategic Income Fund 1,609 4,420
John Hancock International Fund 932 1,116
John Hancock Special Opportunities Fund 16,855 19,907
c-1
<PAGE>
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.
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.
C-2
<PAGE>
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 a 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 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 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
C-3
<PAGE>
also serves as principal underwriter or distributor of shares for John
Hancock Cash Reserve, Inc., John Hancock Bond Fund, John Hancock Current
Interest, John Hancock Series, Inc., John Hancock Tax-Free Bond Fund,
John Hancock California Tax-Free Income Fund, John Hancock Capital
Series, John Hancock Limited-Term Government Fund, John Hancock
Tax-Exempt Income Fund, John Hancock Sovereign Investors Fund, Inc., John
Hancock Special Equities Fund, John Hancock Sovereign Bond Fund, John
Hancock Tax-Exempt Series, John Hancock Strategic Series, John Hancock
Technology Series, Inc., John Hancock World Fund, John Hancock Investment
Trust, John Hancock Institutional Series Trust, Freedom Investment Trust,
Freedom Investment Trust II and Freedom Investment Trust III.
(b) The following table lists, for each director and officer of John Hancock
Funds, the information indicated.
<TABLE>
<CAPTION>
Name and Principal Business Address Positions and Offices with Positions and Offices with
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
101 Huntington Avenue Chief Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
C-4
<PAGE>
Thomas H. Drohan Senior Vice President Senior Vice President and Secretary
101 Huntington Avenue
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
James B. Little Senior Vice President Senior Vice President and Chief
101 Huntington Avenue 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
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President and Secretary Vice President, Assistant Secretary
101 Huntington Avenue and Compliance Officer
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
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-5
<PAGE>
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.
<TABLE>
<CAPTION>
Name and Principal Business Positions and Offices Positions and Offices
Address with Underwriter with 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>
C-6
<PAGE>
(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 as
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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the registrant certifies that it meets all the
requirements for effectiveness of this registration statement pursuant to Rule
485(b) under the Securities Act of 1933 and 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
28th day of February, 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ------- ------
<S> <C> <C>
* Chairman
- -------------------------
Edward J. Boudreau, Jr. (Principal Executive Officer)
/s/ James B. Little
- -------------------------
James B. Little Senior Vice President and Chief February 28, 1996
Financial Officer (Principal Financial
and Accounting Officer)
* Trustee
- -------------------------
Douglas M. Costle
* Trustee
- -------------------------
Leland O. Erdahl
* Trustee
- -------------------------
Richard A. Farrell
* Trustee
- -------------------------
William F. Glavin
C-8
<PAGE>
Signature Title Date
---------- ------ ------
* Trustee
- ------------------------
John A. Moore
* Trustee
- -------------------------
Patti McGill Peterson
* Trustee
- --------------------------
John W. Pratt
*By: /s/ Thomas H. Drohan February 28, 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, filed as an exhibit
to Post-Effective Amendment No. 23.
</TABLE>
C-9
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page Number
99.B1 Master Trust Agreement (Agreement and Declaration of
Trust) amended and restated dated September 10, 1991;
Amendment No. 18. Amendment No. 1 to the Master Trust
Agreement dated June 25, 1992 incorporated by reference
to Post-Effective Amendment No. 19. Amendment to the
Master Trust Agreement dated August 3, 1993 incorporated
by reference to Post-Effective Amendment No. 24;
Amendment to the Master Trust Agreement dated October
15, 1993 incorporated by reference to Post-Effective
Amendment No. 24 Amendment to the Master Trust Agreement
dated December 13, 1993 incorporated by reference to
Post-Effective Amendment No. 25.*
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.*
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.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.B10.8 Legal opinion and consent of Goodwin, Procter & Hoar
dated January 3, 1994.*
99.B10.9 24e Opinion.+
99.B11 Consent of Price Waterhouse.+
99.B11.1 Consent of Morningstar Mutual Fund Values.*
99.B12 Financial Statement of the Global Fund for the year
ended October 31, 1995 filed herewith in Part A and Part
B.+
99.B12.1 Financial Statement of the Global Income Fund for the year ended
October 31, 1995 filed herewith in Part A and Part B.+
99.B12.2 Financial Statement of the Short-Term Strategic Income Fund for
the year ended October 31, 1995 filed herewith in Part A and Part
B.+
99.B12.3 Financial Statement of the International Fund for the year ended
October 31, 1995 filed herewith in Part A and Part B.+
99.B.12.4 Financial Statement of the Opportunities Fund for the year ended
October 31, 1995 filed herewith in Part A and Part B.+
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.B17 Power of Attorney dated June 25, 1992; Power of Attorney dated
December 14, 1992; Power of Attorney dated August 17, 1993.*
27.1A John Hancock Global Fund
27.1B John Hancock Global Fund
27.1C John Hancock Global Fund
27.2A John Hancock Global Income Fund
27.2B John Hancock Global Income Fund
27.3A John Hancock Special Opportunities Fund
27.3B John Hancock Special Opportunities Fund
27.3C John Hancock Special Opportunities Fund
27.4A John Hancock International Fund
27.4B John Hancock International Fund
27.5A John Hancock Short-Term Strategic Income Fund
27.5B John Hancock Short-Term Strategic Income Fund
1*Previously Filed with Registration Statement and/or post-effective amendment
and incorporated by reference herein.
+Filed herewith.
- --------
1
FREEDOM INVESTMENT TRUST II
Abolition of Class C Shares
of Beneficial Interest of
John Hancock Global Fund
John Hancock Special Opportunities Fund
(each a "Fund" and collectively the "Funds"),
The undersigned, being a majority of the Trustees of Freedom Investment
Trust II, a Massachusetts business Trust (the "Trust"), acting pursuant to the
Amended and Restated Declaration of Trust dated September 10, 1991 of the Trust,
as amended from time to time (the "Declaration of Trust"), do hereby abolish the
class of shares of beneficial interest of the Funds previously established and
designated as "Class C Shares" and in connection therewith do hereby extinguish
any and all rights and preferences of such Class C Shares as set forth in the
Declaration of Trust and the Trust's Registration Statement on Form N-1A. The
abolition of the Class C shares of the Funds is effective as of May 1, 1995.
The Declaration of Trust is hereby amended to the extent necessary to
reflect the abolition of Class C Shares.
Capitalized terms not otherwise defined herein shall have the meaning set
forth in the Declaration of Trust.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument the 1st
day of May, 1995.
/s/ Edward J.Boudreau, Jr. ________________
Edward J. Boudreau, Jr. Hugh A. Dunlap, Jr.
as Trustee, not individually as Trustee, not individually
34 Swan Road 101 Huntington Avenue
Winchester, MA 01890 Boston, MA 02199
/s/William A. Barron, III /s/Patrick Grant
William A. Barron III Patrick Grant
as Trustee, not individually as Trustee, not individually
RRI, 325 Sea Meadows Lane 5 Polo Field Lane
Yarmouth, ME 04096 Dedham, MA 02026
/s/ Douglas M. Costle /s/ Ralph Lowell, Jr.
Douglas M. Costle Ralph Lowell, Jr.
as Trustee, not individually as Trustee, not individually
RR2 Box 480 45 Mill Street
Woodstock, VT 05091 Edgartown, MA 02539
/s/ Leland O. Erdahl /s/ Dr. John A. Moore
Leland O. Erdahl Dr. John A. Moore
as Trustee, not individually as Trustee, not individually
161 Camino Barranca Institute of Evaluating Health
Placitas, NM 87043 Risks, Suite 608
1101 Vermont Ave., N.W.
Washington, DC 20005
/s/ Richard A. Farrell /s/ Patti McGill Peterson
Richard A. Farrell Patti McGill Peterson
as Trustee, not individually as Trustee, not individually
Farrell, Healer & Company, Inc. St. Lawrence University
160 Federal St., 23rd Floor 110 Vilas Hall
Boston, MA 02110 Canton, NY 136117
/s/ William F. Glavin /s/ John W. Pratt
William F. Glavin John W. Pratt
as Trustee, not individually as Trustee, not individually
Babson College 2 Gray Gardens East
Horn Library Cambridge, MA 02138
Babson Park, MA 02157
<PAGE>
The Declaration, a copy of which, together with all amendments thereto, is
on file in the office of the Secretary of State of The Commonwealth of
Massachusetts, provides that no Trustee, officer, employee or agent of the Trust
or any Series thereof shall be subject to any personal liability whatsoever to
any Person, other than to the Trust or its shareholders, in connection with
Trust Property or the affairs of the Trust, save only that arising from bad
faith, willful misfeasance, gross negligence or reckless disregard of his duties
with respect to such Person; and all such Persons shall look solely to the Trust
Property, or to the Trust Property of one or more specific Series of the trust
if the claim arises from the conduct of such Trustee, officer, employee or agent
with respect to only such Series, for satisfaction of claims of any nature
arising in connection with the affairs of the Trust.
s:\edgar\fit2\classc.doc
February 23, 1996
Freedom Investment Trust II
101 Huntington Avenue
Boston, MA 02199
RE: Freedom Investment Trust II (the "Fund")
(File Nos. 33-4559; 811-4630) (00000791271)
Ladies and Gentlemen:
In connection with the filing of Post-Effective Amendment No.30
pursuant to Rule 24e-2 under the Investment Company Act of 1940, as
amended, registering by Post-Effective Amendment No.29 under the
Securities Act of 1933, as amended, 21,870 shares of the Fund sold in
reliance upon Rule 24e-2 during the fiscal year ending October 31,
1995, it is the opinion of the undersigned that such shares will be
legally issued, fully paid and nonassessable.
In connection with this opinion it should be noted that the Fund is an entity
of the type generally known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of a Massachusetts business trust may be held
personally liable for the obligations of the Fund. However, the Fund's
Declaration of Trust disclaims shareholder liability for obligations of the
Fund and indemnifies any shareholder of the Fund, with this indemnification
to be paid solely out of the assets of the Fund. Therefore, the
shareholder's risk is limited to circumstances in which the assets of the
Fund are insufficient to meet the obligations asserted against Fund assets.
Sincerely,
/s/ Avery P. Maher
------------------------------------
Avery P. Maher
Assistant Secretary
Member of Massachusetts Bar
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statements of Additional Information
constituting parts of this Post Effective Amendment No. 29 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 Global Income Fund, John Hancock International Fund
and John Hancock Short-Term Strategic Income Fund, and our report dated December
14, 1995, relating to the financial statements and financial highlights
appearing in the October 31, 1995 Annual Report to Shareholders of John Hancock
Special Opportunities Fund which appears in such Statement of Additional
Information and to the incorporation by reference of our report into the
Prospectuses which constitute parts of this Registration Statement. We also
consent to the references to us under the headings "Independent Auditors" in
such Statement of Additional Information and to the references to us under the
headings "The Fund's Financial Highlights" in such Prospectuses.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
February 21, 1996
Initial Investment: $10,000.00 John Hancock Freedom Global Fund -
SEC TOTAL RETURN
A SHARES AFTER SALES CHARGE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Average Annual Total Return Investment Value at End of Period
<S> <C> <C> <C> <C>
10 Year Return: N/A 10 Year Value: N/A
3.83 Year Return: 7.09% 5 Year Value: $12,995.70
1 Year Return: -5.38% 1 Year Value: $9,461.60
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Constant Sales Charge: 5.00%
<TABLE>
<CAPTION>
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains
Ended NAV Price Charge Date Amount Price Information
- ------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C>
01/3/92 $11.31 $11.91 5.00%
01/92 $11.43 $12.03 5.00%
02/92 $11.72 $12.34 5.00%
03/92 $11.30 $11.89 5.00%
04/92 $11.27 $11.86 5.00%
05/92 $11.73 $12.35 5.00%
06/92 $11.25 $11.84 5.00%
07/92 $11.11 $11.69 5.00%
08/92 $10.97 $11.55 5.00%
09/92 $10.46 $11.01 5.00%
10/92 $10.55 $11.11 5.00%
11/92 $11.03 $11.61 5.00%
12/92 $11.25 $11.84 5.00%
01/93 $11.24 $11.83 5.00%
02/93 $11.09 $11.67 5.00%
03/93 $11.54 $12.15 5.00%
