FILE NO. 33-4559
FILE NO. 811-4630
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
---------
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 36 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 37 (X)
---------
JOHN HANCOCK INVESTMENT TRUST III
(Exact Name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199-7603
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, (617) 375-1700
---------
SUSAN S. NEWTON
Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and Address of Agent for Service)
---------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
( ) on (date) pursuant to paragraph (b) of Rule 485
( ) 60 days after filing pursuant to paragraph (a) of Rule 485
(x) on March 1, 1999 pursuant to paragraph (a) of Rule 485
If appropriate, check the following box:
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
<PAGE>
JOHN HANCOCK
International/
Global Funds
[LOGO] Prospectus
March 1, 1999
- --------------------------------------------------------------------------------
As with all mutual funds, the Securities and Exchange Commission has not judged
whether these funds are good investments or whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
Growth
European Equity Fund
Global Fund
Global Health Sciences Fund
Global Technology Fund
International Fund
Pacific Basin Equities Fund
Income
Short-Term Strategic Income Fund
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
Contents
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
A fund-by-fund summary [Clip Art] Growth
of goals, strategies, risks,
performance and expenses. European Equity Fund 4
Global Fund 6
Global Health Sciences Fund 8
Global Technology Fund 10
International Fund 12
Pacific Basin Equities Fund 14
[Clip Art] Income
Short-Term Strategic Income Fund 16
Your account
Policies and instructions for
opening, maintaining and Choosing a share class 18
closing an account in any
international/global fund. How sales charges are calculated 18
Sales charge reductions and waivers 19
Opening an account 20
Buying shares 21
Selling shares 22
Transaction policies 24
Dividends and account policies 24
Additional investor services 25
Fund details
Further information on the
international/global funds. Business structure 26
Financial highlights 27
For more information back cover
</TABLE>
<PAGE>
Overview
- --------------------------------------------------------------------------------
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] Main risks The major risk factors associated with the fund.
[Clip Art] Past performance The fund's total return, measured year-by-year and
over time.
[Clip Art] Your expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
JOHN HANCOCK INTERNATIONAL/GLOBAL FUNDS
These funds invest in foreign and U.S. securities. Most of the funds invest
primarily in stocks and seek long-term growth of capital. One fund invests
primarily in bonds and seeks current income. Each fund has its own strategy and
its own risk profile.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o are seeking to diversify a portfolio of domestic investments
o are seeking access to markets that can be less accessible to individual
investors
o are seeking funds for the growth or income portion of an asset allocation
portfolio
o are investing for goals that are many years in the future
International/global funds may NOT be appropriate if you:
o are investing with a shorter time horizon in mind
o are uncomfortable with an investment whose value may vary substantially
o want to limit your exposure to foreign securities
RISKS OF MUTUAL FUNDS
Mutual funds are not bank deposits and are not insured or guaranteed by the FDIC
or any other government agency. Because you could lose money by investing in
these funds, be sure to read all risk disclosure carefully before investing.
THE MANAGEMENT FIRM
All John Hancock international/global funds are managed by John Hancock
Advisers, Inc. Founded in 1968, John Hancock Advisers is a wholly owned
subsidiary of John Hancock Mutual Life Insurance Company and manages more than
$30 billion in assets.
3
<PAGE>
European Equity Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital. To pursue this goal, the
fund normally invests at least 80% of assets in stocks of European companies,
most of which have large market capitalizations. These companies derive more
than half of their revenues from European operations, are organized under
European law or are traded principally on European stock exchanges. While the
fund invests most heavily in developed economies, it is permitted to invest in
securities of European emerging market companies.
In managing the portfolio, the managers focus primarily on individual stock
selection rather than country allocation. A team of investment analysts
regularly screens European companies, such as those included in the MSCI Europe
Index, identifying those that appear to have strong leadership and potential for
sustained earnings growth. The analysts track these companies and typically
establish target buy and sell prices for each using a quantitative investment
model. The fund generally invests in 90 to 110 companies based on further
fundamental financial analysis and on-site visits. The managers use country and
sector allocation guidelines to reduce concentration risk.
The fund may use derivatives (investments whose value is based on other
securities or indices), especially to manage cash flows and currency exposure.
It may also invest up to 20% of assets in investment-grade debt securities
issued by European or U.S. companies and governments.
In abnormal market conditions, the fund may temporarily invest more than 20% of
assets in investment-grade short-term securities. In these cases, the fund might
not achieve its goal.
================================================================================
SUBADVISER
Indocam International Investment Services
- -------------------------------------------
Paris-based team responsible
for day-to-day investment
management
Supervised by the adviser
PAST PERFORMANCE
[Clip Art] The table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks and potential rewards. The average annual figures reflect sales
charges; the index figures do not, and would be lower if they did. All figures
assume dividend reinvestment. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index
- --------------------------------------------------------------------------------
Life of fund X.XX% -- -- X.XX%
Index: Morgan Stanley Capital International (MSCI) Europe Index, an unmanaged
index used to measure the performance of securities listed on European stock
exchanges.
(1) Began operations on March 1, 1999.
4
<PAGE>
MAIN RISKS
[Clip Art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements. Because the fund concentrates on
a single region of the world, its performance may be more volatile than that of
a fund that invests globally.
Foreign investments are more risky than domestic investments. Investments in
foreign securities may be affected by fluctuations in currency exchange rates,
incomplete or inaccurate financial information on companies, social upheavals
and political actions ranging from tax code changes to governmental collapse.
These risks are more significant in emerging markets.
The fund's management strategy will influence performance significantly.
European or large-capitalization stocks as a group could fall out of favor with
the market, causing the fund to underperform. Similarly, if the managers' stock
selection strategy doesn't perform as expected, the fund could underperform its
peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Emerging market and other higher-risk securities can be hard to value or to
sell at a fair price.
o Certain derivatives could produce disproportionate gains or losses.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee X.XX% X.XX% X.XX%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses X.XX% X.XX% X.XX%
Total fund operating expenses X.XX% X.XX% X.XX%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ----------------------------------------
Ticker JHEAX
CUSIP 410233886
Newspaper --
SEC number 811-4932
Class B
- ----------------------------------------
Ticker JHEBX
CUSIP 410233878
Newspaper --
SEC number 811-4932
Class C
- ----------------------------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-4932
5
<PAGE>
Global Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital. To pursue this goal, the
fund invests primarily in common stocks of foreign and U.S. companies. The fund
does not maintain a fixed allocation of assets, either with respect to
securities type or to geography.
In managing the portfolio, the managers concentrate on country allocation and
securities selection, while also seeking to diversify the fund across sectors.
The managers base the fund's country allocation on a quantitative model as well
as analysis of political trends and macroeconomic factors such as projected
currency exchange rates.
The investment analysis team is organized by sector and regularly screens large,
well-known companies, such as those listed in the MSCI All Country World Index.
The team then uses fundamental financial analysis to identify companies that
appear most promising in terms of stable growth, reasonable valuations and
management strength. The team conducts on-site visits and typically establishes
target buy and sell prices based on the team's valuation estimates.
Although the fund invests primarily in common stocks, it may invest in virtually
any type of equity or debt security, foreign or domestic.
The fund may use certain derivatives (investments whose value is based on
indices or other securities).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these cases, the fund might
not achieve its goal.
================================================================================
SUBADVISER
John Hancock Advisers
International Limited
- ---------------------------------------
London-based affiliate of
adviser
Founded in 1986
PORTFOLIO MANAGERS
Miren Etcheverry
- ---------------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began career in 1977
Gerardo J. Espinoza
- ---------------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began career in 1979
John L.F. Wills
- ---------------------------------------
Senior vice president of adviser
Managing director of subadviser
Joined team in 1994
Joined adviser in 1987
Began career in 1969
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following information was represented by a bar graph in the printed
materials.]
- --------------------------------------------------------------------------------
Class B year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
33.00% -19.64% 23.14% -0.27% 33.85% -5.44% 9.86% 11.85% 6.58%
Best quarter: up x.xx%, -- quarter 19XX
Worst quarter: down x.xx%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index
- --------------------------------------------------------------------------------
1 year X.XX% X.XX% -- X.XX%
5 years -- X.XX% -- X.XX%
10 years -- -- -- X.XX%
Index: Morgan Stanley Capital International (MSCI) All Country World Free Index,
an unmanaged index used to measure the performance of both developed and
emerging non-U.S. stock markets.
(1) Began operations on March 1, 1999.
6
<PAGE>
MAIN RISKS
[Clip Art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements.
Foreign investments are more risky than domestic investments. Investments in
foreign securities may be affected by fluctuations in currency exchange rates,
incomplete or inaccurate financial information on companies, social upheavals
and political actions ranging from tax code changes to governmental collapse.
These risks are more significant in emerging markets.
The fund's management strategy will influence performance significantly. If the
fund invests in countries or regions that experience economic downturns,
performance could suffer. Similarly, if certain investments or industries don't
perform as expected, or if the managers' stock selection strategy doesn't
perform as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o In a down market, emerging market and other higher-risk securities could
become harder to value or to sell at a fair price.
o Certain derivatives could produce disproportionate gains or losses.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee x.xx% x.xx% x.xx%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses x.xx% x.xx% x.xx%
Total fund operating expenses x.xx% x.xx% x.xx%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------------------
Ticker JHGAX
CUSIP 409906104
Newspaper GlobA
SEC number 811-4630
Class B
- ---------------------------------------
Ticker FGLOX
CUSIP 409906203
Newspaper GlobB
SEC number 811-4630
Class C
- ---------------------------------------
Ticker --
CUSIP
Newspaper --
SEC number 811-4630
7
<PAGE>
Global Health Sciences Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital. To pursue this goal, the
fund normally invests at least 65% of assets in U.S. and foreign stocks of
health care companies. These companies derive more than half of their revenues
from health care-related activities or commit more than half of their assets to
these activities. Because the fund is non-diversified, it may invest more than
5% of assets in securities of a single issuer.
In managing the portfolio, the manager studies macroeconomic trends to allocate
assets among the following major categories:
o pharmaceuticals and biotechnology, including drug delivery systems
o medical devices, including orthopedic, cardiac and ophthalmic devices as well
as analytical equipment
o health-care services, including retail drug stores, nursing homes and HMOs
The manager also uses broad economic analysis to identify promising industries
within these categories. Historically, companies that meet these criteria have
generally been U.S.-based companies.
The management team uses fundamental financial analysis to identify individual
companies of any size that appear most attractive in terms of earnings
stability, growth potential and valuation. The team generally assesses the
senior management of companies through interviews and company visits. An
independent advisory board composed of scientific and medical experts provides
advice and consultation on health care developments.
The fund may use certain derivatives (investments whose value is based on
indices or other securities).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these cases, the fund might
not achieve its goal.
================================================================================
PORTFOLIO MANAGER
Linda I. Miller
- ---------------------------------------
Vice president of adviser
Joined team in 1995
Joined adviser in 1995
Began career in 1980
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following information was represented by a bar graph in the printed
materials.]
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
18.36% 1.20% 8.85% 39.88% 6.50% 29.73%
Best quarter: up X.XX%, -- quarter 19XX
Worst quarter: down X.XX%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index
- --------------------------------------------------------------------------------
1 year % % -- %
5 years % % -- %
Life of fund % % -- %
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 widely
traded common stocks.
(1) Began operations on March 1, 1999.
8
<PAGE>
MAIN RISKS
[Clip Art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements. Another major factor in this
fund's performance is the economic condition of the health care sector. The
value of your investment may fluctuate more widely than it would in a fund that
is diversified across sectors.
The fund's management strategy will also influence fund performance
significantly. If the fund invests in countries or regions that experience
economic downturns, performance could suffer. Similarly, if the manager's asset
allocation and stock selection strategies don't perform as expected, the fund
could underperform its peers or lose money.
Foreign investments are more risky than domestic investments. Investments in
foreign securities may be affected by fluctuations in currency exchange rates,
incomplete or inaccurate financial information on companies, social upheavals
and political actions ranging from tax code changes to governmental collapse.
These risks are more significant in emerging markets.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o If the fund invests heavily in a single issuer, its performance could suffer
significantly from adverse events affecting that issuer.
o Emerging market and other higher-risk securities can be hard to value or to
sell at a fair price.
o Certain derivatives could produce disproportionate gains or losses.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee x.xx% x.xx% x.xx%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses x.xx% x.xx% x.xx%
Total fund operating expenses x.xx% x.xx% x.xx%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
FUND CODES
Class A
- ---------------------------------------
Ticker JHGRX
CUSIP 410233308
Newspaper GIHSciA
SEC number 811-4932
Class B
- ---------------------------------------
Ticker JHRBX
CUSIP 410233704
Newspaper GIHSciB
SEC number 811-4932
Class C
- ---------------------------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-4932
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
9
<PAGE>
Global Technology Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital with income as a secondary
objective. To pursue this goal, the fund invests primarily in equity securities
of technology companies. This designation includes companies that rely
extensively on technology in their product development or operations.
In managing the portfolio, the managers focus primarily on individual stock
selection rather than country allocation. The managers seek out companies of any
size whose stocks appear to be trading below their true value, as determined by
fundamental financial analysis of their business models and balance sheets as
well as interviews with senior management. The fund particularly favors
companies that are undergoing a business change that appears to signal
accelerated growth or higher earnings. Historically, companies that meet these
criteria have generally been U.S.-based multinational companies.
The fund may invest up to 10% of assets in debt securities of any maturity,
including bonds rated as low as CC/Ca and their unrated equivalents. (Bonds
rated below BBB/Baa are considered junk bonds.) It may also invest in certain
higher-risk securities, including securities that have not been offered to the
public, called restricted securities.
The fund may use certain derivatives (investments whose value is based on
indices or other securities).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these cases, the fund might
not achieve its goal.
================================================================================
SUBADVISER
American Fund Advisors, Inc.
- ---------------------------------------
Responsible for day-to-day
investment management
Founded in 1978
Supervised by the adviser
PORTFOLIO MANAGERS
Barry J. Gordon
- ---------------------------------------
President of subadviser
Joined management team
in 1983
Marc H. Klee, CFA
- ---------------------------------------
Senior vice president of
subadviser
Joined management team
in 1983
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with broad-based market
indices for reference). This information may help provide an indication of the
fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following information was represented by a bar graph in the printed
materials.]
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
16.61% -18.46% 33.47% 5.70% 32.06% 9.61% 46.53% 12.52% 6.68%
Best quarter: up x.xx%, -- quarter 19XX
Worst quarter: down x.xx%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index
1 year x.xx% x.xx% -- x.xx%
5 years x.xx% x.xx% -- x.xx%
10 years x.xx% x.xx% -- x.xx%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 widely
traded common stocks.
(1) Began operations on March 1, 1999.
10
<PAGE>
MAIN RISKS
[Clip Art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements. Another major factor in this
fund's performance is the economic condition of the technology sector. The value
of your investment may fluctuate more widely than it would in a fund that is
diversified across sectors.
The fund's management strategy will also influence performance significantly. If
the fund invests in countries or regions that experience economic downturns,
performance could suffer. Similarly, if the managers' stock selection strategy
doesn't perform as expected, the fund could underperform its peers or lose
money.
Foreign investments are more risky than domestic investments. Investments in
foreign securities may be affected by fluctuations in currency exchange rates,
incomplete or inaccurate financial information on companies, social upheavals
and political actions ranging from tax code changes to governmental collapse.
These risks are more significant in emerging markets.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Emerging market and other higher-risk securities can be hard to value or to
sell at a fair price.
o Certain derivatives could produce disproportionate gains or losses.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. Junk bond prices
can fall on bad news about an industry or a company.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee x.xx% x.xx% x.xx%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses x.xx% x.xx% x.xx%
Total fund operating expenses x.xx% x.xx% x.xx%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------------------
Ticker NTTFX
CUSIP 478032303
Newspaper GITechA
SEC number 811-3392
Class B
- ---------------------------------------
Ticker FGTBX
CUSIP 478032402
Newspaper GlTechB
SEC number 811-3392
Class C
- ---------------------------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-3392
11
<PAGE>
International Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital. To pursue this goal, the
fund normally invests at least 65% of assets in common stocks of companies
outside the United States. The fund does not maintain a fixed allocation of
assets, either with respect to securities type or geography.
In managing the portfolio, the managers concentrate on country allocation and
securities selection, while also seeking to diversify the fund across sectors.
The managers base the fund's country allocation on a quantitative model as well
as analysis of political trends and macroeconomic factors such as projected
currency exchange rates.
The investment analysis team is organized by sector and regularly screens large
companies, such as those listed in the MSCI All Country World ex-US Index (an
unmanaged global index that excludes U.S. companies). The team then uses
fundamental financial analysis to identify companies that appear most promising
in terms of stable growth, reasonable valuations and management strength. The
investment team conducts on-site visits and typically establishes target buy and
sell prices based on the team's valuation estimates.
Although the fund invests primarily in common stocks, it may invest in virtually
any type of equity or debt security, foreign or domestic. The fund may use
certain derivatives (investments whose value is based on indices or other
securities).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these cases, the fund might
not achieve its goal.
================================================================================
SUBADVISER
John Hancock Advisers
International Limited
- ---------------------------------------
London-based affiliate of adviser
Founded in 1986
PORTFOLIO MANAGERS
Miren Etcheverry
- ---------------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began career in 1977
Gerardo J. Espinoza
- ---------------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began career in 1979
John L.F. Wills
- ---------------------------------------
Senior vice president of adviser
Managing director of subadviser
Joined team in 1994
Joined adviser in 1987
Began career in 1969
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following information was represented by a bar graph in the printed
materials.]
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998
-6.61% 5.34% 11.63% -7.73%
Best quarter: up x.xx%, -- quarter 19XX
Worst quarter: down x.xx%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index
- --------------------------------------------------------------------------------
1 year x.xx% x.xx% -- x.xx%
5 years x.xx% x.xx% -- x.xx%
Life of fund x.xx% x.xx% -- x.xx%
Index: Morgan Stanley Capital International (MSCI) All Country World-Ex U.S.
Free Index, an unmanaged index which measures the performance of a broad range
of developed and emerging stock markets and represents securities that are
traded freely on stocks exchanges around the world.
(1) Began operations on June 1, 1998.
12
<PAGE>
MAIN RISKS
[Clip Art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements.
Foreign investments are more risky than domestic investments. Investments in
foreign securities may be affected by fluctuations in currency exchange rates,
incomplete or inaccurate financial information on companies, social upheavals
and political actions ranging from tax code changes to governmental collapse.
These risks are more significant in emerging markets.
The fund's management strategy will also influence performance significantly. If
the fund invests in countries or regions that experience economic downturns,
performance could suffer. Similarly, if certain investments or industries don't
perform as expected, or if the managers' stock selection strategy doesn't
perform as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Emerging market and other higher-risk securities can be hard to value or to
sell at a fair price.
o Emerging market securities are often traded in low volumes and can be hard to
sell at the time or price desired.
o Certain derivatives could produce disproportionate gains or losses.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee x.xx% x.xx%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses x.xx% x.xx%
Total fund operating expenses x.xx% x.xx%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------------------
Ticker FINAX
CUSIP 409906500
Newspaper --
SEC number 811-4630
Class B
- ---------------------------------------
Ticker FINBX
CUSIP 409906609
Newspaper --
SEC number 811-4630
Class C
- ---------------------------------------
Ticker --
CUSIP 409906831
Newspaper --
SEC number 811-4630
13
<PAGE>
Pacific Basin Equities Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital. To pursue this goal, the
fund invests primarily in equity securities of companies in the Pacific Basin.
The balance may be invested in stocks of companies not in Pacific Basin
countries and in investment-grade debt securities of U.S., Japanese, Australian
and New Zealand issuers. The fund does not maintain a fixed allocation of
assets.
In managing the portfolio, the managers focus primarily on individual stock
selection rather than country allocation. A team of investment analysts
regularly screens medium- and large-capitalization companies in the region,
identifying those that appear to have capable management and the potential for
strong earnings growth. The analysts track these companies and typically
establish target buy and sell prices for each using a quantitative investment
model. The fund generally invests in 50 to 70 companies based on further
fundamental financial analysis and on-site visits. The managers use country and
sector allocation guidelines to reduce concentration risk.
Although the fund invests primarily in common stocks, it may invest in virtually
any type of equity security, foreign or domestic. The fund may use certain
derivatives (investments whose value is based on indices or other securities).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these cases, the fund might
not achieve its goal.
================================================================================
SUBADVISERS
Indocam Asia Advisers Ltd.
- ----------------------------------------
Hong Kong team responsible for
day-to-day investment
management
Supervised by the adviser
John Hancock Advisers
International Limited
- ----------------------------------------
London-based affiliate of adviser
Founded in 1986
PORTFOLIO MANAGERS
Ayaz Ebrahim
- ----------------------------------------
Director and chief investment
officer of Indocam
Joined team in 1997
Miren Etcheverry
- ----------------------------------------
Senior vice president of adviser
Joined team and adviser in 1996
Began career in 1977
Gerardo J. Espinoza
- ----------------------------------------
Senior vice president of adviser
Joined team and adviser in 1996
Began career in 1979
John L.F. Wills
- ----------------------------------------
Senior vice president of adviser
Managing director of JHAI
Joined team 1988
Joined subadviser in 1987
Began career in 1969
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following information was represented by a bar graph in the printed
materials.]
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
19.04% -23.01% 12.68% 2.02% 70.45% -9.28% 4.95% 3.37% -27.87%
Best quarter: up x.xx%, -- quarter 19XX
Worst quarter: down x.xx%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index
- --------------------------------------------------------------------------------
1 year x.xx% x.xx% -- x.xx%
5 years x.xx% x.xx% -- x.xx%
10 years x.xx% x.xx% -- x.xx%
Index: Morgan Stanley Capital International (MSCI) Pacific Index, an unmanaged
index that measures performance for a diverse range of global stock markets,
including Australia, Hong Kong, Japan, New Zealand and Singapore/Malaysia.
(1) Began operations on March 1, 1999.
14
<PAGE>
MAIN RISKS
[Clip Art] As with any growth fund, the value of your investment will go up and
down in response to stock market movements. Because the fund concentrates on a
single region of the world, its performance may be more volatile than that of a
fund that invests globally.
Foreign investments are more risky than domestic investments. Investments in
foreign securities may be affected by fluctuations in currency exchange rates,
incomplete or inaccurate financial information on companies, social upheavals
and political actions ranging from tax code changes to governmental collapse. In
emerging market economies, including much of the Pacific Basin, these risks are
more significant than in developed economies.
The fund's management strategy will influence performance significantly. Pacific
Basin or large-capitalization stocks as a group could fall out of favor with the
market. Similarly, if the managers' stock selection strategy doesn't perform as
expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Emerging market and other higher-risk securities can be hard to sell at the
time or price desired.
o Stocks of medium-capitalization companies tend to be more volatile than those
of large-capitalization companies.
o Certain derivatives could produce disproportionate gains or losses.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee x.xx% x.xx% x.xx%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses x.xx% x.xx% x.xx%
Total fund operating expenses x.xx% x.xx% x.xx%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------------------
Ticker JHWPX
CUSIP 410233209
Newspaper PacBasA
SEC number 811-4932
Class B
- ---------------------------------------
Ticker FPBBX
CUSIP 410233506
Newspaper PacBasB
SEC number 811-4932
Class C
- ---------------------------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-4932
15
<PAGE>
Short-Term Strategic Income Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks a high level of current income. To pursue this goal,
the fund invests primarily in the following types of securities:
o foreign government and corp-orate debt securities from developed and emerging
markets
o U.S. government and its agency
o U.S. corporate debt securities
Under normal circumstances, the fund invests assets in all three of these
sectors, but may invest up to 100% of assets in any one sector. The fund
maintains an average portfolio maturity of three years or less.
In managing the portfolio, the managers allocate assets among the three major
sectors based on analysis of macroeconomic factors such as projected
international interest rate movements, industry cycles and political trends.
Within each sector, the managers look for securities that are appropriate for
the overall portfolio in terms of yield, credit quality, structure and industry
distribution. In selecting government securities, relative yields and
risk/reward ratios are the primary considerations. In selecting corporate bonds,
the managers look for market leaders with strong business models and balance
sheets.
The fund maintains an average portfolio quality rating of A, which is an
investment-grade rating. However, the fund may invest up to 67% of assets in
securities rated as low as B and their unrated equivalents. Bonds rated lower
than BBB/Baa are considered junk bonds.
Because the fund is non-diversified, it may invest more than 5% of assets in
securities of a single issuer.
The fund may use certain derivatives (investments whose value is based on
indices or other securities).
================================================================================
PORTFOLIO MANAGERS
Frederick L. Cavanaugh, Jr.
- ---------------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1986
Began career in 1975
Arthur N. Calavritinos, CFA
- ---------------------------------------
Vice president of adviser
Joined team in 1998
Joined adviser in 1988 Began
career in 1986
Roger C. Hamilton
- ---------------------------------------
Vice president of adviser
Joined team in 1998
Joined adviser in 1994
Began career in 1980
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following information was represented by a bar graph in the printed
materials.]
- --------------------------------------------------------------------------------
Class B year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998
2.57% 5.07% 1.57% 9.25% 8.09% 4.60%
Best quarter: up x.xx%, -- quarter 19XX
Worst quarter: down x.xx%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index
- --------------------------------------------------------------------------------
1 year x.xx% x.xx% -- x.xx%
5 years x.xx% x.xx% -- x.xx%
Life of fund x.xx% x.xx% -- x.xx%
Index: Salomon Brothers World Government Bond Index, an unmanaged index that is
composed of various non-U.S.-currency denominated bonds, usually with an average
maturity of three years or less.
(1) Began operations on March 1, 1999.
16
<PAGE>
MAIN RISKS
[Clip Art] As with most bond funds, a major factor in this fund's performance is
the behavior of interest rates. When interest rates rise, bond prices typically
fall. Any bonds held by the fund could be downgraded in credit rating or go into
default. Junk bonds can fall on bad news about a country, an industry or a
company.
Foreign investments are more risky than domestic investments. Investments in
foreign securities may be affected by fluctuations in currency exchange rates,
incomplete or inaccurate financial information on companies, social upheavals
and political actions ranging from tax code changes to governmental collapse.
These risks are more significant in emerging markets.
The fund's management strategy will also influence performance significantly. If
the fund invests in countries or regions that experience economic downturns,
performance could suffer. Similarly, if the managers' country or sector
allocations and securities selection strategies don't perform as expected, the
fund could underperform its peers or lose money.
To the extent that the fund invests in securities with additional risks, those
risks could reduce performance:
o If the fund invests heavily in a single issuer, its performance could suffer
significantly from adverse events affecting that issuer.
o Emerging market and other higher-risk securities can be hard to value or to
sell at a fair price.
o Certain derivatives could produce disproportionate gains or losses.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases
as a % of purchase price 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00% none
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee x.xx% x.xx% x.xx%
Distribution and service (12b-1) fees x.xx% x.xx% x.xx%
Other expenses x.xx% x.xx% x.xx%
Total fund operating expenses x.xx% x.xx% x.xx%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------------------
Ticker JHSAX
CUSIP 409906856
Newspaper STStratA
SEC number 811-4630
Class B
- ---------------------------------------
Ticker FRSWX
CUSIP 409906708
Newspaper STStratB
SEC number 811-4630
Class C
- ---------------------------------------
Ticker --
CUSIP
Newspaper --
SEC number 811-4630
17
<PAGE>
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each share class has its own cost structure. Each fund has adopted a Rule 12b-1
plan that allows it to pay fees for the sale and distribution of its shares.
Your financial representative can help you decide which share class is best for
you.
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
o Front-end sales charges, as described at right.
o Distribution and service (12b-1) fees of 0.30%.
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1.00%.
o A deferred sales charge, as described on following page.
o Automatic conversion to Class A shares after either five years (short-term
strategic) or eight years (all other funds), thus reducing future annual
expenses.
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1.00%.
o A 1.00% contingent deferred sales charge on shares sold within one year of
purchase.
o No automatic conversion to Class A shares, so annual expenses continue at the
Class C level throughout the life of your investment.
For actual past expenses of each share class, see the fund-by-fund information
earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, Class B and Class C
shareholders could end up paying more expenses over the long term than if they
had paid a sales charge.
Special Equities Fund offers Class Y shares, which have their own expense
structure and are available to financial institutions only. Call Signature
Services for more information (see back cover of this prospectus).
Investors purchasing $1 million or more of Class B and Class C shares may want
to consider the lower operating expenses of Class A shares.
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A Sales charges are as follows:
- --------------------------------------------------------------------------------
Class A sales charges - Short-Term Strategic Income
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
- --------------------------------------------------------------------------------
Up to $99,999 3.00% 3.09%
$100,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
- --------------------------------------------------------------------------------
Class A sales charges - all other funds
- --------------------------------------------------------------------------------
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 - all funds
- --------------------------------------------------------------------------------
CDSC on shares
Your investment 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.
18 YOUR ACCOUNT
<PAGE>
Class B and Class C Shares are offered at their net asset value per share,
without any initial sales charge. However, you may be charged a contingent
deferred sales charge (CDSC) on shares you sell within a certain time after you
bought them, as described in the tables below. There is no CDSC on shares
acquired through reinvestment of dividends. The CDSC is based on the original
purchase cost or the current market value of the shares being sold, whichever is
less. The CDSCs are as follows:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
CDSC on Short-Term CDSC on all
Years after Strategic Income other fund shares
purchase shares being sold being sold
- --------------------------------------------------------------------------------
1st year 3.00% 5.00%
2nd year 2.00% 4.00%
3rd year 2.00% 3.00%
4th year 1.00% 3.00%
5th year none 2.00%
6th year none 1.00%
After 6 years none none
- --------------------------------------------------------------------------------
Class C deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC
- --------------------------------------------------------------------------------
1st year 1.00%
After 1 year none
For purposes of these CDSCs, all purchases made during a calendar month are
counted as having been made on the first day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares 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. Retirement plans investing $1 million in Class
B shares may add that value to Class A purchases to calculate charges.
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, or consult the SAI (see the
back cover of this prospectus).
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 investments must
total at least $250), and individual investors may close their accounts 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 each 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
o to purchase a John Hancock Declaration annuity
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI (see the back
cover of this prospectus).
YOUR ACCOUNT 19
<PAGE>
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 selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under signed 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 from an employee benefit plan into a John
Hancock fund
o certain insurance company contract holders (one-year CDSC usually applies)
o participants in certain retirement plans with at least 100 eligible employees
(one-year CDSC applies)
To utilize: if you think you may be eligible for a sales charge waiver, contact
Signature Services or consult the SAI (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock 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: $250
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 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.
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
- --------------------------------------------------------------------------------
By check
- --------------------------------------------------------------------------------
[Clip art] o Make out a check for the o Make out a check for the
investment amount, payable to investment amount payable
"John Hancock Signature to "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
mail them to Signature Services slip is available, include
(address below). a note specifying the fund
name, your 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 below).
- --------------------------------------------------------------------------------
By exchange
- --------------------------------------------------------------------------------
[Clip art] 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
- --------------------------------------------------------------------------------
[Clip art] o Deliver your completed o Instruct your bank to wire
application to your financial the amount of your
representative, or mail investment to:
it to Signature Services. First Signature Bank &
Trust
Account # 900000260
o Obtain your account number Routing # 211475000
by calling your financial
representative or Specify the fund name, your
Signature Services. share class, your account
number and the name(s)
o Instruct your bank to wire in which the account is
the amount of your investment registered. Your bank may
to: charge a fee to wire funds.
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s)
in which the account is
registered. Your bank may charge
a fee to wire funds.
- --------------------------------------------------------------------------------
By phone
- --------------------------------------------------------------------------------
[Clip art] 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.
- ---------------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone number: 1-800-225-5291
Or contact your financial representative for
instructions and assistance.
- ---------------------------------------------
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
YOUR ACCOUNT 21
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
- --------------------------------------------------------------------------------
By letter
- --------------------------------------------------------------------------------
[Clip art] o Accounts of any type. o Write a letter of instruction
or complete a stock power
o Sales of any amount. indicating 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
- --------------------------------------------------------------------------------
[Clip art] o Most accounts. o For automated service 24 hours
a day using your touch-tone
o Sales of up to $100,000. phone, call the EASI-Line at
1-800-338-8080.
o To place your order, call your
representative or Signature
Services between 8 A.M. and
4 P.M. Eastern Time on most
business days.
- --------------------------------------------------------------------------------
By wire or electronic funds transfer (EFT)
- --------------------------------------------------------------------------------
[Clip art] o Requests by letter to o To verify that the telephone
sell any amount (accounts redemption privilege is in
of any type). place on an account, or to
request the form to add it
o Requests by phone to sell to an existing account, call
up to $100,000 (accounts Signature Services.
with telephone redemption
privileges). 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
- --------------------------------------------------------------------------------
[Clip art] o Accounts of any type. o Obtain a current prospectus for
the fund into which you are
o Sales of any amount. exchanging by calling your
financial representative or
Signature Services.
o Call your financial
representative or Signature
Services to request an exchange.
- --------------------------------------------------------------------------------
By Check
- --------------------------------------------------------------------------------
[Clip art] o Short-Term Strategic Income o Request checkwriting on your
Fund only. account application.
o Any account with checkwriting o Verify that the shares to be
privileges. sold were purchased more than
10 days earlier or were
o Sales of over $100. purchased by wire.
o Write a check for any amount
over $100.
22 YOUR ACCOUNT
<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 will need to obtain your signature guarantee from a member of the Signature
Guarantee Medallion Program. Most brokers and securities dealers are members of
this program. A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
[Clip art]
- --------------------------------------------------------------------------------
Owners of individual, joint, o Letter of instruction.
sole proprietorship, UGMA/UTMA
(custodial accounts for minors) o On the letter, the signatures and
or general 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 o Letter of instruction.
association accounts.
o Corporate resolution, certified
within the past twelve months.
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 accounts. o Letter of instruction.
o On the letter, the signature(s) of
the trustee(s).
o Provide a copy of the trust document
certified within the past 12 months.
o Signature guarantee if applicable
(see above).
- --------------------------------------------------------------------------------
Joint tenancy shareholders with o Letter of instruction signed by
rights of survivorship whose surviving tenant.
co-tenants are deceased.
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,
certified within the past 12 months.
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.
- --------------------------------------------------------------------------------
- ----------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 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>
- --------------------------------------------------------------------------------
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). The funds use market prices in
valui ng portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable.
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. 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.
- --------------------------------------------------------------------------------
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 declare dividends daily and pay them monthly.
Capital gains, if any, are distributed annually, typically after the end of a
fund's fiscal year. Most of short-term dividends are income dividends. Your
dividends begin accruing the day after payment is received by the fund and
continue through the day your shares are actually sold.
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.
24 YOUR ACCOUNT
<PAGE>
Taxability of dividends Dividends you receive from a fund, whether reinvested
or taken as cash, are generally considered taxable. Dividends from a fund's
income and short-term capital gains are taxable as ordinary income. Dividends
from a fund's long-term capital gains are taxable at a lower rate. Whether gains
are short-term or long-term depends on the fund's holding period. Some dividends
paid in January may be taxable as if they had been paid the previous December.
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.
Year 2000 compliance The adviser and the funds' service providers are taking
steps to address any year 2000-related computer problems. However, there is some
risk that these problems could disrupt the funds' operations or financial
markets generally.
- --------------------------------------------------------------------------------
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 retirement plans,
including traditional, Roth and Education IRAs, SIMPLE plans, SEPs, 401(k) plans
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.
YOUR ACCOUNT 25
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the John Hancock
international/global funds. Each fund's board of trustees oversees the fund's
business activities and retains the services of the various firms that carry out
the fund's operations.
The trustees of the European Equity, Global Health Sciences and International
funds have the power to change these funds' respective investment goals without
shareholder approval.
Management fees The management fees paid to the investment adviser by the John
Hancock international/ global funds last year are as follows:
- --------------------------------------------------------------------------------
Fund % of net assets
- --------------------------------------------------------------------------------
European Equity %
- --------------------------------------------------------------------------------
Global %
- --------------------------------------------------------------------------------
Global Health Sciences %
- --------------------------------------------------------------------------------
Global Technology %
- --------------------------------------------------------------------------------
International %
- --------------------------------------------------------------------------------
Pacific Basin Equities %
- --------------------------------------------------------------------------------
Short-Term Strategic Income %
[The following information was represented as a flow chart in the printed
material.]
-----------------
Shareholders
-----------------
Distribution and
shareholder services
-------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
-------------------------------------------------
-------------------------------------------------
Principal distributor
John Hancock Funds, Inc.
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
-------------------------------------------------
------------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
Handles shareholder services, including record-
keeping and statements, distribution of dividends
and processing of buy and sell requests.
------------------------------------------------------
Asset management
----------------------------------------------
Subadvisers
John Hancock Advisers
International Limited
32-36 Duke Street
St. James SWIY6DF
London, U.K.
American Fund Advisiors, Inc.
1415 Kellum Place
Garden City, NY 11530
Indocam Asia Advisers Limited
One Exchange Square
Hong Kong
Indocam International
Investment Services
90 Boulevard Pasteur
Paris, France 75015
Provide portfolio management
to certain funds.
----------------------------------------------
------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
------------------------------------
------------------------------------
Custodians
Investors Bank & Trust co.
State Street Bank and Trust Company
Holds the funds' assets, settle all
portfolio trades and collect most of
the valuation data required for
calculating each fund's NAV.
------------------------------------
------------------------------------
Trustees
Oversee the funds' activities.
------------------------------------
26 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
These tables detail the performance of each fund's share classes, including
total return information showing how much an investment in the fund has
increased or decreased each year.
European Equity Fund
Figures audited by ___________________________.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Class A - period ended: 10/98(1)
- ---------------------------------------------------------------------------------------------------------------
Per share operating performance
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.00
- ---------------------------------------------------------------------------------------------------------------
Net investment income(2) 0.01
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency transactions 0.70
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations 0.71
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.71
- ---------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(3)(%) 7.10(4)
- ---------------------------------------------------------------------------------------------------------------
Total adjusted investment return at net asset value(3,5)(%) 6.79(4)
- ---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 3,478
- ---------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.90(6)
- ---------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(7)(%) 3.83(6)
- ---------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 0.49(6)
- ---------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment (loss) to average net assets(7)(%) (1.44)(6)
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 4
- ---------------------------------------------------------------------------------------------------------------
Fee reduction per share(2)($) 0.03
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/98(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
- ---------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period --
- ---------------------------------------------------------------------------------------------------------------
Net investment income --
- ---------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and foreign currency transactions --
- ---------------------------------------------------------------------------------------------------------------
Total from investment operations --
- ---------------------------------------------------------------------------------------------------------------
Net asset value, end of period --
- ---------------------------------------------------------------------------------------------------------------
Total investment return at net asset value (%) --
- ---------------------------------------------------------------------------------------------------------------
Total adjusted investment return at net asset value (%) --
- ---------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) --
- ---------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) --
- ---------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets (%) --
- ---------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) --
- ---------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income to average net assets (%) --
- ---------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) --
- ---------------------------------------------------------------------------------------------------------------
Fee reduction per share ($) --
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class A shares commenced operations on March 2, 1998. Class B shares
commenced operations on June 1, 1998.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
FUND DETAILS 27
<PAGE>
Global Fund
Figures audited by ___________________________.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94 10/95 10/96 10/97 10/98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.30 $14.16 $12.67 $12.97
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(1) (0.07) (0.03) (0.02) (0.05)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 1.24 (0.13) 1.20 1.21
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.17 (0.16) 1.18 1.16
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold
and foreign currency transactions (1.31) (1.33) (0.88) (1.19)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $14.16 $12.67 $12.97 $12.94
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(2) (%) 8.64 (0.37) 9.87 9.36
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 100,973 93,597 94,746 92,127
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.98 1.87 1.88 1.81(3)
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) (0.54) (0.23) (0.19) (0.36)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 61 60 98 81
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94 10/95 10/96 10/97 10/98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.17 $13.93 $12.36 $12.54
- ----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(1) (0.15) (0.11) (0.10) (0.14)
- ----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 1.22 (0.13) 1.16 1.18
- ----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.07 (0.24) 1.06 1.04
- ----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold
and foreign currency transactions (1.31) (1.33) (0.88) (1.19)
- ----------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.31) (1.33) (0.88) (1.19)
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $13.93 $12.36 $12.54 $12.39
- ----------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(2) (%) 7.97 (1.01) 9.10 8.67
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 31,822 24,570 27,599 28,007
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.59 2.57 2.54 2.49(3)
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) (1.12) (0.89) (0.83) (1.04)
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 61 60 98 81
</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) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 per share.
28 FUND DETAILS
<PAGE>
Global Health Sciences Fund
Figures audited by __________________________.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 8/94 8/95 8/96 10/96(2) 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.38 $16.51 $21.61 $25.43 $25.11
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.32) (0.36)(3) (0.19)(3) (0.05)(3) (0.19)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 3.45 5.46 4.15 (0.27) 6.56
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.13 5.10 3.96 (0.32) 6.37
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments
sold and foreign currency transactions -- -- (0.14) -- (1.23)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.51 $21.61 $25.43 $25.11 $30.25
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(4) (%) 23.39 30.89 18.39 (1.26)(5) 26.63
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 18,643 24,394 42,405 42,618 53,122
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.55 2.56 1.80 1.92(6) 1.68
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net
assets (%) (2.01) (1.99) (0.75) (1.04)(6) (0.71)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 52 38 68 24 57
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 8/94(1) 8/95 8/96 10/96(2) 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.29 $16.46 $21.35 $24.94 $24.60
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(3) (0.17) (0.55) (0.34) (0.08) (0.37)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (0.66) 5.44 4.07 (0.26) 6.40
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations (0.83) 4.89 3.73 (0.34) 6.03
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments
sold and foreign currency transactions -- -- (0.14) -- (1.23)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $16.46 $21.35 $24.94 $24.60 $29.40
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(4) (%) (4.80)(5) 29.71 17.53 (1.36)(5) 25.76
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 1,071 6,333 36,591 37,521 53,436
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 3.34(6) 3.45 2.42 2.62(6) 2.38
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net
assets (%) (2.65)(6) (2.91) (1.33) (1.74)(6) (1.41)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 52 38 68 24 57
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class B shares commenced operations on March 7, 1994.
(2) Effective October 31, 1996, the fiscal year end changed from August 31 to
October 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
FUND DETAILS 29
<PAGE>
Global Technology Fund
Figures audited by __________________.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/93 12/94 12/95 10/96(1) 10/97 10/98
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $14.94 $17.45 $17.84 $24.51 $25.79
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.21) (0.22)(2) (0.22)(2) (0.14)(2) (0.27)(2)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 4.92 1.87 8.53 1.42 5.76
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.71 1.65 8.31 1.28 5.49
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments
and foreign currency transactions (2.20) (1.26) (1.64) -- (1.23)
- -------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.20) (1.26) (1.64) -- (1.23)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.45 $17.84 $24.51 $25.79 $30.05
- -------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(3) (%) 32.06 9.62 46.53 5.22(4) 21.90
- -------------------------------------------------------------------------------------------------------------------------------
Total adjusted investment return at net asset value(3,5) -- -- 46.41 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 41,749 52,193 155,001 166,010 184,048
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.10 2.16 1.67 1.57(6) 1.51
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(7) (%) -- -- 1.79 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net
assets (%) (1.49) (1.25) (0.89) (0.68)(6) (0.95)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) -- -- (1.01) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 86 67 70 64 104
- -------------------------------------------------------------------------------------------------------------------------------
Fee reduction per share ($) -- -- 0.02(2) -- --
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(8) 12/95 10/96(1) 10/97 10/98
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.24 $17.68 $24.08 $25.20
- -------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(2) (0.35) (0.39) (0.28) (0.45)
- -------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 2.05 8.43 1.40 5.60
- -------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.70 8.04 1.12 5.15
- -------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments
sold (1.26) (1.64) -- (1.23)
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $17.68 $24.08 $25.20 $29.12
- -------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(3) (%) 10.02 45.42 4.65(4) 21.04
- -------------------------------------------------------------------------------------------------------------------------------
Total adjusted investment return at net asset value(3,5) -- 45.30 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 9,324 35,754 50,949 65,851
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.90(6) 2.41 2.27(6) 2.21
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(7) (%) -- 2.53 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net
assets (%) (1.98)(6) (1.62) (1.38)(6) (1.65)
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) -- (1.74) -- --
- -------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 67 70 64 104
- -------------------------------------------------------------------------------------------------------------------------------
Fee reduction per share ($) -- 0.03(2) -- --
- -------------------------------------------------------------------------------------------------------------------------------
</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) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Class B shares commenced operations on January 3, 1994.
30 FUND DETAILS
<PAGE>
International Fund
Figures audited by ___________________________.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94(1) 10/95 10/96 10/97 10/98
Per share operating performance
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $8.50 $8.65 $8.14 $8.70
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.07(2) 0.04 0.06(2) (0.02)(2)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 0.08 (0.47) 0.50 (0.26)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.15 (0.43) 0.56 (0.28)
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income -- (0.03) -- (0.01)
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments
sold and foreign currency transactions -- (0.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total distributions -- (0.08) -- (0.01)
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.65 $8.14 $8.70 $8.41
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(3) (%) 1.77(4) (4.96) 6.88 (3.22)
- ------------------------------------------------------------------------------------------------------------------------------
Total adjusted investment return at net asset
value(3,5) (%) (0.52)(4) (8.12) 5.33 (4.52)
- ------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 4,426 4,215 5,098 4,965
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.50(6) 1.64 1.75 1.73(7)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(8) (%) 3.79(6) 4.80 3.30 3.03(7)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net
assets (%) 1.02(6) 0.56 0.68 (0.16)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to
average net assets(8) (%) (1.27)(6) (2.60) (0.87) (1.46)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 50 69 83 169
- ------------------------------------------------------------------------------------------------------------------------------
Fee reduction per share(2) ($) 0.16 0.25 0.14 0.12
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94(1) 10/95 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.50 $8.61 $8.05 $8.55
- ------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.02(2) (0.03) 0.00(2,9) (0.08)(2)
- ------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 0.09 (0.48) 0.50 (0.25)
- ------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.11 (0.51) 0.50 (0.33)
- ------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments
sold and foreign currency transactions -- (0.05) -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.61 $8.05 $8.55 $8.22
- ------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(3) (%) 1.29(4) (5.89) 6.21 (3.86)
- ------------------------------------------------------------------------------------------------------------------------------
Total adjusted investment return at net asset
value(3,5) (%) (1.00)(4) (9.05) 4.66 (5.16)
- ------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 3,948 3,990 8,175 8,713
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.22(6) 2.52 2.45 2.43(7)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted expenses to average net assets(8) (%) 4.51(6) 5.68 4.00 3.73(7)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net
assets (%) 0.31(6) (0.37) 0.02 (0.88)
- ------------------------------------------------------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to
average net assets(8) (%) (1.98)(6) (3.53) (1.53) (2.18)
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 50 69 83 169
- ------------------------------------------------------------------------------------------------------------------------------
Fee reduction per share(2) ($) 0.16 0.25 0.14 0.12
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FUND DETAILS 31
<PAGE>
International Fund continued
- --------------------------------------------------------------------------------
Class C - period ended: 10/98
- --------------------------------------------------------------------------------
Per share operating performance
- --------------------------------------------------------------------------------
Net asset value, beginning of period
- --------------------------------------------------------------------------------
Net investment income (loss)
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments,
foreign currency transactions and financial futures
contracts Total from investment operations
- --------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------
Dividends from net investment income
- --------------------------------------------------------------------------------
Net asset value, end of period
- --------------------------------------------------------------------------------
Total investment return at net asset value(2) (%)
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($)
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets (%)
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%)
- --------------------------------------------------------------------------------
Portfolio turnover rate (%)
- --------------------------------------------------------------------------------
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 cents per share.
(8) Unreimbursed, without fee reduction.
(9) Less than $0.01 per share.
32 FUND DETAILS
<PAGE>
Pacific Basin Equities Fund
Figures audited by __________________.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 8/94 8/95 8/96 10/96(2) 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $13.27 $15.88 $14.11 $14.74 $14.47
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.10)(3) 0.02(3,4) (0.02)(3) (0.02)(3) (0.07)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 3.12 (1.24) 0.65 (0.25) (2.66)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.02 (1.22) 0.63 (0.27) (2.73)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments
sold and foreign currency transactions (0.41) (0.55) -- -- (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.88 $14.11 $14.74 $14.47 $11.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(5) (%) 22.82 (7.65) 4.47 (1.83)(6) (19.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 50,261 37,417 41,951 38,694 21,109
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.43 2.05 1.97 2.21(7) 2.06
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net
assets (%) (0.66) 0.13(4) (0.15) (0.83)(7) (0.49)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 68 48 73 15 118
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 8/94(1) 8/95 8/96 10/96(2) 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.11 $15.84 $13.96 $14.49 $14.20
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(3) (0.09) (0.09) (0.13) (0.04) (0.18)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 0.82 (1.24) 0.66 (0.25) (2.59)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.73 (1.33) 0.53 (0.29) (2.77)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments
sold and foreign currency transactions -- (0.55) -- -- (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $15.84 $13.96 $14.49 $14.20 $11.32
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(5) (%) (4.83)(6) (8.38) 3.80 (2.00)(6) (19.67)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 9,480 14,368 32,342 30,147 17,320
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 3.00(7) 2.77 2.64 2.90(7) 2.76
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net
assets (%) (1.40)(7) (0.66) (0.86) (1.52)(7) (1.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 68 48 73 15 118
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Class B shares commenced operations on March 7, 1994.
(2) Effective October 31, 1996, the fiscal year end changed from August 31 to
October 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) May not accord to amounts shown elsewhere in the financial statements due
to the timing of sales and repurchases of fund shares in relation to
fluctuating market values of the investments of the fund.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) Annualized.
