<PAGE> 1
File No. 33-4559
As filed with the Securities and Exchange Commission on May 20, 1996.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. __ / /
Post-Effective Amendment No. ___ / /
(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 office) Zip Code
(617) 375-1700
(Registrant's Telephone Number, including Area Code)
With a copy to:
Susan S. Newton, Esq. Jeffrey N. Carp, Esq.
John Hancock Advisers, Inc. Hale and Dorr
101 Huntington Avenue 60 State Street
Boston, MA 02199 Boston, MA 02109
(Name and address of agent for service)
Approximate Date of Proposed Public Offering: As soon as practicable
after the effectiveness of the registration statement.
No filing fee is required because an indefinite number of shares has
previously been registered pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. This Registration Statement relates to
shares previously registered on Form N-1A (File Nos. 33-4559 and
811-4630).
It is proposed that this filing will become effective on June 19, 1996
pursuant to Rule 488 under the Securities Act of 1933.
<PAGE> 2
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
(a series of Freedom Investment Trust II)
CROSS-REFERENCE SHEET
Items Required by Form N-14
PART A
------
<TABLE>
<CAPTION>
Item No. Item Caption Prospectus Caption
-------- ------------ ------------------
<S> <C> <C>
1. Beginning of Registration COVER PAGE OF REGISTRATION
Statement and Outside Front STATEMENT; FRONT COVER PAGE OF
Cover Page of Prospectus PROSPECTUS
2. Beginning and Outside Back TABLE OF CONTENTS
Cover Page of Prospectus
3. Fee Table, Synopsis SUMMARY; RISK FACTORS AND SPECIAL
Information and Risk Factors CONSIDERATIONS
4. Information About the SUMMARY; INFORMATION CONCERNING THE
Transaction MEETING; PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN OF REORGANIZATION; CAPITALIZATION
5. Information About the PROSPECTUS COVER PAGE: INTRODUCTION;
Registrant SUMMARY; BUSINESS OF SPECIAL
OPPORTUNITIES FUND
6. Information About the PROSPECTUS COVER PAGE: INTRODUCTION;
Company Being Acquired SUMMARY; BUSINESS OF GLOBAL
RESOURCES FUND
7. Voting Information PROSPECTUS COVER PAGE; NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS;
SUMMARY; INFORMATION CONCERNING THE MEETING
8. Interest of Certain Persons NONE
and Experts
9. Additional Information NOT APPLICABLE
Required for Reoffering by
Persons Deemed to be
Underwriters
</TABLE>
<PAGE> 3
PART B
------
<TABLE>
<CAPTION>
Caption in Statement of
Item No. Item Caption Additional Information
-------- ------------ ----------------------
<S> <C> <C>
10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. Additional Information ADDITIONAL INFORMATION ABOUT
About the Registrant SPECIAL OPPORTUNITIES FUND
13. Additional Information About ADDITIONAL INFORMATION ABOUT
the Company Being Acquired GLOBAL RESOURCES FUND
14. Financial Statements ADDITIONAL INFORMATION ABOUT SPECIAL
OPPORTUNITIES FUND; ADDITIONAL
INFORMATION ABOUT GLOBAL RESOURCES
FUND; PRO FORMA COMBINED FINANCIAL
STATEMENTS
<CAPTION>
PART C
------
Item No. Item Caption
-------- ------------
<S> <C> <C>
15. Indemnification INDEMNIFICATION
16. Exhibits EXHIBITS
17. Undertakings UNDERTAKINGS
</TABLE>
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<PAGE> 4
Dear Fellow Global Resources Fund Shareholder:
As you know, the last several years have been difficult for the global
resources sector. And while there are recent signs of improvement in certain
areas, the outlook for long-term industry recovery seems uncertain. For this
reason, we are proposing a merger of the John Hancock Global Resources Fund
into the John Hancock Special Opportunities Fund.
We believe this merger will benefit you in two ways:
Increased Investment Flexibility. The Special Opportunities Fund was created
to offer investors access to not just one, but several of the most promising
industry sectors. The Fund targets up to five industry sectors that the Fund's
management team believes to offer extraordinary growth prospects, and then
selects the companies within those sectors that show the greatest promise. In
fact, the Special Opportunities Fund currently counts the natural resources
sector among its targeted industries.
The Special Opportunities Fund offers you:
* Access to the top growth sectors
* The opportunity to invest in the fastest-growing companies within these
sectors
* Timely repositioning for highest growth potential
Lower Fund Expenses. Your Trustees firmly believe that combining these two
funds may benefit shareholders by allowing the Fund to capitalize on expected
economies of scale in investment research, operations and other important
areas. By creating a larger combined fund, the reorganization may lead to
reduced expenses and, ultimately, lower costs for you.
YOUR VOTE IS IMPORTANT!
At a special meeting of shareholders on June 26, 1996 at 9:00 A.M., you will be
asked to approve the merger of the Global Resources Fund into the Special
Opportunities Fund. Your Board of Trustees has already unanimously approved
this merger.
We urge you to consider this proposal and vote by completing, signing and
returning the enclosed proxy ballot form immediately. Your prompt response
will help avoid the cost of additional mailings to the Fund. For your
convenience, we have provided a postage-paid envelope.
If you have questions, please call your Customer Service Representative at
1-800-225-5291, Monday through Friday between 8:00 A.M. and 8:00 P.M. Eastern
time.
Sincerely,
Edward J. Boudreau, Jr.
Chairman and CEO
<PAGE> 5
JOHN HANCOCK GLOBAL RESOURCES FUND
101 Huntington Avenue
Boston, Massachusetts 02199
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 14, 1996
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of John Hancock Global Resources Fund ("Global Resources Fund"), a
series of John Hancock Series, Inc., a Maryland corporation (the "Company"),
will be held at 101 Huntington Avenue, Boston, Massachusetts 02116 on Wednesday,
August 14, 1996 at 9:00 a.m., Boston time, and at any adjournment thereof, for
the following purposes:
1. To consider and act upon a proposal to approve an Agreement and Plan of
Reorganization between the Company, on behalf of Global Resources Fund, and
Freedom Investment Trust II ("Freedom Trust"), on behalf of John Hancock
Special Opportunities Fund ("Special Opportunities Fund"), providing for
Special Opportunities Fund's acquisition of all of Global Resources Fund's
assets in exchange solely for the assumption of Global Resources Fund's
liabilities by Special Opportunities Fund and the issuance of Class A and
Class B shares of Special Opportunities Fund to Global Resources Fund for
distribution to its Class A and Class B shareholders; and
2. To consider and act upon such other matters as may properly come before the
Meeting or any adjournment thereof.
The Company's Board of Directors has fixed the close of business on June
17, 1996 as the record date for determination of shareholders who are entitled
to notice of and to vote at the Meeting and any adjournment thereof.
If you cannot attend the Meeting in person, please complete, date and sign
the enclosed proxy and return it to John Hancock Investor Services Corporation,
101 Huntington Avenue, Boston, Massachusetts 02199 in the enclosed envelope. It
is important that you exercise your right to vote. THE ENCLOSED PROXY IS BEING
SOLICITED BY THE BOARD OF TRUSTEES OF JOHN HANCOCK GLOBAL RESOURCES FUND.
By order of the Board of Trustees,
Susan S. Newton, Secretary
Boston, Massachusetts
June 24, 1996
<PAGE> 6
JOHN HANCOCK GLOBAL RESOURCES FUND
a series of
John Hancock Series, Inc.
PROXY STATEMENT
-------------------------
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
a series of
Freedom Investment Trust II
PROSPECTUS
-------------------------
This Proxy Statement and Prospectus sets forth the information you should
know before voting on the proposed reorganization of John Hancock Global
Resources Fund ("Global Resources Fund") into John Hancock Special Opportunities
Fund ("Special Opportunities Fund"). Please read it carefully and retain it for
future reference. Global Resources Fund is a series of John Hancock Series,
Inc., a Maryland corporation (the "Company"), and Special Opportunities Fund is
a series of Freedom Investment Trust II ("Freedom Trust"), a Massachusetts
business trust.
This Proxy Statement and Prospectus includes the Prospectus of Special
Opportunities Fund for Class A and Class B shares, dated March 1, 1996.
Information about Global Resources Fund's Class A and Class B shares is
incorporated herein by reference to the Global Resources Fund Prospectus which
is available at no charge upon request to Special Opportunities Fund at 1-800-
225-5291.
A Statement of Additional Information dated June 24, 1996 relating to this
Proxy Statement and Prospectus, and containing additional information about each
of Special Opportunities Fund and Global Resources Fund, including historical
financial statements, is on file with the Securities and Exchange Commission
("SEC"). It is available, upon telephone request at no charge at the toll-free
number stated above, from Special Opportunities Fund. The Statement of
Additional Information is incorporated by reference into this Prospectus.
This Proxy Statement and Prospectus relates to Class A and Class B shares
of beneficial interest (collectively, the "Special Opportunities Fund Shares")
of Special Opportunities Fund which will be issued in exchange for all of Global
Resources Fund's
<PAGE> 7
assets. In exchange for these assets, Special Opportunities Fund will assume all
liabilities of Global Resources Fund.
The Class A Special Opportunities Fund Shares issued to Global Resources
Fund for distribution to Global Resources Fund's Class A shareholders will have
an aggregate net asset value equal to that of Global Resources Fund's Class A
shares. The Class B Special Opportunities Fund Shares issued to Global Resources
Fund for distribution to Global Resources Fund's Class B shareholders will have
an aggregate net asset value equal to that of Global Resources Fund's
Class B shares. The asset values of Global Resources Fund and Special
Opportunities Fund will be determined at the close of business (4:00 p.m.
Eastern Time) on the Closing Date (as defined below) for purposes of the
proposed reorganization.
Following the receipt of Special Opportunities Fund Shares (1) Global
Resources Fund will be liquidated, (2) the Special Opportunities Fund Shares
will be distributed to Global Resources Fund's shareholders pro rata in exchange
for their shares of Global Resources Fund and (3) Global Resources Fund will be
terminated as a series of the Company. Consequently, Class A Global Resources
Fund shareholders will become Class A shareholders of Special Opportunities
Fund, and Class B Global Resources Fund shareholders will become Class B
shareholders of Special Opportunities Fund. These transactions are collectively
referred to in this Proxy Statement and Prospectus as the "Reorganization." The
Reorganization is being structured as a tax-free reorganization so that, in the
opinion of tax counsel, no gain or loss will be recognized by Special
Opportunities Fund, Global Resources Fund or the shareholders of Global
Resources Fund. The terms and conditions of this transaction are more fully
described in this Proxy Statement and Prospectus, and in the Agreement and Plan
of Reorganization that is attached as EXHIBIT A.
Special Opportunities Fund is a non-diversified series of Freedom Trust, an
open-end management investment company organized as a Massachusetts business
trust in 1986. Special Opportunities Fund's investment objective is long-term
capital appreciation. Special Opportunities Fund seeks to achieve its investment
objective by varying the relative weighting of its portfolio securities among
several economic sectors based upon both macroeconomic factors and the outlook
for each particular sector. The Fund may focus on as many as five of the
following economic sectors at any one time: automotive and housing, consumer
goods and services, defense and aerospace, energy, financial services, health
care, heavy industry, leisure and entertainment, machinery and equipment,
precious metals, retailing, technology, transportation, utilities, foreign and
environmental.
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<PAGE> 8
The principal place of business of both Special Opportunities Fund and
Global Resources Fund is at 101 Huntington Avenue, Boston, Massachusetts 02199.
Their toll-free telephone number is 1-800-225-5291.
SHARES OF SPECIAL OPPORTUNITIES FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY, ANY BANK OR OTHER DEPOSITORY INSTITUTION, AND THE
SHARES OF SPECIAL OPPORTUNITIES FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement and Prospectus is June 24, 1996.
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<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTION...................................................... 1
SUMMARY........................................................... 2
RISK FACTORS AND SPECIAL CONSIDERATIONS........................... 18
INFORMATION CONCERNING THE MEETING................................ 18
PROPOSAL TO APPROVE AGREEMENT AND PLAN OF REORGANIZATION.......... 20
CAPITALIZATION.................................................... 28
COMPARATIVE PERFORMANCE INFORMATION............................... 29
BUSINESS OF GLOBAL RESOURCES FUND................................. 31
General.......................................................... 31
Investment Objective and Policies................................ 31
Portfolio Management............................................. 31
Directors........................................................ 31
Investment Adviser and Distributor............................... 31
Expenses......................................................... 31
Custodian and Transfer Agent..................................... 31
Global Resources Fund Shares..................................... 32
Purchase of Global Resources Fund Shares......................... 32
Redemption of Global Resources Fund Shares....................... 32
Dividends, Distributions and Taxes............................... 32
BUSINESS OF SPECIAL OPPORTUNITIES FUND............................ 32
General.......................................................... 32
Investment Objective and Policies................................ 32
Portfolio Management............................................. 33
Trustees......................................................... 33
Investment Adviser and Distributor............................... 33
Expenses......................................................... 33
Custodian and Transfer Agent..................................... 33
Special Opportunities Fund Shares................................ 33
Purchase of Special Opportunities Fund Shares.................... 33
Redemption of Special Opportunities Fund Shares.................. 33
Dividends, Distributions and Taxes............................... 34
EXPERTS........................................................... 34
AVAILABLE INFORMATION............................................. 34
EXHIBIT A......................................................... A-1
</TABLE>
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<PAGE> 10
EXHIBITS
A - Agreement and Plan of Reorganization by and between John Hancock
Series, Inc., on behalf of John Hancock Global Resources Fund, and
Freedom Investment Trust II, on behalf of John Hancock Special
Opportunities Fund (attached to this document).
B - Prospectus of John Hancock Special Opportunities Fund for Class A and
Class B shares, dated March 1, 1996, as supplemented April 3, 1996
(attached to this document).
C - Annual Report to Shareholders of Special Opportunities Fund, dated
October 31, 1995 (included with this document).
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<PAGE> 11
PROXY STATEMENT AND PROSPECTUS
FOR SPECIAL MEETING OF SHAREHOLDERS OF
JOHN HANCOCK GLOBAL RESOURCES FUND
TO BE HELD ON AUGUST 14, 1996
INTRODUCTION
This Proxy Statement and Prospectus is furnished in connection with the
solicitation of proxies by the Board of Directors of the Company on behalf of
Global Resources Fund. The proxies will be voted at the Special Meeting of
Shareholders (the "Meeting") of Global Resources Fund to be held at 101
Huntington Avenue, Boston, Massachusetts 02199 on Wednesday, August 14, 1996 at
9:00 a.m., Boston time, and at any adjournment or adjournments of the Meeting.
The purposes of the Meeting are set forth in the accompanying Notice of Special
Meeting of Shareholders.
This Proxy Statement and Prospectus includes and incorporates by reference
the prospectus of John Hancock Special Opportunities Fund ("Special
Opportunities Fund") for Class A and Class B shares, dated March 1, 1996, as
supplemented April 3, 1996 (the "Special Opportunities Fund Prospectus"). The
Annual Report to Shareholders of Special Opportunities Fund, dated October 31,
1995, accompanies this Proxy Statement and Prospectus. These materials are being
mailed to shareholders of Global Resources Fund on or after June 24, 1996.
Information about Global Resources Fund is incorporated by reference to the
Global Resources Fund prospectus dated March 1, 1996 (the "Global Resources
Prospectus") which is available upon request. Global Resources Fund's Annual
Report to Shareholders was previously sent to shareholders on or about December
31, 1995.
As of May 31, 1996, ______ Class A and ______ Class B shares of common
stock of Global Resources Fund were outstanding. Shareholders of record on June
17, 1996 (the "Record Date") are entitled to notice of and to vote at the
Meeting.
All properly executed proxies received by management prior to the Meeting,
unless revoked, will be voted at the Meeting according to the instructions on
the proxies. If no instructions are given, shares of Global Resources Fund
represented by proxies will be voted FOR the proposal (the "Proposal") to
approve the Agreement and Plan of Reorganization (the "Agreement") between the
Company, on behalf of Global Resources Fund, and Freedom Trust, on behalf of
Special Opportunities Fund.
The Board of Directors knows of no business to be presented for
consideration at the Meeting other than that mentioned in the immediately
preceding paragraph. If other business is properly
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<PAGE> 12
brought before the Meeting, proxies will be voted according to the best judgment
of the persons named as proxies.
In addition to the mailing of these proxy materials, proxies may be
solicited in person or by telephone by Directors, officers and employees of
Global Resources Fund; by personnel of Global Resources Fund's investment
adviser, John Hancock Advisers, Inc., and its transfer agent, John Hancock
Investor Services Corporation ("Investor Services"); or by broker-dealer firms.
Global Resources Fund and Special Opportunities Fund (each, a "Fund" and
collectively, the "Funds") will each bear its own fees and expenses in
connection with the Reorganization discussed in this Proxy Statement and
Prospectus.
The information concerning Global Resources Fund and Special Opportunities
Fund in this Proxy Statement and Prospectus has been supplied by the Company and
Freedom Trust, respectively.
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus. The summary is qualified by reference to
the more complete information contained in this Proxy Statement and Prospectus,
and in the EXHIBITS attached to or included with this document. Please read this
entire Proxy Statement and Prospectus carefully.
REASONS FOR THE PROPOSED REORGANIZATION
The Company's Board of Directors has determined that the proposed
Reorganization is in the best interests of Global Resources Fund and its
shareholders. In making this determination, the Board considered several
relevant factors, including (1) the fact that the investment objectives and
policies of Global Resources Fund and Special Opportunities Fund are similar,
(2) the fact that the Reorganization will result in improved economies of scale
and a corresponding decrease in the expenses currently borne by Global Resources
Fund's shareholders and (3) the fact that combining the Funds' assets into a
single portfolio will enable Special Opportunities Fund to achieve greater
diversification than Global Resources Fund is now able to achieve. The Board
believes that the Special Opportunities Fund Shares received in the
Reorganization will provide existing Global Resources Fund shareholders with
substantially the same investment advantages that they currently enjoy at a
comparable level of risk. Shareholders of both Funds may benefit from a fund
offering greater diversification in its investment portfolio as a result of the
larger asset base. Greater diversification may reduce the negative effect which
the adverse performance of any one security may have on the performance of the
entire portfolio. The Board also considered that the management fee rate of
Special
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<PAGE> 13
Opportunities Fund applicable to the assets of Global Resources Fund after the
Reorganization will be higher than that of Global Resources Fund. However, the
Board noted that the total fund operating expenses of Special Opportunities Fund
after the Reorganization will be substantially less than currently applicable to
Global Resources Fund and that Special Opportunities Fund's past performance has
been better than that of Global Resources Fund. For a more detailed discussion
of the reasons for the proposed Reorganization, see "Proposal to Approve the
Agreement and Plan of Reorganization--Reasons For The Proposed Reorganization."
THE FUNDS' EXPENSES
The Funds and their shareholders are subject to various fees and expenses.
The tables set forth below show the shareholder transaction and operating
expenses of Class A and Class B shares of the Funds. These expenses are based on
fees and expenses incurred during each Fund's most recently completed fiscal
year.
GLOBAL RESOURCES FUND
<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* 5.00%
Redemption fee+...................................................... None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management fee....................................................... 0.75% 0.75%
12b-1 fee**.......................................................... 0.25% 1.00%
Other expenses***.................................................... 0.98% 0.98%
Total Fund operating expenses........................................ 1.98% 2.73%
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, but for these investments a contingent deferred sales charge
may be imposed in the event of certain redemption transactions within one
year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Class's average net assets, and the remaining portion will be
used to cover distribution expenses.
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<PAGE> 14
*** Other expenses include transfer agent, legal, audit, custody and other
expenses.
+ Redemption by wire fee (currently $4.00) not included.
SPECIAL OPPORTUNITIES FUND
<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* 5.00%
Redemption fee+............................................. None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management fee ............................................. 0.80% 0.80%
12b-1 fee**................................................. 0.30% 1.00%
Other expenses*** .......................................... 0.49% 0.49%
Total Fund operating expenses .............................. 1.59% 2.29%
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, but for these investments a contingent deferred sales
charge may be imposed in the event of certain redemption transactions
within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Class's average net assets, and the remaining portion will be
used to cover distribution expenses.
*** Other expenses include transfer agent, legal, audit, custody and other
expenses.
+ Redemption by wire fee (currently $4.00) not included.
SPECIAL OPPORTUNITIES FUND (PRO FORMA)
The table set forth below shows the pro forma operating expenses of Class A
and Class B shares of Special Opportunities Fund which assumes that Shareholders
of Global Resources Fund approved the Reorganization and that the Reorganization
took place on October 31, 1995. These expenses are based on fees and expenses
incurred during each Fund's most recently completed fiscal year.
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<PAGE> 15
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
------- -------
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price)....................... 5.00% None
Maximum sales charge imposed on reinvested
dividends................................................. None None
Maximum deferred sales charge............................... None* 5.00%
Redemption fee+............................................. None None
<CAPTION>
Class A Class B
Shares Shares
------- -------
<S> <C> <C>
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)
Management fee ............................................. 0.80% 0.80%
12b-1 fee**................................................. 0.30% 1.00%
Other expenses*** .......................................... 0.52% 0.52%
Total Fund operating expenses............................... 1.62% 2.32%
</TABLE>
* No sales charge is payable at the time of purchase on investments of $1
million or more, but for these investments a contingent deferred sales
charge may be imposed in the event of certain redemption transactions
within one year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Class's average net assets, and the remaining portion will be
used to cover distribution expenses
*** Other expenses include transfer agent, legal, audit, custody and other
expenses.
If the Reorganization is consummated, the actual total operating expenses
of Class A and Class B shares of Special Opportunities Fund may vary from the
pro forma operating expenses indicated above due to changes in the net asset
value of Global Resources Fund or Special Opportunities Fund between October 31,
1995 and the Closing Date (defined below).
EXAMPLE
The following example illustrates the expenses you would pay on a $1,000
investment under the existing fees for each of Global Resources Fund and Special
Opportunities Fund and under the pro forma fees if the Reorganization had
occurred on October 31, 1995. The example assumes (1) a 5% annual return and (2)
redemption at the end of each time period.
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<PAGE> 16
<TABLE>
<CAPTION>
Class A Class B Class A Class B Pro Pro
Global Global Special Special Forma Forma
Resources Resources Opportunities Opportunities Class A Class B
Fund Fund Fund Fund Shares Shares
--------- -------- ------------ ------------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1 year $ 69 $ 78 $ 65 $ 73 $ 66 $ 74
3 years 109 115 98 102 99 103
5 years 151 164 132 143 134 144
10 years 269 288 229 245 233 248
</TABLE>
Assuming there is no redemption at the end of each time period, the
expenses you would pay on the same investment would be as follows:
<TABLE>
<CAPTION>
Class B Class B Pro
Global Special Forma
Resources Opportunities Class B
Fund Fund Shares
--------- ------------- -------
<S> <C> <C> <C>
1 year $ 28 $ 23 $ 24
3 years 85 72 73
5 years 144 123 124
10 years 288 245 248
</TABLE>
The purpose of this example and the tables set forth above is to assist
investors in understanding the various costs and expenses of investing in shares
of the Funds and what such costs would be had the Reorganization occurred. The
example above should not be considered a representation of future expenses of
Global Resources Fund or Special Opportunities Fund after the Reorganization.
Actual expenses may vary from year to year and may be higher or lower than those
shown above.
THE FUNDS' INVESTMENT ADVISER
John Hancock Advisers, Inc. (the "Adviser") acts as investment adviser to
both Funds.
BUSINESS OF GLOBAL RESOURCES FUND
Global Resources Fund is a diversified series of the Company, an open-end
management investment company organized as a Maryland corporation in 1987. As of
October 31, 1995, Global Resources Fund's net assets were $28,726,170. Kevin R.
Baker is portfolio manager of Global Resources Fund. 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 & Co. Incorporated.
BUSINESS OF SPECIAL OPPORTUNITIES FUND
Special Opportunities Fund is a non-diversified series of Freedom Trust.
As of October 31, 1995, Special Opportunities
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<PAGE> 17
Fund's net assets were $238,925,410. Kevin R. Baker is portfolio manager of
Special Opportunities Fund and is assisted by an investment team of sector and
global specialists from the Adviser's equity group. Mr. Baker was President of
Baker Capital Management. He also worked as a registered representative for
Kidder, Peabody & Co. Incorporated.
COMPARISON OF THE INVESTMENT OBJECTIVES AND POLICIES OF
GLOBAL RESOURCES FUND AND SPECIAL OPPORTUNITIES FUND
Each Fund's investment objective is non-fundamental and may be changed by a
vote of the Fund's Board of Directors or Board of Trustees. Prior to the
implementation of a change to a Fund's investment objective, the Fund's
prospectus and statement of additional information will be revised or
supplemented.
In considering whether to approve the Reorganization, you should consider
the differences between the two Funds' investment objectives and policies and
whether an investment in Special Opportunities Fund is a suitable investment for
you. For a discussion of the risks associated with an investment in the Funds,
see "Risk Factors and Special Considerations."
<TABLE>
<CAPTION>
INVESTMENT SPECIAL OPPORTUNITIES FUND GLOBAL RESOURCES FUND
POLICIES
<S> <C> <C>
Investment The Fund's investment objective is The Fund seeks to protect the purchasing
Objective: long-term capital appreciation. power of shareholders' capital and to
achieve growth of capital. Current income
is not a primary consideration.
Primary The types of securities/sectors in The types of securities in which the Fund
Investments: which the Fund may invest include: may invest include:
(1) Common stocks, preferred stocks, (1) Equity securities of domestic and
convertible debt securities and foreign companies (a) with substantial
warrants of U.S. and foreign issuers. natural resource assets, natural
The Fund may also invest in resource-related or energy-related
fixed-income securities including U.S. activities ("Natural Resource Companies")
Government securities, or (b) that
</TABLE>
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<PAGE> 18
<TABLE>
<S> <C> <C>
convertible and non-convertible provide equipment or services primarily
corporate preferred stocks and debt devoted to the natural resource or
securities. Corporate fixed-income energy-related activities of Natural
securities will be rated at least Resource Companies.
investment grade or if unrated
determined by the Adviser to be of
comparable quality.
(2) Sectors include: automotive and (2) Investment grade debt securities,
housing, consumer goods and services, preferred stocks or convertible
defense and aerospace, energy, securities, when the principal amount,
financial services, health care, heavy redemption terms or conversion terms of
industry, leisure and entertainment, these instruments are related to the
machinery and equipment, precious market price of some natural resource
metals, retailing, technology, asset such as gold bouillon ("asset-based
transportation, utilities, foreign and securities"); and commercial paper.
environmental (the "Sectors")
Investment (1) Under normal market conditions, at (1) At least 65% of the Fund's total
Policies: least 90% of the Fund's investment in assets will be invested in equity
equity securities will be in issuers in securities of Natural Resource Companies
five or fewer of the Sectors. and asset-based securities; and up to 35%
of the Fund's total assets in investment
grade corporate or government debt obligations
except that, for temporary defensive
purposes, more than 35% of the Fund's total
assets may be invested in fixed-income
securities, cash and cash equivalents.
(2) No more than 25% of (2) No more than 25% of
</TABLE>
-8-
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C>
the Fund's total assets in any one the Fund's total assets will be invested in
industry, but up to 100% of the Fund's gold and gold-related securities or
net assets may be in one Sector. securities of gold-related companies; no
more than 10% of the Fund's total assets in
gold bullion or gold coins; and no more than
25% of the Fund's total assets in the
securities of companies in any one natural
resource industry. To the extent that the
Fund invests in securities of foreign
issuers (which could be up to 100% of its
total assets), the Fund will invest in a
minium of three foreign countries.
(3) The Fund is classified as non- (3) The Fund is classified as diversified
diversified to permit investment of and is required to limit investments in
more than 5% of its assets in the obligations of any one issuer to 5% of the
obligations of any one issuer. Fund's total assets and to 10% of an
issuer's voting securities
Investment
Restrictions: The investment restrictions applicable to Special
Opportunities Fund are substantially similar to or more restrictive than those
of Global Resources Fund, except as noted below:
(1) The Fund may not borrow money, (1) The Fund may not borrow money in
except from banks as a temporary excess of 33-1/3% of its total Assets,
measure and not to exceed 33% of the except as a temporary measure for
Fund's total assets taken at market extraordinary purposes (except the Fund's
value. purchase of reverse repurchase agreements
</TABLE>
-9-
<PAGE> 20
<TABLE>
<S> <C> <C>
is not subject to this
restriction).
(2) The Fund may not pledge, mortgage (2) The Fund may not pledge, mortgage or
or hypothecate its assets, hypothecate its assets, except to secure
except to secure borrowings borrowings and then only up to 15% of the
and then only up to 33% of the value value of the Fund's total assets taken at
of the Fund's total total assets the lower or cost or market value.
taken at market value.
(3) The Fund may not make short sales of (3) The Fund may not make short sales of
securities, except "against the box," securities except "against the box."
to hedge exposure to an actual or
anticipated market decline in the
value of its investments or to
profit from an anticipated decline
in the value of a security.
(4) The Fund may not invest more than (4) The Fund may not invest more than 10%
15% of its assets in restricted or of its assets in restricted or illiquid
illiquid securities. securities.
Other The Fund may enter into repurchase The Fund may enter into repurchase
Investments: agreements, purchase securities on a agreements, reverse repurchase agreements,
forward commitment or when-issued lend its portfolio securities, make short
basis, lend its portfolio securities, sales against the box, invest in
engage in short sales, purchase when-issued securities, restricted and
restricted and illiquid securities, illiquid securities, buy and sell options
engage in short-term trading, purchase contracts on equity securities, stock
and sell options on securities and indices and foreign currencies, stock
indices composed of securities in which index and currency futures
it may
</TABLE>
-10-
<PAGE> 21
<TABLE>
<S> <C> <C>
invest, buy and sell financial futures contracts, options on such futures contracts
contracts and options on such futures for and enter into forward forward currency
hedging and enter into forward foreign exchange contracts for hedging foreign
foreign currency. currency.
</TABLE>
FORM OF ORGANIZATION
Global Resources Fund is a series of a Maryland corporation and Special
Opportunities Fund is a series of a Massachusetts business trust. Both Funds
have authorized and outstanding two classes of shares: Class A and Class B. Each
share of a series of the Company or Freedom Trust represents an equal
proportionate interest in the assets belonging to that series. The liabilities
attributable to each series are not charged against the assets of the other
series of the Company or Freedom Trust. Shares of each series and the other
series of the Company or Freedom Trust are voted separately with respect to
matters pertaining to that series, but all shares vote together for the election
of the respective Directors or Trustees and the ratification of independent
accountants of the Company or Freedom Trust. The shares of each class of Global
Resources Fund and Special Opportunities Fund represent an interest in the same
portfolio of investments of that Fund. Except as stated below, each class of
each Fund has equal rights as to voting, redemption, dividends and liquidation.
Each class bears different Rule 12b-1 distribution and service fees and may bear
other expenses properly attributable to that class. Class A and Class B
shareholders of each Fund have exclusive voting rights with regard to the Rule
12b-1 distribution plan covering their class of shares.
SALES CHARGES AND DISTRIBUTION AND SERVICE FEES
Class A Shares. Global Resources Fund and Special Opportunities Fund impose
an initial sales charge on Class A shares as described above under the caption,
"The Funds' Expenses." An initial sales charge does not apply to Class A shares
acquired through the reinvestment of dividends from net investment income or
capital gain distributions.
Class A shares of Special Opportunities Fund acquired by Global Resources
Fund's Class A shareholders pursuant to the Reorganization will not be subject
to any initial sales charge or CDSC. However, the CDSC imposed upon certain
redemptions within one year of purchase will continue to apply to those Class A
shares of Special Opportunities Fund issued in the Reorganization. The holding
period for determining the application of this CDSC
-11-
<PAGE> 22
will be calculated from the date those Global Resources Fund Class A shares were
originally issued.
Class B Shares. Global Resources Fund and Special Opportunities Fund do not
impose an initial sales charge on Class B shares. However, Class B shares
redeemed within a specified number of years of purchase will be subject to a
CDSC at the rates set forth below. This CDSC will be assessed on an amount equal
to the lesser of the current market value or the original purchase cost of the
Class B shares being redeemed. Accordingly, Class B shareholders will not be
assessed a CDSC on increases in account value above the initial purchase price,
including shares derived from reinvested dividends. The amount of the CDSC, if
any, will vary depending on the number of years from the time the Class B shares
were purchased until the time they are redeemed, as follows:
<TABLE>
<CAPTION>
CONTINGENT
YEAR IN DEFERRED SALES
WHICH CLASS B CHARGE AS A
SHARES REDEEMED PERCENTAGE OF
FOLLOWING PURCHASE DOLLAR AMOUNT
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>
Class B shares of Special Opportunities Fund acquired by Global Resources
Fund's Class B shareholders pursuant to the Reorganization will not be subject
to any CDSC at the time of the Reorganization. However, these shares will remain
subject to the original CDSC applicable when you redeem those shares. For
purposes of computing the CDSC payable upon redemption of Class B Special
Opportunities Fund Shares acquired by Global Resources Fund's Class B
shareholders pursuant to the Reorganization and the automatic conversion of
Class B shares into Class A shares, the holding period of the Global Resources
Fund Class B shares will be added to that of the Class B Special Opportunities
Fund Shares acquired in the Reorganization.
Distribution and Service Fees. Both Funds have adopted distribution plans
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"Investment Company Act"). Under these plans, each Fund may pay fees to John
Hancock Funds, Inc. ("John Hancock Funds"), the distributor of the Funds'
shares,
-12-
<PAGE> 23
to reimburse distribution and service expenses in connection with Class A
shares. These fees are payable at an annual rate of up to 0.25% of the average
daily net assets attributable to the Class A shares of Global Resources Fund and
0.30% of such assets of Special Opportunities Fund, respectively.
In addition, under the plans, each Fund may pay fees to John Hancock Funds
to reimburse it for distribution and service expenses in connection with Class B
shares. These fees are payable at an annual rate of up to 1.00% of each Fund's
average daily net assets attributable to its Class B shares. With respect to
Class B shares only, if John Hancock Funds is not fully reimbursed for payments
made or expenses incurred in any fiscal year, it is entitled to carry forward
these expenses to subsequent fiscal years for submission to the applicable Fund
for payment, subject always to the maximum annual Class B distribution fee
described above.
The Board of Trustees of Freedom Trust, on behalf of Special Opportunities
Fund, has determined that, if the Reorganization is consummated, unreimbursed
distribution and shareholder service expenses originally incurred in connection
with Global Resources Fund's Class A and Class B shares shares will be
reimbursable under Special Opportunities Fund's Rule 12b-1 plans. As of October
31, 1995, the unreimbursed distribution and shareholder service expenses for
Class A shares of Special Opportunities Fund and Global Resources Fund were
$341,951 and $13,302, respectively. The unreimbursed distribution and
shareholder service expenses for Class B shares of Special Opportunities Fund
and Global Resources Fund were $6,051,842 and $850,145, respectively. See
"Unreimbursed Distribution and Shareholder Expenses" below.
PURCHASES AND EXCHANGES
Shares of Special Opportunities Fund may be purchased through certain
broker-dealers and through John Hancock Funds at the public offering price,
which is based on the next determined net asset value per share, plus any
applicable sales charge. The minimum initial investment in Special Opportunities
Fund is $1,000 ($250 for group investments or $500 for retirement plans). In
anticipation of the Reorganization, after the Record Date, no new accounts may
be opened in Global Resources Fund. Existing shareholders of Global Resources
Fund may continue to purchase shares of the Fund after the Record Date.
Shareholders of both Funds may exchange their shares at net asset value for
shares of the same class, if applicable, of certain other funds managed by the
Adviser. Shares of any fund acquired in this manner that are subject to a CDSC
will incur the CDSC, if still applicable, upon redemption. The exchange
-13-
<PAGE> 24
privilege is available only in those states where exchanges can be made legally.
DISTRIBUTION PROCEDURES
Each Fund generally declares and distributes dividends representing all or
substantially all net investment income, if any, at least annually and
distributes net short-term or long-term capital gains, if any, annually after
the close of the fiscal year.
REINVESTMENT OPTIONS
Unless an election is made to receive cash, the shareholders of both Funds
automatically reinvest all of their respective dividends and capital gain
distributions in additional shares of the same class of the same Fund. These
reinvestments are made at the net asset value per share and are not subject to
any sales charge.
REDEMPTION PROCEDURES
Shares of both Funds may be redeemed on any day that the Fund is open for
business at a price equal to the net asset value of the shares next determined
after receipt of a redemption request in good order, less any applicable CDSC.
Alternatively, shareholders of both Funds may sell their shares through
securities dealers, who may charge a fee. Redemptions and repurchases of Class B
shares and certain Class A shares of Global Resources Fund and Special
Opportunities Fund are subject to the applicable CDSC, if any. Class A and Class
B shares of Global Resources Fund may be redeemed up to and including the
Closing Date (as defined below).
REORGANIZATION
Effect of the Reorganization-General. Pursuant to the terms of the
Agreement, the proposed Reorganization will consist of the acquisition by
Special Opportunities Fund of all the assets of Global Resources Fund in
exchange solely for (i) the assumption by Special Opportunities Fund of all the
liabilities of Global Resources Fund and (ii) the issuance of Special
Opportunities Fund Shares equal to the value of these assets, less the amount of
these liabilities, to Global Resources Fund. As part of the liquidation process,
Global Resources Fund will immediately distribute to its shareholders these
Special Opportunities Fund Shares in exchange for their shares of Global
Resources Fund. Consequently, Class A shareholders of Global Resources Fund will
become Class A shareholders of Special Opportunities Fund and Class B
shareholders of Global Resources Fund will become Class B shareholders of
Special Opportunities Fund. After completion of
-14-
<PAGE> 25
the Reorganization, the existence of Global Resources Fund as a series of the
Company will be terminated.
The Reorganization will become effective as of 5:00 p.m. on the closing
date, scheduled for August 16, 1996, or another date on or before December 31,
1996 as authorized representatives of the Funds may agree (the "Closing Date").
The Class A Special Opportunities Fund Shares issued to Global Resources Fund
for distribution to Global Resources Fund's Class A shareholders will have an
aggregate net asset value equal to that of Global Resources Fund's Class A
shares. The Class B Special Opportunities Fund Shares issued to Global Resources
Fund for distribution to Global Resources Fund's Class B shareholders will have
an aggregate net asset value equal to that of Global Resources Fund's Class B
shares. For purposes of the Reorganization, the Funds' respective asset values
will be determined as of the close of business (4:00 p.m. Eastern Time) on the
Closing Date.
Effect of the Reorganization--Management Fee and Class A Rule 12b-1 Fee.
After the Reorganization, the assets of Special Opportunities Fund attributable
to Global Resources Fund will be subject to an increase in the (i) management
fee of 5 basis points and (ii) Class A Rule 12b-1 fee of 5 basis points. As a
result of the Reorganization, Global Resources Fund's total annual operating
expense ratios will decrease from 1.98% for Class A shares and 2.73% for Class B
shares to 1.62% and 2.32%, respectively. This represents an overall decrease in
the expense ratios of 36 basis points for Class A shares and 41 basis points for
Class B shares. In approving the Reorganization, the Board of Directors
considered this decrease in total fund operating expense ratios as a significant
benefit to the Global Resources Fund and its shareholders. The indirect increase
in management fees on the assets of Global Resources Fund upon transfer to
Special Opportunities Fund is for the provision by the Adviser of bona fide
advisory services to Special Opportunities Fund. The Board also considered the
fact that Special Opportunities Fund had a better performance record for the one
year period ended October 31, 1995 than Global Resources Fund.
The Board of Directors on behalf of Global Resources Fund, including the
Directors not affiliated with the Funds, unanimously approved the Reorganization
and determined that it was in the best interests of Global Resources Fund and
that the interests of Global Resources Fund's shareholders would not be diluted
as a result of the Reorganization. Similarly, the Board of Trustees of Freedom
Trust on behalf of Special Opportunities Fund, including the Trustees not
affiliated with the Funds, approved the Reorganization, and determined that it
was in the best interests of Special Opportunities Fund and that the interests
of Special Opportunities Fund's shareholders would not be diluted as a result
-15-
<PAGE> 26
of the Reorganization. For a discussion of the factors considered by the
respective Boards, see "Proposal to Approve the Agreement and Plan of
Reorganization--Reasons for the Proposed Reorganization."
Tax Considerations. The consummation of the Reorganization is subject to
the receipt of an opinion of Hale and Dorr, counsel to the Funds, satisfactory
to the Company and Freedom Trust on behalf of the respective Funds and
substantially to the effect that:
(a) The acquisition by Special Opportunities Fund of all of the assets of
Global Resources Fund solely in exchange for the issuance of Special
Opportunities Fund Shares to Global Resources Fund and the assumption of all of
Global Resources Fund's liabilities by Special Opportunities Fund, followed by
the distribution by Global Resources Fund, in liquidation of Global Resources
Fund, of Special Opportunities Fund Shares to the shareholders of Global
Resources Fund in exchange for their shares of common stock of Global Resources
Fund and the termination of Global Resources Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code, and
Global Resources Fund and Special Opportunities Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) no gain or loss will be recognized by Global Resources Fund upon (a)
the transfer of all of its assets to Special Opportunities Fund solely in
exchange for the issuance of Special Opportunities Fund Shares to Global
Resources Fund, and the assumption of all of Global Resources Fund's liabilities
by Special Opportunities Fund; and (b) the distribution by Global Resources Fund
of these Special Opportunities Fund Shares to the shareholders of Global
Resources Fund;
(c) no gain or loss will be recognized by Special Opportunities Fund upon
the receipt of Global Resources Fund's assets solely in exchange for the
issuance of Special Opportunities Fund Shares to Global Resources Fund and the
assumption of all of Global Resources Fund's liabilities by Special
Opportunities Fund;
(d) the basis of the assets of Global Resources Fund acquired by Special
Opportunities Fund will be, in each instance, the same as the basis of those
assets in the hands of Global Resources Fund immediately prior to the transfer;
(e) the tax holding period of the assets of Global Resources Fund in the
hands of Special Opportunities Fund will, in each instance, include Global
Resources Fund's tax holding period for those assets;
-16-
<PAGE> 27
(f) the shareholders of Global Resources Fund will not recognize gain or
loss upon the exchange of all of their shares of common stock of Global
Resources Fund solely for Special Opportunities Fund Shares as part of the
Reorganization;
(g) the basis of the Special Opportunities Fund Shares received by Global
Resources Fund shareholders in the Reorganization will be the same as the basis
of the Global Resources Fund Shares surrendered in exchange therefor; and
(h) the tax holding period of the Special Opportunities Fund Shares
received by Global Resources Fund shareholders will include, for each
shareholder, the tax holding period for the Global Resources Fund shares
surrendered in exchange therefor, provided the Global Resources Fund shares were
held as capital assets on the date of the exchange.
THE MEETING
Time, Place and Date. The Meeting will be held on Wednesday, August 14,
1996, at 101 Huntington Avenue, Boston, Massachusetts 02199, at 9:00 a.m. Boston
time.
RECORD DATE
The Record Date for determining shareholders entitled to notice of and to
vote at the Meeting is June 17, 1996.
VOTE REQUIRED FOR APPROVAL
Approval of the Agreement by the shareholders of Global Resources Fund
requires the affirmative vote of a majority of the outstanding shares of Global
Resources Fund entitled to vote. The Reorganization does not require the
approval of Special Opportunities Fund's shareholders. See "Proposal to Approve
the Agreement and Plan of Reorganization--Voting Rights and Required Vote."
RISK FACTORS AND SPECIAL CONSIDERATIONS
Each Fund is subject to risks that result from the investment strategies
the Fund uses to achieve its investment objective. Special Opportunities Fund
limits its investments to certain specified economic sectors and, under normal
conditions, further limits the number of such sectors in which it may invest to
five. The Adviser determines the distribution of the Fund's securities among the
various sectors, the specific industries within each sector and the specific
securities within each industry. Furthermore, the Fund has elected to be treated
as "non-diversified" under the Investment Company Act. This means that the Fund
is permitted to invest more than 5% of its assets in the
-17-
<PAGE> 28
securities of any one issuer. If the Adviser does not accurately predict the
economic performance of a particular sector or issuer, the value of the Fund's
shares may be more susceptible to any single economic, political or regulatory
event, and to credit and market risks associated with a single issuer than would
a more diversified fund.
Because of Global Resources Fund's emphasis on Natural Resources Companies,
the Fund is more subject to the risks associated with investments in companies
with substantial natural resource assets or natural resource asset-related or
energy-related businesses than is a fund with a more diverse portfolio of
investments. Additionally, the price of gold stocks and the price of gold are
subject to substantial fluctuations and are affected by unpredictable
international monetary and political circumstances.
Each Fund invests in foreign securities which involve a greater degree of
risk than investment in domestic securities due to exchange controls, less
publicly available information, more volatile or less liquid securities markets
and the possibility of expropriation, confiscatory taxation or political,
economic or social instability.
Special Opportunities Fund's ability to invest up to 15% of its net assets
in illiquid securities may subject it to the risks of such securities to a
greater extent than Global Resources Fund, which may invest up to 10% of its
assets in these securities. The sale of illiquid securities, if they can be sold
at all, generally requires more time and results in higher brokerage charges and
other selling expenses than does the sale of liquid securities.
INFORMATION CONCERNING THE MEETING
SOLICITATION, REVOCATION AND USE OF PROXIES
A majority of Global Resources Fund's outstanding shares that are
represented and entitled to vote at the Meeting will be a quorum for the
transaction of business. A Global Resources Fund shareholder executing and
returning a proxy has the power to revoke it at any time before it is exercised,
by filing a written notice of revocation with Global Resources Fund's transfer
agent, Investor Services, P.O. Box 9116, Boston, Massachusetts 02205-9116, or by
returning a duly executed proxy with a later date before the time of the
Meeting. Any shareholder who has executed a proxy but is present at the Meeting
and wishes to vote in person may revoke his or her proxy by notifying the
Secretary of Global Resources Fund (without complying with any formalities) at
any time before it is voted. Presence at the Meeting alone will not serve to
revoke a previously executed and returned proxy.
-18-
<PAGE> 29
If a quorum is not present in person or by proxy at the time any session of
the Meeting is called to order, the persons named as proxies may vote those
proxies that have been received to adjourn the Meeting to a later date. If a
quorum is present but there are not sufficient votes in favor of the Proposal,
the persons named as proxies may propose one or more adjournments of the Meeting
to permit further solicitation of proxies with respect to the Proposal. Any
adjournment will require the affirmative vote of a majority of the shares of
Global Resources Fund, represented in person or by proxy, at the session of the
Meeting to be adjourned. If an adjournment of the Meeting is proposed because
there are not sufficient votes in favor of the Reorganization, the persons named
as proxies will vote those proxies in favor of the Reorganization in favor of
adjournment, and will vote those proxies against the Reorganization against
adjournment.
In addition to the solicitation of proxies by mail or in person, Global
Resources Fund may also arrange to have votes recorded by telephone by officers
and employees of the Fund or by personnel of the Adviser or Investor Services.
The telephone voting procedure is designed to authenticate a shareholder's
identity, to allow a shareholder to authorize the voting of shares in accordance
with the shareholder's instructions and to confirm that the voting instructions
have been properly recorded. If these procedures were subject to a successful
legal challenge, such votes would not be counted at the Meeting. The Fund has
not sought to obtain an opinion of counsel on this matter and is unaware of any
such challenge at this time. A shareholder would be called on a recorded line at
the telephone number the Fund has in its records for the account and would be
asked the shareholder's Social Security number or other identifying information.
The shareholder would then be given an opportunity to authorize proxies to vote
his shares at the Meeting in accordance with the shareholder's instructions. To
ensure that the shareholder's instructions have been recorded correctly, the
shareholder will also receive a confirmation of the voting instructions in the
mail. A special toll-free number will be available in case the voting
information contained in the confirmation is incorrect. If the shareholder
decides after voting by telephone to attend the Meeting, the shareholder can
revoke the proxy at that time and vote the shares at the Meeting.
OUTSTANDING SHARES AND RECORD DATE
At the close of business on May 31, 1996, ______ Class A and ______ Class B
shares of common stock of Global Resources Fund were outstanding and entitled to
vote. Only Global Resources Fund shareholders of record at the close of business
on June 17, 1996 (the "Record Date") are entitled to notice of and to vote at
the Meeting and any adjournment of the Meeting. As of May 31,
-19-
<PAGE> 30
1996, ________ Class A and ________ Class B shares of beneficial interest of
Special Opportunities Fund were outstanding.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF GLOBAL
RESOURCES FUND AND SPECIAL OPPORTUNITIES FUND
To the knowledge of the Company, as of May 31, 1996, the following persons
owned of record or beneficially 5% or more of the outstanding Class A shares of
Global Resources Fund: ____________; and the following persons owned of record
or beneficially 5% or more of the outstanding Class B shares of Global Resources
Fund: _________.
To the knowledge of Freedom Trust, as of May 31, 1996, the following
persons owned of record or beneficially, 5% or more of the outstanding Class A
shares of Special Opportunities Fund: ________; and the following persons owned
of record or beneficially 5% or more of the outstanding Class B shares of
Special Opportunities Fund: _________.
As of May 31, 1996, the Directors and officers of the Company and the
Trustees and officers of Freedom Trust, as a group, owned in the aggregate less
than 1% of the outstanding Class A and Class B shares of Global Resources Fund
and Special Opportunities Fund, respectively.
