FILE NO. 33-4559
FILE NO. 811-4630
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 38 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 39 (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, 2000 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
Equity Funds
[LOGO] Prospectus
March 1, 2000
- --------------------------------------------------------------------------------
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these funds or determined whether the information in
this prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
Balanced Fund
Core Equity Fund
Core Growth Fund
Core Value Fund
Large Cap Growth Fund
Large Cap Value Fund
Mid Cap Growth Fund
Small Cap Growth Fund
Small Cap Value Fund
Sovereign Investors Fund
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
Contents
- --------------------------------------------------------------------------------
A fund-by-fund summary of Balanced Fund 6
goals, strategies, risks,
performance and expenses. Core Equity Fund 8
Core Growth Fund 10
Core Value Fund 12
Large Cap Growth Fund 14
Large Cap Value Fund 16
Mid Cap Growth Fund 18
Small Cap Growth Fund 20
Small Cap Value Fund 22
Sovereign Investors Fund 24
Policies and instructions Your account
for opening, maintaining
and closing an account in Choosing a share class 26
any equity fund. How sales charges are calculated 26
Sales charge reductions and waivers 27
Opening an account 28
Buying shares 29
Selling shares 30
Transaction policies 32
Dividends and account policies 32
Additional investor services 33
Further information on the Fund details
equity funds.
Business structure 34
Financial highlights 35
For more information back cover
<PAGE>
Overview
- --------------------------------------------------------------------------------
JOHN HANCOCK EQUITY FUNDS
These funds seek long-term growth by investing primarily in common stocks.
However, the Balanced Fund also makes significant investments in fixed-income
securities. 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 want to diversify their portfolios
o are seeking funds for the equity portion of an asset allocation portfolio
o are investing for retirement or other goals that are many years in the future
Equity 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
Federal Deposit Insurance Corporation 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 TEAM
All John Hancock equity funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Financial Services, Inc. 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>
Balanced Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks current income, long-term growth of capital and income
and preservation of capital. To pursue these goals, the fund allocates its
investments among a diversified mix of debt and equity securities. At least 25%
of assets will be invested in senior debt securities.
All of the fund's stock investments are "dividend performers" -- companies whose
dividend payments have increased steadily for ten years. In managing the fund's
stock portfolio, the managers use fundamental financial analysis to identify
individual companies with high-quality income statements, substantial cash
reserves and identifiable catalysts for growth, which may be new products or
benefits from industrywide growth. The managers generally visit companies to
evaluate the strength and consistency of their management strategy. Finally, the
managers look for stocks that are reasonably priced relative to their earnings
and industry. Historically, companies that meet these criteria have tended to
have large or medium market capitalizations.
The fund's debt securities are used to enhance current income and provide some
added stability. The fund's investments in bonds may be of any maturity and are
primarily investment-grade. However, up to 25% of its bond investments may be in
junk bonds rated as low as C and their unrated equivalents.
Although the fund invests primarily in U.S. securities, it may invest up to 35%
of assets in foreign securities. The fund may also make limited use of certain
derivatives (investments whose value is based on indices, securities or
currencies).
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
================================================================================
PORTFOLIO MANAGERS
John F. Snyder, III
- -----------------------------------
Executive vice president of adviser
Joined team in 1994
Joined adviser in 1991
Began career in 1971
Barry H. Evans, CFA
- -----------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1986
Began career in 1986
Peter M. Schofield, CFA
- -----------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began career in 1984
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. 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.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999
11.38% -3.51% 24.23% 12.13% 20.79% 14.01%
Best quarter: Q4 '98, 11.38% Worst quarter: Q3 '98, -4.68%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
Life of Life of
1 year 5 year Class A Class B
Class A - began 10/5/92 8.32% 11.94% 11.79% --
Class B - began 10/5/92 8.23% 12.07% -- 11.96%
Class C - began 5/1/99 -- -- -- --
Index 28.60% 24.05% 21.60% 21.60%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
4
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
and bond market movements.
The fund's management strategy will influence performance significantly. Large-
or medium-capitalization stocks as a group could fall out of favor with the
market, causing the fund to underperform funds that focus on
small-capitalization stocks. Similarly, if the managers' securities selection
strategies do not 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 Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise, and longer
maturity will increase volatility. Junk bond prices can fall on bad news
about the economy, an industry or a company.
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become harder
to value or to sell at a fair price.
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
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 0.60% 0.60% 0.60%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.30% 0.30% 0.30%
Total fund operating expenses 1.20% 1.90% 1.90%
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 $616 $862 $1,127 $1,882
Class B - with redemption $693 $897 $1,226 $2,040
- without redemption $193 $597 $1,026 $2,040
Class C - with redemption $293 $597 $1,026 $2,222
- without redemption $193 $597 $1,026 $2,222
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker SVBAX
CUSIP 47803P104
Newspaper BalA
SEC number 811-0560
JH fund number 36
Class B
- ---------------------------
Ticker SVBBX
CUSIP 47803P203
Newspaper BalB
SEC number 811-0560
JH fund number 136
Class C
- ---------------------------
Ticker --
CUSIP 47803P708
Newspaper --
SEC number 811-0560
JH fund number 536
5
<PAGE>
Core Equity Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return (capital appreciation plus
income). To pursue this goal, the fund invests in a diversified portfolio of
primarily large-capitalization stocks. The portfolio's risk profile is similar
to that of the S&P 500 Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 70% to 80% of these companies also are included
in the S&P 500 Index. The subadviser's investment research team is organized by
industry and tracks these companies to develop earnings estimates and five-year
projections for growth. A series of proprietary computer models use this
in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o momentum, meaning they show potential for strong growth
This process, together with a risk/return analysis against the S&P 500 Index,
results in a portfolio of approximately 100 to 130 of the stocks from the top
60% of the menu. The fund must sell any stocks that fall into the bottom 20% of
the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may, however, invest in certain other types of equity and debt securities,
including dollar-denominated foreign securities. It may also make limited use of
certain derivatives (investments whose value is based on indices or securities).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
SUBADVISER
Independence Investment
Associates, Inc.
- --------------------------------------
Team responsible for day-to-day
investment management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1982
Supervised by the adviser
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. 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.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997 1998 1999
9.01% 16.12% -2.14% 37.20% 21.24% 29.19% 28.84%
Best quarter: Q4 '98, 24.17% Worst quarter: Q3 '98, -12.75%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
Life of Life of
1 year 5 year Class A Class B
Class A - began 6/10/91 22.40% 20.81% 18.20% --
Class B - began 9/7/95 22.90% -- -- 25.20%
Class C - began 5/1/98 -- -- -- --
Index 28.60% 24.05% 19.21% 28.88%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
6
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements. 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.
The fund's management strategy will influence performance significantly. If the
investment research team's earnings estimates or projections turn out to be
inaccurate, or if the proprietary computer models do not 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 inadequate
or inaccurate financial information and social or political upheavals.
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become harder
to value or to sell at a fair price.
================================================================================
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 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.34% 0.34% 0.34%
Total fund operating expenses 1.39% 2.09% 2.09%
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 $634 $918 $1,222 $2,085
Class B - with redemption $712 $955 $1,324 $2,242
- without redemption $212 $655 $1,124 $2,242
Class C - with redemption $312 $655 $1,124 $2,421
- without redemption $212 $655 $1,124 $2,421
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker JHDCX
CUSIP 409902707
Newspaper CoreEqA
SEC number 811-1677
JH fund number 25
Class B
- ---------------------------
Ticker JHIDX
CUSIP 409902806
Newspaper CoreEqB
SEC number 811-1677
JH fund number 125
Class C
- ---------------------------
Ticker JHCEX
CUSIP 409902863
Newspaper --
SEC number 811-1677
JH fund number 525
7
<PAGE>
Core Growth Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return. To pursue this goal, the
fund invests in a diversified portfolio of primarily large-capitalization stocks
and emphasizes stocks of companies with relatively high potential long-term
earnings growth. The portfolio's risk profile is substantially similar to that
of the Russell 1000 Growth Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 40% to 50% of these companies also are included
in the Russell 1000 Growth Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o momentum, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Russell 1000
Growth Index, results in a portfolio of approximately 100 to 130 of the stocks
from the top 60% of the menu. The fund must sell any stocks that fall into the
bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may, however, invest in certain other types of equity securities, including
dollar-denominated foreign securities.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
SUBADVISER
Independence Investment
Associates, Inc.
- --------------------------------------
Team responsible for day-to-day
investment management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1982
Supervised by the adviser
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. The year-by-year and average annual figures are for Class I
shares, which are offered in a separate prospectus. Annual returns should be
substantially similar since all classes invest in the same portfolio. However,
Class I shares' average annual figures do not reflect sales charges or 12b-1
fees which were imposed beginning July 1, 1999 for Class A, B and C shares.
Year-by-year, average annual and index figures do not reflect these charges and
would be lower if they did. All figures assume dividend reinvestment. Past
performance does not indicate future results.
- --------------------------------------------------------------------------------
Class I year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1996 1997 1998 1999
20.52% 36.22% 37.94%
Best quarter: Q4 '98, 27.44% Worst quarter: Q3 '98, -12.00%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
Life of
1 year Class I
Class I - began 10/2/95 37.94% 30.52%
Class A - began 7/1/99 -- --
Class B - began 7/1/99 -- --
Class C - began 7/1/99 -- --
Index 38.71% 29.73%
Index: Russell 1000 Growth Index, an unmanaged index of growth company stocks in
the Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks.
8
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements. 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. Also, growth stocks as a group could fall out of
favor with the market, causing the fund to underperform funds that focus on
value stocks.
The fund's management strategy will influence performance significantly. If the
investment research team's earnings estimates or projections turn out to be
inaccurate, or if the proprietary computer models do not 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 inadequate
or inaccurate financial information and social or political upheavals.
================================================================================
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. Class A expense figures below show the expenses for the past year
adjusted to reflect any changes.
- --------------------------------------------------------------------------------
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 sales price,
whichever is less) none(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 1.18% 1.18% 1.18%
Total fund operating expenses 2.28% 2.98% 2.98%
Expense reimbursement (at least until 7/1/00) 1.03% 1.03% 1.03%
Net annual operating expenses 1.25% 1.95% 1.95%
The hypothetical example below shows what your expenses would be after the
expense reimbursement (first year only) 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 $621 $1,152 $1,708 $3,218
Class B - with redemption $698 $1,196 $1,817 $3,368
- without redemption $198 $ 896 $1,617 $3,368
Class C - with redemption $298 $ 896 $1,617 $3,529
- without redemption $198 $ 896 $1,617 $3,529
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker --
CUSIP 410132849
Newspaper --
SEC number 811-8852
JH fund number 79
Class B
- ---------------------------
Ticker --
CUSIP 410132831
Newspaper --
SEC number 811-8852
JH fund number 179
Class C
- ---------------------------
Ticker --
CUSIP 410132823
Newspaper --
SEC number 811-8852
JH fund number 579
9
<PAGE>
Core Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks above-average total return. To pursue this goal, the
fund invests in a diversified portfolio of primarily large-capitalization stocks
and emphasizes relatively undervalued stocks and high dividend yields. The
portfolio's risk profile is substantially similar to that of the Russell 1000
Value Index.