FUND DETAILS 33
<PAGE>
Short-Term Strategic Income Fund
Figures audited by ___________________________.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94 10/95 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.12 $8.47 $8.41 $8.46
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.76(1) 0.77(1) 0.65 0.61(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (0.53) (0.06) 0.05 (0.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.23 0.71 0.70 0.46
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.62) (0.61) (0.57) (0.52)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.04) -- -- (0.08)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on
investments sold (0.12) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from capital paid-in (0.10) (0.16) (0.08) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.88) (0.77) (0.65) (0.61)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.47 $8.41 $8.46 $8.31
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(2) (%) 2.64 8.75 8.60 5.55
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 13,091 16,997 49,338 64,059
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.26 1.33 1.48 1.43
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average
net assets (%) 8.71 9.13 7.59 7.22
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 150 147 77 71
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94 10/95 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.11 $8.46 $8.40 $8.45
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.70(1) 0.70(1) 0.59 0.55(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (0.53) (0.06) 0.05 (0.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.17 0.64 0.64 0.40
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.56) (0.56) (0.52) (0.47)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net investment income (0.04) -- -- (0.07)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions in excess of net realized gain on
investments sold (0.12) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from capital paid-in (0.10) (0.14) (0.07) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.82) (0.70) (0.59) (0.55)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $8.46 $8.40 $8.45 $8.30
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return at net asset value(2) (%) 1.93 7.97 7.89 4.83
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 98,390 84,601 48,137 25,908
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.99 2.07 2.12 2.13
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net
assets (%) 8.00 8.40 7.07 6.51
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 150 147 77 71
- ------------------------------------------------------------------------------------------------------------------------------------
</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.
34 FUND DETAILS
<PAGE>
<PAGE>
For more information
Two documents are available that offer further information on John Hancock
international/global funds:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature
Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA02217-1000
By phone: 1-800-225-5291
By EASI-Line: 1-800-338-8080
By TDD: 1-800-544-6713
On the Internet: www.jhancock.com/funds
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC
By phone: 1-800-SEC-0330
By mail: Public Reference Section Securities and Exchange Commission Washington,
DC 20549-6009 (duplicating fee required)
On the Internet: www.sec.gov
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts
02199-7603
John Hancock(R)
(C) 1998 John Hancock Funds, Inc.
GLIPN 3/99
<PAGE>
- --------------------------------------------------------------------------------
JOHN HANCOCK
Growth
Funds
[LOGO] Prospectus
March 1, 1999
- --------------------------------------------------------------------------------
As with all mutual funds, the Securities and Exchange Commission has not judged
whether these funds are good investments or whether the information in this
prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
Emerging Growth Fund
Financial Industries Fund
Growth Fund
Regional Bank Fund
Special Equities Fund
Special Opportunities Fund
Special Value Fund
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
Contents
- --------------------------------------------------------------------------------
A fund-by-fund summary Emerging Growth Fund 4
of goals, strategies,
risks, performance and Financial Industries Fund 6
expenses.
Growth Fund 8
Regional Bank Fund 10
Special Equities Fund 12
Special Opportunities Fund 14
Special Value Fund 16
Policies and instructions Your account
for opening, maintaining
and closing an account in Choosing a share class 18
any growth fund. How sales charges are calculated 18
Sales charge reductions and waivers 19
Opening an account 20
Buying shares 21
Selling shares 22
Transaction policies 24
Dividends and account policies 24
Additional investor services 25
Further information on the Fund details
growth funds.
Business structure 26
Financial highlights 27
For more information back cover
<PAGE>
Overview
- --------------------------------------------------------------------------------
JOHN HANCOCK GROWTH FUNDS
These funds seek long-term growth by investing primarily in common stocks. Each
fund has its own strategy and its own risk profile.
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 may go up and down in value
RISKS OF MUTUAL FUNDS
Mutual funds are not bank deposits and are not insured or guaranteed by the FDIC
or any other government agency. Because you could lose money by investing in
these funds, be sure to read all risk disclosure carefully before investing.
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 $30 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] Main risks The major risk factors associated with the fund.
[Clip Art] Past performance The fund's total return, measured year-by-year and
over time.
[Clip Art] Your expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
3
<PAGE>
Emerging Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 80% of assets in stocks of U.S. and foreign
emerging growth companies with market capitalizations of no more than $1
billion. The fund managers look 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.
In managing the portfolio, the managers emphasize diversification by sector and
company. The fund's investments by sector, or sector weightings, generally
reflect those of the Russell 2000 Growth Index. The fund normally invests in 150
to 220 companies.
In choosing individual securities, the managers use fundamental financial
analysis to identify companies that have demonstrated 20% annual growth over
three years and are projected to continue growing at a similar pace. The
managers favor companies that dominate their market niches or are poised to
become market leaders. They look for strong senior management teams and coherent
business strategies. They generally maintain personal contact with the senior
management of the companies the fund invests in.
The fund may invest up to 20% of assets in other types of companies and certain
other types of equity and debt securities. The fund may make limited use of
certain derivatives (investments whose value is based on indices or other
securities).
In abnormal market conditions, the fund may temporarily invest more than 20% of
assets in investment-grade short-term securities. In these cases, the fund might
not achieve its goal.
================================================================================
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following table was represented as a bar graph in the printed materials.]
- --------------------------------------------------------------------------------
Class B year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
28.85% -1.15% 58.82% 12.13% 11.82% -1.49% 42.13% 12.95% 14.45%
Best quarter: up X.XX%, -- quarter 19XX
Worst quarter: down X.XX%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index 1 Index 2
1 year X.XX% X.XX% -- X.XX% X.XX%
5 years X.XX% -- -- X.XX% X.XX%
10 years X.XX% -- -- X.XX% X.XX%
Index 1: Russell 2000 Index, an unmanaged, small-cap index composed of 2,000
stocks of U.S.- domiciled companies whose common stocks trade on the NYSE,
American Stock Exchange and NASDAQ.
Index 2: Russell 2000 Growth Index, an unmanaged index of those securities from
the Russell 2000 Index with a greater-than-average growth orientation.
(1) Began operations on June 1, 1998.
PORTFOLIO MANAGERS
Bernice S. Behar, CFA
- --------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1991
Began career in 1986
Laura Allen, CFA
- --------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began career in 1981
Anurag Pandit, CFA
- --------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began career in 1984
4
<PAGE>
MAIN RISKS
[Clip Art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements. Because the fund concentrates on
emerging growth companies, its performance may be more volatile than that of a
fund that invests primarily in larger companies.
Stocks of smaller emerging growth companies are more risky than stocks of larger
companies. Many of these companies are young and have a limited track record.
Because their businesses frequently rely on narrow product lines and niche
markets, they can suffer severely from isolated business setbacks.
The fund's management strategy will influence performance significantly.
Emerging growth stocks as a group could fall out of favor with the market,
causing the fund to underperform in comparison with funds that focus on other
types of stocks. Similarly, if the managers' stock selection strategy doesn't
perform as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o In a down market, small- capitalization stocks and other higher-risk
securities could become harder to value or to sell at a fair price.
o Certain derivatives could produce disproportionate gains or losses.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political upheavals.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases 5.00% none none
Maximum deferreds ales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
Other expenses X.XX% X.XX% X.XX%
Total fund operating expenses X.XX% X.XX% X.XX%
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
FUND CODES
Class A
- ------------------------
Ticker TAEMX
CUSIP 478032105
Newspaper EmgGroA
SEC number 811-3392
Class B
- ------------------------
Ticker TSEGX
CUSIP 478032204
Newspaper EmgGroB
SEC number 811-3392
Class C
- ------------------------
Ticker --
CUSIP 478032501
Newspaper --
SEC number 811-3392
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
5
<PAGE>
Financial Industries Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks capital appreciation. To pursue this goal, the fund
normally invests at least 65% of assets in U.S. and foreign financial services
companies, including banks, thrifts, finance companies, brokerage and advisory
firms, real estate-related firms and insurance companies.
In managing the portfolio, the managers concentrate primarily on stock selection
rather than industry allocation. The portfolio normally includes financial
services companies of all sizes and types.
In choosing individual stocks, the managers use fundamental financial analysis
to identify securities that appear comparatively undervalued. Given the
industrywide trend toward consolidation, the managers also seek out companies
that appear to be positioned for a merger. The managers generally gather
firsthand information about companies from interviews and company visits.
The fund may invest in U.S. and foreign bonds, including up to 5% of net assets
in junk bonds (those rated below BBB/Baa and their unrated equivalents). It may
also invest up to 15% of assets in investment-grade short-term securities.
The fund may make limited use of certain derivatives (investments whose value is
based on indices or other securities).
In abnormal market conditions, the fund may temporarily invest up to 80% of
assets in investment-grade short-term securities. In these cases, the fund might
not achieve its goal.
================================================================================
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following table was represented as a bar graph in the printed materials.]
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1997 1998
37.74%
Best quarter: up x.xx%, -- quarter 19XX
Worst quarter: down x.xx%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index
1 year X.XX% X.XX% --% X.XX%
Life of fund X.XX% X.XX% --% X.XX%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 widely
traded common stocks.
(1) Began operations March 1, 1999.
PORTFOLIO MANAGERS
James K. Schmidt, CFA
- -----------------------------------
Executive vice president of adviser
Joined team in 1996
Joined adviser in 1985
Began career in 1979
Thomas Finucane
- -----------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1990
Began career in 1990
Thomas Goggins
- -----------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1995
Began career in 1981
6
<PAGE>
MAIN RISKS
[Clip Art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements. Another major factor in this
fund's performance is the economic condition of the financial services sector.
The value of your investment may fluctuate more widely than it would in a fund
that is diversified across sectors.
When interest rates fall or economic conditions deteriorate, the stocks of
financial services companies often suffer greater losses than those of other
types of companies. On the other hand, rising interest rates can cut into
profits by reducing the difference between these companies' borrowing and
lending rates.
The fund's management strategy will influence performance significantly. Stocks
of financial services companies as a group could fall out of favor with the
market. Similarly, if the managers' stock selection strategy doesn't perform as
expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political upheavals.
o In a down market, higher-risk securities could become harder to value or
to sell at a fair price.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. Junk bond
prices can fall on bad news about an industry or company.
o Certain derivatives could produce disproportionate gains or losses.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases 5.00% none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee x.xx% x.xx%
Distribution and service (12b-1) fees 0.30% 1.00%
Other expenses x.xx% x.xx%
Total fund operating expenses x.xx% x.xx%
The hypothetical example below shows what your expenses would be if you
invested $10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
FUND CODES
Class A
- -----------------------
Ticker FIDAX
CUSIP 409905502
Newspaper FinIndA
SEC number 811-3999
Class B
- -----------------------
Ticker FIDBX
CUSIP 409905601
Newspaper FinIndB
SEC number 811-3999
Class C
- -----------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-3999
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
7
<PAGE>
Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests in stocks of U.S. companies.
The fund generally invests in 30 to 60 companies -- most of which have large
market capitalizations -- that are diversified across sectors. The fund has
tended to emphasize, or overweight, certain sectors, such as health care,
technology or consumer goods. These weightings may change in the future.
In choosing individual stocks, the manager engages in fundamental financial
analysis on individual companies, looking for those with:
o strong cash flows
o secure market franchises
o sales growth that outpaces their industries
The fund management team uses various means to assess the depth and stability of
companies' senior management, including interviews and company visits. The fund
favors companies for which the manager projects at least 15% annual growth for
the next two years.
The fund may invest in certain other types of equity and debt securities. It may
also invest up to 15% of assets in foreign securities. In addition, it may make
limited use of certain derivatives (investments whose value is based on indices
or other securities).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these cases, the fund might
not achieve its goal.
================================================================================
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following table was represented as a bar graph in the printed materials.]
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
30.77% -8.62% 41.76% 6.06% 13.16% -7.61% 27.17% 20.40% 16.70%
Best quarter: up X.XX%, -- quarter 19XX
Worst quarter: down X.XX%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index
1 year % % -- %
5 years % -- -- %
10 years % -- -- %
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 widely
traded common stocks.
(1) Began operations on June 1, 1998.
PORTFOLIO MANAGER
Benjamin A. Hock, Jr., CFA
- --------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1994
Began career in 1973
8
<PAGE>
MAIN RISKS
[Clip Art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements. If the fund concentrates its
investments in certain sectors or companies, its performance could be tied more
closely to those sectors or companies than to the market as a whole.
The fund's management strategy will influence performance significantly.
Large-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on small- or
medium-capitalization stocks. Similarly, if the manager's stock selection
strategy doesn't perform as expected, the fund could underperform its peers or
lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Certain derivatives could produce disproportionate gains or losses.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political upheavals.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses
Total fund operating expenses
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
FUND CODES
Class A
- ---------------------------
Ticker JHNGX
CUSIP 409906302
Newspaper Grwth
SEC number 811-4630
Class B
- ---------------------------
Ticker JHGBX
CUSIP 409906401
Newspaper GrwthB
SEC number 811-4630
Class C
- ---------------------------
Ticker --
CUSIP 409906849
Newspaper --
SEC number 811-4630
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
9
<PAGE>
Regional Bank Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation with moderate income as
a secondary objective. To pursue this goal, the fund normally invests at least
65% of assets in a portfolio of stocks of regional banks and lending
institutions, including commercial and industrial banks, savings and loan
associations and bank holding companies. These financial institutions provide
full-service banking, have primarily domestic assets and are typically based
outside of money centers, such as New York City and Chicago.
In managing the portfolio, the managers concentrate primarily on stock selection
rather than industry allocation.
In choosing individual stocks, the managers use fundamental financial analysis
to identify securities that appear comparatively undervalued. The managers look
for low price-earnings (P/E) ratios, high-quality assets and sound loan review
processes. Given the industrywide trend toward consolidation, the managers also
seek out companies that appear to be positioned for a merger. The fund's
portfolio may be concentrated in geographic regions where consolidation activity
is high. The managers generally gather firsthand information about companies
from interviews and company visits.
The fund may also invest in other U.S. and foreign financial services companies,
such as lending companies and money center banks. The fund may invest up to 5%
of net assets in stocks of companies outside the financial services sector and
up to 5% of net assets in junk bonds (those rated below BBB/Baa and their
unrated equivalents).
The fund may make limited use of certain derivatives (investments whose value is
based on indices or other securities).
In abnormal market conditions, the fund may temporarily invest up to 80% of
assets in investment-grade short-term securities. In these cases, the fund might
not achieve its goal.
================================================================================
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with broad-based market
indices for reference). This information may help provide an indication of the
fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following table was represented as a bar graph in the printed materials.]
- --------------------------------------------------------------------------------
Class B year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
17.34% -20.57% 63.78% 47.37% 20.51% -0.20% 47.56% 28.43% 52.84%
Best quarter: up x.xx%, -- quarter 19XX
Worst quarter: down x.xx%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index
1 year x.xx% x.xx% -- x.xx%
5 years x.xx% x.xx% -- x.xx%
10 years -- -- -- x.xx%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 widely
traded common stocks.
(1) Began operations on March 1,1999.
PORTFOLIO MANAGERS
James K. Schmidt, CFA
- -----------------------------------
Executive vice president of adviser
Joined team in 1985
Joined adviser in 1985
Began career in 1979
Thomas Finucane
- -----------------------------------
Vice president of adviser
Joined team in 1990
Joined adviser in 1990
Began career in 1990
Thomas Goggins
- -----------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1995
Began career in 1981
10
<PAGE>
MAIN RISKS
[Clip Art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements. Another major factor in this
fund's performance is the economic condition of the regional banking industry.
When interest rates fall or economic conditions deteriorate, regional bank
stocks often suffer greater losses than those of other types of companies. On
the other hand, rising interest rates can cut into profits by reducing the
difference between these companies' borrowing and lending rates.
The fund's management strategy will influence performance significantly. If the
fund concentrates its investments in regions that experience economic downturns,
performance could suffer. Regional bank stocks as a group could fall out of
favor with the market. Similarly, if the managers' stock selection strategy
doesn't perform as expected, the fund could underperform its peers or lose
money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political upheavals.
o In a down market, higher-risk securities could become harder to value or
to sell at a fair price.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. Junk bond
prices can fall on bad news about an industry or company.
o Certain derivatives could produce disproportionate gains or losses.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases 5.00% none
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever
is less none(1) 5.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee x.xx% x.xx%
Distribution and service (12b-1) fees 0.30% 1.00%
Other expenses x.xx% x.xx%
Total fund operating expenses x.xx% x.xx%
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- -------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
FUND CODES
Class A
- ---------------------------
Ticker FRBAX
CUSIP 409905106
Newspaper RgBkA
SEC number 811-3999
Class B
- ---------------------------
Ticker FRBFX
CUSIP 409905205
Newspaper RgBkB
SEC number 811-3999
Class C
- ---------------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-3999
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
11
<PAGE>
Special Equities Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 65% of assets in stocks of emerging growth
companies and companies in situations offering unusual or one-time
opportunities. Emerging growth companies tend to have small market
capitalizations.
In managing the portfolio, the managers focus on stock selection and then
consider sector and geographic diversification. The portfolio typically includes
more than 90 companies. The types of high-growth companies targeted by the fund
tend to cluster in certain sectors, such as technology.
In choosing individual securities, the management team uses fundamental
financial analysis to identify companies with strong and accelerating earnings
growth. The managers favor companies that dominate their market niches or are
poised to become market leaders. The managers look for strong senior management
teams and coherent business strategies. They generally maintain personal contact
with the senior management of the companies the fund invests in.
The fund may invest in certain other types of equity and debt securities. It may
also invest in foreign securities. In addition, the fund may make limited use of
derivatives (investments whose value is based on indices or other securities).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these cases, the fund might
not achieve its goal.
================================================================================
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following table was represented as a bar graph in the printed materials.]
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
27.87% -8.70% 84.49% 30.41% 19.74% 2.02% 50.44% 3.74% 4.90%
Best quarter: up x.xx%, -- quarter 19XX
Worst quarter: down x.xx%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index 1 Index 2
1 year x.xx% x.xx% -- x.xx% x.xx%
5 years x.xx% x.xx% -- x.xx% x.xx%
10 years x.xx% -- -- x.xx% x.xx%
Index 1: Russell 2000 Index, an unmanaged, small-cap index composed of 2,000
stocks of U.S.-domiciled companies whose common stocks trade on the NYSE,
American Stock Exchange and NASDAQ.
Index 2: Russell 2000 Growth Index, an unmanaged index of those securities from
the Russell 2000 Index with a greater-than-average growth orientation.
(1) Began operations on March 1, 1999.
PORTFOLIO MANAGERS
Laura Allen, CFA
- --------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began career in 1981
Bernice S. Behar, CFA
- --------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1991
Began career in 1991
Anurag Pandit, CFA
- --------------------------------
Vice president of adviser
Joined team in 1998
Joined adviser in 1996
Began career in 1984
12
<PAGE>
MAIN RISKS
[Clip Art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements. Because the fund concentrates on
small-capitalization and special-situation companies, its performance may be
more volatile than that of a fund that invests primarily in larger companies.
Stocks of small-capitalization companies are more risky than stocks of larger
companies. Many of these companies are young and have a limited track record.
Because their businesses frequently rely on narrow product lines and niche
markets, they can suffer severely from isolated business setbacks.
Special-situation companies often have histories of uneven performance, and
circumstances that appear to offer opportunities for growth don't necessarily
lead to growth.
The fund's management strategy will influence performance significantly.
Small-capitalization stocks as a group could fall out of favor with the market.
Similarly, if the managers' stock selection strategy doesn't perform as
expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o In a down market, small-capitalization stocks and other higher-risk
securities could become harder to value or to sell at a fair price.
o Certain derivatives could produce disproportionate gains or losses.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political upheavals.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases 5.00% none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee x.xx% x.xx%
Distribution and service (12b-1) fees 0.30% 1.00%
Other expenses x.xx% x.xx%
Total fund operating expenses x.xx% x.xx%
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
FUND CODES
Class A
- ---------------------------
Ticker JHNSX
CUSIP 410225106
Newspaper SpclEA
SEC number 811-4079
Class B
- ---------------------------
Ticker SPQBX
CUSIP 410225205
Newspaper SpclEB
SEC number 811-4079
Class C
- ---------------------------
Ticker --
CUSIP --
Newspaper --
SEC number 811-4079
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
13
<PAGE>
Special Opportunities Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term capital appreciation. To pursue this goal,
the fund normally invests at least 75% of assets in stocks of companies in up to
five economic sectors that appear to offer the highest earnings growth
potential.
In managing the portfolio, the manager seeks to identify promising sectors for
investment. The manager considers broad economic trends, demographic factors,
technological changes, consolidation trends and legislative initiatives.
Although the fund concentrates on a few sectors, it diversifies broadly within
those sectors. At times, the fund may focus on a single sector.
The fund normally invests in more than 100 medium-capitalization companies.
In choosing individual securities, the manager conducts fundamental financial
analysis to identify companies that appear able to sustain 15% annual earnings
growth for the next three to five years. The manager looks for companies with
growth stemming from a combination of gains in market share and increasing
operating efficiency. Before investing, the manager identifies a specific
catalyst for growth, such as a new product, business reorganization, or merger.
The management team generally maintains personal contact with the senior
management of the companies the fund invests in.
The fund may invest up to 25% of assets in stocks and investment-grade bonds in
additional sectors. The fund may invest in foreign stocks. It may also make
limited use of certain derivatives (investments whose value is based on indices
or other securities).
In abnormal market conditions, the fund may temporarily invest more than 25% of
assets in investment-grade short-term securities. In these cases, the fund might
not achieve its goal.
================================================================================
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following table was represented as a bar graph in the printed materials.]
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998
-8.76% 34.24% 29.05% 2.37%
Best quarter: up x.xx%, -- quarter 19XX
Worst quarter: down x.xx%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index 1 Index 2
1 year x.xx% x.xx% x.xx% x.xx% x.xx%
5 years x.xx% x.xx% x.xx% x.xx% x.xx%
Life of fund x.xx% x.xx% x.xx% x.xx% x.xx%
Index 1: Standard & Poor's 500 Stock Index, an unmanaged index of 500 widely
traded common stocks. Index 2: Russell Midcap Growth Index, an unmanaged index
of those securities from the Russell Midcap Index with a greater-than-average
growth orientation.
(1) Began operations on June 1,1998.
PORTFOLIO MANAGER
Barbara C. Friedman, CFA
- --------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began career in 1973
14
<PAGE>
MAIN RISKS
[Clip Art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements. Stocks of medium-capitalization
companies tend to be more volatile than those of larger companies. Similarly,
medium-capitalization stocks are generally traded in lower volumes than
large-capitalization stocks.
Because the fund concentrates on a few sectors of the market, its performance
may be more volatile than that of a fund that invests across many sectors.
The fund's management strategy will influence performance significantly.
Medium-capitalization stocks as a group could fall out of favor with the market.
Similarly, if the industries or companies the fund invests in don't perform as
expected, or if the manager's stock selection strategy doesn't perform as
expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o In a down market, higher-risk securities could become harder to value or
to sell at a fair price.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise.
o Certain derivatives could produce disproportionate gains or losses.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political upheavals.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee x.xx% x.xx% x.xx%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses x.xx% x.xx% x.xx%
Total fund operating expenses x.xx% x.xx% x.xx%
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
FUND CODES
Class A
- ---------------------------
Ticker SPOAX
CUSIP 409906807
Newspaper SpcOpsA
SEC number 811-4630
Class B
- ---------------------------
Ticker SPOBX
CUSIP 409906880
Newspaper SpcOpsB
SEC number 811-4630
Class C
- ---------------------------
Ticker --
CUSIP 409906823
Newspaper --
SEC number 811-4630
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
15
<PAGE>
Special Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks capital appreciation. To pursue this goal, the fund
invests primarily in companies with market capitalizations under $1 billion.
In managing the portfolio, the managers emphasize a value-oriented approach to
individual stock selection. With the aid of proprietary financial models, the
management team looks for U.S. and foreign companies that are selling at what
appear to be substantial discounts to their long-term value. These companies
often have identifiable catalysts for growth, such as new products, business
reorganizations or mergers.
The managers use fundamental financial analysis of individual companies to
identify those with substantial cash flows, reliable revenue streams and strong
competitive positions. The strength of companies' management teams is also a key
selection factor. The fund diversifies across industry sectors.
The fund invests primarily in stocks of U.S. companies, but may invest up to 50%
of assets in foreign securities and up to 15% of net assets in bonds that may be
rated as low as CC/Ca and their unrated equivalents. (Bonds rated below BBB/Baa
are considered junk bonds.) The fund may also invest in certain other types of
equity and debt securities, and may make limited use of certain derivatives
(investments whose value is based on indices or other securities).
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these cases, the fund might not
achieve its goal.
================================================================================
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks and potential rewards. The average annual figures reflect sales
charges; the year-by-year and index figures do not, and would be lower if they
did. All figures assume dividend reinvestment. Past performance does not
indicate future results.
[The following table was represented as a bar graph in the printed materials.]
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998
7.81% 20.26% 12.91% 25.25%
Best quarter: up x.xx%, -- quarter 19XX
Worst quarter: down x.xx%, -- quarter 19XX
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/98
- --------------------------------------------------------------------------------
Class A Class B Class C(1) Index
1 year x.xx% x.xx% x.xx% x.xx%
5 years x.xx% x.xx% x.xx% x.xx%
Life of fund x.xx% x.xx% x.xx% x.xx%
Index 1: Russell 2000 Index, an unmanaged, small-cap index composed of 2,000
stocks of U.S.-domiciled companies whose common stocks trade on the NYSE,
American Stock Exchange and NASDAQ.
(1) Began operations of May 1, 1998.
PORTFOLIO MANAGERS
Timothy E. Keefe, CFA
- --------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began career in 1987
Timothy E. Quinlisk, CFA
- --------------------------------
Second vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began career in 1985
16
<PAGE>
MAIN RISKS
[Clip Art] As with most growth funds, the value of your investment will go up
and down in response to stock market movements. Because the fund concentrates on
small-capitalization companies, its performance may be more volatile than that
of a fund that invests primarily in larger companies.
Stocks of smaller companies are more risky than stocks of larger companies. Many
of these companies are young and have a limited track record. Because their
businesses frequently rely on narrow product lines and niche markets, they can
suffer severely from isolated business setbacks.
The fund's management strategy will influence performance significantly.
Small-capitalization stocks as a group could fall out of favor with the market.
Similarly, if the industries or companies the fund invests in don't perform as
expected, or if the managers' stock selection strategy doesn't perform as
expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, those risks
could increase volatility or reduce performance:
o In a down market, small-capitalization stocks and other higher-risk
securities could become harder to value or to sell at a fair price.
o Certain derivatives could produce disproportionate gains or losses.
o Foreign investments carry additional risks, including potentially
unfavorable currency exchange rates, inadequate or inaccurate financial
information and social or political upheavals.
o Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise. Junk bond
prices can fall on bad news about an industry or company.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge (load) on purchases 5.00% none none
Maximum deferred sales charge (load)
as a % of purchase or sale price,
whichever is less none(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee x.xx% x.xx% x.xx%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses x.xx% x.xx% x.xx%
Total fund operating expenses x.xx% x.xx% x.xx%
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $ $ $ $
Class B - with redemption $ $ $ $
- without redemption $ $ $ $
Class C - with redemption $ $ $ $
- without redemption $ $ $ $
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker SPVAX
CUSIP 409905700
Newspaper SpValA
SEC number 811-3999
Class B
- ---------------------------
Ticker SPVBX
CUSIP 409905809
Newspaper SpValB
SEC number 811-3999
Class C
- ---------------------------
Ticker --
CUSIP 409905882
Newspaper --
SEC number 811-3999
17
<PAGE>
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each share class has its own cost structure. Each fund has adopted a Rule 12b-1
plan that allows it to pay fees for the sale and distribution of its shares.
Your financial representative can help you decide which share class is best for
you.
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
o Front-end sales charges, as described at right.
o Distribution and service (12b-1) fees of 0.30%. (0.25% for Emerging
Growth).
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1.00%.
o A deferred sales charge, as described on following page.
o Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses.
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1.00%.
o A 1.00% contingent deferred sales charge on shares sold within one year of
purchase.
o No automatic conversion to Class A shares, so annual expenses continue at
the Class C level throughout the life of your investment.
For actual past expenses of each share class, see the fund-by-fund information
earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, Class B and Class C
shareholders could end up paying more expenses over the long term than if they
had paid a sales charge.
Special Equities Fund offers Class Y shares, which have their own expense
structure and are available to financial institutions only. Call Signature
Services for more information (see back cover of this prospectus).
Investors purchasing $1 million or more of Class B or C shares may want to
consider the lower operating expenses of Class A shares.
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
CDSC on shares
Your investment 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.
18 YOUR ACCOUNT
<PAGE>
Class B and Class C Shares are offered at their net asset value per share,
without any initial sales charge. However, you may be charged a contingent
deferred sales charge (CDSC) on shares you sell within a certain time after you
bought them, as described in the tables below. There is no CDSC on shares
acquired through reinvestment of dividends. The CDSC is based on the original
purchase cost or the current market value of the shares being sold, whichever is
less. The CDSCs are as follows:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
CDSC on shares
Years after purchase 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
- --------------------------------------------------------------------------------
Class C deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC
1st year 1.00%
After 1 year none
For purposes of these CDSCs, all purchases made during a calendar month are
counted as having been made on the first day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares 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. Retirement plans investing $1 million in
Class B shares may add that value to Class A purchases to calculate
charges.
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, or consult the SAI (see the
back cover of this prospectus).
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 investments must
total at least $250), and individual investors may close their accounts 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 each 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
o to purchase a John Hancock Declaration annuity
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI (see the back
cover of this prospectus).
YOUR ACCOUNT 19
<PAGE>
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 selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under signed 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 from an employee benefit plan into a John
Hancock fund
o certain insurance company contract holders (one-year CDSC usually applies)
o participants in certain retirement plans with at least 100 eligible
employees (one-year CDSC applies)
To utilize: if you think you may be eligible for a sales charge waiver, contact
Signature Services or consult the SAI (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock 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: $250
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 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.
20 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clip Art] o Make out a check for the o Make out a check for the
investment amount, payable investment amount payable
to "John Hancock Signature to "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to investment slip from an
your financial account statement. If no
representative, or mail to slip is available, include
Signature Services (address a note specifying the fund
below). name, your 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 to
Signature Services (address
below).
By exchange
[Clip Art] 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
[Clip Art] o Deliver your completed o Instruct your bank to wire
application to your the amount of your
financial representative, investment to:
or mail it to Signature First Signature Bank
Services. & Trust
Account # 900000260
o Obtain your account number Routing # 211475000
by calling your financial
representative or Signature Specify the fund name, your
Services. share class, your account
number and the name(s) in
o Instruct your bank to wire which the account is
the amount of your registered. Your bank may
investment to: charge a fee to wire funds.
First Signature Bank
& Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s)
in which the account is
registered. Your bank may
charge a fee to wire funds.
By phone
[Clip Art] 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.
- -------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA02217-1000
Phone Number: 1-800-225-5291
Or contact your financial representative
for instructions and assistance.
- -------------------------------------
To open or add to an account using the Monthly Automatic
Accumulation Program, see "Additional investor services."
YOUR ACCOUNT 21
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip Art] o Accounts of any type. o Write a letter of
instruction or complete a
o Sales of any amount. stock power indicating 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
[Clip Art] o Most accounts. o For automated service 24
hours a day using your
o Sales of up to $100,000. touch-tone phone, call the
EASI-Line at 1-800-338-8080.
o To place your order, call
your financial representative
or Signature Services between
8 A.M. and 4 P.M. Eastern Time
on most business days.
By wire or electronic funds transfer (EFT)
[Clip Art] o Requests by letter to sell o To verify that the
any amount (accounts of any telephone redemption
type). privilege is in place on an
account, or to request the
o Requests by phone to sell form to add it to an
up to $100,000 (accounts existing account, call
with telephone redemption Signature Services.
privileges).
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
[Clip Art] 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.
22 YOUR ACCOUNT
<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 will need to obtain your signature guarantee from a member of the Signature
Guarantee Medallion Program. Most brokers and securities dealers are members of
this program. A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
[Clip Art]
- --------------------------------------------------------------------------------
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 12 months.
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 accounts. o Letter of instruction.
o On the letter, the signature(s) of
the trustee(s).
o Provide a copy of the trust
document certified within the past
12 months.
o Signature guarantee if applicable
(see above).
Joint tenancy shareholders with rights o Letter of instruction signed by
of survivorship whose co-tenants are surviving tenant.
deceased.
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,
certified within the past 12
months.
o Signature guarantee if applicable
(see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or account instructions.
types not listed above.
- ----------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 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>
- --------------------------------------------------------------------------------
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). The funds use market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable.
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. 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.
- --------------------------------------------------------------------------------
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. Regional Bank
Fund typically pays income dividends quarterly and Financial Industries Fund
typically pays income dividends annually. The other funds do not usually pay
income dividends. Most of these dividends are from capital gains.
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.
24 YOUR ACCOUNT
<PAGE>
Taxability of dividends 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. Whether gains are short-term
or long-term depends on the fund's holding period. Some dividends paid in
January may be taxable as if they had been paid the previous December.
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.
Year 2000 compliance The adviser and the funds' service providers are taking
steps to address any year 2000-related computer problems. However, there is some
risk that these problems could disrupt the funds' operations or financial
markets generally.
- --------------------------------------------------------------------------------
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 retirement plans,
including traditional, Roth and Education IRAs, SIMPLE plans, SEPs, 401(k) plans
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.
YOUR ACCOUNT 25
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the John Hancock
growth funds. Each fund's board of trustees oversees the fund's business
activities and retains the services of the various firms that carry out the
fund's operations.
The trustees of the Emerging Growth, Financial Industries and Special
Opportunities funds have the power to change these funds' respective investment
goals without shareholderapproval.
Management fees The management fees paid to the investment adviser by the John
Hancock growth funds last year are as follows:
- --------------------------------------------------------------------------------
Fund % of net assets
- --------------------------------------------------------------------------------
Emerging Growth x.xx%
Financial Industries x.xx%
Growth x.xx%
Regional Bank x.xx%
Special Equities x.xx%
Special Opportunities x.xx%
Special Value x.xx%
[The following information was represented as a flow chart in the printed
material.]
-----------------
Shareholders
-----------------
Distribution and
shareholder services
-------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
-------------------------------------------------
-------------------------------------------------
Principal distributor
John Hancock Funds, Inc.
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
-------------------------------------------------
------------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
Handles shareholder services, including record-
keeping and statements, distribution of dividends
and processing of buy and sell requests.
------------------------------------------------------
Asset management
------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
------------------------------------
------------------------------------
Custodian
Investors Bank & Trust co.
Holds the funds' assets, settles all
portfolio trades and collect most of
the valuation data required for
calculating each fund's NAV.
------------------------------------
------------------------------------
Trustees
Oversee the funds' activities.
------------------------------------
26 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
These tables detail the performance of each fund's share classes, including
total return information showing how much an investment in the fund has
increased or decreased each year.
Emerging Growth Fund
Figures audited by __________________.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94 10/95(1) 10/96 10/97 10/98
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.47 $6.71 $9.02 10.22
Net investment income (loss)(2) (0.04) (0.07) (0.09) (0.07)
Net realized and unrealized gain (loss) on investments 0.28 2.38 1.29 2.41
Total from investment operations 0.24 2.31 1.20 2.34
Less distributions:
Distributions from net realized gain on investments sold -- -- -- (0.21)
Total distributions -- -- -- (0.21)
Net asset value, end of period $6.71 $9.02 $10.22 $12.35
Total investment return at net asset value(3) (%) 3.59 34.56 13.27 23.35
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 131,053 179,481 218,497 209,384
Ratio of expenses to average net assets (%) 1.44 1.38 1.32 1.29(4)
Ratio of net investment income (loss) to average net assets (%) (0.71) (0.83) (0.86) (0.57)
Portfolio turnover rate (%) 25 23 44 96
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94 10/95(1) 10/96 10/97 10/98
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.33 $6.51 $8.70 $9.78
Net investment income (loss)(2) (0.09) (0.11) (0.15) (0.14)
Net realized and unrealized gain (loss) on investments 0.27 2.30 1.23 2.29
Total from investment operations 0.18 2.19 1.08 2.15
Less distributions:
Distributions from net realized gain on investments sold -- -- -- (0.21)
Total distributions -- -- -- (0.21)
Net asset value, end of period $6.51 $8.70 $9.78 $11.72
Total investment return at net asset value(3) (%) 2.80 33.60 12.48 22.44
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 283,435 393,478 451,268 472,594
Ratio of expenses to average net assets (%) 2.19 2.11 2.05 2.02(4)
Ratio of net investment income (loss) to average net assets (%) (1.46) (1.55) (1.59) (1.30)
Portfolio turnover rate (%) 25 23 44 96
</TABLE>
FUND DETAILS 27
<PAGE>
Emerging Growth Fund continued
- --------------------------------------------------------------------------------
Class C - period ended: 10/98
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period
Net investment income (loss)(2)
Net realized and unrealized gain (loss) on investments
Total from investment operations
Less distributions:
Distributions from net realized gain on investments sold
Total distributions
Net asset value, end of period
Total investment return at net asset value(3) (%)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($)
Ratio of expenses to average net assets (%)
Ratio of net investment income (loss) to average net assets (%)
Portfolio turnover rate (%)
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(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) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 per share.
28 FUND DETAILS
<PAGE>
Financial Industries Fund
Figures audited by ___________________________.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Class A - period ended: 10/96(1) 10/97 10/98
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $11.03
Net investment income (loss)(2) 0.02 0.14
Net realized and unrealized gain (loss) on investments 2.51 3.77
Total from investment operations 2.53 3.91
Less distributions:
Dividends from net investment income -- (0.03)
Distributions from net realized gain on investments sold -- (0.65)
Total distributions -- (0.68)
Net asset value, end of period $11.03 $14.26
Total investment return at net asset value(3) (%) 29.76(4) 37.19
Total adjusted investment return at net asset value(3,5) (%) 26.04(4) 36.92
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 895 416,698
Ratio of expenses to average net assets (%) 1.20(6) 1.20
Ratio of adjusted expenses to average net assets(7) (%) 7.07(6) 1.47
Ratio of net investment income (loss) to average net assets (%) 0.37(6) 1.10
Ratio of adjusted net investment income (loss) to average net assets(7) (%) (5.50)(6) 0.83
Portfolio turnover rate (%) 31 6
Fee reduction per share(2) ($) 0.38 0.03
<CAPTION>
- ------------------------------------------------------------------------------------------------
Class B - period ended: 10/97(1) 10/98
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $11.43
Net investment income (loss)(2) 0.04
Net realized and unrealized gain (loss) on investments 2.71
Total from investment operations 2.75
Less distributions:
Dividends from net investment income --
Distributions from net realized gain on investments sold --
Total distributions --
Net asset value, end of period $14.18
Total investment return at net asset value(3) (%) 24.06(4)
Total adjusted investment return at net asset value(3,5) (%) 23.85(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,308,946
Ratio of expenses to average net assets (%) 1.90(6)
Ratio of adjusted expenses to average net assets(7) (%) 2.17(6)
Ratio of net investment income (loss) to average net assets (%) 0.40(6)
Ratio of adjusted net investment income (loss) to average net assets(7) (%) 0.13(6)
Portfolio turnover rate (%) 6
Fee reduction per share(2) ($) 0.03
</TABLE>
(1) Class A and Class B shares commenced operations on March 14, 1996 and
January 14, 1997, 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) An estimated total return calculation that does no take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
FUND DETAILS 29
<PAGE>
Growth Fund
Figures audited by __________________.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/93 12/94 12/95 10/96(1) 10/97 10/98
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.32 $17.40 $15.89 $19.51 $23.28
Net investment income (loss) (0.11) (0.10) (0.09)(2) (0.13)(2) (0.12)(2)
Net realized and unrealized gain (loss) on investments 2.33 (1.21) 4.40 3.90 3.49
Total from investment operations 2.22 (1.31) 4.31 3.77 3.37
Less distributions:
Dividends from net investment income -- -- -- -- (2.28)
Distributions from net realized gain on investments sold (2.14) (0.20) (0.69) -- --
Total distributions (2.14) (0.20) (0.69) -- --
Net asset value, end of period $17.40 $15.89 $19.51 $23.28 $24.37
Total investment return at net asset value(3) (%) 13.03 (7.50) 27.17 19.32(4) 16.05
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 162,937 146,466 241,700 279,425 303,067
Ratio of expenses to average net assets (%) 1.56 1.65 1.48 1.48(5) 1.44
Ratio of net investment income (loss) to average net assets (%) (0.67) (0.64) (0.46) (0.73)(5) (0.51)
Portfolio turnover rate (%) 68 52 68(6) 59 133
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(7) 12/95 10/96(1) 10/97 10/98
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.16 $15.83 $19.25 $22.83
Net investment income (loss) (2) (0.20) (0.26) (0.26) (0.27)
Net realized and unrealized gain (loss) on investments (0.93) 4.37 3.84 3.42
Total from investment operations (1.13) 4.11 3.58 3.15
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 $23.70
Total investment return at net asset value(3) (%) (6.56)(4) 26.01 18.60(4) 15.33
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,807 15,913 25,474 36,430
Ratio of expenses to average net assets (%) 2.38(5) 2.31 2.18(5) 2.13
Ratio of net investment income (loss) to average net assets (%) (1.25)(5) (1.39) (1.42)(5) (1.20)
Portfolio turnover rate (%) 52 68(6) 59 133
</TABLE>
30 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
Class C - period ended: 10/98
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period
Net investment income (loss)(2)
Net realized and unrealized gain (loss) on investments
Total from investment operations
Less distributions:
Distributions from net realized gain on investments sold
Total distributions
Net asset value, end of period
Total investment return at net asset value(3) (%)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($)
Ratio of expenses to average net assets (%)
Ratio of net investment income (loss) to average net assets (%)
Portfolio turnover rate (%)
(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) Class B shares commenced operations on January 3, 1994.
FUND DETAILS 31
<PAGE>
Regional Bank Fund
Figures audited by ___________________________.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94 10/95 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.62 $21.52 $27.14 $33.99
Net investment income (loss)(1) 0.39 0.52 0.63 0.64
Net realized and unrealized gain (loss) on investments 0.91 5.92 7.04 15.02
Total from investment operations 1.30 6.44 7.67 15.66
Less distributions:
Dividends from net investment income (0.34) (0.48) (0.60) (0.61)
Distributions from net realized gain on investments sold (1.06) (0.34) (0.22) (0.31)
Total distributions (1.40) (0.82) (0.82) (0.92)
Net asset value, end of period $21.52 $27.14 $33.99 $48.73
Total investment return at net asset value(2) (%) 6.44 31.00 28.78 46.79
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 216,978 486,631 860,843 1,596,836
Ratio of expenses to average net assets (%) 1.34 1.39 1.36 1.30
Ratio of net investment income to average net assets (%) 1.78 2.23 2.13 1.55
Portfolio turnover rate (%) 13 14 8 5
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94 10/95 10/96 10/97 10/98
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.56 $21.43 $27.02 $33.83
Net investment income (loss)(1) 0.23 0.36 0.42 0.35
Net realized and unrealized gain (loss) on investments 0.91 5.89 7.01 14.95
Total from investment operations 1.14 6.25 7.43 15.30
Less distributions:
Dividends from net investment income (0.21) (0.32) (0.40) (0.34)
Distributions from net realized gain on investments sold (1.06) (0.34) (0.22) (0.31)
Total distributions (1.27) (0.66) (0.62) (0.65)
Net asset value, end of period $21.43 $27.02 $33.83 $48.48
Total investment return at net asset value(2) (%) 5.69 30.11 27.89 45.78
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 522,207 1,236,447 2,408,514 4,847,755
Ratio of expenses to average net assets (%) 2.06 2.09 2.07 2.00
Ratio of net investment income (loss) to average net assets (%) 1.07 1.53 1.42 0.84
Portfolio turnover rate (%) 13 14 8 5
</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.
32 FUND DETAILS
<PAGE>
Special Equities Fund
Figures audited by __________________.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94 10/95 10/96 10/97 10/98
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $16.13 $16.11 $22.15 $24.53
Net investment income (loss)(1) (0.21) (0.18) (0.22) (0.29)
Net realized and unrealized gain (loss) on investments 0.19 6.22 3.06 2.08
Total from investment operations (0.02) 6.04 2.84 1.79
Less distributions:
Distributions from net realized gain on investments sold -- -- (0.46) --
Total distributions -- -- (0.46) --
Net asset value, end of period $16.11 $22.15 $24.53 $26.32
Total investment return at net asset value(2) (%) (0.12) 37.49 12.96 7.30
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 310,625 555,655 972,312 807,371
Ratio of expenses to average net assets (%) 1.62 1.48 1.42 1.43
Ratio of net investment income (loss) to average net assets (%) (1.40) (0.97) (0.89) (1.18)
Portfolio turnover rate (%) 66 82 59 41
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94 10/95 10/96 10/97 10/98
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $16.08 $15.97 $21.81 $23.96
Net investment income (loss)(1) (0.30) (0.31) (0.40) (0.46)
Net realized and unrealized gain (loss) on investments 0.19 6.15 3.01 2.02
Total from investment operations (0.11) 5.84 2.61 1.56
Less distributions:
Distributions from net realized gain on investments sold -- -- (0.46) --
Net asset value, end of period $15.97 $21.81 $23.96 $25.52
Total investment return at net asset value(2) (%) (0.68) 36.57 12.09 6.51
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 191,979 454,934 956,374 951,449
Ratio of expenses to average net assets (%) 2.25 2.20 2.16 2.19
Ratio of net investment income (loss) to average net assets (%) (2.02) (1.69) (1.65) (1.95)
Portfolio turnover rate (%) 66 82 59 41
</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.
FUND DETAILS 33
<PAGE>
Special Opportunities Fund
Figures audited by ___________________________.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94(1) 10/95 10/96 10/97 10/98
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $7.93 $9.32 $10.92
Net investment income (loss)(2) (0.03) (0.07) (0.11) (0.06)
Net realized and unrealized gain (loss) on investments (0.54) 1.46 3.34 1.00
Total from investment operations (0.57) 1.39 3.23 0.94
Less distributions:
Distributions from net realized gain on investments sold -- -- (1.63) (0.46)
Net asset value, end of period $7.93 $9.32 $10.92 $11.40
Total investment return at net asset value(3) (%) (6.71) 17.53 36.15 8.79
Total adjusted investment return at net asset value(3,4) (%) (6.83) -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 92,325 101,562 156,578 141,997
Ratio of expenses to average net assets (%) 1.50 1.59 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) (0.57)
Ratio of adjusted net investment (loss) to average net assets(5) (%) (0.53) -- -- --
Portfolio turnover rate (%) 57 155 240 317
Fee reduction per share ($) 0.01(2) -- -- --
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94(1) 10/95 10/96 10/97 10/98
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $7.87 $9.19 $10.67
Net investment income (loss)(2) (0.09) (0.13) (0.18) (0.13)
Net realized and unrealized gain (loss) on investments (0.54) 1.45 3.29 0.95
Total from investment operations (0.63) 1.32 3.11 0.82
Less distributions:
Distributions from net realized gain on investments sold -- -- (1.63) (0.46)
Net asset value, end of period $7.87 $9.19 $10.67 $11.03
Total investment return at net asset value(3) (%) (7.41) 16.77 35.34 7.84
Total adjusted investment return at net asset value(3,4) (%) (7.53) -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 131,983 137,363 238,901 204,812
Ratio of expenses to average net assets (%) 2.22 2.30 2.29 2.28
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) (1.25)
Ratio of adjusted net investment (loss) to average net assets(5) (%) (1.25) -- -- --
Portfolio turnover rate (%) 57 155 240 317
Fee reduction per share ($) 0.01(2) -- -- --
</TABLE>
34 FUND DETAILS
<PAGE>
Special Opportunities Fund continued
- --------------------------------------------------------------------------------
Class C - period ended: 10/98
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period
Net investment income (loss)(2)
Net realized and unrealized gain (loss) on investments
Total from investment operations
Less distributions:
Distributions from net realized gain on investments sold
Net asset value, end of period
Total investment return at net asset value(3) (%)
Total adjusted investment return at net asset value(3,4) (%)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($)
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 (loss) to average net assets(5) (%)
Portfolio turnover rate (%)
Fee reduction per share ($)
(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.
