As filed with the Securities and Exchange Commission on August 14, 1997.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/
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Pre-Effective Amendment No. __ /____/
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Post-Effective Amendment No. ___ /____/
(Check appropriate box or boxes)
JOHN HANCOCK INVESTMENT TRUST III
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(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
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(Address of principal executive office) Zip Code
(617) 375-1700
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(Registrant's Telephone Number, including Area Code)
Susan S. Newton, Esq.
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199
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(Name and address of agent for service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effectiveness of the registration statement.
No filing fee is required because an indefinite number of shares has previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. This Registration Statement relates to shares previously registered
on Form N-1A (File Nos. 33-4559 and 811-4630).
It is proposed that this filing will become effective on September 13, 1997
pursuant to Rule 488 under the Securities Act of 1933.
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JOHN HANCOCK INVESTMENT TRUST III
CROSS-REFERENCE SHEET
Items Required by Form N-14
<TABLE>
<CAPTION>
PART A
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Item No. Item Caption Prospectus Caption
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<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. Synopsis and Risk Factors SUMMARY; INVESTMENT RISKS
4. Information About the INTRODUCTION; SUMMARY; INVESTMENT
Transaction RISKS; INFORMATION CONCERNING THE
MEETING; PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN OF REORGANIZATION;
CAPITALIZATION
5. Information About the PROSPECTUS COVER PAGE; INTRODUCTION;
Registrant SUMMARY; ADDITIONAL INFORMATION ABOUT
THE FUNDS' BUSINESSES
6. Information About the PROSPECTUS COVER PAGE; INTRODUCTION;
Company Being Acquired SUMMARY; ADDITIONAL INFORMATION ABOUT
THE FUNDS' BUSINESSES
7. Voting Information PROSPECTUS COVER PAGE; NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS;
SUMMARY; INFORMATION CONCERNING
THE MEETING; VOTING RIGHTS AND
REQUIRED VOTE
8. Interest of Certain Persons EXPERTS
and Experts
9. Additional Information NOT APPLICABLE
Required for Reoffering by
Persons Deemed to be
Underwriters
<PAGE>
PART B
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Caption in Statement of
Item No. Item Caption Additional Information
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10. Cover Page COVER PAGE
11. Table of Contents TABLE OF CONTENTS
12. Additional Information ADDITIONAL INFORMATION ABOUT
About the Registrant GROWTH FUND
13. Additional Information About ADDITIONAL INFORMATION ABOUT
the Company Being Acquired DISCIPLINED GROWTH FUND
14. Financial Statements ADDITIONAL INFORMATION ABOUT GROWTH
FUND; ADDITIONAL INFORMATION ABOUT
DISCIPLINED GROWTH FUND; PRO FORMA
COMBINED FINANCIAL STATEMENTS
PART C
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Item No. Item Caption
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15. Indemnification INDEMNIFICATION
16. Exhibits EXHIBITS
17. Undertakings UNDERTAKINGS
</TABLE>
2
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September 22, 1997
Dear Fellow Shareholder:
I am writing to ask for your vote on an important matter that will affect your
investment in the John Hancock Disciplined Growth Fund.
You may be aware that in addition to your Fund, John Hancock Funds offers a
similar growth-oriented fund called the John Hancock Growth Fund. This Fund,
investing primarily in stocks of large, established companies, has the same
long-term capital appreciation investment objective as yours while having a
larger asset base.
After careful consideration, your Fund's Trustees have unanimously recommended
merging your Fund into the John Hancock Growth Fund to offer you the same
investment objective with lower operating expenses. This proposed merger is
detailed in the enclosed proxy statement and summarized in the questions and
answers on the following page. I suggest you read both thoroughly prior to
voting.
Your Vote Makes a Difference!
No matter what the size of your investment may be, your vote is critical. I urge
you to review the enclosed materials and to complete, sign and return the
enclosed proxy ballot to us immediately. Your prompt response will help avoid
the need for additional mailings at your Fund's expense. For your convenience,
we have provided a postage-paid envelope.
If you have any questions or need additional information, please contact your
investment professional or 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. I thank you for your prompt vote on this matter.
Sincerely,
Edward J. Boudreau, Jr.
Chairman and CEO
<PAGE>
Q: What are the benefits of merging the Disciplined Growth Fund into the Growth
Fund?
A: The Growth Fund is more widely recognized in the mutual fund marketplace than
your Fund, which has made it more difficult for your Fund to raise assets and
reduce expenses. Your Trustees firmly believe this merger will allow you to
continue investing for long-term capital appreciation at a lower expense.
The Growth Fund's larger assets after the merger, $430 million compared to
Disciplined Growth's $121 million, should allow for lower operating expenses
than your Fund's. Following the merger, annual fees are projected to be 1.44%
for Class A shareholders, down from 1.49%; and 2.14% for Class B shareholders,
down from 2.19%. Expected lower expenses should help to keep more of your money
invested, which often helps to bolster an investment's total return over time.
Q: How does the Growth Fund's strategy compare with that of the Disciplined
Growth Fund?
A: Both funds seek long-term capital appreciation through investments in stocks
that the management team believes have above-average earnings growth potential.
Although the Growth Fund may invest in companies of any size, it has
historically invested in larger, more established companies. As you know, your
Fund also typically focuses on stocks of large companies, but may also invest in
stocks of medium-sized companies.
Q: How has the Growth Fund performed?
A: Although past performance does not necessarily guarantee future results, the
Growth Fund has been a steady performer over its more than 28-year history. The
Fund's Class A shares have posted average annual total returns of 9.04% over the
past year, 19.98% over the past three years, 14.73 % over the past five years
and 10.78% over the past ten years at public offering price as of June 30, 1997.
Since the Fund's Class B shares were first offered to the public on January 3,
1994, they have compiled an average annual total return of 12.37% and 8.93% over
the past year.* To review the Growth Fund in more detail, please refer to the
John Hancock Growth Funds prospectus and the Growth Fund's most recent annual
and semiannual reports, all of which are enclosed.
Q: How do I vote?
A: Most shareholders typically vote by completing, signing and returning the
enclosed proxy card using the postage-paid envelope provided. If you prefer to
vote in person, you are cordially invited to attend a meeting of shareholders of
your Fund, which will be held at 9:00 A.M. on November 12, 1997 at our 101
Huntington Avenue headquarters in Boston, Massachusetts. If you vote now, you
will help avoid further solicitations at your Fund's expense.
Q: How will the merger happen?
A: If the merger is approved, your Disciplined Growth Fund shares will be
converted to Growth Fund shares, using the Funds' net asset value share prices
excluding sales charges, at the close of trading on December 5, 1997. This
conversion will not affect the total dollar value of your investment.
Q: Will the merger have tax consequences?
A: Although taxable dividends and capital gains will be paid prior to the
merger, the merger itself is a non-taxable event and does not need to be
reported on your 1997 tax return.
<PAGE>
*Performance figures assume all distributions are reinvested and reflect a
maximum sales charge on Class A shares of 5% and the applicable contingent
deferred sales charge on Class B shares. The CDSC declines annually between
years 1-6 according to the following schedule: 5, 4, 3, 3, 2, 1% . No sales
charge will be assessed after the sixth year. The return and principal value of
any mutual fund investment will fluctuate, so that shares, when redeemed, may be
worth more or less than their original cost.
<PAGE>
JOHN HANCOCK DISCIPLINED GROWTH FUND
(a series of John Hancock Investment Trust II)
101 Huntington Avenue
Boston, MA 02199
NOTICE OF MEETING OF SHAREHOLDERS
SCHEDULED FOR NOVEMBER 12, 1997
This is the formal agenda for your fund's shareholder meeting. It tells you what
matters will be voted on and the time and place of the meeting, in case you want
to attend in person.
To the shareholders of John Hancock Disciplined Growth Fund:
A meeting of shareholders of your fund will be held at 101 Huntington Avenue,
Boston, Massachusetts on Wednesday, November 12, 1997 at 9:00 a.m., Eastern
Time, to consider the following:
1. A proposal to approve an Agreement and Plan of Reorganization between
your fund and John Hancock Growth Fund. Under this Agreement your fund
would transfer all of its assets to Growth Fund in exchange for shares
of Growth Fund. These shares would be distributed proportionately to
you and the other shareholders of your fund. Growth Fund would also
assume your fund's liabilities. Your board of trustees recommends that
you vote FOR this proposal.
2. Any other business that may properly come before the meeting.
Shareholders of record as of the close of business on September 17, 1997 are
entitled to vote at the meeting and any related follow-up meetings.
Whether or not you expect to attend the meeting, please complete and return the
enclosed proxy card. If shareholders do not return their proxies in sufficient
numbers, your fund will incur the cost of extra solicitations, which is
indirectly borne by you and other shareholders.
By order of the board of
trustees,
Susan S. Newton
Secretary
September 22, 1997
350PX 9/97
<PAGE>
PROXY STATEMENT OF
JOHN HANCOCK DISCIPLINED GROWTH FUND
(a series of John Hancock Investment Trust II)
PROSPECTUS FOR
CLASS A AND CLASS B SHARES OF
JOHN HANCOCK GROWTH FUND
(a series of John Hancock Investment Trust III)
This proxy statement and prospectus contains the information you should know
before voting on the proposed reorganization of your fund into John Hancock
Growth Fund. Please read it carefully and retain it for future reference.
How the Reorganization Will Work
o Your fund will transfer all of its assets to Growth Fund. Growth Fund
will assume your fund's liabilities.
o Growth Fund will issue Class A shares in an amount equal to the value
of your fund's Class A shares. These shares will be distributed to
your fund's Class A shareholders in proportion to their holdings on
the reorganization date.
o Growth Fund will issue Class B shares in an amount equal to the value
of your fund's Class B shares. These shares will be distributed to
your fund's Class B shareholders in proportion to their holdings on
the reorganization date.
o The reorganization will be tax-free.
o Your fund will be liquidated and you will end up as a share holder of
Growth Fund.
Shares of Growth Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other depository institution. These shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
2
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Shares of Growth Fund have not been approved or disapproved by the Securities
and Exchange Commission. The Securities and Exchange Commission has not passed
upon the accuracy or adequacy of this prospectus. Any representation to the
contrary is a criminal offense.
Why Your Fund's Trustees are Recommending the Reorganization
The trustees of your fund believe that reorganizing your fund into a larger fund
with similar investment policies would enable the shareholders of your fund to
benefit from increased diversification, the ability to achieve better net prices
on securities trades and economies of scale that could contribute to a lower
expense ratio. Therefore, the trustees recommend that your fund's shareholders
vote FOR the reorganization.
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Investment Objectives
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Disciplined Growth Growth
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Investment Long-term growth of Long-term capital
objective. capital. Moderate income is appreciation. Income is not
a secondary objective. an objective.
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Where to Get More Information
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Prospectus of your fund and Growth Fund In the same envelope as this proxy
dated 3/1/97. statement and prospectus.
Incorporated by reference into this
proxy statement and
prospectus.
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Growth Fund's annual and semi-
annual reports to shareholders.
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Your fund's annual and semi- annual On file with the Securities and
reports to shareholders. Exchange Commission ("SEC") and
available at no charge by calling
1-800-225-5291. Incorporated by
reference into this proxy statement
and prospectus.
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A statement of additional
information dated 9/22/97. It
contains additional information about
your fund and Growth Fund.
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To ask questions about this proxy Call our toll-free telephone
statement and prospectus. number: 1-800-225-5291
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The date of this proxy statement and prospectus is September 22, 1997.
3
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TABLE OF CONTENTS
Page
INTRODUCTION 5
SUMMARY 5
INVESTMENT RISKS 18
PROPOSAL TO APPROVE AGREEMENT
AND PLAN OF REORGANIZATION 20
CAPITALIZATION 27
ADDITIONAL INFORMATION ABOUT
THE FUNDS' BUSINESSES 28
BOARDS' EVALUATION AND RECOMMENDATION 29
VOTING RIGHTS AND REQUIRED VOTE 30
INFORMATION CONCERNING THE MEETING 30
OWNERSHIP OF SHARES OF THE FUNDS 33
EXPERTS 33
AVAILABLE INFORMATION 33
EXHIBITS
A - Agreement and Plan of Reorganization between John Hancock Disciplined
Growth Fund and John Hancock Growth Fund (attached to this document).
4
<PAGE>
INTRODUCTION
This proxy statement and prospectus is being used by the board of trustees of
your fund to solicit proxies to be voted at a special meeting of shareholders of
your fund. This meeting will be held at 101 Huntington Avenue, Boston,
Massachusetts on Wednesday, November 12, 1997 at 9:00 a.m., Eastern Time. The
purpose of the meeting is to consider a proposal to approve an Agreement and
Plan of Reorganization providing for the reorganization of your fund into John
Hancock Growth Fund. This proxy statement and prospectus is being mailed to your
fund's shareholders on or about September 22, 1997.
Who is Eligible to Vote?
Shareholders of record on September 17, 1997 are entitled to attend and vote at
the meeting or any adjourned meeting. Each share is entitled to one vote. Shares
represented by properly executed proxies, unless revoked before or at the
meeting, will be voted according to shareholders' instructions. If you sign a
proxy, but do not fill in a vote, your shares will be voted to approve the
Agreement and Plan of Reorganization. If any other business comes before the
meeting, your shares will be voted at the discretion of the persons named as
proxies.
SUMMARY
The following is a summary of more complete information appearing later in this
proxy statement. You should read the entire proxy statement, Exhibit A and the
enclosed documents carefully because they contain details that are not in the
summary.
5
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Comparison of Disciplined Growth Fund to Growth Fund
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Disciplined Growth Growth
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Business: Your fund is a diversified Growth Fund is a
series of John Hancock diversified series of John
Investment Trust II. The Hancock Investment Trust
trust is an open-end III. The trust is an open-
investment company organized end investment company
as a organized as a
Massachusetts business Massachusetts business
trust. trust.
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Net assets as of $121.0 million. $300.1 million.
April 30, 1997:
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Investment The Fund's investment The Fund's investment
adviser and adviser is John Hancock adviser is John Hancock
portfolio Advisers, Inc. John Snyder, Advisers, Inc. Anurag
managers: III and Jere Estes are the Pandit, CFA, has led Growth
leaders of your fund's Fund's portfolio management
portfolio management team. team since January 1, 1997.
Mr. Snyder is an executive A second vice president of
vice president of the the adviser, Mr. Pandit has
adviser and has been a team been a member of the
member since July 1992. He management team since
has been an investment joining the adviser in April
manager since 1971. Mr. 1996. Mr. Pandit has been
Estes has been a part of in the investment business
your fund's management team since 1984.
since joining John Hancock
in July 1992. He has been in
the investment business
since 1967.
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6
<PAGE>
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INVESTMENT OBJECTIVES AND POLICIES
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Disciplined Growth Growth
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Investment Long-term growth of capital. Long-term capital
objective: Moderate income is a appreciation. Income is not
secondary objective. These an objective. Growth Fund's
objectives cannot be changed objective cannot be changed
without shareholder without shareholder approval.
approval.
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Primary At least 65% of assets in The Fund may invest in common
investments: common stocks, preferred stocks, preferred stocks,
stocks, warrants and warrants and convertible debt
convertible debt securities securities of companies whose
of established, growing operating earnings and
companies that have revenues have grown more than
demonstrated superior twice as fast as the gross
earnings growth and domestic product for the past
stability. Your fund also five years. Companies
looks for the following selected generally have
characteristics: positive operating earnings
predictability of earnings, a growth for five consecutive
low level of debt, seasoned years. However, not all
management and a strong stocks in the fund's portfolio
market position. Many of your meet the above standards.
fund's investments are in
medium and large
capitalization companies.
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Investments in For liquidity and For liquidity and flexibility,
debt flexibility, your fund may Growth Fund may place up to
securities: place up to 15% of net assets 35% of net assets in cash or
in cash or investment grade investment grade short term
short term securities. In securities. In abnormal
abnormal market conditions, market conditions, it may
it may invest up to 80% in invest more than 35% in these
these securities as a securities as a defensive
defensive tactic. tactic. In addition, Growth
Fund may invest up to 5% of
net assets in securities
rated (or equivalent to those
rated) below BBB/Baa. These
securities are generally
known as "junk bonds."
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7
<PAGE>
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INVESTMENT OBJECTIVES AND POLICIES
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Disciplined Growth Growth
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Foreign Your fund may invest up to Growth Fund may invest up to
securities: 10% of assets in American 15% of assets in securities
Depository Receipts and issued by
European Depository foreign companies.
Receipts, but not in other
foreign securities.
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Illiquid Both funds may invest up to 15% of net assets in illiquid
securities: securities. This limitation does not apply to liquid Rule
144A securities, but does apply to other restricted
securities.
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Financial futures Both funds may, but typically do not, use financial
and related futures, options on futures and options on securities and
options; indices. There are no percentage limits on the amount of
options on fund assets that may be invested in these instruments.
securities and
indices:
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Currency Your fund may not enter into Growth Fund may enter in
contracts: currency contracts for any currency contracts for
purpose. hedging, but not
speculative, purposes.
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Short sales: Your fund may not Growth Fund may, but
engage in short sales. typically does not, engage
in short sales.
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When-issued and Both funds may purchase when-issued securities and purchase
forward or sell securities in forward commitment transactions.
commitment
transactions:
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Short-term Neither fund is subject to any limitations on short-term
trading: trading.
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Repurchase Both funds may invest without limitation in repurchase
agreements: agreements.
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Securities Your fund may lend portfolio Growth Fund may lend
lending: securities portfolio securities
representing up to 5% of representing up to 33.3% of
assets. assets.
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8
<PAGE>
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INVESTMENT OBJECTIVES AND POLICIES
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Disciplined Growth Growth
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Borrowing and Your fund may temp- orarily Your fund may temp- orarily
reverse borrow from banks or through borrow from banks or through
repurchase reverse repurchase reverse repurchase
agreements: agreements for extraordinary agreements for extraordinary
or emergency purposes. These or emergency purposes. These
borrowings may not exceed 5% borrowings may not exceed
of net assets. 33.3% of total assets.
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CLASSES OF SHARES
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Disciplined Growth Growth
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Class A The Class A shares of both funds have the same
shares: characteristics and fee structure.
o Class A shares are offered with front-end sales charges
ranging from 2% to 5% of each fund's offering price,
depending on the amount invested.
o There is no front-end sales charge for investments of
$1 million or more, but there is a contingent deferred
sales charge ranging from 0.25% to 1.00% on shares sold
within one year of purchase.
o Investors can combine multiple purchases of Class A
shares to take advantage of breakpoints in the sales
charge schedule.
o Sales charges are waived for the categories of
investors listed in the funds' prospectus.
o Class A shares are subject to a 12b-1 distribution fee
equal to 0.30% annually of average net assets.
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9
<PAGE>
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Class B The Class B shares of both funds have the same
shares: characteristics and fee structure.
o Class B shares are offered without a front-end sales
charge, but are subject to a contingent deferred sales
charge (CDSC) if sold within six years after purchase.
The CDSC ranges from 1.00% to 5.00% depending on how
long they are held. No CDSC is imposed on shares held
more than six years.
o CDSCs are waived for the categories of investors listed
in the funds' prospectus.
o Class B shares are subject to 12b-1 distribution and
service fees equal to 1.00% annually of average net
assets.
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BUYING, SELLING AND EXCHANGING SHARES
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Both Disciplined Growth and Growth Funds
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Buying The procedures for buying shares of both funds are
shares: identical. Investors may buy shares at their public
offering price through a financial representative or the
funds' transfer agent, John Hancock Signature Services,
Inc. After September 17, 1997, investors will not be
allowed to open new accounts in your fund but can add to
existing accounts.
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Minimum The funds have the same initial investment minimums, which
initial are $1,000 for non-retirement accounts and $250 for
Investments: retirement accounts and group investments.
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Exchanging Shareholders of both funds may exchange their shares at net
shares: asset value with no sales charge for shares of the same
class of any other John Hancock fund.
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Selling shares: Shareholders of both funds may sell their shares by
submitting a proper written or telephone request to John
Hancock Signature Services, Inc.
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Net asset All purchases, exchanges and sales of each fund's shares are
value: made at a price based on the next determined net asset value
per share (NAV) of the fund. Both funds' NAVs are determined
at the close of regular trading on the New York Stock
Exchange, which is normally 4:00 p.m. Boston Time.
- ------------------- ------------------------------------------------------------
The Funds' Expenses
10
<PAGE>
Shareholders of both funds pay various expenses, either directly or indirectly.
The first two expense tables appearing below show the expenses for the twelve
months ended April 30, 1997, adjusted to reflect any changes. Future expenses
may be greater or less. The examples contained in each expense table show what
you would pay if you invested $1,000 over the various time frames indicated.
Each example assumes that you reinvested all dividends and that the average
annual return was 5%. The examples are for comparison purposes only and are not
a representation of either fund's actual expenses or returns, either past or
future.
DISCIPLINED GROWTH FUND
Shareholder transaction expenses Class A Class B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
Annual fund operating expenses Class A Class B
(as a % of average net assets)
Management fee 0.75% 0.75%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.44% 0.44%
Total fund operating expenses 1.49% 2.19%
Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares $64 $95 $127 $219
Class B shares
Assuming redemption
at end of period $72 $99 $137 $235
Assuming no redemption $22 $69 $117 $235
11
<PAGE>
GROWTH FUND
Shareholder transaction expenses Class A Class B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
Annual fund operating expenses Class A Class B
(as a % of average net assets)
Management fee 0.79% 0.79%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.36% 0.36%
Total fund operating expenses 1.45% 2.15%
Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares $64 $94 $125 $215
Class B shares
Assuming redemption
at end of period $72 $97 $135 $231
Assuming no redemption $22 $67 $115 $231
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may pay more than
the equivalent of the maximum permitted front-end sales charge.
Pro Forma Expense Tables
The board of trustees of another John Hancock fund, John Hancock Discovery Fund,
has recommended that Discovery Fund also reorganize into Growth Fund. The
reorganization of your fund with Growth Fund, however, does not depend upon
whether the reorganization involving Discovery Fund occurs. Your trustees do not
expect the total expenses paid by Growth Fund to increase if both
reorganizations do occur.
The next two expense tables show the hypothetical ("pro forma") expenses of
Growth Fund assuming (1) that a reorganization with your fund, but not John
Hancock Discovery Fund, occurred on April 30, 1997 or (2) that a reorganization
12
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with both your fund and John Hancock Discovery Fund occurred on April 30, 1997.
The expenses shown in both tables are based on fees and expenses incurred during
the twelve months ended April 30, 1997. Growth Fund's actual expenses after the
reorganization may be greater or less than those shown. The examples contained
in each pro forma expense table show what you would pay on a $1,000 investment
if the reorganization had occurred on April 30, 1997. Each example assumes that
you reinvested all dividends and that the average annual return was 5%. The pro
forma examples are for comparison purposes only and are not a representation of
Growth Fund's actual expenses or returns, either past or future.
GROWTH FUND (PRO FORMA)
(Assuming reorganization with Disciplined Growth Fund only)
Shareholder transaction expenses Class A Class B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
Annual fund operating expenses
(as a % of average net assets) Class A Class B
Management fee(3) 0.75% 0.75%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.37% 0.37%
Total fund operating expenses 1.42% 2.12%
Pro Forma Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares $64 $93 $124 $212
Class B shares
Assuming redemption
at end of period $72 $96 $134 $227
Assuming no redemption $22 $66 $114 $227
13
<PAGE>
GROWTH FUND (PRO FORMA)
(Assuming reorganization with both
Disciplined Growth Fund and Discovery Fund)
Shareholder transaction expenses Class A Class B
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
Annual fund operating expenses
(as a % of average net assets) Class A Class B
Management fee(3) 0.75% 0.75%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.39% 0.39%
Total fund operating expenses 1.44% 2.14%
Pro Forma Example
Share class Year 1 Year 3 Year 5 Year 10
Class A shares $64 $93 $125 $214
Class B shares
Assuming redemption
at end of period $72 $97 $135 $229
Assuming no redemption $22 $67 $115 $229
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) On September 9, 1997, the trustees of Growth Fund approved a
reduction in the advisory fee rates paid by Growth Fund to take effect
on the reorganization date. The pro forma management fees in the tables
have been restated to reflect the lower fee rates.
(4) Because of the 12b-1 fee, long-term shareholders may pay more than the
equivalent of the maximum permitted front-end sales charge.
14
<PAGE>
The Reorganization
o The reorganization is scheduled to occur at 5:00 p.m., Eastern Time,
on December 5, 1997, but may occur on any later date before June 1,
1998. Your fund will transfer all of its assets to Growth Fund. Growth
Fund will assume your fund's liabilities. The net asset value of both
funds will be computed as of 5:00 p.m., Eastern Time, on the
reorganization date.
o Growth Fund will issue to your fund Class A shares in an amount equal
to the aggregate net asset value of your fund's Class A shares. These
shares will immediately be distributed to your fund's Class A
shareholders in proportion to their holdings on the reorganization
date. As a result, Class A shareholders of your fund will end up as
Class A shareholders of Growth Fund.
o Growth Fund will issue to your fund Class B shares in an amount equal
to the aggregate net asset value of your fund's Class B shares. These
shares will immediately be distributed to your fund's Class B
shareholders in proportion to their holdings on the reorganization
date. As a result, Class B shareholders of your fund will end up as
Class B shareholders of Growth Fund.
o After the reorganization is over, your fund will be terminated.
o The reorganization will be tax-free and will not take place unless
both funds receive a satisfactory opinion concerning the tax
consequences of the reorganization from Hale and Dorr LLP, counsel to
the funds.
Other Consequences of the Reorganization. If the reorganization had occurred on
April 30, 1997, Growth Fund's Class A and Class B expense ratios would have been
slightly lower than your fund's current Class A and Class B expense ratios.
Your fund pays, and Growth Fund will pay after the reorganization, monthly
advisory fees equal to the following annual percentage of average daily net
assets:
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- ---------------------------------------------- ---------------- ----------------
Fund Asset Disciplined
Breakpoints Growth Growth
- ---------------------------------------------- ---------------- ----------------
First $500 million 0.75% 0.75%
- ---------------------------------------------- ---------------- ----------------
Next $250 million 0.65% 0.75%
- ---------------------------------------------- ---------------- ----------------
Over $750 million 0.65% 0.70%
- ---------------------------------------------- ---------------- ----------------
Thus, at asset levels of up to $500 million, the advisory fee rates paid by your
fund and Growth Fund would be the same. At asset levels between $500 million and
$750 million, the advisory fee rate paid by Growth Fund would be 0.10% of assets
higher than would have been paid by your fund at the same asset levels. For
assets over $750 million this differential would be higher by 0.05% of assets.
On the other hand, your fund's historical growth pattern suggests that its asset
size probably would not have increased sufficiently in the near future to
qualify for the 0.65% fee rate. Combining the assets of your fund and Growth
Fund will enable Growth Fund to more quickly reach the next fee reduction
breakpoint.
In addition, Growth Fund's other expenses of 0.36%, as well as its pro forma
other expenses, are lower than your fund's other expenses of 0.44%.
Consequently, Growth Fund's annual Class A and Class B expense ratios (equal to
1.45% and 2.15%, respectively, of average net assets) are slightly lower than
your fund's expense ratios (equal to 1.49% and 2.19%, respectively, of average
net assets). If the reorganization had occurred on April 30, 1997, Growth Fund's
pro forma Class A and Class B expense ratios (equal to 1.42% and 2.12%,
respectively, of average net assets) would also have been lower than your fund's
expense ratios.
16
<PAGE>
The following diagram shows how the reorganization would be carried out.
Disciplined Growth Disciplined Growth Growth Fund receives
Fund transfers assets & Fund's assets & assumes
liabilities to Global assets and liabilities of
Fund liabilities Disciplined Growth
Fund
Class A Class B Issues Class Issues Class
shareholders shareholders B Shares A Shares
Your fund receives Growth Fund
Class B shares and
distributes them to your fund's Class B shareholders
Your fund receives Growth Fund
Class A shares and
distributes them to your fund's Class A shareholders
[The above was represented as a diagram illustrating the reorganization]
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<PAGE>
INVESTMENT RISKS
The funds are exposed to various risks that could cause shareholders to lose
money on their investments in the funds. The following table compares the risks
affecting each fund.
- ------------------- ------------------------------ -----------------------------
Disciplined Growth Growth
- ------------------- ------------------------------------------------------------
Stock As with any fund that invests primarily in stocks, the
market risk value of each fund's portfolio will change in response to
stock market movements.
- ------------------- ------------------------------------------------------------
Credit risk The debt securities held by The debt securities held by
your fund are subject to the your fund are subject to the
risk that the issuer of a risk that the issuer of a
security will default or security will default or
otherwise fail to meet its otherwise fail to meet its
obligations. obligations. This risk is
greater to the extent that
Growth Fund invests in junk
bonds.
- ------------------- ------------------------------ -----------------------------
Interest A rise in interest rates A rise in interest rates
rate risk typically causes the value typically causes the value
of debt securities to fall. of debt securities to fall.
A fall in interest rates A fall in interest rates
typically causes the value typically causes the value
of debt securities to rise. of debt securities to rise.
Interest rate risk may be
greater to the extent that
Growth Fund invests in junk
bonds.
- ------------------- ------------------------------ -----------------------------
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<PAGE>
- ------------------- ------------------------------ -----------------------------
Disciplined Growth Growth
- ------------------- ------------------------------ -----------------------------
Foreign Your fund's investments in Growth Fund's investments in
securities and depository receipts for foreign securities are
currency risks foreign securities are subject to the risks of
subject to the risks of adverse foreign government
adverse foreign actions, political
government actions, instability or a lack of
political instability or a adequate and accurate
lack of adequate and information. Also, currency
accurate information. Also, exchange rate movements
currency exchange rate could reduce gains or create
movements could reduce gains losses. These risks may be
or create losses. greater for direct
investments in foreign
securities and
currency contracts than for
depository receipts.
- ------------------- ------------------------------------------------------------
Risks of The funds' investments in restricted and illiquid
restricted and securities may be difficult or impossible to sell at a
illiquid desirable time or a fair price. Restricted and illiquid
securities securities also present a greater risk of inaccurate
valuation.
- ------------------- ------------------------------------------------------------
Risks of Most derivative instruments involve leverage, which
derivative increases market risks. Leverage magnifies gains and
instruments, losses on derivatives relative to changes in the value of
including underlying assets. If a derivative is used for hedging
financial purposes, changes in the value of the derivative may not
futures, match those of the hedged asset. Over the counter
options on derivatives may be illiquid or hard to value accurately.
futures, In addition, the other party may default on its
securities and obligations. If markets for underlying assets do not move
index options, in the right direction, a fund's performance may be worse
than if it had not used derivatives.
- ------------------- ------------------------------ -----------------------------
Risks of Since your fund may not Since Growth Fund may enter
currency enter into currency contracts into currency contracts
contracts and or short sales, it is not or short sales, it is exposed
short sales exposed to the risks of those to the risks of those
transactions. transactions.
- ------------------- ------------------------------ -----------------------------
19
<PAGE>
PROPOSAL TO APPROVE THE AGREEMENT
AND PLAN OF REORGANIZATION
Description of Reorganization
You are being asked to approve an Agreement and Plan of Reorganization, a copy
of which is attached as Exhibit A. The Agreement provides for a reorganization
on the following terms:
o The reorganization is scheduled to occur at 5:00 p.m., Boston time, on
December 5, 1997, but may occur on any later date before June 1, 1998.
Your fund will transfer all of its assets to Growth Fund and Growth
Fund will assume all of your fund's liabilities. This will result in
the addition of your fund's assets to Growth Fund's portfolio. The net
asset value of both funds will be computed as of 5:00 p.m., Eastern
Time, on the reorganization date.
o Growth Fund will issue to your fund Class A shares in an amount equal
to the aggregate net asset value of your fund's Class A shares. As
part of the liquidation of your fund, these shares will immediately be
distributed to Class A shareholders of record of your fund in
proportion to their holdings on the reorganization date. As a result,
Class A shareholders of your fund will end up as Class A shareholders
of Growth Fund.
o Growth Fund will issue to your fund Class B shares in an amount equal
to the aggregate net asset value of your fund's Class B shares. As
part of the liquidation of your fund, these shares will immediately be
distributed to Class B shareholders of record of your fund in
proportion to their holdings on the reorganization date. As a result,
Class B shareholders of your fund will end up as Class B shareholders
of Growth Fund.
o After the reorganization is over, the existence of your fund will be
terminated.
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<PAGE>
Reasons for the Proposed Reorganization
The board of trustees of your fund believes that the proposed reorganization
will be advantageous to the shareholders of your fund for several reasons. The
board of trustees considered the following matters, among others, in approving
the proposal.
First, that Growth Fund is more widely recognized in the broker community as
John Hancock's primary U.S. equity fund, making it increasingly difficult to
attract assets to your fund.
Second, that shareholders may be better served by a fund offering greater
diversification. To the extent that combining the funds' assets into a single
portfolio creates a larger asset base, Growth Fund's investment portfolio can
achieve greater diversification after the reorganization than is currently
possible for either fund. Greater diversification is expected to benefit the
shareholders of both funds because it may reduce the negative effect that the
adverse performance of any one security may have on the performance of the
entire portfolio.
Third, that Growth Fund's total expenses are lower than your fund's total
expenses. As a result of the reorganization, shareholders of your fund should
experience a reduction in the total amount of fees that they indirectly pay each
month. A combined fund offers economies of scale that is expected to lead to
better control over expenses than is possible for your fund. Both funds incur
substantial costs for accounting, legal, transfer agency services, insurance,
and custodial and administrative services.
Fourth, that the Growth Fund shares received in the reorganization will provide
you with a similar investment at a comparable or lower level of risk. The board
of trustees also considered the performance history of each fund.
The board of trustees of Growth Fund considered that the reorganization presents
an excellent opportunity for Growth Fund to acquire investment assets without
the obligation to pay commissions or other transaction costs that are normally
associated with the purchase of securities. This opportunity provides an
economic benefit to Growth Fund and its shareholders.
The boards of trustees of both funds also considered that the adviser and the
funds' distributor, John Hancock Funds, Inc., will also benefit from the
reorganization. For example, the adviser might realize time savings from a
consolidated portfolio management effort and from the need to prepare fewer
21
<PAGE>
reports and regulatory filings as well as prospectus disclosure for one fund
instead of two. The trustees believe, however, that these savings will not
amount to a significant economic benefit.
Comparative Fees and Expense Ratios. As discussed above in the Summary, at asset
levels of up to $500 million, the advisory fee rates paid by your fund and
Growth Fund would be the same. At asset levels between $500 million and $750
million, the advisory fee rate paid by Growth Fund would be 0.10% of assets
higher than would have been paid by your fund at the same asset levels. For
assets over $750 million this differential would be higher by 0.05% of assets.
On the other hand, your fund's historical growth pattern suggests that its asset
size probably would not have increased sufficiently in the near future to
qualify for the 0.65% fee rate. Combining the assets of your fund and Growth
Fund will enable Growth Fund to more quickly reach the next fee reduction
breakpoint.
In addition, Growth Fund's other expenses of 0.36%, as well as its pro forma
other expenses, are lower than your fund's other expenses of 0.44%.
Consequently, Growth Fund's annual Class A and Class B expense ratios (equal to
1.45% and 2.15%, respectively, of average net assets) are slightly lower than
your fund's expense ratios (equal to 1.49% and 2.19%, respectively, of average
net assets). If the reorganization had occurred on April 30, 1997, Growth Fund's
pro forma Class A and Class B expense ratios (equal to 1.42% and 2.12%,
respectively, of average net assets) would also have been lower than your fund's
expense ratios.
In approving the reorganization, the trustees concluded that Growth Fund's
advisory fee rates, although higher at certain asset levels, are reasonable.
They also believed that these higher advisory fee rates would be more than
offset by the lower overall expense ratios likely to be achieved by Growth Fund
after the reorganization.
Comparative Performance. The trustees also took into consideration the relative
performance of your fund and Growth Fund. As shown in the table below, your fund
has had better performance for some periods while Growth Fund has had better
performance for other periods.
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<PAGE>
- -------------------------------- ------------------------ ----------------------
Average Annual
Total Return Disciplined Growth Growth
(without including sales
charges)
----------- ------------ ----------- ----------
Class A Class B Class A Class B
- -------------------------------- ----------- ------------ ----------- ----------
1 year ended 4/30/97 14.66% 13.87% 4.89% 4.21%
- -------------------------------- ----------- ------------ ----------- ----------
3 years ended 4/30/97 14.17% 13.42% 15.30% 14.45%
- -------------------------------- ----------- ------------ ----------- ----------
5 years ended 4/30/97 11.53% 10.85% 13.19% 10.35%*
- -------------------------------- ----------- ------------ ----------- ----------
10 years ended 4/30/97 10.38%* 8.97% 10.73% N/A
- -------------------------------- ----------- ------------ ----------- ----------
*Since inception.
Although your fund achieved a higher one year total return than Growth Fund,
Growth Fund's performance has been better than that of your fund for most of the
other periods reported.
Unreimbursed Distribution and Shareholder Service Expenses
The boards of trustees of your fund and Growth Fund have determined that, if the
reorganization occurs, unreimbursed distribution and shareholder service
expenses incurred under your fund's Rule 12b-1 Plans will be reimbursable
expenses under Growth Fund's Rule 12b-1 Plans. However, the maximum amounts
payable annually under Growth Fund's Rule 12b-1 Plans (0.30% and 1.00% of
average daily net assets attributable to Class A shares and Class B shares,
respectively) will not increase.
The following table shows the actual and pro forma unreimbursed distribution and
shareholder service expenses of both classes of your fund and Growth Fund. The
table shows both the dollar amount of these expenses and the percentage of each
class' average net assets that they represent.
23
<PAGE>
- --------------------------------- ------------------------ ---------------------
Unreimbursed
Distribution and Shareholder Disciplined Growth Growth
Service Expenses
----------- ------------ ---------- ----------
Class A Class B Class A Class B
- --------------------------------- ----------- ------------ ---------- ----------
Actual expenses as of $62,400 $3,945,091 $287,922 $199,391
April 30, 1997 0.20% 4.38% 0.11% 0.69%
- --------------------------------- ----------- ------------ ---------- ----------
Pro forma combined expenses as $350,322 $4,144,482
of April 30, 1997 0.12% 3.48%
- --------------------------------- ------------------------ ---------- ----------
Thus, if the reorganization had taken place on April 30, 1997, the pro forma
combined unreimbursed expenses of Growth Fund's Class A and Class B shares would
have been higher than if no reorganization had occurred. Nevertheless, Growth
Fund's assumption of your fund's unreimbursed Rule 12b-1 expenses will have no
immediate effect upon the payments made under Growth Fund's Rule 12b-1 Plans.
These payments will continue to be 0.30% and 1.00% of average daily net assets
attributable to Class A and Class B shares, respectively.
John Hancock Funds, Inc. hopes to recover unreimbursed distribution and
shareholder service expenses for Class B shares over an extended period of time.
However, if Growth Fund's board terminates either class' Rule 12b-1 Plan, that
class will not be obligated to reimburse these distribution and shareholder
service expenses Accordingly, until they are paid or accrued, unreimbursed
distribution and shareholder service expenses do not and will not appear as an
expense or liability in the financial statements of either fund. In addition,
unreimbursed expenses are not reflected in a fund's net asset value or the
formula for calculating Rule 12b-1 payments. 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
Tax Status of the Reorganization
The reorganization will be tax-free for federal income tax purposes and will not
take place unless both funds receive a satisfactory opinion from Hale and Dorr
LLP, counsel to the funds, substantially to the effect that:
o The reorganization described above will be a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of
24
<PAGE>
1986 (the "Code"), and each fund will be "a party to a reorganization"
within the meaning of Section 368 of the Code;
o No gain or loss will be recognized by your fund upon (1) the transfer
of all of its assets to Growth Fund as described above or (2) the
distribution by your fund of Growth Fund shares to your fund's
shareholders;
o No gain or loss will be recognized by Growth Fund upon the receipt of
your fund's assets solely in exchange for the issuance of Growth Fund
shares and the assumption of all of your fund's liabilities by Growth
Fund;
o The basis of the assets of your fund acquired by Growth Fund will be
the same as the basis of those assets in the hands of your fund
immediately before the transfer;
o The tax holding period of the assets of your fund in the hands of
Growth Fund will include your fund's tax holding period for those
assets;
o The shareholders of your fund will not recognize gain or loss upon the
exchange of all their shares of your fund solely for Growth Fund
shares as part of the reorganization;
o The basis of Growth Fund shares received by your fund's shareholders
in the reorganization will be the same as the basis of the shares of
your fund surrendered in exchange; and
o The tax holding period of the Growth Fund shares received by you will
include the tax holding period of your fund's shares surrendered in
the exchange, provided that the shares of your fund were held as
capital assets on the reorganization date.
Additional Terms of Agreement and Plan of Reorganization
Surrender of Share Certificates. Shareholders of your fund whose shares are
represented by one or more share certificates should, before the reorganization
date, either surrender their certificates to your fund or deliver to your fund a
lost certificate affidavit, in the form and accompanied by the surety bonds that
your fund may require (collectively, an "Affidavit"). On the reorganization
25
<PAGE>
date, all certificates that have not been surrendered will be canceled, will no
longer evidence ownership of your fund's shares and will evidence ownership of
Growth Fund shares. Shareholders may not redeem or transfer Growth Fund shares
received in the reorganization until they have surrendered their Disciplined
Growth Fund share certificates or delivered an Affidavit. Growth Fund will not
issue share certificates in the reorganization.
Conditions to Closing the Reorganization. The obligation of your fund to
consummate the reorganization is subject to the satisfaction of certain
conditions, including the performance by Growth Fund of all its obligations
under the Agreement and the receipt of all consents, orders and permits
necessary to consummate the reorganization (see Agreement, paragraph 6).
The obligation of Growth Fund to consummate the reorganization is subject to the
satisfaction of certain conditions, including your fund's performance of all of
its obligations under the Agreement, the receipt of certain documents and
financial statements from your fund and the receipt of all consents, orders and
permits necessary to consummate the reorganization (see Agreement, paragraph 7).
The obligations of both funds are subject to the approval of the Agreement by
the necessary vote of the outstanding shares of your fund, in accordance with
the provisions of your fund's declaration of trust and by- laws. The funds'
obligations are also subject to the receipt of a favorable opinion of Hale and
Dorr LLP as to the federal income tax consequences of the reorganization. (see
Agreement, paragraph 8).
Termination of Agreement. The board of trustees of either your fund or Growth
Fund may terminate the Agreement (even if the shareholders of your fund have
already approved it) at any time before the reorganization date, if that board
believes that proceeding with the reorganization would no longer be advisable.
Expenses of the Reorganization. Growth Fund and your 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
occurs. These expenses are estimated to be approximately $128,763 in total.
26
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of each fund as of
April 30, 1997, and the pro forma combined capitalization of both funds as if
the reorganization had occurred on such date. The table reflects pro forma
exchange ratios of approximately 0.7111 Class A Growth Fund shares being issued
for each Class A share of your fund and approximately 0.7157 Class B Growth Fund
shares being issued for each Class B share of your fund. If the reorganization
is consummated, the actual exchange ratios on the reorganization date may vary
from the exchange ratios indicated due to changes in the market value of the
portfolio securities of both Growth Fund and your fund between April 30, 1997
and the reorganization date, changes in the amount of undistributed net
investment income and net realized capital gains of Growth Fund and your fund
during that period resulting from income and distributions, and changes in the
accrued liabilities of Growth Fund and your fund during the same period.
APRIL 30, 1997
Disciplined
Growth Growth Pro Forma1 Pro Forma2
Net Assets $120,989,102 $300,133,842 $421,122,944 $536,974,516
Net Asset Value
Per Share
Class A $ 14.87 $ 20.92 $ 20.92 $ 20.92
Class B $ 14.60 $ 20.41 $ 20.41 $ 20.41
Shares
Outstanding
Class A 2,079,053 12,958,944 14,437,273 16,307,386
Class B 6,167,167 1,423,285 5,836,862 9,597,037
1 Assuming the reorganization of Discovery Fund into Growth Fund does not occur.
If the reorganization of your fund only had taken place on April 30, 1997, your
fund would have received 1,478,329 Class A shares and 4,413,577 Class B shares
of Growth Fund, which would have been available for distribution to the
shareholders of your fund.
2 Assuming the reorganization of Discovery Fund into Growth Fund occurs. If both
reorganizations had taken place on April 30, 1997, your fund would have received
1,478,329 Class A shares and 4,413,577 Class B shares of Growth Fund, which
would have been available for distribution to the shareholders of your fund.
27
<PAGE>
It is impossible to predict how many Class A shares and Class B shares of Growth
Fund will actually be received and distributed by your fund on the
reorganization date. The table should not be relied upon to determine the amount
of Growth Fund shares that will actually be received and distributed.
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
The following table shows where in the funds' combined prospectus you can find
additional information about the business of each fund.
- ---------------------------- ---------------------------------------------------
Type of Information Headings in Combined Prospectus
- ---------------------------- ---------------------------------------------------
Disciplined Growth Growth
-------------------------- ------------------------
Organization Fund Details: Business Structure: How the Funds
and operation are Organized
- ---------------------------- -------------------------- ------------------------
Investment objective and Disciplined Growth Fund: Growth Fund: Goal and
policies Goal and Strategy, Strategy, Portfolio
Portfolio Securities, Securities, Risk
Risk Factors; Fund
Factors; Fund Details: Business
Details: Business Structure: Portfolio
Structure: Portfolio Trades, Investment
Trades, Investment Goals, Diversification;
Goals, Diversification; More About Risk
More About Risk
- ---------------------------- -------------------------- ------------------------
Portfolio Disciplined Growth Fund: Growth Fund:
management Portfolio Portfolio Management
Management
- ---------------------------- ---------------------------------------------------
Investment adviser and Overview: The Management Firm; Fund Details:
distributor Business Structure: How the Funds are Organized,
Sales Compensation
- ---------------------------- -------------------------- ------------------------
Expenses Disciplined Growth Fund: Growth Fund: Investor
Investor Expenses
Expenses
- ---------------------------- -------------------------- ------------------------
Custodian and Fund Details: Business Fund Details: Business
transfer agent Structure: How the Funds Structure: How the
are Organized Funds are Organized
- ---------------------------- ---------------------------------------------------
Shares of beneficial Your Account: Choosing a Share Class
interest
- ---------------------------- ---------------------------------------------------
28
<PAGE>
- ---------------------------- ---------------------------------------------------
Type of Information Headings in Combined Prospectus
- ---------------------------- -------------------------- ------------------------
Disciplined Growth Growth
- ---------------------------- -------------------------- ------------------------
Purchase of shares Your Account: Choosing a Share Class, Sales Charge
Reductions and Waivers, Opening an Account, Buying
Shares; Transaction Policies; Additional Investor
Services
- ---------------------------- ---------------------------------------------------
Redemption Your Account: Selling Shares; Transaction
or sale of shares Policies; Additional Investor Services, Systematic
Withdrawal Plan
- ---------------------------- ---------------------------------------------------
Dividends, Dividends and Account Policies
distributions and taxes
- ---------------------------- ---------------------------------------------------
BOARDS' EVALUATION AND RECOMMENDATION
For the reasons described above, the board of trustees of your fund, including
the trustees who are not "interested persons" of either fund or the adviser
("independent trustees"), approved the reorganization. In particular, the
trustees determined that the reorganization was in the best interests of your
fund and that the interests of your fund's shareholders would not be diluted as
a result of the reorganization. Similarly, the board of trustees of Growth Fund,
including the independent trustees, approved the reorganization. They also
determined that the reorganization was in the best interests of Growth Fund and
that the interests of Growth Fund's shareholders would not be diluted as a
result of the reorganization.
- --------------------------------------------------------------------------------
The trustees of your fund recommend that the
shareholders of your fund vote for the proposal to
approve the agreement and plan of reorganization.
- --------------------------------------------------------------------------------
29
<PAGE>
VOTING RIGHTS AND REQUIRED VOTE
Each share of your fund is entitled to one vote. Approval of the above proposal
requires the affirmative vote of a majority of the shares of your fund
outstanding and entitled to vote. For this purpose, a majority of the
outstanding shares of your fund means the vote of the lesser of
(1) 67% or more of the shares present at the meeting, if the holders of more
than 50% of the shares of the fund are present or represented by proxy, or
(2) more than 50% of the outstanding shares of the fund.
Shares of your 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 there is a quorum 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 present and entitled to vote on
the proposal. Thus, a "broker non-vote" has no effect on the voting in
determining whether the proposal has been adopted in accordance with clause (1)
above, if more than 50% of the outstanding shares (excluding the "broker
non-votes") are present or represented. However, for purposes of determining
whether the proposal has been adopted in accordance with clause (2) above, a
"broker non-vote" has the same effect as a vote against the proposal because
shares represented by a "broker non-vote" are considered to be outstanding
shares.
If the required approval of shareholders is not obtained, your fund will
continue to engage in business as a separate mutual fund and the board of
trustees will consider what further action may be appropriate.
INFORMATION CONCERNING THE MEETING
Solicitation of Proxies
In addition to the mailing of these proxy materials, proxies may be solicited by
telephone, by fax or in person by the trustees, officers and employees of your
fund; by personnel of your fund's investment adviser, John Hancock Advisers,
Inc. and its transfer agent, John Hancock Signature Services, Inc.; or by
broker-dealer firms. Signature Services, together with a third party
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<PAGE>
solicitation firm, has agreed to provide proxy solicitation services to your
fund at a cost of approximately $3,000.
Revoking Proxies
A Disciplined Growth Fund shareholder signing and returning a proxy has the
power to revoke it at any time before it is exercised:
o By filing a written notice of revocation with your fund's transfer
agent, John Hancock Signature Services, Inc., 1 John Hancock Way STE
1000, Boston, Massachusetts 02217-1000, or
o By returning a duly executed proxy with a later date before the time
of the meeting, or
o If a shareholder has executed a proxy but is present at the meeting
and wishes to vote in person, by notifying the secretary of your fund
(without complying with any formalities) at any time before it is
voted.
Being present at the meeting alone does not revoke a previously executed and
returned proxy.
Outstanding Shares and Quorum
As of September 17, 1997, _______ and _______ Class A and Class B shares of
beneficial interest of your fund were outstanding. Only shareholders of record
on September 17, 1997 (the "record date") are entitled to notice of and to vote
at the meeting. A majority of the outstanding shares of your fund that are
entitled to vote will be considered a quorum for the transaction of business.
Other Business
Your fund's board of trustees knows of no business to be presented for
consideration at the meeting other than the proposal. If other business is
properly brought before the meeting, proxies will be voted according to the best
judgment of the persons named as proxies.
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Adjournments
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 concerning the proposal. Any adjournment will
require the affirmative vote of a majority of your fund's shares 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 proposal, the persons
named as proxies will vote those proxies favoring the proposal in favor of
adjournment, and will vote those proxies against the reorganization against
adjournment.
Telephone Voting
In addition to soliciting proxies by mail, by fax or in person, your fund may
also arrange to have votes recorded by telephone by officers and employees of
your fund or by personnel of the adviser or transfer agent. The telephone voting
procedure is designed to verify 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,
these telephone votes would not be counted at the meeting. Your fund has not
obtained an opinion of counsel about telephone voting, but is currently not
aware of any challenge.
o A shareholder will be called on a recorded line at the telephone
number in the fund's account records and will be asked to provide the
shareholder's social security number or other identifying information.
o The shareholder will then be given an opportunity to authorize proxies
to vote his or her shares at the meeting in accordance with the
shareholder's instructions.
o To ensure that the shareholder's instructions have been recorded
correctly, the shareholder will also receive a confirmation of the
voting instructions by mail.
o A toll-free number will be available in case the voting information
contained in the confirmation is incorrect.
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<PAGE>
o 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.
OWNERSHIP OF SHARES OF THE FUNDS
To the knowledge of the fund, as of August 31, 1997, the following persons owned
of record or beneficially 5% or more of the outstanding Class A and Class B
shares of your fund and Growth Fund:
- -------------------------------- ---------------------- ------------------------
Names and Addresses of Pro forma ownership
Owners of More Than Disciplined Growth of Growth Fund as of
5% of Shares August 31, 1997
---------- ----------- ------------ -----------
Class A Class B Class A Class B
---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
Pro forma ownership
Growth Fund of Growth Fund as of
August 31, 1997
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
- -------------------------------- ---------- ----------- ------------ -----------
As of September 17, 1997, the trustees and officers of your fund and Growth
Fund, each as a group, owned in the aggregate less than 1% of the outstanding
shares of their respective funds.
EXPERTS
The financial statements and the financial highlights of Disciplined Growth Fund
and Growth Fund, each as of October 31, 1996 and for the period then ended, are
incorporated by reference into this proxy statement and prospectus. These
financial statements and financial highlights have been independently audited by
Price Waterhouse LLP and Ernst & Young LLP, respectively, as stated in their
reports appearing in the statement of additional information. These financial
statements and highlights have been included in reliance on their reports given
on their authority as experts in accounting and auditing.
33
<PAGE>
AVAILABLE INFORMATION
Each fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 and files reports,
proxy statements and other information with the SEC. These reports, proxy
statements and other information filed by the funds 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: Chicago
(500 West Madison Street, Suite 1400, Chicago, Illinois); and 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. In addition, copies
of these documents may be viewed on-screen or downloaded from the SEC's Internet
site at http://www.sec.gov.
34
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made this 22nd
day of September, 1997, by and between John Hancock Growth Fund (the "Acquiring
Fund"), a series of John Hancock Investment Trust III, a Massachusetts business
trust (the "Trust II"), and John Hancock Disciplined Growth Fund (the "Acquired
Fund"), a series of John Hancock Investment Trust II, a Massachusetts business
trust (the "Trust") each with their principal place of business at 101
Huntington Avenue, Boston, Massachusetts 02199. The Acquiring Fund and the
Acquired Fund are sometimes referred to collectively herein as the "Funds" and
individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of "reorganization,"
as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization will consist of the transfer of all of
the assets of the Acquired Fund to the Acquiring Fund in exchange solely for the
issuance of Class A and Class B shares of beneficial interest of the Acquiring
Fund (the "Acquiring Fund Shares") to the Acquired Fund and the assumption by
the Acquiring Fund of all of the liabilities of the Acquired Fund, followed by
the distribution by the Acquired Fund, on or promptly after the Closing Date
hereinafter referred to, of the Acquiring Fund Shares to the shareholders of the
Acquired Fund in liquidation and termination of the Acquired Fund as provided
herein, all upon the terms and conditions set forth in this Agreement.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES; LIQUIDATION OF THE
ACQUIRED FUND
1.1 The Acquired Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and interest
receivables, cash and other assets), as set forth in the statement of
assets and liabilities referred to in Paragraph 7.2 hereof (the "Statement
of Assets and Liabilities"), to the Acquiring Fund free and clear of all
liens and encumbrances, except as otherwise provided herein, in exchange
for (i) the assumption by the Acquiring Fund of the known and unknown
liabilities of the Acquired Fund, including the liabilities set forth in
the Statement of Assets and Liabilities (the "Acquired Fund Liabilities"),
which shall be assigned and transferred to the Acquiring Fund by the
Acquired Fund and assumed by the Acquiring Fund, and (ii) delivery by the
Acquiring Fund to the Acquired Fund, for distribution pro rata by the
Acquired Fund to its shareholders in proportion to their respective
ownership of Class A and/or Class B shares of beneficial interest of the
Acquired Fund, as of the close of business on December 5, 1997 (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
<PAGE>
Fund Shares, to the value of the assets, less such liabilities (herein
referred to as the "net value of the assets") attributable to the
applicable class, assumed, assigned and delivered, all determined as
provided in Paragraph 2.1 hereof and as of a date and time as specified
therein. Such transactions shall take place at the closing provided for in
Paragraph 3.1 hereof (the "Closing"). All computations shall be provided by
Investors Bank & Trust Company (the "Custodian"), as custodian and pricing
agent for the Acquiring Fund and the Acquired Fund.
1.2 The Acquired Fund has provided the Acquiring Fund with a list of the
current securities holdings of the Acquired Fund as of the date of
execution of this Agreement. The Acquired Fund reserves the right to sell
any of these securities (except to the extent sales may be limited by
representations made in connection with issuance of the tax opinion
provided for in paragraph 8.6 hereof) but will not, without the prior
approval of the Acquiring Fund, acquire any additional securities other
than securities of the type in which the Acquiring Fund is permitted to
invest.
1.3 The Acquiring Fund and the Acquired Fund shall each bear its own expenses
in connection with the transactions contemplated by this Agreement.
1.4 On or as soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to shareholders of record (the "Acquired Fund shareholders"),
determined as of the close of regular trading on the New York Stock
Exchange on the Closing Date, the Acquiring Fund Shares received by the
Acquired Fund pursuant to Paragraph 1.1 hereof. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund
Shares then credited to the account of the Acquired Fund on the books of
the Acquiring Fund, to open accounts on the share records of the Acquiring
Fund in the names of the Acquired Fund shareholders and representing the
respective pro rata number and class of Acquiring Fund Shares due such
shareholders. Acquired Fund shareholders who own Class A shares of the
Acquired Fund will receive Class A Acquiring Fund Shares and Acquired Fund
shareholders who own Class B shares of the Acquired Fund will receive Class
B Acquiring Fund Shares. The Acquiring Fund shall not issue certificates
representing Acquiring Fund Shares in connection with such exchange.
1.5 The Acquired Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Acquired Fund shall
surrender such certificates or deliver an affidavit with respect to lost
certificates in such form and accompanied by such surety bonds as the
Acquired Fund may require (collectively, an "Affidavit"), to John Hancock
Signature Services, Inc. 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
-2-
<PAGE>
such certificate(s), but such shareholders may not redeem or transfer
Acquiring Fund Shares received in the Reorganization. The Acquiring Fund
will not issue share certificates in the Reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a name
other than the registered holder of the Acquired Fund Shares on the books
of the Acquired Fund as of that time shall, as a condition of such issuance
and transfer, be paid by the person to whom such Acquiring Fund Shares are
to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Trust, including, but not limited to,
the responsibility for filing of regulatory reports, tax returns, or other
documents with the Securities and Exchange Commission (the "Commission"),
any state securities commissions, and any federal, state or local tax
authorities or any other relevant regulatory authority, is and shall remain
the responsibility of the Trust.
2. VALUATION
2.1 The net asset values of the Class A and Class B Acquiring Fund Shares and
the net values of the assets and liabilities of the Acquired Fund
attributable to its Class A and Class B shares to be transferred shall, in
each case, be determined as of the close of business (4:00 p.m. Boston
time) on the Closing Date. The net asset values of the Class A and Class B
Acquiring Fund Shares shall be computed by the Custodian in the manner set
forth in the Acquiring Fund's Declaration of Trust as amended and restated
(the "Declaration"), or By-Laws and the Acquiring Fund's then-current
prospectus and statement of additional information and shall be computed in
each case to not fewer than four decimal places. The net values of the
assets of the Acquired Fund attributable to its Class A and Class B shares
to be transferred shall be computed by the Custodian by calculating the
value of the assets of each class transferred by the Acquired Fund and by
subtracting therefrom the amount of the liabilities of each class assigned
and transferred to and assumed by the Acquiring Fund on the Closing Date,
said assets and liabilities to be valued in the manner set forth in the
Acquired Fund's then current prospectus and statement of additional
information and shall be computed in each case to not fewer than four
decimal places.
2.2 The number of shares of each class of Acquiring Fund Shares to be issued
(including fractional shares, if any) in exchange for the Acquired Fund's
assets shall be determined by dividing the value of the Acquired Fund's
assets attributable to a class, less the liabilities attributable to that
class assumed by the Acquiring Fund, by the Acquiring Fund's net asset
value per share of the same class, all as determined in accordance with
Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian in accordance with
its regular practice as pricing agent for the Funds.
-3-
<PAGE>
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be December 5, 1997 or such other date on or before
June 30, 1998 as the parties may agree. The Closing shall be held as of
5:00 p.m. at the offices of the Trust II and the Trust, 101 Huntington
Avenue, Boston, Massachusetts 02199, or at such other time and/or place as
the parties may agree.
3.2 Portfolio securities that are not held in book-entry form in the name of
the Custodian as record holder for the Acquired Fund shall be presented by
the Acquired Fund to the Custodian for examination no later than three
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 June 30, 1998, 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.
-4-
<PAGE>
4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust on behalf of the Acquired Fund represents, warrants and covenants
to the Acquiring Fund as follows:
(a) The Trust is a business trust, duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts and
has the power to own all of its properties and assets and, subject to
approval by the shareholders of the Acquired Fund, to carry out the
transactions contemplated by this Agreement. Neither the Trust nor the
Acquired Fund is required to qualify to do business in any
jurisdiction in which it is not so qualified or where failure to
qualify would subject it to any material liability or disability. The
Trust has all necessary federal, state and local authorizations to own
all of its properties and assets and to carry on its business as now
being conducted;
(b) The Trust is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the Investment Company Act of 1940, as
amended (the "1940 Act"), is in full force and effect. The Acquired
Fund is a diversified series of the Trust;
(c) The Trust and the Acquired Fund are not, and the execution, delivery
and performance of their obligations under this Agreement will not
result, in violation of any provision of the Trust's Declaration of
Trust, as amended and restated (the "Trust's Declaration") or By-Laws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust or the Acquired Fund is a party or by
which it is bound;
(d) Except as otherwise disclosed in writing and accepted by the Acquiring
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust or the Acquired Fund or any of
the Acquired Fund's properties or assets. The Trust knows of no facts
which might form the basis for the institution of such proceedings,
and neither the Trust nor the Acquired Fund is a party to or subject
to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects the Acquired
Fund's business or its ability to consummate the transactions herein
contemplated;
(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase of
securities entered into in the ordinary course of business and
consistent with its obligations under this Agreement) which will not
be terminated without liability to the Acquired Fund at or prior to
the Closing Date;
(f) The unaudited statement of assets and liabilities, including the
schedule of investments, of the Acquired Fund as of April 30, 1997 and
the related statement of operations for the six months then ended, and
the statement of changes in net assets for the year ended October 31,
1996, and the six months ended April 30, 1997 (copies of which have
been furnished to the Acquiring Fund) present fairly in all material
-5-
<PAGE>
respects the financial condition of the Acquired Fund as of April 30,
1997 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 Acquired Fund as of the respective dates thereof not disclosed
therein;
(g) Since April 30, 1997, 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) Each of the Acquired Fund and its predecessors has qualified as a
regulated investment company for each taxable year of its operation
and the Acquired Fund will qualify as such as of the Closing Date with
respect to its taxable year ending on the Closing Date;
(j) The authorized capital of the Acquired Fund consists of an unlimited
number of shares of beneficial interest, no par value. All issued and
outstanding shares of beneficial interest of the Acquired Fund are,
and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Trust. All of the
issued and outstanding shares of beneficial interest of the Acquired
Fund will, at the time of Closing, be held by the persons and in the
amounts and classes set forth in the Shareholder List submitted to the
Acquiring Fund pursuant to Paragraph 3.4 hereof. The Acquired Fund
does not have outstanding any options, warrants or other rights to
subscribe for or purchase any of its shares of beneficial interest,
nor is there outstanding any security convertible into any of its
shares of beneficial interest;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the assets to be transferred to the Acquiring Fund pursuant
to Paragraph 1.1 hereof, and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder, and upon delivery
and payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the
Securities Act of 1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Trust on
behalf of the Acquired Fund, and this Agreement constitutes a valid
and binding obligation of the Trust and the Acquired Fund enforceable
-6-
<PAGE>
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 beneficial interest of the
Acquired Fund have been offered for sale and sold in conformity with
all applicable federal and state securities laws;
(q) The prospectus of the Acquired Fund, dated March 1, 1997 (the
"Acquired Fund Prospectus"), previously furnished to the Acquiring
Fund, does 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 in which
they were made, not misleading.