The managers select from a menu of stocks of approximately 550 companies that
evolves over time. Approximately 50% to 60% of these companies also are included
in the Russell 1000 Value Index. The subadviser's investment research team is
organized by industry and tracks these companies to develop earnings estimates
and five-year projections for growth. A series of proprietary computer models
use this in-house research to rank the stocks according to their combination of:
o value, meaning they appear to be underpriced
o momentum, meaning they show potential for strong growth
This process, together with a risk/return analysis against the Russell 1000
Value Index, results in a portfolio of approximately 100 to 130 of the stocks
from the top 60% of the menu. The fund must sell any stocks that fall into the
bottom 20% of the menu.
In normal market conditions, the fund is almost entirely invested in stocks. The
fund may, however, invest in certain other types of equity securities, including
dollar-denominated foreign securities.
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
SUBADVISER
Independence Investment
Associates, Inc.
- --------------------------------------
Team responsible for day-to-day
investment management
A subsidiary of John Hancock Financial
Services, Inc.
Founded in 1982
Supervised by the adviser
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. Class A average annual figures do not reflect sales charges,
which were imposed beginning July 1, 1999. In addition, 12b-1 fees were imposed
beginning July 1, 2000 for Class A. Year-by-year, average annual and index
figures do not reflect these charges and would be lower if they did. All figures
assume dividend reinvestment. Past performance does not indicate future results.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1996 1997 1998 1999
20.66% 30.63% 18.79%
Best quarter: Q4 '98, 18.79% Worst quarter: Q3 '98, -13.99%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
Life of
1 year Class A
Class A - began 10/2/95 18.79% 24.14%
Class B - began 7/1/99 -- --
Class C - began 7/1/99 -- --
Index 15.63% 24.29%
Index: Russell 1000 Value Index, an unmanaged index of value stocks in the
Russell 1000 Index of the 1,000 largest-capitalization U.S. stocks.
10
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
market movements. 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. Also, value stocks as a group could fall out of
favor with the market, causing the fund to underperform funds that focus on
growth stocks.
The fund's management strategy will influence performance significantly. If the
investment research team's earnings estimates or projections turn out to be
inaccurate, or if the proprietary computer models do not 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 inadequate
or inaccurate financial information and social or political upheavals.
================================================================================
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. Class A expense figures below show the expenses for the past year,
adjusted to reflect any changes.
- --------------------------------------------------------------------------------
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 sales price,
whichever is less) none(1) 5.00% 1.00%
- --------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 1.08% 1.08% 1.08%
Total fund operating expenses 2.18% 2.88% 2.88%
Distribution and service (12b-1) fee reduction
(until 7/1/00) 0.30% -- --
Expense reimbursement (at least until 7/1/00) 0.93% 0.93% 0.93%
Net annual operating expenses 0.95% 1.95% 1.95%
The hypothetical example below shows what your expenses would be after the fee
reduction and expense reimbursement (first year only) 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 $592 $1,105 $1,643 $3,109
Class B - with redemption $698 $1,176 $1,777 $3,281
- without redemption $198 $ 876 $1,577 $3,281
Class C - with redemption $298 $ 876 $1,577 $3,443
- without redemption $198 $ 876 $1,577 $3,443
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker JHIVX
CUSIP 410132807
Newspaper --
SEC number 811-8852
JH fund number 88
Class B
- ---------------------------
Ticker --
CUSIP 410132815
Newspaper --
SEC number 811-8852
JH fund number 188
Class C
- ---------------------------
Ticker --
CUSIP 410132799
Newspaper --
SEC number 811-8852
JH fund number 588
11
<PAGE>
Large Cap Growth 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
large-capitalization companies (companies in the capitalization range of the
Standard & Poor's 500 Stock Index).
The fund generally invests in 30 to 60 U.S. companies 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 managers use fundamental financial analysis
to identify companies with:
o strong cash flows
o secure market franchises
o sales growth that outpaces their industries
The 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 managers project at least 15% annual growth for
the next two years.
The fund may invest in certain other types of equity securities such as
preferred stocks. 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, securities or currencies).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
PORTFOLIO MANAGERS
David L. Eisenberg, CFA
- --------------------------------
Senior vice president of adviser
Joined team in 1999
Joined adviser in 1997
Began career in 1981
Geoffrey R. Plume, CFA
- --------------------------------
Second vice president of adviser
Joined team in 1998
Joined adviser in 1996
Began career in 1987
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. 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.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -8.34% 41.68% 6.06% 13.03% -7.50% 27.17% 20.40% 16.70% 26.42%
Best quarter: Q4 '98, 22.38% Worst quarter: Q3 '90, -18.75%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
Life of Life of
1 year 5 year 10 year Class B Class C
Class A 20.12% 14.67% 14.96%
Class B - began 1/3/94 20.54% 15.23% --
Class C - began 6/1/98 -- -- --
Index 28.60% 24.05% 18.95%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
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. 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. Also, growth stocks as a group could fall out of
favor with the market, causing the fund to underperform funds that focus on
value stocks. Similarly, if the managers' stock selection strategy does not
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 losses.
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 and derivatives could become harder
to value or to sell at a fair price.
================================================================================
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 0.75% 0.75% 0.75%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.30% 0.30% 0.30%
Total fund operating expenses 1.35% 2.05% 2.05%
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 $631 $906 $1,202 $2,043
Class B - with redemption $708 $943 $1,303 $2,200
- without redemption $208 $643 $1,103 $2,200
Class C - with redemption $308 $643 $1,103 $2,379
- without redemption $208 $643 $1,103 $2,379
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker JHNGX
CUSIP 409906302
Newspaper LpCpGrA
SEC number 811-4630
JH fund number 20
Class B
- ---------------------------
Ticker JHGBX
CUSIP 409906401
Newspaper LpCpGrB
SEC number 811-4630
JH fund number 120
Class C
- ---------------------------
Ticker --
CUSIP 409906849
Newspaper --
SEC number 811-4630
JH fund number 520
13
<PAGE>
Large Cap Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks the highest total return (capital appreciation plus
current income) that is consistent with reasonable safety of capital. To pursue
this goal, the fund invests in a diversified portfolio of stocks, bonds and
money market securities. Although the fund may concentrate in any of these asset
classes, under normal circumstances it invests primarily in stocks.
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 companies that are selling at what appear to be
substantial discounts to their long-term intrinsic and "franchise" values. These
companies often have identifiable catalysts for growth, such as new products,
business reorganizations or mergers.
The fund manages risk by typically holding stock in 50 to 150 large companies
that are diversified across industry sectors. The management team also uses
fundamental financial analysis to identify individual companies with substantial
cash flows, reliable revenue streams, superior competitive positions and strong
management.
The fund may attempt to take advantage of short-term market volatility by
investing in corporate restructurings or pending acquisitions.
In selecting bonds of any maturity, the managers look for the most favorable
risk/return ratios. The fund may invest up to 15% of net assets in junk bonds
rated as low as CC/Ca and their unrated equivalents.
The fund may invest up to 25% of assets in foreign securities (35% during
adverse U.S. market conditions). The fund may also make limited use of certain
derivatives (investments whose value is based on indices, securities or
currencies).
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
================================================================================
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
- --------------------------------
Vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began career in 1985
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. 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.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -0.44% 32.29% 6.02% 9.74% -8.49% 36.74% 22.21% 36.71% 15.94%
Best quarter: Q2 '97, 18.37% Worst quarter: Q3 '98, -12.94%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
Life of Life of
1 year 5 year 10 year Class B Class C
Class A 10.12% 18.15% 15.76% --
Class B - began 8/22/91 10.05% 18.30% -- 15.87%
Class C - began 5/1/98 -- -- -- --
Index 28.60% 24.05% 18.95% 19.70%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
14
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
and bond market movements.
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 managers' securities selection
strategies do not 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 and derivatives 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 and longer
maturity will increase volatility. Junk bond prices can fall on bad news
about the economy, an industry or a company.
o Foreign investments carry additional risks, including potentially unfavorable
currency exchange rates, inadequate or inaccurate financial information and
social or political upheavals.
o Certain derivatives could produce disproportionate 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 s 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 0.625% 0.625% 0.625%
Distribution and service (12b-1) fees 0.25% 1.00% 1.00%
Other expenses 0.305% 0.305% 0.305%
Total fund operating expenses 1.180% 1.930% 1.930%
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 $614 $855 $1,117 $1,860
Class B - with redemption $696 $906 $1,242 $2,059
- without redemption $196 $606 $1,042 $2,059
Class C - with redemption $296 $606 $1,042 $2,254
- without redemption $196 $606 $1,042 $2,254
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker TAGRX
CUSIP 41013P103
Newspaper LgCpVIA
SEC number 811-0560
JH fund number 50
Class B
- ---------------------------
Ticker TSGWX
CUSIP 41013P202
Newspaper LgCpVIB
SEC number 811-0560
JH fund number 150
Class C
- ---------------------------
Ticker --
CUSIP 41013P301
Newspaper --
SEC number 811-0560
JH fund number 550
15
<PAGE>
Mid Cap 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
medium-capitalization companies -- companies in the capitalization range of the
Russell Midcap Growth Index. On Xxxxxxx 1, 2000, that range was $xxx million to
$xx billion
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.
The fund generally invests in more than 100 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 10% of assets in foreign stocks. It may also use
certain derivatives (investments whose value is based on indices or currencies).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents.
In abnormal conditions, the fund may temporarily invest in U.S. government
securities with maturities of up to three years, and may invest more than 10% of
assets in cash or cash equivalents. In these and other cases, the fund might not
achieve its goal. The fund may not invest more than 5% of assets in any one
security.
================================================================================
PORTFOLIO MANAGER
Barbara C. Friedman, CFA
- --------------------------------
Senior vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began career in 1973
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. 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.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
-8.76% 34.24% 29.05% 2.37% 6.53%
Best quarter: Q4 '98, 22.66% Worst quarter: Q3 '98, -21.36%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
Life of Life of
1 year 5 year Class A Class B
Class A - began 11/1/93 1.24% 10.38% 9.89% --
Class B - began 11/1/93 0.85% 10.45% -- 10.08%
Class C - began 6/1/98 -- -- -- --
Index 1 28.60% 24.05% 23.25% 23.25%
Index 2 17.86% 17.34% 17.09% 17.09%
Index 1: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
Index 2: Russell Midcap Growth Index, an unmanaged index containing those stocks
from the Russell Midcap Index with a greater-than-average growth orientation.
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. 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.
The fund's management strategy will influence performance significantly.
Medium-capitalization stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on other types of stocks.