04/93 $11.55 $12.16 5.00%
05/93 $12.25 $12.89 5.00%
06/93 $12.02 $12.65 5.00%
07/93 $12.29 $12.94 5.00%
08/93 $13.07 $13.76 5.00%
09/93 $13.30 $14.00 5.00%
10/93 $14.30 $15.05 5.00%
11/93 $13.75 $14.47 5.00%
12/93 $13.80 $14.53 5.00% 12/23/93 1.3069 $13.45 $1.3069 Cap Gain
01/94 $13.93 $14.66 5.00%
02/94 $13.75 $14.47 5.00%
03/94 $12.96 $13.64 5.00%
04/94 $13.20 $13.89 5.00%
05/94 $13.36 $14.06 5.00%
06/94 $12.89 $13.57 5.00%
07/94 $13.25 $13.95 5.00%
08/94 $13.95 $14.68 5.00%
09/94 $13.76 $14.48 5.00%
10/94 $14.16 $14.91 5.00%
11/94 $13.39 $14.09 5.00%
12/94 $11.79 $12.41 5.00% 12/23/94 1.3307 $11.73 $1.3307 Cap Gain
1/95 $11.28 $11.87 5.00%
2/95 $11.51 $12.12 5.00%
3/95 $11.83 $12.45 5.00%
4/95 $12.15 $12.79 5.00%
5/95 $12.29 $12.94 5.00%
6/95 $12.32 $12.97 5.00%
7/95 $13.04 $13.73 5.00%
8/95 $12.72 $13.39 5.00%
9/95 $12.85 $13.53 5.00%
10/95 $12.67 $13.34 5.00%
</TABLE>
<TABLE>
<CAPTION>
5-Year 1-Year
- ---------- ---------- ---------- ---------- ---------- ----------
Dividend # of Shares Shares Dividend # of Shares Shares
Received Reinv. Outstanding Received Reinv. Outstanding $ AMOUNT
- ----------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
83.963 $10,000.00
$0.0000 0.000 83.963 $9,596.97
$0.0000 0.000 83.963 $9,840.46
$0.0000 0.000 83.963 $9,487.82
$0.0000 0.000 83.963 $9,462.63
$0.0000 0.000 83.963 $9,848.86
$0.0000 0.000 83.963 $9,445.84
$0.0000 0.000 83.963 $9,328.29
$0.0000 0.000 83.963 $9,210.74
$0.0000 0.000 83.963 $8,782.53
$0.0000 0.000 83.963 $8,858.10
$0.0000 0.000 83.963 $9,261.12
$0.0000 0.000 83.963 $9,445.84
$0.0000 0.000 83.963 $9,437.44
$0.0000 0.000 83.963 $9,311.50
$0.0000 0.000 83.963 $9,689.33
$0.0000 0.000 83.963 $9,697.73
$0.0000 0.000 83.963 $10,285.47
$0.0000 0.000 83.963 $10,092.35
$0.0000 0.000 83.963 $10,319.05
$0.0000 0.000 83.963 $10,973.96
$0.0000 0.000 83.963 $11,167.08
$0.0000 0.000 83.963 $12,006.71
$0.0000 0.000 83.963 $11,544.91
$109.7312 8.158 92.121 $12,712.70
$0.0000 0.000 92.121 $12,832.46
$0.0000 0.000 92.121 $12,666.64
$0.0000 0.000 92.121 $11,938.88
$0.0000 0.000 92.121 $12,159.97
$0.0000 0.000 92.121 $12,307.37
$0.0000 0.000 92.121 $11,874.40
$0.0000 0.000 92.121 $12,206.03
$0.0000 0.000 92.121 $12,850.88
$0.0000 0.000 92.121 $12,675.85
$0.0000 0.000 92.121 67.069 $13,044.33
$0.0000 0.000 92.121 $0.0000 0.000 67.069 $12,335.00
$122.5836 10.450 102.571 $89.2474 7.608 74.677 $12,093.12
$0.0000 0.000 102.571 $0.0000 0.000 74.677 $11,570.01
$0.0000 0.000 102.571 $0.0000 0.000 74.677 $11,805.92
$0.0000 0.000 102.571 $0.0000 0.000 74.677 $12,134.15
$0.0000 0.000 102.571 $0.0000 0.000 74.677 $12,462.38
$0.0000 0.000 102.571 $0.0000 0.000 74.677 $12,605.98
$0.0000 0.000 102.571 $0.0000 0.000 74.677 $12,636.75
$0.0000 0.000 102.571 $0.0000 0.000 74.677 $13,375.26
$0.0000 0.000 102.571 $0.0000 0.000 74.677 $13,047.03
$0.0000 0.000 102.571 $0.0000 0.000 74.677 $13,180.37
$0.0000 0.000 102.571 $0.0000 0.000 74.677 $12,995.75
</TABLE>
<PAGE>
Initial Investment: $1,000.00 John Hancock Freedom Global Fund -
SEC TOTAL RETURN
"B SHARES"
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Average Annual Total Return Investment Value at End of Period
CDSC
Excluding With Excluding % CDSC Ending
CDSC CDSC CDSC CDSC Amount Value
<S> <C> <C> <C> <C> <C> <C>
9.16 Year Return: 9.10% 9.10% $2,220.36 0.00% $0.00 $2,220.36
5 Year Return: 9.58% 9.30% $1,579.88 2.00% $20.00 $1,559.88
1 Year Return: -1.01% -5.96% $989.88 5.00% $49.49 $940.39
- ---------------------------------------------------------------------------------------------
</TABLE>
Constant Sales Charge: N/A
<TABLE>
<CAPTION>
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains
Ended NAV Price Charge Date Amount Price Information
----- --- ----- ------ ---- ------ ----- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
9/2/86 $9.60 $9.60 N/A
9/ 86 $10.00 $10.00 N/A
10/ 86 $10.00 $10.00 N/A
11/ 86 $10.00 $10.00 N/A
12/ 86 $10.00 $10.00 N/A
1/ 87 $10.00 $10.00 N/A
2/ 87 $10.00 $10.00 N/A
3/ 87 $10.00 $10.00 N/A
4/ 87 $10.00 $10.00 N/A
5/ 87 $10.00 $10.00 N/A
6/ 87 $12.77 $12.77 N/A 06/06/87 $0.4510 $12.59 $0.3340 Cap Gain
7/ 87 $13.99 $13.99 N/A
8/ 87 $14.69 $14.69 N/A
9/ 87 $15.23 $15.23 N/A
10/ 87 $10.45 $10.45 N/A
11/ 87 $9.55 $9.55 N/A 11/05/87 $0.4510 $9.92 $0.4510 Cap Gain
12/ 87 $10.16 $10.16 N/A
1/ 88 $9.88 $9.88 N/A
2/ 88 $10.28 $10.28 N/A
3/ 88 $10.65 $10.65 N/A
4/ 88 $10.87 $10.87 N/A
5/ 88 $10.67 $10.67 N/A
6/ 88 $10.73 $10.73 N/A
7/ 88 $10.68 $10.68 N/A
8/ 88 $10.07 $10.07 N/A
9/ 88 $10.25 $10.25 N/A
10/ 88 $10.67 $10.67 N/A
11/ 88 $10.66 $10.66 N/A 11/11/88 $0.2450 $10.59 $0.2330 Cap Gain
12/ 88 $10.84 $10.84 N/A
1/ 89 $11.10 $11.10 N/A
2/ 89 $11.42 $11.42 N/A
3/ 89 $11.71 $11.71 N/A
4/ 89 $12.19 $12.19 N/A
5/ 89 $11.98 $11.98 N/A
6/ 89 $11.79 $11.79 N/A
7/ 89 $12.84 $12.84 N/A
8/ 89 $13.01 $13.01 N/A
9/ 89 $13.81 $13.81 N/A
10/ 89 $13.57 $13.57 N/A
11/ 89 $11.58 $11.58 N/A 11/08/89 $2.4980 $11.16 $2.4980 Cap Gain
12/ 89 $11.78 $11.78 N/A
1/ 90 $11.32 $11.32 N/A
2/ 90 $11.02 $11.02 N/A
3/ 90 $10.90 $10.90 N/A
4/ 90 $10.55 $10.55 N/A
5/ 90 $11.67 $11.67 N/A
6/ 90 $11.72 $11.72 N/A
7/ 90 $12.15 $12.15 N/A
8/ 90 $10.59 $10.59 N/A
9/ 90 $9.08 $9.08 N/A
10/ 90 $9.95 $9.95 N/A
11/ 90 $9.21 $9.21 N/A 11/07/90 $0.3130 $9.50 $0.3130 Cap Gain
12/ 90 $9.12 $9.12 N/A 12/04/90 $0.0450 $9.14 $0.0450 Cap Gain
1/ 91 $9.44 $9.44 N/A
2/ 91 $10.21 $10.21 N/A
3/ 91 $10.10 $10.10 N/A
4/ 91 $10.35 $10.35 N/A
5/ 91 $10.87 $10.87 N/A
6/ 91 $10.25 $10.25 N/A
7/ 91 $10.74 $10.74 N/A
8/ 91 $10.59 $10.59 N/A
9/ 91 $10.42 $10.42 N/A
10/ 91 $10.92 $10.92 N/A
11/ 91 $10.59 $10.59 N/A
12/ 91 $11.23 $11.23 N/A
1/ 92 $11.41 $11.41 N/A
2/ 92 $11.69 $11.69 N/A
3/ 92 $11.28 $11.28 N/A
4/ 92 $11.25 $11.25 N/A
5/ 92 $11.70 $11.70 N/A
6/ 92 $11.22 $11.22 N/A
7/ 92 $11.08 $11.08 N/A
8/ 92 $10.94 $10.94 N/A
9/ 92 $10.42 $10.42 N/A
10/ 92 $10.50 $10.50 N/A
11/ 92 $10.98 $10.98 N/A
12/ 92 $11.20 $11.20 N/A
1/ 93 $11.18 $11.18 N/A
2/ 93 $11.02 $11.02 N/A
3/ 93 $11.47 $11.47 N/A
4/ 93 $11.47 $11.47 N/A
5/ 93 $12.16 $12.16 N/A
6/ 93 $11.93 $11.93 N/A
7/ 93 $12.19 $12.19 N/A
8/ 93 $12.97 $12.97 N/A
9/ 93 $13.18 $13.18 N/A
10/ 93 $14.17 $14.17 N/A
11/ 93 $13.62 $13.62 N/A
12/ 93 $13.65 $13.65 N/A 12/23/93 $1.3069 $13.30 $1.3069 CAP GAIN
1/ 94 $13.77 $13.77 N/A
2/ 94 $13.58 $13.58 N/A
3/ 94 $12.80 $12.80 N/A
4/ 94 $13.04 $13.04 N/A
5/ 94 $13.18 $13.18 N/A
6/ 94 $12.72 $12.72 N/A
7/ 94 $13.06 $13.06 N/A
8/ 94 $13.74 $13.74 N/A
9/ 94 $13.55 $13.55 N/A
10/ 94 $13.93 $13.93 N/A
11/ 94 $13.17 $13.17 N/A
12/ 94 $11.57 $11.57 N/A 12/23/94 $1.3307 $11.51 $1.3307 Cap Gain
1/ 95 $11.06 $11.06 N/A
2/ 95 $11.28 $11.28 N/A
3/ 95 $11.59 $11.59 N/A
4/ 95 $11.90 $11.90 N/A
5/ 95 $12.03 $12.03 N/A
6/ 95 $12.05 $12.05 N/A
7/ 95 $12.74 $12.74 N/A
8/ 95 $12.42 $12.42 N/A
9/ 95 $12.55 $12.55 N/A
10/ 95 $12.36 $12.36 N/A
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- -------------------------------------------------------------------------
Cumulative cdsc
122.04% 122.04%
57.99% 55.99%
Prepared by: Joyce Melamed
Reviewed by:
-1.01% -5.96%
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
10-Year 5-Year 1-Year
------- ------ ------
Dividend # of Shares Shares Dividend # of Shares Shares Dividend # of Shares Shares CDSC NAV
Received Reinv. Outstanding Received Reinv. Outstanding Received Reinv. Outstanding Amount $ Amount
- -------- ------ ----------- -------- ------ ----------- -------- ------ ----------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
104.167 $10,000.00 $10,000.00
$0.0000 0.000 104.167 $9,895.87 $10,416.67
$0.0000 0.000 104.167 $9,895.87 $10,416.67
$0.0000 0.000 104.167 $9,895.87 $10,416.67
$0.0000 0.000 104.167 $9,895.87 $10,416.67
$0.0000 0.000 104.167 $9,895.87 $10,416.67
$0.0000 0.000 104.167 $9,895.87 $10,416.67
$0.0000 0.000 104.167 $9,895.87 $10,416.67
$0.0000 0.000 104.167 $9,895.87 $10,416.67
$0.0000 0.000 104.167 $9,895.87 $10,416.67
$46.9793 3.731 107.898 $13,089.65 $13,778.54
$0.0000 0.000 107.898 $14,340.18 $15,094.90
$0.0000 0.000 107.898 $15,057.71 $15,850.19
$0.0000 0.000 107.898 $15,611.22 $16,432.84
$0.0000 0.000 107.898 $10,711.57 $11,275.31
$48.6620 4.905 112.803 $10,234.05 $10,772.66
$0.0000 0.000 112.803 $10,887.75 $11,460.75
$0.0000 0.000 112.803 $10,587.69 $11,144.91
$0.0000 0.000 112.803 $11,016.34 $11,596.12
$0.0000 0.000 112.803 $11,412.84 $12,013.49
$0.0000 0.000 112.803 $11,648.60 $12,261.66
$0.0000 0.000 112.803 $11,434.28 $12,036.05
$0.0000 0.000 112.803 $11,498.57 $12,103.73
$0.0000 0.000 112.803 $11,444.99 $12,047.33
$0.0000 0.000 112.803 $10,791.30 $11,359.23
$0.0000 0.000 112.803 $10,984.19 $11,562.28
$0.0000 0.000 112.803 $11,434.28 $12,036.05
$27.6367 2.610 115.413 $11,687.87 $12,303.00
$0.0000 0.000 115.413 $11,885.23 $12,510.74
$0.0000 0.000 115.413 $12,170.30 $12,810.81
$0.0000 0.000 115.413 $12,521.16 $13,180.13
$0.0000 0.000 115.413 $12,839.12 $13,514.83
$0.0000 0.000 115.413 $13,365.40 $14,068.81
$0.0000 0.000 115.413 $13,135.15 $13,826.45
$0.0000 0.000 115.413 $12,926.83 $13,607.16
$0.0000 0.000 115.413 $14,078.08 $14,819.00
$0.0000 0.000 115.413 $14,264.47 $15,015.20
$0.0000 0.000 115.413 $15,141.61 $15,938.51
$0.0000 0.000 115.413 $14,878.47 $15,661.51
$288.3017 25.833 141.246 $15,538.47 $16,356.26
$0.0000 0.000 141.246 $15,806.84 $16,638.75
$0.0000 0.000 141.246 $15,189.59 $15,989.02
$0.0000 0.000 141.246 $14,787.04 $15,565.28
$0.0000 0.000 141.246 $14,626.02 $15,395.78
$0.0000 0.000 141.246 $14,156.38 $14,901.42
$0.0000 0.000 141.246 $15,659.24 $16,483.38
$0.0000 0.000 141.246 $15,726.33 $16,554.00
$0.0000 0.000 141.246 $16,303.32 $17,161.36
$0.0000 0.000 141.246 $14,210.05 $14,957.92
$0.0000 0.000 141.246 $12,183.88 $12,825.11
$0.0000 0.000 141.246 100.503 $13,351.28 $14,053.95
$44.2100 4.654 145.900 $31.4574 3.311 103.814 $12,765.52 $13,437.36
$6.5655 0.718 146.618 $4.6716 0.511 104.325 $12,702.98 $13,371.53
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $13,148.70 $13,840.71
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $14,221.21 $14,969.67
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $14,068.00 $14,808.39
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $14,416.21 $15,174.93
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,140.51 $15,937.35
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $14,276.93 $15,028.32
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $14,959.43 $15,746.74
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $14,750.50 $15,526.82
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $14,513.72 $15,277.57
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,210.15 $16,010.66
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $14,750.50 $15,526.82
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,641.94 $16,465.17
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,892.66 $16,729.08
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $16,282.66 $17,139.61
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,711.58 $16,538.48
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,669.80 $16,494.50
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $16,296.59 $17,154.28
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,628.01 $16,450.51
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,433.01 $16,245.24
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,238.01 $16,039.98
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $14,513.72 $15,277.57
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $14,625.15 $15,394.86
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,293.72 $16,098.63
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,600.16 $16,421.19
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,572.30 $16,391.86
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,349.44 $16,157.27
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,976.23 $16,817.05
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $15,976.23 $16,817.05
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $16,937.31 $17,828.72
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $16,616.95 $17,491.50
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $16,979.10 $17,872.70
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $18,065.54 $19,016.32
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $18,358.04 $19,324.22
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $19,736.98 $20,775.74
$0.0000 0.000 146.618 $0.0000 0.000 104.325 $18,970.90 $19,969.34
$191.6136 14.407 161.025 $136.3413 10.251 114.576 $20,880.92 $21,979.88
$0.0000 0.000 161.025 $0.0000 0.000 114.576 $21,064.49 $22,173.11
$0.0000 0.000 161.025 $0.0000 0.000 114.576 $20,773.84 $21,867.17
$0.0000 0.000 161.025 $0.0000 0.000 114.576 $19,580.64 $20,611.17
$0.0000 0.000 161.025 $0.0000 0.000 114.576 $19,947.78 $20,997.63
$0.0000 0.000 161.025 $0.0000 0.000 114.576 $20,161.94 $21,223.07
$0.0000 0.000 161.025 $0.0000 0.000 114.576 $19,458.26 $20,482.35
$0.0000 0.000 161.025 $0.0000 0.000 114.576 $19,978.37 $21,029.84
$0.0000 0.000 161.025 $0.0000 0.000 114.576 $21,018.59 $22,124.81
$0.0000 0.000 161.025 $0.0000 0.000 114.576 $20,727.94 $21,818.86
$0.0000 0.000 161.025 $0.0000 0.000 114.576 71.788 $21,309.24 $22,430.75
$0.0000 0.000 161.025 $0.0000 0.000 114.576 $0.0000 0.000 71.788 $20,146.64 $21,206.96
$214.2727 18.616 179.641 $152.4640 13.246 127.822 $95.5269 8.299 80.087 $19,745.24 $20,784.43
$0.0000 0.000 179.641 $0.0000 0.000 127.822 $0.0000 0.000 80.087 $18,874.88 $19,868.26