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
GENERAL
The shareholders of Global Resources Fund are being asked to approve the
Agreement, a copy which is attached as EXHIBIT A. The Reorganization will
consist of: (a) the transfer of all of Global Resources Fund's assets to Special
Opportunities Fund, in exchange solely for the issuance of Special Opportunities
Fund Shares to Global Resources Fund and the assumption of Global Resources
Fund's liabilities by Special Opportunities Fund, (b) the subsequent
distribution by Global Resources Fund, as part of its liquidation, of the
Special Opportunities Fund Shares to Global Resources Fund's shareholders and
(c) the termination of Global Resources Fund's existence. The Class A Special
Opportunities Fund Shares issued upon the consummation of the Reorganization
will have an aggregate net asset value equal to that of Global Resources Fund's
Class A shares. The Class B Special Opportunities Fund Shares issued upon
consummation of the Reorganization will have an aggregate net asset value equal
to that of Global Resources Fund's Class B shares. As noted above, the asset
values of Global Resources Fund and Special Opportunities Fund will be
determined at the close of business
-20-
<PAGE> 31
(4:00 p.m. Eastern Time) on the Closing Date for purposes of the Reorganization.
See "Description of Agreement" below.
Pursuant to the Agreement, Global Resources Fund will liquidate and
distribute the Special Opportunities Fund Shares received, as described above,
pro rata to the shareholders of record of each class determined as of the close
of regular trading on the New York Stock Exchange on the Closing Date. The
result of the transfer of assets will be that Special Opportunities Fund will
add to its portfolio the net assets of Global Resources Fund. Class A
shareholders of Global Resources Fund will become Class A shareholders of
Special Opportunities Fund, and Class B shareholders of Global Resources Fund
will become Class B shareholders of Special Opportunities Fund.
The Agreement and the Reorganization were unanimously approved by the
Company's Board of Directors on behalf of Global Resources Fund, and by the
Freedom Trust Board of Trustees on behalf of Special Opportunities Fund at
meetings held on March 26, 1996.
REASONS FOR THE PROPOSED REORGANIZATION
The Company's Board of Directors believes that the proposed Reorganization
will be advantageous to the shareholders of Global Resources Fund in several
respects. The Company's Board of Directors considered the following matters,
among others, in approving the Proposal.
First, a combined fund offers economies of scale that will have a positive
effect on the expenses currently borne by the shareholders of Global Resources
Fund. Both Funds incur substantial overhead costs for accounting, legal,
transfer agency services, insurance, and custodial and administrative services.
The Board of Directors noted that the Reorganization will result in a
significant decrease in the total annual fund expense ratios currently borne by
Global Resources Fund's Class A and Class B shareholders. The Board also
considered the fact that the Reorganization will have the effect of increasing
the management fee rate and the Class A Rule 12b-1 fee rate for the assets
attributable to Global Resources Fund. However, the Board believes that the
lower total annual fund operating expense ratios of Special Opportunities Fund
and its better performance record affords a significant potential benefit to the
shareholders of Global Resources Fund. See "Summary--The Fund's Expenses" and
"Summary--Reorganization-Effect of the Reorganization-Management Fee and Class A
Rule 12b-1 Fee" above for additional information.
Second, the Board of Directors considered the performance history of each
Fund, including the fact that Special
-21-
<PAGE> 32
Opportunities Fund has achieved a better return for investors over the most
recent one year period ended October 31, 1995.
Third, the Board of Directors believes that the Special Opportunities Fund
Shares received in the Reorganization will provide existing Global Resources
Fund shareholders with substantially the same investment advantages that they
currently enjoy at a comparable level of risk.
Fourth, the Board of Directors believes that it is not advantageous to
operate and market Global Resources Fund separately from Special Opportunities
Fund, because the investment objectives and policies of the two Funds are
generally similar.
Fifth, the Board of Directors considered the fact that Global Resources
Fund is significantly smaller than Special Opportunities Fund. The Board of
Directors determined that the existence of a larger competing fund within the
same fund complex with generally similar investment characteristics is likely to
impede the marketing and asset growth of Global Resources Fund.
Sixth, the Board of Directors considered that shareholders of both Funds
may be better served by a fund offering greater diversification. To the extent
that the Funds' assets are combined into a single portfolio and a larger asset
base is created as a result of the Reorganization, greater diversification of
Special Opportunities Fund's investment portfolio can be achieved than is
currently possible. Greater diversification is expected to be beneficial to
shareholders of both Funds, because it may reduce the negative effect which the
adverse performance of any one security may have on the performance of the
entire portfolio. The Board of Directors also considered that the Reorganization
presents an opportunity for Special Opportunities Fund to acquire assets without
the obligation to pay commissions or other similar costs that are normally
associated with the purchase of securities. This opportunity provides an
economic benefit to Special Opportunities Fund and its shareholders.
In determining that the Reorganization is in the best interests of Global
Resources Fund and the interests of its shareholders, the Board of Directors
considered the fact that the Adviser will receive certain benefits from the
Reorganization. The Reorganization will result in a consolidated portfolio
management effort, and may result in time savings to the Adviser by reducing the
number of reports and regulatory filings that its personnel must prepare.
The Adviser provides investment advisory services to John Hancock Gold &
Government Fund ("Gold & Government Fund"), a series of Freedom Investment
Trust, a Massachusetts business trust (the "Trust"). The Trust's Board of
Trustees, including the
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<PAGE> 33
Trustees not affiliated with the Funds and Gold & Government Fund, has approved
the reorganization of Gold & Government Fund into Special Opportunities Fund
(the "Gold & Government Reorganization)". On October 31, 1995, Gold & Government
Fund had net assets of $35,218,599. The Reorganization of Gold & Government Fund
described in this Proxy Statement and Prospectus is not contingent in any way
upon the consummation of the Gold & Government Reorganization. The Gold &
Government Reorganization will not affect the net asset value of the Special
Opportunities Fund Shares or the number of those Shares to be received by the
shareholders of Global Resources Fund in the Reorganization.
CAPITAL LOSS CARRYOVERS
As of October 31, 1995, Global Resources Fund had capital loss carryovers,
as determined for federal income tax purposes, in the aggregate amount of
approximately $421,721, of which $16,520 expires on October 31, 2000, $90,341
expires on October 31, 2002 and $314,860 expires on October 31, 2003. If the
Reorganizations do not occur, Global Resources Fund may use the capital loss
carryovers to offset any net capital gain, which would reduce the amount of net
capital gain the Fund would be required to distribute to its respective
shareholders in order to avoid fund-level income and/or excise taxes on
undistributed capital gain.
If the Reorganization is consummated, Special Opportunities Fund will
succeed to and take into account Global Resources Fund's capital loss carryovers
and will be able to use such carryovers, along with any carryovers it may have,
to offset its net capital gain, subject to certain limitations under the Code
that may be applicable because of the Reorganizations and certain other changes
in the past or future share ownership of Special Opportunities Fund, including
the issuance of shares of Special Opportunities Fund in other reorganization
transactions. These limitations could result in the expiration of all or
portions of such carryovers before they are fully used. Global Resources Fund
had, as of October 31, 1995, net unrealized gains of $543,819 that, when
realized, the capital loss carryovers could be used to offset.
UNREIMBURSED DISTRIBUTION AND SHAREHOLDER SERVICE EXPENSES
The Company's Board of Directors and Freedom Trust's Board of Trustees have
determined that, if the Reorganization is consummated, distribution and
shareholder service expenses incurred in connection with shares of Global
Resources Fund, and not reimbursed under the Fund's Rule 12b-1 plans or through
CDSCs, will be reimbursable expenses under Special Opportunities Fund's Rule
12b-1 Plans (the "assumption"). However, the maximum aggregate amounts payable
during any fiscal year under Special Opportunities Fund's Rule 12b-1 Plans
(0.30% of average daily net
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<PAGE> 34
assets attributable to Class A shares and 1.00% of average daily net assets
attributable to Class B shares) will not be affected by the assumption.
With respect to both Class A and Class B shares of Special Opportunities
Fund, the percentage of net assets on a pro forma combined basis that the
unreimbursed expenses represent will decrease as a result of the Reorganization
and the assumption. As of October 31, 1995, the unreimbursed distribution and
shareholder service expenses of Special Opportunities Fund attributable to Class
A and Class B shares were $341,951 (0.33% of Special Opportunities Fund's net
assets attributable to Class A shares) and $6,051,842 (4.4% of Special
Opportunities Fund's net assets attributable to Class B shares), respectively.
As of the same date, the unreimbursed distribution and shareholder service
expenses of Global Resources Fund attributable to Class A and Class B shares
were $13,302 (0.57% of Global Resources Fund's net assets attributable to Class
A shares) and $850,145 (3.22% of Global Resources Fund's net assets attributable
to Class B shares), respectively.
After the Reorganization, on a pro forma combined basis, the unreimbursed
distribution and shareholder service expenses of Special Opportunities Fund
attributable to Class A and Class B shares will be $355,253 (0.34% of Special
Opportunities Fund's pro forma net assets attributable to Class A shares) and
$6,901,987 (4.21% of Special Opportunities Fund's pro forma net assets
attributable to Class B shares), respectively.
The assumption will have no immediate effect upon the payments made under
Special Opportunities Fund's Rule 12b-1 Plans. While John Hancock Funds hopes to
recover unreimbursed distribution and shareholder service expenses over an
extended period of time, Special Opportunities Fund is not obligated to assure
that these amounts are recouped by John Hancock Funds. Unreimbursed distribution
and shareholder service expenses do not currently appear as an expense or
liability in the financial statements of either Fund, nor will they appear in
the financial statements of Special Opportunities Fund after the Reorganization
until paid or accrued. Unreimbursed expenses do not enter into the calculation
of the Fund's net asset value or the formula for calculating Rule 12b-1
payments. Even in the event of termination or noncontinuance of Special
Opportunities Fund's 12b-1 Plans, Special Opportunities Fund is not legally
committed, and is not required to commit, to the payment of any unreimbursed
distribution and shareholder service expenses. The staff of the SEC has not
approved or disapproved the treatment of the unreimbursed distribution and
shareholder service expenses described in this Proxy Statement.
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<PAGE> 35
BOARDS' EVALUATION AND RECOMMENDATION
On the basis of the factors described above and other factors, the
Company's Board of Directors, including a majority of the Directors who are not
"interested persons" (as defined in the Investment Company Act) of the Funds,
determined that the Reorganization is in the best interests of Global Resources
Fund and that the interests of Global Resources Fund's shareholders will not be
diluted as a result of the Reorganization. On the same basis, the Freedom
Trust's Board of Trustees including a majority of the Trustees who are not
"interested persons" (as defined in the Investment Company Act) of the Funds,
determined that the Reorganization is in the best interests of Special
Opportunities Fund and the interests of Special Opportunities Fund's
shareholders will not be diluted as a result of the Reorganization.
THE DIRECTORS OF JOHN HANCOCK GLOBAL RESOURCES FUND
RECOMMEND THAT THE SHAREHOLDERS OF JOHN HANCOCK
GLOBAL RESOURCES FUND VOTE FOR THE PROPOSAL
TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
DESCRIPTION OF AGREEMENT
The following description of the Agreement is a summary, does not purport
to be complete, and is subject in all respects to the provisions of the
Agreement, and is qualified in its entirety by reference to the Agreement. A
copy of the Agreement is attached to this Proxy Statement and Prospectus as
EXHIBIT A and should be read in its entirety. Paragraph references are to
appropriate provisions of the Agreement.
Method of Carrying Out Reorganization. If Global Resources Fund
shareholders approve the Agreement, the Reorganization will be consummated
promptly after the various conditions to the obligations of each of the parties
are satisfied (see Agreement, paragraphs 6 through 8). The Reorganization will
be completed on the Closing Date.
On the Closing Date, Global Resources Fund will transfer all of its assets
to Special Opportunities Fund in exchange for Special Opportunities Fund Shares
with an aggregate net asset value equal to the value of the assets delivered,
less the liabilities of Global Resources Fund assumed, as of the close of
business on the Closing Date (see Agreement, paragraphs 1 and 2).
The value of Global Resources Fund's assets shall be determined in
accordance with the Fund's current prospectus and statement of additional
information and Special Opportunities Fund's net asset values per Class A share
and per Class B share will be determined according to the valuation procedures
set forth
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<PAGE> 36
in the Freedom Trust Declaration of Trust and By-laws and the Special
Opportunities Fund Prospectus, (see "Share Price" in the Special Opportunities
Fund Prospectus). No initial sales charge or CDSC will be imposed upon delivery
of the Special Opportunities Fund Shares in exchange for the assets of Global
Resources Fund.
Surrender of Stock Certificates. Global Resources Fund shareholders whose
Class A or Class B shares are represented by one or more stock certificates
should, prior to the Closing Date, either surrender their certificates to Global
Resources Fund or deliver to Global Resources Fund an affidavit with respect to
lost certificates, in the form and accompanied by the surety bonds that Global
Resources Fund may require (collectively, an "Affidavit"). On the Closing Date,
all certificates which have not been surrendered will be deemed to be cancelled,
will no longer evidence ownership of Global Resources Fund's shares and will
evidence ownership of Special Opportunities Fund Shares. Shareholders may not
redeem or transfer Special Opportunities Fund Shares received in the
Reorganization until they have surrendered their Global Resources Fund stock
certificates or delivered an Affidavit relating to them. Special Opportunities
Fund will not issue share certificates in the Reorganization.
Conditions Precedent to Closing. The obligation of Global Resources Fund to
consummate the Reorganization is subject to the satisfaction of certain
conditions precedent, including the Company's performance of all acts and
undertakings required under the Agreement and the receipt of all consents,
orders and permits necessary to consummate the Reorganization (see Agreement,
paragraphs 6 through 8).
The obligation of Special Opportunities Fund to consummate the
Reorganization is subject to the satisfaction of certain conditions precedent,
including Freedom Trust's performance of all acts and undertakings to be
performed under the Agreement, the receipt of certain documents and financial
statements from the Company, on behalf of Global Resources Fund, and the receipt
of all consents, orders and permits necessary to consummate the Reorganization
(see Agreement, paragraphs 6 through 8).
The obligations of both parties are subject to the receipt of approval and
authorization of the Agreement by the vote of not less than a majority of the
shares of Global Resources Fund outstanding and entitled to vote (as described
in the section captioned "Voting Rights and Required Vote") and the receipt of a
favorable opinion of Hale and Dorr as to the federal income tax consequences of
the Reorganization.
Termination of Agreement. The Agreement may be terminated, whether or not
approval of Global Resources Fund's shareholders has been obtained, by mutual
agreement of the parties. In
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<PAGE> 37
addition, either party may terminate its obligations under the Agreement at or
prior to the Closing Date, because of a material breach by the other party of
any representations, warranties or agreements contained in the Agreement, or if
a condition precedent in the Agreement has not been met.
Expenses of the Reorganization. Special Opportunities Fund and Global
Resources Fund will each be responsible for its own expenses incurred in
connection with entering into and carrying out the provisions of the Agreement,
whether or not the Reorganization is consummated.
Tax Considerations. The consummation of the Reorganization is subject to
the receipt of a favorable opinion of Hale and Dorr, counsel to the Funds,
satisfactory to the Company on behalf of Global Resources Fund and Freedom Trust
on behalf of Special Opportunities Fund and described above under the caption,
"Summary--Reorganization--Tax Considerations."
VOTING RIGHTS AND REQUIRED VOTE
Each Global Resources Fund share is entitled to one vote. Class A and Class
B shareholders of Global Resources Fund vote together with respect to the
Proposal. Approval of the Proposal requires the affirmative vote of a majority
of the shares of Global Resources Fund outstanding and entitled to vote.
Shares of common stock of Global Resources Fund represented in person or by
proxy, including shares which abstain or do not vote with respect to the
Proposal, will be counted for purposes of determining whether a quorum is
present at the Meeting. Accordingly, an abstention from voting has the same
effect as a vote against the Proposal. However, if a broker or nominee holding
shares in "street name" indicates on the proxy card that it does not have
discretionary authority to vote on the Proposal, those shares will not be
considered as present and entitled to vote with respect to the Proposal. In
determining whether the Proposal has been adopted pursuant to the requirement
that the Proposal be approved by a majority of the outstanding shares of the
Fund entitled to vote, because shares represented by a "broker non-vote" are
considered outstanding shares, a "broker non-vote" will have the same effect as
a vote against the Proposal.
If the requisite approval of shareholders is not obtained, Global Resources
Fund will continue to engage in business as a registered open-end, management
investment company and the Board of Directors of the Company will consider what
further action may be appropriate.
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<PAGE> 38
CAPITALIZATION
The following table sets forth the capitalization of each Fund as of
October 31, 1995, and the pro forma combined capitalization of Special
Opportunities Fund as if the Reorganization had occurred on that date. The table
reflects pro forma exchange ratios of approximately (i) 1.5037 Class A Special
Opportunities Fund Shares being issued for each Class A share of Global
Resources Fund and (ii) approximately 1.5082 Class B Special Opportunities Fund
Shares being issued for each Class B share of Global Resources Fund. If the
Reorganization is consummated, the actual exchange ratios on the Closing Date
may vary from those indicated due to (i) changes in the market value of the
portfolio securities of Special Opportunities Fund and Global Resources Fund
between October 31, 1995 and the Closing Date; (ii) changes in the amount of
undistributed net investment income and net realized capital gains of Special
Opportunities Fund and Global Resources Fund during that period resulting from
income and distributions; and (iii) changes in the accrued liabilities of
Special Opportunities Fund and Global Resources Fund during the same period.
OCTOBER 31, 1995
<TABLE>
<CAPTION>
GLOBAL SPECIAL
RESOURCES OPPORTUNITIES PRO FORMA
FUND FUND COMBINED
---------- ------------- ---------
<S> <C> <C> <C>
Net Assets............. $28,726,170 $238,925,410 $267,651,580
Net Asset Value
Per Share:
Class A............... $ 14.00 $ 9.32 $ 9.32
Class B............... $ 13.86 $ 9.19 $ 9.19
Shares Outstanding
Class A............... $ 165,952 $ 10,902,887 $ 11,152,373
Class B............... $ 1,905,178 $ 14,949,105 $ 17,822,417
</TABLE>
- -------------------
(1) If the Reorganization had taken place on October 31, 1995, Global Resources
Fund would have received 249,486 Class A shares and 2,873,312 Class B shares
of Special Opportunities Fund, which would have been available for
distribution to shareholders of the applicable class of Global Resources
Fund. No assurance can be given as to the number of Class A Shares or Class
B shares of Special Opportunities Fund that will be received by Global
Resources Fund on the Closing
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<PAGE> 39
Date. The foregoing is merely an example of what Global Resources Fund would
have received and distributed had the Reorganization been consummated on
October 31, 1995, and should not be relied upon to reflect the amount that
will actually be received on the Closing Date.
(2) If both the Reorganization and the Gold & Government Reorganization had
taken place on October 31, 1995, Special Opportunities Fund's pro forma
combined net assets would be $302,870,179 and the number of Class A and
Class B Special Opportunities Fund Shares outstanding would have been
13,116,891 and 19,663,676, respectively. The Gold & Government
Reorganization does not affect the net asset value of the Class A or Class B
Special Opportunities Fund Shares to be issued in the Reorganization to
Global Resources Fund for distribution to its shareholders.
COMPARATIVE PERFORMANCE INFORMATION
TOTAL RETURN
The average annual total return of each class of the Funds is determined by
multiplying a hypothetical initial investment of $1,000 in a class by the
average annual compound rate of return (including capital
appreciation/depreciation, and dividends and distributions paid and reinvested)
attributable to that class for the stated period and annualizing the result.
Total return on Class B shares reflects the applicable CDSC.
The table below indicates the total return (capital changes plus
reinvestment of all dividends and distributions) on a hypothetical investment of
$1,000 in each class of each Fund covering the indicated periods ending October
31, 1995. The data below represent historical performance which should not be
considered indicative of future performance of either Fund. Some performance
results would be lower absent expense limitations that were in effect during the
periods described. Each Fund's performance and net asset value will fluctuate so
that their shares, when redeemed, may be worth more or less than their original
cost.
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<PAGE> 40
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK GLOBAL RESOURCES FUND
(Unaudited)
<TABLE>
<CAPTION>
Value of
Investment on
October 31, 1995 Total Return Total Return
Investment Amount of Including Including Sales Charge Excluding Sales Charge
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
- ----------------- --------- ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
From inception
(June 15, 1994)
to October 31, 1995 6/15/94 $1,000 $ 893.42 (10.65%) (7.87%) (5.98%) (4.38%)
1 year ended
October 31, 1995 10/31/94 $1,000 $ 851.58 (14.84%) (14.84%) (10.37%) (10.37%)
CLASS B SHARES:
From inception
(October 26, 1987)
to October 31, 1995 10/26/87 $1,000 $1,770.24 77.02% 7.39% 77.02% 7.39%
5 years ended
October 31, 1995 10/31/90 $1,000 $1,242.29 24.23% 4.43% 26.23% 4.77%
1 year ended
October 31, 1995 10/31/94 $1,000 $ 845.12 (15.49%) (15.49%) (11.04%) (11.04%)
</TABLE>
VALUE OF A $1,000 INVESTMENT IN JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
(Unaudited)
<TABLE>
<CAPTION>
Value of
Investment on
October 31, 1995 Total Return Total Return
Investment Amount of Including Including Sales Charge Excluding Sales Charge
Investment Period Date Investment Sales Charge Cumulative Annualized Cumulative Annualized
- ----------------- --------- ---------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS A SHARES:
From inception
(January 1, 1993) 1/1/93 $1,000 $1,041.34 4.13% 2.05% 9.65% 4.73%
1 year ended
October 31, 1995 10/31/94 $1,000 $1,116.16 11.62% 11.62% 17.53% 17.53%
CLASS B SHARES:
From inception
(January 1, 1993)
to October 31, 1995 1/1/93 $1,000 $1,031.18 3.12% 1.55% 8.12% 4.00%
1 year ended
October 31, 1995 10/31/94 $1,000 $1,117.73 11.77% 11.77% 16.77% 16.77%
</TABLE>
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<PAGE> 41
BUSINESS OF GLOBAL RESOURCES FUND
GENERAL
For a discussion of the organization and operation of Global Resources
Fund, see "Investment Objectives and Policies" and "Organization and Management
of the Fund" in the Global Resources Fund Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For a discussion of Global Resources Fund's investment objective and
policies, see "Investment Objective and Policies" in the Global Resources Fund
Prospectus.
PORTFOLIO MANAGEMENT
Kevin R. Baker is portfolio manager of Global Resources Fund. 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 &
Co. Incorporated.
DIRECTORS
For a discussion of the responsibilities of the Board of Directors of the
Company, see "Organization and Management of the Fund" in the Global Resources
Fund Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For a discussion regarding Global Resources Fund's investment adviser and
distributor, see "Organization and Management of the Fund," "How to Buy Shares"
and "Share Price" in the Global Resources Fund Prospectus.
EXPENSES
For a discussion of Global Resources Fund's expenses, see "Expense
Information" and "The Fund's Expenses" in the Global Resources Fund Prospectus.
CUSTODIAN AND TRANSFER AGENT
Global Resources Fund's custodian is Investors Bank & Trust Company.
Global Resources Fund's transfer agent is John Hancock Investor Services
Corporation.
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<PAGE> 42
GLOBAL RESOURCES FUND SHARES
For a discussion of Global Resources Fund's shares of common stock, see
"Organization and Management of the Fund" in the Global Resources Fund
Prospectus.
PURCHASE OF GLOBAL RESOURCES FUND SHARES
For a discussion of how shares of Global Resources Fund may be purchased or
exchanged, see "How to Buy Shares," "Alternative Purchase Arrangements" and
"Additional Services and Programs" in the Global Resources Fund Prospectus. In
anticipation of the Reorganization, Global Resources Fund has stopped offering
its shares to the public other than shares purchased through a monthly automatic
accumulation plan, the reinvestment of dividends and distributions.
REDEMPTION OF GLOBAL RESOURCES FUND SHARES
For a discussion of how Class A and Class B shares of Global Resources Fund
may be redeemed (other than in the Reorganization), see "How to Redeem Shares"
in the Global Resources Fund Prospectus. Global Resources Fund shareholders
whose shares are represented by stock certificates will be required to surrender
their certificates for cancellation or deliver an affidavit of loss accompanied
by an adequate surety bond to Investor Services in order to redeem Special
Opportunities Fund Shares received in the Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Global Resources Fund's policy with respect to
dividends, distributions and taxes, see "Dividends and Taxes" in the Global
Resources Fund Prospectus.
BUSINESS OF SPECIAL OPPORTUNITIES FUND
GENERAL
For a discussion of the organization and current operation of Special
Opportunities Fund, see "Investment Objective and Policies and Certain Risk
Considerations" and "Organization and Management of the Fund" in the Special
Opportunities Fund Prospectus.
INVESTMENT OBJECTIVE AND POLICIES
For discussion of Special Opportunities Fund's investment objective and
policies, see "Investment Objective and Policies and Certain Risk
Considerations" in the Special Opportunities Fund Prospectus.
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<PAGE> 43
PORTFOLIO MANAGEMENT
Kevin R. Baker is portfolio manager of Special Opportunities Fund. 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 &
Co. Incorporated.
TRUSTEES
For a discussion of the responsibilities of Freedom Trust's Board of
Trustees, see "Organization and Management of the Fund" in the Special
Opportunities Fund Prospectus.
INVESTMENT ADVISER AND DISTRIBUTOR
For a discussion regarding Special Opportunities Fund's investment adviser
and distributor, see "Organization and Management of the Fund," "How to Buy
Shares" and "Share Price" in the Special Opportunities Fund Prospectus.
EXPENSES
For a discussion of Special Opportunities Fund's expenses, see "Expense
Information" and "The Fund's Expenses" in the Special Opportunities Fund
Prospectus.
CUSTODIAN AND TRANSFER AGENT
Special Opportunities Fund's custodian is Investors Bank & Trust Company.
Special Opportunities Fund's transfer agent is John Hancock Investor Services
Corporation.
SPECIAL OPPORTUNITIES FUND SHARES
For a discussion of the Special Opportunities Fund Shares, see
"Organization and Management of the Fund" in the Special Opportunities Fund
Prospectus.
PURCHASE OF SPECIAL OPPORTUNITIES FUND SHARES
For a discussion of how Class A and Class B shares of Special Opportunities
Fund may be purchased or exchanged, see "How to Buy Shares," "Alternative
Purchase Arrangements" and "Additional Services and Programs" in the Special
Opportunities Fund Prospectus.
REDEMPTION OF SPECIAL OPPORTUNITIES FUND SHARES
For a discussion of how Class A and Class B shares of Special Opportunities
Fund may be redeemed, see "How to Redeem Shares" in the Special Opportunities
Fund Prospectus. Former shareholders of
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<PAGE> 44
Global Resources Fund whose shares are represented by share certificates will be
required to surrender their certificates for cancellation or deliver an
affidavit of loss accompanied by an adequate surety bond to Investor Services in
order to redeem Special Opportunities Fund Shares received in the
Reorganization.
DIVIDENDS, DISTRIBUTIONS AND TAXES
For a discussion of Special Opportunities Fund's policy with respect to
dividends, distributions and taxes, see "Dividends and Taxes" in the Special
Opportunities Fund Prospectus.
EXPERTS
The respective financial statements and the financial highlights of Special
Opportunities Fund and Global Resources Fund as of October 31, 1995 and for the
year then ended, incorporated by reference into this Proxy Statement and
Prospectus, have been audited by Price Waterhouse LLP and Ernst & Young LLP,
respectively, independent auditors, as set forth in their respective reports
thereon appearing in the Statement of Additional Information, and are included
in reliance upon such reports given upon the authority of such firms as experts
in accounting and auditing.
AVAILABLE INFORMATION
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act, and in accordance therewith
files reports, proxy statements and other information with the SEC. These
reports, proxy statements and other information filed by Company and Freedom
Trust, respectively, on behalf of each Fund, can be inspected and copied (at
prescribed rates) at the public reference facilities of the SEC at 450 Fifth
Street, N.W., Washington, D.C., and at the following regional offices: New York
(7 World Trade Center, Suite 1300, New York, New York). Copies of such material
can also be obtained by mail from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
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<PAGE> 45
AGREEMENT AND PLAN OF REORGANIZATION
A-1
<PAGE> 46
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 24th
day of June, 1996, by and between John Hancock Special Opportunities Fund (the
"Acquiring Fund"), a series of Freedom Investment Trust II, a Massachusetts
business trust (the "Trust"), and John Hancock Global Resources Fund (the
"Acquired Fund"), a series of John Hancock Series, Inc., a Maryland corporation
(the "Company") each with their principal place of business at 101 Huntington
Avenue, Boston, Massachusetts 02199. The Acquiring Fund and the Acquired Fund
are sometimes referred to collectively herein as the "Funds" and individually as
a "Fund."
This Agreement is intended to be and is adopted as a plan of "reorganization,"
as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization will consist of the transfer of all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for the
issuance of Class A and Class B shares of beneficial interest of the Acquiring
Fund (the "Acquiring Fund Shares") to the Acquired Fund and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund, followed by
the distribution by the Acquired Fund, on or promptly after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the
Acquired Fund in liquidation and termination of the Acquired Fund as provided
herein, all upon the terms and conditions set forth in this Agreement.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES; LIQUIDATION OF THE
ACQUIRED FUND
1.1 The Acquired Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and interest
receivables, cash and other assets), as set forth in the statement of
assets and liabilities referred to in Paragraph 7.2 hereof (the "Statement
of Assets and Liabilities"), to the Acquiring Fund free and clear of all
liens and encumbrances, except as otherwise provided herein, in exchange
for (i) the assumption by the Acquiring Fund of the known and unknown
liabilities of the Acquired Fund, including the liabilities set forth in
the Statement of Assets and Liabilities (the "Acquired Fund Liabilities"),
which shall be assigned and transferred to the Acquiring Fund by the
Acquired Fund and assumed by the Acquiring Fund, and (ii) delivery by the
Acquiring Fund to the Acquired Fund, for distribution pro rata by the
Acquired Fund to its shareholders in proportion to their respective
ownership of Class A and/or Class B shares of common stock of the Acquired
Fund, as of the close of business on August 16, 1996 (the "Closing Date"),
of a number of the Acquiring Fund Shares having an aggregate net asset
value equal, in the case of each class of Acquiring Fund Shares, to the
value of the assets, less such liabilities
<PAGE> 47
(herein referred to as the "net value of the assets") attributable to the
applicable class, assumed, assigned and delivered, all determined as
provided in Paragraph 2.1 hereof and as of a date and time as specified
therein. Such transactions shall take place at the closing provided for in
Paragraph 3.1 hereof (the "Closing"). All computations shall be provided by
Investors Bank & Trust Company (the "Custodian"), as custodian and pricing
agent for the Acquiring Fund and the Acquired Fund.
1.2 The Acquired Fund has provided the Acquiring Fund with a list of the
current securities holdings of the Acquired Fund as of the date of
execution of this Agreement. The Acquired Fund reserves the right to sell
any of these securities (except to the extent sales may be limited by
representations made in connection with issuance of the tax opinion
provided for in paragraph 8.6 hereof) but will not, without the prior
approval of the Acquiring Fund, acquire any additional securities other
than securities of the type in which the Acquiring Fund is permitted to
invest.
1.3 The Acquiring Fund and the Acquired Fund shall each bear its own expenses
in connection with the transactions contemplated by this Agreement.
1.4 On or as soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to shareholders of record (the "Acquired Fund shareholders"),
determined as of the close of regular trading on the New York Stock
Exchange on the Closing Date, the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund
Shares then credited to the account of the Acquired Fund on the books of
the Acquiring Fund, to open accounts on the share records of the Acquiring
Fund in the names of the Acquired Fund shareholders and representing the
respective pro rata number and class of Acquiring Fund Shares due such
shareholders. Acquired Fund shareholders who own Class A shares of the
Acquired Fund will receive Class A Acquiring Fund Shares and Acquired Fund
shareholders who own Class B shares of the Acquired Fund will receive Class
B Acquiring Fund Shares. The Acquiring Fund shall not issue certificates
representing Acquiring Fund Shares in connection with such exchange.
1.5 The Acquired Fund shareholders holding certificates representing their
ownership of shares of common stock of the Acquired Fund shall surrender
such certificates or deliver an affidavit with respect to lost certificates
in such form and accompanied by such surety bonds as the Acquired Fund may
require (collectively, an "Affidavit"), to John Hancock Investor Services
Corporation prior to the Closing Date. Any Acquired Fund share certificate
which remains outstanding on the Closing Date shall be deemed to be
canceled, shall no longer evidence ownership of shares of beneficial
interest of the Acquired Fund and shall evidence ownership of Acquiring
Fund Shares. Unless and until any such certificate shall be so surrendered
or an Affidavit relating thereto shall be delivered, dividends and other
distributions payable by the Acquiring Fund subsequent to the Liquidation
Date with respect to Acquiring Fund Shares shall be paid to the holder of
such certificate(s), but such
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<PAGE> 48
shareholders may not redeem or transfer Acquiring Fund Shares received in
the Reorganization. The Acquiring Fund will not issue share certificates in
the Reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name
other than the registered holder of the Acquired Fund Shares on the books
of the Acquired Fund as of that time shall, as a condition of such issuance
and transfer, be paid by the person to whom such Acquiring Fund Shares are
to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Trust, including, but not limited to,
the responsibility for filing of regulatory reports, tax returns, or other
documents with the Securities and Exchange Commission (the "Commission"),
any state securities commissions, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Trust.
2. VALUATION
2.1 The net asset values of the Class A and Class B Acquiring Fund Shares and
the net values of the assets and liabilities of the Acquired Fund
attributable to its Class A and Class B shares to be transferred shall, in
each case, be determined as of the close of business (4:00 p.m. Boston
time) on the Closing Date. The net asset values of the Class A and Class B
Acquiring Fund Shares shall be computed by the Custodian in the manner set
forth in the Acquiring Fund's Declaration of Trust as amended and restated
(the "Declaration"), or By-Laws and the Acquiring Fund's then-current
prospectus and statement of additional information and shall be computed in
each case to not fewer than four decimal places. The net values of the
assets of the Acquired Fund attributable to its Class A and Class B shares
to be transferred shall be computed by the Custodian by calculating the
value of the assets of each class transferred by the Acquired Fund and by
subtracting therefrom the amount of the liabilities of each class assigned
and transferred to and assumed by the Acquiring Fund on the Closing Date,
said assets and liabilities to be valued in the manner set forth in the
Acquired Fund's then current prospectus and statement of additional
information and shall be computed in each case to not fewer than four
decimal places.
2.2 The number of shares of each class of Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired Fund's
assets shall be determined by dividing the value of the Acquired Fund's
assets attributable to a class, less the liabilities attributable to that
class assumed by the Acquiring Fund, by the Acquiring Fund's net asset
value per share of the same class, all as determined in accordance with
Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian in accordance with
its rgular practice as pricing agent for the Funds.
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<PAGE> 49
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be August 16, 1996 or such other date on or before
December 31, 1996 as the parties may agree. The Closing shall be held as of
5:00 p.m. at the offices of the Company and the Trust, 101 Huntington
Avenue, Boston, Massachusetts 02199, or at such other time and/or place as
the parties may agree.
3.2 Portfolio securities that are not held in book-entry form in the name of
the Custodian as record holder for the Acquired Fund shall be presented by
the Acquired Fund to the Custodian for examination no later than five
business days preceding the Closing Date. Portfolio securities which are
not held in book-entry form shall be delivered by the Acquired Fund to the
Custodian for the account of the Acquiring Fund on the Closing Date, duly
endorsed in proper form for transfer, in such condition as to constitute
good delivery thereof in accordance with the custom of brokers, and shall
be accompanied by all necessary federal and state stock transfer stamps or
a check for the appropriate purchase price thereof. Portfolio securities
held of record by the Custodian in book-entry form on behalf of the
Acquired Fund shall be delivered to the Acquiring Fund by the Custodian by
recording the transfer of beneficial ownership thereof on its records. The
cash delivered shall be in the form of currency or by the Custodian
crediting the Acquiring Fund's account maintained with the Custodian with
immediately available funds.
3.3 In the event that on the Closing Date (a) the New York Stock Exchange shall
be closed to trading or trading thereon shall be restricted or (b) trading
or the reporting of trading on said Exchange or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date
shall be postponed until the first business day after the day when trading
shall have been fully resumed and reporting shall have been restored;
provided that if trading shall not be fully resumed and reporting restored
on or before December 31, 1996, this Agreement may be terminated by the
Acquiring Fund or by the Acquired Fund upon the giving of written notice to
the other party.
3.4 The Acquired Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup withholding
and nonresident alien withholding status of the Acquired Fund shareholders
and the number of outstanding shares of each class of beneficial interest
of the Acquired Fund owned by each such shareholder, all as of the close of
business on the Closing Date, certified by its Treasurer, Secretary or
other authorized officer (the "Shareholder List"). The Acquiring Fund shall
issue and deliver to the Acquired Fund a confirmation evidencing the
Acquiring Fund Shares to be credited on the Closing Date, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares
have been credited to the Acquired Fund's account on the books of the
Acquiring Fund. At the Closing, each party shall deliver to the other such
bills of sale, checks, assignments, stock certificates, receipts or other
documents as such other party or its counsel may reasonably request.
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<PAGE> 50
4. REPRESENTATIONS AND WARRANTIES
4.1 The Company on behalf of the Acquired Fund represents, warrants and
covenants to the Acquiring Fund as follows:
(a) The Company is a corporation, duly organized, validly existing and in
good standing under the laws of the State of Maryland and has the
power to own all of its properties and assets and, subject to approval
by the shareholders of the Acquired Fund, to carry out the
transactions contemplated by this Agreement. Neither the Company nor
the Acquired Fund is required to qualify to do business in any
jurisdiction in which it is not so qualified or where failure to
qualify would subject it to any material liability or disability. The
Company has all necessary federal, state and local authorizations to
own all of its properties and assets and to carry on its business as
now being conducted;
(b) The Company is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), is in full force and effect. The Acquired
Fund is a diversified series of the Company;
(c) The Company and the Acquired Fund are not, and the execution, delivery
and performance of their obligations under this Agreement will not
result, in violation of any provision of the Company's Articles of
Incorporation, as amended and restated, or By-Laws or of any
agreement, indenture, instrument, contract, lease or other undertaking
to which the Company or the Acquired Fund is a party or by which it is
bound;
(d) Except as otherwise disclosed in writing and accepted by the Acquiring
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Company or the Acquired Fund or any
of the Acquired Fund's properties or assets. The Company knows of no
facts which might form the basis for the institution of such
proceedings, and neither the Company nor the Acquired Fund is a party
to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely affects
the Acquired Fund's business or its ability to consummate the
transactions herein contemplated;
(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase of
securities entered into in the ordinary course of business and
consistent with its obligations under this Agreement) which will not
be terminated without liability to the Acquired Fund at or prior to
the Closing Date;
(f) The unaudited statement of assets and liabilities, including the
schedule of investments, of the Acquired Fund as of December 31, 1995
and the related statement of operations (copies of which have been
furnished to the Acquiring Fund) present fairly in all material
respects the financial condition of the Acquired Fund as of December
31, 1995 and the results of its operations for the period then ended
in accordance with generally accepted accounting
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<PAGE> 51
principles consistently applied, and there were no known actual or
contingent liabilities of the Acquired Fund as of the respective dates
thereof not disclosed therein;
(g) Since December 31, 1995, there has not been any material adverse
change in the Acquired Fund's financial condition, assets,
liabilities, or business other than changes occurring in the ordinary
course of business, or any incurrence by the Acquired Fund of
indebtedness maturing more than one year from the date such
indebtedness was incurred, except as otherwise disclosed to and
accepted by the Acquiring Fund;
(h) At the date hereof and by the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Acquired Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished, and all
federal, state and other taxes, interest and penalties shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge no such
return is currently under audit and no assessment has been asserted
with respect to such returns or reports;
(i) The Acquired Fund has elected to be treated as a regulated investment
company for federal income tax purposes, has qualified as such for
each taxable year of its operation and will qualify as such as of the
Closing Date with respect to its final taxable year ending on the
Closing Date;
(j) The authorized capital of the Company consists of 6,500,000,000 shares
of common stock divided into six series. The Acquired Fund consists of
75,000,000 authorized shares, $0.01 par value, which are divided into
two classes, Class A consisting of 25,000,000 authorized shares and
Class B consisting of 50,000,000 authorized shares. All issued and
outstanding shares of beneficial interest of the Acquired Fund are,
and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Company. All of the
issued and outstanding shares of common stock of the Acquired Fund
will, at the time of Closing, be held by the persons and in the
amounts and classes set forth in the Shareholder List submitted to the
Acquiring Fund pursuant to Paragraph 3.4 hereof. The Acquired Fund
does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of its shares of common stock, nor is
there outstanding any security convertible into any of its shares of
common stock;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the assets to be transferred to the Acquiring Fund pursuant
to Paragraph 1.1 hereof, and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder, and upon delivery
and payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the
Securities Act of 1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Company on
behalf of the Acquired
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<PAGE> 52
Fund, and this Agreement constitutes a valid and binding obligation of
the Company and the Acquired Fund enforceable in accordance with its
terms, subject to the approval of the Acquired Fund's shareholders;
(m) The information to be furnished by the Acquired Fund to the Acquiring
Fund for use in applications for orders, registration statements,
proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate
and complete and shall comply in all material respects with federal
securities and other laws and regulations thereunder applicable
thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy Statement") to be
included in the Registration Statement referred to in Paragraph 5.7
hereof (other than written information furnished by the Acquiring Fund
for inclusion therein, as covered by the Acquiring Fund's warranty in
Paragraph 4.2(m) hereof), on the effective date of the Registration
Statement, on the date of the meeting of the Acquired Fund
shareholders and on the Closing Date, shall not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which such statements were made, not
misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquired Fund of the transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of common stock of the
Acquired Fund have been offered for sale and sold in conformity with
all applicable federal and state securities laws;
(q) The prospectus of the Acquired Fund, dated March 1, 1996 (the
"Acquired Fund Prospectus"), previously furnished to the Acquiring
Fund, does not contain any untrue statements of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
4.2 The Trust on behalf of the Acquiring Fund represents, warrants and
covenants to the Acquired Fund as follows:
(a) The Trust is a business trust duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts and
has the power to own all of its properties and assets and to carry out
the Agreement. Neither the Trust nor the Acquiring Fund is required to
qualify to do business in any jurisdiction in which it is not so
qualified or where failure to qualify would subject it to any material
liability or disability. The Trust has all necessary federal, state
and local authorizations to own all of its properties and assets and
to carry on its business as now being conducted;
(b) The Trust is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect. The
Acquiring Fund is a non-diversified series of the Trust;
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<PAGE> 53
(c) The prospectus (the "Acquiring Fund Prospectus") and statement of
additional information for Class A and Class B shares of the Acquiring
Fund, each dated March 1, 1996, and any amendments or supplements
thereto on or prior to the Closing Date, and the Registration
Statement on Form N-14 to be filed in connection with this Agreement
(the "Registration Statement") (other than written information
furnished by the Acquired Fund for inclusion therein, as covered by
the Acquired Fund's warranty in Paragraph 4.1(m) hereof) will conform
in all material respects to the applicable requirements of the 1933
Act and the 1940 Act and the rules and regulations of the Commission
thereunder, the Acquiring Fund Prospectus does not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and the Registration Statement will not include any untrue
statement of material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(d) At the Closing Date, the Trust on behalf of the Acquiring Fund will
have good and marketable title to the assets of the Acquiring Fund;
(e) The Trust and the Acquiring Fund are not, and the execution, delivery
and performance of their obligations under this Agreement will not
result, in violation of any provisions of the Trust's Declaration, or
By-Laws or of any agreement, indenture, instrument, contract, lease or
other undertaking to which the Trust or the Acquiring Fund is a party
or by which the Trust or the Acquiring Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the Acquired
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust or the Acquiring Fund or any
of the Acquiring Fund's properties or assets. The Trust knows of no
facts which might form the basis for the institution of such
proceedings, and neither the Trust nor the Acquiring Fund is a party
to or subject to the provisions of any order, decree or judgment of
any court or governmental body which materially and adversely affects
the Acquiring Fund's business or its ability to consummate the
transactions herein contemplated;
(g) The unaudited statement of assets and liabilities, including the
schedule of investments, of the Acquiring Fund as of October 31, 1995
and the related statement of operations (copies of which have been
furnished to the Acquired Fund), present fairly in all material
respects the financial condition of the Acquiring Fund as of October
31, 1995 and the results of its operations for the period then ended
in accordance with generally accepted accounting principles
consistently applied, and there were no known actual or contingent
liabilities of the Acquiring Fund as of the respective dates thereof
not disclosed herein;
(h) Since October 31, 1995, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of
business, or any incurrence by the Trust on behalf of the Acquiring
Fund
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<PAGE> 54
of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as disclosed to and accepted by the
Acquired Fund;
(i) The Acquiring Fund has elected to be treated as a regulated investment
company for federal income tax purposes, has qualified as such for
each taxable year of its operation and will qualify as such as of the
Closing Date;
(j) The authorized capital of the Trust consists of an unlimited number of
shares of beneficial interest, no par value per share. All issued and
outstanding shares of beneficial interest of the Acquiring Fund are,
and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Trust. The Acquiring
Fund does not have outstanding any options, warrants or other rights
to subscribe for or purchase any of its shares of beneficial interest,
nor is there outstanding any security convertible into any of its
shares of beneficial interest;
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of the Trust on
behalf of the Acquiring Fund, and this Agreement constitutes a valid
and binding obligation of the Acquiring Fund enforceable in accordance
with its terms;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement, when so issued and
delivered, will be duly and validly issued shares of beneficial
interest of the Acquiring Fund and will be fully paid and
nonassessable by the Trust;
(m) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with federal securities and
other laws and regulations applicable thereto; and
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by the Agreement,
except for the registration of the Acquiring Fund Shares under the
1933 Act, the 1940 Act and under state securities laws.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Company on
behalf of the Acquired Fund and the Trust on behalf of Acquiring Fund, will
operate their respective businesses in the ordinary course between the date
hereof and the Closing Date, it being understood that such ordinary course
of business will include customary dividends and distributions and any
other distributions necessary or desirable to avoid federal income or
excise taxes.
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<PAGE> 55
5.2 The Company will call a meeting of the Acquired Fund shareholders to
consider and act upon this Agreement and to take all other action necessary
to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired by the Acquired Fund for the purpose of
making any distribution thereof other than in accordance with the terms of
this Agreement.
5.4 The Company on behalf of the Acquired Fund will provide such information
within its possession or reasonably obtainable as the Trust on behalf of
the Acquiring Fund requests concerning the beneficial ownership of the
Acquired Fund's shares of common stock.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate the transactions contemplated by this Agreement.
5.6 The Company on behalf of the Acquired Fund shall furnish to the Trust on
behalf of the Acquiring Fund on the Closing Date the Statement of Assets
and Liabilities of the Acquired Fund as of the Closing Date, which
statement shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be certified by the
Acquired Fund's Treasurer or Assistant Treasurer. As promptly as
practicable but in any case within 60 days after the Closing Date, the
Acquired Fund shall furnish to the Acquiring Fund, in such form as is
reasonably satisfactory to the Trust, a statement of the earnings and
profits of the Acquired Fund for federal income tax purposes and of any
capital loss carryovers and other items that will be carried over to the
Acquiring Fund as a result of Section 381 of the Code, and which statement
will be certified by the President of the Acquired Fund.
5.7 The Trust on behalf of the Acquiring Fund will prepare and file with the
Commission the Registration Statement in compliance with the 1933 Act and
the 1940 Act in connection with the issuance of the Acquiring Fund Shares
as contemplated herein.