Also, growth stocks as a group could fall out of favor with the market, causing
the fund to underperform funds that focus on value stocks. Similarly, if the
industries or companies the fund invests in do not perform as expected, or if
the manager's stock selection strategy does not 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 and derivatives could become harder
to value or to sell at a fair price.
o Certain derivatives could produce disproportionate 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
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 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.49% 0.49% 0.49%
Total fund operating expenses 1.59% 2.29% 2.29%
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 $655 $ 980 $1,327 $2,305
Class B - with redemption $733 $1,018 $1,430 $2,461
- without redemption $233 $ 718 $1,230 $2,461
Class C - with redemption $333 $ 718 $1,230 $2,636
- without redemption $233 $ 718 $1,230 $2,636
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker SPOAX
CUSIP 409906807
Newspaper MdCpGrA
SEC number 811-4630
JH fund number 39
Class B
- ---------------------------
Ticker SPOBX
CUSIP 409906880
Newspaper MdCpGrB
SEC number 811-4630
JH fund number 139
Class C
- ---------------------------
Ticker --
CUSIP 409906823
Newspaper --
SEC number 811-4630
JH fund number 539
17
<PAGE>
Small Cap 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
small-capitalization companies -- companies in the capitalization range of the
Russell 2000 Growth Index. On Xxxxx 1, 2000, that range was $xx million to $xx
billion. The 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 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 rapidly growing companies. 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 also invest in other types of companies and certain other types of
equity securities such as preferred stock. The fund may not invest more than 5%
of assets in any one company's securities. The fund may invest up to 10% of
assets in foreign securities.The fund may use certain derivatives (investments
whose value is based on indices or currencies).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents. In abnormal conditions, the fund may temporarily invest in
U.S. government securities with maturities of up to three years, and may invest
more than 10% of assets in cash or cash equivalents. In these and other cases,
the fund might not achieve its goal.
===============================================================================
PORTFOLIO MANAGERS
Bernice S. Behar, CFA
- --------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1991
Began career in 1986
Laura J. 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
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. 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.
- --------------------------------------------------------------------------------
Class B year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -1.15% 58.82% 12.13% 11.82% -1.49% 42.13% 12.95% 14.45% 11.65%
Best quarter: Q4 '98, 32.73% Worst quarter: Q3 '90, -23.09%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
Life of Life of
1 year 5 year 10 year Class A Class C
Class A - began 8/22/91 6.75% 14.76% -- 15.46%
Class B 10.29% 15.02% 17.75% --
Class C - began 6/1/98 -- -- -- --
Index 1 -2.55% 11.87% 12.92% 14.09%
Index 2 1.23% 10.22% 11.54% 11.25%
Index 1: Russell 2000 Index, an unmanaged index of 2,000 U.S.
small-capitalization stocks.
Index 2: Russell 2000 Growth Index, an unmanaged index containing those stocks
from the Russell 2000 Index with a greater-than-average growth orientation.
18
<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 growth stocks as a group could fall out of favor with the
market, causing the fund to underperform funds that focus on other types of
stocks. Also, growth stocks as a group could fall out of favor with the market,
causing the fund to underperform funds that focus on value stocks. Similarly, if
the managers' stock selection strategy does not 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, derivatives and other
higher-risk securities could become harder to value or to sell at a fair
price.
o Certain derivatives could produce disproportionate 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
as a % of purchase price 5.00% none none
Maximum deferred s 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 0.34% 0.34% 0.34%
Total fund operating expenses 1.34% 2.09% 2.09%
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 $630 $903 $1,197 $2,032
Class B - with redemption $712 $955 $1,324 $2,229
- without redemption $212 $655 $1,124 $2,229
Class C - with redemption $312 $655 $1,124 $2,421
- without redemption $212 $655 $1,124 $2,421
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker TAEMX
CUSIP 478032105
Newspaper SmCpGrA
SEC number 811-3392
JH fund number 60
Class B
- ---------------------------
Ticker TSEGX
CUSIP 478032204
Newspaper SmCpGrB
SEC number 811-3392
JH fund number 160
Class C
- ---------------------------
Ticker --
CUSIP 478032501
Newspaper --
SEC number 811-3392
JH fund number 560
19
<PAGE>
Small Cap Value Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks capital appreciation. To pursue this goal, the fund
invests at least 80% of assets in stocks of small-capitalization companies --
companies in the capitalization range of the Russell 2000 Index. On Xxxxx 1,
2000, that range was $xx million to $ xx 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 may not
invest more than 5% of assets in any one security.
The fund invests primarily in stocks of U.S. companies, but may invest up to 15%
of assets in a basket of foreign securities and bonds 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 currencies).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents.
In abnormal conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
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
- --------------------------------
Vice president of adviser
Joined team in 1998
Joined adviser in 1998
Began career in 1985
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. 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.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
7.81% 20.26% 12.91% 25.25% -2.10%
Best quarter: Q4 '98, 21.34% Worst quarter: Q3 '98, -21.43%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
Life to Life to Life to
1 year 5 year Class A Class B Class C
Class A - began 1/3/94 -7.02% 11.28%
Class B - began 1/3/94 -7.57% 11.36%
Class C - began 5/1/98 -- --
Index -2.55% 11.87%
Index: Russell 2000 Index, an unmanaged index of 2,000 U.S. small-capitalization
stocks.
20
<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 limited track records. 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,
causing the fund to underperform funds that focus on other types of stocks.
Also, value stocks as a group could fall out favor with the market, causing the
fund to underperform funds that focus on growth stocks. Similarly, if the
industries or companies the fund invests in do not perform as expected, or if
the managers' stock selection strategy does not 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, derivatives and other
higher-risk securities could become harder to value or to sell at a fair
price.
o Certain derivatives could produce disproportionate 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 the economy, an industry or a company.
================================================================================
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 0.70% 0.70% 0.70%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.54% 0.54% 0.54%
Total fund operating expenses 1.54% 2.24% 2.24%
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 $649 $ 962 $1,297 $2,243
Class B - with redemption $727 $1,000 $1,400 $2,399
- without redemption $227 $ 700 $1,200 $2,399
Class C - with redemption $327 $ 700 $1,200 $2,575
- without redemption $227 $ 700 $1,200 $2,575
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker SPVAX
CUSIP 409905700
Newspaper SmCpVlA
SEC number 811-3999
JH fund number 37
Class B
- ---------------------------
Ticker SPVBX
CUSIP 409905809
Newspaper SmCpVlB
SEC number 811-3999
JH fund number 137
Class C
- ---------------------------
Ticker --
CUSIP 409905882
Newspaper --
SEC number 811-3999
JH fund number 537
21
<PAGE>
Sovereign Investors Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital and income without
assuming undue market risks. To pursue these goals, the fund normally invests
most of its assets in a diversified portfolio of stocks, although it may respond
to market conditions by investing in other types of securities, such as bonds or
short-term securities.
All of the fund's stock investments are "dividend performers" -- companies whose
dividend payments have increased steadily for ten years. The managers use
fundamental financial analysis to identify individual companies with
high-quality income statements, substantial cash reserves and identifiable
catalysts for growth, which may be new products or benefits from industry-wide
growth. The managers generally visit companies to evaluate the strength and
consistency of their management strategy. Finally, the managers look for stocks
that are reasonably priced relative to their earnings and industry.
Historically, companies that meet these criteria have tended to have large or
medium market capitalizations.
The fund may invest in bonds of any maturity, with up to 5% of assets in junk
bonds rated as low as C and their unrated equivalents.
The fund typically invests in U.S. companies but may invest in
dollar-denominated foreign securities. It may also make limited use of certain
derivatives (investments whose value is based on indices or securities).
In abnormal market conditions, the fund may temporarily invest extensively in
investment-grade short-term securities. In these and other cases, the fund might
not achieve its goal.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable dividends.
================================================================================
PORTFOLIO MANAGERS
John F. Snyder, III
- -----------------------------------
Executive vice president of adviser
Joined team in 1983
Joined adviser in 1991
Began career in 1971
Barry H. Evans, CFA
- -----------------------------------
Senior vice president of adviser
Joined team in 1996
Joined adviser in 1986
Began career in 1986
Peter M. Schofield, CFA
- -----------------------------------
Vice president of adviser
Joined team in 1996
Joined adviser in 1996
Began career in 1984
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. 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.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
4.38% 30.48% 7.23% 5.71% -1.85% 29.15% 17.57% 29.14% 15.62%
Best quarter: Q4 '98, 15.55% Worst quarter: Q3 '90, -9.03%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
1 year 5 year 10 year
Class A 9.83% 16.16% 15.00%
Class B - began 1/3/94 9.79% 16.40% --
Class C - began 5/1/98 -- -- --
Index 28.60% 24.05% 18.95%
Index: Standard & Poor's 500 Stock Index, an unmanaged index of 500 stocks.
22
<PAGE>
MAIN RISKS
[Clip Art] The value of your investment will go up and down in response to stock
and bond market movements.
The fund's management strategy will influence performance significantly. Large-
or medium-capitalization stocks as a group could fall out of favor with the
market, causing the fund to underperform funds that focus on
small-capitalization stocks. Similarly, if the managers' securities selection
strategies don'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 Any bonds held by the fund could be downgraded in credit rating or go into
default. Bond prices generally fall when interest rates rise and longer
maturity will increase volatility. Junk bond prices can fall on bad news
about the economy, an industry or a company.
o Certain derivatives could produce disproportionate losses.
o In a down market, higher-risk securities and derivatives could become harder
to value or to sell at a fair price.
o Foreign investments carry additional risks, including inadequate or
inaccurate financial information and social or political upheavals.
================================================================================
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 0.54% 0.54% 0.54%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.21% 0.21% 0.21%
Total fund operating expenses 1.05% 1.75% 1.75%
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 $602 $817 $1,050 $1,718
Class B - with redemption $678 $851 $1,149 $1,878
- without redemption $178 $551 $ 949 $1,878
Class C - with redemption $278 $551 $ 949 $2,062
- without redemption $178 $551 $ 949 $2,062
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ---------------------------
Ticker SOVIX
CUSIP 47803P302
Newspaper SvInvA
SEC number 811-0560
JH fund number 29
Class B
- ---------------------------
Ticker SOVBX
CUSIP 47803P401
Newspaper SvInvB
SEC number 811-0560
JH fund number 129
Class C
- ---------------------------
Ticker --
CUSIP 47803P609
Newspaper --
SEC number 811-0560
JH fund number 529
23
<PAGE>
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each share class has its own cost structure, including a Rule 12b-1 plan that
allows it to pay fees for the sale, distribution and service 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 Large Cap Value and
Small Cap 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, they may cost share-holders
more than other types of sales charges.
Investors purchasing $1 million or more of Class B or Class C shares may want to
consider the lower operating expenses of Class A shares.
Your broker or agent may charge you a fee to effect transactions in fund 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 first 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.
24 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 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 6th year none
- --------------------------------------------------------------------------------
Class C deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC
1st year 1.00%
After 1st 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 or 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
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 25
<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 John Hancock insurance 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 have placed at least $2 billion
in John Hancock funds: $250
3 Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. You must notify your
financial representative or Signature Services if this information changes.
For more , 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.
26 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 to
"John Hancock Signature "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no slip
mail them to Signature is available, include a note
Services (address below). 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 the
application to your financial amount of your investment to:
representative, or mail it to First Signature Bank & Trust
Signature Services. Account # 900000260
Routing # 211475000
o Obtain your account number by
calling your financial Specify the fund name, your share
representative or Signature class, your account number and
Services. the name(s) in which the account
is registered. Your bank may
o Instruct your bank to wire the charge a fee to wire funds.
amount of your investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s) in
which the account is registered.
Your bank may charge a fee to
wire funds.
By phone
[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 "Bank Information"
section 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 27
<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.
28 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 unless they were previously provided to Signature Services and are
still accurate. These items are 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 or o Letter of instruction.