FUND DETAILS 35
<PAGE>
Special Value Fund
Figures audited by ___________________.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/94(1) 12/95 12/96 12/97 10/98(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $8.99 $10.39 $10.32
Net investment income (loss)(3) 0.18 0.21 0.14 0.06
Net realized and unrealized gain (loss) on investments 0.48 1.60 1.17 2.52
Total from investment operations 0.66 1.81 1.31 2.58
Less distributions:
Dividends from net investment income (0.17) (0.20) (0.14) (0.03)
Distributions from net realized gain on investments sold -- (0.21) (1.24) (0.60)
Total distributions (0.17) (0.41) (1.38) (0.63)
Net asset value, end of period $8.99 $10.39 $10.32 $12.27
Total investment return at net asset value(4) (%) 7.81(5) 20.26 12.91 25.25
Total adjusted investment return at net asset value(4,6) (%) 7.30(5) 19.39 12.20 24.65
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,420 12,845 15,853 20,961
Ratio of expenses to average net assets (%) 0.99(7) 0.98 0.99 0.99
Ratio of adjusted expenses to average net assets(8) (%) 4.98(7) 1.85 1.70 1.59
Ratio of net investment income (loss) to average net assets (%) 2.10(7) 2.04 1.31 0.47
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (1.89)(7) 1.17 0.60 (0.13)
Portfolio turnover rate (%) 0.3 9 72 140
Fee reduction per share (3) ($) 0.34 0.09 0.08 0.07
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(1) 12/95 12/96 12/97 10/98(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $9.00 $10.38 $10.31
Net investment income (loss)(3) 0.13 0.12 0.07 (0.03)
Net realized and unrealized gain (loss) on investments 0.48 1.59 1.17 2.53
Total from investment operations 0.61 1.71 1.24 2.50
Less distributions:
Dividends from net investment income (0.11) (0.12) (0.07) --
Distributions from net realized gain on investments sold -- (0.21) (1.24) (0.60)
Total distributions (0.11) (0.33) (1.31) (0.60)
Net asset value, end of period $9.00 $10.38 $10.31 $12.21
Total investment return at net asset value(4) (%) 7.15(5) 19.11 12.14 24.41
Total adjusted investment return at net asset value(4,6) (%) 6.64(5) 18.24 11.43 23.81
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,296 16,994 22,097 35,033
Ratio of expenses to average net assets (%) 1.72(7) 1.73 1.69 1.69
Ratio of adjusted expenses to average net assets(8) (%) 5.71(7) 2.60 2.40 2.29
Ratio of net investment income (loss) to average net assets (%) 1.53(7) 1.21 0.62 (0.24)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (2.46)(7) 0.34 (0.09) (0.84)
Portfolio turnover rate (%) 0.3 9 72 140
Fee reduction per share (3)($) 0.34 0.09 0.08 0.07
</TABLE>
36 FUND DETAILS
<PAGE>
Special Value Fund continued
- --------------------------------------------------------------------------------
Class C - period ended: 10/98(1)
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period
Net investment income (loss)(3)
Net realized and unrealized gain (loss) on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Distributions from net realized gain on investments sold
Total distributions
Net asset value, end of period
Total investment return at net asset value(4) (%)
Total adjusted investment return at net asset value(4,6) (%)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($)
Ratio of expenses to average net assets (%)
Ratio of adjusted expenses to average net assets(8) (%)
Ratio of net investment income (loss) to average net assets (%)
Ratio of adjusted net investment income (loss) to average net assets(8) (%)
Portfolio turnover rate (%)
Fee reduction per share (3)($)
(1) Class A and Class B shares commenced operations on January 3, 1994. Class
C shares commenced operations on May 1, 1998.
(2) Effective October 31, 1998, the fiscal year end changed from December 31
to October 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
FUND DETAILS 37
<PAGE>
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For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
growth funds:
ANNUAL/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature
Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By phone: 1-800-225-5291
By EASI-Line: 1-800-338-8080
By TDD: 1-800-544-6713
On the Internet:
www.jhancock.com/funds
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public
Reference Room in Washington, DC
By phone: 1-800-SEC-0330
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-6009
(duplicating fee required)
On the Internet: www.sec.gov
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts
02199-7603
John Hancock(R)
(C) 1999 John Hancock Funds, Inc.
GROPN 3/99
<PAGE>
JOHN HANCOCK GLOBAL FUND
Class A, Class B and Class C Shares
Statement of Additional Information
March 1, 1999
This Statement of Additional Information provides information about John Hancock
Global Fund (the "Fund"), in addition to the information that is contained in
the combined International/Global Funds' Prospectus dated March 1, 1999 (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, Suite 1000
Boston, Massachusetts 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund..................................................... 2
Investment Objective and Policies............................................ 2
Investment Restrictions...................................................... 13
Those Responsible for Management............................................. 15
Investment Advisory and Other Services....................................... 24
Distribution Contracts....................................................... 26
Sales Compensation........................................................... 28
Net Asset Value.............................................................. 29
Initial Sales Charge on Class A Shares....................................... 30
Deferred Sales Charge on Class B and Class C Shares.......................... 32
Special Redemptions.......................................................... 36
Additional Services and Programs............................................. 36
Description of the Fund's Shares............................................. 38
Tax Status................................................................... 39
Calculation of Performance................................................... 44
Brokerage Allocation......................................................... 45
Transfer Agent Services...................................................... 47
Custody of Portfolio......................................................... 48
Independent Auditors......................................................... 48
Appendix A- Description of Investment Risk...................................A-1
Appendix B-Description of Bond Ratings.......................................B-1
Financial Statements.........................................................F-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 on March 31, 1986 under the laws of
The Commonwealth of Massachusetts. The Fund commenced operations on March 31,
1986.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser.
John Hancock Advisers International Limited is the ("Sub-Adviser") of the Fund.
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 in the Prospectus. Appendix A contains further
information describing investment risks. The investment objective of the Fund is
fundamental and may only be changed with shareholder approval. There is no
assurance that the Fund will achieve its investment objective.
The Fund's investment objective is to achieve long-term growth of capital
primarily through investment in common stocks of companies domiciled in foreign
countries and in the United States. Any income received on the Fund's
investments will be incidental to the Fund's objective of long-term growth of
capital. Normally, the Fund will invest in the securities markets of at least
three countries, including the United States.
Under normal circumstances, at least 65% of the Fund's total assets will consist
of common stocks and securities convertible into common stock. However, if
deemed advisable by the Adviser, the Fund may invest in any other type of
security including preferred stocks, warrants, bonds, notes and other debt
securities (including Eurodollar securities) or obligations of domestic or
foreign governments and their political subdivisions. The Fund will only invest
in investment grade debt securities, which are securities rated within the four
highest rating categories of Standard & Poor's Rating Group ("S&P") (AAA, AA, A,
BBB) or Moody's Investors Service, Inc. ("Moody's") (Aaa, Aa, A, Baa).
Investments in the lowest investment grade rating category may have speculative
characteristics and therefore may involve higher risks. Investment grade debt
securities are subject to market fluctuations and changes in interest rates;
however, the risk of loss of income and principal is generally expected to be
less than with lower quality debt securities. In the event a debt security is
downgraded below investment grade, the Adviser will consider this event in its
determination of whether the Fund should continue to hold the security.
The global allocation of assets is not fixed, and will vary from time to time
based on the judgment of the Adviser and Sub-Adviser. The Fund will maintain a
flexible investment policy and will invest in a diversified portfolio of
securities of companies and governments located throughout the world. In making
the allocation of assets among various countries and geographic regions, the
Adviser and the Sub-Adviser ordinarily consider such factors as prospects for
relative economic growth between foreign countries; expected levels of inflation
and interest rates; government policies influencing business conditions; and
other pertinent financial, tax, social, political, currency and national factors
all in relation to the prevailing prices of the securities in each country or
region.
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<PAGE>
When the Adviser believes that adverse market conditions are present, for
temporary defensive purposes, the Fund may hold or invest all or part of its
assets in cash and in domestic and foreign money market instruments, including
but not limited to, governmental obligations, certificates of deposit, bankers'
acceptances, commercial paper, short-term corporate debt securities and
repurchase agreements.
Any income received on the Fund's investments will be incidental to the Fund's
objective of long-term growth of capital.
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 B 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.
Time Deposits. The Fund's time deposits are non-negotiable deposits maintained
for a stated period of time at a stated interest rate. If the Fund purchases
time deposits maturing in seven days or more, it will treat those longer-term
time deposits as illiquid.
Investments in Foreign Securities. The Fund may invest in the 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 corporations domiciled in
foreign countries. These securities may not necessarily be denominated in the
same currency as the securities into which they may be converted. Generally,
ADRs, in registered form, are designed for use in the U.S. securities markets
and EDRs, in bearer form, are designed for use in European securities markets.
ADRs are receipts typically issued by a United States bank or trust company
evidencing ownership of the underlying securities. EDRs are European receipts
evidencing a similar arrangement.
Foreign Currency Transactions. The foreign currency transactions of the Fund may
be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Fund may also
enter into forward foreign currency contracts involving currencies of the
different countries in which it will invest either as a hedge against possible
variations in the foreign exchange rate between these currencies, for
speculative purposes, as a substitute for investing in securities denominated in
that currency or in order to create a synthetic position consisting of a
security issued in one country and denominated in the currency of another
country. Forward foreign currency contracts involve contractual 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 for
payables of the Fund accruing in connection with the purchase and sale of its
portfolio securities denominated in foreign currencies. Portfolio hedging is the
use of forward foreign currency contracts to offset portfolio security positions
denominated or quoted in such foreign currencies. The Fund will not attempt to
hedge all of their foreign portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by the Adviser.
There is no limitation on the value of the Fund's assets that may be committed
to forward contracts or on the term of a forward contract.
If the Fund enters into a forward contract requiring it to purchase foreign
currency, its custodian bank will segregate cash or liquid securities, of any
type or maturity, in a separate account of the
3
<PAGE>
Fund in an amount equal to the value of the Fund's total assets committed to the
consummation of such forward contract. Those assets will be valued at market
daily and if the value of the assets in the separate account declines,
additional cash or liquid assets will be placed in the account so that the value
of the account will equal the amount of the Fund's commitment with respect to
such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.
When the Adviser or Sub-Adviser believes that the currency of a particular
foreign country may suffer or enjoy a substantial movement against another
currency, the Fund may enter into a forward contract to sell or buy the amount
of the former foreign currency approximating the value of some or all of the
Fund's portfolio securities denominated in such foreign currency. This second
investment practice is generally referred to as "cross-hedging". The precise
matching of the forward contract amounts and the value of the securities
involved will not generally be possible since the future value of securities in
foreign currencies will change as a consequence of market movements in the value
of these securities between the date on which the forward contract is entered
into and the date it matures. The projection of short-term currency market
movement is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain.
It is impossible to forecast the market value of a particular portfolio security
at the expiration of the contract. Accordingly, it may be necessary for the Fund
to purchase additional foreign currency on the spot market (and bear the expense
of such purchase) if the market value of the security is less than the amount of
foreign currency that the Fund is obligated to deliver and if a decision is made
to sell the security and make delivery of the foreign currency.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as that currency involved, the length of the contract period and
the market conditions then prevailing. Since transactions in foreign currency
are usually conducted on a principal basis, no fees or commissions are involved.
Risks in Foreign Securities. Investments in foreign securities may involve
certain risks not present in domestic securities. Because of the following
considerations, shares of the Fund should not be considered a complete
investment program. There is generally less publicly available information about
foreign companies and other issuers comparable to reports and ratings that are
published about issuers in the United States. There may be difficulty in
enforcing legal rights outside the United States. Foreign issuers are also
generally not subject to uniform accounting and auditing and financial reporting
standards, practices and requirements comparable to those applicable to United
States issuers.
Security trading practices abroad may offer less protection to investors such as
the Fund. It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on exchanges located in the countries in which the
respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Similarly, volume
and liquidity in most foreign bond markets is less than in the United States and
at times, volatility of price can be greater than in the United States. Fixed
4
<PAGE>
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. In addition, foreign
securities may be denominated in the currency of the country in which the issuer
is located. Consequently, changes in the foreign exchange rate will affect the
value of the Fund's shares and dividends.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
The dividends and interest payable on certain of the Fund's foreign portfolio
securities (and, in some cases, capital gains) may be subject to foreign
withholding or other foreign taxes, thus reducing the net amount of income
available for distribution to the Fund's shareholders. See "TAX STATUS".
Investors should understand that the expense ratio of the Fund will be higher
than that of investment companies investing in domestic securities since the
expenses of the Fund, such as the cost of maintaining the custody of foreign
securities and the rate of advisory fees paid by the Fund, are higher.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens,
inflation rates or currency exchange rates. Local securities markets may trade a
small number of securities and may be unable to respond effectively to increases
in trading volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. The Fund may be required to establish special
custodial or other arrangements before making certain investments in those
countries. Securities of issuers located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements
Repurchase Agreements. The Fund may invest in 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 or
Advisers, as appropriate, will continuously monitor the creditworthiness of the
parties with whom a Fund enters into repurchase agreements.
5
<PAGE>
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities 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 and the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse purchase
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 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 from banks temporarily for
extraordinary or emergency purposes (not leveraging or investment) and then in
an aggregate amount not in excess of 10% of the value of the Fund's total assets
at the time of such borrowing, provided that the Fund will not purchase
securities for investment while borrowing equaling 5% or more of the Fund's
total assets outstanding. The Fund will enter into reverse repurchase agreements
only with federally insured banks which are approved in advance as being
creditworthy by the of Trustees. Under the procedures established by the of
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 or Advisers, as appropriate, the daily function of determining and
monitoring the liquidity of restricted securities. The Trustees, however, will
retain sufficient oversight and be ultimately responsible for the
determinations. The Trustees will carefully monitor the Fund's investments in
these securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of increasing the level of illiquidity in the Fund if
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
The Fund may acquire other restricted securities including securities for which
market quotations are not readily available. These securities may be sold only
in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the 1933 Act. Where
registration is required, the Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might
6
<PAGE>
obtain a less favorable price than prevailed when it decided to sell. Restricted
securities will be priced at fair market value as determined in good faith by
the Fund's Trustees.
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
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 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.
7
<PAGE>
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.
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). 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
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
8
<PAGE>
future price fluctuations 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
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
9
<PAGE>
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
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
10
<PAGE>
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 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
obligating the Fund to purchase securities or currencies, require the Fund to
establish 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, 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. 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 lend 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 10% 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
11
<PAGE>
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 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. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid 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.
Structured or Hybrid Notes. The Fund may invest in "structured" or "hybrid"
notes, bonds or debentures. The distinguishing feature of a structured or hybrid
note, bond or debenture is that the amount of interest and/or principal payable
on the security is based on the performance of a benchmark asset or market other
than fixed income securities or interest rates. Examples of these benchmark
include stock prices, currency exchange rates and physical commodity prices.
Investing in a structured note allows the Fund to gain exposure to the benchmark
market while fixing the maximum loss that the Fund may experience in the event
that market does not perform as expected. Depending on the terms of the
security, the Fund may forego all or part of the interest and principal that
would be payable on a comparable conventional note, bond or debenture; the
Fund's loss cannot exceed this foregone interest and/or principal. An investment
in structured or hybrid notes involves risks similar to those associated with a
direct investment in the benchmark asset.
Asset-Backed Securities. The Fund may invest a portion of its assets in
asset-backed securities. Asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying asset-backed
securities can be expected to accelerate. Accordingly, the Fund's ability to
maintain positions in these securities will be affected by reductions in the
principal amount of such securities resulting from prepayments, and its ability
to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such
12
<PAGE>
debtors the right to set-off certain amounts owed on the credit cards, thereby
reducing the balance due. Automobile receivables generally are secured, but by
automobiles rather than residential real property. Most issuers of automobile
receivables permit the loan services to retain possession of the underlying
obligations. If the service were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the asset-backed securities. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of the automobile receivables may
not have a proper security interest in the underlying automobiles. Therefore,
there is the possibility that, in some cases, recoveries on repossessed
collateral may not be available to support payments on these securities.
Short-Term Trading and Portfolio Turnover. The Fund may attempt to maximize
current income through short-term portfolio trading. This will involve selling
portfolio instruments and purchasing different instruments to take advantage of
yield disparities in different segments of the market for government
obligations. 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. 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 the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means the 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 may not:
1. Purchases on Margin and Short Sales. Purchase securities on margin
or sell short, except that the Fund may obtain such short term credits as are
necessary for the clearance of securities transactions. The deposit or payment
by the Fund of initial or maintenance margin in connection with futures
contracts or related options transactions is not considered the purchase of a
security on margin.
2. Borrowing. Borrow money, except from banks temporarily for
extraordinary or emergency purposes (not for leveraging or investment) and then
in an aggregate amount not in excess of 10% of the value of the Fund's total
assets at the time of such borrowing, provided that the Fund will not purchase
securities for investment while borrowings equaling 5% or more of the Fund's
total assets are outstanding.
3. Underwriting Securities. Act as an underwriter of securities of
other issuers, except to the extent that it may be deemed to act as an
underwriter in certain cases when disposing of restricted securities.
4. Senior Securities. Issue senior securities except as appropriate to
evidence indebtedness which the 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 the Fund as described in the Prospectus, including deposits of
initial and variation margin, and (iii) the establishment of separate classes of
shares of the Fund for
13
<PAGE>
providing alternative distribution methods are not considered to be the issuance
of senior securities for purposes of this restriction.
5. Warrants. Invest more than 5% of the Fund's total assets in
warrants, whether or not the warrants are listed on the New York or American
Stock Exchanges, or more than 2% of the value of the Fund's total assets in
warrants which are not listed on those exchanges. Warrants acquired in units or
attached to securities are not included in this restriction.
6. Single Issuer Limitation/Diversification. Purchase securities of any
one issuer, except securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, if immediately after such purchase more than 5%
of the value of the 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 the Fund, up to 25% of the
value of the Fund's total assets may be invested without regard to these
limitations.
7. Real Estate. Purchase or sell real estate although the Fund may
purchase and sell securities which are secured by real estate, mortgages or
interests therein, or issued by companies which invest in real estate or
interests therein; provided, however, that the Fund will not purchase real
estate limited partnership interests.
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 the Fund may engage in such forward foreign currency contracts
and/or purchase or sell such futures contracts and options thereon as described
in the Prospectus.
9. Making Loans. Make loans, except that the Fund may purchase or hold
debt instruments and may enter into repurchase agreements (subject to
Restriction 12) in accordance with its investment objectives and policies and
make loans of portfolio securities provided that as a result, no more than 10%
of the 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 the Fund's total assets at the time of such
purchase to be invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that there is no
limitation with respect to investments in obligations issued or guaranteed by
the U.S. Government, its agencies or instrumentalities.
Non-fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
14
<PAGE>
The Fund may not:
(a) Options Transactions. Write, purchase, or sell puts, calls or
combinations thereof except that the Fund may write, purchase or sell puts and
calls on securities as described in this Statement of Additional Information.
(b) Invest more than 15% of its net assets in illiquid securities.
(c) 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.
(d) 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).
(e) Securities of Other Investment Companies. Purchase a security if,
as a result, (i) more than 10% of the Fund's total assets would be invested in
the securities of other investment companies, (ii) the Fund would hold more than
3% of the total outstanding voting securities of any one investment company, or
(iii) more than 5% of the Fund's total assets would be invested in the
securities of any one investment company. These limitations do not apply to (a)
the investment of cash collateral, received by the Fund in connection with
lending the Fund's portfolio securities, in the securities of open-end
investment companies or (b) the purchase of shares of any investment company in
connection with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company. Subject to the
above percentage limitations, the Fund may, in connection with the John Hancock
Group of Funds Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John Hancock Group
of Funds.
If a percentage restriction is adhered to at the time of investment, a later
increase or decrease in percentage resulting from a change in values of
portfolio securities or amounts of net assets will not be considered a violation
of any of the foregoing restrictions.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees, who elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers and Trustees of the Fund 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").
15
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman, Director and Chief
101 Huntington Avenue Executive Officer (1, 2) Executive Officer, the Adviser;
Boston, MA 02199 Chairman, Director and Chief
October 1944 Executive Officer, The Berkeley
Financial Group, Inc. ("The Berkeley
Group"); Chairman and Director, NM
Capital Management, Inc. ("NM
Capital"), John Hancock Advisers
International Limited ("Advisers
International") and Sovereign Asset
Management Corporation ("SAMCorp");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc. ("John Hancock Funds");
Chairman, First Signature Bank and
Trust Company; Director, John
Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Advisers International
(Ireland) Limited ("International
Ireland"), 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; Director, John Hancock
Freedom Securities Corporation
(until September 1996); Director,
John Hancock Signature Services,
Inc. ("Signature Services") (until
January 1997).
</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.
16
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Dennis S. Aronowitz Trustee Professor of Law, Emeritus, Boston
1216 Falls Boulevard University School of Law (as of
Fort Lauderdale, FL 33327 1996); Director, Brookline Bankcorp.
June 1931
Richard P. Chapman, Jr. Trustee (1) Director, President and Chief
160 Washington Street Executive Officer of Brookline
Brookline, MA 02147 Bankcorp. (lending); Director,
February 1935 Lumber Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University (education);
Director, Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee 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).
</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.
17
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Douglas M. Costle Trustee (1) Director, Chairman and Distinguished
RR2 Box 480 Senior Fellow, Institute for
Woodstock, VT 05091 Sustainable Communities, Montpelier,
July 1939 Vermont (since 1991); Dean, Vermont
Law School (until 1991); Director,
Air and Water Technologies (until
1996) (environmental services and
equipment), Niagara Mohawk Power
Corp. (electric services); Concept
Five Technologies (until 1997);
Mitretek Systems (governmental
consulting services); Conversion
Technologies, Inc.; Living
Technologies, Inc.
Leland O. Erdahl Trustee Director of Uranium Resources
8046 Mackenzie Court Corporation; Hecla Mining Company,
Las Vegas, NV 89129 Canyon Resources Corporation and
December 1928 Original Sixteen to One Mine, Inc.
(1984-1987 and 1991-1998)
(management consultant); Vice
President, Chief Financial Officer
and Director of Amax Gold, Inc.
(until 1998); Director, Freeport
McMoran Copper & Gold, Inc. (until
1997).
</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.
18
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Richard A. Farrell Trustee President of Farrell, Healer & Co.,
The Venture Capital Fund of New England (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 Senior Vice President and Chief
3054 So. Abingdon Street Economist, The Conference Board
Arlington, VA 22206 (non-profit economic and business
December 1947 research); Director, Unisys Corp.;
and H.B. Fuller Company. Director,
National Bureau of Economic Research
(academic).
William F. Glavin Trustee President Emeritus, Babson College
120 Paget Court - John's Island (as of 1997); Vice Chairman, Xerox
Vero Beach, FL 32963 Corporation (until June 1989);
March 1932 Director, Caldor Inc., Reebok, Inc.
(since 1994) and Inco Ltd.
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser, The
Boston, MA 02199 Berkeley Group; Director, John
April 1953 Hancock Funds, Advisers
International, Insurance Agency,
Inc. and International Ireland;
President and Director, SAMCorp. and
NM Capital; Executive Vice
President, the Adviser (until
December 1994); Director, Signature
Services (until January 1997).
</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.
19
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Dr. John A. Moore Trustee 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 Executive Director, Council for
CIES International Exchange of Scholars
3007 Tilden Street, N.W. (since January 1998), Vice
Washington, D.C. 20008 President, Institute of
May 1943 International Education (since
January 1998); Cornell Institute of
Public Affairs, Cornell University
(until December 1997); President
Emerita of Wells College and St.
Lawrence University; Director,
Niagara Mohawk Power Corporation
(electric utility).
John W. Pratt Trustee Professor of Business Administration
2 Gray Gardens East Emeritus, Harvard University
Cambridge, MA 02138 Graduate School of Business
September 1931 Administration (as of June 1998).
</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.
20
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
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; Director, The
Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, Signature Services (until
January 1997).
Osbert M. Hood Senior Vice President and Chief Senior Vice President and Chief
101 Huntington Avenue Financial Officer Financial Officer, the Adviser, the
Boston, MA 02199 Berkeley Group and John Hancock
August 1952 Funds, Inc.; Vice President and
Chief Financial Officer, John
Hancock Mutual Life Insurance
Company Retail Sector (until 1997).
</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.
21
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
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, NM Capital and
SAMCorp.; Clerk, Insurance Agency,
Inc.; Counsel, John Hancock Mutual
Life Insurance Company (until
February 1996), and Vice President
of John Hancock Distributors, Inc.
(until April 1994).
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, NM Capital;
March 1950 Vice President, John Hancock
Distributors, Inc. (until April
1994).
James J. Stokowski Vice President, Treasurer and Chief Vice President, the Adviser.
101 Huntington Avenue Accounting Officer
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.
22
<PAGE>
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 and Scipione and Ms.
Hodsdon, each a non-Independent Trustee, and each of the officers of the Fund
are interested persons of the Adviser, are compensated by the Adviser and
receive no compensation from the Fund for their services.
Total Compensation
Aggregate From all Funds in
Compensation from John Hancock Fund
the Fund(1) Complex to Trustee(2)
Trustees ---------- ---------------------
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*
Dr. John A. Moore*
Patti McGill Peterson
John W. Pratt
Edward J. Spellman
Total $ $
(1)Compensation is for the fiscal year ended October 31, 1998.
(2)Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 1998. As of this date, there were sixty-seven
funds in the John Hancock Fund Complex, with each of these Independent Trustees
serving on thirty-two funds.
(*)As of December 31, 1998, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $___________, Mr. Cosgrove was $___________, Mr. Glavin was
$_____________ and for Dr. Moore was $__________ under the John Hancock Group of
Funds Deferred Compensation Plan for Independent Trustees.
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of November 30, 1998, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders beneficially owned 5% or more of the
outstanding shares of the Fund:
23
<PAGE>
Percentage of total
outstanding shares of
Name and Address of Shareholder Class of shares the Class of the Fund
- ------------------------------- --------------- ---------------------
MLPF&S For The Sole Benefit of B 8.65%
Its Customers
Attn: Fund Administration 9739B
4800 Deer Lake Drive East 2nd Fl
Jacksonville FLA 32246-6484
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $30 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 1,400,000 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 $100
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries a high rating from Standard & Poor's and A.M.
Best. 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, which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, 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 but not
limited to 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,
maintaining a committed line of credit, 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 allowable 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 a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Net Asset Value Annual Rate
--------------- -----------
First $100,000,000 0.90%
Next $200,000,000 0.80%
Next $200,000,000 0.75%
Amounts over $500,000,000 0.625%
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 its 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.
For the fiscal years ended October 31, 1996, 1997 and 1998, the Adviser's
management fee was $1,175,079, $1,251,029 and $______________ , respectively
24
<PAGE>
The Fund and the Adviser have entered into a sub-investment management contract
with the Sub-Adviser ("the "Sub-Advisory Agreement") under which the
Sub-Adviser, subject to the review of the Trustees and the overall supervision
of the Adviser, is responsible for providing the Fund with advice with respect
to that portion of the assets invested in countries other than the United States
and Canada. The Sub-Adviser with offices located at 6th Floor, Duke's Court,
32-36 Duke Street, St. James's, London, England, SW1Y6DF, is a wholly-owned
subsidiary of the Adviser formed in 1987 to provide international investment
research and advisory services to U.S. institutional clients. As compensation
for its services under the Sub-Advisory Agreement, the Sub-Adviser receives from
the Adviser a portion of its monthly fee equal to 0.70% on an annual basis of
the average daily net asset value of the Fund for each calendar month up to $200
million of average daily net assets; and 0.6375% on an annual basis of the
average daily net asset value over $200 million. The Fund is not responsible for
paying the Sub-Adviser's fee.
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.
Pursuant to its Advisory Agreement and the Sub-Advisory Agreement, neither the
Adviser nor Sub-Adviser is liable to the Fund or its shareholders for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the Agreement relate, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser or
Sub-Adviser in the performance of their duties or from reckless disregard by
them of their obligations and duties under the applicable Agreements.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement 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 continuation of the Advisory Agreement, Sub-Advisory Agreement and the
Distribution Agreement was approved by all Trustees. The Advisory Agreement,
Sub-Advisory Agreement and the Distribution Agreement, will continue in effect
from year to year, provided that its continuance is approved annually both (i)
by the holders of a majority of the outstanding voting securities of the Trust
or by the Trustees, and (ii) by a majority of the Trustees who are not parties
to the Agreement or "interested persons" of any such parties. Both Agreements
may be terminated on 60 days written notice by any party or by vote of a
majority to the outstanding voting securities of the Fund and will terminate
automatically if assigned.
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 fiscal year
25
<PAGE>
ended October 31, 1997 and 1998, the Fund paid the Adviser $24,127 and
$_________, respectively, for services under this Agreement.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser, the
Sub-Adviser and the Fund have adopted extensive restrictions on personal
securities trading by personnel of the Adviser and its affiliates. In the case
of the Adviser, 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. The Sub-Adviser's restrictions may differ where appropriate, as long as
they maintain the same intent. These restrictions are a continuation of the
basic principle that the interests of the Fund and its shareholders come first.
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 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 that are continually offered at net asset
value next determined, plus an applicable sales charge, if any. In connection
with the sale of Fund shares, 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. In the case of Class B or Class C shares, the broker receives
compensation immediately but John Hancock Funds is compensated on a deferred
basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal years ended October 31, 1996, 1997 and 1998 were $139,302, $114,878 and
$____________, respectively. Of such amounts $21,673, $18,135 and $___________,
respectively, were retained by John Hancock Funds in 1996, 1997 and 1998. The
remainder of the underwriting commissions were reallowed to Selling Brokers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
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% for Class A shares and 1.00% for Class B
and Class C shares of the Fund's average daily net assets attributable to shares
of that class. However, the service fee will not exceed 0.25% of the Fund's
average daily net assets attributable to each class of shares. The distribution
fees 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 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 and Class C 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 John Hancock Funds is not fully
reimbursed for payments 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 and Class C Plans will be
carried forward together with interest on the balance of these unreimbursed
expenses. The Fund does not treat unreimbursed expenses relating to Class B/or
Class C Plans 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, 1998, an
aggregate of $_______________ of distribution expenses or _____________% of the
average net assets of the Class B shares of the Fund was not reimbursed or
recovered by the John Hancock Funds through the receipt of deferred sales
charges or 12b-1 fees in prior periods. Class C shares of the Fund did
26
<PAGE>
not commence operations until March 1, 1999; therefore, there are no
unreimbursed expenses to report.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on these Plans.
Pursuant to the Plans, at least quarterly, the John Hancock Funds provide the
Fund with a written report of the amounts expended under the Plans and the
purpose for which these expenditures were made. The Trustees review these
reports on a quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
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 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 the 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 the Plan. Each Plan provides that
no material amendment to the Plans will be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C 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
the Fund.
Amounts paid to 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 a 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 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 Fund.
During the fiscal year ended October 31, 1998, the Fund paid John Hancock Funds
the following amounts of expenses in connection with their services for the
Fund. Class C shares of the Fund did not commence operations until March 1,
1999; therefore, there are no expenses to report.
27
<PAGE>
Expense Items
-------------
<TABLE>
<CAPTION>
Printing and Interest
Mailing of Expenses of Carrying or
Prospectus to Compensation John Other
New to Selling Hancock Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A $ $ $ $ $
Class B $ $ $ $ $
Class C $ $ $ $ $
</TABLE>
SALES COMPENSATION
As part of their business strategies, each of the John Hancock 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. The sales charges and 12b-1
fees paid by investors are detailed in the prospectus and under "Distribution
Contracts" in this Statement of Additional Information. The portions of these
expenses that are reallowed to financial services firms are shown on the next
page.
Whenever you make an investment in the Fund, 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. 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
<PAGE>
<TABLE>
<CAPTION>
Maximum
Sales charge reallowance First year Maximum total
Paid by investors Or commission service fee compensation(1)
Class A investments (% of offering price) (% of offering price) (% of offering price) (% 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 (all
funds)
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%
<CAPTION>
<S> <C> <C> <C>
Maximum
Reallowance First year Maximum
Or commission service fee total compensation
Class B investments (% of offering price) (% of offering price) (% of offering price)
- ------------------- --------------------- --------------------- ----------------------
All amounts 3.75% 0.25% 4.00%
Maximum
Reallowance First year Maximum
Or commission service fee total compensation
Class C investments (% of offering price) (% of offering price) (% of offering price)
--------------------- --------------------- ----------------------
All amounts 0.75% 0.25% 1.00%
</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.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
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
29
<PAGE>
categories for which no sales are reported and other securities traded
over-the-counter are generally valued at the mean between the current closing
bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. If quotations are not readily available or the value
has been materially affected by events occurring after the closing of a foreign
market, assets are valued by a method that the Trustees believe accurately
reflects their value. Any assets or liabilities expressed in terms of foreign
currencies are translated into U.S. dollars by the custodian bank based on
London currency exchange quotations as of 5:00 p.m., London time ( 12:00 noon,
New York time) on the date of any determination of the Fund's NAV.
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 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 accumulate 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.
Without Sales Charges. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
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,
grandparents, mother-in-law, father-in-law, daughter-in-law,
son-in-law, niece, nephew, grandparents and same sex domestic partner)
of any of the foregoing; or any fund, pension, profit sharing or other
benefit plan for the individuals described above.
30
<PAGE>
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into a signed 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 a class action lawsuit against insurance companies
who is investing settlement proceeds.
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.
o Retirement plans investing through the PruArray Program
sponsored by Prudential Securities.
o Pension plans transferring assets from a John Hancock variable
annuity contract to the Fund pursuant to an exemptive application
approved by the Securities and Exchange Commission.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed retirement plans with at least 100 eligible employees at the
inception of the Fund account. Each of these investors 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%
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.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges 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) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
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 being invested but also
the investor's purchase price or current account value of the Class A shares of
all John Hancock funds which carry a sales charge already
31
<PAGE>
held by such person. Class A shares of John Hancock money market funds will only
be eligible for the accumulation privilege if the investor has previously paid a
sales charge on the amount of those shares. Retirement plan investors may
include the value of Class B shares if Class B shares held are greater than $1
million. Retirement plans must notify Signature Services to utilize.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
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 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
retirement plan, however, may opt to make the necessary investments called for
by the LOI over a forty-eight (48) month period. These retirement plans include
traditional, Roth and Education IRAs, SEP, SARSEP, 401(k), 403(b) (including
TSAs), SIMPLE IRA, SIMPLE 401(k), Money Purchase Pension, Profit Sharing and
Section 457 plans. Non-qualified and qualified retirement plan investments
cannot be combined to satisfy an LOI of 48 months. Such an investment (including
accumulations and combinations but not including reinvested dividends) 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 the 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 Fund to sell, any additional Class A shares and
may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B and Class C shares are purchased at net asset value per
share without the imposition of an initial sales charge so that the Fund will
receive the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively, will be subject to a
CDSC at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be
32
<PAGE>
assessed on an amount equal to the lesser of the current market value or the
original purchase cost of the Class B or Class C shares being redeemed. No CDSC
will be imposed on increases in account value above the initial purchase prices,
including all shares derived from reinvestment of dividends or capital gains
distributions.
Class B shares are not available to full-service retirement 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 both Class B and Class C
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or for Class B or one year CDSC
redemption period for Class C, 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 Class B shares. 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.
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:
o Proceeds of 50 shares redeemed at $12 per share (50 x 12) $600.00
o*Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the lot not just the
shares being redeemed.
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 and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C 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 and Class C shares and of Class A shares that are subject
to CDSC, unless indicated otherwise, in the circumstances defined below:
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<PAGE>
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. (Does not apply to trust accounts
unless trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions where the proceeds are used to purchase a John Hancock
Declaration Variable Annuity.
* Redemptions of Class B (but not Class C ) shares made under a periodic
withdrawal plan, or redemptions for fees charged by planners or advisors
for advisory services, 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 or Class C that are
subject to a CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has less 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.
* Redemptions of Class A or Class C shares by retirement plans that invested
through the PruArray Program sponsored by Prudential Securities.
For retirement Accounts (such as traditional, Roth and Education IRAs, SIMPLE
IRAs, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase
Pension Plan, Profit-Sharing Plan and other 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 sections 401(a) (such as
Money Purchase Pension Plans, and Profit-Sharing Plan/401(k) Plans), 457
and 408 (SEPs and SIMPLE IRAs) of the Internal Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
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<PAGE>
CDSC Waiver Matrix for Class B and Class C
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-
Distribution (401 (k), Rollover retirement
MPP, PSP)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- ----------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of
mandatory account value
distributions annually in
or 12% of periodic
account payments
value
annually in
periodic
payments
- ----------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for 12% of
and 70 1/2 Life account value
Expectancy annually in
or 12% of periodic
account payments
value
annually in
periodic
payments
- ----------------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of
(Class B only) annuity annuity annuity annuity account value
payments payments payments payments annually in
(72t) or 12% (72t) or 12% (72t) or (72t) or periodic
of account of account 12% of 12% of payments
value value account account
annually in annually in value value
periodic periodic annually annually in
payments payments in periodic
periodic 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.
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<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. If the shareholder were to sell
portfolio securities received in this fashion, the shareholder would incur a
brokerage charge. Any such securities would be valued for the purposes of making
such payment at the same value as used in determining net asset value. The Fund
has, however, elected to be governed by Rule 18f-1 under the Investment Company
Act. Under that rule, the Fund must redeem its shares for cash except to the
extent that the redemption payments to any shareholder during any 90-day period
would exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. 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
and John Hancock Intermediate Maturity 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 arising from the
redemption of Fund shares which 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 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 and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to
36
<PAGE>
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"). This program is explained in
the Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the 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 order date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the same Fund or
another John Hancock fund, subject to the minimum investment limit in that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the same 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 on exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
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<PAGE>
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).
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund, without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and four other
series. The Trustees have also authorized the issuance of three classes of
shares of the Fund, designated as Class A, Class B and Class C.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to the classes of the Fund. Holders of
each class of 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 will be in the same amount,
except for differences resulting from the facts that (i) the distribution and
service fees relating to each class of shares will be borne exclusively by that
class, (ii) Class B and Class C shares will pay higher distribution and service
fees than Class A shares and (iii) each class of 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 multiple-class structures.
Similarly, the net asset value per share may vary depending on which class of
shares are purchased. No interest will be paid on uncashed dividend or
redemption checks.
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 a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the
38
<PAGE>
Declaration of Trust contains an express disclaimer of shareholder liability for
acts, obligations or affairs of each 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 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 Fund's 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.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right to
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts. For telephone transactions, the transfer agent 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, the transfer agent 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.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
TAX STATUS
The Fund is treated as a separate entity for accounting and tax purposes, has
qualified and elected to be treated as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
intends to continue to 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 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. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions 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 those gains and losses included in
computing net capital gain, after reduction by deductible expenses.) Some
distributions may be paid in January but may be taxable to shareholders as if
39
<PAGE>
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.
If the Fund invests in stock (including an option to acquire stock such as is
inherent in a convertible bond) of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from these
passive foreign investment companies 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. An election may be
available to ameliorate these adverse tax consequences, but could require the
Fund to recognize taxable income or gain without the concurrent receipt of cash.
These investments could also result in the treatment of associated capital gains
as ordinary income. The Fund 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 the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency futures and options, foreign currency forward
contracts, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount, timing and character of distributions to shareholders. Transactions
in foreign currencies that are not directly related to the Fund's investment in
stock or securities, including speculative currency positions 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. 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.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to their investments in foreign securities. Some 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"), paid by the Fund, subject to certain provisions and limitations
contained in the Code, if the Fund so elects. If more than 50% of the value of
the Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund will be
required to (i) include in ordinary gross income (in addition to taxable
dividends 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 foreign taxes paid by
them.
40
<PAGE>
If the 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 the 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. The Fund
that cannot or does not make this election may deduct such taxes in determining
the amount it has available for distribution to shareholders, and shareholders
would not, in this event, include these foreign taxes in their income, nor would
they be entitled to any tax deductions or credits with respect to such taxes.
For the Fund, the amount of net realized capital gains, if any, in any given
year will vary depending upon the Adviser's current investment strategy and
whether the Adviser believes it to be in the best interest of the Fund to
dispose of portfolio securities or enter into option, futures or forward
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 or other disposition of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, 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. A sales charge paid in purchasing
shares of the Fund cannot be taken into account for purposes of determining gain
or loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or another John Hancock Fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the 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 the 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. Shareholders should consult their own
tax advisers regarding their particular circumstances to determine whether a
disposition of Fund shares is properly treated as a sale for tax purposes, as is
assumed in the foregoing discussion.
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 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 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
41
<PAGE>
the carryforward 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 such Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain 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, the Fund is permitted to carry forward a net
capital loss in any year to offset its own net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the applicable Fund, and as noted above, would not be distributed
as such to shareholders. The Fund has no capital loss carryforwards.
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 or constructive sale rules applicable to certain options, futures,
forwards or other transactions may also require the Fund to recognize income or
gain without a concurrent receipt of cash. Additionally, some countries restrict
repatriation which may make it difficult or impossible for the Fund to obtain
cash corresponding to its earnings or assets in those countries. 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 portfolio securities
under disadvantageous circumstances to generate cash, or may have to leverage 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 intangible property 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
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.
42
<PAGE>
federal income tax liability. Investors should consult their tax advisers about
the applicability of the backup withholding provisions.
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 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)
during a prescribed period extending before and after each such dividend and
distributed and properly designated by the Fund may be treated as qualifying
dividends. Corporate shareholders must meet the holding period requirements
stated above with respect to their shares of the Fund for each dividend 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 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 and to the extent such basis
would be reduced below zero, that current recognition of income would be
required.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict its ability to enter into options, futures, foreign currency
positions, and foreign currency forward contracts.
Certain options, futures and forward foreign currency contracts undertaken by
the Fund may cause the Fund to recognize gains or losses from marking to market
even though its positions have not been sold or terminated and affect the
character as long-term or short-term (or, in the case of foreign currency
contracts, as ordinary income or loss) and timing of some capital gains and
losses realized by the Fund. Additionally, the Fund may be required to recognize
gain, but not loss, if an option or other transaction is treated as a
constructive sale of an appreciated financial position in the Fund's portfolio.
Also, certain of the 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 gains. Certain of these 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 (including consideration of available elections) applicable to
options, futures or forward contracts in order to minimize any potential adverse
tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain types 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 the Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is
43
<PAGE>
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 a Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
The Fund anticipates that, provided the Fund qualifies as a regulated investment
company under the Code, it will also not be required to pay any Massachusetts
income tax.
CALCULATION OF PERFORMANCE
Total Return. Average annual total return is determined separately for each
class of shares.
Set forth below is a table 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 Fund. The performance
information for each Fund is stated for the one year and five year periods ended
October 31, 1998 and, with respect to Class A shares of the Fund for the period
from the commencement of operations (indicated by an asterisk). With respect to
Class B shares of the Fund, performance information is also stated for the ten
year period ended October 31, 1998. Class C shares commenced operations on March
1, 1999; therefore, there is no average total return to report.
<TABLE>
<CAPTION>
Class A Class A Class B Class B Class B
Shares Shares Class A Shares Shares Shares
One Year Five Years Shares One Year Five Years Ten Years
Ended Ended 1/3/92* to Ended Ended Ended
10/31/98 10/31/98 10/31/98 10/31/98 10/31/98 10/31/98
- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
</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:
T = ((ERV/P)^(1/n)) - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical
$1,000 investment made at the beginning of
the 1 year, 5 years, and life-of-fund
periods.
The result of the foregoing calculation is an average and is not the same as the
actual year-to-year results.
44
<PAGE>
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, this calculation
assumes that 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 or Class C shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B or Class C shares from a
total return calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's total
return and/or yield will be compared to indices of mutual funds such as Lipper
Analytical Services, Inc.'s "Lipper-Mutual Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on mutual funds in
the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes, as well as Russell and Wilshire indices.
Performance rankings and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MORNINGSTAR, STANGER'S and BARRON'S, etc. may also be utilized. The
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 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 Fund's 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-Adviser and officers and Trustees
who are interested persons of the Fund. Orders for purchases and sales of
securities are placed in a manner which, in the opinion of the officers of the
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 these transactions.
In the U.S. Government securities market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account without a
stated commission, although the price of the security usually includes a profit
to the dealer. On occasion, certain money market
45
<PAGE>
instruments and agency securities may be purchased directly from the issuer, in
which case no commissions or premiums are paid.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
The Sub-Advisory Agreement between the Adviser and the Sub-Adviser authorizes
Sub-Adviser (subject to the control of the Trustees of the Fund) to provide the
Fund with a continuing and suitable investment program with respect to
investments by the Fund in countries other than the United States and Canada.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and in the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser or Sub-Adviser,
and their value and expected contribution to the performance of the Fund. It is
not possible to place a dollar value on information and services to be received
from brokers and dealers, since it is only supplementary to the research efforts
of the Adviser or Sub-Adviser. The receipt of research information is not
expected to reduce significantly the expenses of the Adviser or Sub-Adviser. The
research information and statistical assistance furnished by brokers and dealers
may benefit the Life Company or other advisory clients of the Adviser or
Sub-Adviser, and, conversely, brokerage commissions and spreads paid by other
advisory clients of the Adviser or Sub-Adviser may result in research
information and statistical assistance beneficial to the Fund. The Fund will
make no commitment to allocate portfolio transactions upon any prescribed basis.
While the Adviser and Sub-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. During the fiscal years ended October 31,
1996, 1997 and 1998, negotiated brokerage commissions were paid on portfolio
transactions in the amount of $706,944, $38,297 and $___________, respectively.
When the Fund engages in an option transaction, ordinarily the same broker will
be used for the purchase or sale of the option and any transactions in the
securities to which the option relates. The writing of calls and the purchase of
puts and calls by the Fund will be subject to limitations established (and
changed from time to time) by each of the Exchanges governing the maximum number
of puts and calls covering the same underlying security which may be written or
purchased by a single investor or group of investors acting in concert,
regardless of whether the options are written or purchased on the same or
different Exchanges, held or written in one or more accounts or through one or
more brokers. Thus, the number of options which the Fund may write or purchase
may be affected by options written or purchased by other investment companies
and other investment advisory clients of the Adviser and its affiliates or
Sub-Adviser. An Exchange may order the liquidation of positions found to be in
violation of these limits, and it may impose certain other sanctions.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended October 31,
1998, the Fund directed in the
46
<PAGE>
amount of $238,322 commissions 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 Brokers"). Pursuant to procedures determined by the Trustees and
consistent with the above policy of obtaining best net results, the Fund may
execute portfolio transactions with or through Affiliated Brokers. During the
fiscal periods ended October 31, 1996, 1997 and 1998, no brokerage commissions
were paid to Affiliated Brokers in connection with the portfolio transactions of
the Fund.
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
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 Broker, has, as an investment adviser to
the Fund, the obligation to provide investment management services, which
includes elements of research and related investment skills such research and
related skills will not be used by the Affiliated Broker as a basis for
negotiating commissions at a rate higher than that determined in accordance with
the above criteria.
Over-the-counter purchases and sales are transacted directly with principal
market makers except in those cases in which better prices and executions may be
obtained elsewhere. Affiliated Brokers will not receive any brokerage
commissions for orders they execute for a Fund in the over-the-counter market.
The Fund will in no event effect principal transactions with Affiliated Brokers
in the over-the-counter securities in which Affiliated Brokers makes a market.
Other investment advisory clients advised by the Adviser or Sub-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 or Sub-Adviser may
average the transactions as to price and allocate the amount of available
investments in a manner which the Adviser or Sub-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 or Sub-Adviser may aggregate the securities to be
sold or purchased for the Fund with those to be sold or purchased for other
clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Funds. The Fund pays Signature
Services an annual fee of $19.00 for each Class A shareholder account, $21.50
for each Class B shareholder account and $20.50 for each Class C shareholder
account. The Fund also pays certain out-of-pocket expenses and these expenses
are aggregated and charged to the Fund and allocated to each class on the basis
of their relative net asset values.
47
<PAGE>
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Trust and State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110. Under the custodian agreement, State Street Bank &
Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are _______________ audits and renders an
opinion on the Fund's annual financial statements and reviews the Fund's annual
Federal income tax return.
48
<PAGE>
APPENDIX A
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 the fund's
risk profile in the prospectus.
A fund is 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 the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
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). (e.g., short sales, currency
contracts, financial futures and options; securities and index options).
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. (e.g., repurchase agreements, securities lending, foreign debt
securities, non-investment-grade debt securities, asset-backed securities,
mortgage-backed securities, participation interests, financial futures and
options; securities and index options, structured securities).
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. (e.g., currency
trading, foreign debt securities, currency contracts, financial futures and
options; securities and index options).
Extension risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.(e.g., mortgage-backed securities,
structured securities).
Information risk The risk that key information about a security or market is
inaccurate or unavailable.(e.g., non-investment-grade debt securities).
A-1
<PAGE>
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.(e.g.,
foreign debt securities, non-investment-grade debt securities, asset-backed
securities, mortgage-backed securities, participation interests, financial
future and options; securities and index options, structured securities).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
when-issued securities and forward commitments, currency contracts, financial
futures and options; securities and index options, structured securities).
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. (e.g., short sales, non-investment-grade debt securities,
restricted and illiquid securities, mortgage-backed securities, participation
interests, currency contracts, financial futures and options; securities and
index options, structured securities).
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than it was worth at an earlier time. Market risk may affect a
single issuer, industry, sector of the economy or the market as a whole. Common
to all stocks and bonds and the mutual funds that invest in them. (e.g., short
sales, short-term trading, when-issued securities and forward commitments,
foreign debt securities, non-investment-grade debt securities, restricted and
illiquid securities, financial futures and options; securities and index
options, structured securities).
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. (e.g., short sales,
A-2
<PAGE>
when-issued securities and forward commitments, currency contracts, financial
futures and options; securities and index options).
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
(e.g., foreign debt securities).
Prepayment risk The risk that unanticipated prepayments may occur during periods
of falling interest rates, reducing the value of mortgage-backed securities.
(e.g., mortgage-backed securities, structured securities).
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade debt
securities, restricted and illiquid securities, participation interests,
structured securities)
A-3
<PAGE>
APPENDIX B - 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.
"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.
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue. Should
no rating be assigned, the reason may be one of the following: (i) an
application for rating was not received or accepted; (ii) the issue or issuer
belongs to a group of securities that are not rated as a matter of policy; (iii)
there is a lack of essential data pertaining to the issue or issuer; or (iv) the
issue was privately placed, in which case the rating is not published in Moody's
publications.
- ------------
*As described by the rating companies themselves.
B-1
<PAGE>
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Standard & Poor's Bond Ratings
"AAA. Debt rated 'AAA' has the highest rating by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
"AA. Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
"A. Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB. Debt rated 'BBB' is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Debt rated "BB," or "B," is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and pay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major risk exposures to adverse conditions.
"CCC: Debt rated 'CCC' has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The 'CCC' rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
'B' or 'B-' rating.
"CC: The rating 'CC' is typically applied to debt subordinated to senior debt
that is assigned an actual or implied 'CCC' rating.