5.8 The Company on behalf of the Acquired Fund will prepare a Proxy Statement,
to be included in the Registration Statement in compliance with the 1933
Act, the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
the 1940 Act and the rules and regulations thereunder (collectively, the
"Acts") in connection with the special meeting of shareholders of the
Acquired Fund to consider approval of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY ON BEHALF OF THE
ACQUIRED FUND
The obligations of the Company on behalf of the Acquired Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Trust on behalf of the Acquiring Fund of all the obligations
to be performed by it hereunder on or before the Closing Date, and, in addition
thereto, the following further conditions:
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<PAGE> 56
6.1 All representations and warranties of the Trust on behalf of the Acquiring
Fund contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date with
the same force and effect as if made on and as of the Closing Date; and
6.2 The Trust on behalf of the Acquiring Fund shall have delivered to the
Acquired Fund a certificate executed in its name by the Trust's President
or Vice President and its Treasurer or Assistant Treasurer, in form and
substance satisfactory to the Acquired Fund and dated as of the Closing
Date, to the effect that the representations and warranties of the Trust on
behalf of the Acquiring Fund made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters
as the Company on behalf of the Acquired Fund shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE ACQUIRING
FUND
The obligations of the Trust on behalf of the Acquiring Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Acquired Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Acquired Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date;
7.2 The Company on behalf of the Acquired Fund shall have delivered to the
Trust on behalf of the Acquiring Fund the Statement of Assets and
Liabilities of the Acquired Fund, together with a list of its portfolio
securities showing the federal income tax bases and holding periods of such
securities, as of the Closing Date, certified by the Treasurer or Assistant
Treasurer of the Company;
7.3 The Company on behalf of the Acquired Fund shall have delivered to the
Trust on behalf of the Acquiring Fund on the Closing Date a certificate
executed in the name of the Acquired Fund by a President or Vice President
and a Treasurer or Assistant Treasurer of the Company, in form and
substance satisfactory to the Trust on behalf of the Acquiring Fund and
dated as of the Closing Date, to the effect that the representations and
warranties of the Acquired Fund in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters
as the Trust on behalf of the Acquiring Fund shall reasonably request; and
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<PAGE> 57
7.4 At or prior to the Closing Date, the Acquired Fund's investment adviser, or
an affiliate thereof, shall have made all payments, or applied all credits,
to the Acquired Fund required by any applicable contractual or
state-imposed expense limitation.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE COMPANY
The obligations hereunder of the Trust on behalf of the Acquiring Fund and the
Company on behalf of the Acquired Fund are each subject to the further
conditions that on or before the Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
common stock of the Acquired Fund in accordance with the provisions of the
Acquired Fund's Articles of Incorporation and By-Laws, and certified copies
of the resolutions evidencing such approval by the Acquired Fund's
shareholders shall have been delivered by the Acquired Fund to the Trust on
behalf of the Acquiring Fund;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain
or prohibit, or obtain changes or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits of
federal, state and local regulatory authorities (including those of the
Commission and of state Blue Sky and securities authorities, including
"no-action" positions of such federal or state authorities) deemed
necessary by the Trust or the Company to permit consummation, in all
material respects, of the transactions contemplated hereby shall have been
obtained, except where failure to obtain any such consent, order or permit
would not involve a risk of a material adverse effect on the assets or
properties of the Acquiring Fund or the Acquired Fund, provided that either
party hereto may waive any such conditions for itself;
8.4 The Registration Statement shall have become effective under the 1933 Act
and the 1940 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or
be pending, threatened or contemplated under the 1933 Act or the 1940 Act;
8.5 The Acquired Fund shall have distributed to its shareholders all of its
investment company taxable income (as defined in Section 852(b)(2) of the
Code) for its taxable year ending on the Closing Date and all of its net
capital gain (as such term is used in Section 852(b)(3)(C) of the Code),
after reduction by any available capital loss carryforward, for its taxable
year ending on the Closing Date; and
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<PAGE> 58
8.6 The parties shall have received an opinion of Messrs. Hale and Dorr,
satisfactory to the Company on behalf of the Acquired Fund and the Trust on
behalf of the Acquiring Fund, substantially to the effect that for federal
income tax purposes:
(a) The acquisition by the Acquiring Fund of all of the assets of the
Acquired Fund solely in exchange for the issuance of Acquiring Fund
Shares to the Acquired Fund and the assumption of all of the Acquired
Fund Liabilities by the Acquiring Fund, followed by the distribution
by the Acquired Fund, in liquidation of the Acquired Fund, of
Acquiring Fund Shares to the shareholders of the Acquired Fund in
exchange for their shares of common stock of the Acquired Fund and the
termination of the Acquired Fund, will constitute a "reorganization"
within the meaning of Section 368(a) of the Code, and the Acquired
Fund and the Acquiring Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund upon (i) the
transfer of all of its assets to the Acquiring Fund solely in exchange
for the issuance of Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund; and (ii) the distribution by the Acquired Fund of such Acquiring
Fund Shares to the shareholders of the Acquired Fund;
(c) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
issuance of the Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund;
(d) The basis of the assets of the Acquired Fund acquired by the Acquiring
Fund will be, in each instance, the same as the basis of those assets
in the hands of the Acquired Fund immediately prior to the transfer;
(e) The tax holding period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will, in each instance, include the Acquired
Fund's tax holding period for those assets;
(f) The shareholders of the Acquired Fund will not recognize gain or loss
upon the exchange of all of their shares of common stock of the
Acquired Fund solely for Acquiring Fund Shares as part of the
transaction;
(g) The basis of the Acquiring Fund Shares received by the Acquired Fund
shareholders in the transaction will be the same as the basis of the
shares of common stock of the Acquired Fund surrendered in exchange
therefor; and
(h) The tax holding period of the Acquiring Fund Shares received by the
Acquired Fund shareholders will include, for each shareholder, the tax
holding period for the shares of the Acquired Fund surrendered in
exchange therefor, provided that the Acquired Fund shares were held as
capital assets on the date of the exchange.
-13-
<PAGE> 59
The Trust and the Company agree to make and provide representations with respect
to the Acquiring Fund and the Acquired Fund, respectively, which are reasonably
necessary to enable Hale and Dorr to deliver an opinion substantially as set
forth in this Paragraph 8.6. Notwithstanding anything herein to the contrary,
neither the Trust nor the Company may waive the conditions set forth in this
Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust on behalf of the Acquiring Fund, and the Company on behalf of the
Acquired Fund, each represent and warrant to the other, that there are no
brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely for
its own expenses incurred in connection with entering into and carrying out
the provisions of this Agreement whether or not the transactions
contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust on behalf of the Acquiring Fund, and the Company on behalf of the
Acquired Fund agree that neither party has made any representation,
warranty or covenant not set forth herein or referred to in Paragraph 4
hereof and that this Agreement constitutes the entire agreement between the
parties.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust on
behalf of the Acquiring Fund, and the Company on behalf of the Acquired
Fund. In addition, either party may at its option terminate this Agreement
at or prior to the Closing Date:
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed at or
prior to the Closing Date;
(b) because of a condition herein expressed to be precedent to the
obligations of the terminating party which has not been met and which
reasonably appears will not or cannot be met;
(c) by resolution of the Trust's Board of Trustees if circumstances should
develop that, in the good faith opinion of such Board, make proceeding
with the Agreement not in the best interests of the Acquiring Fund's
shareholders; or
-14-
<PAGE> 60
(d) by resolution of the Company's Board of Directors if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interests of the
Acquired Fund's shareholders.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Trust, the Acquiring Fund, the Company, or the
Acquired Fund, or the Trustees, Directors or officers of the Company or the
Trust, but each party shall bear the expenses incurred by it incidental to
the preparation and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon by the authorized officers of the Company and the Trust.
However, following the meeting of shareholders of the Acquired Fund held
pursuant to Paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions regarding the method for determining the
number of Acquiring Fund Shares to be received by the Acquired Fund shareholders
under this Agreement to the detriment of such shareholders without their further
approval; provided that nothing contained in this Article 12 shall be construed
to prohibit the parties from amending this Agreement to change the Closing Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the Acquiring Fund or to the Acquired
Fund, each at 101 Huntington Avenue, Boston, Massachusetts 02199, Attention:
President, and, in either case, with copies to Hale and Dorr, 60 State Street,
Boston, Massachusetts 02109, Attention: Pamela J. Wilson, Esq.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with the
laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, but no assignment or transfer
hereof or of any rights or obligations hereunder shall be made by any party
without the prior written consent of the other party. Nothing herein
expressed or implied is intended or shall be construed to confer upon or
give any person, firm or corporation, other than the parties hereto and
their respective successors and assigns, any rights or remedies under or by
reason of this Agreement.
-15-
<PAGE> 61
14.5 All persons dealing with the Trust must look solely to the property of the
Trust for the enforcement of any claims against the Trust as the Trustees,
officers, agents and shareholders of the Trust assume no personal liability
for obligations entered into on behalf of the Trust. None of the other
series of the Company shall be responsible for any obligations assumed by
on or behalf of the Acquiring Fund under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first set forth above by its President or Vice President
and has caused its corporate seal to be affixed hereto.
FREEDOM INVESTMENT TRUST II on behalf of
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
By: /s/ Anne C. Hodsdon
----------------------------------------
Anne C. Hodsdon
President
JOHN HANCOCK SERIES, INC. on behalf of
JOHN HANCOCK GLOBAL RESOURCES FUND
By: /s/ Susan S. Newton
----------------------------------------
Susan S. Newton
Vice President
-16-
<PAGE> 62
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
SUPPLEMENT TO CLASS A AND CLASS B SHARES PROSPECTUS DATED MARCH 1, 1996
The discussion of who is responsible for the day-to-day management of the Fund
contained in the "Organization and Management of the Fund" section is replaced
with the following:
Kevin R. Baker is portfolio manager of the Fund. He is supported by a
team of portfolio managers and analysts. Prior to joining the Adviser in 1994,
Mr. Baker was president of Baker Capital Management. He also worked as a
registered representative for Kidder Peabody.
3900S-4/96
April 3, 1996
<PAGE> 63
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> 64
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.
<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* 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%
<FN>
* 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.
</TABLE>
<TABLE>
<CAPTION>
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:
<S> <C> <C> <C. <C>
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
</TABLE>
(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> 65
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.
<TABLE>
Selected data for each class of shares outstanding throughout each period
indicated is as follows:
<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> 66
<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)
<FN>
* 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.
</TABLE>
4
<PAGE> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
HOW TO BUY SHARES
Opening an account.
Buying additional Class A and
Class B shares
<TABLE>
<CAPTION>
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.
- ----------------------------------------------------------------------------------------------------------
<S> <C>
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.
</TABLE>
15
<PAGE> 78
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<S> <C>
By Check: 1. Either complete the detachable stub included on your account statement or
include a note with your investment listing the name of the Fund, the class of
shares you own, your account number and the name(s) in which the account is
registered.
2. Make your check payable to John Hancock Investor Services Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling Broker.
- ----------------------------------------------------------------------------------------------------------
By Wire: Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA No. 211475000
For credit to:
John Hancock Special Opportunities Fund [Class A or
Class B shares] Your Account Number Name(s) under
which account is registered.
Other Requirements. All purchases must be made in U.S. dollars. Checks written
on foreign banks will delay purchases until U.S. funds are received, and a
collection charge may be imposed. Shares of the Fund are priced at the offering
price based on the net asset value computed after John Hancock Funds receives
notification of the dollar equivalent from the Fund's custodian bank. Wire
purchases normally take two or more hours to complete and, to be accepted the
same day, must be received by 4:00 P.M., New York time. Your bank may charge a
fee to wire funds. Telephone transactions are recorded to verify information.
Certificates are not issued unless a request is made in writing to Investor
Services.
</TABLE>
Buying additional Class A and Class B shares.
(continued)
You will receive account
statements that you should
keep to help with your
personal recordkeeping.
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
SHARE PRICE
The offering price of your shares is their net asset value plus a sales charge,
if applicable, which will vary with the purchase alternative you choose.
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ. Securities in the Fund's
portfolio are valued on the basis of market quotations, valuations provided by
independent pricing services or at fair value as determined in good faith
according to procedures approved by the Trustees. Short-term debt investments
maturing within 60 days are valued at amortized cost which the Board of Trustees
has determined to approximate market value. Foreign securities are valued on the
basis of quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates. If quotations are not readily available or, the value has been materially
affected by events occurring after the closing of a foreign market, assets are
valued by a method that the Trustees believe accurately reflects fair value. The
NAV is calculated once daily as of the close of regular trading on the New York
Stock Exchange (generally at 4:00 p.m., New York time) on each day that the
Exchange is open.
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<PAGE> 79
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.
<TABLE>
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:
<CAPTION>
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(*)
- --------------------- -------- -------- --------- -----------
<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%((**)) (***)
<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, 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.
</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 described below, investors in Class A shares may
be entitled to pay reduced sales charges. See "Qualifying For a Reduced Sales
Charge."
17
<PAGE> 80
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> 81
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> 82
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.
<TABLE>
<CAPTION>
Contingent Deferred Sales
Year in Which Class B Shares Charge As a Percentage of
Redeemed Following Purchase Amount Redeemed
- ------------------------------ ---------------------------
<S> <C>
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
</TABLE>
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision of
personal and account maintenance services to shareholders during the twelve
months following the sale, and thereafter the service fee is paid in arrears.
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> 83
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> 84
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> 85
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> 86
Who may guarantee your signature.
Additional information about
redemptions.
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.
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> 87
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> 88
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> 89
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> 90
[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> 91
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL
SAVE YOUR FUND THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK GLOBAL RESOURCES FUND
101 HUNTINGTON AVENUE, BOSTON, MASSACHUSETTS 02199
SPECIAL MEETING OF SHAREHOLDERS - AUGUST 14, 1996
PROXY SOLICITATION BY THE BOARD OF DIRECTORS
The undersigned, revoking previous proxies, hereby appoint(s) Edward J.
Boudreau, Jr., Susan S. Newton and James B. Little, with full power of
substitution in each, to vote all the shares of common stock of John Hancock
Global Resources Fund ("Global Resources Fund" or the "Fund") which the
undersigned is (are) entitled to vote at the Special Meeting of Shareholders
(the "Meeting") of Global Resources Fund to be held at 101 Huntington Avenue,
Boston, Massachusetts, on Wednesday, August 14, 1996 at 9:00 a.m., Boston time,
and at any adjournment of the Meeting. All powers may be exercised by a majority
of said proxy holders or substitutes voting or acting, or, if only one votes and
acts, then by that one. Receipt of the Proxy Statement dated June 24, 1996 is
hereby acknowledged. If not revoked, this proxy shall be voted:
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date __________________________, 1996
NOTE: Signature(s) should agree with
name(s) printed herein. When signing
as attorney, executor, administrator,
trustee or guardian, please give your
full title as such. If a corporation,
please sign in full corporate name by
president or other authorized
officer. If a partnership, please
sign in partnership name by
authorized person.
_____________________________________
Signature(s)
<PAGE> 92
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL SAVE YOUR FUND THE EXPENSE
OF ADDITIONAL MAILINGS.
THIS PROXY SHALL BE VOTED IN FAVOR OF (FOR) PROPOSAL 1 IF NO SPECIFICATION IS
MADE BELOW. AS TO ANY OTHER MATTER, SAID PROXY OR PROXIES SHALL VOTE IN
ACCORDANCE WITH THEIR BEST JUDGEMENT. PLEASE VOTE BY FILLING IN THE APPROPRIATE
BOX BELOW, AS SHOWN, USING BLUE OR BLACK INK OR DARK PENCIL. DO NOT USE RED INK.
(1) To approve an Agreement and Plan of Reorganization between John Hancock
Series, Inc., on behalf of Global Resources Fund, and Freedom
Investment Trust II, on behalf of John Hancock Special Opportunities
Fund ("Special Opportunities Fund") providing for Special Opportunities
Fund's acquisition of all of Global Resources Fund's assets in exchange
solely for the assumption of Global Resources Fund's liabilities, and
the issuance of Class A and Class B shares of Special Opportunities
Fund to Global Resources Fund for distribution to its shareholders.
FOR / / AGAINST / / ABSTAIN / /
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
<PAGE> 93
PART B
STATEMENT OF ADDITIONAL INFORMATION
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
June 24, 1996
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the related Proxy Statement and Prospectus (also dated June
24, 1996) relating to Class A and Class B shares of John Hancock Special
Opportunities Fund ("Special Opportunities Fund") to be issued in exchange for
all of the net assets of John Hancock Global Resources Fund ("Global Resources
Fund"). Please retain this Statement of Additional Information for future
reference. A copy of the Proxy Statement and Prospectus can be obtained free of
charge by calling Shareholder Services at 1-800-225-5291 or by written request
to Special Opportunities Fund at 101 Huntington Avenue, Boston, Massachusetts
02199.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Introduction............................................................. 3
Additional Information About Special Opportunities Fund.................. 3
General Information and History
Investment Objective and Policies
Management of Special Opportunities Fund
Control Persons and Principal Holders of Shares
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Shares of Beneficial Interest
Purchase, Redemption and Pricing of
Special Opportunities Fund Shares
Underwriters
Calculation of Performance Data
Financial Statements
Additional Information about Global Resources Fund....................... 5
General Information and History
Investment Objective and Policies
Management of Global Resources Fund
Investment Advisory and Other Services
Brokerage Allocation and Other Practices
Shares of Common Stock
Purchase, Redemption and Pricing of
Global Resources Fund Shares
Underwriters
Calculation of Performance Data
Financial Statements
</TABLE>
<PAGE> 94
EXHIBITS
A - Statement of Additional Information, dated March 1, 1996, of John
Hancock Special Opportunities Fund including audited financial
statements as of October 31, 1995.
B - Statement of Additional Information, dated March 1, 1996, of John
Hancock Global Resources Fund including audited financial statements as
of October 31, 1995.
C - Pro Forma Combined Financial Statements at October 31, 1995 and for the
period then ended of Special Opportunities Fund and Global Resources
Fund.
-2-
<PAGE> 95
INTRODUCTION
This Statement of Additional Information is intended to supplement the
information provided in a Proxy Statement and Prospectus dated June 24, 1996
(the "Proxy Statement and Prospectus"). The Proxy Statement and Prospectus has
been sent to the shareholders of Global Resources Fund in connection with the
solicitation by the management of Global Resources Fund of proxies to be voted
at the Special Meeting of Shareholders of Global Resources Fund to be held on
August 14, 1996. This Statement of Additional Information incorporates by
reference the statement of additional information of Global Resources Fund,
dated March 1, 1996 (the "Global Resources Fund SAI"), and the statement of
additional information of Special Opportunities Fund, dated March 1, 1996 (the
"Special Opportunities Fund SAI"). The Global Resources Fund SAI and the Special
Opportunities Fund SAI are included with this Statement of Additional
Information.
ADDITIONAL INFORMATION ABOUT SPECIAL OPPORTUNITIES FUND
General Information and History
For additional information about Special Opportunities Fund generally and
its history, see "Organization of the Fund" in the Special Opportunities Fund
SAI.
Investment Objective and Policies
For additional information about Special Opportunities Fund's investment
objective, policies and restrictions see "Investment Objective and Policies,"
"Certain Investment Practices" and "Investment Restrictions" in the Special
Opportunities Fund SAI.
Management of Special Opportunities Fund
For additional information about the Special Opportunities Fund's Board of
Trustees, officers and management personnel, see "Those Responsible for
Management" in the Special Opportunities Fund SAI.
Control Persons and Principal Holders of Shares
For additional information about control persons of Special Opportunities
Fund and principal holders of shares of beneficial interest of Special
Opportunities Fund see "Those Responsible for Management" in the Special
Opportunities Fund SAI.
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Investment Advisory and Other Services
For additional information about Special Opportunities Fund's investment
adviser, custodian, transfer agent and independent accountants, see "Investment
Advisory and Other Services," "Distribution Contract," "Transfer Agent
Services," "Custody of Portfolio" and "Independent Auditors" in the Special
Opportunities Fund SAI.
Brokerage Allocation and Other Practices
For additional information about Special Opportunities Fund's brokerage
allocation practices, see "Brokerage Allocation" in the Special Opportunities
Fund SAI.
Shares of Beneficial Interest
For additional information about the voting rights and other
characteristics of Special Opportunities Fund's shares of beneficial interest,
see "Description of the Fund's Shares" in the Special Opportunities Fund SAI.
Purchase, Redemption and Pricing of Special Opportunities Fund Shares
For additional information about the determination of net asset value, see
"Net Asset Value" in the Special Opportunities Fund SAI.
Underwriters
For additional information about Special Opportunities Fund's principal
underwriter and the distribution contract between the principal underwriter and
Special Opportunities Fund, see "Distribution Contract" in the Special
Opportunities Fund SAI.
Calculation of Performance Data
For additional information about the investment performance of Special
Opportunities Fund, see "Calculation of Performance" in the Special
Opportunities Fund SAI.
Financial Statements
Audited financial statements of Special Opportunities Fund at October 31,
1995 are attached to the Special Opportunities Fund SAI.
Pro Forma combined financial statements at October 31, 1995 for Special
Opportunities Fund as though the Reorganization had occurred on October 31, 1995
are attached hereto.
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ADDITIONAL INFORMATION ABOUT GLOBAL RESOURCES FUND
General Information and History
For additional information about Global Resources Fund generally and its
history, see "Organization of the Fund" in the Global Resources Fund SAI.
Investment Objective and Policies
For additional information about Global Resources Fund's investment
objectives and policies, see "Investment Objectives and Policies," "Certain
Investment Practices" and "Investment Restrictions" in the Global Resources Fund
SAI.
Management of Global Resources Fund
For additional information about Global Resources Fund's Board of
Directors, officers and management personnel, see "Those Responsible for
Management" in the Global Resources Fund SAI.
Investment Advisory and Other Services
For additional information about Global Resources Fund's investment
adviser, custodian, transfer agent and independent accountants, see "Investment
Advisory and Other Services," "Distribution Contracts," "Transfer Agent
Services," "Custody of Portfolio" and "Independent Auditors" in the Global
Resources Fund SAI.
Brokerage Allocation and Other Practices
For additional information about Global Resources Fund's brokerage
allocation practices, see "Brokerage Allocation" in the Global Resources Fund
SAI.
Shares of Common Stock
For additional information about the voting rights and other
characteristics of Global Resources Fund's shares of common stock, see
"Description of the Funds' Shares" in the Global Resources Fund SAI.
Purchase, Redemption and Pricing of Global Resources Fund Shares
For additional information about the net asset value of Global Resources
Fund's shares, see "Net Asset Value" in the Global Resources Fund SAI.
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Underwriters
For additional information about Global Resources Fund's principal
underwriter and the distribution contract between the principal underwriter and
Global Resources Fund, see "Distribution Contract" in the Global Resources Fund
SAI.
Calculation of Performance Data
For additional information about the investment performance of Global
Resources Fund, see "Calculation of Performance" in the Global Resources Fund
SAI.
Financial Statements
Audited financial statements of Global Resources Fund at October 31, 1995
are attached to the Global Resources Fund SAI.
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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> 100
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.
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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
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<PAGE> 102
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
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<PAGE> 103
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
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<PAGE> 104
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.
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<PAGE> 105
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
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<PAGE> 106
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
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<PAGE> 107
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
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traded on those exchanges have offered a greater potential for gain (and loss)
than securities traded on exchanges in the U.S. and more developed countries.
In some countries, there is the possibility of expropriation or
confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions or other adverse political, social or diplomatic
developments that could affect investments in these countries.
Short Sales. The Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. The Fund may also engage in
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, the Fund must borrow the security sold
short to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. Until the security is replaced, the Fund is required to pay to the
lender any accrued interest and may be required to pay a premium.
The Fund will realize a gain if the security declines in price between the
date of the short sale and the date on which the Fund replaces the borrowed
security. On the other hand, the Fund will incur a loss as a result of the short
sale if the price of security increases between those dates. The amount of any
gain will be decreased, and the amount of any loss increased, by the amount of
any premium or interest the Fund may be required to pay in connection with a
short sale. The successful use of short selling as a hedging device may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the Securities and Exchange
Commission, if the Fund engages in short sales of the type referred to in
non-fundamental Investment Restriction No. (b) below, it must put in a
segregated account (not with the broker) an amount of cash or U.S. Government
securities equal to the difference between (a) the market value of the
securities sold short at the time they were sold short and (b) any cash or U.S.
Government securities required to be deposited as collateral with the broker in
connection with the short sale (not including the proceeds from the short sale).
In addition, until the Fund replaces the borrowed security, it must daily
maintain the segregated account at such a level that (1) the amount deposited in
it plus the amount deposited with the broker as collateral will equal the
current market value of the securities sold short, and (2) the amount deposited
in it plus the amount deposited with the broker as collateral will not be less
than the market value of the securities at the time they were sold short.
Short selling may produce higher than normal portfolio turnover which may
result in increased transaction costs to the Fund and may result in gains from
the sale of securities deemed to have been held for less than three months,
which gains must be less than 30% of the Fund's gross income in order for the
Fund to qualify for regulated investment company pass-through tax treatment
under the Internal Revenue Code of 1986, as amended.
9
<PAGE> 109
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> 110
acceptances or all or a portion of an issue of debt securities, whether or not
the purchase is made upon the original issuance of the securities.
(7) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except financial futures contracts, options on securities,
securities indices, currency and other financial instruments, options on futures
contracts, forward foreign currency exchange contracts, forward commitments,
interest rate or currency swaps, warrants and repurchase agreements entered into
in accordance with the Fund's investment policies.
(8) Purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after such purchase, the value of
the Fund's investments in such industry would exceed 25% of its total assets
taken at market value at the time of each investment. For purposes of this
restriction, telephone, water, gas and electric public utilities are each
regarded as separate industries and wholly-owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parent. This limitation
does not apply to investments by the Fund in obligations of the U.S. Government
or any of its agencies or instrumentalities.
In connection with the lending of portfolio securities under item (6)
above, such loans must at all times be fully collateralized and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Securities used as collateral must be marked to market daily.
Notwithstanding the foregoing fundamental investment restrictions, or any
investment policy or non-fundamental investment restriction of the Fund, the
Fund may invest all or part of its assets in an open-end management investment
company with substantially the same investment objectives, policies and
restrictions as the Fund.
Non-fundamental Investment Restrictions. The following restrictions
are designated as non-fundamental and may be changed by the Board of Trustees
without shareholder approval.
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the management of the Adviser to
save commissions or to average prices among them is not deemed to result in a
securities trading account.
(b) Make short sales of securities or maintain a short position unless (i)
at all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issuer as, and equal in
amount to, the securities sold short; (ii) for the purpose of hedging the Fund's
exposure to an actual or anticipated market decline in the value of its
investments; or (iii) in order to profit from an anticipated decline in the
value of a security.
11
<PAGE> 111
(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> 112
being held by the Fund and (iii) no more than 5% of the Fund's assets would be
invested in any one such investment company.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interest of the Fund and its shareholders, the Fund may cease offering shares in
the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Trustees may, at their sole discretion, revoke such policy.
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
The Fund agrees that, in accordance with the guidelines of the Arkansas
Securities Department and the statutes of the State of Wisconsin, until such
guidelines and statutes no longer require, it will not purchase securities
(excluding restricted securities eligible for resale pursuant to Rule 144A under
the Securities Act of 1933 that have been determined by the Trustees to be
liquid based upon the trading markets for the securities) of issuers which the
Fund is restricted from selling to the public without registration under the
Securities Act of 1933 if by any reason thereof the value of its aggregate
investment in such classes of securities will exceed 10% of its total assets.
The Fund agrees that, in accordance with Texas Blue Sky Regulations, until
such regulations no longer require, the value of securities of any one issuer in
which the Fund is short may not exceed the lesser of 2% of the value of the
Fund's net assets or 2% of the securities of any class of any such issuer.
The Fund agrees that, in accordance with the Ohio Securities Division and until
such regulations are no longer required, it will comply with Rule
1301:6-3-09(E)(9) by not investing in the securities of other open-end and
closed-end investment companies except by purchase in the open market where no
commission or profit to a sponsor or dealer results from the purchase other than
the customary broker's commission, or except when the purchase is part of a plan
of merger, consolidation, reorganization or acquisition.
13
<PAGE> 113
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees who elect officers who
are responsible for the day-to-day operations of the Fund and who execute
policies formulated by the Trustees. Several of the officers and Trustees of the
Trust are also officers and Directors of the Adviser, or officers or Directors
of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
The following table sets forth the principal occupation of the Trustees
and principal officers of the Trust during the past five years. Unless otherwise
indicated, the business address of each is 101 Huntington Avenue, Boston,
Massachusetts 02199.
14
<PAGE> 114
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> 115
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> 116
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> 117
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> 118
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.
<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 received no compensation for the Funds for their services.
<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
<FN>
*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.
</TABLE>
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> 119
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> 120
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> 121
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.
<TABLE>
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:
<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
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<PAGE> 122
Administration of the Trustees. The members of the Committee on Administration
are all Independent Trustees and are identified in this Statement of Additional
Information under the heading "Those Responsible for Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's
shares, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished
by a principal market maker or a pricing service, both of which generally
utilize electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange of NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned categories for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the mean between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or
less are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of a Fund's NAV.
A Fund will not price its securities on the following national holidays:
New Year's Day; Presidents' Day, Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day. On any day an international
market is closed and the New York Stock Exchange is open, any foreign securities
will be valued at the prior day's close with the current day's exchange rate.
Trading of foreign securities may take place on Saturdays and U.S. business
holidays on which a Fund's NAV is not calculated. Consequently, a Fund's
portfolio securities may trade and the NAV of the Fund's redeemable securities
may be significantly affected on days when a shareholder has no access to the
Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund
are described in the Fund's Prospectus. Methods of obtaining reduced sales
charges referred to generally in the Prospectus are described in detail below.
In calculating the sales charge applicable to current purchases of Class A
shares of the Fund, the investor is entitled to cumulate current purchases with
the greater of the current value (at offering price) of the Class A shares of
the Fund owned by the investor, or if Investor Services is notified by the
investor's dealer or the investor at the
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time of the purchase, the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to
purchases of Class A shares made at one time, the purchases will be combined if
made by (a) an individual, his or her spouse and their children under the age of
21, purchasing securities for his or their own account, (b) a trustee or other
fiduciary purchasing for a single Fund, estate or fiduciary account, and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
Without Sales Charge. As described in the Prospectus, Class A shares of
the Fund may be sold without a sales charge to persons described in the
Prospectus.
Accumulation Privilege. Investors (including investors combining
purchases) who are already Class A shareholders may also obtain the benefit of
the reduced sales charge by taking into account not only the amount then being
invested but also the purchase price or value of the Class A shares already held
by such persons.
Combination Privilege. Reduced sales charges (according to the schedule
set forth in the Prospectus) also are available to an investor purchasing Class
A shares based on the aggregate amount of his concurrent and prior investments
in Class A shares of the Fund and shares of all other John Hancock funds which
carry a sales charge.
Letter of Intention. Reduced sales charges are also applicable to
investments in Class A shares made over a specified period pursuant to a Letter
of Intention ("LOI"), which should be read carefully prior to its execution by
an investor. The Fund offers two options regarding the specified period for
making investments under the LOI. All investors have the option of making their
investments over a period of thirteen months. Investors who are using the Fund
as a funding medium for a qualified retirement plan, however, may opt to make
the necessary investments called for by the LOI over a 48 month period. These
qualified retirement plans include group IRA's, SEP, SARSEP, TSA, 401(k) plans,
and Section 457 plans. Such an investment (including accumulations and
combinations) must aggregate $25,000 or more invested during the specified
period from the date of the Letter or from a date within ninety days prior
thereto, upon written request to Investor Services. The sales load applicable to
all amounts invested under the LOI is computed as if the aggregate amount
intended to be invested had been invested immediately. If such aggregate amount
is not actually invested, the difference in the sales load actually paid and the
sales load payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made in with the specified period (either 13
or 48 months), the sales load applicable will not be higher than that which
would have been applied (including accumulations and combinations) had the LOI
been for the amount actually invested.
The LOI authorizes the Investor Services to hold in escrow a number of
Class A shares (approximately 5% of the aggregate) sufficient to make up any
difference in sales charges on the amount intended to be invested and the amount
actually invested, until such investment is
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completed within the thirteen-month period, at which time the escrowed Class A
shares will be released. If the total investment specified in the LOI is not
completed, the shares held in escrow may be redeemed and the proceeds used as
required to pay such sales charge as may be due. By signing the LOI, the
investor authorizes Investor Services to act as his or her attorney-in-fact to
redeem any escrowed Class A shares and adjust the sales charge, if necessary. A
LOI does not constitute a binding commitment by an investor to purchase, or by
the Fund to sell, any additional shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so that the Fund will receive
the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
six years of purchase will be subject to a contingent deferred sales charge
("CDSC") at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B shares being redeemed. Accordingly, no CDSC will be imposed on increases
in account value above the initial purchase prices, including increases in
account value derived from reinvestment of dividends or capital gains
distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining this number of
years, all payments during a month will be aggregated and deemed to have been
made on the last day of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are used in
whole or in part by John Hancock Funds to defray its expenses related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, such as the payment of compensation to select Selling
Brokers for selling Class B shares. The combination of the CDSC and the
distribution and service fees facilitates the ability of the Fund to sell the
Class B shares without a sales charge being deducted at the time of the
purchase. See the Prospectus for additional information regarding the CDSC.
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SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he or she would incur a brokerage charge.
Any such securities would be valued for the purposes of making such payment at
the same value as used in determining net asset value. The Fund has, however,
elected to be governed by Rule 18f-1 under the Investment Company Act. Under
that rule, the Fund must redeem its shares for cash except to the extent that
the redemption payments to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of
such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. As described more fully in the Prospectus, the Fund
permits exchanges of shares of any class of the Fund for shares of the same
class in any other John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Prospectus, the
Fund permits the establishment of a Systematic Withdrawal Plan. Payments under
this plan represent proceeds arising from the redemption of the Fund's shares.
Since the redemption price of the shares of the Fund may be more or less than
the shareholder's cost, depending upon the market value of the securities owned
by the Fund at the time of redemption, the distribution of cash pursuant to this
plan may result in realization of gain or loss for purposes of federal, state
and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares of the Fund
could be disadvantageous to a shareholder because of the sales charge payable on
such purchases of Class A shares and upon redemption of Class B shares and
because redemptions are taxable events. Therefore, a shareholder should not
purchase Class A or Class B shares at the same time as a Systematic Withdrawal
Plan is in effect. The Fund reserves the right to modify or discontinue the
Systematic Withdrawal Plan of any shareholder on 30 days' prior written notice
to such shareholder, or to discontinue the availability of such plan in the
future. The shareholder may terminate the plan at any time by giving proper
notice to Investor Services.
Monthly Automatic Accumulation Program (MAAP). This program is explained
more fully in the Prospectus. The program, as it relates to automatic investment
checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any checks.
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<PAGE> 126
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the processing date of any investment.
Reinvestment Privilege. A shareholder who has redeemed Fund shares may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in the same class of the Fund
or in any of the other John Hancock funds, subject to the minimum investment
limits of that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A shares of
the Fund or in Class A shares of any of the other John Hancock funds. If a CDSC
was paid upon a redemption, a shareholder may reinvest the proceeds from such
redemption at net asset value in additional shares of the class from which the
redemption was made. Such shareholder's account will be credited with the amount
of any CDSC charge upon the prior redemption. The holding period of the shares
acquired through reinvestment will, for purposes of computing the CDSC payable
upon a subsequent redemption, include the holding period of the redeemed shares.
The Fund may modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for
federal income tax purposes even if the reinvestment privilege is exercised, and
any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated as described under the heading "Tax
Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and
supervision of the Fund. The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of the
Fund, without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this Statement
of Additional Information, the Trustees have authorized shares of the Fund and
four other series. The Declaration of Trust also authorizes the Trustees to
classify and reclassify the shares of the Fund, or any new series of the Fund,
into one or more classes.
The shares of each class of the Fund represent an equal proportionate
interest in the aggregate net assets attributable to that class of the Fund.
Class B shares bear the expense of the CDSC arrangement and any expenses
(including the higher distribution expenses) resulting from this sales
arrangement. Holders of Class A shares and Class B shares have certain exclusive
voting rights on matters relating to their respective distribution plans. The
different classes of the Fund may bear different expenses relating to the cost
of holding shareholder meetings necessitated by the exclusive voting rights of
any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares
will be calculated in the same manner, at the same time and on the same day and
will be in the same amount, except that (i) the distribution and service fees
relating to Class A and Class B shares will be borne
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<PAGE> 127
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
33
<PAGE> 133
Fund Performance Analysis", a monthly publication which tracks net assets, total
return, and yield on equity mutual funds in the United States. Ibottson and
Associates, CDA Weisenberger and F.C. Towers are also used for comparison
purposes as well as the Russell and Wilshire Indices.
Performance ranking and rating reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may also be
utilized.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors, including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemption of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by officers of the Trust pursuant
to recommendations made by an investment committee of the Adviser, which
consists of officers and directors of the Adviser and its affiliates, and
officers and Trustees who are interested persons of the Trust. Orders for
purchases and sales of securities are placed in a manner which, in the opinion
of the officers of the Fund, will offer the best price and market for the
execution of each such transaction. Purchases from underwriters of portfolio
securities may include a commission or commissions paid by the issuer and
transactions with dealers serving as market makers reflect a "spread."
Investments in debt securities are generally traded on a net basis through
dealers acting for their own account as principals and not as brokers; no
brokerage commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing primary
policy, the Rules of Fair Practice of the National Association of Securities
Dealers, Inc. and such other policies as the Trustees may determine, the Adviser
may consider sales of shares of the Fund a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in
the selection of brokers and dealers, and in the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research information
and to a lesser extent statistical assistance furnished to the Adviser, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other
34
<PAGE> 134
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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<PAGE> 135
Other investment advisory clients advised by the Adviser may also invest
in the same securities as the Fund. When these clients buy or sell the same
securities at substantially the same time, the Adviser may average the
transactions as to price and allocate the amount of available investments in a
manner which the Adviser believes to be equitable to each client, including the
Fund. In some instances, this investment procedure may adversely affect the
price paid or received by the Fund or the size of the position obtainable for
it. On the other hand, to the extent permitted by law, the Adviser may aggregate
the securities to be sold or purchased for the Fund with those to be sold or
purchased for other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation ("Investor Services"), P.O. Box
9116, Boston, MA 02205-9116, a wholly-owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Fund. The Fund pays
an annual fee for of $16.00 for each Class A shareholder and $18.50 for each
Class B shareholder, plus certain out-of-pocket expenses. These expenses are
aggregated and charged to the Fund and allocated to each class on the basis of
the relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian
agreement between the Trust and Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts 02110. Under the custodian agreement, State Street
Bank and Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts, 02110. Price Waterhouse LLP audits and renders an
opinion on the Fund's annual financial statements and reviews the Fund's annual
Federal income tax return.
36
<PAGE> 136
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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<PAGE> 138
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.
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<PAGE> 139
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.
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<PAGE> 140
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.
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<PAGE> 141
Conditional ratings, indicated by "Con", are sometimes given when the
security for the bond depends upon the completion of some act or the fulfillment
of some condition. Such bonds, are given a conditional rating that denotes their
probably credit statute upon completion of that act or fulfillment of that
condition.
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<PAGE> 142
JOHN HANCOCK FUNDS
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SPECIAL
OPPORTUNITIES
FUND
ANNUAL REPORT
October 31, 1995
<PAGE> 143
TRUSTEES
Edward J. Boudreau, Jr.
Chairman
William A. Barron, III*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
William F. Glavin*
Patrick Grant*
Ralph Lowell, Jr.*
John A. Moore*
Patti McGill Peterson*
John W. Pratt*
*Members of the Audit Committee
OFFICERS
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Robert G. Freedman
Vice Chairman and
Chief Investment Officer
Anne C. Hodsdon
President
Thomas H. Drohan
Senior Vice President and Secretary
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President, Assistant Secretary
and Compliance Officer
James J. Stokowski
Vice President and Treasurer
CUSTODIAN
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
INVESTMENT SUB-ADVISER
John Hancock Advisers International Limited
34 Dover Street
London, England W1X3RA
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
LEGAL COUNSEL
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
Investors around the world have been watching Wall Street in awe for the better
part of 1995. Through October, the Standard & Poor's 500-Stock Index, a
widely-used barometer of stock performance, had grown by more than 25%.
Investors who stayed in the market after a disappointing 1994 have been
rewarded.
On another street, Pennsylvania Avenue, one of the hot topics many people
are watching is Medicare reform. While there's no clear-cut solution on the
horizon, today's Medicare debate should serve as another wake-up call to all
Americans about the need to have a financial plan and to save for retirement.
Whether or not the government changes the way health-care benefits are allotted
to senior citizens, the message is clear: your future security and well-being
lies in your own hands -- not Uncle Sam's.
We know you've heard it a hundred times. Pick up almost any financial
periodical today, and you'll see cover stories on retirement. Many of them will
perhaps scare you or make you think that the task of saving for retirement is
just too daunting. But take heart. We don't believe that and neither do many
financial experts.
Yet retirement planning is not to be taken lightly. To live the way you want
to -- the way you deserve to after all those years of hard work -- you need to
plan and save now, on a regular basis, no matter what your other costs, no
matter how small the amount, no matter what your current age. It may be easier
if you start earlier, but it's never too late.
Building a secure nest egg is indeed doable. Talk to your financial adviser
about establishing your retirement planning roadmap, if you haven't already. And
educate yourself by reading some of the many articles about how to save for
retirement. Take control of your future by saving today. That way, when it comes
time for retirement, you shouldn't have to think about any street but Easy
Street.
Sincerely,
/s/ Edward J. Boudreau, Jr.
- ---------------------------
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE> 144
BY MICHAEL P. DICARLO,
CHIEF EQUITY OFFICER AND PORTFOLIO MANAGER
JOHN HANCOCK
SPECIAL OPPORTUNITIES FUND
GROWTH STOCKS DELIVER EARNINGS, OUTPERFORM BROADER MARKET; TECHNOLOGY
SURGES WHILE PRECIOUS METALS LAG
Declining interest rates, low inflation and steady corporate earnings helped
drive stocks sharply higher during the year. Growth stocks, because they
produced especially strong earnings in a generally weaker economy, drew
attention from Wall Street and outpaced the broader market. However, performance
varied across sectors. For example, while the Fund's technology stocks generally
fared extremely well, other sectors, such as precious metals, turned in only
lackluster numbers. The upshot was a mixed performance bag. In absolute terms,
the Fund performed quite well, more than making up for losses suffered in 1994.
In relative terms, however, the Fund lagged the average fund in its competitive
universe. For the year that ended October 31, 1995, Class A and Class B shares
of John Hancock Special Opportunities Fund had total returns at net asset value
of 17.53% and 16.77%, respectively, compared to 21.09% for the average capital
appreciation fund, according to Lipper Analytical Services.(1)
What follows is a sector-by-sector discussion of the Fund's performance. The
Fund seeks always to spread its investments among five sectors of the economy
we've identified as having unusual promise. Those five sectors have remained
unchanged since the last shareholder report six months ago.
TECHNOLOGY
With more than 40% of the Fund's total net assets, technology was the most
important sector in the Fund, and the best-performing.
[A 2" x 3" photo of Michael DiCarlo at bottom right. Caption reads: "Michael P.
DiCarlo, Portfolio Manager."]
[CAPTION]
"GROWTH STOCKS... DREW ATTENTION FROM WALL STREET AND
OUTPACED THE BROADER MARKET."
3
<PAGE> 145
John Hancock Funds - Special Opportunities Fund
"...TECHNOLOGY WAS THE MOST IMPORTANT SECTOR IN THE FUND, AND THE BEST
PERFORMING."
- -------------------------------------------------------------------------------
TOP FIVE COMMON
STOCK HOLDINGS
1. INTUIT 7.8%
2. CUC INTERNATIONAL 5.4%
3. AMERICA ONLINE 4.9%
4. CASCADE COMMUNICATIONS 4.7%
5. LINEAR TECHNOLOGY 4.6%
As a percentage of net assets on October 31, 1995
Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Intuit 7.8% 2) CUC International 5.4% 3)
America Online 4.9% 4) Cascade Communications 4.7% 5) Linear Technology 4.6%. A
footnote below reads "As a percentage of net assets on October 31, 1995."
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SCORECARD
INVESTMENTS RECENT PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS
<S> <C> <C>
America OnLine [GRAPHIC] Captures mainstream subscribers
Intuit [GRAPHIC] Introduces online banking
New World Communications [GRAPHIC] Earnings disappointment
</TABLE>
Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investments"; the header for the right column is "Recent
performance ... and what's behind the numbers. The first listing is America
Online followed by an up arrow and the phrase "Captures mainstream subscribers."
The second listing is Intuit followed by an up arrow and the phrase "Introduces
online banking." The third listing is New World Communications followed by a
down arrow and the phrase "Earnings disappointment." Footnote below reads: See
"Schedule of Investment." Investment holdings are subject to change."
See "Schedule of Investments." Investment holdings are subject to change.
Technology stocks benefited from a confluence of powerful trends, including the
explosion in multimedia computing; the proliferation of semiconductors; the
introduction of Windows 95, which has increased demand for sophisticated
computer hardware; and the push among manufacturers and service providers to
achieve productivity gains through technology.
Several software providers were among the Fund's largest holdings. These
included Microsoft, designers of Windows 95, which has met sales projections
even though many large corporate users have yet to upgrade their systems; and
Intuit, an innovative designer of personal-finance software and a leader in
electronic home-banking services.
OIL AND GAS
Investing in energy stocks is one way to capitalize on exploding growth in the
world's developing markets. Fast-growing economies in places such as China and
India have a huge unmet demand for energy. And in this country, the surge in
popularity of high-consumption vehicles has helped increase demand for oil,
while the supply side of the equation remains unchanged. Energy stocks totaled
about 15% of the Fund's net assets at the end of October. Our focus has been on
oil, rather than natural gas, and on the specialty service companies, which have
more potential for dramatic earnings growth. Our largest investment in the
sector, for example, is Diamond Offshore Drilling. All they do is drill offshore
oil and gas wells. We also own Pride Petroleum Services, a contract driller
which provides rigs and crews to oil wells all over the world. Both Pride and
Diamond have been decent performers in a somewhat lackluster sector. Meanwhile,
Reading & Bates, another contract driller, has failed so far to meet
expectations. Overall, we believe it's still early in the game for energy
stocks. For now, we're being patient, waiting for the stocks to realize their
significant potential.
MEDIA/INFORMATION DISTRIBUTION
Various media and information distribution stocks accounted for about 14% of
the Fund's net assets at the end of October. This category continues to be
driven by the Fund's largest individual holding and its top performer for the
year: America Online (AOL). By targeting mainstream consumers, AOL has emerged
as the fastest growing distributor of online computer services. During
the period we sold three broadcaster stocks: Renaissance Communications,
Capital Cities/ABC and entertainment giant Walt Disney, which has a deal pending
to buy Capital Cities/ABC. To the extent the broadcasters depend on advertising
revenues, we
4
<PAGE> 146
John Hancock Funds - Special Opportunities Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the year ended October 31, 1995." The chart is
scaled in increments of 10% from bottom to top, with 30% at the top and 0% at
the bottom. Within the chart there are three solid bars. The first represents
the 17.53% total return for the John Hancock Special Opportunities Fund: Class
A. The second represents the 16.77% total return for the John Hancock Special
Opportunities Fund: Class B. The third represents the 21.09% total return for
the average capital appreciation fund. A footnote below reads: "Total returns
for John Hancock Special Opportunities Fund are at net asset value with all
distributions reinvested. The average capital appreciation fund is tracked by
Lipper Analytical Services. (1) See following page for historical performance
information."]
see them as less promising candidates for growth going forward. In most cases,
their prices already reflect the expected increase in 1996 ad revenues
associated with the upcoming Olympics, political conventions and presidential
election. Perhaps our most disappointing stock in recent months has been New
World Communications, a programming producer and local station owner. We believe
it's a delay and not a disaster, but so far earnings have not come through as
expected.
HEALTH CARE
Health-care and medical stocks were only 10% of the Fund's net assets at the end
of the period. But that percentage is growing. Most of the companies we own and
target are those in a position to profit from the drive to contain costs, a
mission which the government seems to have relegated to the private sector. They
included Boston Scientific, a medical device manufacturer with a broad array of
products, many of which enable physicians to perform cheaper, less invasive
procedures.
PRECIOUS METALS
Precious metals accounted for only about 4% of the Fund's net assets,
distributed among a handful of stocks, including Kinross Gold. In the jewelry
industry, demand for precious metals has outstripped supply for the past six
years. Moreover, Chinese and Mexican citizens have begun buying gold in record
amounts to protect their wealth in an unstable economic environment. So far,
however, those powerful forces have had little effect on the price of gold. This
was the Fund's most disappointing sector.
OUTLOOK
In the months to come, we'll keep the Fund's holdings within the sectors
outlined above and we may try to improve our relative performance by making less
frequent sector rotations and giving our tactics more room to play themselves
out. Overall, we believe the stage remains set for growth stocks to keep
performing well. Positives include a market-friendly Congress, which seems
poised to deliver both a capital-gains tax cut and looser regulations concerning
IRAs. What's more, the economy seems to be plodding along in its slow growth
mode with many signs suggesting it will stay that way for a while. That bodes
well for companies like those favored by Special Opportunities Fund. They are
companies which are often better able to deliver earnings than the more
economically-sensitive cyclical companies.
[CAPTION]
"THE CLIMATE FOR GROWTH STOCKS REMAINS ATTRACTIVE."
- ------------
(1) Figures from Lipper Analytical Services include reinvested dividends and do
not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE> 147
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Special Opportunities Fund. Total return is a
performance measure that equals the sum of all dividends and capital gains,
assuming reinvestment of these distributions and the change in the price of the
Fund's shares, expressed as a percentage of the Fund's average net assets.
Performance figures include the maximum applicable sales charge of 5% for Class
A shares. The effect of the maximum contingent deferred sales charge for Class B
shares (maximum 5% and declining to 0% over six years) is included in Class B
performance. Remember that all figures represent past performance and are no
guarantee of how the Fund will perform in the future. Also, keep in mind that
the total return and share price of the Fund's investments will fluctuate. As a
result, your Fund's shares may be worth more or less than their original cost,
depending on when you sell them. Please see your prospectus for risks associated
with industry segment investing.
Note: Participant-directed defined-contribution plans with at least 100 eligible
employees at inception of the Fund account may purchase Class A shares without
an initial sales charge as of March 15, 1995. If those shares are redeemed,
however, during the year following the calendar year end during which they were
purchased, a contingent deferred sales charge will be assessed.
CUMULATIVE TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ONE LIFE OF
YEAR FUND(1)
---- -------
<S> <C> <C>
John Hancock Special Opportunities Fund: Class A 17.98% 7.04%
John Hancock Special Opportunities Fund: Class B 18.50% 7.29%
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
FOR THE PERIOD ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
ONE LIFE OF
YEAR FUND(1)
---- -------
<S> <C> <C>
John Hancock Special Opportunities Fund: Class A 17.98% 3.63%
John Hancock Special Opportunities Fund: Class B 18.50% 3.75%
</TABLE>
NOTES TO PERFORMANCE
(1) Both Class A and Class B shares started on November 1, 1993.
6
<PAGE> 148
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John Hancock
Special Opportunities Fund would be worth on October 31, 1995, assuming you had
invested on the day each class of shares started and reinvested all
distributions. For comparison, we've shown the same $10,000 investment in the
Standard & Poor's 500 Stock Index -- an unmanaged index that includes 500 widely
traded common stocks and is a commonly used measure of stock market performance.