4.2 The Trust II on behalf of the Acquiring Fund represents, warrants and
covenants to the Acquired Fund as follows:
(a) The Trust II is a business trust duly organized, validly existing and
in good standing under the laws of The Commonwealth of Massachusetts
and has the power to own all of its properties and assets and to carry
out the Agreement. Neither the Trust II nor the Acquiring Fund is
required to qualify to do business in any jurisdiction in which it is
not so qualified or where failure to qualify would subject it to any
material liability or disability. The Trust II has all necessary
federal, state and local authorizations to own all of its properties
and assets and to carry on its business as now being conducted;
-7-
<PAGE>
(b) The Trust II is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect. The
Acquiring Fund is a diversified series of the Trust II;
(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, 1997, and any amendments or supplements
thereto on or prior to the Closing Date, and the Registration
Statement on Form N-14 to be filed in connection with this Agreement
(the "Registration Statement") (other than written information
furnished by the Acquired Fund for inclusion therein, as covered by
the Acquired Fund's warranty in Paragraph 4.1(m) hereof) will conform
in all material respects to the applicable requirements of the 1933
Act and the 1940 Act and the rules and regulations of the Commission
thereunder, the Acquiring Fund Prospectus does not include any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading and the Registration Statement will not include any untrue
statement of material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading;
(d) At the Closing Date, the Trust II on behalf of the Acquiring Fund will
have good and marketable title to the assets of the Acquiring Fund;
(e) The Trust II and the Acquiring Fund are not, and the execution,
delivery and performance of their obligations under this Agreement
will not result, in violation of any provisions of the Trust II's
Declaration, or By-Laws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Trust II or the
Acquiring Fund is a party or by which the Trust II or the Acquiring
Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the Acquired
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust II or the Acquiring Fund or
any of the Acquiring Fund's properties or assets. The Trust II knows
of no facts which might form the basis for the institution of such
proceedings, and neither the Trust II nor the Acquiring Fund is a
party to or subject to the provisions of any order, decree or judgment
of any court or governmental body which materially and adversely
affects the Acquiring Fund's business or its ability to consummate the
transactions herein contemplated;
(g) The unaudited statement of assets and liabilities, including the
schedule of investments, of the Acquiring Fund as of April 30, 1997
and the related statement of operations for the six months then ended,
and the statement of changes in net assets for the year ended December
31, 1995, and the period from January 1, 1996 to October 31, 1996, and
the six months ended April 30, 1997 (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 April 30,
1997 and the results of its operations for the period then ended in
-8-
<PAGE>
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
therein;
(h) Since April 30, 1997, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of
business, or any incurrence by the Trust II on behalf of the Acquiring
Fund of indebtedness maturing more than one year from the date such
indebtedness was incurred, except as disclosed to and accepted by the
Acquired Fund;
(i) Each of the Acquiring Fund and its predecessors has qualified as a
regulated investment company for each taxable year of its operation
and the Acquiring Fund will qualify as such as of the Closing Date;
(j) The authorized capital of the Trust II consists of an unlimited number
of shares of beneficial interest, no par value per share. All issued
and outstanding shares of beneficial interest of the Acquiring Fund
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and nonassessable by the Trust II. The
Acquiring Fund does not have outstanding any options, warrants or
other rights to subscribe for or purchase any of its shares of
beneficial interest, nor is there outstanding any security convertible
into any of its shares of beneficial interest;
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of the Trust II on
behalf of the Acquiring Fund, and this Agreement constitutes a valid
and binding obligation of the Acquiring Fund enforceable in accordance
with its terms;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement, when so issued and
delivered, will be duly and validly issued shares of beneficial
interest of the Acquiring Fund and will be fully paid and
nonassessable by the Trust II;
(m) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with federal securities and
other laws and regulations applicable thereto; and
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the
Acquiring Fund of the transactions contemplated by the Agreement,
except for the registration of the Acquiring Fund Shares under the
1933 Act and the 1940 Act.
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<PAGE>
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Trust on
behalf of the Acquired Fund and the Trust II on behalf of Acquiring Fund,
will operate their respective businesses in the ordinary course between the
date hereof and the Closing Date, it being understood that such ordinary
course of business will include customary dividends and distributions and
any other distributions necessary or desirable to avoid federal income or
excise taxes.
5.2 The Trust will call a meeting of the Acquired Fund shareholders to consider
and act upon this Agreement and to take all other action necessary to
obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired by the Acquired Fund for the purpose of
making any distribution thereof other than in accordance with the terms of
this Agreement.
5.4 The Trust on behalf of the Acquired Fund will provide such information
within its possession or reasonably obtainable as the Trust II on behalf of
the Acquiring Fund requests concerning the beneficial ownership of the
Acquired Fund's shares of beneficial interest.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do or
cause to be done, all things reasonably necessary, proper or advisable to
consummate the transactions contemplated by this Agreement.
5.6 The Trust on behalf of the Acquired Fund shall furnish to the Trust II on
behalf of the Acquiring Fund on the Closing Date the Statement of Assets
and Liabilities of the Acquired Fund as of the Closing Date, which
statement shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be certified by the
Acquired Fund's Treasurer or Assistant Treasurer. As promptly as
practicable but in any case within 60 days after the Closing Date, the
Acquired Fund shall furnish to the Acquiring Fund, in such form as is
reasonably satisfactory to the Trust II, a statement of the earnings and
profits of the Acquired Fund for federal income tax purposes and of any
capital loss carryovers and other items that will be carried over to the
Acquiring Fund as a result of Section 381 of the Code, and which statement
will be certified by the President of the Acquired Fund.
5.7 The Trust II on behalf of the Acquiring Fund will prepare and file with the
Commission the Registration Statement in compliance with the 1933 Act and
the 1940 Act in connection with the issuance of the Acquiring Fund Shares
as contemplated herein.
5.8 The Trust on behalf of the Acquired Fund will prepare a Proxy Statement, to
be included in the Registration Statement in compliance with the 1933 Act,
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<PAGE>
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
1940 Act and the rules and regulations thereunder (collectively, the
"Acts") in connection with the special meeting of shareholders of the
Acquired Fund to consider approval of this Agreement.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE ACQUIRED
FUND
The obligations of the Trust on behalf of the Acquired Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Trust II on behalf of the Acquiring Fund of all the
obligations to be performed by it hereunder on or before the Closing Date, and,
in addition thereto, the following further conditions:
6.1 All representations and warranties of the Trust II on behalf of the
Acquiring Fund contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected
by the transactions contemplated by this Agreement, as of the Closing Date
with the same force and effect as if made on and as of the Closing Date;
and
6.2 The Trust II on behalf of the Acquiring Fund shall have delivered to the
Acquired Fund a certificate executed in its name by the Trust II's
President or Vice President and its Treasurer or Assistant Treasurer, in
form and substance satisfactory to the Acquired Fund and dated as of the
Closing Date, to the effect that the representations and warranties of the
Trust II on behalf of the Acquiring Fund made in this Agreement are true
and correct at and as of the Closing Date, except as they may be affected
by the transactions contemplated by this Agreement, and as to such other
matters as the Trust on behalf of the Acquired Fund shall reasonably
request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF THE
ACQUIRING FUND
The obligations of the Trust II on behalf of the Acquiring Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Acquired Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions:
7.1 All representations and warranties of the Acquired Fund contained in this
Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
by this Agreement, as of the Closing Date with the same force and effect as
if made on and as of the Closing Date;
7.2 The Trust on behalf of the Acquired Fund shall have delivered to the Trust
II on behalf of the Acquiring Fund the Statement of Assets and Liabilities
of the Acquired Fund, together with a list of its portfolio securities
showing the federal income tax bases and holding periods of such
securities, as of the Closing Date, certified by the Treasurer or Assistant
Treasurer of the Trust;
-11-
<PAGE>
7.3 The Trust on behalf of the Acquired Fund shall have delivered to the Trust
II on behalf of the Acquiring Fund on the Closing Date a certificate
executed in the name of the Acquired Fund by a President or Vice President
and a Treasurer or Assistant Treasurer of the Trust, in form and substance
satisfactory to the Trust II on behalf of the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties
of the Acquired Fund in this Agreement are true and correct at and as of
the Closing Date, except as they may be affected by the transactions
contemplated by this Agreement, and as to such other matters as the Trust
II on behalf of the Acquiring Fund shall reasonably request; and
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 expense
limitation.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST AND THE TRUST II
The obligations hereunder of the Trust II on behalf of the Acquiring Fund and
the Trust on behalf of the Acquired Fund are each subject to the further
conditions that on or before the Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of
beneficial interest of the Acquired Fund in accordance with the provisions
of the Trust's Declaration and By-Laws, and certified copies of the
resolutions evidencing such approval by the Acquired Fund's shareholders
shall have been delivered by the Acquired Fund to the Trust II on behalf of
the Acquiring Fund;
8.2 On the Closing Date no action, suit or other proceeding shall be pending
before any court or governmental agency in which it is sought to restrain
or prohibit, or obtain changes or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3 All consents of other parties and all other consents, orders and permits of
federal, state and local regulatory authorities (including those of the
Commission and their "no-action" positions) deemed necessary by the Trust
or the Trust II to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except where
failure to obtain any such consent, order or permit would not involve a
risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may
waive any such conditions for itself;
8.4 The Registration Statement shall have become effective under the 1933 Act
and the 1940 Act and no stop orders suspending the effectiveness thereof
shall have been issued and, to the best knowledge of the parties hereto, no
investigation or proceeding for that purpose shall have been instituted or
be pending, threatened or contemplated under the 1933 Act or the 1940 Act;
-12-
<PAGE>
8.5 The Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for dividends
paid under Section 561 of the Code, all of its investment company taxable
income (as defined in Section 852(b)(2) of the Code determined without
regard to Section 852(b)(2)(D) of the Code) for its taxable year ending on
the Closing Date, all of the excess of (i) its interest income excludable
from gross income under Section 103(a) of the Code over (ii) its deductions
disallowed under Sections 265 and 171(a)(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 Sections 852(b)(3)(A) and (C) of the Code), after reduction
by any available capital loss carryforward, for its taxable year ending on
the Closing Date; and
8.6 The parties shall have received an opinion of Hale and Dorr LLP,
satisfactory to the Trust on behalf of the Acquired Fund and the Trust II
on behalf of the Acquiring Fund, substantially to the effect that for
federal income tax purposes:
(a) The acquisition by the Acquiring Fund of all of the assets of the
Acquired Fund solely in exchange for the issuance of Acquiring Fund
Shares to the Acquired Fund and the assumption of all of the Acquired
Fund Liabilities by the Acquiring Fund, followed by the distribution
by the Acquired Fund, in liquidation of the Acquired Fund, of
Acquiring Fund Shares to the shareholders of the Acquired Fund in
exchange for their shares of beneficial interest of the Acquired Fund
and the termination of the Acquired Fund, will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and
the Acquired Fund and the Acquiring Fund will each be "a party to a
reorganization" within the meaning of Section 368(b) of the Code;
(b) No gain or loss will be recognized by the Acquired Fund upon (i) the
transfer of all of its assets to the Acquiring Fund solely in exchange
for the issuance of Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund; and (ii) the distribution by the Acquired Fund of such Acquiring
Fund Shares to the shareholders of the Acquired Fund;
(c) No gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund solely in exchange for the
issuance of the Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund;
(d) The basis of the assets of the Acquired Fund acquired by the Acquiring
Fund will be, in each instance, the same as the basis of those assets
in the hands of the Acquired Fund immediately prior to the transfer;
(e) The tax holding period of the assets of the Acquired Fund in the hands
of the Acquiring Fund will, in each instance, include the Acquired
Fund's tax holding period for those assets;
-13-
<PAGE>
(f) The shareholders of the Acquired Fund will not recognize gain or loss
upon the exchange of all of their shares of beneficial interest of the
Acquired Fund solely for Acquiring Fund Shares as part of the
transaction;
(g) The basis of the Acquiring Fund Shares received by the Acquired Fund
shareholders in the transaction will be the same as the basis of the
shares of beneficial interest of the Acquired Fund surrendered in
exchange therefor; and
(h) The tax holding period of the Acquiring Fund Shares received by the
Acquired Fund shareholders will include, for each shareholder, the tax
holding period for the shares of the Acquired Fund surrendered in
exchange therefor, provided that the Acquired Fund shares were held as
capital assets on the date of the exchange.
The Trust II and the Trust agree to make and provide representations with
respect to the Acquiring Fund and the Acquired Fund, respectively, which are
reasonably necessary to enable Hale and Dorr LLP to deliver an opinion
substantially as set forth in this Paragraph 8.6. Notwithstanding anything
herein to the contrary, neither the Trust nor the Trust II may waive the
conditions set forth in this Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust II on behalf of the Acquiring Fund, and the Trust on behalf of
the Acquired Fund each represent and warrant to the other that there are no
brokers or finders entitled to receive any payments in connection with the
transactions provided for herein.
9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely for
its own expenses incurred in connection with entering into and carrying out
the provisions of this Agreement whether or not the transactions
contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust II on behalf of the Acquiring Fund, and the Trust on behalf of
the Acquired Fund agree that neither party has made any representation,
warranty or covenant not set forth herein or referred to in Paragraph 4
hereof and that this Agreement constitutes the entire agreement between the
parties.
10.2 The representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust II,
on behalf of the Acquiring Fund, and the Trust on behalf of the Acquired
Fund. In addition, either party may at its option terminate this Agreement
at or prior to the Closing Date:
-14-
<PAGE>
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed at or
prior to the Closing Date;
(b) because of a condition herein expressed to be precedent to the
obligations of the terminating party which has not been met and which
reasonably appears will not or cannot be met;
(c) by resolution of the Trust II's Board of Trustees if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interests of the
Acquiring Fund's shareholders; or
(d) by resolution of the Trust's Board of Trustees if circumstances should
develop that, in the good faith opinion of such Board, make proceeding
with the Agreement not in the best interests of the Acquired Fund's
shareholders.
11.2 In the event of any such termination, there shall be no liability for
damages on the part of the Trust II, the Acquiring Fund, the Trust, or the
Acquired Fund, or the Trustees or officers of the Trust II or the Trust,
but each party shall bear the expenses incurred by it incidental to the
preparation and carrying out of this Agreement.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon by the authorized officers of the Trust and the Trust II.
However, following the meeting of shareholders of the Acquired Fund held
pursuant to Paragraph 5.2 of this Agreement, no such amendment may have the
effect of changing the provisions regarding the method for determining the
number of Acquiring Fund Shares to be received by the Acquired Fund shareholders
under this Agreement to the detriment of such shareholders without their further
approval; provided that nothing contained in this Article 12 shall be construed
to prohibit the parties from amending this Agreement to change the Closing Date.
13. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be given by prepaid telegraph,
telecopy or certified mail addressed to the Acquiring Fund or to the Acquired
Fund, each at 101 Huntington Avenue, Boston, Massachusetts 02199, Attention:
President, and, in either case, with copies to Hale and Dorr LLP, 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.
-15-
<PAGE>
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.
14.5 All persons dealing with the Trust or the Trust II must look solely to the
property of the Trust or the Trust II, respectively, for the enforcement of
any claims against the Trust or the Trust II as the Trustees, officers,
agents and shareholders of the Trust or the Trust II assume no personal
liability for obligations entered into on behalf of the Trust or the Trust
II, respectively. None of the other series of the Trust or the Trust II
shall be responsible for any obligations assumed by on or behalf of the
Acquired Fund or the Acquiring Fund, respectively, under this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first set forth above by its President or Vice President
and has caused its corporate seal to be affixed hereto.
JOHN HANCOCK INVESTMENT TRUST III on behalf of
JOHN HANCOCK GROWTH FUND
By:
-----------------------------------------
Anne C. Hodsdon
President
JOHN HANCOCK INVESTMENT TRUST II on behalf of
JOHN HANCOCK DISCIPLINED GROWTH FUND
By:
------------------------------------------
Susan S. Newton
Vice President and Secretary
-16-
<PAGE>
JOHN HANCOCK
Growth
Funds
[GRAPHIC]
- --------------------------------------------------------------------------------
Prospectus Disciplined Growth Fund
March 1, 1997*
Discovery Fund
This prospectus gives vital
information about these funds. For Emerging Growth Fund
your own benefit and protection,
please read it before you invest, Financial Industries Fund
and keep it on hand for future
reference. Growth Fund
Please note that these funds: Regional Bank Fund
o are not bank deposits
o are not federally insured Special Equities Fund
o are not endorsed by any bank
or government agency Special Opportunities Fund
o are not guaranteed to achieve
their goal(s)
Like all mutual fund shares, these
securities have not been approved
or disapproved by the Securities
and Exchange Commission or any
state securities commission, nor
has the Securities and Exchange
Commission or any state securities
commission passed upon the accuracy
or adequacy of this prospectus. Any
representation to the contrary is a
criminal offense.
*Revised August 5, 1997
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
Contents
- --------------------------------------------------------------------------------
A fund-by-fund look at Disciplined Growth Fund 4
goals, strategies, risks,
expenses and financial Discovery Fund 6
history.
Emerging Growth Fund 8
Financial Industries Fund 10
Growth Fund 12
Regional Bank Fund 14
Special Equities Fund 16
Special Opportunities Fund 18
Policies and instructions Your account
for opening, maintaining Choosing a share class 20
and closing an account in How sales charges are calculated 20
any growth fund. Sales charge reductions and waivers 21
Opening an account 21
Buying shares 22
Selling shares 23
Transaction policies 25
Dividends and account policies 25
Additional investor services 26
Details that apply to the Fund details
growth funds as a group. Business structure 27
Sales compensation 28
More about risk 30
For more information back cover
<PAGE>
Overview
- --------------------------------------------------------------------------------
GOAL OF THE GROWTH FUNDS
John Hancock growth funds seek long-term growth by investing primarily in common
stocks. Each fund has its own strategy and its own risk/reward profile. Because
you could lose money by investing in these funds, be sure to read all risk
disclosure carefully before investing.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o have longer time horizons
o are willing to accept higher short-term risk along with higher potential
long-term returns
o want to diversify their portfolios
o are seeking funds for the growth portion of an asset allocation portfolio
o are investing for retirement or other goals that are many years in the
future
Growth funds may NOT be appropriate if you:
o are investing with a shorter time horizon in mind
o are uncomfortable with an investment that will go up and down in value
THE MANAGEMENT FIRM
All John Hancock growth funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Mutual Life Insurance Company and manages more than $22 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clip art] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clip art] Portfolio securities The primary types of securities in which the
fund invests. Secondary investments are described in "More about risk" at the
end of the prospectus.
[Clip art] Risk factors The major risk factors associated with the fund.
[Clip art] Portfolio management The individual or group (including subadvisers,
if any) designated by the investment adviser to handle the fund's day-to-day
management.
[Clip art] Expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
[Clip art] Financial highlights A table showing the fund's financial performance
for up to ten years, by share class. A bar chart showing total return allows you
to compare the fund's historical risk level to those of other funds.
<PAGE>
Disciplined Growth Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST II
TICKER SYMBOL CLASS A: SVAAX CLASS B: FEQVX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks long-term growth of capital. To pursue this goal, the
fund invests in established, growing companies that have demonstrated superior
earnings growth and stability. Under normal circumstances, the fund invests at
least 65% of assets in these companies, without concentration in any one
industry. The fund also looks for the following characteristics:
o predictability of earnings
o a low level of debt
o seasoned management
o a strong market position
Many of the fund's investments are in medium or large capitalization companies.
The fund invests for income as a secondary goal.
PORTFOLIO SECURITIES
[Clip art] The fund invests primarily in the common stocks of U.S. companies. It
may also invest in warrants, preferred stocks and convertible debt securities.
For liquidity and flexibility, the fund may place up to 15% of net assets in
cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The fund also may invest in certain higher-risk securities, and may engage in
other investment practices.
RISK FACTORS
[Clip art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements.
To the extent that the fund invests in higher-risk securities, it takes on
additional risks that could adversely affect its performance. Before you invest,
please read "More about risk" starting on page 30.
PORTFOLIO MANAGEMENT
[Clip art] John F. Snyder III and Jere E. Estes are the leaders of the fund's
portfolio management team. Mr. Snyder is an executive vice president of the
adviser and has been a team member since July 1992. He has been an investment
manager since 1971. Mr. Estes has been a part of the fund's management team
since joining John Hancock in July 1992. He has been in the investment business
since 1967.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.75% 0.75%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.43% 0.43%
Total fund operating expenses 1.48% 2.18%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $64 $94 $127 $218
Class B shares
Assuming redemption
at end of period $72 $98 $137 $234
Assuming no redemption $22 $68 $117 $234
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
4 DISCIPLINED GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
(16.44)(4) 26.69 14.27 (16.46) 30.21 7.22 12.34 0.78 11.51 21.89
10/87(1) 10/88 10/89 10/90 10/91 10/92 10/93 10/94 10/95 10/96
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/92(1) 10/93 10/94 10/95 10/96
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.81 $10.99 $12.39 $12.02 $12.77
Net investment income (loss) 0.06(2) 0.08(2) 0.10 0.08(2) 0.07(2)
Net realized and unrealized gain (loss) on investments (0.06) 1.34 0.07 1.29 2.82
Total from investment operations 0.00 1.42 0.17 1.37 2.89
Less distributions:
Dividends from net investment income (0.07) (0.02) (0.10) (0.10) --
Distributions from net realized gain on investments sold (1.74) -- (0.44) (0.52) (0.10)
Distributions from capital paid-in (0.01) -- -- -- --
Total distributions (1.82) (0.02) (0.54) (0.62) (0.10)
Net asset value, end of period $10.99 $12.39 $12.02 $12.77 $15.56
Total investment return at net asset value(3) (%) 0.19(4) 12.97 1.35 12.21 22.78
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,771 23,372 23,292 27,692 28,760
Ratio of expenses to average net assets (%) 1.73(5) 1.60 1.53 1.46 1.47
Ratio of net investment income (loss) to average net assets (%) 0.62(5) 0.64 0.83 0.69 0.46
Portfolio turnover rate (%) 246 71 60 65 78
Average brokerage commission rate(6) ($) N/A N/A N/A N/A 0.0698
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/87(1) 10/88 10/89 10/90 10/91 10/92
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.00 $8.34 $10.29 $11.52 $9.22 $11.71
Net investment income (loss) 0.06 0.13 0.19 0.18 0.07 0.01(2)
Net realized and unrealized gain (loss) on investments (1.70) 2.05 1.25 (2.00) 2.67 1.05
Total from investment operations (1.64) 2.18 1.44 (1.82) 2.74 1.06
Less distributions:
Dividends from net investment income (0.02) (0.09) (0.12) (0.20) (0.20) (0.03)
Distributions from net realized gain on investments sold -- (0.14) (0.09) (0.28) (0.05) (1.76)
Distributions from capital paid-in -- -- -- -- -- (0.01)
Total distributions (0.02) (0.23) (0.21) (0.48) (0.25) (1.80)
Net asset value, end of period $8.34 $10.29 $11.52 $9.22 $11.71 $10.97
Total investment return at net asset value(3) (%) (16.44)(4) 26.69 14.27 (16.46) 30.21 7.22
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 14,016 14,927 23,813 17,714 21,826 23,525
Ratio of expenses to average net assets (%) 2.56(5,7) 2.61(7) 2.30 2.13 2.24 2.27
Ratio of net investment income (loss) to average net assets (%) 0.93(5,7) 1.46(7) 1.75 1.64 0.66 0.10
Portfolio turnover rate (%) 40(5) 54 94 165 217 246
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A N/A
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/93 10/94 10/95 10/96
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.97 $12.31 $11.95 $12.69
Net investment income (loss) 0.02(2) 0.03 0.01(2) (0.03)(2)
Net realized and unrealized gain (loss) on investments 1.33 0.07 1.28 2.79
Total from investment operations 1.35 0.10 1.29 2.76
Less distributions:
Dividends from net investment income (0.01) (0.02) (0.03) --
Distributions from net realized gain on investments sold -- (0.44) (0.52) (0.10)
Distributions from capital paid-in -- -- -- --
Total distributions (0.01) (0.46) (0.55) (0.10)
Net asset value, end of period $12.31 $11.95 $12.69 $15.35
Total investment return at net asset value(3) (%) 12.34 0.78 11.51 21.89
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 93,853 94,431 86,178 92,555
Ratio of expenses to average net assets (%) 2.09 2.10 2.11 2.17
Ratio of net investment income (loss) to average net assets (%) 0.17 0.25 0.06 (0.24)
Portfolio turnover rate (%) 71 60 65 78
Average brokerage commission rate(6) ($) N/A N/A N/A 0.0698
</TABLE>
<PAGE>
(1) Class A and Class B shares commenced operations on January 3, 1992 and
April 22, 1987, respectively.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(7) Net of advisory expense reimbursements per share of $0.01 for the fiscal
year ended October 31, 1988 and less than $0.01 for the fiscal year ended
October 31, 1987.
DISCIPLINED GROWTH FUND 5
<PAGE>
Discovery Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST IV
TICKER SYMBOL CLASS A: FRDAX CLASS B: FRDIX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests in companies that appear to offer superior growth prospects.
Under normal circumstances, the fund invests at least 65% of assets in these
companies. The fund looks for companies, including small- and medium-sized
companies, that have broad market opportunities and consistent or accelerating
earnings growth. These companies may:
o occupy a profitable market niche
o have products or technologies that are new, unique or proprietary
o be in an industry that has a favorable long-term growth outlook
o have a capable management team with a significant equity stake
These companies may be in a relatively early stage of development, but will
usually have established a record of profitability and a strong financial
position. The fund does not invest for income.
PORTFOLIO SECURITIES
[Clip art] The fund invests primarily in common stocks of U.S. companies and may
also invest in warrants, preferred stocks and investment-grade convertible debt
securities.
For liquidity and flexibility, the fund may place up to 15% of net assets in
cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The fund may invest up to 25% of assets in foreign securities, which carry
additional risks. The fund also may invest in certain higher-risk securities,
and may engage in other investment practices.
RISK FACTORS
[Clip art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. To the extent that the fund invests in
small- and medium-sized company stocks, foreign securities and other higher-risk
securities, it takes on additional risks that could adversely affect its
performance. The fund may experience higher volatility than many other types of
growth funds. Before you invest, please read "More about risk" starting on page
30.
PORTFOLIO MANAGEMENT
[Clip art] Bernice S. Behar, CFA, leader of the fund's portfolio management team
since March 1994, is a senior vice president of the adviser. She joined the
adviser in 1991 and has been in the investment business since 1986.
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.75% 0.75%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.61% 0.61%
Total fund operating expenses 1.66% 2.36%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $66 $100 $136 $237
Class B shares
Assuming redemption
at end of period $74 $104 $146 $252
Assuming no redemption $24 $74 $126 $252
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
6 DISCOVERY FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below for each of the five periods ended July 1993 to
October 1996 have been audited by the fund's independent auditors, Ernst & Young
LLP. Figures for the period ended July 1992 were audited by other independent
auditors.
Volatility, as indicated by Class B
year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
7/92(1,2) 7/93 7/94 7/95 7/96 10/96(3)
10.88(6) 21.63 (7.18) 54.97 16.85 6.69(6)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 7/92(1,2) 7/93 7/94 7/95 7/96 10/96(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.40 $8.95 $10.81 $8.56 $12.95 $15.09
Net investment income (loss) (0.05) (0.16) (0.16)(4) (0.17)(4) (0.19)(4) (0.05)(4)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (0.40) 2.15 (0.43) 4.83 2.46 1.09
Total from investment operations (0.45) 1.99 (0.59) 4.66 2.27 1.04
Less distributions:
Distributions from net realized gain on investments sold -- (0.13) (1.66) (0.27) (0.13) --
Net asset value, end of period $8.95 $10.81 $8.56 $12.95 $15.09 $16.13
Total investment return at net asset value(5)(%) (4.79)(6) 22.33 (6.45) 55.80 17.72 6.89(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,866 4,692 3,226 5,075 32,009 52,479
Ratio of expenses to average net assets (%) 1.78(7) 2.17 2.01 2.10 1.72 1.65(7)
Ratio of net investment income (loss) to average net assets (%) (1.20)(7) (1.61) (1.64) (1.73) (1.26) (1.20)(7)
Portfolio turnover rate (%) 138 148 108 118 116 45
Average brokerage commission rate(8)($) N/A N/A N/A N/A N/A 0.0628
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 7/92(1,2) 7/93 7/94 7/95 7/96 10/96(3)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.00 $8.87 $10.65 $8.34 $12.54 $14.50
Net investment income (loss) (0.11) (0.23) (0.22)(4) (0.22)(4) (0.27)(4) (0.08)(4)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 0.98 2.14 (0.43) 4.69 2.36 1.05
Total from investment operations 0.87 1.91 (0.65) 4.47 2.09 0.97
Less distributions:
Distributions from net realized gain on investments sold -- (0.13) (1.66) (0.27) (0.13) --
Net asset value, end of period $8.87 $10.65 $8.34 $12.54 $14.50 $15.47
Total investment return at net asset value(5) (%) 10.88(6) 21.63 (7.18) 54.97 16.85 6.69(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 34,636 38,672 26,537 31,645 68,591 96,042
Ratio of expenses to average net assets (%) 2.56(7) 2.86 2.62 2.70 2.42 2.37(7)
Ratio of net investment income (loss) to average net assets (%) (1.56)(7) (2.26) (2.24) (2.34) (1.96) (1.93)(7)
Portfolio turnover rate (%) 138 148 108 118 116 45
Average brokerage commission rate(8) ($) N/A N/A N/A N/A N/A 0.0628
</TABLE>
(1) Class A and Class B shares commenced operations on January 3, 1992 and
August 30, 1991, respectively.
(2) Covered by report of other independent auditors (not included herein).
(3) Effective October 31, 1996, the fiscal year end changed from July 31 to
October 31.
(4) Based on the average of the shares outstanding at the end of each month.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) Annualized.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
DISCOVERY FUND 7
<PAGE>
- --------------------------------------------------------------------------------
Emerging Growth Fund
REGISTRANT NAME: JOHN HANCOCK SERIES TRUST
TICKER SYMBOL CLASS A: TAEMX CLASS B: TSEGX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests in emerging companies (market capitalization of less than $1
billion). Under normal circumstances, the fund invests at least 80% of assets in
a diversified portfolio of these companies. The fund looks for companies that
show rapid growth but are not yet widely recognized. The fund also may invest in
established companies that, because of new management, products or
opportunities, offer the possibility of accelerating earnings. The fund does not
invest for income.
PORTFOLIO SECURITIES
[Clip art] The fund invests primarily in the common stocks of U.S. and foreign
emerging growth companies, although it may invest up to 20% of assets in other
types of companies. The fund may also invest in warrants, preferred stocks and
investment-grade convertible debt securities.
For liquidity and flexibility, the fund may place up to 20% of assets in cash or
in investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[Clip art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. Stocks of emerging growth companies carry
higher risks than stocks of larger companies. This is because emerging growth
companies:
o may be in the early stages of development
o may be dependent on a small number of products or services
o may lack substantial capital reserves
o do not have proven track records
In addition, stocks of emerging companies are often traded in low volumes, which
can increase market and liquidity risks. Before you invest, please read "More
about risk" starting on page 30.
PORTFOLIO MANAGEMENT
[Clip art] Bernice S. Behar, CFA, leader of the fund's portfolio management team
since April 1996, is a senior vice president of the adviser. She joined the
adviser in 1991 and has been in the investment business since 1986.
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.75% 0.75%
12b-1 fee(3) 0.25% 1.00%
Other expenses 0.32% 0.32%
Total fund operating expenses 1.32% 2.07%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $63 $90 $119 $201
Class B shares
Assuming redemption
at end of period $71 $95 $131 $221
Assuming no redemption $21 $65 $111 $221
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
8 EMERGING GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
10/87(1) 10/88 10/89 10/90 10/91(1) 10/92 10/93 10/94 10/95(2) 10/96
0.00 33.59 27.40 (11.82) 73.78 6.19 24.53 2.80 33.60 12.48
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class A period ended: 10/91(1) 10/92 10/93 10/94 10/95(2) 10/96
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $18.12 $19.26 $20.60 $25.89 $26.82 $36.09
Net investment income (loss)(3) (0.03) (0.20) (0.16) (0.18) (0.25) (0.34)
Net realized and unrealized gain (loss) on investments 1.17 1.60 5.45 1.11 9.52 5.13
Total from investment operations 1.14 1.40 5.29 0.93 9.27 4.79
Less distributions:
Distributions from net realized gain on investments sold -- (0.06) -- -- -- --
Net asset value, end of period $19.26 $20.60 $25.89 $26.82 $36.09 $40.88
Total investment return at net asset value(4) (%) 6.29 7.32 25.68 3.59 34.56 13.27
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 38,859 46,137 81,263 131,053 179,481 218,497
Ratio of expenses to average net assets (%) 0.33 1.67 1.40 1.44 1.38 1.32
Ratio of net investment income (loss) to average net assets (%) (0.15) (1.03) (0.70) (0.71) (0.83) (0.86)
Portfolio turnover rate (%) 66 48 29 25 23 44
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A 0.0669
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/87(1) 10/88 10/89 10/90 10/91 10/92
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $7.89 $7.89 $10.54 $12.76 $11.06 $19.22
Net investment income (loss)(3) (0.0021) 0.09 (0.08) (0.22) (0.30) (0.38)
Net realized and unrealized gain (loss) on investments 0.0021 2.56 2.83 (1.26) 8.46 1.56
Total from investment operations 0.0000 2.65 2.75 (1.48) 8.16 1.18
Less distributions:
Dividends from net investment income -- -- (0.04) -- -- --
Distributions from net realized gain on investments sold -- -- (0.49) (0.22) -- (0.06)
Total distributions -- -- (0.53) (0.22) -- (0.06)
Net asset value, end of period $7.89 $10.54 $12.76 $11.06 $19.22 $20.34
Total investment return at net asset value(4) (%) 0.00 33.59 27.40 (11.82) 73.78 6.19
Total adjusted investment return at net asset value(4,6) (%) (0.41) 31.00 27.37 -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 79 3,232 7,877 11,668 52,743 86,923
Ratio of expenses to average net assets (%) 0.03 3.05 3.48 3.11 2.85 2.64
Ratio of adjusted expenses to average net assets(7) (%) 0.44 5.64 3.51 -- -- --
Ratio of net investment income (loss) to average net assets (%) (0.03) 0.81 (0.67) (1.64) (1.83) (1.99)
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) (0.44) (1.78) (0.70) -- -- --
Portfolio turnover rate (%) 0 252 90 82 66 48
Fee reduction per share ($) 0.03 0.29 0.004 -- -- --
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A N/A
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Class B - period ended: 10/93 10/94 10/95(2) 10/96
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $20.34 $25.33 $26.04 $34.79
Net investment income (loss)(3) (0.36) (0.36) (0.45) (0.60)
Net realized and unrealized gain (loss) on investments 5.35 1.07 9.20 4.94
Total from investment operations 4.99 0.71 8.75 4.34
Less distributions:
Dividends from net investment income -- -- -- --
Distributions from net realized gain on investments sold -- -- -- --
Total distributions -- -- -- --
Net asset value, end of period $25.33 $26.04 $34.79 $39.13
Total investment return at net asset value(4) (%) 24.53 2.80 33.60 12.48
Total adjusted investment return at net asset value(4,6) (%) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 219,484 283,435 393,478 451,268
Ratio of expenses to average net assets (%) 2.28 2.19 2.11 2.05
Ratio of adjusted expenses to average net assets(7) (%) -- -- -- --
Ratio of net investment income (loss) to average net assets (%) (1.58) (1.46) (1.55) (1.59)
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) -- -- -- --
Portfolio turnover rate (%) 29 25 23 44
Fee reduction per share ($) -- -- -- --
Average brokerage commission rate(5) ($) N/A N/A N/A 0.0669
</TABLE>
(1) Class A shares and Class B shares commenced operations on August 22, 1991
and October 26, 1987, respectively. (Not annualized.)
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(6) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(7) Unreimbursed, without fee reduction.
EMERGING GROWTH FUND 9
<PAGE>
Financial Industries Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST II
TICKER SYMBOL CLASS A: FIDAX CLASS B: FIDBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks capital appreciation. To pursue this goal, the fund
invests in U.S. and foreign financial services companies. These include banks,
thrifts, finance companies, brokerage and advisory firms, real estate-related
firms and insurance companies.
Under normal circumstances, the fund invests at least 65% of assets in these
companies.
PORTFOLIO SECURITIES
[Clip art] The fund invests primarily in the common stocks of U.S. and foreign
companies. It may also invest in warrants, preferred stocks and debt securities.
The fund may invest up to 5% of net assets in junk bonds.
For liquidity and flexibility, the fund may place up to 15% of net assets in
cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The fund may also invest in certain higher-risk securities and may engage in
other investment practices.
RISK FACTORS
[Clip art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. Because the fund concentrates in a single
sector, its performance is largely dependent on the sector's performance, which
may differ from that of the overall stock market. Falling interest rates or
deteriorating economic conditions can adversely affect the performance of
financial services companies' stocks, while rising interest rates will cause a
decline in the value of any debt securities the fund holds. Before you invest,
please read "More about risk" starting on page 30.
PORTFOLIO MANAGEMENT
[Clip art] James K. Schmidt, CFA, and Thomas Finucane lead the fund's portfolio
management team. Mr. Schmidt has been in the investment business since 1974. He
joined the adviser in 1985 and is an executive vice president. Mr. Finucane has
been in the investment business since joining the adviser in 1990. He is a
second vice president.
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below are based on Class A expenses for the past year, adjusted to
reflect any changes. No Class B shares were issued or outstanding during the
past year. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.00% 0.00%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.90% 0.90%
Total fund operating expenses 1.20% 1.90%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $62 $86 $113 $188
Class B shares
Assuming redemption
at end of period $69 $90 $123 $204
Assuming no redemption $19 $60 $103 $204
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's agreement to limit expenses (except for 12b-1 and
other class-specific expenses). Without this limitation, management fees
would be 0.80% for each class, other expenses would be 5.97% for each
class and total fund operating expenses would be 7.07% for Class A and
7.77% for Class B.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
10 FINANCIAL INDUSTRIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The table below was represented as a bar graph in the printed material.]
Volatility, as indicated by Class A
year-by-year total investment return (%)
(scale varies from fund to fund) 10/96(1)
29.76(4)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
Class A - period ended: 10/96(1)
- --------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $8.50
Net investment income (loss) 0.02(2)
Net realized and unrealized gain (loss) on investments 2.51
Total from investment operations 2.53
Less distributions:
Dividends from net investment income --
Distributions from net realized gain on investments sold --
Total distributions --
Net asset value, end of period $11.03
Total investment return at net asset value(3) (%) 29.76(4)
Total adjusted investment return at net asset value(3,5) (%) 26.04(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 895
Ratio of expenses to average net assets (%) 1.20(6)
Ratio of adjusted expenses to average net assets(5) (%) 7.07(6)
Ratio of net investment income (loss) to average net assets (%) 0.37(6)
Ratio of adjusted net investment income (loss) to average net assets(5) (%) (5.50)(6)
Portfolio turnover rate (%) 31
Average brokerage commission rate(7) ($) 0.0649
<CAPTION>
- --------------------------------------------------------------------------------------
Class B - period ended: 10/96
- --------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period --
Net investment income (loss) --
Net realized and unrealized gain (loss) on investments --
Total from investment operations --
Less distributions:
Dividends from net investment income --
Distributions from net realized gain on investments sold --
Total distributions --
Net asset value, end of period --
Total investment return at net asset value(3) (%) --
Total adjusted investment return at net asset value(3,5) (%) --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) --
Ratio of expenses to average net assets (%) --
Ratio of adjusted expenses to average net assets(5) (%) --
Ratio of net investment income (loss) to average net assets (%) --
Ratio of adjusted net investment income (loss) to average net assets(5) (%) --
Portfolio turnover rate (%) --
Average brokerage commission rate(7) ($) --
</TABLE>
(1) Class A shares commenced operations on March 14, 1996.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Unreimbursed, without fee reduction.
(6) Annualized.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
FINANCIAL INDUSTRIES FUND 11
<PAGE>
Growth Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST III TICKER SYMBOL CLASS A: JHNGX
- --------------------------------------------------------------------------------
CLASS B: JHGBX
- --------------
Goal and strategy
[Clip art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests in stocks that are diversified with regard to industries and
issuers. The fund favors stocks of companies whose operating earnings and
revenues have grown more than twice as fast as the gross domestic product over
the past five years, although not all stocks in the fund's portfolio will meet
this criterion.
Portfolio securities
[Clip art] The portfolio invests primarily in the common stocks of U.S.
companies. It may also invest in warrants, preferred stocks and convertible debt
securities.
For liquidity and flexibility, the fund may invest up to 35% of net assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more than 35% in these securities as a defensive tactic. The fund may
also invest in certain higher-risk securities, and may engage in other
investment practices.
Risk factors
[Clip art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. To the extent that the fund invests in
higher-risk securities, it takes on additional risks that could adversely affect
its performance. Before you invest, please read "More about risk" starting on
page 30.
Portfolio management
[Clip art] Anurag Pandit, CFA, is leader of the fund's portfolio management
team. A second vice president of the adviser, Mr. Pandit has been a member of
the management team since joining John Hancock Funds in April 1996. He assumed
leadership of the team on January 1, 1997. Mr. Pandit has been in the investment
business since 1984.
Investor expenses
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.79% 0.79%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.39% 0.39%
Total fund operating expenses 1.48% 2.18%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $64 $94 $127 $218
Class B shares
Assuming redemption
at end of period $72 $98 $137 $234
Assuming no redemption $22 $68 $117 $234
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
12 GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
12/86 12/87 12/88 12/89 12/90 12/91 12/92 12/93 12/94 12/95 10/96(1)
13.83 6.03 11.23 30.96 (8.34) 41.68 6.06 13.03 (7.50) 27.17 19.32(4)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Class A - period ended: 12/86 12/87 12/88 12/89 12/90
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 14.50 $ 14.03 $ 12.34 $ 13.33 $ 15.18
Net investment income (loss) 0.11 0.22 0.23 0.28 0.16
Net realized and unrealized gain (loss) on investments 1.79 0.64 1.16 3.81 (1.47)
Total from investment operations 1.90 0.86 1.39 4.09 (1.31)
Less distributions:
Dividends from net investment income (0.17) (0.28) (0.23) (0.29) (0.16)
Distributions from net realized gain on
investments sold (2.20) (2.27) (0.17) (1.95) (0.78)
Total distributions (2.37) (2.55) (0.40) (2.24) (0.94)
Net asset value, end of period $ 14.03 $ 12.34 $ 13.33 $ 15.18 $ 12.93
Total investment return at net asset value(3) (%) 13.83 6.03 11.23 30.96 (8.34)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 87,468 86,426 101,497 105,014 102,416
Ratio of expenses to average net assets (%) 1.03 1.00 1.06 0.96 1.46
Ratio of net investment income (loss) to average
net assets (%) 0.77 1.41 1.76 1.73 1.12
Portfolio turnover rate (%) 62 68 47 61 102
Average brokerage commission rate(7) ($) N/A N/A N/A N/A N/A
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/91 12/92 12/93 12/94 12/95 10/96(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 12.93 $ 17.48 $ 17.32 $ 17.40 $ 15.89 $ 19.51
Net investment income (loss) 0.04 (0.06) (0.11) (0.10) (0.09)(2) (0.13)(2)
Net realized and unrealized gain (loss) on investments 5.36 1.10 2.33 (1.21) 4.40 3.90
Total from investment operations 5.40 1.04 2.22 (1.31) 4.31 3.77
Less distributions:
Dividends from net investment income (0.04) -- -- -- -- --
Distributions from net realized gain on
investments sold (0.81) (1.20) (2.14) (0.20) (0.69) --
Total distributions (0.85) (1.20) (2.14) (0.20) (0.69) --
Net asset value, end of period $ 17.48 $ 17.32 $ 17.40 $ 15.89 $ 19.51 $ 23.28
Total investment return at net asset value(3) (%) 41.68 6.06 13.03 (7.50) 27.17 19.32(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 145,287 153,057 162,937 146,466 241,700 279,425
Ratio of expenses to average net assets (%) 1.44 1.60 1.56 1.65 1.48 1.48(5)
Ratio of net investment income (loss) to average
net assets (%) 0.27 (0.36) (0.67) (0.64) (0.46) (0.73)(5)
Portfolio turnover rate (%) 82 71 68 52 68(6) 59
Average brokerage commission rate(7) ($) N/A N/A N/A N/A N/A 0.0695
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Class B - period ended: 12/94(8) 12/95 10/96(1)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.16 $15.83 $19.25
Net investment income (loss) (0.20)(2) (0.26)(2) (0.26)(2)
Net realized and unrealized gain (loss) on investments (0.93) 4.37 3.84
Total from investment operations (1.13) 4.11 3.58
Less distributions:
Distributions from net realized gain on
investments sold (0.20) (0.69) --
Net asset value, end of period $15.83 $19.25 $22.83
Total investment return at net asset value(3) (%) (6.56)(4) 26.01 18.60(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,807 15,913 25,474
Ratio of expenses to average net assets (%) 2.38(8) 2.31 2.18(8)
Ratio of net investment income (loss) to
average net assets (%) (1.25)(8) (1.39) (1.42)(8)
Portfolio turnover rate (%) 52 68(6) 59
Average brokerage commission rate(7) ($) N/A N/A 0.0695
</TABLE>
(1) Effective October 31, 1996, the fiscal year end changed from December 31
to October 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Excludes merger activity.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(8) Class B shares commenced operations on January 3, 1994.
GROWTH FUND 13
<PAGE>
Regional Bank Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST II
TICKER SYMBOL CLASS A: FRBAX CLASS B: FRBFX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests in regional banks and lending institutions, including:
o commercial and industrial banks
o savings and loan associations
o bank holding companies
These financial institutions provide full-service banking, have primarily
domestic assets and are typically based outside of New York City and Chicago.
They may or may not be members of the Federal Reserve, and their deposits may or
may not be FDIC-insured.
Under normal circumstances, the fund invests at least 65% of assets in these
companies; it may invest up to 35% of assets in other financial services
companies, including lending companies and money center banks. The fund may
invest up to 5% of net assets in stocks of non-financial services companies and
up to 5% in junk bonds issued by banks. Because regional banks typically pay
regular dividends, moderate income is an investment goal.
PORTFOLIO SECURITIES
[Clip art] The fund invests primarily in the common stocks of U.S. companies. It
may also invest in warrants, preferred stocks and investment-grade convertible
debt securities, as well as foreign stocks.
For liquidity and flexibility, the fund may place up to 15% of net assets in
cash or in investment-grade short-term securities. In abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The fund may also invest in certain higher-risk securities, and may engage in
other investment practices.
RISK FACTORS
[Clip art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. Because the fund concentrates in a single
industry, its performance is largely dependent on the industry's performance,
which may differ in direction and degree from that of the overall stock market.
Falling interest rates or deteriorating economic conditions can adversely affect
the performance of bank stocks, while rising interest rates will cause a decline
in the value of any debt securities the fund holds. Before you invest, please
read "More about risk" starting on page 30.
PORTFOLIO MANAGEMENT
[Clip art] James K. Schmidt, CFA, joined John Hancock in 1985 and has served as
the fund's portfolio manager since its inception that year. An executive vice
president of the adviser, he has been in the investment business since 1974.
The fund is temporarily closed to new investments except for existing accounts
(see the statement of additional information).
INVESTOR EXPENSES
[Clip art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.76% 0.76%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.32% 0.32%
Total fund operating expenses 1.38% 2.08%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $63 $92 $122 $207
Class B shares
Assuming redemption
at end of period $71 $95 $132 $223
Assuming no redemption $21 $65 $112 $223
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
14 REGIONAL BANK FUND
<PAGE>
FINANCIAL HIGHLIGHTS
[Clip art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
<TABLE>
<CAPTION>
3/87(7) 10/87(8) 10/88 10/89 10/90 10/91 10/92(1) 10/93 10/94 10/95 10/96
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
17.44 (17.36)(4) 36.89 20.46 (32.29) 75.35 37.20 36.71 5.69 30.11 27.89
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/92(1) 10/93 10/94 10/95 10/96
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 13.47 $ 17.47 $ 21.62 $ 21.52 $ 27.14
Net investment income (loss) 0.21 0.26(2) 0.39(2) 0.52(2) 0.63(2)
Net realized and unrealized gain (loss) on investments 3.98 5.84 0.91 5.92 7.04
Total from investment operations 4.19 6.10 1.30 6.44 7.67
Less distributions:
Dividends from net investment income (0.19) (0.26) (0.34) (0.48) (0.60)
Distributions from net realized gain on
investments sold -- (1.69) (1.06) (0.34) (0.22)
Total distributions (0.19) (1.95) (1.40) (0.82) (0.82)
Net asset value, end of period $ 17.47 $ 21.62 $ 21.52 $ 27.14 $ 33.99
Total investment return at net asset value(3) (%) 31.26(4) 37.45 6.44 31.00 28.78
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 31,306 94,158 216,978 486,631 860,843
Ratio of expenses to average net assets (%) 1.41(5) 1.35 1.34 1.39 1.36
Ratio of net investment income to average net assets (%) 1.64(5) 1.29 1.78 2.23 2.13
Portfolio turnover rate (%) 53 35 13 14 8
Average brokerage commission rate(6) ($) N/A N/A N/A N/A 0.0694
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class B - period ended: 3/87(7) 10/87(8) 10/88 10/89 10/90 10/91
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 12.51 $ 12.68 $ 10.02 $ 11.89 $ 13.00 $ 8.13
Net investment income (loss) 0.20 0.05 0.16 0.20 0.30 0.29
Net realized and unrealized gain (loss) on investment 1.74 (2.17) 3.12 2.02 (4.19) 5.68
Total from investment operations 1.94 (2.12) 3.28 2.22 (3.89) 5.97
Less distributions:
Dividends from net investment income (0.26) (0.04) (0.15) (0.16) (0.19) (0.34)
Distributions from net realized gain on
investments sold (1.51) (0.50) (1.26) (0.95) (0.76) --
Distributions from capital paid-in -- -- -- -- (0.03) --
Total distributions (1.77) (0.54) (1.41) (1.11) (0.98) (0.34)
Net asset value, end of period $ 12.68 $ 10.02 $ 11.89 $ 13.00 $ 8.13 $ 13.76
Total investment return at net asset value(3) (%) 17.44 (17.36)(4) 36.89 20.46 (32.29) 75.35
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 54,626 38,721 50,965 81,167 38,992 52,098
Ratio of expenses to average net assets (%) 1.48 2.47(5) 2.17 1.99 1.99 2.04
Ratio of net investment income (loss) to average
net assets (%) 1.62 0.73(5) 1.50 1.67 2.51 2.65
Portfolio turnover rate (%) 89 58(5) 87 85 56 75
Average brokerage commission rate(6) ($) N/A N/A N/A N/A N/A N/A
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/92 10/93 10/94 10/95 10/96
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 13.76 $ 17.44 $ 21.56 $ 21.43 $ 27.02
Net investment income (loss) 0.18 0.15(2) 0.23(2) 0.36(2) 0.42(2)
Net realized and unrealized gain (loss) on investment 4.56 5.83 0.91 5.89 7.01
Total from investment operations 4.74 5.98 1.14 6.25 7.43
Less distributions:
Dividends from net investment income (0.28) (0.17) (0.21) (0.32) (0.40)
Distributions from net realized gain on
investments sold (0.78) (1.69) (1.06) (0.34) (0.22)
Distributions from capital paid-in -- -- -- -- --
Total distributions (1.06) (1.86) (1.27) (0.66) (0.62)
Net asset value, end of period $ 17.44 $ 21.56 $ 21.43 $ 27.02 $ 33.83
Total investment return at net asset value(3) (%) 37.20 36.71 5.69 30.11 27.89
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 56,016 171,808 522,207 1,236,447 2,408,514
Ratio of expenses to average net assets (%) 1.96 1.88 2.06 2.09 2.07
Ratio of net investment income (loss) to average
net assets (%) 1.21 0.76 1.07 1.53 1.42
Portfolio turnover rate (%) 53 35 13 14 8
Average brokerage commission rate(6) ($) N/A N/A N/A N/A 0.0694
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(7) Year ended March 31, 1987.
(8) For the period April 1, 1987 to October 31, 1987.
REGIONAL BANK FUND 15
<PAGE>
Special Equities Fund
REGISTRANT NAME: JOHN HANCOCK SPECIAL EQUITIES FUND
TICKER SYMBOL CLASS A: JHNSX CLASS B: SPQBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests in small-capitalization companies and companies in situations
offering unusual or non-recurring opportunities. Under normal circumstances, the
fund invests at least 65% of assets in a diversified portfolio of these
companies. The fund looks for companies that dominate an emerging industry or
hold a growing market share in a fragmented industry, and that have demonstrated
annual earnings and revenue growth of at least 25%, self-financing capabilities
and strong management. The fund does not invest for income.
PORTFOLIO SECURITIES
[Clipart] The fund invests primarily in the common stocks of U.S. and foreign
companies. It may also invest in warrants, preferred stocks and investment-grade
convertible debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in cash or
in investment-grade short-term securities. In abnormal market conditions, it may
invest more than 35% in these securities as a defensive tactic. The fund also
may invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[Clipart] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. Stocks of small-capitalization and
special-situation companies carry higher risks than stocks of larger companies.
This is because these companies:
o may lack proven track records
o may be dependent on a small number of products or services
o may be undercapitalized
o may have highly priced stocks that are sensitive to adverse news
In addition, stocks of these companies are often traded in low volumes, which
can increase market and liquidity risks. Before you invest, please read "More
about risk" starting on page 30.
MANAGEMENT/SUBADVISER
[Clipart] Michael P. DiCarlo is responsible for the fund's day-to-day investment
management. He has served as the fund's portfolio manager since January 1988,
and has been in the investment business since 1984. He is currently one of three
principals in DFS Advisors, LLC, which was founded in 1996 and serves as
subadviser to the fund.
This fund will be closed to new investors at the end of the day its total assets
reach $2.5 billion. Further investments will be limited to existing accounts.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart] Fund investors pay various expenses, either directly
or indirectly. The figures below show the expenses for the past year, adjusted
to reflect any changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee(3) 0.81% 0.81%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.31% 0.35%
Total fund operating expenses 1.42% 2.16%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $64 $93 $124 $212
Class B shares
Assuming redemption
at end of period $72 $98 $136 $231
Assuming no redemption $22 $68 $116 $231
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Includes a subadviser fee equal to 0.25% of the fund`s net assets.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
16 SPECIAL EQUITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's independent
auditors, Ernst & Young LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
(28.68) 13.72 31.82 (21.89) 95.37 20.25 47.83 (0.12) 37.49 12.96
10/87 10/88 10/89 10/90 10/91 10/92 10/93 10/94 10/95 10/96
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Class A - period ended: 10/87 10/88 10/89 10/90 10/91
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 6.08 $ 4.30 $ 4.89 $ 6.38 $ 4.97
Net investment income (loss) (0.03) 0.04 0.01 (0.12) (0.10)
Net realized and unrealized gain (loss) on
investments (1.26) 0.55 1.53 (1.27) 4.84
Total from investment operations (1.29) 0.59 1.54 (1.39) 4.74
Less distributions:
Dividends from net investment income -- -- (0.05) (0.02) --
Distributions from net realized gain on
investments sold (0.45) -- -- -- --
Distributions from capital paid-in (0.04) -- -- -- --
Total distributions (0.49) -- (0.05) (0.02) --
Net asset value, end of period $ 4.30 $ 4.89 $ 6.38 $ 4.97 $ 9.71
Total investment return at net asset
value (2)(%) (28.68) 13.72 31.82 (21.89) 95.37
Total adjusted investment return at net
asset value(2,3) (29.41) 12.28 30.75 (21.22) 95.33
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 10,637 11,714 12,285 8,166 19,713
Ratio of expenses to average net assets (%) 1.50 1.50 1.50 2.63 2.75
Ratio of adjusted expenses to average
net assets(4)(%) 2.23 2.94 2.57 2.95 2.79
Ratio of net investment income (loss) to
average net assets(%) (0.57) 0.82 0.47 (1.58) (2.12)
Ratio of adjusted net investment income
(loss) to average net assets(4) (%) (1.30) (0.62) (0.60) (1.90) (2.16)
Portfolio turnover rate (%) 93 91 115 113 163
Fee reduction per share ($) 0.04 0.07 0.03 0.02 0.002
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/92 10/93 10/94 10/95 10/96
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 9.71 $ 10.99 $ 16.13 $ 16.11 $ 22.15
Net investment income (loss) (0.19)(1) (0.20)(1) (0.21)(1) (0.18)(1) (0.22)
Net realized and unrealized gain (loss) on
investments 2.14 5.43 0.19 6.22 3.06
Total from investment operations 1.95 5.23 (0.02) 6.04 2.84
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from net realized gain on
investments sold (0.67) (0.09) -- -- (0.46)
Distributions from capital paid-in -- -- -- -- --
Total distributions (0.67) (0.09) -- -- (0.46)
Net asset value, end of period $ 10.99 $ 16.13 $ 16.11 $ 22.15 $ 24.53
Total investment return at net asset
value (2)(%) 20.25 47.83 (0.12) 37.49 12.96
Total adjusted investment return at net
asset value(2,3) -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 10,637 44,665 296,793 310,625 555,655 972,312
Ratio of expenses to average net assets (%) 2.24 1.84 1.62 1.48 1.42
Ratio of adjusted expenses to average
net assets(4)(%) -- -- -- -- --
Ratio of net investment income (loss) to
average net assets(%) (1.91) (1.49) (1.40) (0.97) (0.89)
Ratio of adjusted net investment income
(loss) to average net assets(4) (%) -- -- -- -- --
Portfolio turnover rate (%) 114 33 66 82 59
Fee reduction per share ($) -- -- -- -- --
Average brokerage commission rate(5) ($) N/A N/A N/A N/A 0.0677
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/93(6) 10/94 10/95 10/96
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.30 $16.08 $15.97 $21.81
Net investment income (loss) (0.18)(1) (0.30)(1) (0.31)(1) (0.40)(1)
Net realized and unrealized gain (loss) on investments 3.96 0.19 6.15 3.01
Total from investment operations 3.78 (0.11) 5.84 2.61
Less distributions:
Distributions from net realized gain on investments sold -- -- -- (0.46)
Net asset value, end of period $16.08 $15.97 $21.81 $23.96
Total investment return at net asset value(2) (%) 30.73(7) (0.68) 36.57 12.09
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 158,281 191,979 454,934 956,374
Ratio of expenses to average net assets (%) 2.34(8) 2.25 2.20 2.16
Ratio of net investment income (loss) to average net assets (%) (2.03)(8) (2.02) (1.69) (1.65)
Portfolio turnover rate (%) 33 66 82 59
Average brokerage commission rate(5) ($) N/A N/A N/A 0.0677
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(4) Unreimbursed, without fee reduction.
(5) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(6) Class B shares commenced operations on March 1, 1993.
(7) Not annualized.
(8) Annualized.
SPECIAL EQUITIES FUND 17
<PAGE>
Special Opportunities Fund
REGISTRANT NAME: JOHN HANCOCK INVESTMENT TRUST III
TICKER SYMBOL CLASS A: SPOAX CLASS B: SPOBX
- -------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clipart] The fund seeks long-term capital appreciation. To pursue this goal,
the fund invests in those economic sectors that appear to have a higher than
average earning potential.
Under normal circumstances, at least 75% of the fund's equity securities is
invested within five or fewer sectors (e.g., financial services, energy,
technology). At times, the fund may focus on a single sector. The fund first
determines the inclusion and weighting of sectors, using macroeconomic as well
as other factors, then selects portfolio securities by seeking the most
attractive companies. The fund may add or drop sectors. Because the fund may
invest more than 5% of assets in a single issuer, it is classified as a
non-diversified fund.
PORTFOLIO SECURITIES
[Clipart] The fund invests primarily in common stocks of U.S. and foreign
companies of any size. It may also invest in warrants, preferred stocks,
convertible debt securities, U.S. Government securities and corporate bonds
rated at least BBB/Baa, or equivalent, and may invest in certain higher-risk
securities. The fund also may make short sales of securities and may engage in
other investment practices.
For liquidity and flexibility, the fund may place assets in cash or invest in
investment-grade short-term securities.
RISK FACTORS
[Clipart] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. By focusing on a relatively small number
of sectors or issuers, the fund runs the risk that any factor influencing those
sectors or issuers will have a major effect on performance. The fund may invest
in companies with smaller market capitalizations, which represent higher
near-term risks than larger capitalization companies. These factors make the
fund likely to experience higher volatility than most other types of growth
funds. Before you invest, please read "More about risk" starting on page 30.
PORTFOLIO MANAGEMENT
[Clipart] Robert G. Freedman, Benjamin A. Hock, Jr., CFA and James
M. Boyd lead the portfolio management team. Mr. Freedman is vice chairman and
chief investment officer of the adviser. He joined the adviser in 1984 and has
been in the investment business since 1968. Mr. Hock, a senior vice president,
joined the adviser in 1994 and has been in the investment business since 1974.
Mr. Boyd, an assistant portfolio manager, has been with John Hancock Funds since
1992.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clipart] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.80% 0.80%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.50% 0.50%
Total fund operating expenses 1.60% 2.30%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $65 $98 $133 $231
Class B shares
Assuming redemption
at end of period $73 $102 $143 $246
Assuming no redemption $23 $72 $123 $246
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
18 SPECIAL OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clipart] The figures below have been audited by the fund's
independent auditors, Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
(scale varies from fund to fund)
[The table below was represented as a bar graph in the printed material.]
(6.71) 17.53 36.15
10/94(1) 10/95 10/96
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94(1) 10/95 10/96
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 8.50 $ 7.93 $ 9.32
Net investment income (loss)(2) (0.03) (0.07) (0.11)
Net realized and unrealized gain (loss) on investments (0.54) 1.46 3.34
Total from investment operations (0.57) 1.39 3.23
Less distributions:
Distributions from net realized gain on investments sold -- -- (1.63)
Net asset value, end of period $ 7.93 $ 9.32 $ 10.92
Total investment return at net asset value(3) (%) (6.71) 17.53 36.15
Total adjusted investment return at net asset value(3,4) (%) (6.83) -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 92,325 101,562 156,578
Ratio of expenses to average net assets (%) 1.50 1.59 1.59
Ratio of adjusted expenses to average net assets(5) (%) 1.62 -- --
Ratio of net investment income (loss) to average net assets (%) (0.41) (0.87) (1.00)
Ratio of adjusted net investment (loss) to average net assets(5) (%) (0.53) -- --
Portfolio turnover rate (%) 57 155 240
Fee reduction per share ($) 0.01(2) -- --
Average brokerage commission rate(6) ($) N/A N/A 0.0600
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94(1) 10/95 10/96
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $ 8.50 $ 7.87 $ 9.19
Net investment income (loss)(2) (0.09) (0.13) (0.18)
Net realized and unrealized gain (loss) on investments (0.54) 1.45 3.29
Total from investment operations (0.63) 1.32 3.11
Less distributions:
Distributions from net realized gain on investments sold -- -- (1.63)
Net asset value, end of period $ 7.87 $ 9.19 $ 10.67
Total investment return at net asset value(3) (%) (7.41)(4) 16.7 35.34
Total adjusted investment return at net asset value(3,4) (%) (7.53) -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 131,983 137,363 238,901
Ratio of expenses to average net assets (%) 2.22 2.30 2.29
Ratio of adjusted expenses to average net assets(5) (%) 2.34 -- --
Ratio of net investment income (loss) to average net assets (%) (1.13) (1.55) (1.70)
Ratio of adjusted net investment (loss) to average net assets(5) (%) (1.25) -- --
Portfolio turnover rate (%) 57 155 240
Fee reduction per share ($) 0.01(2) -- --
Average brokerage commission rate(6) ($) N/A N/A 0.0600
</TABLE>
(1) Class A and B shares commenced operations on November 1, 1993.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(5) Unreimbursed, without fee reduction.
(6) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
SPECIAL OPPORTUNITIES FUND 19
<PAGE>
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock growth funds offer two classes of shares, Class A and Class B.
Each class has its own cost structure, allowing you to choose the one that best
meets your requirements. Your financial representative can help you decide.
- --------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------
o Front-end sales charges, as o No front-end sales charge; all
described below. There are several your money goes to work for you
ways to reduce these charges, also right away.
described below.
o Higher annual expenses than Class
o Lower annual expenses than Class B A shares.
shares.
o A deferred sales charge on shares
you sell within six years of
purchase, as described below.
o Automatic conversion to Class A
shares after eight years, thus
reducing future annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
Special Equities Fund offers Class C shares, which have their own expense
structure and are available to financial institutions only. Call Signature
Services for more information (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A Sales charges are as follows:
- -------------------------------------------------------------------------------
Class A sales charges
- -------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
Investments of $1 million or more Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
- --------------------------------------------------------------------------------
CDSC on $1 million+ investments
- --------------------------------------------------------------------------------
Your investment CDSC on shares being sold
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
Class B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. There is no CDSC on
shares acquired through reinvestment of dividends. The CDSC is based on the
original purchase cost or the current market value of the shares being sold,
whichever is less. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC on shares being sold
1st year 5.00%
2nd year 4.00%
3rd or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6 years None
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the FIRST day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
o Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
o Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Signature Services to add these options to an
existing account.
Group Investment Program A group may be treated as a single purchaser under the
accumulation and combination privileges. Each investor has an individual
account, but the group's investments are lumped together for sales charge
purposes, making the investors potentially eligible for reduced sales charges.
There is no charge, no obligation to invest (although initial aggregate
investments must be at least $250) and individual investors may terminate their
account at any time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify, or consult the SAI (see the back cover of this prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for either share class will generally be waived in the following cases:
o to make payments through certain systematic withdrawal plans
o to make certain distributions from a retirement plan
o because of shareholder death or disability
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI.
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o government entities that are prohibited from paying mutual fund sales charges
o financial institutions or common trust funds investing $1 million or more for
non-discretionary accounts
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
o fund trustees and other individuals who are affiliated with these or other
John Hancock funds
o individuals transferring assets to a John Hancock fund from an employee
benefit plan that has John Hancock funds
o members of an approved affinity group financial services program
o certain insurance company contract holders (one-year CDSC usually applies) o
participants in certain retirement plans with at least 100 members (one-year
CDSC applies)
To utilize: if you think you may be eligible for a sales charge waiver, contact
your financial representative or Signature Services, or consult the SAI.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
o non-retirement account: $1,000
o retirement account: $250
o group investments: $250
o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest
at least $25 a month
o fee-based clients of selling brokers who placed at least $2 billion in
John Hancock Funds: $500
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to add
privileges later.