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.
B-2
<PAGE>
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper Ratings
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"P-1 -- "Prime-1" indicates the highest quality repayment capacity of the rated
issues.
"P-2 -- "Prime-2" indicates that the issuer has a strong capacity for repayment
of short-term promissory obligations. Earnings trends and coverage ratios, while
sound, will be more subjective to variation. Capitalization characteristics,
while still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained."
Standard & Poor's Commercial Paper Ratings
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Standard & Poor's two highest commercial paper rating categories
are as follows:
"A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation.
"A-2 -- Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1."
B-3
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
JOHN HANCOCK GROWTH FUND
Class A, Class B and Class C Shares
Statement of Additional Information
March 1, 1999
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, 1999 (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, Suite 1000
Boston MA 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund................................................. 2
Investment Objective and Policies........................................ 2
Investment Restrictions.................................................. 14
Those Responsible for Management......................................... 16
Investment Advisory and Other Services................................... 26
Distribution Contracts................................................... 28
Sales Compensation....................................................... 30
Net Asset Value.......................................................... 31
Initial Sales Charge on Class A Shares................................... 32
Deferred Sales Charge on Class B and Class C Shares...................... 35
Special Redemptions...................................................... 39
Additional Services and Programs......................................... 39
Description of the Fund's Shares......................................... 41
Tax Status............................................................... 42
Calculation of Performance............................................... 47
Brokerage Allocation..................................................... 49
Transfer Agent Services.................................................. 51
Custody of Portfolio..................................................... 52
Independent Auditors..................................................... 52
Appendix A-Description of Investment Risk................................ A-1
Appendix B-Description of Bond Ratings................................... B-1
Financial Statements..................................................... F-1
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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. Appendix A contains further
information describing investment risks. The investment objective of the Fund is
fundamental and may only be changed with shareholder approval. There is no
assurance that the Fund will achieve its investment objective.
The Fund's investment objective 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.
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
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Fund's net assets, however, will be invested in securities rated lower than BBB
by S&P or Baa by Moody's. In addition, no more than 5% of the Fund's net assets
may be invested in securities rated BBB or Baa and unrated securities deemed of
equivalent quality. See the Appendix attached to this Statement of Additional
Information which describes the characteristics of the securities in the various
ratings categories. The Fund may invest in comparable quality unrated securities
which, in the opinion of the Adviser, offer comparable yields and risks to those
securities which are rated.
Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the ability of the issuer to make payments of
interest and principal. The high yield fixed income market is relatively new and
its growth occurred during a period of economic expansion. The market has not
yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities generally
respond to short term corporate and market developments to a greater extent than
do the price and liquidity of higher rated securities because such developments
are perceived to have a more direct relationship to the ability of an issuer of
such lower rated securities to meet its ongoing debt obligations. The market
prices of zero coupon bonds are affected to a greater extent by interest rate
changes, and thereby tend to be more volatile than securities which pay interest
periodically. Increasing rate note securities are typically refinanced by the
issuers within a short period of time.
Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations will make it more difficult to dispose of the
bonds and to value accurately the Fund's assets. The reduced availability of
reliable, objective data may increase the Fund's reliance on management's
judgment in valuing high yield bonds. In addition, the Fund's investments in
high yield securities may be susceptible to adverse publicity and investor
perceptions, whether or not justified by fundamental factors. The Fund's
investments, and consequently its net asset value, will be subject to the market
fluctuations and risks inherent in all securities.
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 B 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
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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
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.
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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.
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.
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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 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
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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 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 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
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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.
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
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
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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
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
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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
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
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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 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 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. 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.
11
<PAGE>
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
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
12
<PAGE>
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.
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. The Fund's portfolio turnover rate is set forth in the table
under the caption "Financial Highlights" in the Prospectus.
13
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information means the 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 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
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.
14
<PAGE>
(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.
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) Invest for the purpose of exercising control over or management of any
company.
(c) 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.
(d) Invest more than 15% of its net assets in illiquid securities.
15
<PAGE>
(e) 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.
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, 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 Fund 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").
16
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman, Director and Chief
101 Huntington Avenue Executive Officer (1, 2) Executive Officer, the Adviser;
Boston, MA 02199 Chairman, Director and Chief
October 1944 Executive Officer, The Berkeley
Financial Group, Inc. ("The
Berkeley Group"); Chairman and
Director, NM Capital Management,
Inc. ("NM Capital"), John Hancock
Advisers International Limited
("Advisers International") and
Sovereign Asset Management
Corporation ("SAMCorp");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc. ("John Hancock Funds");
Chairman, First Signature Bank and
Trust Company; Director, John
Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Advisers International
(Ireland) Limited ("International
Ireland"), 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; Director, John Hancock
Freedom Securities Corporation
(until September 1996); Director,
John Hancock Signature Services,
Inc. ("Signature Services")(until
January 1997).
</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.
17
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Dennis S. Aronowitz Trustee Professor of Law, Emeritus, Boston
1216 Falls Boulevard University School of Law (as of
Fort Lauderdale, FL 33327 1996); Director, Brookline Bankcorp.
June 1931
Richard P. Chapman, Jr. Trustee (1) Director, President and Chief
160 Washington Street Executive Officer of Brookline
Brookline, MA 02147 Bankcorp. (lending); Director,
February 1935 Lumber Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University (education);
Director, Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee 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).
</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.
18
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Douglas M. Costle Trustee (1) Director, Chairman 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 (until 1996)
(environmental services and
equipment), Niagara Mohawk Power
Corp. (electric services); Concept
Five Technologies (until 1997);
Mitretek Systems (governmental
consulting services); Conversion
Technologies, Inc.; Living
Technologies, Inc.
Leland O. Erdahl Trustee Director of Uranium Resources
8046 Mackenzie Court Corporation; Hecla Mining Company,
Las Vegas, NV 89129 Canyon Resources Corporation and
December 1928 Original Sixteen to One Mine, Inc.
(1984-1987 and 1991-1998)
(management consultant); Vice
President, Chief Financial Officer
and Director of Amax Gold, Inc.
(until 1998); Director, Freeport
McMoran Copper & Gold, Inc. (until
1997).
</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.
19
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Richard A. Farrell Trustee President of Farrell, Healer & Co.,
The Venture Capital Fund of New England (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 Senior Vice President and Chief
3054 So. Abingdon Street Economist, The Conference Board
Arlington, VA 22206 (non-profit economic and business
December 1947 research); Director, Unisys Corp.;
and H.B. Fuller Company. Director,
National Bureau of Economic Research
(academic).
William F. Glavin Trustee President Emeritus, Babson College
120 Paget Court - John's Island (as of 1997); Vice Chairman, Xerox
Vero Beach, FL 32963 Corporation (until June 1989);
March 1932 Director, Caldor Inc., Reebok, Inc.
(since 1994) and Inco Ltd.
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser, The
Boston, MA 02199 Berkeley Group; Director, John
April 1953 Hancock Funds, Advisers
International, Insurance Agency,
Inc. and International Ireland;
President and Director, SAMCorp.
and NM Capital; Executive Vice
President, the Adviser (until
December 1994); Director,
Signature Services (until January
1997).
</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.
20
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Dr. John A. Moore Trustee 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 Executive Director, Council for
CIES International Exchange of Scholars
3007 Tilden Street, N.W. (since January 1998), Vice
Washington, D.C. 20008 President, Institute of
May 1943 International Education (since
January 1998); Cornell Institute of
Public Affairs, Cornell University
(until December 1997); President
Emerita of Wells College and St.
Lawrence University; Director,
Niagara Mohawk Power Corporation
(electric utility).
John W. Pratt Trustee Professor of Business Administration
2 Gray Gardens East Emeritus, Harvard University
Cambridge, MA 02138 Graduate School of Business
September 1931 Administration (as of June 1998).
</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.
21
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John
Boston, MA 02117 Hancock Funds, John Hancock
August 1937 Distributors, Inc., Insurance Agency,
Inc., John Hancock Subsidiaries,
Inc., SAMCorp. and NM Capital;
Director, The Berkeley Group;
Director, JH Networking Insurance
Agency, Inc.; Director, Signature
Services (until January 1997).
Osbert M. Hood Senior Vice President and Senior Vice President and Chief
101 Huntington Avenue Chief Financial Officer Financial Officer, the Adviser,
Boston, MA 02199 the Berkeley Group and John
August 1952 Hancock Funds, Inc.; Vice President
and Chief Financial Officer, John
Hancock Mutual Life Insurance Company
Retail Sector (until 1997).
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, NM Capital and
SAMCorp.; Clerk, Insurance Agency,
Inc.; Counsel, John Hancock Mutual
Life Insurance Company (until
February 1996), and Vice President
of John Hancock Distributors, Inc.
(until April 1994).
</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.
22
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
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, NM Capital;
March 1950 Vice President, John Hancock
Distributors, Inc. (until April
1994).
James J. Stokowski Vice President, Treasurer and Chief Vice President, the Adviser.
101 Huntington Avenue Accounting Officer
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.
23
<PAGE>
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 and Scipione and Ms.
Hodsdon, each a non-Independent Trustee, and each of the officers of the Fund
are interested persons of the Adviser, are compensated by the Adviser and
receive no compensation from the Fund for their services.
<TABLE>
<CAPTION>
Aggregate Total Compensation From the
Compensation Fund and John Hancock Fund
Independent Trustees From the Fund(1) Complex to Trustees(2)
- -------------------- ---------------- ----------------------
<S> <C> <C>
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*
Dr. John A. Moore*
Patti McGill Peterson
John W. Pratt
Edward J. Spellman
Total $ $
</TABLE>
(1) Compensation is for the fiscal year ended October 31, 1998.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 1998. As of this date, there were sixty-seven
funds in the John Hancock Fund Complex, with each of these Independent Trustees
serving on thirty-two funds.
*As of December 31, 1998, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $ , Mr. Cosgrove was $ , Mr. Glavin was $ and for Dr. Moore
was $ under the John Hancock Group of Funds Deferred Compensation Plan for
Independent Trustees.
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of November 30, 1998, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders beneficially owned 5% or more of the
outstanding shares of the Fund listed below:
24
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------- ------------------------- --------------------------
Percentage of Total
Outstanding Shares
Name and Address of Shareholder Class of Shares of the Fund
- -------------------------------------------- ------------------------- --------------------------
<S> <C> <C>
MLPF&S For The Sole Benefit of Its Customers
Attn: Fund Administration 97DA7
4800 Deer Lake Drive East 2nd Fl
Jacksonville FL 32246-6484 B 5.51%
- -------------------------------------------- ------------------------- --------------------------
John Hancock Mutual Life Ins Co
Custodian For the IRA of
Louise M. Fratarcangelo
303 Tuscarora St
Sayre PA 18840-1838 C 23.19%
- -------------------------------------------- ------------------------- --------------------------
Paul F. Lufbery
187 Pond Hill
North Haven CT 06473-2880 C 13.53%
- -------------------------------------------- ------------------------- --------------------------
Julia Ann Hunt
431 Stafford
Washington MO 63090-1939 C 7.98%
- -------------------------------------------- ------------------------- --------------------------
Southwest Securities Inc.
James D. Smith IRA
A/C #70615566
PO Box 509002
Dallas TX 75259-9002 C 7.73%
- -------------------------------------------- ------------------------- --------------------------
Jan Sharpe Rettke
2028A N 7th St
Sheboygan WI 53081-2726 C 6.42%
- -------------------------------------------- ------------------------- --------------------------
John Hancock Mutual Life Ins Co
Custodian For the Rollover IRA of
Gary W. Curbo
3526 Waterford CV North
Collierville TN 38017-8978 C 5.61%
- -------------------------------------------- ------------------------- --------------------------
</TABLE>
25
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $30 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 1,400,000 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 $100
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries a high rating with Standard & Poor's and A. M.
Best. 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 which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, 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 but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts,
maintaining a committed line of credit, 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.
26
<PAGE>
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Net Asset Value Annual Rate
- --------------- -----------
First $750,000,000 0.75%
Amount over $750,000,000 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 its 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.
For the year ended December 31, 1995 and the period from January 1, 1996 to
October 31, 1996 and fiscal year ended October 31, 1997 and 1998, the Fund paid
the Adviser an investment advisory fee of $1,561,020, $1,884,304, $2,560,785 and
$ , respectively.
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 Advisory Agreement, 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 Advisory Agreement 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 Advisory Agreement.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement 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 continuation of the Advisory Agreement and the Distribution Agreement
(discussed below) was approved by all Trustees. The Advisory Agreement and the
Distribution Agreement, will
27
<PAGE>
continue in effect from year to year, provided that its continuance is approved
annually both (i) by the holders of a majority of the outstanding voting
securities of the Trust or by the Trustees, and (ii) by a majority of the
Trustees who are not parties to the Agreement or "interested persons" of any
such parties. Both Agreements may be terminated on 60 days written notice by any
party or by vote of a majority of the outstanding voting securities of the Fund
and will terminate automatically if assigned.
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 from January 1, 1996 to October 31, 1996, the
Fund paid the Adviser $44,503 for services and for the year ended October 31,
1997 and 1998, the Fund paid the Adviser $59,616 and $ , respectively, for
services under this agreement.
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 of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined, plus an applicable sales charge, if any. In connection
with the sale of Fund shares, 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. In the case of Class B or Class C shares, the broker receives
compensation immediately but John Hancock Funds is compensated on a deferred
basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal year ended December 31, 1995 and for the period from January 1, 1996 to
October 31, 1996, for the fiscal year ended October 31, 1997 and 1998 were
$376,267, $327,255, $376,266 and $ , respectively. Of such amounts $59,781,
$42,144, $58,043 and $ , respectively, were retained by John Hancock Funds in
1995, 1996, 1997 and 1998. The remainder of the underwriting commissions were
reallowed to Selling Brokers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
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% for class A shares and 1.00% for Class B
and Class C shares of the Fund's average 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
28
<PAGE>
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 and Class C 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 and Class C Plans 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 and Class C Plans as a liability of the Fund because
the Trustees may terminate the Class B and /or Class C Plans at any time. For
the fiscal year ended October 31, 1998, an aggregate of $ distribution
expenses or % 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. For the period from June
1, 1998 to October 31, 1998, an aggregate of $ distribution expenses or %
of the average net assets of the Class C share 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 provide the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis 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
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C 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,
29
<PAGE>
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 Fund.
During the fiscal year ended October 31, 1998, 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 Interest
Mailing of Carrying or
Prospectus to New Compensation to Expenses of John Other Finance
Advertising Shareholders Selling Brokers Hancock Funds Charges
----------- ------------ --------------- ------------- -------
<S> <C> <C> <C> <C> <C>
Class A $ $ $ $ $
Class B $ $ $ $ $
Class C $ $ $ $ $
</TABLE>
SALES COMPENSATION
As part of their business strategies, each of the John Hancock 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. The sales charges and 12b-1
fees paid by investors are detailed in the prospectus and under the
"Distribution Contracts" in this Statement of Additional Information. The
portions of these expenses that are reallowed to financial services firms are
shown on the next page.
Whenever you make an investment in the Fund, 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. 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.
30
<PAGE>
<TABLE>
<CAPTION>
Maximum
Sales charge Reallowance First year Maximum
Paid by investors or commission service fee total compensation(1)
Class A investments (% 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% 1.60%
<CAPTION>
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%
<CAPTION>
Maximum
Reallowance First year Maximum
or commission service fee total compensation
Class B investments (% of offering price) (% of net investment) (% of offering price)
- ------------------- --------------------- --------------------- ---------------------
All amounts 3.75% 0.25% 4.00%
<CAPTION>
Maximum
Reallowance First year Maximum
or commission service fee total compensation
Class C investments (% of offering price) (% of net investment) (% of offering price)
- ------------------- --------------------- --------------------- ---------------------
All amounts 0.75% 0.25% 1.00%
</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.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
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
31
<PAGE>
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 believe accurately reflects fair value.
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 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 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 accumulate 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.
32
<PAGE>
Without Sales Charges. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
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, grandparents, grandchildren, mother, father, sister,
brother, mother-in-law, father-in-law, daughter-in-law, son-in-law,
niece, nephew and same sex domestic partner) 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 a signed 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 a class action lawsuit against insurance companies who is
investing settlement proceeds.
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.
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
o Pension plans transferring assets from a John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approved by
the Securities and Exchange Commission.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed retirement plans with at least 100 eligible employees at the
inception of the Fund account. Each of these investors 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%
33
<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.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges 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) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
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 being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
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
retirement plan, however, may opt to make the necessary investments called for
by the LOI over a forty-eight (48) month period. These retirement plans include
traditional, Roth and Education IRAs, SEP, SARSEP, 401(k), 403(b) (including
TSAs), SIMPLE IRA, SIMPLE 401(k), Money Purchase Pension, Profit Sharing and
Section 457 plans. Non-qualified and qualified retirement plan investments
cannot be combined to satisfy LOI of 48 months. Such an investment (including
accumulations and combinations but not including reinvested dividends) 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
34
<PAGE>
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 AND CLASS C SHARES
Investments in Class B and Class C shares are purchased at net asset value per
share without the imposition of an initial sales charge so that the Fund will
receive the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively will be subject to a 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
or Class C shares being redeemed. No CDSC will be imposed on increases in
account value above the initial purchase prices, including all shares derived
from reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service retirement 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 both Class B and Class C
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period for Class B or one year CDSC
redemption period for Class C, 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 Class B shares. 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.
35
<PAGE>
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:
o Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o *Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the lot not just the shares
being redeemed.
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 and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C 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 and Class C 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. (Does not apply to trust accounts
unless trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions where the proceeds are used to purchase a John Hancock
Declaration Variable annuity.
* Redemption of Class B (but not Class C) shares made under a periodic
withdrawal plan or redemptions for fees charged by planners or advisors
for advisory services, as long as
36
<PAGE>
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
or Class C shares that are subject to a CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has less 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.
* Redemption of Class A or Class C shares by retirement plans that invested
through the PruArray Program sponsored by Prudential Securities.
For Retirement Accounts (such as traditional, Roth and Education IRAs, SIMPLE
IRAs, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase
Pension Plan, Profit-Sharing Plan and other 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 sections 401(a) (such as
Money Purchase Pension Plans and Profit Sharing Plan/401(k) Plans), 457
and 408 (SEPs and SIMPLE IRAs) of the Internal Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
37
<PAGE>
CDSC Waiver Matrix for Class B and Class C
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP)
- -----------------------------------------------------------------------------------------------------------
<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 account
mandatory value annually
distributions in periodic
or 12% of payments
account value
annually in
periodic
payments
- -----------------------------------------------------------------------------------------------------------
Between 59 1/2 and Waived Waived Waived Waived for 12% of account
70 1/2 Life value annually
Expectancy or in periodic
12% of account payments
value annually
in periodic
payments
- -----------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account
(Class B only) annuity payments annuity annuity annuity value annually
(72t) or 12% of payments (72t) payments (72t) payments (72t) in periodic
account value or 12% of or 12% of or 12% of payments
annually in account value account value account value
periodic payments annually in annually in annually in
periodic periodic periodic
payments payments payments
- -----------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
- -----------------------------------------------------------------------------------------------------------
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.
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<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholders 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 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
and John Hancock Intermediate Maturity 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 arising from the
redemption of Fund shares which 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
39
<PAGE>
additional 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 and Class C shares and because
redemptions are taxable events. Therefore, a shareholder should not purchase
shares at the same time a Systematic Withdrawal Plan is in effect. The Fund
reserves the right to modify or discontinue the Systematic Withdrawal Plan of
any shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to 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 order date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit in that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of 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."
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<PAGE>
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).
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and four other
series. 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. The Trustees have also
authorized the issuance of three classes of shares of the Fund, designated as
Class A, Class B and Class C.
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
each class of 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 each class will be borne exclusively
by that class, (ii) Class B and Class C shares will pay higher distribution and
service fees than Class A shares and (iii) each class of 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 which class of shares are purchased. No interest will be paid on
uncashed dividend or redemption checks.
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
41
<PAGE>
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.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts. For telephone transactions, the transfer agent 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, the transfer agent 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.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
TAX STATUS
The Fund, is treated as a separate entity for accounting and tax purposes, 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
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
42
<PAGE>
Federal income tax on its 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 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. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distributions requirements.
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 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 those gains and losses included in computing net capital gain, after
reduction by deductible expenses). Some distributions 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 withholding and other taxes imposed by foreign
countries with respect to their investments in foreign securities. Some 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 invests in stock or ADRs representing stock (including an option to
acquire stock such as is inherent in a convertible bond) in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, certain rents and 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 deduction for such a tax. An election may be
available to ameliorate these adverse tax consequences, but could require the
Fund to recognize taxable income or gain without the concurrent receipt of cash.
These investments could also result in the treatment of associated capital gains
as ordinary income. The Fund may limit and/or manage its holdings in
43
<PAGE>
passive foreign investment companies or make an available election 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,
certain foreign currency options, 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. Transactions in foreign currencies that are not directly related
to the Fund's investment in stock or securities, including speculative currency
positions 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 from 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, futures, foreign currency
positions, and foreign currency forward contracts.
Certain options, futures, and forward foreign currency contracts undertaken by
the Fund could 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 foreign currency
contracts, as ordinary income or loss) and timing of some capital gains and
losses realized by the Fund. Additionally, the Fund may be required to recognize
gain, but not loss, if an option, short sales or other transaction is treated as
a constructive sale of an appreciated financial position in the Fund's
portfolio. Also, certain of the 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 gains. 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 (including consideration of available elections)
applicable to options, futures and forward contracts in order to seek to
minimize any potential adverse tax consequences.
The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of the Fund to dispose of
portfolio securities and/or engage in options 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.
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<PAGE>
Upon a redemption or other disposition of shares of the Fund (including by
exercise of the exchange privilege) that in a transaction is treated as a sale
for tax purposes, 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. A sales charge paid in purchasing
shares of the Fund cannot be taken into account for purposes of determining gain
or loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or another John Hancock fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to 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. Shareholders should consult their own tax advisers
regarding their particular circumstances to determine whether a disposition of
Fund shares is properly treated as a sale for tax purposes, as is assumed in the
foregoing discussion.
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. The Fund does not have any capital loss carryforwards.
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
45
<PAGE>
should be allocated between principal and income, and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fund, in the event it acquires or holds any such obligations,
in order to reduce the risk of distributing insufficient income to 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) during a prescribed period extending before and after each such
dividend and distributed and properly designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the holding period
requirements stated above with respect to their shares of the Fund for each
dividend 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, and, to the extend such basis would be reduced below
zero, that current recognition of income would be required.
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 or constructive sale rules applicable to certain options, futures,
forwards, short sales or other transactions may also require the Fund to
recognize income or gain without a concurrent receipt of cash. Additionally,
some countries restrict repatriation which may make it difficult or impossible
for the Fund to obtain cash corresponding to its earnings or assets in those
countries. 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 borrow 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 intangible property 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
46
<PAGE>
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 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 types 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
investment in the 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 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.
The Fund anticipates that, 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, 1998 was %, % and %,
respectively.
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The average annual total return on Class B shares of the Fund for the 1 year
period ended October 31, 1998 and since inception on January 3, 1994 was % and
%, respectively.
The average total return on Class C shares of the Fund for the period commenced
June 1, 1998 to October 31, 1998 was %.
Total return is computed by finding the average annual compounded rate of return
over the 1 year, 5 year and 10 year periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
T = ((ERV/P)^(1/n)) - 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 class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, 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 or Class C shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B or Class C 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:
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Yield = 2 ( [ ( a-b/cd ) + 1 ] ^6 - 1)
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during
the period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period (NAV where applicable).
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 an investment committee of the Adviser, which consists
of officers and directors of the Adviser and affiliates and officers and
Trustees who are interested persons of the Fund. Orders for purchases and sales
of securities are placed in a manner which, in the opinion of the 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
49
<PAGE>
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. 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.
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's officers will be primarily responsible
for the allocation of the Fund's brokerage business, their policies and
practices in this regard must be consistent with the foregoing and will at all
times be subject to review by the Trustees. For the year ended on December 31,
1995, the Fund paid negotiated brokerage commissions in the amount of $334,672.
For the period from January 1, 1996 to October 31, 1996, the Fund paid
negotiated brokerage commissions in the amount of $365,163 and for the fiscal
year end November 1, 1996 to October 31, 1997 and 1998, the Fund paid negotiated
brokerage commissions in the amount of $662,164 and $ , respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay a broker which provides brokerage and research services to the Fund an
amount of disclosed commission in excess of the commission which another broker
would have charged for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that such commission is reasonable in
light of the services provided and to such policies as the Trustees may adopt
from time to time. For the year ended October 31, 1998, the Fund directed
commissions in the amount of $590,571 to compensate brokers for research
services such as industry, economic and company reviews and evaluations of
securities.
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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
fiscal year ended October 31, 1997 and 1998, 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
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, Suite 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 Signature
Services an annual fee of $19.00 for each Class A shareholder account and $21.50
for each Class B shareholder account and $20.50 for each Class C shareholder
account. The Fund also pays certain out-of-pocket expenses and these expenses
are aggregated and charged to the Fund allocated to each class on the basis of
their relative net asset value.
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CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02116. Under the custodian agreement, Investors Bank &
Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are .
audits and renders an opinion on the Fund's annual financial statements and
prepares the Fund's annual Federal income tax return.
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APPENDIX A
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 the fund's
risk profile in the prospectus.
A fund is 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 the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
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. (e.g., short sales, financial futures and options;
securities and index options, currency contracts).
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. (e.g., borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade securities, financial
futures and options; securities and index options).
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. (e.g., foreign
equities, financial futures and options; securities and index options, currency
contracts).
Information risk The risk that key information about a security or market is
inaccurate or unavailable. (e.g., non-investment-grade securities, foreign
equities).
A-1
<PAGE>
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. (e.g.,
non-investment-grade securities, financial futures and options; securities and
index options).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
borrowing; reverse repurchase agreements, when-issued securities and forward
commitments).
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. (e.g., short sales, financial futures and options
securities and index options; currency contracts).
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. (e.g., short sales, financial futures
and options securities and index options; currency contracts).
o 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. (e.g., non-investment-grand securities,
short sales, restricted and illiquid securities, financial futures and
options securities and index options; currency contracts).
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. (e.g., short sales, short-term trading,
when-issued securities and forward commitments, non-investment-grade securities,
foreign equities, financial futures and options; securities and index options
restricted and illiquid securities).
A-2
<PAGE>
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g., foreign equities).
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. (e.g., short sales, when-issued securities and forward commitments;
financial futures and options; securities and index options, currency
contracts).
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and
war.(e.g., foreign equities).
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade securities,
restricted and illiquid securities).
A-3
<PAGE>
APPENDIX B
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
B-1
<PAGE>
reliance on debt and ample asset protections; (4) broad margins in earnings
coverage of fixed financial charges and high internal cash generation; and (5)
well established access to a range of financial markets and assured sources of
alternate liquidity.
Issuers rated P- (or related supporting institutions) have a strong capacity for
repayment of short-term promissory obligations. This will normally be evidenced
by many of the characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, will be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) have an acceptable ability for
repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
S&P describes its three highest ratings for commercial paper as follows:
A-1. This designation indicated that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
B-2
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
JOHN HANCOCK INTERNATIONAL FUND
Class A, Class B and Class C Shares
Statement of Additional Information
March 1, 1999
This Statement of Additional Information provides information about John Hancock
International Fund (the "Fund") in addition to the information that is contained
in the combined International/Global Funds' Prospectus dated March 1, 1999 (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 may be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston MA 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
----
Organization of the Fund .............................................. 2
Investment Objective and Policies ..................................... 2
Investment Restrictions ............................................... 13
Those Responsible for Management ...................................... 15
Investment Advisory and Other Services ................................ 24
Distribution Contracts ................................................ 26
Sales Compensation .................................................... 28
Net Asset Value ....................................................... 29
Initial Sales Charge on Class A Shares ................................ 30
Deferred Sales Charge on Class B and Class C Shares ................... 32
Special Redemptions ................................................... 35
Additional Services and Programs ...................................... 36
Description of the Fund's Shares ...................................... 37
Tax Status ............................................................ 39
Calculation of Performance ............................................ 44
Brokerage Allocation .................................................. 45
Transfer Agent Services .............................................. 47
Custody of Portfolio .................................................. 47
Independent Auditors .................................................. 47
Appendix A- Description of Investment Risk ............................ A-1
Appendix B-Description of Bond Ratings ................................ B-1
Financial Statements .................................................. F-1
1
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ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust under the laws of The Commonwealth
of Massachusetts. The Fund commenced operations on January 3, 1994.
John Hancock Advisers, Inc. (the "Adviser") is 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. Appendix A contains further
information describing investment risks. The investment objective of the Fund is
non-fundamental. There is no assurance that the Fund will achieve its investment
objective.
The Fund's investment objective is long-term growth of capital. The Fund seeks
to achieve its investment objective by investing primarily in foreign equity
securities. The Fund's investments will be subject to the market fluctuations
and risks inherent in all securities.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in equity securities of issuers located in various countries around the
world. Generally, the Fund's portfolio will contain securities of issuers from
at least three countries other than the United States. The Fund normally will
invest substantially all of its assets in equity securities, such as common
stock, preferred stock, and securities convertible into common and preferred
stock. However, if deemed advisable by the Adviser, the Fund may invest in any
other type of security including warrants, bonds, notes and other debt
securities (including Eurodollar securities) or obligations of domestic or
foreign governments and their political subdivisions, or domestic or foreign
corporations.
The Fund will maintain a flexible investment policy and will invest in a
diversified portfolio of securities of companies and government located
throughout the world. In making the allocation of assets among various countries
and geographic regions, the Adviser and John Hancock Advisers International
Limited the ("Sub-Adviser") ordinarily consider such factors as prospects for
relative economic growth between foreign countries; expected levels of inflation
and interest rates; government policies influencing business conditions; and
other pertinent financial, tax, social, political, currency and national factors
- - all in relation to the prevailing prices of the securities in each country or
region.
In choosing investments for the Fund, the Adviser generally looks for companies
whose earnings show a strong growth trend or companies whose current market
value per share is undervalued. The Fund will not restrict its investments to
any particular size company and, consequently, the portfolio may include the
securities of small and relatively less well-known companies. The securities of
small and medium-sized companies may be subject to more volatile market
movements than the securities of larger, more established companies or the stock
market averages in general.
It is the intention of the Fund generally to invest in debt securities or
convertible securities only for temporary defensive purposes. Accordingly, when
the Adviser believes unfavorable investment conditions exist requiring the Fund
to assume a temporary defensive investment
2
<PAGE>
posture, the Fund may hold cash or invest all or a portion of its assets in
short-term domestic as well as foreign instruments, including: short-term U.S.
Government securities and repurchase agreements in connection with such
instruments; bank certificates of deposit, bankers' acceptances, time deposits
and letters of credit; and commercial paper (including so called Section 4(2)
paper rated at least A-1 or A-2 by Standard & Poor's Ratings Group ("S&P") or
P-1 or P-2 by Moody's Investors Service, Inc. ("Moody's") or if unrated
considered by the Adviser to be of comparable value. The Fund's temporary
defensive investments may also include: debt obligations of U.S. companies,
rated at least BBB or Baa by S&P or Moody's, respectively, or, if unrated, of
comparable quality in the opinion of the Adviser; commercial paper and corporate
debt obligations not satisfying the above credit standards if they are (a)
subject to demand features or puts or (b) guaranteed as to principal and
interest by a domestic or foreign bank having total assets in excess of $1
billion, by a corporation whose commercial paper may be purchased by the Fund,
or by a foreign government having an existing debt security rated at least BBB
or Baa by S&P or Moody's, respectively; and other short-term investments which
the Trustees of the Fund determine present minimal credit risks and which are of
"high quality" as determined by any major rating service or, in the case of an
instrument that is not rated, of comparable quality as determined by the
Adviser.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and GNMA certificates ("Ginnie Maes"), are
supported by the full faith and credit of the United States. Certain other U.S.
Government securities, issued or guaranteed by Federal agencies or government
sponsored enterprises, are not supported by the full faith and credit of the
United States, but may be supported by the right of the issuer to borrow from
the U.S. Treasury. These securities include obligations of the Federal Home Loan
Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit
of the instrumentality, such as Federal National Mortgage Association Bonds
("Fannie Maes"). No assurance can be given that the U.S. Government will provide
financial support to such Federal agencies, authorities, instrumentalities and
government sponsored enterprises in the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities which
provide monthly payments which are, in effect, a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. Collateralized mortgage
obligations ("CMOs") in which the Fund may invest are securities issued by a
U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates.
Structured or Hybrid Notes. The Fund may invest in "structured" or "hybrid"
notes. The distinguishing feature of a structured or hybrid note is that the
amount of interest and/or principal payable on the note is based on the
performance of a benchmark asset or market other than fixed income securities or
interest rates. Examples of these benchmark include stock prices, currency
exchange rates and physical commodity prices. Investing in a structured note
allows the Fund to gain exposure to the benchmark market while fixing the
maximum loss that the Fund may experience in the event that market does not
perform as expected. Depending on the terms of the note, the Fund may forego all
or part of the interest and principal that would be payable on a comparable
conventional note; the Fund's loss cannot exceed this foregone interest and/or
principal. An investment in structured or hybrid notes involves risks similar to
those associated with a direct investment in the benchmark asset.
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 these 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
3
<PAGE>
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 B contains further information concerning the ratings of Moody's and
S&P and their significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund.
Investments in Foreign Securities. The Fund may invest in the 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. These
securities may not necessarily be denominated in the same currency as the
securities into which they may be converted but rather in the currency of the
market in which they are traded. ADRs are receipts typically issued by an
American bank or trust company which evidence ownership of underlying securities
issued by a foreign corporation. EDRs are receipts issued in Europe by banks or
depositories which evidence a similar ownership arrangement. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets and EDRs, in
bearer form, are designed for use in European securities markets. Issuers of the
shares underlying unsponsored ADRs are not contractually obligated to disclose
material information in the United States and, therefore, there may not be a
correlation between that information and the market value of the unsponsored
ADR.
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 a 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-Adviser.
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 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.
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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 those
applicable to United States issuers.
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 or gains
available for distribution to the Fund's shareholders.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and
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volatile debt burdens or inflation rates. Local securities markets may trade a
small number of securities and may be unable to respond effectively to increases
in trading volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. The Fund may be required to establish special
custodial or other arrangements before making certain investments in those
countries. Securities of issuers located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such as
the Fund. If such restrictions should be reinstituted, it might become necessary
for the Fund to invest all or substantially all of its assets in U.S.
securities. In such event, the Fund would review its investment objective and
investment policies to determine whether changes are appropriate.
The Fund's ability and decisions to purchase or sell portfolio securities may be
affected by laws or regulations relating to the convertibility and repatriation
of assets. Because the shares of the Fund are redeemable on a daily basis in
U.S. dollars, the Fund intends to manage its portfolio so as to give reasonable
assurance that it will be able to obtain U.S. dollars. Under present conditions,
it is not believed that these considerations will have any significant effect on
its portfolio strategy.
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 it enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period while 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 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 enter into reverse repurchase agreements only with
federally insured banks which are approved in advance
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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 ("Securities 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
Advisers the daily function of determining and monitoring the liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
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
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 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
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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.
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
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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 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
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, the Fund may purchase and
sell interest rate 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 fixed income securities
(such as U.S. Government securities) and fixed income securities 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 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, the 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 the 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 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, 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 that would adversely affect the value of the Fund's fixed income
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 fixed income securities.
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If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's fixed income securities and futures
contracts based on other fixed income securities or indices, the Fund may also
enter into such futures contracts as part of its hedging strategy. Although
under some circumstances prices of fixed income 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 interest rate futures contracts or
by attempting to achieve only a partial hedge against price changes affecting
the Fund's fixed income 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 fixed income 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 fixed income
securities, to alter the investment characteristics of fixed income securities
or to gain or increase its exposure to a particular fixed income securities
market.
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
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 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
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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 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 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
obligating the Fund to purchase securities, require the Fund to establish 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 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. 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 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
11
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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 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
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, the Fund must borrow the security sold
short to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. Until the security is replaced, the Fund is required to pay to the
lender any accrued interest or dividends 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 liquid securities, of any type or maturity, 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 sales (other than those "against
the box") if immediately after such sale the aggregate of the value of all
collateral plus the amount in such segregated account exceeds 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
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the purchase. In a forward commitment transaction, the Fund contracts to
purchase securities for a fixed price at a future date beyond customary
settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid 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. 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 the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means the 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 outstanding shares.
The Fund may not:
(1) Issue senior securities, except as permitted by paragraph (2) below.
For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or
sale of options, futures contracts and options on future contracts,
forward commitments, forward foreign exchange contracts and
repurchase agreements entered into in accordance with the Fund's
investment policy are not deemed to be senior securities.
(2) Borrow money, except from banks as a temporary measure for
extraordinary emergency purposes in amounts not to exceed 33 1/3%
of the Fund's total assets (including the amount borrowed) taken at
market value.
(3) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, the Fund may be deemed to
be an underwriter for purposes of the Securities Act.
13
<PAGE>
(4) Purchase or sell real estate or any interest therein, except that
the Fund may invest in securities of corporate or governmental
entities secured by real estate or marketable interests therein or
issued by companies that invest in real estate or interests therein.
(5) Make loans, except that the Fund may purchase or hold debt
instruments in accordance with the Fund's investment policies and
may make loans of portfolio securities provided that as a result no
more than 33 1/3% of the Fund's total assets taken at current value
would be so loaned. The Fund does not, for this purpose, consider
the purchase of repurchase agreements, bank certificates of deposit,
bank loan participation agreements, bankers' acceptances, a portion
of an issue of publicly distributed bonds, debentures or other
securities, whether or not the purchase is made upon the original
issuance of the securities, to be the making of a loan.
(6) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except interest rate futures contracts,
options on securities, securities indices, currency and other
financial instruments and options on such futures contracts, forward
foreign currency exchange contracts, forward commitments, securities
index put or call warrants and repurchase agreements entered into in
accordance with the Fund's investment policies.
(7) Purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after such
purchase, the value of its investments in such industry would exceed
25% of its total assets taken at market value at the time of each
investment. This limitation does not apply to investments in
obligations of the U.S. Government or any of its agencies or
instrumentalities.
In connection with the lending of portfolio securities under item (5) above,
such loans must at all times be fully collateralized and the Fund's custodian
must take possession of the collateral either physically or in book entry form.
Securities used as collateral must be marked to market daily.
Non-fundamental Investment Restrictions. The following restrictions, as well as
the Fund's investment objective, are designated as non-fundamental and may be
changed by the Trustees without shareholder approval:
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any
securities trading account (except for a joint account with
other funds managed by the Adviser for repurchase agreements
permitted by the SEC pursuant to an exemptive order). The
"bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the management
of the Adviser to save commissions or to average prices among
them is not deemed to result in a securities trading account.
(b) Make short sales of securities or maintain a short position
unless (i) at all times when a short position is open the Fund
owns an equal amount of such securities or securities
convertible into or exchangeable, without payment of any
further consideration, for securities of the same issuer as,
and equal in amount to, the securities sold short; (ii) for
the purpose of hedging the Fund's exposure to an actual or
anticipated market decline in the value of its investments; or
(iii) in order to profit from an anticipated decline in the
value of a security.
14
<PAGE>
(c) Purchase a security if, as a result, (i) more than 10% of the
Fund's total assets would be invested in the securities of
other investment companies, (ii) the Fund would hold more than
3% of the total outstanding voting securities of any one
investment company, or (iii) more than 5% of the Fund's total
assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the
investment of cash collateral, received by the Fund in
connection with lending the Fund's portfolio securities, in
the securities of open-end investment companies or (b) the
purchase of shares of any investment company in connection
with a merger, consolidation, reorganization or purchase of
substantially all of the assets of another investment company.
Subject to the above percentage limitations, the Fund may, in
connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/Directors, purchase
securities of other investment companies within the John
Hancock Group of Funds.
(d) Invest for the purpose of exercising control over or
management of any company.
(e) Invest more than 15% of its net assets in illiquid securities.
(f) Purchase securities while outstanding borrowings, other than
reverse repurchase agreements, exceed 5% of the Fund's total
assets.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees, who elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers and Trustees of the Fund 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").
15
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Edward J. Boudreau, Jr. * Trustee, Chairman and Chairman, Director and
101 Huntington Avenue Chief Executive Officer Chief Executive Officer,
Boston, MA 02199 (1, 2) the Adviser; Chairman,
October 1944 Director and Chief
Executive Officer, The
Berkeley Financial Group,
Inc. ("The Berkeley
Group"); Chairman and
Director, NM Capital
Management, Inc. ("NM
Capital"), John Hancock
Advisers International
Limited ("Advisers
International") and
Sovereign Asset Management
Corporation ("SAMCorp");
Chairman, Chief Executive
Officer and President,
John Hancock Funds, Inc.
("John Hancock Funds");
Chairman, First Signature
Bank and Trust Company;
Director, John Hancock
Insurance Agency, Inc.
("Insurance Agency,
Inc."), John Hancock
Advisers International
(Ireland) Limited
("International Ireland"),
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; 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.
16
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee Professor of Law,
1216 Falls Boulevard Emeritus, Boston
Fort Lauderdale, FL 33327 University School of Law
June 1931 (as of 1996); Director,
Brookline Bankcorp.
Richard P. Chapman, Jr. Trustee (1) Director, President and
160 Washington Street Chief Executive Officer
Brookline, MA 02147 of Brookline Bankcorp.
February 1935 (lending); Director,
Lumber Insurance
Companies (fire and
casualty insurance);
Trustee, Northeastern
University (education);
Director, Depositors
Insurance Fund, Inc.
(insurance).
William J. Cosgrove Trustee Vice President, Senior
20 Buttonwood Place Banker and Senior Credit
Saddle River, NJ 07458 Officer, Citibank, N.A.
January 1933 (retired September
1991); Executive Vice
President, Citadel Group
Representatives, Inc.; EVP
Resource Evaluation, Inc.
(consulting) (until
October 1993); Trustee,
the Hudson City Savings
Bank (since 1995).
- ----------
* 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.
17
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Douglas M. Costle Trustee (1) Director, Chairman and
RR2 Box 480 Distinguished Senior
Woodstock, VT 05091 Fellow, Institute for
July 1939 Sustainable Communities,
Montpelier, Vermont (since
1991); Dean, Vermont Law
School (until 1991);
Director, Air and Water
Technologies (until 1996)
(environmental services
and equipment), Niagara
Mohawk Power Corp.
(electric services);
Concept Five Technologies
(until 1997); Mitretek
Systems (governmental
consulting services);
Conversion Technologies,
Inc.; Living Technologies,
Inc.
Leland O. Erdahl Trustee Director of Uranium
8046 Mackenzie Court Resources Corporation;
Las Vegas, NV 89129 Hecla Mining Company,
December 1928 Canyon Resources
Corporation and Original
Sixteen to One Mine,
Inc. (1984-1987 and
1991-1998) (management
consultant); Vice
President, Chief
Financial Officer and
Director of Amax Gold,
Inc. (until 1998);
Director, Freeport
McMoran Copper & Gold,
Inc. (until 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.
18
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Farrell Trustee President of Farrell,
The Venture Capital Fund Healer & Co., (venture
of New England capital management firm)
160 Federal Street (since 1980); Prior to
23rd Floor 1980, headed the venture
Boston, MA 02110 capital group at Bank of
November 1932 Boston Corporation.
Gail D. Fosler Trustee Senior Vice President
3054 So. Abingdon Street and Chief Economist, The
Arlington, VA 22206 Conference Board
December 1947 (non-profit economic and
business research);
Director, Unisys Corp.;
and H.B. Fuller
Company. Director,
National Bureau of
Economic Research
(academic).
William F. Glavin Trustee President Emeritus,
120 Paget Court - John's Babson College (as of
Island 1997); Vice Chairman,
Vero Beach, FL 32963 Xerox Corporation (until
March 1932 June 1989); Director,
Caldor Inc., Reebok,
Inc. (since 1994) and
Inco Ltd.
Anne C. Hodsdon * Trustee and President President, Chief
101 Huntington Avenue (1,2) Operating Officer and
Boston, MA 02199 Director, the Adviser,
April 1953 The Berkeley Group;
Director, John Hancock
Funds, Advisers
International, Insurance
Agency, Inc. and
International Ireland;
President and Director,
SAMCorp. and NM Capital;
Executive Vice
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.
19
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dr. John A. Moore Trustee President and Chief
Institute for Evaluating Executive Officer,
Health Risks Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since
Washington, DC 20006-1602 September 1989).
February 1939
Patti McGill Peterson Trustee Executive Director,
CIES Council for
3007 Tilden Street, N.W. International Exchange
Washington, D.C. 20008 of Scholars (since
May 1943 January 1998), Vice
President, Institute of
International Education
(since January 1998);
Cornell Institute of
Public Affairs, Cornell
University (until December
1997); President Emerita
of Wells College and St.
Lawrence University;
Director, Niagara Mohawk
Power Corporation
(electric utility).
John W. Pratt Trustee Professor of Business
2 Gray Gardens East Administration Emeritus,
Cambridge, MA 02138 Harvard University
September 1931 Graduate School of
Business Administration
(as of June 1998).
- ----------
* 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.
20
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard S. Scipione * Trustee (1) General Counsel, John
John Hancock Place Hancock Life Company;
P.O. Box 111 Director, the Adviser,
Boston, MA 02117 Advisers International,
August 1937 John Hancock Funds, John
Hancock Distributors,
Inc., Insurance Agency,
Inc., John Hancock
Subsidiaries, Inc.,
SAMCorp. and NM Capital;
Director, The Berkeley
Group; Director, JH
Networking Insurance
Agency, Inc.; Director,
Signature Services
(until January 1997).
Osbert M. Hood Senior Vice President and Senior Vice President
101 Huntington Avenue Chief Financial Officer and Chief Financial
Boston, MA 02199 Officer, the Adviser,
August 1952 the Berkeley Group and
John Hancock Funds, Inc.;
Vice President and Chief
Financial Officer, John
Hancock Mutual Life
Insurance Company Retail
Sector (until 1997).
John A. Morin Vice President Vice President and
101 Huntington Avenue Secretary, the Adviser,
Boston, MA 02199 The Berkeley Group,
July 1950 Signature Services and
John Hancock Funds;
Secretary, NM Capital and
SAMCorp.; Clerk, Insurance
Agency, Inc.; Counsel,
John Hancock Mutual Life
Insurance Company (until
February 1996), and Vice
President of John Hancock
Distributors, Inc. (until
April 1994).
- ----------
* 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.
21
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Susan S. Newton Vice President and Vice President, the
101 Huntington Avenue Secretary Adviser; John Hancock
Boston, MA 02199 Funds, Signature
March 1950 Services and The
Berkeley Group, NM
Capital; Vice President,
John Hancock
Distributors, Inc.
(until April 1994).
James J. Stokowski Vice President, Treasurer Vice President, the
101 Huntington Avenue and Chief Accounting Adviser.
Boston, MA 02199 Officer
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.
22
<PAGE>
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 and Scipione and Ms.
Hodsdon, each a non-Independent Trustee, and each of the officers of the Fund
are interested persons of the Adviser, are compensated by the Adviser and
receive no compensation from the Fund for their services.
Aggregate Total Compensation From
Compensation the Fund and John Hancock
Independent Trustees From the Fund(1) Fund Complex to Trustees(2)
- -------------------- ---------------- ---------------------------
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*
Dr. John A. Moore*
Patti McGill Peterson
John W. Pratt
Edward J. Spellman
Total
(1) Compensation is for the fiscal year ended October 31, 1998.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 1998. As of this date, there were sixty-seven
funds in the John Hancock Fund Complex, with each of these Independent Trustees
serving on thirty-two funds.
(*) As of December 31, 1998, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $___, Mr. Cosgrove was $___, Mr. Glavin was $___ and for Dr. Moore
was $___ under the John Hancock Group of Funds Deferred Compensation Plan for
Independent Trustees.
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of November 30, 1998, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders beneficially owned 5% or more of the
outstanding shares of the Fund:
Percentage of
Total
Outstanding
Class of Shares of the
Name and Address of Shareholders Shares Class of the Fund
- -------------------------------- ------ -----------------
MLPF&S For The Benefit of Its B 21.10%
Customers
Attn: Fund Administration 97DA3
4800 Deer Lake Drive East 2nd Fl
Jacksonville FL 32246-6484
Eli Pekel C 52.02%
22990 Cricket Hill Rd
Cupertino CA 95014-2639
Darlene G. Swanson C 29.90%
Timothy J. Swanson Jt. Wros
2836 N 4000 E Road
Bourbonnais IL 60914
Albert A. Feldman C 9.36%
Jaqueline R. Feldman Jt Wros
1455 NW Bergeron
Gresham OR 97030-5331
23
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $30 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 1,400,000 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 $100
billion, the Life Company is one of ten largest life insurance companies in the
United States, and carries a high rating from Standard & Poor's and A.M. Best.
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 which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, 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 but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices, prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts,
maintaining a committed line of credit, 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
membership; insurance premiums; and any extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Net Asset Value Annual Rate
--------------- -----------
First $250 million 1.00%
Next $250 million 0.80%
Next $250 million 0.75%
Amounts over $750 million 0.625%
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 its 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.
24
<PAGE>
For the fiscal years ended October 31, 1998, 1997 and 1996, the Adviser's
management fee was $___, $150,931 and $121,360, respectively. After expense
reductions by the Adviser, the Adviser received no management fees for the
fiscal years ended October 31, 1998, 1997 and 1996.