[Special Opportunities Fund
Class A shares
Line chart with the heading Special Opportunities Fund: Class A, representing
the growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $13,128 as of October 31, 1995. The second line represents the value
of the hypothetical $10,000 investment made in the Special Opportunities Fund on
November 1, 1993, before sales charge, and is equal to $10,965 as of October 31,
1995. The third line represents the Special Opportunities Fund after sales
charge and is equal to $10,413 as of October 31, 1995.
Special Opportunities Fund
Class B shares
Line chart with the heading Special Opportunities Fund: Class B, representing
the growth of a hypothetical $10,000 investment over the life of the fund.
Within the chart are three lines.
The first line represents the value of the Standard & Poor's 500 Stock Index and
is equal to $13,128 as of October 31, 1995. The second line represents the value
of the hypothetical $10,000 investment made in the Special Opportunities Fund on
November 1, 1993, before contingent deferred sales charge, and is equal to
$10,812 as of October 31, 1995. The third line represents the Special
Opportunities Fund after contingent deferred sales charge and is equal to
$10,312 as of October 31, 1995.]
7
<PAGE> 149
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
=============================================================================
<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.
** 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> 150
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
============ ============
<FN>
* 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
========== ============ =========== =============
<FN>
** 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> 151
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> 152
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)
<FN>
* 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.
</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> 153
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> 154
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
======= ============
<FN>
* Securities other than short-term investments, newly added to the portfolio
during the period ended October 31,1995.
** Non-income producing security.
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
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> 155
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> 156
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> 157
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> 158
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> 159
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> 160
JOHN HANCOCK SERIES, INC.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
consisting of six series,
JOHN HANCOCK MONEY MARKET FUND
JOHN HANCOCK GLOBAL RESOURCES FUND
JOHN HANCOCK GOVERNMENT INCOME FUND
JOHN HANCOCK HIGH YIELD BOND FUND
JOHN HANCOCK HIGH YIELD TAX-FREE FUND
JOHN HANCOCK EMERGING GROWTH FUND
(each, a "Fund" and collectively, the "Funds")
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 1996
This Statement of Additional Information ("SAI") provides information
about John Hancock Series, Inc. (the "Corporation") and the Funds, in addition
to the information that is contained in the Fund's Prospectuses dated March 1,
1996.
This SAI is not a prospectus. It should be read in conjunction with the
Funds' Prospectuses, copies of which can be obtained free of charge by writing
or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
<PAGE> 161
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Organization of the Corporation. . . . . . . . . . . . . . . . . . 3
Investment Objectives and Policies . . . . . . . . . . . . . . . . 3
Certain Investment Practices . . . . . . . . . . . . . . . . . . . 5
Investment Restrictions. . . . . . . . . . . . . . . . . . . . . . 6
Those Responsible for Management . . . . . . . . . . . . . . . . . 33
Investment Advisory and Other Services . . . . . . . . . . . . . . 43
Distribution Contract. . . . . . . . . . . . . . . . . . . . . . . 47
Net Asset Value. . . . . . . . . . . . . . . . . . . . . . . . . . 51
Initial Sales Charge on Class A Shares . . . . . . . . . . . . . . 53
Deferred Sales Charge on Class B Shares. . . . . . . . . . . . . . 54
Special Redemptions. . . . . . . . . . . . . . . . . . . . . . . . 55
Additional Services and Programs . . . . . . . . . . . . . . . . . 55
Description of the Corporation's Shares. . . . . . . . . . . . . . 57
Tax Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Calculation of Performance . . . . . . . . . . . . . . . . . . . . 64
Brokerage Allocation . . . . . . . . . . . . . . . . . . . . . . . 69
Transfer Agent Services. . . . . . . . . . . . . . . . . . . . . . 71
Custody of Portfolio . . . . . . . . . . . . . . . . . . . . . . . 72
Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . 72
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
-2-
<PAGE> 162
ORGANIZATION OF THE CORPORATION
The Corporation is an open-end management investment company organized
as a Maryland corporation on June 22, 1987. The Corporation currently has six
series: John Hancock Emerging Growth Fund, John Hancock Global Resources Fund,
John Hancock Government Income Fund, John Hancock High Yield Bond Fund, John
Hancock High Yield Tax-Free Fund and John Hancock Money Market Fund. Prior to
September 12, 1995, the John Hancock Money Market Fund was called John Hancock
Money Market Fund B. Prior to December 22, 1994, the Funds were called
Transamerica Emerging Growth Fund, Transamerica Global Resources Fund,
Transamerica Government Income Fund, Transamerica High Yield Bond Fund,
Transamerica High Yield Tax-Free Fund and Transamerica Money Market Fund B.
Each Fund is managed by John Hancock Advisers, Inc. (the "Adviser"), a
wholly-owned indirect subsidiary of John Hancock Mutual Life Insurance Company
(the "Life Company"), chartered in 1862 with national headquarters at John
Hancock Place, Boston, Massachusetts. John Hancock Funds, Inc. ("John Hancock
Funds") acts as principal distributor of the shares of the Funds.
INVESTMENT OBJECTIVES AND POLICIES
JOHN HANCOCK MONEY MARKET FUND ("Money Market Fund") seeks to provide maximum
current income consistent with capital preservation and liquidity. The Fund's
investments will be subject to the market fluctuation and risks inherent in all
securities.
JOHN HANCOCK GLOBAL RESOURCES FUND'S ("Global Resources Fund") investment
objectives are to protect the purchasing power of shareholders' capital and to
achieve growth of capital. The first of these objectives means that the Fund
seeks to protect generally shareholders' invested capital against erosion of the
value of the U.S. dollar through inflation. Current income will not be a primary
consideration in selecting securities. However, it will be an important factor
in making selections among securities believed otherwise comparable by the
Adviser.
INVESTMENT PHILOSOPHY OF GLOBAL RESOURCES FUND. The Adviser believes
that, based upon past performance, the securities of specific companies that
hold different types of substantial resource assets or engage in resource-
related or energy-related activities may move relatively independently of one
another during different stages of inflationary or deflationary cycles because
of different degrees of demand for, or market values of, their respective
resource holdings or resource-related or energy-related business during
particular portions of such cycles. For example, during the period 1976 to 1980,
the prices of oil company stocks increased relatively more than the prices of
coal company stocks when compared to the performance of relevant stock market
indices. The Adviser will seek to identify companies or asset-based securities
which it believes are attractively priced relative to the intrinsic value of the
underlying resource assets or resource-related or energy-related business or are
especially well positioned to benefit during particular portions of inflationary
or deflationary cycles. It is expected that when management of the Fund
anticipates significant economic, political or financial instability, such as
high inflationary or deflationary pressures or major dislocations in the foreign
currency exchange markets, the Fund
-3-
<PAGE> 163
may, in seeking to protect the purchasing power of shareholders' capital, invest
a majority of its assets in companies that explore for, extract, process or deal
in gold or in asset-based securities indexed to the value of gold bullion. Such
a switch in investment strategies could result in substantial liquidation of
portfolio securities and significant transaction costs. The Fund's approach of
active investment management enables it to switch its emphasis among various
industry groups, depending upon the Adviser's outlook with respect to prevailing
trends and developments. The Fund may seek to hedge its portfolio partially by
writing covered call options or purchasing put options on its portfolio
holdings.
JOHN HANCOCK GOVERNMENT INCOME FUND'S ("Government Income Fund") investment
objective is to earn a high level of current income consistent with preservation
of capital by investing primarily in securities that are issued or guaranteed as
to principal and interest by the U.S. Government, its agencies or
instrumentalities. The Fund may seek to enhance its current return and may seek
to hedge against changes in interest rates by engaging in transactions involving
options (subject to certain limits), futures and options on futures. The Fund
expects that under normal market conditions it will invest at least 80% of its
total assets in U.S. Government securities (and related repurchase agreements
and forward commitments).
JOHN HANCOCK HIGH YIELD BOND FUND'S ("High Yield Bond Fund") primary investment
objective is to maximize current income without assuming undue risk by investing
in a diversified portfolio consisting primarily of lower-rated, high yielding,
fixed income securities, such as: domestic and foreign corporate bonds;
debentures and notes; convertible securities; preferred stocks; and domestic and
foreign government obligations. As a secondary objective, the Fund seeks capital
appreciation, but only when it is consistent with the primary objective of
maximizing current income.
JOHN HANCOCK HIGH YIELD TAX-FREE FUND'S ("High Yield Tax-Free Fund") primary
investment objective is to obtain a high level of current income that is largely
exempt from federal income taxes and is consistent with the preservation of
capital. The Fund pursues this objective by normally investing substantially all
of its assets in medium and lower quality obligations, including bonds, notes
and commercial paper, issued by or on behalf of states, territories and
possessions of the United States, The District of Columbia and their political
subdivisions, agencies or instrumentalities, the interest on which is exempt
from federal income tax ("tax-exempt securities"). The Fund seeks as its
secondary objective preservation of capital by purchasing and selling interest
rate futures contracts ("financial futures") and tax-exempt bond index futures
contracts ("index futures"), and by purchasing and writing put and call options
on debt securities, financial futures, tax-exempt bond indices and index futures
to hedge against changes in the general level of interest rates.
JOHN HANCOCK EMERGING GROWTH FUND ("Emerging Growth Fund") seeks long-term
growth of capital through investing primarily (at least 80% of its assets in
normal circumstances) in the common stocks of rapidly growing small-sized
companies (those with a market capitalization of $500 million or less) to
medium-sized companies (those with a market capitalization of up to $1 billion.)
Current income is not a factor of consequence in the selection of stocks for the
Fund.
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There can be no assurance that the Funds will achieve their respective
investment objectives.
CERTAIN INVESTMENT PRACTICES
GOVERNMENT SECURITIES. Each Fund may invest in U.S. Government
securities, which are obligations issued or guaranteed by the U.S. Government
and its agencies, authorities or instrumentalities. 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.
CUSTODIAL RECEIPTS. The Funds may each acquire custodial receipts in
respect of U.S. government securities. Such custodial receipts evidence
ownership of future interest payments, principal payments or both on certain
notes or bonds. These custodial receipts are known by various names, including
Treasury Receipts, Treasury Investors Growth Receipts ("TIGRs"), and
Certificates of Accrual on Treasury Securities ("CATS"). For certain securities
law purposes, custodial receipts are not considered U.S. government securities.
BANK AND CORPORATE OBLIGATIONS. Each of the Funds may invest in
commercial paper. Commercial paper represents short-term unsecured promissory
notes issued in bearer form by banks or bank holding companies, corporations and
finance companies. The commercial paper purchased by the Funds consists of
direct U.S. dollar denominated obligations of domestic or foreign issuers. Bank
obligations in which a Fund may invest include certificates of deposit, bankers'
acceptances and fixed time deposits. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a definite
period of time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange,
normally drawn by an importer or exporter to pay for specific merchandise, which
are "accepted" by a bank, meaning, in effect, that the bank unconditionally
agrees to pay the face value of the instrument on maturity. Fixed time deposits
are bank obligations payable at a stated maturity date and bearing interest at a
fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but
may be subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
of the bank. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are
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insured by the Federal Deposit Insurance Corporation only to the extent of
$100,000 per depositor per bank.
MUNICIPAL OBLIGATIONS. Money Market Fund, High Yield Bond Fund and High
Yield Tax- Free Fund may invest in a variety of municipal obligations which
consist of municipal bonds, municipal notes and municipal commercial paper.
MUNICIPAL BONDS. Municipal bonds are issued to obtain funds for various
public purposes including the construction of a wide range of public facilities
such as airports, highways, bridges, schools, hospitals, housing, mass
transportation, streets and water and sewer works. Other public purposes for
which municipal bonds may be issued include refunding outstanding obligations,
obtaining funds for general operating expenses and obtaining funds to lend to
other public institutions and facilities. In addition, certain types of
industrial development bonds are issued by or on behalf of public authorities to
obtain funds for many types of local, privately operated facilities. Such debt
instruments are considered municipal obligations if the interest paid on them is
exempt from federal income tax. The payment of principal and interest by issuers
of certain obligations purchased by a Fund may be guaranteed by a letter of
credit, note repurchase agreement, insurance or other credit facility agreement
offered by a bank or other financial institution. Such guarantees and the
creditworthiness of guarantors will be considered by the Adviser in determining
whether a municipal obligation meets the Fund's investment quality requirements.
No assurance can be given that a municipality or guarantor will be able to
satisfy the payment of principal or interest on a municipal obligation.
MUNICIPAL NOTES. Municipal notes are short-term obligations of
municipalities, generally with a maturity ranging from six months to three
years. The principal types of such notes include tax, bond and revenue
anticipation notes and project notes.
MUNICIPAL COMMERCIAL PAPER. Municipal commercial paper is a short-term
obligation of a municipality, generally issued at a discount with a maturity of
less than one year. Such paper is likely to be issued to meet seasonal working
capital needs of a municipality or interim construction financing. Municipal
commercial paper is backed in many cases by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks and other institutions.
Federal tax legislation enacted in the 1980's placed substantial new
restrictions on the issuance of the bonds described above and in some cases
eliminated the ability of state or local governments to issue municipal
obligations for some of the above purposes. Such restrictions do not affect the
Federal income tax treatment of municipal obligations in which a Fund may invest
which were issued prior to the effective dates of the provisions imposing such
restrictions. The effect of these restrictions may be to reduce the volume of
newly issued municipal obligations.
Issuers of municipal obligations are subject to the provisions of
bankruptcy, insolvency and other laws affecting the rights and remedies of
creditors, such as the Federal Bankruptcy Act, 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. There is also the possibility that as a result of
litigation or other conditions the power
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or ability of any one or more issuers to pay when due the principal of and
interest on their municipal obligations may be affected.
The yields of municipal bonds depend upon, among other things, general
money market conditions, general conditions of the municipal bond market, size
of a particular offering, the maturity of the obligation and rating of the
issue. The ratings of Standard & Poor's Ratings Group ("S&P"), Moody's Investors
Service, Inc. ("Moody's") and Fitch Investors Service ("Fitch") represent their
respective opinions on the quality of the municipal bonds they undertake to
rate. It should be emphasized, however, that ratings are general and not
absolute standards of quality. Consequently, municipal bonds with the same
maturity, coupon and rating may have different yields and municipal bonds of the
same maturity and coupon with different ratings may have the same yield. See the
Appendix for a description of ratings. Many issuers of securities choose not to
have their obligations rated. Although unrated securities eligible for purchase
by a Fund must be determined to be comparable in quality to securities having
certain specified ratings, the market for unrated securities may not be as broad
as for rated securities since many investors rely on rating organizations for
credit appraisal.
MORTGAGE-BACKED SECURITIES. Government Income Fund and High Yield Bond
Fund may invest in mortgage pass-through certificates and multiple-class
pass-through securities, such as real estate mortgage investment conduits
("REMIC") pass-through certificates, collateralized mortgage obligations
("CMOs") and stripped mortgage-backed securities ("SMBS"), and other types of
"Mortgage-Backed Securities" that may be available in the future.
GUARANTEED MORTGAGE PASS-THROUGH SECURITIES. Guaranteed mortgage
pass-through securities represent participation interests in pools of
residential mortgage loans and are issued by U.S. Governmental or private
lenders and guaranteed by the U.S. Government or one of its agencies or
instrumentalities, including but not limited to the Government National Mortgage
Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie
Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"). Ginnie Mae
certificates are guaranteed by the full faith and credit of the U.S. Government
for timely payment of principal and interest on the certificates. Fannie Mae
certificates are guaranteed by Fannie Mae, a federally chartered and privately
owned corporation, for full and timely payment of principal and interest on the
certificates. Freddie Mac certificates are guaranteed by Freddie Mac, a
corporate instrumentality of the U.S. Government, for timely payment of interest
and the ultimate collection of all principal of the related mortgage loans.
MULTIPLE-CLASS PASS-THROUGH SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. CMOs and REMIC pass-through or participation certificates may be
issued by, among others, U.S. Government agencies and instrumentalities as well
as private lenders. CMOs and REMIC certificates are issued in multiple classes
and the principal of and interest on the mortgage assets may be allocated among
the several classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Generally, interest is paid or accrues on all
classes of CMOs or REMIC certificates on a monthly basis.
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Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie
Mac certificates but also may be collateralized by other mortgage assets such as
whole loans or private mortgage pass-through securities. Debt service on CMOs is
provided from payments of principal and interest on collateral of mortgaged
assets and any reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the
Internal Revenue Code of 1986, as amended (the "Code") and invests in certain
mortgages primarily secured by interests in real property and other permitted
investments.
STRIPPED MORTGAGE-BACKED SECURITIES. SMBS are derivative multiple-class
mortgage-backed securities. SMBS are usually structured with two classes that
receive different proportions of interest and principal distributions on a pool
of mortgage assets. A typical SMBS will have one class receiving some of the
interest and most of the principal, while the other class will receive most of
the interest and the remaining principal. In the most extreme case, one class
will receive all of the interest (the "interest only" class) while the other
class will receive all of the principal (the "principal only" class). The yields
and market risk of interest only and principal only SMBS, respectively, may be
more volatile than those of other fixed income securities. The staff of the SEC
considers privately issued SMBS to be illiquid.
STRUCTURED OR HYBRID NOTES. Government Income Fund, High Yield Bond Fund
and High Yield Tax-Free Fund may invest in "structured" or "hybrid" notes. The
distinguishing feature of a structured or hybrid note is that the amount of
interest and/or principal payable on the note is based on the performance of a
benchmark asset or market other than fixed income securities or interest rates.
Examples of these benchmarks include stock prices, currency exchange rates and
physical commodity prices. Investing in a structured note allows a Fund to gain
exposure to the benchmark market while fixing the maximum loss that the Fund may
experience in the event that market does not perform as expected. Depending on
the terms of the note, a Fund may forego all or part of the interest and
principal that would be payable on a comparable conventional note; a Fund's loss
cannot exceed this foregone interest and/or principal. An investment in
structured or hybrid notes involves risks similar to those associated with a
direct investment in the benchmark asset.
RISK FACTORS ASSOCIATED WITH MORTGAGE-BACKED SECURITIES. Investing in
Mortgage-Backed Securities involves certain risks, including the failure of a
counter-party to meet its commitments, adverse interest rate changes and the
effects of prepayments on mortgage cash flows. In addition, investing in the
lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. Further, the yield
characteristics of Mortgage-Backed Securities differ from those of traditional
fixed income securities. The major differences typically include more frequent
interest and principal payments (usually monthly), the adjustability of interest
rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and
a variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
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prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, a Fund may fail to recoup fully its
investment in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental, agency or other guarantee. When a Fund reinvests amounts
representing payments and unscheduled prepayments of principal, it may receive a
rate of interest that is lower than the rate on existing adjustable rate
mortgage pass-through securities. Thus, Mortgage-Backed Securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. Government securities as a means of "locking
in" interest rates.
Conversely, in a rising interest rate environment, a declining
prepayment rate will extend the average life of many Mortgage-Backed Securities.
This possibility is often referred to as extension risk. Extending the average
life of a Mortgage-Backed Security increases the risk of depreciation due to
future increases in market interest rates.
RISK ASSOCIATED WITH SPECIFIC TYPES OF DERIVATIVE DEBT SECURITIES.
Different types of derivative debt securities are subject to different
combinations of prepayment, extension and/or interest rate risk. Conventional
mortgage pass-through securities and sequential pay CMOs are subject to all of
these risks, but are typically not leveraged. Thus, the magnitude of exposure
may be less than for more leveraged Mortgage-Backed Securities.
The risk of early prepayments is the primary risk associated with
interest only debt securities ("IOs"), super floaters, other leveraged floating
rate instruments and Mortgage-Backed Securities purchased at a premium to their
par value. In some instances, early prepayments may result in a complete loss of
investment in certain of these securities. The primary risks associated with
certain other derivative debt securities are the potential extension of average
life and/or depreciation due to rising interest rates.
These securities include floating rate securities based on the Cost of
Funds Index ("COFI floaters"), other "lagging rate" floating rate securities,
floating rate securities that are subject to a maximum interest rate ("capped
floaters"), Mortgage-Backed Securities purchased at a discount, leveraged
inverse floating rate securities ("inverse floaters"), principal only debt
securities ("POs"), certain residual or support tranches of CMOs and index
amortizing notes. Index amortizing notes are not Mortgage-Backed Securities, but
are subject to extension risk resulting from the issuer's failure to exercise
its option to call or redeem the notes before their stated maturity date.
Leveraged inverse IOs combine several elements of the Mortgage-Backed Securities
described above and thus present an especially intense combination of
prepayment, extension and interest rate risks.
Planned amortization class ("PAC") and target amortization class ("TAC")
CMO bonds involve less exposure to prepayment, extension and interest rate risk
than other Mortgage-Backed Securities, provided that prepayment rates remain
within expected prepayment ranges or "collars." To the extent that prepayment
rates remain within these prepayment ranges, the residual or support tranches of
PAC and TAC CMOs assume the extra prepayment, extension and interest rate risk
associated with the underlying mortgage assets.
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Other types of floating rate derivative debt securities present more
complex types of interest rate risks. For example, range floaters are subject to
the risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates. X-reset
floaters have a coupon that remains fixed for more than one accrual period.
Thus, the type of risk involved in these securities depends on the terms of each
individual X-reset floater.
ASSET-BACKED SECURITIES. Government Income Fund and High Yield Bond Fund
may invest a portion of their assets in asset-backed securities which are rated
in one of the two highest rating categories by a nationally recognized
statistical rating organization (e.g., S&P or Moody's) or if not so rated, of
equivalent investment quality in the opinion of the Adviser.
Asset-backed securities are often subject to more rapid repayment than
their stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can be
expected to accelerate. Accordingly, a Fund's ability to maintain positions in
such securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the returns
of principal at comparable yields is subject to generally prevailing interest
rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
ASSET-BASED SECURITIES. Global Resources Fund may invest in debt
securities, preferred stocks or convertible securities, the principal amount,
redemption terms or conversion terms of which are related to the market price of
some resource asset such as gold bullion. For the purposes of the Fund's
investment policies, these securities are referred to as asset-based securities.
If the asset-based security is backed by a bank letter of credit or
other similar facility, the Adviser may take such backing into account in
determining the credit quality of the asset-based security. Although an
asset-based security and the related natural resource asset generally are
expected to move in the same direction, there may not be perfect correlation in
the two price movements. Asset-based securities may not be secured by a security
interest in or claim on the underlying natural resource assets. The Fund's
holdings of such securities may not generate
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appreciable current income and the return from such securities primarily will be
from any profit on the sale, maturity or conversion thereof at a time when the
price of the related asset is higher than it was when the Fund purchased such
securities.
The asset-based securities in which the Fund may invest may bear
interest or pay preferred dividends at below market (or even relatively nominal)
rates. Certain asset-based securities may be payable at maturity in cash at the
stated principal amount or, at the option of the holder, directly in a stated
amount of the asset to which it is related. In such instance, because the Fund
presently does not intend to invest directly in natural resource assets other
than gold bullion, the Fund would sell the asset-based security in the secondary
market, to the extent one exists, prior to maturity if the value of the stated
amount of the asset exceeds the stated principal amount and thereby realize the
appreciation in the underlying asset.
The Fund will not acquire asset-based securities for which no
established secondary trading market exists if at the time of acquisition more
than 10% of its total assets are invested in securities which are not readily
marketable. The Fund may invest in asset-based securities without limit when it
has the right to sell such securities to the issuer or a stand-by bank or broker
and receive the principal amount or redemption price thereof less transaction
costs on no more than seven days notice or when the Fund has the right to
convert such securities into a readily marketable security in which it could
otherwise invest upon not more than seven days notice.
SPECIAL CONSIDERATIONS RELATED TO INVESTMENT IN GOLD. Under certain
circumstances, Global Resources Fund may invest a majority of its assets in
gold, gold related securities or securities of gold-related companies. Based on
historic experience, during periods of economic or financial instability the
securities of such companies may be subject to extreme price fluctuations,
reflecting the high volatility of gold prices during such periods. Gold may be
affected by unpredictable international monetary and political policies, social
conditions within a particular country, trade imbalances or trade or currency
restrictions between countries. In addition, the instability of gold prices may
result in volatile earnings of gold-related companies which, in turn, may affect
adversely the financial condition of such companies. Gold mining companies also
are subject to the risks generally associated with mining operations.
The major producers of gold include the Republic of South Africa,
Russia, Canada, the United States, Brazil and Australia. Sales of gold by Russia
are largely unpredictable and often relate to political and economic
considerations rather than to market forces. Economic, social and political
developments within South Africa may affect significantly South African gold
production and the markets for South African gold which may in turn
significantly affect the price of gold.
The Fund is currently authorized to invest up to 10% of its assets in
gold bullion and coins, although it does not currently intend to invest in
coins. The Fund may seek to increase this limit to 25% through negotiation with
a certain state which imposes the 10% limit as a condition for qualifying the
shares of the Fund for sale in that state.
Investments in gold may help to hedge against inflation and major
fluctuations in the Fund's shares because at certain times the price of gold has
fluctuated less widely than the value of the securities which are permitted
investments. When the Fund purchases bullion, the Adviser
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currently intends that it will be only in a form that is readily marketable and
that it will be delivered to and stored with a qualified U.S. bank. An
investment in bullion earns no investment income and involves higher custody and
transaction costs than investments in securities. The Fund will also incur the
cost of insurance in connection with holding gold. The market for gold bullion
is presently unregulated which could affect the ability of the Fund to acquire
or dispose of gold bullion. In order to qualify as a regulated investment
company for federal income taxes, the Fund may receive no more than 10% of its
yearly gross income from gains caused by selling gold bullion or coins and from
certain other sources that do not produce "qualifying" income. The Fund may be
required, therefore, either to hold its gold bullion or sell it at a loss, or to
sell its portfolio securities at a gain, when it would not otherwise do so for
investment reasons. The Fund may also purchase precious metal warehouse receipts
that may be convertible into cash or gold bullion as an alternative to a direct
investment in gold. Whereas gold bullion is traded in the form of contracts to
buy or sell bullion which are in the nature of futures or commodities contracts,
warehouse receipts represent ownership of a specified quantity of identified
gold bars held in storage. Although ownership of gold in this manner entails
storage and insurance expense, there is an active over-the-counter market in
such receipts so that they are a liquid investment. For purposes of the Fund's
investment limitations, such warehouse receipts would be considered to be
equivalent to direct investments in the precious metals.
FOREIGN SECURITIES AND EMERGING COUNTRIES. Emerging Growth Fund, Global
Resources Fund and High Yield Bond Fund may invest in securities of foreign
issuers. These Funds may also invest in debt and equity securities of corporate
and governmental issuers of countries with emerging economies or securities
markets. Government Income Fund may invest in foreign currency denominated
securities of foreign governments considered stable by the Adviser and may hedge
such investments through various options and futures transactions involving
foreign currencies. Money Market Fund may invest in foreign securities and in
certificates of deposit, bankers' acceptances and fixed time deposits and other
obligations issued by foreign banks and their U.S. and foreign branches and
foreign branches of U.S. banks. Money Market Fund may also invest in municipal
instruments backed by letters of credit issued by certain of such banks. Under
current Securities and Exchange Commission ("SEC") rules relating to the use of
the amortized cost method of portfolio securities valuation, Money Market Fund
is restricted to purchasing U.S. dollar denominated securities.
Investing in obligations of non-U.S. issuers and foreign banks,
particularly securities of issuers located in emerging countries, may entail
greater risks than investing in similar securities of U.S. issuers. These risks
include (i) social, political and economic instability; (ii) the small current
size of the markets for many such securities and the currently low or
nonexistent volume of trading, which may result in a lack of liquidity and in
greater price volatility; (iii) certain national policies which may restrict a
Fund's investment opportunities, including restrictions on investment in issuers
or industries deemed sensitive to national interests; (iv) foreign taxation; and
(v) the absence of developed structures governing private or foreign investment
or allowing for judicial redress for injury to private property.
Investing in securities of non-U.S. companies may entail additional
risks due to the potential political and economic instability of certain
countries and the risks of expropriation, nationalization, confiscation or the
imposition of restrictions on foreign investment and on
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repatriation of capital invested. In the event of such expropriation,
nationalization or other confiscation by any country, a Fund could lose its
entire investment in any such country.
In addition, even though opportunities for investment may exist in
foreign countries, and in particular emerging markets, any change in the
leadership or policies of the governments of those countries or in the
leadership or policies of any other government which exercises a significant
influence over those countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring and thereby
eliminate any investment opportunities which may currently exist.
Investors should note that upon the accession to power of authoritarian
regimes, the governments of a number of Latin American countries previously
expropriated large quantities of real and personal property similar to the
property which may be represented by the securities purchased by the Funds. The
claims of property owners against those governments were never finally settled.
There can be no assurance that any property represented by foreign securities
purchased by a Fund will not also be expropriated, nationalized, or otherwise
confiscated. If such confiscation were to occur, a Fund could lose a substantial
portion of its investments in such countries. A Fund's investments would
similarly be adversely affected by exchange control regulation in any of those
countries.
Certain countries in which the Funds may invest may have vocal
minorities that advocate radical religious or revolutionary philosophies or
support ethnic independence. Any disturbance on the part of such individuals
could carry the potential for widespread destruction or confiscation of property
owned by individuals and entities foreign to such country and could cause the
loss of a Fund's investment in those countries.
Certain countries prohibit or impose substantial restrictions on
investments in their capital markets, particularly their equity markets, by
foreign entities such as the Funds. As illustrations, certain countries require
governmental approval prior to investments by foreign persons, or limit the
amount of investment by foreign persons in a particular company, or limit the
investment by foreign persons to only a specific class of securities of a
company that may have less advantageous terms than securities of the company
available for purchase by nationals. Moreover, the national policies of certain
countries may restrict investment opportunities in issuers or industries deemed
sensitive to national interests. In addition, some countries require
governmental approval for the repatriation of investment income, capital or the
proceeds of securities sales by foreign investors. A Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation, as well as by the application to it of other restrictions on
investments.
Foreign companies are subject to accounting, auditing and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. companies. In particular, the assets, liabilities and profits
appearing on the financial statements of such a company may not reflect its
financial position or results of operations in the way they would be reflected
had such financial statements been prepared in accordance with U.S. generally
accepted accounting principles. Most foreign securities held by the Funds will
not be registered with the SEC and such issuers thereof will not be subject to
the SEC's reporting requirements. Thus, there
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will be less available information concerning foreign issuers of securities held
by the Funds than is available concerning U.S. issuers. In instances where the
financial statements of an issuer are not deemed to reflect accurately the
financial situation of the issuer, the Adviser or Subadviser will take
appropriate steps to evaluate the proposed investment, which may include on-site
inspection of the issuer, interviews with its management and consultations with
accountants, bankers and other specialists. There is substantially less publicly
available information about foreign companies than there are reports and ratings
published about U.S. companies and the U.S. government. In addition, where
public information is available, it may be less reliable than such information
regarding U.S. issuers.
Because the Funds (other than Money Market Fund) may invest, and Global
Resources Fund will (under normal circumstances) invest a substantial portion of
their total assets, in securities which are denominated or quoted in foreign
currencies, the strength or weakness of the U.S. dollar against such currencies
may account for part of the Funds' investment performance. A decline in the
value of any particular currency against the U.S. dollar will cause a decline in
the U.S. dollar value of a Fund's holdings of securities denominated in such
currency and, therefore, will cause an overall decline in the Fund's net asset
value and any net investment income and capital gains to be distributed in U.S.
dollars to shareholders of the Fund.
The rate of exchange between the U.S. dollar and other currencies is
determined by several factors including the supply and demand for particular
currencies, central bank efforts to support particular currencies, the movement
of interest rates, the pace of business activity in certain other countries and
the U.S., and other economic and financial conditions affecting the world
economy.
Although the Funds value their respective assets daily in terms of U.S.
dollars, the Funds do not intend to convert their holdings of foreign currencies
into U.S. dollars on a daily basis. However, the Funds may do so from time to
time, and investors should be aware of the costs of currency conversion.
Although currency dealers do not charge a fee for conversion, they do realize a
profit based on the difference ("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 sell that currency to the dealer.
Securities of foreign issuers, and in particular many emerging country
issuers, may be less liquid and their prices more volatile than securities of
comparable U.S. issuers. In addition, foreign securities exchanges and brokers
are generally subject to less governmental supervision and regulation than in
the U.S., and foreign securities exchange transactions are usually subject to
fixed commissions, which are generally higher than negotiated commissions on
U.S. transactions. In addition, foreign securities exchange transactions may be
subject to difficulties associated with the settlement of such transactions.
Delays in settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to a Fund due
to subsequent declines in value of the portfolio security
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or, if the Fund has entered into a contract to sell the security could result in
possible liability to the purchaser.
The Funds' investment income or, in some cases, capital gains from
foreign issuers may be subject to foreign withholding or other taxes, thereby
reducing the Funds' net investment income and/or net realized capital gains.
See "Tax Status."
DEPOSITARY RECEIPTS. As discussed in the Prospectuses, Emerging Growth
Fund, Global Resources Fund and High Yield Bond Fund may invest in the
securities of foreign issuers in the form of American Depositary Receipts
("ADRs"), European Depositary 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.
OPTIONS ON FOREIGN CURRENCIES. Global Resources Fund may purchase and
write put and call options on foreign currencies for the purpose of protecting
against declines in the dollar value of portfolio securities and against
increases in the dollar cost of securities to be acquired.
As in the case of other types of options, however, the writing of an
option on foreign currency will constitute only a partial hedge, such as the
amount of the premium received and the Fund could be required to purchase or
sell foreign currencies at disadvantageous exchange rates, thereby incurring
losses. The purchase of an option on foreign currency may constitute an
effective hedge against fluctuations in exchange rates although, in the event of
rate movements adverse to the Fund's position, it may forfeit the entire amount
of the premium plus related transaction costs.
Options on foreign currencies are traded in a manner substantially
similar to options on securities. In particular, an option on foreign currency
provides the holder with the right to purchase, in the case of a call option, or
to sell, in the case of a put option, a stated quantity of a particular currency
for a fixed price up to a stated expiration date. The writer of the option
undertakes the obligation to deliver, in the case of a call option, or to
purchase, in the case of a put option, the quantity of the currency called for
in the option, upon exercise of the option by the holder.
As in the case of other types of options, the holder of an option on
foreign currency is required to pay a one-time, non-refundable premium, which
represents the cost of purchasing the option. The holder can lose the entire
amount of this premium, as well as related transaction costs, but not more than
this amount. The writer of the option, in contrast, generally is required to
make initial and variation margin payments similar to margin deposits required
in the trading of futures contracts and the writing of other types of options.
The writer is therefore subject to risk of loss beyond the amount originally
invested and above the value of the option at the time it is
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entered into. Certain options on foreign currencies like forward contracts are
traded over-the-counter through financial institutions acting as market-makers
in such options and the underlying currencies. Such transactions therefore
involve risks not generally associated with exchange-traded instruments. Options
on foreign currencies may also be traded on national securities exchanges
regulated by the SEC or commodities exchanges regulated by the Commodity Futures
Trading Commission.
FORWARD FOREIGN CURRENCY CONTRACTS. Emerging Growth Fund, Global
Resources Fund and High Yield Bond Fund may engage in forward foreign currency
transactions. Generally, the foreign currency exchange transactions of the Funds
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. A Fund may also deal
in forward foreign currency exchange contracts involving currencies of the
different countries in which it may 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 Funds' 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 a 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. A 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 Board of Directors has adopted a
policy of monitoring the Funds' foreign currency contract income to assure that
the Funds qualify as regulated investment companies under the Code. The Fund
will not engage in speculative forward foreign currency exchange transactions.
If a 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 a 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 a Fund of engaging in foreign currency exchange transactions
varies with such factors as the currency involved, the length of the contract
period and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
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REPURCHASE AGREEMENTS. Each Fund may enter into repurchase agreements. A
repurchase agreement is a contract under which the Fund would acquire a security
for a relatively short period (generally not more than seven days) subject to
the obligation of the seller to repurchase and the Fund to resell such security
at a fixed time and price (representing the Fund's cost plus interest). The Fund
will enter into repurchase agreements only with member banks of the Federal
Reserve System and with securities dealers. The Adviser will continuously
monitor the creditworthiness of the parties with whom the Fund enters into
repurchase agreements. The Fund has established a procedure providing that the
securities serving as collateral for each repurchase agreement must be delivered
to the Fund's custodian either physically or in book-entry form and that the
collateral must be marked to market daily to ensure that each repurchase
agreement is fully collateralized at all times. In the event of bankruptcy or
other default by a seller of a repurchase agreement, the Fund could experience
delays in liquidating the underlying securities and could experience losses,
including the possible decline in the value of the underlying securities during
the period 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. The Fund will not invest in a repurchase
agreement maturing in more than seven days, if such investment, together with
other illiquid securities held by the Fund (including restricted securities)
would exceed 10% of the Fund's total assets.
REVERSE REPURCHASE AGREEMENTS. Each Fund may also enter into reverse
repurchase agreements which involve the sale of government securities held in
its portfolio to a bank or securities firm with an agreement that the Fund will
buy back the securities at a fixed future date at a fixed price plus an agreed
amount of "interest" which may be reflected in the repurchase price. Reverse
repurchase agreements are considered to be borrowings by the Fund. The Fund will
use proceeds obtained from the sale of securities pursuant to reverse repurchase
agreements to purchase other investments. The use of borrowed funds to make
investments is a practice known as "leverage," which is considered speculative.
Use of reverse repurchase agreements is an investment technique that is intended
to increase income. Thus, a Fund will enter into a reverse repurchase agreement
only when the Adviser determines that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. However, there is a risk that interest expense will nevertheless
exceed the income earned. Reverse repurchase agreements involve the risk that
the market value of securities purchased by a Fund with proceeds of the
transaction may decline below the repurchase price of the securities sold by the
Fund which it is obligated to repurchase. A Fund will also continue to be
subject to the risk of a decline in the market value of the securities sold
under the agreements because it will reacquire those securities upon effecting
their repurchase. To minimize various risks associated with reverse repurchase
agreements, a Fund will establish and maintain with the Fund's custodian a
separate account consisting of highly liquid, marketable securities in an amount
at least equal to the repurchase prices of the securities (plus any accrued
interest thereon) under such agreements. In addition, a Fund will not enter into
reverse repurchase agreements and other borrowings exceeding in the aggregate
more than 33 1/3% of the market value of its total net assets. A Fund will enter
into reverse repurchase agreements only with selected registered broker/dealers
or with federally insured banks or savings and loan associations which are
approved in advance as being creditworthy by the Board of Directors. Under
procedures established by the Board of Directors, the Adviser will monitor the
creditworthiness of the firms involved.
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FORWARD COMMITMENT AND WHEN-ISSUED SECURITIES. Each Fund may purchase
securities on a when-issued or forward commitment basis. "When-issued" refers to
securities whose terms are available and for which a market exists, but which
have not been issued. A Fund will engage in when-issued transactions with
respect to securities purchased for its portfolio in order to obtain what is
considered to be an advantageous price and yield at the time of the transaction.
For when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, a Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When a Fund engages in forward commitment and when-issued transactions,
it relies on the seller to consummate the transaction. The failure of the issuer
or seller to consummate the transaction may result in the Funds losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued and forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date a Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, a Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
SHORT SALES. Global Resources Fund may engage in short sales in order to
profit from an anticipated decline in the value of a security. The Fund may also
engage in short sales to attempt to limit its exposure to a possible market
decline in the value of its portfolio securities through short sales of
securities which the Adviser believes possess volatility characteristics similar
to those being hedged. To effect such a transaction, the Fund must borrow the
security sold short to make delivery to the buyer. The Fund then is obligated to
replace the security borrowed by purchasing it at the market price at the time
of replacement. Until the security is replaced, the Fund is required to pay to
the lender any accrued interest and may be required to pay a premium.
The Fund will realize a gain if the security declines in price between
the date of the short sale and the date on which the Fund replaces the borrowed
security. On the other hand, the Fund will incur a loss as a result of the short
sale if the price of the security increases between those dates. The amount of
any gain will be decreased, and the amount of any loss increased, by the amount
of any premium or interest or dividends the Fund may be required to pay in
connection with a short sale. The successful use of short selling as a hedging
device may be adversely affected by imperfect correlation between movements in
the price of the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the SEC, if the Fund engages
in short sales, it must put in a segregated account (not with the broker) an
amount of cash or U.S. Government securities equal to the difference between (a)
the market value of the securities sold short at the time they were sold short
and (b) any cash or U.S. Government securities required to be
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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 as a regulated investment company under the Code.
LOWER RATED HIGH YIELD DEBT OBLIGATIONS. Emerging Growth Fund,
Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund may
invest in high yielding, fixed income securities rated below investment grade
(e.g., rated Baa or lower by Moody's or BBB or lower by S&P.
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.
See the Appendix to this SAI which describes the characteristics of
corporate bonds in the various rating categories. The Fund may invest in
comparable quality unrated securities which, in the opinion of the Adviser,
offer comparable yields and risks to those securities which are rated.
Debt obligations rated in the lower ratings categories, or which are
unrated, involve greater volatility of price and risk of loss of principal and
income. In addition, lower ratings reflect a greater possibility of an adverse
change in financial condition affecting the ability of the issuer to make
payments of interest and principal. The high yield fixed income market is
relatively new and its growth occurred during a period of economic expansion.
The market has not yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities
generally respond to short term corporate and market developments to a greater
extent than do the price and liquidity of higher rated securities because such
developments are perceived to have a more direct relationship to the ability of
an issuer of such lower rated securities to meet its ongoing debt obligations.
Reduced volume and liquidity in the high yield bond market or the
reduced availability of market quotations will make it more difficult to dispose
of the bonds and to value accurately a Fund's assets. The reduced availability
of reliable, objective data may increase a Fund's reliance on management's
judgment in valuing high yield bonds. In addition, a Fund's investments in high
yield securities may be susceptible to adverse publicity and investor
perceptions, whether or not justified by fundamental factors. A Fund's
investments, and consequently its net asset value, will be subject to the market
fluctuations and risks inherent in all securities.
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CREDIT AND INTEREST RATE RISKS. In addition to the information contained
in the Prospectuses, investors should note that while ratings by a rating
institution provide a generally useful guide to credit risks, they do not, nor
do they purport to, offer any criteria for evaluating interest rate risk.
Changes in the general level of interest rates cause fluctuations in the prices
of fixed-income securities already outstanding and will therefore result in
fluctuation in net asset value of the shares of Funds to the extent the Funds
invest in these securities. The extent of the fluctuation is determined by a
complex interaction of a number of factors. The Adviser will evaluate those
factors it considers relevant and will make portfolio changes when it deems it
appropriate in seeking to reduce the risk of depreciation in the value of a
Fund's portfolio. However, in seeking to achieve a Fund's primary objectives,
there will be times, such as during periods of rising interest rates, when
depreciation and realization of comparable losses on securities in the portfolio
will be unavoidable. Moreover, medium and lower-rated securities and unrated
securities of comparable quality tend to be subject to wider fluctuations in
yield and market values than higher rated securities. Such fluctuations after a
security is acquired do not affect the cash income received from that security
but are reflected in the net asset value of the Fund's portfolio. Other risks of
lower quality securities include:
(i) subordination to the prior claims of banks and other senior
lenders and
(ii) the operation of mandatory sinking fund or call/redemption
provisions during periods of declining interest rates whereby the
Funds may reinvest premature redemption proceeds in lower yielding
portfolio securities.
In determining which securities to purchase or hold in a Fund's
portfolio (including, in the case of High Yield Bond Fund, investments in either
unrated or rated securities which are in default) and in seeking to reduce
credit and interest rate risk consistent with a Fund's investment objective and
policies, the Adviser will rely on information from various sources, including:
the rating of the security; research, analysis and appraisals of brokers and
dealers; the views of the Fund's Directors and others regarding economic
developments and interest rate trends; and the Adviser's own analysis of factors
it deems relevant as it pertains to achieving a Fund's investment objective(s).
PURCHASES OF WARRANTS. Emerging Growth Fund's and Global Resources
Fund's investment policies permit the purchase of rights and warrants, which
represent rights to purchase the common stock of companies at designated prices.
No such purchase will be made by a Fund, however, if the Fund's holdings of
warrants (valued at lower of cost or market) would exceed 5% of the value of the
Fund's total net assets as a result of the purchase. In addition, no Fund will
purchase a warrant or right which is not listed on the New York or American
Stock Exchanges if the purchase would result in the Fund's owning unlisted
warrants in an amount exceeding 2% of its net assets.
CONVERTIBLE SECURITIES. Emerging Growth Fund, Global Resources Fund and
High Yield Bond Fund may invest in convertible securities. Convertible
securities are securities that may be converted at either a stated price or
stated rate into underlying shares of common stock of the same issuer.
Convertible securities have general characteristics similar to both fixed income
and equity securities. Although to a lesser extent than with straight debt
securities, the market value
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of convertible securities tends to decline as interest rates increase, and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stocks and
therefore will also react to variations in the general market for equity
securities. A unique feature of convertible securities is that as the market
price of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis, and consequently may not experience market
value declines to the same extent as the underlying common stock. When the
market price of the underlying common stock increases, the prices of the
convertible securities tend to rise as a reflection of the value of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer. However, the issuers of
convertible securities may default on their obligations.
MORTGAGE "DOLLAR ROLL" TRANSACTIONS. Government Income Fund and High
Yield Bond Fund may enter into mortgage "dollar roll" transactions with selected
banks and broker-dealers pursuant to which a Fund sells Mortgage-Backed
Securities for delivery in the future (generally within 30 days) and
simultaneously contracts to repurchase substantially similar (same type, coupon
and maturity) securities on a specified future date. These Funds will only enter
into covered rolls. A "covered roll" is a specific type of dollar roll for which
there is an offsetting cash position or a cash equivalent security position
which matures on or before the forward settlement date of the dollar roll
transaction. Covered rolls are not treated as a borrowing or other senior
securities. Dollar rolls in which the Funds may invest will be limited to
covered rolls.
For financial reporting and tax purposes, the Funds propose to treat
mortgage dollar rolls as two separate transactions; one involving the purchase
of a security and a separate transaction involving a sale. The Funds do not
currently intend to enter into mortgage dollar rolls that are accounted for as a
financing. Mortgage dollar rolls involve certain risks including the following:
if the broker-dealer to whom a Fund sells the security becomes insolvent, the
Fund's right to purchase or repurchase the Mortgage-Backed Securities subject to
the mortgage dollar roll may be restricted and the instrument which the Fund is
required to repurchase may be worth less than an instrument which the Fund
originally held. Successful use of mortgage dollar rolls will depend upon the
Adviser's ability to predict correctly interest rates and mortgage prepayments.
For these reasons, there is no assurance that mortgage dollar rolls can be
successfully employed.
FINANCIAL FUTURES CONTRACTS. To the extent set forth in their
Prospectuses, the Funds (other than Money Market Fund) may buy and sell futures
contracts (and related options) on stocks, stock indices, debt securities,
currencies, interest rate indices, and other instruments. Each Fund may hedge
its portfolio by selling or purchasing financial futures contracts as an offset
against the effects of changes in interest rates or in security or foreign
currency values. Although other techniques could be used to reduce exposure to
interest rate fluctuations, a Fund may be able to hedge its exposure more
effectively and perhaps at a lower cost by using financial futures contracts.
The Funds may enter into financial futures contracts for hedging and other
non-speculative purposes to the extent permitted by regulations of the Commodity
Futures Trading Commission ("CFTC").
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Financial futures contracts have been designed by boards of trade which
have been designated "contract markets" by the CFTC. Futures contracts are
traded on these markets in a manner that is similar to the way a stock is traded
on a stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. Currently, financial futures
contracts are based on interest rate instruments such as long-term U.S. Treasury
bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA")
modified pass-through mortgage-backed securities, three-month U.S. Treasury
bills, 90-day commercial paper, bank certificates of deposit and Eurodollar
certificates of deposit. It is expected that if other financial futures
contracts are developed and traded the Funds may engage in transactions in such
contracts.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts are
closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts (same exchange, underlying security and delivery
month). Other financial futures contracts, such as futures contracts on
securities indices, by their terms call for cash settlements. If the offsetting
purchase price is less than a Fund's original sale price, the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than a Fund's original purchase price, the Fund realizes a
gain, or if it is less, the Fund realizes a loss. The transaction costs must
also be included in these calculations. Each Fund will pay a commission in
connection with each purchase or sale of financial futures contracts, including
a closing transaction. For a discussion of the Federal income tax considerations
of trading in financial futures contracts, see the information under the caption
"Tax Status" below.
At the time a Fund enters into a financial futures contract, it is
required to deposit with its custodian a specified amount of cash or U.S.
Government securities, known as "initial margin," ranging upward from 1.1% of
the value of the financial futures contract being traded. The margin required
for a financial futures contract is set by the board of trade or exchange on
which the contract is traded and may be modified during the term of the
contract. The initial margin is in the nature of a performance bond or good
faith deposit on the financial futures contract which is returned to the Fund
upon termination of the contract, assuming all contractual obligations have been
satisfied. The Funds expect to earn interest income on their initial margin
deposits. Each day, the futures contract is valued at the official settlement
price of the board of trade or exchange on which it is traded. Subsequent
payments, known as "variation margin," to and from the broker are made on a
daily basis as the market price of the financial futures contract fluctuates.
This process is known as "mark to market." Variation margin does not represent a
borrowing or lending by the Funds but is instead settlement between the Funds
and the broker of the amount one would owe the other if the financial futures
contract expired. In computing net asset value, the Funds will mark to market
their respective open financial futures positions.