5 Make your initial investment using the table on the next page. You and your
financial representative can initiate any purchase, exchange or sale of
shares.
YOUR ACCOUNT 21
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clipart] o Make out a check for the o Make out a check for the
investment amount, payable investment amount payable to
to "John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no slip
mail them to Signature is available, include a note
Services (address on next specifying the fund name, your
page). share class, your account
number and the name(s) in
which the account is
registered.
o Deliver the check and your
investment slip or note to
your financial representative,
or mail them to Signature
Services (address on next page.
By exchange
[Clipart] o Call your financial o Call your financial
representative or Signature representative or Signature
Services to request an Services to request an
exchange. exchange.
By wire
[Clipart] o Deliver your completed o Instruct your bank to wire
application to your financial the amount of your
representative, or mail it to investment to:
Signature Services. First Signature Bank & Trust
Account # 900000260
o Obtain your account number by Routing # 211475000
calling your financial Specify the fund name, your
representative or Signature share class, your account
Services. number and the name(s) in
which the account is
o Instruct your bank to registered. Your bank may
wire the amount of your charge a fee to wire funds.
investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s)
in which the account is
registered. Your bank may
charge a fee to wire funds.
By phone
[Clipart] See "By wire" and "By exchange." o Verify that your bank or
credit union is a member of
the Automated Clearing House
(ACH) system.
o Complete the
"Invest-By-Phone" and "Bank
Information" sections on
your account application.
o Call Signature Services to
verify that these features
are in place on your
account.
o Tell the Signature Services
representative the fund
name, your share class, your
account number, the name(s)
in which the account is
registered and the amount of
your investment.
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
22 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clipart] o Accounts of any type. o Write a letter of instruction or
complete a stock power indicating
o Sales of any amount. the fund name, your share class,
your account number, the name(s)
in which the account is registered
and the dollar value or number of
shares you wish to sell.
o Include all signatures and any
additional documents that may be
required (see next page).
o Mail the materials to Signature
Services.
o A check will be mailed to the
name(s) and address in which the
account is registered, or
otherwise according to your letter
of instruction.
By phone
[Clipart] o Most accounts.
o Sales of up to $100,000. o For automated service 24 hours a
day using your touch-tone phone,
call the EASI-Line at
1-800-338-8080.
o To place your order with a
representative at John Hancock
Funds, call Signature Services
between 8 A.M. and 4 P.M. Eastern
Time on most business days.
By wire or electronic funds transfer (EFT)
[Clipart] o Requests by letter to sell o Fill out the "Telephone
any amount (accounts of any Redemption" section of your
type). new account application.
o Requests by phone to sell up o To verify that the telephone
to $100,000 (accounts with redemption privilege is in
telephone redemption place on an account, or to
privileges). request the forms to add it
to an existing account, call
Signature Services.
o Amounts of $1,000 or more
will be wired on the next
business day. A $4 fee will
be deducted from your
account.
o Amounts of less than $1,000
may be sent by EFT or by
check. Funds from EFT
transactions are generally
available by the second
business day. Your bank may
charge a fee for this
service.
By exchange
[Clipart] o Accounts of any type. o Obtain a current prospectus
for the fund into which you
o Sales of any amount. are exchanging by calling
your financial
representative or Signature
Services.
o Call your financial
representative or Signature
Services to request an
exchange.
- ------------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone
1-800-225-5291
Or contact your financial representative
for instructions and assistance.
- ------------------------------------------
To sell shares through a systematic withdrawal plan,
see "Additional investor services."
YOUR ACCOUNT 23
<PAGE>
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
o a broker or securities dealer
o a federal savings, cooperative or other type of bank
o a savings and loan or other thrift institution
o a credit union
o a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
Owners of individual, joint, sole o Letter of instruction.
proprietorship, UGMA/UTMA (custodial
accounts for minors) or general o On the letter, the signatures and
partner accounts. titles of all persons authorized
to sign for the account, exactly
as the account is registered.
o Signature guarantee if applicable
(see above).
Owners of corporate or association o Letter of instruction.
accounts.
o Corporate resolution, certified
within the past two years.
o On the letter and the resolution,
the signature of the person(s)
authorized to sign for the
account.
o Signature guarantee if applicable
(see above).
Owners or trustees of trust o Letter of instruction.
accounts.
o On the letter, the signature(s) of
the trustee(s).
o If the names of all trustees are
not registered on the account,
please also provide a copy of the
trust document certified within
the past six months.
o Signature guarantee if applicable
(see above).
Joint tenancy shareholders whose o Letter of instruction signed by
co-tenants are deceased. surviving tenant.
o Copy of death certificate.
o Signature guarantee if applicable
(see above).
Executors of shareholder estates. o Letter of instruction signed by
executor.
o Copy of order appointing executor.
o Signature guarantee if applicable
(see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
24 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
Signature Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Signature Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or other taxpayer ID number and other relevant
information. If appropriate measures are taken, Signature Services is not
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B shares
will continue to age from the original date and will retain the same CDSC rate
as they had before the exchange, except that the rate will change to the new
fund's rate if that rate is higher. A CDSC rate that has increased will drop
again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may also refuse any exchange order.
A fund may change or cancel its exchange policies at any time, upon 60 days'
notice to its shareholders.
Certificated shares Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Signature Services. Certificated
shares can only be sold by returning the certificates to Signature Services,
along with a letter of instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
Eligibility by state You may only invest in, or exchange into, fund shares
legally available in your state.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds generally distribute most or all of their net earnings in
the form of dividends. Any capital gains are distributed annually. Most of the
funds do not typically pay income dividends, with the exception of Disciplined
Growth Fund and Regional Bank Fund, which typically pay income dividends
semi-annually and quarterly, respectively.
YOUR ACCOUNT 25
<PAGE>
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
Taxability of dividends As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum) for
your first investment amount payable to "John Hancock Signature Services,
Inc." Deliver your check and application to your financial representative or
Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and there
is no limit to the number of payees you may have, as long as they are all on
the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial representative
or Signature Services.
Retirement plans John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SIMPLE plans, SEPs, 401(k) plans, 403(b) plans (including
TSAs) and other pension and profit-sharing plans. Using these plans, you can
invest in any John Hancock fund (except tax-free income funds) with a low
minimum investment of $250 or, for some group plans, no minimum investment at
all. To find out more, call Signature Services at 1-800-225-5291.
26 YOUR ACCOUNT
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
How the funds are organized Each John Hancock growth fund is an open-end
management investment company or a series of such a company.
Each fund is supervised by a board of trustees, an independent body that has
ultimate responsibility for the fund's activities. The board retains various
companies to carry out the fund's operations, including the investment adviser,
custodian, transfer agent and others (see diagram). The board has the right, and
the obligation, to terminate the fund's relationship with any of these companies
and to retain a different company if the board believes it is in the
shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock growth funds may include
individuals who are affiliated with the investment adviser. However, the
majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
[Diagram outlining the business structure of John Hancock Funds.]
<TABLE>
<S><C>
SHAREHOLDERS
FINANCIAL SERVICES FIRMS AND
DISTRIBUTION AND THEIR REPRESENTATIVES
SHAREHOLDER SERVICES
Advise current and prospective
shareholders on their fund
investments, often in the context
of an overall financial plan.
PRINCIPAL DISTRIBUTOR TRANSFER AGENT
John Hancock Funds, Inc. John Hancock Signature Services, Inc.
101 Huntington Avenue 1 John Hancock Way, Suite 1000
Boston, MA 02199-7603 Boston, MA 02217-1000
Markets the funds and distributes Handles shareholder services,
shares through selling brokers, including record-keeping and
financial planners and other statements, distribution of dividends
financial representatives. and processing of buy and sell
requests.
SUBADVISER INVESTMENT ADVISER CUSTODIAN
DFS Advisors LLC John Hancock Advisers, Inc. State Street Bank & Trust Co.
75 State Street 101 Huntington Avenue 225 Franklin Street ASSET
Boston, MA 02109 Boston, MA 02199-7603 Boston, MA 02110 MANAGEMENT
Provides portfolio Manages the funds' business and Holds the funds' assets, settles all
management services investment activities. portfolio trades and collects most of
to Special Equities Fund the valuation data required for
calculating each fund's NAV.
TRUSTEES
Supervise the funds' activities.
</TABLE>
FUND DETAILS 27
<PAGE>
Accounting compensation The funds compensate the adviser for performing tax and
financial management services. Annual compensation is not expected to exceed
0.02% of each fund's average net assets.
Portfolio trades In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock Mutual
Life Insurance Company, but only when the adviser believes no other firm offers
a better combination of quality execution (i.e., timeliness and completeness)
and favorable price.
Investment goals Except for Discovery Fund, Emerging Growth Fund, Financial
Industries Fund and Special Opportunities Fund, each fund's investment goal is
fundamental and may only be changed with shareholder approval.
Diversification Except for Special Opportunities Fund, all of the growth funds
are diversified.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the funds' assets ("12b-1" refers to the federal
securities regulation authorizing annual fees of this type). The 12b-1 fee rates
vary by fund and by share class, according to Rule 12b-1 plans adopted by the
funds. The sales charges and 12b-1 fees paid by investors are detailed in the
fund-by-fund information. The portions of these expenses that are reallowed to
financial services firms are shown on the next page.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
- --------------------------------------------------------------------------------
Class B unreimbursed distribution expenses(1)
- --------------------------------------------------------------------------------
Unreimbursed As a % of
Fund expenses net assets
Disciplined Growth $ 3,798,216 4.19%
Discovery $ 886,207 1.01%
Emerging Growth $ 11,288,492 2.59%
Financial Industries N/A N/A
Growth $ 208,458 0.79%
Regional Bank $ 59,994,035 3.42%
Special Equities $ 19,220,716 2.54%
Special Opportunities $ 7,346,826 4.20%
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
Initial compensation Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
Annual compensation Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears.
Financial services firms selling large amounts of fund shares may receive extra
compensation. This compensation, which John Hancock funds pays out of its own
resources, may include asset retention fees as well as reimbursement for
marketing expenses.
28 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Class A investments
- ---------------------------------------------------------------------------------------------------------------------------
Maximum
Sales charge reallowance First year Maximum
paid by investors or commission service fee total compensation(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Regular investments of
$1 million or more
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Waiver investments(2) -- 0.00% 0.25% 0.25%
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Class B investments
- ---------------------------------------------------------------------------------------------------------------------------
Maximum
reallowance First year Maximum
or commission service fee total compensation
(% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C>
All amounts 3.75% 0.25% 4.00%
</TABLE>
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
FUND DETAILS 29
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following page are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock growth fund will be positive over any period of time -- days, months or
years. However, stock funds as a category have historically performed better
over the long term than bond or money market funds.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated risks.
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments and may widen any losses.
Information risk The risk that key information about a security or market is
inaccurate or unavailable.
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
o Hedged When a derivative (a security whose value is based on another security
or index) is used as a hedge against an opposite position that the fund also
holds, any loss generated by the derivative should be substantially offset by
gains on the hedged investment, and vice versa. While hedging can reduce or
eliminate losses, it can also reduce or eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the fund
is directly exposed to the risks of that derivative. Gains or losses from
speculative positions in a derivative may be substantially greater than the
derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance.
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk may affect a single issuer, industry, sector of
the economy or the market as a whole.
Common to all stocks and bonds and the mutual funds that invest in them.
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events.
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
30 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
Higher-risk securities and practices
- --------------------------------------------------------------------------------
This table shows each fund's investment limitations as a percentage of portfolio
assets. In each case the principal types of risk are listed (see previous page
for definitions). Numbers in this table show allowable usage only; for actual
usage, consult the fund's annual/semi-annual reports.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
* No policy limitation on usage;
fund may be using currently
o Permitted, but has not typically been used
- -- Not permitted
<TABLE>
<CAPTION>
Special
Disciplined Emerging Financial Regional Special Oppor-
Growth Discovery Growth Industries Growth Bank Equities tunities
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment practices
Borrowing; reverse repurchase agreements The borrowing of
money from banks or through reverse repurchase agreements.
Leverage, credit risks. 5 5 33.3 33 33.3 5 33.3 33.3
Repurchase agreements The purchase of a security that
must later be sold back to the seller at the same price
plus interest. Credit risk. * * * * * * * *
Securities lending The lending of securities to financial
institutions, which provide cash or government securities
as collateral. Credit risk. 5 33.3 30 33.3 33.3 -- 33.3 33.3
Short sales The selling of securities which have been
borrowed on the expectation that the market price will drop.
o Hedged. Hedged leverage, market, correlation, liquidity,
opportunity risks. -- o o o o -- o *
o Speculative. Speculative leverage, market, liquidity risks. -- o -- o o -- o 5
Short-term trading Selling a security soon after purchase.
A portfolio engaging in short-term trading will have higher
turnover and transaction expenses. Market risk. * * * * * * * *
When-issued securities and forward commitments The purchase
or sale of securities for delivery at a future date; market
value may change before delivery.
Market, opportunity, leverage risks. * * * * * * * *
- --------------------------------------------------------------------------------------------------------------------------------
Conventional securities
Non-investment-grade securities Securities rated below
BBB/Baa are considered junk bonds. Credit, market,
interest rate, liquidity, valuation, information risks. -- -- 10 5 5 5 -- --
Foreign equities
o Stocks issued by foreign companies. Market, currency,
information, natural event, political risks. -- 25 * * 15 o * *
o American or European depository receipts, which are
dollar-denominated securities typically issued by
American or European banks and are based on ownership
of securities issued by foreign companies. Market,
currency, information, natural event, political risks. 10 25 * * 15 o * *
Restricted and illiquid securities Securities not traded
on the open market. May include illiquid Rule
144A securities. Liquidity, valuation, market risks. 15 15 10 15 15 15 15 15
- --------------------------------------------------------------------------------------------------------------------------------
Leveraged derivative securities
Financial futures and options; securities and index
options Contracts involving the right or obligation
to deliver or receive assets or money depending on
the performance of one or more assets or an economic index.
o Futures and related options. Interest rate, currency,
market, hedged or speculative leverage, correlation,
liquidity, opportunity risks. o * * o o -- o *
o Options on securities and indices. Interest rate,
currency, market, hedged or speculative leverage,
correlation, liquidity, credit, opportunity risks. o o * o o o o *
Currency contracts Contracts involving the right or
obligation to buy or sell a given amount of foreign currency
at a specified price and future date.
o Hedged. Currency, hedged leverage, correlation, liquidity,
opportunity risks. -- 25 * o * -- o *
o Speculative. Currency, speculative leverage, liquidity
risks. -- -- -- o -- -- o --
</TABLE>
FUND DETAILS 31
<PAGE>
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
growth funds:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/semiannual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (is legally a part of
this prospectus).
To request a free copy of the current annual/semiannual report or SAI, please
write or call:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
Internet: www.jhancock.com/funds
[Logo] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(C) 1996 John Hancock Funds, Inc.
GROPN 8/97
John Hancock(R)
Financial Services
<PAGE>
John Hancock Funds
Growth
Fund
Annual Report
October 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costile*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*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
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
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
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
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116-5072
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Most analysts agree that the Social Security system will run out of
money by the year 2030 unless Congress makes some changes. Although it
seems a long way off, the issue is serious enough that at
least one group has already studied the problem, and experts and
politicians alike have weighed in with a slew of prescriptions.
Legislative action could be in the offing in 1997.
The problem stems from demographic and societal changes. The number
of retirees collecting Social Security is growing rapidly, while the
number of workers supporting the system is shrinking. Consider this: in
1950, there were 16 workers paying into the Social Security system for
each retiree collecting benefits. Today, there are three workers for
each retiree and by 2019 there will be two. Starting then, the Social
Security Administration estimates that the amount paid out in Social
Security benefits will start to be greater than the amount collected in
Social Security taxes. Compounding the issue is the fact that people are
retiring earlier and living longer.
The state of the system has already left many people, especially younger
and middle-aged workers, feeling insecure about Social Security. A
recent survey by the Employee Benefits Research Institute (EBRI) found
that 79% of current workers polled had little confidence in the ability
of Social Security to maintain the same level of benefits as those
received by today's retirees. Instead, they said they expect to use
their own savings or employer-sponsored pensions for their retirement.
Yet, remarkably, another EBRI survey revealed that only slightly more
than half of America's current workers are saving money for retirement.
Fewer than half own IRAs or participate in employer-sponsored pension or
savings plans.
No matter how Social Security's problems get solved, one thing is clear.
Americans need to rely on themselves for accumulating the bulk of their
retirement savings. There's no law that says you should have to reduce
your standard of living once you stop working. So we encourage you to
save all that you can now, so you can live the way you'd like to later.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief
Executive Officer, flush right, next to second paragraph.
By Bernice Behar, CFA, Portfolio Manager
John Hancock
Growth Fund
Large company growth stocks lead market's advance
"...growth
stocks rallied
significantly
during the
past year."
Recently, the Fund's fiscal year end changed from December to October.
What follows is a discussion of the Fund's performance for the 12 months
ended October 31, 1996.
With corporate profits growing, the economy moving along at a moderate
pace, inflation low, and interest rates subdued, growth stocks rallied
significantly during the past year. Corporate earnings were the key
ingredient to the market's strength. While the market punished those
companies that disappointed investors with lower-than-expected earnings
(especially small companies and technology concerns) by pushing their
stocks lower, it handsomely rewarded those that continued posting strong
earnings gains.
Among the market's big winners this year were many high-profile, blue-
chip growth stocks. Throughout much of the period, investors favored
these stable growth companies, which they viewed as being better able to
sustain their earnings growth even if the economy were to slow. The
Fund's relatively large holdings in these stocks helped it post a strong
performance during the period. For the year ended October 31, 1996, John
Hancock Growth Fund Class A and Class B shares posted total returns at
net asset value of 18.37% and 17.52%, respectively. That was in
comparison to the average growth fund's return of 18.47%, according to
Lipper Analytical Services.1 Please see pages six and seven for longer-
term Fund performance information.
Strategy overview
A 2 1/4" x 3 1/4" photo of fund management team at bottom right. Caption
reads: "Fund Management Team Members (l-r): Rob Hallisey, Bernice Behar,
Anurag Pandit, Andrew Slabin".
Roughly six months ago, we began reducing the Fund's stake in consumer
non-durable stocks such as pharmaceuticals. We replaced them with stocks
that we believed were likely to exhibit strong earnings growth as the
economy's growth accelerated. For example, we had a sense that economic
growth could set off a wave of investment spending on technology and
telecommunications. That's why we added Cascade Communications, a
company that makes products that aid in networking, and Intel, the
semiconductor chip manufacturer. Not only was economic growth a little
better than most observers expected, but these stocks got an added boost
from the fact that investors favored them over smaller, less well-known
stocks where future earnings were less certain. Throughout the past six
months, we continued on a course of emphasizing large, well-known growth
stocks. Our commitment to owning the best companies available in the
growth arena paid off. That said, here's a closer look at the
performance of some of our top holdings:
Chart with heading "Top Five Common Stock Holdings" at top of left hand
column. The chart lists five holdings: 1) Adaptec 2.8% 2) Paychex 2.7%
3) Gillette 2.7% 4) Intel 2.5% 5) HBO & Co. 2.4%. A footnote below reads
"As a percentage of net assets on October 31, 1996."
"...we
continued on
a course of
emphasizing
large,
well-known
growth
stocks."
Table entitled "Scorecard" at bottom left hand column. The heading for
the left column is "Investment"; the heading for the center column is
"Recent performance... and what's behind the numbers". The first listing
is "Lucent Technologies" followed by an up arrow and the phrase "Growth
in telecom infrastructure". The second listing is "Nike" followed by an
up arrow and the phrase "Leading sporting goods manufacturer." The third
listing is "Clear Channel Communications" followed by a down arrow and
the phrase "Stock price with profit taking." Footnote below reads "See
Schedule of Investments. Investment holdings are subject to change."
Paychex: The stock price of this payroll-processing and payroll-tax-
preparation company rose more than 20% over the past six months. The
company serves businesses that are outsourcing their payroll functions.
Adaptec: A leading maker of small computer system interface systems used
to connect peripherals to computers, Adaptec suffered along with most
technology companies in the summer. But since then, the stock has
bounced back.
APAC Teleservices: Up roughly 40% from six months ago, this company
provides outsourced telephone-based sales, marketing and customer-
management services. Its customers are large companies with very large
inbound and outbound annual call volume, including credit-card issuers
and telecommunications companies.
Coca-Cola: The world's largest producer of soft-drink concentrates
continued to grab market share from its competitors while maintaining
healthy earnings growth. Its stock rose roughly 20% over the past six
months.
Cisco Systems: Despite the correction technology stocks suffered during
the summer, Cisco, which produces network equipment and software, rose
to $62 at the end of the period, up about 20% from six months earlier.
Cardinal Health: A distributor of health and beauty-care products,
pharmaceuticals, surgical and hospital supplies, its stock rose about
$20 from six months ago, ending the period at $83.
Intel: The stock price of this leading maker of microcomputer components
and related products rose an impressive $40 over the most recent six
month period, to close the period at roughly $110. Much of the stock's
rise came after the company announced a 40% income jump for the third
quarter.
Bar chart with heading "Fund Performance" at top of left hand column.
Under the heading is the footnote: "For the six months ended October 31,
1996." The chart is scaled in increments of 5% from bottom to top, with
20% at the top and 0% at the bottom. Within the chart there are three
solid bars. The first represents the 18.37% total return for the John
Hancock Growth Fund: Class A. The second represents the 17.52% total
return for the John Hancock Growth Fund: Class B. The third represents
the 18.47% total return for the average growth fund. A footnote below
reads: "The total returns for John Hancock Growth Fund are at net asset
value with all distributions reinvested. The average growth fund is
tracked by Lipper Analytical Services. See following two pages for
historical performance information."
"...growth
stocks still
have room to
continue to
move
higher..."
Gillette: This well-known consumer products company, which produces
toiletries, including razors, electric shavers and dental products, as
well as products ranging from coffee makers to Paper Mate and Parker
pens, rose from about $55 six months ago to nearly $75 at the end the
end of October.
Many of our smaller holdings also performed well. Our energy stocks,
including Diamond Offshore Drilling and Reading & Bates, benefited from
rising oil and gas prices as well as increased global demand. Some of
our retail stocks, including Nike and Saks Holdings (the parent company
of Saks Fifth Avenue), benefited from a rise in consumer confidence. As
always, there were some disappointments. Corrections Corp. of America,
which operates prisons, and Clear Channel Communications, which operates
radio and television stations, both suffered from a round of profit
taking late in the period.
Outlook
In our view, growth stocks still have room to continue to move higher,
assuming good earnings growth. We anticipate that earnings will remain
strong for the fourth quarter of this year, although they are not likely
to be as robust as we saw in the third quarter. We don't see any real
threat of inflation over the next six months and believe that interest
rates should remain stable, if not decline somewhat. Given that view,
it's likely that we'll remain committed to owning many of the same
dynamic companies with their superior track records of growing earnings.
- -----------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the
end of the Fund's period discussed in this report. Of course, the
manager's views are subject to change as market and other conditions
warrant.
1Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Growth Fund. Total
return is a performance measure that equals the sum of all income and
capital gain distributions, assuming reinvestment of these distributions
and the change in the price of the Fund's net asset value per share.
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. Performance is affected by a
12b-1 plan, which commenced on January 1, 1990 and January 3, 1994 for
Class A and Class B shares, respectively. 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.
CUMULATIVE TOTAL RETURNS
For the period ended September 30, 1996
One Five Life of
Year Years Fund
------ ------ --------
John Hancock Growth
Fund: Class A 12.87% 80.83% 232.99%
John Hancock Growth
Fund: Class B 12.99% N/A 39.22%(1)
AVERAGE ANNUAL TOTAL RETURNS
For the period ended September 30, 1996
One Five Life of
Year Years Fund
------ ------ --------
John Hancock Growth
Fund: Class A 12.87% 12.58% 12.78%
John Hancock Growth
Fund: Class B 12.99% N/A 12.84%(1)
Notes to Performance
(1) Class B shares commenced on January 3, 1994.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Growth Fund would be worth on October 31, 1996, assuming you
have been invested on the day each class of shares started or have been
invested for the most recent ten years and have 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 used often as a measure
of stock market performance.
Growth Fund
Class A shares
Line chart with the heading Growth 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 $39,194 as of October 31, 1996.
The second line represents the value of the hypothetical $10,000
investment made in the Growth Fund on October 31, 1986, before sales
charge, and is equal to $32,800 as of October 31, 1996.
The third line represents the Growth Fund, after sales charge, and is
equal to $31,163 as of October 31, 1996.
Growth Fund
Class B shares
Line chart with the heading Growth 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 $16,250 as of October 31, 1996.
The second line represents the value of the hypothetical $10,000
investment made in the Growth Fund, before sales charge, on January 3,
1994, and is equal to $13,965 as of October 31, 1996.
The third line represents the value of the Growth Fund, after sales
charge, and is equal to $13,665 as of October 31, 1996.
<TABLE>
<CAPTION>
John Hancock Funds - Growth Fund
Statement of Assets and Liabilities
October 31, 1996
- ----------------------------------------------------------------------
<S> <C>
Assets:
Investments at value - Note C:
Common and preferred stocks (cost $174,301,069) $280,851,563
Joint repurchase agreement (cost - $24,312,000) 24,312,000
Corporate savings account 512
------------
305,164,075
Receivable for shares sold 10,602
Dividends receivable 98,756
Interest receivable 3,833
Other assets 27,871
------------
Total Assets 305,305,137
- ----------------------------------------------------------------------
Liabilities:
Payable for shares repurchased 18,440
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 309,405
Accounts payable and accrued expenses 78,272
------------
Total Liabilities 406,117
- ----------------------------------------------------------------------
Net Assets:
Capital paid-in 168,641,451
Accumulated net realized gain on investments 29,715,818
Net unrealized appreciation of investments 106,551,500
Accumulated net investment loss (9,749)
------------
Net Assets $304,899,020
======================================================================
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 - $279,425,384/12,004,765 $23.28
======================================================================
Class B - $25,473,636/1,115,600 $22.83
======================================================================
Maximum Offering Price Per Share*
Class A - ($23.28 x 105.26%) $24.51
======================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
The Statement of Assets and Liabilities is the Fund's balance sheet and shows
the value of what the Fund owns, is due and owes on October 31, 1996. You'll
also find the net asset value and the maximum offering price per share as of
that date.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
- -------------------------------------------------------------------------------------------
YEAR ENDED, PERIOD FROM
DECEMBER 31, JANUARY 1, 1996 TO
1995 OCTOBER 31, 1996(1)
-------------- ------------------
<S> <C> <C>
Investment Income:
Dividends (net of foreign withholding
taxes of $14,730 and $6,297,
respectively) $1,202,907 $1,252,865
Interest 785,627 536,990
---------- ----------
1,988,534 1,789,855
---------- ----------
Expenses:
Investment management fee - Note B 1,561,020 1,884,304
Distribution/service fee - Note B
Class A 559,382 659,141
Class B 82,591 176,381
Transfer agent fee - Note B 578,813 629,454
Printing 46,658 31,624
Custodian fee 43,950 47,233
Auditing fee 32,214 33,973
Registration and filing fees 29,808 77,260
Trustees' fees 15,625 21,212
Miscellaneous 10,421 8,722
Legal fees 1,633 27,099
Financial services fee - Note B -- 44,503
---------- ----------
Total Expenses 2,962,115 3,640,906
- -------------------------------------------------------------------------------------------
Net Investment Loss (973,581) (1,851,051)
- -------------------------------------------------------------------------------------------
Realized and Unrealized Gain (Loss)
on Investments:
Net realized gain on investments
sold 9,207,214 29,604,241
Change in net unrealized appreciation/
depreciation of investments 30,638,725 21,436,182
---------- ----------
Net Realized and Unrealized Gain on
Investments 39,845,939 51,040,423
- -------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting
from Operations $38,872,358 $49,189,372
===========================================================================================
(1) Effective October 31, 1996, the fiscal period changed from December 31 to October 31.
The Statement of Operations summarizes the Fund's investment income earned
and expenses incurred in operating the Fund. It also shows net gains (losses)
for the period stated.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, PERIOD FROM
--------------------------- JANUARY 1, 1996
1994 1995 TO OCTOBER 31, 1996(1)
------------ ------------ ------------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ($986,780) ($973,581) ($1,851,051)
Net realized gain on investments sold 1,529,276 9,207,214 29,604,241
Change in net unrealized appreciation/
depreciation of investments (13,091,731) 30,638,725 21,436,182
------------ ------------ ------------
Net Increase (Decrease) in Net
Assets Resulting from Operations (12,549,235) 38,872,358 49,189,372
------------ ------------ ------------
Distributions to Shareholders:
Distributions from net realized gain
on investments sold
Class A - ($0.2020, $0.6945,
and none per share, respectively) (1,850,208) (8,391,968) --
Class B - ($0.2020, $0.6945,
and none per share, respectively) (43,984) (552,264) --
Class C - ($0.2020, none, and
none per share, respectively) (18,255) -- --
------------ ------------ ------------
(1,912,447) (8,944,232) --
------------ ------------ ------------
From Fund Share Transactions - Net*: 2,086,820 75,837,052 (1,902,994)
------------ ------------ ------------
Net Assets:
Beginning of period 164,222,326 151,847,464 257,612,642
------------ ------------ ------------
End of period (including accumulated
net investment loss of none, none, and
$9,749, respectively) $151,847,464 $257,612,642 $304,899,020
============ ============ ============
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, distributions
paid to shareholders, and any increase or decrease in money shareholders invested
in the Fund. The footnote illustrates the number of Fund shares sold, reinvested
and redeemed during the last two periods, along with the corresponding dollar
value.
* Analysis of Fund Share Transactions:
YEAR ENDED DECEMBER 31,
------------------------------------------------------ PERIOD FROM JANUARY 1, 1996
1994 1995 TO OCTOBER 31, 1996 (1)
---------------------------- ------------------------ ---------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------------- ------------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold 4,198,071 $71,177,794 1,671,481 $32,932,574 2,868,866 $62,914,842
Shares issued in reorganization -
Note D -- -- 3,788,495 77,588,384 -- --
Shares issued to shareholders in
reinvestment of distributions 110,953 1,738,305 402,050 7,803,606 -- --
----------- ----------- ----------- ----------- ----------- -----------
4,309,024 72,916,099 5,862,026 118,324,564 2,868,866 62,914,842
Less shares repurchased (4,457,375) (75,094,698) (2,691,827) (52,370,704) (3,252,462) (70,867,350)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) (148,351) ($2,178,599) 3,170,199 $65,953,860 (383,596) ($7,952,508)
=========== =========== =========== =========== =========== ===========
CLASS B
Shares sold 259,658 $4,192,534 333,335 $6,333,583 2,230,077 $49,208,673
Shares issued in reorganization -
Note D -- -- 471,911 9,563,328 -- --
Shares issued to shareholders in
reinvestment of distributions 2,737 42,721 27,495 526,875 -- --
----------- ----------- ----------- ----------- ----------- -----------
262,395 4,235,255 832,741 16,423,786 2,230,077 49,208,673
Less shares repurchased (21,948) (347,495) (246,690) (4,843,723) (1,940,975) (43,159,159)
----------- ----------- ----------- ----------- ----------- -----------
Net increase 240,447 $3,887,760 586,051 $11,580,063 289,102 $6,049,514
=========== =========== =========== =========== =========== ===========
CLASS C **
Shares sold 30,518 $480,690 841 $15,270
Shares issued to shareholders
in reinvestment of distributions 1,121 17,646 -- --
----------- ----------- ----------- -----------
31,639 498,336 841 15,270
Less shares repurchased (7,014) (120,677) (99,061) ( 1,712,141
----------- ----------- ----------- -----------
Net increase (decrease) 24,625 $377,659 (98,220) ($1,696,871)
=========== =========== =========== ===========
** All Class C shares were redeemed on March 31, 1995.
(1) Effective October 31, 1996, the fiscal period changed from December 31 to October 31.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
YEAR ENDED DECEMBER 31, PERIOD FROM
----------------------------------------------- JANUARY 1 1996
1992 1993 1994 1995 TO OCTOBER 31, 1996(9)
-------- -------- -------- -------- ------------------
<S> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period $17.48 $17.32 $17.40 $15.89 $19.51
-------- -------- -------- -------- --------
Net Investment Income (Loss) (0.06) (0.11) (0.10) (0.09)(1) (0.13)(1)
Net Realized and Unrealized Gain (Loss)
on Investments 1.10 2.33 (1.21) 4.40 3.90
-------- -------- -------- -------- --------
Total from Investment Operations 1.04 2.22 (1.31) 4.31 3.77
-------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold (1.20) (2.14) (0.20) (0.69) --
-------- -------- -------- -------- --------
Total Distributions (1.20) (2.14) (0.20) (0.69) --
-------- -------- -------- -------- --------
Net Asset Value, End of Period $17.32 $17.40 $15.89 $19.51 $23.28
======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) 6.06% 13.03% (7.50%) 27.17% 19.32%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $153,057 $162,937 $146,466 $241,700 $279,425
Ratio of Expenses to Average Net Assets 1.60% 1.56% 1.65% 1.48% 1.48%(7)
Ratio of Net Investment Income (Loss) to
Average Net Assets (0.36%) (0.67%) (0.64%) (0.46%) (0.73%)(7)
Portfolio Turnover Rate 71% 68% 52% 68%(3) 59%
Average brokerage commission rate(4) N/A N/A N/A N/A $0.0695
YEAR ENDED DECEMBER 31, PERIOD FROM
------------------------ JANUARY 1, 1996
1994(5) 1995 TO OCTOBER 31, 1996(9)
-------- -------- --------------------
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $17.16 $15.83 $19.25
-------- -------- --------
Net Investment Loss(1) (0.20) (0.26) (0.26)
Net Realized and Unrealized Gain (Loss)
on Investments (0.93) 4.37 3.84
-------- -------- --------
Total from Investment Operations (1.13) 4.11 3.58
-------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold (0.20) (0.69) --
-------- -------- --------
Net Asset Value, End of Period $15.83 $19.25 $22.83
======== ======== ========
Total Investment Return at Net Asset Value(2) (6.56%)(6) 26.01% 18.60%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $3,807 $15,913 $25,474
Ratio of Expenses to Average Net Assets 2.38%(7) 2.31% 2.18%(7)
Ratio of Net Investment Loss to Average Net Assets (1.25%)(7) (1.39%) (1.42%)(7)
Portfolio Turnover Rate 52% 68%(3) 59%
Average brokerage commission rate(4) N/A N/A $0.0695
PERIOD ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, PERIOD ENDED
1993 1994 MARCH 31, 1995
-------- -------- --------
CLASS C (8)
Per Share Operating Performance
Net Asset Value, Beginning of Period $17.05 $17.46 $16.02
-------- -------- --------
Net Investment Income (Loss) (0.02) (0.01) 0.02(1)
Net Realized and Unrealized Gain (Loss) on Investments 2.57 (1.23) 1.28
-------- -------- --------
Total from Investment Operations 2.55 (1.24) 1.30
-------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold (2.14) (0.20) --
-------- -------- --------
Net Asset Value, End of Period $17.46 $16.02 $17.32
======== ======== ========
Total Investment Return at Net Asset Value(2) (15.18%)(6) (7.07%) 8.11%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $1,285 $1,574 $1,672
Ratio of Expenses to Average Net Assets 1.05%(7) 1.12% 1.05%(7)
Ratio of Net Investment Income (Loss) to Average Net Assets (0.17%)(7) (0.08%) 0.44%(7)
Portfolio Turnover Rate 68% 52% 39%
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Excludes merger activity.
(4) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(5) Class B shares commenced operations on January 3, 1994.
(6) Not annualized.
(7) Annualized.
(8) Class C shares commenced operations on May 7, 1993. Net asset value and net assets at the
end of the period reflect amounts prior to the redemption of all shares on March 31, 1995.
(9) Effective October 31, 1996, the fiscal period changed from December 31 to October 31.
The Financial Highlights summarizes the impact of the following factors on a single share for each period indicated:
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.
</TABLE>
<TABLE>
<CAPTION>
The Schedule of Investments is a complete list of all securities owned by the Growth
Fund on October 31, 1996. It's divided into two main categories: common stocks and
short-term investments. Common stocks are further broken down by industry group.
Short-term investments, which represent the Fund's "cash" position, are listed last.
Schedule of Investments
October 31, 1996
- -------------------------------------------------------------------------------
NUMBER OF MARKET
ISSUER, DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK
Banks -- United States (1.76%)
Chase Manhattan Corp. 62,400 $5,350,800
------------
Beverages (1.99%)
Coca-Cola Co. 120,000 6,060,000
------------
Business Services - Misc (7.53%)
APAC Teleservices, Inc.* 141,000 6,503,625
Corrections Corp. of America* 120,000 3,120,000
DST Systems, Inc.* 50,000 1,537,500
Paychex, Inc. 146,250 8,336,250
Sabre Group Holding, Inc.* 20,000 610,000
Sterling Commerce, Inc.* 101,00 2,840,625
------------
22,948,000
------------
Computers (16.33%)
Adaptec, Inc.* 140,000 8,522,500
Baan Co., N.V. (Netherlands) * 50,000 1,850,000
Cabletron Systems, Inc.* 50,000 3,118,750
cisco Systems, Inc.* 110,000 6,806,250
Computer Sciences Corp.* 30,000 2,227,500
HBO & Co. 120,000 7,215,000
McAfee Associates, Inc.* 33,000 1,501,500
Microsoft Corp.* 25,000 3,431,250
Netscape Communications Corp.* 70,000 3,097,500
Oracle Corp.* 140,000 5,923,750
Sun Microsystems, Inc.* 100,000 6,100,000
------------
49,794,000
------------
Cosmetics & Personal Care (4.65%)
Avon Products, Inc. 110,000 5,967,500
Gillette Co. 110,000 8,222,500
------------
14,190,000
------------
Electronics (3.15%)
DSP Communications, Inc.* 50,000 1,900,000
Intel Corp. 70,000 7,691,250
------------
9,591,250
------------
Finance (7.76%)
Associates First Capital Corp.
(Class A) 102,500 4,445,938
Concord EFS, Inc.* 40,000 1,160,000
First Data Corp. 60,000 4,785,000
First USA, Inc. 80,000 4,600,000
MBNA Corp. 180,000 6,795,000
National Processing, Inc.* 98,000 1,862,000
------------
23,647,938
------------
Leisure (2.39%)
HFS, Inc.* 80,000 5,860,000
Marriott International, Inc. 25,000 1,421,875
------------
7,281,875
------------
Linen Supply & Related (1.72%)
Cintas Corp. 90,000 5,242,500
------------
Media (5.08%)
Clear Channel Communications, Inc.* 82,500 6,022,500
Gannett Co., Inc. 55,000 4,173,125
Jacor Communications, Inc.* 28,900 809,200
Tribune Co. 55,000 4,496,250
------------
15,501,075
------------
Medical (13.00%)
American Home Products Corp. 40,000 2,450,000
Amgen, Inc.* 60,000 3,678,750
Cardinal Health, Inc. 82,500 6,476,250
Health Care & Retirement Corp. * 195,000 4,801,875
Health Management Associates, Inc.
(Class A) * 232,500 5,115,000
Johnson & Johnson 130,000 6,402,500
Merck & Co., Inc. 50,000 3,706,250
Omnicare, Inc. 75,000 2,043,750
Pfizer, Inc. 60,000 4,965,000
------------
39,639,375
------------
Oil & Gas (7.71%)
Diamond Offshore Drilling, Inc.* 100,000 6,087,500
Halliburton Co. 70,000 3,963,750
Reading & Bates Corp.* 200,000 5,750,000
Schlumberger Ltd. 45,000 4,460,625
Western Atlas, Inc.* 46,600 3,232,875
------------
23,494,750
------------
Retail (9.77%)
CUC International, Inc. * 213,750 5,236,875
Home Depot, Inc. 74,500 4,078,875
Landry's Seafood Restaurants, Inc. * 150,000 3,075,000
McDonald's Corp. 70,000 3,106,250
Men's Wearhouse, Inc. (The) * 75,000 1,546,875
PETsMART, Inc.* 200,000 5,400,000
Saks Holdings, Inc.* 107,000 3,745,000
Starbucks Corp.* 70,000 2,275,000
Wal-Mart Stores, Inc. 50,000 1,331,250
------------
29,795,125
------------
Schools / Education (1.28%)
Apollo Group, Inc. (Class A)* 141,950 3,903,625
------------
Shoes & Related Apparel (1.16%)
Nike, Inc. (Class B) 60,000 3,532,500
------------
Telecommunications (5.48%)
Cascade Communications Corp.* 70,000 5,083,750
Lucent Technologies, Inc. 100,000 4,700,000
McLeod, Inc. (Class A)* 90,000 2,925,000
MFS Communications Co., Inc.* 80,000 4,010,000
------------
16,718,750
------------
Textile (1.36%)
Tommy Hilfiger Corp.* 80,000 4,160,000
------------
TOTAL COMMON STOCK
(Cost $174,301,069) (92.12%) $280,851,563
--------- ------------
<CAPTION>
PAR VALUE
INTEREST (000'S MARKET
ISSUER,DESCRIPTION RATE OMITTED) VALUE
- --------------------------------- -------- -------- --------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (7.97%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.
Dated 10-31-96, Due 11-01-96
(secured by US Treasury Bond,
10.375% Due 11-15-12,
12.00% Due 8-15-13, 11.25%
Due 2-15-15 and 6.25%
Due 8-15-23) Note A 5.54% $24,312 $24,312,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 512
------------
TOTAL SHORT-TERM INVESTMENTS (7.97%) 24,312,512
--------- ------------
TOTAL INVESTMENTS (100.09%) $305,164,075
========= ============
* 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.
See notes to financial statements.
</TABLE>
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.
Until July 1, 1996 the Fund was a series of of John Hancock Capital
Series. The Trust consists of six series: John Hancock Growth Fund (the
"Fund") and John Hancock Global Fund, John Hancock World Bond Fund, John
Hancock Short-Term Strategic Income Fund, John Hancock Special
Opportunities Fund, and John Hancock International Fund. On May 21, 1996
the Board of Trustees voted to change the fiscal period end from
December 31 to October 31. This change is effective October 31, 1996.
The other five series of the Trust are reported in separate financial
statements. The investment objective of the Fund is to seek long-term
capital appreciation through investment in stocks that are diversified
with regard to industries and issuers.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends, and
liquidation, except that certain expenses, subject to the approval of
the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly-owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement transaction. Aggregate cash balances are invested in one or
more repurchase agreements, whose underlying securities are obligations
of the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis for
both financial reporting and federal income tax purposes.
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.
DIVIDENDS, INTEREST AND DISTRIBUTIONS 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 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 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 relative net assets of the respective
classes. Distribution and 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.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amounts of
assets, liabilities, revenues, and expenses of the Fund. Actual results
could differ from these estimates.
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 $250,000,000 of the Fund's average daily net asset value, (b)
0.75% of the next $250,000,000 and (c) 0.70% of the Fund's average daily
net asset value in excess of $500,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive
state limit where the Fund is registered to sell shares of beneficial
interest, the fee payable to the Adviser will be reduced to the extent
of such excess and the Adviser will make additional arrangements
necessary to eliminate any remaining excess expenses. The current limits
are 2.5% of the first $30,000,000 of the Fund's average daily net asset
value, 2.0% of the next $70,000,000 and 1.5% of the remaining average
daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended
October 31, 1996, JH Funds received net sales charges of $327,255. Out
of this amount, $42,144 was retained and used for printing
prospectuses, advertising, sales literature, and other purposes,
$113,023 was paid as sales commissions to unrelated broker-dealers, and
$172,088 was paid as sales commissions to personnel of John Hancock
Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated
("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of which are
broker-dealers. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company, is the indirect sole shareholder of Distributors and
John Hancock Freedom Securities Corporation and its subsidiaries, which
include Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.0% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses for providing distribution
related services to the Fund in connection with the sale of Class B
shares. For the period ended October 31, 1996, contingent deferred sales
charges amounted to $24,916.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution
Plan with respect to Class A and Class B shares pursuant to Rule 12b-1
under the Investment Company Act of 1940. Accordingly, the Fund will
make payments to JH Funds for distribution and service expenses at an
annual rate not to exceed 0.25% of Class A average daily net assets and
1.00% of Class B average daily net assets to reimburse JH Funds for its
distribution and service costs. Up to a maximum of 0.30% 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 Corp. ("Investor Services"), a wholly-owned subsidiary of The
Berkeley Financial Group. The Fund pays transfer agent fees based on the
number of shareholder accounts and certain out-of-pocket expenses.
On March 5, 1996, the Board of Trustees approved retroactively to
January 1, 1996, an agreement with the Adviser to perform necessary tax
and financial management services for the Fund. The compensation for
1996 is estimated to be at an annual rate of 0.01875% of the average net
assets of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its
affiliates, as well as Trustees 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 makes 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 are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At
October 31, 1996, the Fund's investment to cover the deferred
compensation had unrealized appreciation of $1,006.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended October 31, 1996 aggregated
$160,198,737 and $181,563,386, respectively.
The cost of investments owned at October 31, 1996 (excluding the
corporate savings account), for Federal income tax purposes was
$198,613,069. Gross unrealized appreciation and depreciation of
investments aggregated $111,703,275 and $5,152,781, respectively,
resulting in net unrealized appreciation of $106,550,494.
NOTE D --
REORGANIZATION
On September 8, 1995, the shareholders of John Hancock Capital Growth
Fund (JHCGF) approved a plan of reorganization between JHCGF and the
Fund providing for the transfer of substantially all of the assets and
liabilities of JHCGF to the Fund in exchange solely for Class A and
Class B shares of the Fund. The acquisition was accounted for as a tax
free exchange of 3,788,495 Class A shares, and 471,911 Class B shares of
John Hancock Growth Fund for the net assets of JHCGF, which amounted to
$77,588,384 and $9,563,328 for Class A and B shares, respectively,
including $20,624,702 of unrealized appreciation, after the close of
business on September 15, 1995.
NOTE E --
RECLASSIFICATION OF ACCOUNTS
During the year ended October 31, 1996, the Fund has reclassified the
accumulated net investment loss of $1,841,302 to capital paid-in. This
represents the cumulative amount necessary to report these balances on a
tax basis, excluding certain temporary differences, as of October 31,
1996. Additional adjustments may be needed in subsequent reporting
periods. These reclassifications, which have no impact on the net asset
value of the Fund, are primarily attributable to the treatment of net
operating losses in the computation of distributable income and capital
gains under federal tax rules versus generally accepted accounting
principle. The calculation of net investment income per share in the
financial highlights excludes these adjustments.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Trustees and Shareholders of
John Hancock Freedom Investment Trust II
John Hancock Growth Fund
We have audited the accompanying statement of assets and liabilities of
the John Hancock Growth Fund (the "Fund"), one of the portfolios
constituting John Hancock Freedom Investment Trust II, including the
schedule of investments, as of October 31, 1996, and the related
statements of operations for the period from January 1, 1996 to October
31, 1996 and for the year ended December 31, 1995, and the statement of
changes in net assets 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, 1996, by
correspondence with the custodian and brokers, and other auditing procedures
when replies from brokers were not received. 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 Growth Fund portfolio of John
Hancock Freedom Investment Trust II at October 31, 1996, the results of
its operations for the period from January 1, 1996 to October 31, 1996
and the year ended December 31, 1995, and the changes in its net assets
and the financial highlights for each of the indicated periods, in
conformity with generally accepted accounting principles.
/S/Ernst & Young LLP
Boston, Massachusetts
December 10, 1996
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished
with respect to the distributions of the Fund during its fiscal year
ended October 31, 1996.
The Fund designated distributions to shareholders of 29,715,818 as long-
term capital gain dividends. Shareholders will be mailed a 1996 U.S.
Treasury Department Form 1099-DIV in January 1997 representing their
proportionate share. The Fund has not paid any distributions of ordinary
income dividends during the fiscal year ended October 31, 1996.
None of the distributions noted above qualify for the corporate
dividends received deduction.
SHAREHOLDER MEETING (UNAUDITED)
On June 26, 1996, a special meeting of John Hancock Growth Fund was
held.
The Shareholders approved an Agreement and Plan of Reorganization for
the Fund. The shareholder votes were 7,179,931 FOR, 160,816 AGAINST and
640,860 ABSTAINING.
The Shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- -------------------- --------- ---------
Dennis S. Aronowitz 7,941,304 291,693
Edward J. Boudreau 7,951,696 281,300
Richard P. Chapman 7,951,852 281,144
William J. Cosgrove 7,947,660 285,337
Douglas M. Costle 7,949,952 283,044
Leland O. Erdahl 7,946,132 286,864
Richard A. Farrell 7,951,243 281,754
Gail D. Fosler 7,949,690 283,306
William F. Glavin 7,933,386 299,611
Anne C. Hodsdon 7,952,849 280,148
Dr. John A. Moore 7,947,906 285,091
Patti McGill Peterson 7,948,493 284,503
John W. Pratt 7,945,169 287,827
Richard S. Scipione 7,933,061 299,936
Edward J. Spellman 7,945,134 287,863
NOTES
John Hancock Funds - Growth Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
NOTES
John Hancock Funds - Growth Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
NOTES
John Hancock Funds - Growth Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
A 1/2" x 1/2" John Hancock Funds logo in upper left hand corner of the
page. A box sectioned in quadrants with a triangle in upper left, a
circle in upper right, a cube in lower left and a diamond in lower
right. A tag line below reads "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
Growth Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
A recycled logo in lower left hand corner with caption "Printed on
Recycled Paper." 2000A 10/96
12/96
<PAGE>
- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
Growth
Fund
SEMI-ANNUAL REPORT
April 30, 1997
<PAGE>
================================================================================
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward J. Spellman*
*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
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
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
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
After two years of spectacular performance, the stock market in 1997 has given
investors its starkest reminder in a while of one of investing's basic tenets:
markets move down as well as up. It's understandable if investors had lost sight
of that fact. The bull market that began six years ago has given investors
annual double-digit returns and more modest price declines than usual. And in
the two years encompassing 1995 and 1996, the S&P 500 Index gained more than
50%. This Pollyanna environment has tracked along with a sustained economic
recovery, now in its seventh year, that has been marked by moderate growth, low
interest rates and tame inflation.
But recently, many have begun to wonder about this bull market. Since
reaching new highs in early March, the Dow Jones Industrial Average tumbled by
more than 7% at the end of March and wiped out nearly all it had gained since
the start of the year. It was the worst decline that the market had seen since
1990. In early April, the Dow was down by 9.8%, within shouting distance of a
10% correction. By the end of the month, it had bounced back into record
territory again.
[ 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
As the market continues to fret over interest rates and inflation, investors
should be prepared for more volatility. It also makes sense to do something
we've always advocated: set realistic expectations. Keep in mind that the stock
market's historic yearly average has been about 10%, not the 20%-plus annual
average of the last two years or even the 16% annual average over the last 10
years. Remember that the kind of market volatility we've seen lately is more
like the way the market really works. Fluctuations go with the territory. And
market corrections can be healthy, serving to bring inflated stock prices down
to more reasonable levels, thereby reducing some of the market's risk.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. Make sure that
your investment strategies reflect your individual time horizons, objectives and
risk tolerance, and that they are based upon your needs. Despite turbulence, one
thing remains constant. A well-constructed plan and a cool head can be the best
tools for reaching your financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By Anurag Pandit, CFA, Portfolio Manager
John Hancock
Growth Fund
Stocks take investors on a wild ride;
selectivity becomes key in searching for growth
On January 1, 1997, Anurag Pandit began leading the management team of John
Hancock Growth Fund. Since joining John Hancock Funds in 1996, Mr. Pandit has
been a member of the Fund's management team. Previously he was a vice president
and equity analyst at Loomis-Sayles.
The investment environment was anything but dull during the six months ended
April 30, 1997. The Dow Jones Industrial Average and the S&P 500 Stock Index hit
successive highs through early February, fueled by strong corporate earnings,
increased investor demand, moderate economic growth, low inflation and favorable
interest rates. But early indications of stronger-than-expected economic growth
and lurking inflation put an end to the party as investors responded with
sobriety over the possibility of a pre-emptive Federal Reserve interest-rate
hike.
In March, the Fed raised the fed funds rate by 0.25% to 5.50%, capping off
weeks of volatility in both the equity and fixed-income markets.
- --------------------------------------------------------------------------------
"The investment environment was anything but dull..."
- --------------------------------------------------------------------------------
While John Hancock Growth Fund participated in the market's rally in December
and the early part of January, the downturn in February and March took its toll
on performance. As a result, the Fund gave back most of the gains it realized
through January. Weakness in the portfolio's technology holdings further
hindered the Fund's ability to make any headway. Although
[A 2 1/4" x 3 3/4" photo of the Fund management team. Caption below reads:
"Anurog Pandit (standing) and Fund management team members: (l-r) Rob Hallisey,
Bernice Behar and Andrew Slabin."]
3
<PAGE>
================================================================================
John Hancock Funds - Growth Fund
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Johnson & Johnson 2.7 % 2) Coca Cola 2.5% 3)
Walt Disney 2.2% 4) Diamond Offshore Drilling 2.1% 5) Gillette 2.1%. A footnote
below reads "As a percentage of net assets onApril 30, 1997."]
- --------------------------------------------------------------------------------
A number of the Fund's holdings are large-cap, household names.
- --------------------------------------------------------------------------------
the Fund has rebounded in the final weeks of the period, performance overall was
disappointing and the Fund lagged its peers. For the six months ended April 30,
1997, John Hancock Growth Fund's Class A shares and Class B shares returned a
total of -0.38% and -0.68% at net asset value, respectively. This compares to
the 7.15% total return of the average growth fund, according to Lipper
Analytical Services, Inc. 1 Longer-term and comparative performance can be found
on pages six and seven of this report.
Technology reduced but not eliminated
Like many industries, technology has been hurt by general concerns over a rising
interest-rate environment. Increased competition, questionable sales and
earnings growth and high debt margins provided an added drag on the appreciation
potential of a wide variety of technology stocks. While many of the Fund's
hi-tech positions contributed significantly to performance initially,
substantial exposure to this sector hampered returns later in the period and
proved to be one of the main reasons why the Fund underperformed its
competitors. An example of one disappointing performer, which we sold during the
period, was Paychex, a payroll processing/tax-preparation company. After rising
considerably last fall, the company's stock price moved downward not only in
sympathy with the broad sector but also as a result of its acquisition of a
professional employee organization, a lower margin business.
[Table entitled "Scorecard" at bottom left hand column. The heading for the left
column is "Investment"; the heading for the center column is "Recent
performance.. and what's behind the numbers". The first listing is "Johnson &
Johnson" followed by an up arrow and the phrase "Robust product pipeline". The
second listing is "McDonnell Douglas" followed by a horizontal arrow and the
phrase "Future potential from merger and worldwide fleet demand." The third
listing is "Netscape" followed by a down arrow and the phrase "Hurt by
tech-stock correction and growing pains." Footnote below reads "See "Schedule of
Investments." Investment holdings are subject to change."]
As 1996 came to a close, our research uncovered early indications of
industry-wide price competition and slowing demand in the data networking
industry. We chose to sell several key holdings, believing that the bulk of
their price appreciation was behind them. Cisco Systems, 3COM and Cascade
Communications, were a few of the holdings sold. The move proved timely and
helped soften the impact of this sector's rout, during which the prices of these
stocks got pummeled. As a result of our decision, the Fund's weighting in
technology was reduced from approximately 25%-30% of net assets in November 1996
to roughly 17% by period's end.
Worst over for tech stocks?
Because the long-term fundamentals of many corporations remain attractive,
technology nevertheless continues to be a considerable component of the Fund's
portfolio. We believe demand for enhancing the way people communicate, as well
as the continuing drive for corporate cost-efficiency and increased
productivity, has set the stage for high growth in technology-related issues for
decades to come. As the Fund seeks companies whose earnings are growing at least
twice the rate of the economy, many tech stocks -- with their
4
<PAGE>
================================================================================
John Hancock Funds - Growth Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended April 30, 1997." The chart is
scaled in increments of 1% from bottom to top, with 8% at the top and -1% at the
bottom. Within the chart there are three solid bars. The first represents the
- -0.38% total return for the John Hancock Growth Fund: Class A. The second
represents the -0.68% total return for the John Hancock Growth Fund: Class B.
The third represents the 7.15% total return for the average growth fund. A
footnote below reads: "The total returns for John Hancock Growth Fund are at net
asset value with all distributions reinvested. The average growth fund is
tracked by Lipper Analytical Services. See the following two pages for
historical performance information."]
accelerated earnings possibilities and dynamic growth potential -- are prime
portfolio candidates. Going forward, we will look cautiously to buy on dips,
selectively adding to positions when share prices become too compelling to
ignore.
Health-care stocks well represented
The ongoing demand for quality healthcare -- in good economic times and bad --
makes an attractive case for being exposed to all areas of the health-care
industry. Several issues, in fact, have helped buoy performance during the
market's recent turbulence, including Johnson & Johnson and Pfizer. We've also
increased the Fund's weighting in managed care operations as evidence has
emerged that provider price increases are sticking.
Household names give Fund stability
Throughout the period, investors have preferred the relative safety, liquidity,
and consistent growth characteristics of large, multinational companies, such as
Coca-Cola and Gillette -- two portfolio stocks that have helped mitigate this
year's volatility. We've also recently built up the Fund's position in Walt
Disney Co., and acquired Boeing, which stands to benefit from it's pending
merger with McDonnell Douglas and the strong demand for fleets overseas.
We've increased the Fund's weighting in consumer staples and consumer
cyclical stocks, purchasing CVS and Walgreen's and adding to existing positions,
such as Home Depot and Wal-Mart. By owning stocks of companies that are dominant
players in their industries and whose products typically remain in relatively
solid demand even in a slower economic environment, we have been able to
position the Fund a bit more defensively as we enter the second half of fiscal
1997.
Keeping an eye on the dollar, interest rates
No amount of research or data can give us the ability to predict what course the
market will take next. We are, however, keeping a watchful eye on the
interest-rate horizon and the dollar's unabashed strength, mindful that both
could potentially have an adverse effect on corporate earnings. When selecting
companies that rely on foreign subsidiaries for much of their growth, we will
look only for those that are geographically diversified and in high demand -
ones whose growth potential can offset unfavorable currency exchange rates. We
remain committed to searching for companies that exhibit, in our opinion, solid
fundamentals and the best possible growth characteristics for any environment.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio manager through the end of
the Fund's period discussed in this report. Of course, the manager's views are
subject to change as market and other conditions warrant.
1 Figures from Lipper Analytical Services, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Growth Fund. Total return is a performance
measure that equals the sum of all income and capital gains distributions,
assuming reinvestment of these distributions and the change in the price of the
Fund's net asset value per share. 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. Performance is affected
by a 12b-1 plan, which commenced on January 1, 1990 and January 3, 1994 for
Class A and Class B shares, respectively. 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.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
John Hancock Growth Fund: Class A 1.56% 66.75% 150.50%
John Hancock Growth Fund: Class B(1) 1.17% 31.70% N/A
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE FIVE MOST RECENT
YEAR YEARS TEN YEARS
---- ----- ---------
John Hancock Growth Fund: Class A 1.56% 10.77% 9.62%
John Hancock Growth Fund: Class B(1) 1.17% 8.87% N/A
Notes to Performance
(1) Class B shares commenced on January 3, 1994.
6
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Growth Fund would be worth on April 30, 1997, assuming you have been invested
and have reinvested all distributions for the entire time periods represented in
the graphs. 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 used often as a measure of stock market performance.
[Line chart with the heading Growth 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 $44,959 as of April 30, 1997. The second line
represents the value of the hypothetical $10,000 investment made in the Growth
Fund on October 31, 1986, before sales charge, and is equal to $32,673 as of
April 30, 1997. The third line represents the Growth Fund, after sales charge,
and is equal to $31,040 as of April 30, 1997.]
[Line chart with the heading Growth 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 $18,641 as of April 30, 1997. The second line
represents the value of the hypothetical $10,000 investment made in the Growth
Fund, before sales charge, on January 3, 1994, and is equal to $13,870 as of
April 30, 1997. The third line represents the value of the Growth Fund, after
sales charge, and is equal to $13,570 as of April 30, 1997.]
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth 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 April 30, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - 176,163,695) ......................... $239,799,406
Joint repurchase agreement (cost - 54,815,000) ............. 54,815,000
Corporate savings account .................................. 10,366
------------
............................................................... 294,624,772
Receivable for investments sold .............................. 8,561,752
Receivable for shares sold ................................... 29,847
Dividends receivable ......................................... 71,323
Interest receivable .......................................... 10,159
Other assets ................................................. 27,871
------------
Total Assets ..................... 303,325,724
-------------------------------------------------
Liabilities:
Payable for investments purchased ............................ 2,822,719
Payable for shares repurchased ............................... 73,085
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 248,132
Accounts payable and accrued expenses ........................ 47,946
------------
Total Liabilities ................ 3,191,882
-------------------------------------------------
Net Assets:
Capital paid-in .............................................. 194,695,141
Accumulated net realized gain on investments ................. 42,527,240
Net unrealized appreciation of investments ................... 63,636,717
Accumulated net investment loss .............................. ( 725,256)
------------
Net Assets ....................... $300,133,842
=================================================
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 - $271,090,214/12,958,944 $ 20.92
=============================================================================
Class B - $29,043,628/1,423,285 $ 20.41
=============================================================================
Maximum Offering Price Per Share*
Class A - ($20.92 x 105.26%) $ 22.02
=============================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
The Statement of 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.
Statement of Operations
Six months ended April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends .................................................... $ 828,336
Interest ..................................................... 780,765
----------
............................................................... 1,609,101
----------
Expenses:
Investment management fee - Note B ......................... 1,211,922
Distribution and service fee - Note B
Class A .................................................. 417,255
Class B .................................................. 142,397
Transfer agent fee - Note B ................................ 411,796
Custodian fee .............................................. 31,054
Financial services fee - Note B ............................ 28,748
Registration and filing fees ............................... 27,593
Printing ................................................... 19,370
Auditing fee ............................................... 17,865
Trustees' fees ............................................. 11,515
Miscellaneous .............................................. 3,182
Legal fees ................................................. 1,911
----------
Net Expenses ..................... 2,324,608
-------------------------------------------------
Net Investment Loss .............. ( 715,507)
-------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold ........................ 42,527,505
Change in net unrealized appreciation/depreciation
of investments ............................................. (42,914,783)
----------
Net Realized and Unrealized
Loss on Investments .............. ( 387,278)
--------------------------------------------------
Net Decrease in Net Assets
Resulting from Operations ........ ($1,102,785)
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED JANUARY 1, 1996 TO APRIL 30, 1997
DECEMBER 31, 1995 OCTOBER 31, 1996(1) (UNAUDITED)
----------------- ------------------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss .................................................. ($ 973,581) ($ 1,851,051) ($ 715,507)
Net realized gain on investments sold ................................ 9,207,214 29,604,241 42,527,505
Change in net unrealized appreciation/depreciation of investments .... 30,638,725 21,436,182 ( 42,914,783)
----------- ------------ -----------
Net Increase (Decrease) in Net Assets Resulting from Operations .... 38,872,358 49,189,372 ( 1,102,785)
----------- ------------ -----------
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($0.6945, none and $2.2830 per share, respectively) ...... ( 8,391,968) -- ( 26,978,610)
Class B - ($0.6945, none and $2.2830 per share, respectively) ...... ( 552,264) -- ( 2,737,473)
----------- ------------ -----------
Total Distributions to Shareholders .................................. ( 8,944,232) -- ( 29,716,083)
----------- ------------ -----------
From Fund Share Transactions - Net* .................................... 75,837,052 ( 1,902,994) 26,053,690
----------- ------------ -----------
Net Assets:
Beginning of period .................................................. 151,847,464 257,612,642 304,899,020
----------- ------------ -----------
End of period (including accumulated net investment loss of none,
$9,749 and $725,256, respectively) ................................. $257,612,642 $304,899,020 $300,133,842
============ ============ ============
* Analysis of Fund Share Transactions:
<CAPTION>
PERIOD FROM SIX MONTHS ENDED
YEAR ENDED JANUARY 1, 1996 TO APRIL 30, 1997
DECEMBER 31, 1995 OCTOBER 31, 1996(1) (UNAUDITED)
-----------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Shares sold ..................................... 1,671,481 $32,932,574 2,868,866 $62,914,842 4,554,564 $100,381,803
Shares issued in reorganization - Note D ........ 3,788,495 77,588,384 -- --
Shares issued to shareholders in reinvestment
of distributions .............................. 402,050 7,803,606 -- -- 1,190,440 25,034,945
--------- ----------- --------- ----------- --------- ------------
5,862,026 118,324,564 2,868,866 62,914,842 5,745,004 125,416,748
Less shares repurchased ......................... (2,691,827) ( 52,370,704) (3,252,462) ( 70,867,350) (4,790,825) ( 106,020,842)
--------- ----------- --------- ----------- --------- ------------
Net increase (decrease) ......................... 3,170,199 $65,953,860 ( 383,596) ($ 7,952,508) 954,179 $ 19,395,906
========= =========== ========= =========== ========= ============
CLASS B
Shares sold ..................................... 333,335 $ 6,333,583 2,230,077 $49,208,673 430,031 $ 9,283,682
Shares issued in reorganization - Note D ........ 471,911 9,563,328 -- --
Shares issued to shareholders in reinvestment
of distributions .............................. 27,495 526,875 -- -- 124,391 2,559,110
--------- ----------- --------- ----------- --------- ------------
832,741 16,423,786 2,230,077 49,208,673 554,422 11,842,792
Less shares repurchased ........................ ( 246,690) ( 4,843,723) (1,940,975) ( 43,159,159) ( 246,737) ( 5,185,008)
--------- ----------- --------- ----------- --------- ------------
Net increase ................................... 586,051 $11,580,063 289,102 $ 6,049,514 307,685 $ 6,657,784
========= =========== ========= =========== ========= ============
CLASS C **
Shares sold 841 15,270
Less shares repurchased ( 99,061) ( 1,712,141)
--------- -----------
Net decrease ( 98,220) ($ 1,696,871)
========= ===========
</TABLE>
** All Class C shares were redeemed on March 31, 1995.
(1) Effective October 31, 1996, the fiscal period end changed from December 31
to October 31.