The Fund and the Adviser have entered into a sub-investment management contract
with the Sub-Adviser (the "Sub-Advisory Agreement") under which the Sub-Adviser,
subject to the review of the Trustees and the overall supervision of the
Adviser, is responsible for providing the Fund with advice with respect to that
portion of the assets invested in countries other than the United States and
Canada. The Sub-Adviser, with offices located at 6th Floor, Duke's Court, 32-36
Duke Street, St. James's, London, England SW1Y6DF, is a wholly-owned subsidiary
of the Adviser formed in 1987 to provide international investment research and
advisory services to U.S. institutional clients. As compensation for its
services under the Sub-Advisory Agreement, the Sub-Adviser receives from the
Adviser a portion of its monthly fee equal to 0.70% on an annual basis of the
average daily net asset value of the Fund for each calendar month up to $200
million of average daily net assets; and 0.6375% on an annual basis of the
average daily net asset value over $200 million. The Fund is not responsible for
paying the Sub-Adviser's fee.
The Adviser has agreed to limit the Fund's expenses (excluding 12b-1 and
transfer agent expenses) to 0.90% of the Fund's average daily net assets. The
Adviser reserves the right to terminate this limitation in the future.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or 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
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 Advisory Agreement and the Sub-Advisory Agreement, neither the
Adviser nor Sub-Adviser is liable to the Fund or its shareholders for any error
of judgment or mistake of law or for any loss suffered by the Fund in connection
with the matters to which the Agreement relate, except a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Adviser or
Sub-Adviser in the performance of their duties or from reckless disregard by
them of their obligations and duties under applicable Agreements.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement 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 continuation of the Advisory Agreement, Sub-Advisory Agreement and the
Distribution Agreement (discussed below) was approved by all Trustees. The
Advisory Agreement, Sub-Advisory Agreement and the Distribution Agreement, will
continue in effect from year to year, provided that its continuance is approved
annually both (i) by the holders of a majority of the outstanding voting
securities of the Trust or by the Trustees, and (ii) by a majority of the
Trustees
25
<PAGE>
who are not parties to the Agreement or "interested persons" of any such
parties. Both agreements may be terminated on 60 days written notice by any
party or by vote of a majority to the outstanding voting securities of the Fund
and will terminate automatically if assigned.
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 fiscal year ended October 31, 1996, 1997 and 1998,
the Fund paid the Adviser $826, $2,771 and $___, respectively, for services
under this Agreement.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser, the
Sub-Adviser and the Fund have adopted extensive restrictions on personal
securities trading by personnel of the Adviser, the Sub-Adviser and their
respective affiliates. In the case of the Adviser, 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. The Sub-Adviser's restrictions may differ
where appropriate, as long as they maintain the same intent. These restrictions
are a continuation of the basic principle that the interests of the Fund and its
shareholders come first.
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 that are continually offered at net asset
value next determined, plus an applicable sales charge, if any. In connection
with the sale of Fund shares, 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. In the case of Class B or Class C shares, the broker receives
compensation immediately but John Hancock Funds is compensated on a deferred
basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal years ended October 31, 1996, 1997 and 1998 were $29,259, $41,697 and
$___, respectively. Of such amounts $4,638, $6,635 and $___, respectively, were
retained by John Hancock Funds in 1996, 1997 and 1998. The remainder of the
underwriting commissions were reallowed to Selling Brokers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
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% for Class A shares and 1.00% for Class B
and Class C shares, respectively, of the Fund's average daily net assets
attributable to shares of that class. However, the service fee will not exceed
0.25% of the Fund's average daily net assets attributable to each class of
shares. The distribution fees will be used to reimburse John Hancock Funds for
its distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of John
Hancock Funds) engaged in the sale of Fund shares; (ii) marketing, promotional
and overhead expenses incurred in connection with the distribution of Fund
shares; and (iii) with respect to Class B and Class C 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 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 and Class C Plans will be
carried forward together
26
<PAGE>
with interest on the balance of these unreimbursed expenses. The Fund does not
treat unreimbursed expenses under the Class B and Class C Plans as a liability
of the Fund, because the Trustees may terminate the Class B and/or Class C Plans
at any time. For the fiscal year ended October 31, 1998, an aggregate of $___ of
distribution expenses or ___% of the average net assets of the Fund's Class B
shares was not reimbursed or recovered by John Hancock Funds through the receipt
of deferred sales charges or Rule 12b-1 fees in prior periods. For the period
ended from June 1, 1998 to October 31, 1998, an aggregate of $___ of
distribution expenses or ___% of the average net assets of the Fund's Class C
shares was not reimbursed or recovered by John Hancock Funds through the receipt
of deferred sales charges or Rule 12b-1 fees.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provide the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
Independent Trustees. The Plans provide that they may be terminated without
penalty, (a) by vote of a majority of the Independent Trustees, (b) by a vote of
a majority of the Fund's outstanding shares of the applicable class 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
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C 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 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 a 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 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 Fund.
During the fiscal year ended October 31, 1998, the Fund paid John Hancock Funds
the following amount of expenses in connection with their services for the Fund.
27
<PAGE>
Expense Items
-------------
<TABLE>
<CAPTION>
Printing and Interest,
Mailing of Carrying or
Prospectuses Compensation Expenses of Other
to New to Selling John Hancock Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A $ $ $ $
Class B
Class C $ $ $ $ $
</TABLE>
SALES COMPENSATION
As part of their business strategies, each of the John Hancock 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. The sales charges and 12b-1
fees paid by investors are detailed in the prospectus and under "Distribution
Contracts" in this Statement of Additional Information. The portions of these
expenses that are reallowed to financial services firms are shown on the next
page.
Whenever you make an investment in the Fund, 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. 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
<PAGE>
<TABLE>
<CAPTION>
Maximum
Sales charge reallowance First year Maximum total
Paid by investors Or commission service fee compensation (1)
Class A investments (% of offering price) (% of offering price) (% of offering price) (% 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 (all funds)
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%
<CAPTION>
Maximum
Reallowance First year Maximum
Or commission service fee total compensation
Class B investments (% of offering price) (% of offering price) (% of offering price)
- ------------------- --------------------- --------------------- ----------------------
<S> <C> <C> <C>
All amounts 3.75% 0.25% 4.00%
<CAPTION>
Maximum
Reallowance First year Maximum
Or commission service fee total compensation
Class C investments (% of offering price) (% of offering price) (% of offering price)
- ------------------- --------------------- --------------------- ----------------------
<S> <C> <C> <C>
All amounts 0.75% 0.25% 1.00%
</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.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
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
29
<PAGE>
categories for which no sales are reported and other securities traded
over-the-counter are generally valued at the mean between the current closing
bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
The NAV 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 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 accumulate 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"),
the Fund's transfer agent, is notified by the investor's dealer or the investor
at the time of the purchase, the cost of the Class A shares owned.
Without Sales Charges. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
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, grandparents,
mother, father, sister, brother, mother-in-law, father-in-law, daughter,
son-in-law, niece, nephew, grandparents and same sex domestic partner) of any of
the
30
<PAGE>
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 a class action lawsuit against insurance companies who is
investing settlement proceeds.
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.
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
o Pension plans transferring assets from a John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approval by the
Securities and Exchange Commission.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1,1994, and participant directed retirement
plans with at least 100 eligible employees at the inception the Fund account.
Each of these investors may purchase Class A shares with no initial sales
charges. However, if the shares are redeemed within 12 months after the end of
the calendar years 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.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges 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) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
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 being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those
31
<PAGE>
shares. Retirement plan investors may include the value of Class B shares if
Class B shares held are greater than $1 million. Retirement plans must notify
Signature Services to utilize.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
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
retirement plan, however, may opt to make the necessary investments called for
by the LOI over a forty-eight (48) month period. These retirement plans include
traditional, Roth and Education IRAs, SEP, SARSEP, 401(k), 403(b) (including
TSAs), SIMPLE IRA, SIMPLE 401(k), Money Purchase Pension, Profit Sharing and
Section 457 plans. Non-qualified and qualified retirement plan investments
cannot be combined to satisfy LOI of 48 months. Such an investment (including
accumulations and combinations but not including reinvested dividends) 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 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 the 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 Fund to sell, any additional Class A shares and
may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B and Class C shares are purchased at net asset value per
share without the imposition of an initial sales charge so that the Fund will
receive the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively will be subject to a 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
or Class C shares being redeemed. No CDSC will be imposed on increases in
32
<PAGE>
account value above the initial purchase prices, including all shares derived
from reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service retirement 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 this number of
years from the time of any payment for the purchase of both Class B and Class C
of shares, all payments during a month will be aggregated and deemed to have
been made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period for Class B or one year CDSC
redemption period for Class C, 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 Class B shares. 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.
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:
<TABLE>
<S> <C>
o Proceeds of 50 shares redeemed at $12 per share (50 x 12) $600.00
o *Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
</TABLE>
*The appreciation is based on all 100 shares in the lot not just the
shares being redeemed.
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 and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C 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 and Class C shares and of Class A shares that are subject
to a CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
33
<PAGE>
* 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. (Does not apply to trust accounts
unless trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions where the proceeds are used to purchase a John Hancock
Declaration Variable Annuity.
* Redemptions of Class B ( but not Class C) shares made under a periodic
withdrawal plan, or redemptions for fees charged by planners or advisors
for advisory services, as long as your annual redemptions do not exceed
12% of your account value 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 or Class C that are subject to a CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has less 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.
* Redemptions of Class A or Class C shares by retirement plans that invested
through the PruArray Program sponsored by Prudential Securities.
For Retirement Accounts (such as traditional, Roth, and Education IRAs, SIMPLE
IRAs, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase
Pension Plan, Profit-Sharing Plan and other plans as described under 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 sections 401(a) (such as
Money Purchase Pension Plans and Profit-Sharing Plan/401(k) Plans), 457
and 408 (SEPs and SIMPLE IRAs) of the Internal Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
34
<PAGE>
CDSC Waiver Matrix for Class B and Class C
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), Rollover
MPP, PSP)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- ----------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of
mandatory account value
distributions annually in
or 12% of periodic
account payments
value
annually in
periodic
payments
- ----------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for 12% of
and 70 1/2 Life account value
Expectancy annually in
or 12% of periodic
account payments
value
annually in
periodic
payments
- ----------------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of
(Class B only) annuity annuity annuity annuity account value
payments payments payments payments annually in
(72t) or 12% (72t) or 12% (72t) or (72t) or periodic
of account of account 12% of 12% of payments
value value account account
annually in annually in value value
periodic periodic annually annually in
payments payments in periodic
periodic 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 it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When a shareholder sells portfolio
securities received in this fashion, the shareholder will incur a
35
<PAGE>
brokerage charge. Any such securities would be valued for the purposes of making
such payment at the same value as used in determining net asset value. The Fund
has, however, elected to be governed by Rule 18f-1 under the Investment Company
Act. Under that rule, the Fund must redeem its shares for cash except to the
extent that the redemption payments to any shareholder during any 90-day period
would exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. 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
and John Hancock Intermediate Maturity 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 arising from the
redemption of Fund shares which 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 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 and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan in the future. The shareholder may terminate the plan at any time by
giving proper notice to 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:
36
<PAGE>
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 order date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit of that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any 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."
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).
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
shareholder action. As of the date of this Statement of Additional Information,
the
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Trustees have authorized shares of the Fund and four other series. The Trustees
have authority, without the necessity of a shareholder vote, to classify the
shares of any series into one or more classes. The Trustees have also authorized
the issuance of three classes of shares of the Fund, designated as Class A,
Class B and Class C.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets allocable to that class of the Fund. Holders of each
class of shares have certain exclusive voting rights on matter relating to their
respective distribution plans. The different plans 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 each class of shares will be borne
exclusively by that class, (ii) Class B and Class C shares will pay higher
distribution and service fees than Class A shares and (iii) each class of shares
will bear any class expenses properly attributable to that class of shares,
subject to the conditions the Internal Revenue Service imposes with respect to
multiple-class structures. Similarly, the net asset value may vary depending on
which class of shares are purchased. No interest will be paid on uncashed
dividend or redemption checks.
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 a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any Fund shareholder held
personally liable by reason of being or having been a shareholder. 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.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify
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Signature Services of a different intent. A shareholder's account is governed by
the laws of The Commonwealth of Massachusetts. For telephone transactions, the
transfer agent 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, the transfer
agent 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.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
TAX STATUS
The Fund, is treated as a separate entity for accounting and tax purposes, has
qualified and elected to be treated as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
intends to continue to 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 its 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 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. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions 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 those gains and losses included in
computing net capital gain, after reduction by deductible expenses.) Some
distributions 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.
If the Fund invests in stock (including an option to acquire stock such as is
inherent in a convertible bond) of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive
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foreign investment companies"), the Fund could be subject to Federal income tax
and additional interest charges on "excess distributions" received from these
passive foreign investment companies 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. An election may be
available to ameliorate these adverse tax consequences, but could require the
Fund to recognize taxable income or gain without the concurrent receipt of cash.
These investments could also result in the treatment of associated capital gains
as ordinary income. The Fund may limit and/or manage its investments in passive
foreign investment companies or make an available election to minimize its tax
liability or maximize its return from these investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency 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. Transactions in foreign
currencies that are not directly related to the Fund's investment in stock or
securities, including speculative currency positions 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. 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.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Some 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") paid by the Fund, subject to certain provisions and limitations
contained in the Code, if the Fund so elects. If more than 50% of the value of
the Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund will be
required to (i) include in ordinary gross income (in addition to taxable
dividends 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 foreign taxes paid by
them.
If the Fund makes this election, shareholders may then deduct such pro rata
portions of qualified foreign taxes in computing their taxable income, 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 the 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.
The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of the Fund to dispose of
portfolio securities and/ or engage in options, futures or
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forward 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 or other disposition of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, 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. A sales charge paid in purchasing
shares of the Fund cannot be taken into account for purposes of determining gain
or loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or another John Hancock Fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange will 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. Shareholders should consult their own tax advisers
regarding their particular circumstances to determine whether a disposition of
Fund shares is properly treated as a sale for tax purposes, as is assumed in the
foregoing discussion.
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
carryforward 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 shares
of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset its net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund has does not have any capital loss carry forwards.
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
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elects to include market discount in income currently) prior to the receipt of
the corresponding cash payments. The mark to market or constructive sale rules
applicable to certain options, futures, forward, short sales or other
transactions may also require the Fund to recognize income or gain without a
concurrent receipt of cash. Additionally, some countries restrict repatriation
which may make it difficult or impossible for the Fund to obtain cash
corresponding to its earnings or assets in those countries. 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 borrow 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 intangible property 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 the Fund 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
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 advisors about the applicability of the backup withholding provisions.
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 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)
during a prescribed period extending before and after each such dividend and
distributed and properly designated by the Fund may be treated as qualifying
dividends. Because the Fund is not generally anticipated to invest a significant
portion of its assets in the stock of such U.S. corporations, it is unlikely
that a substantial portion of its distributions will qualify for the dividends
received deduction. Corporate shareholders must meet the holding period
requirements stated above with respect to their shares of the Fund for each
dividend 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
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
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respect to the shares and to the extent such basis would be reduced below zero,
that current recognition of income would be required.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options, futures, foreign currency
positions, and foreign currency forward contracts.
Certain options, futures and forward foreign currency contracts undertaken by
the Fund may cause the Fund to recognize gains or losses from marking to market
even though its positions have not been sold or terminated and affect the
character as long-term or short-term (or, in the case of foreign currency
contracts, as ordinary income or loss) and timing of some capital gains and
losses realized by the Fund. Additionally, the Fund may be required to recognize
gain, but not loss, if an option, short sales or other transaction is treated as
a constructive sale of an appreciated financial position in the Fund's
portfolio. Also, certain of the 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 gains. Certain of these 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 (including consideration of available elections)
applicable to options, futures or forward contracts in order to minimize any
potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain types of
investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the 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 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.
The Fund anticipates that, 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.
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CALCULATION OF PERFORMANCE
The average annual total return for Class A shares of the Fund for the 1 year
period ended October 31, 1998 and from commencement of operations on January 3,
1994 was ( ) and ( ), respectively.
The average annual total return for Class B shares of the Fund for the 1 year
period ended October 31, 1998 and from commencement of operations on January 3,
1994 was ( ) and ( ), respectively.
The average total return for Class C shares of the Fund for the period from June
1, 1998 to October 31, 1998 was ___%.
Total return is computed by finding the average annual compounded rate of return
over the 1 year, 5 years and life-of-fund periods that would equate the initial
amount invested to the ending redeemable value according to the following
formula:
T = ((ERV/P)^(1/n)) - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1 year and life of the
fund periods.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, 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 also
assumes that all dividends and distributions are reinvested at net asset value
on the reinvestment dates during the period. The "distribution rate" is
determined by annualizing the result of dividing the declared dividends of 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 of time. 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 period of
time. Total returns may be quoted with or without taking the Fund's sales charge
on Class A shares or the CDSC on Class B or Class C shares into account.
Excluding the Fund's sales charge on Class A shares and the CDSC on Class B or
Class C shares from a total return calculation produces a higher total return
figure.
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper - Mutual Fund Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on equity mutual
funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C.
Towers are also used for comparison purposes, as well as the Russell and
Wilshire Indices.
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Performance rankings and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S will also be
utilized. The 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 an investment committee of the Adviser, which consists
of officers and directors of the Adviser, Sub-Adviser 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 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 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 or Sub-Adviser,
and their value and expected contribution to the performance of the Fund. It is
not possible to place a dollar value on information and services to be received
from brokers and dealers, since it is only supplementary to the research efforts
of the Adviser or Sub-Adviser. The receipt of research information is not
expected to reduce significantly the expenses of the Adviser or Sub-Adviser. The
research information and statistical assistance furnished by brokers and dealers
may benefit the Life Company or other advisory clients of the Adviser or
Sub-Adviser, and, conversely, brokerage commissions and spreads paid by other
advisory clients of the
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Adviser or Sub-Adviser may result in research information and statistical
assistance beneficial to the Fund. The Fund will make no commitment to allocate
portfolio transactions upon any prescribed basis. While the Adviser and
Sub-Adviser will be primarily responsible for the allocation of the Fund's
brokerage business, their policies and practices in this regard must be
consistent with the foregoing and will at all times be subject to review by the
Trustees. For the years ending October 31, 1998, 1997 and 1996, negotiated
brokerage commissions were paid on portfolio transactions in the amount of
$____, $102,299 and $20,984, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay a broker which provides brokerage and research services to the Fund an
amount of disclosed commission in excess of the commission which another broker
would have charged for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that such price is reasonable in light
of the services provided and to such policies as the Trustees may adopt from
time to time. During the fiscal year ended October 31, 1998, the Fund directed
in the amount of $5,153 commissions 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
years ending October 31, 1998, 1997, and 1996, the Fund did not execute any
portfolio transitions with any Affiliated Broker.
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
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 Broker, has, as an investment adviser to
the Fund, the obligation to provide investment management services, which
includes elements of research and related investment skills such research and
related skills will not be used by the Affiliated 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 the securities
to be sold or purchased for the Fund with those to be sold or purchased for
other clients managed by it in order to obtain best execution.
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TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston MA
02217- 1000, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent of the Fund. The Fund pays Signature Services
an annual fee of $19.00 for each Class A shareholder account, $21.50 for each
Class B shareholder account and $20.50 for each Class C shareholder account. The
Fund also pays certain out-of- pocket expenses and these expenses are aggregated
and charged to the Fund and allocated to each class on the basis of their
relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110. Under the custodian agreement, State Street Bank
and Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are . audits and renders an opinion of the
Fund's annual financial statements and reviews the Fund's annual Federal income
tax return.
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APPENDIX A
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 the fund's
risk profile in the prospectus.
A fund is 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 the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
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). (e.g., short sales, currency
contracts, financial futures and options; securities and index options).
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. (e.g., repurchase agreements, securities lending, foreign debt
securities, non-investment-grade debt securities, asset-backed securities,
mortgage-backed securities, participation interests, financial futures and
options; securities and index options, structured securities).
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. (e.g., currency
trading, foreign debt securities, currency contracts, financial futures and
options; securities and index options).
Extension risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.(e.g., mortgage-backed securities,
structured securities).
Information risk The risk that key information about a security or market is
inaccurate or unavailable.(e.g., non-investment-grade debt securities).
A-1
<PAGE>
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.(e.g.,
foreign debt securities, non-investment-grade debt securities, asset-backed
securities, mortgage-backed securities, participation interests, financial
future and options; securities and index options, structured securities).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
when-issued securities and forward commitments, currency contracts, financial
futures and options; securities and index options, structured securities).
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. (e.g., short sales, non-investment-grade debt securities,
restricted and illiquid securities, mortgage-backed securities, participation
interests, currency contracts, financial futures and options; securities and
index options, structured securities).
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than it was worth at an earlier time. Market risk may affect a
single issuer, industry, sector of the economy or the market as a whole. Common
to all stocks and bonds and the mutual funds that invest in them. (e.g., short
sales, short-term trading, when-issued securities and forward commitments,
foreign debt securities, non-investment-grade debt securities, restricted and
illiquid securities, financial futures and options; securities and index
options, structured securities).
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. (e.g., short sales,
A-2
<PAGE>
when-issued securities and forward commitments, currency contracts, financial
futures and options; securities and index options).
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
(e.g., foreign debt securities).
Prepayment risk The risk that unanticipated prepayments may occur during periods
of falling interest rates, reducing the value of mortgage-backed securities.
(e.g., mortgage-backed securities, structured securities).
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade debt
securities, restricted and illiquid securities, participation interests,
structured securities)
A-3
<PAGE>
APPENDIX B
DESCRIPTION OF BOND RATINGS
Standard & Poor's Bond Ratings
BBB Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
To provide more detailed indications of credit quality, the ratings AA to
BBB may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
A provisional rating, indicated by "p" following a rating, is sometimes
used by Standard & Poor's. It assumes the successful completion of the project
being financed by the issuance of the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
Moody's Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Generally speaking, the safety
of obligations of this class is so absolute that with the occasional exception
of oversupply in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
The market value of Aa bonds is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
B-1
<PAGE>
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers of
rating symbols Aa, A and Baa are to give investors a more precise indication of
relative debt quality in each of the historically defined categories.
Conditional ratings, indicated by "Con," are sometimes given when the
security for the bond depends upon the completion of some act or the fulfillment
of some condition. Such bonds, are given a conditional rating that denotes their
probable credit status upon completion of that act or fulfillment of that
condition.
B-2
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
JOHN HANCOCK SHORT-TERM STRATEGIC INCOME FUND
Class A, Class B and Class C Shares
Statement Of Additional Information
March 1, 1999
This Statement of Additional Information provides information about John Hancock
Short-Term Strategic Income Fund (the "Fund"), in addition to the information
that is contained in the combined International/Global Funds' Prospectus dated
March 1, 1999 (the "Prospectus"). The Fund is a non-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, Suite 1000
Boston MA 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
----
Organization of the Fund ........................................... 2
Investment Objective and Policies .................................. 2
Investment Restrictions ............................................ 18
Those Responsible for Management ................................... 20
Investment Advisory and Other Services ............................. 29
Distribution Contracts ............................................. 31
Sales Compensation ................................................. 33
Net Asset Value .................................................... 34
Initial Sales Charge on Class A Shares ............................. 35
Deferred Sales Charge on Class B and Class C Shares ................ 37
Special Redemptions ................................................ 41
Additional Services and Programs ................................... 41
Description of the Fund's Shares ................................... 43
Tax Status ......................................................... 44
Calculation of Performance ......................................... 48
Brokerage Allocation ............................................... 50
Transfer Agent Services ........................................... 52
Custody of Portfolio ............................................... 52
Independent Auditors ............................................... 52
Appendix A- Description of Investment Risk ......................... A-1
Appendix B-Description of Bond Ratings ............................. B-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 under the laws of The Commonwealth
of Massachusetts. The Fund commenced operations on July 31, 1990. The Fund is
non-diversified in order to permit more than 5% of its assets to be invested in
the obligations of any one issuer.
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. Appendix A contains further
information describing investment risks. The investment objective of the Fund is
fundamental and may only be changed with shareholder approval. There is no
assurance that the Fund will achieve its investment objective.
The Fund's investment objective is a high level of current income. The Fund will
seek to achieve this objective by investing primarily in: (i) foreign government
and corporate debt securities, (ii) U.S. Government securities and (iii)
corporate debt securities of U.S. issuers. There is no fixed allocation among
the types of securities listed.
General. The Fund may invest in all types of debt securities, including debt
obligations issued or guaranteed by United States or foreign governments,
political subdivisions thereof (including states, provinces and municipalities)
or their agencies and instrumentalities ("Governmental entities"), or issued or
guaranteed by international organizations designated or supported by
governmental entities to promote economic reconstruction or development
("supranational entities"), or issued by corporations or financial institutions.
Examples of supranational entities include the International Bank for
Reconstruction and Development (the "World Bank"), the European Steel and Coal
Community, the Asian Development Bank and the Inter-American Development Bank.
The governmental members, or "stockholders," usually make initial capital
contributions to the supranational entity and in many cases are committed to
make additional capital contributions if the supranational entity is unable to
repay its borrowings. Securities issued by supranational entities may be
denominated in U.S. dollars, a foreign currency or a multi-national currency
unit. Securities of corporations and financial institutions in which the Fund
may invest include corporate and commercial obligations, such as medium-term
notes and commercial paper, which may be indexed to foreign currency exchange
rates. In accordance with guidelines promulgated by the Staff of the Securities
and Exchange Commission (the "SEC"), the Fund will consider as an industry any
category of such supranational entities which may have been designated by the
SEC. There is no fixed allocation among the foregoing types of securities.
The maximum average dollar weighted maturity of the Fund is three years. This
maturity is calculated by including average maturities, prepayments, refunds,
redemptions, put dates and call dates. The debt securities in which the Fund may
invest include bonds, debentures, notes (including variable and floating rate
instruments), preferred and preference stock, zero coupon bonds, payment-in-kind
securities or increasing rate note securities.
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<PAGE>
The Fund may invest in debt obligations denominated in the U.S. dollar or in
non- U.S. currencies issued or guaranteed by foreign corporations, certain
supranational entities (as described above), and foreign governments (including
political subdivisions having taxing authority) or their agencies or
instrumentalities. The Fund may also invest in debt obligations issued by U.S.
corporations denominated in non-U.S. currencies.
Foreign Securities. The percentage of the Fund's assets that will be allocated
to foreign securities will vary depending on the relative yields of foreign and
U.S. securities, the economies of foreign countries, the condition of such
countries' financial markets, the interest rate climate of such countries and
the relationship of such countries' currency to the U.S. dollar. These factors
are judged on the basis of fundamental economic criteria (e.g., relative
inflation levels and trends, growth rate forecasts, balance of payments status
and economic policies) as well as technical and political data. The Fund may
invest in any country where the Adviser believes there is a potential to achieve
the Fund's investment objective. The Fund may invest in securities of issuers in
industrialized Western European countries (including Scandinavian countries) and
in Canada, Japan, Australia and New Zealand, as well as in emerging markets or
countries with limited or developing capital markets. Investments in securities
of issuers in emerging markets generally involve more risk and may be considered
highly speculative, as described in more detail below.
The value of portfolio securities denominated in foreign currencies may increase
or decrease in response to changes in currency exchange rates. The value of the
Fund's dividends may also be affected. The Fund will incur costs in connection
with converting between currencies. Foreign companies may not be subject to
accounting standards and government supervision comparable to those applicable
to U.S. companies, and there is often less publicly available information about
their operations. Foreign markets generally provide less liquidity than U.S.
markets (and thus potentially greater price volatility), and typically provide
fewer regulatory protections for investors. Foreign securities can also be
affected by political or financial instability abroad. Additional costs could be
incurred in connection with the Fund's international investment activities.
Foreign brokerage commissions are generally higher than in the U.S. Expenses may
also be incurred on currency exchanges when the Fund changes investments from
one country to another. Increased custodian costs as well as administrative
difficulties (such as the need to use foreign custodians) may be associated with
the maintenance of assets in foreign jurisdictions. In addition, there may be
difficulty in enforcing legal rights outside the United States.
The securities markets of many countries have in the past moved relatively
independently of one another, due to differing economic, financial, political
and social factors. When markets in fact move in different directions and offset
each other, there may be a corresponding reduction in risk for the Fund's
portfolio as a whole. This lack of correlation among the movements of the
world's securities markets may also affect unrealized gains the Fund has derived
from movements in any one market.
If securities traded in markets moving in different directions are combined into
a single portfolio, such as that of the Fund, total portfolio volatility may be
reduced. Since the Fund may invest in securities quoted or denominated in
currencies other than U.S. dollars, changes in foreign currency exchange rates
may affect the value of its portfolio securities. Currency exchange rates may
not move in the same direction as the securities markets in a particular
country. As a result, market gains may be offset by unfavorable exchange rate
fluctuations.
Foreign securities markets, while growing in volume, have for the most part
substantially less volume than U.S. securities markets and securities of foreign
companies are generally less liquid and at times their prices may be more
volatile than securities of comparable U. S. companies. Foreign stock exchanges,
brokers and listed companies are generally subject to less government
supervision and regulation than those in the U.S. The customary settlement time
for foreign
3
<PAGE>
securities may be longer than the three (3) day customary settlement time for
U.S. securities, or less frequent than in the U.S., which could affect the
liquidity of the Fund's investments. The Adviser will monitor the settlement
time for foreign securities and take undue settlement delays into account in
considering the desirability of allocating investments among specific countries.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of business, restrictions of foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominately based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates or currency rates. Local securities markets may trade a small
number of securities and may be unable to respond effectively to increases in
trading volume, potentially making prompt liquidation of substantial holdings
difficult or impossible at times. The Fund may be required to establish special
custodian or other arrangements before making certain investments in those
countries. Securities of issuers located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
Foreign Currency Transactions. The foreign currency transactions of the Fund may
be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Fund may also
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. The Fund may
also engage in speculative forward currency transactions. Forward currency
transactions are accomplished through contractual agreements to purchase or sell
a specified currency or to deliver a final cash settlement amount based on the
relative performance of two currencies if the contract does not call for the
physical delivery of 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 for payables of
the Fund accruing in connection with the purchase and sale of its portfolio
securities denominated in foreign currencies. Portfolio hedging is the use of
forward foreign currency contracts to offset portfolio security positions
denominated or quoted in such foreign currencies. The Fund will not attempt to
hedge all of its foreign portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by the Adviser.
If the Fund enters into a forward contract requiring it to purchase foreign
currency, its custodian bank 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. Those assets will be valued at market daily and if the value of the
assets in the separate account declines, additional cash or liquid assets will
be placed in the account so that the value of the account will equal the amount
of the Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated
4
<PAGE>
that the Fund is not able to contract to sell the currency at a price above the
devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as that currency involved, the length of the contract period and
the market conditions then prevailing. Since transactions in foreign currency
are usually conducted on a principal basis, no fees or commissions are involved.
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 those
applicable to United States issuers.
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 or gains
available for distribution to the Fund's shareholders.
Money Market Securities. The Fund's shorter-term investments may be money market
securities. Money market securities include short-term obligations issued or
guaranteed by the U.S. Government or foreign governments or issued by such
governments' respective agencies and instrumentalities, bank money market
instruments including certificates of deposit, banker's acceptances and deposit
notes and certain other short- term obligations such as short-term commercial
paper. With respect to bank money market instruments, the obligations may be
issued by U.S. or foreign depository institutions, foreign branches or
subsidiaries of U.S.
5
<PAGE>
depository institutions ("Eurodollar" obligations), U.S. branches or
subsidiaries of foreign depository institutions ("Yankee dollar" obligations) or
foreign branches or subsidiaries of foreign depository institutions. Eurodollar
and Yankee dollar obligations and obligations of branches or subsidiaries of
foreign depository institutions may be general obligations of the parent bank or
may be limited to the issuing branch or subsidiary by the terms of the specific
obligations or by government regulation. Foreign subsidiaries of U.S. depository
institutions and U.S. and foreign subsidiaries of foreign depository
institutions may be considered investment companies under the Investment Company
Act of 1940 (the "Investment Company Act").
Mortgage-Backed Securities. The Fund may invest in Government National Mortgage
Association (Ginnie Mae), Federal National Mortgage Association (Fannie Mae) and
Federal Home Mortgage Loan Corporation (Freddie Macs) mortgage-backed securities
and other U.S. Government securities, including real estate mortgage investment
companies ("REMICs") and Collateralized Mortgage Obligations ("CMOs")
representing ownership interests in mortgage pools. Certain U.S. Government
securities, including U.S. treasury bills, notes and bonds, and Ginnie Maes, are
supported by the full faith and credit of the United States or by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of Freddie Mac and Fannie Mae. Ginnie Maes, Freddie Macs and Fannie
Maes are mortgage-backed securities which provide monthly payments which are, in
effect, a "pass-through" of the monthly interest and principal payments
(including any prepayments) made by the individual borrowers on the pooled
mortgage loans. CMOs in which the Fund may invest are securities issued by a
U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Investors may purchase "regular" or
"residual" interests in REMICs, although the Fund does not intend, absent a
change in current tax law, to acquire residual interests in REMICs.
Ginnie Mae is a wholly-owned corporate instrumentality of the United States
within the Department of Housing and Urban Development. Fannie Mae, a federally
chartered and privately owned corporation, issues pass-through securities which
are guaranteed as to payment of principal and interest by Fannie Mae. Freddie
Mac, a corporate instrumentality of the Untied States, issues participation
certificates which represent an interest in mortgages from Freddie Mac's
portfolio. Freddie Mac guarantees the timely payment of interest and the
ultimate collection of principal. As is the case with Ginnie Mae Certificates,
the actual maturity of and realized yield on particular Fannie Mae and Freddie
Mac mortgage-based securities will vary based on the prepayment experience of
the underlying pool of mortgages. Generally, the issuers of mortgaged-backed and
receivable-backed bonds, notes or pass-through certificates are special purpose
entities and do not have any significant assets other than the assets securing
such obligations.
Instruments backed by pools of mortgages and receivables may be subject to
unscheduled prepayments of principal prior to maturity. During periods of
declining interest rates, principle and interest on mortgage-backed securities
may be prepaid at faster than expected rates, with the proceeds of these
prepayments being invested in lower-yielding securities. In this situation,
mortgage-backed securities may be less effective at maintaining yields than
traditional debt obligations of similar maturity. Conversely, in a rising
interest rate environment, a declining prepayment rate will extend the average
life of many mortgage-backed securities. Extending the average life of a
mortgage-backed security increases the risk of depreciation due to future
increases in market interest rates. Moreover, prepayments of securities
purchased at a premium could result in a realized loss.
Indexed Obligations. Indexed notes and commercial paper typically provide that
the principal amount is adjusted upwards or downwards (but not below zero) at
maturity to reflect fluctuations in the exchange rate between two currencies
during the period the obligation is outstanding, depending on the terms of the
specific security. In selecting the two currencies, the Adviser will
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consider the correlation and relative yields of various currencies. The Fund
will purchase an indexed obligation using the currency in which it is
denominated and, at maturity, will receive interest and principal payments
thereon in that currency. The amount of principal payable by the issuer at
maturity, however, will vary (i.e., increase or decrease) in response to the
change (if any) in the exchange rates between the two specified currencies
during the period from the date the instrument is issued to its maturity date.
The potential for realizing gains as a result of changes in foreign currency
exchange rates may enable the Fund to hedge the currency in which the obligation
is denominated (or to effect cross-hedges against other currencies) against a
decline in the U.S. Dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. However,
there can be no assurance that the Fund's hedging strategies will be effective.
The Fund will purchase such indexed obligations to generate current income or
for hedging purposes and will not speculate in such obligations. As of the date
of this Statement of Additional Information, the Fund has no present intention
to invest in these obligations.
Obligations of Foreign Governmental Entities. The obligations of foreign
governmental entities have various kinds of government support and include
obligations issued or guaranteed by foreign governmental entities with taxing
power. These obligations may or may not be supported by the full faith and
credit of a foreign government. The Fund will invest in foreign government
securities of issuers considered stable by the Adviser, based on its analysis of
factors such as general political or economic conditions relating to the
government and the likelihood of expropriation, nationalization, freezes or
confiscation of private property. No more than 25% of the Fund's total assets,
at the time of purchase will be invested in government securities of any one
foreign country. The Adviser does not believe that the credit risk inherent in
the obligations of stable foreign governments is significantly greater than that
of U.S. Government securities.
Multi-National Currency Unit Securities. As indicated above, the Fund may invest
in securities denominated in a multi-national currency unit. An illustration of
a multi-national currency unit is the European Currency Unit (the "ECU"), which
is a "basket" consisting of specified amounts of the currencies of the member
states of the European Community, a Western European economic cooperative
organization that includes France, West Germany, The Netherlands and the United
Kingdom. The specific amounts of currencies comprising the ECU may be adjusted
by the Council of Ministers of the European Community to reflect changes in
relative values of the underlying currencies. The Adviser does not believe that
such adjustments will adversely affect holders of ECU- denominated obligations
or the marketability of such securities. European supranational entities, in
particular, issue ECU-denominated obligations. The Fund may invest in securities
denominated in the currency of one nation although issued by a governmental
entity, corporation or financial institution of another nation. For example, the
Fund may invest in a British Pound sterling-denominated obligation issued by a
United States corporation. Such investments involve credit risks associated with
the issuer and currency risks associated with the currency in which the
obligation is denominated.
The Fund may invest in fixed and floating rate loans ("Loans") arranged through
private negotiations between a foreign entity and one or more financial
institutions ("Lenders"). The majority of the Fund's investments in Loans in
emerging markets is expected to be in the form of participations in Loans
("Participations") and assignments of portions of Loans from third parties
("Assignments"). Participations typically will result in the Fund having a
contractual relationship only with the Lender not with the borrower. As a
result, the Fund will assume the credit risk of both the borrower and the Lender
that is selling the Participation. In the event of the insolvency of the Lender
selling a Participation, the Fund may be treated as a general creditor of the
Lender and may not benefit from any set-off between the Lender and the borrower.
The Fund will acquire Participations only if the Lender interpositioned between
the Fund and the borrower is determined by the Adviser to be creditworthy.
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The secondary market for Participations and Assignments is limited to certain
institutional investors, which could adversely affect the value of these
securities and make it more difficult to assign a value to them (see
"Participations" below).
Lower Rated High Yield "High Risk" Debt Obligations. The Fund seeks high current
income and may invest in high yielding, fixed income securities rated Baa, Ba or
B by Moody's or BBB, BB or B by Standard & Poor's, sometimes referred to as junk
bonds. The Fund may also invest in unrated securities which, in the opinion of
the Adviser, offer comparable yields and risks to rated securities. The Fund
will, however, maintain an average portfolio quality rating of A by Standard &
Poor's Ratings Group ("Standard & Poor's") or Moody's Investors Service Inc.
("Moody's") or the unrated equivalent. Ratings are based largely on the
historical financial condition of the issuer. Consequently, the rating assigned
to any particular security is not necessarily a reflection of the issuer's
current financial condition, which may be better or worse than the rating would
indicate.
Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the issuer's ability to make payments of interest
and principal. The 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 a recession. The market price and liquidity of lower rated
fixed income securities generally respond more to short-term corporate and
market developments than do those of higher rated securities, because these
developments are perceived to have a more direct relationship to the ability of
an issuer of lower rated securities to meet its ongoing debt obligations.
Reduced volume and liquidity in the high yield high risk bond market, or the
reduced availability of market quotations, will make it more difficult to
dispose of the bonds and to value accurately the Fund's assets. The reduced
availability of reliable, objective data may increase the Fund's reliance on
management's judgment in valuing high yield high risk bonds. In addition, the
Fund's investments in high yield high risk securities may be susceptible to
adverse publicity and investor perceptions, whether or not justified by
fundamental factors. The Fund's investments, and consequently its net asset
value, will be subject to the market fluctuations and risk inherent in all
securities.
The market value of debt securities which carry no equity participation usually
reflects yields generally available on securities of similar quality and type.
When such yields decline, the market value of a portfolio already invested at
higher yields can be expected to rise if such securities are protected against
early call. In general, in selecting securities for its portfolio, the Fund
intends to seek protection against early call. Similarly, when such yields
increase, the market value of a portfolio already invested at lower yields can
be expected to decline. The Fund's portfolio may include debt securities which
sell at substantial discounts from par. These securities are low coupon bonds
which, during periods of high interest rates, because of their lower acquisition
cost tend to sell on a yield basis approximating current interest rates.
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 B 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
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minimum required for purchase by the Fund. Neither of these events will require
the sale of the securities by the Fund.
Time Deposits. The Fund's time deposits are non-negotiable deposits maintained
for a stated period of time at a stated interest rate. If the Fund purchases
time deposits maturing in seven days or more, it will treat those longer-term
time deposits as illiquid.
Participation Interests. The Fund may acquire participation interests in senior
floating rate loans that are made primarily to U.S. and foreign companies.
Participation interests, which may take the form of interests in, or assignments
of, the loans, are acquired from banks who have made loans or are members of a
lending syndicate. The Fund's investments in participation interests are subject
to its 15% limitation on investments in illiquid securities.
Structured Securities. The Fund may invest in structured notes, bonds or
debentures, the value of the principal of and/or interest on which is to be
determined by reference to changes in the value of specific currencies, interest
rates, commodities, indices or other financial indicators (the "Reference") or
the relative change in two or more References. The interest rate or the
principal amount payable upon maturity or redemption may be increased or
decreased depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal is
due at maturity and, therefore, may result in the loss of the Fund's investment.
Structured securities may be positively or negatively indexed, so that
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, the change in
interest rate or the value of the security at maturity may be a multiple of the
change in the value of the Reference. Consequently, structured securities entail
a greater degree of market risk than other types of debt obligations. Structured
securities may also be more volatile, less liquid and more difficult to
accurately price than less complex fixed income investments.
Mortgage "Dollar Roll" Transactions. The Fund may enter into mortgage "dollar
roll" transactions with selected banks and broker-dealers pursuant to which the
Fund sells mortgage-backed securities and simultaneously contracts to repurchase
substantially similar (same type, coupon and maturity) securities on a specified
future date. The Fund will only enter into covered rolls. A "covered roll" is a
specific type of dollar roll for which there is an offsetting cash position or a
cash equivalent security position which matures on or before the forward
settlement date of the dollar roll transaction. Covered rolls are not treated as
a borrowing or other senior security and will be excluded from the calculation
of the Fund's borrowing and other senior securities. For financial reporting and
tax purposes, the Fund treats mortgage dollar rolls as two separate
transactions; one involving the purchase of a security and a separate
transaction involving a sale. The Fund does not currently intend to enter into
mortgage dollar roll transactions that are accounted for as a financing.
Asset-Backed Securities. The Fund may invest a portion of its assets in
asset-backed securities. Asset-backed securities are often subject to more rapid
repayment than their stated maturity date would indicate as a result of the
pass-through of prepayments of principal on the underlying loans. During periods
of declining interest rates, prepayment of loans underlying asset-backed
securities can be expected to accelerate. Accordingly, the Fund's ability to
maintain positions in these securities will be affected by reductions in the
principal amount of such securities resulting from prepayments, and its ability
to reinvest the returns of principal at comparable yields is subject to
generally prevailing interest rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
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residential real property. Most issuers of automobile receivables permit the
loan services to retain possession of the underlying obligations. If the service
were to sell these obligations to another party, there is a risk that the
purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
Swaps, Caps, Floor and Collars. As one way of managing its exposure to different
types of investments, the Fund may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars and floors. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specified period of
time. If a swap agreement provides for payment in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from one type
of investment to another. For example, if the Fund agreed to exchange payments
in dollars for payments in a foreign currency, the swap agreement would tend to
decrease the Fund's exposure to U.S. interest rates and increase its exposure to
foreign currency and interest rates. Caps and floors have an effect similar to
buying or writing options. Depending on how they are used, swap agreements may
increase or decrease the overall volatility of a Fund's investments and its
share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on the
Fund's performance. Swap agreements are subject to risks related to the
counterpart's ability to perform and may decline in value if the counterpart's
credit worthiness deteriorates. The Fund may also suffer losses if it is unable
to terminate outstanding swap agreements or reduce its exposure through
offsetting transactions. The Fund will maintain in a segregated account with its
custodian, cash or liquid, high grade debt securities equal to the net amount,
if any, of the excess of the Fund's obligations over its entitlement with
respect to swap, cap, collar or floor transactions.
Pay-In-Kind, Delayed and Zero Coupon Bonds. The Fund may invest in pay-in-kind,
delayed and zero coupon bonds. These are securities issued at a discount from
their face value because interest payments are typically postponed until
maturity. The amount of the discount rate varies depending on factors including
the time remaining until maturity, prevailing interest rates, the security's
liquidity and the issuer's credit quality. These securities also may take the
form of debt securities that have been stripped of their interest payments. A
portion of the discount with respect to stripped tax-exempt securities or their
coupons may be taxable. The market prices in pay-in-kind, delayed and zero
coupon bonds generally are more volatile than the market prices of
interest-bearing securities and are likely to respond to a grater degree to
changes in interest rates than interest-bearing securities having similar
maturities and credit quality. The Fund's investments in pay-in-kind, delayed
and zero coupon bonds may require the Fund to sell certain
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of its portfolio securities to generate sufficient cash to satisfy certain
income distribution requirements. See "Tax Status."
Brady Bonds. The Fund may invest in Brady Bonds and other sovereign debt
securities of countries that have restructured or are in the process of
restructuring sovereign debt pursuant to the Brady Plan. Brady Bonds are debt
securities issued by U.S. Treasury Secretary Nicholas F. Brady in 1989 as a
mechanism for debtor nations to restructure their outstanding external
indebtedness (generally, commercial bank debt). In restructuring its external
debt under the Brady Plan framework, a debtor nation negotiates with its
existing bank lenders as well as multilateral institutions such as the World
Bank and the International Monetary Fund (the "IMF"). The Brady Plan facilitates
the exchange of commercial bank debt for newly issued bonds (known as Brady
Bonds). The World Bank and the IMF provide funds pursuant to loan agreements or
other arrangements which enable the debtor nation to collateralize the new Brady
Bonds or to repurchase outstanding bank debt at a discount. Under these
arrangements the IMF debtor nations are required to implement domestic monetary
and fiscal reforms. These reforms have included the liberalization of trade and
foreign investment, the privatization of state-owned enterprises and the setting
of targets for public spending and borrowing. These policies and programs
promote the debtor country's ability to service its external obligations and
promote its economic growth and development. The Brady Plan only sets forth
general guiding principles for economic reform and debt reduction, emphasizing
that solutions must be negotiated on a case-by- case basis between debtor
nations and their creditors. The Adviser believes that economic reforms
undertaken by countries in connection with the issuance of Brady Bonds make the
debt of countries which have issued or have announced plans to issue Brady Bonds
an attractive opportunity for investment.
Brady Bonds have recently been issued by Argentina, Brazil, Bulgaria, Costa
Rica, Dominican Republic, Ecuador, Jordan, Mexico, Nigeria, Poland, the
Philippines, Uruguay and Venezuela and may be issued by other countries. Over
$130 billion in principal amount of Brady Bonds have been issued to date, the
largest portion having been issued by Argentina and Brazil. Brady Bonds may
involve a high degree of risk, may be in default or present the risk of default.
As of January, 1, 1997, the Fund is not aware of the occurrence of any payment
defaults on Brady Bonds. Investors should recognize however, that Brady Bonds
have been issued only recently, and, accordingly, they do not have a long
payment history. Agreements implemented under the Brady Plan to date are
designed to achieve debt and debt-service reduction through specific options
negotiated by a debtor nation with its creditors. As a result, the financial
packages offered by each country differ. The types of options have included the
exchange of outstanding commercial bank debt for bonds issued at 100% of face
value of such debt, bonds issued at a discount of face value of such debt, bonds
bearing an interest rate which increases over time and bonds issued in exchange
for the advancement of new money by existing lenders. Certain Brady Bonds have
been collateralized as to principal due at maturity by U.S. Treasury zero coupon
bonds with a maturity equal to the final maturity of such Brady Bonds, although
the collateral is not available to investors until the final maturity of the
Brady Bonds. Collateral purchases are financed by the IMF, the World Bank and
the debtor nations' reserves. In addition, the first two or three interest
payments on certain types of Brady Bonds may be collateralized by cash or
securities agreed upon by creditors. Although Brady Bonds may be collateralized
by U.S. Government securities, repayment of principal and interest is not
guaranteed by the U.S. Government.
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
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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
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 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
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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.
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). 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
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
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
13
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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
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
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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
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
15
<PAGE>
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
obligating the Fund to purchase securities or currencies, require the Fund to
establish 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, 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. 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.
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 or be
prevented from liquidating the underlying securities and could experience
losses, including possible decline in the value of the underlying securities
during the period in which the Fund seeks to enforce its rights thereto,
possible subnormal levels of income 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
16
<PAGE>
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 a separate account
consisting of liquid securities, of any type or maturity, in an amount at least
equal to the repurchase prices of these securities (plus accrued interest
thereon) under such agreements. In addition, the Fund will not borrow money or
enter into reverse repurchase agreements except from banks temporarily for
extraordinary or emergency purposes (not leveraging or investment) and then in
an aggregate amount not in excess of 10% of the value of the Fund's total assets
at the time of such borrowing, provided that the Fund will not purchase
securities for investment while borrowings equaling 5% or more of the Fund's
total assets are outstanding. 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. 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 if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when- issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a when-
issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid 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
17
<PAGE>
when-issued commitments. Alternatively, the Fund may enter into offsetting
contracts for the forward sale of other securities that it owns.
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 30% 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. The Fund may not invest more than 5% of its total assets in
warrants or more than 2% of its total assets in warrants which are not listed on
the New York Stock Exchange or the American Stock Exchange. 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 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 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. The Fund's portfolio turnover rate may vary widely
from year to year and may be higher than that of many other mutual funds with
similar investment objectives. 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 the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, the 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 the meeting
or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
18
<PAGE>
1. Purchases on Margin and Short Sales. Purchase securities on margin
or sell short, except that the Fund may obtain such short term
credits as are necessary for the clearance of securities
transactions. The deposit or payment by the Fund of initial or
maintenance margin in connection with futures contracts or related
options transactions is not considered the purchase of a security on
margin.