UGMA/UTMA accounts (custodial
accounts for minors). o On the letter, the signatures 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, sole o Letter of instruction.
proprietorship, general partner or
association accounts.
o Corporate business/organization
resolution, certified within the
past 12 months, or a John Hancock
Funds business/ organization
certification form.
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 Copy of the trust document
certified within the past 12
months or a John Hancock Funds
trust certification form.
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 29
<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. The funds may also value securities at fair value
if the value of these securities has been materially affected by events
occurring after the close of a foreign market. Foreign stock or other portfolio
securities held by the funds may trade on U.S. holidays and weekends, even
though the funds' shares will not be priced on those days. This may change a
fund's NAV on days when you cannot buy or sell shares.
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 Signature Services receives your
request in good order.
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
redemption 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 and Class
C shares will continue to age from the original date and will retain the same
CDSC rate. However, if the new fund's CDSC rate is higher, then the rate will
increase. 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. Core Growth
and Core Value funds typically pay 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,
30 YOUR ACCOUNT
<PAGE>
you can choose to have a check for your dividends mailed to you. However, if the
check is not deliverable, your dividends will be reinvested.
Taxability of dividends Dividends you receive from a fund, whether reinvested or
taken as cash, are generally considered taxable. Dividends from a fund's
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 issuers in which the funds invest,
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 31
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the John Hancock
equity 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 Balanced, Core Growth, Core Value, Large Cap Growth, Large
Cap Value, Mid Cap Growth and Small Cap Growth 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 equity funds last fiscal year are as follows:
- --------------------------------------------------------------------------------
Fund % of net assets
- --------------------------------------------------------------------------------
Balanced 0.00%
Core Equity 0.00%
Core Growth 0.00%
Core Value 0.00%
Large Cap Growth 0.75%
Large Cap Value 0.00%
Mid Cap Growth 0.80%
Small Cap Growth 0.75%
Small Cap Value 0.09%
Sovereign Investors 0.00%
[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
------------------------------------
Subadviser
Independence Investment
Associates, Inc.
53 State Street
Boston, MA 02109
------------------------------------
------------------------------------
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 collects most of
the valuation data required for
calculating each fund's NAV.
------------------------------------
------------------------------------
Trustees
Oversee the funds' activities.
------------------------------------
32 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.
Balanced Fund
Figures audited by __________________.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/94 12/95 12/96 12/97 12/98
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.74 $9.84 $11.75 $12.27 $13.33
Net investment income (loss) 0.50 0.44(1) 0.41(1) 0.37(1) 0.36(1)
Net realized and unrealized gain (loss) on investments (0.88) 1.91 0.99 2.14 1.47
Total from investment operations (0.38) 2.35 1.40 2.51 1.83
Less distributions:
Dividends from net investment income (0.50) (0.44) (0.41) (0.37) (0.36)
Distributions from net realized gain on investments sold (0.02) -- (0.47) (1.08) (0.74)
Total distributions (0.52) (0.44) (0.88) (1.45) (1.10)
Net asset value, end of period $9.84 $11.75 $12.27 $13.33 $14.06
Total investment return at net asset value(2) (%) (3.51) 24.23 12.13 20.79 14.01
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 61,952 69,811 71,242 84,264 97,072
Ratio of expenses to average net assets (%) 1.23 1.27 1.29 1.22 1.21
Ratio of net investment income (loss) to average net assets (%) 4.89 3.99 3.33 2.77 2.61
Portfolio turnover rate (%) 78 45 80 115 83
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94 12/95 12/96 12/97 12/98
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.75 $9.84 $11.74 $12.27 $13.33
Net investment income (loss) 0.43 0.36(1) 0.32(1) 0.28(1) 0.27(1)
Net realized and unrealized gain (loss) on investments (0.89) 1.90 1.01 2.14 1.46
Total from investment operations (0.46) 2.26 1.33 2.42 1.73
Less distributions:
Dividends from net investment income (0.43) (0.36) (0.33) (0.28) (0.26)
Distributions from net realized gain on investments sold (0.02) -- (0.47) (1.08) (0.74)
Total distributions (0.45) (0.36) (0.80) (1.36) (1.00)
Net asset value, end of period $9.84 $11.74 $12.27 $13.33 $14.06
Total investment return at net asset value(2) (%) (4.22) 23.30 11.46 19.96 13.23
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 79,176 87,827 90,855 101,249 115,682
Ratio of expenses to average net assets (%) 1.87 1.96 1.99 1.91 1.88
Ratio of net investment income (loss) to average net assets (%) 4.25 3.31 2.63 2.08 1.93
Portfolio turnover rate (%) 78 45 80 115 83
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class C - period ended:
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period
Net investment income (loss)
Net realized and unrealized gain (loss) on investments
Total from investment operations
Less distributions:
Dividends from net investment income
Distributions from net realized gain on investments sold
Total distributions
Net asset value, end of period
Total investment return at net asset value(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 (%)
</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>
Core Equity Fund
Figures audited by _________________________.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 5/94 5/95 5/96 12/96(1) 12/97 12/98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.16 $12.68 $14.41 $17.98 $19.42 $23.93
Net investment income (loss)(2) 0.28 0.32 0.20 0.13 0.10 0.05
Net realized and unrealized gain (loss) on investments 0.52 1.77 3.88 1.72 5.55 6.81
Total from investment operations 0.80 2.09 4.08 1.85 5.65 6.86
Less distributions:
Dividends from net investment income (0.23) (0.28) (0.22) (0.14) (0.04) --
Distributions from net realized gain on investments sold (0.05) (0.08) (0.29) (0.27) (1.10) (0.65)
Total distributions (0.28) (0.36) (0.51) (0.41) (1.14) (0.65)
Net asset value, end of period $12.68 $14.41 $17.98 $19.42 $23.93 $30.14
Total investment return at net asset value(3) (%) 6.60 16.98 29.12 10.33(4) 29.19 28.84
Total adjusted investment return at net asset value(3,5) (%) 6.15 16.94 28.47 10.08(4) 29.17 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 66,612 101,418 14,878 31,013 92,204 200,962
Ratio of expenses to average net assets (%) 0.70 0.70 0.94 1.30(6) 1.42 1.39
Ratio of adjusted expenses to average net assets(7) (%) 1.15 0.74 1.59 1.73(6) 1.44 --
Ratio of net investment income (loss) to average net assets (%) 2.20 2.43 1.55 1.16(6) 0.45 0.17
Ratio of adjusted net investment income (loss) to average net
assets(7) (%) 1.75 2.39 0.90 0.73(6) 0.43 --
Portfolio turnover rate (%) 43 71 157 35 62 50
Fee reduction per share(2) ($) 0.06 0.005 0.08 0.05 0.00(8) --
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 5/96 12/96(1) 12/97 12/98
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.25 $17.96 $19.41 $23.80
Net investment income (loss)(2) 0.09 0.05 (0.06) (0.14)
Net realized and unrealized gain (loss) on investments 2.71 1.72 5.56 6.74
Total from investment operations 2.80 1.77 5.50 6.60
Less distributions:
Dividends from net investment income (0.09) (0.05) (0.01) --
Distributions from net realized gain on investments sold -- (0.27) (1.10) (0.65)
Total distributions (0.09) (0.32) (1.11) (0.65)
Net asset value, end of period $17.96 $19.41 $23.80 $29.75
Total investment return at net asset value(3) (%) 18.46(4) 9.83(4) 28.39 27.90
Total adjusted investment return at net asset value(3,5) (%) 17.59(4) 9.58(4) 28.37 --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 15,125 42,461 134,939 347,045
Ratio of expenses to average net assets (%) 2.00(6) 2.00(6) 2.12 2.09
Ratio of adjusted expenses to average net assets(7) (%) 3.21(6) 2.43(6) 2.14 --
Ratio of net investment income (loss) to average net assets (%) 0.78(6) 0.45(6) (0.25) (0.53)
Ratio of adjusted net investment income (loss) to average net
assets(7) (%) (0.43)(6) 0.02(6) (0.27) --
Portfolio turnover rate (%) 157 35 62 50
Fee reduction per share(2) ($) 0.13 0.05 0.00(8) --
</TABLE>
34 FUND DETAILS
<PAGE>
Core Equity Fund continued
- --------------------------------------------------------------------------------
Class C - period ended: 12/98(9)
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $27.81
Net investment income (loss)(2) (0.09)
Net realized and unrealized gain (loss) on investments 2.68
Total from investment operations 2.59
Less distributions:
Distributions from net realized gain on investments sold (0.65)
Net asset value, end of period $29.75
Total investment return at net asset value(3) (%) 9.46(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 6,901
Ratio of expenses to average net assets (%) 2.12(6)
Ratio of net investment income (loss) to average net assets (%) (0.53)(6)
Portfolio turnover rate (%) 50
(1) Effective December 31, 1996, the fiscal year end changed from May 31 to
December 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) Less than $0.01 per share.
(9) Class B shares began operations on September 7, 1995. Class C shares began
operations on May 1, 1998.
FUND DETAILS 35
<PAGE>
Core Growth Fund
Figures audited by __________________________.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 2/96(1) 2/97 2/98 2/99
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $9.29 $11.01 $14.88
Net investment income (loss)(2) 0.03 0.05 0.04 0.01
Net realized and unrealized gain (loss) on investments 0.81 2.16 4.34 3.40
Total from investment operations 0.84 2.21 4.38 3.41
Less distributions:
Dividends from net investment income (0.03) (0.04) (0.03) (0.02)
Distributions in excess of net investment income -- -- -- (0.00)(3)
Distributions from net realized gain on investments sold (0.02) (0.45) (0.48) (0.62)
Total distributions (0.05) (0.49) (0.51) (0.64)
Net asset value, end of period $9.29 $11.01 $14.88 $17.65
Total investment return at net asset value(4) (%) 9.94(5) 24.19 40.52 22.92
Total adjusted investment return at net asset value(4,6) (%) (5.63)(5) 17.40 37.95 21.89
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 549 883 4,605 7,855
Ratio of expenses to average net assets (%) 0.95(7) 0.95 0.95 0.95
Ratio of adjusted expenses to average net assets(8,9) (%) 38.57(7) 7.74 3.52 1.98
Ratio of net investment income (loss) to average net assets (%) 0.91(7) 0.49 0.34 0.06
Ratio of adjusted net investment income (loss) to average net assets(8,9) (%) (36.71)(7) (6.30) (2.23) (0.97)
Portfolio turnover rate (%) 21 142 91 54
Fee reduction per share(2) ($) 1.36 0.68 0.33 0.17
</TABLE>
(1) Began operations on October 2, 1995.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Less than $0.01 per share.
(4) Total investment return assumes dividend reinvestment.
(5) Not annualized.
(6) An estimated total return calculation, which does not take into
consideration fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net income as a percentage of average net assets is
expected to increase as the net assets of the fund grow.
36 FUND DETAILS
<PAGE>
Core Value Fund
The financial information presented is for periods prior to reclassification as
Class A shares on July 1, 1999.