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,
distributions paid to shareholders and any increase or decrease in money
shareholders invested in the Fund. The footnote illustrates the number of Fund
shares sold, reinvested and repurchased during the last three periods, along
with the corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM SIX MONTHS ENDED
-------------------------------------- JANUARY 1, 1996 TO APRIL 30, 1997
1992 1993 1994 1995 OCTOBER 31, 1996(9) (UNAUDITED)
-------------------------------------- ------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $ 17.48 $ 17.32 $ 17.40 $ 15.89 $ 19.51 $ 23.28
-------- -------- -------- -------- -------- --------
Net Investment Loss .................................. ( 0.06)( 0.11)( 0.10)( 0.09)(1)( 0.13)(1) ( 0.04)(1)
Net Realized and Unrealized Gain (Loss)
on Investments ..................................... 1.10 2.33 ( 1.21) 4.40 3.90 ( 0.04)
-------- -------- -------- -------- -------- --------
Total from Investment Operations ................. 1.04 2.22 ( 1.31) 4.31 3.77 ( 0.08)
-------- -------- -------- -------- -------- --------
Less Distributions:
Distributions from Net Realized Gain on
Investments Sold ................................. ( 1.20)( 2.14)( 0.20)( 0.69) -- ( 2.28)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period ....................... $ 17.32 $ 17.40 $ 15.89 $ 19.51 $ 23.28 $ 20.92
======== ======== ======== ======== ======== ========
Total Investment Return at Net Asset Value(2) ........ 6.06% 13.03% ( 7.50%) 27.17% 19.32%(6) ( 0.38%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $153,057 $162,937 $146,466 $241,700 $279,425 $271,090
Ratio of Expenses to Average Net Assets .............. 1.60% 1.56% 1.65% 1.48% 1.48%(7) 1.45%(7)
Ratio of Net Investment Loss to Average Net Assets ... ( 0.36%)( 0.67%)( 0.64%)( 0.46%) ( 0.73%)(7) ( 0.40%)(7)
Portfolio Turnover Rate .............................. 71% 68% 52% 68%(3) 59% 61%
Average Brokerage Commission Rate(4) ................. N/A N/A N/A N/A $ 0.0695 $ 0.0696
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD FROM SIX MONTHS ENDED
JANUARY 1, 1996 TO APRIL 30, 1997
1994(5) 1995 OCTOBER 31, 1996(9) (UNAUDITED)
-------- ------- ------------------- -----------
<S> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $ 17.16 $ 15.83 $ 19.25 $ 22.83
------- ------- ------- -------
Net Investment Loss(1) ....................................... ( 0.20) ( 0.26) ( 0.26) ( 0.12)
Net Realized and Unrealized Gain (Loss) on Investments ....... ( 0.93) 4.37 3.84 ( 0.02)
------- ------- ------- -------
Total from Investment Operations ......................... ( 1.13) 4.11 3.58 ( 0.14)
------- ------- ------- -------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ... ( 0.20) ( 0.69) -- ( 2.28)
------- ------- ------- -------
Net Asset Value, End of Period ............................... $ 15.83 $ 19.25 $ 22.83 $ 20.41
======= ======= ======= =======
Total Investment Return at Net Asset Value(2) ................ ( 6.56%)(6) 26.01% 18.60%(6) ( 0.68%)(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $ 3,807 $15,913 $25,474 $29,044
Ratio of Expenses to Average Net Assets ...................... 2.38%(7) 2.31% 2.18%(7) 2.15%(7)
Ratio of Net Investment Loss to Average Net Assets ........... ( 1.25%)(7) ( 1.39%) (1.42%)(7) ( 1.10%)(7)
Portfolio Turnover Rate ...................................... 52% 68%(3) 59% 61%
Average Brokerage Commission Rate(4) ......................... N/A N/A $0.0695 $0.0696
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, 1993 DECEMBER 31, 1994 MARCH 31, 1995
----------------- ----------------- --------------
<S> <C> <C> <C>
CLASS C (8)
Per Share Operating Performance
Net Asset Value, Beginning of Period ......................... $ 17.05 $ 17.46 $ 16.02
------- ------- -------
Net Investment Income (Loss) ................................. ( 0.02) ( 0.01) 0.02(1)
Net Realized and Unrealized Gain (Loss) on Investments ....... 2.57 ( 1.23) 1.28
------- ------- -------
Total from Investment Operations ......................... 2.55 ( 1.24) 1.30
------- ------- -------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ... ( 2.14) ( 0.20) --
------- ------- -------
Net Asset Value, End of Period ............................. $ 17.46 $ 16.02 $ 17.32
======= ======= =======
Total Investment Return at Net Asset Value(2) ................ ( 15.18%)(6) ( 7.07%) 8.11%(6)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ..................... $ 1,285 $ 1,574 $ 1,672
Ratio of Expenses to Average Net Assets ...................... 1.05%(7) 1.12% 1.05%(7)
Ratio of Net Investment Income (Loss) to Average Net Assets .. ( 0.17%)(7) ( 0.08%) 0.44%(7)
Portfolio Turnover Rate ...................................... 68% 52% 39%
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(3) Excludes merger activity.
(4) Per portfolio share traded. Required for fiscal years that began September 1, 1995, or later.
(5) Class B shares commenced operations on January 3, 1994.
(6) Not annualized.
(7) Annualized.
(8) Class C shares commenced operations on May 7, 1993. Net asset value and net assets at the end of the period
reflect amounts prior to the redemption of all shares on March 31, 1995.
(9) Effective October 31, 1996, the fiscal period changed from December 31 to October 31.
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: 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.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
Schedule of Investments
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Growth Fund on April 30, 1997. It's divided into two main categories: common
stocks and short-term investments. Common stocks are further broken down by
industry group. Short-term investments, which represent the Fund's "cash"
position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Aerospace (1.78%)
McDonnell Douglas Corp. ................... 90,000 $ 5,343,750
------------
Banks - United States (0.63%)
Chase Manhattan Corp. ..................... 20,400 1,889,550
------------
Beverages (2.54%)
Coca-Cola Co. (The) ....................... 120,000 7,635,000
------------
Business Services - Misc (0.87%)
Sterling Commerce, Inc.* .................. 101,000 2,613,375
------------
Computers (10.67%)
BMC Software, Inc.* ....................... 95,000 4,108,750
Cabletron Systems, Inc.* .................. 65,500 2,259,750
cisco Systems, Inc.* ...................... 29,400 1,521,450
Compaq Computer Corp.* .................... 35,000 2,988,125
Computer Associates International, Inc. ... 41,900 2,178,800
Computer Sciences Corp.* .................. 80,000 5,000,000
Electronics for Imaging, Inc.* ............ 120,000 4,710,000
EMC Corp.* ................................ 70,000 2,546,250
HBO & Co. ................................. 50,000 2,675,000
Oracle Corp.* ............................. 50,000 1,987,500
Parametric Technology Corp.* .............. 45,000 2,036,250
------------
32,011,875
------------
Cosmetics & Personal Care (2.12%)
Gillette Co. (The) ........................ 75,000 6,375,000
------------
Electronics (4.09%)
Adaptec, Inc.* ............................ 127,500 4,717,500
Applied Materials, Inc.* .................. 40,000 2,195,000
Intel Corp. ............................... 35,000 5,359,375
------------
12,271,875
------------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Finance (3.32%)
Associates First Capital Corp. (Class A) .. 70,000 $ 3,587,500
First USA, Inc. ........................... 50,000 2,406,250
MBNA Corp. ................................ 120,000 3,960,000
------------
9,953,750
------------
Food (0.70%)
Sara Lee Corp. ............................ 50,000 2,100,000
------------
Household (0.48%)
Rubbermaid, Inc. .......................... 60,000 1,440,000
------------
Leisure (5.22%)
Callaway Golf Co. ......................... 100,000 2,987,500
Disney (Walt) Co., (The) .................. 80,000 6,560,000
HFS, Inc.* ................................ 80,000 4,740,000
Marriott International, Inc. .............. 25,000 1,381,250
------------
15,668,750
------------
Linen Supply & Related (1.64%)
Cintas Corp. .............................. 90,000 4,927,500
------------
Media (3.21%)
Gannett Co., Inc. ......................... 55,000 4,798,750
Tribune Co. ............................... 110,000 4,826,250
------------
9,625,000
------------
Medical (15.70%)
American Home Products Corp. .............. 60,000 3,975,000
Cardinal Health, Inc. ..................... 70,000 3,727,500
Health Care & Retirement Corp. * .......... 195,000 6,166,875
Health Management Associates, Inc.
(Class A) * ............................. 232,500 6,219,375
Johnson & Johnson ......................... 130,000 7,962,500
Merck & Co., Inc. ......................... 50,000 4,525,000
Omnicare, Inc. ............................ 100,000 2,437,500
Oxford Health Plans, Inc.* ................ 30,000 1,976,250
Pfizer, Inc. .............................. 60,000 5,760,000
United Healthcare Corp .................... 90,000 4,376,250
------------
47,126,250
------------
Mortgage - Equity REIT (0.58%)
Spieker Properties, Inc. .................. 50,000 1,743,750
------------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Oil & Gas (12.91%)
Chevron Corp. ............................. 60,000 $ 4,110,000
Diamond Offshore Drilling, Inc.* .......... 100,000 6,437,500
Exxon Corp. ............................... 90,000 5,096,250
Halliburton Co. ........................... 85,000 6,003,125
Reading & Bates Corp.* .................... 200,000 4,475,000
Schlumberger, Ltd. ........................ 45,000 4,983,750
Smith International, Inc.* ................ 100,000 4,737,500
Western Atlas, Inc. * ..................... 46,600 2,889,200
------------
38,732,325
------------
Pollution Control (1.64%)
U.S.A Waste Services, Inc.* ............... 150,000 4,912,500
------------
Retail (8.44%)
CVS Corp. ................................. 120,000 5,955,000
Dollar General Corp. ...................... 50,000 1,581,250
Home Depot, Inc. .......................... 100,000 5,800,000
Starbucks Corp.* .......................... 70,000 2,091,250
Wal-Mart Stores, Inc. ..................... 220,000 6,215,000
Walgreen Co ............................... 80,000 3,680,000
------------
25,322,500
------------
Schools / Education (0.49%)
Apollo Group, Inc. (Class A)* ............. 55,150 1,482,156
------------
Telecommunications (1.34%)
WorldCom, Inc.* ........................... 168,000 4,032,000
------------
Textile (1.53%)
Jones Apparel Group, Inc.* ................ 110,000 4,592,500
------------
TOTAL COMMON STOCKS
(Cost $176,163,695) ( 79.90%) 239,799,406
-------- ------------
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000S OMITTED) VALUE
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (18.26%)
Investment in joint repurchase
agreement transaction with
Aubrey G. Lanston & Co. -
Dated 4-30-97, Due 5-01-97
(Secured by U.S. Treasury
Bills, 5.37% thru 5.78%
Due 8-21-97 thru 3-05-98,
U.S. Treasury Bonds,
7.125% thru 11.25% Due
2-15-15 thru 2-15-23 and U.S.
Treasury Notes, 5.125%
thru 7.75% Due 8-31-98
thru 5-15-05) - Note A 5.375% $54,815 $ 54,815,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 10,366
------------
TOTAL SHORT-TERM INVESTMENTS ( 18.26%) 54,825,366
-------- ------------
TOTAL INVESTMENTS ( 98.16%) $294,624,772
======== ============
* 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.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust III (the "Trust"), is an open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of six series: John Hancock Growth Fund (the "Fund") and John
Hancock Global Fund, John Hancock World Bond Fund, John Hancock Short-Term
Strategic Income Fund, John Hancock Special Opportunities Fund and John Hancock
International Fund. The other five series of the Trust are reported in separate
financial statements. The investment objective of the Fund is to seek long-term
capital appreciation through investment in stocks that are diversified with
regard to industries and issuers.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obli-gations 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 for both financial
reporting and federal income tax purposes.
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.
DIVIDENDS, INTEREST AND DISTRIBUTIONS 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 identifies 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, 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.
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 relative net assets of the respective classes. Distribution
and 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.
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,
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
taking into consideration, among other things, the nature and type of expense
and the relative sizes of the fund.
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amounts of assets, liabilities, revenues
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund had no borrowing
activity for the period ended April 30, 1997.
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 $250,000,000 of the Fund's
average daily net asset value, (b) 0.75% of the next $250,000,000 and (c) 0.70%
of the Fund's average daily net asset value in excess of $500,000,000.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. For the period ended April
30, 1997, JH Funds received net sales charges of $219,432. Out of this amount,
$34,007 was retained and used for printing prospectuses, advertising, sales
literature and other purposes, $69,835 was paid as sales commissions to
unrelated broker-dealers, and $115,590 was paid as sales commissions to
personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony,
Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of which
are broker-dealers. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Distributors
and was the indirect sole shareholder until November 29, 1996, of John Hancock
Freedom Securities Corporation and its subsidiaries, which include Tucker
Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent-deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended April 30, 1997,
contingent-deferred sales charges amounted to $24,815.
In addition, to reimburse JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted a Distribution Plan with
respect to Class A and Class B shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses at an annual rate not to exceed
0.30% of Class A average daily net assets and 1.00% of Class B average daily net
assets to reimburse JH Funds for its distribution and 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 Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione
are trustees and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. 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 makes investments into other John Hancock funds, as
applicable, to
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Growth Fund
cover its liability for the deferred compensation. Investments to cover the
Fund's deferred compensation liability are recorded on the Fund's books as an
other asset. The deferred compensation liability and the related other asset are
always equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At April 30,
1997, the Fund's investment to cover the deferred compensation had unrealized
appreciation of $1,006.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
obligations, during the period ended April 30, 1997, aggregated $168,667,675 and
$209,308,664, respectively.
The cost of investments owned at April 30, 1997 (excluding the corporate
savings account), for federal income tax purposes was $230,978,695. Gross
unrealized appreciation and depreciation of investments aggregated $68,213,649
and $4,577,938, respectively, resulting in net unrealized appreciation of
$63,635,711.
NOTE D --
REORGANIZATION
On September 8, 1995, the shareholders of John Hancock Capital Growth Fund
(JHCGF) approved a plan of reorganization between JHCGF and the Fund providing
for the transfer of substantially all of the assets and liabilities of JHCGF to
the Fund in exchange solely for Class A and Class B shares of the Fund. The
acquisition was accounted for as a tax free exchange of 3,788,495 Class A
shares, and 471,911 Class B shares of John Hancock Growth Fund for the net
assets of JHCGF, which amounted to $77,588,384 and $9,563,328 for Class A and
Class B shares, respectively, including $20,624,702 of unrealized appreciation,
after the close of business on September 15, 1995.
16
<PAGE>
================================================================================
NOTES
John Hancock Funds - Growth Fund
17
<PAGE>
================================================================================
NOTES
John Hancock Funds - Growth Fund
18
<PAGE>
================================================================================
NOTES
John Hancock Funds - Growth Fund
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 Huntington Avenue, Boston, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
Internet: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock Growth
Fund. It may be used as sales literature when preceded or accompanied by the
current prospectus, which details charges, investment objectives and operating
policies.
[RECYCLE LOGO] Printed on Recycled Paper 200SA 4/97
6/97
<PAGE>
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL
SAVE YOUR FUND THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK DISCIPLINED GROWTH FUND
101 HUNTINGTON AVENUE, BOSTON, MASSACHUSETTS 02199
SPECIAL MEETING OF SHAREHOLDERS - NOVEMBER 12, 1997
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Edward J.
Boudreau, Jr., Susan S. Newton and James B. Little, with full power of
substitution in each, to vote all the shares of beneficial interest of John
Hancock Disciplined Growth Fund ("Disciplined Growth Fund") which the
undersigned is (are) entitled to vote at the Special Meeting of Shareholders
(the "Meeting") of Disciplined Growth Fund to be held at 101 Huntington Avenue,
Boston, Massachusetts, on November 12, 1997 at 9:00 a.m., Boston time, and at
any adjournment(s) of the Meeting. All powers may be exercised by a majority of
all proxy holders or substitutes voting or acting, or, if only one votes and
acts, then by that one. Receipt of the Proxy Statement dated September 22, 1997
is hereby acknowledged. If not revoked, this proxy shall be voted for the
proposal:
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
Date __________________, 1997
NOTE: Signature(s) should agree
with name(s) printed herein. When
signing as attorney, executor,
administrator, trustee or guardian,
please give your full title as
such. If a corporation, please sign
in full corporate name by president
or other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
-----------------------------------
Signature(s)
<PAGE>
JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
VOTE THIS PROXY CARD TODAY! YOUR PROMPT RESPONSE WILL SAVE YOUR FUND THE EXPENSE
OF ADDITIONAL MAILINGS.
THIS PROXY SHALL BE VOTED IN FAVOR OF (FOR) PROPOSAL 1 IF NO SPECIFICATION IS
MADE BELOW. AS TO ANY OTHER MATTER, THE 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 Disciplined
Growth Fund and John Hancock Growth Fund. Under this Agreement, Disciplined
Growth Fund would transfer all of its assets to Growth Fund in exchange for
shares of Growth Fund. These shares will be distributed proportionately to
you and the other shareholders of Disciplined Growth Fund. Growth Fund will
also assume Disciplined Growth Fund's liabilities.
---- ---- ----
FOR |____| AGAINST |____| ABSTAIN |____|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
<PAGE>
PART B
STATEMENT OF ADDITIONAL INFORMATION
JOHN HANCOCK GROWTH FUND
September 22, 1997
This statement of additional information is not a prospectus. It should be read
in conjunction with the related proxy statement and prospectus which is also
dated September 22, 1997. This statement of additional information provides
additional information about John Hancock Growth Fund and the fund that it is
acquiring, John Hancock Disciplined Growth 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 John Hancock Signature
Services, Inc., at 1-800-225-5291.
<TABLE>
TABLE OF CONTENTS
<S> <C>
Page
Introduction3
Additional Information About Growth Fund3
General Information and History
Investment Objective and Policies
Management of Growth Fund
Control Persons and Principal Holders of Shares Investment Advisory and
Other Services Brokerage Allocation Capital Stock and Other Securities
Purchase, Redemption and Pricing of Growth Fund Shares Tax Status
Underwriters Calculation of Performance Data Financial Statements
Additional Information about Disciplined Growth Fund4
General Information and History
Investment Objective and Policies
Management of Disciplined Growth Fund
Investment Advisory and Other Services
Brokerage Allocation
Capital Stock and Other Securities
Purchase, Redemption and Pricing of Disciplined Growth Fund Shares
Tax Status
Underwriters
Calculation of Performance Data
Financial Statements
</TABLE>
<PAGE>
Exhibits
A - Statement of additional information, dated March 1, 1997, of John
Hancock Growth Fund including audited financial statements as of
October 31, 1996 and unaudited semi-annual financial statements as of
April 30, 1997.
B - Statement of additional information, dated March 1, 1997, of John
Hancock Disciplined Growth Fund including audited financial statements
as of October 31, 1996 and unaudited semi-annual financial statements
as of April 30, 1997.
C - Pro forma combined financial statements as of April 30, 1997 assuming
the reorganization of John Hancock Disciplined Growth Fund into John
Hancock Growth Fund occurred on that date.
<PAGE>
INTRODUCTION
This statement of additional information is intended to supplement the
information provided in a proxy statement and prospectus dated September 22,
1997. The proxy statement and prospectus has been sent to the shareholders of
Disciplined Growth Fund in connection with the solicitation by the trustees of
Disciplined Growth Fund of proxies to be voted at the special meeting of
shareholders of Disciplined Growth Fund to be held on November 12, 1997. This
statement of additional information incorporates by reference the statement of
additional information of Growth Fund, dated March 1, 1997, and the statement of
additional information of Disciplined Growth Fund, also dated March 1, 1997. The
Growth Fund SAI and the Disciplined Growth Fund SAI are included with this
statement of additional information.
Additional Information About Growth Fund
----------------------------------------
General Information and History
- -------------------------------
For additional information about Growth Fund generally and its history,
see "Organization of the Fund" in the Growth Fund SAI.
Investment Objective and Policies
- ---------------------------------
For additional information about Growth Fund's investment objective,
policies and restrictions see "Investment Objective and Policies" and
"Investment Restrictions" in the Growth Fund SAI.
Management of Growth Fund
- -------------------------
For additional information about the Growth Fund's Board of Trustees,
officers and management personnel, see "Those Responsible for Management" in the
Growth Fund SAI.
Control Persons and Principal Holders of Shares
- -----------------------------------------------
For additional information about control persons of Growth Fund and
principal holders of shares of Growth Fund, see "Those Responsible for
Management" in the Growth Fund SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about Growth 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 Growth Fund SAI.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about Growth Fund's brokerage allocation
practices, see "Brokerage Allocation" in the Growth Fund SAI.
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other
characteristics of Growth Fund's shares of beneficial interest, see "Description
of the Fund's Shares" in the Growth Fund SAI.
Purchase, Redemption and Pricing of Growth Fund Shares
- ------------------------------------------------------
For additional information about the determination of net asset value,
see "Net Asset Value" in the Growth Fund SAI.
<PAGE>
Tax Status
- ----------
For additional information about the tax status of Growth Fund, see
"Tax Status" in the Growth Fund SAI.
Underwriters
- ------------
For additional information about Growth Fund's principal underwriter
and the distribution contract between the principal underwriter and Growth Fund,
see "Distribution Contracts" in the Growth Fund SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of Growth
Fund, see "Calculation of Performance" in the Growth Fund SAI.
Financial Statements
- --------------------
Audited financial statements of Growth Fund at October 31, 1996 and
unaudited semi-annual financial statements as of April 30, 1997 are attached to
the Growth Fund SAI.
Pro Forma combined financial statements as of April 30, 1997 are also
attached hereto.
Additional Information About Disciplined Growth Fund
----------------------------------------------------
General Information and History
- -------------------------------
For additional information about Disciplined Growth Fund generally and
its history, see "Organization of the Funds" in the Disciplined Growth Fund SAI.
Investment Objectives and Policies
- ----------------------------------
For additional information about Disciplined Growth Fund's investment
objectives, policies and restrictions, see "Investment Objective and Policies"
and "Investment Restrictions" in the Disciplined Growth Fund SAI.
Management of Disciplined Growth Fund
- -------------------------------------
For additional information about Disciplined Growth Fund's Board of
Trustees, officers and management personnel, see "Those Responsible for
Management" in the Disciplined Growth Fund SAI.
Investment Advisory and Other Services
- --------------------------------------
For additional information about Disciplined Growth 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 Accountants" in the
Disciplined Growth Fund SAI.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about Disciplined Growth Fund's brokerage
allocation practices, see "Brokerage Allocation" in the Disciplined Growth SAI.
<PAGE>
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other
characteristics of Disciplined Growth Fund's shares of beneficial interest, see
"Description of the Funds' Shares" in the Disciplined Growth Fund SAI.
Purchase, Redemption and Pricing of Disciplined Growth Fund Shares
- ------------------------------------------------------------------
For additional information about the net asset value of Disciplined
Growth Fund's shares, see "Net Asset Value" in the Disciplined Growth Fund SAI.
Tax Status
- ----------
For additional information about the tax status of Disciplined Growth
Fund, see "Tax Status" in the Disciplined Growth Fund's SAI.
Underwriters
- ------------
For additional information about Disciplined Growth Fund's principal
underwriter and the distribution contract between the principal underwriter and
Disciplined Growth Fund, see "Distribution Contracts" in the Disciplined Growth
Fund SAI.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of
Disciplined Growth Fund, see "Calculation of Performance" in the Disciplined
Growth Fund SAI.
Financial Statements
- --------------------
Audited financial statements of Disciplined Growth Fund at October 31,
1996 and unaudited semi-annual financial statements as of April 30, 1997 are
attached to the Disciplined Growth Fund SAI.
<PAGE>
John Hancock Funds
Supplement to Statement of Additional Information
The "INITIAL SALES CHARGE ON CLASS A SHARES" section is supplemented under the
heading "Without Sales Charge" by adding:
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for
further information.
The "INITIAL SALES CHARGE ON CLASS A AND CLASS B SHARES" section is supplemented
under the heading "Without Sales Charge" by adding:
o For retirement plans participating in Merrill Lynch's servicing
programs, Class A shares are not available at net asset value for
Plans with less than $3 million or 500 eligible employees at the date
the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement. Class B shares are available. See your Merrill Lynch
financial consultant for further information.
The "DEFERRED SALES CHARGE ON CLASS B SHARES" section is supplemented under the
heading "Waiver of Contingent Deferred Sales Charge" by adding:
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for
further information.
The "DEFERRED SALES CHARGE ON CLASS B SHARES" section is supplemented under the
heading "For Retirement Accounts" by adding:
o For retirement plans participating in Merrill Lynch's servicing
programs that are investing in Class B shares, shares will convert to
Class A shares after eight years, (5 years for Short-Term Strategic
Income Fund, Intermediate Maturity Fund and Limited-Term Government
Fund) or sooner if the plan attains assets of $5 million (by means of
a CDSC-free redemption/purchase at net asset value).
<PAGE>
The "ADDITIONAL SERVICES AND PROGRAMS" section is supplemented as follows:
Retirement plans participating in Merrill Lynch's servicing programs:
---------------------------------------------------------------------
Class A shares are available at net asset value for plans with $3
million in plan assets or 500 eligible employees at the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service Agreement. If
the plan does not meet either of these limits, Class A shares are not
available.
For participating retirement plans investing in Class B shares, shares
will convert to Class A shares after eight years, or sooner if the
plan attains assets of $5 million (by means of a CDSC-free
redemption/purchase at net asset value).
6/1/97
MF2SS 6/97
<PAGE>
<TABLE>
<S> <C>
John Hancock Special Equities Fund dated 3/1/97 John Hancock Sovereign U.S. Government
John Hancock World Bond Fund dated 3/1/97 Income Fund dated 3/1/97
John Hancock Strategic Income Fund dated 3/1/97 John Hancock Massachusetts Tax-Free
John Hancock Tax Free Bond Fund dated 1/1/97 Income Fund dated 1/1/97
John Hancock Pacific Basin Equities Fund John Hancock New York Tax-Free Income Fund
dated 3/1/97 dated 1/1/97
John Hancock Global Marketplace Fund John Hancock Disciplined Growth Fund
dated 3/1/97 dated 3/1/97
John Hancock Global Rx Fund dated 3/1/97 John Hancock Financial Industries Fund
John Hancock Emerging Growth Fund dated 3/1/97 dated 3/1/97
John Hancock Global Fund dated 3/1/97 John Hancock Regional Bank Fund dated 3/1/97
John Hancock Growth Fund dated 3/1/97 John Hancock Discovery Fund dated 3/1/97
John Hancock Global Technology Fund John Hancock Government Income Fund
dated 3/1/97 dated 3/1/97
John Hancock Short-Term Strategic Income Fund John Hancock High Yield Bond Fund
dated 3/1/97 dated 3/1/97
John Hancock Special Opportunities Fund John Hancock Intermediate Maturity
dated 3/1/97 Government Fund dated 3/1/97
John Hancock California Tax-Fee Income Fund John Hancock High Yield Tax-Free Fund
dated 1/1/97 dated 1/1/97
John Hancock International Fund dated 3/1/97
</TABLE>
Supplement to Statement of Additional Information
The "Distribution Contracts" section is supplemented as follows:
John Hancock Funds, Inc. may pay extra compensation to financial services firms
selling large amounts of fund shares. This compensation may be calculated as a
percentage of fund shares sold by the firm.
5/20/97
MFSAI 5/97
<PAGE>
JOHN HANCOCK GROWTH FUND
Class A and Class B Shares
Statement of Additional Information
March 1, 1997
This Statement of Additional Information provides information about John Hancock
Growth Fund (the "Fund") in addition to the information that is contained in the
combined Growth Funds' Prospectus, dated March 1, 1997 (the "Prospectus"). The
Fund is a diversified series of John Hancock Investment Trust III (the "Trust"),
formerly Freedom Investment Trust II.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way STE 1000
Boston MA 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Organization of the Fund 2
Investment Objective and Policies 2
Investment Restrictions 14
Those Responsible for Management 17
Investment Advisory and Other Services 26
Distribution Contracts 28
Net Asset Value 30
Initial Sales Charge On Class A Shares 31
Deferred Sales Charge On Class B Shares 33
Special Redemptions 36
Additional Services and Programs 37
Description of the Fund's Shares 38
Tax Status 40
Calculation of Performance 44
Brokerage Allocation 46
Transfer Agent Services 48
Custody of Portfolio 48
Independent Auditors 48
Appendix A-1
Financial Statements F-1
1
<PAGE>
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust in 1984 under the laws of The
Commonwealth of Massachusetts. Prior to July 1996, the Fund was a series of John
Hancock Capital Series (known as John Hancock Growth Fund prior to October
1993).
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
The Adviser is an indirect wholly-owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"), a Massachusetts life insurance company
chartered in 1862, with national headquarters at John Hancock Place, Boston,
Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus.
The investment objective of the Fund is to seek long-term capital appreciation.
The Fund invests principally in common stocks (and in securities convertible
into or with rights to purchase common stocks) of companies which the Fund's
management believes offer outstanding growth potential over both the
intermediate and long term. The Adviser will pursue the strategy of investing in
common stocks of those companies whose five-year average operating earnings and
revenue growth are at least two times that of the economy, as measured by the
Gross Domestic Product. Companies selected will generally have positive
operating earnings growth for five consecutive years, although companies without
a five-year record of positive earnings growth may also be selected if, in the
opinion of the Adviser, they have significant growth potential. The Fund may
invest up to 15% of its net assets in securities having a limited or restricted
market. The Adviser expects that the median market capitalization of the
portfolio will be over three billion dollars. There is no assurance that the
Fund will achieve its investment objective.
When management believes that current market or economic conditions warrant, the
Fund temporarily may retain cash or invest in preferred stock, nonconvertible
bonds or other fixed-income securities. Fixed income securities in the Fund's
portfolio will generally be rated at least BBB by Standard & Poor's Ratings
Group ("S&P") or Baa by Moody's Investor's Service, Inc. ("Moody's"), or if
unrated, determined by the Adviser to be of comparable quality. The Fund may,
however, invest up to 5% of its net assets in lower rated securities, commonly
known as "junk bonds".
Lower Rated High Yield Debt Obligations. The Fund may invest in debt securities
rated as low as C by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Group ("S&P") and unrated securities deemed of equivalent quality
by the Adviser. These securities are speculative to a high degree and often have
very poor prospects of attaining real investment standing. Lower rated
securities are generally referred to as junk bonds. No more than 5% of the
Fund's net assets, however, will be invested in securities rated lower than BBB
by S&P or Baa by Moody's. In addition, no more than 5% of the Fund's net assets
may be invested in securities rated BBB or Baa and unrated securities deemed of
equivalent quality. See the Appendix attached to this Statement of Additional
Information which describes the characteristics of the securities in the various
ratings categories. The Fund may invest in comparable quality unrated securities
2
<PAGE>
which, in the opinion of the Adviser, offer comparable yields and risks to those
securities which are rated.
Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the ability of the issuer to make payments of
interest and principal. The high yield fixed income market is relatively new and
its growth occurred during a period of economic expansion. The market has not
yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities generally
respond to short term corporate and market developments to a greater extent than
do the price and liquidity of higher rated securities because such developments
are perceived to have a more direct relationship to the ability of an issuer of
such lower rated securities to meet its ongoing debt obligations. The market
prices of zero coupon bonds are affected to a greater extent by interest rate
changes, and thereby tend to be more volatile than securities which pay interest
periodically. Increasing rate note securities are typically refinanced by the
issuers within a short period of time.
Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations will make it more difficult to dispose of the
bonds and to value accurately the Fund's assets. The reduced availability of
reliable, objective data may increase the Fund's reliance on management's
judgment in valuing high yield bonds. In addition, the Fund's investments in
high yield securities may be susceptible to adverse publicity and investor
perceptions, whether or not justified by fundamental factors. The Fund's
investments, and consequently its net asset value, will be subject to the market
fluctuations and risks inherent in all securities.
Ratings as Investment Criteria. In general, the ratings of Moody's and S&P
represent the opinions of these agencies as to the quality of the securities
which they rate. It should be emphasized however, that ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Fund as initial criteria for the selection of portfolio securities. Among
the factors which will be considered are the long-term ability of the issuer to
pay principal and interest and general economic trends. Appendix A contains
further information concerning the rating of Moody's and S&P and their
significance. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated, or its rating may be reduced below minimum required for
purchase by the Fund. Neither of these events will require the sale of the
securities by the Fund.
Investments In Foreign Securities. The Fund may invest up to 15% of its total
assets in securities of foreign issuers including securities in the form of
sponsored or unsponsored American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") or other securities convertible into securities of
foreign issuers. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information, including financial information, in
the United States. Generally, ADRs are designed for use in the United States
securities markets and EDRs are designed for use in European securities markets.
Foreign Currency Transactions. The foreign currency transactions of the Fund may
be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
3
<PAGE>
selling currency prevailing in the foreign exchange market. The Fund may enter
into forward foreign currency contracts involving currencies of the different
countries in which it will invest as a hedge against possible variations in the
foreign exchange rate between these currencies. Forward contracts are agreements
to purchase or sell a specified currency at a specified future date and price
set at the time of the contract. The Fund's dealings in forward foreign currency
contracts will be limited to hedging either specific transactions or portfolio
positions. The Fund may elect to hedge less than all of its foreign portfolio
positions. The Fund will not engage in speculative forward currency
transactions.
If the Fund enters into a forward contract to purchase foreign currency, its
custodian will segregate cash or liquid securities, of any type or maturity, in
a separate account of the Fund in an amount necessary to complete forward
contract. These assets will be marked to market daily and if the value of the
assets in the separate account declines, additional cash or liquid assets will
be added so that the value of the account will equal the amount of the Fund's
commitments in purchased forward contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as 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.
Purchases and sales of securities will be made whenever necessary in
management's view to achieve the objectives of the Fund. Management believes
that unsettled market and economic conditions during certain periods require
greater portfolio turnover in pursuing the Fund's objective than would otherwise
be the case.
Risks in Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting and auditing and financial reporting requirements comparable to those
applicable to United States issuers.
Because foreign securities may be denominated in currencies other than U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly, so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
4
<PAGE>
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries principal
offices of the issuers of the various securities are located. Foreign securities
markets are generally not as developed or efficient as those in the United
States. While growing in volume they usually have substantially less volume than
the New York Stock Exchange, and securities of some foreign issuers are less
liquid and more volatile than securities of comparable United States issuers.
Fixed commissions on foreign exchanges are generally higher than negotiated
commissions on United States exchanges, although the Fund will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less government supervision and regulation of securities exchanges,
brokers and listed issuers than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States' economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends, interest and in some cases, capital gains payable on certain
Fund's foreign portfolio securities, as well as may be subject to foreign
withholding or other foreign taxes, thus reducing the net amount of income or
gains available for distribution to the Fund's shareholders
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price, plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser will continuously monitor the creditworthiness of the parties with
whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities and could experience losses, including the
possible decline in the value of the underlying securities during the period in
which the Fund seeks to enforce its rights thereto, possible subnormal levels of
income decline in value of the underlying securities or lack of access to income
during this period, as well as the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain with the
5
<PAGE>
Fund's custodian a separate account consisting of liquid securities, of any type
or maturity, in an amount at least equal to the repurchase prices of the
securities (plus any accrued interest thereon) under such agreements. In
addition, the Fund will not borrow money or enter into reverse repurchase
agreements except from banks as a temporary measure for extraordinary emergency
purposes in amounts not to exceed 33 1/3% of the Fund's total assets (including
the amount borrowed) taken at market value. The Fund will not use leverage to
attempt to increase income. The Fund will not purchase securities while
outstanding borrowings exceed 5% of the Fund's total assets. The Fund will enter
into reverse repurchase agreements only with federally insured banks which are
approved in advance as being creditworthy by the Trustees. Under procedures
established by the Trustees, the Adviser will monitor the creditworthiness of
the banks involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4 (2) paper or
Rule 144A securities, that they are liquid, they will not be subject to the 15%
limit on illiquid investments. The Trustees may adopt guidelines and delegate to
the Adviser the daily function of determining and monitoring the liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund to the extent that qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
Options on Securities, Securities Indices and Currency. The Fund may purchase
and write (sell) call and put options on any securities in which it may invest,
on any securities index based on securities in which it may invest or on any
currency in which Fund investments may be denominated. These options may be
listed on national domestic securities exchanges or foreign securities exchanges
or traded in the over-the-counter market. The Fund may write covered put and
call options and purchase put and call options to enhance total return, as a
substitute for the purchase or sale of securities or currency, or to protect
against declines in the value of portfolio securities and against increases in
the cost of securities to be acquired.
Writing Covered Options. A call option on securities or currency written by the
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by the Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive the Fund of the opportunity to profit from an increase in the market
price of the securities [or foreign currency assets] in its portfolio. Writing
6
<PAGE>
covered put options may deprive the Fund of the opportunity to profit from a
decrease in the market price of the securities [or foreign currency assets] to
be acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account maintained by the Fund's custodian with a value at least equal to the
Fund's obligation under the option, (ii) entering into an offsetting forward
commitment and/or (iii) purchasing an offsetting option or any other option
which, by virtue of its exercise price or otherwise, reduces the Fund's net
exposure on its written option position. A written call option on securities is
typically covered by maintaining the securities that are subject to the option
in a segregated account. The Fund may cover call options on a securities index
by owning securities whose price changes are expected to be similar to those of
the underlying index.
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts") in the market value of securities or currencies of the type
in which it may invest. The Fund may also sell call and put options to close out
its purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. The Fund would ordinarily realize a gain on the purchase of a
call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by
the Fund for the purpose of affirmatively benefiting from a decline in the price
of securities or currencies which it does not own. The Fund would ordinarily
realize a gain if, during the option period, the value of the underlying
securities or currency decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
7
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The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
8
<PAGE>
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, the Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. The futures contracts may be
based on various securities (such as U.S. Government securities), securities
indices, foreign currencies and any other financial instruments and indices. All
futures contracts entered into by the Fund are traded on U.S. or foreign
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments [or
currencies] for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire or the
exchange rate of currencies in which portfolio securities are quoted or
denominated. When interest rates are rising or securities prices are falling,
the Fund can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, the Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases. The Fund may
seek to offset anticipated changes in the value of a currency in which its
portfolio securities, or securities that it intends to purchase, are quoted or
denominated by purchasing and selling futures contracts on such currencies.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices or foreign currency rates that
would adversely affect the dollar value of the Fund's portfolio securities. Such
futures contracts may include contracts for the future delivery of securities
9
<PAGE>
held by the Fund or securities with characteristics similar to those of the
Fund's portfolio securities. Similarly, the Fund may sell futures contracts on
any currencies in which its portfolio securities are quoted or denominated or in
one currency to hedge against fluctuations in the value of securities
denominated in a different currency if there is an established historical
pattern of correlation between the two currencies.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency exchange rates then available in the applicable
market to be less favorable than prices that are currently available. The Fund
may also purchase futures contracts as a substitute for transactions in
securities or foreign currency, to alter the investment characteristics of or
currency exposure associated with portfolio securities or to gain or increase
its exposure to a particular securities market or currency.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
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<PAGE>
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities (or the currency in which
they are quoted or 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 quoted or denominated) it intends to purchase.
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 securities or instruments which
it expects to purchase. As evidence of its 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.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. The Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualifications as a
regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities or currencies, require the Fund to
establish with the custodian a segregated account consisting of cash or liquid
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<PAGE>
securities in an amount equal to the underlying value of such contracts and
options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices or currency
exchange rates may result in a poorer overall performance for the Fund than if
it had not entered into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge the Fund's portfolio are various futures on
U.S. Government securities, securities indices and foreign currencies. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and the Fund may be exposed to risk of loss. In addition, it is not
possible to hedge fully or protect against currency fluctuations affecting the
value of securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
12
<PAGE>
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
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 a
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 possesses volatility characteristics similar to those being
hedged. To effect such 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 an 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, interest or dividends the Fund may be required to pay in connection
with a short sale. The successful use of short selling as a hedging device may
be adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the SEC, if the Fund engages in
short sales, it must put in a segregated account (not with the broker) an amount
of cash or U.S. Government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). In addition, until the Fund replaces the borrowed
security, it must daily maintain the segregated account at such a level that the
amount deposited in it plus the amount deposited with the broker as collateral
will equal the current market value of the securities sold short.
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 (see "Taxation").
The Fund does not intend to enter into short sale (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 5% of the value of
the Fund's assets. A short sale is "against the box" to the extent that the Fund
contemporaneously owns or has the right to obtain at no added cost securities
identical to those sold short.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
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When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income. Short
term trading may have the effect of increasing portfolio turnover rate. A high
rate of portfolio turnover (100% or greater) involves correspondingly greater
brokerage expenses and may make it more difficult for the Fund to qualify as a
regulated investment company for federal income tax purposes. The Fund's
portfolio turnover rate is set forth in the table under the caption "Financial
Highlights" in the Prospectus.
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) the holders of 67% or more of
the Fund's shares represented at a meeting if more than 50% of the Fund's
outstanding shares are present in person or by proxy at that meeting or (2) more
than 50% of the Fund's outstanding shares.
The Fund observes the following fundamental investment restrictions.
The Fund may not:
(1) Purchase or sell real estate or any interest therein, except that the Fund
may invest in securities of corporate entities secured by real estate or
marketable interests therein or issued by companies that invest in real estate
or interests therein.
(2) Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Fund's total
assets taken at market value, (2) enter into repurchase agreements, and (3)
purchase all or a portion of securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, bank loan participation
14
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interests, bank certificates of deposit, bankers' acceptances, debentures or
other securities, whether or not the purchase is made upon the original issuance
of the securities.
(3) Invest in commodities or in commodity contracts or in puts, calls, or
combinations of both except options on securities, securities indices, currency
and other financial instruments, futures contracts on securities, securities
indices, currency and other financial instruments, options on such futures
contracts, forward commitments, forward foreign currency exchange contracts,
interest rate or currency swaps, securities index put or call warrants and
repurchase agreements entered into in accordance with the Fund's investment
policies.
(4) Purchase securities of an issuer (other than the U.S. Government, its
agencies or instrumentalities), if (i) such purchase would cause more than 5% of
the Fund's total assets taken at market value to be invested in the securities
of such issuer, or (ii) such purchase would at the time result in more than 10%
of the outstanding voting securities of such issuer being held by the Fund.
(5) Act as an underwriter, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed to be an underwriter
for purposes of the Securities Act of 1933.
(6) Borrow money, except from banks as a temporary measure for extraordinary
emergency purposes in amounts not to exceed 33 1/3% of the Fund's total assets
(including the amount borrowed) taken at market value. The Fund will not use
leverage to attempt to increase income. The Fund will not purchase securities
while outstanding borrowings exceed 5% of the Fund's total assets.
(7) Pledge, mortgage or hypothecate its assets, except to secure indebtedness
permitted by paragraph (6) above and then only if such pledging, mortgaging or
hypothecating does not exceed 33 1/3% of the Fund's total assets taken at market
value.
(8) Purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after such purchase, the value of
its investments in such industry would exceed 25% of its total assets taken at
market value at the time of each investment. This limitation does not apply to
investments in obligations of the U.S. Government or any of its agencies or
instrumentalities.
(9) Issue senior securities, except as permitted by paragraphs (2), (3) and (6)
above. For purposes of this restriction, the issuance of shares of beneficial
interest in multiple classes or series, the purchase or sale of options, futures
contracts and options on futures contracts, forward commitments, forward foreign
currency exchange contracts and repurchase agreements entered into in accordance
with the Fund's investment policy, and the pledge, mortgage or hypothecation of
the Fund's assets within the meaning of paragraph (7) above are not deemed to be
senior securities.
In connection with the lending of portfolio securities under item (2) above,
such loans must at all times be fully collateralized by cash or securities of
the U.S. Government or its agencies or instrumentalities, and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Any cash collateral will consist of short-term high quality debt
instruments. Securities used as collateral must be marked to market daily.
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<PAGE>
Non-fundamental Investment Restrictions
The following restrictions are designated as non-fundamental and may be changed
by the Trustees without shareholder approval.
The Fund may not:
(a) Purchase securities on margin or make short sales, except in connection
with arbitrage transactions, or unless by virtue of its ownership of
other securities, the Fund has the right to obtain securities
equivalent in kind and amount to the securities sold and, if the right
is conditional, the sale is made upon the same conditions, except that
the Fund may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities.
(b) Purchase securities of any company with a record of less than three
years' continuous operation, if such purchase would cause the Fund's
investment in such company taken at cost to exceed 5% of the Fund's
total assets taken at market value.
(c) Invest for the purpose of exercising control over or management of any
company.
(d) Purchase a security if, as a result, (i) more than 10% of the Fund's
total assets would be invested in securities of other investment
companies, (ii) such purchase would result in more than 3% of the total
outstanding voting securities of any one investment company being held
by the Fund, or (iii) more than 5% of the Fund's total assets would be
invested in the securities of any one such investment company. The Fund
may not invest in the securities of any other open-end investment
company.
(e) Knowingly purchase or retain securities of an issuer if one or more of
the Trustees or officers of the Trust or directors or officers of the
Adviser or any investment management subsidiary of the Adviser
individually owns beneficially more than 0.5%, and together own
beneficially more than 5%, of the securities of such issuer.
(f) Invest in interests in oil, gas or other mineral leases or exploration
or development programs, provided that this restriction shall not
prohibit the acquisition of securities of companies engaged in the
production or transmission of oil, gas or other minerals.
(g) Purchase warrants if as a result (i) more than 5% of the Fund's net
assets, valued at the lower of cost or market value, would be invested
in warrants or (ii) more than 2% of its net assets would be invested in
warrants, valued as aforesaid, which are not traded on the New York
Stock Exchange or American Stock Exchange, provided that for these
purposes, warrants acquired in units or attached to securities will be
deemed to be without value.
(h) Purchase any security, including any repurchase agreement maturing in
more than seven days, which is not readily marketable, if more than 15%
of the net assets of the Fund, taken at market value, would be invested
in such securities. (The staff of the Securities and Exchange
Commission may consider over-the-counter options to be illiquid
secusubject to the 15% limit).
(i) Purchase interests in real estate limited partnerships.
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(j) Notwithstanding any investment restriction to the contrary, the Fund
may, in connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/Directors, purchase
securities of other investment companies within the John Hancock Group
of Funds provided that, as a result, (i) no more than 10% of the Fund's
assets would be invested in securities of all other investment
companies, (ii) such purchase would not result in more than 3% of the
total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets
would be invested in any one such investment company.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interests of the Fund and its shareholders, the Fund may cease offering shares
in the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Trustees may, at their sole discretion, revoke such policy.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the values of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees of the Trust, who elect
officers who are responsible for the day-to-day operations of the Fund and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers and Directors of the Adviser or officers
and Directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
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<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman and Chief Executive
101 Huntington Avenue Executive Officer (1, 2) Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("Berkeley
October 1944 Group"); Chairman, NM Capital
Management, In'c. ("NM Capital")
and John Hancock Advisers
International Limited ("Advisers
International"); Chairman, Chief
Executive Officer and President,
John Hancock Funds, Inc. ("John
Hancock Funds"), First Signature
Bank and Trust Company and
Sovereign Asset Management
Corporation ("SAMCorp."); Director,
John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Capital Corporation and New
England/Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; Vice Chairman and
President, the Adviser (until July
1992); Chairman, John Hancock
Distributors, Inc. (until April
1994); Director, John Hancock
Freedom Securities Corporation
(until September 1996); Director,
John Hancock Signature Services,
Inc. ("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
18
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee (3) Professor of Law, Emeritus, Boston
Boston University University School of Law; Trustee,
Boston, Massachusetts Brookline Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1, 3) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, MA 02147 Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University (education);
Director, Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee (3) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, NJ 07458 N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
19
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Douglas M. Costle Trustee (1, 3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, VT 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991); Dean Vermont Law
School (until 1991); Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
Mitretek Systems (governmental
consulting services).
Leland O. Erdahl Trustee (3) Director, Santa Fe Ingredients
8046 Mackenzie Court Company of California, Inc. and
Las Vegas, NV 89129 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing companies),
Uranium Resources, Inc.; President,
Stolar, Inc. (1987-1991); President,
Albuquerque Uranium Corporation
(1985-1992); Director,
Freeport-McMoRan Copper & Gold
Company, Inc., Hecla Mining Company,
Canyon Resources Corporation and
Original Sixteen to One Mines, Inc.
(1984-1987 and 1991-1995)
(management consultant).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
20
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Farrell Trustee(3) President of Farrell, Healer & Co.,
Venture Capital Partners (venture capital management firm)
160 Federal Street (since 1980); Prior to 1980, headed
23rd Floor the venture capital group at Bank of
Boston, MA 02110 Boston Corporation.
November 1932
Gail D. Fosler Trustee (3) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD 20815 economic and business research);
December 1947 Director, Unisys Corp.; and H.B.
Fuller Company.
William F. Glavin Trustee (3) President, Babson College; Vice
Babson College Chairman, Xerox Corporation (until
Horn Library June 1989); Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994) and Inco
March 1931 Ltd.
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser; Director,
Boston, MA 02199 The Berkeley Group, John Hancock
April 1953 Funds; Director, Advisers
International; Executive Vice
President, the Adviser (until
December 1994); Senior Vice
President, the Adviser (until
December 1993); Director, Signature
Services (until January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
21
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dr. John A. Moore Trustee (3) President and Chief Executive
Institute for Evaluating Health Risks Officer, Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since September 1989).
Washington, DC 20006-1602
February 1939
Patti McGill Peterson Trustee (3) Cornell Institute of Public Affairs,
Cornell University Cornell University (since August
Institute of Public Affairs 1996); President Emeritus of Wells
364 Upson Hall College and St. Lawrence University;
Ithica, NY 14853 Director, Niagara Mohawk Power
May 1943 Corporation (electric utility) and
Security Mutual Life (insurance).
John W. Pratt Trustee (3) Professor of Business Administration
2 Gray Gardens East at Harvard University Graduate
Cambridge, MA 02138 School of Business Administration
September 1931 (since 1961).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
22
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, John Hancock Distributors,
August 1937 Inc., Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp. and NM Capital; Trustee,
The Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, John Hancock Property and
Casualty Insurance and its
affiliates (until November 1993);
Director, Signature Services (until
January 1997).
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL 33308
November 1932
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank Fund and
NM Capital; Senior Vice President,
The Berkeley Group; President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
23
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Secretary, SAMCorp.,
Insurance Agency, Inc. and NM
Capital; Counsel, John Hancock
Mutual Life Insurance Company (until
January 1996).
Susan S. Newton Vice President and Secretary Vice President, the Adviser, John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group; Vice
March 1950 President, John Hancock
Distributors, Inc. (until 1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
</TABLE>
24
<PAGE>
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or Trustees of one or more of the other funds for which the Adviser serves
as investment adviser.
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Messrs. Boudreau, Scipione and Ms.
Hodsdon, each a non-Independent Trustee, and each of the officers of the Funds
are interested persons of the Adviser, are compensated by the Adviser/or
affiliated companies and receive no compensation from the Fund for their
services.
Aggregate Total Compensation From
Compensation the Fund and John Hancock
Independent Trustees From the Fund (1) Fund Complex to Trustees(2)
- -------------------- ----------------- ---------------------------
Dennis S. Aronowitz $ 3,515 $ 72,450
Richard P. Chapman, Jr.+ 3,607 75,200
William J. Cosgrove+ 3,515 72,450
Douglas M. Costle++ 143 75,350
Leland O. Erdahl++ 120 72,350
Richard A Farrell++ 143 75,350
Gail D. Fosler 3,304 68,450
William F. Glavin+ 120 72,250
Bayard Henry* 1,265 23,700
Dr. John A Moore++ 120 68,350
Patti McGill Peterson++ 120 72,100
John W. Pratt++ 120 72,350
Edward J. Spellman 3,537 73,950
------- --------
$19,629 $894,300
(1) Compensation made for the ten months ended October 31, 1996.
(2) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31,
1996. As of this date, there were sixty-seven funds in the John Hancock
Fund Complex of which each of these independent trustees served on
thirty-five of the funds.
25
<PAGE>
* Mr. Henry retired from his position as a Trustee effective April 22,
1996..
+ As of December 31, 1996, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock fund complex for
Mr. Chapman was $63,164, for Mr. Cosgrove was $131,317 and for Mr.
Glavin was $109,059 under the John Hancock Deferred Compensation Plan
for Independent Trustees.
++ Became Trustees of the Trust on June 26, 1996.
As of January 31, 1997 the officers and trustees of the Trust as a group owned
less than 1% of the outstanding shares of each class of the Fund.
As of January 31, 1997 the following shareholders beneficially owned 5% of or
more of the outstanding shares of the Fund listed below:
<TABLE>
<CAPTION>
Number of Shares of Percentage of Total
Name and Address of Beneficial Outstanding Shares of the
Shareholders Class of Shares Interest Owned Class of the Fund
- ------------ --------------- -------------- -----------------
<S> <C> <C> <C>
Continental Trust Co B 242,537 17.44%
c/o County Employee
Annuity & Ben Fund of Cook
Count Illinois
209 Jackson St
Suite 700
Chicago IL 60606-6905
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-
7603, was organized in 1968 and presently has more than $19 billion in assets
under management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,080,000 shareholders. The Adviser is
an affiliate of the Life Company, one of the most recognized and respected
financial institutions in the nation. With total assets under management of more
than $80 billion, the Life Company is one of the ten largest life insurance
companies in the United States, and carries high ratings with Standard & Poor's
and A. M. Best's. Founded in 1862, the Life Company has been serving clients for
over 130 years.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser. Pursuant to the Advisory Agreement, the Adviser
agreed to act as investment adviser and manager to the Fund. As manager and
investment adviser, the Adviser will: (a) furnish continuously an investment
program for the Fund and determine, subject to the overall supervision and
review of the Trustees, which investments should be purchased, held, sold or
exchanged, and (b) provide supervision over all aspects of the Fund's operations
except those which are delegated to a custodian, transfer agent or other agent.
The Fund bears all costs of its organization and operation, including expenses
26
<PAGE>
of preparing, printing and mailing all shareholders' reports, notices
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of the
Adviser's employees rendering such services to the Fund; the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association memberships; insurance premiums; and any
extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly an investment management fee, which is based on a stated
percentage of the Fund's average daily net assets as follows:
Net Asset Value Annual Rate
First $250,000, 000 0.80%
Next $250,000,000 0.75%
Amount over $500,000,000 0.70%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more other funds or clients are selling the same security. If opportunities for
purchase or sale of securities by the Adviser for the Fund or for other funds or
clients for which the Adviser renders investment advice arise for consideration
at or about the same time, transactions in such securities will be made, insofar
as feasible, for the respective funds or clients in a manner deemed equitable to
all of them. To the extent that transactions on behalf of more than one client
of the Adviser or its affiliates may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect
on price.
Pursuant to its investment management contract, the Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which the investment management contract relates,
except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of the Adviser in the performance of its duties or from reckless
disregard by the Adviser of its obligations and duties under the investment
management contract.
27
<PAGE>
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a name or any other name indicating that it is
advised by or otherwise connected with the Adviser. In addition, the Adviser or
the Life Company may grant the nonexclusive right to use the name "John Hancock"
or any similar name to any other corporation or entity, including but not
limited to any investment company of which the Life Company or any subsidiary or
affiliate thereof or any successor to the business of any subsidiary or
affiliate thereof shall be the investment adviser.
The investment management contract and the distribution agreement discussed
below continue in effect from year to year if approved annually by vote of a
majority of the Trustees who are not interested persons of one of the parties to
the contract, cast in person at a meeting called for the purpose of voting on
such approval, and by either the Trustees or the holders of a majority of the
Fund's outstanding voting securities. Both agreements automatically terminate
upon assignment and may be terminated without penalty on 60 days' written notice
by either party or by vote of a majority of the outstanding voting securities of
the Fund.
For the years ended December 31, 1994, 1995 and the period ended October 31,
1996, the Adviser received fees of $1,231,294, $1,561,020 and $1,884,304,
respectively.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the period ended January 1, 1996 to October 31, 1996,
the Fund paid the Adviser $44,503 for services under this agreement from the
effective date of July 1, 1996.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser and
the Fund have adopted extensive restrictions on personal securities trading by
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Fund and its shareholders come
first.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each class on behalf of the Fund. Shares of the Fund are also sold by
selected broker-dealers (the "Selling Brokers") which have entered into selling
agency agreements with John Hancock Funds. John Hancock Funds accepts orders for
the purchase of the shares of the Fund which are continually offered at net
asset value next determined, plus any applicable sales charge. In connection
with the sale of Class A or Class B shares of John Hancock Funds and Selling
Brokers receive compensation from a sales charge imposed, in the case of Class A
shares, at the time of sale or, in the case of Class B shares, on a deferred
basis. The sales charges are discussed further in the Prospectus.
The Fund's Trustees adopted Distribution Plans with respect to Class A and Class
B shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% and 1.00%, respectively, of the Fund's
28
<PAGE>
daily net assets attributable to shares of that class. However, the service fees
will not exceed 0.25% of the Fund's average daily net assets attributable to
each class of shares. The distribution fees will be used to reimburse the 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 the John Hancock Funds) engaged in the sale of Fund shares; (ii)
marketing, promotional and overhead expenses incurred in connection with the
distribution of Fund shares; and (iii) with respect to Class B shares only,
interest expenses on unreimbursed distribution expenses. The service fees will
be used to compensate Selling Brokers and others for providing personal and
account maintenance services to shareholders. In the event that John Hancock
Funds is not fully reimbursed for payments or expenses it incurs under the Class
A Plan, these expenses will not be carried beyond twelve months from the date
they were incurred. Unreimbursed expenses under the Class B Plan will be carried
forward together with interest on the balance of these unreimbursed expenses.
The Fund does not treat unreimbursed expenses under the Class B Plan as a
liability of the Fund because the Trustees may terminate the Class B Plan at any
time. For the fiscal year ended October 31, 1996, an aggregate of $208,458
distribution expenses or 0.794% of the average net assets of the Class B shares
of the Fund, was not reimbursed or recovered by John Hancock Funds through the
receipt of deferred sales charges or 12b-1 fees in prior periods.
The Plans were approved by a majority of the voting securities of the applicable
class of the Fund. Both Plans and all amendments were approved by a majority of
the Trustees, including a majority of the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plans (the "Independent Trustees"), by votes cast in person at
meetings called for the purpose of voting on these Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they 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. The Plans provide that they may be terminated without
penalty, (a) by a 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 upon 60
days' written notice to John Hancock Funds and (c) automatically in the event of
assignment. The Plans further provide that they 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 that Plan. Each plan provides, that no
material amendment to the Plans will be effective unless it is approved by a
vote of a majority 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.
Amounts paid to the John Hancock Funds by any class of shares of the Fund will
not be used to pay the expenses incurred with respect to any other class of
shares of the Fund; provided, however, that expenses attributable to the Fund as
a whole will be allocated, to the extent permitted by law, according to the
formula based upon gross sales dollars and/or average daily net assets of each
such class, as may be approved from time to time by vote of a majority of the
29
<PAGE>
Trustees. From time to time, the Fund may participate in join distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Funds.
During the period from January 1, 1996 to October 31, 1996, the Fund paid John
Hancock Funds the following amounts of expenses in connection with their
services for the Fund:
<TABLE>
<CAPTION>
Expense Items
Printing and
Mailing of Interest Carrying
Prospectus to New Compensation to Expenses of John or Other Finance
Growth Fund Advertising Shareholders Selling Brokers Hancock Funds Charges
- ----------- ----------- ------------ --------------- ------------- -------
<S> <C> <C> <C> <C> <C>
Class A shares $54,898 $15,684 $456,764 $131,795 $ --
Class B shares $26,156 $ 7,349 $ 63,710 $ 63,058 $ 16,108
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value (NAV) of the Fund's shares, the
following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of a determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by the
events occurring after the closing of a foreign market, assets are valued by a
method that the Trustees believed accurately reflects fair value.
30
<PAGE>
The NAV of each Fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing the a class's net assets by the number of it shares
outstanding. On any day an international market is closed and the New York Stock
Exchange is open, any foreign securities will be valued at the prior day's close
with the current day's exchange rate. Trading of foreign securities may take
place on Saturdays and U.S. business holidays on which the Fund's NAV is not
calculated. Consequently, the Fund's portfolio securities may trade and the NAV
of the Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive the Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining reduced sales charges referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares of the Fund, the
investor is entitled to cumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund, owned by
the investor, or if John Hancock Signature Services, Inc. ("Signature Services")
is notified by the investor's dealer or the investor at the time of the
purchase, the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his or her spouse and their children under the age of 21,
purchasing securities for his or their own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Signature
Services or a Selling Broker's representative.
Without Sales Charges. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment
laws from paying a sales charge or commission when it purchases shares
of any registered investment management company.*
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if
it is purchasing $1 million or more for non-discretionary customers or
accounts.*
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
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<PAGE>
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law) of any of the foregoing; or any fund,
pension, profit sharing or other benefit plan for the individuals
described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into an agreement with John Hancock
Funds providing specifically for the use of Fund shares in fee-based
investment products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.*
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed defined contribution plans with at least 100 eligible
employees at the inception of the Fund account, may purchase Class A
shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which
the purchase was made, a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
- --------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
*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.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of a reduced sales
charge by taking into account not only the amount then being invested but also
the purchase price or current account value of the Class A shares already held
by such person.
Combination Privilege. Reduced sales charges also are available to an investor
based on the aggregate amount of his concurrent and prior investments in Class A
shares of the Fund and shares of all other John Hancock funds which carry a
sales charge.
Letter of Intention. Reduced sales charges are also applicable to investments
made pursuant to a Letter of Intention (the "LOI"), which should be read
carefully prior to its execution by an investor. The Fund offers two options
regarding the specified period for making investments under the LOI. All
investors have the option of making their investments over a specified period of
thirteen (13) months. Investors who are using the Fund as a funding medium for a
32
<PAGE>
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, SEP, SARSEP, 401(k), 403(b), (including TSAs) and
Section 457 plans. Such an investment (including accumulations and combinations)
must aggregate $50,000 or more invested during the specified period from the
date of the LOI or from a date within ninety (90) days prior thereto, upon
written request to Signature Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount intended
to be invested had been invested immediately. If such aggregate amount is not
actually invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made within the specified period (either 13
or 48 months) the sales charge applicable will not be higher than that which
would have applied (including accumulations and combinations) had the LOI been
for the amount actually invested.
The LOI authorizes Signature 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 escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so 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. No CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions. No CDSC will be
imposed on shares derived from reinvestment of dividends or capital gains
distributions.
Class B shares are not available to full-service defined contribution plans
administered by Signature Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining 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 first day
of the month.
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<PAGE>
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
dividend and capital gain reinvestment, and next from the shares you have held
the longest during the six-year period. For this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price. However, you cannot redeem appreciation value only in order to avoid a
CDSC.
When requesting a redemption for a specific dollar amount, please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
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<PAGE>
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Signature
Services. (Please note, this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a
CDSC.)
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b),
401(k), Money Purchase Pension Plan, Profit-Sharing Plan and other
qualified plans as described in the Internal Revenue Code) unless
otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under Section
401(a) of the Code (such as 401(k), Money Purchase Pension Plan Profit
Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares
prior to May 15, 1995.
Please see matrix for reference.