2. Borrowing. Borrow money, except from banks temporarily for
extraordinary or emergency purposes (not for leveraging or
investment) and then in an aggregate amount not in excess of 10% of
the value of the Fund's total assets at the time of such borrowing,
provided that the Fund will not purchase securities for investment
while borrowings equaling 5% or more of the Fund's total assets are
outstanding.
3. Underwriting Securities. Act as an underwriter of securities of
other issuers, except to the extent that it may be deemed to act as
an underwriter in certain cases when disposing of restricted
securities. (See also Restriction 12.)
4. Senior Securities. Issue senior securities except as appropriate to
evidence indebtedness which the Fund is permitted to incur, provided
that (i) the purchase and sale of futures contracts or related
options, (ii) collateral arrangements with respect to futures
contracts, related options, forward foreign currency exchange
contracts or other permitted investments of the Fund as described in
the Prospectus, including deposits of initial and variation margin,
and (iii) the establishment of separate classes of shares of the
Fund for providing alternative distribution methods are not
considered to be the issuance of senior securities for purposes of
this restriction.
5. Warrants. Invest more than 5% of its total assets in warrants,
whether or not the warrants are listed on the New York or American
Stock Exchanges, or more than 2% of the value of the total assets of
the Fund in warrants which are not listed on those exchanges.
Warrants acquired in units or attached to securities are not
included in this restriction.
6. Real Estate. Purchase or sell real estate although the Fund may
purchase and sell securities which are secured by real estate,
mortgages or interests therein, or issued by companies which invest
in real estate or interests therein; provided, however, that the
Fund will not purchase real estate limited partnership interests.
7. Commodities; Commodity Futures; Oil and Gas Exploration and
Development Programs. Purchase or sell commodities or commodity
futures contracts or interests in oil, gas or other mineral
exploration or development programs, except the Fund may engage in
such forward foreign currency contracts and/or purchase or sell such
futures contracts and options thereon as described in the
Prospectus.
8. Making Loans. Make loans, except that the Fund may purchase or hold
debt instruments and may enter into repurchase agreements (subject
to Restriction 11) in accordance with its investment objectives and
policies and make loans of portfolio securities provided that as a
result, no more than 30% of the total assets of the Fund taken at
current value would be so loaned.
9. Industry Concentration. Purchase any securities which would cause
more than 25% of the market value of the Fund's total assets at the
time of such purchase to be invested in the securities of one or
more issuers having their principal business activities in the same
industry, provided that there is no limitation with respect to
19
<PAGE>
investments in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. This restriction will
apply to obligations of a foreign government unless the SEC permits
their exclusion.
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) Invest more than 15% of its net assets in illiquid securities.
(b) 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.
(c) Joint Trading Accounts. Participate on a joint or joint and several
basis in any trading account in securities (except for a joint
account with other funds managed by the Adviser for repurchase
agreements permitted by the SEC pursuant to an exemptive order).
(d) Securities of Other Investment Companies. Purchase a security if, as
a result (i) more than 10% of the Fund's total assets would be
invested in the securities of other investment companies, (ii) the
Fund would hold more than 3% of the total outstanding voting
securities of any one investment company, or (iii) more than 5% of
the Fund's total assets would be invested in the securities of any
one investment company. These limitations do not apply to (a) the
investment of cash collateral, received by the Fund in connection
with lending the Fund's portfolio securities, in the securities of
open-end investment companies or (b) the purchase of shares of any
investment company in connection with a merger, consolidation,
reorganization or purchase of substantially all of the assets of
another investment company. Subject to the above percentage
limitations, the Fund may, in connection with the John Hancock Group
of Funds Deferred Compensation Plan for Independent
Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees, who elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers and Trustees of the Fund 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").
20
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Edward J. Boudreau, Jr. * Trustee, Chairman and Chairman, Director and
101 Huntington Avenue Chief Executive Officer Chief Executive Officer,
Boston, MA 02199 (1, 2) the Adviser; Chairman,
October 1944 Director and Chief
Executive Officer, The
Berkeley Financial Group,
Inc. ("The Berkeley
Group"); Chairman and
Director, NM Capital
Management, Inc. ("NM
Capital"), John Hancock
Advisers International
Limited ("Advisers
International") and
Sovereign Asset Management
Corporation ("SAMCorp");
Chairman, Chief Executive
Officer and President,
John Hancock Funds, Inc.
("John Hancock Funds");
Chairman, First Signature
Bank and Trust Company;
Director, John Hancock
Insurance Agency, Inc.
("Insurance Agency,
Inc."), John Hancock
Advisers International
(Ireland) Limited
("International Ireland"),
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; 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.
21
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee Professor of Law,
1216 Falls Boulevard Emeritus, Boston
Fort Lauderdale, FL 33327 University School of Law
June 1931 (as of 1996); Director,
Brookline Bankcorp.
Richard P. Chapman, Jr. Trustee (1) Director, President and
160 Washington Street Chief Executive Officer
Brookline, MA 02147 Brookline Bankcorp.
February 1935 (lending); Director,
Lumber Insurance
Companies (fire and
casualty insurance);
Trustee, Northeastern
University (education);
Director, Depositors
Insurance Fund, Inc.
(insurance).
William J. Cosgrove Trustee Vice President, Senior
20 Buttonwood Place Banker and Senior Credit
Saddle River, NJ 07458 Officer, Citibank, N.A.
January 1933 (retired September
1991); Executive Vice
President, Citadel Group
Representatives, Inc.; EVP
Resource Evaluation, Inc.
(consulting) (until
October 1993); Trustee,
the Hudson City Savings
Bank (since 1995).
- ----------
* 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.
22
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Douglas M. Costle Trustee (1) Director, Chairman and
RR2 Box 480 Distinguished Senior
Woodstock, VT 05091 Fellow, Institute for
July 1939 Sustainable Communities,
Montpelier, Vermont (since
1991); Dean, Vermont Law
School (until 1991);
Director, Air and Water
Technologies (until 1996)
(environmental services
and equipment), Niagara
Mohawk Power Corp.
(electric services);
Concept Five Technologies
(until 1997); Mitretek
Systems (governmental
consulting services);
Conversion Technologies,
Inc.; Living Technologies,
Inc.
Leland O. Erdahl Trustee Director of Uranium
8046 Mackenzie Court Resources Corporation;
Las Vegas, NV 89129 Hecla Mining Company,
December 1928 Canyon Resources
Corporation and Original
Sixteen to One Mine,
Inc. (1984-1987 and
1991-1998) (management
consultant); Vice
President, Chief
Financial Officer and
Director of Amax Gold,
Inc. (until 1998);
Director, Freeport
McMoran Copper & Gold,
Inc. (until 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.
23
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Farrell Trustee President of Farrell,
The Venture Capital Fund Healer & Co., (venture
of New England capital management firm)
160 Federal Street (since 1980); Prior to
23rd Floor 1980, headed the venture
Boston, MA 02110 capital group at Bank of
November 1932 Boston Corporation.
Gail D. Fosler Trustee Senior Vice President
3054 So. Abingdon Street and Chief Economist, The
Arlington, VA 22206 Conference Board
December 1947 (non-profit economic and
business research);
Director, Unisys Corp.;
and H.B. Fuller
Company. Director,
National Bureau of
Economic Research
(academic).
William F. Glavin Trustee President Emeritus,
120 Paget Court - John's Babson College (as of
Island 1997); Vice Chairman,
Vero Beach, FL 32963 Xerox Corporation (until
March 1932 June 1989); Director,
Caldor Inc., Reebok,
Inc. (since 1994) and
Inco Ltd.
Anne C. Hodsdon * Trustee and President President, Chief
101 Huntington Avenue (1,2) Operating Officer and
Boston, MA 02199 Director, the Adviser,
April 1953 The Berkeley Group;
Director, John Hancock
Funds, Advisers
International, Insurance
Agency, Inc. and
International Ireland;
President and Director,
SAMCorp. and NM Capital;
Executive Vice
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.
24
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dr. John A. Moore Trustee President and Chief
Institute for Evaluating Executive Officer,
Health Risks Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since
Washington, DC 20006-1602 September 1989).
February 1939
Patti McGill Peterson Trustee Executive Director,
CIES Council for
3007 Tilden Street, N.W. International Exchange
Washington, D.C. 20008 of Scholars (since
May 1943 January 1998), Vice
President, Institute of
International Education
(since January 1998);
Cornell Institute of
Public Affairs, Cornell
University (until December
1997); President Emerita
of Wells College and St.
Lawrence University;
Director, Niagara Mohawk
Power Corporation
(electric utility).
John W. Pratt Trustee Professor of Business
2 Gray Gardens East Administration Emeritus,
Cambridge, MA 02138 Harvard University
September 1931 Graduate School of
Business Administration
(as of June 1998).
- ----------
* 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.
25
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard S. Scipione * Trustee (1) General Counsel, John
John Hancock Place Hancock Life Company;
P.O. Box 111 Director, the Adviser,
Boston, MA 02117 Advisers International,
August 1937 John Hancock Funds, John
Hancock Distributors,
Inc., Insurance Agency,
Inc., John Hancock
Subsidiaries, Inc.,
SAMCorp. and NM Capital;
Director, The Berkeley
Group; Director, JH
Networking Insurance
Agency, Inc.; Director,
Signature Services
(until January 1997).
Osbert M. Hood Senior Vice President and Senior Vice President
101 Huntington Avenue Chief Financial Officer and Chief Financial
Boston, MA 02199 Officer, the Adviser,
August 1952 the Berkeley Group and
John Hancock Funds, Inc.;
Vice President and Chief
Financial Officer, John
Hancock Mutual Life
Insurance Company Retail
Sector (until 1997).
John A. Morin Vice President Vice President and
101 Huntington Avenue Secretary, the Adviser,
Boston, MA 02199 The Berkeley Group,
July 1950 Signature Services and
John Hancock Funds;
Secretary, NM Capital and
SAMCorp.; Clerk, Insurance
Agency, Inc.; Counsel,
John Hancock Mutual Life
Insurance Company (until
February 1996), and Vice
President of John Hancock
Distributors, Inc. (until
April 1994).
- ----------
* 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.
26
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Susan S. Newton Vice President and Vice President, the
101 Huntington Avenue Secretary Adviser; John Hancock
Boston, MA 02199 Funds, Signature
March 1950 Services and The
Berkeley Group, NM
Capital; Vice President,
John Hancock
Distributors, Inc.
(until April 1994).
James J. Stokowski Vice President, Treasurer Vice President, the
101 Huntington Avenue and Chief Accounting Adviser.
Boston, MA 02199 Officer
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.
27
<PAGE>
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 and Scipione and Ms.
Hodsdon, each a non-Independent Trustee, and each of the officers of the Fund
are interested persons of the Adviser, are compensated by the Adviser and
receive no compensation from the Fund for their services.
Aggregate Total Compensation From
Compensation the Fund and John Hancock
Independent Trustees From the Fund(1) Fund Complex to Trustees(2)
- -------------------- ---------------- ---------------------------
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 *
Dr. John A. Moore*
Patti McGill Peterson
John W. Pratt
Edward J. Spellman
Total $
(1) Compensation is for the fiscal year ended October 31, 1998.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 1998. As of this date, there were sixty-seven
funds in the John Hancock Fund Complex, with each of these Independent Trustees
serving on thirty-two funds.
* As of December 31, 1998, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $___, Mr. Cosgrove was $___, Mr. Glavin was $___ and for Dr. Moore
was $___ under the John Hancock Group of Funds Deferred Compensation Plan for
Independent Trustees.
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of November 30, 1998, the officers and trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders beneficially owned 5% or more of
outstanding shares of the Fund:
28
<PAGE>
<TABLE>
<CAPTION>
Percentage of Total
Outstanding Shares of the
Name and Address of Shareholder Class of Shares Class of the Fund
- ------------------------------- --------------- -----------------
<S> <C> <C>
MLPF&S For The Sole Benefit of Its A 11.04%
Customers
Attn: Fund Administration 97C86
4800 Deer Lake Drive East 2nd Fl
Jacksonville FLA 32246-6484
MLPF&S For The Sole Benefit of Its B 10.07%
Customers
Attn: Fund Administration 97C85
4800 Deer Lake Drive East 2nd Fl
Jacksonville FLA 32246-6484
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $30 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 1,400,000 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 $100
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries a high rating from Standard and Poor's and A.M.
Best. 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 which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, 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 but not
limited to 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,
maintaining a committed line of credit, 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.
29
<PAGE>
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Net Asset Value Annual Rate
--------------- -----------
First $500 million 0.65%
Amounts over $500 million 0.60%
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 its 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.
For the fiscal years ended October 31, 1996, 1997 and 1998, the Fund paid the
Adviser, an investment advisory fee of $640,833, $625,143 and $____,
respectively.
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 the Advisory Agreement, 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 Advisory Agreement 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 Advisory Agreement.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement 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 continuation of the Advisory Agreement and the Distribution Agreement
(discussed below) was approved by all Trustees. The Advisory Agreement and the
Distribution Agreement, will continue in effect from year to year, provided that
its continuance is approved annually both (i) by the holders of a majority of
the outstanding voting securities of the Trust or by the Trustees, and (ii) by a
majority of the Trustees who are not parties to the Agreement or "interested
persons" of any such parties. Both Agreements may be terminated on 60 days
written notice by any party or by vote of a majority to the outstanding voting
securities of the Fund and will terminate automatically if assigned.
30
<PAGE>
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 fiscal year ended October 31, 1996, 1997 and 1998,
the Fund paid the Adviser $6,208, $417,692 and $____, respectively, for services
under this agreement.
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 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 that are continually offered at net asset
value next determined, plus an applicable sales charge, if any. In connection
with the sale of Fund shares, 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. In the case of Class B or Class C shares, the broker receives
compensation immediately but John Hancock Funds is compensated on a deferred
basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal years ended October 31, 1996, 1997 and 1998 were $127,241, $84,777 and
$___, respectively. Of such amounts $17,608, $11,040 and $___, respectively,
retained by John Hancock Funds in 1996, 1997 and 1998. The remainder of the
underwriting commissions were reallowed to Selling Brokers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
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% for Class A shares and 1.00% for Class B
and Class C shares of the Fund's average daily net assets attributable to shares
of that class. However, the service fee will not exceed 0.25% of the Fund's
average daily net assets attributable to each class of shares. The distribution
fees 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 and Class C 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 John Hancock Funds
is not fully reimbursed for payments 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 and Class C Plans will be
carried forward together with interest on the balance of the unreimbursed
expenses. The Fund does not treat unreimbursed expenses relating to the Class
B/or Class C Plans 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,
1998, an
31
<PAGE>
aggregate of $___ of distribution expenses or ___% of the average net assets of
the Class B shares of the Fund was not reimbursed or recovered by the John
Hancock Funds through the receipt of deferred sales charges or 12b-1 fees in
prior periods. Class C shares of the Fund did not commence operations until
March 1, 1999; therefore, there are no unreimbursed expenses to report.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meeting called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, the John Hancock Funds provide the
Fund with a written report of the amounts expended under the Plans and the
purpose for which these expenditures were made. The Trustees review these
reports on a quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only as long as their
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 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
day's written notice to the 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 the Plan. Each Plan provides, that
no material amendment to the Plan will be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the Plans the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable classes of
shares of the Fund.
Amounts paid to 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 a 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 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 Fund.
During the fiscal year ended October 31, 1998, the Fund paid John Hancock Funds
the following amounts of expenses in connection with their services for the
Fund. Class C shares did not commence operations until March 1, 1999; therefore,
there are no expenses to report.
32
<PAGE>
Expense Items
<TABLE>
<CAPTION>
Printing and Interest,
Mailing of Expenses of Carrying or
Prospectus to Compensation to John Hancock Other Finance
Advertising New Shareholders Selling Brokers Funds Charges
----------- ---------------- --------------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A $ $ $ $ $
Class B $ $ $ $ $
</TABLE>
SALES COMPENSATION
As part of their business strategies, each of the John Hancock 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. The sales charges and 12b-1
fees paid by investors are detailed in the prospectus and under "Distribution
Contracts" in this Statement of Additional Information. The portions of these
expenses that are reallowed to financial services firms are shown on the next
page.
Whenever you make an investment in the Fund, 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. 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.
33
<PAGE>
<TABLE>
<CAPTION>
Maximum
Sales charge Reallowance First year Maximum total compensation
Paid by investors Or commission service fee (1)
Class A investments (% of offering price) (% of offering price) (% of offering price) (% of offering price)
- ------------------- --------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Up to $99,999 3.00% 2.26% 0.25% 2.50%
$100,000 - $499,999 2.50% 2.01% 0.25% 2.25%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
Regular investments of
$1 million or more (all
funds)
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%
<CAPTION>
Maximum
Reallowance First year Maximum
Or commission service fee total compensation
Class B investments (% of offering price) (% of offering price) (% of offering price)
- ------------------- --------------------- --------------------- ----------------------
<S> <C> <C> <C>
All amounts 3.75% 0.25% 4.00%
<CAPTION>
Maximum
Reallowance First year Maximum
Or commission service fee total compensation
Class C investments (% of offering price) (% of offering price) (% of offering price)
- ------------------- --------------------- --------------------- ----------------------
<S> <C> <C> <C>
All amounts 0.75% 0.25% 1.00%
</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.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
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.
34
<PAGE>
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m. London time (12:00 noon,
New York time) on the date of any determination of a Fund's NAV. If quotations
are not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
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 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 a reduced sales charge
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares
of the Fund, the investor is entitled to cumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Fund, or if John Hancock
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.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
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,
grandparents, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law, daughter-in-law, son-in-law, niece, nephew,
grandparents and same sex domestic partner) of any of the foregoing; or
any fund, pension, profit sharing or other benefit plan for the
individuals described above.
35
<PAGE>
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into a signed 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 a class action lawsuit against insurance companies who is
investing settlement proceeds.
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.
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
o Pension plans transferring assets from a John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approved by the
Securities and Exchange Commission.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed
retirement plans with at least 100 eligible employees at the inception of
the Fund account. Each of these investors 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.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges 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) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
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 being invested but also
the investor's purchase price or current account value of the Class A shares of
all John Hancock funds which carry a sales charge already held by such person.
Class A shares of John Hancock money market funds will only be eligible
36
<PAGE>
for the accumulation privilege if the investor has previously paid a sales
charge on the amount of those shares. Retirement plan investors may include the
value of Class B shares if Class B shares held are greater than $1 million.
Retirement plans must notify Signature Services to utilize.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
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 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
retirement plan, however, may opt to make the necessary investments called for
by the LOI over a forty-eight (48) month period. These retirement plans include
traditional, Roth and Education IRAs, SEP, SARSEP, 401(k), 403(b) (including
TSAs), SIMPLE IRA, SIMPLE 401(k), Money Purchase Pension, Profit Sharing, and
Section 457 plans. Non-qualified and qualified retirement plan investments
cannot be combined to satisfy LOI of 48 months. Such an investment (including
accumulations and combinations but not including reinvested dividends) 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 3% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the 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 Fund to sell, any additional Class A shares and
may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B and Class C 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 and Class C shares which are redeemed
within four years or one year of purchase, respectively, will be subject to a
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
37
<PAGE>
cost of the Class B or Class C shares being redeemed. No CDSC will be imposed on
increases in account value above the initial purchase prices, including all
shares derived from reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service retirement 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 this number of
years from the time of any payment for the purchases of both Class B and Class C
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the four-year CDSC redemption period or for Class B or one year CDSC
redemption period for Class C, or those you acquired through dividend and
capital gain reinvestment, and next from the shares you have held the longest
during the four-year period for Class B shares. 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.
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:
<TABLE>
<S> <C>
oProceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o*Minus Appreciation ($12 - $10) x 100 shares (200.00)
oMinus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00)
-------
oAmount subject to CDSC $280.00
</TABLE>
*The appreciation is based on all 100 shares in the lot not just the
shares being redeemed.
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 and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C 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 and Class C shares and of Class A shares that are subject
to a CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
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<PAGE>
* 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. (Does not apply to trust accounts
unless trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions where the proceeds are used to purchase a John Hancock
Declaration Variable annuity.
* Redemptions of Class B (but not Class C) shares made under a periodic
withdrawal plan or redemptions for fees charged by planners or advisors
for advisory services, 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 or Class C shares that are
subject to a CDSC.)
* Redemptions by retirement plans participating in Merrill Lynch servicing
programs, if the Plan has less 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.
* Redemptions of Class A or Class C shares by retirement plans that invest
through the PruArray Program sponsored by Prudential Securities.
For Retirement Accounts (such as traditional, Roth and Education IRAs, SIMPLE
IRAs, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase
Pension Plan, Profit-Sharing Plan and other 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 sections 401(a) (such as
Money Purchase Pension Plans and Profit-Sharing/401(k) Plans), 457 and 408
(SEPs and SIMPLE IRAs) of the Internal Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
39
<PAGE>
CDSC Waiver Matrix for Class B and Class C
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP)
- -----------------------------------------------------------------------------------------------------------
<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 account
mandatory value annually
distributions in periodic
or 12% of payments
account value
annually in
periodic
payments
- -----------------------------------------------------------------------------------------------------------
Between 59 1/2and Waived Waived Waived Waived for 12% of account
70 1/2 Life value annually
Expectancy or in periodic
12% of account payments
value annually
in periodic
payments
- -----------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account
(Class B only) annuity payments annuity annuity annuity value annually
(72t) or 12% of payments (72t) payments (72t) payments (72t) in periodic
account value or 12% of or 12% of or 12% of payments
annually in account value account value account value
periodic payments annually in annually in annually in
periodic periodic periodic
payments payments payments
- -----------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
- -----------------------------------------------------------------------------------------------------------
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.
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<PAGE>
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder 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
elected to be governed by Rule 18f-1 under the Investment Company Act. Under
that rule, the Fund must redeem its shares for cash except to the extent that
the redemption payments to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of
such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. 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
and John Hancock Intermediate Maturity 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 arising from the
redemption of Fund shares which 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 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 and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to
41
<PAGE>
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 order date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit of that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any of the other John Hancock funds. If a CDSC was paid upon a
redemption, a shareholder may reinvest the proceeds from 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 investment
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."
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).
42
<PAGE>
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund, without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and four other
series. The Trustees have also authorized the issuance of three classes of
shares of the Fund, designated as Class A, Class B and Class C.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to the classes of the Fund. Holders of
each class of 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 each class of shares will be borne
exclusively by that class (ii) Class B and Class C shares will pay higher
distribution and service fees than Class A shares and (iii) each class of 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
multiple-class structures. Similarly, the net asset value per share may vary
depending on which class of shares are purchased. No interest will be paid on
uncashed dividend or redemption checks.
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 Trust. However, the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any 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 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.
43
<PAGE>
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts. For telephone transactions, the transfer agent 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, the transfer agent 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.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
TAX STATUS
The Fund, is treated as a separate entity for accounting and tax purposes, has
qualified and elected to be treated as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
intends to continue to 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 4% percent non-deductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to seek to avoid or minimize liability
for such tax by satisfying such distribution requirements.
Distributions 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 those gains and losses included in
computing net capital gain, after reduction by deductible expenses.) Some
distributions 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
44
<PAGE>
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.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency futures and options, foreign currency forward
contracts, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount, timing and character of distributions to shareholders. Transactions
in foreign currencies that are not directly related to the Fund's investment in
stock or securities, possibly including speculative currency positions 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. 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.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Some 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"), paid by the Fund, subject to certain provisions and limitations
contained in the Code, if the Fund so elects. If more than 50% of the value of
the Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund will be
required to (i) include in ordinary gross income (in addition to taxable
dividends 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 foreign taxes paid by
them.
If the 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 portions 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 the 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 the Fund
cannot or does not make this 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.
The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of the Fund to dispose of
portfolio securities and/or engages in options, futures, or forward 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. Consequently, subsequent
distributions on those shares from such appreciation may be taxable to such
investor even if the net asset value of the investor's
45
<PAGE>
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 or other disposition of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, 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. A sales charge paid in purchasing
shares of the Fund cannot be taken into account for purposes of determining gain
or loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or another John Hancock fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the Fund within
a period of 61 days, beginning 30 days before and ending 30 days after the
shares are disposed of, such as pursuant to 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. Shareholders should consult their own tax advisers
regarding their particular circumstances to determine whether a disposition of
Fund shares is properly treated as a sale for tax purposes, as is assumed in the
foregoing discussion.
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
carryforward 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 shares of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as 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 shares of the taxes paid by the Fund, and (c) be
entitled to increase the adjusted tax basis for his shares in the Fund by the
difference between his pro rata share of such excess and his pro rata share of
such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset its net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund has $27,884,467 of capital loss carryforwards available
to the extent provided by regulations to offset net capital gains. Of these,
$16,879,029 expire October 31, 2000, $3,127,414 expire October 31, 2001,
$2,774,082 expire October 31, 2002 and $5,103,942 expire October 31, 2003.
The dividends and distributions from the Fund are generally not expected to
qualify for the dividends-received deduction for corporations under the Code.
46
<PAGE>
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 or constructive rules applicable to certain options, futures, forwards or
other transactions may also require the Fund to recognize income or gain without
a concurrent receipt of cash. Additionally, some countries restrict repatriation
which may make it difficult or impossible for the Fund to obtain cash
corresponding to its earnings or assets in those countries. 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 borrow cash, to satisfy
these distribution requirements.
A state income (and possibly local 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 intangible property 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 the Fund 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
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.
Investment in debt obligations that are at risk of or in default presents
special tax issues for the Fund. Tax rules are not entirely clear about issues
such as when the Fund may cease to accrue interest, original issue discount, or
market discount, when and to what extent deductions may be taken for bad debts
or worthless securities, how payments received on obligations in default should
be allocated between principal and income, and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fund in order to reduce the risk of distributing insufficient
income to preserve its status as a regulated investment company and seek to
avoid becoming subject to Federal income or excise tax.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
47
<PAGE>
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options, futures, foreign currency
positions, and foreign currency forward contracts. Certain payments received by
the Fund with respect to loan participations, such as commitment fees or
facility fees, may not be treated as qualifying income under the 90% requirement
referred to above if they are not properly treated as interest under the Code.
Certain options, futures and forward foreign currency contracts undertaken by
the Fund may cause the Fund to recognize gains or losses from marking to market
even though its positions have not been sold or terminated and affect the
character as long- term or short-term (or, in the case of foreign currency
contracts, as ordinary income or loss) and timing of some capital gains and
losses realized by the Fund. Additionally, the Fund may be required to
recognized gain, but not loss, it an option or other transaction is treated as a
constructive sale of an appreciated financial position in the Fund's portfolio.
Also, certain of the 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 gains. Certain of these 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 (including consideration of available elections) applicable to
options, futures or forward contracts in order to minimize any potential adverse
tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain types of
investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to nonresident alien withholding tax at the rate of 30% (or a lower rate
under an applicable tax treaty) on amounts treated as ordinary dividends from
the Fund and, unless an effective IRS Form W-8 or authorized substitute 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.
The Fund anticipates that, provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay any
Massachusetts income tax.
CALCULATION OF PERFORMANCE
For the 30-day period ended October 31, 1998, the annualized yield on Class A
and Class B shares of the Fund was __% and __%, respectively. The average annual
total returns of the Class A shares of the Fund for the one and five year
periods ended October 31, 1998 and since inception on January 3, 1992 were __%,
__% and __%, respectively. As of October 31, 1998, the average annual returns
for the Fund's Class B shares for the one and five year periods and since
inception on December 28, 1990 were __%, __% and __%, respectively. Class C
shares commenced operations on March 1, 1999; therefore, there is no yield to
report.
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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/cd ) + 1 ] ^6 - 1)
a= dividends and interest earned during the period.
b= net expenses accrued during the period.
c= the average daily number of fund shares outstanding during the period that
would be entitled to receive dividends.
d= the maximum offering price per share on the last day of the period (NAV
where applicable).
While the foregoing formula reflects the standard accounting method for
calculating yield, it does not reflect the Fund's actual bookkeeping; as a
result, the income reported or paid by the Fund may be different.
Total return is computed by finding the average annual compounded rate of return
over the 1 year and life of fund periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
T = ((ERV/P)^(1/n)) - 1
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1 year and life-of-the fund periods.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, this calculation
assumes the maximum sales charge is included in the initial investment or the
CDSC 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 or Class C shares into account. Excluding the Fund's
sales charge on Class
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A shares and the CDSC on Class B or Class C shares from a total return
calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper-Mutual Performance Analysis," a monthly publication
which tracks net assets, total return, and yield on mutual funds in the United
States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used
for comparison purposes, as well as the Russell and Wilshire indices.
Performance rankings and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MORNINGSTAR, STANGER'S and BARRON'S, etc. 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
Fund 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 an investment committee of the Adviser, which consists
of officers and directors of the Adviser and its affiliates, and officers and
Trustees who are interested persons of the Fund. Orders for purchases and sales
of securities are placed in a manner which, in the opinion of the officers of
the 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 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 Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and in the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information, and, to
a lesser extent, statistical assistance furnished to the Adviser of the Fund,
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<PAGE>
and their value and expected contribution to the performance of the Fund. It is
not possible to place a dollar value on information and services to be received
from brokers and dealers, since it is only supplementary to the research efforts
of the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitment to allocate portfolio transactions upon any
prescribed basis. While the Adviser's officers will be primarily responsible for
the allocation of the Fund's brokerage business, its policies and practices in
this regard must be consistent with the foregoing and will at all times be
subject to review by the Trustees. For the years ended on October 31, 1998, 1997
and 1996, no negotiated brokerage commissions were paid on portfolio
transactions.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay a broker which provides brokerage and research services to the Fund an
amount of disclosed commission in excess of the commission which another broker
would have charged for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that such price is reasonable in light
of the services provided and to such policies as the Trustees may adopt from
time to time. During the fiscal year ended October 31, 1998, the Fund did not
pay commissions as compensation to any brokers for research services such as
industry, economic and company reviews and evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock 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. For the
fiscal years ended October 31, 1998, 1997 and 1996, the Fund did not execute any
portfolio transactions with any 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
connection with comparable transactions involving similar securities being
purchased or sold. A transaction would not be placed with an Affiliated Broker
if the Fund would have to pay a commission rate less favorable than the
Affiliated Broker's contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated, customers except for accounts for which
the Affiliated Broker acts as clearing broker for another brokerage firm, and
any customers of the Affiliated Broker not comparable to the Fund or 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 includes elements of research and related investment skills,
such research and related skills will not be used by the Affiliated Brokers as a
basis for negotiating commissions at a rate higher than that determined in
accordance with the above criteria.
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
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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, Suite 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 Signature
Services an annual fee of $20.00 for each Class A shareholder account, $22.50
for each Class B shareholder account and $20.50 for each Class C shareholder
account, plus certain out-of-pocket expenses. These expenses are aggregated and
charged to the Fund and allocated to each class on the basis of their relative
net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110. Under the custodian agreement, State Street Bank
and Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are audits and renders an opinion on the
Fund's annual financial statements and reviews the Fund's annual Federal income
tax return.
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APPENDIX A
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 the fund's
risk profile in the prospectus.
A fund is 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 the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
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). (e.g., short sales, currency
contracts, financial futures and options; securities and index options).
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. (e.g., repurchase agreements, securities lending, foreign debt
securities, non-investment-grade debt securities, asset-backed securities,
mortgage-backed securities, participation interests, financial futures and
options; securities and index options, structured securities).
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. (e.g., currency
trading, foreign debt securities, currency contracts, financial futures and
options; securities and index options).
Extension risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.(e.g., mortgage-backed securities,
structured securities).
Information risk The risk that key information about a security or market is
inaccurate or unavailable.(e.g., non-investment-grade debt securities).
A -1
<PAGE>
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.(e.g.,
foreign debt securities, non-investment-grade debt securities, asset-backed
securities, mortgage-backed securities, participation interests, financial
future and options; securities and index options, structured securities).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
when-issued securities and forward commitments, currency contracts, financial
futures and options; securities and index options, structured securities).
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. (e.g., short sales, non-investment-grade debt securities,
restricted and illiquid securities, mortgage-backed securities, participation
interests, currency contracts, financial futures and options; securities and
index options, structured securities).
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than it was worth at an earlier time. Market risk may affect a
single issuer, industry, sector of the economy or the market as a whole. Common
to all stocks and bonds and the mutual funds that invest in them. (e.g., short
sales, short-term trading, when-issued securities and forward commitments,
foreign debt securities, non-investment-grade debt securities, restricted and
illiquid securities, financial futures and options; securities and index
options, structured securities).
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. (e.g., short sales,
A -2
<PAGE>
when-issued securities and forward commitments, currency contracts, financial
futures and options; securities and index options).
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
(e.g., foreign debt securities).
Prepayment risk The risk that unanticipated prepayments may occur during periods
of falling interest rates, reducing the value of mortgage-backed securities.
(e.g., mortgage-backed securities, structured securities).
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade debt
securities, restricted and illiquid securities, participation interests,
structured securities)
A -3
<PAGE>
APPENDIX B
DESCRIPTION OF BOND RATINGS(1)
Moody's Bond ratings
Bonds. "Bonds which are rated 'Aaa' are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
'gilt edge.' Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most likely to impair
the fundamentally strong position of such issues.
"Bonds which are rated 'Aa' are judged to be of high quality by all standards.
Together with the 'Aaa' group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in 'Aaa'
securities.
"Bonds which are rated 'A' possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Bonds which are rated 'Baa' are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
"Bonds which are rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position,
characterizes bonds in this class.
"Bonds which are rated 'B' generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue. Should
no rating be assigned, the reason may be one of the following: (i) an
application for rating was not received or accepted; (ii) the issue or issuer
belongs to a group of securities that are not rated as a matter of policy; (iii)
there is a lack of essential data pertaining to the issue or issuer; or (iv) the
issue was privately placed, in which case the rating is not published in Moody's
publications.
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
- ----------
(1) As described by the rating companies themselves.
B-1
<PAGE>
"AAA. Debt rated 'AAA' has the highest rating by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong.
"AA. Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
"A. Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
"BBB. Debt rated 'BBB' is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
Debt rated "BB," or "B," is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and pay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major risk exposures to adverse conditions.
Unrated. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
COMMERCIAL PAPER RATINGS
Moody's Commercial Paper Ratings
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"P-1 -- 'Prime-1' indicates the highest quality repayment capacity of the rated
issues.
"P-2 -- 'Prime-2' indicates that the issuer has a strong capacity for repayment
of short- term promissory obligations. Earnings trends and coverage ratios,
while sound, will be more subjective to variation. Capitalization
characteristics, while still appropriate, may be more affected by external
conditions. Ample alternate liquidity is maintained."
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."
B-2
<PAGE>
FINANCIAL INFORMATION
F-1
<PAGE>
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
Class A, Class B and Class C Shares
Statement of Additional Information
March 1, 1999
This Statement of Additional Information provides information about John Hancock
Special Opportunities Fund (the "Fund"), in addition to the information that is
contained in the combined Growth Funds' Prospectus dated March 1, 1999 (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 may be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston MA 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund .................................................. 2
Investment Objective and Policies ......................................... 2
Investment Restrictions ................................................... 13
Those Responsible for Management .......................................... 15
Investment Advisory and Other Services .................................... 24
Distribution Contracts .................................................... 26
Sales Compensation ........................................................ 28
Net Asset Value ........................................................... 29
Initial Sales Charge on Class A Shares .................................... 30
Deferred Sales Charge on Class B and Class C Shares ....................... 32
Special Redemptions ....................................................... 35
Additional Services and Programs .......................................... 36
Description of the Fund's Shares .......................................... 37
Tax Status ................................................................ 39
Calculation of Performance ................................................ 43
Brokerage Allocation ...................................................... 44
Transfer Agent Services .................................................. 46
Custody of Portfolio ...................................................... 46
Independent Auditors ...................................................... 47
Appendix A-Description of Investment Risk ................................. A-1
Appendix B-Description of Bond Ratings .................................... B-1
Financial Statements ...................................................... F-1
1
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ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust on March 31, 1986 under the laws of
The Commonwealth of Massachusetts. The Fund commenced operations on September 7,
1993.
John Hancock Advisers, Inc. (the "Adviser") is 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. Appendix A contains further
information describing investment risks. The investment objective of the Fund is
non-fundamental. There is no assurance that the Fund will achieve its investment
objective.
The Fund's investment objective is long-term capital appreciation. The Fund
seeks to achieve its objective by emphasizing investments n equity securities of
issuers in various economic sectors. The equity securities in which the Fund
invests consist primarily of common stocks of U.S. and foreign issuers but may
also include preferred stocks, convertible debt securities and warrants.
The Fund seeks to achieve its investment objective by varying the relative
weighting of its portfolio securities among various economic sectors based upon
both macroeconomic factors and the outlook for each particular sector. The
Adviser selects equity securities for the Fund from various economic sectors,
including, but not limited to, the following: basic material, energy, capital
equipment, technology, consumer cyclical, retail, consumer staple, health care,
transportation, financial and utility. The Fund may modify these sectors if the
Adviser believes that they no longer represent appropriate investments for the
Fund, or if other sectors offer better opportunities for investment.
The Adviser will adjust the Fund's relative weighting among the sectors in
response to changes in economic and market conditions. Subject to the Fund's
policy of investing not more than 25% of its total assets in any one industry,
issuers in any one sector may represent all of the Fund's net assets. Due to the
Fund's emphasis on a few sectors, the Fund may be subject to a greater degree of
volatility than a fund that is structured in a more diversified manner. However,
the Fund retains the flexibility to invest its assets in a broader group of
sectors if a narrower range of investments is not desirable. This flexibility
may offer greater diversification than a fund that is limited to investing in a
single sector or industry. The Fund may hold securities of issuers in fewer than
all of the sectors at any given time.
In selecting securities for the Fund's portfolio, the Adviser will determine the
allocation of assets among equity securities, fixed income securities and cash,
the sectors that will be emphasized at any given time, the distribution of
securities among the various sectors, the specific industries within each sector
and the specific securities within each industry. In making the sector analysis,
the Adviser considers the general economic environment, the outlook for real
economic growth in the United States and abroad, trends and developments within
specific sectors and the outlook for interest rates and the securities markets.
A sector is a "special opportunity" when, in the opinion of the Adviser, the
issuers in that sector have a high earnings potential. In selecting particular
issuers, the Adviser considers price/earnings ratios, ratios of market to book
value, earnings growth, product innovation, market share, management quality and
capitalization.
2
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The Fund's investments may include securities of both large, widely traded
companies and smaller, less well-known issuers. The Fund seeks growth companies
that either occupy a dominant position in an emerging or established industry or
have a significant and growing market share in a large, fragmented industry. The
Fund seeks to invest in those companies with potential for high growth, stable
earnings, ability to self-finance, a position of industry leadership and strong
visionary management. Higher risks are often associated with investments in
companies with smaller market capitalizations. These companies may have limited
product lines, market and financial resources, or they may be dependent upon
smaller or less experienced management groups. In addition, trading volume for
these securities may be limited. Historically, the market price for these
securities has been more volatile than for securities of companies with greater
capitalizations. However, securities of companies with smaller capitalization
may offer greater potential for capital appreciation, since they may be
overlooked and thus undervalued by investors. There is no assurance that the
Fund will achieve its investment objective.
Investment in Fixed Income Securities. The Fund may invest in the following
fixed income securities: U.S. Government securities and convertible and
non-convertible corporate preferred stocks and debt securities. The market value
of fixed income securities varies inversely with changes in the prevailing
levels of interest rates. The market value of convertible securities, while
influenced by the prevailing levels of interest rates, is also affected by the
changing value of the equity securities into which they are convertible. The
Fund may purchase fixed income debt securities with stated maturities of up to
thirty years. The corporate fixed income securities in which the Fund may invest
will be rated at least BBB by Standard & Poor's Ratings Group ("S&P") or Baa by
Moody's Investors Service, Inc. ("Moody's") or, if unrated, determined to be of
comparable quality by the Adviser. Debt securities rated Baa or BBB are
considered medium grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken capacity to pay
interest and repay principal.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities, issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities which
provide monthly payments which are, in effect, a "pass-through" of the monthly
interest and principal payments (including any prepayments) made the by
individual borrowers on the pooled mortgage loans. Collateralized mortgage
obligations ("CMOs") in which the Fund may invest are securities issued by a
U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates.
Ratings as Investment Criteria. In general, the ratings of Moody's and S&P
represent the opinions of these agencies as to the quality of the securities
which they rate. It should be emphasized, however, that such ratings are
relative and subjective and are not absolute standards of quality. These ratings
will be used by the Fund as initial criteria for the selection of corporate debt
securities. Among the factors which will be considered are the long-term ability
of the
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issuer to pay principal and interest and general economic trends. Appendix B
contains further information concerning the ratings of Moody's and S&P and their
significance. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither of these events will require the sale of the
securities by the Fund.
Investment in Foreign Securities. The Fund may invest in the 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 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 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
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. This is accomplished through
contractual agreements to purchase or sell a specified currency at a specified
future date and price set at the time of the contract. The Fund's dealings in
forward foreign currency contracts will be limited to hedging either specific
transactions or portfolio positions. The Fund will not attempt to hedge all of
its foreign portfolio positions. The Fund will not engage in speculative forward
currency transactions.
If the Fund enters into a forward contract to purchase foreign currency, its
custodian bank will segregate cash or liquid securities, of any type or
maturity, in a separate account of the Fund in an amount necessary to complete
the 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 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. These 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 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 those applicable 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, interest and in some cases, capital gains 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 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 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 or securities firm with an agreement that the Fund will buy
back the securities at a fixed future date at a fixed price plus an agreed
amount of "interest" which may be reflected in the repurchase price. Reverse
repurchase agreements are considered to be borrowings by the Fund. The Fund will
use proceeds obtained from the sale of securities pursuant to reverse repurchase
agreements to purchase other investments. The use of borrowed funds to make
investments is a practice known
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as "leverage," which is considered speculative. Use of reverse repurchase
agreements is an investment technique that is intended to increase income. Thus,
the Fund will enter into a reverse repurchase agreement only when the Adviser
determines that the interest income to be earned from the investment of the
proceeds is greater than the interest expense of the transaction. However, there
is a risk that interest expense will nevertheless exceed the income earned.
Reverse repurchase agreements involve the risk that the market value of
securities purchased by the Fund with proceeds of the transaction may decline
below the repurchase price of the securities sold by the Fund which it is
obligated to repurchase. The Fund will also continue to be subject to the risk
of a decline in the market value of the securities sold under the agreements
because it will reacquire those securities upon effecting their repurchase. To
minimize various risks associated with reverse repurchase agreements, the Fund
will establish and maintain 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 or
emergency purposes, except pursuant to reverse repurchase agreements, in amounts
not to exceed 33 1/3% of the Fund's total assets (including the amount borrowed)
taken at market value. The Fund will enter into reverse repurchase agreements
only with selected registered broker/dealers or 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 firms 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 the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
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
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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
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 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.
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
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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). 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
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
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
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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
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
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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
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 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
obligating the Fund to purchase securities or currencies, require the Fund to
establish 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
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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. 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
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
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, the Fund must borrow the security sold
short to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. Until the security is replaced, the Fund is required to pay to the
lender any accrued interest and may be required to pay a premium.
The Fund will realize a gain if the security declines in price between the date
of the short sale and the date on which the Fund replaces the borrowed security.
On the other hand, the Fund will incur a loss as a result of the short sale if
the price of security increases between those dates. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of
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any premium or interest the Fund may be required to pay in connection with a
short sale. The successful use of short selling as a hedging device may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the SEC, if the Fund engages in
short sales, it must put in a segregated account (not with the broker) an amount
of cash or liquid securities, of any type or maturity, 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 liquid securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). In addition, until the Fund replaces the borrowed
security, it must daily maintain the segregated account at such a level that the
amount deposited in it plus the amount deposited with the broker as collateral
will equal the current market value of the securities sold short. Except for
short sales against the box, the amount of the Fund's net assets that may be
committed to short sales is limited and the securities in which short sales are
made must be listed on a national securities exchange.
Short selling may produce higher than normal portfolio turnover which may result
in increased transaction costs to the Fund and may result in gains from the sale
of securities deemed to have been held for less than three months, which gains
must be less than 30% of the Fund's gross income for a taxable year in order for
the Fund to qualify as a regulated investment company under the Code for that
year.
The Fund does not intend to enter into short sales (other than those "against
the box") if immediately after such sale the aggregate of the value of all
collateral plus the amount in such segregated account exceeds the value of 5% of
the Fund's net assets. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid 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.
12
<PAGE>
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. 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 the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information means the 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 may not:
(1) Issue senior securities, except as permitted by paragraph (2) below.
For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or
sale of options, futures contracts and options on futures contracts,
interest rate or currency swaps, forward commitments, forward
foreign currency exchange contracts and repurchase agreements
entered into in accordance with the Fund's investment policies, and
the pledge, mortgage or hypothecation of the Fund's assets within
the meaning of paragraph (3) below are not deemed to be senior
securities.
(2) Borrow money, except from banks as a temporary measure for
extraordinary or emergency purposes, except pursuant to reverse
repurchase agreements, in amounts not to exceed 33 1/3% of the
Fund's total assets (including the amount borrowed) taken at market
value.
(3) Pledge, mortgage, or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if such
pledging, mortgaging or hypothecating does not exceed 33 1/3% of the
Fund's total assets taken at market value.
(4) Act as an underwriter, except to the extent that, in connection with
the disposition of portfolio securities, the Fund may be deemed to
be an underwriter for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate or any interest therein, except that
the Fund may invest in securities secured by real estate or
marketable interests therein or issued by companies that invest in
real estate or interests therein and may retain or sell real estate
acquired due to the ownership of securities.
(6) Make loans, except that the Fund may (a) lend portfolio securities
in an amount that does not exceed 33 1/3% of such Fund's total
assets; (b) enter into repurchase agreements; and (c) purchase bank
certificates of deposit, bank loan participation agreements,
bankers' acceptances or all or a portion of an issue of debt
securities, whether or not the purchase is made upon the original
issuance of the securities.
13
<PAGE>
(7) Invest in commodities or commodity contracts or in puts, calls, or
combinations of both, except financial futures contracts, options on
securities, securities indices, currency and other financial
instruments, options on futures contracts, forward foreign currency
exchange contracts, forward commitments, interest rate or currency
swaps, warrants and repurchase agreements entered into in accordance
with the Fund's investment policies.
(8) Purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after such
purchase, the value of the Fund's investments in such industry would
exceed 25% of its total assets taken at market value at the time of
each investment. For purposes of this restriction, telephone, water,
gas and electric public utilities are each regarded as separate
industries and wholly-owned finance companies are considered to be
in the industry of their parents if their activities are primarily
related to financing the activities of their parent. This limitation
does not apply to investments by the Fund in obligations of the U.S.
Government or any of its agencies or instrumentalities.
(9) With respect to 75% of its total assets, purchase any security
(other than securities issued or guaranteed by the U.S. Government,
its agencies or instrumentalities) if, as a result: (a) more than 5%
of its total assets would be invested in the securities of any one
issuer, or (b) the Fund would own more than 10% of the voting
securities of any one issuer.
In connection with the lending of portfolio securities under item (6) above,
such loans must at all times be fully collateralized and the Fund's custodian
must take possession of the collateral either physically or in book entry form.
Securities used as collateral must be marked to market daily.
Notwithstanding the foregoing fundamental investment restrictions, or any
investment policy or non-fundamental investment restriction of the Fund, the
Fund may invest all or part of its assets in an open-end management investment
company with substantially the same investment objectives, policies and
restrictions as the Fund.
Non-fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase
of marketable portfolio securities with other accounts under the
management of the Adviser to save commissions or to average prices
among them is not deemed to result in a securities trading account.
(b) Make short sales of securities or maintain a short position unless
(i) at all times when a short position is open the Fund owns an
equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for
securities of the same issuer as, and equal in amount to, the
securities sold short; (ii) for the purpose of hedging the Fund's
exposure to an actual or anticipated market decline in the value of
its investments; or (iii) in order to profit from an anticipated
decline in the value of a security.
14
<PAGE>
(c) Purchase a security if, as a result, (i) more than 10% of the Fund's
total assets would be invested in the securities of other investment
companies, (ii) the Fund would hold more than 3% of the total
outstanding voting securities of any one investment company, or
(iii) more than 5% of the Fund's total assets would be invested in
the securities of any one investment company. These limitations do
not apply to (a) the investment of cash collateral, received by the
Fund in connection with lending the Fund's portfolio securities, in
the securities of open-end investment companies or (b) the purchase
of shares of any investment company in connection with a merger,
consolidation, reorganization or purchase of substantially all of
the assets of another investment company. Subject to the above
percentage limitations, the Fund may, in connection with the John
Hancock Group of Funds Deferred Compensation Plan for Independent
Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds.
(d) Invest for the purpose of exercising control over or management of
any company.
(e) Invest more than 15% of its net assets in illiquid securities.
(f) Purchase securities while outstanding borrowings, other than reverse
repurchase agreements, exceed 5% of the Fund's total assets.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees, who elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers and Trustees of the Fund are
also officers or Directors of the Adviser, or officers or Directors of the
Fund's principal distributor, John Hancock Funds, Inc. ("John Hancock Funds").