$0.0000 0.000 179.641 $0.0000 0.000 127.822 $0.0000 0.000 80.087 $19,250.33 $20,263.47
$0.0000 0.000 179.641 $0.0000 0.000 127.822 $0.0000 0.000 80.087 $19,779.37 $20,820.36
$0.0000 0.000 179.641 $0.0000 0.000 127.822 $0.0000 0.000 80.087 $20,308.42 $21,377.25
$0.0000 0.000 179.641 $0.0000 0.000 127.822 $0.0000 0.000 80.087 $20,530.27 $21,610.78
$0.0000 0.000 179.641 $0.0000 0.000 127.822 $0.0000 0.000 80.087 $20,564.40 $21,646.71
$0.0000 0.000 179.641 $0.0000 0.000 127.822 $0.0000 0.000 80.087 $21,741.95 $22,886.23
$0.0000 0.000 179.641 $0.0000 0.000 127.822 $0.0000 0.000 80.087 $21,195.84 $22,311.38
$0.0000 0.000 179.641 $0.0000 0.000 127.822 $0.0000 0.000 80.087 $21,417.70 $22,544.92
$0.0000 0.000 179.641 $0.0000 0.000 127.822 $0.0000 0.000 80.087 $21,093.45 $22,203.60
$0.00 ($0.03)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- -----------------------------------------------------------------------------
Fund #: 1313 Yield Date: 31-Oct-95
------- ---------
Fund Name: JOHN HANCOCK GLOBAL INCOME - CLASS A
------------------------------------
- -----------------------------------------------------------------------------
30 Day Yields
- --------------------------
FUND 5.80279% Total Income for Period 217,977.58
- -------------------------- -------------------
Fund Expenses for Period 40,723.64
-------------------
Average Shares Outstanding 3,808,648.867
-------------------
Last Price During Period 9.74
-------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Gain/Loss Inc Adj Short DIVIDEND Long TOTAL TOTAL Daily Daily
Date Paydowns Paydowns Term GNMA INCOME Term PIK INCOME Expenses Price Shares
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
02-Oct 70.11 7,338.22 7,408.33 1,501.47 9.64 3,847,406.578
03-Oct 104.48 7,388.97 7,493.45 1,534.48 9.62 3,846,891.118
04-Oct 59.48 7,116.82 7,176.30 1,544.86 9.64 3,846,226.058
05-Oct 57.06 7,376.92 7,433.98 1,446.49 9.66 3,841,043.328
06-Oct 57.90 7,375.97 7,433.87 1,341.78 9.65 3,838,014.338
07-Oct 57.90 7,375.97 7,433.87 1,339.27 9.68 3,834,361.233
08-Oct 57.90 7,375.97 7,433.87 1,339.27 9.68 3,834,361.233
09-Oct 57.89 7,392.05 7,449.94 1,339.27 9.68 3,834,361.233
10-Oct 49.20 7,507.70 7,556.90 1,340.89 9.65 3,830,188.994
11-Oct 42.25 7,505.02 7,547.27 1,335.00 9.63 3,822,960.431
12-Oct 15.93 7,510.41 7,526.34 1,330.22 9.66 3,817,086.806
13-Oct 25.36 7,497.01 7,522.37 1,332.76 9.71 3,812,160.024
14-Oct 25.36 7,497.01 7,522.37 1,337.04 9.72 3,805,768.733
15-Oct 25.36 7,497.01 7,522.37 1,337.04 9.72 3,805,768.733
16-Oct 15.20 7,473.37 7,488.57 1,337.04 9.72 3,805,768.733
17-Oct 32.28 7,466.03 7,498.31 1,336.15 9.73 3,803,478.667
18-Oct 25.78 7,324.34 7,350.12 1,335.49 9.70 3,795,938.622
19-Oct 58.53 6,955.80 7,014.33 1,329.00 9.73 3,783,050.251
20-Oct 55.43 6,972.98 7,028.41 1,330.13 9.72 3,784,219.624
21-Oct 55.43 6,972.98 7,028.41 1,328.32 9.71 3,784,220.012
22-Oct 55.43 6,972.98 7,028.41 1,328.32 9.71 3,784,220.012
23-Oct 66.95 6,995.52 7,062.47 1,328.32 9.71 3,784,220.012
24-Oct 88.73 6,989.95 7,078.68 1,327.80 9.73 3,792,387.798
25-Oct 86.29 6,867.72 6,954.01 1,332.86 9.73 3,791,836.538
26-Oct 130.21 6,860.20 6,990.41 1,319.39 9.70 3,786,785.190
27-Oct 124.90 6,880.44 7,005.34 1,315.85 9.72 3,788,208.984
28-Oct 124.90 6,880.44 7,005.34 1,317.97 9.73 3,786,919.688
29-Oct 124.90 6,880.44 7,005.34 1,317.97 9.73 3,786,919.688
30-Oct 124.20 6,873.24 6,997.44 1,317.97 9.73 3,786,919.688
31-Oct 101.97 6,878.79 6,980.76 1,421.22 9.74 3,797,773.655
</TABLE>
- ------------------------------------------------
30 Day 30 Day 30 Day
- ------------------------------------------------
Accumulated Accumulated Accumulated
Income Expenses Shares
- ------------------------------------------------
0.00 0.00 0.00
7,408.33 1,501.47 3,847,406.58
14,901.78 3,035.95 7,694,297.70
22,078.08 4,580.81 11,540,523.75
29,512.06 6,027.30 15,381,567.08
36,945.93 7,369.08 19,219,581.42
44,379.80 8,708.35 23,053,942.65
51,813.67 10,047.62 26,888,303.89
59,263.61 11,386.89 30,722,665.12
66,820.51 12,727.78 34,552,854.11
74,367.78 14,062.78 38,375,814.54
81,894.12 15,393.00 42,192,901.35
89,416.49 16,725.76 46,005,061.37
96,938.86 18,062.80 49,810,830.11
104,461.23 19,399.84 53,616,598.84
111,949.80 20,736.88 57,422,367.57
119,448.11 22,073.03 61,225,846.24
126,798.23 23,408.52 65,021,784.86
133,812.56 24,737.52 68,804,835.11
140,840.97 26,067.65 72,589,054.74
147,869.38 27,395.97 76,373,274.75
154,897.79 28,724.29 80,157,494.76
161,960.26 30,052.61 83,941,714.77
169,038.94 31,380.41 87,734,102.57
175,992.95 32,713.27 91,525,939.11
182,983.36 34,032.66 95,312,724.30
189,988.70 35,348.51 99,100,933.28
196,994.04 36,666.48 102,887,852.97
203,999.38 37,984.45 106,674,772.66
210,996.82 39,302.42 110,461,692.35
217,977.58 40,723.64 114,259,466.00
<PAGE>
- ------------------------------------------------------------------------------
Fund #: 1313 Yield Date: 31-Oct-95
---- ----------
Fund Name: JOHN HANCOCK GLOBAL INCOME - CLASS B
------------------------------------
- ------------------------------------------------------------------------------
30 Day Yields
- -------------------------------
FUND 5.21032% Total Income for Period 406,841.35
- ------------------------------- -------------------
Fund Expenses for Period 122,784.09
-------------------
Average Shares Outstanding 7,110,577.922
-------------------
Last Price During Period 9.30
-------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Gain/Loss Inc Adj Short DIVIDEND Long TOTAL TOTAL Daily Daily
Date Paydowns Paydowns Term GNMA INCOME Term PIK INCOME Expenses Price Shares
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
02-Oct 130.65 13,674.55 13,805.20 3,900.50 9.21 7,169,731.291
03-Oct 194.59 13,762.14 13,956.73 4,033.82 9.19 7,164,944.940
04-Oct 110.71 13,246.82 13,357.53 4,048.61 9.21 7,159,143.732
05-Oct 106.34 13,747.04 13,853.38 4,317.51 9.23 7,157,871.034
06-Oct 107.99 13,757.20 13,865.19 4,127.94 9.22 7,158,438.116
07-Oct 107.99 13,757.20 13,865.19 4,122.91 9.24 7,154,215.481
08-Oct 107.99 13,757.20 13,865.19 4,122.91 9.24 7,154,215.481
09-Oct 108.00 13,792.19 13,900.19 4,122.91 9.24 7,154,215.481
10-Oct 91.83 14,011.56 14,103.39 4,128.67 9.22 7,158,268.533
11-Oct 78.91 14,017.33 14,096.24 4,113.17 9.20 7,140,257.599
12-Oct 29.75 14,021.83 14,051.58 4,097.94 9.23 7,126,459.411
13-Oct 25.36 13,993.30 14,018.66 4,106.21 9.27 7,115,484.316
14-Oct 25.36 13,993.30 14,018.66 4,120.91 9.28 7,109,845.844
15-Oct 25.36 13,993.30 14,018.66 4,120.91 9.28 7,109,845.844
16-Oct 28.40 13,961.53 13,989.93 4,120.91 9.28 7,109,845.844
17-Oct 60.35 13,957.62 14,017.97 4,121.48 9.29 7,110,559.892
18-Oct 48.27 13,711.05 13,759.32 4,124.59 9.26 7,105,965.871
19-Oct 109.86 13,054.44 13,164.30 4,113.60 9.29 7,099,943.086
20-Oct 103.92 13,072.28 13,176.20 4,119.24 9.28 7,094,326.064
21-Oct 103.92 13,072.28 13,176.20 4,112.58 9.27 7,094,094.376
22-Oct 103.92 13,072.28 13,176.20 4,112.58 9.27 7,094,094.376
23-Oct 125.51 13,114.10 13,239.61 4,112.58 9.27 7,094,094.376
24-Oct 165.74 13,056.27 13,222.01 4,103.66 9.29 7,083,682.590
25-Oct 160.96 12,811.08 12,972.04 4,106.61 9.29 7,073,340.884
26-Oct 242.92 12,798.40 13,041.32 4,078.59 9.26 7,064,654.566
27-Oct 232.59 12,812.66 13,045.25 4,064.76 9.28 7,054,369.513
28-Oct 232.59 12,812.66 13,045.25 4,066.40 9.29 7,050,237.430
29-Oct 232.59 12,812.66 13,045.25 4,066.40 9.29 7,050,237.430
30-Oct 231.23 12,796.11 13,027.34 4,066.40 9.29 7,050,237.430
31-Oct 189.42 12,777.95 12,967.37 3,808.79 9.30 7,054,716.819
</TABLE>
- ------------------------------------------------
30 Day 30 Day 30 Day
- ------------------------------------------------
Accumulated Accumulated Accumulated
Income Expenses Shares
- ------------------------------------------------
0.00 0.00 0.00
13,805.20 3,900.50 7,169,731.29
27,761.93 7,934.32 14,334,676.23
41,119.46 11,982.93 21,493,819.96
54,972.84 16,300.44 28,651,691.00
68,838.03 20,428.38 35,810,129.11
82,703.22 24,551.29 42,964,344.59
96,568.41 28,674.20 50,118,560.08
110,468.60 32,797.11 57,272,775.56
124,571.99 36,925.78 64,431,044.09
138,668.23 41,038.95 71,571,301.69
152,719.81 45,136.89 78,697,761.10
166,738.47 49,243.10 85,813,245.42
180,757.13 53,364.01 92,923,091.26
194,775.79 57,484.92 100,032,937.10
208,765.72 61,605.83 107,142,782.95
222,783.69 65,727.31 114,253,342.84
236,543.01 69,851.90 121,359,308.71
249,707.31 73,965.50 128,459,251.80
262,883.51 78,084.74 135,553,577.86
276,059.71 82,197.32 142,647,672.24
289,235.91 86,309.90 149,741,766.61
302,475.52 90,422.48 156,835,860.99
315,697.53 94,526.14 163,919,543.58
328,669.57 98,632.75 170,992,884.46
341,710.89 102,711.34 178,057,539.03
354,756.14 106,776.10 185,111,908.54
367,801.39 110,842.50 192,162,145.97
380,846.64 114,908.90 199,212,383.40
393,873.98 118,975.30 206,262,620.83
406,841.35 122,784.09 213,317,337.65
<PAGE>
Initial Investment: $1,000.00 JOHN HANCOCK GLOBAL INCOME FUND
CLASS A
- ------------------------------------------------------------------------------
Investment Value Cumulative Annual Total Return
at End of Period
1 Year Return: 7.15% 1 Year Value: 7.15%
$1,071.49
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
# Since Inception NOTE: YTD includes Ex-dividend for the period Monthly Declared Div
<S> <C> <C>
0.00000 $0.0000
</TABLE>
Constant Sales Charge: 4.50%
<TABLE>
<CAPTION>
1-Year
-----------
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains Dividend # of Shares Shares
Ended NAV Price Charge Date Amount Price Information Received Reinv. Outstanding
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/3/92 $10.57 $11.07 4.50%
1 /92 $10.42 $10.91 4.50% 01/15/92 $0.0315 $10.45
2 /92 $10.32 $10.81 4.50% 02/15/92 $0.0750 $10.32
3 /92 $10.09 $10.57 4.50% 03/15/92 $0.0750 $10.04
4 /92 $10.07 $10.54 4.50% 04/15/92 $0.0750 $10.16
5 /92 $10.26 $10.74 4.50% 05/15/92 $0.0750 $10.24
6 /92 $10.37 $10.86 4.50% 06/15/92 $0.0750 $10.28
7 /92 $10.46 $10.95 4.50% 07/15/92 $0.0750 $10.49
8 /92 $10.32 $10.81 4.50% 08/15/92 $0.0750 $10.47
9 /92 $10.08 $10.55 4.50% 09/15/92 $0.0750 $10.27
10 /92 $9.76 $10.22 4.50% 10/15/92 $0.0750 $9.95
11 /92 $9.46 $9.91 4.50% 11/15/92 $0.0750 $9.68
12 /92 $9.45 $9.90 4.50% 12/15/92 $0.0750 $9.46
12 /92 $9.45 $9.90 4.50% 12/30/92 $0.0353 $9.45
1 /93 $9.54 $9.99 4.50% 01/18/93 $0.0322 $9.48
2 /93 $9.56 $10.01 4.50% 02/10/93 $0.0566 $9.53
3 /93 $9.55 $10.00 4.50% 03/10/93 $0.0675 $9.58
4 /93 $9.61 $10.06 4.50% 04/08/93 $0.0670 $9.54
5 /93 $9.65 $10.10 4.50% 05/10/93 $0.0623 $9.56
6 /93 $9.42 $9.86 4.50% 06/10/93 $0.0707 $9.43
7 /93 $9.49 $9.94 4.50% 07/09/93 $0.0665 $9.45
8 /93 $9.70 $10.16 4.50% 08/10/93 $0.0665 $9.53
9 /93 $9.56 $10.01 4.50% 09/10/93 $0.0650 $9.78
10 /93 $9.62 $10.07 4.50% 10/08/93 $0.0600 $9.62 $0.0397 Cap Gain
11 /93 $9.46 $9.91 4.50% 11/10/93 $0.0600 $9.47
12 /93 $9.55 $10.00 4.50% 12/10/93 $0.0550 $9.59
12 /93 $9.55 $10.00 4.50% 12/30/93 $0.0407 $9.56
1 /94 $9.61 $10.06 4.50%
2 /94 $9.28 $9.72 4.50% 02/10/94 $0.0630 $9.46
3 /94 $9.05 $9.48 4.50% 03/10/94 $0.0576 $9.19
4 /94 $8.90 $9.32 4.50% 04/08/94 $0.0513 $8.93
5 /94 $8.82 $9.24 4.50% 05/10/94 $0.0553 $8.79
6 /94 $8.80 $9.21 4.50% 06/10/94 $0.0512 $8.72
7 /94 $8.77 $9.18 4.50% 07/08/94 $0.0490 $8.82
8 /94 $8.77 $9.18 4.50% 08/10/94 $0.0543 $8.76
9 /94 $8.76 $9.17 4.50% 09/09/94 $0.0483 $8.78
10 /94 $8.85 $9.27 4.50% 10/10/94 $0.0538 $8.77 107.875
11 /94 $8.94 $9.36 4.50% 11/10/94 $0.0534 $8.85 $5.7648 0.651 108.526
12 /94 $8.86 $9.28 4.50% 12/09/94 $0.0520 $9.00 $5.6477 0.628 109.154
12 /94 $8.86 $9.28 4.50% 12/29/94 $0.0360 $8.87 $3.9317 0.443 109.597
1 /95 $8.89 $9.31 4.50% 01/10/95 $0.0206 $8.79 $2.2601 0.257 109.854
2 /95 $8.97 $9.39 4.50% 02/10/95 $0.0179 $8.88 $1.9625 0.221 110.075
3 /95 $9.08 $9.51 4.50% 03/10/95 $0.0481 $9.03 $5.2984 0.587 110.662
4 /95 $9.16 $9.59 4.50% 04/10/95 $0.0487 $9.09 $5.3926 0.593 111.255
5 /95 $9.26 $9.70 4.50% 05/10/95 $0.0487 $9.28 $5.4226 0.584 111.839
6 /95 $9.17 $9.60 4.50% 06/09/95 $0.0491 $9.18 $5.4637 0.595 112.434
6 /95 $9.17 $9.60 4.50% 06/29/95 $0.0329 $9.18 $3.6840 0.401 112.835
7 /95 $9.16 $9.59 4.50% 07/28/95 $0.0448 $9.17 $5.0393 0.550 113.385
8 /95 $9.17 $9.60 4.50% 08/30/95 $0.0513 $9.15 $5.8189 0.636 114.021
9 /95 $9.20 $9.63 4.50% 09/28/95 $0.0463 $9.18 $5.2769 0.575 114.596
10 /95 $9.30 $9.74 4.50% 10/30/95 $0.0501 $9.29 $5.7378 0.618 115.214
</TABLE>
<PAGE>
Initial Investment: $1,000.00 JOHN HANCOCK GLOBAL INCOME FUND
CLASS A
- -------------------------------------------------------------------------------
Average Annual Total Return Investment Value Cumulative Annual
at End of Period Total Return
- -------------------------------------------------------------------------------
10 Year Return: N/A 10 Year Value: N/A 0.00%
3.83 Year Return: 3.13% 5 Year Value: $1,125.28 12.53%
- -------------------------------------------------------------------------------
Prepared by: Joyce Melamed
Reviewed by:
# Since Inception NOTE: YTD includes Monthly Declared Div
Ex-dividend for the period
0.00000 $0.0000
Constant Sales Charge: 4.50%
<TABLE>
<CAPTION>
10-Year
----------
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains Dividend # of Shares Shares
Ended NAV Price Charge Date Amount Price Information Received Reinv. Outstanding
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/3/92 $10.57 $11.07 4.50%
1 /92 $10.42 $10.91 4.50% 01/15/92 $0.0315 $10.45
2 /92 $10.32 $10.81 4.50% 02/15/92 $0.0750 $10.32