Successful hedging depends on a strong correlation between the market
for the underlying securities and the futures contract market for those
securities. There are several factors that will probably prevent this
correlation from being a perfect one, and even a correct forecast of general
interest rate trends may not result in a successful hedging transaction. There
are significant differences between the securities and futures markets which
could create an imperfect correlation between the markets and which could affect
the success of a given hedge. The degree of
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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 Funds
will bear the risk that the price of the securities being hedged will not move
in complete correlation with the price of the futures contracts used as a
hedging instrument. Although the Adviser believes that the use of financial
futures contracts will benefit the Funds, an incorrect prediction could result
in a loss on both the hedged securities in the respective Fund's portfolio and
the hedging vehicle so that the Fund's return might have been better had hedging
not been attempted. However, in the absence of the ability to hedge, the Adviser
might have taken portfolio actions in anticipation of the same market movements
with similar investment results but, presumably, at greater transaction costs.
The low margin deposits required for futures transactions permit an extremely
high degree of leverage. A relatively small movement in a futures contract may
result in losses or gains in excess of the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount the price of a futures contract may vary either
up or down from the previous day's settlement price, at the end of the current
trading session. Once the daily limit has been reached in a futures contract
subject to the limit, no more trades may be made on that day at a price beyond
that limit. The daily limit governs only price movements during a particular
trading day and, therefore, does not limit potential losses because the limit
may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
Finally, although the Funds engage in financial futures transactions
only on boards of trade or exchanges where there appears to be an adequate
secondary market, there is no assurance that a liquid market will exist for a
particular futures contract at any given time. The liquidity of the market
depends on participants closing out contracts rather than making or taking
delivery. In the event participants decide to make or take delivery, liquidity
in the market could be reduced. In addition, the Funds could be prevented from
executing a buy or sell order at a specified price or closing out a position due
to limits on open positions or daily price fluctuation limits imposed by the
exchanges or boards of trade. If a Fund cannot close out a position, it will be
required to continue to meet margin requirements until the position is closed.
OPTIONS ON FINANCIAL FUTURES CONTRACTS. To the extent set forth in their
Prospectuses, the Funds (other than Money Market Fund) may buy and sell options
on financial futures contracts on stocks, stock indices, debt securities,
currencies, interest rate indices, and other
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instruments. An option on a futures contract gives the purchaser the right, in
return for the premium paid, to assume a position in a futures contract at a
specified exercise price at any time during the period of the option. Upon
exercise, the writer of the option delivers the futures contract to the holder
at the exercise price. The Funds would be required to deposit with their
custodian initial and variation margin with respect to put and call options on
futures contracts written by them. Options on futures contracts involve risks
similar to the risks relating to transactions in financial futures contracts.
Also, an option purchased by a Fund may expire worthless, in which case a Fund
would lose the premium it paid for the option.
OTHER CONSIDERATIONS. The Funds will engage in futures and options
transactions for bona fide hedging or other non-speculative purposes to the
extent permitted by CFTC regulations. A Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, the Funds'
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities that the Funds own, or futures contracts will be purchased to
protect the Funds against an increase in the price of securities, or the
currency in which they are denominated, the Fund intends to purchase. As
evidence of this hedging intent, the Funds expect that on 75% or more of the
occasions on which they take a long futures or option position (involving the
purchase of futures contracts), the Funds will have purchased, or will be in the
process of purchasing equivalent amounts of related securities or assets
denominated in the related currency in the cash market at the time when the
futures contract or option position is closed out. However, in particular cases,
when it is economically advantageous for a Fund to do so, a long futures
position may be terminated or an option may expire without the corresponding
purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition, a CFTC regulation permits the Funds to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish nonhedging positions in futures contracts and options on futures
will not exceed 5% of the net asset value of the respective Fund's portfolio,
after taking into account unrealized profits and losses on any such positions
and excluding the amount by which such options were in-the-money at the time of
purchase. The Funds will engage in transactions in futures contracts only to the
extent such transactions are consistent with the requirements of the Code for
maintaining their qualifications as regulated investment companies for Federal
income tax purposes.
When the Funds purchase financial futures contracts, or write put
options or purchase call options thereon, cash or liquid, high grade debt
securities will be deposited in a segregated account with the Funds' 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 contracts.
OPTIONS TRANSACTIONS. To the extent set forth in their Prospectuses, the
Funds (other than Money Market 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 Funds may
purchase listed and over-the-counter call and put options. The extent
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<PAGE> 184
to which covered options will be used by the Funds will depend upon market
conditions and the availability of alternative strategies.
A 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 a Fund may also be "covered" if the Fund
holds on a share-for-share basis a covering call on the same securities where
(i) the exercise price of the covering call held is equal to or less than the
exercise price of the call written if the difference is maintained by the Fund
in cash, U.S. Treasury bills 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,
a Fund would keep both the option premium and the underlying security. If the
covered call option written by a 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, a Fund's loss would be reduced by the amount of the
option premium.
As the writer of a covered put option, each Fund will write a put option
only with respect to securities it intends to acquire for its portfolio and will
maintain in a segregated account with its custodian bank cash, U.S. Government
securities 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 Funds may also write a "covered" put
option by purchasing on a share-for-share basis a put on the same security as
the put written by the Fund if the exercise price of the covering put held is
equal to or greater than the exercise price of the put written and the covering
put expires at the same time or later than the put written.
When writing listed and over-the-counter covered put options on
securities, the Funds would earn income from the premiums received. If a covered
put option is not exercised, the Funds 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, a Fund would realize a loss, but the amount of the loss
would be reduced by the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate its
obligation prior to its exercise, it may effect a "closing purchase
transaction." This is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that a Fund's position
will be offset by the Options Clearing Corporation. The Funds may not effect a
closing purchase transaction after they have been notified of the exercise of an
option. There is no guarantee that a closing purchase transaction can be
effected. Although the Funds 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.
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<PAGE> 185
In the case of a written call option, effecting a closing transaction
will permit a 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 a 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 a 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.
A 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 Funds 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. Funds that may engage in options transactions
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. A Fund will acquire only those OTC
options for which management believes the Fund can receive on each business day
at least two separate bids or offers (one of which will be from an entity other
than a party to the option) or those OTC options valued by an independent
pricing service. The Funds will write and purchase OTC options only with member
banks of the Federal Reserve System and primary dealers in U.S. Government
securities or their affiliates which have capital of at least $50 million or
whose obligations are guaranteed by an entity having capital of at least $50
million. The SEC has taken the position that OTC options are illiquid securities
subject to each Fund's restriction that illiquid securities are limited to not
more than 10% of the Fund's net 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 must have an absolute contractual right to
repurchase the OTC options at a formula price. If the above conditions are met,
a Fund may treat as illiquid only that portion of the OTC option's value (and
the value of its underlying securities) which is equal to the formula price for
repurchasing the OTC option, less the OTC option's intrinsic value.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Fund has adopted certain fundamental investment restrictions upon
its investments as set forth below which cannot be changed as to any Fund
without the approval of the holders of a
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<PAGE> 186
majority of that Fund's outstanding shares. A majority for this purpose means:
(a) more than 50% of the outstanding shares of a Fund, or (b) 67% or more of the
shares represented at a meeting where more than 50% of the outstanding shares of
a Fund are represented, whichever is less. If a percentage restriction or rating
restriction on investment or utilization of assets is adhered to at the time an
investment is made or assets are so utilized, a later change in percentage
resulting from changes in the value of a Fund's portfolio securities or a later
change in the rating of a portfolio security will not be considered a violation
of policy.
For the purpose of these restrictions, High Yield Bond Fund, Government
Income Fund and Money Market Fund are referred to as the "Fixed Income Funds"
and Emerging Growth Fund and Global Resources Fund are referred to as the
"Equity Funds." The restrictions applicable to High Yield Tax-Free Fund are set
out subsequently.
Each Fixed Income Fund and each Equity Fund may not:
(1) Borrow money in an amount in excess of 33-1/3% of its total assets,
and then only as a temporary measure for extraordinary or emergency purposes
(except that it may enter into a reverse repurchase agreement within the limits
described in the Prospectus or this SAI), or pledge, mortgage or hypothecate an
amount of its assets (taken at market value) in excess of 15% of its total
assets, in each case taken at the lower of cost or market value. For the purpose
of this restriction, collateral arrangements with respect to options, futures
contracts, options on futures contracts and collateral arrangements with respect
to initial and variation margins are not considered a pledge of assets.
(2) Underwrite securities issued by other persons except insofar as such
Fund may technically be deemed an underwriter under the Securities Act of 1933
in selling a portfolio security.
(3) Purchase or retain real estate (including limited partnership
interests but excluding securities of companies, such as real estate investment
trusts, which deal in real estate or interests therein and securities secured by
real estate), or mineral leases, commodities or commodity contracts except, in
the case of Resources Fund, precious metals (except contracts for the future
delivery of fixed income securities, stock index and currency futures and
options on such futures) in the ordinary course of its business. Each Fund
reserves the freedom of action to hold and to sell real estate or mineral
leases, commodities or commodity contracts acquired as a result of the ownership
of securities.
(4) Invest in direct participation interests in oil, gas or other
mineral exploration or development programs.
(5) Make loans to other persons except by the purchase of obligations in
which such Fund is authorized to invest and by entering into repurchase
agreements; provided that a Fund may lend its portfolio securities not in excess
of 30% of its total assets (taken at market value). Not more than 10% of a
Fund's total assets (taken at market value) will be subject to repurchase
agreements maturing in more than seven days. For these purposes the purchase of
all or a portion of an issue of debt securities shall not be considered the
making of a loan. In addition, the Equity
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<PAGE> 187
Funds may purchase a portion of an issue of debt securities of types commonly
distributed privately to financial institutions.
(6) Purchase the securities of any issuer if such purchase, at the time
thereof, would cause more than 5% of its total assets (taken at market value) to
be invested in the securities of such issuer, other than securities issued or
guaranteed by the United States or, in the case of the Fixed Income Funds, any
state or political subdivision thereof, or any political subdivision of any such
state, or any agency or instrumentality of the United States, any state or
political subdivision thereof, or any political subdivision of any such state.
In applying these limitations, a guarantee of a security will not be considered
a security of the guarantor, provided that the value of all securities issued or
guaranteed by that guarantor, and owned by the Fund, does not exceed 10% of the
Fund's total assets. In determining the issuer of a security, each state and
each political subdivision agency, and instrumentality of each state and each
multi-state agency of which such state is a member is a separate issuer. Where
securities are backed only by assets and revenues of a particular
instrumentality, facility or subdivision, such entity is considered the issuer.
(7) Invest in companies for the purpose of exercising control or
management.
(8) Purchase or retain in its portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Director of such Fund, or is a member, partner, officer or Director
of the Adviser, if after the purchase of the securities of such issuer by such
Fund one or more of such persons owns beneficially more than 1/2 of 1% of the
shares or securities, or both, all taken at market value, of such issuer, and
such persons owning more than 1/2 of 1% of such shares or securities together
own beneficially more than 5% of such shares or securities, or both, all taken
at market value.
(9) Purchase any securities or evidences of interest therein on margin,
except that each Fund may obtain such short-term credit as may be necessary for
the clearance of purchases and sales of securities and each Fund (other than the
Money Market Fund) may make deposits on margin in connection with Futures
Contracts and related options.
(10) Sell any security which such Fund does not own unless by virtue of
its ownership of other securities it has at the time of sale a right to obtain
securities without payment of further consideration equivalent in kind and
amount to the securities sold and provided that if such right is conditional the
sale is made upon equivalent conditions.
(11) Purchase securities issued by any other investment company or
investment trust except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation; provided,
however, that a Fund will not purchase such securities if such purchase at the
time thereof would cause more than 10% of its total assets (taken at market
value) to be invested in the securities of such issuers; and, provided, further,
that a Fund will not purchase securities issued by an open-end investment
company.
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<PAGE> 188
(12) Knowingly invest in securities which are subject to legal or
contractual restrictions on resale or for which there is no readily available
market (e.g., trading in the security is suspended or market makers do not exist
or will not entertain bids or offers), except for repurchase agreements, if, as
a result thereof more than 10% of such Fund's total assets (taken at market
value) would be so invested. (The Staff of the Securities and Exchange
Commission has taken the position that a money market fund may not invest more
than 10% of its net assets in illiquid securities. The Money Market Fund has
undertaken with the Staff to require, that as a matter of operating policy, it
will not invest in illiquid securities in an amount exceeding 10% of its net
assets.)
(13) Issue any senior security (as that term is defined in the
Investment Company Act of 1940 (the "1940 Act")) if such issuance is
specifically prohibited by the 1940 Act or the rules and regulations promulgated
thereunder. For the purpose of this restriction, collateral arrangements with
respect to options, Futures Contracts and Options on futures contracts and
collateral arrangements with respect to initial and variation margins are not
deemed to be the issuance of a senior security.
In addition, no Fixed Income Fund (except for Money Market Fund and High
Yield Bond Fund) may invest more than 25% of its total assets (taken at market
value) in the securities of issuers engaged in any one industry. Money Market
Fund may not invest more than 25% of its total assets in obligations issued by
(i) foreign banks or (ii) foreign branches of U.S. banks where the Adviser has
determined that the U.S. bank is not unconditionally responsible for the payment
obligations of the foreign branch. High Yield Bond Fund may not invest more than
25% of its total assets (taken at market value) in the securities of issuers
engaged in any one industry, except that High Yield Bond Fund may invest up to
40% of the value of its total assets in the securities of issuers engaged in the
electric utility and telephone industries. Obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities are not subject to the
Fixed Income Fund's limitations on industry concentration. Determinations of
industries for purposes of the foregoing limitations are made in accordance with
specific industry codes set forth in the Standard Industrial Classification
Manual and without considering groups of industries (e.g., all utilities or all
finance companies) to be an industry. Also, a Fixed Income Fund may not purchase
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities) if such purchase, at the time
thereof, would cause a Fund to hold more than 10% of any class of securities of
such issuer. For this purpose, all indebtedness of an issuer (for the Money
Market Fund, all indebtedness of an issuer maturing in less than one year) shall
be deemed a single class and all preferred stock of an issuer shall be deemed a
single class.
In addition, an Equity Fund may not:
(1) Concentrate its investments in any particular industry, but if it is
deemed appropriate for the attainment of its investment objective, such Fund may
invest up to 25% of its assets (taken at market value at the time of each
investment) in securities of issuers in any one industry.
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<PAGE> 189
(2) Purchase voting securities of any issuer if such purchase, at the
time thereof, would cause more than 10% of the outstanding voting securities of
such issuer to be held by such Fund; or purchase securities of any issuer if
such purchase at the time thereof would cause more than 10% of any class of
securities of such issuer to be held by such Fund. For this purpose all
indebtedness of an issuer shall be deemed a single class and all preferred stock
of an issuer shall be deemed a single class. In applying these limitations, a
guarantee of a security will not be considered a security of the guarantor,
provided that the value of all securities issued or guaranteed by that
guarantor, and owned by the Fund, does not exceed 10% of the Fund's total
assets. In determining the issuer of a security, each state and each political
subdivision agency, and instrumentality of each state and each multi-state
agency of which such state is a member is a separate issuer. Where securities
are backed only by assets and revenues of a particular instrumentality, facility
or subdivision, such entity is considered the issuer.
High Yield Tax-Free Fund may not:
(1) Borrow money except from banks for temporary or emergency (not
leveraging) purposes, including the meeting of redemption requests that might
otherwise require the untimely disposition of securities, in an amount up to 15%
of the value of the Fund's total assets (including the amount borrowed) valued
at market less liabilities (not including the amount borrowed) at the time the
borrowing was made. While borrowings exceed 5% of the value of the Fund's total
assets, the Fund will not purchase any additional securities. Interest paid on
borrowings will reduce the Fund's net investment income. The borrowing
restriction set forth above does not prohibit the use of reverse repurchase
agreements, in an amount (including any borrowings) not to exceed 33-1/3% of net
assets.
(2) Pledge, hypothecate, mortgage or otherwise encumber its assets,
except in an amount up to 10% of the value of its total assets but only to
secure borrowings for temporary or emergency purposes as may be necessary in
connection with maintaining collateral in connection with writing put or call
options or making initial margin deposits in connection with the purchase or
sale of financial futures or index futures contracts and related options.
(3) Purchase securities (except obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities) if the purchase would cause
the Fund at the time to have more than 5% of the value of its total assets
invested in the securities of any one issuer or to own more than 10% of the
outstanding debt securities of any one issuer; provided, however, that up to 25%
of the value of the Fund's asset may be invested without regard to these
restrictions.
(4) Purchase or retain the securities of any issuer, if to the knowledge
of the Fund, any officer or director of the Fund or its Adviser owns more than
1/2 of 1% of the outstanding securities of such issuer, and all such officers
and directors own in the aggregate more than 5% of the outstanding securities of
such issuer.
(5) Write, purchase or sell puts, calls or combinations thereof, except
put and call options on debt securities, futures contracts based on debt
securities, indices of debt securities and futures contracts based on indices of
debt securities, sell securities on margin or make short sales
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<PAGE> 190
of securities or maintain a short position, unless at all times when a short
position is open it owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any further consideration,
for securities of the same issue as, and equal in amount to, the securities sold
short, and unless not more than 10% of the Fund's net assets (taken at current
value) is held as collateral for such sales at any one time.
(6) Underwrite the securities of other issuers, except insofar as the
Fund may be deemed an underwriter under the Securities Act of 1933 in disposing
of a portfolio security.
(7) Purchase the securities of any issuer if as a result more than 10%
of the value of the Fund's total assets would be invested in securities that are
subject to legal or contractual restrictions on resale ("restricted securities")
and in securities for which there are no readily available market quotations; or
enter into a repurchase agreement maturing in more than seven days, if as a
result such repurchase agreement together with restricted securities and
securities for which there are no readily available market quotations would
constitute more than 10% of the Fund's total assets.
(8) Purchase or sell real estate, real estate investment trust
securities, commodities or commodity contracts, except commodities and
commodities contracts which are necessary to enable the Fund to engage in
permitted futures and options transactions necessary to implement hedging
strategies, or oil and gas interests, but this shall not prevent the Fund from
investing in municipal obligations secured by real estate or interests in real
estate.
(9) Make loans to others, except insofar as the Fund may enter in
repurchase agreements as set forth in the Prospectus or this SAI. The purchase
of an issue of publicly distributed bonds or other securities, whether or not
the purchase was made upon the original issuance of securities, is not to be
considered the making of a loan.
(10) Invest more than 25% of its assets in the securities of the
"issuers" in any single industry; provided that there shall be no limitation on
the purchase of municipal obligations and obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities. For purposes of
this limitation and that set forth in investment restriction (3) above, when the
assets and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the issuing
entity and a security is backed only by the assets and revenues of the entity,
the entity would be deemed to be the sole issuer of the security. Similarly, in
the case of an industrial development or pollution control bond, if that bond is
backed only by the assets and revenues of the nongovernmental user, then such
non governmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity guarantees a security,
such a guarantee would be considered a separate security and would be treated as
an issue of such government or other entity.
(11) Invest in securities of other investment companies, except as they
may be acquired as part of a merger, consolidation or acquisition of assets, and
except for the purchase, to the extent permitted by Section 12 of the 1940 Act,
of shares of registered unit investment trusts whose assets consist
substantially of municipal obligations.
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<PAGE> 191
(12) Invest more than 5% of the value of its total assets in the
securities of issuers having a record, including predecessors, of fewer than
three years of continuous operation, except obligations issued or guaranteed by
the United States Government, its agencies or instrumentalities, unless the
securities are rated by a nationally recognized rating service.
(13) Invest for the purpose of exercising control or management of
another company.
(14) Issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules and
regulations promulgated thereunder. For the purpose of this restriction,
collateral arrangements with respect to options, futures contracts and options
on futures contracts and collateral arrangements with respect to initial and
variation margins are not deemed to be the issuance of a senior security.
OTHER OPERATING POLICIES
Each of the Equity Funds (whose investment restrictions permit holdings
in warrants not to exceed 10% of its assets) may, due to an undertaking with a
state in which the Fund's shares are currently qualified for sale, purchase
warrants not to exceed 5% of such Fund's net assets. Included within that
amount, but not exceeding 2% of a Fund's net assets, may be warrants for which
there is no public market. Any such warrants which are attached to securities at
the time such securities are acquired by a Fund will be deemed to be without
value for the purpose of this restriction.
Each Fund (other than High Yield Tax-Free Fund) will not invest more
than 5% of its total assets in companies which, including their respective
predecessors, have a record of less than three years' continuous operation.
In order to comply with certain state regulatory policies, no Fund will,
as a matter of operating policy, pledge, mortgage or hypothecate its portfolio
securities if the percentage of securities so pledged, mortgaged or hypothecated
would exceed 15%.
In order to comply with certain state regulatory policies, the cost of
investments in options, financial futures, stock index futures and currency
futures, other than those acquired for hedging purposes, may not exceed 10% of a
Fund's total net assets.
These operating policies are not fundamental and may be changed without
shareholder approval. In order to comply with certain state regulatory
practices, certain policies, if changed, would require advance written notice to
shareholders.
The Corporation's Board of Directors has approved the following
nonfundamental investment policy pursuant to an order of the SEC:
Notwithstanding any investment restriction to the contrary, each 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,
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<PAGE> 192
(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.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Corporation is managed by its Directors who elect
officers who are responsible for the day-to-day operations of the Corporation
and the Funds and who execute policies formulated by the Directors. Several of
the officers and Directors of the Corporation are also officers and directors of
the Adviser or officers and directors of John Hancock Funds.
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<PAGE> 193
<TABLE>
Set forth below is the principal occupation or employment of the
Directors and principal officers of the Corporation during the past five years:
<CAPTION>
POSITION HELD
WITH THE PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS CORPORATION DURING PAST FIVE YEARS
- ---------------- ----------- -----------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Director, Chairman and Chief Executive
101 Huntington Avenue Chairman and Officer, the Adviser and The
Boston, MA 02199 Chief Executive Berkeley Financial Group ("The
Officer(1)(2) Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited ("Advisers
International"); John Hancock Funds,
Inc.; John Hancock Investor Services
Corporation ("Investor Services");
and Sovereign Asset Management
Corporation ("SAMCorp");
(hereinafter the Adviser, the Berkeley
Group, NM Capital, Advisers
International, John Hancock Funds,
Inc., Investor Services and SAMCorp
are collectively referred to as the
"Affiliated Companies"); Chairman,
First Signature Bank & Trust;
Director, John Hancock Freedom
Securities Corporation, John
Hancock Capital Corporation, New
England/ Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Trustee, Museum of Science;
President, the Adviser (until July
1992); and Chairman, John Hancock
Distributors, Inc. (until April, 1994).
<FN>
- ----------------------------
* An "interested person" of the Portfolio, as such term is defined in the 1940 Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
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<PAGE> 194
<TABLE>
<CAPTION>
POSITION HELD
WITH THE PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS CORPORATION DURING PAST FIVE YEARS
- ---------------- ----------- -----------------------
<S> <C> <C>
James F. Carlin Director(3) Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc. (insurance);
Natick, MA 01760 Chairman, Massachusetts Higher
Education Coordinating
Council (since 1995);
Trustee, Massachusetts
Health and Education
Tax-Exempt Trust
(Financial); Director,
Rizzo Associates, Inc.
(Engineering), Arbella
Mutual Insurance Company
(insurance),
Consolidated Group Trust
(group health plan),
Carlin Insurance Agency,
Inc., West Insurance
Agency, Inc., Allied
American Agency, Inc.
(insurance); Treasurer,
Alpha Analytical, Inc.
(Chemistry Lab);
Receiver, the City of
Chelsea (until August
1992).
William H. Cunningham Director(3) Chancellor, University of Texas
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin, Texas;
Austin, TX 78701 Regents Chair for Free Enterprise;
Director, LaQuinta Motor
Inns, Inc. (hotel
management company);
Director,
Jefferson-Pilot
Corporation (diversified
life insurance company);
Director,
Freeport-McMoran Inc.
(oil and gas company);
LBJ Foundation Board
(education foundation);
and Advisory Director,
Texas Commerce Bank -
Austin.
Harold R. Hiser, Jr. Director(3) Executive Vice President, Schering-
Schering-Plough Corporation Plough Corporation (pharmaceuticals)
One Giralda Farms (until 1995); Director, ReCapital
Madison, NJ 07940-1000 Corporation (reinsurance).
<FN>
- ----------------------------
* An "interested person" of the Portfolio, as such term is defined in the 1940 Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
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<PAGE> 195
<TABLE>
<CAPTION>
POSITION HELD
WITH THE PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS CORPORATION DURING PAST FIVE YEARS
- ---------------- ----------- -----------------------
<S> <C> <C>
Charles L. Ladner Director(3) Director, Energy North, Inc. (public
UGI Corporation utility holding company)(until
460 North Gulph Road 1992); Senior Vice President,
King of Prussia, PA 19406 Senior Vice President, Finance
UGI Corp. (public utility
holding company).
Leo E. Linbeck, Jr. Director(3) Chairman, President, Chief
3810 W. Alabama Executive Officer and Director,
Houston, TX 77027 Linbeck Corporation (a holding
company engaged in
various phases of the
construction industry
and warehousing
interests); Director and
Chairman, Federal
Reserve Bank of Dallas;
Chairman of the Board
and Chief Executive
Officer, Linbeck
Construction
Corporation; Director,
Panhandle Eastern
Corporation (a
diversified energy
company), Daniel
Industries, Inc.
(manufacturer of gas
measuring products and
energy related
equipment), GeoQuest
International, Inc. (a
geophysical consulting
firm); and Director,
Greater Houston
Partnership.
Patricia P. McCarter Director(3) Director and Secretary, the
Swedesford Road McCarter Corp. (machine
RD #3, Box 121 manufacture).
Malvern, PA 19355
Steven R. Pruchansky Director(1)(3) Director and President, Mast
360 Horse Creek Drive, #208 Holdings, Inc.; Director, First
Naples, FL 33942 Signature Bank & Trust Company
(until August 1991); General Partner,
Mast Realty Trust (until 1994);
President, Maxwell Building Corp.
(until 1991).
<FN>
- ----------------------------
* An "interested person" of the Portfolio, as such term is defined in the 1940 Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
-36-
<PAGE> 196
<TABLE>
<CAPTION>
POSITION HELD
WITH THE PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS CORPORATION DURING PAST FIVE YEARS
- ---------------- ----------- -----------------------
<S> <C> <C>
Norman H. Smith Director(3) Lieutenant General, USMC, Deputy
Rt. 1, Box 249 E Chief of Staff for Manpower and
Linden, VA 22642 Reserve Affairs, Headquarters Marine
Corps; Commanding General III
Marine Expeditionary Force/3rd
Marine Division (retired 1991).
John P. Toolan Director(3) Director, The Smith Barney Muni
13 Chadwell Place Bond Funds, The Smith Barney Tax-
Morristown, NJ 07960 Free Money Fund, Inc., Vantage
Money Market Funds
(mutual funds), The
Inefficient-Market Fund,
Inc. (closed-end
investment company) and
Smith Barney Trust
Company of Florida;
Chairman, Smith Barney
Trust Company (retired
December, 1991);
Director, Smith Barney,
Inc., Mutual Management
Company and Smith,
Barney Advisers, Inc.
(investment advisers)
(retired 1991); and
Senior Executive Vice
President, Director and
member of the Executive
Committee, Smith Barney,
Harris Upham & Co.,
Incorporated (investment
bankers) (until 1991).
Robert G. Freedman* Vice Chairman and Vice Chairman and Chief
101 Huntington Avenue Chief Investment Investment Officer, the Adviser;
Boston, MA 02199 Officer(2) President, the Adviser (until
December 1994).
Anne C. Hodsdon* President(2) President and Chief Operating
101 Huntington Avenue Officer, the Adviser; Executive Vice
Boston, MA 02199 President, the Adviser (until
December 1994); Senior Vice
President, the Adviser
(until December 1993;
Vice President, the
Adviser (until 1991).
<FN>
- ----------------------------
* An "interested person" of the Portfolio, as such term is defined in the 1940 Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
-37-
<PAGE> 197
<TABLE>
<CAPTION>
POSITION HELD
WITH THE PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS CORPORATION DURING PAST FIVE YEARS
- ---------------- ----------- -----------------------
<S> <C> <C>
James B. Little* Senior Vice President Senior Vice President, the Adviser
101 Huntington Avenue and Chief Financial
Boston, MA 02199 Officer
Thomas H. Drohan* Senior Vice President Senior Vice President and Secretary,
101 Huntington Avenue and Secretary the Adviser.
Boston, MA 02199
James J. Stokowski* Vice President and Vice President, the Adviser.
101 Huntington Avenue Treasurer
Boston, MA 02199
Susan S. Newton* Vice President and Vice President and Assistant
101 Huntington Avenue Compliance Officer Secretary, the Adviser.
Boston, MA 02199
John A. Morin* Vice President Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
<FN>
- ----------------------------
* An "interested person" of the Portfolio, as such term is defined in the 1940 Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Directors 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>
-38-
<PAGE> 198
<TABLE>
As of February 2, 1996 there were 423,110,226 shares of the Corporation
outstanding and officers and Directors as a group beneficially owned less than
1% of the outstanding shares of the Corporation and of each of the Funds. On
such date, the following shareholders were the only record holders and
beneficial owners of 5% or more of the shares of the respective Funds:
NUMBER OF SHARES HELD (EXPRESSED AS PERCENTAGE
OF FUND'S OUTSTANDING SHARES)
<CAPTION>
<S> <C>
Emerging Growth Fund:
Class A
758,924 Shares National Westminster Bank PLC as Trustee of
15.05 % American Smaller Companies Trust
Juno Court
24 Prescott Street
London, England E18BB
713,078 Shares Merrill Lynch Pierce Fenner & Smith
14.14 % 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
Class B
3,016,085 Shares Merrill Lynch Pierce Fenner & Smith
25.63 % 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
Global Resources Fund:
Class B
113,006 Shares Merrill Lynch Pierce Fenner & Smith
6.28 % 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
Government Income
Fund:
Class B
2,998,359 Shares Merrill Lynch Pierce Fenner & Smith
12.69 % 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
</TABLE>
-39-
<PAGE> 199
<TABLE>
<S> <C>
High Yield Bond Fund:
Class A
700,333 Shares Novell Incorporated
16.88% 1555 North Technology Way
Orem, Utah 84057
234,994 Shares National City Bank TTEE
5.66% FBO Building Laborers Local
310 Pension Plan
P.O. Box 94777
Cleveland, Ohio
Class B
2,342,503 Shares Merrill Lynch Pierce Fenner & Smith
9.05 % 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
High Yield Tax-Free
Fund:
Class B
2,959,178 Shares Merrill Lynch Pierce Fenner & Smith
17.99 % 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
</TABLE>
At such date, no other person(s), owned of record or was known by the
Corporation to beneficially own as much as 5% of the outstanding shares of the
Corporation or of any of the Funds.
As of December 22, 1994, the Directors have established an Advisory
Board which acts to facilitate a smooth transition of management over a two-year
period (between Transamerica Fund Management Company ("TFMC"), the prior
investment adviser, and the Adviser). The members of the Advisory Board are
distinct from the Board of Directors, do not serve the Funds in any other
capacity and are persons who have no power to determine what securities are
purchased or sold and behalf of the Funds. Each member of the Advisory Board may
be contacted at 101 Huntington Avenue, Boston, Massachusetts 02199.
Members of the Advisory Board and their respective principal occupations
during the past five years are as follows:
R. Trent Campbell, President, FMS, Inc. (financial and management services);
former Chairman of the Board, Mosher Steel Company.
-40-
<PAGE> 200
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from Texas;
co-founder, Houston Parents' League; former board member of various
civic and cultural organizations in Houston, including the Houston
Symphony, Museum of Fine Arts and YWCA. Mrs. Bentsen is presently
active in various civic and cultural activities in the Washington, D.C.
area, including membership on the Area Board for The March of Dimes and
is a National Trustee for the Botanic Gardens of Washington, D. C.
Thomas R. Powers, Formerly Chairman of the Board, President and Chief Executive
Officer, TFMC; Director, West Central Advisory Board, Texas Commerce
Bank; Trustee, Memorial Hospital System; Chairman of the Board of
Regents of Baylor University; Member, Board of Governors, National
Association of Securities Dealers, Inc.; Formerly, Chairman, Investment
Company Institute; formerly, President, Houston Chapter of Financial
Executive Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company; Director,
Houston Industries and Houston Lighting and Power Company; Director,
TransAmerican Companies (natural gas producer and transportation);
Member, Board of Managers, Harris County Hospital District; Advisory
Director, Commercial State Bank, El Campo; Advisory Director, First
National Bank of Bryan; Advisory Director, Sterling Bancshares; Former
Director and Vice Chairman, Texas Commerce Bancshares; and Vice
Chairman, Texas Commerce Bank.
COMPENSATION OF THE BOARD OF DIRECTORS AND ADVISORY BOARD. The following
tables provide information regarding the compensation paid by the Fund and the
other investment companies in the John Hancock Fund Complex to the Independent
Directors and the Advisory Board members for their services. Mr. Boudreau, a
non-Independent Director, and each of the officers of the Funds are interested
persons of the Adviser, are compensated by the Adviser and received no
compensation from the Funds for their services.
-41-
<PAGE> 201
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Directors from the Funds* Funds' Expenses* Directors**
- --------- --------------- ---------------- -----------
<S> <C> <C> <C>
James F. Carlin $ 8,411 $ 0 $ 60,700
William H. Cunningham 6,080 16,964 $ 69,700
Charles F. Fretz 789 0 $ 56,200
Harold R. Hiser. Jr. 0 1,099 $ 60,200
Charles L. Ladner 10,776 0 $ 60,700
Leo E. Linbeck, Jr. 25,263 0 $ 73,200
Patricia P. McCarter 10,776 0 $ 60,700
Steven R. Pruchansky 11,157 0 $ 62,700
Norman H. Smith 11,142 0 $ 62,700
John P. Toolan 56 8,340 $ 60,700
------- ------- --------
Total $84,450 $26,403 $627,500
<FN>
* Compensation made pursuant to different compensation arrangements then in
effect for the fiscal year ended October 31, 1995.
** The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is $627,500 as of the calendar year ended December 31,
1995. All Trustees/Directors except Messrs. Cunningham and Linbeck are
Trustees/Directors of 32 funds in the John Hancock Fund Complex. Messrs.
Cunningham and Linbeck are Trustees/Directors of 30 funds.
</TABLE>
<TABLE>
<CAPTION>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Advisory Board*** from the Funds* Funds' Expenses* Directors**
- ----------------- --------------- ---------------- -----------
<S> <C> <C> <C>
R. Trent Campbell $ 29,238 $0 $ 70,000
Mrs. Lloyd Bentsen $ 25,683 $0 $ 63,000
Thomas R. Powers $ 26,237 $0 $ 63,000
Thomas B. McDade $ 26,737 $0 $ 63,000
TOTAL $107,895 $0 $216,000
<FN>
* For the fiscal year ended October 31, 1995.
** As of December 31, 1995.
</TABLE>
-42-
<PAGE> 202
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Funds' Prospectuses, the Funds receive their
investment advice from the Adviser. Investors should refer to the Prospectuses
for a description of certain information concerning the Funds' investment
management contracts. Each of the Directors and principal officers affiliated
with the Corporation who is also an affiliated person of the Adviser is named
above, together with the capacity in which such person is affiliated with the
Corporation and the Adviser.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and has more than $16 billion in total 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 over 1,080,000 shareholders. The
Adviser is a wholly-owned subsidiary of The Berkeley Financial Group, which is
in turn a wholly-owned subsidiary of John Hancock Subsidiaries, Inc., which is
in turn a wholly-owned subsidiary 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.
As described in the Prospectuses, the Corporation, on behalf of each
Fund, has entered into investment management contracts with the Adviser. Under
each investment management contract, the Adviser provides the Funds with (i) a
continuous investment program, consistent with each Fund's stated investment
objective and policies, (ii) supervision of all aspects of each 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 their business. The
Adviser is responsible for the day-to-day management of each Fund's portfolio
assets.
No person other than the Adviser and its directors and employees
regularly furnish advice to the Funds with respect to the desirability of a Fund
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 contracts with the
Corporation, on behalf of each Fund, the Adviser provides the Corporation with
office space, equipment and supplies and other facilities required for the
business of the Funds. The Adviser pays the compensation of all officers and
employees of the Corporation, and pays the expenses of clerical services
relating to the administration of the Funds. All expenses which are not
specifically paid by the Adviser and which are incurred in the operation of the
Funds including, but not limited to, (i) the fees of the Directors of the
Corporation who are not "interested persons," as such term is defined in the
1940 Act (the "Independent Directors"), (ii) the fees of the members of the
Corporation's Advisory
-43-
<PAGE> 203
Board (described above) and (iii) the continuous public offering of the shares
of each Fund are borne by the Funds.
As provided by the investment management contracts, each Fund pays the
Adviser an investment management fee, which is accrued daily and paid monthly in
arrears at the following rates of the Funds' average daily net assets:
<TABLE>
JOHN HANCOCK EMERGING GROWTH FUND FEE
JOHN HANCOCK GLOBAL RESOURCES FUND (ANNUAL RATE)
-------------
<S> <C>
Average Daily Net Assets 0.75%
</TABLE>
<TABLE>
JOHN HANCOCK GOVERNMENT INCOME FUND
<CAPTION>
FEE
AVERAGE DAILY NET ASSETS (ANNUAL RATE)
- ------------------------ -------------
<S> <C>
The first $200 million 0.65%
The next $300 million 0.625%
Over $500 million 0.60%
</TABLE>
<TABLE>
JOHN HANCOCK HIGH YIELD TAX-FREE FUND
JOHN HANCOCK HIGH YIELD BOND FUND
<CAPTION>
FEE
AVERAGE DAILY NET ASSETS (ANNUAL RATE)
- ------------------------ -------------
<S> <C>
The first $75 million 0.625%
The next $75 million 0.5625%
Over $150 million 0.50%
</TABLE>
<TABLE>
JOHN HANCOCK MONEY MARKET FUND
<CAPTION>
FEE
AVERAGE DAILY NET ASSETS (ANNUAL RATE)
- ------------------------ -------------
<S> <C>
The first $500 million 0.50%*
The next $250 million 0.425%
The next $250 million 0.375%
The next $500 million 0.35%
The next $500 million 0.325%
The next $500 million 0.30%
Over $2.5 billion 0.275%
<FN>
*The Adviser has reduced the fee to 0.40% of the Fund's average daily net assets
and can not reinstate the fee to 0.50% without the Trustees' consent.
</TABLE>
-44-
<PAGE> 204
The Adviser may temporarily reduce its advisory fee or make other
arrangements to reduce a Fund's expenses to a specified percentage of average
daily net assets. The Adviser retains the right to re-impose the advisory fee
and recover any other payments to the extent that, at the end of any fiscal
year, a Fund's annual expenses fall below this limit.
In the event normal operating expenses of a Fund, exclusive of certain
expenses prescribed by state law, are in excess of any state limit where such
Fund is registered to sell shares of common stock, 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 any remaining excess
expenses. The most restrictive limit applicable to the Funds is 2.5% of the
first $30,000,000 of a Fund's average daily net asset value, 2% of the next
$70,000,000 of such assets and 1.5% of the remaining average daily net asset
value.
Pursuant to the investment management contracts, the Adviser is not
liable for any error of judgment or mistake of law or for any loss suffered by a
Fund in connection with the matters to which their respective contracts relate,
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 its reckless
disregard of the obligations and duties under the applicable contract.
The initial term of the investment management contracts expires on
December 22, 1996, and will continue in effect from year to year thereafter if
approved annually by a vote of a majority of the Independent Directors, cast in
person at a meeting called for the purpose of voting on such approval, and by
either a majority of the Directors or the holders of a majority of the affected
Fund's outstanding voting securities. Each management contract may be terminated
without penalty on 60 days' notice at the option of either party or by vote of a
majority of the outstanding voting securities of the Fund. Each management
contract terminates automatically in the event of its assignment.
Securities held by a Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser for the Funds or for other funds or clients for which
the Adviser renders investment advice arise for consideration at or about the
same time, transactions in such securities will be made, insofar as feasible,
for the respective funds or clients in a manner deemed equitable to all of them.
To the extent that transactions on behalf of more than one client of the Adviser
or its affiliates may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
Under the investment management contracts, the Funds may use the name
"John Hancock" or any name derived from or similar to it only for as long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If a Fund's investment management contract is no longer in
effect, the Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or otherwise connected
with the Adviser. In addition, the Adviser or the Life Company may grant the
non-exclusive right to use the name "John Hancock" or any similar name to any
other
-45-
<PAGE> 205
corporation or entity, including but not limited to any investment company of
which the Life Company or any subsidiary or affiliate thereof or any successor
to the business of any subsidiary or affiliate thereof shall be the investment
adviser.
For the period from November 1, 1994 to December 22, 1994(a) and for the
fiscal years ended October 31, 1994(b), and 1993(c) advisory fees payable by the
Funds to TFMC, each Fund's former investment adviser, were as follows:
(1) Emerging Growth Fund - (a) $496,208 (b) $2,706,438 and (c)
$1,668,514
(2) Global Resources Fund - (a) $50,516 (b) $220,869 and (c) $95,411
(3) Government Income Fund - (a) $256,721 (b) $1,728,997 and (c)
$1,698,937
(4) High Yield Bond Fund - (a) $162,374 (b) $976,834 and (c) $777,673
(5) High Yield Tax-Free Fund - (a) $161,643 (b) $886,380 and (c)
$541,737
(6) Money Market Fund - (a) $50,611 (b) $214,088 and (c) $142,298
For the period from December 22, 1994 to October 31, 1995 advisory fees payable
by the Funds to the Adviser, were as follows:
(1) Emerging Growth Fund - $2,978,791
(2) Global Resources Fund - $212,918
(3) Government Income Fund - $1,612,806
(4) High Yield Bond Fund - $897,349
(5) High Yield Tax-Free Fund - $830,016
(6) Money Market Fund - $221,171
During the period of December 22, 1994 to April 17, 1995, the Adviser
paid subadvisory fees to Transamerica Investment Services, Inc. $147,903.
ADMINISTRATIVE SERVICES AGREEMENT. The Corporation, on behalf of each
Fund, was a party to an administrative services agreement with TFMC (the
"Services Agreement"), pursuant to which TFMC performed bookkeeping and
accounting services and functions, including preparing and maintaining various
accounting books, records and other documents and keeping such general ledgers
and portfolio accounts as are reasonably necessary for the operation of the
Funds. Other administrative services included communications in response to
shareholder inquiries and certain printing expenses of various financial
reports. In addition, such staff and
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<PAGE> 206
office space, facilities and equipment was provided as necessary to provide
administrative services to the Funds. The Services Agreement was amended in
connection with the appointment of the Adviser as adviser to the Fund to permit
services under the Agreement to be provided to the Funds by the Adviser and its
affiliates. The Services Agreement was terminated during the fiscal year 1995.
The following amounts for each of the following Funds for their
respective periods reflect (a) the total of administrative services fees paid to
TFMC ( and to the Adviser during the period December 22, 1994 to January 16,
1995):
EMERGING GROWTH FUND- For the fiscal years ended October 31, 1995, 1994 and
1993 fees paid were $34,231, $222,044, and $157,911, respectively.
GLOBAL RESOURCES FUND -For the fiscal years ended October 31, 1995, 1994 and
1993 fees paid were $9,309, $54,259 and $44,306, respectively.
GOVERNMENT INCOME FUND - For the fiscal years ended October 31, 1995, 1994
and 1993 fees paid were $16,694, $132,786 , and $116,354, respectively.
HIGH YIELD BOND FUND -For the fiscal years ended October 31, 1995, 1994, and
1993 fees paid were $13,697, $100,822, and $82,030.
HIGH YIELD TAX-FREE FUND -For the fiscal years ended October 31, 1995 , 1994
and 1993 fees paid were $10,565, $88,709, and $69,485, respectively.
MONEY MARKET FUND - For the fiscal years ended October 31, 1995, 1994 and
1993 fee paid were $7,517, $46,621, and $42,511, respectively.
DISTRIBUTION CONTRACT
DISTRIBUTION AGREEMENT. As discussed in the Prospectuses, each Fund's
shares are sold on a continuous basis at the public offering price. John Hancock
Funds, a wholly-owned subsidiary of the Adviser, has the exclusive right,
pursuant to the Distribution Agreement dated December 22, 1994 (the
"Distribution Agreement"), to purchase shares from the Funds at net asset value
for resale to the public or to broker-dealers at the public offering price. Upon
notice to all broker-dealers with whom it has sales agreements ("Selling
Brokers"), John Hancock Funds may allow such Selling Brokers up to the full
applicable sales charge during periods specified in such notice. During these
periods, such Selling Brokers may be deemed to be underwriters as that term is
defined in the Securities Act of 1933.
The Distribution Agreement was initially adopted by the affirmative vote
of the Corporation's Board of Directors including the vote of a majority of
Directors who are not parties to the agreement or interested persons of any such
party, cast in person at a meeting called for such purpose. The Distribution
Agreement shall continue in effect with respect to each Fund until
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<PAGE> 207
December 22, 1996 and from year to year if approved by either the vote of the
Fund's shareholders or the Board of Directors including the vote of a majority
of the Directors who are not parties to the agreement or interested persons of
any such party, cast in person at a meeting called for such purpose. The
Distribution Agreement may be terminated at any time as to one or more of the
Funds, without penalty, by either party upon sixty (60) days' written notice or
by a vote of a majority of the outstanding voting securities of the affected
Fund and terminates automatically in the case of an assignment by John Hancock
Funds.
For the fiscal year ended October 31, 1995, the following amounts for
each of Emerging Growth and High Yield Bond Fund reflect (a) the total
underwriting commissions for sales of the Fund's Class A shares and (b) the
portion of such amount retained by the Fund's distributor, John Hancock Funds
Inc. and the former distributor, Transamerica Fund Distributors, Inc. In each
case, the remainder of such underwriting commissions was reallowed to dealers.
EMERGING GROWTH FUND
(a) $604,527 and (b) $67,705
HIGH YIELD BOND FUND
(a) $239,238 and (b) $19,285
GLOBAL RESOURCES FUND
(a) $13,467 and (b) $2,273
HIGH YIELD TAX FREE FUND
(a) $118,032 and (b) $15,719
GOVERNMENT INCOME FUND
(a) $35,314 and (b) $6,442
DISTRIBUTION PLAN. The Board of Directors approved distribution plans
pursuant to Rule 12b-1 under the 1940 Act for Class A Shares ("Class A Plans")
and Class B Shares ("Class B Plans") of each Fund. Such Plans were approved by a
majority of the outstanding shares of each respective class of each Fund (except
for the Class A Plan for Money Market Fund) on December 16, 1994 and became
effective on December 22, 1994. The Class A Plan for Money Market Fund was
approved by the sole shareholder of the Class A shares of the Fund on September
12, 1995 and became effective on September 12, 1995.
Under each Class A Plan, the distribution or service fee will not exceed
an annual rate of 0.25% of the average daily net asset value of the Class A
shares of a Fund (determined in accordance with the Fund's Prospectus as from
time to time in effect). Money Market Fund has determined that it will pay
distribution and service fees of 0.15% to John Hancock Funds but may in the
future determine to pay up to 0.25% under the Class A Plan. Any expenses under
the Class A Plan not reimbursed within 12 months of being presented to the Fund
for repayment are forfeited and not carried over to future years. Under each
Class B Plan, the distribution or services fee to be paid by the applicable Fund
will not exceed an annual rate of 1.00% of the average daily net assets of the
Class B shares of the Fund (in each case, determined in accordance
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<PAGE> 208
with such Fund's prospectus as from time to time in effect); provided that the
portion of such fee used to cover Service Expenses (described below) shall not
exceed an annual rate of 0.25% of the average daily net asset value of the Class
B Shares of the Fund. In accordance with generally accepted accounting
principles, the Fund does not treat unreimbursed distribution expenses
attributable to Class B shares as a liability of the Fund and does not reduce
the current net assets of Class B by such amount although the amount may be
payable under the Class B Plan in the future.
Under the Plans, expenditures shall be calculated and accrued daily and
paid monthly or at such other intervals as the Directors shall determine. The
fee may be spent by John Hancock Funds on Distribution Expenses or Service
Expenses. "Distribution Expenses" include any activities or expenses primarily
intended to result in the sale of shares of the relevant class of the Fund,
including, but not limited to: (i) initial and ongoing sales compensation
payable out of such fee as such compensation is received by John Hancock Funds
or by Selling Brokers, (ii) direct out-of-pocket expenses incurred in connection
with the distribution of shares, including expenses related to printing of
prospectuses and reports; (iii) preparation, printing and distribution of sales
literature and advertising material; (iv) an allocation of overhead and other
branch office expenses of John Hancock Funds related to the distribution of Fund
Shares; (v) distribution expenses that were incurred by the Fund's former
distributor and not recovered through payments under the Class A or Class B
former plans or through receipt of contingent deferred sales charges ("CDSCs");
and (vi) in the event that any other investment company (the "Acquired Fund")
sells all or substantially all of its assets, merges with or otherwise engages
in a combination with the Fund, distribution expenses originally incurred in
connection with the distribution of the Acquired Fund's shares. Service Expenses
under the Plans include payments made to, or on account of, account executives
of selected broker-dealers (including affiliates of John Hancock Funds) and
others who furnish personal and shareholder account maintenance services to
shareholders of the relevant class of the Fund.