15
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Edward J. Boudreau, Jr. * Trustee, Chairman and Chairman, Director and
101 Huntington Avenue Chief Executive Officer Chief Executive Officer,
Boston, MA 02199 (1, 2) the Adviser; Chairman,
October 1944 Director and Chief
Executive Officer, The
Berkeley Financial Group,
Inc. ("The Berkeley
Group"); Chairman and
Director, NM Capital
Management, Inc. ("NM
Capital"), John Hancock
Advisers International
Limited ("Advisers
International") and
Sovereign Asset Management
Corporation ("SAMCorp");
Chairman, Chief Executive
Officer and President,
John Hancock Funds, Inc.
("John Hancock Funds");
Chairman, First Signature
Bank and Trust Company;
Director, John Hancock
Insurance Agency, Inc.
("Insurance Agency,
Inc."), John Hancock
Advisers International
(Ireland) Limited
("International Ireland"),
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; 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.
16
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dennis S. Aronowitz Trustee Professor of Law,
1216 Falls Boulevard Emeritus, Boston
Fort Lauderdale, FL 33327 University School of Law
June 1931 (as of 1996); Director,
Brookline Bankcorp.
Richard P. Chapman, Jr. Trustee (1) Director, President and
160 Washington Street Chief Executive Officer
Brookline, MA 02147 of Brookline Bankcorp.
February 1935 (lending); Director,
Lumber Insurance
Companies (fire and
casualty insurance);
Trustee, Northeastern
University (education);
Director, Depositors
Insurance Fund, Inc.
(insurance).
William J. Cosgrove Trustee Vice President, Senior
20 Buttonwood Place Banker and Senior Credit
Saddle River, NJ 07458 Officer, Citibank, N.A.
January 1933 (retired September
1991); Executive Vice
President, Citadel Group
Representatives, Inc.; EVP
Resource Evaluation, Inc.
(consulting) (until
October 1993); Trustee,
the Hudson City Savings
Bank (since 1995).
- -------------------
* 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.
17
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Douglas M. Costle Trustee (1) Director, Chairman and
RR2 Box 480 Distinguished Senior
Woodstock, VT 05091 Fellow, Institute for
July 1939 Sustainable Communities,
Montpelier, Vermont (since
1991); Dean, Vermont Law
School (until 1991);
Director, Air and Water
Technologies (until 1996)
(environmental services
and equipment), Niagara
Mohawk Power Corp.
(electric services);
Concept Five Technologies
(until 1997); Mitretek
Systems (governmental
consulting services);
Conversion Technologies,
Inc.; Living Technologies,
Inc.
Leland O. Erdahl Trustee Director of Uranium
8046 Mackenzie Court Resources Corporation;
Las Vegas, NV 89129 Hecla Mining Company,
December 1928 Canyon Resources
Corporation and Original
Sixteen to One Mine,
Inc. (1984-1987 and
1991-1998) (management
consultant); Vice
President, Chief
Financial Officer and
Director of Amax Gold,
Inc. (until 1998);
Director, Freeport
McMoran Copper & Gold,
Inc. (until 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.
18
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard A. Farrell Trustee President of Farrell,
The Venture Capital Fund Healer & Co., (venture
of New England capital management firm)
160 Federal Street (since 1980); Prior to
23rd Floor 1980, headed the venture
Boston, MA 02110 capital group at Bank of
November 1932 Boston Corporation.
Gail D. Fosler Trustee Senior Vice President
3054 So. Abingdon Street and Chief Economist, The
Arlington, VA 22206 Conference Board
December 1947 (non-profit economic and
business research);
Director, Unisys Corp.;
and H.B. Fuller
Company. Director,
National Bureau of
Economic Research
(academic).
William F. Glavin Trustee President Emeritus,
120 Paget Court - John's Babson College (as of
Island 1997); Vice Chairman,
Vero Beach, FL 32963 Xerox Corporation (until
March 1932 June 1989); Director,
Caldor Inc., Reebok,
Inc. (since 1994) and
Inco Ltd.
Anne C. Hodsdon * Trustee and President President, Chief
101 Huntington Avenue (1,2) Operating Officer and
Boston, MA 02199 Director, the Adviser,
April 1953 The Berkeley Group;
Director, John Hancock
Funds, Advisers
International, Insurance
Agency, Inc. and
International Ireland;
President and Director,
SAMCorp. and NM Capital;
Executive Vice
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.
19
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Dr. John A. Moore Trustee President and Chief
Institute for Evaluating Executive Officer,
Health Risks Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since
Washington, DC 20006-1602 September 1989).
February 1939
Patti McGill Peterson Trustee Executive Director,
CIES Council for
3007 Tilden Street, N.W. International Exchange
Washington, D.C. 20008 of Scholars (since
May 1943 January 1998), Vice
President, Institute of
International Education
(since January 1998);
Cornell Institute of
Public Affairs, Cornell
University (until December
1997); President Emerita
of Wells College and St.
Lawrence University;
Director, Niagara Mohawk
Power Corporation
(electric utility).
John W. Pratt Trustee Professor of Business
2 Gray Gardens East Administration Emeritus,
Cambridge, MA 02138 Harvard University
September 1931 Graduate School of
Business Administration
(as of June 1998).
- -------------------
* 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.
20
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Richard S. Scipione * Trustee (1) General Counsel, John
John Hancock Place Hancock Life Company;
P.O. Box 111 Director, the Adviser,
Boston, MA 02117 Advisers International,
August 1937 John Hancock Funds, John
Hancock Distributors,
Inc., Insurance Agency,
Inc., John Hancock
Subsidiaries, Inc.,
SAMCorp. and NM Capital;
Director, The Berkeley
Group; Director, JH
Networking Insurance
Agency, Inc.; Director,
Signature Services
(until January 1997).
Osbert M. Hood Senior Vice President and Senior Vice President
101 Huntington Avenue Chief Financial Officer and Chief Financial
Boston, MA 02199 Officer, the Adviser,
August 1952 the Berkeley Group and
John Hancock Funds, Inc.;
Vice President and Chief
Financial Officer, John
Hancock Mutual Life
Insurance Company Retail
Sector (until 1997).
John A. Morin Vice President Vice President and
101 Huntington Avenue Secretary, the Adviser,
Boston, MA 02199 The Berkeley Group,
July 1950 Signature Services and
John Hancock Funds;
Secretary, NM Capital and
SAMCorp.; Clerk, Insurance
Agency, Inc.; Counsel,
John Hancock Mutual Life
Insurance Company (until
February 1996), and Vice
President of John Hancock
Distributors, Inc. (until
April 1994).
- -------------------
* 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.
21
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
Susan S. Newton Vice President and Vice President, the
101 Huntington Avenue Secretary Adviser; John Hancock
Boston, MA 02199 Funds, Signature
March 1950 Services and The
Berkeley Group, NM
Capital; Vice President,
John Hancock
Distributors, Inc.
(until April 1994).
James J. Stokowski Vice President, Treasurer Vice President, the
101 Huntington Avenue and Chief Accounting Adviser.
Boston, MA 02199 Officer
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.
22
<PAGE>
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 and Scipione and Ms.
Hodsdon, each a non-Independent Trustee and each of the officers of the Fund are
interested persons of the Adviser, are compensated by the Adviser and receive no
compensation from the Fund for their services.
Aggregate Total Compensation From the
Compensation Fund and John Hancock Fund
Independent Trustees From the Fund(1) Complex to Trustees(2)
- -------------------- ---------------- ----------------------
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*
Dr. John A. Moore*
Patti McGill Peterson
John W. Pratt
Edward J. Spellman
Total $
(1)Compensation is for the fiscal year ended October 31, 1998.
(2)Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 1998. As of this date, there were sixty-seven
funds in the John Hancock Fund Complex, with each of these Independent Trustees
serving on thirty-two funds.
(*)As of December 31, 1998, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $____, Mr. Cosgrove was $____, Mr. Glavin was $____ and for Dr.
Moore was $____ under the John Hancock Group of Funds Deferred Compensation Plan
for Independent Trustees.
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of November 30, 1998, the officers and Trustees of the Trust as a group
beneficially owned less than 1% of the Fund's outstanding shares. On that date,
no person owned of record or beneficially as much as 5% of the outstanding
shares of the Fund.
23
<PAGE>
- -------------------------------------------------------------------------------
Percentage of Total
Outstanding Shares
Name and Address of Shareholder Class of Shares of the Fund
- -------------------------------------------------------------------------------
Howard Alliger C 35.92%
10 Ponderosa Drive
Mellville NY 11747-2405
- -------------------------------------------------------------------------------
Paul F. Lufbery C 21.97%
187 Pond Hill
North Haven CT 06473-2880
- -------------------------------------------------------------------------------
Southwest Securities Inc. C 14.99%
James D. Smith IRA
A/C #70615566
PO Box 509002
Dallas TX 75250-9002
- -------------------------------------------------------------------------------
John Hancock Mutual Life Ins Co C 10.73%
Custodian For the Rollover IRA of
Margaret J. Correll
1540 49th Ave Ct
Greeley CO 80634-2754
- -------------------------------------------------------------------------------
MLPF&S For The C 6.78%
Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East 2nd Fl
Jacksonville FL 32246-6484
- -------------------------------------------------------------------------------
Lee R. Redfern C 5.75%
Marilyn Booth Jt Wros
1840 NE 201st
Troutdale OR 97060
- -------------------------------------------------------------------------------
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $30 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 1,400,000 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 $100
billion, the Life Company is one of the ten largest life insurance companies in
the United
24
<PAGE>
States, and carries a high rating from Standard & Poor's and A.M. Best. 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 which was approved by the Fund's shareholders.
Pursuant to the Advisory Agreement, 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 but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices, prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts,
maintaining a committed line of credit, 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
membership; insurance premiums; and any extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Net Asset Value Annual Rate
--------------- -----------
First $500,000,000 0.80%
Next $500,000,000 0.75%
Amount over $1,000,000,000 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.
For the fiscal years ended October 31, 1996, 1997 and 1998, the Fund paid the
Adviser an investment advisory fee of $2,368,694, $3,039,997 and $____,
respectively.
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.
25
<PAGE>
Pursuant to the Advisory Agreement, the Adviser is not liable to the Fund or its
shareholders for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which the Advisory
Agreement 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 Advisory Agreement.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement 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 continuation of the Advisory Agreement and the Distribution Agreement
(discussed below) was approved by all Trustees. The Advisory Agreement and the
Distribution Agreement, will continue in effect from year to year, provided that
its continuance is approved annually both (i) by the holders of a majority of
the outstanding voting securities of the Trust or by the Trustees, and (ii) by a
majority of the Trustees who are not parties to the Agreement or "interested
persons" of any such parties. Both agreements may be terminated on 60 days
written notice by any party or by vote of a majority to the outstanding voting
securities of the Fund and will terminate automatically if assigned.
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 fiscal years ended October 31, 1996, 1997 and 1998,
the Fund paid the Adviser $21,182, $69,934 and $____, respectively, for services
under this Agreement.
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 of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined, plus an applicable sales charge, if any. In connection
with the sale of Fund shares, 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. In the case of Class B or Class C shares, the broker receives
compensation immediately but John Hancock Funds is compensated on a deferred
basis.
26
<PAGE>
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal years ended October 31, 1996, 1997 and 1998 were $737,384, $579,686 and
$____, respectively. Of such amounts $102,281, $91,952 and $____, respectively,
were retained by John Hancock Funds in 1996, 1997 and 1998. The remainder of the
underwriting commissions were reallowed to Selling Brokers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
shares (together, the "Plans"), pursuant to Rule 12b-1 under the Investment
Company Act. Under the Plans, the Fund will pay distribution and service fees at
an aggregate annual rate of up to 0.30% for Class A and 1.00% for Class B and
Class C share, of the Fund's average daily net assets attributable to shares of
that class. However, the service fee will not exceed 0.25% of the Fund's average
daily net assets attributable to each class of shares. The distribution fees
will be used to reimburse John Hancock Funds for its distribution expenses
including but not limited to: (i) initial and ongoing sales compensation to
Selling Brokers and others (including affiliates of John Hancock Funds) engaged
in the sale of Fund shares; (ii) marketing, promotional and overhead expenses
incurred in connection with the distribution of Fund shares; and (iii) with
respect to Class B and Class C 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 John Hancock Funds is not fully reimbursed for
payments 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 and Class C Plans 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 and Class C Plans as a liability
of the Fund because the Trustees may terminate the Class B and/or Class C Plans
at any time. For the fiscal year ended October 31, 1998, an aggregate of $____
of distribution expenses or __% 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 Rule 12b-1 fees in prior periods. For the
period ended from June 1, 1998 to October 31, 1998, an aggregate of $____ of
distribution expenses or __% of the average net assets of the Class C shares of
the Fund, was not reimbursed or recovered by John Hancock Funds through the
receipt of deferred sales charges or Rule 12b-1.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their appropriateness.
The Plans provide that they will continue in effect only as long as its
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. The Plans prove that they may be terminated without
penalty, (a) by vote of a majority of the Independent Trustees, (b) by a vote of
the 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 the Plan. Each plan provides, that
no material amendment to the Plans will be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C shares have exclusive voting rights with
respect to the Plan applicable to
27
<PAGE>
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 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 a 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
Fund.
During the fiscal year ended October 31, 1998, 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 Interest,
Mailing of Expenses of Carrying or
Prospectus to Compensation to John Other
New Selling Hancock Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C>
Class A $ $ $ $ $
Class B $ $ $ $ $
Class C $ $ $ $ $
</TABLE>
SALES COMPENSATION
As part of their business strategies, each of the John Hancock 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. The sales charges and 12b-1
fees paid by investors are detailed in the prospectus and under the
"Distribution Contracts" in this Statement of Additional Information. The
portions of these expenses that are reallowed to financial services firms are
shown on the next page.
Whenever you make an investment in the Fund, 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. 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
<PAGE>
<TABLE>
<CAPTION>
Maximum
Sales charge Reallowance First year Maximum
Paid by investors or commission service fee total compensation(1)
Class A investments (% 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% 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 -- 0.00% 0.25% 0.25%
that
<CAPTION>
Maximum
Reallowance First year Maximum
or commission service fee total compensation
Class B investments (% of offering price) (% of net investment (% of offering price)
- ------------------- --------------------- -------------------- ---------------------
<S> <C> <C> <C>
All amounts 3.75% 0.25% 4.00%
<CAPTION>
Maximum
Reallowance First year Maximum
or commission service fee total compensation
Class C investments (% of offering price) (% of net investment (% of offering price)
- ------------------- --------------------- -------------------- ---------------------
<S> <C> <C> <C>
All amounts 0.75% 0.25% 1.00%
</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.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
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 mean
between the current closing bid and asked prices.
29
<PAGE>
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of a Fund's NAV. If quotations
are not readily available or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
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, 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 purchases 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 accumulate 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.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
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, grandparents, grandchildren, mother,
father, sister, brother, mother-in-law, father-in-law,
daughter-in-law, son-in-law, niece, nephew, grandparents and same
sex domestic partner) of any of the foregoing; or any fund, pension,
profit sharing or other benefit plan of the individuals described
above.
30
<PAGE>
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into a signed 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 a class action lawsuit against insurance companies who
is investing settlement proceeds.
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.
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
o Pension plans transferring assets from John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approved
by the Securities and Exchange Commission.
o Existing full service clients of the Life Company who were group
annuity contract holders as of September 1, 1994, and participant
directed retirement plans with at least 100 eligible employees at
the inception of the Fund account. Each of these investors 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 $4,999,000 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 transaction involving
other investment companies or personal holding companies.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges 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) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
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 being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
31
<PAGE>
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments in
Class A shares made pursuant to a Letter of Intention ("LOI"), which should be
read carefully prior to its execution by an investor. The Fund offers two
options regarding the specified period for making investments under the LOI. All
investors have the option of making their investments over a specified period of
thirteen (13) months. Investors who are using the Fund as a funding medium for a
qualified retirement plan, however, may opt to make the necessary investments
called for by the LOI over a 48 month period. These retirement plans include
Traditional, Roth and Education IRAs, SEP, SARSEP, 401(k), 403(b) (including
TSAs), SIMPLE IRA, SIMPLE 401(k), Money Purchase Pension, Profit Sharing and
Section 457 plans. Non-qualified and qualified retirement plan investments
cannot be combined to satisfy LOI of 48 months. Non-qualified and qualified
retirement plan investments cannot be combined to satisfy LOI of 48 months. Such
an investment (including accumulations and combinations but not including
reinvested dividends) 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 been 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 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 Fund to sell, any additional shares and may be
terminated at any time.
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B and Class C 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 and Class C shares which are redeemed
within six years or one year of purchase, respectively will be subject to a CDSC
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be
32
<PAGE>
assessed on an amount equal to the lesser of the current market value or the
original purchase cost of the Class B or Class C shares being redeemed. No CDSC
will be imposed on increases in account value above the initial purchase prices,
including all shares derived from reinvestment of dividends or capital gains
distributions.
Class B shares are not available to full-service retirement 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 this number of
years from the time of any payment for the purchases both Class B and Class C
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period for Class B or one year CDSC
redemption period for Class C 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 Class B shares. 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.
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:
o Proceeds of 50 shares redeemed at $12 per share (50 x 12) $600.00
o *Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC
(dividend reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the lot not just the
shares being redeemed.
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 and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C 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 and Class C shares and of Class A shares that are subject
to a CDSC, unless indicated otherwise, in the circumstances defined below:
33
<PAGE>
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability. (Does not apply to trust accounts
unless trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions where the proceeds are used to purchase a John Hancock
Declaration Variable Annuity.
* Redemptions of Class B (but not Class C) shares made under a periodic
withdrawal plan or redemptions for fees charged by planners or advisors
for advisory services, as long as your annual redemptions do not exceed
12% of your account value, including reinvestment 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 do not apply to
periodic withdrawal plan redemptions of Class A or Class C shares that are
subject to a CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has less 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.
* Redemptions of Class A or Class C shares by retirement plans that in
vested through the PruArray Program sponsored by Prudential Securities.
For Retirement Accounts (such as traditional, Roth and Education IRAs, SIMPLE
IRAs, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase
Pension Plan, Profit-Sharing Plan and other 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 sections 401(a) (such as
Money Purchase Pension Plans and Profit-Sharing Plan/401(k) Plans), 457
and 408 (SEPs and SIMPLE IRAs) of the Internal Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
34
<PAGE>
CDSC Waiver Matrix for Class B and Class C
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), Rollover
MPP, PSP)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- -------------------------------------------------------------------------------------------
Over 701/2 Waived Waived Waived Waived for 12% of
mandatory account
distributions value
or 12% of annually in
account periodic
value payments
annually in
periodic
payments
- -------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for 12% of
and 70 1/2 Life account
Expectancy value
or 12% of annually in
account periodic
value payments
annually in
periodic
payments
- -------------------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of
(Class B only) annuity annuity annuity annuity account
payments payments payments payments value
(72t) or 12% (72t) or 12% (72t) or (72t) or annually in
of account of account 12% of 12% of periodic
value value account account payments
annually in annually in value value
periodic periodic annually in annually in
payments payments periodic periodic
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 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, the shareholder will incur a brokerage
charge. Any such securities would be valued for the purposes of making such
35
<PAGE>
payment at the same value as used in determining net asset value. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. 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
and John Hancock Intermediate Maturity 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 arising from the
redemption of Fund shares which 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 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 and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any shareholder on 30 days'
prior written notice to such shareholder, or to discontinue the availability of
such plan in the future. The shareholder may terminate the plan at any time by
giving proper notice to 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:
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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 order date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit in that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of 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."
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).
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund, without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and four other
series. The
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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.
The Trustees have also authorized the issuance of three classes of shares of the
Fund, designated as Class A, Class B and Class C.
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
each Class of 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 each class will be borne exclusively
by that class (ii) Class B and Class C shares will pay higher distribution and
service fees than Class A shares and (iii) each class of shares will bear any
other class expenses properly allocable to that class of shares, subject to the
conditions imposed by the Internal Revenue Service with respect to
multiple-class structures. Similarly, the net asset value per share may vary
depending on which class of shares are purchased. No interest will be paid on
uncashed dividend or redemption checks.
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 a request for a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any 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 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.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder's account is governed by the laws of The
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Commonwealth of Massachusetts. For telephone transactions, the transfer agent
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, the transfer agent 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.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
TAX STATUS
The Fund, is treated as a separate entity for accounting and tax purposes, has
qualified and elected to be treated as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code") and
intends to continue to qualify in the future. 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 its 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 4% non-deductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions 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 those gains and losses included in
computing net capital gain, after reduction by deductible expenses.) Some
distributions 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.
If the Fund invests in stock (including an option to acquire stock such as is
inherent in a convertible bond) of certain foreign corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, certain rents and royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from such
companies or gain from the sale of
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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. An
election may be available to ameliorate these adverse tax consequences, but
could require the Fund to recognize taxable income or gain without the
concurrent receipt of cash. These investments could also result in the treatment
of associated capital gains as ordinary income. The Fund may limit and/or manage
its holdings in passive foreign investment companies or make an available
election to minimize its tax liability or maximize its return from these
investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency 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. Transactions in foreign
currencies that are not directly related to the Fund's investment in stock or
securities, including speculative currency positions, 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. 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.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Some tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. The Fund does not expect to qualify to pass such taxes through to its
shareholders, who consequently will not take such taxes into account on their
own tax returns. However, the Fund will deduct such taxes in determining the
amount it has available for distribution to shareholders.
The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of the Fund to dispose of
portfolio securities and/or engage in options, futures or forward transactions
that will generate capital gains. At the time of an investor's purchase of Fund
shares, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable income
of the Fund. Consequently, subsequent distributions from such appreciation or
income may be taxable to such investor even if the net asset value of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares, and the distributions in reality represent a
return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, 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 shareholder's hands. A sales charge paid in purchasing shares of
the Fund cannot be taken into account for purposes of determining gain or loss
on the redemption or exchange of such shares within 90 days after their purchase
to the extent shares of the Fund or another John Hancock Fund are subsequently
acquired without payment of a sales charge pursuant to the reinvestment or
exchange privilege. This disregarded charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Also, any loss
realized on a redemption or exchange may be disallowed to the extent the shares
disposed of are replaced with other shares of the Fund within a period of 61
days beginning 30 days before and ending 30 days
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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. Shareholders should consult their own tax advisers regarding their
particular circumstances to determine whether a disposition of Fund shares is
properly treated as a sale for tax purposes, as is assumed in the foregoing
discussion.
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
carryforward 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 are of
such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset its net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund has $11,066,430 of capital loss carry forward available
to the extent provided by regulations to offset future net realized capital
gains. The carry forward expire as follows: October 31, 1998- $769,302, October
31, 1999- $1,297,087, October 31, 2000- $12,856, October 31, 2001- $4,531,602,
and October 31, 2002- $4,455,583.
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) during a prescribed period extending before and after each such
dividend and distributed and properly designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the holding period
requirements stated above with respect to their shares of the Fund for each
dividend 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 basis in its shares may be
reduced, for Federal income tax purposes, by reason of "extraordinary dividends"
received with respect to the shares, and to the extent such basis would be
reduced below zero, that current recognition of income would be required.
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
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elects to include market discount in income currently) prior to the receipt of
the corresponding cash payment. The mark to market or constructive sale rules
applicable to certain options, futures, forwards, short sales or other
transactions may also require the Fund to recognize income or gain without a
concurrent receipt of cash. Additionally, some countries restrict repatriation
which may make it difficult or impossible for the Fund to obtain cash
corresponding to its earnings or assets in those countries. 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 borrow 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 intangible property 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 the Fund 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
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 Fund
may restrict the Fund's ability to enter into options, futures, foreign currency
positions, and foreign currency forward contracts.
Certain options, futures and forward foreign currency contracts undertaken by
the Fund may cause the Fund to recognize gains or losses from marking to market
even though its positions have not been sold or terminated and affect the
character as long-term or short-term (or, in the case of foreign currency
contracts, as ordinary income or loss) and timing of some capital gains and
losses realized by the Fund. Additionally, the Fund may be required to recognize
gain, but not loss, if an option, short sales or other transaction is treated as
a constructive sale of an appreciated financial position in the Fund's
portfolio. Also, certain of the Fund's losses on its
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transactions involving options 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 gains. These
transactions may therefore affect the amount, timing and character of the Fund's
distributions to shareholders. Certain of such transactions may also cause the
Fund to dispose of investments sooner than would otherwise have occurred. The
Fund will take into account the special tax rules (including consideration of
available elections) applicable to options and 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
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 types of
investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the 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 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.
The Fund anticipates that, provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay any
Massachusetts income tax.
CALCULATION OF PERFORMANCE
The average annual total return for Class A shares of the Fund for the 1 year
period ended October 31, 1998 and from commencement of operations on November 1,
1993 through October 31, 1998 was __% and __%, respectively.
The average annual total return for Class B shares of the Fund for the 1 year
period ended October 31, 1998 and from commencement of operations on November 1,
1993 through October 31, 1998, was __% and __%, respectively.
The average total return for Class C shares of the fund for the period commenced
from June 1, 1998 to October 31, 1998 was __%.
Average annual total return is determined separately for Class A and Class B
shares. Total return is computed by finding the average annual compounded rates
of return over the designated periods that would equate the initial amount
invested to the ending redeemable value, according to the following formula:
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T = ((ERV/P)^(1/n)) - 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 designated period.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, 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 or Class C shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B or Class C shares from a
total return calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper-Mutual 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 ranking and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S may also be
utilized. 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 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 redemption of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser pursuant to
recommendations made by an investment
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committee, which consists of officers and directors of the Adviser and its
affiliates, and officers and Trustees who are interested persons of the Trust.
Orders for purchases and sales of securities are placed in a manner which, in
the opinion of the Adviser, will offer the best price and market for the
execution of each 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 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 Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and in the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and, conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitment to allocate portfolio transactions upon any
prescribed basis. While the Adviser's officers will be primarily responsible for
the allocation of the Fund's brokerage business, the policies and practices of
the Adviser in this regard must be consistent with the foregoing and will at all
times be subject to review by the Trustees. For the years ended October 31,
1998, 1997 and 1996, the Fund paid negotiated brokerage commissions of $____,
$535,844 and $1,955,973, respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the years ended October 31, 1998
and1997, the Fund directed commissions in the amount of $414,949 and $838,762,
respectively, to compensate brokers for research services such as industry 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
45
<PAGE>
results, the Fund may execute portfolio transactions with or through Affiliated
Brokers. For the fiscal years ended October 31, 1998 and 1997, the Fund paid no
commissions with any Affiliated Broker.
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
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 Trust, the Adviser or the Affiliated Broker. Commissions on
transactions with Affiliated Brokers must comply with Rule 17e-1 of the 1940 Act
and must be fair and reasonable to shareholders as determined in good faith by
the Trustees. Because the Adviser, which is affiliated with the Affiliated
Brokers, has, as investment adviser to the Fund, the obligation to provide
investment management services, which includes elements of research and related
investment skills, such research and related skills will not be used by the
Affiliated 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 the securities
to be sold or purchased for the Fund with those to be sold or purchased for
other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 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 Signature
Services an annual fee of $19.00 for each Class A shareholder account, $21.50
for each Class B shareholder account and $20.50 for each Class C shareholder
account. The Fund also pays certain out-of-pocket expenses and these expenses
are aggregated and charged to the Fund and allocated to each class on the basis
of their relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Trust and Investors Bank & Trust Company, 200 Clarendon Street,
Boston, Massachusetts 02116. Under the custodian agreement, Investors Bank &
Trust Company performs custody, portfolio and fund accounting services.
46
<PAGE>
INDEPENDENT AUDITORS
The independent auditors of the Fund are _________________ audits and renders an
opinion on the Fund's annual financial statements and reviews the Fund's annual
Federal income tax return.
47
<PAGE>
APPENDIX A - 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 the fund's
risk profile in the prospectus.
A fund is 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 the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
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. (e.g., short sales, financial futures and options;
securities and index options, currency contracts).
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. (e.g., borrowing; reverse repurchase agreements, repurchase
agreements, securities lending, non-investment-grade securities, financial
futures and options; securities and index options).
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. (e.g., foreign
equities, financial futures and options; securities and index options, currency
contracts).
Information risk The risk that key information about a security or market is
inaccurate or unavailable. (e.g., non-investment-grade securities, foreign
equities).
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. (e.g.,
non-investment-grade securities, financial futures and options; securities and
index options).
A-1
<PAGE>
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
borrowing; reverse repurchase agreements, when-issued securities and forward
commitments).
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. (e.g., short sales, financial futures and options
securities and index options; currency contracts).
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. (e.g., short sales, financial futures
and options securities and index options; currency contracts).
o 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. (e.g., non-investment-grand
securities, short sales, restricted and illiquid securities, financial
futures and options securities and index options; currency contracts).
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. (e.g., short sales, short-term trading,
when-issued securities and forward commitments, non-investment-grade securities,
foreign equities, financial futures and options; securities and index options
restricted and illiquid securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events. (e.g., foreign equities).
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. (e.g., short sales, when-issued securities and forward commitments;
financial futures and options; securities and index options, currency
contracts).
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and
war.(e.g., foreign equities).
A-2
<PAGE>
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade securities,
restricted and illiquid securities).
A-3
<PAGE>
APPENDIX B
DESCRIPTION OF BOND RATINGS
Standard & Poor's Bond Ratings
AAA-Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA-Debt rated AA has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A-Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB-Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
To provide more detailed indications of credit quality, the ratings AA to BBB
may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
A provisional rating, indicated by "p" following a rating, is sometimes used
by Standard & Poor's. It assumes the successful completion of the project being
financed by the issuance of the bonds being rated and indicates that payment of
debt service requirements is largely or entirely dependent upon the successful
and timely completion of the project. This rating, however, while addressing
credit quality subsequent to completion, makes no comment on the likelihood of,
or the risk of default upon failure of, such completion.
Moody's Bond Ratings
Aaa-Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Generally speaking, the safety
of obligations of this class is so absolute that with the occasional exception
of oversupply in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
Aa-Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
The market value of Aa bonds is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
B-1
<PAGE>
A-Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa-Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers of
rating symbols Aa, A and Baa are to give investors a more precise indication of
relative debt quality in each of the historically defined categories.
Conditional ratings, indicated by "Con", are sometimes given when the
security for the bond depends upon the completion of some act or the fulfillment
of some condition. Such bonds, are given a conditional rating that denotes their
probably credit statute upon completion of that act or fulfillment of that
condition.
B-2
<PAGE>
FINANCIAL STATEMENTS
F-1
<PAGE>
John Hancock Investment Trust III
PART C.
OTHER INFORMATION
Item. 23. Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 24. Persons Controlled by or under Common Control with Registrant.
No person is directly or indirectly controlled by or under common control with
Registrant.
Item. 25. Indemnification.
Indemnification provisions relating to the Registrant's Trustees, officers,
employees and agents is set forth in Article VII of the Registrant's By Laws
included as Exhibit 2 herein.
Under Section 12 of the Distribution Agreement, John Hancock Funds, Inc. ("John
Hancock Funds") has agreed to indemnify the Registrant and its Trustees,
officers and controlling persons against claims arising out of certain acts and
statements of John Hancock Funds.
Section 9(a) of the By-Laws of John Hancock Mutual Life Insurance Company ("the
Insurance Company") provides, in effect, that the Insurance Company will,
subject to limitations of law, indemnify each present and former director,
officer and employee of the Insurance Company who serves as a Trustee or officer
of the Registrant at the direction or request of the Insurance Company against
litigation expenses and liabilities incurred while acting as such, except that
such indemnification does not cover any expense or liability incurred or imposed
in connection with any matter as to which such person shall be finally
adjudicated not to have acted in good faith in the reasonable belief that his
action was in the best interests of the Insurance Company. In addition, no such
person will be indemnified by the Insurance Company in respect of any final
adjudication unless such settlement shall have been approved as in the best
interests of the Insurance Company either by vote of the Board of Directors at a
meeting composed of directors who have no interest in the outcome of such vote,
or by vote of the policyholders. The Insurance Company may pay expenses incurred
in defending an action or claim in advance of its final disposition, but only
<PAGE>
upon receipt of an undertaking by the person indemnified to repay such payment
if he should be determined not to be entitled to indemnification.
Article IX of the respective By-Laws of John Hancock Funds and John Hancock
Advisers, Inc. ("the Adviser") provide as follows:
"Section 9.01. Indemnity. Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation a director, officer, employee or agent of the
Corporation or is or was at any time since the inception of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the Corporation against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and the liability was not incurred by reason of gross
negligence or reckless disregard of the duties involved in the conduct of his
office, and expenses in connection therewith may be advanced by the Corporation,
all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person."
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the Registrant's Declaration of Trust and By-Laws of John
Hancock Funds, the Adviser, or the Insurance Company or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether indemnification by it is against public policy
as expressed in the Act and will be governed by the final adjudication of such
issue.
Item 26. Business and Other Connections of Investment Advisers.
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of the Adviser,
reference is made to Form ADV (801-8124) filed under the Investment Advisers Act
of 1940, which is incorporated herein by reference.
<PAGE>
Item 27. Principal Underwriters.
(a) John Hancock Funds acts as principal underwriter for the Registrant and also
serves as principal underwriter or distributor of shares for John Hancock Cash
Reserve, Inc., John Hancock Bond Trust, John Hancock Current Interest, John
Hancock Series Trust, John Hancock Tax-Free Bond Trust, John Hancock California
Tax-Free Income Fund, John Hancock Capital Series, John Hancock Special Equities
Fund, John Hancock Sovereign Bond Fund, John Hancock Tax-Exempt Series, John
Hancock Strategic Series, John Hancock World Fund, John Hancock Investment
Trust, John Hancock Institutional Series Trust, John Hancock Investment Trust II
and John Hancock Investment Trust III.
(b) The following table lists, for each director and officer of John Hancock
Funds, the information indicated.
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
<S> <C> <C>
Edward J. Boudreau, Jr. Director, Chairman, President and Trustee, Chairman, and Chief
101 Huntington Avenue Chief Executive Officer Executive Officer
Boston, Massachusetts
Anne C. Hodsdon Director and Executive President
101 Huntington Avenue Vice President
Boston, Massachusetts
Robert H. Watts Director, Executive Vice None
John Hancock Place President and Chief Compliance
P.O. Box 111 Officer
Boston, Massachusetts
Robert G. Freedman Director Chairman and Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
James V. Bowhers President None
101 Huntington Avenue
Boston, Massachusetts
Osbert Hood Senior Vice President, None
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts and Treasurer
David A. King Director None
101 Huntington Avenue
Boston, Massachusetts
Richard O. Hansen Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
John A. Morin Vice President and Secretary Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President Vice President and Secretary
101 Huntington Avenue
Boston, Massachusetts
C-6
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director Trustee
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster L. Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-7
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
Kathleen M. Graveline Senior Vice President None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Peter F. Mawn Senior Vice President None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Anthony P. Petrucci Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Charles H. Womack Senior Vice President None
6501 Americas Parkway
Suite 950
Albuquerque, New Mexico
Keith F. Hartstein Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
J. William Benintende Vice President None
101 Huntington Avenue
Boston, Massachusetts
Gary Cronin Vice President None
101 Huntington Avenue
Boston, Massachusetts
Kristine Pancare Vice President None
101 Huntington Avenue
Boston, Massachusetts
C-8
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
---------------- ---------------- ---------------
Griselda Lyman Vice President None
101 Huntington Avenue
Boston, Massachusetts
Karen F. Walsh Vice President None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
(c) None.
Item 28. Location of Accounts and Records
The Registrant maintains the records required to be maintained by it
under Rules 31a-1 (a), 31a-a(b), and 31a-2(a) under the Investment
Company Act of 1940 as its principal executive offices at 101
Huntington Avenue, Boston Massachusetts 02199-7603. Certain records,
including records relating to Registrant's shareholders and the
physical possession of its securities, may be maintained pursuant to
Rule 31a-3 at the main office of Registrant's Transfer Agent and
Custodian.
Item 29. Management Services
Not applicable.
Item 30. Undertakings
(a) Not applicable.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
21st day of December, 1998.
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
Edward J. Boudreau, Jr. (Principal Executive Officer)
/s/James B. Little
- ------------------------ Senior Vice President and Chief December 21, 1998
James B. Little Financial Officer (Principal Financial
and Accounting Officer)
*
- ------------------------ Trustee
Dennis S. Aronowitz
*
- ------------------------ Trustee
Richard P. Chapman, Jr.
*
- ------------------------ Trustee
William J. Cosgrove
*
- ------------------------ Trustee
Douglas M. Costle
C-10
<PAGE>
Signature Title Date
--------- ----- ----
*
- ------------------------ Trustee
Leland O. Erdahl
*
- ------------------------ Trustee
Richard A. Farrell
*
- ------------------------ Trustee
Gail D. Fosler
*
- ------------------------ Trustee
William F. Glavin
*
- ------------------------ Trustee
Anne C. Hodsdon
*
- ------------------------ Trustee
John A. Moore
*
- ------------------------ Trustee
Patti McGill Peterson
*
- ------------------------ Trustee
John W. Pratt
*
- ------------------------ Trustee
Richard S. Scipione
*By: /s/Susan S. Newton December 21, 1998
-------------------
Susan S. Newton
Attorney-in-Fact under
Powers of Attorney dated
May 21, 1996 and August
27, 1996.
</TABLE>
C-11
<PAGE>
John Hancock Investment Trust III
(File no. 33-4559)
INDEX TO EXHIBITS
99.(a) Articles of Incorporation. Amended and Restated Declaration of Trust
dated July 1, 1996.**
99.(a).1 Amended and Restated Master Trust Agreement dated May 21, 1996.***
99.(a).2 Instrument Changing Name of Trust Agreement dated March 1, 1997.****
99.(a).3 Establishment and Designation of Class C Shares to John Hancock
Growth Fund, John Hancock International Fund and John Hancock Special
Opportunities Fund dated June 1, 1998.+
99.(b) By-Laws. Amended and Restated By-Laws dated December 3, 1996.****
99.(c) Instruments Defining Rights of Security Holders. See Exhibit 99.(a)
and 99.(b).
99.(d) Investment Advisory Contracts. Advisory Agreement restated
January 1, 1994.*
99.(d).1 Sub-Advisory Agreement with John Hancock Advisers International
Limited dated October 1, 1992 for International Fund.*
99.(d).2 Sub-Advisory Agreement with John Hancock Advisers International
Limited for Global Fund.*
99.(d).3 Investment Management Contract between John Hancock Growth Fund and
John Hancock Advisers, Inc. dated July 1, 1996. **
99.(d).4 Investment Management Contract between John Hancock World Bond Fund
and John Hancock Advisers, Inc. dated July 1, 1996.**
99.(d).5 Investment Management Contract between John Hancock Short-Term
Strategic Income Fund and John Hancock Advisers, Inc. dated
July 1, 1996.**
99.(d).6 Investment Management Contract between John Hancock Special
Opportunities Fund and John Hancock Advisers, Inc. dated
July 1, 1996.**
99.(d).7 Investment Management Contract between John Hancock International
Fund and John Hancock Advisers, Inc. dated July 1, 1996.**
99.(d).8 Investment Management Contract between John Hancock Global Fund and
John Hancock Advisers, Inc. dated July 1, 1996.**
99.(e) Underwriting Contracts. Distribution Agreement between Freedom
Distributors Corporation and the Registrant dated
November 13, 1996.***
99.(e).1 Distribution Agreement between John Hancock Funds, Inc. and the
Registrant dated November 13, 1996.***
99.(e).2 Form of Soliciting Dealer Agreement between John Hancock Broker
Distribution Services, Inc. and Selected Dealers.+
99.(e).3 Form of Financial Institution Sales & Service Agreement.*
<PAGE>
99.(e).4 Amendment to Distribution Agreement dated July 1, 1996.**
99.(f) Bonus or Profit Sharing Contracts. Not Applicable.
99.(g) Custodian Agreements. Custodian Contract with State Street Bank and
Trust Company dated July 15, 1994.*
99.(g).1 Custodian Contract with Investors Bank and Trust Company Bank, dated
December 15, 1994.*
99.(h) Other Material Contracts. Amended and Restated Master Transfer
Agency Service Agreement between John Hancock funds and John Hancock
Signature Services, Inc. dated June 1, 1998.+
99.(h).1 Accounting & Legal Services Agreement between John Hancock Advisers,
Inc. and John Hancock Growth Fund as of January 1, 1996.*
99.(i) Legal Opinion. Not Applicable.
99.(j) Other Opinions. Not Applicable.
99.(k) Omitted Financial Statements. Not Applicable.
99.(l) Initial Capital Agreements. Not Applicable.
99.(m) Rule 12b-1 Plan. Plan of Distribution pursuant to Rule 12b-1 as
amended and restated January 1, 1994.*
99.(m).1 Class A Distribution Plan between John Hancock Growth Fund and John
Hancock Funds, Inc. dated June 3, 1997.+
99.(m).2 Class B Distribution Plan between John Hancock Growth Fund and John
Hancock Funds, Inc. dated June 3, 1997.+
99.(m).3 Class A Distribution Plan between John Hancock Global Fund, John
Hancock World Bond Fund, John Hancock International Fund, John
Hancock Special Opportunities Fund and John Hancock Short-Term
Strategic Income Fund and John Hancock Funds, Inc. dated June 3,
1997.****
99.(m).4 Class B Distribution Plan between John Hancock Global Fund,
John Hancock World Bond Fund, John Hancock International Fund,
John Hancock Special Opportunities Fund and John Hancock
Short-Term Strategic Income Fund and John Hancock Funds, Inc.
dated June 3, 1997.****
99.(m).5 Class C Distribution Plans between John Hancock Growth Fund,
John Hancock International Fund and John Hancock Special
Opportunities Fund and John Hancock Funds, Inc. dated June 1,
1998.+
<PAGE>
Financial Data Schedule.
99.(n).1A Not Applicable. John Hancock Global
99.(n).1B Not Applicable. John Hancock Global
99.(n).2A Not Applicable. John Hancock Growth
99.(n).2B Not Applicable. John Hancock Growth
99.(n).3A Not Applicable. John Hancock International
99.(n).3B Not Applicable. John Hancock International
99.(n).4A Not Applicable. John Hancock Short-Term Strategic
99.(n).4B Not Applicable. John Hancock Short-Term Strategic
99.(n).5A Not Applicable. John Hancock Special Opportunities
99.(n).5B Not Applicable. John Hancock Special Opportunities
99.(o) Rule 18f-3 Plan. John Hancock Funds Class A and Class B amended
and restated Multiple Class Plan pursuant to Rule 18f-3 for John
Hancock Global Fund, John Hancock Growth Fund, John Hancock
International Fund, John Hancock Short-Term Strategic Fund and
John Hancock Special Opportunities Fund dated May 1, 1998.+
99.(o).1 John Hancock Funds Class A, Class B and Class C amended and
restated Multiple Class Plan pursuant to Rule 18f-3 for John
Hancock Growth Fund, John Hancock International Fund and John
Hancock Special Opportunities Fund, John Hancock Global Fund and
John Hancock Short-Term Strategic Fund.+
* Previously filed electronically with post-effective amendmen
no. 28, file nos. 811-4630;33-4559) on February 27, 1995,
accession number 0000950146-95-000057.
** Previously filed with post-effective amendment number 32 (file
nos. 811-4630; 33-4559) on August 30, 1996, accession number
0001010521-96-000151.
*** Previously filed with post-effective amendment number 33 (file
nos. 811-4630; 33-4559) on February 27, 1997, accession number
0001010521-97-000227.
**** Previously filed with post-effective amendment number 34 (file
nos. 811-4630; 33-4459) on February 27, 1998, accession number
0001010521-98-000202.
+ Filed herewith.
JOHN HANCOCK INVESTMENT TRUST III
John Hancock Growth Fund
John Hancock International Fund
John Hancock Special Opportunities Fund
Amendment of Section 5.11 and
Establishment and Designation of Class C Shares
of Beneficial Interest of
John Hancock Growth Fund,
John Hancock International Fund, and
John Hancock Special Opportunities Fund,
each a Series of John Hancock Investment Trust III
Amendment of Section 5.11
The undersigned, being a majority of the Trustees of John Hancock
Investment Trust III, a Massachusetts business trust (the "Trust"), acting
pursuant to Section 8.3 of the Amended and Restated Declaration of Trust dated
July 1, 1996, as amended from time to time (the "Declaration of Trust"), do
hereby amend Section 5.11 as follows:
1. Section 5.11 (a) shall be deleted and replaced with the
following:
Without limiting the authority of the Trustees set forth in
Section 5.1 to establish and designate any further Series or
Classes, the Trustees hereby establish the following Series,
each of which consists of Class A Shares and Class B Shares:
John Hancock Global Fund, John Hancock Growth Fund, John
Hancock International Fund, John Hancock Short-Term Strategic
Income Fund, John Hancock Special Opportunities Fund and John
Hancock World Bond Fund (the "Existing Series").
Establishment and Designation of Class C Shares
The undersigned, being a majority of the Trustees of John Hancock
Investment Trust III, a Massachusetts business trust (the "Trust"), acting
pursuant to Sections 5.1 and 5.11 of the Amended and Restated Declaration of
Trust dated July 1, 1996, as amended from time to time (the "Declaration of
Trust"), do hereby establish and designate an additional class of shares of John
Hancock Growth Fund, John Hancock International Fund, and John Hancock Special
Opportunities Fund (the "Funds") as follows:
1. The additional class of Shares of the Funds established and designated
hereby is "Class C Shares".
2. Class C Shares shall be entitled to all of the rights and preferences
accorded to Shares under the Declaration of Trust.
<PAGE>
3. The purchase price of Class C Shares, the method of determining the net
asset value of Class C Shares, and the relative dividend rights of
holders of Class C Shares shall be established by the Trustees of the
Trust in accordance with the provisions of the Declaration of Trust and
shall be as set forth in the Prospectus and Statement of Additional
Information of the Funds included in the Trust's Registration
Statement, as amended from time to time, under the Securities Act of
1933, as amended and/or the Investment Company Act of 1940, as amended.
The Declaration of Trust is hereby amended to the extent necessary to
reflect the amendment of Section 5.11 and the establishment of an additional
class of Shares, effective June 1, 1998.
Capitalized terms not otherwise defined herein shall have the meanings
set forth in the Declaration of Trust.
IN WITNESS WHEREOF, the undersigned have executed this instrument on
the 10th day of March 1998.
/s/Dennis S. Aronowitz /s/William F. Glavin
- ---------------------- --------------------
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 ________________________
- -------------------
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
<PAGE>
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.
STATE OF FLORIDA )
)ss
COUNTY OF PASCO )
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, William F. Glavin, 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 10th day of March, 1998.
Michelle D. Jones
-----------------
Notary Public
My Commission Expires: 8/25/00
Selling Agreement
[JOHN HANCOCK LOGO]
John Hancock Funds, Inc.
Boston Massachusetts 02199-7603
<PAGE>
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Selling Agreement
John Hancock Funds, Inc. ("the Distributor" or "Distributor," "we" or "us")
is the principal distributor of the shares of beneficial interest (the
"securities") of each of the John Hancock Funds, (the "Funds"). Such Funds are
those listed on Schedule A hereto which may be amended or supplemented from time
to time by the Distributor to include additional Funds for which the Distributor
is the principal distributor. You represent that you are a member of the
National Association of Securities Dealers, Inc. (the "NASD"), and, accordingly,
we invite you to become a non-exclusive soliciting dealer to distribute the
securities of the Funds and you agree to solicit orders for the purchase of the
securities on the following terms. Securities are offered pursuant to each
Fund's prospectus and statement of additional information, as such prospectus
and statement of additional information may be amended from time to time. To the
extent that the prospectus or statement of additional information contains
provisions that are inconsistent with the terms of this Agreement, the terms of
the prospectus or statement of additional information shall be controlling.
Offerings
1. You agree to abide by the Conduct Rules of the NASD and to all other rules
and regulations that are now or may become applicable to transactions hereunder,
including state and federal rules plus John Hancock Funds administrative
procedures.
2. As principal distributor of the Funds, we shall have full authority to take
such action as we deem advisable in respect of all matters pertaining to the
distribution. This offer of shares of the Funds to you is made only in such
jurisdictions in which we may lawfully sell such shares of the Funds.
3. You shall not make any representation concerning the Funds or their
securities except those contained in the then-current prospectus or statement of
additional information for each Fund.
4. With the exception of listings of product offerings, you agree not to furnish
or cause to be furnished to any person or display or publish any information or
materials relating to any Fund (including, without limitation, promotional
materials, sales literature, advertisements, press releases, announcements,
posters, signs and other similar materials), except such information and
materials as may be furnished to you by the Distributor or the Fund. All other
materials must receive written approval by the Distributor before distribution
or display to the public. Use of all approved advertising and sales literature
materials is restricted to appropriate distribution channels.
5. You are not authorized to act as our agent. Nothing shall constitute you as a
syndicate, association, joint venture, partnership, unincorporated business or
other separate entity or otherwise partners with us, but you shall be liable for
your proportionate share of any tax, liability or expense based on any claim
arising from the sale of shares of the Funds under this Agreement. We shall not
be under any liability to you, except for obligations expressly assumed by us in
this Agreement and liabilities under Section 11(f) of the Securities Act of
1933, and no obligations on our part shall be implied or inferred.
6. Dealer Compliance/Suitability Standards - Certain mutual funds distributed by
the Distributor are being offered with two or more classes of shares of the same
investment portfolio ("Fund") - refer to each Fund prospectus for availability
and details. It is essential that the following minimum compliance/suitability
standards be adhered to in offering and selling shares of these Funds to
investors. All dealers offering shares of the Funds and their associated persons
agree to comply with these general suitability and compliance standards.