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<PAGE>
<TABLE>
<CAPTION>
CDSC Waiver Matrix for Class B Funds.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Type of 401(a) Plan 403(b) 457 IRA, IRA Non-
Distribution (401(k), MPP, Rollover Retirement
PSP)
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Over 70 1/2 Waived Waived Waived Waived for 12% of
mandatory account value
distributions annually in
or 12% of periodic
account value payments
annually in
periodic
payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of
and 70 1/2 Expectancy or account value
12% of account annually in
value annually periodic
in periodic payments
payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of
annuity annuity annuity account value
payments (72t) payments (72t) payments (72t) annually in
or 12% of or 12% of or 12% of periodic
account value account value account value payments
annually in annually in annually in
periodic periodic periodic
payments. payments. payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Loans Waived Waived N/A N/A N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Temination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Hardships Waived Waived Waived N/A N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Return of Excess Waived Waived Waived Waived N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he or she will 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
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<PAGE>
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. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income
Fund, John Hancock Intermediate Maturity Government Fund and John Hancock
Limited-Term Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds from the redemption
of the Fund's shares. Since the redemption price of the Fund shares may be more
or less than the shareholder's cost, depending upon the market value of the
securities owned by the Fund at the time of redemption, the distribution of cash
pursuant to this plan may result in realization of gain or loss for purposes of
Federal, state and local income taxes. The maintenance of a Systematic
Withdrawal Plan concurrently with purchases of additional Class A or Class B
shares of the Fund could be disadvantageous to a shareholder because of the
initial sales charge payable on such purchases of Class A shares and the CDSC
imposed on redemptions of Class B shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase Class A or Class B shares
at the same time that a Systematic Withdrawal Plan is in effect. The Fund
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<PAGE>
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 Signature Services.
Monthly Automatic Accumulation Program (MAAP). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
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 Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. Upon notification of Signature
Services, a shareholder who has redeemed Fund shares may, within 120 days after
the date of redemption, reinvest without payment of a sales charge any part of
the redemption proceeds in shares of the same class of the Fund or any John
Hancock funds, subject to the minimum investment limit in that fund. The
proceeds from the redemption of Class A shares may be reinvested at net asset
value without paying a sales charge in Class A shares of the Fund or in Class A
shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
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<PAGE>
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and six other
series. Additional series may be added in the future. The Declaration of Trust
also authorizes the Trustees to classify and reclassify the shares of the Fund,
or any new series of the Trust, into one or more classes. As of the date of this
Statement of Additional Information, the Trustees have authorized the issuance
of two classes of shares of the Fund, designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
Class A 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 for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class, (ii) Class B shares will pay higher
distribution and service fees than Class A shares and (iii) each of Class A and
Class B shares will bear any class expenses properly allocable to that class of
shares, subject to the conditions the Internal Revenue Service imposes with
respect to the multiple-class structures. Similarly, the net asset value per
share may vary depending on whether Class A or Class B shares are purchased.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding 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 Fund. 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 shareholder held personally
liable for reason of being or having been a shareholder. The Declaration of
Trust also provides that no series of the Trust shall be liable for the
liabilities of any other series. Furthermore, no fund included in this Fund's
prospectus shall be liable for the liabilities of any other John Hancock Fund.
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.
A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts.
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<PAGE>
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate entity
for accounting and tax purposes. The Fund has qualified as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code") and intends to continue to so qualify for each taxable
year. As such and by complying with the applicable provisions of the Code
regarding the sources of its income, the timing of its distributions and the
diversification of its assets, the Fund will not be subject to Federal income
tax on taxable income (including net realized capital gains) which is
distributed to shareholders in accordance with the timing requirements of the
Code.
The Fund will be subject to a four percent nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to seek to avoid or minimize liability
for such tax.
Distribution from the Fund's current or accumulated earnings and profits ("E&P")
will be taxable under the Code for investors who are subject to tax. If these
distributions are paid from the Fund's "investment company taxable income," they
will be taxable as ordinary income; and if they are paid from the Fund's "net
capital gain" they will be taxable as long-term capital gain. (Net capital gain
is the excess (if any) of net long-term capital gain over net short-term capital
loss, and investment company taxable income is all taxable income and capital
gains, other than net capital gain, after reduction by deductible expenses.)
Some distributions from investment company taxable income and/or net capital
gain may be paid in January but may be taxable to shareholders as if they had
been received on December 31 of the previous year. The tax treatment described
above will apply without regard to whether distributions are received in cash or
reinvested in additional shares of the Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
The Fund may be subject to foreign taxes on its income from investments in
certain ADRs representing foreign securities. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Because more than 50%
of the Fund's assets at the close of any taxable year will not consist of stocks
or securities of foreign corporations, the Fund will be unable to pass such
taxes through to shareholders (as additional income) along with a corresponding
entitlement to a foreign tax credit or deduction. The Fund will deduct the
foreign taxes it pays in determining the amount it has available for
distribution to shareholders.
If the Fund acquires ADRs representing stock in certain non-U.S. corporations
that receive at least 75% of their annual gross income from passive sources
(such as interest, dividends, rents, royalties or capital gain) or hold at least
50% of their asset in investments producing such passive income ("passive
foreign investment companies"), the Fund could be subject to Federal income tax
and additional interest charges on "excess distributions" received from such
companies or gain from the sale of stock in such companies, even if all income
or gain actually received by the Fund is timely distributed to its shareholders.
The Fund would not be able to pass through to its shareholders any credit or
40
<PAGE>
deduction for such a tax. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election would require the Fund to
recognize taxable income or gain without the concurrent receipt of cash. The
Fund may limit and/or manage its holdings in passive foreign investment
companies to minimize its tax liability or maximize its return for these
investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not directly
related to the Fund's investment in stock or securities, possibly including any
such transaction not used for hedging purposes, may increase the amount of gain
it is deemed to recognize from the sale of certain investments or derivatives
held for less than three months, which gain is limited under the Code to less
than 30% of its gross income for each taxable year, and may under future
Treasury regulations produce income not among the types of "qualifying income"
from which the Fund must derive at least 90% of its gross income for each
taxable year. 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 the resulting overall ordinary loss
for such year would not be deductible by the Fund or its shareholders in future
years.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options and futures contracts,
foreign currency positions and foreign currency forward contracts. Certain of
these transactions may cause the Fund to recognize gains or losses from marking
to market even though its positions have not been sold or terminated and may
affect the character as long-term or short-term (or, in the case of certain
foreign currency options, futures and forward contracts, as ordinary income or
loss) of some capital gains and losses realized by the Fund. Additionally,
certain of the Fund's losses on transactions involving options, futures, forward
contracts, and any offsetting or successor positions in its portfolio may be
deferred rather than being taken into account currently in calculating the
Fund's taxable income or gain. Certain of such transactions may also cause the
Fund to dispose of investments sooner than would otherwise have occurred. 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 applicable to options, futures or forward contracts, including
consideration of available elections, in order to seek to minimize any potential
adverse tax consequences.
The amount of net realized capital gains, if any, in any given year will result
from sales of securities and the use of certain other transactions or
derivatives made with a view to the maintenance of a portfolio believed by the
Fund's management to be most likely to attain the Fund's objective. The
resulting gains or losses may therefore vary considerably from year to year. At
the time of an investor's purchase of shares of the Fund, a portion of the
purchase price is often attributable to realized or unrealized appreciation in
the Fund's portfolio or undistributed taxable income of the Fund. Consequently,
subsequent distributions on those shares 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.
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<PAGE>
Upon a redemption of shares of the Fund (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's 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
and subject to the special rules described below. A sales charge paid in
purchasing Class A shares of the Fund cannot be taken into account for purposes
of determining gain or loss on the redemption or exchange of such shares within
90 days after their purchase to the extent Class A shares of the Fund or another
John Hancock fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. This disregarded charge will
result in an increase in the shareholder's tax basis in the Class A shares
subsequently acquired. Also, any loss realized on a redemption or exchange may
be disallowed to the extent the shares disposed of are replaced with other
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to automatic
dividend reinvestments. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized upon the redemption
of shares with a tax holding period of six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain with respect to such shares.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net 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 carry
forward of prior years' capital losses, it would be subject to Federal income
tax in the hands of the Fund. Upon proper designation of this amount by the
Fund, each shareholder would be treated for Federal income tax purposes as if
the Fund had distributed to him on the last day of its taxable year his pro rata
share of such excess, and he had paid his pro rata share of the taxes paid by
the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder
would (a) include his pro rata share of such excess as long-term capital gain in
his return for his taxable year in which the last day of the Fund's taxable year
falls, (b) be entitled either to a tax credit on his return for, or to a refund
of, his pro rata share of the taxes paid by the Fund, and (c) be entitled to
increase the adjusted tax basis for his shares in the Fund by the difference
between his pro rata share of such excess and his pro rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and, as noted above, would not be distributed as such to
shareholders. Presently, there are no realized capital loss carry forwards
available to offset future net realized capital gains.
Investment in debt obligations that are at risk of or in default present special
tax issues for the Fund. Tax rules are not entirely clear about issues such as
when the Fund may cease to accrue interest, original issue discount, or market
discount, when and to what extent deductions may be taken for bad debts or
worthless securities, how payments received on obligations in default should be
allocated between principal and income, and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fund, in the event it acquires or holds any such obligations,
42
<PAGE>
in order to reduce the risk of distributing insufficient income to preserve its
status as a regulated investment company and seeks to avoid becoming subject to
Federal income or excise tax.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and properly 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 have any
debt that is deemed under the Code directly attributable to such shares, may be
denied a portion of the dividends received deduction. The entire qualifying
dividend, including the otherwise- deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability. Additionally, any corporate shareholder
should consult its tax adviser regarding the possibility that its basis in its
shares may be reduced, for Federal income tax purposes, by reason of
"extraordinary dividends" received with respect to the shares, for the purpose
of computing its gain or loss on redemption or other disposition of the shares.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options, futures and forward contracts may
also require the Fund to recognize income or gain without a concurrent receipt
of cash. However, the Fund must distribute to shareholders for each taxable year
substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although it may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. The Fund may refuse to
43
<PAGE>
accept an application that does not contain any required taxpayer identification
number nor certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The foregoing discussion relates solely to Federal income tax law as applicable
to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to non-resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund and, unless an effective IRS Form W-8 or authorized substitute for
Form W-8 is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
The average annual total return on Class A shares of the Fund for the 1 year, 5
year and 10 year periods ended October 31, 1996 was 12.47%, 11.70% and 12.04%,
respectively. The average annual total return on Class B shares of the Fund for
the 1 year period ended October 31, 1996 and since inception on January 3, 1994
was 12.52% and 11.67%, respectively.
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:
44
<PAGE>
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the 1 year, 5 year, and 10 year periods.
Because each share has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A 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, respectively. This
calculation 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
the Fund during the period stated by the maximum offering price or net asset
value at the end of the period. Excluding the Fund's sales charge from the
distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments and/or a series of redemptions over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B shares into account. Excluding the Fund's sales charge on
Class A shares and the CDSC on Class B shares from a total return calculation
produces a higher total return figure.
The Fund may advertise yield, where appropriate. The Fund's yield is computed by
dividing net investment income per share determined for a 30-day period by the
maximum offering price per share (which includes the full sales charge) on the
last day of the period, according to the following standard formula:
Yield = 2([(a - b) + 1] 6 - 1
---
cd
Where:
a = dividends and interest earned during the period.
45
<PAGE>
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).
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper - Mutual Fund Performance Analysis," a monthly
publication which tracks net assets, total return and yield on mutual funds in
the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes, as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may also be
utilized. The Fund's promotional and sales literature may make reference to the
Fund's "beta". Beta is a reflection of the market related risk of the Fund by
showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by its investment committee of the Adviser, which consists
of officers and directors of the Adviser and affiliates and officers and
Trustees who are interested persons of the Fund. Orders for purchases and sales
of securities are placed in a manner which, in the opinion of the 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. 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.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. Ion other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
46
<PAGE>
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and, to a
lesser extent, statistical assistance furnished to the Adviser of the Fund and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Insurance Company or other advisory clients of the Adviser, and, conversely,
brokerage commissions and spreads paid by other advisory clients of the Adviser
may result in research information and statistical assistance beneficial to the
Fund. The Fund will not make commitments to allocate portfolio transactions upon
any prescribed basis. While the Adviser will be primarily responsible for the
allocation of the Fund's brokerage business, their policies and practices in
this regard must be consistent with the foregoing and will at all times be
subject to review by the Trustees. For the years ended on December 31, 1995 and
1994, the Fund paid negotiated brokerage commissions in the amount of $334,672
and $236,226, respectively. For the period from January 1, 1996 to October 31,
1996, the Fund paid negotiated brokerage commissions in the amount of $365,163.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay a broker which provides brokerage and research services to the Fund an
amount of disclosed commission in excess of the commission which another broker
would have charged for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that such commission is reasonable in
light of the services provided and to such policies as the Trustees may adopt
from time to time. For the period from January 1, 1996 to October 31, 1996, the
Fund directed commissions in the amount of $44,419 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 Distributors, Inc., a broker-dealer ("Distributors"
or "Affiliated Broker"). 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 Affiliated Brokers. During the
period from January 1, 1996 to October 31, 1996, the Fund did not execute any
portfolio transactions with Affiliated Brokers.
Distributors 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
47
<PAGE>
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers, except for accounts for which the Affiliated Broker
acts as clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Fund as determined by a majority of the
Trustees who are not "interested persons" (as defined in the Investment Company
Act) of the Fund, the Adviser or the Affiliated Broker. Because the Adviser,
which is affiliated with the Affiliated Brokers, has, as an investment adviser
to the Fund, the obligation to provide investment management services, which
include elements of research and related investment skills, such research and
related skills will not be used by the Affiliated Broker as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria.
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 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 Signature Services, Inc., 1 John Hancock Way STE 1000, Boston, MA
02217-1000, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays an annual fee of
$19.00 for each Class A shareholder and $21.50 for each Class B shareholder,
plus certain out-of-pocket expenses. These expenses are aggregated and charged
to the Fund allocated to each class on the basis of their relative net asset
value.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 89 South Street, Boston,
Massachusetts 02111. Under the custodian agreement, Investors Bank & Trust
Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Ernst & Young LLP, 200 Clarendon
Street, Boston, Massachusetts 02116. Ernst & Young LLP audits and renders an
opinion on the Fund's annual financial statements and prepares the Fund's annual
Federal income tax return.
48
<PAGE>
APPENDIX
Moody's describes its lower ratings for corporate bonds as follows:
Bonds which are rated Baa are considered as medium grade obligations, i.e., they
are neither highly protected nor poorly secured. Interest payments and principal
security appear adequate for the present but certain protective elements may be
lacking or may be characteristically unreliable over any great length of time.
Such bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Bonds which are rated Ba are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Bonds which are rated Caa are of poor standing. Such issues may be in default or
there may be present elements of danger with respect to principal or interest.
Bonds which are rated Ca represented obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
Bonds which are rated C are the lowest rated class of bonds and issues so rated
can be regarded as having extremely poor prospects of ever attaining any real
investment standing.
S&P describes its lower ratings for corporate bonds as follows:
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead to
a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated BB, B, CCC, or CC is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and CC the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's describes its three highest ratings for commercial paper as follows:
Issuers rated P-1 (or related supporting institutions) have a superior capacity
for repayment of short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics: (1) leading market
positions in well-established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structures with moderate reliance on
debt and ample asset protections; (4) broad margins in earnings coverage of
A-1
<PAGE>
fixed financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of
alternate liquidity.
Issuers rated P- (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P describes its three highest ratings for commercial paper as follows:
A-1. This designation indicated that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
A-2
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
John Hancock Funds
Supplement to Statement of Additional Information
The "INITIAL SALES CHARGE ON CLASS A SHARES" section is supplemented under the
heading "Without Sales Charge" by adding:
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for
further information.
The "INITIAL SALES CHARGE ON CLASS A AND CLASS B SHARES" section is supplemented
under the heading "Without Sales Charge" by adding:
o For retirement plans participating in Merrill Lynch's servicing
programs, Class A shares are not available at net asset value for
Plans with less than $3 million or 500 eligible employees at the date
the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement. Class B shares are available. See your Merrill Lynch
financial consultant for further information.
The "DEFERRED SALES CHARGE ON CLASS B SHARES" section is supplemented under the
heading "Waiver of Contingent Deferred Sales Charge" by adding:
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See your Merrill Lynch financial consultant for
further information.
The "DEFERRED SALES CHARGE ON CLASS B SHARES" section is supplemented under the
heading "For Retirement Accounts" by adding:
o For retirement plans participating in Merrill Lynch's servicing
programs that are investing in Class B shares, shares will convert to
Class A shares after eight years, (5 years for Short-Term Strategic
Income Fund, Intermediate Maturity Fund and Limited-Term Government
Fund) or sooner if the plan attains assets of $5 million (by means of
a CDSC-free redemption/purchase at net asset value).
<PAGE>
The "ADDITIONAL SERVICES AND PROGRAMS" section is supplemented as follows:
Retirement plans participating in Merrill Lynch's servicing programs:
---------------------------------------------------------------------
Class A shares are available at net asset value for plans with $3
million in plan assets or 500 eligible employees at the date the Plan
Sponsor signs the Merrill Lynch Recordkeeping Service Agreement. If
the plan does not meet either of these limits, Class A shares are not
available.
For participating retirement plans investing in Class B shares, shares
will convert to Class A shares after eight years, or sooner if the
plan attains assets of $5 million (by means of a CDSC-free
redemption/purchase at net asset value).
6/1/97
MF2SS 6/97
<PAGE>
<TABLE>
<S> <C>
John Hancock Special Equities Fund dated 3/1/97 John Hancock Sovereign U.S. Government
John Hancock World Bond Fund dated 3/1/97 Income Fund dated 3/1/97
John Hancock Strategic Income Fund dated 3/1/97 John Hancock Massachusetts Tax-Free
John Hancock Tax Free Bond Fund dated 1/1/97 Income Fund dated 1/1/97
John Hancock Pacific Basin Equities Fund John Hancock New York Tax-Free Income Fund
dated 3/1/97 dated 1/1/97
John Hancock Global Marketplace Fund John Hancock Disciplined Growth Fund
dated 3/1/97 dated 3/1/97
John Hancock Global Rx Fund dated 3/1/97 John Hancock Financial Industries Fund
John Hancock Emerging Growth Fund dated 3/1/97 dated 3/1/97
John Hancock Global Fund dated 3/1/97 John Hancock Regional Bank Fund dated 3/1/97
John Hancock Growth Fund dated 3/1/97 John Hancock Discovery Fund dated 3/1/97
John Hancock Global Technology Fund John Hancock Government Income Fund
dated 3/1/97 dated 3/1/97
John Hancock Short-Term Strategic Income Fund John Hancock High Yield Bond Fund
dated 3/1/97 dated 3/1/97
John Hancock Special Opportunities Fund John Hancock Intermediate Maturity
dated 3/1/97 Government Fund dated 3/1/97
John Hancock California Tax-Fee Income Fund John Hancock High Yield Tax-Free Fund
dated 1/1/97 dated 1/1/97
John Hancock International Fund dated 3/1/97
</TABLE>
Supplement to Statement of Additional Information
The "Distribution Contracts" section is supplemented as follows:
John Hancock Funds, Inc. may pay extra compensation to financial services firms
selling large amounts of fund shares. This compensation may be calculated as a
percentage of fund shares sold by the firm.
5/20/97
MFSAI 5/97
<PAGE>
JOHN HANCOCK DISCIPLINED GROWTH FUND
JOHN HANCOCK REGIONAL BANK FUND
Class A and Class B Shares
Statement of Additional Information
March 1, 1997
This Statement of Additional Information provides information about John Hancock
Disciplined Growth and John Hancock Regional Bank Fund (collectively, the
"Funds") in addition to the information that is contained in the combined Growth
Funds' Prospectus dated March 1, 1997 (the "Prospectus"). The Funds are
diversified series of John Hancock Investment Trust II (the "Trust"), formerly
Freedom Investment Trust.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way STE 1000
Boston MA 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Organization of the Funds .....................................................2
Investment Objectives and Policies.............................................2
- -John Hancock Disciplined Growth Fund/John Hancock Regional Bank Fund
Investment Restrictions.......................................................14
Those Responsible for Management..............................................18
Investment Advisory and Other Services........................................27
Distribution Contracts........................................................30
Net Asset Value...............................................................32
Initial Sales Charge on Class A Shares........................................33
Deferred Sales Charge on Class B Shares.......................................36
Special Redemptions...........................................................39
Additional Services and Programs..............................................40
Description of the Funds' Shares..............................................42
Tax Status....................................................................43
Calculation of Performance....................................................49
Brokerage Allocation..........................................................52
Transfer Agent Services.......................................................54
Custody of Portfolio..........................................................54
Independent Accountants.......................................................54
Appendix A ..................................................................A-1
- - Bond and Commercial Paper Ratings..........................................
Financial Statements.........................................................F-1
1
<PAGE>
ORGANIZATION OF THE FUNDS
The Funds are a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust on March 29, 1984 under the laws of
The Commonwealth of Massachusetts. To date, three series of the Trust have been
authorized for sale to the public by the Trustees: John Hancock Disciplined
Growth Fund ("Disciplined Growth Fund"), John Hancock Financial Industries Fund
("Financial Industries Fund") and John Hancock Regional Bank Fund ("Regional
Bank Fund"). The Disciplined Growth Fund and the Regional Bank Fund may be
referred to individually as a "Fund" and collectively as the "Funds". The Funds
commenced operations on January 16, 1986 and April 2, 1985, respectively.
John Hancock Advisers, Inc. (the "Adviser") is the Funds' investment adviser.
The Adviser is an indirect wholly owned subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company") a Massachusetts life insurance company
chartered in 1862, with national headquarters at John Hancock Place, Boston,
Massachusetts.
INVESTMENT OBJECTIVES AND POLICIES
The following information supplements the discussion of each Funds' investment
objective and policies discussed in the Prospectus. There is no assurance that
either Fund will achieve its investment objective.
The Fund's investment objective is to achieve long-term growth of capital
primarily from a portfolio of common stocks and other equity investments.
Moderate income is a secondary objective.
John Hancock Disciplined Growth Fund
Under normal circumstances, the Fund will invest at least 65% of its total
assets in equity securities, including common stock, preferred stock and debt
securities convertible into common stock. The Adviser will seek to invest the
assets of the Fund in a diversified portfolio consisting primarily of common
stock of high-quality, growth-oriented companies which the Adviser believes will
provide the Fund with above-average value. The Adviser will pursue a strategy of
investing in companies with superior earnings growth and stability. The Fund
will invest in a number of industry groups without concentration in any
particular industry. In addition, the Adviser will seek to invest in companies
exhibiting one or more of the following traits: a low ratio of debt to capital,
a seasoned, capable management, or a strong industry position due to recognized
brands or patent protection.
John Hancock Regional Bank Fund
The Fund's investment objective is to achieve capital appreciation from a
portfolio of equity securities of regional banks and lending institutions.
Moderate income is a secondary objective. Under ordinary circumstances, the Fund
will invest at least 65% of its total assets in equity securities, including
common stock and securities convertible to common stock (such as convertible
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bonds, convertible preferred stock, and warrants), of regional commercial banks,
industrial banks, consumer banks, savings and loans and bank holding companies
that receive a substantial portion of their income from banks.
A regional bank is one that provides full service banking (i.e., savings
accounts, checking accounts, commercial lending and real estate lending), whose
assets are primarily of domestic origin, and which typically has a principal
office outside of New York City and Chicago. Regional Bank Fund may invest in
banks that are not Federal Deposit Insurance Corporation (including any state or
federally chartered savings and loan association). Although the Adviser will
primarily seek opportunities for capital appreciation, many of the regional
banks in which the Fund may invest pay regular dividends. Accordingly, the Fund
also expects to receive moderate income.
Regional Bank Fund may invest some or all of its assets that are not invested in
equity securities of regional banks in the equity securities of financial
services companies, companies with significant lending operations or "money
center" banks. A "money center" bank is one with a strong international banking
business and a significant percentage of international assets, which is
typically located in New York or Chicago. The Fund may invest up to 5% of its
net assets in below-investment grade debt securities (rated as low as CCC) of
banks. The Fund may invest in unrated securities which, in the opinion of the
Adviser, offer comparable yields and risks to these securities which are rated.
The Fund may also invest up to 5% of its net assets in non-financial services
equities.
Since the Regional Bank Fund's investments will be concentrated in the banking
industry, it will be subject to risks in addition to those that apply to the
general equity market. Events may occur which significantly affect the entire
banking industry. Thus, the Fund's share value may at times increase or decrease
at a faster rate than the share value of a mutual fund with investments in many
industries. In addition, despite some measure of deregulation, banks and other
lending institutions are still subject to extensive governmental regulation
which limits their activities. The availability and cost of funds to these
entities is crucial to their profitability. Consequently, volatile interest
rates and general economic conditions can adversely affect their financial
performance and condition. The market value of the debt securities in the
Regional Bank Fund's portfolio will also tend to vary in an inverse relationship
with changes in interest rates. For example, as interest rates rise, the market
value of debt securities tends to decline. Regional Bank Fund is not a complete
investment program. Because the Regional Bank Fund's investments are
concentrated in the banking industry, an investment in the Fund may be subject
to greater market fluctuations than a fund that does not concentrate in a
particular industry. Thus, it is recommended that an investment in the Regional
Bank Fund be considered only one portion of your overall investment portfolio.
Banks, finance companies and other financial services organizations are subject
to extensive governmental regulations which may limit both the amounts and types
of loans and other financial commitments which may be made and the interest
rates and fees which may be charged. The profitability of these concerns is
largely dependent upon the availability and cost of capital funds, and has shown
significant recent fluctuation as a result of volatile interest rate levels.
Volatile interest rates will also affect the market value of debt securities
held by the Regional Bank Fund. In addition, general economic conditions are
important to the operations of these concerns, with exposure to credit losses
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resulting from possible financial difficulties of borrowers potentially having
an adverse effect.
Ratings as Investment Criteria. To avoid the need to sell equity securities in
the portfolio to provide funds for redemption, and to provide flexibility to
Disciplined Growth Fund to take advantage of investment opportunities,
Disciplined Growth Fund may invest up to 15% of its net assets in long-and
short-term debt instruments of varying maturities, including investment grade
(i.e., rated at the time of purchase AAA, AA, A or BBB by Standard & Poor's
Ratings Group ("S&P") or Aaa, Aa, A or Baa by Moody's Investors Service, Inc.
("Moody's")) debt securities of corporations (such as commercial paper, notes,
bonds or debentures), certificates of deposit, money market securities and
obligations of the U.S. Government, its agencies and instrumentalities.
Also, to avoid the need to sell equity securities in the portfolio to provide
funds for redemption, and to provide flexibility to Regional Bank Fund to take
advantage of investment opportunities, Regional Bank Fund may invest up to 15%
of its net assets in short-term (less than one year) investment grade (i.e.,
rated at the time of purchase AAA, AA, A or BBB by S& P or Aaa, Aa, A or Baa by
Moody's Investors Service, Inc.) debt securities of corporations (such as
commercial paper, notes, bonds or debentures), certificates of deposit, deposit
accounts, obligations of the U.S. Government, its agencies and
instrumentalities, or repurchase agreements which are fully-collateralized by
U.S. Government obligations, including repurchase agreements that mature in more
than seven days.
When the Adviser believes that financial conditions present unusual risks with
respect to equity securities, the Funds may invest up to 80% of their assets in
these securities, rated in the four highest categories, for temporary defensive
purposes. Appendix A contains further information concerning the ratings of
Moody's and S&P and their significance.
Subsequent to its purchase by either Fund, an issue of securities may cease to
be rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund, but the Adviser will consider the event in its determination of whether
the Fund should continue to hold the securities.
Investments in Foreign Securities. The Disciplined Growth Fund may invest up to
10% of its total assets in securities of foreign issuers in the form of
sponsored or unsponsored American Depository Receipts (ADRs), European
Depository Receipts (EDRs) or other securities convertible into securities of
foreign issuers.
Regional Bank Fund may invest in the securities of foreign issuers, including
securities in the form of sponsored and unsponsored ADRs, EDRs or other
securities convertible into securities of foreign issuers. ADRs are receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs are receipts issued
in Europe which evidence a similar ownership arrangement. Issuers of unsponsored
ADRs are not contractually obligated to disclose material information, including
financial information, in the United States. Generally, ADRs are designed for
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use in the United States securities markets and EDRs are designed for use in
European securities markets.
Foreign Currency Transactions. The Fund's foreign currency exchange transactions
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
enter into forward foreign currency exchange contracts to enhance return, to
hedge against fluctuations in currency exchange rates affecting a particular
transaction or portfolio position, or as a substitute for the purchase or sale
of a currency or assets denominated in that currency. Forward contracts are
agreements to purchase or sell a specified currency at a specified future date
and price set at the time of the contract. 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 quoted or denominated in the same or related
foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in the
same or related foreign currencies. The Fund may elect to hedge less than all of
its foreign portfolio positions deemed appropriate by the Adviser and
Sub-Advisers.
If the Fund purchases a forward contract or sells a forward contract for
non-hedging purposes, its custodian will segregate cash or liquid securities, of
any type or maturity, 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. The assets in the segregated account 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 a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency 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 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.
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to United
States issuers.
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Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly, so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States' economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends, in some cases, capital gains, and interest payable on certain of
the Fund's foreign portfolio securities, may be subject to foreign withholding
or other foreign taxes, thus reducing the net amount of income of gains
available for distribution to the Fund's shareholders.
Repurchase Agreements. In a repurchase agreement a Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price plus accrued interest. A
Fund will enter into repurchase agreements only with member banks of the Federal
Reserve System and with "primary dealers" in U.S. Government securities. The
Adviser will continuously monitor the creditworthiness of the parties with whom
a Fund enters into repurchase agreements.
Each Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, a Fund could experience delays in liquidating
the underlying securities during the period in which the Fund seeks to enforce
its rights thereto, possible subnormal levels of income decline in value of the
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underlying securities or lack of access to income during this period and the
expense of enforcing its rights.
Reverse Repurchase Agreements. Each Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by a Fund. 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 liquid securities, of any type or maturity, 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
borrow money or enter into reverse repurchase agreements except from banks
temporarily for extraordinary emergency purposes (not leveraging or investment)
and then in an aggregate amount not in excess of 5% of the value of the Fund's
net assets at the time of such borrowing. A Fund will enter into reverse
repurchase agreements only with federally insured banks which are approved in
advance as being creditworthy by the Trustees. Under procedures established by
the Trustees, the Adviser will monitor the creditworthiness of the banks
involved.
Restricted Securities. Each Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. A Fund will not invest more than 15% of its net assets
in illiquid investments. If the Trustees determine, based upon a continuing
review of the trading markets for specific Section 4(2) paper or Rule 144A
securities, that they are liquid, they will not be subject to the 15% limit on
illiquid investments. The Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining and monitoring the liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor a Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in a Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
Options on Securities and Securities Indices. Each Fund may purchase and write
(sell) call and put options on any securities in which it may invest or on any
securities index based on securities in which it may invest. These options may
be listed on national domestic securities exchanges or traded in the
over-the-counter market. Each Fund may write covered put and call options and
purchase put and call options to enhance total return, as a substitute for the
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purchase or sale of securities, or to protect against declines in the value of
portfolio securities and against increases in the cost of securities to be
acquired.
Writing Covered Options. A call option on securities written by a Fund obligates
the Fund to sell specified securities to the holder of the option at a specified
price if the option is exercised at any time before the expiration date. A put
option on securities written by a Fund obligates the Fund to purchase specified
securities from the option holder at a specified price if the option is
exercised at any time before the expiration date. Options on securities indices
are similar to options on securities, except that the exercise of securities
index options requires cash settlement payments and does not involve the actual
purchase or sale of securities. In addition, securities index options are
designed to reflect price fluctuations in a group of securities or segment of
the securities market rather than price fluctuations in a single security.
Writing covered call options may deprive a Fund of the opportunity to profit
from an increase in the market price of the securities in its portfolio. Writing
covered put options may deprive a Fund of the opportunity to profit from a
decrease in the market price of the securities to be acquired for its portfolio.
All call and put options written by the Funds are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities in a
segregated account maintained by the Fund's custodian with a value at least
equal to the Fund's obligation under the option, (ii) entering into an
offsetting forward commitment and/or (iii) purchasing an offsetting option or
any other option which, by virtue of its exercise price or otherwise, reduces
the Fund's net exposure on its written option position. A written call option on
securities is typically covered by maintaining the securities that are subject
to the option in a segregated account. A Fund may cover call options on a
securities index by owning securities whose price changes are expected to be
similar to those of the underlying index.
A Fund may terminate its obligations under an exchange traded call or put option
by purchasing an option identical to the one it has written. Obligations under
over-the-counter options may be terminated only by entering into an offsetting
transaction with the counterparty to such option. Such purchases are referred to
as "closing purchase transactions."
Purchasing Options. A Fund would normally purchase call options in anticipation
of an increase, or put options in anticipation of a decrease ("protective puts")
in the market value of securities of the type in which it may invest. A Fund may
also sell call and put options to close out its purchased options.
The purchase of a call option would entitle a Fund, in return for the premium
paid, to purchase specified securities at a specified price during the option
period. A Fund would ordinarily realize a gain on the purchase of a call option
if, during the option period, the value of such securities exceeded the sum of
the exercise price, the premium paid and transaction costs; otherwise the Fund
would realize either no gain or a loss on the purchase of the call option.
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The purchase of a put option would entitle a Fund, in exchange for the premium
paid, to sell specified securities at a specified price during the option
period. The purchase of protective puts is designed to offset or hedge against a
decline in the market value of a Fund's portfolio securities. Put options may
also be purchased by a Fund for the purpose of affirmatively benefiting from a
decline in the price of securities which it does not own. A Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying securities decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
a Fund's portfolio securities.
Each Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which a Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If a Fund is unable
to effect a closing purchase transaction with respect to covered options it has
written, the Fund will not be able to sell the underlying securities or dispose
of assets held in a segregated account until the options expire or are
exercised. Similarly, if a Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
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issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
A Fund's ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates or securities prices,
Disciplined Growth Fund may purchase and sell various kinds of futures
contracts, and purchase and write call and put options on these futures
contracts. Disciplined Growth Fund may also enter into closing purchase and sale
transactions with respect to any of these contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
securities), securities indices and any other financial instruments and indices.
All futures contracts entered into by Disciplined Growth Fund are traded on U.S.
exchanges or boards of trade that are licensed, regulated or approved by the
Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments for an
agreed price during a designated month (or to deliver the final cash settlement
price, in the case of a contract relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities will usually be liquidated in
this manner, Disciplined Growth Fund may instead make, or take, delivery of the
underlying securities whenever it appears economically advantageous to do so. A
clearing corporation associated with the exchange on which futures contracts are
traded guarantees that, if still open, the sale or purchase will be performed on
the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that Disciplined Growth Fund proposes to
acquire. When interest rates are rising or securities prices are falling, the
Fund can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
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falling or securities prices are rising, the Fund, through the purchase of
futures contracts, can attempt to secure better rates or prices than might later
be available in the market when it effects anticipated purchases.
Disciplined Growth Fund may, for example, take a "short" position in the futures
market by selling futures contracts in an attempt to hedge against an
anticipated rise in interest rates or a decline in market prices that would
adversely affect the value of the Fund's portfolio securities. Such futures
contracts may include contracts for the future delivery of securities held by
the Fund or securities with characteristics similar to those of the Fund's
portfolio securities.
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for Disciplined Growth Fund's portfolio securities and
futures contracts based on other financial instruments, securities indices or
other indices, the Fund may also enter into such futures contracts as part of
its hedging strategy. Although under some circumstances prices of securities in
the Fund's portfolio may be more or less volatile than prices of such futures
contracts, the Adviser will attempt to estimate the extent of this volatility
difference based on historical patterns and compensate for any differential by
having the Fund enter into a greater or lesser number of futures contracts or by
attempting to achieve only a partial hedge against price changes affecting the
Fund's portfolio securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of Disciplined Growth Fund's portfolio securities would be
substantially offset by a decline in the value of the futures position.
On other occasions, Disciplined Growth Fund may take a "long" position by
purchasing futures contracts. This would be done, for example, when the Fund
anticipates the subsequent purchase of particular securities when it has the
necessary cash, but expects the prices then available in the applicable market
to be less favorable than prices that are currently available. The Fund may also
purchase futures contracts as a substitute for transactions in securities, to
alter the investment characteristics of portfolio securities or to gain or
increase its exposure to a particular securities market.
Options on Futures Contracts. Disciplined Growth Fund may purchase and write
options on futures for the same purposes as its transactions in futures
contracts. The purchase of put and call options on futures contracts will give
the Fund the right (but not the obligation) for a specified price to sell or to
purchase, respectively, the underlying futures contract at any time during the
option period. As the purchaser of an option on a futures contract, the Fund
obtains the benefit of the futures position if prices move in a favorable
direction but limits its risk of loss in the event of an unfavorable price
movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of Disciplined Growth Fund's assets. By
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writing a call option, the Fund becomes obligated, in exchange for the premium
(upon exercise of the option) to sell a futures contract if the option is
exercised, which may have a value higher than the exercise price. Conversely,
the writing of a put option on a futures contract generates a premium which may
partially offset an increase in the price of securities that the Fund intends to
purchase. However, the Fund becomes obligated (upon exercise of the option) to
purchase a futures contract if the option is exercised, which may have a value
lower than the exercise price. The loss incurred by the Fund in writing options
on futures is potentially unlimited and may exceed the amount of the premium
received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. Disciplined
Growth Fund's ability to establish and close out positions on such options will
be subject to the development and maintenance of a liquid market.
Other Considerations. Disciplined Growth Fund will engage in futures and related
options transactions either for bona fide hedging purposes or to seek to
increase total return as permitted by the CFTC. To the extent that the Fund is
using futures and related options for hedging purposes, futures contracts will
be sold to protect against a decline in the price of securities that the Fund
owns or futures contracts will be purchased to protect the Fund against an
increase in the price of securities it intends to purchase. 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 securities or instruments which
it expects to purchase. As evidence of its 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 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.
To the extent that Disciplined Growth Fund engages in nonhedging transactions in
futures contracts and options on futures, the aggregate initial margin and
premiums required to establish these nonhedging positions will not exceed 5% of
the net asset value of the Fund's portfolio, after taking into account
unrealized profits and losses on any such positions and excluding the amount by
which such options were in-the-money at the time of purchase. The Fund will
engage in transactions in futures contracts and related options only to the
extent such transactions are consistent with the requirements of the Internal
Revenue Code of 1986, as amended (the "Code"), for maintaining its qualification
as a regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
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obligating Disciplined Growth Fund to purchase securities, require the Fund to
establish with the custodian a segregated account consisting of cash or liquid
securities in an amount equal to the underlying value of such contracts and
options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates or securities prices may result
in a poorer overall performance for Disciplined Growth Fund than if it had not
entered into any futures contracts or options transactions.
Perfect correlation between Disciplined Growth Fund's futures positions and
portfolio positions will be impossible to achieve. There are no futures
contracts based upon individual securities, except certain U.S. Government
securities. The only futures contracts available to hedge the Fund's portfolio
are various futures on U.S. Government securities, securities indices and
foreign currencies. In the event of an imperfect correlation between a futures
position and a portfolio position which is intended to be protected, the desired
protection may not be obtained and the Fund may be exposed to risk of loss.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent Disciplined Growth Fund from
closing out positions and limiting its losses.
Lending of Securities (Disciplined Growth Fund only). Disciplined Growth 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. Disciplined Growth Fund may reinvest any
cash collateral in short-term securities and money market funds. When the Fund
lends portfolio securities, there is a risk that the borrower may fail to return
the securities involved in the transaction. As a result, the Fund may incur a
loss or, in the event of the borrower's bankruptcy, the Fund may be delayed in
or prevented from liquidating the collateral. It is a fundamental policy of the
Disciplined Growth Fund not to lend portfolio securities having a total value
exceeding 5% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
13
<PAGE>
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
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 a Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
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 securities, of any type or maturity, 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-Term Trading and Portfolio Turnover. Each Fund may engage in short-term
trading. Short-term trading means the purchase and subsequent sale of a security
after it has been held for a relatively brief period of time. A Fund may engage
in short-term trading in response to stock market conditions, changes in
interest rates or other economic trends and developments, or to take advantage
of yield disparities between various fixed income securities in order to realize
capital gains or improve income. Short-term trading may have the effect of
increasing portfolio turnover rate. A high rate of portfolio turnover (100% or
greater) involves correspondingly greater brokerage expenses and may make it
more difficult for a Fund to qualify as a regulated investment company for
federal income tax purposes. Each Fund's portfolio turnover rate is set forth in
the table under the caption "Financial Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of a majority of a Fund's outstanding voting
14
<PAGE>
securities which, as used in the Prospectus and this Statement of Additional
Information, means approval by the lesser of (1) the holders of 67% or more of
the Fund's shares represented at a meeting if more than 50% of the Fund's
outstanding shares are present in person or by proxy at that meeting or (2) more
than 50% of the Fund's outstanding shares.
A Fund may not:
1. Purchases on Margin and Short Sales. Purchase securities on
margin or sell short, except that a Fund may obtain such short term credits as
are necessary for the clearance of securities transactions. The deposit or
payment by a Fund of initial or maintenance margin in connection with futures
contracts or related options transactions is not considered the purchase of a
security on margin.
2. Borrowing. Borrow money, except from banks temporarily for
extraordinary or emergency purposes (not for leveraging or investment) and then
in an aggregate amount not in excess of 5% of the value of the Fund's net assets
at the time of such borrowing.
3. Underwriting Securities. Act as an underwriter of securities
of other issuers, except to the extent that it may be deemed to act as an
underwriter in certain cases when disposing of restricted securities. (See also
Restriction 12.)
4. Senior Securities. Issue senior securities except as
appropriate to evidence indebtedness which a Fund is permitted to incur,
provided that, to the extent applicable, (i) the purchase and sale of futures
contracts or related options, (ii) collateral arrangements with respect to
futures contracts, related options, forward foreign currency exchange contracts
or other permitted investments of a Fund as described in the Prospectus,
including deposits of initial and variation margin, and (iii) the establishment
of separate classes of shares of a Fund for providing alternative distribution
methods are not considered to be the issuance of senior securities for purposes
of this restriction.
5. Warrants. Invest more than 5% of the value of the Fund's net
assets in marketable warrants to purchase common stock. Warrants acquired in
units or attached to securities are not included in this restriction.
6. Single Issuer Limitation/Diversification. Purchase securities
of any one issuer, except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, if immediately after such
purchase more than 5% of the value of a Fund's total assets would be invested in
such issuer or the Fund would own or hold more than 10% of the outstanding
voting securities of such issuer; provided, however, that with respect to all
Funds, up to 25% of the value of a Fund's total assets may be invested without
regard to these limitations.
7. Real Estate. Purchase or sell real estate although a Fund may
purchase and sell securities which are secured by real estate, mortgages or
15
<PAGE>
interests therein, or issued by companies which invest in real estate or
interests therein; provided, however, that no Fund will purchase real estate
limited partnership interests.
8. Commodities; Commodity Futures; Oil and Gas Exploration and
Development Programs. Purchase or sell commodities or commodity futures
contracts or interests in oil, gas or other mineral exploration or development
programs, except a Fund (other than the Regional Bank Fund) may engage in such
forward foreign currency contracts and/or purchase or sell such futures
contracts and options thereon as described in the Prospectus.
9. Making Loans. Make loans, except that a Fund may purchase or
hold debt instruments and may enter into repurchase agreements (subject to
Restriction 12) in accordance with its investment objectives and policies and,
with respect to the Disciplined Growth Fund, make loans of portfolio securities
provided that as a result, no more than 5% of the Disciplined Growth Fund's
total assets taken at current value would be so loaned.
10. Industry Concentration. Purchase any securities which would
cause more than 25% of the market value of a Fund's total assets at the time of
such purchase to be invested in the securities of one or more issuers having
their principal business activities in the same industry, provided that there is
no limitation with respect to investments in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities; provided that,
notwithstanding the foregoing, the Regional Bank Fund will invest more than 25%
of its total assets in issuers in the banking industry; all as more fully set
forth in the Prospectus.
Non-fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
A Fund may not:
11. Options Transactions. Write, purchase, or sell puts, calls or
combinations thereof except that a Fund may write, purchase or sell puts and
calls on securities.
12. Illiquid Securities. Purchase or otherwise acquire any
security if, as a result, more than 15% of a Fund's net assets (taken at current
value) would be invested in securities that are illiquid by virtue of the
absence of a readily available market or legal or contractual restrictions on
resale. This policy includes repurchase agreements maturing in more than seven
days. This policy does not include restricted securities eligible for resale
pursuant to Rule 144A under the Securities Act of l933 which the Trustees or the
Adviser has determined under Trustee-approved guidelines are liquid.
13. Acquisition for Control Purposes. Purchase securities of any
issuer for the purpose of exercising control or management, except in connection
with a merger, consolidation, acquisition or reorganization.
16
<PAGE>
14. Unseasoned Issuers. Purchase securities of any issuer with a
record of less than three years continuous operations, including predecessors,
if such purchase would cause the investments of a Fund in all such issuers to
exceed 5% of the total assets of the Fund taken at market value, except this
restriction shall not apply to (i) obligations of the U.S. Government, its
agencies or instrumentalities and (ii) securities of such issuers which are
rated by at least one nationally recognized statistical rating organization.
15. Beneficial Ownership of Officers and Directors of Fund and
Adviser. Purchase or retain the securities of any issuer if those officers or
trustees of a Fund or officers or directors of the Adviser who each own
beneficially more than 1/2 of 1% of the securities of that issuer together own
more than 5% of the securities of such issuer.
16. Hypothecating, Mortgaging and Pledging Assets. Hypothecate,
mortgage or pledge any of its assets except to secure loans as a temporary
measure for extraordinary purposes. For the purpose of this restriction, (i)
forward foreign currency exchange contracts are not deemed to be a pledge of
assets, (ii) the purchase or sale of securities by a Fund on a when-issued or
delayed delivery basis and collateral arrangements with respect to the writing
of options on debt securities or on futures contracts are not deemed to be a
pledge of assets; and (iii) the deposit in escrow of underlying securities in
connection with the writing of call options is not deemed to be a pledge of
assets.
17. Joint Trading Accounts. Participate on a joint or joint and
several basis in any trading account in securities (except for a joint account
with other funds managed by the Adviser for repurchase agreements permitted by
the Securities and Exchange Commission pursuant to an exemptive order).
18. Securities of Other Investment Companies. Purchase a security
if, as a result, (i) more than 10% of the Fund's total assets would be invested
in the securities of other investment companies, (ii) the Fund would hold more
than 3% of the total outstanding voting securities of any one investment
company, or (iii) more than 5% of the Fund's total assets would be invested in
the securities of any one investment company. These limitations do not apply to
(a) the investment of cash collateral, received by the Fund in connection with
lending the Fund's portfolio securities, in the securities of open-end
investment companies or (b) the purchase of shares of any investment company in
connection with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company. Subject to the
above percentage limitations, the Fund may, in connection with the John Hancock
Group of Funds Deferred Compensation Plan for Independent Trustees, purchase
securities of other investment companies within the John Hancock Group of Funds.
The Fund may not purchase the shares of any closed-end investment company except
in the open market where no commission or profit to a sponsor or dealer results
from the purchase, other than customary brokerage fees.
If a percentage restriction on investment or utilization of assets as
set forth above is adhered to at the time of investment, a later change in
percentage resulting from changes in the values of the Fund's assets will not be
17
<PAGE>
considered a violation of the restriction (with the exception of Restriction 2
permitting Disciplined Growth Fund to borrow up to 5% of the value of its total
assets).
THOSE RESPONSIBLE FOR MANAGEMENT
The business of each Fund is managed by its Trustees of the Trust, who elect
officers who are responsible for the day-to-day operations of the Funds and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers and Directors of the Adviser or officers
and Directors of the Funds' principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
18
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman and Chief Executive
101 Huntington Avenue Executive Officer (1, 2) Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("Berkeley
October 1944 Group"); Chairman, NM Capital
Management, Inc. ("NM Capital") and
John Hancock Advisers International
Limited ("Advisers International");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc. ("John Hancock Funds"), First
Signature Bank and Trust Company
and Sovereign Asset Management
Corporation ("SAMCorp."); Director,
John Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Capital Corporation and New
England/Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; Vice Chairman and
President, the Adviser (until July
1992); Chairman, John Hancock
Distributors, Inc. (until April
1994); Director, John Hancock
Freedom Securities Corporation
(until September 1996); Director,
John Hancock Signature Services,
Inc. ("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
19
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee (3) Professor of Law, Emeritus, Boston
Boston University University School of Law; Trustee,
Boston, Massachusetts Brookline Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1, 3) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, MA 02147 Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University (education);
Director, Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee (3) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, NJ 07458 N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
20
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Douglas M. Costle Trustee (1, 3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, VT 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991); Dean Vermont Law
School (until 1991); Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
Mitretek Systems (governmental
consulting services).
Leland O. Erdahl Trustee (3) Director, Santa Fe Ingredients
8046 Mackenzie Court Company of California, Inc. and
Las Vegas, NV 89129 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing companies),
Uranium Resources, Inc.; President,
Stolar, Inc. (1987-1991); President,
Albuquerque Uranium Corporation
(1985-1992); Director,
Freeport-McMoRan Copper & Gold
Company, Inc., Hecla Mining Company,
Canyon Resources Corporation and
Original Sixteen to One Mines, Inc.
(1984-1987 and 1991-1995)
(management consultant).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
21
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Farrell Trustee(3) President of Farrell, Healer & Co.,
Venture Capital Partners (venture capital management firm)
160 Federal Street (since 1980); Prior to 1980, headed
23rd Floor the venture capital group at Bank of
Boston, MA 02110 Boston Corporation.
November 1932
Gail D. Fosler Trustee (3) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD 20815 economic and business research);
December 1947 Director, Unisys Corp.; and H.B.
Fuller Company.
William F. Glavin Trustee (3) President, Babson College; Vice
Babson College Chairman, Xerox Corporation (until
Horn Library June 1989); Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994) and Inco
March 1931 Ltd.
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser; Director,
Boston, MA 02199 The Berkeley Group, John Hancock
April 1953 Funds; Director, Advisers
International; Executive Vice
President, the Adviser (until
December 1994); Senior Vice
President, the Adviser (until
December 1993); Director, Signature
Services (until January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
22
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dr. John A. Moore Trustee (3) President and Chief Executive
Institute for Evaluating Health Risks Officer, Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since September 1989).
Washington, DC 20006-1602
February 1939
Patti McGill Peterson Trustee (3) Cornell Institute of Public Affairs,
Cornell University Cornell University (since August
Institute of Public Affairs 1996); President Emeritus of Wells
364 Upson Hall College and St. Lawrence University;
Ithica, NY 14853 Director, Niagara Mohawk Power
May 1943 Corporation (electric utility) and
Security Mutual Life (insurance).
John W. Pratt Trustee (3) Professor of Business Administration
2 Gray Gardens East at Harvard University Graduate
Cambridge, MA 02138 School of Business Administration
September 1931 (since 1961).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
23
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, John Hancock Distributors,
August 1937 Inc., Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp. and NM Capital; Trustee,
The Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, John Hancock Property and
Casualty Insurance and its
affiliates (until November 1993);
Director, Signature Services (until
January 1997).
Edward J. Spellman, CPA Trustee (3) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL 33308
November 1932
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank Fund and
NM Capital; Senior Vice President,
The Berkeley Group; President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
24
<PAGE>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Secretary, SAMCorp.,
Insurance Agency, Inc. and NM
Capital; Counsel, John Hancock
Mutual Life Insurance Company (until
January 1996).
Susan S. Newton Vice President and Secretary Vice President, the Adviser, John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group; Vice
March 1950 President, John Hancock
Distributors, Inc. (until 1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
</TABLE>
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940.
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
25
<PAGE>
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
Trustees of one or more of the other funds for which the Adviser serves as
investment adviser.
The following table provides information regarding the compensation paid by the
Funds and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Trustees not listed below were not
Trustees of these Funds as of the end of the Funds' last completed fiscal years.
Messrs. Boudreau, Scipione and Ms. Hodsdon, each a non-Independent Trustee, and
each of the officers of the Funds are interested persons of the Adviser, are
compensated by the Adviser and receive no compensation from the Funds for their
services.
<TABLE>
<CAPTION>
Aggregate Compensation From the Funds (1)
Total Compensation From the
Disciplined Growth Regional Bank Funds and John Hancock Fund
Independent Trustees Fund Fund Complex to Trustees (2)
- -------------------- ---- ---- -----------------------
<S> <C> <C> <C>
Dennis J. Aronowitz $ 49 $ 1,122 $ 72,450
William A. Barron III* 145 2,292 0
Richard P. Chapman 58 1,332 75,200
William J. Cosgrove 49 1,122 72,450
Douglas M.Costle 2,359 41,191 75,350
Leland O. Erdahl 2,304 40,085 72,350
Richard A. Farrell 2,359 41,191 75,350
Gail D. Fosler 49 1,122 75,350
William F. Glavin+ 2,304 40,085 72,250
Patrick Grant* 145 2,292 0
Ralph Lowell, Jr.* 145 2,292 0
Dr. John A. Moore 2,186 37,622 68,350
Patti McGill Peterson 2,296 40,085 72,100
John W. Pratt 2,304 40,085 72,350
Edward J. Spellman 58 1,332 73,950
------- -------- --------
Totals $16,810 $293,250 $870,600
</TABLE>
1 Compensation is for the fiscal year ended October 31, 1996.
2 Total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is for the calendar year ended December 31, 1996.
On this date, there were sixty-seven funds in the John Hancock Fund
Complex of which each of these Independent Trustees served on
thirty-five of the funds.
26
<PAGE>
* As of January 1, 1996, Messrs. Barron, Grant and Lowell resigned as
Trustees.
+ As of December 31, 1996, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Fund Complex for
Mr. Chapman was $63,164, for Mr. Cosgrove was $131,317 and for Mr.
Glavin was $109,059 under the John Hancock Deferred Compensation Plan
for Independent Trustees.
++ Became Trustees of the Trust on June 26, 1996.
As of January 31, 1997, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares.
As of January 31, 1997, the following shareholders beneficially owned 5% of the
outstanding shares of the Fund listed below.
<TABLE>
<CAPTION>
Percentage of total
Number of shares outstanding shares
Name and Fund and of beneficial of the Class of the
Address of Shareholder Class of Shares Interest Owned Fund
- ---------------------- --------------- -------------- -------------------
<S> <C> <C> <C>
MLPF&S For The Sole Benefit Regional Bank Fund 3,663,478 12.36%
of its Customers Class A
4800 Deer Lake Drive East
Jacksonville FL 32246-6484
MLPF&S For The Sole Benefit Regional Bank Fund 27,459,056 32.47%
of its Customers Class B
4800 Deer Lake Drive East
Jacksonville FL 32246-6484
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and presently has more than $19 billion in assets under
management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over approximately 1,080,000 shareholders.
The Adviser is an affiliate of the Life Company, one of the most recognized and
respected financial institutions in the nation. With total assets under
management of $80 billion, the Life Company is one of the ten largest life
insurance companies in the United States, and carries high ratings from Standard
& Poor's and A.M. Best's. Founded in 1862, the Life Company has been serving
clients for over 130 years.
27
<PAGE>
The Funds have entered into an investment management contract (the "Advisory
Agreements"), each dated as of July 1, 1996, with the Adviser. Pursuant to the
Advisory Agreements, the Adviser agreed to act as investment adviser and manager
to the Funds. As manager and investment adviser, the Adviser will: (a) furnish
continuously an investment program for each of the Funds and determine, subject
to the overall supervision and review of the Trustees, which investments should
be purchased, held, sold or exchanged, and (b) provide supervision over all
aspects of each Fund's operations except those which are delegated to a
custodian, transfer agent or other agent.
The Funds bear all costs of their organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plans of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Funds (including an allowable portion of the cost of the
Adviser's employees rendering such services to the Funds); the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association memberships; insurance premiums; and any
extraordinary expenses.
As provided by the Advisory Agreements, each Fund pays the Adviser monthly an
investment advisory fee, which is based upon the following annual rates: (a) for
the Disciplined Growth Fund, 0.75% of the Fund's first $500 million of average
daily net assets, and 0.65% of average daily net assets in excess of that
amount; and (b) for Regional Bank Fund, 0.80% of the Fund's first $500 million
of average daily net assets, and 0.75% of average daily net assets over $500
million.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more are selling the same security. If opportunities for purchase or sale of
securities by the Adviser for the Fund or for other funds or clients for which
the Adviser renders investment advice arise for consideration at or about the
same time, transactions in such securities will be made insofar as feasible, for
the respective funds or clients in a manner deemed equitable to all of them. To
the extent that transactions on behalf of more than one client of the Adviser or
its affiliates may increase the demand for securities being purchased or the
supply of securities being sold, there may be an adverse effect on price.
28
<PAGE>
Pursuant to the investment management contract, the Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which its 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 of the
obligations and duties under the contract.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a name or any other name indicating that it is
advised by or otherwise connected with the Adviser. In addition, the Adviser or
the Life Company may grant the nonexclusive right to use the name "John Hancock"
or any similar name to any other corporation or entity, including but not
limited to any investment company of which the Life Company or any subsidiary or
affiliate thereof or any successor to the business of any subsidiary or
affiliate thereof shall be the investment adviser.
On March 5, 1996, the Trustees terminated the Service Agreement regarding
Disciplined Growth Fund between the Adviser and Sovereign Asset Management
Corporation.
Each Advisory Agreement was approved on March 5, 1996 by all of the Trustees,
including all of the Trustees who are not parties to the Advisory Agreements or
"interested persons" of any such party. The shareholders of the Funds also
approved their respective Fund's Advisory Agreement on June 26, 1996. The
investment management contract and the distribution agreement discussed below
continue in effect from year to year if approved annually by vote of a majority
of the Trustees who are not interested persons of one of the parties to the
contract, cast in person at a meeting called for the purpose of voting on such
approval, and by either the Trustees or the holders of a majority of the Fund's
outstanding voting securities. Both agreements automatically terminate upon
assignment and may be terminated without penalty on 60 days' written notice by
either party or by vote of a majority of the outstanding voting securities of
the Fund.
For the fiscal years ended October 31, 1994, 1995 and 1996, the Trust paid the
Adviser, on behalf of Disciplined Growth Fund, an investment advisory fee of
$902,465, $866,401 and $895,776, respectively. For the fiscal years ended
October 31, 1994, 1995 and 1996, the Trust paid the Adviser, on behalf of
Regional Bank Fund, investment advisory fees of $3,686,366, $7,644,892 and
$18,308,016, respectively.
Accounting and Legal Services Agreement. The Trust, on behalf of each Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Funds with certain tax, accounting
and legal services. For the fiscal year ended October 31, 1996, Disciplined
Growth Fund and Regional Bank Fund paid the Adviser $7,474 and $176,938,
respectively for services under this agreement from the effective date of July
1, 1996.
In order to avoid conflicts with portfolio trades for the Funds, the Adviser and
the Funds have adopted extensive restrictions on personal securities trading by
29
<PAGE>
personnel of the Adviser and its affiliates. Some of these restrictions are:
pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. These restrictions are a continuation of
the basic principle that the interests of the Funds and their shareholders come
first.
DISTRIBUTION CONTRACTS
Each Fund has a Distribution Agreement with John Hancock Funds and Freedom
Distributors Corporation (together the "Distributors"). Under this agreement,
the Distributors are obligated to use their best efforts to sell shares of each
class of the Funds. Shares of each class of the Funds are sold to selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with the Distributors. The Distributors accept orders for the
purchase of the shares of the Funds which are continually offered at net asset
value next determined, plus an applicable sales charge, if any. In connection
with the sale of Class A or Class B shares of the Funds, the Distributors and
Selling Brokers receive compensation from 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.
Each Fund's Trustees adopted Distribution Plans with respect to Class A and
Class B shares (the" Plans"), pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Under the Plans, each Fund will pay distribution and
service fees at an aggregate annual rate of up to 0.30% and 1.00%, respectively,
of the Fund's daily net assets attributable to shares of that class. However,
the service fee will not exceed 0.25% of each Fund's average daily net assets
attributable to each class of shares. The distribution fees will be used to
reimburse the Distributors for their distribution expenses, including but not
limited to: (i) initial and ongoing sales compensation to Selling Brokers and
others (including affiliates of the Distributors) engaged in the sale of each
Fund's shares; (ii) marketing, promotional and overhead expenses incurred in
connection with the distribution of each Fund's shares; and (iii) with respect
to Class B shares only, interest expenses on unreimbursed distribution expenses.
The service fees will be used to compensate Selling Brokers and others for
providing personal and account maintenance services to shareholders. In the
event that the Distributors are not fully reimbursed for payments they make or
expenses they incur under the Class A Plan, these expenses will not be carried
beyond twelve months from the date they were incurred. Unreimbursed expenses
under the Class B Plan will be carried forward together with interest on the
balance of these unreimbursed expenses. The Funds do not treat unreimbursed
expenses under the Class B Plan as a liability of the Funds because the Trustees
may terminate Class B Plan at any time. For the fiscal year ended October 31,
1996, an aggregate of $3,798,216 and $59,994,035 of distribution expenses or
4.185% and 3.421% of the average net assets of the Class B shares of the Funds,
were not reimbursed or recovered by Distributors through the receipt of deferred
sales charges or Rule 12b-1 fees in prior periods.
The Plans were approved by a majority of the voting securities of each Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the applicable Fund and who have
no direct or indirect financial interest in the operation of the Plans (the
30
<PAGE>
"Independent Trustees"), by votes cast in person at meetings called for the
purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, the Distributors provide the Funds
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
Each of the Plans provides that it will continue in effect only so long as its
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. Each of the Plans may be terminated without penalty,
(a) by a vote of a majority of the Independent Trustees, (b) by a vote of a
majority of the applicable Fund's outstanding shares of the applicable class
upon 60 day's written notice to the Distributors and (c) automatically in the
event of assignment. Each of the Plans further provides that it may not be
amended to increase the maximum amount of the fees for the services described
therein without the approval of a majority of the outstanding shares of the
class of the applicable Fund which has voting rights with respect to the Plan.
Each of the Plans provides that no material amendment to the Plan will be
effective unless it is approved by a vote of a majority of the Trustees and the
Independent Trustees of the applicable Fund. The holders of Class A and Class B
shares have exclusive voting rights with respect to the Plan applicable to their
respective class of shares. In adopting the Plans the Trustees concluded that,
in their judgment, there is a reasonable likelihood that the Plans will benefit
the holders of the applicable shares of each Fund.
Amounts paid to the Distributors by any class of shares of the Fund will not be
used to pay the expenses incurred with respect to any other class of shares of
the Fund; provided, however, that expenses attributable to the Fund as a whole
will be allocated, to the extent permitted by law, according to the formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of the
Trustees. From time to time, the Fund may participate in joint distribution
activities with other Funds and the costs of those activities will be borne by
each Fund in proportion to the relative net asset value of the participating
Funds.
During the fiscal year ended October 31, 1996, the Funds paid John Hancock Funds
the following amounts of expenses with respect to Class Aand Class B shares of
the Fund:
31
<PAGE>
<TABLE>
<CAPTION>
Expense Items
Printing and Interest,
Mailing of Carrying, or
Prospectuses to Expenses of Compensation to other Finance
Advertising New Shareholders Distributors Selling Brokers Charges
----------- ---------------- ------------ --------------- -------
<S> <C> <C> <C> <C> <C>
Disciplined
Growth Fund
Class A Shares $ 15,045 $ 3,512 $ 20,220 $ 47,270 $ 0
Class B Shares $ 55,872 $24,483 $ 110,940 $ 367,335 $ 348,915
Regional Bank Fund
Class A Shares $ 257,753 $12,130 $1,261,650 $ 429,747 $ 0
Class B Shares $1,587,568 $89,463 $8,056,915 $3,020,551 $4,785,257
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's shares, the
following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned 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 Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time ( 12:00
noon, New York time) on the date of any determination of a Fund's NAV. If
32
<PAGE>
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 for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
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
Shares of the Funds are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees of each Fund reserve the right
to change or waive each Fund's minimum investment requirements and to reject any
order to purchase shares (including purchase by exchange) when in the judgment
of the Adviser such rejection is in the respective Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Funds are
described in the Prospectus. Methods of obtaining reduced sales charge referred
to generally in the Prospectus are described in detail below. In calculating the
sales charge applicable to current purchases of Class A shares of the Funds, the
investor is entitled to cumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Funds, owned by
the investor, or if John Hancock Signature Services, Inc. ("Signature Services")
is notified by the investor's dealer or the investor at the time of the
purchase, the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his or her spouse and their children under the age of 21,
purchasing securities for his or their own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Signature
Services or a Selling Broker's representative.
Without Sales Charges. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
33
<PAGE>
o Any state, county or any instrumentality, department, authority, or
agency of these entities that is prohibited by applicable investment
laws from paying a sales charge or commission when it purchases shares
of any registered investment management company.*
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if
it is purchasing $1 million or more for non-discretionary customers or
accounts.*
o A Trustee or officer of the Trust; a Director or officer of the
Adviser and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law) of any of the foregoing; or any fund,
pension, profit sharing or other benefit plan for the individuals
described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into an agreement with John Hancock
Funds providing specifically for the use of a Fund's shares in
fee-based investment products or services made available to their
clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to a Fund.
o A member of an approved affinity group financial services plan.*
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed defined contribution plans with at least 100 eligible
employees at the inception of the subject Fund's account, may purchase
Class A shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which
the purchase was made, a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts to $10 million and over 0.25%
34
<PAGE>
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
*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.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current account value of the Class A shares already
held by such person.
Combination Privilege. Reduced sales charges also are available to an investor
based on the aggregate amount of his concurrent and prior investments in Class A
shares and shares of all other John Hancock funds which carry a sales charge.