During the fiscal year ended October 31, 1995, the Funds paid the Distributors
the following amounts of expenses with respect to the Class A shares and Class B
shares of each of the Funds:
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<PAGE> 209
<TABLE>
Expense Items
-------------
<CAPTION>
Printing and Interest,
Mailing of Compensation Expenses of Carrying or
Prospectuses to to ----------- Other Finance
Advertising New Selling Brokers John Hancock Charges
----------- --- --------------- ------------ -------
Shareholders Funds
------------ -----
<S> <C> <C> <C> <C> <C>
Money Market Fund
- -----------------
Class A Shares 0 0 $ 7,724 $ 6,107 NONE
Class B Shares $ 5,434 $ 766 $ 226,733 $ 3,472 $ 203,757
Global Resources Fund
- ---------------------
Class A Shares $ 2,777 $ 157 $ 934 $ 4,414 NONE
Class B Shares $ 19,510 $ 9,541 $ 112,225 $ 48,249 $ 116,252
Government Income Fund
- ----------------------
Class A Shares $ 18,322 $ 5,106 $ 65,653 $ 58,444 NONE
Class B Shares $ 41,081 $ 3,224 $ 985,054 $153,626 $1,109,310
High Yield Bond Fund
- --------------------
Class A Shares $ 11,193 $ 1,229 $ 3,830 $ 30,680 NONE
Class B Shares $113,854 $10,183 $ 529,660 $365,331 $ 601,737
Emerging Growth Fund
- --------------------
Class A Shares $ 60,215 $ 6,025 $ 86,447 $205,221 NONE
Class B Shares $191,492 $22,622 $1,142,644 $690,198 $1,093,651
High Yield Tax Free
- -------------------
Class A Shares $ 5,882 $ 1,187 $ 5,714 $ 24,657 NONE
Class B Shares $ 62,187 $ 6,679 $ 525,782 $258,750 $ 666,273
</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
Directors and the Independent Directors. Each of the Plans provides that it may
be terminated without penalty (a) by vote of a majority of the Independent
Directors, (b) by a majority of the respective Class' outstanding voting
securities upon 60 days' written notice to John Hancock Funds, and (c)
automatically in the event of assignment. Each of the Plans further provides
that it may not be amended to increase the maximum amount of the fees for the
services described therein without the approval of a majority of the outstanding
shares of the class of the Fund which has voting rights with respect to the
Plan. Each of the Plans provides that no material amendment to the Plan will, in
any event, be effective unless it is approved by a majority vote of the
Directors and the Independent Directors of the Corporation. 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
Board of Directors has determined that, in their judgment, there is a reasonable
likelihood that each Plan will benefit the holders of the applicable class of
shares of the affected Fund.
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Information regarding the services rendered under the Plans and the
Distribution Agreement and the amounts paid therefore by the respective Class of
the Funds are provided to, and reviewed by, the Board of Directors on a
quarterly basis. In its quarterly review, the Board of Directors considers the
continued appropriateness of the Plans and the Distribution Agreement and the
level of compensation provided therein.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the shares of
the Funds, 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 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 Directors.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of the Fund's NAV.
The Funds will not price their 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.
AMORTIZED COST METHOD OF PORTFOLIO VALUATION
Money Market Fund utilizes the amortized cost valuation method of
valuing portfolio instruments in the absence of extraordinary or unusual
circumstances. Under the amortized cost method, assets are valued by constantly
amortizing over the remaining life of an instrument the
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difference between the principal amount due at maturity and the cost of the
instrument to the Fund. The Directors will from time to time review the extent
of any deviation of the net asset value, as determined on the basis of the
amortized cost method, from net asset value as it would be determined on the
basis of available market quotations. If any deviation occurs which may result
in unfairness either to new investors or existing shareholders, the Directors
will take such actions as they deem appropriate to eliminate or reduce such
unfairness to the extent reasonably practicable. These actions may include
selling portfolio instruments prior to maturity to realize gains or losses or to
shorten the Fund's average portfolio maturity, withholding dividends, splitting,
combining or otherwise recapitalizing outstanding shares or utilizing available
market quotations to determine net asset value per share.
Since a dividend is declared to shareholders each time net asset value
is determined, the net asset value per share of each class of the Money Market
Fund will normally remain constant at $1.00 per share. There is no assurance
that the Fund can maintain the $1.00 per share value. Monthly, any increase in
the value of a shareholder's investment in either class from dividends is
reflected as an increase in the number of shares of such class in the
shareholder's account or is distributed as cash if a shareholder has so elected.
It is expected that the Fund's net income will be positive each time it
is determined. However, if because of a sudden rise in interest rates or for any
other reason the net income of the Fund determined at any time is a negative
amount, the Fund will offset the negative amount against income and accrued
during the month for each shareholder account. If at the time of payment of a
distribution such negative amount exceeds a shareholder's portion of accrued
income, the Fund may reduce the number of its outstanding shares by treating the
shareholder as having contributed to the capital of the Fund that number of full
or fractional shares which represent the amount of excess. By investing in
either class of shares of the Fund, shareholders are deemed to have agreed to
make such a contribution. This procedure permits the Fund to maintain its net
asset value at $1.00 per share.
If in the view of the Directors it is inadvisable to continue the
practice of maintaining net asset value at $1.00 per share, the Directors
reserve the right to alter the procedures for determining net asset value. The
Fund will notify shareholders of any such alteration.
The Fund is permitted to redeem shares of either class in kind.
Nevertheless, the Fund has filed with the Securities and Exchange Commission a
notification of election committing itself to pay in cash on redemption by a
shareholder of record, limited during any 90-day period to the lesser of
$250,000 or 1% of the net asset value of the Fund at the beginning of such
period.
The Fund will not price its securities on the following national
holidays: New Year's Day; President's Day; Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day and Christmas Day.
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<PAGE> 212
INITIAL SALES CHARGE ON CLASS A SHARES
Class A shares of the Funds (except for Money Market Fund) are offered
at a price equal to their net asset value plus a sales charge which, at the
option of the purchaser, may be imposed either at the time of purchase (the
"initial sales charge alternative") or on a contingent deferred basis (the
"deferred sales charge alternative"). Class A shares of Money Market Fund will
be sold at their net asset value without a sales charge. Share certificates will
not be issued unless requested by the shareholder in writing, and then only will
be issued for full shares. The Directors reserve the right to change or waive a
Fund's minimum investment requirements and to reject any order to purchase
shares (including purchase by exchange) when in the judgment of the Adviser such
rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Funds
are described in each Fund's Prospectus. 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 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 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 CHARGE. As described in the Prospectuses, Class A shares
of the Funds may be sold without a sales charge to 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 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) also are available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares of a
Fund and shares of all other John Hancock funds which carry a sales charge.
LETTER OF INTENTION. The reduced sales loads are also applicable to
investments made over a specified period pursuant to a Letter of Intention
(LOI), which should be read carefully prior to its execution by an investor.
Each Fund (other than Money Market Fund) offers two options regarding the
specified period for making investments under the LOI. All investors have
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the option of making their investments over a 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
IRA's, SEP, SARSEP, TSA, 401(k) plans, TSA plans 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 ($50,000 in the case of Emerging Growth Fund and Global Resources
Fund). 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 with the specified period (either 13 or 48 months), the sales charge
applicable will not be higher than that which would have been applied (including
accumulations and combinations) had the LOI been for the amount actually
invested.
The LOI authorizes Investor Services to hold in escrow sufficient Class
A shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrow shares will be released. If the total investment specified in the LOI
is not completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charges as may be due. By signing
the LOI, the investor authorizes Investor Services to act as his
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 a 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 a 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 CDSC at the rates set forth in
the Funds' respective 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 the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. Class B shares of Money Market Fund, not purchased
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directly, will be subject upon redemption to the CDSC set forth in the
Prospectus of the John Hancock fund from which the investor initially exchanged
his/her shares.
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 Prospectuses for additional information regarding the CDSC.
SPECIAL REDEMPTIONS
Although the Funds would not normally do so, each 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 Directors. When the shareholder sells portfolio
securities received in this fashion, he would incur a brokerage charge. Any such
security would be valued for the purpose of making such payment at the same
value as used in determining the Fund's net asset value. Each Fund has elected
to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund during any 90-day period for any one account.
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE. As described more fully in the Prospectuses, the
Funds permit exchanges of shares of any class for shares of the same class in
any other John Hancock fund offering that class.
SYSTEMATIC WITHDRAWAL PLAN. As described briefly in the Prospectuses,
the Funds permit the establishment of a Systematic Withdrawal Plan. Payments
under this plan represent proceeds arising from the redemption of Fund shares.
Since the redemption price of Fund shares may be more or less than the
shareholder's cost, depending upon the market value of the securities owned by
the Fund at the time of redemption, the distribution of cash pursuant to this
plan may result in realization of gain or loss for purposes of Federal, state
and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class A (except with respect to the
Money Market Fund) or Class B shares of a 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
Fund shares at the same time as a Systematic Withdrawal Plan is in effect. Each
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.
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MONTHLY AUTOMATIC ACCUMULATION PROGRAM ("MAAP"). This program is
explained fully in each Fund's Prospectus and the Account Privileges
Application. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month
indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the due date of any investment.
REINVESTMENT PRIVILEGE. A shareholder who has redeemed Fund shares may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
the Fund or another John Hancock mutual fund, subject to the minimum investment
limit in that fund. The proceeds from the redemption of Class A shares may be
reinvested at net asset value without paying a sales charge in Class A Shares of
the Fund or in Class A shares of another John Hancock mutual fund. If a CDSC was
paid upon a redemption, a shareholder may reinvest the proceeds from that
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."
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DESCRIPTION OF THE CORPORATION'S SHARES
Each Fund operates as one series of the Corporation. All shares of stock
of the Corporation ($.01 par value per share) have equal voting rights among
shares of the same series (except that each class of shares within a series has
sole voting rights with respect to matters solely affecting that class). On
September 12, 1995, the Corporation's Articles of Incorporation were amended to
increase the authorized common stock of the Corporation from 375,000,000 to
2,500,000,000 shares of Class A Common Stock, from 625,000,000 to 3,000,000,000
shares of Class B Common Stock; and from 0 to 1,000,000,000 shares of Class S
Common Stock. No shares of any series or class have pre-emptive or conversion
rights. Each series of shares represents interests in a separate portfolio of
investments. Each is entitled to all income and gains (or losses) and bears all
of the expenses associated with the operations of that portfolio except that
each class of a series bears its own distribution expenses. Common expenses of
the Corporation are allocated among the series, based upon the respective net
assets or ratably or a combination of both whichever is more appropriate, of
each series.
The Board of Directors is authorized to create additional series of
shares and classes within any series at any time without approval by
shareholders. Six series of shares representing interests in the Corporation are
presently authorized.
Each share of each series or class of the Corporation represents an
equal proportionate interest with each other share in that series or class, none
having priority or preference over other shares of the same series or class. The
interest of investors in the various series or classes of the Corporation is
separate and distinct. All consideration received for the sales of shares of a
particular series or class of the Corporation, all assets in which such
consideration is invested and all income, earnings and profits derived from such
investments will be allocated to and belong to that series or class. As such,
each share is entitled to dividends and distributions out of the net income
belonging to that series or class as declared by the Board of Directors. The
assets of each series are charged with the liabilities of that series and with a
share of the Corporation's general liabilities.
The Board of Directors determines those assets and liabilities deemed to
be general assets or liabilities of the Corporation, and these items are
allocated among each series in proportion to the relative total net assets of
each series. In the unlikely event that the liabilities allocable to a series
exceed the assets of that series, the amount to be deemed available for
distribution to each affected series shall be determined by the Board of
Directors in order to effect an equitable allocation among each series of the
Corporation.
The directors of the Corporation have authorized the issuance of two
classes of common stock for each Fund, designated as Class A and Class B shares,
and, in the case of the Money Market Fund has authorized the issuance of a third
class of common stock, designated as Class S shares. Class A, Class B shares
and, in the case of Money Market Fund, Class S shares each represent an interest
in the same assets of the respective Funds and are identical in all respects
except that each class bears certain expenses related to the distribution of
such shares and certain expenses related to transfer agency services. Class S
shares of Money Market Fund are available
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exclusively to investors who maintain brokerage accounts with certain brokers
who offer shares of Money Market Fund as part of a sweep account arrangement.
Class S shares of Money Market Fund are not subject to a sales charge on
purchases, redemptions or reinvested dividends, nor are they subject to deferred
sales charges or an exchange fee. The holders of Class A and Class B shares and,
in the case of Money Market Fund, Class S 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. The Directors of the Corporation may classify and reclassify the shares
of all Funds into additional classes of common stock at a future date.
VOTING RIGHTS. Each shareholder of the Corporation is entitled to a full
vote for each full share held (and fractional votes for fractional shares).
Shareholders of each series or class vote separately from other shareholders of
the Corporation with respect to all matters which affect solely the interests of
that series or class. After Directors have been elected by shareholders, they
will continue to serve indefinitely and they may appoint their own successors,
provided that always at least a majority of the Directors have been elected by
the Corporation's shareholders. The voting rights of stockholders are not
cumulative, so that the holders of more than 50 percent of the shares voting
can, if they choose, elect all Directors being selected, while the holders of
the remaining shares would be unable to elect any Directors. It is the intention
of the Corporation not to hold annual meetings of shareholders. The Directors
may call annual or special meetings of shareholders of the Corporation or any
class of a series for action by shareholder vote as may be required by the
Investment Company Act of 1940. Pursuant to an undertaking to the Securities and
Exchange Commission, the Corporation will call a meeting of shareholders for any
purpose, including voting to remove one or more Directors, on the written
request of the holders of at least 10% of the outstanding shares of the
Corporation. The Funds, under certain circumstances, will assist shareholders
with communications including shareholder proposals.
DIRECTOR AND OFFICER LIABILITY. Under the Corporation's Articles of
Incorporation and the Maryland General Corporation Law, the directors, officers,
employees and agents of the Corporation are entitled to indemnification under
certain circumstances against liabilities, claims and expenses arising from any
threatened, pending or completed action, suit or proceeding to which they are
made parties by reason of the fact that they are or were such directors,
officers, employees or agents of the Corporation except as such liability may
arise from their own bad faith, willful misfeasance, gross negligence or
reckless disregard of duties.
The Corporation is not required to issue stock certificates. The
Corporation shall continue without limitation of time subject to the provisions
in the Articles of Incorporation concerning termination by action of the
shareholders.
TAX STATUS
Each Fund is treated as a separate entity for accounting and tax
purposes. Each Fund has qualified and elected to be treated as a "regulated
investment company" under Subchapter M of the Code, and intends to continue to
so qualify for each taxable year. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
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distributions, and the diversification of its assets, each 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.
Each 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. 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 such 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.
Distributions of tax-exempt interest ("exempt-interest dividends")
timely designated as such by High Yield Tax-Free Fund 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 High Yield Tax-Free 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. High Yield Tax-Free 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 High Yield Tax-Free Fund may invest is treated as an
item of tax preference for purposes of the Federal alternative minimum tax. To
the extent that High Yield Tax-Free 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 High Yield Tax-Free Fund.
If Global Resources Fund or Emerging Growth Fund acquires stock in
certain non-U.S. corporations that receive at least 75% of their annual gross
income from passive sources (such as interest, dividends, rents, royalties or
capital gain) or hold at least 50% of their 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 such companies or gain from the sale of stock in
such companies, even if all income or gain actually received by the Fund is
timely distributed to its shareholders. The Fund would
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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 the concurrent receipt of cash. Any
Fund that is permitted to acquire stock in foreign corporations may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
Foreign exchange gains and losses realized by Emerging Growth Fund,
Global Resources Fund, Government Income Fund or High Yield Bond 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 but after
considering the post-October loss regulations (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.
Global Resources Fund, Emerging Growth Fund, Government Income Fund and
High Yield Bond Fund 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 or deductions
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. Global Resources Fund or Emerging
Growth Fund may, but the other Funds probably will not satisfy this 50%
requirement.
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
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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 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.
The amount of a Fund's net realized capital gains, if any, in any given
year will vary depending upon the Adviser's current investment strategy and
whether the Adviser believes it to be in the best interest of such 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, in the case of Global
Resources Fund and Emerging Growth Fund, to 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 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, except that a redemption of shares of Money Market
Fund may not result in a gain or loss if the Fund always successfully maintains
a constant net asset value per share, although a loss may still arise if a CDSC
is paid. Any 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 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 may be disallowed to the extent the shares disposed of are replaced
with other shares of the same 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
an election to reinvest dividends in additional shares. 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 (in the case of High Yield Tax-Free Fund) to
the extent of all exempt-interest dividends paid with respect to such shares
and, if not thus disallowed, will (in the case of any Fund) 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, each Fund reserves the right to retain and reinvest all or any portion
of the excess, as computed for Federal
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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 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 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 such 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 such Fund, and (c) be
entitled to increase the adjusted tax basis for his shares in such Fund by the
difference between his pro rata share of such excess and his pro rata share of
such taxes.
For Federal income tax purposes, each Fund is generally permitted to
carry forward 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 and, as noted
above, would not be distributed as such to shareholders. As of October 31, 1995,
Emerging Growth Fund had capital loss carryforwards of $6,354,280, which will
expire in 2003. As of October 31, 1995, Global Resources Fund had capital loss
carryforwards of $421,721, of which $16,520 will expire in 2000, $90,341 will
expire in 2002 and $314,860 will expire in 2003. As of December 31, 1995, High
Yield Bond Fund had capital loss carryforwards of $20,325,151, of which
$9,184,152 expires in 2002 and $11,140,999 expires in 2003, Yield Tax-Free Fund
had capital loss carryforwards of $3,699,525, of which $2,785,979 expires in
2002 and $913,546 expires in 2003 and Government Income Fund had capital loss
carryforwards of $116,730,193 of which $19,146,203 expires in 1996, $6,921,927
expires in 1997, $66,593,890 expires in 2000, $6,699,901 expires in 2001,
$15,347,195 expires in 2002 and $2,021,077 expires in 2003. All of the capital
loss carryforwards expiring in 1996, 1997, 2000 and 2001, respectively, were
acquired on September 15, 1995, in the merger with John Hancock Government
Securities Trust. Their availability maybe limited in a given year.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of High Yield Tax-Free 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 the stock of such corporations held by the Fund, for
U.S. Federal income tax purposes, for at least 46 days (91 days in the case of
certain preferred stock) and distributed and designated by the Fund may be
treated as qualifying dividends. Only Emerging Growth Fund or Global Resources
Fund may sometimes 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)
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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. Additionally, any corporate shareholder should consult its tax
adviser regarding the possibility that its basis in its shares may be reduced,
for Federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares, for the purpose of computing its gain or loss on
redemption or other disposition of the shares.
Each Fund that invests in certain PIKs, zero coupon securities or
certain increasing rate securities (and, in general, any other securities with
original issue discount or with market discount if the Fund elects to include
market discount in income currently) must accrue income on such investments
prior to the receipt of the corresponding cash payments. However, each 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, a 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.
Investments in debt obligations that are at risk of or are in default
present special tax issues for any Fund that may hold such obligations, such as
High Yield Bond Fund and High Yield Tax-Free Fund. Tax rules are not entirely
clear about issues such as when the Funds 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.
Limitations imposed by the Code on regulated investment companies like
the Funds may restrict a Fund's ability to enter into futures, options and
currency forward transactions.
Certain options, futures and forward foreign currency transactions
undertaken by a Fund may cause such 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 a Fund's
losses on its transactions involving options, futures and forward foreign
currency contracts and/or offsetting portfolio positions may be deferred rather
than being taken into account currently in calculating the Fund's taxable income
or gains. These transactions may therefore affect the amount, timing and
character of a Fund's distributions to shareholders. 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. The Funds will take into
account the special tax rules (including consideration of
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available elections) applicable to options, futures or forward contracts in
order to minimize any potential adverse tax consequences.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
The foregoing discussion relates solely to 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, a Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in a Fund is effectively connected will be subject to U.S.
Federal income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from a Fund and, unless an effective IRS Form W-8 or authorized
substitute is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Funds.
Provided that each Fund qualifies as a regulated investment company
under the Code, it will not be required to pay any Massachusetts income,
corporate excise or franchise taxes.
CALCULATION OF PERFORMANCE
YIELD (EXCEPT FOR THE MONEY MARKET FUND). For the 30-day period ended
October 31, 1995, the yields of (a) High Yield Bond Fund's Class A and Class B
shares were 9.35% and 9.09%, respectively, (b) High Yield Tax-Free Fund's Class
A and Class B shares were 5.78% and 5.35%, respectively and (c) Government
Income Fund's Class A and Class B shares were 5.36% and 4.91%, respectively.
Each Fund's yield (except for Money Market Fund) is computed by dividing
net investment income per share determined for a 30-day period by the maximum
offering price per share (which includes the full sales charge) on the last day
of the period, according to the following standard formula:
Yield = 2 [ (a-b + 1 )6 -1]
---
cd
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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).
High Yield Tax-Free Fund may advertise a tax-equivalent yield, which is
computed by dividing that portion of the yield of that Fund which is tax-exempt
by one minus a stated income tax rate and adding the product to that portion, if
any, of the yield of the Fund that is not tax-exempt. The tax-equivalent yields
for the High Yield Tax-Free Fund's Class A and Class B Shares at the 36% federal
income tax rate for the 30-day period ended October 31, 1995 were 9.03% and
8.36%, respectively.
MONEY MARKET FUND YIELD. For the purposes of calculating yield for both
classes of Money Market Fund, daily income per share consists of interest and
discount earned on the Fund's investments less provision for amortization of
premiums and applicable expenses, divided by the number of shares outstanding,
but does not include realized or unrealized appreciation or depreciation.
In any case in which the Fund reports its annualized yield, it will also
furnish information as to the average portfolio maturities of the Fund. It will
also report any material effect of realized gains or losses or unrealized
appreciation on dividends which have been excluded from the computation of
yield.
Yield calculations are based on the value of a hypothetical preexisting
account with exactly one share at the beginning of the seven day period. Yield
is computed by determining the net change in the value of the account during the
base period and dividing the net change by the value of the account at the
beginning of the base period to obtain the base period return. Base period is
multiplied by 365/7 and the resulting figure is carried to the nearest 100th of
a percent. Net change in account value during the base period includes dividends
declared on the original share, dividends declared on any shares purchased with
dividends of that share and any account or sales charges that would affect an
account of average size, but excludes any capital changes.
Effective yield is computed by determining the net change, exclusive of
capital changes, in the value of a hypothetical preexisting account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and then compounding the base period return by
adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting
1 from the result, according to the following formula:
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EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1
The yield of the Fund is not fixed or guaranteed. Yield quotations
should not be considered to be representations of yield of the Fund for any
period in the future. The yield of the Fund is a function of available interest
rates on money market instruments, which can be expected to fluctuate, as well
as of the quality, maturity and types of portfolio instruments held by the Fund
and of changes in operating expenses. The Fund's yield may be affected if,
through net sales of its shares, there is a net investment of new money in the
Fund which the Fund invests at interest rates different from that being earned
on current portfolio instruments. Yield could also vary if the Fund experiences
net redemptions, which may require the disposition of some of the Fund's current
portfolio instruments.
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 Global Resources,
Government Income, High Yield Bond, High Yield Tax-Free and Emerging Growth
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.
<TABLE>
Global Resources Fund
---------------------
<CAPTION>
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 6/15/94* to One Year Five Years Ended 10/31/87* to
10/31/95 10/31/95 Ended 10/31/95 10/31/95
-------- -------- 10/31/95 -------- --------
--------
<S> <C> <C> <C> <C>
(14.84%) (7.87%) (15.49%) 4.43% 7.39%
</TABLE>
<TABLE>
Government Income Fund
----------------------
<CAPTION>
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 9/30/94* to One Year Ended Five Years Ended 2/23/88* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
10.13% 8.15% 9.47% 7.64% 7.27%
</TABLE>
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<TABLE>
High Yield Bond Fund
--------------------
<CAPTION>
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 6/30/93* to One Year Ended Five Years Ended 10/26/87* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
3.85% 3.54% 2.94% 13.95% 8.13%
</TABLE>
<TABLE>
High Yield Tax-Free Fund
------------------------
<CAPTION>
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 12/31/93* to One Year Ended Five Years Ended 8/29/86* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
9.61% 2.39% 8.96% 7.72% 6.71%
</TABLE>
<TABLE>
Emerging Growth Fund
--------------------
<CAPTION>
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 8/22/91* to One Year Ended Five Years Ended 10/26/87* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
27.84% 16.53% 28.60% 25.69% 21.43%
<FN>
* Commencement of operations.
</TABLE>
TOTAL RETURN. Each Fund's total return is computed by finding the
average annual compounded rate of return over the 1-year, 5-year, and 10-year
periods that would equate the initial amount invested to the ending redeemable
value according to the following formula:
P(1+T)n = ERV
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1-year and life-of-fund periods.
In the case of Class A shares or Class B shares, this calculation
assumes the maximum sales charge is included in the initial investment or the
CDSC 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. 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 or net asset value at the end of the
period.
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The total return in the case of Class B shares of each Fund is
calculated by determining the net asset value of all shares held at the end of
the period for each share held from the beginning of the period (assuming
reinvestment of all dividends and distributions at net asset value during the
period and the deduction of any applicable contingent deferred sales charge as
if the shares were redeemed at the end of the period), subtracting the maximum
offering price per share (net asset value per share) at the beginning of such
period and then dividing the result by the maximum offering price per share (net
asset value per share) at the beginning of the same period. Total return for
Class A shares of each of Emerging Growth Fund, Global Resources Fund,
Government Income Fund, High Yield Bond Fund and High Yield Tax-Free Fund is
calculated in the same manner except the maximum offering price reflects the
deduction of the maximum initial sales charge and the redemption value is at net
asset value.
In addition to average annual total returns, a 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 maximum sales
charge on Class A shares or the CDSC on Class B shares into account. A Fund's
"distribution rate" is determined by annualizing the result of dividing the
declared dividends of the Fund during the stated period by the maximum offering
price or net asset value at the end of the period. Excluding a 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, a Fund's yield
and total return will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc.'s "Lipper--Fixed Income Fund
Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on fixed income mutual funds in the United States. Ibottson
and Associates, CDA Weisenberger and F.C. Towers are also used for comparison
purposes, as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in national
financial publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, THE WALL
STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. will
also be utilized. A Fund's promotional and sales literature may make reference
to the Fund's "beta." Beta reflects the market-related risk of the Fund by
showing how responsive the Fund is to the market.
The performance of a Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of a
Fund for any period in the future. The performance of a 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 a
Fund's performance.
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<PAGE> 228
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and
the allocation of brokerage commissions are made by the Adviser and officers of
the Corporation pursuant to recommendations made by its investment committee,
which consists of officers and directors of the Adviser and affiliates and
officers and Directors who are interested persons of the Funds. Orders for
purchases and sales of securities are placed in a manner which, in the opinion
of the Adviser, will offer the best price and market for the execution of each
such transaction. Purchases from underwriters of portfolio securities may
include a commission or commissions paid by the issuer and transactions with
dealers serving as market makers reflect a "spread." Investments in debt
securities are generally traded on a net basis through dealers acting for their
own account as principals and not as brokers; no brokerage commissions are
payable on such transactions.
Each 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 NASD and other policies that the
Directors may determine, the Adviser may consider sales of shares of the Funds
as a factor in the selection of broker-dealers to execute a Fund's portfolio
transactions.
Purchase of securities for Government Income Fund, High Yield Bond Fund
and High Yield Tax-Free Fund are normally principal transactions made directly
from the issuer or from an underwriter or market maker for which no brokerage
commissions are usually paid. Purchases from underwriters will include a
commission or concession paid by the issuer to the underwriter, and purchases
and sales from dealers serving as market makers will usually include a mark up
or mark down. Purchases and sales of options and futures will be effected
through brokers who charge a commission for their services and are reflected in
amounts for Government Income Fund and High Yield Bond Fund below.
To the extent consistent with the foregoing, each Fund will be governed
in the selection of brokers and dealers, and the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research information
and to a lesser extent statistical assistance furnished to the Adviser of the
Fund, and their value and expected contribution to the performance of the Fund.
It is not possible to place a dollar value on information and services to be
received from brokers and dealers, since it is only supplementary to the
research efforts of the Adviser. The receipt of research information is not
expected to reduce significantly the expenses of the Adviser. The research
information and statistical assistance furnished by brokers and dealers may
benefit the Life Company or other advisory clients of the Adviser, and
conversely, brokerage commissions and spreads paid by other advisory clients of
the Adviser may result in research information and statistical assistance
beneficial to the Funds. The Funds will make no commitments to allocate
portfolio transactions upon any prescribed basis. While the Adviser's officers
will be primarily responsible for the allocation of each Fund's brokerage
business, their policies and practices of the Adviser in this
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regard must be consistent with the foregoing and will at all times be subject to
review by the Directors.
Brokerage commissions of those Funds which pay such commissions for
their respective reporting periods, as follows, amounted to:
EMERGING GROWTH FUND - (a) $263,019 for the fiscal year ended October
31, 1995; (b) $318,023 for the fiscal year ended October 31, 1994; and
(c) $330,454 for the fiscal year ended October 31, 1993.
GLOBAL RESOURCES FUND - (a) $214,507 for the fiscal year ended October
31, 1995; (b) $148,469 for the fiscal year ended October 31, 1994; and
(c) $54,463 for the fiscal year ended October 31, 1993.
GOVERNMENT INCOME FUND - (a) $15,814 for the fiscal year ended October
31, 1995; (b) $96,931 for the fiscal year ended October 31, 1994; and
(c) $254,859 for the fiscal year ended October 31, 1993.
HIGH YIELD BOND FUND - (a) $40,228 for the fiscal year ended October 31,
1995; (b) $2,320 for the fiscal year ended October 31, 1994; and (c)
$13,320 for the fiscal year ended October 31, 1993.
HIGH YIELD TAX FREE FUND - (a) $6,650 for the fiscal year ended October
31, 1995, no commissions were paid for 1994 and 1993.
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 Directors that the price is
reasonable in light of the services provided and to policies that the Directors
may adopt from time to time. During the fiscal year ended October 31, 1995, John
Hancock Emerging Growth Fund directed commissions in the amount of $10,036 and
John Hancock Global Resources Fund directed commissions in the amount of $4,542
to compensate brokers for research services such as industry, economic and
company reviews and evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
three of which, Tucker Anthony Incorporated ("Tucker Anthony") John Hancock
Distributors, Inc. ("John Hancock Distributors") and Sutro & Company, Inc.
("Sutro"), are broker-dealers ("Affiliated Brokers"). Pursuant to procedures
determined 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, Sutro or John Hancock Distributors. During the year ended
October 31, 1995, the Fund did not execute any portfolio transactions with then
affiliated brokers.
Any of the Affiliated Brokers may act as broker for a Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by
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the Directors pursuant to the 1940 Act. Commissions paid to an Affiliated Broker
must be at least as favorable as those which the Directors 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 a clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to a Fund as determined by a majority of the
Directors who are not "interested persons" (as defined in the 1940 Act) of the
Funds, the Adviser or the Affiliated Brokers. 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 Funds will not effect principal transactions with Affiliated
Brokers. The Funds may, however, purchase securities from other members of
underwriting syndicates of which Tucker Anthony and Sutro are members, but only
in accordance with the policy set forth above and procedures adopted and
reviewed periodically by the Directors.
Brokerage or other transactions costs of a Fund are generally
commensurate with the rate of portfolio activity. The portfolio turnover rates
for each of the following Funds for (a) the fiscal year ended October 31, 1995
and (b) the fiscal year ended October 31, 1994 were:
EMERGING GROWTH FUND - (a) 23% and (b) 25%.
GLOBAL RESOURCES FUND - (a) 101% and (b) 96%.
GOVERNMENT INCOME FUND - (a) 102% and (b) 92%.
HIGH YIELD BOND FUND - (a) 98% and (b) 153%*.
HIGH YIELD TAX-FREE FUND - (a) 64% and (b) 62%.
* Higher turnover rates were due to volatile market conditions.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Funds. Emerging Growth Fund and
Global Resources Fund pay Investor Services monthly a transfer agent fee equal
to $16 per account for the Class A Shares and $18.50 per account for the Class B
shares on an annual basis, plus out-of-pocket expenses. Government Income Fund
and High Yield Bond Fund pay Investor Services monthly a transfer agent fee
equal to $20 per account for the Class A shares and $22.50 per account for the
Class B shares on an annual basis, plus out-of-pocket expenses. High Yield
Tax-Free Fund pays Investor Services
-71-
<PAGE> 231
monthly a transfer agent fee of $19 per account for the Class A shares and
$21.50 per account for the Class B shares on an annual basis, plus out-of-pocket
expenses. Money Market Fund pays Investor Services monthly a transfer agent fee
of $25 per account for the Class A shares and $27 per account for the Class B
shares on an annual basis, plus 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 Money Market Fund are held pursuant to a
custodian agreement between the Corporation and State Street Bank and Trust
Company, 225 Franklin Street, Boston, Massachusetts 02110. Portfolio securities
of the Emerging Growth Fund, Global Resources Fund, Government Income Fund, High
Yield Bond Fund and High Yield Tax-Free Fund are held pursuant to a custodian
agreement between the Corporation and Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts. Under the custodian agreements, the custodians
perform custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Funds are Ernst & Young LLP, 200
Clarendon Street, Boston, Massachusetts 02116. The independent auditors audit
and render an opinion on the Funds' annual financial statements and review the
Funds' annual income tax returns. The financial statements of the Funds included
in the Prospectuses and this Statement of Additional Information have been
audited by Ernst & Young LLP for the periods indicated in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
-72-
<PAGE> 232
APPENDIX A
CORPORATE AND TAX-EXEMPT BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S)
Aaa, Aa, A AND Baa - Tax-exempt bonds rated Aaa are judged to be of the
"best quality." The rating of Aa is assigned to bonds that are of "high quality
by all standards," but long-term risks appear somewhat larger than Aaa rated
bonds. The Aaa and Aa rated bonds are generally known as "high grade bonds." The
foregoing ratings for tax-exempt bonds are rated conditionally. Bonds for which
the security depends upon the completion of some act or upon the fulfillment of
some condition are rated conditionally. These are bonds secured by (a) earnings
of projects under construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals that begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. Such conditional
ratings denote the probable credit stature upon completion of construction or
elimination of the basis of the condition. Bonds rated A are considered as upper
medium grade obligations. Principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future. Bonds rated Baa are considered a medium grade obligations; i.e.,
they are neither highly protected or 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.
STANDARD & POOR'S RATINGS GROUP ("S&P")
AAA, AA, A AND BBB - Bonds rated AAA bear the highest rating assigned to
debt obligations, which indicates an extremely strong capacity to pay principal
and interest. Bonds rated AA are considered "high grade," are only slightly less
marked than those of AAA ratings and have the second strongest capacity for
payment of debt service. Bonds rated A have a strong capacity to pay principal
and interest, although they are somewhat susceptible to the adverse effects of
changes in circumstances and economic conditions. The foregoing ratings are
sometimes followed by a "p" indicating that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
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. Although a provisional rating addresses credit quality subsequent to
completion of the project, it makes no comment on the likelihood of, or the risk
of default upon failure of, such completion. Bonds rated BBB are regarded as
having an adequate capacity to repay principal and pay interest. Whereas they
normally exhibit protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to repay principal
and pay interest for bonds in this category than for bonds in the A category.
A-1
<PAGE> 233
FITCH INVESTORS SERVICE ("FITCH")
AAA, AA, A, BBB - Bonds rated AAA are considered to be investment grade
and of the highest quality. The obligor has an extraordinary ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. Bonds rated AA are considered to be investment grade and of
high quality. The obligor's ability to pay interest and repay principal, while
very strong, is somewhat less than for AAA rated securities or more subject to
possible change over the term of the issue. Bonds rated A are considered to be
investment grade and of good quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with higher
ratings. Bonds rated BBB are considered to be investment grade and of
satisfactory quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this ability than bonds with
higher ratings.
TAX-EXEMPT NOTE RATINGS
MOODY'S - MIG-1 AND MIG-2. Notes rated MIG-1 are judged to be of the
best quality, enjoying strong protection from established cash flow or funds for
their services or from established and broad-based access to the market for
refinancing or both. Notes rated MIG-2 are judged to be of high quality with
ample margins of protection, though not as large as MIG-1.
S&P - SP-1 AND SP-2. SP-1 denotes a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming safety
characteristics are given a plus (+) designation (SP-1+). SP-2 denotes a
satisfactory capacity to pay principal and interest.
FITCH - FIN-1 AND FIN-2. Notes assigned FIN-1 are regarded as having the
strongest degree of assurance for timely payment. A plus symbol may be used to
indicate relative standing. Notes assigned FIN-2 reflect a degree of assurance
for timely payment only slightly less in degree than the highest category.
CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
MOODY'S - Commercial Paper ratings are opinions of the ability of
issuers to repay punctually promissory obligations not having an original
maturity in excess of nine months. Prime-1, indicates highest quality repayment
capacity of rated issue and Prime-2 indicates higher quality.
S&P - Commercial Paper ratings are a current assessment of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Issues rated A have the greatest capacity for a timely payment
and the designation 1, 2 and 3 indicates the relative degree of safety. Issues
rated "A-1+" are those with an "overwhelming degree of credit protection."
FITCH - Commercial Paper ratings reflect current appraisal of the degree
of assurance of timely payment. F-1 issues are regarded as having the strongest
degree of assurance for timely
A-2
<PAGE> 234
payment. (+) is used to designate the relative position of an issuer within the
rating category. F-2 issues reflect an assurance of timely payment only slightly
less in degree than the strongest issues. The symbol (LOC) may follow either
category and indicates that a letter of credit issued by a commercial bank is
attached to the commercial paper note.
OTHER CONSIDERATIONS - The ratings of S&P, Moody's, and Fitch represent
their respective opinions of the quality of the municipal securities they
undertake to rate. It should be emphasized, however, that ratings are general
and are not absolute standards of quality. Consequently, municipal securities
with the same maturity, coupon and ratings may have different yields and
municipal securities of the same maturity and coupon with different ratings may
have the same yield.
A-3
<PAGE> 235
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks and warrants (cost - $27,819,286) ........... $28,363,048
Receivable for shares sold ................................. 902
Receivable for investments sold ............................ 540,732
Dividend receivable ........................................ 11,059
Foreign tax receivable ..................................... 5,029
Miscellaneous receivable ................................... 10,317
Other assets ............................................... 2,881
-----------
Total Assets ............................. 28,933,968
-----------------------------------------------------------
LIABILITIES:
Payable for shares repurchased ............................. 35,221
Temporary overdraft of cash ................................ 103,818
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ...................................... 19,537
Accounts payable and accrued expenses ...................... 49,222
-----------
Total Liabilities ........................ 207,798
-----------------------------------------------------------
NET ASSETS:
Capital paid-in ............................................ 28,604,072
Accumulated net realized loss on investments and
foreign currency transactions .............................. (421,721)
Net unrealized appreciation of investments and
foreign currency transactions ............................ 543,819
-----------
Net Assets ............................... $28,726,170
===========================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial interest outstanding -
75,000,000 shares authorized with $0.01 per share par value, respectively)
Class A - $2,323,988 / 165,952 ............................. $ 14.00
=============================================================================
Class B - $26,402,182 / 1,905,178 .......................... $ 13.86
=============================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - $(14.00 x 105.26)% ............................... $ 14.74
=============================================================================
<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.
</TABLE>
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON OCTOBER 31, 1995. YOU'LL
ALSO FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF
THAT DATE.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended October 31, 1995
- --------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $28,795) ...... $ 404,349
Interest ..................................................... 40,530
-----------
444,879
-----------
Expenses:
Investment management fee - Note B .......................... 263,434
Distribution/service fee - Note B
Class A ................................................... 8,283
Class B ................................................... 305,777
Transfer agent fee .......................................... 132,727
Custodian fee ............................................... 68,885
Printing .................................................... 43,195
Auditing fee ................................................ 36,134
Registration and filing fees ................................ 34,089
Legal fees .................................................. 8,791
Trustees' fees .............................................. 8,081
Advisory board fee .......................................... 3,848
Miscellaneous ............................................... 3,821
-----------
Total Expenses ............................. 917,065
-----------------------------------------------------------
Net Investment Loss ........................ (472,186)
-----------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investments sold ........................ (314,860)
Net realized gain on foreign currency transactions ........... 2,682
Change in net unrealized appreciation/depreciation
of investments ............................................. (3,606,930)
Change in net unrealized appreciation/depreciation of
foreign currency transactions .............................. 57
-----------
Net Realized and Unrealized
Loss on Investments and
Foreign Currency Transactions .............. (3,919,051)
-----------------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations .................. $(4,391,237)
===========================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE> 236
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources 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 loss .............................................................................. $ (472,186) $ (441,384)
Net realized loss on investments sold and foreign currency transactions .......................... (312,178) (90,344)
Change in net unrealized appreciation/depreciation of investments and foreign
currency transactions ........................................................................... (3,606,873) 553,900
------------ ------------
Net Increase (Decrease) in Net Assets Resulting from Operations ................................. (4,391,237) 22,172
------------ ------------
FROM FUND SHARE TRANSACTIONS -- NET* ............................................................... (9,191,467) 22,788,288
------------ ------------
NET ASSETS:
Beginning of period .............................................................................. 42,308,874 19,498,414
------------ ------------
End of period .................................................................................... $ 28,726,170 $ 42,308,874
============ ============
<FN>
* 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 ............................................................ 106,612 $ 1,595,642 419,756 $ 6,352,382
Less shares repurchased ................................................ (284,537) (4,070,740) (75,879) (1,159,547)
-------- ------------ ---------- ------------
Net increase (decrease) ................................................ (177,925) $ (2,475,098) 343,877 $ 5,192,835
======== ============ ========== ============
CLASS B
Shares sold ............................................................ 497,933 $ 7,105,217 1,781,599 $ 27,695,930
Less shares repurchased ................................................ (964,221) (13,821,586) (652,737) (10,100,477)
-------- ------------ ---------- ------------
Net increase (decrease) ................................................ (466,288) $ (6,716,369) 1,128,862 $ 17,595,453
======== ============ ========== ============
</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 AND REDEEMED DURING THE LAST TWO PERIODS, ALONG
WITH THE CORRESPONDING DOLLAR VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE> 237
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources 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 as
follows:
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
JUNE 15, 1994
YEAR ENDED (COMMENCEMENT OF
OCTOBER 31, OPERATIONS) TO
1995(a) OCTOBER 31, 1994
---------- ----------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ........................................................ $ 15.62 $ 14.89
--------- ---------
Net Investment Loss (b) ..................................................................... (0.08) (0.08)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions .... (1.54) 0.81
--------- ---------
Total from Investment Operations ........................................................... (1.62) 0.73
--------- ---------
Net Asset Value, End of Period .............................................................. $ 14.00 $ 15.62
========= =========
Total Investment Return at Net Asset Value (c) .............................................. (10.37)% 4.90%(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ................................................... $ 2,324 $ 5,372
Ratio of Expenses to Average Net Assets ..................................................... 1.93% 0.73%*
Ratio of Net Investment Loss to Average Net Assets .......................................... (0.53)% (0.42)%*
Portfolio Turnover Rate ..................................................................... 101% 96%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DIVIDENDS, 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.
10
<PAGE> 238
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
1995(a) 1994 1993 1992 1991
-------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ..................... $ 15.58 $ 15.69 $ 12.41 $ 12.20 $ 11.57
-------- -------- -------- --------- ----------
Net Investment Loss (b) .................................. (0.21) (0.23) (0.24) (0.24) (0.17)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions .......................... (1.51) 0.12 3.52 0.58 1.24
-------- -------- -------- --------- ----------
Total from Investment Operations ........................ (1.72) (0.11) 3.28 0.34 1.07
-------- -------- -------- --------- ----------
Less Distributions
Dividends from Net Investment Income ..................... -- -- -- -- --
Distributions from Realized Gains on Investments Sold .... -- -- -- (0.13) (0.44)
-------- -------- -------- --------- ----------
Total Distributions to Shareholders ..................... -- -- -- (0.13) (0.44)
-------- -------- -------- --------- ----------
Net Asset Value, End of Period ........................... $ 13.86 $ 15.58 $ 15.69 $ 12.41 $ 12.20
======== ======== ======== ========= ==========
Total Investment Return at Net Asset Value (c) ........... (11.04)% (0.70)% 26.43% 2.93% 9.81%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ................ $ 26,402 $ 36,937 $ 19,498 $ 7,428 $ 10,766
Ratio of Expenses to Average Net Assets .................. 2.68% 2.54% 2.92% 3.75% 3.64%
Ratio of Net Investment Loss to Average Net Assets ....... (1.43)% (1.52)% (1.65)% (2.01)% (1.47)%
Portfolio Turnover Rate .................................. 101% 96% 83% 59% 93%
<FN>
* On an annualized basis.
(a) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the Fund.
(b) Per share information has been calculated using the average number of shares outstanding.
(c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(d) Not annualized.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE> 239
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
<TABLE>
SCHEDULE OF INVESTMENTS
October 31, 1995
- --------------------------------------------------------------------------------
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
<S> <C> <C>
COMMON STOCKS
CONSUMER GOODS & SERVICES (1.98)%
Reliance Industries Ltd. American
Depositary Receipt (ADR) (India)** ........... 40,000 $ 568,416
----------
ENERGY - EQUIPMENT (3.19)%
Camco International Inc. ...................... 40,000 915,000
----------
ENERGY - EXPLORATION AND PRODUCTION (20.87)%
Abacan Resource Corp.(Canada)** ............... 350,000* 858,725
Bellwether Exploration Co. .................... 190,000 1,021,250
Benton Oil & Gas Co.** ........................ 80,000* 970,000
International Petroleum Corp.(Canada)** ....... 500,000* 1,187,500
Newscope Resources Ltd.(Canada)** ............. 255,200* 733,700
Noble Affiliates Inc.** ....................... 175,000 1,225,000
----------
5,996,175
----------
ENERGY - SERVICES (23.51)%
Amercian Ecology Corp. ........................ 95,000 332,500
Cairn Energy USA, Inc.** ...................... 100,000 1,200,000
Energy Ventures Inc.** ........................ 50,000* 950,000
Global Industries Ltd** ....................... 45,000 1,181,250
Nuevo Energy Co.** ............................ 55,000 1,216,875
Reading and Bates Corp.** ..................... 90,000* 1,035,000
Transocean AS(Norway)** ....................... 55,000* 838,811
----------
6,754,436
----------
ENTERTAINMENT (2.66)%
Brassie Golf Corp.(Canada)** .................. 407,900 764,813
----------
INDUSTRIAL - INTERMEDIATE MATERIALS (11.54)%
Concordia Paper Holdings, (ADR)
(Hong Kong)** ................................ 40,000* 370,000
Hindalco Industries Ltd.(India)** ............. 20,000 637,600
Kymmene Oy(Finland) ........................... 20,000 546,253
PT Indah Kiat Pulp & Paper Corp. ..............
(Indonesia) .................................. 614,400 601,928
PT Indocement Tunggal Prakar
(Indonesia) .................................. 170,000* 628,796
Venezolana de Prerreducidos Caroni
(Venezuela)** ................................ 101,000 530,250
----------
3,314,827
----------
INDUSTRIAL - MISCELLANEOUS (11.78)%
Eastern Aluminium Ltd.(Austrailia)** .......... 620,000 570,586
Grupo Mexico S.A. B (Mexico) .................. 120,000* 501,048
</TABLE>
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY GLOBAL
RESOURCES FUND ON OCTOBER 31, 1995. IT'S DIVIDED INTO TWO MAIN CATEGORIES:COMMON
STOCKS AND WARRANTS. THE COMMON STOCKS ARE FURTHER BROKEN DOWN BY INDUSTRY
GROUPS.
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
<S> <C> <C>
INDUSTRIAL - MISCELLANEOUS (CONTINUED)
Holderbank Financiere Glarus
AG (Switzerland)** .......................... 712 $ 571,348
York Research Corp.** ......................... 240,000 1,740,000
-----------
3,382,982
-----------
MINING (21.50)%
Amax Gold Inc.** .............................. 150,000* 843,750
Barrick Gold Corp.(Canada) .................... 35,000* 809,375
Battle Mountain Gold Co. ...................... 100,000* 762,500
Cambior Inc.(Canada) .......................... 80,000* 790,000
Hemlo Gold Mines Inc.(Canada) ................. 100,000* 825,000
Freeport-McMoRan Copper & Gold Inc. ........... 40,000 915,000
Newmont Gold Co. .............................. 15,000 540,000
Santa Fe Pacific Corp. ........................ 70,000* 691,250
-----------
6,176,875
-----------
UTILITIES (1.69)%
OEMV AG(Austria)** ............................ 5,625 485,295
-----------
TOTAL COMMON STOCKS
(Cost $27,819,286) (98.72)% 28,358,819
-------- -----------
WARRANTS
INDUSTRIAL - MISCELLANEOUS (0.01)%
Holderbank Financiere Glarus AG
(Switzerland)** ................................ 3,560* 4,229
-----------
TOTAL WARRANTS
(Cost $0) (0.01)% 4,229
-------- -----------
TOTAL INVESTMENTS (98.73)% $28,363,048
======== ===========
<FN>
* 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.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE> 240
FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
PORTFOLIO CONCENTRATION
- --------------------------------------------------------------------------------
THE GLOBAL RESOURCES FUND INVESTS PRIMARILY IN EQUITY SECURITIES OF ISSUERS IN
THE NATURAL RESOURCE INDUSTRY IN THE UNITED STATES AND ABROAD. 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
PERCENTAGE OF THE FUND'S INVESTMENTS AT OCTOBER 31, 1995 ASSIGNED TO THE VARIOUS
COUNTRY CATEGORIES.