Figures audited by __________________________.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 2/96(1) 2/97 2/98 2/99
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $9.47 $10.88 $13.93
Net investment income (loss)(2) 0.10 0.23 0.21 0.15
Net realized and unrealized gain (loss) on investments 0.96 1.77 3.33 1.23
Total from investment operations 1.06 2.00 3.54 1.38
Less distributions:
Dividends from net investment income (0.09) (0.19) (0.13) (0.18)
Distributions from net realized gain on investments sold -- (0.40) (0.36) (2.77)
Total distributions (0.09) (0.59) (0.49) (2.95)
Net asset value, end of period $9.47 $10.88 $13.93 $12.36
Total investment return at net asset value(3) (%) 12.52(4) 21.36 32.97 9.87
Total adjusted investment return at net asset value(3,5) (%) (1.18)(4) 15.92 32.02 8.94
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 682 1,323 7,747 6,685
Ratio of expenses to average net assets (%) 0.95(6) 0.95 0.95 0.95
Ratio of adjusted expenses to average net assets(7,8) (%) 34.06(6) 6.39 1.90 1.88
Ratio of net investment income (loss) to average net assets (%) 2.81(6) 2.26 1.60 1.03
Ratio of adjusted net investment income (loss) to average net assets(7,8) (%) (30.30)(6) (3.18) 0.65 0.10
Portfolio turnover rate (%) 12 66 119 61
Fee reduction per share(2) ($) 1.22 0.55 0.12 0.13
</TABLE>
(1) Began operations on October 2, 1995.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Total investment return assumes dividend reinvestment.
(4) Not annualized.
(5) An estimated total return calculation, which does not take into
consideration fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net income as a percentage of average net assets is
expected to increase as the net assets of the fund grow.
FUND DETAILS 37
<PAGE>
Large Cap Growth Fund
Figures audited by __________________________.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/94 12/95 10/96(1) 10/97 10/98 10/99
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.40 $15.89 $19.51 $23.28 $24.37
Net investment income (loss) (0.10) (0.09)(2) (0.13)(2) (0.12)(2) (0.11)(2)
Net realized and unrealized gain (loss) on investments (1.21) 4.40 3.90 3.49 2.17
Total from investment operations (1.31) 4.31 3.77 3.37 2.06
Less distributions:
Distributions from net realized gain on investments sold (0.20) (0.69) -- (2.28) (4.16)
Net asset value, end of period $15.89 $19.51 $23.28 $24.37 $22.27
Total investment return at net asset value(3) (%) (7.50) 27.17 19.32(4) 16.05 9.80
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 146,466 241,700 279,425 303,067 381,591
Ratio of expenses to average net assets (%) 1.65 1.48 1.48(5) 1.44 1.40
Ratio of net investment income (loss) to average
net assets (%) (0.64) (0.46) (0.73)(5) (0.51) (0.50)
Portfolio turnover rate (%) 52 68(6) 59 133 153(6)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(7) 12/95 10/96(1) 10/97 10/98 10/99
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.16 $15.83 $19.25 $22.83 $23.70
Net investment income (loss)(2) (0.20) (0.26) (0.26) (0.27) (0.25)
Net realized and unrealized gain (loss) on investments (0.93) 4.37 3.84 3.42 2.09
Total from investment operations (1.13) 4.11 3.58 3.15 1.84
Less distributions:
Distributions from net realized gain on investments sold (0.20) (0.69) -- (2.28) (4.16)
Net asset value, end of period $15.83 $19.25 $22.83 $23.70 $21.38
Total investment return at net asset value(3) (%) (6.56)(4) 26.01 18.60(4) 15.33 9.04
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,807 15,913 25,474 36,430 217,448
Ratio of expenses to average net assets (%) 2.38(5) 2.31 2.18(5) 2.13 2.08
Ratio of net investment income (loss) to average
net assets (%) (1.25)(5) (1.39) (1.42)(5) (1.20) (1.16)
Portfolio turnover rate (%) 52 68(6) 59 133 153(6)
- -----------------------------------------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(7) 10/99
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.43
Net investment income (loss)(2) (0.10)
Net realized and unrealized gain (loss) on investments 0.04
Total from investment operations (0.06)
Net asset value, end of period $21.37
Total investment return at net asset value(3) (%) (0.28)(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 152
Ratio of expenses to average net assets (%) 2.10(5)
Ratio of net investment income (loss) to average
net assets (%) (1.14)(5)
Portfolio turnover rate (%) 153(6)
</TABLE>
(1) Effective October 31, 1996, the fiscal year end changed from December 31 to
October 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Excludes merger activity.
(7) Class B and Class C shares began operations on January 3, 1994 and June 1,
1998, respectively.
38 FUND DETAILS
<PAGE>
Large Cap Value Fund
Figures audited by ______________________.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 8/94 8/95(1) 8/96 12/96(2) 12/97 12/98
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.08 $11.42 $13.38 $15.07 $15.62 $19.32
Net investment income (loss)(3) 0.32 0.21 0.19 0.05 0.12 0.16
Net realized and unrealized gain (loss) on investments,
financial futures contracts and foreign currency transactions (0.61) 1.95 1.84 2.15 5.57 2.85
Total from investment operations (0.29) 2.16 2.03 2.20 5.69 3.01
Less distributions:
Distributions from net investment income (0.37) (0.20) (0.19) (0.08) (0.07) (0.14)
Distributions from net realized gain on investments sold -- -- (0.15) (1.57) (1.92) (0.93)
Total distributions (0.37) (0.20) (0.34) (1.65) (1.99) (1.07)
Net asset value, end of period $11.42 $13.38 $15.07 $15.62 $19.32 $21.26
Total investment return at net asset value(4) (%) (2.39) 19.22 15.33 14.53(5) 36.71 15.94
Total adjusted investment return at net asset value(4) (%) -- -- -- -- -- 15.92
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 121,160 130,183 139,548 163,154 303,313 421,218
Ratio of expenses to average net assets (%) 1.31 1.30 1.17 1.22(6) 1.12 1.16(7)
Ratio of net investment income (loss) to average net assets (%) 2.82 1.82 1.28 0.85(6) 0.65 0.79(7)
Portfolio turnover rate (%) 195 99 74 26 102(8) 64
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 8/94 8/95(1) 8/96 12/96(2) 12/97 12/98
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.10 $11.44 $13.41 $15.10 $15.66 $19.31
Net investment income (loss)(3) 0.24 0.13 0.08 0.01 (0.02) 0.01
Net realized and unrealized gain (loss) on investments,
financial futures contracts and foreign currency transactions (0.61) 1.96 1.85 2.14 5.60 2.84
Total from investment operations (0.37) 2.09 1.93 2.15 5.58 2.85
Less distributions:
Distributions from net investment income (0.29) (0.12) (0.09) (0.02) (0.01) (0.03)
Distributions from net realized gain on investments sold -- -- (0.15) (1.57) (1.92) (0.93)
Total distributions (0.29) (0.12) (0.24) (1.59) (1.93) (0.96)
Net asset value, end of period $11.44 $13.41 $15.10 $15.66 $19.31 $21.20
Total investment return at net asset value(4) (%) (3.11) 18.41 14.49 14.15(5) 35.80 15.05
Total adjusted investment return at net asset value(4) (%) -- -- -- -- -- 15.03
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 114,025 114,723 125,781 146,399 340,334 547,945
Ratio of expenses to average net assets (%) 2.06 2.03 1.90 1.98(6) 1.87 1.91(7)
Ratio of net investment income (loss) to average net assets (%) 2.07 1.09 0.55 0.10(6) (0.10) 0.05(7)
Portfolio turnover rate (%) 195 99 74 26 102(8) 64
</TABLE>
FUND DETAILS 39
<PAGE>
- --------------------------------------------------------------------------------
Class C - period ended: 12/98(9)
- --------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $22.03
Net investment income (loss)(3) 0.03
Net realized and unrealized gain (loss) on investments,
financial futures contracts and foreign currency transactions 0.09
Total from investment operations 0.12
Less distributions:
Distributions from net investment income (0.02)
Distributions from net realized gain on investments sold (0.93)
Total distributions (0.95)
Net asset value, end of period $21.20
Total investment return at net asset value(4) (%) 0.83(5)
Total adjusted investment return at net asset value(4) (%) 0.82(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,711
Ratio of expenses to average net assets (%) 1.92(6,7)
Ratio of net investment income (loss) to average net assets (%) 0.28(6,7)
Portfolio turnover rate (%) 64
(1) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(2) Effective December 31, 1996, the fiscal year end changed from August 31 to
December 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.
(7) Reflects voluntary management fee reduction in effect during the year ended
December 31, 1998. As a result of such fee reductions, expenses of Class A,
Class B and Class C shares of the fund reflect reductions of less than $0.01
per share. Absent such reductions the ratio of expenses to average net
assets would have been 1.18%, 1.93% and 1.94% for Class A, Class B and Class
C shares, respectively, and the ratio of net investment income to average
net assets would have been 0.77%, 0.03% and 0.26% for Class A, Class B and
Class C shares, respectively.
(8) Portfolio turnover rate excludes merger activity.
(9) Class C shares began operations on May 1, 1998.
40 FUND DETAILS
<PAGE>
Mid Cap Growth Fund
Figures audited by ____________________________.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/95 10/96 10/97 10/98 10/99
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $7.93 $9.32 $10.92 $11.40
Net investment income (loss)(2) (0.07) (0.11) (0.06) (0.09)
Net realized and unrealized gain (loss) on investments 1.46 3.34 1.00 (0.89)
Total from investment operations 1.39 3.23 0.94 (0.98)
Less distributions:
Distributions from net realized gain on investments sold -- (1.63) (0.46) (1.31)
Net asset value, end of period $9.32 $10.92 $11.40 $9.11
Total investment return at net asset value(3) (%) 17.53 36.15 8.79 (9.40)
Total adjusted investment return at net asset value(3,4) (%) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 101,562 156,578 141,997 101,138
Ratio of expenses to average net assets (%) 1.59 1.59 1.59 1.59
Ratio of adjusted expenses to average net assets(5) (%) -- -- -- --
Ratio of net investment income (loss) to average net assets (%) (0.87) (1.00) (0.57) (0.86)
Ratio of adjusted net investment (loss) to average net assets(5) (%) -- -- -- --
Portfolio turnover rate (%) 155 240 317 168
Fee reduction per share ($) -- -- -- --
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/95 10/96 10/97 10/98 10/99
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $7.87 $9.19 $10.67 $11.03
Net investment income (loss)(2) (0.13) (0.18) (0.13) (0.15)
Net realized and unrealized gain (loss) on investments 1.45 3.29 0.95 (0.85)
Total from investment operations 1.32 3.11 0.82 (1.00)
Less distributions:
Distributions from net realized gain on investments sold -- (1.63) (0.46) (1.31)
Net asset value, end of period $9.19 $10.67 $11.03 $8.72
Total investment return at net asset value(3) (%) 16.77 35.34 7.84 (9.97)
Total adjusted investment return at net asset value(3,4) (%) -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 137,363 238,901 204,812 134,188
Ratio of expenses to average net assets (%) 2.30 2.29 2.28 2.27
Ratio of adjusted expenses to average net assets(5) (%) -- -- -- --
Ratio of net investment income (loss) to average net assets (%) (1.55) (1.70) (1.25) (1.54)
Ratio of adjusted net investment (loss) to average net assets(5) (%) -- -- -- --
Portfolio turnover rate (%) 155 240 317 168
Fee reduction per share ($) -- -- -- --
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(1) 10/99
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.99
Net investment income (loss)(2) (0.06)
Net realized and unrealized gain (loss) on investments (1.21)
Total from investment operations (1.27)
Net asset value, end of period $8.72
Total investment return at net asset value(3) (%) (12.71)(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 100
Ratio of expenses to average net assets (%) 2.29(7)
Ratio of net investment income (loss) to average net assets (%) (1.66)(7)
Portfolio turnover rate (%) 168
</TABLE>
(1) Class C shares began 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) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(5) Unreimbursed, without fee reduction.