Letter of Intention. Reduced sales charges also are applicable to investments
made pursuant to a Letter of Intention (the "LOI"), which should be read
carefully prior to its execution by an investor. The Funds offer two options
regarding the specified period for making investments under the LOI. All
investors have the option of making their investments over a specified period of
thirteen (13) months. Investors who are using a Fund as a funding medium for a
qualified retirement plan, however, may opt to make the necessary investments
called for by the LOI over a forty-eight (48) month period. These qualified
retirement plans include IRA, SEP, SARSEP, 401(k), 403(b) (including TSAs) and
Section 457 plans. Such an investment (including accumulations and combinations)
must aggregate $50,000 or more invested during the specified period from the
date of the LOI or from a date within ninety (90) days prior thereto, upon
written request to Signature Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount intended
to be invested had been invested immediately. If such aggregate amount is not
actually invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made within the specified period (either 13
or 48 months) the sales charge applicable will not be higher than that which
would have applied (including accumulations and combinations) had the LOI been
for the amount actually invested.
The LOI authorizes Signature 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 escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature 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 Funds to sell, any additional Class A shares and
may be terminated at any time.
35
<PAGE>
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so the Funds 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. No CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions. No CDSC will be
imposed on shares derived from reinvestment of dividends or capital gains
distributions.
Class B shares are not available to full-service defined contribution plans
administered by Signature Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number all
payments during a month will be aggregated and deemed to have been made on the
first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
dividend and capital gain reinvestment, and next from the shares you have held
the longest during the six-year period. For this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price. However, you cannot redeem appreciation value only in order to avoid a
CDSC.
When requesting a redemption for a specific dollar amount, please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
36
<PAGE>
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Funds in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Funds to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Funds' right to liquidate your account
if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Signature
Services. (Please note that this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a
CDSC.)
37
<PAGE>
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b),
401(k), Money Purchase Pension Plan, Profit-Sharing Plan and other
qualified plans as described in the Internal Revenue Code) unless
otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under Section
401(a) of the Code (such as 401(k), Money Purchase Pension Plan,
Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares
prior to May 15, 1995.
Please see matrix for reference.
38
<PAGE>
<TABLE>
<CAPTION>
CDSC Waiver Matrix.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Type of 401(a) Plan 403(b) 457 IRA, IRA Non-
Distribution (401(k), MPP, PSP) Rollover Retirement
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
Death or Disability Waived Waived Waived Waived Waived
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Over 70 1/2 Waived Waived Waived Waived for 12% of
mandatory account value
distributions annually in
or 12% of periodic
account value payments
annually in
periodic
payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Between 59 1/2 and Waived Waived Waived Waived for Life 12% of
and 70 1/2 Expectancy or account value
12% of account annually in
value annually periodic
in periodic payments
payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of
annuity annuity annuity account value
payments (72t) payments (72t) payments (72t) annually in
or 12% of or 12% of or 12% of periodic
account value account value account value payments
annually in annually in annually in
periodic periodic periodic
payments. payments. payments.
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Loans Waived Waived N/A N/A N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Hardships Waived Waived Waived N/A N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
Return of Excess Waived Waived Waived Waived N/A
- --------------------- -------------------- ----------------- ---------------- ----------------- ---------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although they would not normally do so, the Funds have the right to pay the
redemption price of shares of the Funds in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he will incur a brokerage charge. Any such
39
<PAGE>
securities would be valued for the purposes of making such payment at the same
value as used in determining net asset value. The Funds have, however, elected
to be governed by Rule 18f-1 under the Investment Company Act. Under that rule,
the Funds must redeem their shares for cash except to the extent that the
redemption payments to any shareholder during any 90-day period would exceed the
lesser of $250,000 or 1% of the applicable Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The funds permit exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income
Fund, John Hancock Intermediate Maturity Government Fund and John Hancock
Limited-Term Government Fund will retain the exchanged fund's CDSC schedule).
For purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
Each Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
Each Fund may refuse any exchange order. Each Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. Each Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds from the redemption
of shares of the applicable Fund. Since the redemption price of the shares of a
Fund may be more or less than the shareholder's cost, depending upon the market
value of the securities owned by the Fund at the time of redemption, the
distribution of cash pursuant to this plan may result in recognition of gain or
40
<PAGE>
loss for purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional Class A or
Class B shares could be disadvantageous to a shareholder because of the initial
sales charge payable on such purchases of Class A shares and the CDSC imposed on
redemptions of Class B shares and because redemptions are taxable events.
Therefore, a shareholder should not purchase Class A or Class B shares at the
same time a Systematic Withdrawal Plan is in effect. The Funds reserve the right
to modify or discontinue the Systematic Withdrawal Plan of any shareholder on 30
days' prior written notice to such shareholder, or to discontinue the
availability of such plan in the future. The shareholder may terminate the plan
at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
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 Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. Upon notification of Signature
Services, a shareholder who has redeemed Fund shares may, within 120 days after
the date of redemption, reinvest without payment of a sales charge any part of
the redemption proceeds in shares of the same class of the Fund or any other
John Hancock funds, subject to the minimum investment limit in that fund. The
proceeds from the redemption of Class A shares may be reinvested at net asset
value without paying a sales charge in Class A shares of the Fund or in Class A
shares of any John Hancock funds. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the each Fund, each Fund may
cancel the reinvestment privilege of any parties that, in the opinion of each
Fund, are using market timing strategies or making more than seven exchanges per
owner or controlling party per calendar year. Also, each Fund may refuse any
reinvestment request.
Each Fund may change or cancel its reinvestment policies at any time.
41
<PAGE>
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
DESCRIPTION OF THE FUNDS' SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Funds. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund, without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Funds and one other
series and the issuance of two classes of shares of the Funds, designated as
Class A and Class B. Additional series may be added in the future.
The shares of each class of a Fund represent an equal proportionate interest in
the aggregate net assets attributable to the classes of the Fund. Holders of
Class A and Class B shares have certain exclusive voting rights on matters
relating to their respective distribution plans. The different classes of a Fund
may bear different expenses relating to the cost of holding shareholder meetings
necessitated by the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except that (i) the distribution and service fees relating
to the Class A and Class B shares will be borne exclusively by that class (ii)
Class B shares will pay higher distribution and service fees than Class A shares
and (iii) Class A and Class B shares will bear any other class expenses properly
allocable to that class of shares, subject to the conditions the Internal
Revenue Service imposes with respect to the multiple-class structures.
Similarly, the net asset value per share may vary depending on whether Class A
or Class B shares are purchased.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the applicable Fund available for distribution to
these shareholders. Shares entitle their holders to one vote per share, are
freely transferable and have no preemptive, subscription or conversion rights.
When issued, shares are fully paid and non-assessable, except as set forth
below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, each Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares, and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
42
<PAGE>
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, each Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Funds' assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Furthermore, no fund included in the Funds' prospectus shall
be liable for the liabilities of any other John Hancock fund. Liability is
therefore limited to circumstances in which a Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts.
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 (the "Code"), and intends to continue to so
qualify for each taxable year. As such and by complying with the applicable
provisions of the Code regarding the sources of its income, the timing of its
distributions, and the diversification if its assets, each Fund will not be
subject to Federal income tax on taxable income (including net short-term and
long-term capital gains from the disposition of portfolio securities or the
right to when-issued securities prior to issuance or the lapse, exercise,
delivery under or closing out of certain options, futures and forward contracts,
income from securities lending, repurchase agreements and other taxable
securities, income attributable to accrued market discount, and a portion of the
discount from certain stripped tax-exempt obligations or their coupons) which is
distributed to shareholders in accordance with the timing requirements of the
Code.
Each Fund will be subject to a 4% nondeductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. Each Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions from a Fund's current or accumulated earnings and profits ("E&P")
will be taxable under the Code for investors who are subject to tax. If these
distributions are paid from the Fund's "investment company taxable income," they
will be taxable as ordinary income; and if they are paid from the Fund's "net
capital gain," they will be taxable as long-term capital gain. (Net capital gain
is the excess (if any) of net long-term capital gain over net short-term capital
loss, and investment company taxable income is all taxable income and capital
gains, other than net capital gain, after reduction by deductible expenses.)
Some distributions from investment company taxable income and/or net capital
43
<PAGE>
gain may be paid in January but may be taxable to shareholders as if they had
been received on December 31 of the previous year. The tax treatment described
above will apply without regard to whether distributions are received in cash or
reinvested in additional shares of the Funds.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
If a Fund invests in stock of certain foreign 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 these passive foreign
investment companies or gain from the sale of stock in such companies, even if
all income or gain actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to 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 a Fund in connection with certain
transactions involving foreign currency-denominated debt securities, certain
foreign currency futures and options, foreign currency forward contracts,
foreign currencies, or payables or receivables denominated in a foreign currency
are subject to Section 988 of the Code, which generally causes such gains and
losses to be treated as ordinary income and losses and may affect the amount,
timing and character of distributions to shareholders. Any such transactions
that are not directly related to a Fund's investment in stock or securities,
possibly including speculative currency positions or currency derivatives not
used for hedging purposes, may increase the amount of gain it is deemed to
recognize from the sale of certain investments or derivatives held for less than
three months, which gain is limited under the Code to less than 30% of its gross
income for each taxable year, 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 gross income for each taxable year. 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 the resulting overall ordinary loss for such year would not
be deductible by the Fund or its shareholders in future years.
44
<PAGE>
A 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 foreign income taxes or certain other foreign taxes ("qualified
foreign 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 and distributions
actually received) their pro rata shares of qualified foreign taxes paid by the
Fund even though not actually received by them, and (ii) treat such respective
pro rata portions as qualified foreign taxes paid by them.
If a Fund makes this election, shareholders may then deduct such pro rata
portions of qualified foreign 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 qualified foreign 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 (if any) 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 qualified foreign taxes paid by the Fund and (ii) the portion
of Fund dividends which represents income from each foreign country. If a Fund
does not satisfy the 50% requirement described above or otherwise does not make
the election, the Fund will deduct the foreign taxes it pays in determining the
amount it has available for distribution to shareholders, and shareholders will
not include these foreign taxes in their income, nor will they be entitled to
any tax deductions or credits with respect to such taxes.
For each Fund, the amount of net realized short-term and long-term capital
gains, if any, in any given year will vary depending upon the Adviser's current
investment strategy and whether the Adviser believes it to be in the best
interest of the Fund to dispose of portfolio securities or enter into options or
futures transactions that will generate capital gains. At the time of an
investor's purchase of Fund shares, a portion of the purchase price is often
attributable to realized or unrealized appreciation in the Fund's portfolio or
undistributed taxable income of the Fund. Consequently, subsequent distributions
on those shares from such appreciation or income may be taxable to such investor
even if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions in reality represent a return of a portion of the purchase price.
Upon a redemption of shares of a Fund (including by exercise of the exchange
privilege) a shareholder may realize a taxable gain or loss depending upon the
amount of the proceeds and the investor's basis in his shares. Such gain or loss
will be treated as capital gain or loss if the shares are capital assets in the
45
<PAGE>
shareholder's hands and will be long-term or short-term, depending upon the
shareholder's tax holding period for the shares and subject to the special rules
described below. 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. 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 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 automatic dividend reinvestments. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be disallowed to the extent of all
exempt-interest dividends paid with respect to such shares and, to the extent it
exceeds the disallowed amount, will be treated as a long-term capital loss to
the extent of any amounts treated as distributions of long-term capital gain
with respect to such shares.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, each Fund reserves the right to retain and reinvest all or
any portion of the excess of net long-term capital gain over net short-term
capital loss in any year. The Funds will not in any event distribute net capital
gain realized in any year to the extend that a capital loss is carried forward
from prior years against such gain. To the extent such excess was retained and
not exhausted by the carryforward of prior years' capital losses, it would be
subject to Federal income tax in the hands of a Fund. Upon proper designation of
this amount by the Fund, each shareholder would be treated for Federal income
tax purposes as if such Fund had distributed to him on the last day of its
taxable year his pro rata share of such excess, and he had paid his pro rata
share of the taxes paid by the Fund and reinvested the remainder of the Fund.
Accordingly, each shareholder would (a) include his pro rata share of such
excess as long-term capital gain income in his return for his taxable year in
which the last day of the Fund's taxable year falls, (b) be entitled either to a
tax credit on his return for, or a refund of, his pro rata share of the taxes
paid by the Fund, and (c) be entitled to increase the adjusted tax basis for his
shares in the Fund by the difference between his pro rata share of such excess
and his pro rata share of such taxes.
For Federal income tax purposes, each Fund is permitted to carryforward a net
capital loss in any year to offset its own net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the applicable Fund and, as noted above, would not be distributed
as such to shareholders. Neither Disciplined Growth Fund nor Regional Bank Fund
has any capital loss carryforwards.
For purposes of the dividends received deduction available to corporations,
dividends received by a Fund, if any, from U.S. domestic corporations in respect
of any share of stock held by the Fund, for U.S. Federal income tax purposes,
for at least 46 days (91 days in the case of certain preferred stock) and
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<PAGE>
distributed and properly designated by the Fund may be treated as qualifying
dividends. Each Fund would generally have a significant portion of its
distributions treated as qualifying dividends. Corporate shareholders must meet
the minimum holding period requirement stated above (46 or 91 days) with respect
to their shares of the applicable Fund in order to qualify for the deduction
and, if they have any debt that is deemed under the Code directly attributable
to such shares, may be denied a portion of the dividends received deduction. The
entire qualifying dividend, including the otherwise deductible amount, will be
included in determining the excess (if any) of a corporate shareholder's
adjusted current earnings over its alternative minimum taxable income, which may
increase its alternative minimum tax liability, if any. Additionally, any
corporate shareholder should consult its tax adviser regarding the possibility
that its tax basis in its shares may be reduced, for Federal income tax
purposes, by reason of "extraordinary dividends" received with respect to the
shares, for the purpose of computing its gain or loss on redemption or other
disposition of the shares.
Investment in debt obligations that are at risk of or in default presents
special tax issues for any Fund that may hold such obligations. Tax rules are
not entirely clear about issues such as when the Fund may cease to accrue
interest, original issue discount, or market discount, when and to what extent
deductions may be taken for bad debts or worthless securities, how payments
received on obligations in default should be allocated between principal and
income, and whether exchanges of debt obligations in a workout context are
taxable. These and other issues will be addressed by any Fund that may hold such
obligations in order to reduce the risk of distributing insufficient income to
preserve its status as a regulated investment company and seek to avoid becoming
subject to Federal income or excise tax.
A Fund is required to accrue income on any debt securities that have more than a
de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options, futures and forward contracts may
also require the Fund to reorganize income or gain without a concurrent receipt
of cash. However, the Fund must distribute to shareholders for each taxable year
substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) a Fund's distributions
are derived from interest on (or, in the case of intangible taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Funds will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although a Fund may in its sole discretion provide relevant
information to shareholders.
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<PAGE>
Each Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish a Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. A Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions are applicable, any such distributions and proceeds,
whether taken in cash or reinvested in shares, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Limitations imposed by the Code on regulated investment companies like the Funds
may restrict each Fund's ability to enter into options and futures contracts,
foreign currency positions and foreign currency forward contracts.
Certain options, futures and forward foreign currency transactions undertaken by
a Fund may cause the Fund to recognize gains or losses from marking to market
even though its positions have not been sold or terminated and affect the
character as long-term or short-term (or, in the case of certain foreign
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 or forward contracts
and/or offsetting or successor portfolio positions may be deferred rather than
being taken into account currently in calculating the Fund's taxable income or
gain. Certain of such transactions may also cause a Fund to dispose of
investments sooner than would otherwise have occurred. Certain of the applicable
tax rules may be modified if a Fund is eligible and chooses to make one or more
of certain tax elections that may be available. These transactions may therefore
affect the amount, timing and character of a Fund's distributions to
shareholders. The Funds will take into account the special tax rules (including
consideration of available elections) applicable to options, futures or forward
contracts in order to seek to minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
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<PAGE>
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Funds in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in a Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from a Fund and, unless an effective IRS Form W-8 or authorized
substitute for Form W-8 is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in any Fund.
The Funds are not subject to Massachusetts corporate excise or franchise taxes.
Provided that a Fund qualifies as a regulated investment company under the Code,
it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
Total Return. Average annual total return is determined separately for each
class of shares.
Set forth below are tables showing the performance on a total return basis
(i.e., with all dividends and distributions reinvested) of a hypothetical $1,000
investment in the Class A and Class B shares of the Funds. The performance
information for each Fund is stated for the year ended October 31, 1996 and,
with respect to Class A shares of each Fund and Class B shares of Disciplined
Growth Fund, for the period from the commencement of operations (indicated by an
asterisk). With respect to Class B shares of each Fund, performance information
is also stated for the five year period ended October 31, 1996. The Fund
performance information for Class B shares of Regional Bank Fund and also stated
for the ten year period ended October 31, 1996.
<TABLE>
<CAPTION>
Disciplined Growth Fund
Class A Class A Class B Class B Class B
Shares Shares Shares Shares Shares
One Year Ended 1/3/92* One Year Ended Five Years Ended 4/22/87*to
10/31/96 10/31/96 10/31/96 10/31/96 10/31/96
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
16.66% 8.79% 16.89% 10.68% 8.69%
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
Regional Bank Fund
Class A Class A Class B Class B Class B
Shares Shares Shares Shares Shares
One Year Ended 1/3/92* to One Year Ended Five Years Ended Ten Years Ended
10/31/96 10/31/96 10/31/96 10/31/96 10/31/96
------------ -------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
22.33% 26.23% 22.89% 26.81% 19.77%
</TABLE>
*Commencement of operations.
Total return is computed by finding the average annual compounded rates of
return over the designated periods that would equate the initial amount invested
to the ending redeemable value, according to the following formula:
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the 1 year, 5 years, and 10 year periods.
Because each share has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A and Class B shares, this
calculation assumes that the maximum sales charge is included in the initial
investment or the applicable CDSC is applied at the end of the period,
respectively. This calculation 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 and net asset value at the end of the period. Excluding a Fund's sales
charge from the distribution rate produces a higher rate.
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In addition to average annual total returns, the Funds may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Funds' sales charge on Class A shares
or the CDSC on Class B shares into account. Excluding the Funds' sales charge on
Class A shares and the CDSC on Class B shares from a total return calculation
produces a higher total return figure.
The Funds may advertise yield, where appropriate. Yield is computed by dividing
the net investment income per share determined for a 30 day period by the
maximum offering price per share (which includes a full sales charge) on the
last day of such period, according to the following standard formula:
Yield = 2([(a - b) + 1] 6 - 1)
---
cd
Where: a= dividends and interest earned during the period
b= net expenses accrued for the period
c= the average daily number of share outstanding during the
period that would be entitled to receive dividends
d= the maximum offering price per share on the last day of the
period (NAV where applicable).
From time to time, in reports and promotional literature, the Funds' total
return and/or yield will be compared to indices of mutual funds such as Lipper
Analytical Services, Inc.'s "Lipper-Mutual Fund Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on mutual funds in
the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes, as well as Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. may also be
utilized. The Fund's promotional and sales literature may make reference to the
Funds' "beta". Beta is a reflection of the market related risk of the Funds by
showing how responsive the Funds are to the market.
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<PAGE>
The performance of the Funds is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Funds for
any period in the future. The performance of any fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales, and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Funds' performances.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by an investment committee of the Adviser, which consists
of officers and directors of the Adviser, Sub-Advisers, 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 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 maker reflect a "spread." 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 these transactions.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The Funds' primary policy are 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 or a
Sub-Adviser may consider sales of shares of the Fund as a factor in the
selection of broker-dealers to execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser and the
Sub-Advisers 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 and the Sub-Advisers.
52
<PAGE>
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 or Sub-Advisers, and, conversely, brokerage commissions
and spreads paid by other advisory clients of the Adviser and Sub-Advisers 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, in consultation with the Sub-Advisers,
will be primarily responsible for the allocation of the Fund's brokerage
business, the policies and practices of the Adviser and Sub-Advisers in this
regard must be consistent with the foregoing and at all times be subject to
review by the Trustees. During the fiscal years ended October 31, 1994, 1995 and
1996, the Regional Bank Fund paid $512,936, $589,066 and $937,631 in negotiated
brokerage commissions. During the fiscal years ended October 31, 1994, 1995 and
1996, the Disciplined Growth Fund paid $136,826, $237,015 and $276,610 in
negotiated brokerage commissions.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, each Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended October 31,
1996, Disciplined Growth Fund paid $44,415 and Regional Bank Fund paid $44,766.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc., a broker dealer ("Distributors"
or "Affiliated Broker"). Pursuant to procedures determined by the Trustees and
consistent with the above policy of obtaining best net results, the Funds may
execute portfolio transactions with or through Affiliated Brokers. During the
fiscal periods ended October 31, 1994 , 1995 and 1996 no brokerage commissions
were paid to Affiliated Brokers in connection with the portfolio transactions of
the Disciplined Growth Fund. During the fiscal periods ended October 31, 1994,
1995 and 1996, brokerage commissions were paid to Tucker Anthony, which was
affiliated with the Adviser until November 1996, in the amounts of $0, $2,800
and $6,300, respectively, in connection with portfolio transactions of Regional
Bank Fund.
Distributors may act as broker for the Funds on exchange transactions, subject,
however, to the general policy of the Funds 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's
contemporaneous charges for comparable transactions for its other most favored,
but unaffiliated, customers except for accounts for which the Affiliated Broker
acts as clearing broker for another brokerage firm, and any customers of the
Affiliated Broker not comparable to the Funds as determined by a majority of the
Trustees who are not interested persons (as defined in the Investment Company
Act) of the Fund, the Adviser or the Affiliated Broker. Because the Adviser and
the Sub-Adviser, which are affiliated with the Affiliated Brokers, have, as
53
<PAGE>
investment advisers 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 Broker as a
basis for negotiation commissions at a rate higher than that determined in
accordance with the above criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as a Fund. When these clients buy or sell the same securities at
substantially the same time, the Adviser 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 Funds. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for a Fund with those to be sold or purchased for other
clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way STE 1000, Boston, MA
02217-1000, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Funds. Each Fund pays Signature
Services an annual fee of $19.00 for each Class A shareholder and of $21.50 for
each Class B shareholder. Each Fund also pays certain out-of-pocket expenses and
these expenses are aggregated and charged to each Fund and allocated to each
class on the basis of their relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Funds are held pursuant to a custodian agreement
between the Funds and Investors Bank & Trust Company, 89 South Street, Boston,
Massachusetts 02111. Under the custodian agreement, State Street Bank and Trust
Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Funds are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts, 02110. Price Waterhouse LLP audits and renders an
opinion on each Fund's annual financial statements and reviews each Fund's
annual Federal income tax returns.
54
<PAGE>
APPENDIX A
DESCRIPTION OF BOND RATINGS*
Moody's Bond ratings
Bonds. "Bonds which are rated 'Aaa' are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most likely to impair
the fundamentally strong position of such issues.
"Bonds which are rated 'Aa' are judged to be of high quality by all standards.
Together with the 'Aaa' group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities or fluctuation of
protective elements may be of grater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in 'Aaa'
securities
.
"Bonds which are rated 'A' possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Bonds which are rated 'Baa' are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Bonds which are rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position,
characterizes bonds in this class.
"Bonds which are rated 'B' generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue. Should
no rating be assigned, the reason may be one of the following: (i) an
application for rating was not received or accepted; (ii) the issue or issuer
belongs to a group of securities that are not rated as a matter of policy; (iii)
A-1
<PAGE>
there is a lack of essential data pertaining to the issue or issuer; or (iv) the
issue was privately placed, in which case the rating is not published in Moody's
publications.
- ------------
*As described by the rating companies themselves.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Standard & Poor's Bond ratings
"AAA. Debt rated 'AAA' has the highest rating by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
"AA. Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
"A. Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB. Debt rated 'BBB' is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Debt rated "BB," or "B," is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and pay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major risk exposures to adverse conditions.
Unrated. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper Ratings
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"P-1 -- "Prime-1" indicates the highest quality repayment capacity of the rated
issues.
A-2
<PAGE>
"P-2 -- "Prime-2" indicates that the issuer has a strong capacity for repayment
of short-term promissory obligations. Earnings trends and coverage ratios, while
sound, will be more subjective to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained."
Standard & Poor's Commercial Paper Ratings
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Standard & Poor's two highest commercial paper rating categories
are as follows:
"A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
"A-2 -- Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1."
A-3
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
John Hancock Funds
Disciplined
Growth
Fund
Annual Report
October 31, 1996
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
*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
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
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
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 AUDITORS
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
CHAIRMAN'S MESSAGE
DEAR FELLOW SHAREHOLDERS:
Since late 1994, prospectus simplification has been a major topic in
the mutual fund industry. At that time, Securities and Exchange
Commission Chairman Arthur Levitt called on fund companies to
make their prospectuses more user-friendly. He noted that prospectuses
are often overloaded with technical detail and are hard for most
investors to understand. Many industry observers agreed, and rightly so.
So it is my pleasure to let you know that after being under development
for a year, John Hancock Funds has introduced new simplified and
consolidated prospectuses. The prospectuses feature shorter, clearer
language with a streamlined design, and they incorporate several funds
with similar investment objectives into one document. They cover our
income, growth, growth and income, tax-free income, international/global
and money market funds. We are gratified at the favorable reviews that
our new prospectuses have received from shareholders, financial
advisers, industry analysts and the press. We believe they are a bold
but sensible step forward. And while they are easier to read, they still
comply with all federal and state guidelines.
We have taken the initiative to create a prospectus that dramatically
departs from the norm. Among its most innovative features is a two-page
spread highlighting each fund's goals and investment strategy, the types
of securities it buys, its portfolio management and risk factors, all in
plainer language. Fund expenses and financial highlights are now found
here, too, as is a new bar chart that shows year-to-year volatility for
each fund. Other features include a better presentation of fund
services, a new glossary of investment risks and a discussion about how
funds are organized, including a diagram showing the connection of the
various players that provide services to your Hancock fund(s).
We believe we have made a significant advancement in the drive toward
better mutual fund prospectuses. We hope you will agree because in the
end, we did it for you, our shareholders.
Sincerely,
/S/ EDWARD J. BOUDREAU, JR.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and
Chief Executive Officer, flush right, next to second
paragraph.
By John Snyder and Jere Estes, Co-Portfolio Managers
John Hancock
Disciplined Growth Fund
Market's "flight to quality" drives performance;
outlook remains promising for high-quality growth stocks
"The stock
market had
trouble making
up its mind
this year."
The stock market had trouble making up its mind this year. Sentiment
swung sharply as investors tried to figure out where the economy was
headed next. The result was a volatile stock market that has been held
victim to the latest economic news. Throughout the year, stock prices
dropped as weaker economic reports sparked fears of a slowing economy--
and then rallied back as stronger-than-expected news reassured investors
that the economy was still on track. In addition, we have also seen
strong and rapid sector rotation between cyclical and defensive stocks,
as investors have tried to capture the latest hot stock group.
More recently, the market volatility has subsided somewhat as we've
shifted toward what we call the "Goldilocks" economy. That is, an
economy that is not too hot and not too cold, but just right. The
Federal Reserve -- the supreme arbiter of economic growth -- has stuck
by its neutral interest-rate policy, indicating that it believes the
economy is moving along at just the right pace. Despite the turmoil, the
broader market, as measured by the Standard & Poor's 500-Stock Index,
gained a healthy (and atypical) 24.10% for the 12 months ended October
31, 1996.
A 2 1/2" x 3 1/2" photo of Disciplined Growth Fund
management team at bottom right. Caption reads: "Disciplined
Growth Fund management team members: (l-r) Jere Estes, Anne
McDermott, John Snyder".
In search of quality
John Hancock Disciplined Growth Fund also produced strong returns. For
the year ended October 31, 1996, the Fund's Class A and Class B shares
had total returns of 22.78% and 21.89%, respectively, at net asset
value. Those outpaced the average growth fund's return of 18.47% for the
same period, according to Lipper Analytical Services.1 Please see pages
six and seven for longer-term performance information.
Chart with heading "Top Five Common Stock Holdings" at top of
left hand column. The chart lists five holdings: 1) Kimberly
Clark 2.7% 2) Procter & Gamble 2.5% 3) Home Depot 2.3%
4)Century Telephone Enterprises 2.0% 5) Aflac Corp. 2.0%. A
footnote below reads "As a percentage of net assets on
October 31, 1996."
"We have
added more
technology
holdings
to the
portfolio..."
What has driven the Fund's performance is the market's "flight to
quality." Enormous productivity gains and strong economic growth have
resulted in four years of above-average earnings growth in corporate
America. With much of the productivity gains behind us and the economy
slowing, however, the outlook for corporate earnings has become much
less certain. And that uncertainty, which has sent the stock market on
its rollercoaster ride this year, caused investors to flock to large,
high-quality stocks with reliable earnings -- the type of stocks in
which John Hancock Disciplined Growth Fund invests. General Electric is
a perfect example. Investors have been attracted to the company's
consistently improving revenues and profits. Since the start of the
year, the stock is up 36%. Pep Boys was another winner. This auto
repair/service company is rapidly gaining market share through joint
ventures with CarMax, a national used-car chain and Enterprise, a car
leasing company.
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 Pep Boys followed by an up
arrow and the phrase "New ventures build market share." The
second listing is General Electric followed by an up arrow
and the phrase "Consistently growing revenues and earnings."
The third listing is Pepsi followed by a down arrow and the
phrase "Weakness in restaurant and international soft
drinks." Footnote below reads: "See Schedule of
Investments. Investment holdings are subject to change."
Of course, along with the good news, there is usually some bad news.
Electronic Data Systems, for example, has been a disappointment. A
slowing of orders has put a damper on earnings. However, we believe it's
only temporary, so we're holding the stock. PepsiCo has also experienced
some short-term problems, particularly with its restaurant and
international soft drink businesses. We're confident, however, that new
management will turn the situation around.
Investment focus
As we discussed in the semi-annual report six months ago, we have
broadened the Fund's investment strategy. Previously, our focus was on
companies that had increased their dividends consistently for at least
the past five years. Our new strategy, while not a major shift, puts
more emphasis on the predictability of earnings rather than dividends.
We're targeting companies that have achieved predictable earnings, but
not necessarily passed those earnings along to stockholders in the form
of dividends. With a broader universe, we've added more technology
holdings to the portfolio, including Microsoft and Computer Associates.
We've also beefed up our oil and gas stocks such as Mobil, Chevron and
Amoco. Even as we broaden our universe, one thing remains the same and
that's our focus on quality and stability. We believe these new
additions all fit that bill.
Another area where we have found value is the mid-cap sector of the
market. Large-cap stocks have run up nicely in the last several months,
but many mid-cap stocks have been lackluster, despite strong earnings.
We've used this as an opportunity to add to existing positions or pick
up new holdings for the portfolio. Below are two examples.
Bar chart with heading "Fund Performance" at top of left hand
column. Under the heading is the footnote: "For the year
ended October 31, 1996." The chart is scaled in increments of
5% from bottom to top, with 25% at the top and 0% at the
bottom. Within the chart there are three solid bars. The
first represents the 22.78% total return for the John Hancock
Disciplined Growth Fund: Class A. The second represents the
21.89% total return for the John Hancock Disciplined Growth
Fund: Class B. The third represents the 18.47% total return
for the average growth fund. A footnote below reads: "The
total returns for John Hancock Disciplined Growth Fund are at
net asset value with all distributions reinvested. The
average growth fund is tracked by Lipper Analytical Services.
(1) See following two pages for historical performance
information."
PALL. This company manufactures filters and equipment used in fluid
processing, aerospace and medical applications. One of the most exciting
opportunities for Pall is blood filtering. Pall filters greatly reduce
the spread of infection. With all the publicity surrounding blood-borne
infections, it seems likely that filtering will become a standard
procedure. After growing earnings consistently at 12% over the last ten
years, it's entirely possible that this rate could increase to 15%.
PENTAIR. This conglomerate operates three major lines of business:
electrical accessories, portable power tools and water pumps. After a
major restructuring in the early '80s, the company has been able to grow
earnings at a consistent rate of 15% over the past 10 years. We don't
see any reason why Pentair won't be able to keep up that growth rate for
the next several years.
Outlook
Despite the market's most recent calm, we do not believe that the
volatility is over, since there's still some uncertainty currently about
the overall direction of the economy. In addition, worries about
overvalued stock prices could keep investors on edge. It's true that
stock valuations are above their historical norms. Of course, some
stocks, particularly initial public offerings, have reached excessive
levels. But given the low inflation and interest rates, we still believe
that the market is reasonably priced.
"...we still
believe that
the market is
reasonably
priced."
Having said that, we do not expect stocks to match their spectacular
returns of the last few years and investors would be wise to temper
their expectations. Next year, we believe the economy is likely to grow
in the 2.5% to 3% range, and corporate profits are likely to drop back
to more normal levels of 8% to 10% from their unusually high level of
20% in 1995.
We also believe that next year's slower-growth economy will cause
problems for companies who are not leaders of their respective
industries. In fact, we are likely to see the emergence of the New Nifty
Fifty. This term refers to the two-tiered market that developed in the
early '70s. At that time, there were the 50 "great" companies, those
with high earnings reliability, and then there was everybody else. We
are more convinced than ever that this tiering is re-occurring in the
market now. What's more, we are not anywhere near the point where
consistent growth companies are overvalued. This bodes well for the
high-quality growth stocks favored by John Hancock Disciplined Growth
Fund.
- -----------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the
end of the Fund's period discussed in this report. Of course, the
managers' views are subject to change as market and other conditions
warrant.
1Figures from Lipper Analytical Services include reinvested dividends
and do not take into account sales charges. Actual load-adjusted
performance is lower.
A LOOK AT PERFORMANCE
The tables on the right show the cumulative total returns and the
average annual total returns for the John Hancock Disciplined Growth
Fund. Total return is a performance measure that equals the sum of all
income and capital gain distributions, assuming reinvestment of these
distributions and the change in the price of the Fund's shares,
expressed as a percentage of the Fund's net asset value per share.
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. Prior to August 1992,
different sales charges were in effect for Class A shares which are not
reflected in the performance data. 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.
CUMULATIVE TOTAL RETURNS
For the period ended September 30, 1996
One Five Life of
Year Years Fund
----- ------ -------
John Hancock
Disciplined Growth
Fund: Class A(1) 12.19% N/A 47.83%
John Hancock
Disciplined Growth
Fund: Class B(2) 12.30% 70.03% 117.86%
AVERAGE ANNUAL TOTAL RETURNS
For the period ended September 30, 1996
One Five Life of
Year Years Fund
----- ------ -------
John Hancock
Disciplined Growth
Fund: Class A(1) 12.19% N/A 8.59%
John Hancock
Disciplined Growth
Fund: Class B(2) 12.30% 11.20% 8.60%
Notes to Performance
(1) Class A shares commenced on January 3, 1992.
(2) Class B shares commenced on April 22, 1987.
WHAT HAPPENED TO A $10,000 INVESTMENT...
The charts on the right show how much a $10,000 investment in the John
Hancock Disciplined Growth Fund would be worth on October 31, 1996,
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.
Disciplined Growth Fund
Class A shares
Line chart with the heading Disciplined Growth 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 $19,245 as of October 31, 1996. The second line
represents the value of the hypothetical $10,000 investment made in
the Disciplined Growth Fund on January 3, 1992, before sales charge, and
is equal to $15,800 as of October 31, 1996. The third line represents
the Disciplined Growth Fund, after sales charge, and is equal
to $15,015 as of October 31, 1996.
Disciplined Growth Fund
Class B shares
Line chart with the heading Disciplined Growth Fund: Class B*,
representing the growth of a hypothetical $10,000 investment over the
life of the fund. Within the chart are two lines.
The first line represents the value of the Standard & Poor's 500 Stock
Index, and is equal to $32,358 as of October 31, 1996. The second line
represents the value of the hypothetical $10,000 investment made in
the Disciplined Growth Fund on April 22, 1987, after sales charge, and
is equal to $22,117 as of October 31, 1996.
* No contingent deferred sales charge applicable.
<TABLE>
<CAPTION>
John Hancock Funds - Disciplined Growth 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, 1996.
You'll also find the net asset value and the maximum offering price per share
as of that date.
Statement of Assets and Liabilities
October 31, 1996
- ----------------------------------------------------------------------------
<S> <C>
Assets:
Investments at value -- Note C:
Common stocks (cost - $92,263,970) $113,764,313
Joint repurchase agreement (cost - $7,463,000) 7,463,000
Corporate savings account 597
------------
121,227,910
Receivable for investments sold 971,305
Receivable for shares sold 51,294
Dividends receivable 100,250
Interest receivable 1,270
Other assets 4,885
------------
Total Assets 122,356,914
- ----------------------------------------------------------------------------
Liabilities:
Payable for investments purchased 750,594
Payable for shares repurchased 109,450
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 123,470
Accounts payable and accrued expenses 58,425
------------
Total Liabilities 1,041,939
- ----------------------------------------------------------------------------
Net Assets:
Capital paid-in $86,486,024
Accumulated net realized gain on investments 13,328,280
Net unrealized appreciation of investments 21,500,671
------------
Net Assets $121,314,975
============================================================================
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)
Class A - $28,759,636/1,848,755 $15.56
============================================================================
Class B - $92,555,339/6,029,029 $15.35
============================================================================
Maximum Offering Price *
Class - A ($15.56 x 105.26%) $16.38
============================================================================
* On a single retail sale of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
</TABLE>
<TABLE>
<CAPTION>
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.
Statement of Operations
Year ended October 31, 1996
- ----------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividends (net of foreign withholding taxes of $1,274) $1,949,414
Interest 352,852
-----------
2,302,266
-----------
Expenses:
Distribution/service fee - Note B
Class A 86,047
Class B 907,545
Investment management fee - Note B 895,776
Transfer agent fee - Note B 316,323
Printing 43,183
Custodian fee 43,239
Registration and filing fees 32,053
Auditing fee 27,073
Trustees' fees 16,810
Financial services fee - Note B 7,474
Miscellaneous 5,873
Legal 4,865
-----------
Total Expenses 2,386,261
-----------
Net Investment Loss (83,995)
-----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold 13,412,288
Change in net unrealized appreciation/depreciation
of investments 10,413,875
-----------
Net Realized and Unrealized Gain
on Investments 23,826,163
- ----------------------------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $23,742,168
============================================================================
See notes to financial statments
</TABLE>
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------
1995 1996
------------- -------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment income (loss) $230,696 ($83,995)
Net realized gain on investments sold 890,733 13,412,288
Change in net unrealized appreciation/
depreciation of investments 11,617,034 10,413,875
------------- -------------
Net Increase in Net Assets Resulting
from Operations 12,738,463 23,742,168
------------- -------------
Distributions to Shareholders:
Dividends from net investment income
Class A - ($0.1015 and none per
share, respectively) (213,064) --
Class B - ($0.0287 and none
per share, respectively) (216,094) --
Distributions from net realized gain
on investments sold
Class A - ($0.5222 and $0.1030
per share, respectively) (999,954) (218,913)
Class B - ($0.5222 and $0.1030
per share, respectively) (4,061,492) (691,213)
------------- -------------
Total Distributions to Shareholders (5,490,604) (910,126)
------------- -------------
From Fund Share Transactions - Net*: (11,101,562) (15,386,732)
------------- -------------
Net Assets:
Beginning of period 117,723,368 113,869,665
------------- -------------
End of period $113,869,665 $121,314,975
============= =============
* Analysis of Fund Share Transactions:
YEAR ENDED OCTOBER 31,
--------------------------------------------------------------
1995 1996
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
CLASS A
Shares sold 665,977 $8,286,634 1,009,864 $14,846,003
Shares issued to shareholders in
reinvestment of distributions 106,291 1,186,137 15,749 211,679
------------- ------------- ------------- -------------
772,268 9,472,771 1,025,613 15,057,682
Less shares repurchased (542,110) (6,600,356) (1,345,465) (19,632,832)
------------- ------------- ------------- -------------
Net increase (decrease) 230,158 $2,872,415 (319,852) ($4,575,150)
============= ============= ============= =============
CLASS B
Shares sold 531,328 $6,390,883 687,430 $9,579,944
Shares issued to shareholders in
reinvestment of distributions 360,515 3,973,464 48,668 649,722
------------- ------------- ------------- -------------
891,843 10,364,347 736,098 10,229,666
Less shares repurchased (2,003,631) (24,338,324) (1,497,331) (21,041,248)
------------- ------------- ------------- -------------
Net decrease (1,111,788) ($13,973,977) (761,233) ($10,811,582)
============= ============= ============= =============
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 and
foreign currency gains and losses if any, and any increase or decrease in money shareholders invested
in the Fund. The footnote illustrates the number of Fund shares sold, reinvested and repurchased during
the last two periods, along with the corresponding dollar value.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout
the period indicated, investment returns, key ratios and supplemental
data are listed as follows:
- -------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CLASS A (1)
Per Share Operating Performance
Net Asset Value, Beginning of Period $12.81 $10.99 $12.39 $12.02 $12.77
-------- -------- -------- -------- --------
Net Investment Income 0.06(2) 0.08(2) 0.10 0.08(2) 0.07(2)
Net Realized and Unrealized Gain (Loss)
on Investments (0.06) 1.34 0.07 1.29 2.82
-------- -------- -------- -------- --------
Total from Investment Operations 0.00 1.42 0.17 1.37 2.89
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.07) (0.02) (0.10) (0.10) --
Distributions in Net Realized Gain
on Investments Sold (1.74) -- (0.44) (0.52) (0.10)
Distributions from Capital Paid-In (0.01) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions (1.82) (0.02) (0.54) (0.62) (0.10)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $10.99 $12.39 $12.02 $12.77 $15.56
======= ======= ======= ======= =======
Total Investment Return at Net
Asset Value(3) 0.19%(4) 12.97% 1.35% 12.21% 22.78%
Ratios and Supplemental Data
Net Assets, End of Period (000's
omitted) $1,771 $23,372 $23,292 $27,692 $28,760
Ratio of Expenses to Average Net
Assets 1.73%(5) 1.60% 1.53% 1.46% 1.47%
Ratio of Net Investment Income to
Average Net Assets 0.62%(5) 0.64% 0.83% 0.69% 0.46%
Portfolio Turnover Rate 246% 71% 60% 65% 78%
Average Broker Commission Rate(6) N/A N/A N/A N/A $0.07
The Financial Highlights summarizes the impact of the following factors
on a single share for each period indicated: 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.
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $11.71 $10.97 $12.31 $11.95 $12.69
-------- -------- -------- -------- --------
Net Investment Income (Loss) 0.01(2) 0.02(2) 0.03 0.01(2) (0.03)(2)
Net Realized and Unrealized Gain
on Investments 1.05 1.33 0.07 1.28 2.79
-------- -------- -------- -------- --------
Total from Investment Operations 1.06 1.35 0.10 1.29 2.76
-------- -------- -------- -------- --------
Less Distributions:
Dividends from Net Investment Income (0.03) (0.01) (0.02) (0.03) --
Distributions from Net Realized
Gain on Investments Sold (1.76) -- (0.44) (0.52) (0.10)
Distributions from Capital Paid-In (0.01) -- -- -- --
-------- -------- -------- -------- --------
Total Distributions (1.80) (0.01) (0.46) (0.55) (0.10)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $10.97 $12.31 $11.95 $12.69 $15.35
======= ======= ======= ======= =======
Total Investment Return at Net
Asset Value(3) 7.22% 12.34% 0.78% 11.51% 21.89%
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $23,525 $93,853 $94,431 $86,178 $92,555
Ratio of Expenses to Average
Net Assets 2.27% 2.09% 2.10% 2.11% 2.17%
Ratio of Net Investment Income
(Loss) to Average Net Assets 0.10% 0.17% 0.25% 0.06% (0.24%)
Portfolio Turnover Rate 246% 71% 60% 65% 78%
Average Broker Commission Rate(6) N/A N/A N/A N/A $0.07
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) Annualized
(6) Per portfolio share traded. Required for fiscal years that began
September 1, 1995 or later.
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
The Schedule of Investments is a complete list of all securities owned by
the Disciplined Growth Fund on October 31, 1996. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------------------------- ----------------- -----------
<S> <C> <C>
COMMON STOCKS
Advertising (1.60%)
Interpublic Group of Cos., Inc. (The) 40,000 $1,940,000
------------
Aerospace (0.91%)
Rockwell International Corp. 20,000 1,100,000
------------
Banks - United States (4.17%)
BankAmerica Corp. 25,000 2,287,500
First Tennessee National Corp. 40,000 1,455,000
Norwest Corp. 30,000 1,316,250
------------
5,058,750
------------
Beverages (1.47%)
PepsiCo, Inc. 60,000 1,777,500
------------
Building (1.94%)
Ecolab Inc . 30,000 1,095,000
Masco Corp. 40,000 1,255,000
------------
2,350,000
------------
Chemicals (1.69%)
Sigma-Aldrich Corp. 35,000 2,056,250
------------
Computers (10.68%)
3Com Corp.* 30,000 2,028,750
Automatic Data Processing, Inc. 30,000 1,248,750
Cisco Systems, Inc.* 22,000 1,361,250
Computer Associates International, Inc.* 20,000 1,182,500
Electronic Data Systems Corp. 40,000 1,800,000
Fiserv Inc.* 30,000 1,151,250
Hewlett-Packard Co. 30,000 1,323,750
Microsoft Corp.* 12,000 1,647,000
Sun Microsystems, Inc.* 20,000 1,220,000
------------
12,963,250
------------
Containers (2.05%)
Bemis Co . 30,000 1,050,000
Crown Cork & Seal Co., Inc. 30,000 1,440,000
------------
2,490,000
------------
Diversified Operations (3.53%)
Alco Standard Corp. 30,000 1,391,250
Corning, Inc. 40,000 1,550,000
Lockheed Martin Corp. 15,000 1,344,375
------------
4,285,625
------------
Electronics (3.61%)
Emerson Electric Co. 15,000 1,335,000
General Electric Co. 20,000 1,935,000
W.W. Grainger, Inc. 15,000 1,111,875
------------
4,381,875
------------
Finance (2.45%)
Advanta Corp. (Class A) 25,000 1,207,813
Franklin Resources, Inc. 25,000 1,762,500
------------
2,970,313
------------
Food (3.85%)
ConAgra, Inc. 30,000 1,496,250
CPC International, Inc. 20,000 1,577,500
Sara Lee Corp. 45,000 1,597,500
------------
4,671,250
------------
Furniture (1.23%)
Leggett & Platt, Inc. 50,000 1,493,750
------------
Household (1.17%)
Newell Co. 50,000 1,418,750
------------
Insurance (5.12%)
Aflac Corp 60,000 2,407,500
American International Group, Inc. 20,000 2,172,500
Travelers Group, Inc. 30,000 1,627,500
------------
6,207,500
------------
Linen Supply & Related (0.84%)
G AND K Services Inc. (Class A) 35,000 1,015,000
------------
Machinery (1.89%)
Dover Corp. 20,000 1,027,500
Pentair, Inc. 50,000 1,262,500
------------
2,290,000
------------
Media (0.94%)
Gannett Co., Inc. 15,000 1,138,125
------------
Medical (11.19%)
Abbott Laboratories 40,000 2,025,000
American Home Products Corp. 25,000 1,531,250
Amgen, Inc.* 20,000 1,226,250
Eli Lilly & Co. 15,000 1,057,500
Johnson & Johnson 25,000 1,231,250
Medtronic, Inc. 20,000 1,287,500
Pall Corp. 50,000 1,281,250
Pfizer, Inc. 25,000 2,068,750
Smithkline Beecham PLC,
American Depositary Receipts 30,000 1,878,750
------------
13,587,500
------------
Metal (2.36%)
Illinois Tool Works, Inc. 20,000 1,405,000
Worthington Industries, Inc. 70,000 1,452,500
------------
2,857,500
------------
Mortgage Banking (1.29%)
Federal National Mortgage Association 40,000 1,565,000
------------
Oil & Gas (8.36%)
Amoco Corp. 17,000 1,287,750
Chevron Corp. 18,000 1,183,500
Enron Corp. 35,000 1,627,500
Enron Oil & Gas Co. 50,000 1,287,500
Mobil Corp. 10,000 1,167,500
Sonat, Inc. 30,000 1,477,500
Sonoco Products Co, 30,000 798,750
Williams Companies, Inc. 25,000 1,306,250
------------
10,136,250
------------
Paper & Paper Products (2.69%)
Kimberly-Clark Corp. 35,000 3,263,750
------------
Retail (7.05%)
Arbor Drugs, Inc. 35,000 791,875
Dollar General Corp. 50,000 1,387,500
Home Depot, Inc. 50,000 2,737,500
Pep Boys - Manny, Moe & Jack 65,000 2,275,000
Sysco Corp. 40,000 1,360,000
------------
8,551,875
------------
Soap & Cleaning Preparations (2.45%)
Proctor & Gamble Co. (The) 30,000 2,970,000
------------
Telecommunications (1.49%)
Federal Signal Corp. 70,000 1,802,500
------------
Transport (0.88%)
CSX Corp. 25,000 1,078,125
------------
Utilities (6.88%)
Century Telephone Enterprises, Inc. 75,000 2,409,376
Frontier Corp. 70,000 2,030,000
National Fuel Gas Co. 27,000 1,005,750
Questar Corp 40,000 1,440,000
SBC Communications, Inc. 30,000 1,458,750
------------
8,343,876
------------
TOTAL COMMON STOCKS
(Cost $92,263,970) (93.78%) 113,764,313
--------- ------------
<CAPTION>
INTEREST PAR VALUE MARKET
RATE (000'S OMITTED) VALUE
------------ --------------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (6.15%)
Investment in a joint repurchase
agreement transaction with
SBC Capital Markets, Inc.
Dated 10-31-96, Due 11-01-96
(Secured by U.S. Treasury Bonds,
6.25% thru 12.00% due
11-15-12 thru 8-15-23)
Note A 5.54% $7,463 7,463,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.75% 597
------------
TOTAL SHORT-TERM INVESTMENTS (6.15%) 7,463,597
--------- ------------
TOTAL INVESTMENTS (99.93%) $121,227,910
--------- ============
* 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.
See notes to financial statements.
</TABLE>
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust (the "Trust") is a diversified open-end
management investment company, registered under the Investment Company
Act of 1940. The Trust consists of four series: John Hancock Disciplined
Growth Fund (the "Fund"), John Hancock Regional Bank Fund, John Hancock
Managed Tax-Exempt Fund, and John Hancock Financial Industries Fund
(which commenced operations on March 14, 1996). Prior to April 1, 1996,
the Fund was known as the John Hancock Sovereign Achievers Fund. The
other three series of the Trust are reported in separate financial
statements. The investment objective of the Fund is to achieve long-term
growth of capital by investing only in established companies that have
demonstrated both earnings growth and stability.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A and Class B shares. The shares of
each class represent an interest in the same portfolio of investments of
the Fund and have equal rights to voting, redemptions, dividends, and
liquidation, except that certain expenses, subject to the approval of
the Trustees, may be applied differently to each class of shares in
accordance with current regulations of the Securities and Exchange
Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued
on the basis of market quotations, valuations provided by independent
pricing services or, at fair value as determined in good faith in
accordance with procedures approved by the Trustees. Short-term debt
investments maturing within 60 days are valued at amortized cost which
approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other
registered investment companies having a management contract with John
Hancock Advisers, Inc. (the "Adviser"), a wholly-owned subsidiary of The
Berkeley Financial Group, may participate in a joint repurchase
agreement. Aggregate cash balances are invested in one or more
repurchase agreements, whose underlying securities are obligations of
the U.S. government and/or its agencies. The Fund's custodian bank
receives delivery of the underlying securities for the joint account on
the Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the
date of purchase, sale or maturity. Net realized gains and losses on
sales of investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the
requirements of the Internal Revenue Code that are applicable to
regulated investment companies and to distribute all of its taxable
income, including any net realized gain on investments, to its
shareholders. Therefore, no federal income tax provision is required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment
securities is recorded on the ex-dividend date or, in the case of some
foreign securities, on the date thereafter when the Fund is made aware
of the dividend. Interest income on investment securities is recorded on
the accrual basis. Foreign income may be subject to foreign withholding
taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions
are determined in conformity with income tax regulations, which may
differ from generally accepted accounting principles. Dividends paid by
the Fund with respect to each class of shares will be calculated in the
same manner, at the same time and will be in the same amount, except for
the effect of expenses that may be applied differently to each class.
EXPENSES The majority of the expenses of the Trust are directly
identifiable to an individual fund. Expenses which are not readily
identifiable to a specific fund are allocated in such a manner as deemed
equitable, taking into consideration, among other things, the nature and
type of expense and the relative sizes of the funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized
gains (losses) are calculated at the Fund level and allocated daily to
each class of shares based on the relative net assets of the respective
classes. Distribution and 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.
USE OF ESTIMATES The preparation of these financial statements in
accordance with generally accepted accounting principles incorporates
estimates made by management in determining the reported amount of
assets, liabilities, revenues, and expenses of the Fund. Actual results
could differ from these estimates.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser for a continuous investment
program equivalent, on an annual basis, to the sum of (a) 0.75% of the
first $500,000,000 of the Fund's average daily net asset value and
(b) 0.65% of the Fund's average daily net asset value in excess of
$500,000,000.
The Adviser had entered into a service agreement with Sovereign Asset
Management Corporation ("SAMCORP") an affiliate of the Adviser, to
provide certain investment research and portfolio management services to
the Fund, for which the Adviser paid SAMCORP 40% of its management fee.
This service agreement was terminated effective April 1, 1996.
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, the fee payable
to the Adviser will be reduced to the extent of such excess, and the
Adviser will make additional arrangements necessary to eliminate any
remaining excess expenses. The current limits are 2.5% of the first
$30,000,000 of the Fund's average daily net asset value, 2.0% of the
next $70,000,000, and 1.5% of the remaining average daily net asset
value.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-
Distributors for shares of the Fund. For the period ended October 31,
1996, net sales charges received with regard to sales of Class A shares
amounted to $71,634. Of this amount, $10,579 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$28,592 was paid as sales commissions to unrelated broker-dealers and
$32,463 was paid as sales commissions to sales personnel of John Hancock
Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated
("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of which are
broker dealers. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company, is the indirect sole shareholder of Distributors and
John Hancock Freedom Securities Corporation and its subsidiaries, which
include FDC, Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining
rates beginning at 5.0% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSC are paid to JH Funds and are used in
whole or in part to defray its expenses for providing distribution
related services to the Fund in connection with the sale of Class B
shares. For the period ended October 31, 1996, the contingent deferred
sales charges paid to JH Funds amounted to $195,017.
In addition, to reimburse the Co-Distributors for the services they
provide as distributors of shares of the Fund, the Fund has adopted
Distribution Plans with respect to Class A and Class B pursuant to Rule
12b-1 under the Investment Company Act of 1940. Accordingly, the Fund
will make payments to the Co-Distributors for distribution and service
expenses, at an annual rate not to exceed 0.30% of Class A average daily
net assets and 1.00% of Class B average daily net assets to reimburse
the Co-Distributors for their distribution and 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. The Fund pays Investor Services a fee
based on the number of shareholder accounts and certain out-of-pocket
expenses.
On August 27, 1996, the Board of Trustees approved retroactively to July
1, 1996, an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for 1996 is
estimated to be at an annual rate of 0.01875% of the average net assets
of the Fund.
Mr. Edward J. Boudreau, Jr., Mr. Richard S. Scipione and Ms. Anne C.
Hodsdon are directors and/or officers of the Adviser and/or its
affiliates, as well as a Trustees 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 makes 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 are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At
October 31, 1996, the Fund's investments to cover the deferred
compensation liability had unrealized appreciation of $328.
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, 1996, aggregated $87,724,863 and
$109,699,385, respectively. There were no purchases or sales of
obligations of the U.S. government and its agencies during the period
ended October 31, 1996.
The cost of investments owned at October 31, 1996 (excluding the
corporate savings account) for federal income tax purposes was
$99,726,970. Gross unrealized appreciation and depreciation of
investments aggregated $22,146,483 and $646,140, respectively, resulting
in net unrealized appreciation of $21,500,343.
NOTE D --
RECLASSIFICATION OF ACCOUNTS
During the period ended October 31, 1996, the Fund has reclassified
$83,995 from accumulated net investment loss on investments to
accumulated net realized gain. This represents the amount necessary to
report these balances on a tax basis, excluding certain temporary
differences, as of October 31, 1996. 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. The calculation of net investment income
in the financial highlights excludes these adjustments.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Disciplined Growth Fund
(formerly John Hancock Sovereign Achievers Fund)
and the Trustees of Freedom Investment Trust
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of John
Hancock Disciplined Growth Fund (the "Fund") (formerly John Hancock
Sovereign Achievers Fund) (a series of Freedom Investment Trust) at
October 31, 1996, 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 the 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, 1996 by correspondence with
the custodian and brokers and the application of alternative auditing
procedures where confirmations from brokers were not received, provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
December 12, 1996
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, 1996.
All dividends paid during the fiscal year ended October 31, 1996 are
taxable as ordinary income. These amounts were reported to shareholders
on 1995 U.S. Treasury Department Form 1099-DIV in January 1996. It is
anticipated that there will be a distribution from sales of securities
to shareholders of record on December 23, 1996 and payable December 30,
1996. Shareholders will receive a 1996 U.S. Treasury Department Form
1099-DIV in January 1997 representing their proportionate share. The
fund did not designate a long-term capital gain dividend during the
fiscal year ended October 31, 1996.
None of the distributions qualify for the dividends received deduction
available to corporate shareholders.
SHAREHOLDER MEETING (UNAUDITED)
On July 23, 1996, a special meeting of John Hancock Disciplined Growth
Fund was held.
The Shareholders approved a new investment management contract between
John Hancock Advisers, Inc. and the Fund. The shareholder votes were
3,860,419 FOR, 156,651 AGAINST and 322,327 ABSTAINING.
The Shareholders approved an Amended and Restated Declaration of Trust.
The shareholder votes were 3,844,565 FOR, 160,719 AGAINST and 334,113
ABSTAINING.
The Shareholders eliminated the Fund's fundamental investment
restriction on investing in a single class of securities of an issuer.
The shareholder vote were 3,774,288 FOR, 211,998 AGAINST and 353,111
ABSTAINING.
The Shareholders redesignated as nonfundamental the Fund's fundamental
investment restriction on investment in other investment companies. The
shareholder votes were 3,740,575 FOR, 237,229 AGAINST and 360,892
ABSTAINING.
The Shareholders elected the following Trustees with the votes as
indicated:
NAME OF TRUSTEE FOR WITHHELD
- ---------------------- ---------- -------
Dennis S. Aronowitz 5,295,410 184,520
Edward J. Boudreau, Jr. 5,295,975 183,955
Richard P. Chapman, Jr. 5,296,681 183,249
William J. Cosgrove 5,296,743 183,187
Douglas M. Costle 5,296,743 183,187
Leland O. Erdahl 5,296,743 183,187
Richard A. Farrell 5,296,155 183,775
Gail D. Fosler 5,296,743 183,187
William F. Glavin 5,296,681 183,249
Anne C. Hodsdon 5,295,904 184,026
Dr. John A. Moore 5,296,049 183,881
Patti McGill Peterson 5,295,512 184,418
John W. Pratt 5,296,413 183,517
Richard S. Scipione 5,295,803 184,127
Edward J. Spellman 5,296,441 183,489
NOTES
John Hancock Funds - Disciplined Growth Fund
[THIS PAGE INTENTIONALLY LEFT BLANK]
A 1/2" x 1/2" John Hancock Funds logo in upper left hand
corner of the page. A box sectioned in quadrants with a
triangle in upper left, a circle in upper right, a cube in
lower left and a diamond in lower right. A tag line below
reads: "A Global Investment Management Firm."
101 Huntington Avenue, Boston, MA 02199-7603
Bulk Rate
U.S. Postage
PAID
Randolph, MA
Permit No. 75
This report is for the information of shareholders of the John Hancock
Disciplined Growth Fund. It may be used as sales literature when
preceded or accompanied by the current prospectus, which details
charges, investment objectives and operating policies.
A recycled logo in lower left hand corner with caption
"Printed on Recycled Paper." 3500A 10/96
12/96
<PAGE>
- --------------------------------------------------------------------------------
John Hancock Funds
- --------------------------------------------------------------------------------
Disciplined
Growth
Fund
SEMI-ANNUAL REPORT
April 30, 1997
<PAGE>
================================================================================
TRUSTEES
Edward J. Boudreau, Jr.
Dennis S. Aronowitz*
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle*
Leland O. Erdahl*
Richard A. Farrell*
Gail D. Fosler*
William F. Glavin*
Anne C. Hodsdon
Dr. John A. Moore*
Patti McGill Peterson*
John W. Pratt*
Richard S. Scipione
Edward Spellman*
*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
James B. Little
Senior Vice President and
Chief Financial Officer
Susan S. Newton
Vice President and Secretary
James J. Stokowski
Vice President and Treasurer
Thomas H. Connors
Second Vice President and Compliance Officer
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
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
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Chairman's Message
DEAR FELLOW SHAREHOLDERS:
After two years of spectacular performance, the stock market in 1997 has given
investors its starkest reminder in a while of one of investing's basic tenets:
markets move down as well as up. It's understandable if investors had lost sight
of that fact. The bull market that began six years ago has given investors
annual double-digit returns and more modest price declines than usual. And in
the two years encompassing 1995 and 1996, the S&P 500 Index gained more than
50%. This Pollyanna environment has tracked along with a sustained economic
recovery, now in its seventh year, that has been marked by moderate growth, low
interest rates and tame inflation.
But recently, many have begun to wonder about this bull market. Since
reaching new highs in early March, the Dow Jones Industrial Average tumbled by
more than 7% at the end of March and wiped out nearly all it had gained since
the start of the year. It was the worst decline that the market had seen since
1990. In early April, the Dow was down by 9.8%, within shouting distance of a
10% correction. By the end of the month, it had bounced back into record
territory again.
[A 1 1/4" x 1" photo of Edward J. Boudreau Jr., Chairman and Chief Executive
Officer, flush right, next to second paragraph.]
As the market continues to fret over interest rates and inflation,
investors should be prepared for more volatility. It also makes sense to do
something we've always advocated: set realistic expectations. Keep in mind that
the stock market's historic yearly average has been about 10%, not the 20%-plus
annual average of the last two years or even the 16% annual average over the
last 10 years. Remember that the kind of market volatility we've seen lately is
more like the way the market really works. Fluctuations go with the territory.
And market corrections can be healthy, serving to bring inflated stock prices
down to more reasonable levels, thereby reducing some of the market's risk.
Use this time of heightened volatility as an opportunity to review your
portfolio's asset allocations with your investment professional. Make sure that
your investment strategies reflect your individual time horizons, objectives and
risk tolerance, and that they are based upon your needs. Despite turbulence, one
thing remains constant. A well-constructed plan and a cool head can be the best
tools for reaching your financial goals.
Sincerely,
/s/ Edward J. Boudreau, Jr.
EDWARD J. BOUDREAU, JR., CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2
<PAGE>
================================================================================
By John Snyder and Jere Estes, Co-Portfolio Managers
John Hancock
Disciplined Growth Fund
"Goldilocks" vanishes, then reappears, while predictable
earnings growth continues to drive Fund strategy
Good news closed out 1996 and ushered investors into 1997. The main cause for
celebration was the shift toward what we call a "Goldilocks" economy, that is,
an economy that is not too hot and not too cold, but just right. With the best
of both worlds: moderate economic growth and tame inflation, stocks had the wind
at their backs from October until early March. In fact, the Dow Jones Industrial
Average broke through the 7000 level for the first time in early March.
With surprisingly strong employment numbers in mid-March rekindling fears of
inflation, however, Goldilocks quickly disappeared and stocks started on a
precipitous decline. The situation worsened when the Federal Reserve -- the
supreme arbiter of economic growth -- raised short-term interest rates
one-quarter of a percentage point in an attempt to curb the economy's new-found
growth and pre-empt an inflation surge. From mid-March to mid-April, the Dow
Jones Industrial Average lost nearly 700 points.
Remarkably, Goldilocks reappeared in the last few weeks of April, pushing
stocks back up toward their record-breaking territory by the end of the period.
Positive inflation news -- both from the consumer price index and gross domestic
product reports -- temporarily calmed investors' fears of an overheating economy
and another imminent interest-rate hike by the Federal Reserve. By the end of
April, the Dow Jones Industrial Average had once again soared above the 7000
threshold.
- --------------------------------------------------------------------------------
Stocks rode a rollercoaster during the last six months.
- --------------------------------------------------------------------------------
[A 2 1/4" x 3 3/4" photo of the portfolio management team at bottom right.
Caption reads: "Disciplined Growth Fund management team members: (l-r) Jere
Estes, Anne McDermott, John Snyder."]
3
<PAGE>
================================================================================
John Hancock Funds - Discilined Growth Fund
[Chart with heading "Top Five Common Stock Holdings" at top of left hand column.
The chart lists five holdings: 1) Microsoft 2.0% 2) SmithKline Beecham 2.0% 3)
Hewlett-Packard 2.0% 4. Home Depot 1.9% 5)Interpublic Group 1.9%. A footnote
below reads: "As a percentage of net assets on April 30, 1997."]
- --------------------------------------------------------------------------------
"Retail stocks were among the Fund's best performers."