<TABLE>
<CAPTION>
MARKET VALUE AS A
COUNTRY DIVERSIFICATION % OF NET ASSETS
- ----------------------- ---------------
<S> <C>
Australia ................................................. 1.99%
Austria ................................................... 1.69
Canada .................................................... 20.78
Finland ................................................... 1.90
Hong Kong ................................................. 1.29
India ..................................................... 4.20
Indonesia ................................................. 4.28
Mexico .................................................... 1.74
Norway .................................................... 2.92
Switzerland ............................................... 2.00
United States ............................................. 54.09
Venezuela ................................................. 1.85
-----
TOTAL INVESTMENTS 98.73%
=====
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE> 241
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Series, Inc. (the "Corporation") is a diversified, open-end
management investment company, registered under the Investment Company Act of
1940, as amended. The Corporation consists of six series portfolios: John
Hancock Global Resources Fund (the "Fund"), John Hancock Emerging Growth Fund,
John Hancock High Yield Tax Free Fund, John Hancock High Yield Bond Fund, John
Hancock Money Market Fund and John Hancock Government Income Fund (collectively
the "Funds"). The Board of Directors may authorize the creation of additional
Funds from time to time to satisfy various investment objectives. Effective
December 22, 1994 (see Note B), the Corporation and Funds changed names by
replacing the word Transamerica with John Hancock.
The Board of Directors 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 Board of Directors, may be
applied differently to each class of shares in accordance with current
regulations of the Securities and Exchange Commission and the Internal Revenue
Service. 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 A Shares are subject to an initial sales charge of up
to 5.00% and a 12b-1 distribution plan. Prior to May 15, 1995, the maximum sales
charge was 5.75%. Class B Shares are subject to a contingent deferred sales
charge and a separate 12b-1 distribution plan. On June 15, 1994, Class A shares
were sold to commence class activity. 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 Board of Directors. Short-term debt investments maturing within
60 days are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
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. 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.
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.
14
<PAGE> 242
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources 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.
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 for both financial
reporting and federal income tax purposes.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
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, at October 31, 1995, the Fund has
$421,721 of capital loss carryforwards available, to the extent provided by
regulations, to offset future net realized capital gains. If such carryforwards
are used by the Fund, no capital gain distributions will be made. The
carryforwards expire as follows: October 31, 2000 -- $16,520, October 31, 2002
- -- $90,341 and October 31, 2003 -- $314,860. For Federal income tax purposes,
net currency exchange gains and losses from sale 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 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, if any, with respect to each
class of shares will be calculated in the same manner, at the same time and will
be in the same amount, except for effect of expenses that may be applied
differently to each class as explained previously.
EXPENSES The majority of the expenses of the Corporation 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 Fund.
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 appropriated net assets of each class and the specific expense rate(s)
applicable to each class.
NOTE B --
MANAGEMENT FEE, ADMINISTRATIVE
SERVICES AND TRANSACTIONS WITH AFFILIATES
AND OTHERS
On December 22, 1994, John Hancock Advisers, Inc. (the "Adviser"), a wholly
owned subsidiary of The Berkeley Financial Group, became the investment adviser
for the Fund with approval of the Board of Directors and shareholders of the
Fund. The Fund's former investment manager was Transamerica Fund Management
Company ("TFMC").
15
<PAGE> 243
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, to
0.75% of the Fund's average daily net assets. This fee structure is consistent
with the former agreement with TFMC. For the period ended October 31, 1995, the
advisory fee earned by the Adviser and TFMC amounted to $212,918 and $50,516,
respectively, resulting in a total fee of $263,434.
The Adviser and TFMC, for their respective periods, provided administrative
services to the Fund pursuant to an administrative service agreement through
January 16, 1995 on which day the agreement was terminated.
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.
On December 22, 1994 John Hancock Funds, Inc. ("JH Funds"), a wholly-owned
subsidiary of the Adviser, became the principal underwriter of the Fund. Prior
to this date, Transamerica Fund Distributors, Inc. ("TFD") served as the
principal underwriter and distributor of the Fund. For the period ended October
31, 1995, JH Funds and TFD received net sales charges of $13,467 with regard to
sales of Class A shares. Out of this amount, $2,273 was retained and used for
printing prospectuses, advertising, sales literature and other purposes, $10,959
was paid as sales commissions to unrelated broker-dealers and $235 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, all of which are broker-dealers.
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, formerly TFD, 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 amounted to $99,592.
In addition, to compensate 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 pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments for distribution
and service expenses which in total will not exceed on an annual basis 0.25% of
the Fund's average daily net assets attributable to Class A shares and 1.00%
(0.95% effective December 1, 1995) of the Fund's average daily net assets
attributable to Class B shares, to reimburse JHFunds 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. This fee structure and plan is similar to the former arrangement
with TFD.
The Board of Directors approved a shareholder servicing agreement between the
Fund and John Hancock Investor Services Corporation ("Investor Services"), a
wholly owned subsidiary of The Berkeley Financial Group, for the period between
December 22, 1994 and May 12, 1995, inclusive, under which Investor Services
processed telephone transactions on behalf of the Fund. As of May 15, 1995, the
Fund entered into a full service transfer agent agreement with Investor
Services. Prior to this date The Shareholder Services Group was the transfer
agent. The Fund will pay Investor Services a fee based on the number of
shareholder accounts and certain out-of-pocket expenses.
16
<PAGE> 244
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Global Resources Fund
A partner with Baker & Botts was an officer of the Corporation until December
22, 1994. During the period ended October 31, 1995, legal fees paid to Baker &
Botts amounted to $460.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser and its
affiliates as well as Director of the Corporation. The compensation of
unaffiliated Directors is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Directors may elect to defer their receipt of this
compensation under the John Hancock Group of Funds Deferred Compensation Plan.
The Fund will make investments into other John Hancock funds, as applicable, to
cover its liability with regard to the deferred compensation. Investments to
cover the Fund's deferred compensation liability will be recorded on the Fund's
books as an other asset. The deferred compensation liability will be marked to
market on a periodic basis and income earned by the investment will be recorded
on the Fund's books.
The Fund has an independent advisory board composed of certain retired
Directors who provide advice to the current Trustees in order to facilitate a
smooth management transition. The Fund pays the advisory board and its counsel a
fee.
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 obligations, during the period
ended October 31, 1995 aggregated $34,964,923 and $45,488,648, respectively.
There were no purchases or sales of long-term 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 $27,819,286. Gross unrealized appreciation and depreciation of
investments aggregated $3,554,147 and $3,010,385, respectively, resulting in net
unrealized appreciation of $543,762.
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 investment loss of $472,186, an increase
in accumulated net realized loss on investments of $2,682 and a decrease in
capital paid-in of $469,504. 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 certain differences in
the computation of distributable income and capital gains under federal tax
rules versus generally accepted accounting principles.
17
<PAGE> 245
John Hancock Funds - Global Resources Fund
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
John Hancock Series, Inc. --
John Hancock Global Resources Fund
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the John Hancock Global Resources Fund (the
"Fund"), (formerly the Transamerica Global Resources Fund), one of the
portfolios constituting John Hancock Series, Inc. (the "Corporation") (formerly
Transamerica Series, Inc.), as of October 31, 1995, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
October 31, 1995, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
John Hancock Global Resources Fund portfolio of John Hancock Series, Inc. at
October 31, 1995, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the indicated periods, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
December 15, 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.
The Fund has not paid any distributions of ordinary income dividends or net
long-term capital gains during the fiscal year.
18
<PAGE> 246
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
PROFORMA COMBINED STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SPECIAL Global Pro
OPPORTUNITIES Resources Forma
FUND Fund Adjustments Combined
------------ ------------ -------------- ------------
<S> <C> <C> <C> <C>
ASSETS:
Investments, at value 228,022,123 28,363,048 -- 256,385,171
Receivable for shares sold 241,136 902 -- 242,038
Receivable for investments sold 24,025,617 540,732 -- 24,566,349
Interest Receivable 4,211 0 -- 4,211
Dividends Receivable 67,410 16,088 -- 83,498
Deferred Organization Expenses 78,290 0 -- 78,290
Other assets 726 13,198 -- 13,924
------------ ------------ -------------- ------------
Total Assets 252,439,513 28,933,968 -- 281,373,481
LIABILITIES:
Temporary overdraft of cash 243,454 103,818 -- 347,272
Payable for investments purchased 12,750,625 0 -- 12,750,625
Payable for shares repurchased 129,854 35,221 -- 165,075
Payable to JH Advisers, Inc. and Affiliates 326,416 19,537 -- 345,953
Accounts payable and accrued expenses 63,754 49,222 -- 112,976
------------ ------------ -------------- ------------
Total Liabilities 13,514,103 207,798 -- 13,721,901
NET ASSETS:
Capital paid-in 209,681,269 28,604,072 -- 238,285,341
Accumulated net realized loss on
investments, financial futures contracts
and foreign currency transactions (5,914,444) (421,721) -- (6,336,165)
Net unrealized appreciation of investments
and foreign currency transactions 35,158,585 543,819 -- 35,702,404
Undistributed net investment income 0 0 -- 0
------------ ------------ -------------- ------------
Net Assets 238,925,410 28,726,170 -- 267,651,580
============ ============ ============== ============
NET ASSETS:
Special Opportunities Fund
Class A 101,561,612 -- 2,323,988 (a) 103,885,600
Class B 137,363,798 -- 26,402,182 (a) 163,765,980
Global Resources Fund
Class A -- 2,323,988 (2,323,988)(a) 0
Class B -- 26,402,182 (26,402,182)(a) 0
------------ ------------ -------------- ------------
238,925,410 28,726,170 0 267,651,580
============ ============ ============== ============
SHARES OUTSTANDING:
Special Opportunities Fund
Class A 10,902,887 -- 249,486 (a) 11,152,373
Class B 14,949,105 -- 2,873,312 (a) 17,822,417
Global Resources Fund
Class A -- 165,952 (165,952)(a) 0
Class B -- 1,905,178 (1,905,178)(a) 0
NET ASSET VALUE PER SHARE:
Special Opportunities Fund
Class A $ 9.32 -- -- $ 9.32
Class B $ 9.19 -- -- $ 9.19
Global Resources Fund
Class A -- $ 14.00 --
Class B -- $ 13.86 --
</TABLE>
See Notes to Proforma Combined Financial Statements
<PAGE> 247
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
PROJECTED PROFORMA COMBINED STATEMENT OF OPERATIONS
OCTOBER 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SPECIAL Global Pro
OPPORTUNITIES Resources Forma
FUND Fund Adjustments Combined
------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Investment Income
Interest & Dividends(net of foreign
withholding taxes) $ 1,715,816 $ 444,879 $ -- $ 2,160,695
Expenses
Management Fee 1,870,771 263,434 17,501 (b) $ 2,151,706
Distribution/Service Fee
Class A 296,691 8,283 1,630 (c) 306,604
Class B 1,348,679 305,777 0 1,654,456
Transfer Agent Fee 945,811 132,727 0 1,078,538
Registration & Filing Fees 0 34,089 0 34,089
Custodian Fee 44,422 68,885 (51,468)(d) 61,839
Auditing 23,300 36,134 (19,434)(d) 40,000
Legal Fees 16,506 8,791 0 25,297
Trustee Fees 44,135 11,929 0 56,064
Printing 47,581 43,195 (22,694)(d) 68,082
Organization Expense 26,046 0 0 26,046
Miscellaneous 5,966 3,821 (2,446)(d) 7,341
------------ ------------ ------------ ------------
Gross Fund Total Expenses 4,669,908 917,065 (76,911) 5,510,062
------------ ------------ ------------ ------------
Less Expense Reductions 0 0 0 0
Less Expense Reimbursement 0 0 0 0
------------ ------------ ------------ ------------
Net Fund Total Expenses 4,669,908 917,065 (76,911) 5,510,062
------------ ------------ ------------ ------------
Net Investment Income/(Loss) $ (2,954,092) $ (472,186) $ 76,911 $ (3,349,367)
------------ ------------ ------------ ------------
Realized and Unrealized Gain (Loss) on Investments,
Financial Futures Contract and Foreign Currency
Transactions:
Net Realized gain/(loss) on investments sold 17,052,914 (314,860) 0 16,738,054
Net Realized gain on futures contracts 0 2,682 0 2,682
Net Realized loss on foreign currency
transactions (17,231) 0 0 (17,231)
Change in appreciation/(depreciation)
of investments and financial
futures contracts 23,246,748 (3,606,930) 0 19,639,818
Change in appreciation/(depreciation)
of foreign currency transactions 11,288 57 0 11,345
------------ ------------ ------------ ------------
Net Realized and Unrealized Gain on
Investments, Futures Contracts and
Foreign Currency Transactions 40,293,719 (3,919,051) 0 36,374,668
------------ ------------ ------------ ------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations $ 37,339,627 $ (4,391,237) $ 76,911 $ 33,025,301
============ ============ ============ ============
</TABLE>
See Notes to Proforma Combined Financial Statements
<PAGE> 248
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS - (UNAUDITED)
OCTOBER 31, 1995
Pro forma information is intended to provide shareholders of John Hancock Global
Resources Fund (JHGRS) with information about the impact of the proposed merger
by indicating how the merger might have affected information had the merger been
consummated as of October 31, 1994.
The pro forma combined statements of assets and liabilities and results of
operations as of October 31, 1995, have been prepared to reflect the merger of
Special Opportunities Fund (JHSOP) and JHGRS after giving effect to pro forma
adjustments described in the notes listed below.
(a) Acquisition by JHSOP of all of the net assets of JHGRS and issuance of
JHSOP Class A and Class B shares in exchange for all of the outstanding
Class A and Class B shares, respectively of JHGRS.
(b) The investment advisory fee was adjusted to reflect the application of
the fee structure in effect for JHSOP: 0.80% of the first $500,000,000
of the Fund's average daily net asset value, 0.75% of the next
$500,000,000 and 0.70% of the Fund's average daily net asset value in
excess of $1,000,000,000.
(c) The 12b-1 fee was adjusted to reflect the application of the fee
structure which will be in effect for JHSOP: 0.30% of Class A average
daily net assets and 1.00% of Class B average daily net assets.
(d) The actual expenses incurred by JHSOP and JHGRS for various expenses
included on a pro forma basis were reduced to reflect the estimated
savings arising from the merger.
<PAGE> 249
SCHEDULE OF INVESTMENTS
October 31, 1995 (Unaudited)
The Schedule of Investments is a complete list of all securities owned by the
Global Resources Fund and the Special Opportunities Fund combined on October 31,
1995.
<TABLE>
<CAPTION>
---------------------
Global Resources
---------------------
Par Value
% of Interest Maturity (000's Market
State - Issuer - Description Net Assets Rate % Date Shares Omitted) Value*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
AUDIO/VIDEO 2.32%
Polygram NV (Netherlands)
BROADCASTING 0.31%
New World Communications Group,Inc. **
COMPUTERS 17.15%
HBO & Co
Intuit, Inc. **
Microsoft Corp. **
Parametric Technology Co. **
Sun Microsystems, Inc. **
3Com Corp. **
CONSTRUCTION 0.21%
Australian National Industries, Ltd. (Australia)
CEMEX SA (Class B) American Depository Receipt
(ADR) (Mexico)
Ekran Berhad (Malaysia)
Hopewell Holdings (Hong Kong)
Tolmex SA de CV (Mexico) **
CONSUMER GOODS & SERVICES 0.21%
Reliance Industries Ltd. (ADR) (India)** 40,000 $568,416
--------
DIVERSIFIED OPERATIONS 5.04%
CUC International Inc. **
Hutchinson Whampoa (Hong Kong)
Ogden Corp.
ELECTRICAL 0.00%
Consolidated Electric Power Asia Ltd.(Hong Kong)
ELECTRONICS 9.33%
HADCO Corp. **
Helix Technology Corp.
Linear Technology Corp.
Micron Technology, Inc.
SCI Systems, Inc. **
<CAPTION>
-----------------------------------------------------------------------------
Special Opportunities Combined
-----------------------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
State - Issuer - Description Shares Omitted) Value* Shares Omitted) Value*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
AUDIO/VIDEO
Polygram NV (Netherlands) 100,000 $ 6,200,000 100,000 6,200,000
------------ ----------
BROADCASTING
New World Communications Group,Inc. ** 49,900 823,350 49,900 823,350
------------ ----------
COMPUTERS
HBO & Co 35,000 2,476,250 35,000 2,476,250
Intuit, Inc. ** 259,900 18,712,800 259,900 18,712,800
Microsoft Corp. ** 75,000 7,500,000 75,000 7,500,000
Parametric Technology Co. ** 35,000 2,340,625 35,000 2,340,625
Sun Microsystems, Inc. ** 52,000 4,056,000 52,000 4,056,000
3Com Corp. ** 230,000 10,810,000 230,000 10,810,000
------------ ----------
45,895,675 45,895,675
------------ ----------
CONSTRUCTION
Australian National Industries, Ltd. (Australia) 200,000 156,680 200,000 156,680
CEMEX SA (Class B) American Depository Receipt
(ADR) (Mexico) 18,812 60,466 18,812 60,466
Ekran Berhad (Malaysia) 70,000 177,548 70,000 177,548
Hopewell Holdings (Hong Kong) 200,000 126,100 200,000 126,100
Tolmex SA de CV (Mexico) ** 11,000 41,749 11,000 41,749
------------ ----------
562,543 562,543
------------ ----------
CONSUMER GOODS & SERVICES
Reliance Industries Ltd. (ADR) (India)** 40,000 568,416
----------
DIVERSIFIED OPERATIONS
CUC International Inc. ** 375,000 12,984,375 375,000 12,984,375
Hutchinson Whampoa (Hong Kong) 50,000 275,485 50,000 275,485
Ogden Corp. 10,000 227,500 10,000 227,500
------------ ----------
13,487,360 13,487,360
------------ ----------
ELECTRICAL
Consolidated Electric Power Asia Ltd.(Hong Kong) 1,503 3,042 1,503 3,042
------------ ----------
ELECTRONICS
HADCO Corp. ** 85,000 2,380,000 85,000 2,380,000
Helix Technology Corp. 86,200 3,232,500 86,200 3,232,500
Linear Technology Corp. 250,000 10,937,500 250,000 10,937,500
Micron Technology, Inc. 35,000 2,471,875 35,000 2,471,875
SCI Systems, Inc. ** 169,100 5,939,638.0 169,100 5,939,638
------------ ----------
</TABLE>
Page 1
<PAGE> 250
<TABLE>
<CAPTION>
---------------------
Global Resources
---------------------
Par Value
% of Interest Maturity (000's Market
State - Issuer - Description Net Assets Rate % Date Shares Omitted) Value*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ENERGY - EQUIPMENT 0.34%
Camco International Inc. 40,000 915,000
---------
ENERGY - EXPLORATION AND PRODUCTION 2.24%
Abacan Resource Corp.(Canada) ** 350,000 858,725
Bellwether Exploration Co. 190,000 1,021,250
Benton Oil & Gas Co. ** 80,000 970,000
International Petroleum Corp.(Canada) ** 500,000 1,187,500
Newscope Resources Ltd.(Canada) ** 255,200 733,700
Noble Affiliates Inc. ** 175,000 1,225,000
---------
5,996,175
---------
ENERGY - SERVICES 2.52%
Amercian Ecology Corp. 95,000 332,500
Cairn Energy USA, Inc. ** 100,000 1,200,000
Energy Ventures Inc. ** 50,000 950,000
Global Industries Ltd ** 45,000 1,181,250
Nuevo Energy Co. ** 55,000 1,216,875
Reading and Bates Corp. ** 90,000 1,035,000
Transocean AS(Norway) ** 55,000 838,811
---------
6,754,436
---------
ENGINEERING 0.22%
Fluor Corp.
Foster Wheeler Corp.
ENTERTAINMENT 0.29%
Brassie Golf Corp.(Canada) ** 407,900 764,813
---------
HAZARDOUS WASTE 1.03%
Handex Environmental Recovery, Inc. **
TETRA Technologies, Inc. **
HEALTHCARE 3.90%
HealthCare COMPARE Corp. **
Healthsource, Inc. **
Johnson & Johnson
INDUSTRIAL - INTERMEDIATE MATERIALS 1.24%
Concordia Paper Holdings, (ADR) (Hong Kong)** 40,000 370,000
Hindalco Industries Ltd.(India) ** 20,000 637,600
Kymmene Oy(Finland) 20,000 546,253
PT Indah Kiat Pulp & Paper Corp.(Indonesia) 614,400 601,928
PT Indocement Tunggal Prakar(Indonesia) 170,000 628,796
Venezolana de Prerreducidos Caroni(Venezuela) ** 101,000 530,250
---------
3,314,827
---------
INDUSTRIAL - MISCELLANEOUS 1.26%
Eastern Aluminium Ltd.(Austrailia) ** 620,000 570,586
Grupo Mexico S.A. B (Mexico) 120,000 501,048
Holderbank Financiere Glarus AG(Switzerland) ** 712 571,348
York Research Corp. ** 240,000 1,740,000
---------
3,382,982
---------
<CAPTION>
Special Opportunities Combined
----------------------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
State - Issuer - Description Shares Omitted) Value* Shares Omitted) Value*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
24,961,513 24,961,513
---------- ----------
ENERGY - EQUIPMENT
Camco International Inc. 40,000 915,000
----------
ENERGY - EXPLORATION AND PRODUCTION
Abacan Resource Corp.(Canada) ** 350,000 858,725
Bellwether Exploration Co. 190,000 1,021,250
Benton Oil & Gas Co. ** 80,000 970,000
International Petroleum Corp.(Canada) ** 500,000 1,187,500
Newscope Resources Ltd.(Canada) ** 255,200 733,700
Noble Affiliates Inc. ** 175,000 1,225,000
----------
5,996,175
----------
ENERGY - SERVICES
Amercian Ecology Corp. 95,000 332,500
Cairn Energy USA, Inc. ** 100,000 1,200,000
Energy Ventures Inc. ** 50,000 950,000
Global Industries Ltd ** 45,000 1,181,250
Nuevo Energy Co. ** 55,000 1,216,875
Reading and Bates Corp. ** 90,000 1,035,000
Transocean AS(Norway) ** 55,000 838,811
----------
6,754,436
----------
ENGINEERING
Fluor Corp. 5,000 282,500 5,000 282,500
Foster Wheeler Corp. 8,000 300,000 8,000 300,000
---------- ----------
582,500 582,500
---------- ----------
ENTERTAINMENT
Brassie Golf Corp.(Canada) ** 407,900 764,813
----------
HAZARDOUS WASTE
Handex Environmental Recovery, Inc. ** 16,000 100,000 16,000 100,000
TETRA Technologies, Inc. ** 200,000 2,650,000 200,000 2,650,000
---------- ----------
2,750,000 2,750,000
---------- ----------
HEALTHCARE
HealthCare COMPARE Corp. ** 80,000 2,960,000 80,000 2,960,000
Healthsource, Inc. ** 95,000 5,035,000 95,000 5,035,000
Johnson & Johnson 30,000 2,445,000 30,000 2,445,000
---------- ----------
10,440,000 10,440,000
---------- ----------
INDUSTRIAL - INTERMEDIATE MATERIALS
Concordia Paper Holdings, (ADR) (Hong Kong)** 40,000 370,000
Hindalco Industries Ltd.(India) ** 20,000 637,600
Kymmene Oy(Finland) 20,000 546,253
PT Indah Kiat Pulp & Paper Corp.(Indonesia) 614,400 601,928
PT Indocement Tunggal Prakar(Indonesia) 170,000 628,796
Venezolana de Prerreducidos Caroni(Venezuela) ** 101,000 530,250
----------
3,314,827
----------
INDUSTRIAL - MISCELLANEOUS
Eastern Aluminium Ltd.(Austrailia) ** 620,000 570,586
Grupo Mexico S.A. B (Mexico) 120,000 501,048
Holderbank Financiere Glarus AG(Switzerland) ** 712 571,348
York Research Corp. ** 240,000 1,740,000
----------
3,382,982
----------
</TABLE>
Page 2
<PAGE> 251
<TABLE>
<CAPTION>
---------------------
Global Resources
---------------------
Par Value
% of Interest Maturity (000's Market
State - Issuer - Description Net Assets Rate % Date Shares Omitted) Value*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LEISURE & RECREATION 3.34%
Walt Disney Co.,(The)
MEDICAL 4.81%
Boston Scientific Corp. **
Community Health Systems, Inc. **
METALS,GOLD AND MINING PRODUCTS 5.47%
Amax Gold Inc. ** 150,000 843,750
Asarco, Inc.
Barrick Gold Corp.(Canada) 35,000 809,375
Battle Mountain Gold Co. 100,000 762,500
Cambior Inc.(Canada) 80,000 790,000
Freeport-McMoRan Copper & Gold Inc. 40,000 915,000
Hemlo Gold Mines, Inc. (Canada) 100,000 825,000
Kinross Gold Corp. (Canada) **
Newmont Gold Co. 15,000 540,000
Prime Resource Group, Inc. (Canada) **
Santa Fe Pacific Gold Corp. 70,000 691,250
---------
6,176,875
---------
OIL & GAS 13.82%
Cairn Energy USA, Inc. **
Chesapeake Energy Corp. **
Diamond Offshore Drilling, Inc. **
Falcon Drilling Co.,Inc. **
Global Marine, Inc. **
Nabors Industries, Inc. **
Pride Petroleum Services, Inc. **
Reading & Bates Corp. **
Sonat Offshore Drilling Co.
Triton Energy Corp. **
PUBLISHING 1.15%
Scholastic Corp. **
SOLID WASTE 0.25%
Brambles Industries Ltd. (Australia)
Laidlaw, Inc.(Class B)
Waste Management Intl.,PLC,(ADR)(United Kingdom) **
TELECOMMUNICATIONS 9.41%
America Online, Inc. **
Cascade Communications Corp. **
U.S. Order, Inc. **
UTILITIES 0.18%
OEMV AG(Austria) ** 5,625 485,295
---------
WATER TREATMENT 0.17%
Compagnie Generale des Eaux (France)
Lyonnaise Des Eaux Dumez (France)
<CAPTION>
Special Opportunities Combined
----------------------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
State - Issuer - Description Shares Omitted) Value* Shares Omitted) Value*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LEISURE & RECREATION 155,000 8,931,875 155,000 8,931,875
Walt Disney Co.,(The) ----------- -----------
MEDICAL 230,000 9,688,750 230,000 9,688,750
Boston Scientific Corp. ** 100,000 3,175,000 100,000 3,175,000
Community Health Systems, Inc. ** ----------- -----------
12,863,750 12,863,750
----------- -----------
METALS,GOLD AND MINING PRODUCTS 150,000 843,750
Amax Gold Inc. ** 70,000 2,257,500 70,000 2,257,500
Asarco, Inc. 35,000 809,375
Barrick Gold Corp.(Canada) 100,000 762,500
Battle Mountain Gold Co. 80,000 790,000
Cambior Inc.(Canada) 40,000 915,000
Freeport-McMoRan Copper & Gold Inc. 100,000 825,000
Hemlo Gold Mines, Inc. (Canada) 385,100 2,863,141 385,100 2,863,141
Kinross Gold Corp. (Canada) ** 37,000 1,332,000 52,000 1,872,000
Newmont Gold Co. 140,000 1,014,846 140,000 1,014,846
Prime Resource Group, Inc. (Canada) ** 100,000 987,500 170,000 1,678,750
Santa Fe Pacific Gold Corp. ----------- -----------
8,454,987 14,631,862
----------- -----------
OIL & GAS 147,000 1,764,000 147,000 1,764,000
Cairn Energy USA, Inc. ** 100,000 2,925,000 100,000 2,925,000
Chesapeake Energy Corp. ** 88,000 2,189,000 88,000 2,189,000
Diamond Offshore Drilling, Inc. ** 435,000 4,513,125 435,000 4,513,125
Falcon Drilling Co.,Inc. ** 450,000 2,925,000 450,000 2,925,000
Global Marine, Inc. ** 540,000 4,657,500 540,000 4,657,500
Nabors Industries, Inc. ** 536,800 4,697,000 536,800 4,697,000
Pride Petroleum Services, Inc. ** 420,000 4,830,000 420,000 4,830,000
Reading & Bates Corp. ** 130,000 4,127,500 130,000 4,127,500
Sonat Offshore Drilling Co. 93,600 4,364,100 93,600 4,364,100
Triton Energy Corp. ** ----------- -----------
36,992,225 36,992,225
----------- -----------
PUBLISHING 50,000 3,087,500 50,000 3,087,500
Scholastic Corp. ** ----------- -----------
SOLID WASTE 30,000 318,561 30,000 318,561
Brambles Industries Ltd. (Australia) 23,500 211,500 23,500 211,500
Laidlaw, Inc.(Class B) 15,000 $ 151,875 15,000 $ 151,875
Waste Management Intl.,PLC,(ADR)(United Kingdom) ** ----------- -----------
681,936 681,936
----------- -----------
TELECOMMUNICATIONS 145,000 11,600,000 145,000 11,600,000
America Online, Inc. ** 158,000 11,257,500 158,000 11,257,500
Cascade Communications Corp. ** 155,000 2,325,000 155,000 2,325,000
U.S. Order, Inc. ** ----------- -----------
25,182,500 25,182,500
----------- -----------
UTILITIES 5,625 485,295
OEMV AG(Austria) ** -----------
WATER TREATMENT 1,316 122,243 1,316 122,243
Compagnie Generale des Eaux (France) 2,000 194,976 2,000 194,976
Lyonnaise Des Eaux Dumez (France)
</TABLE>
Page 3
<PAGE> 252
<TABLE>
<CAPTION>
---------------------
Global Resources
---------------------
Par Value
% of Interest Maturity (000's Market
State - Issuer - Description Net Assets Rate % Date Shares Omitted) Value*
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wessex Water, PLC (United Kingdom)
TOTAL COMMON STOCKS 86.20%
(Cost $195,022,112) 28,358,819
-----------
WARRANTS
INDUSTRIAL - MISCELLANEOUS 0.00%
Holderbank Financiere Glarus AG(Switzerland) ** 3,560 4,229
-----------
TOTAL WARRANTS 0.00%
(Cost $0) 4,229
-----------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT 9.59%
Investment in a joint repurchase agreement
transaction with SBC Capital Markets Inc.-Dated
10-31-95, Due 11-01-95 (secured by U.S. Treasury
Bond, 8.75% Due 05-15-17, U.S. Treasury Note,
5.750% Due 09-30-97) 5.89% 11/1/95
TOTAL SHORT-TERM INVESTMENTS 9.59%
-----------
TOTAL INVESTMENTS 95.79% $28,363,048
===========
Combined Net Assets 28,726,170
<CAPTION>
Special Opportunities Combined
----------------------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
State - Issuer - Description Shares Omitted) Value* Shares Omitted) Value*
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wessex Water, PLC (United Kingdom) 25,000 132,148 25,000 132,148
------------ ------------
449,367 449,367
------------ ------------
TOTAL COMMON STOCKS
(Cost $195,022,112) 202,350,123 230,708,942
------------ ------------
WARRANTS
INDUSTRIAL - MISCELLANEOUS
Holderbank Financiere Glarus AG(Switzerland) ** 3,560 4,229
------------
TOTAL WARRANTS
(Cost $0) 4,229
------------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT
Investment in a joint repurchase agreement
transaction with SBC Capital Markets Inc.-Dated
10-31-95, Due 11-01-95 (secured by U.S. Treasury
Bond, 8.75% Due 05-15-17, U.S. Treasury Note,
5.750% Due 09-30-97) $25,672 $ 25,672,000 $25,672 $ 25,672,000
------------ ------------
TOTAL SHORT-TERM INVESTMENTS 25,672,000 25,672,000
------------ ------------
TOTAL INVESTMENTS $228,022,123 $256,385,171
============ ============
Combined Net Assets 238,925,410 267,651,580
</TABLE>
NOTES TO SCHEDULE 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.
** Non-income producing security.
The percentages shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Page 4
<PAGE> 253
PART C
FREEDOM INVESTMENT TRUST II
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 27 of the Registration
Statement of Freedom Investment Trust II (the "Registrant") on Form N-1A under
the Securities Act of 1933 and the Investment Company Act of 1940 (File Nos.
33-4559 and 811-4630), which information is incorporated herein by reference.
ITEM 16. EXHIBITS:
1.1 Registrant's Master Trust Filed as Exhibit 1 to Registrant's
Agreement, as amended Registration Statement on Form N-1A
and incorporated herein by reference
to post-effective amendment no. 28
(File Nos. 811-4630 and 33-4559 on
February 27, 1995; accession
no. 0000950146-95-000057) ("PEA 28").
1.2 Amendment to Master Trust Agreement Filed as Exhibit 1.1 to Registrant's
Registration Statement on Form N-1A
as filed on February 9, 1996 (file
nos. 811-4630 and 33-4559, accession
no. 0000950146-96-000307) and
incorporated herein by reference.
2. Amended By-Laws of Registrant. Filed as Exhibit 2 to PEA 28 and
incorporated herein by reference.
3. Not applicable.
4. Agreement and Plan of Reorganization Filed herewith as Exhibit A to the
between the Registrant and John Proxy Statement and Prospectus
Hancock Series, Inc. on behalf of included as Part A of this
John Hancock Global Resources Fund. Registration Statement.
5. Not applicable.
<PAGE> 254
6. Investment Management Contract Filed as Exhibit 5 to PEA 28 and
between the Registrant and incorporated herein by reference.
John Hancock Advisers, Inc.
7.1 Distribution Agreement among Filed as Exhibit 6 to PEA 28 and
the Registrant and John Hancock incorporated herein by reference.
Funds, Inc. (formerly named John
Hancock Broke Distribution
Services, Inc.) and Freedom
Distributors Corporation.
7.2 Form of Soliciting Dealer Filed as Exhibit 6.1 to PEA 28 and
Agreement between John Hancock incorporated herein by reference.
Funds, Inc. and Selected Dealers
7.3 Form of Financial Institution Filed as Exhibit 6.2 to PEA 28 and
Sales and Service Agreement. incorporated herein by reference.
8. Not applicable.
9. Master Custodian Agreement between Filed as Exhibit 8.1 to PEA 28 and
John Hancock Mutual Funds incorporated by reference herein.
(including Registrant) and Investors
Bank & Trust Company.
10. Class A and Class B Distribution Filed as Exhibit 15 to PEA 28 and
Plan between Registrant and John incorporated herein by reference.
Hancock Funds, Inc.
11. Opinion as to legality of shares, Filed herewith as Exhibit 11.
and consent.
12. Form of opinion as to tax matters, Filed herewith as Exhibit 12.
and consent.
13. Not applicable.
14.1 Consent of Price Waterhouse LLP Filed herewith as Exhibit 14.1.
regarding the audited financial
statements of Registrant.
14.2 Consent of Ernst & Young LLP Filed herewith as Exhibit 14.2.
regarding the audited financial
statement of John Hancock Global
Resources Fund.
15. Not applicable.
-2-
<PAGE> 255
<TABLE>
<S> <C> <C>
16. Powers of Attorney. Filed as addendum to signature pages of PEA 28 and
incorporated herein by reference.
17. Declaration of the Registrant pursuant to Rule 24f-2 Filed herewith as Exhibit 17.
under the Investment Company Act of 1940.
18. Prospectus of John Hancock Global Resources Fund dated Filed herewith as Exhibit 18.
March 1, 1996.
</TABLE>
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this Registration Statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) under the Securities Act of 1933,
as amended (the "1933 Act"), the reoffering prospectus will contain the
information called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
Registration Statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
-3-
<PAGE> 256
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Boston and The
Commonwealth of Massachusetts, on the 15th day of May, 1996.
FREEDOM INVESTMENT TRUST II
By: Edward J. Boudreau, Jr.*
----------------------------------
Edward J. Boudreau, Jr.
Chairman, Chief Executive Officer
and Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Edward J. Boudreau, Jr.* Chairman and Chief ) May 15, 1996
- ------------------------ Executive Officer )
Edward J. Boudreau, Jr. (Principal Executive )
Officer) )
)
)
/s/ James B. Little Senior Vice President ) May 15, 1996
- ------------------------ and Chief Financial )
James B. Little Officer (Principal )
Financial and )
Accounting Officer) )
)
Trustees:
Douglas Costle* Trustee )
- ------------------------
Douglas Costle )
)
)
Leland O. Erdahl* Trustee )
- ------------------------
Leland O. Erdahl )
)
)
</TABLE>
-4-
<PAGE> 257
<TABLE>
<S> <C> <C>
Richard A. Farrell* Trustee )
- ------------------------
Richard A. Farrell )
)
)
William F. Glavin* Trustee )
- ------------------------
William F. Glavin )
)
)
Dr. John A. Moore* Trustee )
- ------------------------
Dr. John A. Moore )
)
)
Patti McGill Peterson* Trustee )
- ------------------------
Patti McGill Peterson )
)
)
John W. Pratt* Trustee )
- ------------------------
John W. Pratt )
)
)
*By:/s/ Thomas H. Drohan May 15, 1996
--------------------
Thomas H. Drohan
Attorney-in-fact
</TABLE>
-5-
<PAGE> 258
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement.
EXHIBIT NO. DESCRIPTION
4. Agreement and Plan of Reorganization between the Registrant
and John Hancock Series, Inc. on behalf of John Hancock Global
Resources Fund (filed as Exhibit A to Part A of this
Registration Statement).
11. Opinion as to legality of shares, and consent.
12. Form of opinion as to tax matters, and consent.
14.1 Consent of Price Waterhouse LLP
14.2 Consent of Ernst & Young LLP
17. Declaration of the Registrant pursuant to Rule 24f-2 under the
Investment Company Act of 1940.
18. Prospectus of John Hancock Global Resources Fund dated March
1, 1996.
-6-
<PAGE> 1
EXHIBIT 99.11
[JOHN HANCOCK LETTERHEAD]
May 17, 1996
John Hancock Series, Inc.
on behalf of John Hancock Global Resources Fund
101 Huntington Avenue
Boston, MA 02199
Ladies and Gentlemen:
In connection with the filing of a registration statement under the Securities
Act of 1993, as amended (the "Act"), on Form N-14, with respect to the shares of
beneficial interest of John Hancock Freedom Investment Trust II, a Massachusetts
business trust (the "Fund"), it is the opinion of the undersigned that these
shares when issued will be legally issued, fully paid and nonassessable.
In connection with this opinion it should be noted that the Fund is an entity of
the type generally known as a "Massachusetts business trust." Under
Massachusetts law, shareholders of a Massachusetts business trust may be held
personally liable for the obligations of the trust. However, the Fund's
Declaration of Trust disclaims shareholder liability for obligations of the Fund
and indemnifies any shareholder of the Fund, with such indemnification to be
paid solely out of the assets of the Fund. Therefore, the shareholder's risk is
limited to circumstances in which the assets of the Fund are insufficient to
meet the obligations asserted against such assets.
The undersigned hereby consents to the filing of a copy of this opinion, as an
exhibit to the Fund's registration statement on Form N-14, with the Securities
and Exchange Commission and with the various state securities administrators.
Sincerely,
JOHN HANCOCK ADVISERS, INC.
/s/ Alfred P. Ouellette
- ----------------------
Alfred P. Ouellette
Assistant Secretary
Member of Massachusetts Bar
<PAGE> 1
EXHIBIT 12
______________, 1996
Board of Trustees
Freedom Investment Trust II
101 Huntington Avenue
Boston, Massachusetts 02199
Board of Directors
John Hancock Series, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Members of the Board of Trustees and the Board of Directors:
You have requested our opinion regarding the federal income tax
consequences of the acquisition by John Hancock Special Opportunities Fund
("Acquiring Fund"), a series of Freedom Investment Trust II ("Trust II"), of all
of the assets of John Hancock Global Resources Fund ("Acquired Fund"), a series
of John Hancock Series, Inc. (the "Company"), in exchange solely for (i) the
assumption by Acquiring Fund of all of the liabilities of Acquired Fund and (ii)
the issuance of Class A and Class B voting shares of beneficial interest of
Acquiring Fund (the "Acquiring Fund Shares") to Acquired Fund, followed by the
distribution by Acquired Fund, in liquidation of Acquired Fund, of the Acquiring
Fund Shares to the shareholders of Acquired Fund and the termination of Acquired
Fund (the foregoing together constituting the "reorganization" or the
"transaction").
In rendering this opinion, we have examined and relied upon (i) the
prospectus for the Class A and Class B shares of Acquired Fund, dated March 1,
1996, (ii) the statement of additional information for the Class A and Class B
shares of Acquired Fund, dated March 1, 1996, (iii) the prospectus for the Class
A and Class B shares of Acquiring Fund, dated March 1, 1996, as supplemented
April 3, 1996, (iv) the statement of additional information for the Class A and
Class B shares of Acquiring Fund, dated March 1, 1996, (v) the registration
statement on Form N-14 of Acquiring Fund relating to the transaction (the
"Registration Statement") filed with the Securities and Exchange Commission (the
"SEC") on May 17, 1996, (vi) the proxy statement and prospectus
<PAGE> 2
Boards of Trustees
Freedom Investment Trust II
John Hancock Series, Inc.
____________, 1996
Page 2
relating to the transaction dated June 24, 1996 (the "Proxy Statement"), (vii)
the Agreement and Plan of Reorganization, made as of June 24, 1996, between
Trust II, on behalf of Acquiring Fund, and the Company, on behalf of Acquired
Fund (the "Agreement"), (viii) the representation letters on behalf of Acquiring
Fund and Acquired Fund referred to below and (ix) such other documents as we
deemed appropriate. We have assumed that the parties to the Agreement have acted
and will act in accordance with the terms of the Agreement and all other
documents relating to the transaction.
The conclusions expressed herein represent our judgment regarding the
proper treatment of Acquiring Fund, Acquired Fund and the shareholders of
Acquired Fund on the basis of our analysis of the Internal Revenue Code of 1986,
as amended (the "Code"), case law, Treasury regulations and the rulings and
other pronouncements of the Internal Revenue Service (the "Service") which exist
at the time this opinion is rendered. Such authorities are subject to
prospective or retroactive change, and we do not undertake any responsibility to
advise you of any such change. Our opinion represents our best judgment
regarding the issues presented and is not binding upon the Service or any court.
Moreover, our opinion does not provide any assurance that a position taken in
reliance on such opinion will not be challenged by the Service and does not
constitute any representation or warranty that such position, if so challenged,
will not be rejected by a court.
FACTS
We understand the facts relating to the transaction to be as described
hereinafter.
Acquiring Fund is a series of a Massachusetts business trust, Trust II,
which was established under a Declaration of Trust dated March 31, 1986 and is
registered as an open-end investment company under the Investment Company Act of
1940, as amended (the "1940 Act"). Trust II has five separate series (including
Acquiring Fund), each of which is treated as a separate corporation and
regulated investment company pursuant to Section 851(h) of the Code. Acquiring
Fund commenced operations on November 1, 1993. The investment objective of
Acquiring Fund is to seek long-term capital appreciation. Acquiring Fund seeks
to achieve its objective by emphasizing investments in equity securities of
issuers in various economic sectors. The equity securities in which Acquiring
Fund invests consist primarily of common stocks of U.S. and foreign issuers but
may also include preferred stocks, convertible debt securities and warrants. The
economic sectors in which Acquiring Fund invests include, but are not limited
to, the following sectors: automotive and housing, consumer goods and
<PAGE> 3
Boards of Trustees
Freedom Investment Trust II
John Hancock Series, Inc.
____________, 1996
Page 3
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.
Acquired Fund is a series of a corporation, the Company, which was
incorporated in Maryland on June 22, 1987 and is registered as an open-end
investment company under the 1940 Act. The Company has six separate series
(including Acquired Fund), each of which is treated as a separate corporation
and regulated investment company pursuant to Section 851(h) of the Code.
Acquired Fund commenced operations on October 16, 1987. The investment
objectives of Acquired Fund are to protect the purchasing power of shareholders'
capital and to achieve growth of capital. Acquired Fund pursues its objectives
by investing at all times (except during periods when it is investing
defensively) at least 65% of its total assets in equity securities of domestic
and foreign companies with substantial natural resource assets, natural
resource-related or energy-related activities or companies that provide
equipment or services primarily devoted to the natural resource or
energy-related activities of the foregoing companies and certain debt
securities, preferred stocks or convertible securities with principal amounts or
redemption or conversion terms related to the market price of a natural resource
asset.
The steps comprising the reorganization, as set forth in the Agreement, are
as follows:
(i) Acquired Fund will transfer to Acquiring Fund all of its assets
(consisting, without limitation, of portfolio securities and instruments,
dividend and interest receivables, cash and other assets). In exchange for the
assets transferred to it, Acquiring Fund will (A) assume all of the liabilities
of Acquired Fund (comprising all of its known and unknown liabilities and
referred to hereinafter as the "Acquired Fund Liabilities") and (B) issue
Acquiring Fund Shares to Acquired Fund that have an aggregate net asset value
equal to the value of the assets transferred to Acquiring Fund by Acquired Fund,
less the value of the Acquired Fund Liabilities assumed by Acquiring Fund.
(ii) Promptly after the transfer of its assets to Acquiring Fund,
Acquired Fund will distribute in liquidation the Acquiring Fund Shares it
receives in the exchange to Acquired Fund shareholders pro rata in exchange for
their surrender of their shares of common stock of Acquired Fund ("Acquired Fund
Shares"). In these exchanges, holders of Acquired Fund Shares designated as
Class A ("Class A Acquired Fund Shares") will receive Acquiring Fund Shares
designated as Class A ("Class A Acquiring Fund Shares"), and holders of Acquired
Fund Shares designated as
<PAGE> 4
Boards of Trustees
Freedom Investment Trust II
John Hancock Series, Inc.
____________, 1996
Page 4
Class B ("Class B Acquired Fund Shares") will receive Acquiring Fund Shares
designated as Class B ("Class B Acquiring Fund Shares").
(iii) After such exchanges, liquidation and distribution, the
existence of Acquired Fund will be promptly terminated in accordance with
Maryland law.
The Agreement and the transactions contemplated thereby were approved by
the Board of Trustees of Trust II, on behalf of Acquiring Fund, at a meeting
held on March 26, 1996. Acquiring Fund shareholders are not required and were
not asked to approve the transaction. The Agreement and the transactions
contemplated thereby were approved by the Board of Directors of the Company, on
behalf of Acquired Fund, at a meeting held on March 26, 1996, subject to the
approval of Acquired Fund shareholders. Acquired Fund shareholders approved the
transaction at a meeting held on August 14, 1996.
It is the position of the Division of Investment Management of the SEC that
appraisal rights, in contexts such as the reorganization, are inconsistent with
Rule 22c-1 under the 1940 Act and are therefore preempted and invalidated by
such rule. Consequently, dissenting shareholders, if any, of Acquired Fund will
not have appraisal rights in the transaction.
Our opinions set forth below are subject to the following factual
assumptions being true and correct (including statements relating to future
actions and facts represented to be to the best knowledge of management, whether
or not known). Authorized representatives of Acquiring Fund and Acquired Fund
have represented to us by letters of even date herewith that the following
assumptions are true and correct:
(a) Acquiring Fund has no plan or intention to redeem or otherwise
reacquire any of the Acquiring Fund Shares received by shareholders of Acquired
Fund in the transaction except in connection with its legal obligation under
Section 22(e) of the 1940 Act as a registered open-end investment company to
redeem its own shares.
(b) After the transaction, Acquiring Fund will continue the historic
business of Acquired Fund and will use all of the assets acquired from Acquired
Fund, which are Acquired Fund's historic business assets, i.e., assets not
acquired as part of or in contemplation of the transaction, in the ordinary
course of a business.
(c) Acquiring Fund has no plan or intention to sell or otherwise dispose of
any assets of Acquired Fund acquired in the
<PAGE> 5
Boards of Trustees
Freedom Investment Trust II
John Hancock Series, Inc.
____________, 1996
Page 5
transaction, except for dispositions made in the ordinary course of its business
(i.e., dispositions resulting from investment decisions made after the
reorganization on the basis of investment considerations independent of the
reorganization) or to maintain its qualification as a regulated investment
company under Subchapter M of the Code.
(d) The shareholders of Acquiring Fund and the shareholders of Acquired
Fund will bear their respective expenses, if any, in connection with the
transaction.
(e) Acquiring Fund and Acquired Fund will each bear its own expenses
incurred in connection with the transaction. Any liabilities of Acquired Fund
attributable to such expenses that remain unpaid on the closing date of the
transaction and are assumed by Acquiring Fund in the transaction are
attributable to Acquired Fund's expenses that are solely and directly related to
the transaction in accordance with the guidelines established in Rev. Rul.
73-54, 1973-1 C.B. 187.
(f) There is no indebtedness between Acquiring Fund and Acquired Fund.
(g) Acquired Fund has elected to be treated as a regulated investment
company under Subchapter M of the Code, has qualified as a regulated investment
company for each taxable year since its inception, and qualifies as such for its
final taxable year ending on the closing date of the transaction.
(h) Acquiring Fund has elected to be treated as a regulated investment
company under Subchapter M of the Code, has qualified as a regulated investment
company for each taxable year since its inception, and qualifies as such as of
the date of the transaction.
(i) Neither Acquiring Fund nor Acquired Fund is under the jurisdiction of a
court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
(j) Acquiring Fund does not own and since its inception has not owned,
directly or indirectly, any shares of Acquired Fund.
(k) Acquiring Fund will not pay cash in lieu of fractional shares in
connection with the transaction.
(l) As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund in exchange for the assets of
Acquired Fund is approximately equal to the fair market value of the assets of
Acquired Fund received by Acquiring
<PAGE> 6
Boards of Trustees
Freedom Investment Trust II
John Hancock Series, Inc.
____________, 1996
Page 6
Fund, minus the value of the Acquired Fund Liabilities assumed by Acquiring
Fund.