(6) Not annualized.
(7) Annualized.
FUND DETAILS 41
<PAGE>
Small Cap Growth Fund
Figures audited by __________________________.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Class A(1) - period ended: 10/95(2) 10/96 10/97 10/98 10/99
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.71 $9.02 $10.22 $12.35
Net investment income (loss)(3) (0.07) (0.09) (0.07) (0.08)
Net realized and unrealized gain (loss) on investments 2.38 1.29 2.41 (1.34)
Total from investment operations 2.31 1.20 2.34 (1.42)
Less distributions:
Distributions from net realized gain on investments sold -- -- (0.21) (2.52)
Net asset value, end of period $9.02 $10.22 $12.35 $8.41
Total investment return at net asset value(4) (%) 34.56 13.27 23.35 (14.14)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 179,481 218,497 209,384 179,700
Ratio of expenses to average net assets (%) 1.38 1.32 1.29(5) 1.36(5)
Ratio of net investment income (loss) to average net assets (%) (0.83) (0.86) (0.57) (1.02)
Portfolio turnover rate (%) 23 44 96 103
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Class B(1) - period ended: 10/95(2) 10/96 10/97 10/98 10/99
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $6.51 $8.70 $9.78 $11.72
Net investment income (loss)(3) (0.11) (0.15) (0.14) (0.15)
Net realized and unrealized gain (loss) on investments 2.30 1.23 2.29 (1.24)
Total from investment operations 2.19 1.08 2.15 (1.39)
Less distributions:
Distributions from net realized gain on investments sold -- -- (0.21) (2.52)
Net asset value, end of period $8.70 $9.78 $11.72 $7.81
Total investment return at net asset value(4) (%) 33.60 12.48 22.44 (14.80)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 393,478 451,268 472,594 361,992
Ratio of expenses to average net assets (%) 2.11 2.05 2.02(5) 2.07(5)
Ratio of net investment income (loss) to average net assets (%) (1.55) (1.59) (1.30) (1.73)
Portfolio turnover rate (%) 23 44 96 103
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(6) 10/99
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.96
Net investment income (loss)(3) (0.03)
Net realized and unrealized gain (loss) on investments (1.12)
Total from investment operations (1.15)
Net asset value, end of period $7.81
Total investment return at net asset value(4) (%) (12.83)(7)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 468
Ratio of expenses to average net assets (%) 2.11(5,8)
Ratio of net investment income (loss) to average net assets (%) (1.86)(8)
Portfolio turnover rate (%) 103
</TABLE>
(1) All per share amounts and net asset values have been restated to reflect the
four-for-one stock split effective May 1, 1998.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the fund.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 per share.
(6) Class C shares began operations on June 1, 1998.
(7) Not annualized.
(8) Annualized.
42 FUND DETAILS
<PAGE>
Small Cap Value Fund
Figures audited by _______________________.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/94(1) 12/95 12/96 12/97 10/98(2) 10/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $8.99 $10.39 $10.32 $12.27
Net investment income (loss)(3) 0.18 0.21 0.14 0.06 0.02
Net realized and unrealized gain (loss) on investments 0.48 1.60 1.17 2.52 (1.47)
Total from investment operations 0.66 1.81 1.31 2.58 (1.45)
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 $10.82
Total investment return at net asset value(4) (%) 7.81(5) 20.26 12.91 25.25 (11.82)(5)
Total adjusted investment return at net asset value(4,6) (%) 7.30(5) 19.39 12.20 24.65 (12.33)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,420 12,845 15,853 20,961 22,528
Ratio of expenses to average net assets (%) 0.99(7) 0.98 0.99 0.99 1.01(7)
Ratio of adjusted expenses to average net assets(8) (%) 4.98(7) 1.85 1.70 1.59 1.62(7)
Ratio of net investment income (loss) to average net assets (%) 2.10(7) 2.04 1.31 0.47 0.25(7)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) (1.89)(7) 1.17 0.60 (0.13) (0.36)(7)
Portfolio turnover rate (%) 0.3 9 72 140 69
Fee reduction per share(3) ($) 0.34 0.09 0.08 0.07 0.06
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(1) 12/95 12/96 12/97 10/98(2) 10/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $9.00 $10.38 $10.31 $12.21
Net investment income (loss)(3) 0.13 0.12 0.07 (0.03) (0.04)
Net realized and unrealized gain (loss) on investments 0.48 1.59 1.17 2.53 (1.46)
Total from investment operations 0.61 1.71 1.24 2.50 (1.50)
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 $10.71
Total investment return at net asset value(4) (%) 7.15(5) 19.11 12.14 24.41 (12.29)(5)
Total adjusted investment return at net asset value(4,6) (%) 6.64(5) 18.24 11.43 23.81 (12.80)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,296 16,994 22,097 35,033 30,637
Ratio of expenses to average net assets (%) 1.72(7) 1.73 1.69 1.69 1.71(7)
Ratio of adjusted expenses to average net assets(8) (%) 5.71(7) 2.60 2.40 2.29 2.32(7)
Ratio of net investment income (loss) to average net assets (%) 1.53(7) 1.21 0.62 (0.24) (0.45)(7)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) (2.46)(7) 0.34 (0.09) (0.84) (1.06)(7)
Portfolio turnover rate (%) 0.3 9 72 140 69
Fee reduction per share(3) ($) 0.34 0.09 0.08 0.07 0.06
</TABLE>
FUND DETAILS 43
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(1) 10/99
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $13.39
Net investment income (loss)(3) (0.03)
Net realized and unrealized gain (loss) on investments (2.65)
Total from investment operations (2.68)
Net asset value, end of period $10.71
Total investment return at net asset value(4) (%) (20.01)(5)
Total adjusted investment return at net asset value(4,6) (%) (20.32)(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) $422
Ratio of expenses to average net assets (%) 1.71(7)
Ratio of adjusted expenses to average net assets(8) (%) 2.32(7)
Ratio of net investment income (loss) to average net assets (%) (0.54)(7)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (1.15)(7)
Portfolio turnover rate (%) 69
Fee reduction per share(3) ($) 0.04
</TABLE>
(1) Class A and Class B shares began operations on January 3, 1994. Class C
shares began 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.
44 FUND DETAILS
<PAGE>
Sovereign Investors Fund
Figures audited by ____________________.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/94 12/95 12/96 12/97 12/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.10 $14.24 $17.87 $19.48 $22.41
Net investment income (loss) 0.46 0.40 0.36(1) 0.32(1) 0.31(1)
Net realized and unrealized gain (loss) on investments (0.75) 3.71 2.77 5.31 3.11
Total from investment operations (0.29) 4.11 3.13 5.63 3.42
Less distributions:
Dividends from net investment income (0.46) (0.40) (0.36) (0.32) (0.31)
Distributions from net realized gain on investments sold (0.11) (0.08) (1.16) (2.38) (1.29)
Total distributions (0.57) (0.48) (1.52) (2.70) (1.60)
Net asset value, end of period $14.24 $17.87 $19.48 $22.41 $24.23
Total investment return at net asset value(2) (%) (1.85) 29.15 17.57 29.14 15.62
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,090,231 1,280,321 1,429,523 1,748,490 1,884,460
Ratio of expenses to average net assets (%) 1.16 1.14 1.13 1.06 1.03
Ratio of net investment income (loss) to average net assets (%) 3.13 2.45 1.86 1.44 1.33
Portfolio turnover rate (%) 45 46 59 62 51
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(3) 12/95 12/96 12/97 12/98
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.02 $14.24 $17.86 $19.46 $22.38
Net investment income (loss)(1) 0.38 0.27 0.21 0.16 0.14
Net realized and unrealized gain (loss) on investments (0.69) 3.71 2.77 5.29 3.11
Total from investment operations (0.31) 3.98 2.98 5.45 3.25
Less distributions:
Dividends from net investment income (0.36) (0.28) (0.22) (0.15) (0.14)
Distributions from net realized gain on investments sold (0.11) (0.08) (1.16) (2.38) (1.29)
Total distributions (0.47) (0.36) (1.38) (2.53) (1.43)
Net asset value, end of period $14.24 $17.86 $19.46 $22.38 $24.20
Total investment return at net asset value(2) (%) (2.04)(4) 28.16 16.67 28.14 14.79
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 128,069 257,781 406,523 610,976 790,277
Ratio of expenses to average net assets (%) 1.86(5) 1.90 1.91 1.83 1.79
Ratio of net investment income (loss) to average net assets (%) 2.57(5) 1.65 1.10 0.67 0.58
Portfolio turnover rate (%) 45 46 59 62 51
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class C - period ended: 12/98(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Per share operating performance
Net asset value, beginning of period $24.43
Net investment income (loss)(1) 0.13
Net realized and unrealized gain (loss) on investments 1.07
Total from investment operations 1.20
Less distributions:
Distributions from net investment income (0.12)
Distributions from net realized gain on investments sold (1.29)
Total distributions (1.41)
Net asset value, end of period $24.22
Total investment return at net asset value(2) (%) 5.18(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,627
Ratio of expenses to average net assets (%) 1.67(5)
Ratio of net investment income to average net assets (%) 0.84(5)
Portfolio turnover rate (%) 51
</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) Class B shares began operations on January 3, 1994. Class C shares began
operations on May 1, 1998.
(4) Not annualized.
(5) Annualized.
FUND DETAILS 45
<PAGE>
- --------------------------------------------------------------------------------
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
equity 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.jhfunds.com
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC. For access to
the Reference Room call 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
(C) 2000 John Hancock Funds, Inc.
EQTPN 3/00
John Hancock(R)
<PAGE>
- --------------------------------------------------------------------------------
JOHN HANCOCK
International
Funds
[LOGO] Prospectus
March 1, 2000
- --------------------------------------------------------------------------------
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these funds or determined whether the information in
this prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
European Equity Fund
Global Fund
International Fund
Pacific Basin Equities Fund
GLIPN 4th
Draft 12/17/99
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
Contents
- --------------------------------------------------------------------------------
A fund-by-fund summary of European Equity Fund 4
goals, strategies, risks,
performance and expenses. Global Fund 6
International Fund 8
Pacific Basin Equities Fund 10
Policies and instructions for Your account
opening, maintaining and
closing an account in any Choosing a share class 12
international fund. How sales charges are calculated 12
Sales charge reductions and waivers 13
Opening an account 14
Buying shares 15
Selling shares 16
Transaction policies 18
Dividends and account policies 18
Additional investor services 19
Further information on the Fund details
international funds.
Business structure 20
Financial highlights 21
For more information back cover
<PAGE>
Overview
- --------------------------------------------------------------------------------
JOHN HANCOCK INTERNATIONAL FUNDS
These funds invest primarily in foreign and U.S. stocks and seek long-term
growth of capital. 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 portion of an asset allocation portfolio
o are investing for retirement or other goals that are many years in the
future
International 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
Federal Deposit Insurance Corporation 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 funds are managed by John Hancock Advisers, Inc.