- --------------------------------------------------------------------------------
Performance scorecard
Even with the tumultuous market, John Hancock Disciplined Growth Fund turned in
solid results. For the six months ended April 30, 1997, the Fund's Class A and
Class B shares had a total return of 7.07% and 6.75%, respectively, at net asset
value. By comparison, the average growth fund had a total return of 7.15%,
according to Lipper Analytical Services, Inc.1 Please see pages six and seven
for longer-term performance information.
Retail stocks languished for most of 1996, topped off by a disappointing
Christmas season. A strong pick-up in consumer spending, however, lifted the
group out of its doldrums during the first quarter of this year. Our biggest
winners were the home-improvement store Home Depot, and auto-repair chain Pep
Boys.
[Table entitled "Scorecard" at bottom of left hand column. The header for the
left column is "Investment" and the header for the right column is "Recent
performance...and what's behind the numbers." The first listing is Home Depot
followed by an up arrow and the phrase "Pick-up in consumer spending." The
second listing is Mobil followed by an up arrow and the phrase "Rising oil
prices/increasing demand. The third listing is Oracle followed by a down arrow
and the phrase "Technology stocks fall out of favor." Footnote below reads "See
"schedule of Investments." Investment holdings are subject to change."]
Our technology stocks did not fare as well. So-called "momentum" investors --
who tend to latch onto fast rising stocks and then bail out at the first sign of
weakness-- fled the sector when the market took a turn for the worse in
mid-March. There was no discrimination between the good and bad technology
stocks. The entire group was painted with the same negative brush. Our
technology holdings -- such as Cisco Systems and Oracle -- were no exception.
Searching for value
Narrow market leadership has meant only a small group of stocks have contributed
to the market's gains. Because of neglect, more than anything else, many good
stocks, particularly in the mid-cap sector, have been left behind. We've taken
advantage of this opportunity to add stocks to the portfolio that meet our
investment criteria.
By maintaining the same sector weightings as the Standard & Poor's 500 Stock
Index, we avoid making bets on any one sector. Instead, within each sector, we
target the stocks with the best prospects for predictable and stable earnings
growth over the long haul. In addition, we look for those companies that have
low levels of debt, seasoned management and a sustainable competitive advantage
both domestically and globally. Below are three new holdings that fit the bill.
Leggett & Platt. This bedding/furniture component manufacturer is the
dominant player in this fragmented industry. The company is growing rapidly by
gaining share from or acquiring weaker competitors. What's more, Leggett & Platt
has plenty of resources to spend on research and development. Its innovative
products are also helping the company strengthen its leadership position. While
Leggett & Platt may not be in the hottest industry, the company does offer what
we look for first and foremost in selecting stocks: predictable and stable
earnings growth.
Ecolabs. The same holds true for Ecolabs. This specialty-chemical company
supplies cleaning products primarily to the hotel/motel indus-
4
<PAGE>
================================================================================
John Hancock Funds - Discilined Growth Fund
[Bar chart with heading "Fund Performance" at top of left hand column. Under the
heading is the footnote: "For the six months ended April 30, 1997." The chart is
scaled in increments of 2% from bottom to top, with 10% at the top and 0% at the
bottom. Within the chart, there are three solid bars. The first represents the
7.07% total return for John Hancock Disciplined Growth Fund: Class A. The second
represents the 6.75% total return for John Hancock Disciplined Growth Fund:
Class B. The third represents the 7.15%% total return for the average growth
fund. Footnote below reads: "Total returns for John Hancock Disciplined Growth
Fund are at net asset value with all distributions reinvested. The average
growth fund is tracked by Lipper Analytical Services. (1) See the following two
ages for historical performance information."]
try. Much like Leggett & Platt, Ecolabs is the dominant player in a fragmented
industry. With U.S. hotels expanding both domestically and internationally,
Ecolabs has been able to grow its market share.
RPM. This company, which makes protective coatings for decks and other wood
products, has recently refocused its business with several strategic
acquisitions and divestitures. The stock normally sells at a premium to the
market. However, it is currently trading at discount simply because of investor
neglect. With a stellar track record of 40 years of consecutive earnings
increases, RPM offered an attractive buying opportunity that we could not pass
up.
Outlook
Despite the stock market's recent rebound, we still expect to see more
volatility in the months ahead as investors worry about the direction of the
economy and the Federal Reserve's next interest-rate moves. Most Wall Street
analysts agree that the Fed probably is not through raising interest rates this
year. The big question, however, is how much further and how fast will the Fed
increase rates to keep the economy moving along at the right pace. With this
uncertainty looming over the market, investors will be constantly looking over
their shoulders.
Another area of uncertainty is corporate earnings. After two record-setting
years, earnings are likely to slow, especially given the increased pressure on
margins. Although inflation has remained moderate, labor costs -- which account
for almost two-thirds of corporate costs -- have started to inch up. The problem
is that cut-throat competition precludes many companies from offsetting these
rising labor costs with price increases. As a result, we're likely to see a
gradual compression in margins and more sluggish earnings.
- --------------------------------------------------------------------------------
"Now, more than ever, we believe that it is a stock picker's market."
- --------------------------------------------------------------------------------
Given these trends, investors would do well to temper their expectations for
1997. It is important to realize that stocks are not likely to repeat their
phenomenal returns of 1995 and 1996. Having said that, though, we are still
constructively optimistic on stocks. In spite of all the worry, we do not
believe that inflation poses a serious threat, especially given the Federal
Reserve's determination to keep it under control. Favorable inflation trends --
combined with continued market liquidity and improving economic growth overseas
- -- bode well for U.S. stocks. Now, more than ever, we believe that it is a stock
picker's market. A rising tide is no longer lifting all boats, so stock
selectivity is paramount. Given that, we will continue to take advantage of any
market weakness to find opportunities in stocks that meet the Fund's investment
criteria of stable, predictable earnings growth.
- --------------------------------------------------------------------------------
This commentary reflects the views of the portfolio managers through the end of
the Fund's period discussed in this report. Of course, the managers' views are
subject to change as market and other conditions warrant.
1 Figures from Lipper Analytical Services, Inc. include reinvested dividends and
do not take into account sales charges. Actual load-adjusted performance is
lower.
5
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
A LOOK AT PERFORMANCE
- --------------------------------------------------------------------------------
The tables on the right show the cumulative total returns and the average annual
total returns for the John Hancock Disciplined Growth Fund. Total return is a
performance measure that equals the sum of all dividend and capital gains
dividends, assuming reinvestment of these distributions and the change in the
price of the Fund's shares, expressed as a percentage of the Fund's net asset
value per share. 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. Prior to August 1992, different sales charges
were in effect for Class A shares and are not reflected in the performance data.
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.
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- ----
John Hancock Disciplined Growth
Fund: Class A(1) 4.36% 57.66% 52.76%
John Hancock Disciplined Growth
Fund: Class B(2) 4.09% 58.94% 124.45%
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
- --------------------------------------------------------------------------------
For the period ended March 31, 1997
ONE FIVE LIFE OF
YEAR YEARS FUND
---- ----- ----
John Hancock Disciplined Growth
Fund: Class A(1) 4.36% 9.53% 8.42%
John Hancock Disciplined Growth
Fund: Class B(2) 4.09% 9.71% 8.47%
Notes to Performance
(1) Class A shares commenced on January 3, 1992.
(2) Class B shares commenced on April 22, 1987.
6
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
WHAT HAPPENED TO A $10,000 INVESTMENT...
- --------------------------------------------------------------------------------
The charts on the right show how much a $10,000 investment in the John Hancock
Disciplined Growth Fund would be worth on April 30, 1997, 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.
[Line chart with the heading Disciplined Growth 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 Disciplined Growth
Fund, after sales charge, and is equal to $16,071 as of April 30, 1997. The
second line represents the value of the hypothetical $10,000 investment made in
the Disciplined Growth Fund on January 3, 1992, before sales charge, and is
equal to $16,917 as of April 30, 1997. The third line represents the value of
the Standard & Poor's 500 Stock Index, and is equal to $22,076 as of April 30,
1997.]
[Line chart with the heading Disciplined Growth Fund: Class B*, representing the
growth of a hypothetical $10,000 investment over the life of the fund. Within
the chart are two lines. The first line represents the value of the Standard &
Poor's 500 Stock Index, and is equal to $37,118 as of April 30, 1997. The second
line represents the value of the hypothetical $10,000 investment made in the
Disciplined Growth Fund on April 22, 1987, before sales charge, and is equal to
$23,609 as of April 30, 1997.]
* No contingent deferred sales charge applicable.
7
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth 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 April 30, 1997. You'll also
find the net asset value and the maximum offering price per share as of that
date.
Statement of Assets and Liabilities
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Assets:
Investments at value - Note C:
Common stocks (cost - 89,039,181) .......................... $111,391,925
Joint repurchase agreement (cost - $10,868,000) ............ 10,868,000
Corporate savings account .................................. 690
------------
............................................................... 122,260,615
Receivable for shares sold ................................... 26,676
Dividends receivable ......................................... 130,970
Interest receivable .......................................... 1,626
Foreign tax receivable ....................................... 600
Other assets ................................................. 3,557
------------
Total Assets ..................... 122,424,044
-------------------------------------------------
Liabilities:
Payable for investments purchased ............................ 1,193,000
Payable for shares repurchased ............................... 81,390
Payable to John Hancock Advisers, Inc.
and affiliates - Note B .................................... 114,560
Accounts payable and accrued expenses ........................ 45,992
------------
Total Liabilities ................ 1,434,942
-------------------------------------------------
Net Assets:
Capital paid-in .............................................. 91,397,132
Accumulated net realized gain on investments ................. 7,315,265
Net unrealized appreciation of investments ................... 22,353,072
Accumulated net investment loss .............................. ( 76,367)
------------
Net Assets ....................... $120,989,102
=================================================
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 - $30,925,407 / 2,079,053 ............................ $ 14.87
=============================================================================
Class B - $90,063,695 / 6,167,167 ............................ $ 14.60
=============================================================================
Maximum Offering Price Per Share*
Class A - ( $14.87 x 105.26%) ................................ $ 15.65
=============================================================================
* On a single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
The Statement of 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.
Statement of Operations
Six months ended April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Dividends (net of foreign withholding taxes of $1,800) $ 928,991
Interest 205,285
------------
1,134,276
------------
Expenses:
Investment management fee - Note B 454,698
Distribution and service fee - Note B
Class A 44,287
Class B 458,641
Transfer agent fee - Note B 166,205
Registration and filing fees 21,851
Custodian fee 20,034
Printing 13,425
Auditing fee 11,653
Financial services fee - Note B 11,367
Trustees' fees 5,397
Miscellaneous 1,825
Legal fees 1,260
------------
Net Expenses 1,210,643
-------------------------------------------------
Net Investment Loss ( 76,367)
--------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold 7,315,324
Change in net unrealized appreciation/depreciation
of investments 852,401
------------
Net Realized and Unrealized
Gain on Investments 8,167,725
-------------------------------------------------
Net Increase in Net Assets
Resulting from Operations $ 8,091,358
=================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
---------------- -----------
<S> <C> <C>
Increase (Decrease) in Net Assets:
From Operations:
Net investment loss ...................................................... ($ 83,995) ($ 76,367)
Net realized gain on investments sold .................................... 13,412,288 7,315,324
Change in net unrealized appreciation/depreciation of investments ........ 10,413,875 852,401
Net Increase in Net Assets Resulting from Operations ................... 23,742,168 8,091,358
Distributions to Shareholders:
Distributions from net realized gain on investments sold
Class A - ($0.1030 and $1.7182 per share, respectively) ................ ( 218,913) ( 3,141,926)
Class B - ($0.1030 and $1.7182 per share, respectively) ................ ( 691,213) ( 10,186,413)
Total Distributions to Shareholders .................................... ( 910,126) ( 13,328,339)
From Fund Share Transactions - Net* ........................................ ( 15,386,732) 4,911,108
Net Assets:
Beginning of period ...................................................... 113,869,665 121,314,975
End of period (including accumulated net investment loss of
none and $76,367, respectively) ........................................ $121,314,975 $120,989,102
* Analysis of Fund Share Transactions:
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30, 1997
OCTOBER 31, 1996 (UNAUDITED)
-------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- -------- -----------
<S> <C> <C> <C> <C>
CLASS A
Shares sold ....................................................... 1,009,864 $14,846,003 232,536 $ 3,435,195
Shares issued to shareholders in reinvestment of distributions .... 15,749 211,679 212,762 3,036,113
--------- ----------- ------- -----------
.................................................................... 1,025,613 15,057,682 445,298 6,471,308
Less shares repurchased ........................................... (1,345,465) ( 19,632,832) (215,000) ( 3,200,477)
--------- ----------- ------- -----------
Net increase (decrease) ........................................... ( 319,852) ($ 4,575,150) 230,298 $ 3,270,831
========= =========== ======= ===========
CLASS B
Shares sold ....................................................... 687,430 $ 9,579,944 239,683 $ 3,498,185
Shares issued to shareholders in reinvestment of distributions .... 48,668 649,722 656,616 9,225,452
--------- ----------- ------- -----------
.................................................................... 736,098 10,229,666 896,299 12,723,637
Less shares repurchased ........................................... (1,497,331) ( 21,041,248) (758,161) ( 11,083,360)
--------- ----------- ------- -----------
Net increase (decrease) ........................................... ( 761,233) ($10,811,582) 138,138 $ 1,640,277
========= =========== ======= ===========
</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, distributions paid to
shareholders, if any, and any increase or decrease in money shareholders
invested in the Fund. The footnote illustrates the number of Fund shares
sold,reinvested and repurchased during the last two periods, along with the
corresponding dollar value.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout each
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
-------------------------------------------------------- APRIL 30, 1997
1992 1993 1994 1995 1996 (UNAUDITED)
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS A (1)
Per Share Operating Performance
Net Asset Value, Beginning of Period .................. $12.81 $ 10.99 $ 12.39 $ 12.02 $ 12.77 $ 15.56
------ ------- ------- ------- ------- -------
Net Investment Income ................................. 0.06(2) 0.08(2) 0.10 0.08(2) 0.07(2) 0.03(2)
Net Realized and Unrealized Gain (Loss)
on Investments ...................................... ( 0.06) 1.34 0.07 1.29 2.82 1.00
------ ------- ------- ------- ------- -------
Total from Investment Operations .................... 0.00 1.42 0.17 1.37 2.89 1.03
------ ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income .................. ( 0.07) ( 0.02) ( 0.10) ( 0.10) -- --
Distributions from Net Realized Gain on
Investments Sold .................................... ( 1.74) -- ( 0.44) ( 0.52) ( 0.10) ( 1.72)
Distributions from Capital Paid-In .................... ( 0.01) -- -- -- -- --
------ ------- ------- ------- ------- -------
Total Distributions ................................. ( 1.82) ( 0.02) ( 0.54) ( 0.62) ( 0.10) ( 1.72)
------ ------- ------- ------- ------- -------
Net Asset Value, End of Period ........................ $10.99 $ 12.39 $ 12.02 $ 12.77 $ 15.56 $ 14.87
====== ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(3) ......... 0.19%(4) 12.97% 1.35% 12.21% 22.78% 7.07%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) .............. $1,771 $23,372 $23,292 $27,692 $28,760 $30,925
Ratio of Expenses to Average Net Assets ............... 1.73%(5) 1.60% 1.53% 1.46% 1.47% 1.47%(5)
Ratio of Net Investment Income to Average Net Assets .. 0.62%(5) 0.64% 0.83% 0.69% 0.46% 0.40%(5)
Portfolio Turnover Rate ............................... 246% 71% 60% 65% 78% 25%
Average Broker Commission Rate(6) ..................... N/A N/A N/A N/A $0.0698 $0.0700
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
Financial Highlights (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, SIX MONTHS ENDED
-------------------------------------------------------- APRIL 30, 1997
1992 1993 1994 1995 1996 (UNAUDITED)
------- ------- ------- ------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period ................. $ 11.71 $ 10.97 $ 12.31 $ 11.95 $ 12.69 $ 15.35
------- ------- ------- ------- ------- -------
Net Investment Income (Loss) ......................... 0.01(2) 0.02(2) 0.03 0.01(2) ( 0.03)(2) ( 0.02)(2)
Net Realized and Unrealized Gain on Investments ...... 1.05 1.33 0.07 1.28 2.79 0.99
------- ------- ------- ------- ------- -------
Total from Investment Operations ................... 1.06 1.35 0.10 1.29 2.76 0.97
------- ------- ------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income ................. ( 0.03) ( 0.01) ( 0.02) ( 0.03) -- --
Distributions from Net Realized Gain on
Investments Sold ................................... ( 1.76) -- ( 0.44) ( 0.52) ( 0.10) ( 1.72)
Distributions from Capital Paid-In ................... ( 0.01) -- -- -- -- --
------- ------- ------- ------- ------- -------
Total Distributions ................................ ( 1.80) ( 0.01) ( 0.46) ( 0.55) ( 0.10) ( 1.72)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period ....................... $ 10.97 $ 12.31 $ 11.95 $ 12.69 $ 15.35 $ 14.60
======= ======= ======= ======= ======= =======
Total Investment Return at Net Asset Value(3) ........ 7.22% 12.34% 0.78% 11.51% 21.89% 6.75%(4)
Ratios and Supplemental Data
Net Assets, End of Period (000s omitted) ............. $23,525 $93,853 $94,431 $86,178 $92,555 $90,064
Ratio of Expenses to Average Net Assets .............. 2.27% 2.09% 2.10% 2.11% 2.17% 2.17%(5)
Ratio of Net Investment Income (Loss) to Average
Net Assets ......................................... 0.10% 0.17% 0.25% 0.06% ( 0.24%) ( 0.30%)(5)
Portfolio Turnover Rate .............................. 246% 71% 60% 65% 78% 25%
Average Broker Commission Rate(6) .................... N/A N/A N/A N/A $0.0698 $0.0700
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Not annualized.
(5) Annualized.
(6) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
</TABLE>
The Financial Highlights summarizes the impact of the following factors on a
single share for each period indicated: net investment income, gains (losses),
distributions and total investment return of the Fund. It shows how the Fund's
net asset value for a share has changed since the end of the previous period.
Additionally, important relationships between some items presented in the
financial statements are expressed in ratio form.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
Schedule of Investments
April 30, 1997 (Unaudited)
- --------------------------------------------------------------------------------
The Schedule of Investments is a complete list of all securities owned by the
Disciplined Growth Fund on April 30, 1997. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by industry groups. Short-term investments, which represent the
Fund's "cash" position, are listed last.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
Advertising (1.87%)
Interpublic Group, Inc. .................. 40,000 $ 2,265,000
-----------
Aerospace (1.59%)
Rockwell International Corp. ............. 29,000 1,928,500
-----------
Banks (5.66%)
Compass Bancshares, Inc. ................. 30,000 907,500
First Tennessee National Corp. .......... 30,000 1,301,250
Mellon Bank Corp. ........................ 10,000 831,250
Norwest Corp. ............................ 30,000 1,496,250
Regions Financial Corp. .................. 20,000 1,135,000
Southern National Corp. .................. 30,000 1,177,500
-----------
6,848,750
-----------
Beverages (1.73%)
PepsiCo, Inc. ............................ 60,000 2,092,500
-----------
Building (3.22%)
Clayton Homes, Inc. ...................... 75,000 1,050,000
Masco Corp. .............................. 40,000 1,510,000
RPM, Inc. ................................ 80,000 1,340,000
-----------
3,900,000
-----------
Chemicals (0.99%)
Sigma-Aldrich Corp. ...................... 40,000 1,200,000
-----------
Computers (12.70%)
Automatic Data Processing, Inc. .......... 30,000 1,357,500
Cisco Systems, Inc.* ..................... 34,000 1,759,500
Compaq Computer Corp.* ................... 10,000 853,750
Electronic Data Systems Corp. ............ 50,000 1,668,750
Fiserv, Inc.* ............................ 45,000 1,698,750
Hewlett-Packard Co. ...................... 45,000 2,362,500
Microsoft Corp.* ......................... 20,000 2,430,000
Oracle Corp.* ............................ 38,000 1,510,500
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Computers (continued)
Sun Microsystems, Inc.* .................. 60,000 $ 1,728,750
-----------
15,370,000
-----------
Containers (2.85%)
Bemis Co. ................................ 40,000 1,525,000
Crown Cork & Seal Co., Inc. .............. 35,000 1,916,250
-----------
3,441,250
-----------
Diversified Operations (2.12%)
Federal Signal Corp. ..................... 50,000 1,218,750
Ikon Office Solutions, Inc. .............. 50,000 1,343,750
-----------
2,562,500
-----------
Electronics (2.18%)
Emerson Electric Co. ..................... 30,000 1,522,500
General Electric Co. ..................... 10,000 1,108,750
-----------
2,631,250
-----------
Finance (3.40%)
First Data Corp. ......................... 55,000 1,897,500
Franklin Resources, Inc. ................. 37,500 2,217,187
-----------
4,114,687
-----------
Food (2.79%)
ConAgra, Inc. ............................ 30,000 1,728,750
CPC International, Inc. .................. 20,000 1,652,500
-----------
3,381,250
-----------
Furniture (1.44%)
Leggett & Platt, Inc. .................... 50,000 1,737,500
-----------
Household (1.45%)
Newell Co. ............................... 50,000 1,750,000
-----------
Insurance (6.75%)
AFLAC, Inc. .............................. 50,000 2,150,000
American International Group, Inc. ....... 15,000 1,927,500
General Re Corp. ......................... 4,000 669,000
ReliaStar Financial Corp. ................ 20,000 1,210,000
Travelers Group, Inc. .................... 40,000 2,215,000
-----------
8,171,500
-----------
Leisure (0.55%)
X-Rite, Inc. ............................. 40,000 660,000
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
================================================================================
FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Linen Supply & Related (0.84%)
G & K Services, Inc. (Class A) ........... 35,000 $ 1,015,000
-----------
Machinery (2.33%)
Dover Corp. .............................. 25,000 1,325,000
Pentair, Inc. ............................ 50,000 1,493,750
-----------
2,818,750
-----------
Media (1.08%)
Gannett Co., Inc. ........................ 15,000 1,308,750
-----------
Medical (11.04%)
Abbott Laboratories ...................... 35,000 2,135,000
Eli Lilly & Co. .......................... 15,000 1,318,125
Guidant Corp. ............................ 20,000 1,365,000
Johnson & Johnson ........................ 25,000 1,531,250
Jones Medical Industries, Inc. ........... 50,000 1,762,500
Medtronic, Inc. .......................... 20,000 1,385,000
Pfizer, Inc. ............................. 15,000 1,440,000
SmithKline Beecham PLC,
American Depositary Receipts
(ADR) (United Kingdom) ................. 30,000 2,418,750
-----------
13,355,625
-----------
Metal (1.91%)
Illinois Tool Works, Inc. ................ 15,000 1,370,625
Worthington Industries, Inc. ............. 50,000 943,750
-----------
2,314,375
-----------
Oil & Gas (9.63%)
Amoco Corp. .............................. 15,000 1,254,375
Chevron Corp. ............................ 19,000 1,301,500
Enron Corp. .............................. 35,000 1,316,875
Enron Oil & Gas Co. ...................... 67,000 1,247,875
Exxon Corp. .............................. 10,000 566,250
Mobil Corp. .............................. 12,000 1,560,000
Repsol SA (ADR ) (Spain) ................. 25,000 1,046,875
Sonat, Inc. .............................. 30,000 1,713,750
Williams Cos., Inc. (The) ................ 37,500 1,645,313
-----------
11,652,813
-----------
Paper & Paper Products (1.44%)
Kimberly-Clark Corp. ..................... 34,000 1,742,500
-----------
Retail (6.62%)
Arbor Drugs, Inc. ........................ 60,000 1,102,500
Family Dollar Stores, Inc. ............... 40,000 1,045,000
Home Depot, Inc. ......................... 40,000 2,320,000
Pep Boys - Manny, Moe & Jack ............. 65,000 2,120,625
Sysco Corp. .............................. 40,000 1,420,000
-----------
8,008,125
-----------
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
Soap & Cleaning Preparations (1.01%)
Ecolab, Inc. ............................. 30,000 $ 1,222,500
-----------
Utilities (4.88%)
Century Telephone Enterprises, Inc. ...... 55,000 1,643,125
National Fuel Gas Co. .................... 27,000 1,123,875
Questar Corp. ............................ 38,600 1,466,800
SBC Communications, Inc. ................. 30,000 1,665,000
-----------
5,898,800
-----------
TOTAL COMMON STOCKS
(Cost $89,039,181) (92.07%) 111,391,925
------ -----------
INTEREST PAR VALUE
RATE (000s OMITTED)
---- --------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement (8.98%)
Investment in a joint repurchase
agreement transaction with
Aubrey G. Lanston & Co. -
Dated 04-30-97, Due
05-01-97 (Secured by
U.S. Treasury Bills, 5.37%
thru 5.78% Due 08-21-97
thru 03-05-98, U.S. Treasury
Bonds, 7.125% thru 11.25%
Due 02-15-15 thru 02-15-23,
and U.S. Treasury Notes,
5.125% thru 7.75%, Due
08-31-98 thru 05-15-05) -
Note A ............................ 3.75% $ 10,868 10,868,000
------------
Corporate Savings Account (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 690
------------
TOTAL SHORT-TERM INVESTMENTS ( 8.98%) 10,868,690
--------- ------------
TOTAL INVESTMENTS ( 101.05%) $122,260,615
========= ============
* 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.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
(UNAUDITED)
NOTE A --
ACCOUNTING POLICIES
John Hancock Investment Trust II (the "Trust") (formerly Freedom Investment
Trust) is a diversified open-end management investment company, registered under
the Investment Company Act of 1940. The Trust consists of three series: John
Hancock Disciplined Growth Fund (the "Fund"), John Hancock Regional Bank Fund
and John Hancock Financial Industries Fund. The other two series of the Trust
are reported in separate financial statements. The investment objective of the
Fund is to achieve long-term growth of capital by investing only in established
companies that have demonstrated both earnings growth and stability.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemptions, dividends and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution and service expenses under
terms of a distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement. Aggregate cash balances are
invested in one or more repurchase agreements, whose underlying securities are
obligations of the U.S. government and/or its agencies. The Fund's custodian
bank receives delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the agreement is
fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investments, to its shareholders. Therefore, no federal income tax provision is
required.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are calculated at the Fund level and allocated daily to each class of
shares based on the relative net assets of the respective classes. Distribution
and 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.
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.
14
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
USE OF ESTIMATES The preparation of these financial statements in accordance
with generally accepted accounting principles incorporates estimates made by
management in determining the reported amount of assets, liabilities, revenues,
and expenses of the Fund. Actual results could differ from these estimates.
BANK BORROWINGS The Fund is permitted to have bank borrowings for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund had no borrowing
activity for the period ended April 30, 1997.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of (a) 0.75% of the first $500,000,000 of the Fund's
average daily net asset value and (b) 0.65% of the Fund's average daily net
asset value in excess of $500,000,000.
John Hancock Funds, Inc. ("JH Funds"), a wholly owned subsidiary of the
Adviser, and Freedom Distributors Corporation ("FDC") act as Co-Distributors for
shares of the Fund. For the period ended April 30, 1997, net sales charges
received with regard to sales of Class A shares amounted to $27,798. Of this
amount, $3,527 was retained and used for printing prospectuses, advertising,
sales literature and other purposes, $13,012 was paid as sales commissions to
unrelated broker-dealers and $11,259 was paid as sales commissions to sales
personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker Anthony,
Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of which
are broker-dealers. The Adviser's indirect parent, John Hancock Mutual Life
Insurance Company ("JHMLICo"), is the indirect sole shareholder of Distributors
and was the indirect sole shareholder until November 29, 1996 of John Hancock
Freedom Securities Corporation and its subsidiaries, which include FDC, Tucker
Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent-deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses for providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended April 30, 1997,
the contingent-deferred sales charges paid to JH Funds amounted to $93,265.
In addition, to reimburse the Co-Distributors for the services they provide
as distributors of shares of the Fund, the Fund has adopted Distribution Plans
with respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to the
Co-Distributors for distribution and service expenses, at an annual rate not to
exceed 0.30% of Class A average daily net assets and 1.00% of Class B average
daily net assets to reimburse the Co-Distributors for their distribution and
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 Signature Services,
Inc. ("Signature Services"), an indirect subsidiary of JHMLICo. The Fund pays
transfer agent fees based on the number of shareholder accounts and certain
out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax and
financial management services for the Fund. The compensation for the period was
at an annual rate of 0.01875% of the average net assets of the Fund.
Mr. Edward J. Boudreau, Jr., Ms. Anne C. Hodsdon and Mr. Richard S. Scipione
are trustees and/or officers of the Adviser and/or its affiliates, as well as
Trustees of the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. 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 makes 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 are recorded on the Fund's
books as an other
15
<PAGE>
================================================================================
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Disciplined Growth Fund
asset. The deferred compensation liability and the related other asset are
always equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. At April 30,
1997, the Fund's investments to cover the deferred compensation liability had
unrealized appreciation of $328.
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 April 30, 1997, aggregated $28,271,124 and $38,809,090, respectively.
There were no purchases or sales of obligations of the U.S. government and its
agencies during the period ended April 30, 1997.
The cost of investments owned at April 30, 1997 (excluding the corporate
savings account) for federal income tax purposes was $99,907,181. Gross
unrealized appreciation and depreciation of investments aggregated $24,301,803
and $1,949,059, respectively, resulting in net unrealized appreciation of
$22,352,744.
16
<PAGE>
================================================================================
NOTES
John Hancock Funds - Disciplined Growth Fund
17
<PAGE>
================================================================================
NOTES
John Hancock Funds - Disciplined Growth Fund
18
<PAGE>
================================================================================
NOTES
John Hancock Funds - Disciplined Growth Fund
19
<PAGE>
================================================================================
[LOGO] JOHN HANCOCK FUNDS Bulk Rate
A Global Investment Management Firm U.S. Postage
PAID
101 Huntington Avenue, Boston, MA 02199-7603 Randolph, MA
1-800-225-5291 1-800-554-6713 (TDD) Permit No. 75
Internet: www.jhancock.com/funds
- --------------------------------------------------------------------------------
This report is for the information of shareholders of the John Hancock
Disciplined Growth Fund. It may be used as sales literature when preceded or
accompanied by the current prospectus, which details charges, investment
objectives and operating policies.
[RECYCLE LOGO] Printed on Recycled Paper 350SA 4/97
6/97
<PAGE>
John Hancock Growth Fund
Pro forma Combined Statement of Assets and Liabilities
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
John Hancock John Hancock Pro
Growth Disciplined Growth Forma
Fund Fund Adjustments Combined
--------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Assets
Investments at value $294,624,772 $122,260,615 $ - $416,885,387
Receivable for shares sold 29,847 26,676 - 56,523
Interest receivable 10,159 1,626 - 11,785
Dividends receivable 71,323 130,970 - 202,293
Receivable for investments sold 8,561,752 - - 8,561,752
Other assets 27,871 4,157 - 32,028
--------------- ------------- ------------- --------------
Total assets 303,325,724 122,424,044 - 425,749,768
--------------- ------------- ------------- --------------
Liabilities
Payable for investments purchased 2,822,719 1,193,000 - 4,015,719
Payable for shares repurchased 73,085 81,390 - 154,475
Payable to John Hancock
Advisers, Inc. and affiliates 248,132 114,560 - 362,692
Accounts payable and accrued expenses 47,946 45,992 - 93,938
--------------- ------------- ------------- --------------
Total liabilities 3,191,882 1,434,942 - 4,626,824
--------------- ------------- ------------- --------------
Net Assets
Capital paid-in 194,695,141 91,397,132 - 286,092,273
Net unrealized appreciation of investments 63,636,717 22,353,072 - 85,989,789
Accumulated net realized gain of investments 42,527,240 7,315,265 - 49,842,505
Accumulated net investment loss -725,256 -76,367 - -801,623
--------------- ------------- ------------- --------------
Net assets $300,133,842 $120,989,102 $ - $421,122,944
=============== ============= ============= ==============
Net assets:
Growth Fund
Class A $271,090,214 $ - $30,925,407 (a) $302,015,621
Class B 29,043,628 - 90,063,695 (a) 119,107,323
Disciplined Growth Fund
Class A - 30,925,407 -30,925,407 (a) -
Class B - 90,063,695 -90,063,695 (a) -
--------------- ------------- ------------- --------------
$300,133,842 $120,989,102 $ - $421,122,944
=============== ============= ============= ==============
Shares outstanding:
Growth Fund
Class A 12,958,944 - 1,478,329 (a) 14,437,273
Class B 1,423,285 - 4,413,577 (a) 5,836,862
Disciplined Growth Fund
Class A - 2,079,053 -2,079,053 (a) -
Class B - 6,167,167 -6,167,167 (a) -
Net asset value per share:
Growth Fund
Class A $20.92 - - $20.92
Class B $20.41 - - $20.41
Disciplined Growth Fund
Class A - $14.87 ($14.87)(a) -
Class B - $14.60 ($14.60)(a) -
</TABLE>
See Notes to Pro forma Combined Financial Statements
<PAGE>
John Hancock Growth Fund
Projected Pro forma Combined Statement of Operations
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
John Hancock John Hancock Pro
Growth Disciplined Growth Forma
Fund Fund Adjustments Combined
---------------------------------------------- -------------
<S> <C> <C> <C> <C>
Investment Income:
Interest & Dividends $ 2,739,798 $ 2,378,043 $ - $ 5,117,841
-------------- ------------- ---------- -------------
Expenses:
Management Fee 2,379,455 904,149 (121,185)(b) 3,162,419
Distribution/Service Fee
Class A 825,665 87,021 - 912,686
Class B 251,684 915,461 - 1,167,145
Transfer Agent Fee (c) 801,812 329,929 - 1,131,741
Registration & Filing Fees 78,925 41,121 (20,561)(d) 99,485
Custodian Fee 67,014 45,176 (4,518)(d) 107,672
Auditing Fee 39,643 28,587 (28,230)(d) 40,000
Legal Fees 36,161 4,684 - 40,845
Trustee Fees 31,008 13,754 - 4467625
Printing 31,109 43,504 (21,752)(d) 52,861
Financial Services Fee 30,756 22,604 - 53,360
Miscellaneous 7,315 6,263 (1,566)(d) 12,012
-------------- ------------- ---------- -------------
Total Expenses 4,580,547 2,442,253 (197,812) 6,824,988
-------------- ------------- ---------- -------------
Net Investment Income/(Loss) (1,840,749) (64,210) 197,812 (1,707,147)
-------------- ------------- ---------- -------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain/(loss) on investments sold 61,648,604 9,007,240 - 70,655,844
Change in appreciation/(depreciation) of investments (45,922,316) 6,968,558 - (38,953,758)
-------------- ------------- ---------- -------------
Net realized and unrealized gain (loss) on investments 15,726,288 15,975,798 - 31,702,086
-------------- ------------- ---------- -------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations $ 13,885,539 $15,911,588 $197,812 $29,994,939
============== ============= ========== =============
</TABLE>
See Notes to Pro forma Combined Financial Statements
<PAGE>
JOHN HANCOCK GROWTH FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS - (UNAUDITED)
APRIL 30, 1997
Pro forma information is intended to provide shareholders of John Hancock
Disciplined Growth Fund 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 May 1, 1996.
The unaudited pro forma combined statements of assets and liabilities and
results of operations as of April 30, 1997, have been prepared to reflect the
merger of the John Hancock Growth Fund and the John Hancock Disciplined Growth
Fund after giving effect to pro forma adjustments described in the notes listed
below.
(a) Acquisition by John Hancock Growth Fund of all the assets of John Hancock
Disciplined Growth Fund and issuance of John Hancock Growth Fund Class A
and Class B shares in exchange for all of the outstanding Class A and
Class B shares, respectively, of John Hancock Disciplined Growth Fund.
(b) The investment advisory fee was adjusted to reflect the application of the
fee structure which will be in effect for John Hancock Growth Fund: 0.75%
of the first $750,000,000 of the Fund's average daily net asset value and
0.70% of the Fund's average daily net asset value in excess of
$750,000,000.
(c) The transfer agent fee for each of the Class A and Class B shares is the
total of the respective individual fund's transfer agent fees. The main
criteria in determining the transfer agent fees for a specific class is
the number of the shareholders accounts.
(d) The actual expenses incurred by the John Hancock Growth Fund and John
Hancock Disciplined Growth Fund for various expenses included on a pro
forma basis were reduced to reflect the estimated savings arising from the
merger.
<PAGE>
John Hancock Growth Fund
Pro forma Schedule of Investments
April 30, 1997 (Unaudited)
The Schedule of Investments is a complete list of all securities owned by the
Growth Fund and Disciplined Growth Fund combined on April 30, 1997.
<TABLE>
<CAPTION>
-------------------------------
Growth
- ------------------------------------------------------------------------------------------------------------------
Par Value
% of Net Interest Maturity (000's Market
Issuer - Description Assets Rate % Date Shares Omitted) Value**
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Advertising 0.54%
Interpublic Group, Inc.
Aerospace 1.73%
McDonnell Douglas Corp. 90,000 5,343,750
------------
Rockwell International Corp.
Banks - United States 2.08%
Chase Manhattan Corp. 20,400 1,889,550
------------
Compass Bancshares, Inc.
First Tennessee National Corp.
Mellon Bank Corp.
Norwest Corp.
Regions Financial Corp.
Southern National Corp.
Beverages 2.31%
Coca-Cola Co. 120,000 7,635,000
------------
PepsiCo, Inc.
Building 0.93%
Clayton Homes, Inc.
Masco Corp.
RPM, Inc.
Chemicals
Sigma-Aldrich Corp. 0.28%
Computers 12.99%
Adaptec, Inc.* 127,500 4,717,500
Automatic Data Processing, Inc.
BMC Software, Inc.* 95,000 4,108,750
Cabletron Systems, Inc.* 65,500 2,259,750
Cisco Systems, Inc.* 29,400 1,521,450
Compaq Computer Corp.* 35,000 2,988,125
Computer Associates International, Inc. 41,900 2,178,800
Computer Sciences Corp.* 80,000 5,000,000
Electronic Data Systems Corp.
Electronics for Imaging, Inc.* 120,000 4,710,000
EMC Corp.* 70,000 2,546,250
Fiserv, Inc.*
HBO & Co. 50,000 2,675,000
Hewlett-Packard Co.
Microsoft Corp.*
Oracle Corp.* 50,000 1,987,500
Parametric Technology Corp.* 45,000 2,036,250
Sterling Commerce, Inc.* 101,000 2,613,375
------------
Sun Microsystems, Inc.* 39,342,750
------------
Containers 0.82%
Bemis Co.
Crown Cork & Seal Co., Inc.
Cosmetics & Personal Care 1.51%
Gillette Co. 75,000 6,375,000
------------
Diversified Operations 0.61%
Federal Signal Corp.
Ikon Office Solutions, Inc.
Electronics 2.42%
<CAPTION>
----------------------------------------------------------------
Disciplined Growth Combined
- --------------------------------------------------------------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
Issuer - Description Shares Omitted) Value** Shares Omitted) Value**
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Advertising
Interpublic Group, Inc. 40,000 2,265,000 40,000 2,265,000
------------ ------------
Aerospace
McDonnell Douglas Corp. 90,000 5,343,750
Rockwell International Corp. 29,000 1,928,500 29,000 1,928,500
------------ ------------
7,272,250
------------
Banks - United States
Chase Manhattan Corp. 20,400 1,889,550
Compass Bancshares, Inc. 30,000 907,500 30,000 907,500
First Tennessee National Corp. 30,000 1,301,250 30,000 1,301,250
Mellon Bank Corp. 10,000 831,250 10,000 831,250
Norwest Corp. 30,000 1,496,250 30,000 1,496,250
Regions Financial Corp. 20,000 1,135,000 20,000 1,135,000
Southern National Corp. 30,000 1,177,500 30,000 1,177,500
------------ ------------
6,848,750 8,738,300
------------ ------------
Beverages
Coca-Cola Co. 120,000 7,635,000
PepsiCo, Inc. 60,000 2,092,500 60,000 2,092,500
------------ ------------
9,727,500
------------
Building
Clayton Homes, Inc. 75,000 1,050,000 75,000 1,050,000
Masco Corp. 40,000 1,510,000 40,000 1,510,000
RPM, Inc. 80,000 1,340,000 80,000 1,340,000
------------
3,900,000 3,900,000
------------ ------------
Chemicals
Sigma-Aldrich Corp. 40,000 1,200,000 40,000 1,200,000
------------ ------------
Computers
Adaptec, Inc.* 127,500 4,717,500
Automatic Data Processing, Inc. 30,000 1,357,500 30,000 1,357,500
BMC Software, Inc.* 95,000 4,108,750
Cabletron Systems, Inc.* 65,500 2,259,750
Cisco Systems, Inc.* 34,000 1,759,500 63,400 3,280,950
Compaq Computer Corp.* 10,000 853,750 45,000 3,841,875
Computer Associates International, Inc. 41,900 2,178,800
Computer Sciences Corp.* 80,000 5,000,000
Electronic Data Systems Corp. 50,000 1,668,750 50,000 1,668,750
Electronics for Imaging, Inc.* 120,000 4,710,000
EMC Corp.* 70,000 2,546,250
Fiserv, Inc.* 45,000 1,698,750 45,000 1,698,750
HBO & Co. 50,000 2,675,000
Hewlett-Packard Co. 45,000 2,362,500 45,000 2,362,500
Microsoft Corp.* 20,000 2,430,000 20,000 2,430,000
Oracle Corp.* 38,000 1,510,500 88,000 3,498,000
Parametric Technology Corp.* 45,000 2,036,250
Sterling Commerce, Inc.* 101,000 2,613,375
Sun Microsystems, Inc.* 60,000 1,728,750 60,000 1,728,750
------------ ------------
15,370,000 54,712,750
------------ ------------
Containers
Bemis Co. 40,000 1,525,000 40,000 1,525,000
Crown Cork & Seal Co., Inc. 35,000 1,916,250 35,000 1,916,250
------------ ------------
3,441,250 3,441,250
------------ ------------
Cosmetics & Personal Care
Gillette Co. 75,000 6,375,000
------------
Diversified Operations
Federal Signal Corp. 50,000 1,218,750 50,000 1,218,750
Ikon Office Solutions, Inc. 50,000 1,343,750 50,000 1,343,750
------------ ------------
2,562,500 2,562,500
------------ ------------
Electronics
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
-------------------------------
Growth
- ------------------------------------------------------------------------------------------------------------------
Par Value
% of Net Interest Maturity (000's Market
Issuer - Description Assets Rate % Date Shares Omitted) Value**
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Applied Materials, Inc.* 40,000 2,195,000
Emerson Electric Co.
General Electric Co.
Intel Corp. 35,000 5,359,375
------------
7,554,375
------------
Finance 3.34%
Associates First Capital Corp. 70,000 3,587,500
First Data Corp.
First USA, Inc. 50,000 2,406,250
Franklin Resources, Inc.
MBNA Corp. 120,000 3,960,000
------------
9,953,750
------------
Food 1.30%
ConAgra, Inc.
CPC International, Inc.
Sara Lee Corp. 50,000 2,100,000
------------
Furniture 0.41%
Leggett & Platt, Inc.
Household 0.76%
Newell Co.
Rubbermaid, Inc. 60,000 1,440,000
------------
Insurance 1.94%
AFLAC, Inc.
American International Group, Inc.
General Re Corp.
ReliaStar Financial Corp.
Travelers Group, Inc.
Leisure 3.88%
Callaway Golf Co. 100,000 2,987,500
Disney (Walt) Co., (The) 80,000 6,560,000
HFS, Inc.* 80,000 4,740,000
Marriott International, Inc. 25,000 1,381,250
X-Rite, Inc.
------------
15,668,750
------------
Linen Supply & Related 1.41%
Cintas Corp. 90,000 4,927,500
------------
G & K Services, Inc. (Class A)
Machinery 0.67%
Dover Corp.
Pentair, Inc.
Media 2.60%
Gannett Co., Inc. 55,000 4,798,750
Tribune Co. 110,000 4,826,250
------------
9,625,000
------------
Medical 14.36%
Abbott Laboratories
American Home Products Corp. 60,000 3,975,000
Cardinal Health, Inc. 70,000 3,727,500
Eli Lilly & Co.
Guidant Corp.
Health Care & Retirement Corp.* 195,000 6,166,875
Health Management Associates, Inc. (Class A)* 232,500 6,219,375
Johnson & Johnson 130,000 7,962,500
Jones Medical Industries, Inc.
Medtronic, Inc.
Merck & Co., Inc. 50,000 4,525,000
Omnicare, Inc. 100,000 2,437,500
Oxford Health Plans, Inc.* 30,000 1,976,250
Pfizer, Inc. 60,000 5,760,000
SmithKline Beecham PLC, American
Depositary Receipts (ADR) (United Kingdom)
United Healthcare Corp 90,000 4,376,250
------------
47,126,250
------------
Metal 0.55%
<CAPTION>
----------------------------------------------------------------
Disciplined Growth Combined
- --------------------------------------------------------------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
Issuer - Description Shares Omitted) Value** Shares Omitted) Value**
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Applied Materials, Inc.* 40,000 2,195,000
Emerson Electric Co. 30,000 1,522,500 30,000 1,522,500
General Electric Co. 10,000 1,108,750 10,000 1,108,750
------------
Intel Corp. 2,631,250 35,000 5,359,375
------------ ------------
10,185,625
------------
Finance
Associates First Capital Corp. 70,000 3,587,500
First Data Corp. 55,000 1,897,500 55,000 1,897,500
First USA, Inc. 50,000 2,406,250
Franklin Resources, Inc. 37,500 2,217,187 37,500 2,217,187
------------
MBNA Corp. 4,114,687 120,000 3,960,000
------------ ------------
14,068,437
------------
Food
ConAgra, Inc. 30,000 1,728,750 30,000 1,728,750
CPC International, Inc. 20,000 1,652,500 20,000 1,652,500
------------
Sara Lee Corp. 3,381,250 50,000 2,100,000
------------ ------------
5,481,250
------------
Furniture
Leggett & Platt, Inc. 50,000 1,737,500 50,000 1,737,500
------------ ------------
Household
Newell Co. 50,000 1,750,000 50,000 1,750,000
------------
Rubbermaid, Inc. 60,000 1,440,000
------------
3,190,000
------------
Insurance
AFLAC, Inc. 50,000 2,150,000 50,000 2,150,000
American International Group, Inc. 15,000 1,927,500 15,000 1,927,500
General Re Corp. 4,000 669,000 4,000 669,000
ReliaStar Financial Corp. 20,000 1,210,000 20,000 1,210,000
Travelers Group, Inc. 40,000 2,215,000 40,000 2,215,000
------------ ------------
8171500 8,171,500
------------
Leisure
Callaway Golf Co. 100,000 2,987,500
Disney (Walt) Co., (The) 80,000 6,560,000
HFS, Inc.* 80,000 4,740,000
Marriott International, Inc. 25,000 1,381,250
X-Rite, Inc. 40,000 660,000 40,000 660,000
------------ ------------
16,328,750
------------
Linen Supply & Related
Cintas Corp. 90,000 4,927,500
G & K Services, Inc. (Class A) 35,000 1,015,000 35,000 1,015,000
------------ ------------
5,942,500
------------
Machinery
Dover Corp. 25,000 1,325,000 25,000 1,325,000
Pentair, Inc. 50,000 1,493,750 50,000 1,493,750
------------ ------------
2,818,750 2,818,750
------------ ------------
Media
Gannett Co., Inc. 15,000 1,308,750 70,000 6,107,500
------------
Tribune Co. 110,000 4,826,250
------------
10,933,750
------------
Medical
Abbott Laboratories 35,000 2,135,000 35,000 2,135,000
American Home Products Corp. 60,000 3,975,000
Cardinal Health, Inc. 70,000 3,727,500
Eli Lilly & Co. 15,000 1,318,125 15,000 1,318,125
Guidant Corp. 20,000 1,365,000 20,000 1,365,000
Health Care & Retirement Corp.* 195,000 6,166,875
Health Management Associates, Inc. (Class A)* 232,500 6,219,375
Johnson & Johnson 25,000 1,531,250 155,000 9,493,750
Jones Medical Industries, Inc. 50,000 1,762,500 50,000 1,762,500
Medtronic, Inc. 20,000 1,385,000 20,000 1,385,000
Merck & Co., Inc. 50,000 4,525,000
Omnicare, Inc. 100,000 2,437,500
Oxford Health Plans, Inc.* 30,000 1,976,250
Pfizer, Inc. 15,000 1,440,000 75,000 7,200,000
SmithKline Beecham PLC, American 30,000 2,418,750 30,000 2,418,750
Depositary Receipts (ADR) (United Kingdom) 30,000 2,418,750 30,000 2,418,750
United Healthcare Corp 90,000 4,376,250
------------ ------------
13,355,625 60,481,875
------------ ------------
Metal
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
-------------------------------
Growth
- ------------------------------------------------------------------------------------------------------------------
Par Value
% of Net Interest Maturity (000's Market
Issuer - Description Assets Rate % Date Shares Omitted) Value**
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Illinois Tool Works, Inc.
Worthington Industries, Inc.
Mortgage Equity REIT 0.41%
Spieker Properties, Inc. 50,000 1,743,750
------------
Oil & Gas 11.96%
Amoco Corp.
Chevron Corp. 60,000 4,110,000
Diamond Offshore Drilling, Inc.* 100,000 6,437,500
Enron Corp.
Enron Oil & Gas Co.
Exxon Corp. 90,000 5,096,250
Halliburton Co. 85,000 6,003,125
Mobil Corp.
Reading & Bates Corp.* 200,000 4,475,000
Repsol SA (ADR ) (Spain)
Schlumberger, Ltd. 45,000 4,983,750
Smith International, Inc.* 100,000 4,737,500
Sonat, Inc.
Western Atlas, Inc.* 46,600 2,889,200
Williams Cos., Inc. (The)
------------
38,732,325
------------
Paper & Paper Products 0.41%
Kimberly-Clark Corp.
Pollution Control 1.17%
USA Waste Services, Inc.* 150,000 4,912,500
------------
Retail 7.91%
Arbor Drugs, Inc.
CVS Corp. 120,000 5,955,000
Dollar General Corp. 50,000 1,581,250
Family Dollar Stores, Inc.
Home Depot, Inc. 100,000 5,800,000
Pep Boys - Manny, Moe & Jack
Starbucks Corp.* 70,000 2,091,250
Sysco Corp.
Wal-Mart Stores, Inc. 220,000 6,215,000
Walgreen Co 80,000 3,680,000
------------
25,322,500
------------
Schools / Education 0.35%
Apollo Group, Inc. (Class A)* 55,150 1,482,156
------------
Soap & Cleaning Preparations 0.29%
Ecolab, Inc.
Telecommunications 0.96%
WorldCom, Inc.* 168,000 4,032,000
------------
Textile 1.09%
Jones Apparel Group, Inc.* 110,000 4,592,500
------------
Utilities 1.40%
Century Telephone Enterprises, Inc.
National Fuel Gas Co.
Questar Corp.
SBC Communications, Inc.
TOTAL COMMON STOCK 83.39%
(Cost $367,394,099) 239,799,406
------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement 15.60%
Investment in a joint repurchase agreement
transaction with Aubrey G. Lanston & Co.-
Dated 4-30-97, Due 5-01-97 (Secured by
U.S. Treasury Bills, 5.37% thru 5.78%
due 8-21-97 thru 3-05-98, U.S. Treasury
<CAPTION>
----------------------------------------------------------------
Disciplined Growth Combined
- --------------------------------------------------------------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
Issuer - Description Shares Omitted) Value** Shares Omitted) Value**
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Illinois Tool Works, Inc. 15,000 1,370,625 15,000 1,370,625
Worthington Industries, Inc. 50,000 943,750 50,000 943,750
------------ ------------
2,314,375 2,314,375
------------ ------------
Mortgage Equity REIT
Spieker Properties, Inc. 50,000 1,743,750
------------
Oil & Gas
Amoco Corp. 15,000 1,254,375 15,000 1,254,375
Chevron Corp. 19,000 1,301,500 79,000 5,411,500
Diamond Offshore Drilling, Inc.* 100,000 6,437,500
Enron Corp. 35,000 1,316,875 35,000 1,316,875
Enron Oil & Gas Co. 67,000 1,247,875 67,000 1,247,875
Exxon Corp. 10,000 566,250 100,000 5,662,500
Halliburton Co. 85,000 6,003,125
Mobil Corp. 12,000 1,560,000 12,000 1,560,000
Reading & Bates Corp.* 200,000 4,475,000
Repsol SA (ADR ) (Spain) 25,000 1,046,875 25,000 1,046,875
Schlumberger, Ltd. 45,000 4,983,750
Smith International, Inc.* 100,000 4,737,500
Sonat, Inc. 30,000 1,713,750 30,000 1,713,750
Western Atlas, Inc.* 46,600 2,889,200
Williams Cos., Inc. (The) 37,500 1,645,313 37,500 1,645,313
------------ ------------
11,652,813 50,385,138
------------ ------------
Paper & Paper Products
Kimberly-Clark Corp. 34,000 1,742,500 34,000 1,742,500
------------ ------------
Pollution Control
USA Waste Services, Inc.* 150,000 4,912,500
------------
Retail
Arbor Drugs, Inc. 60,000 1,102,500 60,000 1,102,500
CVS Corp. 120,000 5,955,000
Dollar General Corp. 50,000 1,581,250
Family Dollar Stores, Inc. 40,000 1,045,000 40,000 1,045,000
Home Depot, Inc. 40,000 2,320,000 140,000 8,120,000
Pep Boys - Manny, Moe & Jack 65,000 2,120,625 65,000 2,120,625
Starbucks Corp.* 70,000 2,091,250
Sysco Corp. 40,000 1,420,000 40,000 1,420,000
------------
Wal-Mart Stores, Inc. 8,008,125 220,000 6,215,000
------------
Walgreen Co 80,000 3,680,000
------------
33,330,625
------------
Schools / Education
Apollo Group, Inc. (Class A)* 55,150 1,482,156
------------
Soap & Cleaning Preparations
Ecolab, Inc. 30,000 1,222,500 30,000 1,222,500
------------ ------------
Telecommunications
WorldCom, Inc.* 168,000 4,032,000
------------
Textile
Jones Apparel Group, Inc.* 110,000 4,592,500
------------
Utilities
Century Telephone Enterprises, Inc. 55,000 1,643,125 55,000 1,643,125
National Fuel Gas Co. 27,000 1,123,875 27,000 1,123,875
Questar Corp. 38,600 1,466,800 38,600 1,466,800
SBC Communications, Inc. 30,000 1,665,000 30,000 1,665,000
------------ ------------
5,898,800 5,898,800
------------ ------------
TOTAL COMMON STOCK
(Cost $367,394,099) 111,391,925 351,191,331
------------ ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement
Investment in a joint repurchase agreement
transaction with Aubrey G. Lanston & Co.-
Dated 4-30-97, Due 5-01-97 (Secured by
U.S. Treasury Bills, 5.37% thru 5.78%
due 8-21-97 thru 3-05-98, U.S. Treasury
</TABLE>
Page 3
<PAGE>
<TABLE>
<CAPTION>
-------------------------------
Growth
- ------------------------------------------------------------------------------------------------------------------
Par Value
% of Net Interest Maturity (000's Market
Issuer - Description Assets Rate % Date Shares Omitted) Value**
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bonds, 7.125% thru 11.25% due 2-15-15
thru 2-15-23, U.S. Treasury Note, 5.125% 5.375% 5/1/97 $54,815 $54,815,000
thru 7.75%, due 8-31-98 thru 5-15-05) -
Note A
CORPORATE SAVINGS ACCOUNT 0.00%
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 10,366
------------
TOTAL SHORT-TERM INVESTMENTS 15.60% 54,825,366
------------
TOTAL INVESTMENTS 98.99% $294,624,772
=============
<CAPTION>
----------------------------------------------------------------
Disciplined Growth Combined
- --------------------------------------------------------------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
Issuer - Description Shares Omitted) Value** Shares Omitted) Value**
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bonds, 7.125% thru 11.25% due 2-15-15
thru 2-15-23, U.S. Treasury Note, 5.125% $10,868 $10,868,000 $65,683 $65,683,000
thru 7.75%, due 8-31-98 thru 5-15-05) -
Note A
CORPORATE SAVINGS ACCOUNT
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 690 11,056
------------ ------------
TOTAL SHORT-TERM INVESTMENTS 10,868,690 65,694,056
------------ ------------
TOTAL INVESTMENTS $122,260,615 $416,885,387
============= =============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
* Non-income producing security.
** 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.
The percentage shown for each investment category is the total value of that
category as a percentage of the combined net assets of each Fund.
Page 4
<PAGE>
John Hancock Growth Fund
Pro forma Combined Statement of Assets and Liabilities
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
John Hancock John Hancock John Hancock Pro
Growth Disciplined Growth Discovery Forma
Fund Fund Fund Adjustments Combined
------------- ------------------ ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Assets
Investments at value $294,624,772 $122,260,615 $118,026,946 $ - $534,912,333
Receivable for shares sold 29,847 26,676 121,811 - 178,334
Interest receivable 10,159 1,626 2,268 - 14,053
Dividends receivable 71,323 130,970 9,426 - 211,719
Receivable for investments sold 8,561,752 - 831,216 - 9,392,968
Other assets 27,871 4,157 1,087 - 33,115
------------- ------------------ ------------- ------------- -------------
Total assets 303,325,724 122,424,044 118,992,754 - 544,742,522
------------- ------------------ ------------- ------------- -------------
Liabilities
Payable for investments purchased 2,822,719 1,193,000 2,988,863 - 7,004,582
Payable for shares repurchased 73,085 81,390 62,006 - 216,481
Payable to John Hancock
Advisers, Inc. and affiliates 248,132 114,560 87,479 - 450,171
Accounts payable and accrued expenses 47,946 45,992 2,834 - 96,772
------------- ------------------ ------------- ------------- -------------
Total liabilities 3,191,882 1,434,942 3,141,182 - 7,768,006
------------- ------------------ ------------- ------------- -------------
Net Assets
Capital paid-in 194,695,141 91,397,132 127,729,980 - 413,822,253
Net unrealized appreciation of investments 63,636,717 22,353,072 889,889 - 86,879,678
Accumulated net realized gain (loss) of
investmentsand foreign currency transactions 42,527,240 7,315,265 -11,658,708 - 38,183,797
Accumulated net investment loss -725,256 -76,367 -1,109,589 - ($1,911,212)
------------- ------------------ ------------- ------------- -------------
Net assets $300,133,842 $120,989,102 $115,851,572 $ - $536,974,516
============= ================== ============= ============= =============
Net assets:
Growth Fund
Class A $271,090,214 $ - $ - $70,046,619 (a) $341,136,833
Class B 29,043,628 - - 166,794,055 (a) 195,837,683
Disciplined Growth Fund
Class A - 30,925,407 - -30,925,407 (a) -
Class B - 90,063,695 - -90,063,695 (a) -
Discovery Fund
Class A - - 39,121,212 -39,121,212 (a) -
Class B - - 76,730,360 -76,730,360 (a) -
------------- ------------------ ------------- ------------- -------------
$300,133,842 $120,989,102 $115,851,572 $ - $536,974,516
============= ================== ============= ============= =============
Shares outstanding:
Growth Fund
Class A 12,958,944 - - 3,348,442 (a) 16,307,386
Class B 1,423,285 - - 8,173,752 (a) 9,597,037
Disciplined Growth Fund
Class A - 2,079,053 - -2,079,053 (a) -
Class B - 6,167,167 - -6,167,167 (a) -
Discovery Fund
Class A - - 3,126,051 -3,126,051 (a) -
Class B - - 6,417,962 -6,417,962 (a) -
Net asset value per share:
Growth Fund
Class A $20.92 - - - $20.92
Class B $20.41 - - - $20.41
Disciplined Growth Fund
Class A - $14.87 - ($14.87)(a) -
Class B - $14.60 - ($14.60)(a) -
Discovery Fund
Class A - - $12.51 ($12.51)(a) -
Class B - - $11.96 ($11.96)(a) -
</TABLE>
See Notes to Pro forma Combined Financial Statements
<PAGE>
John Hancock Growth Fund
Projected Pro forma Combined Statement of Operations
April 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
John Hancock
John Hancock Disciplined John Hancock
Growth Growth Discovery Pro Forma
Fund Fund Fund Adjustments Combined
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment Income:
Interest & Dividends $ 2,739,798 $ 2,378,043 $ 644,043 $ - $ 5,761,884
------------- ------------ ------------- ---------- --------------
Expenses:
Management Fee 2,379,455 904,149 978,323 (121,185)(b) 4,140,742
Distribution/Service Fee
Class A 825,665 87,021 136,595 - 1,049,281
Class B 251,684 915,461 849,236 - 2,016,381
Transfer Agent Fee (c) 801,812 329,929 410,000 - 1,541,741
Registration & Filing Fees 78,925 41,121 102,979 (72,051)(d) 150,974
Custodian Fee 67,014 45,176 67,308 (11,249)(d) 168,249
Auditing Fee 39,643 28,587 42,579 (70,809)(d) 40,000
Legal Fees 36,161 4,684 10,666 - 51,511
Trustee Fees 31,008 13,754 8,934 - 53,696
Printing 31,109 43,504 36,858 (40,181)(d) 71,290
Organizational Expense 0 0 4,831 (4,831) -
Financial Services Fee 30,756 22,604 21,313 - 74,673
Miscellaneous 7,315 6,263 3,608 (2,468)(d) 14,718
------------- ------------ ------------- ---------- --------------
Total Expenses 4,580,547 2,442,253 2,673,230 (322,774) 9,373,256
------------- ------------ ------------- ---------- --------------
Net Investment Income/(Loss) (1,840,749) (64,210) (2,029,187) 322,774 (3,611,372)
------------- ------------ ------------- ---------- --------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain/(loss) on investments sold 61,648,604 9,007,240 (14,810,827) - 55,845,017
Change in appreciation/(depreciation) of investments (45,922,316) 6,968,558 (23,479,931) - (62,433,689)
------------- ------------ ------------- ---------- --------------
Net realized and unrealized gain (loss) on investments 15,726,288 15,975,798 (38,290,758) - (6,588,672)
------------- ------------ ------------- ---------- --------------
Net Increase/(Decrease) in Net Assets
Resulting from Operations $13,885,539 $15,911,588 $(40,319,945) $322,774 $(10,200,044)
============= ============ ============= ========== ==============
</TABLE>
See Notes to Pro forma Combined Financial Statements
<PAGE>
JOHN HANCOCK GROWTH FUND
NOTES TO PRO FORMA FINANCIAL STATEMENTS - (UNAUDITED)
APRIL 30, 1997
Pro forma information is intended to provide shareholders of John Hancock
Disciplined Growth Fund 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 May 1, 1996.
The unaudited pro forma combined statements of assets and liabilities and
results of operations as of April 30, 1997, have been prepared to reflect the
merger of the John Hancock Growth Fund and the John Hancock Disciplined Growth
Fund and John Hancock Discovery Fund after giving effect to pro forma
adjustments described in the notes listed below.
(a) Acquisition by John Hancock Growth Fund of all the assets of John Hancock
Disciplined Growth Fund and the John Hancock Discovery Fund and issuance
of John Hancock Growth Fund Class A and Class B shares in exchange for all
of the outstanding Class A and Class B shares, respectively, of John
Hancock Disciplined Growth Fund and the John Hancock Discovery Fund.
(b) The investment advisory fee was adjusted to reflect the application of the
fee structure which will be in effect for John Hancock Growth Fund: 0.75%
of the first $750,000,000 of the Fund's average daily net asset value and
0.70% of the Fund's average daily net asset value in excess of
$750,000,000.
(c) The transfer agent fee for each of the Class A and Class B shares is the
total of the respective individual funds' transfer agent fees. The main
criteria in determining the transfer agent fees for a specific class is
the number of the shareholders accounts.
(d) The actual expenses incurred by the John Hancock Growth Fund, John Hancock
Disciplined Growth Fund and John Hancock Discovery Fund for various
expenses included on a pro forma basis were reduced to reflect the
estimated savings arising from the merger.
<PAGE>
John Hancock Growth Fund
Pro forma Schedule of Investments
April 30, 1997 (Unaudited)
The Schedule of Investments is a complete list of all securities owned by the
Growth Fund, Disciplined Growth Fund and the Discovery Fund combined on April
30, 1997.
<TABLE>
<CAPTION>
--------------------------------------------------------------
Growth Disciplined Growth
- -----------------------------------------------------------------------------------------------------------------------------------
Par Value Par Value
% of Net Interest Maturity (000's Market (000's Market
Issuer - Description Assets Rate % Date Shares Omitted) Value** Shares Omitted) Value**
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCKS
Advertising 0.42%
Interpublic Group, Inc. 40,000 2,265,000
------------
Aerospace 1.69%
AAR Corp.