3 /92 $10.09 $10.57 4.50% 03/15/92 $0.0750 $10.04
4 /92 $10.07 $10.54 4.50% 04/15/92 $0.0750 $10.16
5 /92 $10.26 $10.74 4.50% 05/15/92 $0.0750 $10.24
6 /92 $10.37 $10.86 4.50% 06/15/92 $0.0750 $10.28
7 /92 $10.46 $10.95 4.50% 07/15/92 $0.0750 $10.49
8 /92 $10.32 $10.81 4.50% 08/15/92 $0.0750 $10.47
9 /92 $10.08 $10.55 4.50% 09/15/92 $0.0750 $10.27
10 /92 $9.76 $10.22 4.50% 10/15/92 $0.0750 $9.95
11 /92 $9.46 $9.91 4.50% 11/15/92 $0.0750 $9.68
12 /92 $9.45 $9.90 4.50% 12/15/92 $0.0750 $9.46
12 /92 $9.45 $9.90 4.50% 12/30/92 $0.0353 $9.45
1 /93 $9.54 $9.99 4.50% 01/18/93 $0.0322 $9.48
2 /93 $9.56 $10.01 4.50% 02/10/93 $0.0566 $9.53
3 /93 $9.55 $10.00 4.50% 03/10/93 $0.0675 $9.58
4 /93 $9.61 $10.06 4.50% 04/08/93 $0.0670 $9.54
5 /93 $9.65 $10.10 4.50% 05/10/93 $0.0623 $9.56
6 /93 $9.42 $9.86 4.50% 06/10/93 $0.0707 $9.43
7 /93 $9.49 $9.94 4.50% 07/09/93 $0.0665 $9.45
8 /93 $9.70 $10.16 4.50% 08/10/93 $0.0665 $9.53
9 /93 $9.56 $10.01 4.50% 09/10/93 $0.0650 $9.78
10 /93 $9.62 $10.07 4.50% 10/08/93 $0.0600 $9.62 $0.0397 Cap Gain
11 /93 $9.46 $9.91 4.50% 11/10/93 $0.0600 $9.47
12 /93 $9.55 $10.00 4.50% 12/10/93 $0.0550 $9.59
12 /93 $9.55 $10.00 4.50% 12/30/93 $0.0407 $9.56
1 /94 $9.61 $10.06 4.50%
2 /94 $9.28 $9.72 4.50% 02/10/94 $0.0630 $9.46
3 /94 $9.05 $9.48 4.50% 03/10/94 $0.0576 $9.19
4 /94 $8.90 $9.32 4.50% 04/08/94 $0.0513 $8.93
5 /94 $8.82 $9.24 4.50% 05/10/94 $0.0553 $8.79
6 /94 $8.80 $9.21 4.50% 06/10/94 $0.0512 $8.72
7 /94 $8.77 $9.18 4.50% 07/08/94 $0.0490 $8.82
8 /94 $8.77 $9.18 4.50% 08/10/94 $0.0543 $8.76
9 /94 $8.76 $9.17 4.50% 09/09/94 $0.0483 $8.78
10 /94 $8.85 $9.27 4.50% 10/10/94 $0.0538 $8.77
11 /94 $8.94 $9.36 4.50% 11/10/94 $0.0534 $8.85
12 /94 $8.86 $9.28 4.50% 12/09/94 $0.0520 $9.00
12 /94 $8.86 $9.28 4.50% 12/29/94 $0.0360 $8.87
1 /95 $8.89 $9.31 4.50% 01/10/95 $0.0206 $8.79
2 /95 $8.97 $9.39 4.50% 02/10/95 $0.0529 $8.88
3 /95 $9.08 $9.51 4.50% 03/10/95 $0.0481 $9.03
4 /95 $9.16 $9.59 4.50% 04/10/95 $0.0487 $9.09
5 /95 $9.26 $9.70 4.50% 05/10/95 $0.0487 $9.28
6 /95 $9.17 $9.60 4.50% 06/9/95 $0.0491 $9.18
6 /95 $9.17 $9.60 4.50% 06/29/95 $0.0329 $9.18
7 /95 $9.16 $9.59 4.50% 07/28/95 $0.0448 $9.17
8 /95 $9.17 $9.60 4.50% 08/30/95 $0.0513 $9.15
9 /95 $9.20 $9.63 4.50% 09/28/95 $0.0463 $9.18
10 /95 $9.30 $9.74 4.50% 10/30/95 $0.0501 $9.29
</TABLE>
5-Year
----------
Dividend # of Shares Shares DOLLAR VALUE DOLLAR VALUE
Received Reinv. Outstanding AT NAV AT POP
- ------------------------------------------------------------------
90.334 $10,000.00 $10,000.00
$2.8455 0.272 90.606 9,441.15 10,350.91
$6.7955 0.658 91.264 9,418.44 10,330.51
$6.8448 0.682 91.946 9,277.35 10,176.64
$6.8960 0.679 92.625 9,327.34 10,222.70
$6.9469 0.678 93.303 9,572.89 10,492.92
$6.9977 0.681 93.984 9,746.14 10,687.60
$7.0488 0.672 94.656 9,901.02 10,853.23
$7.0992 0.678 95.334 9,838.47 10,791.21
$7.1501 0.696 96.030 9,679.82 10,608.55
$7.2023 0.724 96.754 9,443.19 10,354.20
$7.2566 0.750 97.504 9,223.88 10,117.95
$7.3128 0.773 98.277 9,287.18 10,187.88
$3.4692 0.367 98.644 9,321.86 10,225.92
$3.1763 0.335 98.979 9,442.60 10,353.93
$5.6022 0.588 99.567 9,518.61 10,436.29
$6.7208 0.702 100.269 9,575.69 10,499.37
$6.7180 0.704 100.973 9,703.51 10,636.53
$6.2950 0.658 101.631 9,807.39 10,748.41
$7.1809 0.761 102.392 9,645.33 10,571.57
$6.8091 0.721 103.113 9,785.42 10,732.39
$6.8570 0.720 103.833 10,071.80 11,046.53
$6.7491 0.690 104.523 9,992.40 10,955.76
$6.2714 0.652 105.175 10,117.84 11,090.18
$6.3105 0.666 105.841 10,012.56 10,983.08
$5.8213 0.607 106.448 10,165.78 11,146.39
$4.3324 0.453 106.901 10,209.05 11,193.82
$0.0000 0.000 106.901 10,273.19 11,260.98
$6.7348 0.712 107.613 9,986.49 10,952.86
$6.1985 0.674 108.287 9,799.97 10,749.33
$5.5519 0.622 108.909 9,692.90 10,628.61
$6.0205 0.685 109.594 9,666.19 10,603.65
$5.6123 0.644 110.238 9,700.94 10,631.33
$5.4017 0.612 110.850 9,721.55 10,655.53
$6.0180 0.687 111.537 9,781.79 10,721.57
$5.3839 0.613 112.150 9,824.34 10,768.75
$6.0302 0.688 112.838 9,986.16 10,952.97
$6.0301 0.681 113.519 10,148.60 11,126.05
$5.9075 0.656 114.175 10,115.91 11,094.70
$4.1126 0.464 114.639 10,157.02 11,139.79
$2.3627 0.269 114.908 10,215.32 11,202.03
$6.0798 0.685 115.593 10,368.69 11,365.64
$5.5635 0.616 116.209 10,551.78 11,572.23
$5.6629 0.623 116.832 10,701.81 11,732.13
$5.6944 0.614 117.446 10,875.50 11,929.07
$5.7678 0.628 118.074 10,827.39 11,869.22
$3.8894 0.424 118.498 10,866.27 11,911.84
$5.3111 0.579 119.077 10,907.45 11,957.58
$6.1110 0.668 119.745 10,980.62 12,037.19
$5.5418 0.604 120.349 11,072.11 12,135.72
$6.0259 0.649 120.998 11,252.81 12,340.53
<PAGE>
Initial Investment $1,000.00 JOHN HANCOCK GLOBAL INCOME FUND
CLASS B
<TABLE>
<CAPTION>
Average Annual Total Return Investment Value at End of Period Cummulative Annual Total Return
CDSC
Excluding With Excluding % CDSC Ending Excluding With
CDSC CDSC CDSC CDSC Amount Value CDSC CDSC
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 Year Return 11.61% 6.61% $1,116.11 5.00% $50.00 $1,066.11 11.61% 6.61%
</TABLE>
<TABLE>
<CAPTION>
# Since Inception NOTE: YTD includes Ex-dividend for the period Monthly Declared Div
<S> <C> <C>
0.00000 $0.0000
</TABLE>
Constant Sales Charge: N/A
<TABLE>
<CAPTION>
10-Year
----------
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains Dividend # of Shares Shares Dividend
Ended NAV Price Charge Date Amount Price Information Received Reinv. Outstanding Received
----- --- ----- ----- ---- ------ ----- ----------- -------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/17/86 $9.60 $9.60 N/A 104.167
12 / 86 $10.00 $10.00 N/A
1 / 87 $10.00 $10.00 N/A
2 / 87 $10.00 $10.00 N/A 02/27/87 $0.1300 $10.31
3 / 87 $10.00 $10.00 N/A 03/15/87 $0.0477 $10.39
4 / 87 $10.00 $10.00 N/A 04/15/87 $0.0924 $10.82 $0.0364 ST Cap Gain
5 / 87 $10.00 $10.00 N/A 05/15/87 $0.0924 $11.04 $0.0212 ST Cap Gain
6 / 87 $10.67 $10.67 N/A 06/15/87 $0.0924 $10.77 $0.0212 ST Cap Gain
7 / 87 $10.52 $10.52 N/A 07/15/87 $0.1100 $10.68 $0.0562 ST Cap Gain
8 / 87 $10.62 $10.62 N/A 08/15/87 $0.1100 $10.52 $0.0578 ST Cap Gain
9 / 87 $10.47 $10.47 N/A 09/15/87 $0.1100 $10.63 $0.0634 ST Cap Gain
10 / 87 $10.32 $10.32 N/A 10/15/87 $0.1100 $10.55 $0.0579 ST Cap Gain
11 / 87 $10.44 $10.44 N/A 11/15/87 $0.1100 $10.49 $0.0344 ST Cap Gain
12 / 87 $10.64 $10.64 N/A 12/15/87 $0.1100 $10.42 $0.0469 ST Cap Gain
12 / 87 $10.64 $10.64 N/A 12/31/87 $0.0560 $10.64 $0.0270 ST Cap Gain
1 / 88 $10.85 $10.85 N/A 01/15/88 $0.0540 $10.70 $0.0260 ST Cap Gain
2 / 88 $10.97 $10.97 N/A 02/15/88 $0.1100 $10.86 $0.0643 ST Cap Gain
3 / 88 $11.10 $11.10 N/A 03/15/88 $0.1100 $11.05 $0.0645 ST Cap Gain
4 / 88 $11.01 $11.01 N/A 04/15/88 $0.1100 $11.08 $0.0453 ST Cap Gain
5 / 88 $10.93 $10.93 N/A 05/15/88 $0.1100 $10.96 $0.0611 ST Cap Gain
6 / 88 $11.01 $11.01 N/A 06/15/88 $0.1100 $11.15 $0.0505 ST Cap Gain
7 / 88 $10.81 $10.81 N/A 07/15/88 $0.1100 $10.88 $0.0528 ST Cap Gain
8 / 88 $10.66 $10.66 N/A 08/15/88 $0.1100 $10.71 $0.0493 ST Cap Gain
9 / 88 $10.78 $10.78 N/A 09/15/88 $0.1100 $10.77 $0.0516 ST Cap Gain
10 / 88 $11.02 $11.02 N/A 10/15/88 $0.1100 $10.98 $0.0657 ST Cap Gain
11 / 88 $10.86 $10.86 N/A 11/11/88 $0.0150 $10.91 $0.0150 Cap Gain
11 / 88 $10.86 $10.86 N/A 11/15/88 $0.1100 $10.88 $0.0604 ST Cap Gain
12 / 88 $10.78 $10.78 N/A 12/15/88 $0.1100 $10.75 $0.0572 ST Cap Gain
12 / 88 $10.78 $10.78 N/A 12/31/88 $0.0568 $10.78 $0.0197 ST Cap Gain
1 / 89 $10.88 $10.88 N/A 01/15/89 $0.0532 $10.80 $0.0185 ST Cap Gain
2 / 89 $10.42 $10.42 N/A 02/15/89 $0.1100 $10.64 $0.0316 ST Cap Gain
3 / 89 $10.36 $10.36 N/A 03/15/89 $0.1100 $10.38 $0.0471 ST Cap Gain
4 / 89 $10.43 $10.43 N/A 04/15/89 $0.1100 $10.36 $0.0448 ST Cap Gain
5 / 89 $10.18 $10.18 N/A 05/15/89 $0.1100 $10.32 $0.0475 ST Cap Gain
6 / 89 $10.29 $10.29 N/A 06/15/89 $0.1100 $10.22 $0.0373 ST Cap Gain
7 / 89 $10.36 $10.36 N/A 07/15/89 $0.1100 $10.26
8 / 89 $10.21 $10.21 N/A 08/15/89 $0.1100 $10.21
9 / 89 $10.26 $10.26 N/A 09/15/89 $0.1100 $10.16
10 / 89 $10.21 $10.21 N/A 10/15/89 $0.1100 $10.23 $0.0357 ST Cap Gain
11 / 89 $10.17 $10.17 N/A 11/15/89 $0.1100 $10.19 $0.0597 ST Cap Gain
12 / 89 $10.15 $10.15 N/A 12/15/89 $0.1100 $10.22 $0.0494 ST Cap Gain
12 / 89 $10.15 $10.15 N/A 12/31/89 $0.0568 $10.15
1 / 90 $9.99 $9.99 N/A 01/15/90 $0.0532 $10.13
2 / 90 $9.84 $9.84 N/A 02/15/90 $0.0720 $9.90
3 / 90 $9.70 $9.70 N/A 03/15/90 $0.0700 $9.69
4 / 90 $9.64 $9.64 N/A 04/15/90 $0.0700 $9.73
5 / 90 $9.72 $9.72 N/A 05/15/90 $0.0700 $9.78
6 / 90 $9.92 $9.92 N/A 06/15/90 $0.0700 $9.78
7 / 90 $10.24 $10.24 N/A 07/15/90 $0.0700 $10.06
8 / 90 $10.21 $10.21 N/A 08/15/90 $0.0700 $10.32
9 / 90 $10.17 $10.17 N/A 09/15/90 $0.0700 $10.26
10 / 90 $10.38 $10.38 N/A 10/15/90 $0.0700 $10.33
11 / 90 $10.40 $10.40 N/A 11/15/90 $0.0700 $10.45
11 / 90 $10.40 $10.40 N/A 11/16/90 $0.0300 $10.46
12 / 90 $10.38 $10.38 N/A 12/15/90 $0.0700 $10.43
12 / 90 $10.38 $10.38 N/A 12/31/90 $0.0361 $10.38
1 / 91 $10.56 $10.56 N/A 01/15/91 $0.0339 $10.29
2 / 91 $10.60 $10.60 N/A 02/15/91 $0.0700 $10.73
3 / 91 $10.19 $10.19 N/A 03/12/91 $0.0300 $10.49
3 / 91 $10.19 $10.19 N/A 03/15/91 $0.0700 $10.42
4 / 91 $10.27 $10.27 N/A 04/15/91 $0.0700 $10.37
5 / 91 $10.33 $10.33 N/A 05/15/91 $0.0700 $10.36
6 / 91 $10.01 $10.01 N/A 06/05/91 $0.0300 $10.24
6 / 91 $10.01 $10.01 N/A 06/15/91 $0.0700 $10.06
7 / 91 $10.09 $10.09 N/A 07/15/91 $0.0700 $10.04
8 / 91 $10.21 $10.21 N/A 08/15/91 $0.0700 $10.19
9 / 91 $10.40 $10.40 N/A 09/15/91 $0.0700 $10.32
9 / 91 $10.40 $10.40 N/A 09/20/91 $0.0400 $10.27
10 / 91 $10.44 $10.44 N/A 10/15/91 $0.0700 $10.41
11 / 91 $10.40 $10.40 N/A 11/15/91 $0.0700 $10.48
12 / 91 $10.53 $10.53 N/A 12/10/91 $0.0500 $10.40
12 / 91 $10.53 $10.53 N/A 12/15/91 $0.0700 $10.41
12 / 91 $10.53 $10.53 N/A 12/31/91 $0.0339 $10.50
1 / 92 $10.41 $10.41 N/A 01/15/92 $0.0361 $10.44
2 / 92 $10.30 $10.30 N/A 02/15/92 $0.0700 $10.30
3 / 92 $10.07 $10.07 N/A 03/15/92 $0.0700 $10.02
4 / 92 $10.05 $10.05 N/A 04/15/92 $0.0700 $10.14
5 / 92 $10.24 $10.24 N/A 05/15/92 $0.0700 $10.22
6 / 92 $10.35 $10.35 N/A 06/15/92 $0.0700 $10.26
7 / 92 $10.44 $10.44 N/A 07/15/92 $0.0700 $10.47
8 / 92 $10.31 $10.31 N/A 08/15/92 $0.0700 $10.46
9 / 92 $10.07 $10.07 N/A 09/15/92 $0.0700 $10.26
10 / 92 $9.74 $9.74 N/A 10/15/92 $0.0700 $9.93
11 / 92 $9.44 $9.44 N/A 11/15/92 $0.0700 $9.67
12 / 92 $9.44 $9.44 N/A 12/15/92 $0.0700 $9.45
12 / 92 $9.44 $9.44 N/A 12/30/92 $0.0328 $9.44
1 / 93 $9.53 $9.53 N/A 01/18/93 $0.0297 $9.47
2 / 93 $9.56 $9.56 N/A 02/10/93 $0.0524 $9.52
3 / 93 $9.54 $9.54 N/A 03/10/93 $0.0625 $9.58
4 / 93 $9.60 $9.60 N/A 04/08/93 $0.0625 $9.53
5 / 93 $9.64 $9.64 N/A 05/10/93 $0.0586 $9.55
6 / 93 $9.42 $9.42 N/A 06/10/93 $0.0664 $9.43
7 / 93 $9.49 $9.49 N/A 07/09/93 $0.0625 $9.45
8 / 93 $9.69 $9.69 N/A 08/10/93 $0.0625 $9.52
9 / 93 $9.55 $9.55 N/A 09/10/93 $0.0610 $9.78
10 / 93 $9.62 $9.62 N/A 10/08/93 $0.0560 $9.62 0.0397 Cap Gain
11 / 93 $9.46 $9.46 N/A 11/10/93 $0.0560 $9.47
12 / 93 $9.55 $9.55 N/A 12/10/93 $0.0510 $9.59
12 / 93 $9.55 $9.55 N/A 12/30/93 $0.0383 $9.56
1 / 94 $9.61 $9.61 N/A
2 / 94 $9.28 $9.28 N/A 02/10/94 $0.0560 $9.45
3 / 94 $9.05 $9.05 N/A 03/10/94 $0.0525 $9.18
4 / 94 $8.90 $8.90 N/A 04/08/94 $0.0466 $8.93
5 / 94 $8.82 $8.82 N/A 05/10/94 $0.0503 $8.79
6 / 94 $8.79 $8.79 N/A 06/10/94 $0.0467 $8.71
7 / 94 $8.76 $8.76 N/A 07/08/94 $0.0451 $8.81
8 / 94 $8.76 $8.76 N/A 08/10/94 $0.0499 $8.76
9 / 94 $8.76 $8.76 N/A 09/09/94 $0.0441 $8.78
10 / 94 $8.85 $8.85 N/A 10/10/94 $0.0489 $8.77
11 / 94 $8.94 $8.94 N/A 11/10/94 $0.0162 $8.84 $1.8305
12 / 94 $8.86 $8.86 N/A 12/09/94 $0.0474 $8.99 $5.3703
12 / 94 $8.86 $8.86 N/A 12/29/94 $0.0328 $8.87 $3.7371
1 / 95 $8.88 $8.88 N/A 01/10/95 $0.0187 $8.78 $2.1394
2 / 95 $8.96 $8.96 N/A 02/10/95 $0.0482 $8.87 $5.5182
3 / 95 $9.08 $9.08 N/A 03/10/95 $0.0437 $9.02 $5.0280
4 / 95 $9.16 $9.16 N/A 04/10/95 $0.0437 $9.08 $5.0547
5 / 95 $9.26 $9.26 N/A 05/10/95 $0.0438 $9.27 $5.0837
6 / 95 $9.17 $9.17 N/A 06/09/95 $0.0439 $9.18 $5.1058
6 / 95 $9.17 $9.17 N/A 06/29/95 $0.0293 $9.18 $3.4195
7 / 95 $9.16 $9.16 N/A 07/28/95 $0.0399 $9.17 $4.6745
7 / 95 $9.16 $9.16 N/A 07/28/95 $0.0041 $9.16 $0.4825
8 / 95 $9.17 $9.17 N/A 08/30/95 $0.0464 $9.15 $5.4885
8 / 95 $9.17 $9.17 N/A 08/30/95 $0.0014 $9.17 $0.1655
9 / 95 $9.20 $9.20 N/A 09/28/95 $0.0423 $9.18 $5.0257
9 / 95 $9.20 $9.20 N/A 09/28/95 $0.0029 $9.20 $0.3447
10 / 95 $9.30 $9.30 N/A 10/30/95 $0.0432 $9.29 $5.1558
10 / 95 $9.30 $9.30 N/A 10/30/95 $0.0013 $9.30 $0.1553
</TABLE>
1-Year
- ----------
# of Shares Shares
Reinv. Outstanding
------ -----------
112.994
0.207 113.201
0.597 113.798
0.421 114.219
0.244 114.463
0.622 115.085
0.557 115.642
0.557 116.199
0.548 116.747
0.556 117.303
0.372 117.675
0.510 118.185
0.053 118.238
0.600 118.838
0.018 118.856
0.547 119.403
0.037 119.440
0.555 119.995
0.017 120.012
<PAGE>
Initial Investment: $1,000.00 JOHN HANCOCK GLOBAL INCOME FUND
CLASS B
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Average Annual Total Return Investment Value at End of Period Cumulative Annual Total Return
CDSC CDSC
Excluding With Excluding % CDSC Ending Excluding Ending
CDSC CDSC CDSC CDSC Amount Value CDSC Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
8.87 Year Return: 9.14% 9.14% $2,171.90 0.00% $0.00 $2,171.90 117.19% 117.19%
5 Year Return: 5.66% 5.34% $1,316.82 2.00% $20.00 $1,296.82 31.68% 29.68%
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Prepared by: Joyce Melamed
Reviewed by:
<TABLE>
<CAPTION>