<PAGE>
Suitability
With two classes of shares of certain funds available to individual
investors, it is important that each investor purchases not only the fund that
best suits his or her investment objective but also the class of shares that
offers the most beneficial distribution financing method for the investor based
upon his or her particular situation and preferences. Fund share recommendations
and orders must be carefully reviewed by you and your registered representatives
in light of all the facts and circumstances, to ascertain that the class of
shares to be purchased by each investor is appropriate and suitable. These
recommendations should be based on several factors, including but not limited
to:
(a) the amount of money to be invested initially and over a period of time;
(b) the current level of sales loads imposed by the Fund;
(c) the period of time over which the client expects to retain the investment;
(d) the anticipated level of yield from fixed income funds;
(e) any other relevant circumstances such as the availability of reduced sales
charges under letters of intent and/or rights of accumulation.
There are instances when one distribution financing method may be more
appropriate than another. For example, shares subject to a front-end sales
charge may be more appropriate than shares subject to a contingent deferred
sales charge for large investors who qualify for a significant quantity discount
on the front-end sales charge. In addition, shares subject to a contingent
deferred sales charge may be more appropriate for investors whose orders would
not qualify for quantity discounts and who, therefore, may prefer to defer sales
charges, and also for investors who determine it to be advantageous to have all
of their funds invested without deduction of a front-end sales commission.
However, if it is anticipated that an investor may redeem his or her shares
within a short period of time, the investor may, depending on the amount of his
or her purchase, bear higher distribution expenses by purchasing shares subject
to a CDSC than if he or she had purchased shares subject to a front-end sales
charge.
Compliance
Your supervisory procedures should be adequate to assure that an
appropriate person reviews and approves transactions entered into pursuant to
this Selling Agreement for compliance with the foregoing standards. In certain
instances, it may be appropriate to discuss the purchase with the registered
representatives involved or to review the advantages and disadvantages of
selecting one class of shares over another with the client. The Distributor will
not accept orders for Class B shares in any Fund from you for accounts
maintained in street name. Trades for Class B shares will only be accepted in
the name of the shareholder.
7. Other Class Shares - Certain mutual funds distributed by the Distributor may
be offered with Class shares other than A, B and C. Refer to each Fund
prospectus for availability and details. Some Class shares are designed for
institutional investors and qualified benefit plans, including pension funds,
and are sold without a sales charge or 12b-1 fee. If a commission is paid to you
for transactions in Class shares other than A, B and C it will be paid by the
Distributor out of its own resources.
Sales
8. Orders for securities received by you from investors will be for the sale of
the securities at the public offering price, which will be the net asset value
per share as determined in the manner provided in the relevant Fund's
prospectus, as now in effect or as amended from time to time, after receipt by
us (or the relevant Fund's transfer agent) of the purchase application and
payment for the securities, plus the relevant sales charges set forth in the
relevant Fund's then- current prospectus (the "Public Offering Price"). The
procedures relating to the handling of orders shall be subject to our
instructions which we will forward from time to time to you. All orders are
subject to acceptance by us, and we reserve the right in our sole discretion to
reject any order.
In addition to the foregoing, you acknowledge and agree to the initial and
subsequent investment minimums, which may vary from year to year, as described
in the then-current prospectus for each Fund.
9. You agree to sell the securities only (a) to your customers at the public
offering price then in effect, or (b) back to the Funds at the currently quoted
net asset value. No sales may be made to other broker-dealers.
<PAGE>
10. The amount of sales charge to be reallowed to you (the "Reallowance") as a
percentage of the offering price is set forth in the then-current prospectus of
each Fund.
If a sales charge on the purchase is reduced in accordance with the
provisions of the relevant Fund's then-current prospectus pertaining to "Methods
of Obtaining Reduced Sales Charges," the Reallowance shall be reduced pro rata.
11. We shall pay a Reallowance subject to the provisions of this agreement as
set forth in Schedule B hereto on all purchases made by your customers pursuant
to orders accepted by us (a) where an order for the purchase of securities is
obtained by a registered representative in your employ and remitted to us
promptly by you, (b) where a subsequent investment is made to an account
established by a registered representative in your employ or (c) where a
subsequent investment is made to an account established by a broker/dealer other
than you and is accompanied by a signed request from the account shareholder
that your registered representative receive the Reallowance for that investment
and/or for subsequent investments made in such account. If for any reason, a
purchase transaction is reversed, you shall not be entitled to receive or retain
any part of the Reallowance on such purchase and shall pay to us on demand in
full the amount of the Reallowance received by you in connection with any such
purchase. We may withhold and retain from the amount of the Reallowance due you
a sum sufficient to discharge any amount due and payable by you to us.
12. Certain of the Funds have adopted a plan under Investment Company Act Rule
12b-1 ("Distribution Plan" as described in the prospectus). To the extent you
provide distribution and marketing services in the promotion of the sale of
shares of these Funds, including furnishing services and assistance to your
customers who invest in and own shares of such Funds and including, but not
limited to, answering routine inquiries regarding such Funds and assisting in
changing distribution options, account designations and addresses, you may be
entitled to receive compensation from us as set forth in Schedule C hereto. All
compensation, including 12b-1 fees, shall be payable to you only to the extent
that funds are received and in the possession of the Distributor.
13. We will advise you as to the jurisdictions in which we believe the shares
have been qualified for sale under the respective securities laws of such
jurisdictions, but we assume no responsibility or obligations as to your right
to sell the shares of the Funds in any state or jurisdiction.
14. Orders may be placed through:
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
1-800-338-4265
Settlement
15. Settlements for wire orders shall be made within three business days after
our acceptance of your order to purchase shares of the Funds. Certificates, when
requested, will be delivered to you upon payment in full of the sum due for the
sale of the shares of the Funds. If payment is not so received or made, we
reserve the right forthwith to cancel the sale, or, at our option, to liquidate
the shares of the Fund subject to such sale at the then prevailing net asset
value, in which latter case you will agree to be responsible for any loss
resulting to the Funds or to us from your failure to make payments as aforesaid.
Indemnification
16. The parties to this agreement hereby agree to indemnify and hold harmless
each other, their officers and directors, and any person who is or may be deemed
to be a controlling person of each other, from and against any losses, claims,
damages, liabilities or expenses (including reasonable fees of counsel), whether
joint or several, to which any such person or entity may become subject insofar
as such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) arise out of or are based upon (a) any untrue statement or alleged
untrue statement of material fact, or any omission or alleged omission to state
a material fact made or omitted by it herein, or (b) any willful misfeasance or
gross misconduct by it in the performance of its duties and obligations
hereunder.
<PAGE>
17. National Securities Clearing Corporation (NSCC) Indemnity - Shareholder and
House Accounts - In consideration of the Distributor and John Hancock Signature
Services ("JHSS") liquidating, exchanging and/or transferring unissued shares of
the Funds for your customers without the use of original or underlying
documentation supporting such instructions (e.g., a signed stock power or
signature guarantee), you hereby agree to indemnify the Distributor, Investor
Services and each respective Fund against any losses, including reasonable
attorney's fees, that may arise from such liquidation exchange and/or transfer
of unissued shares upon your direction. This indemnification shall apply only to
the liquidation, exchange and/or transfer of unissued shares in shareholder and
house accounts executed as wire orders transmitted via the NSCC's Fund/SERV
system. You represent and warrant to the Funds, the Distributor and Investor
Services that all such transactions shall be properly authorized by your
customers.
The indemnification in this Section 16 shall not apply to any losses
(including attorney's fees) caused by a failure of the Distributor, Investor
Services or a Fund to comply with any of your instructions governing any of the
above transactions, or any negligent act or omission of the Distributor,
Investor Services or a Fund, or any of their directors, officers, employees or
agents. All transactions shall be settled upon your confirmation through NSCC
transmission to Investor Services.
Miscellaneous
18. We will supply to you at our expense additional copies of the prospectus and
statement of additional information for each of the Funds and any printed
information supplemental to such material in reasonable quantities upon request.
19. Any notice to you shall be duly given if mailed to you at your address as
registered from time to time with the NASD.
20. Miscellaneous provisions, if any, are attached hereto and incorporated
herein by reference.
21. In the event your firm is appointed or selected by us to sell
insurance-related securities products, this agreement will be supplemented by
Schedule D, which will include the terms, including additional terms, and
conditions of the distribution by you of such products, and such Schedule is
hereby incorporated herein by reference and made a part of this Selling
Agreement.
In the case of any conflict between this Selling Agreement and Schedule D
with respect to insurance-related securities products, Schedule D shall
control.
22. We reserve the right to reject any order received by us from a broker-dealer
that does not have an existing selling agreement with us. It is your
responsibility to inform us of all clearing arrangements with broker-dealers
ordering our funds and to assist us in securing a selling agreement from them or
indemnify us for any errors or omissions in the solicitation or ordering of our
funds.
Termination
23. This agreement, which shall be construed in accordance with the laws of the
Commonwealth of Massachusetts, may be terminated by any party hereto upon a
thirty (30) day written notice. This agreement may not be assigned except by
written consent of all the parties. Automatic termination of this agreement
occurs if the dealer: 1.) Files a bankruptcy petition; 2.) Is terminated as an
NASD member; 3.) Uses unapproved sales literature; 4.) Is subject to
deregistration by state.
Discretionary termination: Hancock reserves the right to terminate this
agreement at any time at its sole discretion upon thirty (30) days' notice.
Hancock may also suspend payment of commissions for reasonable cause with or
without notice.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
DATE: ______________________
SOLICITING DEALER PROFILE Firm CRD Number: ______________________
--------------------------------------------------
Name of Organization
By:__________________________________________________
Authorized Signature of Soliciting Dealer
---------------------------------------------------
Please Print or Type Name
---------------------------------------------------
Title
---------------------------------------------------
Print or Type Address
---------------------------------------------------
Telephone Number
Mutual Fund Coordinator:_____________________________________
In order to service you efficiently, please provide
the following information on your Mutual Funds
Operations Department:
Operations Manager:_______________________________________________
Order Room Manager:_______________________________________________
Operations Address:_______________________________________________
-----------------------------------------------
Telephone:______________________________ Fax:_______________________________
- --------------------------------------------------------------------------------
TO BE COMPLETED BY: TO BE COMPLETED BY:
JOHN HANCOCK FUNDS, INC. JOHN HANCOCK SIGNATURE
SERVICES, INC.
By:_____________________________________ By:_______________________________
________________________________________ _________________________________
Title Title
- --------------------------------------------------------------------------------
Pay Office Branch Number:____________________________________________
(If no pay office branch number is indicated, we will assume #001.)
DEALER NUMBER:___________________________________________________
(to be assigned by John Hancock Signature Services Corporation)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
John Hancock Funds, Inc.
[ ] SCHEDULE A [ ]
Dated January 1, 1998 to the
Selling Agreement Relating to Shares of
John Hancock Funds
<S> <C>
Growth Funds Tax-Free Income Funds
John Hancock Emerging Growth Fund John Hancock California Tax-Free Income Fund
John Hancock Financial Industries Fund John Hancock High Yield Tax-Free Fund
John Hancock Growth Fund John Hancock Massachusetts Tax-Free Income Fund
John Hancock Regional Bank Fund John Hancock New York Tax-Free Income Fund
John Hancock Special Equities Fund John Hancock Tax-Free Bond Fund
John Hancock Special Opportunities Fund
John Hancock Special Value Fund International/Global Funds
John Hancock European Equity Fund
Growth and Income Funds John Hancock Global Fund
John Hancock Growth and Income Fund John Hancock Global Health Sciences Fund
John Hancock Independence Equity Fund John Hancock Global Technology Fund
John Hancock Sovereign Balanced Fund John Hancock International Fund
John Hancock Sovereign Investors Fund John Hancock Pacific Basin Equities Fund
John Hancock Short-Term Strategic Income Fund
Income Funds John Hancock World Bond Fund
John Hancock Bond Fund
John Hancock Government Income Fund Money Market
John Hancock High Yield Bond Fund John Hancock Money Market Fund
John Hancock Intermediate Maturity Government Fund John Hancock U.S. Government Cash Reserve
John Hancock Sovereign U.S. Government Income Fund
John Hancock Strategic Income Fund
</TABLE>
From time to time John Hancock Funds, Inc., as principal distributor of the John
Hancock funds, will offer additional funds for sale. These funds will
automatically become part of this Agreement and will be subject to all its
provisions unless otherwise directed by John Hancock Funds, Inc.
<PAGE>
John Hancock Funds, Inc.
[ ] Schedule B [ ]
Dated May 1, 1998 to the
Selling Agreement Relating to Shares of
John Hancock Funds
Reallowance
I. The Reallowance paid to the selling Brokers for sales of John Hancock Funds
is set forth in each Fund's then-current prospectus. No commission will be paid
on sales of any John Hancock Fund that is without a sales charge. Purchases of
Class A shares of $1 million or more, or purchases into an account or accounts
whose aggregate value of fund shares is $1 million or more, will be made at net
asset value with no initial sales charge. On purchases of this type, John
Hancock Funds, Inc. may pay a commission as set forth in each Fund's
then-current prospectus. John Hancock Funds, Inc. will pay Brokers for sales of
Class B shares of the Funds a marketing fee as set forth in each Fund's
then-current prospectus.
II. If, at any time, the sales charges on any class of shares offered herein
exceed the maximum sales charges permitted by the NASD Conduct Rules, John
Hancock Funds reserves the right to amend, modify or curtail payment of any or
all compensation due on such shares immediately and without notice.
<PAGE>
John Hancock Funds, Inc.
[ ] Schedule C [ ]
Dated September 1, 1998 to the
Selling Agreement Relating to Shares of
John Hancock Funds
First Year Service Fees
Pursuant to the Distribution Plan applicable to each of the Funds listed in
Schedule A, John Hancock Funds, Inc. will advance to you a First Year Service
Fee related to the purchase of Class A shares (only if subject to sales charge)
or Class B shares of any of the Funds, as the case may be, sold by your firm.
This Service Fee will be compensation for your personal service and/or the
maintenance of shareholder accounts ("Customer Servicing") during the
twelve-month period immediately following the purchase of such shares, in the
amount not to exceed .25 of 1% of net assets invested in Class A shares or Class
B shares of the Fund, as the case may be, purchased by your customers.
Service Fee Subsequent to the First Year
Pursuant to the Distribution Plan applicable to each of the Funds listed in
Schedule A, the Distributor will pay you quarterly, in arrears, a Service Fee
commencing at the end of the twelve-month period immediately following the
purchase of Class A shares (only if subject to sales charge) or Class B shares,
as the case may be, sold by your firm, for Customer Servicing, in an amount not
to exceed .25 of 1% of the average daily net assets attributable to the Class A
shares or Class B shares of the Fund, as the case may be, purchased by your
customers, provided your firm has under management with the Funds combined
average daily net assets for the preceding quarter of no less than $1 million,
or an individual representative of your firm has under management with the Funds
combined average daily net assets for the preceding quarter of no less than
$250,000 (an "Eligible Firm").
Effective October 1, 1995 for Dealers that have entered into a Wrap Fee
Agreement with the Distributor, the following provisions shall apply with
respect to the payment of service fees:
Pursuant to the Distribution Plan applicable to each of the Funds listed in
Schedule A, the Distributor will pay you quarterly, in arrears, a Service Fee
commencing immediately following the purchase of Class A shares at net asset
value sold by your firm, for Customer Servicing, in an amount not to exceed .25
of 1% of the average daily net assets attributable to the Class A shares of the
Fund purchased by your customers, provided your firm has under management with
John Hancock Funds combined average daily net assets (in any class of shares of
funds listed on Schedule A plus assets in wrap (fee-based) accounts) for the
preceding quarter of no less than $1 million, or an individual representative of
your firm has under management with the Funds combined average daily net assets
for the preceding quarter of no less than $250,000 (an "Eligible Firm"). This
section is only applicable to firms which have executed the SUPPLEMENT TO THE
SELLING DEALER AGREEMENT specifically applicable to fee-based arrangements.
Retirement Multi-Fund Family Program
An initial and subsequent service fee will be paid to broker/dealers selling
outside funds in the John Hancock Funds, Inc. Retirement Multi-Fund Family
Program, according to the schedule outlined below.
Funds offered in the program and the service fees payable are subject to change
at the discretion of John Hancock Funds, Inc.
Initial Fee Payable Immediately*
o State Street Global Advisors
S&P 500 Index Fund (SSGA) .00%
o All Other Funds .50%
Subsequent Fee Payable After One Year
o State Street Global Advisors
S&P 500 Index Fund (SSGA) .00%
o All Other Funds .15%
* No initial fee is paid upon an exchange between any outside funds and the
Distributor.
AMENDED AND RESTATED MASTER TRANSFER AGENCY AND SERVICE AGREEMENT BETWEEN JOHN
- --------------------------------------------------------------------------------
HANCOCK FUNDS AND JOHN HANCOCK SIGNATURE SERVICES, INC.
- --------------------------------------------------------------------------------
Amended and Restated Master Transfer Agency and Service Agreement made as of the
1st day of June, 1998 by and between each investment company advised by John
Hancock Advisers, Inc., having its principal office and place of business at 101
Huntington Avenue, Boston, Massachusetts, 02199, and John Hancock Signature
Services, Inc., a Delaware corporation having its principal office and place of
business at 101 Huntington Avenue, Boston, Massachusetts 02199 ("JHSS").
WITNESSETH:
WHEREAS, each investment company desires to appoint JHSS as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities;
and
WHEREAS, JHSS desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
Article 1 Definitions
Whenever used in this Agreement, the following words and phrases, unless the
context otherwise requires, shall have the following meanings:
(a)"Fund" shall mean the investment company which has adopted this
agreement and is listed on Appendix A hereto. If the Fund is a
Massachusetts business trust or Maryland corporation, it may in the
future establish and designate other separate and distinct series of
shares, each of which may be called a "series" or a "portfolio"; in
such case, the term "Fund" shall also refer to each such separate
series or portfolio.
(b)"Board" shall mean the board of directors/trustees/managing general
partners/director general partners of the Fund, as the case may be.
Article 2 Terms of Appointment; Duties of JHSS
2.01 Subject to the terms and conditions set forth in this Agreement, the Fund
hereby employs and appoints JHSS to act, and JHSS agrees to act, as transfer
agent and dividend dispersing agent with respect to the authorized and issued
shares of beneficial interest ("Shares") of the Fund subject to this Agreement
and to provide to the shareholders of the Fund ("Shareholders") such services in
connection therewith as may be set out in the prospectus of the Fund from time
to time.
2.02 JHSS agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and JHSS, JHSS shall:
(i)Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
therefor to the Fund's Custodian authorized pursuant to the
1
<PAGE>
Fund's Declaration of Trust or Articles of Incorporation (the
"Custodian");
(ii)Pursuant to purchase orders, issue the appropriate number
of Shares and hold such Shares in the appropriate Shareholder
account;
(iii)Receive for acceptance, redemption requests and redemption
directions and deliver the appropriate documentation therefor to
the Custodian;
(iv)At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any redemption,
pay over or cause to be paid over in the appropriate manner
such monies as instructed by the redeeming Shareholders;
(v)Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vi)Prepare and transmit payments for dividends and distributions
declared by the Fund, processing the reinvestment of
distributions on the Fund at the net asset value per share for
the Fund next computed after the payment (in accordance with the
Fund's then-current prospectus);
(vii)Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(viii)Record the issuance of Shares of the Fund and maintain
pursuant to Rule 17Ad-10(e) of the rules and regulations of the
Securities Exchange Act of 1934 a record of the total number of
Shares of the Fund which are authorized, based upon data provided
to it by the Fund, and issued and outstanding. JHSS shall also
provide the Fund, on a regular basis, with the total number of
Shares which are authorized and issued and outstanding and shall
have no obligation, when recording the issuance of Shares, to
monitor the issuance of these Shares or to take cognizance of any
laws relating to the issue or sale of these Shares, which
functions shall be the sole responsibility of the Fund.
(b) In calculating the number of Shares to be issued on purchase or
reinvestment, or redeemed or repurchased, or the amount of the purchase
payment or redemption or repurchase payments owed, JHSS shall use the
net asset value per share (as described in the Fund's then-current
prospectus) computed by it or such other person as may be designated by
the Fund's Board. All issuances, redemptions or repurchases of the
Funds' shares shall be effected at net asset values per share next
computed after receipt of the orders therefore and said orders shall
become irrevocable at the time as of which said value is next computed.
(c) In addition to and not in lieu of the services set forth in the
above paragraph (a), JHSS shall: (i) perform all of the customary
services of a transfer agent and dividend disbursing agent including
but not limited to: maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing proxies, receiving and tabulating
proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on U.S. resident and non-resident alien
accounts, preparing and filing appropriate forms required with respect
to dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and statements
of account to Shareholders for all purchases and redemptions of Shares
and other confirmable transactions in Shareholder accounts, preparing
and mailing activity statements for Shareholders, and providing
2
<PAGE>
Shareholder account information and (ii) provide a system which will
enable the Fund to monitor the total number of the Fund's Shares sold
in each State.
(d) In addition, the Fund shall (i) identify to JHSS in writing those
transactions and assets to be treated as exempt from the blue sky
reporting for each State and (ii) verify the establishment of
transactions for each State on the system prior to activation and
thereafter monitor the daily activity for each State. The
responsibility of JHSS for the Fund's blue sky State registration
status is solely limited to the initial establishment of transactions
subject to blue sky compliance by the Fund and the reporting of these
transactions to the Fund as provided above.
(e) Additionally, JHSS shall:
(i) Utilize a system to identify all share transactions which
involve purchase and redemption orders that are processed at a
time other than the time of the computation of net asset value
per share next computed after receipt of such orders, and shall
compute the net effect upon the Fund of the transactions so
identified on a daily and cumulative basis.
(ii) If upon any day the cumulative net effect of such
transactions upon the Fund is negative and exceeds a dollar
amount equivalent to 1/2 of 1 cent per share, JHSS shall promptly
make a payment to the Fund in cash or through the use of a credit
in the manner described in paragraph (iv) below, in such amount
as may be necessary to reduce the negative cumulative net effect
to less than 1/2 of 1 cent per share.
(iii) If on the last business day of any month the cumulative net
effect upon the Fund of such transactions (adjusted by the amount
of all prior payments and credits by JHSS and the Fund) is
negative, the Fund shall be entitled to a reduction in the fee
next payable under the Agreement by an equivalent amount, except
as provided in paragraph (iv) below. If on the last business day
in any month the cumulative net effect upon the Fund of such
transactions (adjusted by the amount of all prior payments and
credits by JHSS and the Fund) is positive, JHSS shall be entitled
to recover certain past payments and reductions in fees, and to a
credit against all future payments and fee reductions that may be
required under the Agreement as herein described in paragraph
(iv) below.
(iv) At the end of each month, any positive cumulative net effect
upon a Fund of such transactions shall be deemed to be a credit
to JHSS which shall first be applied to permit JHSS to recover
any prior cash payments and fee reductions made by it to the Fund
under paragraphs (ii) and (iii) above during the calendar year,
by increasing the amount of the monthly fee under the Agreement
next payable in an amount equal to prior payments and fee
reductions made by JHSS during such calendar year, but not
exceeding the sum of that month's credit and credits arising in
prior months during such calendar year to the extent such prior
credits have not previously been utilized as contemplated by this
paragraph. Any portion of a credit to JHSS not so used by it
shall remain as a credit to be used as payment against the amount
of any future negative cumulative net effects that would
otherwise require a cash payment or fee reduction to be made to
the Fund pursuant to paragraphs (ii) or (iii) above (regardless
of whether or not the credit or any portion thereof arose in the
same calendar year as that in which the negative cumulative net
effects or any portion thereof arose).
3
<PAGE>
(v) JHSS shall supply to the Fund from time to time, as
mutually agreed upon, reports summarizing the transactions
identified pursuant to paragraph (i) above, and the daily and
cumulative net effects of such transactions, and shall advise
the Fund at the end of each month of the net cumulative effect
at such time. JHSS shall promptly advise the Fund if at any
time the cumulative net effects exceeds a dollar amount
equivalent to 1/2 of 1 cent per share.
(vi) In the event that this Agreement is terminated for
whatever cause, or this provision 2.02 (d) is terminated
pursuant to paragraph (vii) below, the Fund shall promptly pay
to JHSS an amount in cash equal to the amount by which the
cumulative net effect upon the Fund is positive or, if the
cumulative net effect upon the Fund is negative, JHSS shall
promptly pay to the Fund an amount in cash equal to the amount
of such cumulative net effect.
(vii) This provision 2.02 (e) of the Agreement may be
terminated by JHSS at any time without cause, effective as of
the close of business on the date written notice (which may be
by telex) is received by the Fund.
Procedures applicable to certain of these services may be established from time
to time by agreement between the Fund and JHSS.
Article 3 Fees and Expenses
3.01 For performance by JHSS pursuant to this Agreement, the Fund agrees to pay
JHSS a fee as set out in Appendix A attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 3.02 below may be changed from
time to time subject to mutual written agreement between the Fund and JHSS.
3.02 In addition to the fee paid under Section 3.01 above, the Fund agrees to
reimburse JHSS for out-of-pocket expenses or advances incurred by JHSS for the
items set out in the fee schedule attached hereto. In addition, any other
expenses incurred by JHSS at the request or with the consent of the Fund, will
be reimbursed by the Fund.
3.03 The Fund agrees to pay all fees and reimbursable expenses promptly
following the mailing of the respective billing notice. Postage for mailing of
proxies to all shareholder accounts shall be advanced to JHSS by the Funds at
least seven (7) days prior to the mailing date of such materials.
Article 4 Representations and Warranties of JHSS
JHSS represents and warrants to the Fund that:
4.01 It is a corporation duly organized and existing and in good standing under
the laws of the State of Delaware, and is duly qualified and in good standing as
a foreign corporation under the Laws of The Commonwealth of Massachusetts.
4.02 It has corporate power and authority to enter into and perform its
obligations under this Agreement.
4
<PAGE>
4.03 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
4.04 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
Article 5 Representations and Warranties of the Fund
The Fund represents and warrants to JHSS that:
5.01 It is a business trust duly organized and existing and in good standing
under the laws of The Commonwealth of Massachusetts or, in the case of John
Hancock Cash Reserve, Inc., a Maryland corporation duly organized and existing
and in good standing under the laws of the State of Maryland.
5.02 It has power and authority to enter into and perform this Agreement.
5.03 All proceedings required by the Fund's Declaration of Trust or Articles of
Incorporation and By-Laws have been taken to authorize it to enter into and
perform this Agreement.
5.04 It is an open-end investment company registered under the Investment
Company Act of 1940, as amended (the "1940 Act").
5.05 A registration statement under the Securities Act of 1933, as amended, with
respect to the shares of the Fund subject to this Agreement has become
effective, and appropriate state securities law filings have been made and will
continue to be made.
Article 6 Indemnification
6.01 JHSS shall not be responsible for, and the Fund shall indemnify and hold
JHSS harmless from and against, any and all losses, damages, costs, charges,
counsel fees, payments, expenses and liabilities arising out of or attributable
to:
(a) All actions of JHSS or its agents or subcontractors required to be
taken pursuant to this Agreement, provided that such actions are taken
in good faith and without negligence or willful misfeasance.
(b) The Fund's refusal or failure to comply with the terms of this
Agreement, or which arise out of the Fund's bad faith, gross negligence
or willful misfeasance or which arise out of the reckless disregard of
any representation or warranty of the Fund hereunder.
(c) The reliance on or use by JHSS or its agents or subcontractors of
information, records and documents which (i) are received by JHSS or
its agents or subcontractors and furnished to it by or on behalf of the
Fund, and (ii) have been prepared and/or maintained by the Fund or any
other person or firm on behalf of the Fund.
(d) The reliance on, or the carrying out by JHSS or its agents or
subcontractors of, any instructions or requests of the Fund.
5
<PAGE>
(e) The offer or sale of Shares in violation of any requirement under
the federal securities laws or regulations or the securities laws or
regulations of any state that Fund Shares be registered in that state
or in violation of any stop order or other determination or ruling by
any federal agency or any state with respect to the offer or sale of
Shares in that state.
(f) It is understood and agreed that the assets of the Fund may be used
to satisfy the indemnity under this Article 6 only to the extent that
the loss, damage, cost, charge, counsel fee, payment, expense and
liability arises out of or is attributable to services hereunder with
respect to the Shares of such Fund.
6.02 JHSS shall indemnify and hold harmless the Fund from and against any and
all losses, damages, costs, charges, counsel fees, payments, expenses and
liabilities arising out of or attributed to any action or failure or omission to
act by JHSS as a result of JHSS's lack of good faith, negligence or willful
misfeasance.
6.03 At any time JHSS may apply to any officer of the Fund for instructions, and
may consult with legal counsel with respect to any matter arising in connection
with the services to be performed by JHSS under this Agreement, and JHSS and its
agents or subcontractors shall not be liable and shall be indemnified by the
Fund for any action taken or omitted by it in reliance upon such instructions or
upon the opinion of such counsel. JHSS, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Fund, reasonably believed to be genuine and to have been signed
by the proper person or persons, or upon any instruction, information, data,
records or documents provided JHSS or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means authorized by the
Fund, and shall not be held to have notice of any change of authority of any
person, until receipt of written notice thereof from the Fund. JHSS, its agents
and subcontractors shall also be protected and indemnified in recognizing share
certificates which are reasonably believed to bear the proper manual or
facsimile signatures of the officer of the Fund, and the proper countersignature
of any former transfer agent or registrar, or of a co-transfer agent or
co-registrar.
6.04 In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, equipment or
transmission failure or damage reasonably beyond its control, or other causes
reasonably beyond its control, such party shall not be liable for damages to the
other for any damages resulting from such failure to perform or otherwise from
such causes.
6.05 Neither party to this Agreement shall be liable to the other party for
consequential damages under any provision of this Agreement or for any act or
failure to act hereunder.
6.06 In order that the indemnification provisions contained in this Article 6
shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent.
6
<PAGE>
Article 7 Covenants of the Fund and JHSS
7.01 The Fund shall promptly furnish to JHSS the following:
(a) A certified copy of the resolution(s) of the Trustees of the Trust
or the Directors of the Corporation authorizing the appointment of JHSS
and the execution and delivery of this Agreement.
(b) A copy of the Fund's Declaration of Trust or Articles of
Incorporation and By-Laws and all amendments thereto.
7.02 JHSS hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Fund for safekeeping of share certificates and
facsimile signature imprinting devices, if any; and for the preparation or use,
and for keeping account of, such certificates and devices.
7.03 JHSS shall keep records relating to the services to be performed hereunder,
in the form and manner as it may deem advisable. To the extent required by
Section 31 of the Investment Company Act of 1940 and the rules and regulations
of the Securities and Exchange Commission thereunder, JHSS agrees that all such
records prepared or maintained by JHSS relating to the services to be performed
by JHSS hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such Act and rules, and will be
surrendered to the Fund promptly on and in accordance with the Fund's request.
7.04 JHSS and the Fund agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person without
the consent of the other party to this Agreement, except as may be required by
law.
7.05 JHSS agrees that, from time to time or at any time requested by the Fund,
JHSS will make reports to the Fund, as requested, of JHSS's performance of the
foregoing services.
7.06 JHSS will cooperate generally with the Fund to provide information
necessary for the preparation of registration statements and periodic reports to
be filed with the Securities and Exchange Commission, including registration
statements on Form N-1A, semi-annual reports on Form N-SAR, periodic statements,
shareholder communications and proxy materials furnished to holders of shares of
the Fund, filings with state "blue sky" authorities and with United States and
foreign agencies responsible for tax matters, and other reports and filings of
like nature.
7.07 In case of any requests or demands for the inspection of the Shareholder
records of the Fund, JHSS will endeavor to notify the Fund and to secure
instructions from an authorized officer of the Fund as to such inspection. JHSS
reserves the right, however, to exhibit the Shareholder records to any person
whenever it is advised by its counsel that it may be held liable for the failure
to exhibit the Shareholder records to such person.
7
<PAGE>
Article 8 No Partnership or Joint Venture
8.01 The Fund and JHSS are not currently partners of or joint venturers with
each other and nothing in this Agreement shall be construed so as to make them
partners or joint venturers or impose any liability as such on them.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon one hundred twenty
(120) days' written notice to the other party.
9.02 Should the Fund exercise its right to terminate, all out-of-pocket expenses
associated with the movement of records and material will be borne by the Fund.
Additionally, JHSS reserves the right to charge for any other reasonable
expenses associated with such termination.
Article 10 Assignment
10.01 Except as provided in Section 10.03 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
10.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
10.03 JHSS may, without further consent on the part of the Fund, subcontract for
the performance hereof with (i) Boston Finanacial Data Services, Inc., a
Massachusetts corporation ("BE") which is duly registered as a transfer agent
pursuant to Section 17A(c)(1) of the Securities Exchange Act of 1934 ("Section
17A(c)(1)") or any other entity registered as a transfer agent under Section
17A(c)(1) JHSS deems appropriate in order to comply with the terms and
conditions of this Agreement; provided, however, that JHSS shall be as fully
responsible to the Fund for the acts and omissions of any subcontractor as it is
for its own acts and omissions.
Article 11 Amendment
11.01 This Agreement may be amended or modified by a written agreement executed
by both parties and authorized or approved by a resolution of the Trustees of
the Trust or Directors of the Corporation.
Article 12 Massachusetts Law to Apply
12.01 This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the internal substantive laws of The Commonwealth
of Massachusetts.
Article 13 Merger of Agreement
13.01 This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
8
<PAGE>
Article 14 Limitation on Liability
14.01 If the Fund is a Massachusetts business trust, JHSS expressly acknowledges
the provision in the Fund's Declaration of Trust limiting the personal liability
of the trustees and shareholders of the Fund; and JHSS agrees that it shall have
recourse only to the assets of the Fund for the payment of claims or obligations
as between JHSS and the Fund arising out of this Agreement, and JHSS shall not
seek satisfaction of any such claim or obligation from the trustees or
shareholders of the Fund. In any case, each Fund, and each series or portfolio
of each Fund, shall be liable only for its own obligations to JHSS under this
Agreement and shall not be jointly or severally liable for the obligations of
any other Fund, series or portfolio hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf under their seals by and through their duly
authorized officers, as of the day and year first above written.
JOHN HANCOCK FUNDS Listed on Appendix A
By: /s/Anne C. Hodsdon
-------------------
Anne C. Hodsdon
President
JOHN HANCOCK SIGNATURE SERVICES, INC.
By: /s/Charles J. McKenney, Jr.
---------------------------
Charles J. McKenney, Jr.
Vice President
9
<PAGE>
EXHIBIT A
TRANSFER AGENT FEE SCHEDULE, EFFECTIVE JUNE 1, 1998
Effective June 1, 1998, the transfer agent fees payable monthly under
the transfer agent agreement between each fund and John Hancock Signature
Services, Inc. shall be the following rates plus certain out-of-pocket expenses
as described to the Board:
<TABLE>
<CAPTION>
Annual Rate Per Account
Class A Shares Class B Shares Class C Shares*
-------------- -------------- ---------------
<S> <C> <C> <C>
$19.00 $21.50 $20.50
Equity Fund
- -----------
John Hancock Capital Series
- -JH Independence Equity Fund*
- -JH Special Value Fund*
John Hancock Special Equities Fund
John Hancock World Fund
- -JH Pacific Basin Fund
- -JH Global Rx Fund
- -JH European Equity Fund
John Hancock Investment Trust
- -JH Growth and Income Fund*
- -JH Sovereign Balanced Fund
- -JH Sovereign Investors Fund*
John Hancock Investment Trust II
- -JH Financial Industries Fund
- -JH Regional Bank Fund
John Hancock Investment Trust III
- -John Hancock Global Fund
- -John Hancock Growth Fund*
- -John Hancock International Fund*
- -John Hancock Special Opportunities Fund*
John Hancock Series Trust
- -JH Emerging Growth Fund*
- -JH Global Technology Fund
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Annual Rate Per Account
-----------------------
Class A Shares Class B Shares Class C Shares*
-------------- -------------- ---------------
<S> <C> <C> <C>
Money Market Funds $20.00 $22.50 $21.50
- ------------------
John Hancock Current Interest
- -JH Money Market Fund*
- -JH US Government Cash Reserve
(Class A Shares only)
John Hancock Cash Reserve, Inc.
(Class A Shares only)
Annual Rate Per Account
-----------------------
Class A Shares Class B Shares
-------------- --------------
<S> <C> <C>
Tax Free Funds $20.00 $22.50
- --------------
John Hancock Tax-Exempt Series Fund
- -JH Massachusetts Tax-Free Income Funds
- -JH New York Tax-Free Income Fund
John Hancock California Tax-Free Income Fund
John Hancock Tax-Free Bond Trust
- -JH High Yield Tax-Free Fund
- -JH Tax Free Bond Fund
Annual Rate Per Account
-----------------------
Class A Shares Class B Shares Class C Shares*
-------------- -------------- ---------------
<S> <C> <C> <C>
Income Funds $20.00 $22.50 $21.50
-----------
John Hancock Sovereign Bond Fund
John Hancock Strategic Series
- -JH Strategic Income Fund*
- -JH Sovereign US Government Income Fund
John Hancock Investment Trust III
- -JH Short-Term Strategic Income Fund
- -JH World Bond Fund John Hancock Bond Trust
- -JH Government Income Fund
- -JH HighYield Bond Fund*
- -JH Intermediate Maturity Government Fund
</TABLE>
<PAGE>
The following funds are at a % of daily net assets of the Fund.
Out-of-pocket expenses are paid by John Hancock Signature Services, Inc.
% of Daily Net Assets of the Class
Class Y Shares 0.10%
John Hancock Special Equities Fund
John Hancock Sovereign Investors Fund
% of Daily Net Assets of the Fund
John Hancock Institutional Series Trust 0.05%
- -JH Active Bond Fund
- -JH Dividend Performers Fund
- -JH Small Capitalization Value Fund
- -JH Global Bond Fund
- -JH Independence Balanced Fund
- -JH Independence Diversified Core Equity Fund II
- -JH Independence Growth Fund
- -JH Independence Medium Capitalization Fund
- -JH Independence Value Fund
- -JH International Equity Fund
- -JH Multi-Sector Growth Fund
- -JH Small Capitalization Growth Fund
These fees are agreed to by the undersigned as of June 1, 1998.
/s/Anne C. Hodsdon
-------------------
Anne C. Hodsdon
President of Each Fund
/s/Charles McKenney, Jr.
-----------------------
Charles McKenney, Jr.
Vice President of John Hancock
Signature Services, Inc.
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.
<PAGE>
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.
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.
<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.
<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
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.
<PAGE>
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.
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").
<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.
<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
JOHN HANCOCK INVESTMENT TRUST III
JOHN HANCOCK GROWTH FUND
Distribution Plan
Class C Shares
June 1, 1998
Article I. This Plan
This 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 C 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 C 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 C 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 C shares
of the Fund, (b) direct out-of pocket expenses incurred in connection with the
distribution of Class C shares of the Fund, including expenses related to
printing of prospectuses and reports to other than existing Class C 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 C shares of the Fund,
(d) interest expenses on unreimbursed distribution expenses related to Class C
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.
<PAGE>
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 C shareholders of the Fund.
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 C 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 C 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 C 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").
<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 C 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 C 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 C 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.
<PAGE>
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan
effective as of the 1st day of June, 1998 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
JOHN HANCOCK INVESTMENT TRUST III
JOHN HANCOCK INTERNATIONAL FUND
Distribution Plan
Class C Shares
June 1, 1998
Article I. This Plan
This Distribution Plan (the "Plan") sets forth the terms and conditions
on which John Hancock Investment Trust III (the "Trust") on behalf of John
Hancock International Fund (the "Fund"), a series portfolio of the Trust, on
behalf of its Class C 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 C
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 C 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 C shares
of the Fund, (b) direct out-of pocket expenses incurred in connection with the
distribution of Class C shares of the Fund, including expenses related to
printing of prospectuses and reports to other than existing Class C 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 C shares of the Fund,
(d) interest expenses on unreimbursed distribution expenses related to Class C
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.
<PAGE>
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 C shareholders of the Fund.
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 C 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 C 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 C 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").
<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 C 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 C 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 C 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
International 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.
<PAGE>
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan
effective as of the 1st day of June, 1998 in Boston, Massachusetts.
JOHN HANCOCK INVESTMENT TRUST III --
JOHN HANCOCK INTERNATIONAL FUND
By: /s/Anne C. Hodsdon
----------------------
President
JOHN HANCOCK FUNDS, INC.
By: /s/Edward J. Boudreau., Jr.
-------------------------------
Chairman, President & CEO
JOHN HANCOCK INVESTMENT TRUST III
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
Distribution Plan
Class C Shares
June 1, 1998
Article I. This Plan
This Distribution Plan (the "Plan") sets forth the terms and conditions
on which John Hancock Investment Trust III (the "Trust") on behalf of John
Hancock Special Opportunities Fund (the "Fund"), a series portfolio of the
Trust, on behalf of its Class C 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 C
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 C 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 C shares
of the Fund, (b) direct out-of pocket expenses incurred in connection with the
distribution of Class C shares of the Fund, including expenses related to
printing of prospectuses and reports to other than existing Class C 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 C shares of the Fund,
(d) interest expenses on unreimbursed distribution expenses related to Class C
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.
<PAGE>
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 C shareholders of the Fund.
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 C 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 C 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 C 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").
<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 C 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 C 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 C 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 Special
Opportunities 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.
<PAGE>
IN WITNESS WHEREOF, the Fund has executed this Distribution Plan
effective as of the 1st day of June, 1998 in Boston, Massachusetts.
JOHN HANCOCK INVESTMENT TRUST III --
JOHN HANCOCK SPECIAL OPPORTUNITIES FUND
By: /s/Anne C. Hodsdon
----------------------
President
JOHN HANCOCK FUNDS, INC.
By: /s/Edward J. Boudreau, Jr.
------------------------------
Chairman, President & CEO
John Hancock Funds
Class A and Class B
Multiple Class Plan Pursuant to Rule 18f-3
Each class of shares of each of the John Hancock Funds listed in Appendix A
attached hereto (each the "Fund") will have the same relative rights and
privileges and be subject to the same sales charges, fees and expenses, except
as set forth below. The Board of Trustees/Directors, as the case may be, may
determine in the future that other allocations of expenses (whether ordinary or
extraordinary) or other services to be provided to a class of shares are
appropriate and amend this Plan accordingly without the approval of shareholders
of any class. Except as set forth in the Fund's prospectus, shares may be
exchanged only for shares of the same class of another fund in the John Hancock
group of funds.
Class A Shares
Class A Shares are sold at net asset value and subject to the initial sales
charge schedule or contingent deferred sales charge and the minimum purchase
requirements set forth in the Fund's prospectus. Class A Shares are subject to
fees under the Fund's Class A Rule 12b-1 Distribution Plan on the terms set
forth in the Fund's prospectus. The Class A Shareholders have exclusive voting
rights, if any, with respect to the Class A Distribution Plan. Class A Shares
shall be entitled to the shareholder services set forth from time to time in the
Fund's prospectus with respect to Class A Shares.
Class B Shares
Class B Shares are sold at net asset value per share without the imposition of
an initial sales charge. However, Class B shares redeemed within a specified
number of years of purchase will be subject to a contingent deferred sales
charge as set forth in the Fund's prospectus. Class B Shares are sold subject to
the minimum purchase requirements set forth in the Fund's prospectus. Class B
Shares are subject to fees under the Class B Rule 12b-1 Distribution Plan on the
terms set forth in the Fund's prospectus. The Class B Shareholders of the Fund
have exclusive voting rights, if any, with respect to the Fund's Class B
Distribution Plan. Class B Shares shall be entitled to the shareholder services
set forth from time to time in the Fund's prospectus with respect to Class B
Shares.
Class B Shares will automatically convert to Class A Shares of the Fund at the
end of a specified number of years after the initial purchase date of Class B
shares, except as provided in the Fund's prospectus. The initial purchase date
for Class B shares acquired through reinvestment of dividends on Class B Shares
will be deemed to be the date on which the original Class B shares were
purchased. Such conversion will occur at the relative net asset value per share
of each class. Redemption requests placed by shareholders who own both Class A
and Class B Shares of the Fund will be satisfied first by redeeming the
shareholder's Class A Shares, unless the shareholder has made a specific
election to redeem Class B Shares.
The conversion of Class B Shares to Class A Shares may be suspended if it is
determined that the conversion constitutes or is likely to constitute a taxable
event under federal income tax law.
<PAGE>
APPENDIX A
John Hancock Bond Trust
- John Hancock Government Income Fund
- John Hancock Intermediate Maturity Government Fund
John Hancock California Tax-Free Income Fund
John Hancock Current Interest
- John Hancock U.S. Government Cash Reserve
John Hancock Investment Trust
- John Hancock Sovereign Balanced Fund
John Hancock Investment Trust II
- John Hancock Financial Industries Fund
- John Hancock Regional Bank Fund
John Hancock Investment Trust III
- - John Hancock Global Fund
- - John Hancock Growth Fund
- - John Hancock Special Opportunities Fund
- - John Hancock International Fund
- - John Hancock World Bond Fund
- - John Hancock Short-Term Strategic Income Fund
John Hancock Series Trust
- - John Hancock Emerging Growth Fund
- - John Hancock Global Technology Fund
John Hancock Sovereign Bond Fund
John Hancock Strategic Series
- - John Hancock Sovereign U.S. Government Income Fund
John Hancock Tax-Exempt Series Fund
- - John Hancock Massachusetts Tax-Free Income Fund
- - John Hancock New York Tax-Free Income Fund
John Hancock Tax-Free Bond Trust
- - John Hancock High Yield Tax-Free Fund
- - John Hancock Tax-Free Bond Fund
John Hancock World Fund
- - John Hancock Pacific Basin Equities Fund
- - John Hancock Global Rx Fund
Dated: May 1, 1998
John Hancock Funds
Class A, Class B, and Class C
Amended and Restated Multiple Class Plan Pursuant to Rule 18f-3
Each class of shares of each of the John Hancock Funds listed in Appendix A
attached hereto (each the "Fund") will have the same relative rights and
privileges and be subject to the same sales charges, fees and expenses, except
as set forth below. The Board of Trustees/Directors, as the case may be, may
determine in the future that other allocations of expenses (whether ordinary or
extraordinary) or other services to be provided to a class of shares are
appropriate and amend this Plan accordingly without the approval of shareholders
of any class. Except as set forth in the Fund's prospectus, shares may be
exchanged only for shares of the same class of another fund in the John Hancock
group of funds.
Class A Shares
Class A Shares are sold at net asset value and subject to the initial sales
charge schedule or contingent deferred sales charge and the minimum purchase
requirements set forth in the Fund's prospectus. Class A Shares are subject to
fees under the Fund's Class A Rule 12b-1 Distribution Plan on the terms set
forth in the Fund's prospectus. The Class A Shareholders have exclusive voting
rights, if any, with respect to the Class A Distribution Plan. Class A Shares
shall be entitled to the shareholder services set forth from time to time in the
Fund's prospectus with respect to Class A Shares.
Class B Shares
Class B Shares are sold at net asset value per share without the imposition of
an initial sales charge. However, Class B shares redeemed within a specified
number of years of purchase will be subject to a contingent deferred sales
charge as set forth in the Fund's prospectus. Class B Shares are sold subject to
the minimum purchase requirements set forth in the Fund's prospectus. Class B
Shares are subject to fees under the Class B Rule 12b-1 Distribution Plan on the
terms set forth in the Fund's prospectus. The Class B Shareholders of the Fund
have exclusive voting rights, if any, with respect to the Fund's Class B
Distribution Plan. Class B Shares shall be entitled to the shareholder services
set forth from time to time in the Fund's prospectus with respect to Class B
Shares.
Class B Shares will automatically convert to Class A Shares of the Fund at the
end of a specified number of years after the initial purchase date of Class B
shares, except as provided in the Fund's prospectus. The initial purchase date
for Class B shares acquired through reinvestment of dividends on Class B Shares
will be deemed to be the date on which the original Class B shares were
purchased. Such conversion will occur at the relative net asset value per share
of each class. Redemption requests placed by shareholders who own both Class A
and Class B Shares of the Fund will be satisfied first by redeeming the
shareholder's Class A Shares, unless the shareholder has made a specific
election to redeem Class B Shares.
The conversion of Class B Shares to Class A Shares may be suspended if it is
determined that the conversion constitutes or is likely to constitute a taxable
event under federal income tax law.
Class C Shares
Class C Shares are sold at net asset value per share without the imposition of
an initial sales charge. However, Class C shares redeemed within one year of
purchase will be subject to a contingent deferred sales charge as set forth in
the Fund's prospectus. Class C Shares are sold subject to the minimum purchase
requirements set forth in the Fund's prospectus. Class C Shares are subject to
fees under the Class C Rule 12b-1 Distribution Plan on the terms set forth in
the Fund's prospectus. The Class C Shareholders of the Fund have exclusive
voting rights, if any, with respect to the Fund's Class C Distribution Plan.
Class C Shares shall be entitled to the shareholder services set forth from time
to time in the Fund's prospectus with respect to Class C Shares.
<PAGE>
APPENDIX A
John Hancock Bond Trust
- John Hancock High Yield Bond Fund
John Hancock Capital Series
- John Hancock Independence Equity Fund
- John Hancock Special Value Fund
John Hancock Current Interest
- John Hancock Money Market Fund
John Hancock Investment Trust
- John Hancock Growth and Income Fund
John Hancock Strategic Series
- John Hancock Strategic Income Fund
Dated: May 1, 1998
<PAGE>
APPENDIX A
John Hancock Bond Trust
- John Hancock High Yield Bond Fund
John Hancock Capital Series
- John Hancock Independence Equity Fund
- John Hancock Special Value Fund
John Hancock Current Interest
- John Hancock Money Market Fund
John Hancock Investment Trust
- John Hancock Growth and Income Fund
John Hancock Investment Trust III
- John Hancock Growth Fund
- John Hancock Special Opportunities Fund
- John Hancock International Fund
John Hancock Series Trust
- John Hancock Emerging Growth Fund
John Hancock Strategic Series
- John Hancock Strategic Income Fund
Dated: June 1, 1998