(m) Acquired Fund shareholders will not be in control (within the meaning
of Sections 368(a)(2)(H) and 304(c) of the Code, which provide that control
means the ownership of shares possessing at least 50% of the total combined
voting power of all classes of shares that are entitled to vote or at least 50%
of the total value of shares of all classes) of Acquiring Fund after the
transaction.
(n) The principal business purposes of the transaction are to combine the
assets of Acquiring Fund and Acquired Fund in order to capitalize on economies
of scale in expenses such as the costs of accounting, legal, insurance,
custodial, and administrative services, to eliminate the potential adverse
effects on each fund's asset growth of competing with the other fund, and to
increase diversification.
(o) As of the date of the transaction, the fair market value of the Class A
Acquiring Fund Shares received by each holder of Class A Acquired Fund Shares is
approximately equal to the fair market value of the Class A Acquired Fund Shares
surrendered by such shareholder, and the fair market value of the Class B
Acquiring Fund Shares received by each holder of Class B Acquired Fund Shares is
approximately equal to the fair market value of the Class B Acquired Fund Shares
surrendered by such shareholder.
(p) There is no plan or intention on the part of any shareholder of
Acquired Fund that owns beneficially 5% or more of the Acquired Fund Shares and,
to the best knowledge of management of Acquired Fund, there is no plan or
intention on the part of the remaining shareholders of Acquired Fund to sell,
redeem, exchange or otherwise dispose of a number of the Acquiring Fund Shares
received in the transaction that would reduce the aggregate ownership of the
Acquiring Fund Shares by former Acquired Fund shareholders to a number of shares
having a value, as of the date of the transaction, of less than fifty percent
(50%) of the value of all of the formerly outstanding Acquired Fund Shares as of
the same date. Shares of Acquired Fund and Acquiring Fund held by Acquired Fund
shareholders and surrendered by dissenters, sold, redeemed, exchanged or
otherwise disposed of prior or subsequent to the transaction as part of the plan
of reorganization are taken into account for purposes of this representation.
(q) Acquired Fund assets transferred to Acquiring Fund comprise at least
ninety percent (90%) of the fair market value of the net assets and at least
seventy percent (70%) of the fair market value of the gross assets held by
Acquired Fund immediately prior to the transaction. For purposes of this
representation,
<PAGE> 7
Boards of Trustees
Freedom Investment Trust II
John Hancock Series, Inc.
____________, 1996
Page 7
amounts used by Acquired Fund to pay its outstanding liabilities, including
reorganization expenses, payments to dissenters, and all redemptions and
distributions (except for redemptions in the ordinary course of business upon
demand of a shareholder that Acquired Fund is required to make as an open-end
investment company pursuant to Section 22(e) of the 1940 Act and regular, normal
dividends, which dividends include any final distribution of previously
undistributed investment company taxable income and net capital gain for
Acquired Fund's final taxable year ending on the closing date of the
transaction) made by Acquired Fund immediately preceding the transaction are
taken into account as assets of Acquired Fund held immediately prior to the
transaction.
(r) The Acquired Fund Liabilities assumed by Acquiring Fund plus the
liabilities, if any, to which the transferred assets are subject were incurred
by Acquired Fund in the ordinary course of its business or are expenses of the
transaction.
(s) The fair market value of the Acquired Fund assets transferred to
Acquiring Fund equals or exceeds the sum of the Acquired Fund Liabilities
assumed by Acquiring Fund and the amount of liabilities, if any, to which the
transferred assets are subject.
(t) Acquired Fund does not pay compensation to any shareholder-employee.
OPINION
On the basis of and subject to the foregoing and in reliance upon the
representations described above, and provided that any statement of fact
represented to be made to the best knowledge of management of Acquired Fund or
Acquiring Fund is in fact true and correct (whether or not known), we are of the
opinion that
(a) The acquisition by Acquiring Fund of all of the assets of Acquired Fund
solely in exchange for the issuance of Acquiring Fund Shares to Acquired Fund
and the assumption of all of the Acquired Fund Liabilities by Acquiring Fund,
followed by the distribution by Acquired Fund, in liquidation of Acquired Fund,
of Acquiring Fund Shares to Acquired Fund shareholders in exchange for their
Acquired Fund Shares and the termination of Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code.
Acquiring Fund and Acquired Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by Acquired Fund upon (i) the
transfer of all of its assets to Acquiring Fund solely in exchange for the
issuance of Acquiring Fund Shares to Acquired
<PAGE> 8
Boards of Trustees
Freedom Investment Trust II
John Hancock Series, Inc.
____________, 1996
Page 8
Fund and the assumption of all of the Acquired Fund Liabilities by Acquiring
Fund and (ii) the distribution by Acquired Fund of such Acquiring Fund Shares to
the shareholders of Acquired Fund (Sections 361(a) and 361(c) of the Code).
(c) No gain or loss will be recognized by Acquiring Fund upon the receipt
of the assets of Acquired Fund solely in exchange for the issuance of Acquiring
Fund Shares to Acquired Fund and the assumption of all of the Acquired Fund
Liabilities by Acquiring Fund (Section 1032(a) of the Code).
(d) The basis of the assets of Acquired Fund acquired by Acquiring Fund
will be, in each instance, the same as the basis of such assets in the hands of
Acquired Fund immediately prior to the transfer (Section 362(b) of the Code).
(e) The tax holding period of the assets of Acquired Fund in the hands of
Acquiring Fund will, in each instance, include Acquired Fund's tax holding
period for those assets (Section 1223(2) of the Code).
(f) The shareholders of Acquired Fund will not recognize gain or loss upon
the exchange of all of their Acquired Fund Shares solely for Acquiring Fund
Shares as part of the transaction (Section 354(a)(l) of the Code).
(g) The basis of the Acquiring Fund Shares received by the Acquired Fund
shareholders in the transaction will be the same as the basis of the Acquired
Fund Shares surrendered in exchange therefor (Section 358(a)(1) of the Code).
(h) The tax holding period of the Acquiring Fund Shares received by
Acquired Fund shareholders will include, for each shareholder, the tax holding
period for the Acquired Fund Shares surrendered in exchange therefor, provided
the Acquired Fund Shares were held as capital assets on the date of the exchange
(Section 1223(1) of the Code).
No opinion is expressed or implied regarding the federal income tax
consequences to Acquiring Fund, Acquired Fund or Acquired Fund shareholders of
any conditions existing at the time of, effects resulting from, or other aspects
of the transaction except as expressly set forth above.
Very truly yours,
Hale and Dorr
<PAGE> 1
EXHIBIT 14.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Proxy Statement and Prospectus constituting
part of the Registration Statement on Form N-14 (File No. 33-4559) (the
"Registration Statement") of our report dated December 14, 1995, relating to
the financial statements and financial highlights appearing in the October 31,
1995 Annual Report to Shareholders of John Hancock Special Opportunities Fund
which appears in such Proxy Statement and Prospectus. We also consent to the
reference to us under the heading "Experts" in the Prospectus and Proxy
Statement. We also consent to the references to us under the heading "The
Fund's Financial Highlights" in the Prospectus of John Hancock Special
Opportunities Fund, dated March 1, 1996, which appears in the Proxy Statement
and Prospectus and under the heading "Independent Auditors" in the Statement of
Additional Information of John Hancock Special Opportunities Fund, dated March
1, 1996, which is included in the Registration Statement.
PRICE WATERHOUSE LLP
Boston, Massachusetts
May 16, 1996
<PAGE> 1
EXHIBIT 14.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Experts" in the
Combined Prospectus/Proxy Statement in the Registration Statement on Form N14,
dated May 20, 1996, of the Freedom Investment Trust II, "The Fund's Financial
Highlights" in the Class A and Class B Shares Prospectus, dated March 1,
1996, of John Hancock Global Resources Fund, "Independent Auditors" in the
Class A and Class B Shares Statement of Additional Information, dated March 1,
1996, of John Hancock Series, Inc., and to the use of our report on the
financial statements and financial highlights of the John Hancock Global
Resources Fund, dated December 15, 1995, included in the Class A and Class B
Shares Statement of Additional Information, dated March 1, 1996, of John
Hancock Series, Inc.
ERNST & YOUNG LLP
Boston, Massachusetts
May 15, 1996
<PAGE> 1
EXHIBIT 17
As filed with the Securities and Exchange Commission on August 14, 1986
1933 Act File No. 33-4559
1940 Act File No. 811-4630
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
---
Post-Effective Amendment No. 1 /X/
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 2
---
/X/
(Check appropriate box or boxes)
FREEDOM INVESTMENT TRUST II
---------------------------
(Exact Name of Registrant)
Three Center Plaza, Boston, MA 02108
------------------------------------
(Address of Principal Executive Office)
(617) 523-3170
--------------
(Registrant's Telephone Number)
Hugh A. Dunlap, Jr., President
Freedom Investment Trust II
Three Center Plaza
Boston, Massachusetts 02108
------------------------------
(Name and Address of Agent for Service)
copy to:
Edward T. O'Dell, Jr., P.C.
Goodwin, Procter & Hoar
Exchange Place
Boston, Massachusetts 02109
Approximate date of proposed public offering:
/X/ on October 13, 1986 pursuant to paragraph (a) of Rule 485
Registrant hereby declares its intention to register an indefinite number
of shares of beneficial interest, no par value, of the Freedom Global Income
Plus Fund series pursuant to Rule 24f-2(a)(1) under the Investment Company Act
of 1940, as amended. Registrant has heretofore declared its intention to
register an indefinite number of shares of beneficial interest, no par value, of
the Freedom Global Fund series pursuant to Rule 24f-2(a)(1) under the Investment
Company Act of 1940, as amended.
Exhibit Index may be found on Page ____
<PAGE> 1
EXHIBIT 18
JOHN HANCOCK
GLOBAL
RESOURCES 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......................................... 5
Organization and Management of the Fund................................... 9
Alternative Purchase Arrangements......................................... 9
The Fund's Expenses....................................................... 11
Dividends and Taxes....................................................... 12
Performance............................................................... 13
How to Buy Shares......................................................... 14
Share Price............................................................... 15
How to Redeem Shares...................................................... 21
Additional Services and Programs.......................................... 23
Investments, Techniques and Risk Factors.................................. 26
This Prospectus sets forth the information about John Hancock Global
Resources Fund (the "Fund"), a diversified series of John Hancock Series, Inc.
(the "Company"), that you should know before investing. Please read and retain
It for future reference.
Additional information about the Fund and the Company 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 GOVERNMENT
AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 2
<TABLE>
EXPENSE INFORMATION
The purpose of the following information is to help you to 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.
<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 * 5.00%
Redemption fee+...................................................................................... 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**.......................................................................................... 0.25% 1.00%
Other expenses***.................................................................................... 0.98% 0.98%
Total Fund operating expenses........................................................................ 1.98% 2.73%
<FN>
* 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 below 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 net assets, and the remaining portion will be
used to cover distribution expenses.
*** Other Expenses include transfer agent, legal, audit, custody and other expenses.
+ Redemption by wire fee (currently $4.00) not included.
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment, assuming 5% annual return:
Class A Shares............................................................... $69 $109 $151 $269
Class B Shares
-- Assuming complete redemption at end of period......................... $78 $115 $164 $288
-- Assuming no redemption................................................ $28 $ 85 $144 $288
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.)
</TABLE>
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,
Inc.'s 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> 3
W
THE FUND'S FINANCIAL HIGHLIGHTS
The information in the following table of financial highlights has been
audited by Ernst & Young LLP, the Fund's independent auditors, 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.
<TABLE>
Selected data for each class of shares outstanding throughout each period is
as follows:
<CAPTION>
FOR THE PERIOD
JUNE 15, 1994
YEAR ENDED (COMMENCEMENT OF
OCTOBER 31, OPERATIONS) TO
1995(A) OCTOBER 31, 1994
----------- ----------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................................................ $ 15.62 $14.89
------- ------
Net Investment Loss(b)...................................................................... (0.08) (0.08)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency Transactions.... (1.54) 0.81
------- ------
Total from Investment Operations............................................................ (1.62) 0.73
------- ------
Net Asset Value, End of Period.............................................................. $ 14.00 $15.62
======= ======
Total Investment Return at Net Asset Value(c)............................................... (10.37)% 4.90%(d)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................................... $ 2,324 $5,372
Ratio of Expenses to Average Net Assets..................................................... 1.93% 0.73%*
Ratio of Net Investment Loss to Average Net Assets.......................................... (0.53)% (0.42)%*
Portfolio Turnover Rate..................................................................... 101% 96%
</TABLE>
3
<PAGE> 4
<TABLE>
Selected data for Class B shares outstanding throughout each period is as follows:
<CAPTION>
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------
1995(a) 1994 1993 1992 1991 1990 1989
------- ------- ------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period................ $ 15.58 $ 15.69 $ 12.41 $12.20 $ 11.57 $11.99 $10.29
------- ------- ------- ------ ------- ------ ------
Net Investment Loss(b).............................. (0.21) (0.23) (0.24) (0.24) (0.17) (0.10) 0.06
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions...... (1.51) 0.12 3.52 0.58 1.24 0.16 1.82
------- ------- ------- ------ ------- ------ ------
Total from Investment Operations.................... (1.72) (0.11) 3.28 0.34 1.07 0.06 1.88
------- ------- ------- ------ ------- ------ ------
LESS DISTRIBUTIONS
Dividends from Net Investment Income................ -- -- -- -- -- (0.01) (0.06)
Distributions from Realized Gains on Investments
Sold............................................... -- -- -- (0.13) (0.44) (0.47) (0.12)
------- ------- ------- ------ ------- ------ ------
Total Distributions to Shareholders................. -- -- -- (0.13) (0.44) (0.48) (0.18)
------- ------- ------- ------ ------- ------ ------
Net Asset Value, End of Period...................... $ 13.86 $ 15.58 $ 15.69 $12.41 $ 12.20 $11.57 $11.99
======= ======= ======= ====== ======= ====== ======
Total Investment Return at Net Asset Value(c)....... (11.04)% (0.70)% 26.43% 2.93% 9.81% 0.09% 18.60%
======= ======= ======= ====== ======= ====== ======
Total Adjusted Investment Return at Net Asset
Value(f)(g)........................................ -- -- -- -- -- 0.04% 17.2%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)........... $26,402 $36,937 $19,498 $7,428 $10,766 $7,746 $3,655
Ratio of Expenses to Average Net Assets............. 2.68% 2.54% 2.92% 3.75% 3.64% 3.50% 3.45%
Ratio of Adjusted Expenses to Average Net
Assets(f).......................................... -- -- -- -- -- 3.55% 4.85%
Ratio of Net Investment Income (Loss) to Average
Net Assets......................................... (1.43)% (1.52)% (1.65)% (2.01)% (1.47)% (0.82)% 0.55%
Ratio of Adjusted Net Investment Loss to Average Net
Assets(f).......................................... -- -- -- -- -- (0.87)% (0.85)%
Portfolio Turnover Rate............................. 101% 96% 83% 59% 93% 59% 63%
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1988 1987(e)
------ ------------
<S> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period................ $ 8.91 $ 8.71
------ --------
Net Investment Loss(b).............................. 0.16 (0.0020)
Net Realized and Unrealized Gain (Loss) on
Investments and Foreign Currency Transactions...... 1.22 0.2020
------ --------
Total from Investment Operations.................... 1.38 0.2000
------ --------
LESS DISTRIBUTIONS
Dividends from Net Investment Income................ -- --
Distributions from Realized Gains on Investments
Sold............................................... -- --
------ --------
Total Distributions to Shareholders................. -- --
------ --------
Net Asset Value, End of Period...................... $10.29 $ 8.91
====== ========
Total Investment Return at Net Asset Value(c)....... 15.49% 2.30%
====== ========
Total Adjusted Investment Return at Net Asset
Value(f)(g)........................................ 9.55% 1.93%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)........... $1,746 $ 113
Ratio of Expenses to Average Net Assets............. 3.09% 0.03%
Ratio of Adjusted Expenses to Average Net
Assets(f).......................................... 9.03% 0.40%
Ratio of Net Investment Income (Loss) to Average
Net Assets......................................... 1.61% (0.02)%
Ratio of Adjusted Net Investment Loss to Average Net
Assets(f).......................................... (4.33)% (0.39)%
Portfolio Turnover Rate............................. 191% 0%
<FN>
- ---------------
* On an annualized basis.
(a) On December 22, 1994, John Hancock Advisers, Inc. became the investment adviser of the fund.
(b) Per share information has been calculated using the average number of shares outstanding.
(c) Total investment return assumes dividend reinvestment and does not reflect the effect of sales charges.
(d) Not annualized.
(e) Financial highlights, including total return, are for the period from
October 16, 1987 (date of the Fund's initial offering of shares to the
public) to October 31, 1987 and have not been annualized.
(f) On an unreimbursed basis without expense reduction.
(g) An estimated total return calculation takes into consideration fees and
expenses waived or borne by the Adviser during the periods shown.
</TABLE>
4
<PAGE> 5
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objectives are to protect the purchasing power of
shareholders' capital and to achieve growth of capital. The first of these
objectives means that the Fund seeks to protect generally shareholders' invested
capital against erosion of the value of the U.S. dollar through inflation.
Current income will not be a primary consideration in selecting securities.
However, it will be an important factor in making selections among securities
believed otherwise comparable by John Hancock Advisers, Inc. (the "Adviser").
- -------------------------------------------------------------------------------
THE FUND'S INVESTMENT OBJECTIVES ARE TO
PROTECT THE PURCHASING POWER OF
SHAREHOLDERS' CAPITAL AND TO ACHIEVE
GROWTH OF CAPITAL.
- -------------------------------------------------------------------------------
The Fund pursues its objectives by investing at all times (except during periods
when it is investing defensively) at least 65% of its total assets in:
(1) equity securities of domestic and foreign companies (a) with substantial
natural resource assets, natural resource-related or energy-related
activities or (b) that provide equipment or services primarily devoted to
the natural resource or energy-related activities of companies described in
(a) ("Natural Resource Companies"); and
(2) asset-based securities (defined below).
Natural resource assets consist of precious metals (e.g., gold, silver and
platinum), ferrous and nonferrous metals (e.g., iron, aluminum and copper),
strategic metals (e.g., uranium and titanium), hydrocarbons (e.g., coal, oil and
natural gas), water, cement and aggregates, timberland, developed and
undeveloped real property and agricultural commodities.
The Adviser will identify companies that, in its opinion, have substantial
holdings of natural resource assets so that when compared to the company's
capitalization, revenues or operating profits, such assets are of enough
magnitude that changes in the assets' economic value will affect the market
value of the company. The Fund will consider a company to be a Natural Resource
Company if, at the time the Fund acquires its securities, at least 50% of the
company's noncurrent assets, capitalization, gross revenues or operating profits
in the most recent or current fiscal year are:
(1) involved in or result from (directly or indirectly through subsidiaries)
exploring, mining, refining, processing, transporting, fabricating, dealing
in or owning natural resource assets; or
(2) involved in or result from energy-related activities directly or indirectly
through subsidiaries.
The Fund presently does not intend to invest directly in natural resource assets
or contracts related to natural resource assets, other than gold bullion
(directly or through warehouse receipts for gold) and gold coins. Although the
Fund is authorized to invest a majority of its assets in (1) gold and (2)
gold-related securities or securities of gold-related companies, it does not
presently anticipate such investments to exceed 25% of its total assets
(including its 10% limitation in gold bullion or gold coins). See "Risk
Factors."
Energy-related activities consist of those which relate to the development and
use of energy sources, such as:
(1) the generation of power from hydroelectric, geothermal, tidal, or other
naturally-occurring sources, or from natural resource manufacturing
by-products or refuse;
5
<PAGE> 6
(2) the development of synthetic fuels;
(3) transportation of energy producing sources such as coal, oil, electricity or
nuclear fuels;
(4) the development and application of techniques and devices for conservation
or efficient use of energy; and
(5) the control of pollution related to energy industries and waste disposal.
Generally, a company will be considered to provide equipment or services to
Natural Resource Companies if a significant part (at least 50%) of the company's
business or its profit relates to resource-related or energy-related activities.
Examples of this kind of company are:
(1) manufacturers of mining or earth moving equipment;
(2) providers of seismology testing services; and
(3) providers of supplies and maintenance services to offshore drilling sites.
Although it is not required to do so, the Fund will consider selling securities
of companies held in its portfolio that no longer meet the 50% test described
above.
The Fund may invest in "asset-based securities," which are debt securities,
preferred stocks or convertible securities, when the principal amount,
redemption terms or conversion terms of these investments are related to the
market price of some natural resource asset such as gold bullion. The Fund will
purchase only asset-based securities that are rated investment grade (i.e.,
"AAA," "AA," "A" or "BBB" by Standard & Poors Ratings Group ("S&P"); or "Aaa,"
"Aa," "A" or "Baa" by Moody's Investors Service, Inc. ("Moody's"); or commercial
paper rated "A-1" by S&P or "Prime-1" by Moody's); or, if not rated by S&P or
Moody's or unrated, securities determined by the Adviser to be of similar credit
quality. Subsequent to its purchase by the Fund, a security may be assigned a
lower rating or cease to be rated. Such a downgrading would not require the Fund
to sell the security, but in the event of such a downgrade the Adviser will
consider whether the Fund should continue to hold the security in its portfolio.
Securities rated BBB or Baa, although considered to be investment grade, may
have speculative characteristics in that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of the issuer to
make principal and interest payments than is the case for higher grade
securities.
The Fund will seek securities that are attractively priced relative to the
intrinsic values of the relevant natural resource or that are of companies which
are positioned to benefit under existing or anticipated economic conditions.
Accordingly, the Fund may shift its emphasis from one natural resource industry
to another depending upon prevailing trends or developments, provided that the
Fund will not invest 25% or more of its total assets in the securities of
companies in any one natural resource industry.
There are also no geographic limitations on natural resource companies in which
the Fund may invest. However, as a nonfundamental policy, the Fund will be
invested in securities of issuers, with respect to foreign investments, in at
least three countries. In light of the geographic concentration of many natural
resources, the Fund anticipates that many of the companies in which it invests
will be located
6
<PAGE> 7
in Canada, Australia, New Zealand, Malaysia, the United Kingdom and the United
States. Investments may also be made in companies located in Japan, Western
Europe, Latin America, Southeast Asia and other countries and regions as the
Adviser may from time to time determine. In connection with the Fund's
investments in foreign securities, the Adviser will consider factors such as the
expected levels of inflation and interest rates, government policies influencing
business conditions, the range of investment opportunity and other pertinent
financial, tax, social, political and national factors -- all in relation to the
prevailing prices of the securities of foreign issuers. The Fund is permitted,
but presently does not intend, to invest up to 100% of its assets in securities
of non-U.S. companies and may engage in various hedging instruments related to
foreign securities. Concentration of investments by the Fund in foreign
securities may involve special considerations and additional investment risks.
See "Investments, Techniques and Risk Factors."
During periods when the Adviser views the potential for total returns from
corporate or government debt obligations to be greater than the potential for
total returns from equities, fixed income securities, up to a normal limit of
35% of the Fund's total assets, will be included in the Fund's portfolio. More
than 35% of the Fund's total assets may be invested in fixed income securities,
cash and cash equivalents as the result of temporary defensive investments. The
Fund will purchase only corporate debt securities of domestic or foreign issuers
which are rated investment grade (i.e., "AAA," "AA," "A" or "BBB" by S&P; or
"Aaa," "Aa," "A" or "Baa" by Moody's or commercial paper rated "A-1" by S&P or
"Prime-1" by Moody's), or unrated securities determined by the Adviser to be of
equivalent credit quality. The foregoing credit quality limitations do not apply
to deposits at banks in which cash is maintained by the Fund. As noted above,
securities that are rated "BBB" or "Baa" are considered to have speculative
characteristics.
As to the balance of the Fund's assets, the Fund may:
1. invest (for liquidity purposes) in short term debt securities with remaining
maturities of one year or less ("money market instruments") such as U.S.
Government securities, certificates of deposit, bankers' acceptances,
commercial paper, corporate debt securities and related repurchase
agreements;
2. enter into repurchase agreements and reverse repurchase agreements, lend its
portfolio securities and make short sales "against the box";
3. invest in options on securities and stock indexes;
4. invest in when-issued securities and restricted securities; and
5. employ certain hedging techniques such as options on stock indexes, stock
index futures contracts and options thereon, foreign currency futures
contracts and forward foreign currency exchange contracts and options on
foreign currencies.
These techniques may involve certain risks and are further described under
"Investments, Techniques and Risk Factors." Options and futures contracts are
generally considered to be "derivative" instruments because they derive their
value from the performance of an underlying asset, index or other economic
7
<PAGE> 8
benchmark. See "Investments, Techniques and Risk Factors" for additional
discussion of derivative instruments.
The Fund has adopted certain investment restrictions which are enumerated in
detail in the Statement of Additional Information where they are classified as
fundamental or nonfundamental. Those restrictions designated as fundamental may
not be changed without shareholder approval. The Fund's investment objectives
and investment policies are nonfundamental, which means that they may be changed
by the Board of Directors without shareholder approval. However, the Fund's
investment objectives may not be changed without 30 days' prior written notice
first having been given to shareholders. If there is a change in the Fund's
investment objectives, you should consider whether the Fund remains an
appropriate investment in light of your current financial position and needs.
Notwithstanding the Fund's fundamental investment restriction prohibiting
investments in other investment companies, the Fund may, pursuant to an order
granted by the SEC, invest in other investment companies in connection with a
deferred compensation plan for the non-interested Trustees and Directors of the
John Hancock funds.
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THE FUND FOLLOWS CERTAIN POLICIES WHICH
MAY HELP TO REDUCE INVESTMENT RISK.
- -------------------------------------------------------------------------------
RISK FACTORS. The value of equity securities of Natural Resource Companies will
fluctuate due to various factors including changes in the market for the
particular natural resource in which the issuer is involved. Events occurring in
nature, inflationary pressures and international polities can affect the overall
supply and demand of a natural resource and thereby the value of companies
involved in such natural resources.
Additionally, the prices of gold stocks and the price of gold are subject to
substantial fluctuations, and may be affected by unpredictable international
monetary and political circumstances such as currency revaluations, national and
world economic conditions, social conditions within a country (particularly
South Africa and Russia, which are among the world's largest producers of gold),
trade imbalances or trade and currency restrictions between countries. These
price fluctuations may adversely affect the value of an investment in the Fund.
The only major gold-producing countries are the United States, Russia, Canada,
Australia and South Africa. (See Statement of Additional Information "Certain
Investment Practices--Special Considerations Related to Investment in Gold" for
further discussion.) Because of its emphasis on securities of companies with
substantial natural resource assets or natural resource asset-related or
energy-related businesses, the Fund should be considered as a focused investment
to achieve diversification and not as a balanced or complete investment program.
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 determined by the Board of Directors, the Adviser may place
securities transactions with brokers affiliated with the Adviser. The brokers
include Tucker Anthony Incorporated, Sutro & Company, Inc. and John Hancock
Distributors, Inc., which are indirectly owned by the John Hancock Mutual Life
Insurance Company (the "Life Company"), which in turn indirectly owns the
Adviser.
- -------------------------------------------------------------------------------
BROKERS ARE CHOSEN ON BEST PRICE AN EXECUTION.
- -------------------------------------------------------------------------------
8
<PAGE> 9
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a diversified series of the Company, an open-end management
investment company organized as a Maryland corporation in 1987. The Company
reserves the right to create and issue a number of series of shares, or funds or
classes thereof, which are separately managed and have different investment
objectives. The Board of Directors has 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. Each class has equal
rights as to voting, redemption, dividends and liquidation. However, each class
bears different distribution and transfer agent fees and other expenses. Also,
Class A and Class B shareholders have exclusive voting rights with respect to
their distribution plans. The Company is not required to and does not intend to
hold annual meetings of shareholders, although special meetings may be held for
such purposes as electing or removing Directors, changing fundamental policies
or approving a management contract. The Company, under certain circumstances,
will assist in shareholder communications with other shareholders.
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS ELECTS OFFICERS AND RETAINS THE
INVESTMENT ADVISER WHO IS RESPONSIBLE FOR THE DAY-TO-DAY
OPERATIONS OF THE FUND, SUBJECT TO THE BOARD OF DIRECTORS'
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 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 mutual
funds through brokers that have agreements with John Hancock Funds ("Selling
Brokers"). Certain Fund officers are also officers of the Adviser and John
Hancock Funds.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES
INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF MORE THAN $16 BILLION.
- -------------------------------------------------------------------------------
Kevin R. Baker is portfolio manager of the Fund. Mr. Baker also supports the
portfolio manager of John Hancock Special Equities Fund and John Hancock Special
Opportunities Fund. 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:
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. 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 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 (the "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.
- -------------------------------------------------------------------------------
9
<PAGE> 10
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 0.25% 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 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 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.
- -------------------------------------------------------------------------------
INVESTMENTS IN CLASS B SHARES ARE SUBJECT
TO A CONTINGENT DEFERRED SALES CHARGE.
- -------------------------------------------------------------------------------
Class B shares are not available for full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares, given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider whether,
during the anticipated life of your Fund investment, the CDSC and accumulated
fees on Class B shares would be less than the initial sales charge and
accumulated fees on Class A shares purchased at the same time, and to what
extent this differential would be offset by the Class A shares' lower expenses.
To help you make this determination, the table under the caption "Expense
Information" on the inside cover page of this Prospectus shows examples of the
charges applicable to each class of shares. Class A shares will normally be more
beneficial if you qualify for reduced sales charges. See "Share Price --
Qualifying for a Reduced Sales Charge."
- -------------------------------------------------------------------------------
YOU SHOULD CONSIDER WHICH CLASS OF SHARES
WOULD BE MORE BENEFICIAL TO YOU.
- -------------------------------------------------------------------------------
Class A shares are subject to lower distribution 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.
10
<PAGE> 11
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 and service 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 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 its own
distribution and service fees, shareholder meeting expenses and any incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a fee to the
Adviser which for the 1995 fiscal year was 0.75% of the Fund's average daily net
assets. The advisory fee paid by the Fund is higher than that of most other
funds but is comparable to fees paid by funds that invest in similar securities.
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 0.25% of the Class A shares' average daily
net assets and an aggregate annual rate of 1.00% of the Class B shares' average
daily net assets. In each case, up to 0.25% for Class A shares and Class B
shares 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; (iii) unreimbursed distribution expenses under the Fund's prior
distribution plans; (iv) distribution expenses incurred by other investment
companies which sell all or substantially all of their assets to, merge with or
otherwise engage in a reorganization transaction with the Fund; and (v) with
respect to Class B shares only, interest expenses on unreimbursed distribution
expenses. The service fees will be used to compensate Selling Brokers and others
for providing personal and account maintenance services to shareholders.
- -------------------------------------------------------------------------------
THE FUND PAYS DISTRIBUTION AND SERVICE
FEES FOR MARKETING AND SALES-RELATED
SHAREHOLDER SERVICING.
- -------------------------------------------------------------------------------
In the event John Hancock Funds is not fully reimbursed for payments it makes or
expenses incurred by it under the Class A Plan, these expenses will not be
carried beyond one year from the date they were incurred. Unreimbursed expenses
under the Class B Plan will be carried forward together with interest on the
balance of these unreimbursed expenses. For the fiscal year ended October 31,
1995, an
11
<PAGE> 12
aggregate of $850,145 of distribution expenses or 2.67% of the average net
assets of the Fund's Class B shares was not reimbursed or recovered by John
Hancock Funds through the receipt of deferred sales charges or Rule 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 of its net investment income, if any, annually. The
Fund will also distribute net short-term or long-term capital gains, if any, at
least annually.
- -------------------------------------------------------------------------------
THE FUND GENERALLY DECLARES AND
DISTRIBUTES DIVIDENDS ANNUALLY.
- -------------------------------------------------------------------------------
Dividends are reinvested on the record date 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
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. Corporate shareholders may be entitled to take
a dividends-received deduction for any dividends paid by the Fund that are
attributable to the dividends it receives from U.S. domestic corporations,
subject to certain restrictions in the Internal Revenue Code of 1986, as amended
(the "Code"). Certain dividends paid by the Fund in January of a given year may
be taxable to you as if you received them the prior December.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of 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 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 or return from 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 the social security or other
taxpayer identification number you provide is your correct number and that you
are not subject to back-up withholding of Federal income tax. If you do not
provide this
12
<PAGE> 13
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.
In addition to Federal taxes, you may be subject to state and local taxes or
foreign taxes with respect to your investment in and distributions from the
Fund. Non-U.S. shareholders and tax-exempt shareholders are subject to different
tax treatment not described above. A state income (and possibly local income
and/or intangible property) tax exemption is generally available to the extent
the Fund's distributions are derived from interest on (or, in the case of
intangibles taxes, the value of its assets is attributable to) certain
U.S.Government obligations, provided in some states that certain thresholds for
holdings of such obligations and/or reporting requirements are satisfied. You
should consult your tax adviser for specific advice.
PERFORMANCE
The Fund's 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 of the Fund's
respective class of shares divided by 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.
- -------------------------------------------------------------------------------
THE FUND MAY ADVERTISE ITS TOTAL RETURN.
- -------------------------------------------------------------------------------
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 a lower sales charge rate would result in higher
performance figures. The 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. 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 (except as shown in "The Fund's
Financial Highlights"). 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 performance data. The value of the Fund's shares, when
redeemed, may be more or less than their original cost. Total return is an
historical calculation and is not an indication of future performance. See
"Factors to Consider in Choosing an Alternative."
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<PAGE> 14
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
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, P.O. Box 9115, Boston, MA, 02205-9115.
2. Deliver the completed application and check to your
registered representative or 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 Global Resources 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 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 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.
- -----------------------------------------------------------------------------
14
<PAGE> 15
- --------------------------------------------------------------------------------
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 Routing No. 211475000
For credit to: John Hancock Global Resources 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 Investor Services 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 in
accordance with procedures approved by the Board of Directors. Short-term debt
investments maturing within 60 days are valued at amortized cost, which the
Board of Directors 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 values have been materially affected by events occurring after the closing
of a foreign market, assets are valued by a method that the Board believes
accurately reflects fair value. The NAV is calculated once daily as of the close
of regular trading on the New York Stock Exchange (the "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.
- -------------------------------------------------------------------------------
15
<PAGE> 16
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 Exchange and
transmit it to John Hancock Funds before its close of business to receive that
day's offering price.
<TABLE>
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:
<CAPTION>
COMBINED
SALES CHARGE AS REALLOWANCE REALLOWANCE TO
SALES CHARGE AS A PERCENTAGE OF AND SERVICE FEE AS SELLING BROKERS AS
AMOUNT INVESTED A PERCENTAGE OF THE AMOUNT A PERCENTAGE OF A PERCENTAGE OF
(INCLUDING SALES CHARGE) OFFERING PRICE INVESTED OFFERING PRICE(+) THE OFFERING 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%(***)
<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 or who receives these incentives may be deemed to be an
underwriter under the Securities Act of 1933.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within one year of purchase.
(***) John Hancock Funds may pay a commission and 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 aggregate as follows:
1% on sales to $4,999,999, 0.50% on the next $5 million and 0.25% on
amounts of $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.
</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 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."
16
<PAGE> 17
CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS A
SHARES. Purchases of $1 million or more of Class A shares will be made at net
asset value with no initial sales charge, but if the shares are redeemed within
12 months after the end of the calendar month in which the purchase was made
(the CDSC period), a CDSC will be imposed. The rate of the CDSC will depend on
the amount invested as follows:
<TABLE>
<CAPTION>
AMOUNT INVESTED CDSC RATE
--------------- ---------
<S> <C>
$1 million to $4,999,999........................................... 1.00%
Next $5 million to $9,999,999...................................... 0.50%
Amounts of $10 million and over.................................... 0.25%
</TABLE>
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994 and participant-directed defined
contribution plans with at least 100 eligible employees at the inception of the
Fund account may purchase Class A shares with no initial sales charge. However,
if the shares are redeemed within 12 months after the end of the calendar year
in which the purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares. Accordingly,
no CDSC will be imposed on increases in account value above the initial purchase
price, including any distributions 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.
- -------------------------------------------------------------------------------
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 the 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."
17
<PAGE> 18
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 Director or officer of the Fund; 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 type of
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 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 be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares
are offered at net asset value per share without an initial sales charge so that
your entire investment will go to work at the time of purchase. However, Class B
shares redeemed within six years of purchase will be subject to a CDSC at the
rates set forth below. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the shares
being redeemed. Accordingly, you will not be assessed a CDSC on increases in
account value above the initial purchase price, including shares derived from
dividend reinvestment.
18
<PAGE> 19
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:
<TABLE>
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:
<S> <C>
- - Proceeds of 50 shares redeemed at $12 per share $600
- - Minus proceeds of 10 shares not subject to CDSC because
they were acquired through dividend reinvestment (10 X $12) -120
- - Minus appreciation on remaining shares, also not subject to
CDSC (40 X $2) -80
----
- - Amount subject to CDSC $400
</TABLE>
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds uses
them to defray its expenses related to providing the Fund with distribution
services connected to the sale of 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 the 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>
YEAR IN WHICH
CLASS B SHARES CONTINGENT DEFERRED SALES
REDEEMED FOLLOWING CHARGE AS A PERCENTAGE OF
PURCHASE DOLLAR AMOUNT 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.
19
<PAGE> 20
- --------------------------------------------------------------------------------
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 these circumstances:
- - 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 establish your Systematic Withdrawal Plan
and 10% of the value of your 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.
- - 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
have less than $1,000 invested in the Fund.
- - 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 that 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
20
<PAGE> 21
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 it is reasonably satisfied that investments recently made
by check or Invest-by-Phone have been collected (which may take up to 10
calendar days).
- --------------------------------------------------------------------------------
TO ASSURE ACCEPTANCE OF YOUR REDEMPTION
REQUEST, PLEASE FOLLOW THESE PROCEDURES.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 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)
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.
- --------------------------------------------------------------------------------
21
<PAGE> 22
- --------------------------------------------------------------------------------
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
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
Proprietorship, Custodial titles where applicable) by all persons (Uniform
Gifts or Transfer to authorized to sign for the account, to Minors Act),
General exactly as it is registered with the Partners signature(s)
guaranteed.
Corporation, Association A letter of instruction and
a corporate resolution, signed by
person(s) authorized to act on the
account with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the
trustee(s) with the signature(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.
- --------------------------------------------------------------------------------
A signature guarantee is a widely accepted 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.
- --------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate the redemption.
Contact your broker for instructions.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your
stock power or a letter of instructions. 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 less than $1,000 (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 or if the value of the account falls below
the required minimum as a result of market action. 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 60 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 dividend reinvestments exceeds
the number of shares redeemed, repeated redemptions from a smaller account
may eventually trigger this policy.
- --------------------------------------------------------------------------------
22
<PAGE> 23
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 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.
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND ONLY FOR SHARES OF THE
SAME CLASS OF ANOTHER JOHN HANCOCK FUND.
- -------------------------------------------------------------------------------
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. 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 Limited-Term Government Fund and John Hancock Intermediate
Maturity 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 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
23
<PAGE> 24
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 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> 25
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares that you reinvest
in a John Hancock fund that is otherwise subject to a sales charge, as long
as you reinvest within 120 days from the redemption date. If you paid a CDSC
upon a redemption, you may reinvest at net asset value in the same class of
shares from which you redeemed within 120 days. Your account will be credited
with the amount of the CDSC previously charged, and the reinvested shares
will continue to be subject to a CDSC. The holding period of the shares
acquired through reinvestment, for the purpose of computing the CDSC payable
upon a subsequent redemption will include the holding period of the redeemed
shares.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
2. Any portion of your redemption may be reinvested in Fund shares or in shares
of any of the other John Hancock funds, subject to the minimum investment
limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the Fund's
name, the account number and class from which your shares were originally
redeemed.
SYSTEMATIC WITHDRAWAL PLAN
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You can
also obtain this 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.
- --------------------------------------------------------------------------------
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 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)
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.
- -------------------------------------------------------------------------------
25
<PAGE> 26
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 plan 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
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for this
program, contact your registered representative or call 1-800-225-5291.
- -------------------------------------------------------------------------------
ORGANIZED GROUPS OF AT LEAST FOUR PERSONS
MAY ESTABLISH ACCOUNTS.
- -------------------------------------------------------------------------------
2. The initial aggregate investment of all participants in the group must be at
least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at any
time.
RETIREMENT PLANS
1. You may use 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 the above
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.
INVESTMENTS, TECHNIQUES AND RISK FACTORS
SECURITIES OF FOREIGN ISSUERS. Investments in foreign securities may involve a
greater degree of risk than those 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
generally subject to the same uniform accounting, auditing and financial
reporting requirements as domestic companies; also foreign regulation may differ
considerably from domestic regulation of stock exchanges, brokers and
securities. Security trading practices abroad may offer less protection to
investors such as the Fund.
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Additionally, because foreign securities may be quoted or denominated in
currencies other than the U.S. dollar, changes in foreign currency exchange
rates will affect the Fund's net asset value, the value of dividends and
interest earned, gains and losses realized on the sale of securities, and net
investment income and gains, if any, that the Fund distributes to shareholders.
Securities transactions undertaken in some foreign markets may not be settled
promptly. Therefore, the Fund's investments on foreign exchanges may be less
liquid and subject to the risk of fluctuating currency exchange rates pending
settlement. The expense ratios of funds investing significant amounts of their
assets in foreign securities can be expected to be higher than those of mutual
funds investing solely in domestic securities since the expenses of these funds,
such as the cost of maintaining custody of foreign securities and advisory fees,
are higher.
These risks of foreign investing may be intensified in the case of investments
in emerging markets or countries with limited or developing capital markets.
These countries generally 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 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 these
countries. Securities of issuers located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
FOREIGN CURRENCY TRANSACTIONS. The Fund may purchase securities quoted or
denominated in foreign currencies. The value of investments in these securities
and the value of dividends and interest earned, if any, may be significantly
affected by changes in currency exchange rates. Some foreign currency values may
be volatile, and there is the possibility of governmental control on currency
exchange or governmental intervention in currency markets, which could adversely
affect the Fund. As a result, the Fund may enter into forward foreign currency
exchange contracts to protect against changes in foreign currency exchange
rates. The Fund will not speculate in foreign currencies or in forward foreign
currency exchange contracts, but will enter into these transactions only in
connection with its hedging strategies. A forward foreign currency exchange
contract involves an obligation to
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purchase or sell a specific currency at a future date at a price set at the time
of the contract. Although certain strategies could minimize the risk of loss due
to a decline in the value of the hedged foreign currency, they could also limit
any potential gain which might result from an increase in the value of the
currency. See the Statement of Additional Information for further discussion of
the uses and risks of forward foreign currency exchange contracts.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest up to 10% of its net
assets in illiquid investments, which include repurchase agreements maturing in
more than seven days, restricted securities and securities that are not readily
marketable. Without regard to this limitation, the Fund may invest in restricted
securities eligible for resale to certain institutional investors pursuant to
Rule 144A under the Securities Act of 1933 as long as such securities meet
liquidity guidelines established by the Board of Directors.
LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing
additional income, the Fund may lend to broker-dealers portfolio securities
amounting to not more than 33% of its total assets taken at current value or may
enter into repurchase agreements. In a repurchase agreement, the Fund buys a
security subject to the right and obligation to sell it back to the counterparty
at the same price plus accrued interest. These transactions must be fully
collateralized at all times. The Fund may reinvest any cash collateral in
short-term, liquid debt securities. However, these transactions may involve some
credit risk to the Fund if the other party should default on its obligation and
the Fund is delayed in or prevented from recovering the collateral. Securities
loaned by the Fund will remain subject to fluctuations of market value.
REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse repurchase
agreements which involve the sale of a security by the Fund to a bank or
securities firm and its agreement to repurchase the instrument at a specified
time and price plus an agreed amount of interest. The Fund will use the proceeds
to purchase other investments. Reverse repurchase agreements are considered to
be borrowings by the Fund and as an investment practice may be considered
speculative. The Fund will enter into a reverse repurchase agreement only when
the Adviser determines that the interest income to be earned from the investment
of the proceeds is greater than the interest expense of the transaction. To
minimize various risks associated with reverse repurchase agreements, the Fund
will establish and maintain with the Custodian a separate account consisting of
cash or liquid, high grade debt securities in an amount at least equal to the
repurchase prices of the securities (plus any accrued interest thereon) under
such agreements. In addition, the Fund's investment restrictions provide that
the Fund will not enter into reverse repurchase agreements exceeding, in the
aggregate, 33 1/3% of the value of its total assets (including for this purpose
other borrowings of the Fund). The Fund will enter into reverse repurchase
agreements only with selected registered broker/dealers or with federally
insured banks or savings and loan associations which are approved in advance as
being creditworthy by the Board of Directors. Under procedures established by
the Board of Directors, the Adviser will monitor the creditworthiness of the
firms involved.
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<PAGE> 29
The use of reverse repurchase agreements involves leverage. Leverage allows any
investment gains made with the additional monies received (in excess of the
costs of the reverse repurchase agreement) to increase the net asset value of
the Fund's shares faster than would otherwise be the case. On the other hand, if
the additional monies received are invested in ways that do not fully recover
the costs of such transactions to the Fund, the net asset value of the Fund
would fall faster than would otherwise be the case.
SHORT SALES AGAINST-THE-BOX. The Fund may make short sales against-the-box for
the purpose of deferring realization of gain or loss for Federal income tax
purposes. A short sale "against-the-box" is a short sale in which the Fund owns
an equal amount of the securities sold short or securities convertible into or
exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short. The Fund
may engage in such short sales only to the extent that not more than 10% of the
Fund's total assets (determined at the time of the short sale) is held as
collateral for such sales.
SHORT TERM TRADING AND PORTFOLIO TURNOVER. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. Short term trading may have the effect of increasing portfolio
turnover and may increase net short-term capital gains, distributions from which
would be taxable to shareholders as ordinary income. The Fund does not intend to
invest for the purpose of seeking short-term profits. The Fund's portfolio
securities may be changed, however, without regard to the holding period of
these securities (subject to certain tax restrictions), when the Adviser deems
that this action will help achieve the Fund's objective given a change in an
issuer's operations or changes in general market conditions. The Fund's
portfolio turnover rate is set forth in the table under the caption "The Fund's
Financial Highlights."
OPTIONS AND FUTURES TRANSACTIONS. The Fund may buy and sell options contracts on
equity securities, stock indices and foreign currencies, stock index and
currency futures contracts and options on such futures contracts. Options and
futures contracts are bought and sold to enhance return or to manage the Fund's
exposure to changing security prices. Some options and futures strategies,
including selling futures, buying puts and writing calls, tend to hedge a Fund's
investments against price fluctuations. Other strategies, including buying
futures, writing puts, and buying calls, tend to increase market exposure.
Options and futures may be combined with each other or with forward contracts in
order to adjust the risk and return characteristics of the overall strategy. All
of the Fund's futures contracts and options on futures contracts will be traded
on a U.S. commodity exchange or board of trade. The Fund's transactions in
options and futures contracts may be limited by the requirements of the Code for
qualification as a regulated investment company. See the Statement of Additional
Information for further discussion of options and futures transactions,
including tax effects and investment risks.
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<PAGE> 30
RISKS ASSOCIATED WITH OPTIONS, FUTURES AND OTHER DERIVATIVE INSTRUMENTS. The
risks associated with the Fund's transactions in options, futures and other
derivative instruments may include some or all of the following:
Market Risk. Options and futures transactions, as well as other derivative
instruments, involve the risk that the applicable market will move against the
Fund's derivative position and that the Fund will incur a loss. For derivative
contracts other than purchased options, this loss may exceed the amount of the
initial investment made or the premium received by the Fund.
Leverage and Volatility Risk. Derivative instruments may increase or leverage
the Fund's exposure to a particular market risk, which may increase the
volatility of the Fund's net asset value. The Fund may partially offset the
leverage inherent in certain derivative instruments by maintaining a segregated
account consisting of cash and liquid, high grade debt securities, by holding
offsetting portfolio securities or currency positions or by covering written
options.
Correlation Risk. The Fund's success in using derivative instruments to hedge
portfolio assets depends on the degree of price correlation between the
derivative instrument and the hedged asset. Imperfect correlation may be caused
by several factors, including temporary price disparities among the trading
markets for the derivative instruments, the assets underlying the derivative
instrument and the Fund's portfolio assets.
Credit Risk. Over-the-counter instruments involve a risk that the issuer or
counterparty will fail to perform its contractual obligations.
Liquidity and Valuation Risk. Some derivative instruments are not readily
marketable or may become illiquid under adverse market conditions. In addition,
during periods of extreme market volatility, an exchange may suspend or limit
trading in an exchange-traded derivative instrument, which may make the contract
temporarily illiquid and difficult to price. The staff of the SEC takes the
position that certain over-the-counter options are subject to the Fund's 10%
limit on illiquid investments.
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(NOTES)
<PAGE> 32
JOHN HANCOCK
GLOBAL
JOHN HANCOCK RESOURCES
GLOBAL RESOURCES FUND FUND
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603 CLASS A AND CLASS B SHARES
PROSPECTUS
PRINCIPAL DISTRIBUTOR MARCH 1, 1996
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
A MUTUAL FUND SEEKING TO PROTECT
CUSTODIAN THE PURCHASING POWER OF INVESTORS'
Investors Bank & Trust Company CAPITAL AND TO ACHIEVE GROWTH OF
24 Federal Street CAPITAL.
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For Service Information
For Telephone Exchange call 1-800-225-5291
For Investment-by-Phone 101 HUNTINGTON AVENUE
For Telephone Redemption BOSTON, MASSACHUSETTS 02199-7603
TELEPHONE 1-800-225-5291
For TDD call 1-800-554-6713
6300P 3/96 (LOGO) Printed on Recycled Paper