# Since Inception NOTE: YTD includes Ex-dividend for the period Monthly Declared Div
<S> <C> <C>
0.00000 $0.0000
</TABLE>
Constant Sales Charge: N/A
<TABLE>
<CAPTION>
10-Year
----------
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains Dividend # of Shares Shares
Ended NAV Price Charge Date Amount Price Information Received Reinv. Outstanding
----- --- ----- ------ ---- ------ ----- ----------- -------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/17/86 $9.60 $9.60 N/A 104.167
12 /86 $10.00 $10.00 N/A $0.0000 0.000 104.167
1 /87 $10.00 $10.00 N/A $0.0000 0.000 104.167
2 /87 $10.00 $10.00 N/A 02/27/87 $0.1300 $10.31 $13.5417 1.313 105.480
3 /87 $10.00 $10.00 N/A 03/15/87 $0.0477 $10.39 $5.0314 0.484 105.964
4 /87 $10.00 $10.00 N/A 04/15/87 $0.0924 $10.82 $0.0364 ST Cap Gain $9.7911 0.905 106.869
5 /87 $10.00 $10.00 N/A 05/15/87 $0.0924 $11.04 $0.0212 ST Cap Gain $9.8747 0.894 107.763
6 /87 $10.67 $10.67 N/A 06/15/87 $0.0924 $10.77 $0.0212 ST Cap Gain $9.9573 0.925 108.688
7 /87 $10.52 $10.52 N/A 07/15/87 $0.1100 $10.68 $0.0562 ST Cap Gain $11.9557 1.119 109.807
8 /87 $10.62 $10.62 N/A 08/15/87 $0.1100 $10.52 $0.0578 ST Cap Gain $12.0788 1.148 110.955
9 /87 $10.47 $10.47 N/A 09/15/87 $0.1100 $10.63 $0.0634 ST Cap Gain $12.2051 1.148 112.103
10 /87 $10.32 $10.32 N/A 10/15/87 $0.1100 $10.55 $0.0579 ST Cap Gain $12.3313 1.169 113.272
11 /87 $10.44 $10.44 N/A 11/15/87 $0.1100 $10.49 $0.0344 ST Cap Gain $12.4599 1.188 114.460
12 /87 $10.64 $10.64 N/A 12/15/87 $0.1100 $10.42 $0.0469 ST Cap Gain $12.5906 1.208 115.668
12 /87 $10.64 $10.64 N/A 12/31/87 $0.0560 $10.64 $0.0270 ST Cap Gain $6.4774 0.609 116.277
1 /88 $10.85 $10.85 N/A 01/15/88 $0.0540 $10.70 $0.0260 ST Cap Gain $6.2790 0.587 116.864
2 /88 $10.97 $10.97 N/A 02/15/88 $0.1100 $10.86 $0.0643 ST Cap Gain $12.8550 1.184 118.048
3 /88 $11.10 $11.10 N/A 03/15/88 $0.1100 $11.05 $0.0645 ST Cap Gain $12.9853 1.175 119.223
4 /88 $11.01 $11.01 N/A 04/15/88 $0.1100 $11.08 $0.0453 ST Cap Gain $13.1145 1.184 120.407
5 /88 $10.93 $10.93 N/A 05/15/88 $0.1100 $10.96 $0.0611 ST Cap Gain $13.2448 1.208 121.615
6 /88 $11.01 $11.01 N/A 06/15/88 $0.1100 $11.15 $0.0505 ST Cap Gain $13.3777 1.200 122.815
7 /88 $10.81 $10.81 N/A 07/15/88 $0.1100 $10.88 $0.0528 ST Cap Gain $13.5097 1.242 124.057
8 /88 $10.66 $10.66 N/A 08/15/88 $0.1100 $10.71 $0.0493 ST Cap Gain $13.6463 1.274 125.331
9 /88 $10.78 $10.78 N/A 09/15/88 $0.1100 $10.77 $0.0516 ST Cap Gain $13.7864 1.280 126.611
10 /88 $11.02 $11.02 N/A 10/15/88 $0.1100 $10.98 $0.0657 ST Cap Gain $13.9272 1.268 127.879
11 /88 $10.86 $10.86 N/A 11/11/88 $0.0150 $10.91 $0.0150 Cap Gain $1.9182 0.176 128.055
11 /88 $10.86 $10.86 N/A 11/15/88 $0.1100 $10.88 $0.0604 ST Cap Gain $14.0861 1.295 129.350
12 /88 $10.78 $10.78 N/A 12/15/88 $0.1100 $10.75 $0.0572 ST Cap Gain $14.2285 1.324 130.674
12 /88 $10.78 $10.78 N/A 12/31/88 $0.0568 $10.78 $0.0197 ST Cap Gain $7.4223 0.689 131.363
1 /89 $10.88 $10.88 N/A 01/15/89 $0.0532 $10.80 $0.0185 ST Cap Gain $6.9885 0.647 132.010
2 /89 $10.42 $10.42 N/A 02/15/89 $0.1100 $10.64 $0.0316 ST Cap Gain $14.5211 1.365 133.375
3 /89 $10.36 $10.36 N/A 03/15/89 $0.1100 $10.38 $0.0471 ST Cap Gain $14.6713 1.413 134.788
4 /89 $10.43 $10.43 N/A 04/15/89 $0.1100 $10.36 $0.0448 ST Cap Gain $14.8267 1.431 136.219
5 /89 $10.18 $10.18 N/A 05/15/89 $0.1100 $10.32 $0.0475 ST Cap Gain $14.9841 1.452 137.671
6 /89 $10.29 $10.29 N/A 06/15/89 $0.1100 $10.22 $0.0373 ST Cap Gain $15.1438 1.482 139.153
7 /89 $10.36 $10.36 N/A 07/15/89 $0.1100 $10.26 $15.3068 1.492 140.645
8 /89 $10.21 $10.21 N/A 08/15/89 $0.1100 $10.21 $15.4710 1.515 142.160
9 /89 $10.26 $10.26 N/A 09/15/89 $0.1100 $10.16 $15.6376 1.539 143.699
10 /89 $10.21 $10.21 N/A 10/15/89 $0.1100 $10.23 $0.0357 ST Cap Gain $15.8069 1.545 145.244
11 /89 $10.17 $10.17 N/A 11/15/89 $0.1100 $10.19 $0.0597 ST Cap Gain $15.9768 1.568 146.812
12 /89 $10.15 $10.15 N/A 12/15/89 $0.1100 $10.22 $0.0494 ST Cap Gain $16.1493 1.580 148.392
12 /89 $10.15 $10.15 N/A 12/31/89 $0.0568 $10.15 $8.4287 0.830 149.222
1 /90 $9.99 $9.99 N/A 01/15/90 $0.0532 $10.13 $7.9386 0.784 149.176
2 /90 $9.84 $9.84 N/A 02/15/90 $0.0720 $9.90 $10.7407 1.085 150.261
3 /90 $9.70 $9.70 N/A 03/15/90 $0.0700 $9.69 $10.5183 1.085 151.346
4 /90 $9.64 $9.64 N/A 04/15/90 $0.0700 $9.73 $10.5942 1.089 152.435
5 /90 $9.72 $9.72 N/A 05/15/90 $0.0700 $9.78 $10.6705 1.091 153.526
6 /90 $9.92 $9.92 N/A 06/15/90 $0.0700 $9.78 $10.7468 1.099 154.625
7 /90 $10.24 $10.24 N/A 07/15/90 $0.0700 $10.06 $10.8238 1.076 155.701
8 /90 $10.21 $10.21 N/A 08/15/90 $0.0700 $10.32 $10.8991 1.056 156.757
9 /90 $10.17 $10.17 N/A 09/15/90 $0.0700 $10.26 $10.9730 1.069 157.826
10 /90 $10.38 $10.38 N/A 10/15/90 $0.0700 $10.33 $11.0478 1.069 158.895
11 /90 $10.40 $10.40 N/A 11/15/90 $0.0700 $10.45 $11.1227 1.064 159.959
11 /90 $10.40 $10.40 N/A 11/16/90 $0.0300 $10.46 $4.7988 0.459 160.418
12 /90 $10.38 $10.38 N/A 12/15/90 $0.0700 $10.43 $11.2293 1.077 161.495
12 /90 $10.38 $10.38 N/A 12/31/90 $0.0361 $10.38 $5.8300 0.562 162.057
1 /91 $10.56 $10.56 N/A 01/15/91 $0.0339 $10.29 $5.4937 0.534 162.591
2 /91 $10.60 $10.60 N/A 02/15/91 $0.0700 $10.73 $11.3814 1.061 163.652
3 /91 $10.19 $10.19 N/A 03/12/91 $0.0300 $10.49 $4.9096 0.468 164.120
3 /91 $10.19 $10.19 N/A 03/15/91 $0.0700 $10.42 $11.4884 1.103 165.223
4 /91 $10.27 $10.27 N/A 04/15/91 $0.0700 $10.37 $11.5656 1.115 166.338
5 /91 $10.33 $10.33 N/A 05/15/91 $0.0700 $10.36 $11.6437 1.124 167.462
6 /91 $10.01 $10.01 N/A 06/05/91 $0.0300 $10.24 $5.0239 0.491 167.953
6 /91 $10.01 $10.01 N/A 06/15/91 $0.0700 $10.06 $11.7567 1.169 169.122
7 /91 $10.09 $10.09 N/A 07/15/91 $0.0700 $10.04 $11.8385 1.179 170.301
8 /91 $10.21 $10.21 N/A 08/15/91 $0.0700 $10.19 $11.9211 1.170 171.471
9 /91 $10.40 $10.40 N/A 09/15/91 $0.0700 $10.32 $12.0030 1.163 172.634
9 /91 $10.40 $10.40 N/A 09/20/91 $0.0400 $10.27 $6.9054 0.672 173.306
10 /91 $10.44 $10.44 N/A 10/15/91 $0.0700 $10.41 $12.1314 1.165 174.471
11 /91 $10.40 $10.40 N/A 11/15/91 $0.0700 $10.48 $12.2130 1.165 175.636
12 /91 $10.53 $10.53 N/A 12/10/91 $0.0500 $10.40 $8.7818 0.844 176.480
12 /91 $10.53 $10.53 N/A 12/15/91 $0.0700 $10.41 $12.3536 1.187 177.667
12 /91 $10.53 $10.53 N/A 12/31/91 $0.0339 $10.50 $6.0229 0.574 178.241
1 /92 $10.41 $10.41 N/A 01/15/92 $0.0361 $10.44 $6.4345 0.616 178.857
2 /92 $10.30 $10.30 N/A 02/15/92 $0.0700 $10.30 $12.5200 1.216 180.073
3 /92 $10.07 $10.07 N/A 03/15/92 $0.0700 $10.02 $12.6051 1.258 181.331
4 /92 $10.05 $10.05 N/A 04/15/92 $0.0700 $10.14 $12.6932 1.252 182.583
5 /92 $10.24 $10.24 N/A 05/15/92 $0.0700 $10.22 $12.7808 1.251 183.834
6 /92 $10.35 $10.35 N/A 06/15/92 $0.0700 $10.26 $12.8684 1.254 185.088
7 /92 $10.44 $10.44 N/A 07/15/92 $0.0700 $10.47 $12.9562 1.237 186.325
8 /92 $10.31 $10.31 N/A 08/15/92 $0.0700 $10.46 $13.0428 1.247 187.572
9 /92 $10.07 $10.07 N/A 09/15/92 $0.0700 $10.26 $13.1300 1.280 188.852
10 /92 $9.74 $9.74 N/A 10/15/92 $0.0700 $9.93 $13.2196 1.331 190.183
11 /92 $9.44 $9.44 N/A 11/15/92 $0.0700 $9.67 $13.3128 1.377 191.560
12 /92 $9.44 $9.44 N/A 12/15/92 $0.0700 $9.45 $13.4092 1.419 192.979
12 /92 $9.44 $9.44 N/A 12/30/92 $0.0328 $9.44 $6.3297 0.671 193.650
1 /93 $9.53 $9.53 N/A 01/18/93 $0.0297 $9.47 $5.7514 0.607 194.257
2 /93 $9.56 $9.56 N/A 02/10/93 $0.0524 $9.52 $10.1791 1.069 195.326
3 /93 $9.54 $9.54 N/A 03/10/93 $0.0625 $9.58 $12.2079 1.274 196.600
4 /93 $9.60 $9.60 N/A 04/08/93 $0.0625 $9.53 $12.2875 1.289 197.889
5 /93 $9.64 $9.64 N/A 05/10/93 $0.0586 $9.55 $11.5951 1.214 199.103
6 /93 $9.42 $9.42 N/A 06/10/93 $0.0664 $9.43 $13.2217 1.402 200.505
7 /93 $9.49 $9.49 N/A 07/09/93 $0.0625 $9.45 $12.5316 1.326 201.831
8 /93 $9.69 $9.69 N/A 08/10/93 $0.0625 $9.52 $12.6144 1.325 203.156
9 /93 $9.55 $9.55 N/A 09/10/93 $0.0610 $9.78 $12.3925 1.267 204.423
10 /93 $9.62 $9.62 N/A 10/08/93 $0.0560 $9.62 0.0397 Cap Gain $11.4477 1.190 205.613
11 /93 $9.46 $9.46 N/A 11/10/93 $0.0560 $9.47 $11.5143 1.216 206.829
12 /93 $9.55 $9.55 N/A 12/10/93 $0.0510 $9.59 $10.5483 1.100 207.929
12 /93 $9.55 $9.55 N/A 12/30/93 $0.0383 $9.56 $7.9637 0.833 208.762
1 /94 $9.61 $9.61 N/A $0.0000 $0.00 $0.0000 0.000 208.762
2 /94 $9.28 $9.28 N/A 02/10/94 $0.0560 $9.45 $11.6886 1.237 209.999
3 /94 $9.05 $9.05 N/A 03/10/94 $0.0525 $9.18 $11.0291 1.201 211.200
4 /94 $8.90 $8.90 N/A 04/08/94 $0.0466 $8.93 $9.8398 1.102 212.302
5 /94 $8.82 $8.82 N/A 05/10/94 $0.0503 $8.79 $10.6852 1.216 213.518
6 /94 $8.79 $8.79 N/A 06/10/94 $0.0467 $8.71 $9.9713 1.145 214.663
7 /94 $8.76 $8.76 N/A 07/08/94 $0.0451 $8.81 $9.6727 1.098 215.761
8 /94 $8.76 $8.76 N/A 08/10/94 $0.0499 $8.76 $10.7665 1.229 216.990
9 /94 $8.76 $8.76 N/A 09/09/94 $0.0441 $8.78 $9.5693 1.090 218.080
10 /94 $8.85 $8.85 N/A 10/10/94 $0.0489 $8.77 $10.6707 1.217 219.297
11 /94 $8.94 $8.94 N/A 11/10/94 $0.0485 $8.84 $10.6447 1.204 220.501
12 /94 $8.86 $8.86 N/A 12/09/94 $0.0474 $8.99 $10.4606 1.164 221.665
12 /94 $8.86 $8.86 N/A 12/29/94 $0.0328 $8.87 $7.2795 0.821 222.486
1 /95 $8.88 $8.88 N/A 01/10/95 $0.0187 $8.78 $4.1694 0.475 222.961
2 /95 $8.96 $8.96 N/A 02/10/95 $0.0482 $8.87 $10.7488 1.212 224.173
3 /95 $9.08 $9.08 N/A 03/10/95 $0.0437 $9.02 $9.7941 1.086 225.259
4 /95 $9.16 $9.16 N/A 04/10/95 $0.0437 $9.08 $9.8460 1.084 226.343
5 /95 $9.26 $9.26 N/A 05/10/95 $0.0438 $9.27 $9.9025 1.068 227.411
6 /95 $9.17 $9.17 N/A 06/9/95 $0.0439 $9.18 $9.9924 1.088 228.499
6 /95 $9.17 $9.17 N/A 06/29/95 $0.0293 $9.18 $6.6927 0.729 229.228
7 /95 $9.16 $9.16 N/A 07/28/95 $0.0399 $9.17 $9.1347 0.996 230.224
8 /95 $9.17 $9.17 N/A 08/30/95 $0.0464 $9.15 $10.6916 1.168 231.392
9 /95 $9.20 $9.20 N/A 09/28/95 $0.0423 $9.18 $9.7856 1.066 232.458
10 /95 $9.30 $9.30 N/A 10/30/95 $0.0432 $9.29 $10.0375 1.080 233.538
</TABLE>
5-Year
----------
Dividend # of Shares Shares
Received Reinv. Outstanding DOLLAR VALUE
- -------- ------ ----------- ------------
$10,000.00
$10,416.70
$10,416.70
$10,548.00
$10,596.40
$10,686.90
$10,776.30
$11,597.01
$11,551.70
$11,783.42
$11,737.18
$11,689.67
$11,949.62
$12,307.08
$12,371.87
$12,679.74
$12,949.87
$13,233.75
$13,256.81
$13,292.52
$13,521.93
$13,410.56
$13,360.28
$13,648.67
$14,092.27
$13,906.77
$14,047.41
$14,086.66
$14,160.93
$14,362.69
$13,897.68
$13,964.04
$14,207.64
$14,014.91
$14,318.84
$14,570.82
$14,514.54
$14,743.52
$14,829.41
$14,930.78
$15,061.79
$15,146.03
$14,902.68
$14,785.68
$14,680.56
$14,694.73
$14,922.73
$15,338.80
$15,943.78
$16,004.89
$16,050.90
96.339 $16,493.30
$6.7437 0.645 96.984 $16,635.74
$2.9095 0.278 97.262 $16,683.47
$6.8083 0.653 97.915 $16,763.18
$3.5347 0.341 98.256 $16,821.52
$3.3309 0.324 98.580 $17,169.61
$6.9006 0.643 99.223 $17,347.11
$2.9767 0.284 99.507 $16,723.83
$6.9655 0.668 100.175 $16,836.22
$7.0123 0.676 100.851 $17,082.91
$7.0596 0.681 101.532 $17,298.82
$3.0460 0.297 101.829 $16,812.10
$7.1280 0.709 102.538 $16,929.11
$7.1777 0.715 103.253 $17,183.37
$7.2277 0.709 103.962 $17,507.19
$7.2773 0.705 104.667 $17,953.94
$4.1867 0.408 105.075 $18,023.82
$7.3553 0.707 105.782 $18,214.77
$7.4047 0.707 106.489 $18,266.14
$5.3245 0.512 107.001 $18,583.34
$7.4901 0.720 107.721 $18,708.34
$3.6517 0.348 108.069 $18,768.78
$3.9013 0.374 108.443 $18,619.01
$7.5910 0.737 109.180 $18,547.52
$7.6426 0.763 109.943 $18,260.03
$7.6960 0.759 110.702 $18,349.59
$7.7491 0.758 111.460 $18,824.60
$7.8022 0.760 112.220 $19,156.61
$7.8554 0.750 112.970 $19,452.33
$7.9079 0.756 113.726 $19,338.67
$7.9608 0.776 114.502 $19,017.40
$8.0151 0.807 115.309 $18,523.82
$8.0716 0.835 116.144 $18,083.26
$8.1301 0.860 117.004 $18,217.22
$3.8377 0.407 117.411 $18,280.56
$3.4871 0.368 117.779 $18,512.69
$6.1716 0.648 118.427 $18,673.17
$7.4017 0.773 119.200 $18,755.64
$7.4500 0.782 119.982 $18,997.34
$7.0302 0.736 120.718 $19,193.53
$8.0164 0.850 121.568 $18,887.57
$7.5980 0.804 122.372 $19,153.76
$7.6483 0.803 123.175 $19,685.82
$7.5137 0.768 123.943 $19,522.40
$6.9408 0.721 124.664 $19,779.97
$6.9812 0.737 125.401 $19,566.02
$6.3955 0.667 126.068 $19,857.22
$4.8284 0.505 126.573 $19,936.77
$0.0000 0.000 126.573 $20,062.03
$7.0868 0.750 127.323 $19,487.91
$6.6870 0.728 128.051 $19,113.60
$5.9659 0.668 128.719 $18,894.88
$6.4784 0.737 129.456 $18,832.29
$6.0456 0.694 130.150 $18,868.88
$5.8646 0.666 130.816 $18,900.66
$6.5277 0.745 131.561 $19,008.32
$5.8018 0.661 132.222 $19,103.81
$6.4696 0.738 132.960 $19,407.78
$6.4539 0.730 133.690 $19,712.79
$6.3423 0.705 134.395 $19,639.52
$4.4135 0.498 134.893 $19,712.26
$2.5279 0.288 135.181 $19,798.94
$6.5170 0.735 135.916 $20,085.90
$5.9381 0.658 136.574 $20,453.52
$5.9696 0.657 137.231 $20,733.02
$6.0039 0.648 137.879 $21,058.26
$6.0584 0.660 138.539 $20,953.36
$4.0578 0.442 138.981 $21,020.21
$5.5384 0.604 139.585 $21,088.52
$6.4823 0.708 140.293 $21,218.65
$5.9330 0.646 140.939 $21,386.14
$6.0857 0.655 141.594 $21,719.03
<PAGE>
Initial Investment: $1,000.00
- --------------------------------------------------------------------------------
Average Annual Total Return Rate Investment Value at End of Period
10 Year Return: N/A 10 Year Value: N/A
5 Year Return: N/A 5 Year Value: N/A
1.99 Year Return: 2.05% 3 Year Value: $1,041.34
1 Year Return: 11.62% 1 Year Value: $1,116.16
- --------------------------------------------------------------------------------
Constant Sales Charge: 5.00%
<TABLE>
<CAPTION>
5-Year
----------
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains Dividend # of Shares Shares Dividend
Ended NAV Price Charge Date Amount Price Information Received Reinv. Outstanding Received