Founded in 1968, John Hancock Advisers is a wholly owned subsidiary of John
Hancock Financial Services, Inc. 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>
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 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 indices,
securities or currencies), especially to manage cash flows and currency
exposure. It may also invest 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 and other cases, the
fund might not achieve its goal.
================================================================================
SUBADVISER
Indocam International
Investment Services
- --------------------------------
Paris-based team responsible
for day-to-day investments
Supervised by the adviser
PAST PERFORMANCE
[Clip Art] The graph shows the fund's total return, 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. 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.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar year
- --------------------------------------------------------------------------------
1999
xx.xx%
Best quarter: Q4 '98, xx.xx% Worst quarter: Q3 '98, xx.xx%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
Life of Life of
1 year Class A Class B
Class A - began 3/2/98 x.xx% x.xx% --
Class B - began 6/1/98 x.xx% -- x.xx%
Class C - began 3/1/99 -- -- --
Index x.xx% x.xx% x.xx%
Index: MSCI Europe Index, an unmanaged index of European stocks.
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 funds that focus on other types of
stocks. Similarly, if the managers' stock selection strategy does not 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 securities, derivatives and other higher-risk securities can
be hard to value or to sell at a fair price.
o Certain derivatives could produce disproportionate 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 s 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 0.90% 0.90% 0.90%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 1.03% 1.03% 1.03%
Total fund operating expenses 2.23% 2.93% 2.93%
Expense reimbursement
(at least until 3/1/00) 0.33% 0.33% 0.33%
Actual operating expenses 1.90% 2.60% 2.60%
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 $ 683 $1,132 $1,606 $2,912
Class B - with redemption $ 763 $1,176 $1,713 $3,063
- without redemption $ 263 $875 $1,514 $3,063
Class C - with redemption $ 363 $875 $1,514 $3,229
- without redemption $ 263 $875 $1,514 $3,229
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ------------------------------
Ticker JHEAX
CUSIP 410233886
Newspaper EuropeA
SEC number 811-4932
JH fund number 92
Class B
- ------------------------------
Ticker JHEBX
CUSIP 410233878
Newspaper EuropeB
SEC number 811-4932
JH fund number 192
Class C
- ------------------------------
Ticker --
CUSIP 410233860
Newspaper --
SEC number 811-4932
JH fund number 592
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. They also seek to diversify the fund across countries and
sectors. The managers base the fund's country allocation on a quantitative model
as well as analysis of political trends and economic 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 Free
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 gathers research from Indocam strategists and
analysts in Europe and Asia and generally conducts on-site visits.
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, securities or currencies). In abnormal market conditions, the fund may
temporarily invest more than 35% of assets in investment-grade short-term
securities. In these and other cases, the fund might not achieve its goal.
================================================================================
SUBADVISERS
Indocam International
Investment Services
- ------------------------------------
Paris-based team responsible
for day-to-day investments
Supervised by the adviser
John Hancock Advisers
International Limited
- ------------------------------------
London-based affiliate of adviser
Founded in 1986
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. 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.
- --------------------------------------------------------------------------------
Class B year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -19.64% 23.14% -0.27% 33.85% -5.44% 9.86% 11.85% 6.58% 20.73%
Best quarter: Q4 '98, 20.73% Worst quarter: Q3 '90, -22.53%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
Life of
1 year 5 year 10 year Class A
Class A - began 1/3/92 15.41% 7.98% -- 10.14%
Class B 15.73% 8.09% 10.14% --
Class C - began 3/1/99 -- -- -- --
Index 21.97% 14.78% 12.01% 13.20%
Index: MSCIAll Country World Free Index, an unmanaged index of freely traded
stocks of foreign and U.S. companies.
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 do not
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 securities, derivatives and other higher-risk securities can
be hard to value or to sell at a fair price.
o Certain derivatives could produce disproportionate 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 0.86% 0.86% 0.86%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 0.59% 0.59% 0.59%
Total fund operating expenses 1.75% 2.45% 2.45%
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 $669 $1,024 $1,401 $2,459
Class B - with redemption $748 $1,064 $1,506 $2,614
- without redemption $248 $764 $1,306 $2,614
Class C - with redemption $348 $764 $1,306 $2,786
- without redemption $248 $764 $1,306 $2,786
(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
JH fund number 3
Class B
- ---------------------------------
Ticker FGLOX
CUSIP 409906203
Newspaper GlobB
SEC number 811-4630
JH fund number 103
Class C
- ---------------------------------
Ticker --
CUSIP 409906815
Newspaper --
SEC number 811-4630
JH fund number 503
7
<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 80% of assets in a diversified portfolio of
foreign stocks from both developed and emerging countries. The Fund may invest
up to 30% of assets in emerging markets as classified by MSCI. 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. They also seek to diversify the fund across countries and
sectors. The managers base the fund's country allocation on a quantitative model
as well as analysis of political trends and economic 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 U.S. Free 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
team gathers research from Indocam strategists and analysts in Europe and Asia
and generally conducts on-site visits.
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 not
invest more than 5% of assets in any one security. The fund may use certain
derivatives (investments whose value is based on indices, securities or
currencies).
Under normal conditions, the fund may not invest more than 10% of assets in cash
or cash equivalents. In abnormal conditions, the fund may temporarily invest in
U.S. government securities with maturities of up to three years, and may invest
more than 10% of assets in cash or cash equivalents. In these and other cases,
the fund might not achieve its goal.
================================================================================
SUBADVISERS
Indocam International
Investment Services
- ------------------------------------------
Paris-based team responsible
for day-to-day investments
Supervised by the adviser
John Hancock Advisers
International Limited
- ------------------------------------------
London-based affiliate of adviser
Founded in 1986
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. 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.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
-6.61% 5.34% 11.36% -7.73% 17.67%
Best quarter: Q4 '98, 22.17% Worst quarter: Q3 '98, -17.06%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
1 year 5 year
Class A - began 1/3/94 11.84% 2.48%
Class B - began 1/3/94 11.77% 2.43%
Class C - began 3/1/99 -- --
Index 21.97% 14.78%
Index: MSCI All Country World-Ex U.S. Free Index, an unmanaged index of freely
traded stocks of foreign companies.
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.
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 do not
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 securities, derivatives and other higher-risk securities can
be hard to value or to sell at a fair price.
o Certain derivatives could produce disproportionate 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 1.00% 1.00% 1.00%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 2.51% 2.51% 2.51%
Total fund operating expenses 3.81% 4.51% 4.51%
Expense reimbursement
(at least until 3/1/00) 1.85% 1.85% 1.85%
Annual operating expenses 1.96% 2.66% 2.66%
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 $689 $1,444 $2,217 $4,231
Class B - with redemption $769 $1,497 $2,333 $4,373
- without redemption $269 $1,197 $2,133 $4,373
Class C - with redemption $369 $1,197 $2,133 $4,516
- without redemption $269 $1,197 $2,133 $4,516
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
FUND CODES
Class A
- ----------------------------------
Ticker FINAX
CUSIP 409906500
Newspaper IntlA
SEC number 811-4630
JH fund number 40
Class B
- ----------------------------------
Ticker FINBX
CUSIP 409906609
Newspaper IntlB
SEC number 811-4630
JH fund number 140
Class C
- -----------------------------------
Ticker --
CUSIP 409906831
Newspaper --
SEC number 811-4630
JH fund number 540
9
<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 a diversified portfolio of equity securities of
companies in the Pacific Basin. The Pacific Basin includes all countries
bordering the Pacific Ocean, but the managers focus on Japan, Hong Kong,
Australia, Singapore, South Korea and Taiwan. The fund may invest in other
Pacific Basin countries, such as Indonesia, Malaysia, New Zealand, the
Philippines, Thailand, China and Vietnam. Some of these are emerging market
countries.
The fund may also invest in stocks of Asian companies outside the Pacific Basin
and in investment-grade debt securities of U.S., Japanese, Australian and New
Zealand issuers. The fund does not maintain a fixed allocation of assets.
In managing the portfolio, the managers focus primarily on individual stock
selection rather than country allocation. A team of investment analysts
regularly screens larger and more established companies in these countries which
may be small- or medium-capitalization companies by U.S. standards. The team
identifies those that appear to have capable management and the potential for
strong earnings growth. They 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 100 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, securities or
currencies).
In abnormal market conditions, the fund may temporarily invest more than 35% of
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
================================================================================
SUBADVISERS
Indocam Asia Advisers Limited
- ------------------------------------
Hong Kong-based team responsible
for day-to-day investments
Supervised by the adviser
John Hancock Advisers
International Limited
- ------------------------------------
London-based affiliate of adviser
Founded in 1986
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. 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.
- --------------------------------------------------------------------------------
Class A year-by-year total returns -- calendar years
- --------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
- -23.01% 12.68% 2.02% 70.45% -9.28% 4.95% 3.37% -27.87% -10.72%
Best quarter: Q4 '93, 23.91% Worst quarter: Q4 '97, -25.64%
- --------------------------------------------------------------------------------
Average annual total returns -- for periods ending 12/31/99
- --------------------------------------------------------------------------------
Life of
1 year 5 year 10 year Class B
Class A -15.19% -9.65% 0.79% --
Class B - began 3/7/94 -15.83% -- -- -9.01%
Class C - began 3/1/99 -- -- -- --
Index 2.69% -3.95% -0.71% -6.73%
Index: MSCI Pacific Index, an unmanaged index of stocks of companies in
Australia, Japan and certain other Pacific Rim countries.
10
<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 stocks as a group could fall out of favor with the market, causing the
fund to underperform funds that focus on other types of stocks. Similarly, if
the managers' stock selection strategy does not 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 securities, derivatives and other higher-risk securities can
be hard to value or sell at a fair price.
o Stocks of small- and medium- capitalization companies tend to be more
volatile than those of larger companies.
o Certain derivatives could produce disproportionate 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 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 1.27% 1.27% 1.27%
Total fund operating expenses 2.37% 3.07% 3.07%
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 $728 $1,202 $1,702 $3,071
Class B - with redemption $810 $1,248 $1,811 $3,221
- without redemption $310 $948 $1,611 $3,221
Class C - with redemption $410 $948 $1,611 $3,383
- without redemption $310 $948 $1,611 $3,383
(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
JH fund number 58
Class B
- --------------------------------
Ticker FPBBX
CUSIP 410233506
Newspaper PacBasB
SEC number 811-4932
JH fund number 158
Class C
- --------------------------------
Ticker --
CUSIP 410233605
Newspaper --
SEC number 811-4932
JH fund number 558
11
<PAGE>
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each share class has its own cost structure, including a Rule 12b-1 plan that
allows it to pay fees for the sale, distribution and service 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 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, they may cost shareholders more
than other types of sales charges.
Investors purchasing $1 million or more of Class B or Class C shares may want to
consider the lower operating expenses of Class A shares.
Your broker or agent may charge you a fee to effect transactions in fund 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 first 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.
12 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 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 year or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6th year none
- --------------------------------------------------------------------------------
Class C deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC
1st year 1.00%
After 1st 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 or 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
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 13
<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 John Hancock insurance 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 have placed at least $2 billion
in John Hancock funds: $250
3 Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. You must notify your
financial representative or Signature Services if this information changes.