McDonnell Douglas Corp. 90,000 5,343,750
------------
Rockwell International Corp. 29,000 1,928,500
------------
Banks - United States 1.63%
Chase Manhattan Corp. 20,400 1,889,550
------------
Compass Bancshares, Inc. 30,000 907,500
First Tennessee National Corp. 30,000 1,301,250
Mellon Bank Corp. 10,000 831,250
Norwest Corp. 30,000 1,496,250
Regions Financial Corp. 20,000 1,135,000
Southern National Corp. 30,000 1,177,500
------------
6,848,750
------------
Beverages 2.22%
Coca-Cola Co. 120,000 7,635,000
------------
Mondavi (Robert) Corp. (Class A)*
PepsiCo, Inc. 60,000 2,092,500
------------
Building 1.02%
Clayton Homes, Inc. 75,000 1,050,000
Masco Corp. 40,000 1,510,000
RPM, Inc. 80,000 1,340,000
Watsco, Inc.
------------
3,900,000
------------
Chemicals
Sigma-Aldrich Corp. 0.22% 40,000 1,200,000
------------
Computers 12.40%
Adaptec, Inc.* 127,500 4,717,500
Automatic Data Processing, Inc. 30,000 1,357,500
Aspect Development, Inc.*
Baan Co., N.V. (Netherlands)* (Y)
BMC Software, Inc.* 95,000 4,108,750
Cabletron Systems, Inc.* 65,500 2,259,750
Cisco Systems, Inc.* 29,400 1,521,450 34,000 1,759,500
Compaq Computer Corp.* 35,000 2,988,125 10,000 853,750
Computer Associates
International, Inc. 41,900 2,178,800
Computer Sciences Corp.* 80,000 5,000,000
Electronic Data Systems Corp. 50,000 1,668,750
Electronics for Imaging, Inc.* 120,000 4,710,000
EMC Corp.* 70,000 2,546,250
E* TRADE Group, Inc.*
Fiserv, Inc.* 45,000 1,698,750
HBO & Co. 50,000 2,675,000
Hewlett-Packard Co. 45,000 2,362,500
IONA Technologies PLC, American
Depositary Receipts (ADR) (Ireland)*
Microsoft Corp.* 20,000 2,430,000
Network Appliance, Inc.*
Oracle Corp.* 50,000 1,987,500 38,000 1,510,500
Parametric Technology Corp.* 45,000 2,036,250
Pegasystems, Inc.*
Procom Technology, Inc.*
Sterling Commerce, Inc.* 101,000 2,613,375
------------
Sun Microsystems, Inc.* 39,342,750 60,000 1,728,750
------------ ------------
15,370,000
------------
Consumer Products Misc. 0.46%
Samsonite Corp.*
<CAPTION>
--------------------------------------------------------------
Discovery Combined
--------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
Shares Omitted) Value** Shares Omitted) Value**
--------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
COMMON STOCKS
Advertising
Interpublic Group, Inc. 40,000 2,265,000
-----------
Aerospace
AAR Corp. 60,000 1,785,000 60,000 1,785,000
------------
McDonnell Douglas Corp. 90,000 5,343,750
Rockwell International Corp. 29,000 1,928,500
-----------
9,057,250
-----------
Banks - United States
Chase Manhattan Corp. 20,400 1,889,550
Compass Bancshares, Inc. 30,000 907,500
First Tennessee National Corp. 30,000 1,301,250
Mellon Bank Corp. 10,000 831,250
Norwest Corp. 30,000 1,496,250
Regions Financial Corp. 20,000 1,135,000
Southern National Corp. 30,000 1,177,500
-----------
8,738,300
-----------
Beverages
Coca-Cola Co. 120,000 7,635,000
Mondavi (Robert) Corp. (Class A)* 57,900 2,171,250 57,900 2,171,250
------------ ------------
PepsiCo, Inc. 60,000 2,092,500
------------
11,898,750
------------
Building
Clayton Homes, Inc. 75,000 1,050,000
Masco Corp. 40,000 1,510,000
RPM, Inc. 80,000 1,340,000
Watsco, Inc. 63,600 1,582,050 63,600 1,582,050
------------ -----------
5,482,050
-----------
Chemicals
Sigma-Aldrich Corp. 40,000 1,200,000
-----------
Computers
Adaptec, Inc.* 40,000 1,480,000 167,500 6,197,500
Automatic Data Processing, Inc. 30,000 1,357,500
Aspect Development, Inc.* 81,900 1,750,613 81,900 1,750,613
Baan Co., N.V. (Netherlands)* (Y) 40,800 2,193,000 40,800 2,193,000
BMC Software, Inc.* 15,000 648,750 110,000 4,757,500
Cabletron Systems, Inc.* 65,500 2,259,750
Cisco Systems, Inc.* 63,400 3,280,950
Compaq Computer Corp.* 45,000 3,841,875
Computer Associates International, Inc. 41,900 2,178,800
Computer Sciences Corp.* 80,000 5,000,000
Electronic Data Systems Corp. 50,000 1,668,750
Electronics for Imaging, Inc.* 120,000 4,710,000
EMC Corp.* 70,000 2,546,250
E* TRADE Group, Inc.* 129,000 1,935,000 129,000 1,935,000
Fiserv, Inc.* 45,000 1,698,750
HBO & Co. 50,000 2,675,000
Hewlett-Packard Co. 45,000 2,362,500
IONA Technologies PLC, American
Depositary Receipts (ADR) (Ireland)* 1,800 26,100 1,800 26,100
Microsoft Corp.* 20,000 2,430,000
Network Appliance, Inc.* 70,100 2,041,663 70,100 2,041,663
Oracle Corp.* 88,000 3,498,000
Parametric Technology Corp.* 45,000 2,036,250
Pegasystems, Inc.* 45,000 883,125 45,000 883,125
Procom Technology, Inc.* 85,000 924,375 85,000 924,375
------------
Sterling Commerce, Inc.* 11,882,626 101,000 2,613,375
------------
Sun Microsystems, Inc.* 60,000 1,728,750
-----------
66,595,376
-----------
Consumer Products Misc.
Samsonite Corp.* 60,000 2,490,000 60,000 2,490,000
------------ -----------
</TABLE>
Page 1
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------
Growth Disciplined Growth
- -----------------------------------------------------------------------------------------------------------------------------------
Par Value Par Value
% of Net Interest Maturity (000's Market (000's Market
Issuer - Description Assets Rate % Date Shares Omitted) Value** Shares Omitted) Value**
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Containers 0.64%
Bemis Co. 40,000 1,525,000
Crown Cork & Seal Co., Inc. 35,000 1,916,250
------------
3,441,250
------------
Cosmetics & Personal Care 1.19%
Gillette Co. 75,000 6,375,000
------------
Diversified Operations 0.48%
Federal Signal Corp. 50,000 1,218,750
Ikon Office Solutions, Inc. 50,000 1,343,750
------------
2,562,500
------------
Electronics 3.75%
Advanced Technology Materials, Inc.*
Altera Corp.*
Applied Materials, Inc.* 40,000 2,195,000
ASM Lithography Holding, N.V.
(Netherlands)* (Y)
Emerson Electric Co. 30,000 1,522,500
General Electric Co. 10,000 1,108,750
------------
Intel Corp. 35,000 5,359,375 2,631,250
------------
Semtech Corp.*
Unitrode Corp.*
------------
7,554,375
------------
Finance 3.19%
Associates First Capital Corp. 70,000 3,587,500
First Data Corp. 55,000 1,897,500
FIRSTPLUS Financial Group, Inc.*
First USA, Inc. 50,000 2,406,250
Franklin Resources, Inc. 37,500 2,217,187
------------
MBNA Corp. 120,000 3,960,000 4,114,687
------------
Medallion Financial Corp.
------------
9,953,750
------------
Food 1.02%
ConAgra, Inc. 30,000 1,728,750
CPC International, Inc. 20,000 1,652,500
------------
Sara Lee Corp. 50,000 2,100,000 3,381,250
------------ ------------
Furniture 0.32%
Leggett & Platt, Inc. 50,000 1,737,500
------------
Household 0.59%
Newell Co. 50,000 1,750,000
------------
Rubbermaid, Inc. 60,000 1,440,000
------------
Insurance 1.85%
AFLAC, Inc. 50,000 2,150,000
American International Group, Inc. 15,000 1,927,500
General Re Corp. 4,000 669,000
HCC Insurance Holdings, Inc.
ReliaStar Financial Corp. 20,000 1,210,000
Travelers Group, Inc. 40,000 2,215,000
------------
8,171,500
------------
Leisure 3.33%
Callaway Golf Co. 100,000 2,987,500
Disney (Walt) Co., (The) 80,000 6,560,000
HFS, Inc.* 80,000 4,740,000
Marriott International, Inc. 25,000 1,381,250
Silicon Gaming, Inc.*
X-Rite, Inc. 40,000 660,000
------------ ------------
15,668,750
------------
Linen Supply & Related 1.11%
Cintas Corp. 90,000 4,927,500
------------
G & K Services, Inc. (Class A) 35,000 1,015,000
------------
Machinery 1.23%
Dover Corp. 25,000 1,325,000
Gardner Denver Machinery, Inc.*
<CAPTION>
--------------------------------------------------------------
Discovery Combined
---------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
Shares Omitted) Value** Shares Omitted) Value**
--------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Containers
Bemis Co. 40,000 1,525,000
Crown Cork & Seal Co., Inc. 35,000 1,916,250
-----------
3,441,250
-----------
Cosmetics & Personal Care
Gillette Co. 75,000 6,375,000
-----------
Diversified Operations
Federal Signal Corp. 50,000 1,218,750
Ikon Office Solutions, Inc. 50,000 1,343,750
-----------
2,562,500
-----------
Electronics
Advanced Technology Materials, Inc.* 75,000 1,350,000 75,000 1,350,000
Altera Corp.* 40,000 1,982,500 40,000 1,982,500
Applied Materials, Inc.* 40,000 2,195,000
ASM Lithography Holding, N.V.
(Netherlands)* (Y) 25,500 2,027,250 25,500 2,027,250
Emerson Electric Co. 30,000 1,522,500
General Electric Co. 10,000 1,108,750
Intel Corp. 35,000 5,359,375
Semtech Corp.* 85,000 2,008,125 85,000 2,008,125
Unitrode Corp.* 65,000 2,567,500 65,000 2,567,500
------------ -----------
9,935,375 20,121,000
------------ -----------
Finance
Associates First Capital Corp. 70,000 3,587,500
First Data Corp. 55,000 1,897,500
FIRSTPLUS Financial Group, Inc.* 47,600 1,053,150 47,600 1,053,150
First USA, Inc. 50,000 2,406,250
Franklin Resources, Inc. 37,500 2,217,187
MBNA Corp. 120,000 3,960,000
Medallion Financial Corp. 114,000 2,023,500 114,000 2,023,500
------------ -----------
3,076,650 17,145,087
------------ -----------
Food
ConAgra, Inc. 30,000 1,728,750
CPC International, Inc. 20,000 1,652,500
Sara Lee Corp. 50,000 2,100,000
-----------
5,481,250
-----------
Furniture
Leggett & Platt, Inc. 50,000 1,737,500
-----------
Household
Newell Co. 50,000 1,750,000
Rubbermaid, Inc. 60,000 1,440,000
-----------
3,190,000
-----------
Insurance
AFLAC, Inc. 50,000 2,150,000
American International Group, Inc. 15,000 1,927,500
General Re Corp. 4,000 669,000
HCC Insurance Holdings, Inc. 70,000 1,758,750 70,000 1,758,750
------------
ReliaStar Financial Corp. 20,000 1,210,000
Travelers Group, Inc. 40,000 2,215,000
-----------
9,930,250
-----------
Leisure
Callaway Golf Co. 100,000 2,987,500
Disney (Walt) Co., (The) 80,000 6,560,000
HFS, Inc.* 80,000 4,740,000
Marriott International, Inc. 25,000 1,381,250
Silicon Gaming, Inc.* 113,000 1,539,625 113,000 1,539,625
------------
X-Rite, Inc. 40,000 660,000
-----------
17,868,375
-----------
Linen Supply & Related
Cintas Corp. 90,000 4,927,500
G & K Services, Inc. (Class A) 35,000 1,015,000
-----------
5,942,500
-----------
Machinery
Dover Corp. 25,000 1,325,000
Gardner Denver Machinery, Inc.* 83,400 1,897,350 83,400 1,897,350
</TABLE>
Page 2
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------
Growth Disciplined Growth
- -----------------------------------------------------------------------------------------------------------------------------------
Par Value Par Value
% of Net Interest Maturity (000's Market (000's Market
Issuer - Description Assets Rate % Date Shares Omitted) Value** Shares Omitted) Value**
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ITEQ, Inc.*
Pentair, Inc. 50,000 1,493,750
------------
2,818,750
------------
Media 2.89%
Central Newspapers, Inc. (Class A)
Clear Channel Communications, Inc.*
Gannett Co., Inc. 55,000 4,798,750 15,000 1,308,750
------------
Tribune Co. 110,000 4,826,250
------------
9,625,000
------------
Medical 12.10%
Abbott Laboratories 35,000 2,135,000
American Home Products Corp. 60,000 3,975,000
Cardinal Health, Inc. 70,000 3,727,500
Eli Lilly & Co. 15,000 1,318,125
Guidant Corp. 20,000 1,365,000
Health Care & Retirement Corp.* 195,000 6,166,875
Health Management Associates,
Inc. (Class A)* 232,500 6,219,375
ILEX Oncology Inc.*
Johnson & Johnson 130,000 7,962,500 25,000 1,531,250
Jones Medical Industries, Inc. 50,000 1,762,500
Kos Pharmaceuticals, Inc.*
Medtronic, Inc. 20,000 1,385,000
Merck & Co., Inc. 50,000 4,525,000
National Surgery Centers, Inc.*
Omnicare, Inc. 100,000 2,437,500
Oxford Health Plans, Inc.* 30,000 1,976,250
Pfizer, Inc. 60,000 5,760,000 15,000 1,440,000
Protein Design Labs, Inc.*
SmithKline Beecham PLC, (ADR)
(United Kingdom) 30,000 2,418,750
Sonus Pharmaceuticals, Inc.*
United Healthcare Corp 90,000 4,376,250
------------ ------------
47,126,250 13,355,625
------------ ------------
Metal 0.82%
Illinois Tool Works, Inc. 15,000 1,370,625
Maverick Tube Corp.*
Worthington Industries, Inc. 50,000 943,750
------------
2,314,375
------------
Mortgage Equity REIT 0.58%
Spieker Properties, Inc. 50,000 1,743,750
------------
Office 0.69%
HON INDUSTRIES, Inc.
Herman Miller, Inc.
Oil & Gas 11.49%
Amoco Corp. 15,000 1,254,375
Chevron Corp. 60,000 4,110,000 19,000 1,301,500
Diamond Offshore Drilling, Inc.* 100,000 6,437,500
Energy Ventures, Inc.*
Enron Corp. 35,000 1,316,875
Enron Oil & Gas Co. 67,000 1,247,875
ENSCO International Inc.*
Exxon Corp. 90,000 5,096,250 10,000 566,250
Falcon Drilling Co., Inc.*
Forcenergy, Inc.*
Halliburton Co. 85,000 6,003,125
Mobil Corp. 12,000 1,560,000
National-Oilwell, Inc.*
Precision Drilling Corp.
(Canada)* (Y)
Reading & Bates Corp.* 200,000 4,475,000
Repsol SA (ADR ) (Spain) 25,000 1,046,875
Schlumberger, Ltd. 45,000 4,983,750
Smith International, Inc.* 100,000 4,737,500
Sonat, Inc. 30,000 1,713,750
Western Atlas, Inc.* 46,600 2,889,200
Williams Cos., Inc. (The) 37,500 1,645,313
------------ ------------
38,732,325 11,652,813
------------ ------------
Paper & Paper Products 0.32%
Kimberly-Clark Corp. 34,000 1,742,500
------------
<CAPTION>
--------------------------------------------------------------
Discovery Combined
--------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
Shares Omitted) Value** Shares Omitted) Value**
--------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
ITEQ, Inc.* 310,000 1,860,000 310,000 1,860,000
------------
Pentair, Inc. 3,757,350 50,000 1,493,750
------------ -----------
6,576,100
-----------
Media
Central Newspapers, Inc. (Class A) 45,000 2,424,375 45,000 2,424,375
Clear Channel Communications, Inc.* 45,000 2,182,500 45,000 2,182,500
------------
Gannett Co., Inc. 4,606,875 70,000 6,107,500
------------
Tribune Co. 110,000 4,826,250
-----------
15,540,625
-----------
Medical
Abbott Laboratories 35,000 2,135,000
American Home Products Corp. 60,000 3,975,000
Cardinal Health, Inc. 70,000 3,727,500
Eli Lilly & Co. 15,000 1,318,125
Guidant Corp. 20,000 1,365,000
Health Care & Retirement Corp.* 195,000 6,166,875
Health Management Associates,
Inc. (Class A)* 232,500 6,219,375
ILEX Oncology Inc.* 29,000 355,250 29,000 355,250
Johnson & Johnson 155,000 9,493,750
Jones Medical Industries, Inc. 50,000 1,762,500
Kos Pharmaceuticals, Inc.* 1,600 36,000 1,600 36,000
Medtronic, Inc. 20,000 1,385,000
Merck & Co., Inc. 50,000 4,525,000
National Surgery Centers, Inc.* 36,200 1,086,000 36,200 1,086,000
Omnicare, Inc. 100,000 2,437,500
Oxford Health Plans, Inc.* 30,000 1,976,250
Pfizer, Inc. 75,000 7,200,000
Protein Design Labs, Inc.* 54,200 1,361,775 54,200 1,361,775
SmithKline Beecham PLC, (ADR)
(United Kingdom) 30,000 2,418,750
Sonus Pharmaceuticals, Inc.* 70,000 1,662,500 70,000 1,662,500
United Healthcare Corp 90,000 4,376,250
------------ -----------
4,501,525 64,983,400
------------ -----------
Metal
Illinois Tool Works, Inc. 15,000 1,370,625
Maverick Tube Corp.* 95,000 2,078,125 95,000 2,078,125
------------
Worthington Industries, Inc. 50,000 943,750
-----------
4,392,500
-----------
Mortgage Equity REIT
Spieker Properties, Inc. 40,000 1,395,000 90,000 3,138,750
------------ -----------
Office
HON INDUSTRIES, Inc. 60,000 2,535,000 60,000 2,535,000
Herman Miller, Inc. 36,000 1,165,500 36,000 1,165,500
------------ -----------
3,700,500 3,700,500
------------ -----------
Oil & Gas
Amoco Corp. 15,000 1,254,375
Chevron Corp. 79,000 5,411,500
Diamond Offshore Drilling, Inc.* 100,000 6,437,500
Energy Ventures, Inc.* 26,800 1,792,250 26,800 1,792,250
Enron Corp. 35,000 1,316,875
Enron Oil & Gas Co. 67,000 1,247,875
ENSCO International Inc.* 40,000 1,900,000 40,000 1,900,000
Exxon Corp. 100,000 5,662,500
Falcon Drilling Co., Inc.* 50,000 1,912,500 50,000 1,912,500
Forcenergy, Inc.* 63,700 1,974,700 63,700 1,974,700
Halliburton Co. 85,000 6,003,125
Mobil Corp. 12,000 1,560,000
National-Oilwell, Inc.* 65,000 2,526,875 65,000 2,526,875
Precision Drilling Corp. (Canada)* (Y) 35,000 1,216,250 35,000 1,216,250
------------
Reading & Bates Corp.* 11,322,575 200,000 4,475,000
------------
Repsol SA (ADR ) (Spain) 25,000 1,046,875
Schlumberger, Ltd. 45,000 4,983,750
Smith International, Inc.* 100,000 4,737,500
Sonat, Inc. 30,000 1,713,750
Western Atlas, Inc.* 46,600 2,889,200
Williams Cos., Inc. (The) 37,500 1,645,313
-----------
61,707,713
-----------
Paper & Paper Products
Kimberly-Clark Corp. 34,000 1,742,500
-----------
</TABLE>
Page 3
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------
Growth Disciplined Growth
- -----------------------------------------------------------------------------------------------------------------------------------
Par Value Par Value
% of Net Interest Maturity (000's Market (000's Market
Issuer - Description Assets Rate % Date Shares Omitted) Value** Shares Omitted) Value**
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pollution Control 2.50%
Newpark Resources, Inc.*
Philip Environmental Inc.
(Canada)* (Y)
USA Waste Services, Inc.* 150,000 4,912,500
------------
Printing - Commercial 0.43%
Mail-Well, Inc.*
Real Estate Investment Trusts 0.32%
Redwood Trust, Inc.
Retail 9.13%
Arbor Drugs, Inc. 60,000 1,102,500
Borders Group, Inc.*
Consolidated Stores Corp.*
CVS Corp. 120,000 5,955,000
Dollar General Corp. 50,000 1,581,250
Family Dollar Stores, Inc. 40,000 1,045,000
Furniture Brands International,
Inc.*
Home Depot, Inc. 100,000 5,800,000 40,000 2,320,000
Hot Topic, Inc.*
Linens 'N Things, Inc.*
Pep Boys - Manny, Moe & Jack 65,000 2,120,625
Quality Food Centers, Inc.*
Starbucks Corp.* 70,000 2,091,250
Sysco Corp. 40,000 1,420,000
------------
Wal-Mart Stores, Inc. 220,000 6,215,000 8,008,125
------------
Walgreen Co 80,000 3,680,000
------------
25,322,500
------------
Schools / Education 0.28%
Apollo Group, Inc. (Class A)* 55,150 1,482,156
------------
Soap & Cleaning Preparations 0.23%
Ecolab, Inc. 30,000 1,222,500
------------
Steel 0.38%
Lone Star Technologies, Inc.*
Telecommunications 1.23%
Comverse Technology, Inc.*
WorldCom, Inc.* 168,000 4,032,000
------------
Textile 1.22%
Culp, Inc.
Jones Apparel Group, Inc.* 110,000 4,592,500
------------
Tobacco 0.13%
General Cigar Holdings, Inc.*
Utilities 1.10%
Century Telephone Enterprises, Inc. 55,000 1,643,125
National Fuel Gas Co. 27,000 1,123,875
Questar Corp. 38,600 1,466,800
SBC Communications, Inc. 30,000 1,665,000
------------
5,898,800
------------
TOTAL COMMON STOCK 84.60%
(Cost $367,394,099) 239,799,406 111,391,925
------------ ------------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement 15.02%
Investment in a joint repurchase
agreement transaction with Aubrey
G. Lanston & Co.- Dated 4-30-97,
Due 5-.01-97 (Secured by U.S.
Treasury Bills, 5.37% thru 5.78%
due 8-21-97 thru 3-05-98, U.S.
Treasury Bonds, 7.125% thru 11.25%
due 2-15-15 thru 2-15-23, U.S.
Treasury Note, 5.125%
<CAPTION>
--------------------------------------------------------------
Discovery Combined
--------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
Shares Omitted) Value** Shares Omitted) Value**
--------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
Pollution Control
Newpark Resources, Inc.* 62,000 2,782,250 62,000 2,782,250
Philip Environmental Inc. (Canada)* (Y) 250,000 3,937,500 250,000 3,937,500
USA Waste Services, Inc.* 55,000 1,801,250 205,000 6,713,750
------------ -----------
8,521,000 13,433,500
------------ -----------
Printing - Commercial
Mail-Well, Inc.* 85,000 2,326,875 85,000 2,326,875
------------ -----------
Real Estate Investment Trusts
Redwood Trust, Inc. 36,200 1,701,400 36,200 1,701,400
------------ -----------
Retail
Arbor Drugs, Inc. 60,000 1,102,500
Borders Group, Inc.* 75,000 1,593,750 75,000 1,593,750
Consolidated Stores Corp.* 50,000 2,000,000 50,000 2,000,000
CVS Corp. 120,000 5,955,000
Dollar General Corp. 51,000 1,612,875 101,000 3,194,125
Family Dollar Stores, Inc. 40,000 1,045,000
Furniture Brands International, Inc.* 115,000 1,696,250 115,000 1,696,250
Home Depot, Inc. 35,000 2,030,000 175,000 10,150,000
Hot Topic, Inc.* 52,000 1,339,000 52,000 1,339,000
Linens 'N Things, Inc.* 65,000 1,381,250 65,000 1,381,250
Pep Boys - Manny, Moe & Jack 65,000 2,120,625
Quality Food Centers, Inc.* 60,700 2,435,587 60,700 2,435,587
Starbucks Corp.* 53,000 1,583,375 123,000 3,674,625
------------
Sysco Corp. 15,672,087 40,000 1,420,000
------------
Wal-Mart Stores, Inc. 220,000 6,215,000
Walgreen Co 80,000 3,680,000
-----------
49,002,712
-----------
Schools / Education
Apollo Group, Inc. (Class A)* 55,150 1,482,156
-----------
Soap & Cleaning Preparations
Ecolab, Inc. 30,000 1,222,500
-----------
Steel
Lone Star Technologies, Inc.* 110,000 2,048,750 110,000 2,048,750
------------ -----------
Telecommunications
Comverse Technology, Inc.* 65,200 2,559,100 65,200 2,559,100
------------
WorldCom, Inc.* 168,000 4,032,000
-----------
6,591,100
-----------
Textile
Culp, Inc. 110,000 1,952,500 110,000 1,952,500
------------
Jones Apparel Group, Inc.* 110,000 4,592,500
-----------
6,545,000
-----------
Tobacco
General Cigar Holdings, Inc.* 30,300 715,837 30,300 715,837
------------ -----------
Utilities
Century Telephone Enterprises, Inc. 55,000 1,643,125
National Fuel Gas Co. 27,000 1,123,875
Questar Corp. 38,600 1,466,800
SBC Communications, Inc. 30,000 1,665,000
-----------
5,898,800
-----------
TOTAL COMMON STOCK
(Cost $367,394,099) 103,080,825 454,272,156
------------ -----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement
Investment in a joint repurchase agreement
transaction with Aubrey G. Lanston & Co.-
Dated 4-30-97, Due 5-.01-97 (Secured by
U.S. Treasury Bills, 5.37% thru 5.78%
due 8-21-97 thru 3-05-98, U.S. Treasury
Bonds, 7.125% thru 11.25% due 2-15-15
thru 2-15-23, U.S. Treasury Note, 5.125% $14,945 $14,945,000 $80,628 $80,628,000
</TABLE>
Page 4
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------
Growth Disciplined Growth
- -----------------------------------------------------------------------------------------------------------------------------------
Par Value Par Value
% of Net Interest Maturity (000's Market (000's Market
Issuer - Description Assets Rate % Date Shares Omitted) Value** Shares Omitted) Value**
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
thru 7.75%, due 8-31-98 5.375% 5/1/97 $54,815 $54,815,000 $10,868 $10,868,000
thru 5-15-05) - Note A
CORPORATE SAVINGS ACCOUNT 0.00%
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 10,366 690
------------ ------------
TOTAL SHORT-TERM INVESTMENTS 15.02% 54,825,366 10,868,690
------------ ------------
TOTAL INVESTMENTS 99.62% $294,624,772 $122,260,615
============= =============
<CAPTION>
--------------------------------------------------------------
Discovery Combined
--------------------------------------------------------------
Par Value Par Value
(000's Market (000's Market
Shares Omitted) Value** Shares Omitted) Value**
--------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
thru 7.75%, due 8-31-98 thru 5-15-05) -
Note A
CORPORATE SAVINGS ACCOUNT
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 4.95% 1,121 12,177
------------- ------------
TOTAL SHORT-TERM INVESTMENTS 14,946,121 80,640,177
------------- ------------
TOTAL INVESTMENTS $118,026,946 $534,912,333
============== =============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS
* Non-income producing security.
** 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.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of a foreign issuer, however, security is U.S. dollar
denominated.
The percentage shown for each investment category is the total value of that
category as a percentage of the combined net assets of each Fund.
Page 5
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 27 of the Registration
Statement of John Hancock Investment Trust III (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. Registrant's Amended and Restated Filed as Exhibits 1.2 to
Declaration of Trust dated July Registrant's Registration
1, 1996 Statement on Form N-1A and
incorporated herein by reference
to post-effective amendment no.
32 (file nos. 811-4630 and
33-4559 on August 30, 1996;
accession no.
0001010521-96-00151) ("PEA 32")
1.1 Amendment to Declaration of Trust Filed herewith as Exhibit 1.1
2 Amended and Restated By-Laws of Filed as Exhibit 2 to
Registrant. Registrant's Registration
Statement on Form N-1A and
incorporated herein by reference
to post-effective amendment no.
33 (file nos. 811-4630 and
33-4559 on February 27, 1997;
accession no.
0001010521-97-000227) ("PEA 33")
3 Not applicable
4 Form of Agreement and Plan of Filed herewith as Exhibit A to
reorganization between the the Proxy Statement and
Registrant and John Hancock Prospectus included as Part A of
Disciplined Growth Fund this Registration Statement.
5 Not applicable
6 Investment Management Contract Filed as Exhibit 5.3 to PEA 32
between the Registrant and John and incorporated herein by
Hancock Advisers, Inc. reference.
7 Distribution Agreement between Filed as Exhibit 6 to PEA 33 and
the Registrant and John Hancock incorporated herein by reference.
Funds, Inc. (formerly named John
Hancock Broker Distribution
Services, Inc.)
7.1 Form of Soliciting Dealer Filed as Exhibit 6.2 to PEA 32
Agreement between John Hancock and incorporated herein by
Funds, Inc. and Selected Dealers reference.
7.2 Form of Financial Institution Filed as Exhibit 6.3 to PEA 32
Sales and Service Agreement and incorporated herein by
reference.
8 Not applicable.
9 Master Custodian Agreement Filed as Exhibit 8.1 to PEA 32
between John Hancock Mutual Funds and incorporated herein by
(including Registrant) and reference.
Investors Bank & Trust Company.
10 Class A and Class B Distribution Filed herewith as Exhibit 10.1
Plans between Registrant and John
Hancock Funds, Inc.
11 Opinion as to legality of shares Filed herewith as Exhibit 11
and consent.
<PAGE>
12 Form of opinion as to tax matters Filed herewith as Exhibit 12
and consent.
13 Not applicable
14 Consent of Price Waterhouse LLP Filed herewith as Exhibit 14
and Ernst & Young LLP regarding
the audited financial statements
of Registrant and John Hancock
Disciplined Growth Fund.
15 Not applicable
16 Powers of Attorney Filed as addendum to signature
pages of PEA 32 and incorporated
herein by reference.
17 Declaration of the Registrant Filed herewith as Exhibit 17
pursuant to Rule 24f-2 under the
Investment Company Act of 1940
18 Prospectus of John Hancock Included with Part A of the
Disciplined Growth Fund dated Registration Statement as part of
March 1, 1997 as revised August Combined Prospectus with Growth
5, 1997. Fund.
18.1 Statement of Additional Filed herewith as Exhibit B to
Information of John Hancock Part B of this Registration
Growth Fund dated March 1, 1997. Statement.
18.2 Statement of Additional Filed herewith as Exhibit B to
Information of John Hancock Part B of this Registration
Disciplined Growth Fund dated Statement.
March 1, 1997.
ITEM 17
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a propectus 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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and The
Commonwealth of Massachusetts, on the 14th day of August, 1997.
JOHN HANCOCK INVESTMENT TRUST III
By: *
-----------------------------
Edward J. Boudreau, Jr.
Chairman
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman
- ----------------------- (Principal Executive Officer)
Edward J. Boudreau, Jr.
/s/James B. Little Senior Vice President and Chief August 14, 1997
- ----------------------- Financial Officer (Principal
James B. Little Financial and Accounting Officer)
* Trustee
- -----------------------
Dennis S. Aronowitz
* Trustee
- -----------------------
Richard P. Chapman, Jr.
* Trustee
- -----------------------
William J. Cosgrove
* Trustee
- -----------------------
Douglas M. Costle
* Trustee
- -----------------------
Leland O. Erdahl
* Trustee
- -----------------------
Richard A. Farrell
* Trustee
- -----------------------
Gail D. Fosler
* Trustee
- -----------------------
William F. Glavin
<PAGE>
Signature Title Date
--------- ----- ----
* Trustee
- -----------------------
Anne C. Hodsdon
* Trustee
- -----------------------
John A. Moore
* Trustee
- -----------------------
Patti McGill Peterson
* Trustee
- -----------------------
John W. Pratt
* Trustee
- -----------------------
Richard S. Scipione
* Trustee
- -----------------------
Edward J. Spellman
*By: /s/Susan S. Newton August 14, 1997
-------------------
Susan S. Newton,
Attorney-in-Fact under
Powers of Attorney dated
May 21, 1996 and August 27,
1996.
</TABLE>
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement:
Exhibit No. Description
- ----------- -----------
1.1 Amendment to Declaration of Trust dated July 1, 1996.
4. Agreement and Plan of Regorganization between the Registrant
and John Hancock Disciplined Growth Fund (filed as EXHIBIT
A to Part A of this Registration Statement).
10.1 Amended Class A and Class B Rule 12b-1 Plans for Registrant
on behalf of Growth Fund.
11. Opinion as to legality of shares and consent.
12. Form of opinion as to tax maters and consent.
14. Consents of Price Waterhouse, LLP and Ernst & Young, LLP
regarding the audited financial statements and highlights of
the Registrant and John Hancock Disciplined Growth Fund.
17. Declaration of the Registrant pursuant to Rule 24f-2 under
the Investment Company Act of 1940.
FREEDOM INVESTMENT TRUST II
Instrument Changing Name of Trust
The Trustees of Freedom Investment Trust II (the "Trust"), hereby amend
the Trust's Amended and Restated Declaration of Trust, dated July 1, 1996, to
the extent necessary to reflect the change of name of the Trust to John Hancock
Investment Trust III, effective March 1, 1997.
IN WITNESS WHEREOF, the undersigned has executed this instrument on the
13th day of November 1996.
/s/Dennis S. Aronowitz
- --------------------------- -------------------------
Dennis S. Aronowitz William F. Glavin
/s/Edward J. Boudreau, Jr. /s/Anne C. Hodsdon
- --------------------------- -------------------------
Edward J. Boudreau, Jr. Anne C. Hodsdon
/s/Richard P. Chapman, Jr. /s/John A. Moore
- --------------------------- -------------------------
Richard P. Chapman, Jr. John A. Moore
/s/William J. Cosgrove /s/Patti McGill Peterson
- --------------------------- -------------------------
William J. Cosgrove Patti McGill Peterson
/s/Douglas M. Costle /s/John W. Pratt
- --------------------------- -------------------------
Douglas M. Costle John W. Pratt
/s/Leland O. Erdahl /s/Richard S. Scipione
- --------------------------- -------------------------
Leland O. Erdahl Richard S. Scipione
/s/Richard A. Farrell /s/Edward J. Spellman
- --------------------------- -------------------------
Richard A. Farrell Edward J. Spellman
/s/Gail D. Fosler
- ---------------------------
Gail D. Fosler
The Declaration of Trust, a copy of which, together with all amendments
thereto, is on file in the office of the Secretary of State of The Commonwealth
of Massachusetts, provides that no Trustee, officer, employee or agent of the
Trust or any Series thereof shall be subject to any personal liability
whatsoever to any Person, other than to the Trust or its shareholders, in
connection with Trust Property or the affairs of the Trust, save only that
arising from bad faith, willful misfeasance, gross negligence or reckless
disregard of his/her duties with respect to such Person; and all such Persons
shall look solely to the Trust Property, or to the Trust Property of one or more
specific Series of the Trust if the claim arises from the conduct of such
Trustee, officer, employee or agent with respect to only such Series, for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust.
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
)ss
COUNTY OF SUFFOLK )
Then personally appeared the above-named Dennis S. Aronowitz, Edward J.
Boudreau, Jr., Richard P. Chapman, Jr., William J. Cosgrove, Douglas M. Costle,
Leland O. Erdahl, Richard A. Farrell, Gail D. Fosler, Anne C. Hodsdon, John A.
Moore, Patti McGill Peterson, John W. Pratt, and Edward J. Spellman, who
acknowledged the foregoing instrument to be his or her free act and deed, before
me, this 13th day of November, 1996.
/s/ Ann Marie White
---------------------------
Notary Public
My commission expires: 10/20/00
JOHN HANCOCK INVESTMENT TRUST III
JOHN HANCOCK GROWTH FUND
Amended and Restated Distribution Plan
Class A Shares
June 3, 1997
Article I. This Plan
This amended and restated Distribution Plan (the "Plan") sets forth the
terms and conditions on which John Hancock Investment Trust III (the "Trust"),
on behalf of John Hancock Growth Fund (the "Fund"), a series portfolio of the
Trust, on behalf of its Class A shares, will, after the effective date hereof,
pay certain amounts to John Hancock Funds, Inc. ("JH Funds") in connection with
the provision by JH Funds of certain services to the Fund and its Class A
shareholders, as set forth herein. Certain of such payments by the Fund may,
under Rule 12b-1 of the Securities and Exchange Commission, as from time to time
amended (the "Rule"), under the Investment Company Act of 1940, as amended (the
"Act"), be deemed to constitute the financing of distribution by the Fund of its
shares. This Plan describes all material aspects of such financing as
contemplated by the Rule and shall be administered and interpreted, and
implemented and continued, in a manner consistent with the Rule. The Trust and
JH Funds heretofore entered into a Distribution Agreement, dated November 13,
1996 (the "Agreement"), the terms of which, as heretofore and from time to time
continued, are incorporated herein by reference.
Article II. Distribution and Service Expenses
The Fund shall pay to JH Funds a fee in the amount specified in Article
III hereof. Such fee may be spent by JH Funds on any activities or expenses
primarily intended to result in the sale of Class A shares of the Fund,
including, but not limited to the payment of Distribution Expenses (as defined
below) and Service Expenses (as defined below). Distribution Expenses include
but are not limited to, (a) initial and ongoing sales compensation out of such
fee as it is received by JH Funds or other broker-dealers ("Selling Brokers")
that have entered into an agreement with JH Funds for the sale of Class A shares
of the Fund, (b) direct out-of-pocket expenses incurred in connection with the
distribution of Class A shares of the Fund, including expenses related to
printing of prospectuses and reports to other than existing Class A shareholders
of the Fund, and preparation, printing and distribution of sales literature and
advertising materials, (c) an allocation of overhead and other branch office
expenses of JH Funds related to the distribution of Class A shares of the Fund,
and (d) distribution expenses incurred in connection with the distribution of a
corresponding class of any open-end, registered investment company which sells
all or substantially all its assets to the Fund or which merges or otherwise
combines with the Fund.
Service Expenses include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of JH Funds) and
others who furnish personal and shareholder account maintenance services to
Class A shareholders of the Fund.
-1-
<PAGE>
Article III. Maximum Expenditures
The expenditures to be made by the Fund pursuant to this Plan, and the
basis upon which such expenditures will be made, shall be determined by the
Fund, and in no event shall such expenditures exceed 0.30% of the average daily
net asset value of the Class A shares of the Fund (determined in accordance with
the Fund's prospectus as from time to time in effect) on an annual basis to
cover Distribution Expenses and Service Expenses, provided that the portion of
such fee used to cover Service Expenses shall not exceed an annual rate of up to
0.25% of the average daily net asset value of the Class A shares of the Fund.
These expenditures shall be calculated and accrued daily and paid monthly or at
such other intervals as the Trustees shall determine. In the event JH Funds is
not fully reimbursed for payments made or other expenses incurred by it under
this Plan, these expenses will not be carried beyond one year from the date the
expenses were incurred. Any fees paid to JH Funds under this Plan during any
fiscal year of the Fund and not expended or allocated by JH Funds for actual or
budgeted Distribution Expenses and Service Expenses during that fiscal year will
be promptly returned to the Fund.
Article IV. Expenses Borne by the Fund
Notwithstanding any other provision of this Plan, the Trust, the Fund
and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall
bear the respective expenses to be borne by them under the Investment Management
Contract, dated July 1, 1996, (the "Management Contract"), and under the Fund's
current prospectus as it is from time to time in effect. Except as otherwise
contemplated by this Plan, the Trust and the Fund shall not, directly or
indirectly, engage in financing any activity which is primarily intended to or
should reasonably result in the sale of shares of the Fund.
Article V. Approval by Trustees, etc.
This Plan shall not take effect until it has been approved, together
with any related agreements, by votes, cast in person at a meeting called for
the purpose of voting on this Plan or such agreements, of a majority (or
whatever greater percentage may, from time to time, be required by Section 12(b)
of the Act or the rules and regulations thereunder) of (a) all of the Trustees
of the Fund and (b) those Trustees of the Fund who are not "interested persons"
of the Fund, as such term may be from time to time defined under the Act, and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Independent Trustees").
Article VI. Continuance
This Plan and any related agreements shall continue in effect for so
long as such continuance is specifically approved at least annually in advance
in the manner provided for the approval of this Plan in Article V.
-2-
<PAGE>
Article VII. Information
JH Funds shall furnish the Fund and its Trustees quarterly, or at such
other intervals as the Fund shall specify, a written report of amounts expended
or incurred for Distribution Expenses and Service Expenses pursuant to this Plan
and the purposes for which such expenditures were made and such other
information as the Trustees may request.
Article VIII. Termination
This Plan may be terminated (a) at any time by vote of a majority of
the Trustees, a majority of the Independent Trustees, or a majority of the
Fund's outstanding voting Class A shares, or (b) by JH Funds on 60 days' notice
in writing to the Fund.
Article IX. Agreements
Each agreement with any person relating to implementation of this Plan
shall be in writing, and each agreement related to this Plan shall provide:
(a) That, with respect to the Fund, such agreement may be
terminated at any time, without payment of any penalty, by
vote of a majority of the Independent Trustees or by vote of a
majority of the Fund's then outstanding voting Class A shares.
(b) That such agreement shall terminate automatically in the event
of its assignment.
Article X. Amendments
This Plan may not be amended to increase the maximum amount of the fees
payable by the Fund hereunder without the approval of a majority of the
outstanding voting Class A shares of the Fund. No material amendment to the Plan
shall, in any event, be effective unless it is approved in the same manner as is
provided for approval of this Plan in Article V.
Article XI. Limitation of Liability
The names "John Hancock Investment Trust III" and "John Hancock Growth
Fund" are the designations of the Trustees under the Amended and Restated
Declaration of Trust dated July 1, 1996, as amended from time to time. The
Amended and Restated Declaration of Trust has been filed with the Secretary of
State of the Commonwealth of Massachusetts. The obligations of the Trust and the
Fund are not personally binding upon, nor shall resort be had to the private
property of, any of the Trustees, shareholders, officers, employees or agents of
the Fund, but only the Fund's property shall be bound. No series of the Trust
shall be responsible for the obligations of any other series of the Trust.
-3-
<PAGE>
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan
effective as of the 3rd day of June, 1997 in Boston, Massachusetts.
JOHN HANCOCK INVESTMENT TRUST III --
JOHN HANCOCK GROWTH FUND
By /s/ Anne C. Hodsdon
----------------------
President
JOHN HANCOCK FUNDS, INC.
By /s/ Edward J. Boudreau, Jr.
------------------------------
Chairman, President & CEO
-4-
<PAGE>
JOHN HANCOCK INVESTMENT TRUST III
JOHN HANCOCK GROWTH FUND
Amended and Restated Distribution Plan
Class B Shares
June 3, 1997
Article I. This Plan
This Amended and Restated Distribution Plan (the "Plan") sets forth the
terms and conditions on which John Hancock Investment Trust III (the "Trust") on
behalf of John Hancock Growth Fund (the "Fund"), a series portfolio of the
Trust, on behalf of its Class B shares, will, after the effective date hereof,
pay certain amounts to John Hancock Funds, Inc. ("JH Funds") in connection with
the provision by JH Funds of certain services to the Fund and its Class B
shareholders, as set forth herein. Certain of such payments by the Fund may,
under Rule 12b-1 of the Securities and Exchange Commission, as from time to time
amended (the "Rule"), under the Investment Company Act of 1940, as amended (the
"Act"), be deemed to constitute the financing of distribution by the Fund of its
shares. This Plan describes all material aspects of such financing as
contemplated by the Rule and shall be administered and interpreted, and
implemented and continued, in a manner consistent with the Rule. The Trust and
JH Funds heretofore entered into a Distribution Agreement, dated November 13,
1996 (the "Agreement"), the terms of which, as heretofore and from time to time
continued, are incorporated herein by reference.
Article II. Distribution and Service Expenses
The Fund shall pay to JH Funds a fee in the amount specified in Article
III hereof. Such fee may be spent by JH Funds on any activities or expenses
primarily intended to result in the sale of Class B shares of the Fund,
including, but not limited to the payment of Distribution Expenses (as defined
below) and Service Expenses (as defined below). Distribution Expenses include
but are not limited to, (a) initial and ongoing sales compensation out of such
fee as it is received by JH Funds or other broker-dealers ("Selling Brokers")
that have entered into an agreement with JH Funds for the sale of Class B shares
of the Fund, (b) direct out-of pocket expenses incurred in connection with the
distribution of Class B shares of the Fund, including expenses related to
printing of prospectuses and reports to other than existing Class B shareholders
of the Fund, and preparation, printing and distribution of sales literature and
advertising materials, (c) an allocation of overhead and other branch office
expenses of JH Funds related to the distribution of Class B shares of the Fund,
(d) interest expenses on unreimbursed distribution expenses related to Class B
shares, as described in Article IV and (e) distribution expenses incurred in
connection with the distribution of a corresponding class of any open-end,
registered investment company which sells all or substantially all its assets to
the Fund or which merges or otherwise combines with the Fund.
Service Expenses include payments made to, or on account of, account
executives of selected broker-dealers (including affiliates of JH Funds) and
others who furnish personal and shareholder account maintenance services to
Class B shareholders of the Fund.
-1-
<PAGE>
Article III. Maximum Expenditures
The expenditures to be made by the Fund pursuant to this Plan, and the
basis upon which such expenditures will be made, shall be determined by the
Fund, and in no event shall such expenditures exceed 1.00% of the average daily
net asset value of the Class B shares of the Fund (determined in accordance with
the Fund's prospectus as from time to time in effect) on an annual basis to
cover Distribution Expenses and Service Expenses, provided that the portion of
such fee used to cover Service Expenses, shall not exceed an annual rate of up
to 0.25% of the average daily net asset value of the Class B shares of the Fund.
These expenditures shall be calculated and accrued daily and paid monthly or at
such other intervals as the Trustees shall determine.
Article IV. Unreimbursed Distribution Expenses
In the event that JH Funds is not fully reimbursed for payments made or
expenses incurred by it under this Plan, in any fiscal year, JH Funds shall be
entitled to carry forward these expenses to subsequent fiscal years for
submission to the Class B shares of the Fund for payment, subject always to the
annual maximum expenditures set forth in Article III hereof; provided, however,
that nothing herein shall prohibit or limit the Trustees from terminating this
Plan and all payments hereunder at any time pursuant to Article IX hereof.
Article V. Expenses Borne by the Fund
Notwithstanding any other provision of this Plan, the Trust, the Fund
and its investment adviser, John Hancock Advisers, Inc. (the "Adviser"), shall
bear the respective expenses to be borne by them under the Investment Management
Contract, dated July 1, 1996 (the "Management Contract"), and under the Fund's
current prospectus as it is from time to time in effect. Except as otherwise
contemplated by this Plan, the Trust and the Fund shall not, directly or
indirectly, engage in financing any activity which is primarily intended to or
should reasonably result in the sale of shares of the Fund.
Article VI. Approval by Trustees, etc.
This Plan shall not take effect until it has been approved, together
with any related agreements, by votes, cast in person at a meeting called for
the purpose of voting on this Plan or such agreements, of a majority (or
whatever greater percentage may, from time to time, be required by Section 12(b)
of the Act or the rules and regulations thereunder) of (a) all of the Trustees
of the Fund and (b) those Trustees of the Fund who are not "interested persons"
of the Fund, as such term may be from time to time defined under the Act, and
have no direct or indirect financial interest in the operation of this Plan or
any agreements related to it (the "Independent Trustees").
-2-
<PAGE>
Article VII. Continuance
This Plan and any related agreements shall continue in effect for so
long as such continuance is specifically approved at least annually in advance
in the manner provided for the approval of this Plan in Article VI.
Article VIII. Information
JH Funds shall furnish the Fund and its Trustees quarterly, or at such
other intervals as the Fund shall specify, a written report of amounts expended
or incurred for Distribution Expenses and Services Expenses pursuant to this
Plan and the purposes for which such expenditures were made and such other
information as the Trustees may request.
Article IX. Termination
This Plan may be terminated (a) at any time by vote of a majority of
the Trustees, a majority of the Independent Trustees, or a majority of the
Fund's outstanding voting Class B shares, or (b) by JH Funds on 60 days' notice
in writing to the Fund.
Article X. Agreements
Each Agreement with any person relating to implementation of this Plan
shall be in writing, and each agreement related to this Plan shall provide:
(a) That, with respect to the Fund, such agreement may be
terminated at any time, without payment of any penalty, by
vote of a majority of the Independent Trustees or by vote of a
majority of the Fund's then outstanding voting Class B shares.
(b) That such agreement shall terminate automatically in the event
of its assignment.
Article XI. Amendments
This Plan may not be amended to increase the maximum amount of the fees
payable by the Fund hereunder without the approval of a majority of the
outstanding voting Class B shares of the Fund. No material amendment to the Plan
shall, in any event, be effective unless it is approved in the same manner as is
provided for approval of this Plan in Article VII.
Article XII. Limitation of Liability
The names "John Hancock Investment Trust III" and "John Hancock Growth
Fund" are the designations of the Trustees under the Amended and Restated
Declaration of Trust, dated July 1, 1996, as amended from time to time. The
Amended and Restated Declaration of Trust has been filed with the Secretary of
State of the Commonwealth of Massachusetts. The obligations of the Trust and the
Fund are not personally binding upon, nor shall resort be had to the private
property of, any of the Trustees, shareholders, officers, employees or agents of
the Fund, but only the Fund's property shall be bound. No series of the Trust
shall be responsible for the obligations of any other series of the Trust.
-3-
<PAGE>
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan
effective as of the 3rd day of June, 1997 in Boston, Massachusetts.
JOHN HANCOCK INVESTMENT TRUST III --
JOHN HANCOCK GROWTH FUND
By: /s/ Anne C. Hodsdon
------------------------------
President
JOHN HANCOCK FUNDS, INC.
By: /s/ Edward J. Boudreau, Jr.
------------------------------
Chairman, President & CEO
-4-
August 4, 1997
John Hancock Investment Trust III
on behalf of John Hancock Growth Fund
101 Huntington Avenue
Boston, MA 02199
Ladies and Gentlemen:
In connection with the filing of a registration statement under the Securities
Act of 1933, as amended (the "Act"), on Form N-14, with respect to the shares of
beneficial interest of John Hancock Growth Fund (the "Fund"), a series of John
Hancock Investment Trust III, a Massachusetts business trust (the "Trust"), it
is the opinion of the undersigned that these shares when issued, will be legally
issued, fully paid and non-assessable.
In connection with this opinion it should be noted that the Trust 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 Trust's
Declaration of Trust disclaims shareholder liability for obligations of the
Trust and indemnifies any shareholder of the Fund, with this indemnification to
be paid solely out of the assets of the Fund. Therefore, the shareholder's risk
is limited to circumstances in which the assets of the Fund are insufficient to
meet the obligations asserted against the Fund's assets.
The undersigned hereby consents to the filing of a copy of this opinion as an
exhibit to the Trust's registration statement on Form N-14 and with the
Securities and Exchange Commission.
Sincerely,
/s/ Avery P. Maher
Avery P. Maher
Second Vice President and
Assistant Secretary
John Hancock Advisers, Inc.
DRAFT: 7/22/97
HADL
Counsellors at Law
60 State Street, Boston, Massachusetts 02109
617-526-6000 o fax 617-526-5000
December 5, 1997
Board of Trustees
John Hancock Investment Trust II, on
behalf of
John Hancock Disciplined Growth Fund
101 Huntington Avenue
Boston, Massachusetts 02199
Board of Trustees
John Hancock Investment Trust III, on
behalf of
John Hancock Growth Fund
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Members of the Boards of Trustees:
You have requested our opinion regarding the federal income tax
consequences described below of the acquisition by John Hancock Growth Fund
("Acquiring Fund"), a series of John Hancock Investment Trust III ("Trust III"),
of all of the assets of John Hancock Disciplined Growth Fund ("Acquired Fund"),
a series of John Hancock Investment Trust II ("Trust II"), 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
Washington, DC Boston, MA London, UK*
HALE AND DORR LLP INCLUDES PROFESSIONAL CORPORATIONS
*BROBECK HALE AND DORR INTERNATIONAL (AN INDEPENDENT JOINT VENTURE LAW FIRM)
<PAGE>
termination of Acquired Fund (the foregoing together constituting the
"reorganization" or the "transaction").
In rendering this opinion, we have examined and relied upon the facts
stated and representations made in (i) the combined prospectus for Acquiring
Fund, Acquired Fund, and certain other John Hancock mutual funds, dated March 1,
1997, (ii) the statement of additional information for Acquiring Fund, dated
March 1, 1997, (iii) the statement of additional information for Acquired Fund
and another John Hancock mutual fund, dated March 1, 1997, (iv) 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 ____________, 1997, (v) the proxy statement and prospectus relating to
the transaction dated September 22, 1997 (the "Proxy Statement"), (vi) the
Agreement and Plan of Reorganization, made September 22, 1997, between Acquiring
Fund and Acquired Fund (the "Agreement"), (vii) the representation letters on
behalf of Acquiring Fund and Acquired Fund referred to below and (viii) such
other documents as we deemed appropriate.
In our examination of documents, we have assumed the authenticity of
original documents, the accuracy of copies, the genuineness of signatures, and
the legal capacity of signatories. We have assumed that all 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 and that the transaction
will be consummated pursuant to the terms and conditions set forth in the
Agreement without the waiver or modification of any such terms and conditions.
Furthermore, we have assumed that all representations contained in the
Agreement, as well as those representations contained in the representation
letters referred to below are, on the date hereof, true and complete in all
material respects, and that any representation made in any of the documents
referred to herein "to the best of the knowledge and belief" (or similar
qualification) of any person or party is correct without such qualification. We
have not attempted to verify independently such representations, but in the
course of our representation, nothing has come to our attention that would cause
us to question the accuracy thereof.
The conclusions expressed herein represent our judgment regarding the
proper treatment of certain aspects of the transaction affecting 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
WASHINGTON, DC BOSTON, MA MANCHESTER, NH
HALE AND DORR IS A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
<PAGE>
Boards of Trustees
John Hancock Investment Trust II
John Hancock Investment Trust III
December 5, 1997
Page 3
opinion represents our best judgment regarding how a court would decide if
presented with the issues addressed herein 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.
This opinion addresses only the specific United States federal income tax
consequences of the transaction set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, or
other tax consequences that may result from the transaction or any other
transaction.
FACTS
We understand the facts relating to the transaction to be as described
hereinafter.
Acquiring Fund is a series of Trust III, a business trust established under
the laws of The Commonwealth of Massachusetts in 1984 and formerly known as
Freedom Investment Trust II. Trust III is registered as an open-end investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
Acquiring Fund became a series of Trust III on July 1, 1996 in a transaction
that qualified as a reorganization described in Section 368(a)(1)(F) of the
Code. Acquiring Fund and its predecessors have been operating as an investment
company since the inception of business in 1968.
The investment objective of Acquiring Fund is to seek long-term capital
appreciation. Acquiring Fund seeks to achieve its investment objective by
investing principally in common stocks of companies believed to offer
outstanding growth potential over both the intermediate and long term. Acquiring
Fund may also invest in preferred stocks, warrants, convertible debt securities
and certain other investments described in its prospectus or statement of
additional information.
Acquired Fund is a series of Trust II, a business trust established under
the laws of The Commonwealth of Massachusetts in 1984. Trust II is registered as
<PAGE>
Boards of Trustees
John Hancock Investment Trust II
John Hancock Investment Trust III
December 5, 1997
Page 4
an open-end investment company under the 1940 Act. Acquired Fund commenced
operations in 1987.
The investment objective of Acquired Fund is to seek long-term growth of
capital primarily from a portfolio of common stocks and other equity
investments. Moderate income is a secondary objective. Acquired Fund seeks to
achieve its investment objective by investing at least 65% of its assets in
equity securities, including common stock, preferred stock, warrants and debt
securities convertible into common stock, of established, growing companies that
have demonstrated superior earnings growth and stability. Acquired Fund may also
invest in certain other investments described in its prospectus or statement of
additional information.
The steps comprising the reorganization, as set forth in the Agreement, are
as follows:
(i) Acquired Fund will transfer to Acquiring Fund all of its assets
(consisting, without limitation, of portfolio securities and instruments,
dividend and interest receivables, cash and other assets). In exchange for the
assets transferred to it, Acquiring Fund will (A) assume all of the liabilities
of Acquired Fund (comprising all of its known and unknown liabilities and
referred to hereinafter as the "Acquired Fund Liabilities") and (B) issue
Acquiring Fund Shares to Acquired Fund that have an aggregate net asset value
equal to the value of the assets transferred to Acquiring Fund by Acquired Fund,
less the value of the Acquired Fund Liabilities assumed by Acquiring Fund.
(ii) Promptly after the transfer of its assets to Acquiring Fund, Acquired
Fund will distribute in liquidation the Acquiring Fund Shares it receives in the
exchange to Acquired Fund shareholders pro rata in exchange for their surrender
of their shares of beneficial interest of Acquired Fund ("Acquired Fund
Shares"). In these exchanges, holders of Acquired Fund Shares designated as
Class A ("Class A Acquired Fund Shares") will receive Acquiring Fund Shares
designated as Class A ("Class A Acquiring Fund Shares"), and holders of Acquired
Fund Shares designated as Class B ("Class B Acquired Fund Shares") will receive
Acquiring Fund Shares designated as Class B ("Class B Acquiring Fund Shares").
<PAGE>
Boards of Trustees
John Hancock Investment Trust II
John Hancock Investment Trust III
December 5, 1997
Page 5
(iii) After such exchanges, liquidation and distribution, the existence of
Acquired Fund will be promptly terminated in accordance with Massachusetts law.
The Agreement and the transactions contemplated thereby were approved by
the Board of Trustees of Trust III, on behalf of Acquiring Fund, at a meeting
held on September 9, 1997. Acquiring Fund shareholders are not required and were
not asked to approve the transaction. The Agreement and the transactions
contemplated thereby were approved by the Board of Trustees of Trust II, on
behalf of Acquired Fund, at a meeting held on September 9, 1997, subject to the
approval of Acquired Fund shareholders. Acquired Fund shareholders approved the
transaction at a meeting held on November 12, 1997.
Massachusetts law does not provide dissenters' rights for Acquired Fund
shareholders in the transaction. Additionally, it is the position of the
Division of Investment Management of the SEC that appraisal rights, in contexts
such as the reorganization, are inconsistent with Rule 22c-1 under the 1940 Act
and are therefore preempted and invalidated by such rule. Consequently, Acquired
Fund shareholders will not have dissenters' or appraisal rights in the
transaction.
Our opinions set forth below are subject to the following factual
assumptions being true and correct (including statements relating to future
actions and facts represented to be to the best knowledge of management, whether
or not known). Authorized representatives of Acquiring Fund and Acquired Fund
have represented to us by letters of even date herewith that the following
assumptions are true and correct:
(a) Acquiring Fund has no plan or intention to redeem or otherwise
reacquire any of the Acquiring Fund Shares received by shareholders of Acquired
Fund in the transaction except in the ordinary course of its business 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
<PAGE>
Boards of Trustees
John Hancock Investment Trust II
John Hancock Investment Trust III
December 5, 1997
Page 6
Fund, which are Acquired Fund's historic business assets, i.e., assets not
acquired as part of or in contemplation of the transaction, in the ordinary
course of a business.
(c) Acquiring Fund has no plan or intention to sell or otherwise dispose
of any assets of Acquired Fund acquired in the transaction, except for
dispositions made in the ordinary course of its business (i.e., dispositions
resulting from 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
taxable year ending on the closing date of the transaction.
(h) Acquiring Fund or its predecessor has elected to be treated as a
regulated investment company under Subchapter M of the Code. Each of Acquiring
Fund and its predecessors has qualified as a regulated investment company for
each taxable year since inception, and Acquiring Fund 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.
<PAGE>
Boards of Trustees
John Hancock Investment Trust II
John Hancock Investment Trust III
December 5, 1997
Page 7
(j) Acquiring Fund does not own and neither it nor any of its predecessors
has ever owned, directly or indirectly, any shares of Acquired Fund.
(k) Acquiring Fund will not pay cash in lieu of fractional shares in
connection with the transaction.
(l) As of the date of the transaction, the fair market value of the
Acquiring Fund Shares issued to Acquired Fund in exchange for the assets of
Acquired Fund is approximately equal to the fair market value of the assets of
Acquired Fund received by Acquiring Fund, minus the value of the Acquired Fund
Liabilities assumed by Acquiring Fund.
(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, including the costs of accounting, legal, transfer agency,
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.
<PAGE>
Boards of Trustees
John Hancock Investment Trust II
John Hancock Investment Trust III
December 5, 1997
Page 8
(p) There is no plan or intention on the part of any shareholder of
Acquired Fund that owns beneficially 5% or more of the Acquired Fund Shares and,
to the best knowledge of management of Acquired Fund, there is no plan or
intention on the part of the remaining shareholders of Acquired Fund to sell,
redeem, exchange or otherwise dispose of a number of the Acquiring Fund Shares
received in the transaction that would reduce the aggregate ownership of the
Acquiring Fund Shares by former Acquired Fund shareholders to a number of shares
having a value, as of the date of the transaction, of less than fifty percent
(50%) of the value of all of the formerly outstanding Acquired Fund Shares as of
the same date. Shares of Acquired Fund and Acquiring Fund held by Acquired Fund
shareholders and sold, redeemed, exchanged or otherwise disposed of prior or
subsequent to the transaction as part of the plan of reorganization are taken
into account for purposes of this representation.
(q) Acquired Fund assets transferred to Acquiring Fund comprise at least
ninety percent (90%) of the fair market value of the net assets and at least
seventy percent (70%) of the fair market value of the gross assets held by
Acquired Fund immediately prior to the transaction. For purposes of this
representation, amounts used by Acquired Fund to pay its outstanding
liabilities, including reorganization expenses, and all redemptions and
distributions (except for redemptions in the ordinary course of business upon
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
<PAGE>
Boards of Trustees
John Hancock Investment Trust II
John Hancock Investment Trust III
December 5, 1997
Page 9
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, we are of the opinion that
(a) The acquisition by Acquiring Fund of all of the assets of Acquired
Fund solely in exchange for the issuance of Acquiring Fund Shares to Acquired
Fund and the assumption of all of the Acquired Fund Liabilities by Acquiring
Fund, followed by the distribution by Acquired Fund, in liquidation of Acquired
Fund, of Acquiring Fund Shares to Acquired Fund shareholders in exchange for
their Acquired Fund Shares and the termination of Acquired Fund, will constitute
a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code.
Acquiring Fund and Acquired Fund will each be "a party to a reorganization"
within the meaning of Section 368(b) of the Code.
(b) No gain or loss will be recognized by Acquired Fund upon (i) the
transfer of all of its assets to Acquiring Fund solely in exchange for the
issuance of Acquiring Fund Shares to Acquired Fund and the assumption of all of
the Acquired Fund Liabilities by Acquiring Fund and (ii) the distribution by
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 those assets in the hands of
Acquired Fund immediately prior to the transfer (Section 362(b) of the Code).
<PAGE>
Boards of Trustees
John Hancock Investment Trust II
John Hancock Investment Trust III
December 5, 1997
Page 10
(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)(1) 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
that 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. This opinion may not be
relied upon except with respect to the consequences specifically discussed
herein nor may it be relied upon by persons or entities to whom it is not
addressed other than with our prior written consent.
Very truly yours,
Hale and Dorr LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference into the Proxy Statement
and Prospectus (the Proxy/Prospectus) constituting part of this Registration
Statement on Form N-14 (the Registration Statement) of John Hancock Investment
Trust III, of our report dated December 12, 1996 on the financial statements
and financial highlights included in the October 31, 1996 Annual Report to
Shareholders of John Hancock Disciplined Growth Fund.
We consent to the reference to our Firm under the heading "Experts" in the
Proxy/Prospectus and to the references to our Firm under the headings
"Financial Highlights" in the Prospectus for the John Hancock Disciplined
Growth Fund, dated March 1, 1997, and "Independent Auditors" in the Statement
of Additional Information for the John Hancock Disciplined Growth Fund, dated
March 1, 1997, which are also incorporated by reference into the
Proxy/Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 8, 1997
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Combined Prospectus/Proxy Statement in the Registration Statement on Form N-14,
dated August 14, 1997, of John Hancock Disciplined Growth Fund (a series of John
Hancock Investment Trust III).
We also consent to the reference to our firm under the caption "Financial
Highlights" in the John Hancock Disciplined Growth Fund Prospectus with respect
to the John Hancock Growth Fund, dated March 1, 1997, and to the reference to
our firm under the caption "Independent Auditors" in the John Hancock Growth
Fund Class A and Class B Statement of Additional Information dated March 1,
1997, and to the use of our report for the year ended October 31, 1996, dated
December 10, 1996 with respect to the financial statements and financial
highlights of the John Hancock Growth Fund included in the Statement of
Additional Information in this Registration Statement on Form N-14, dated August
14, 1997.
/s/ Ernst & Young LLP
Ernst & Young LLP
Boston, Massachusetts
August 8, 1997
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 Offices)
(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 ___.