----- --- ----- ------ ---- ------ ----- ----------- -------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/2/93 $8.50 $8.95 5.00%
11 /93 $8.03 $8.45 5.00% $0.0000
12 /93 $8.45 $8.89 5.00% $0.0000
1 /94 $8.74 $9.20 5.00% $0.0000
2 /94 $8.61 $9.06 5.00% $0.0000
3 /94 $8.02 $8.44 5.00% $0.0000
4 /94 $8.05 $8.47 5.00% $0.0000
5 /94 $8.01 $8.43 5.00% $0.0000
6 /94 $7.49 $7.88 5.00% $0.0000
7 /94 $7.71 $8.12 5.00% $0.0000
8 /94 $8.11 $8.54 5.00% $0.0000
9 /94 $7.71 $8.12 5.00% $0.0000
10 /94 $7.93 $8.35 5.00% $0.0000
11 /94 $7.64 $8.04 5.00% $0.0000
12 /94 $7.71 $8.12 5.00% $0.0000
1 /95 $7.56 $7.96 5.00% $0.0000
2 /95 $7.86 $8.27 5.00% $0.0000
3 /95 $8.18 $8.61 5.00% $0.0000
4 /95 $8.40 $8.84 5.00% $0.0000
5 /95 $8.33 $8.77 5.00% $0.0000
6 /95 $8.79 $9.25 5.00% $0.0000
7 /95 $9.46 $9.96 5.00% $0.0000
8 /95 $9.64 $10.15 5.00% $0.0000
9 /95 $9.58 $10.08 5.00% $0.0000
10 /95 $9.32 $9.81 5.00% $0.0000
11 /95 $9.95 $10.47 5.00% $0.0000
12 /95 $10.35 $10.89 5.00% $0.0000
1 /96 $10.72 $11.28 5.00% $0.0000
- --------------------------------------------------------------------------------------------------------------------------
End of Period (update for formulas above):
9.320 0.000
</TABLE>
3-Year 1-Year
- ---------- -----------
# of Shares Shares Dividend # of Shares Shares $
Reinv. Outstanding Received Reinv. Outstanding Amount
------ ----------- -------- ------ ----------- ------
111.732 $0.00
0.000 111.732 $0.00
0.000 111.732 $0.00
0.000 111.732 $0.00
0.000 111.732 $0.00
0.000 111.732 $0.00
0.000 111.732 $0.00
0.000 111.732 $0.00
0.000 111.732 $0.00
0.000 111.732 $0.00
0.000 111.732 $0.00
0.000 111.732 $0.00
0.000 111.732 119.760 $949.70
0.000 111.732 $0.0000 0.000 119.760 $914.97
0.000 111.732 $0.0000 0.000 119.760 $923.35
0.000 111.732 $0.0000 0.000 119.760 $905.39
0.000 111.732 $0.0000 0.000 119.760 $941.31
0.000 111.732 $0.0000 0.000 119.760 $979.64
0.000 111.732 $0.0000 0.000 119.760 $1,005.98
0.000 111.732 $0.0000 0.000 119.760 $997.60
0.000 111.732 $0.0000 0.000 119.760 $1,052.69
0.000 111.732 $0.0000 0.000 119.760 $1,132.93
0.000 111.732 $0.0000 0.000 119.760 $1,154.49
0.000 111.732 $0.0000 0.000 119.760 $1,147.30
0.000 111.732 $0.0000 0.000 119.760 $1,116.16
0.000 111.732 $0.0000 0.000 119.760 $1,191.61
0.000 111.732 $0.0000 0.000 119.760 $1,239.52
0.000 111.732 $0.0000 0.000 119.760 $1,283.83
- --------------------------------------------------------------------------------
End of Period (update for formulas above):
111.732 119.760
<PAGE>
Initial Invest $1,000.00
- --------------------------------------------------------------------------------
Average Annual Total Return Investment Value at End of Period
CDSC
Excluding With Excluding % CDSC Ending
CDSC CDSC CDSC CDSC Amount Value
Year Return: N/A N/A N/A 0.00% N/A N/A
Year Return: N/A N/A N/A 2.00% N/A N/A
Year Return: 4.00% 1.55% $1,081.18 5.00% $50.00 $1,031.18
Year Return: 16.77% 11.77% $1,167.73 5.00% $50.00 $1,117.73
- --------------------------------------------------------------------------------
Constant Sales Charge: N/A
<TABLE>
<CAPTION>
5-Year
-----------
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains Dividend # of Shares Shares Dividend
Ended NAV Price Charge Date Amount Price Information Received Reinv. Outstanding Received
----- --- ----- ------ ---- ------ ----- ----------- -------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
11/2/93 $8.50 $8.50 N/A
11 /93 $8.03 $8.03 N/A $0.0000
12 /93 $8.44 $8.44 N/A $0.0000
1 /94 $8.72 $8.72 N/A $0.0000
2 /94 $8.59 $8.59 N/A $0.0000
3 /94 $8.00 $8.00 N/A $0.0000
4 /94 $8.03 $8.03 N/A $0.0000
5 /94 $7.98 $7.98 N/A $0.0000
6 /94 $7.45 $7.45 N/A $0.0000
7 /94 $7.68 $7.68 N/A $0.0000
8 /94 $8.06 $8.06 N/A $0.0000
9 /94 $7.66 $7.66 N/A $0.0000
10 /94 $7.87 $7.87 N/A $0.0000
11 /94 $7.59 $7.59 N/A $0.0000
12 /94 $7.65 $7.65 N/A $0.0000
1 /95 $7.50 $7.50 N/A $0.0000
2 /95 $7.79 $7.79 N/A $0.0000
3 /95 $8.10 $8.10 N/A $0.0000
4 /95 $8.32 $8.32 N/A $0.0000
5 /95 $8.24 $8.24 N/A $0.0000
6 /95 $8.70 $8.70 N/A $0.0000
7 /95 $9.34 $9.34 N/A $0.0000
8 /95 $9.52 $9.52 N/A $0.0000
9 /95 $9.46 $9.46 N/A $0.0000
10 /95 $9.19 $9.19 N/A $0.0000
- --------------------------------------------------------------------------------------------------------------------------
End of Period (update for formulas above):
$9.19 0.000
</TABLE>
3-Year 1-Year
----------- -----------
# of Shares Shares Dividend # of Shares Shares $
Reinv. Outstanding Received Reinv. Outstanding Value
------ ----------- -------- ------ ----------- -----
117.647 $0.00
0.000 117.647 $0.00
0.000 117.647 $0.00
0.000 117.647 $0.00
0.000 117.647 $0.00
0.000 117.647 $0.00
0.000 117.647 $0.00
0.000 117.647 $0.00
0.000 117.647 $0.00
0.000 117.647 $0.00
0.000 117.647 $0.00
0.000 117.647 $0.00
0.000 117.647 127.065 $950.00
0.000 117.647 $0.0000 0.000 127.065 $916.20
0.000 117.647 $0.0000 0.000 127.065 $923.44
0.000 117.647 $0.0000 0.000 127.065 $905.34
0.000 117.647 $0.0000 0.000 127.065 $940.34
0.000 117.647 $0.0000 0.000 127.065 $977.77
0.000 117.647 $0.0000 0.000 127.065 $1,004.32
0.000 117.647 $0.0000 0.000 127.065 $994.66
0.000 117.647 $0.0000 0.000 127.065 $1,050.19
0.000 117.647 $0.0000 0.000 127.065 $1,127.45
0.000 117.647 $0.0000 0.000 127.065 $1,149.18
0.000 117.647 $0.0000 0.000 127.065 $1,141.93
0.000 117.647 $0.0000 0.000 127.065 $1,109.34
- --------------------------------------------------------------------------------
End of Period (update for formulas above):
117.647 127.065
<PAGE>
Initial Investment: $1,000.00 John Hancock International Fund -
SEC TOTAL RETURN
"A SHARES"
- --------------------------------------------------------------------------------
Average Annual Total Return Investment Value at End of Period
10 Year Return: N/A 10 Year Value: N/A
5 Year Return: N/A 5 Year Value: N/A
1.83 Year Return: -4.55% 3 Year Value: $918.53
1 Year Return: -9.76% 1 Year Value: $902.40
- --------------------------------------------------------------------------------
Constant Sales Charge: 5.00%
<TABLE>
<CAPTION>
3-Year
-----------
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains Dividend # of Shares Shares Dividend
Ended NAV Price Charge Date Amount Price Information Received Reinv. Outstanding Received
- ----- --- ----- ------ ---- ------ ----- ----------- -------- ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/3/94 $8.50 $8.95 $0.05 111.732
01/94 $8.54 $8.99 $0.05 $0.0000 0.000 111.732
02/94 $8.33 $8.77 $0.05 $0.0000 0.000 111.732
03/94 $7.95 $8.37 $0.05 $0.0000 0.000 111.732
04/94 $8.16 $8.59 $0.05 $0.0000 0.000 111.732
05/94 $8.32 $8.76 $0.05 $0.0000 0.000 111.732
06/94 $8.09 $8.52 $0.05 $0.0000 0.000 111.732
07/94 $8.33 $8.77 $0.05 $0.0000 0.000 111.732
08/94 $8.65 $9.11 $0.05 $0.0000 0.000 111.732
09/94 $8.42 $8.86 $0.05 $0.0000 0.000 111.732
10/94 $8.65 $9.11 $0.05 $0.0000 0.000 111.732
11/94 $8.09 $8.52 $0.05 $0.0000 0.000 111.732 $0.0000
12/94 $7.86 $8.27 $0.05 12/23/94 $0.0779 $7.84 $0.0512 Cap Gain $8.7039 1.110 112.842 $8.5510
1/95 $7.34 $7.73 $0.05 $0.0000 0.000 112.842 $0.0000
2/95 $7.48 $7.87 $0.05 $0.0000 0.000 112.842 $0.0000
3/95 $7.75 $8.16 $0.05 $0.0000 0.000 112.842 $0.0000
4/95 $8.00 $8.42 $0.05 $0.0000 0.000 112.842 $0.0000
5/95 $8.18 $8.61 $0.05 $0.0000 0.000 112.842 $0.0000
6/95 $8.03 $8.45 $0.05 $0.0000 0.000 112.842 $0.0000
7/95 $8.46 $8.91 $0.05 $0.0000 0.000 112.842 $0.0000
8/95 $8.14 $8.57 $0.05 $0.0000 0.000 112.842 $0.0000
9/95 $8.27 $8.71 $0.05 $0.0000 0.000 112.842 $0.0000
10/95 $8.14 $8.57 $0.05 $0.0000 0.000 112.842 $0.0000
</TABLE>
1-Year
----------
# of Shares Shares
Reinv. Outstanding $ Value
------ ----------- -------
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
$0.00
109.769 $9,495.02
0.000 109.769 $8,880.31
1.091 110.860 $8,713.60
0.000 110.860 $8,137.12
0.000 110.860 $8,292.33
0.000 110.860 $8,591.65
0.000 110.860 $8,868.80
0.000 110.860 $9,068.35
0.000 110.860 $8,902.06
0.000 110.860 $9,378.76
0.000 110.860 $9,024.00
0.000 110.860 $9,168.12
0.000 110.860 $9,024.00
<PAGE>
Initial Investment: $1,000.00 John Hancock International Fund
"B SHARES"
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Average Annual Total Return Investment Value at End of Period
CDSC
Excluding With Excluding % CDSC Ending
CDSC CDSC CDSC CDSC Amount Value
<S> <C> <C> <C> <C> <C> <C>
10 Year Return: N/A N/A N/A 0.00% N/A N/A
5 Year Return: N/A N/A N/A 2.00% N/A N/A
1.83 Year Return: -2.59% -5.29% $953.25 5.00% $47.66 $905.59
1 Year Return: -5.89% -10.60% $941.07 5.00% $47.05 $894.02
- ---------------------------------------------------------------------------------------------
</TABLE>
Constant Sales Charge: N/A
<TABLE>
<CAPTION>
3-Year
---------
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains Dividend # of Shares Shares
Ended NAV Price Charge Date Amount Price Information Received Reinv. Outstanding
----- --- ----- ------ ---- ------ ----- ----------- -------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/3/94 $8.50 $8.50 N/A 117.647
1/94 $8.53 $8.53 N/A $0.0000 0.000 117.647
2/94 $8.33 $8.33 N/A $0.0000 0.000 117.647
3/94 $7.95 $7.95 N/A $0.0000 0.000 117.647
4/94 $8.14 $8.14 N/A $0.0000 0.000 117.647
5/94 $8.31 $8.31 N/A $0.0000 0.000 117.647
6/94 $8.07 $8.07 N/A $0.0000 0.000 117.647
7/94 $8.30 $8.30 N/A $0.0000 0.000 117.647
8/94 $8.62 $8.62 N/A $0.0000 0.000 117.647
9/94 $8.39 $8.39 N/A $0.0000 0.000 117.647
10/94 $8.61 $8.61 N/A $0.0000 0.000 117.647
11/94 $8.05 $8.05 N/A $0.0000 0.000 117.647
12/94 $7.83 $7.83 N/A 12/23/94 $0.0512 $7.82 $0.0512 Cap Gains $6.0176 0.770 118.417
1/95 $7.32 $7.32 N/A $0.0000 0.000 118.417
2/95 $7.45 $7.45 N/A $0.0000 0.000 118.417
3/95 $7.72 $7.72 N/A $0.0000 0.000 118.417
4/95 $7.96 $7.96 N/A $0.0000 0.000 118.417
5/95 $8.13 $8.13 N/A $0.0000 0.000 118.417
6/95 $7.97 $7.97 N/A $0.0000 0.000 118.417
7/95 $8.40 $8.40 N/A $0.0000 0.000 118.417
8/95 $8.07 $8.07 N/A $0.0000 0.000 118.417
9/95 $8.19 $8.19 N/A $0.0000 0.000 118.417
10/95 $8.05 $8.05 N/A $0.0000 0.000 118.417
11/95 $8.09 $8.09 N/A $0.0000 0.000 118.417
12/95 $8.19 $8.19 N/A $0.0000 0.000 118.417
1/96 $8.29 $8.29 N/A $0.0000 0.000 118.417
</TABLE>
1-Year
-----------
Dividend # of Shares Shares CDSC
Received Reinv. Outstanding $ Value $ Value
-------- ------ ----------- ------- -------
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
$0.00 $0.00
116.144 $950.00 $1,000.00
$0.0000 0.000 116.144 $888.21 $934.96
$5.9408 0.760 116.904 $869.59 $915.36
$0.0000 0.000 116.904 $812.95 $855.74
$0.0000 0.000 116.904 $827.39 $870.93
$0.0000 0.000 116.904 $857.37 $902.50
$0.0000 0.000 116.904 $884.03 $930.55
$0.0000 0.000 116.904 $902.91 $950.43
$0.0000 0.000 116.904 $885.14 $931.72
$0.0000 0.000 116.904 $932.89 $981.99
$0.0000 0.000 116.904 $896.24 $943.41
$0.0000 0.000 116.904 $909.57 $957.44
$0.0000 0.000 116.904 $894.02 $941.07
$0.0000 0.000 116.904 $898.46 $945.75
$0.0000 0.000 116.904 $909.57 $957.44
$0.0000 0.000 116.904 $920.68 $969.13
<PAGE>
JOHN HANCOCK SHORT-TERM STRATEGIC INCOME FUND--CLASS A SEC TOTAL RETURN FORMULA
Initial Investment: $1,000.00
Average Annual Total Return Rate Inv Value at End of Period CUMULATIVE
1 Year Return: 5.52% 1 Year Value: $1,055.16 5.52%
<TABLE>
<CAPTION>
NOTE: YTD includes Ex-div for the period Monthly Declared Div
<S> <C> <C>
Constant Sales Charge: 3.00% $0.0014 $0.0626
</TABLE>
<TABLE>
<CAPTION>
1-Year
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains Dividend # of Shs Shares
Ended NAV Price Charge Date Amount Price Information Received Reinv. O/S
- ----- --- ----- ------ ---- ------ ----- ----------- -------- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/94 $8.47 $8.73 3.00% 10/10/94 $0.0642 $8.49 114.548
11/94 $8.44 $8.70 3.00% 11/10/94 $0.0214 $8.44 $2.4548 0.291 114.839
12/94 $8.36 $8.62 3.00% 12/09/94 $0.0617 $8.40 $7.0821 0.843 115.682
12/94 $8.36 $8.62 3.00% 12/29/94 $0.0397 $8.36 $4.5868 0.549 116.231
01/95 $8.36 $8.62 3.00% 01/10/95 $0.0218 $8.30 $2.5385 0.306 116.537
02/95 $8.29 $8.55 3.00% 02/10/95 $0.0640 $8.35 $7.4540 0.893 117.430
03/95 $8.20 $8.45 3.00% 03/10/95 $0.0646 $8.19 $7.5883 0.927 118.357
04/95 $8.33 $8.59 3.00% 04/10/95 $0.0664 $8.26 $7.8636 0.952 119.309
05/95 $8.42 $8.68 3.00% 05/10/95 $0.0639 $8.41 $7.6227 0.906 120.215
06/95 $8.43 $8.69 3.00% 06/09/95 $0.0624 $8.41 $7.5038 0.892 121.107
06/95 $8.43 $8.69 3.00% 06/29/95 $0.0423 $8.43 $5.1265 0.608 121.715
07/95 $8.46 $8.72 3.00% 07/28/95 $0.0605 $8.46 $7.3589 0.870 122.585
08/95 $8.44 $8.70 3.00% 08/30/95 $0.0688 $8.43 $8.4338 1.000 123.585
09/95 $8.42 $8.68 3.00% 09/28/95 $0.0607 $8.41 $7.4981 0.892 124.477
10/95 $8.41 $8.67 3.00% 10/30/95 $0.0654 $8.42 $8.1408 0.967 125.444
</TABLE>
<PAGE>
Initial Investment: $1,000.00
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Average Annual Total Return Rate Inv Value at End of Period CUMULATIVE $10,000.00
Initial
Investment
<S> <C> <C> <C> <C> <C>
10 Year Return: N/A 10 Year Value: N/A N/A
3.83 Year Return: 4.28% 5 Year Value: $1,174.31 17.43% $11,743.10
Since inception
or 10 Years
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
NOTE: YTD includes Ex-div for the period Monthly Declared Div
<S> <C> <C> <C>
Constant Sales Charge 3.00% $0.0021 $0.0612
</TABLE>
<TABLE>
<CAPTION>
10-Year
----------------------------------------------
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains Dividend # of Shs Shares Dividend # of Shs
Ended NAV Price Charge Date Amount Price Information Received Reinv. O/S Received Reinv.
- ----- --- ----- ------ ---- ------ ----- ----------- -------- ------ --- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1/3/92 $9.86 $10.16 3.00%
1/92 $9.84 $10.14 3.00% 01/15/92 $0.0350 $9.88 $3.4449 0.349
2/92 $9.85 $10.15 3.00% 02/15/92 $0.0765 $9.82 $7.5562 0.769
3/92 $9.78 $10.08 3.00% 03/15/92 $0.0695 $9.78 $6.9182 0.707
4/92 $9.79 $10.09 3.00% 04/15/92 $0.0715 $9.84 $7.1679 0.728
5/92 $9.76 $10.06 3.00% 05/15/92 $0.0715 $9.80 $7.2199 0.737
6/92 $9.67 $9.97 3.00% 06/15/92 $0.0715 $9.68 $7.2726 0.751
7/92 $9.60 $9.90 3.00% 07/15/92 $0.0665 $9.63 $6.8140 0.708
8/92 $9.54 $9.84 3.00% 08/15/92 $0.0595 $9.59 $6.1389 0.640
9/92 $9.38 $9.67 3.00% 09/15/92 $0.0595 $9.50 $6.1769 0.650
10/92 $9.32 $9.61 3.00% 10/15/92 $0.0595 $9.36 $6.2156 0.664
11/92 $9.39 $9.68 3.00% 11/15/92 $0.0550 $9.28 $5.7820 0.623
12/92 $9.36 $9.65 3.00% 12/15/92 $0.0550 $9.37 $5.8163 0.621
12/92 $9.36 $9.65 3.00% 12/30/92 $0.0275 $9.36 $2.9252 0.313
1/93 $9.32 $9.61 3.00% 01/18/93 $0.0275 $9.33 $2.9338 0.314
2/93 $9.35 $9.64 3.00% 02/10/93 $0.0461 $9.33 $4.9327 0.529
3/93 $9.30 $9.59 3.00% 03/10/93 $0.0550 $9.32 $5.9140 0.635
4/93 $9.23 $9.52 3.00% 04/08/93 $0.0570 $9.25 $6.1653 0.667
5/93 $9.30 $9.59 3.00% 05/10/93 $0.0574 $9.24 $6.2509 0.677
6/93 $9.20 $9.48 3.00% 06/10/93 $0.0646 $9.21 $7.0700 0.768
7/93 $9.33 $9.62 3.00% 07/09/93 $0.0660 $9.24 $7.2782 0.788
8/93 $9.29 $9.58 3.00% 08/10/93 $0.0660 $9.32 $7.3302 0.787
9/93 $9.22 $9.51 3.00% 09/10/93 $0.0685 $9.28 $7.6617 0.826
10/93 $9.12 $9.40 3.00% 10/08/93 $0.0685 $9.23 $7.7183 0.836
10/93 $9.12 $9.40 3.00% 10/29/93 $0.0974 $9.12 $11.0561 1.212
11/93 $9.03 $9.31 3.00% 11/10/93 $0.0679 $9.06 $7.7901 0.860
12/93 $8.93 $9.21 3.00% 12/10/93 $0.0596 $9.05 $6.8836 0.761
12/93 $8.93 $9.21 3.00% 12/23/93 $0.1154 $8.94 ST/LT Gain $13.4274 1.502
12/93 $8.93 $9.21 3.00% 12/30/93 $0.0423 $8.93 $4.9818 0.558
1/94 $8.93 $9.21 3.00% $0.0000 0.000
2/94 $8.79 $9.06 3.00% 02/10/94 $0.0867 $8.90 $10.2683 1.154
3/94 $8.65 $8.92 3.00% 03/10/94 $0.0624 $8.72 $7.4605 0.856
4/94 $8.58 $8.85 3.00% 04/08/94 $0.0587 $8.62 $7.0647 0.820
5/94 $8.54 $8.80 3.00% 05/10/94 $0.0654 $8.55 $7.9312 0.928
6/94 $8.50 $8.76 3.00% 06/10/94 $0.0626 $8.53 $7.6511 0.897
7/94 $8.49 $8.75 3.00% 07/08/94 $0.0598 $8.49 $7.3627 0.867
8/94 $8.51 $8.77 3.00% 08/10/94 $0.0694 $8.49 $8.5943 1.012
9/94 $8.51 $8.77 3.00% 09/09/94 $0.0610 $8.50 $7.6163 0.896
10/94 $8.47 $8.73 3.00% 10/10/94 $0.0642 $8.49 $8.0723 0.951
11/94 $8.44 $8.70 3.00% 11/10/94 $0.0673 $8.44 $8.5340 1.011
12/94 $8.36 $8.62 3.00% 12/09/94 $0.0617 $8.40 $7.8812 0.938
12/94 $8.36 $8.62 3.00% 12/29/94 $0.0397 $8.36 $5.1043 0.611
01/95 $8.36 $8.62 3.00% 01/10/95 $0.0218 $8.30 $2.8249 0.340
02/95 $8.29 $8.55 3.00% 02/10/95 $0.0640 $8.35 $8.2951 0.993
03/95 $8.20 $8.45 3.00% 03/10/95 $0.0646 $8.19 $8.4445 1.031
04/95 $8.33 $8.59 3.00% 04/10/95 $0.0664 $8.26 $8.7508 1.059
05/95 $8.42 $8.68 3.00% 05/10/95 $0.0639 $8.41 $8.4826 1.009
06/95 $8.43 $8.69 3.00% 06/09/95 $0.0624 $8.41 $8.3504 0.993
06/95 $8.43 $8.69 3.00% 06/29/95 $0.0423 $8.43 $5.7049 0.677
07/95 $8.46 $8.72 3.00% 07/28/95 $0.0605 $8.46 $8.1892 0.968
08/95 $8.44 $8.70 3.00% 08/30/95 $0.0688 $8.43 $9.3854 1.113
09/95 $8.42 $8.68 3.00% 09/28/95 $0.0607 $8.41 $8.3441 0.992
10/95 $8.41 $8.67 3.00% 10/30/95 $0.0654 $8.41 $9.0593 1.077
End of Period (update for formulas above):
$8.41
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Marketing
Plot Points
5-Year 3-Year $10,000.00
- -----------------------------------------------------------
Shares Dividend # of Shs Shares Initial
O/S Received Reinv. O/S Investment
98.425 $9,704.71
$0.00
98.774 $9,719.36
99.543 $9,804.99
100.250 $9,804.45
100.978 $9,885.75
101.715 $9,927.38
102.466 $9,908.46
103.174 $9,904.70
103.814 $9,903.86
104.464 103.413 $9,798.72
105.128 104.058 $9,797.93
105.751 $5.7232 0.617 104.675 $9,930.02
106.372 $5.7571 0.614 105.289 $9,956.42
106.685 $2.8954 0.309 105.598 $9,985.72
106.999 $2.9039 0.311 105.909 $9,972.31
107.528 $4.8824 0.523 106.432 $10,053.87
108.163 $5.8538 0.628 107.060 $10,059.16
108.830 $6.1024 0.660 107.720 $10,045.01
109.507 $6.1872 0.670 108.390 $10,184.15
110.275 $6.9979 0.760 109.150 $10,145.30
111.063 $7.2039 0.780 109.930 $10,362.18
111.850 $7.2554 0.778 110.708 $10,390.87
112.676 $7.5835 0.817 111.525 $10,388.73
113.512 $7.6395 0.828 112.353 $10,352.29
114.724 $10.9432 1.200 113.553 $10,462.83
115.584 $7.7105 0.851 114.404 $10,437.24
116.345 $6.8133 0.753 115.157 $10,389.61
117.847 $13.2903 1.487 116.644 $10,523.74
118.405 $4.9310 0.552 117.196 $10,573.57
118.405 $0.0000 0.000 117.196 $10,573.57
119.559 $10.1635 1.142 118.338 $10,509.24
120.415 $7.3843 0.847 119.185 $10,415.90
121.235 $6.9926 0.811 119.996 $10,401.96
122.163 $7.8501 0.918 120.914 $10,432.72
123.060 $7.5728 0.888 121.802 $10,460.10
123.927 $7.2874 0.858 122.660 $10,521.40
124.939 $8.5065 1.002 123.662 $10,632.31
125.835 $7.5384 0.887 124.549 $10,708.56
126.786 $7.9898 0.941 125.490 $10,738.77
127.797 $8.4467 1.001 126.491 $10,786.07
128.735 $7.8007 0.929 127.420 $10,762.25
129.346 $5.0522 0.604 128.024 $10,813.33
129.686 $2.7960 0.337 128.361 $10,841.75
130.679 $8.2103 0.983 129.344 $10,833.29
131.710 $8.3582 1.021 130.365 $10,800.22
132.769 $8.6615 1.049 131.414 $11,059.66
133.778 $8.3960 0.998 132.412 $11,264.11
134.771 $8.2652 0.983 133.395 $11,361.20
135.448 $5.6466 0.670 134.065 $11,418.27
136.416 $8.1056 0.958 135.023 $11,540.79
137.529 $9.2896 1.102 136.125 $11,607.45
138.521 $8.2590 0.982 137.107 $11,666.38
139.598 $8.9668 1.066 138.173 $11,740.19
End of Period (update for formulas above):
139.598 138.173
- -----------------------------------------------------
<PAGE>
JOHN HANCOCK SHORT-TERM STRATEGIC INCOME FUND (CLASS B)--SEC TOTAL RETURN
Initial Investment: $1,000.00
- --------------------------------------------------------------------------------
Average Annual Total Return Investment Value at End of Period
CDSC
Excluding With Excluding % CDSC Ending
CDSC CDSC CDSC CDSC Amount Value
1 Year Return: 7.97% 4.97% $1,079.69 3.00% $30.00 $1,049.69
- --------------------------------------------------------------------------------
# Since Inception NOTE: YTD includes Ex-dividend for the period $0.00127
Monthly Declared Dividend $0.05796
Constant Sales Charge:
<TABLE>
<CAPTION>
1-Year
---------------------------
Month Offering Sales Ex-Div Dividend Reinv. Capital Gain Dividend # of Shs Shares
Ended NAV Price Charge Date Amount Price Information Received Reinv. O/S
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10/94 $8.46 $8.46 N/A 10/10/94 $0.0589 $8.48 118.203
11/94 $8.43 $8.43 N/A 11/10/94 $0.0197 $8.43 $2.3333 0.277 118.480
12/94 $8.35 $8.35 N/A 12/09/94 $0.0568 $8.39 $6.7273 0.802 119.282
12/94 $8.35 $8.35 N/A 12/29/94 $0.0363 $8.35 $4.3311 0.519 119.801
01/95 $8.35 $8.35 N/A 01/10/95 $0.0198 $8.29 $2.3687 0.286 120.087
02/95 $8.28 $8.28 N/A 02/10/95 $0.0586 $8.34 $7.0328 0.843 120.930
03/95 $8.19 $8.19 N/A 03/10/95 $0.0598 $8.18 $7.2304 0.884 121.814
04/95 $8.32 $8.32 N/A 04/10/95 $0.0612 $8.25 $7.4526 0.903 122.717
05/95 $8.41 $8.41 N/A 05/10/95 $0.0587 $8.40 $7.1986 0.857 123.574
06/95 $8.42 $8.42 N/A 06/09/95 $0.0571 $8.40 $7.0524 0.840 124.414
06/95 $8.42 $8.42 N/A 06/29/95 $0.0387 $8.42 $4.8198 0.572 124.986
07/95 $8.45 $8.45 N/A 07/28/95 $0.0552 $8.45 $6.9044 0.817 125.803
08/95 $8.43 $8.43 N/A 08/30/95 $0.0634 $8.42 $7.9759 0.947 126.750
09/95 $8.41 $8.41 N/A 09/28/95 $0.0561 $8.40 $7.1059 0.846 127.596
10/95 $8.40 $8.40 N/A 10/30/95 $0.0606 $8.41 $7.7323 0.919 128.515
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
Fund #: 1322 Yield Date: 31-Oct-95
--------- -----------
Fund Name: JOHN HANCOCK SHORT TERM STRATEGIC - CLASS A
-------------------------------------------------
- -------------------------------------------------------------------------------
30 Day Yields
------------------
FUND 8.37285% Total Income for Period 137,097.52
------------------ ----------
Fund Expenses for Period 18,335.86
----------
Average Shares Outstanding 1,997,174.902
-------------
Last Price During Period 8.67
-----------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Gain/Loss Inc Adj Short DIVIDEND Long TOTAL TOTAL Daily Daily
Date Paydowns Paydowns Term GNMA INCOME Term PIK INCOME Expenses Price Shares
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
01-Oct 612.09 4,014.88 4,626.97 602.90 8.68 1,993,940.433
02-Oct 1,058.96 3,521.17 4,580.13 602.90 8.67 2,000,832.528
03-Oct 1,041.77 3,521.21 4,562.98 607.48 8.66 2,000,380.390
04-Oct 1,045.00 3,519.50 4,564.50 607.44 8.68 2,000,281.856
05-Oct 1,089.23 3,494.37 4,583.60 608.18 8.69 2,000,922.203
06-Oct 1,089.33 3,474.16 4,563.49 608.91 8.70 2,000,977.623
07-Oct 1,089.33 3,474.16 4,563.49 609.98 8.70 2,000,977.623
08-Oct 1,089.33 3,474.16 4,563.49 609.98 8.70 2,000,977.623
09-Oct 1,090.39 3,492.58 4,582.97 609.98 8.70 2,002,265.355
10-Oct 968.93 3,531.33 4,500.26 610.52 8.68 2,002,591.132
11-Oct 962.26 3,500.17 4,462.43 606.92 8.69 1,988,920.427
12-Oct 963.43 3,506.73 4,470.16 605.84 8.69 1,989,706.729
13-Oct 929.55 3,545.05 4,474.60 606.15 8.70 1,989,435.995
14-Oct 929.55 3,545.05 4,474.60 606.13 8.70 1,989,435.995
15-Oct 929.55 3,545.05 4,474.60 606.13 8.70 1,989,435.995
16-Oct 965.79 3,516.07 4,481.86 606.13 8.70 1,988,933.302
17-Oct 930.71 3,572.51 4,503.22 608.63 8.71 1,991,113.940
18-Oct 903.69 3,611.00 4,514.69 613.43 8.71 1,992,764.478
19-Oct 897.06 3,586.45 4,483.51 613.81 8.71 1,987,882.855
20-Oct 894.46 3,596.68 4,491.14 613.22 8.71 1,987,102.087
21-Oct 894.46 3,596.68 4,491.14 614.10 8.71 1,987,102.087
22-Oct 894.46 3,596.68 4,491.14 614.10 8.71 1,987,102.087
23-Oct 1,081.75 3,613.55 4,695.30 614.10 8.71 1,991,405.326
24-Oct 1,085.44 3,534.18 4,619.62 616.44 8.70 2,000,319.322
25-Oct 1,106.78 3,551.78 4,658.56 618.20 8.70 2,003,004.511
26-Oct 1,104.04 3,627.71 4,731.75 618.62 8.67 2,003,053.533
27-Oct 1,101.55 3,659.83 4,761.38 616.47 8.67 2,002,458.235
28-Oct 1,101.55 3,659.83 4,761.38 616.33 8.67 2,002,458.235
29-Oct 1,101.55 3,659.83 4,761.38 616.33 8.67 2,002,458.235
30-Oct 877.16 3,637.07 4,514.23 616.33 8.68 2,008,049.194
31-Oct 916.78 3,799.14 4,715.92 613.08 8.67 2,022,898.155
</TABLE>
- -------------------------------------------------
30 Day 30 Day 30 Day
- -------------------------------------------------
Accumulated Accumulated Accumulated
Income Expenses Shares
- -------------------------------------------------
0.00 0.00 0.00
4,580.13 602.90 2,000,832.53
9,143.11 1,210.38 4,001,212.92
13,707.61 1,817.82 6,001,494.77
18,291.21 2,426.00 8,002,416.98
22,854.70 3,034.91 10,003,394.60
27,418.19 3,644.89 12,004,372.22
31,981.68 4,254.87 14,005,349.85
36,564.65 4,864.85 16,007,615.20
41,064.91 5,475.37 18,010,206.33
45,527.34 6,082.29 19,999,126.76
49,997.50 6,688.13 21,988,833.49
54,472.10 7,294.28 23,978,269.48
58,946.70 7,900.41 25,967,705.48
63,421.30 8,506.54 27,957,141.47
67,903.16 9,112.67 29,946,074.78
72,406.38 9,721.30 31,937,188.72
76,921.07 10,334.73 33,929,953.19
81,404.58 10,948.54 35,917,836.05
85,895.72 11,561.76 37,904,938.14
90,386.86 12,175.86 39,892,040.22
94,878.00 12,789.96 41,879,142.31
99,573.30 13,404.06 43,870,547.64
104,192.92 14,020.50 45,870,866.96
108,851.48 14,638.70 47,873,871.47
113,583.23 15,257.32 49,876,925.00
118,344.61 15,873.79 51,879,383.24
123,105.99 16,490.12 53,881,841.47
127,867.37 17,106.45 55,884,299.71
132,381.60 17,722.78 57,892,348.90
137,097.52 18,335.86 59,915,247.06
<PAGE>
- -------------------------------------------------------------------------------
Fund #: 1322 Yield Date: 31-Oct-95
------------ ---------
Fund Name: JOHN HANCOCK SHORT TERM STRATEGIC - CLASS B
-------------------------------------------
- -------------------------------------------------------------------------------
30 Day Yields
- -------------------------------
FUND 7.96057% Total Income for Period 693,026.33
- ------------------------------- -----------------
Fund Expenses for Period 138,387.24
-----------------
Average Shares Outstanding 10,117,143.433
-----------------
Last Price During Period 8.40
-----------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Gain/Loss Inc Adj Short DIVIDEND Long TOTAL TOTAL Daily Daily
Date Paydowns Paydowns Term GNMA INCOME Term PIK INCOME Expenses Price Shares
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
01-Oct 3,129.33 20,526.09 23,655.42 4,696.46 8.41 10,206,960.904
02-Oct 5,393.29 17,933.25 23,326.54 4,696.46 8.40 10,203,429.058
03-Oct 5,305.76 17,933.69 23,239.45 4,616.91 8.39 10,201,258.322
04-Oct 5,314.80 17,899.88 23,214.68 4,612.14 8.41 10,186,475.321
05-Oct 5,538.65 17,768.56 23,307.21 4,616.74 8.42 10,187,745.282
06-Oct 5,535.84 17,665.82 23,201.66 4,619.43 8.43 10,181,884.403
07-Oct 5,535.84 17,665.82 23,201.66 4,625.71 8.43 10,181,884.403
08-Oct 5,535.84 17,665.82 23,201.66 4,625.71 8.43 10,181,884.403
09-Oct 5,538.27 17,739.50 23,277.77 4,625.71 8.43 10,183,110.670
10-Oct 4,916.36 17,917.90 22,834.26 4,626.11 8.41 10,174,338.658
11-Oct 4,916.45 17,883.40 22,799.85 4,616.41 8.42 10,174,518.072
12-Oct 4,915.28 17,890.94 22,806.22 4,615.25 8.42 10,164,506.059
13-Oct 4,742.21 18,085.45 22,827.66 4,615.66 8.43 10,161,648.136
14-Oct 4,742.21 18,085.45 22,827.66 4,613.97 8.43 10,161,648.136
15-Oct 4,742.21 18,085.45 22,827.66 4,613.97 8.43 10,161,648.136
16-Oct 4,926.25 17,934.48 22,860.73 4,613.97 8.43 10,158,242.721
17-Oct 4,176.76 18,105.13 22,281.89 4,615.62 8.44 10,103,979.789
18-Oct 4,574.16 18,277.68 22,851.84 4,623.57 8.44 10,099,860.535
19-Oct 4,545.34 18,172.31 22,717.65 4,627.44 8.44 10,085,636.914
20-Oct 4,529.13 18,211.95 22,741.08 4,622.71 8.44 10,074,907.465
21-Oct 4,529.13 18,211.95 22,741.08 4,616.96 8.44 10,074,907.465
22-Oct 4,529.13 18,211.95 22,741.08 4,616.96 8.44 10,074,907.465
23-Oct 5,457.67 18,231.11 23,688.78 4,616.96 8.44 10,060,179.292
24-Oct 5,446.21 17,732.76 23,178.97 4,608.58 8.43 10,049,720.347
25-Oct 5,537.96 17,772.00 23,309.96 4,603.14 8.43 10,035,488.125
26-Oct 5,517.54 18,139.91 23,657.45 4,600.03 8.40 10,023,540.184
27-Oct 5,504.25 18,287.57 23,791.82 4,583.29 8.40 10,019,015.261
28-Oct 5,504.25 18,287.57 23,791.82 4,580.92 8.40 10,019,015.261
29-Oct 5,504.25 18,287.57 23,791.82 4,580.92 8.40 10,019,015.261
30-Oct 4,379.08 18,157.40 22,536.48 4,580.92 8.41 10,037,906.883
31-Oct 4,558.69 18,891.25 23,449.94 4,555.07 8.40 10,072,000.961
</TABLE>
- ----------------------------------------
30 Day 30 Day 30 Day
- ----------------------------------------
Accumulated Accumulated Accumulated
Income Expenses Shares
- ----------------------------------------
0.00 0.00 0.00
23,326.54 4,696.46 10,203,429.06
46,565.99 9,313.37 20,404,687.38
69,780.67 13,925.51 30,591,162.70
93,087.88 18,542.25 40,778,907.98
116,289.54 23,161.68 50,960,792.39
139,491.20 27,787.39 61,142,676.79
162,692.86 32,413.10 71,324,561.19
185,970.63 37,038.81 81,507,671.86
208,804.89 41,664.92 91,682,010.52
231,604.74 46,281.33 101,856,528.59
254,410.96 50,896.58 112,021,034.65
277,238.62 55,512.24 122,182,682.79
300,066.28 60,126.21 132,344,330.92
322,893.94 64,740.18 142,505,979.06
345,754.67 69,354.15 152,664,221.78
368,036.56 73,969.77 162,768,201.57
390,888.40 78,593.34 172,868,062.10
413,606.05 83,220.78 182,953,699.02
436,347.13 87,843.49 193,028,606.48
459,088.21 92,460.45 203,103,513.95
481,829.29 97,077.41 213,178,421.41
505,518.07 101,694.37 223,238,600.71
528,697.04 106,302.95 233,288,321.05
552,007.00 110,906.09 243,323,809.18
575,664.45 115,506.12 253,347,349.36
599,456.27 120,089.41 263,366,364.62
623,248.09 124,670.33 273,385,379.88
647,039.91 129,251.25 283,404,395.14
669,576.39 133,832.17 293,442,302.03
693,026.33 138,387.24 303,514,302.99
<PAGE>
JOHN HANCOCK SHORT-TERM STRATEGIC INCOME FUND (CLASS B)--SEC TOTAL RETURN
Initial Investment: $1,000.00
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Average Annual Total Return Investment Value at End of Period CUMULATIVE
CDSC $ 10,000.00 $ 10,000.00
Excluding With Excluding % CDSC Ending Excluding With Initial Initial
CDSC CDSC CDSC CDSC Amount Value CDSC CDSC Investment Investment
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10 Year Return: N/A N/A N/A 0.00% N/A N/A N/A
4.84 Year Return: 5.02% 4.85% $1,267.65 1.00% $10.00 $1,257.65 26.77% 25.77% $12,676.50 $12,576.50
Since Inception Since Inception
or 10 years or 10 years
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
# Since Inception NOTE: YTD includes Ex-dividend for the period $0.00127
Monthly Declared Dividend $0.05796
Constant Sales Charge:
<TABLE>
<CAPTION>
10-Year 5-Year
--------------------------------------------
Month Offering Sales Ex-Div Dividend Reinv. Capital Gains Dividend # of Shs Shares Dividend # of Shs
Ended NAV Price Charge Date Amount Price Information Received Reinv. O/S Received Reinv.
- ----- --- ----- ------ ---- ------ ----- ----------- -------- ------ --- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12/28/90 $10.00 $10.00 N/A
/ $10.00 $10.00 N/A $0.0000 0.000
1/91 $10.07 $10.07 N/A $0.0000 0.000
2/91 $10.08 $10.08 N/A 02/15/91 $0.1146 $10.11 $11.4600 1.134
3/91 $10.06 $10.06 N/A 03/15/91 $0.0742 $10.06 $7.5041 0.746
4/91 $10.09 $10.09 N/A 04/15/91 $0.0813 $10.14 $8.2828 0.817
5/91 $10.12 $10.12 N/A 05/15/91 $0.0750 $10.11 $7.7023 0.762
6/91 $10.02 $10.02 N/A 06/15/91 $0.0750 $10.03 $7.7594 0.774
7/91 $9.97 $9.97 N/A 07/15/91 $0.0730 $10.00 $7.6090 0.761
8/91 $10.03 $10.03 N/A 08/15/91 $0.0755 $9.99 $7.9270 0.793
9/91 $9.98 $9.98 N/A 09/15/91 $0.0755 $10.02 $7.9869 0.797
10/91 $10.01 $10.01 N/A 10/15/91 $0.0730 $10.01 $7.7806 0.777
11/91 $9.88 $9.88 N/A 11/15/91 $0.0750 $9.96 $8.0521 0.808
12/91 $9.81 $9.81 N/A 12/15/91 $0.0730 $9.85 $7.8963 0.802
12/91 $9.81 $9.81 N/A 12/31/91 $0.0353 $9.79 $3.8467 0.393
1/92 $9.83 $9.83 N/A 01/15/92 $0.0397 $9.84 $4.3418 0.441
2/92 $9.84 $9.84 N/A 02/15/92 $0.0700 $9.82 $7.6864 0.783
3/92 $9.77 $9.77 N/A 03/15/92 $0.0630 $9.77 $6.9670 0.713
4/92 $9.78 $9.78 N/A 04/15/92 $0.0650 $9.83 $7.2346 0.736
5/92 $9.75 $9.75 N/A 05/15/92 $0.0650 $9.79 $7.2824 0.744
6/92 $9.67 $9.67 N/A 06/15/92 $0.0650 $9.67 $7.3308 0.758
7/92 $9.60 $9.60 N/A 07/15/92 $0.0600 $9.63 $6.8123 0.707
8/92 $9.53 $9.53 N/A 08/15/92 $0.0530 $9.59 $6.0550 0.631
9/92 $9.38 $9.38 N/A 09/15/92 $0.0530 $9.50 $6.0885 0.641
10/92 $9.31 $9.31 N/A 10/15/92 $0.0530 $9.36 $6.1225 0.654
11/92 $9.38 $9.38 N/A 11/15/92 $0.0490 $9.27 $5.6924 0.614
12/92 $9.35 $9.35 N/A 12/15/92 $0.0490 $9.37 $5.7225 0.611
12/92 $9.35 $9.35 N/A 12/30/92 $0.0245 $9.35 $2.8762 0.308
1/93 $9.31 $9.31 N/A 01/18/93 $0.0245 $9.33 $2.8838 0.309
2/93 $9.34 $9.34 N/A 02/10/93 $0.0411 $9.32 $4.8504 0.520
3/93 $9.29 $9.29 N/A 03/10/93 $0.0490 $9.31 $5.8082 0.624
4/93 $9.22 $9.22 N/A 04/08/93 $0.0510 $9.24 $6.0771 0.658
5/93 $9.29 $9.29 N/A 05/10/93 $0.0518 $9.23 $6.2080 0.673
6/93 $9.19 $9.19 N/A 06/10/93 $0.0582 $9.20 $7.0110 0.762
7/93 $9.33 $9.33 N/A 07/09/93 $0.0600 $9.23 $7.2751 0.788
8/93 $9.29 $9.29 N/A 08/10/93 $0.0600 $9.32 $7.3223 0.786
9/93 $9.21 $9.21 N/A 09/10/93 $0.0625 $9.27 $7.6766 0.828
10/93 $9.11 $9.11 N/A 10/08/93 $0.0625 $9.22 $7.7283 0.838
10/93 $9.11 $9.11 N/A 10/29/93 $0.0974 $9.11 $12.1254 1.331
11/93 $9.02 $9.02 N/A 11/10/93 $0.0618 $9.05 $7.7793 0.860
12/93 $8.92 $8.92 N/A 12/10/93 $0.0538 $9.04 $6.8134 0.754
12/93 $8.92 $8.92 N/A 12/23/93 $0.1154 $8.93 ST/LT Gain $14.7074 1.647
12/93 $8.92 $8.92 N/A 12/30/93 $0.0384 $8.92 $4.9614 0.556
1/94 $8.92 $8.92 N/A $0.0000 0.000
2/94 $8.78 $8.78 N/A 02/10/94 $0.0792 $8.89 $10.2703 1.155
3/94 $8.64 $8.64 N/A 03/10/94 $0.0575 $8.71 $7.5233 0.864
4/94 $8.57 $8.57 N/A 04/08/94 $0.0552 $8.61 $7.2609 0.843
5/94 $8.53 $8.53 N/A 05/10/94 $0.0611 $8.54 $8.0958 0.948
6/94 $8.49 $8.49 N/A 06/10/94 $0.0574 $8.52 $7.6560 0.899
7/94 $8.48 $8.48 N/A 07/08/94 $0.0552 $8.48 $7.4133 0.874
8/94 $8.50 $8.50 N/A 08/10/94 $0.0641 $8.48 $8.6731 1.023
9/94 $8.50 $8.50 N/A 09/09/94 $0.0561 $8.49 $7.6420 0.900
10/94 $8.46 $8.46 N/A 10/10/94 $0.0589 $8.48 $8.0765 0.952
11/94 $8.43 $8.43 N/A 11/10/94 $0.0617 $8.43 $8.5164 1.010
12/94 $8.35 $8.35 N/A 12/09/94 $0.0568 $8.39 $7.8985 0.941
12/94 $8.35 $8.35 N/A 12/29/94 $0.0363 $8.35 $5.0851 0.609
01/95 $8.35 $8.35 N/A 01/10/95 $0.0198 $8.29 $2.7811 0.335
02/95 $8.28 $8.28 N/A 02/10/95 $0.0586 $8.34 $8.2571 0.990
03/95 $8.19 $8.19 N/A 03/10/95 $0.0598 $8.18 $8.4891 1.038
04/95 $8.32 $8.32 N/A 04/10/95 $0.0612 $8.25 $8.7500 1.061
05/95 $8.41 $8.41 N/A 05/10/95 $0.0587 $8.40 $8.4518 1.006
06/95 $8.42 $8.42 N/A 06/09/95 $0.0571 $8.40 $8.2801 0.986
06/95 $8.42 $8.42 N/A 06/29/95 $0.0387 $8.42 $5.6589 0.672
07/95 $8.45 $8.45 N/A 07/28/95 $0.0552 $8.45 $8.1064 0.959
08/95 $8.43 $8.43 N/A 08/30/95 $0.0634 $8.42 $9.3644 1.112
09/95 $8.41 $8.41 N/A 09/28/95 $0.0561 $8.40 $8.3430 0.993
10/95 $8.40 $8.40 N/A 10/30/95 $0.0606 $8.41 $9.0726 1.079
- ----------------------------------------------------------------------------------------------------------------------------------
End of Period (update for formulas above):
$8.40
</TABLE>
Marketing Marketing
Plot Points Plot Points
$10,000.00 $10,000.00
Initial Initial
Shares Investment Investment
O/S Excl CDSC Incl CDSC
--- --------- ---------
100.000 $10,000.00 $9,900.00
$0.00 $0.00
100.000 $10,000.00 $9,900.00
100.000 $10,070.00 $9,970.00
101.134 $10,194.31 $10,094.31
101.880 $10,249.13 $10,149.13
102.697 $10,362.13 $10,262.13
103.459 $10,470.05 $10,370.05
104.233 $10,444.15 $10,344.15
104.994 $10,467.90 $10,367.90
105.787 $10,610.44 $10,510.44
106.584 $10,637.08 $10,537.08
107.361 $10,746.84 $10,646.84
108.169 $10,687.10 $10,587.10
108.971 $10,690.06 $10,590.06
109.364 $10,728.61 $10,628.61
109.805 $10,793.83 $10,693.83
110.588 $10,881.86 $10,781.86
111.301 $10,874.11 $10,774.11
112.037 $10,957.22 $10,857.22
112.781 $10,996.15 $10,896.15
113.539 $10,979.22 $10,879.22
114.246 $10,967.62 $10,867.62
114.877 $10,947.78 $10,847.78
115.518 $10,835.59 $10,735.59
116.172 $10,815.61 $10,715.61
116.786 $10,954.53 $10,854.53
117.397 $10,976.62 $10,876.62
117.705 $11,005.42 $10,905.42
118.014 $10,987.10 $10,887.10
118.534 $11,071.08 $10,971.08
119.158 $11,069.78 $10,969.78
119.816 $11,047.04 $10,947.04
120.489 $11,193.43 $11,093.43
121.251 $11,142.97 $11,042.97
122.039 $11,386.24 $11,286.24
122.825 $11,410.44 $11,310.44
123.653 $11,388.44 $11,288.44
124.491 $11,341.13 $11,241.13
125.822 $11,462.38 $11,362.38
126.682 $11,426.72 $11,326.72
127.436 $11,367.29 $11,267.29
129.083 $11,514.20 $11,414.20
129.639 $11,563.80 $11,463.80
129.639 $11,563.80 $11,463.80
130.794 $11,483.71 $11,383.71
131.658 $11,375.25 $11,275.25
132.501 $11,355.34 $11,255.34
133.449 $11,383.20 $11,283.20
134.348 $11,406.15 $11,306.15
135.222 $11,466.83 $11,366.83
136.245 $11,580.83 $11,480.83
137.145 $11,657.33 $11,557.33
138.097 $11,683.01 $11,583.01
139.107 $11,726.72 $11,626.72
140.048 $11,694.01 $11,594.01
140.657 $11,744.86 $11,644.86
140.992 $11,772.83 $11,672.83
141.982 $11,756.11 $11,656.11
143.020 $11,713.34 $11,613.34
144.081 $11,989.37 $11,887.54
145.087 $12,285.90 $12,101.82
146.073 $12,299.35 $12,199.35
146.745 $12,355.93 $12,255.93
147.704 $12,480.99 $12,380.99
148.816 $12,545.19 $12,445.19
149.809 $12,598.94 $12,498.94
150.888 $12,676.51 $12,576.51
- -----------------------------------
End of Period (update for formulas above):
150.888
- -----------------------------------
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 013
<NAME> JOHN HANCOCK GLOBAL FUND - CLASS C
<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> 0
<SHARES-COMMON-PRIOR> 52,719
<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> 73,842
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,813
<NUMBER-OF-SHARES-REDEEMED> 69,733
<SHARES-REINVESTED> 6,201
<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> 716,752
<PER-SHARE-NAV-BEGIN> 14.34
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 1.24
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 1.31
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.27
<EXPENSE-RATIO> 1.42
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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
<SHARES-COMMON-PRIOR> 1,010,968
<ACCUMULATED-NII-CURRENT> 506,675
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,838,584)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,859,361
<NET-ASSETS> 100,934,402
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,125,784
<OTHER-INCOME> 0
<EXPENSES-NET> 2,291,971
<NET-INVESTMENT-INCOME> 6,833,813
<REALIZED-GAINS-CURRENT> (2,207,059)
<APPREC-INCREASE-CURRENT> 7,872,215
<NET-CHANGE-FROM-OPS> 12,498,969
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,232,555
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 19,824
<NUMBER-OF-SHARES-SOLD> 3,261,257
<NUMBER-OF-SHARES-REDEEMED> 556,804
<SHARES-REINVESTED> 82,340
<NET-CHANGE-IN-ASSETS> (22,670,707)
<ACCUMULATED-NII-PRIOR> 506,675
<ACCUMULATED-GAINS-PRIOR> (4,631,525)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 840,527
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,291,971
<AVERAGE-NET-ASSETS> 19,477,846
<PER-SHARE-NAV-BEGIN> 8.85
<PER-SHARE-NII> 0.57
<PER-SHARE-GAIN-APPREC> 0.48
<PER-SHARE-DIVIDEND> 0.59
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> .01
<PER-SHARE-NAV-END> 9.30
<EXPENSE-RATIO> 1.48
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> JOHN HANCOCK GLOBAL INCOME FUND - CLASS B
<S> <C>
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<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
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<NET-ASSETS> 100,934,402
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<INTEREST-INCOME> 9,125,784
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<EXPENSES-NET> 2,291,971
<NET-INVESTMENT-INCOME> 6,833,813
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<NUMBER-OF-SHARES-SOLD> 304,724
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<SHARES-REINVESTED> 306,687
<NET-CHANGE-IN-ASSETS> (22,670,707)
<ACCUMULATED-NII-PRIOR> 506,675
<ACCUMULATED-GAINS-PRIOR> (4,631,525)
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<RETURNS-OF-CAPITAL> .01
<PER-SHARE-NAV-END> 9.30
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</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> JOHN HANCOCK SPECIAL OPPORTUNITIES FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
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<ACCUM-APPREC-OR-DEPREC> 35,158,585
<NET-ASSETS> 238,925,410
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<INTEREST-INCOME> 1,047,280
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<EXPENSES-NET> 4,669,908
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<NUMBER-OF-SHARES-SOLD> 3,199,395
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<GROSS-EXPENSE> 4,669,908
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<PER-SHARE-NAV-BEGIN> 7.93
<PER-SHARE-NII> (0.07)
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<PER-SHARE-NAV-END> 9.32
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> JOHN HANCOCK SPECIAL OPPORTUNITIES 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> 192,874,826
<INVESTMENTS-AT-VALUE> 228,022,123
<RECEIVABLES> 24,338,374
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<PAYABLE-FOR-SECURITIES> 12,750,625
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<ACCUMULATED-NET-GAINS> (5,914,444)
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<ACCUM-APPREC-OR-DEPREC> 35,158,585
<NET-ASSETS> 238,925,410
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<NET-INVESTMENT-INCOME> (2,954,092)
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<GROSS-EXPENSE> 4,669,908
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<PER-SHARE-NAV-BEGIN> 7.87
<PER-SHARE-NII> (0.13)
<PER-SHARE-GAIN-APPREC> 1.45
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.19
<EXPENSE-RATIO> 2.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 043
<NAME> JOHN HANCOCK SPECIAL OPPORTUNITIES FUND - CLASS C
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 192,874,826
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<RECEIVABLES> 24,338,374
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<OTHER-ITEMS-ASSETS> 35,158,585
<TOTAL-ASSETS> 252,439,513
<PAYABLE-FOR-SECURITIES> 12,750,625
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<ACCUMULATED-NET-GAINS> (5,914,444)
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<NET-ASSETS> 238,925,410
<DIVIDEND-INCOME> 668,536
<INTEREST-INCOME> 1,047,280
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<EXPENSES-NET> 4,669,908
<NET-INVESTMENT-INCOME> (2,954,092)
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<EQUALIZATION> 0
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<NUMBER-OF-SHARES-SOLD> 11,302
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<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 14,452,405
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (22,967,358)
<OVERDISTRIB-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 1,870,771
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,669,908
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<PER-SHARE-NAV-BEGIN> 7.94
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0.30
<PER-SHARE-DIVIDEND> 0
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<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.24
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> JOHN HANCOCK INTERNATIONAL 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
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<RECEIVABLES> 227,597
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<TOTAL-ASSETS> 8,633,396
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<ACCUMULATED-NET-GAINS> (534,485)
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<ACCUM-APPREC-OR-DEPREC> 278,607
<NET-ASSETS> 8,204,963
<DIVIDEND-INCOME> 148,360
<INTEREST-INCOME> 26,504
<OTHER-INCOME> 0
<EXPENSES-NET> 164,245
<NET-INVESTMENT-INCOME> 10,619
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<NET-CHANGE-FROM-OPS> (506,974)
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<DISTRIBUTIONS-OF-GAINS> 0
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<NUMBER-OF-SHARES-SOLD> 284,149
<NUMBER-OF-SHARES-REDEEMED> 282,754
<SHARES-REINVESTED> 4,863
<NET-CHANGE-IN-ASSETS> (168,543)
<ACCUMULATED-NII-PRIOR> 14,822
<ACCUMULATED-GAINS-PRIOR> 54,063
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 418,464
<AVERAGE-NET-ASSETS> 8,034,813
<PER-SHARE-NAV-BEGIN> 8.65
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> (0.47)
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.05
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.14
<EXPENSE-RATIO> 1.64
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 052
<NAME> JOHN HANCOCK INTERNATIONAL 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> 8,034,029
<INVESTMENTS-AT-VALUE> 8,312,806
<RECEIVABLES> 227,597
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<TOTAL-ASSETS> 8,633,396
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<TOTAL-LIABILITIES> 8,204,963
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<SHARES-COMMON-PRIOR> 458,714
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<ACCUMULATED-NET-GAINS> (534,485)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 278,607
<NET-ASSETS> 8,204,963
<DIVIDEND-INCOME> 148,360
<INTEREST-INCOME> 26,504
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<EXPENSES-NET> 164,245
<NET-INVESTMENT-INCOME> 10,619
<REALIZED-GAINS-CURRENT> (563,681)
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<NUMBER-OF-SHARES-SOLD> 255,410
<NUMBER-OF-SHARES-REDEEMED> 221,662
<SHARES-REINVESTED> 2,888
<NET-CHANGE-IN-ASSETS> (168,543)
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<INTEREST-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 8.61
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> (0.48)
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<PER-SHARE-DISTRIBUTIONS> 0.05
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<PER-SHARE-NAV-END> 8.05
<EXPENSE-RATIO> 2.52
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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
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<OVERDISTRIBUTION-NII> (1,275,819)
<ACCUMULATED-NET-GAINS> (30,480,834)
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<ACCUM-APPREC-OR-DEPREC> 811,116
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<NUMBER-OF-SHARES-SOLD> 1,378,812
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<NET-CHANGE-IN-ASSETS> (9,883,293)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (24,568,945)
<OVERDISTRIB-NII-PRIOR> (1,275,819)
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<PER-SHARE-NAV-BEGIN> 8.47
<PER-SHARE-NII> 0.77
<PER-SHARE-GAIN-APPREC> (0.06)
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<PER-SHARE-NAV-END> 8.41
<EXPENSE-RATIO> 1.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<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
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</TABLE>