For more details, 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.
14 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 slip is available, include
them to Signature Services a note specifying the fund
(address 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
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 the amount of your
financial representative, investment to:
or mail it to Signature First Signature Bank & Trust
Services. Account # 900000260
Routing # 211475000
o Obtain your account number
by calling your financial Specify the fund name, your
representative or Signature share class, your account
Services. number and the name(s) in
which the account is
o Instruct your bank to wire registered. Your bank may
the amount of your charge a fee to wire funds.
investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s)
in which the account is
registered. Your bank may
charge a fee to wire funds.
By phone
[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 "Bank
Information" section 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 15
<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.
16 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, unless they were previously provided to Signature Services and are
still accurate. These items are 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.
UGMA/UTMA accounts (custodial
accounts for minors).
o On the letter, the signatures 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, sole o Letter of instruction.
proprietorship, general partner or
association accounts.
o Corporate business/organization
resolution, certified within the
past 12 months, or a John
Hancock Funds business/
organization certification form.
o On the letter and the
resolution, the signature of the
person(s) authorized to sign for
the account.
o Signature guarantee if
applicable (see above).
Owners or trustees of trust o Letter of instruction.
accounts.
o On the letter, the signature(s)
of the trustee(s).
o Copy of the trust document
certified within the past 12
months, or a John Hancock Funds
trust certification form.
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 instructions.
guardians and other sellers or
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 17
<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. The fund may also value securities at fair value
if the value of these securities has been materially affected by events
occurring after the close of a foreign market. Foreign stock or other portfolio
securities held by the funds may trade on U.S. holidays and weekends, even
though the funds' shares will not be priced on those days. This may change a
fund's NAV on days when you cannot buy or sell shares.
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 Signature Services receives your
request in good order.
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
redemption 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 and Class
C shares will continue to age from the original date and will retain the same
CDSC rate. However, if the new fund's CDSC rate is higher, then the rate will
increase. 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
annually in the form of 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.
18 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.
Dividends may include a return of capital.
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 issuers in which the funds invest,
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 19
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the John Hancock
international 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 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 funds last fiscal year are as follows:
- --------------------------------------------------------------------------------
Fund % of net assets
European Equity 0.00%
Global 0.86%
International 0.00%
Pacific Basin Equities 0.80%
[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
------------------------------------
Subadviser
John Hancock Advisers
International Limited
32-36 Duke Street
St. James SWIY6DF
London, U.K.
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
Hold 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.
------------------------------------
20 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>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/98(1) 10/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.00
Net investment income loss(2) 0.01
Net realized and unrealized gain (loss) on investments, financial futures
contracts and foreign currency transactions 0.06
Total from investment operations 0.07
Net asset value, end of period $10.07
Total investment return at net asset value(3) (%) 0.70(4)
Total adjusted investment return at net asset value(3,5) (%) (0.24)(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 12,147
Ratio of expenses to average net assets (%) 1.90(6)
Ratio of adjusted expenses to average net assets(7) (%) 3.31(6)
Ratio of net investment income (loss) to average net assets (%) 0.16(6)
Ratio of adjusted net investment income (loss) to average net assets(7) (%) (1.25)(6)
Portfolio turnover rate (%) 31
Fee reduction per share(2) ($) 0.10
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/98(1) 10/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $11.07
Net investment income (loss)(2) (0.04)
Net realized and unrealized gain (loss) on investments, financial futures
contracts and foreign currency transactions (0.99)
Total from investment operations (1.03)
Net asset value, end of period $10.04
Total investment return at net asset value(3) (%) (9.30)(4)
Total adjusted investment return at net asset value(3,5) (%) (9.89)(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 15,847
Ratio of expenses to average net assets (%) 2.60(6)
Ratio of adjusted expenses to average net assets(7) (%) 4.01(6)
Ratio of net investment income (loss) to average net assets (%) (1.12)(6)
Ratio of adjusted net investment income (loss) to average net assets(7) (%) (2.53)(6)
Portfolio turnover rate (%) 31
Fee reduction per share(2) ($) 0.06
</TABLE>
(1) Class A and Class B shares began operations on March 2, 1998 and June 1,
1998, 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 not take into
consideration fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
FUND DETAILS 21
<PAGE>
Global Fund
Figures audited by _________________________________.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/95 10/96 10/97 10/98 10/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $14.16 $12.67 $12.97 $12.94
Net investment income (loss)(1) (0.03) (0.02) (0.05) (0.05)
Net realized and unrealized gain (loss) on investments and foreign currency
transactions (0.13) 1.20 1.21 1.53
Total from investment operations (0.16) 1.18 1.16 1.48
Less distributions:
Distributions from net realized gain on investments sold and foreign
currency transactions (1.33) (0.88) (1.19) (0.96)
Net asset value, end of period $12.67 $12.97 $12.94 $13.46
Total investment return at net asset value(2) (%) (0.37) 9.87 9.36 11.88
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 93,597 94,746 92,127 120,775
Ratio of expenses to average net assets (%) 1.87 1.88 1.81(3) 1.82(3)
Ratio of net investment income (loss) to average net assets (%) (0.23) (0.19) (0.36) (0.33)
Portfolio turnover rate (%) 60 98 81 160
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/95 10/96 10/97 10/98 10/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $13.93 $12.36 $12.54 $12.39
Net investment income (loss)(1) (0.11) (0.10) (0.14) (0.13)
Net realized and unrealized gain (loss) on investments and foreign currency
transactions (0.13) 1.16 1.18 1.46
Total from investment operations (0.24) 1.06 1.04 1.33
Less distributions:
Distributions from net realized gain on investments sold and foreign
currency transactions (1.33) (0.88) (1.19) (0.96)
Net asset value, end of period $12.36 $12.54 $12.39 $12.76
Total investment return at net asset value(2) (%) (1.01) 9.10 8.67 11.15
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 24,570 27,599 28,007 55,229
Ratio of expenses to average net assets (%) 2.57 2.54 2.49(3) 2.46(3)
Ratio of net investment income (loss) to average net assets (%) (0.89) (0.83) (1.04) (0.97)
Portfolio turnover rate (%) 60 98 81 160
</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.
22 FUND DETAILS
<PAGE>
International Fund
Figures audited by _______________________________.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/95 10/96 10/97 10/98 10/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.65 $8.14 $8.70 $8.41
Net investment income (loss) 0.04 0.06(1) (0.02)(1) 0.00(1,2)
Net realized and unrealized gain (loss) on investments and foreign currency
transactions (0.47) 0.50 (0.26) 0.47
Total from investment operations (0.43) 0.56 (0.28) 0.47
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) -- -- (0.07)
Total distributions (0.08) -- (0.01) (0.07)
Net asset value, end of period $8.14 $8.70 $8.41 $8.81
Total investment return at net asset value(3) (%) (4.96) 6.88 (3.22) 5.61
Total adjusted investment return at net asset value(3,4) (%) (8.12) 5.33 (4.52) 3.75
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,215 5,098 4,965 6,116
Ratio of expenses to average net assets (%) 1.64 1.75 1.73(5) 1.79(5)
Ratio of adjusted expenses to average net assets(6) (%) 4.80 3.30 3.03(5) 3.65(5)
Ratio of net investment income (loss) to average net assets (%) 0.56 0.68 (0.16) 0.04
Ratio of adjusted net investment income (loss) to average net assets(6) (%) (2.60) (0.87) (1.46) (1.82)
Portfolio turnover rate (%) 69 83 169 129
Fee reduction per share(1) ($) 0.25 0.14 0.12 0.17
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/95 10/96 10/97 10/98 10/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.61 $8.05 $8.55 $8.22
Net investment income (loss) (0.03) 0.00(1,2) (0.08)(1) (0.06)(1)
Net realized and unrealized gain (loss) on investments and foreign currency
transactions (0.48) 0.50 (0.25) 0.46
Total from investment operations (0.51) 0.50 (0.33) 0.40
Less distributions:
Distributions from net realized gain on investments sold and foreign
currency transactions (0.05) -- -- (0.07)
Net asset value, end of period $8.05 $8.55 $8.22 $8.55
Total investment return at net asset value(3) (%) (5.89) 6.21 (3.86) 4.88
Total adjusted investment return at net asset value(3,4) (%) (9.05) 4.66 (5.16) 3.02
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,990 8,175 8,713 9,720
Ratio of expenses to average net assets (%) 2.52 2.45 2.43(5) 2.49(5)
Ratio of adjusted expenses to average net assets(6) (%) 5.68 4.00 3.73(5) 4.35(5)
Ratio of net investment income (loss) to average net assets (%) (0.37) 0.02 (0.88) (0.66)
Ratio of adjusted net investment income (loss) to average net assets(6) (%) (3.53) (1.53) (2.18) (2.52)
Portfolio turnover rate (%) 69 83 169 129
Fee reduction per share(1) ($) 0.25 0.14 0.12 0.17
</TABLE>
FUND DETAILS 23
<PAGE>
International Fund continued
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class C - period ended: 10/98(7) 10/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.36
Net investment income (loss)(1) (0.03)
Net realized and unrealized gain (loss) on investments and foreign currency transactions (0.78)
Total from investment operations (0.81)
Net asset value, end of period $8.55
Total investment return at net asset value(3) (%) (8.65)(8)
Total adjusted investment return at net asset value (3,4) (%) (9.43)(8)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 23
Ratio of expenses to average net assets (%) 2.29(5,9)
Ratio of adjusted expenses to average net assets(6) (%) 4.15(5,9)
Ratio of net investment income (loss) to average net assets (%) (1.27)(9)
Ratio of adjusted net investment income (loss) to average net assets(6) (%) (3.13)(9)
Portfolio turnover rate (%) 129
Fee reduction per share(1) ($) 0.07
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Less than $0.01 per share.
(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) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 per share.
(6) Unreimbursed, without fee reduction.
(7) Class C shares began operations on June 1, 1998.
(8) Not annualized.
(9) Annualized.
24 FUND DETAILS
<PAGE>
Pacific Basin Equities Fund
Figures audited by _____________________________.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 8/95 8/96 10/96(1) 10/97 10/98 10/99
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.88 $14.11 $14.74 $14.47 $11.63
Net investment income (loss)(2) 0.02(3) (0.02) (0.02) (0.07) 0.02
Net realized and unrealized gain (loss) on investments and foreign
currency transactions (1.24) 0.65 (0.25) (2.66) (2.89)
Total from investment operations (1.22) 0.63 (0.27) (2.73) (2.87)
Less distributions:
Distributions from net realized gain on investments sold and foreign
currency transactions (0.55) -- -- (0.11) --
Net asset value, end of period $14.11 $14.74 $14.47 $11.63 $8.76
Total investment return at net asset value(4) (%) (7.65) 4.47 (1.83)(5) (19.03) (24.68)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 37,417 41,951 38,694 21,109 14,717
Ratio of expenses to average net assets (%) 2.05 1.97 2.21(6) 2.06 2.46
Ratio of net investment income (loss) to average net assets (%) 0.13(3) (0.15) (0.83)(6) (0.49) 0.22
Portfolio turnover rate (%) 48 73 15 118 230
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 8/95 8/96 10/96(2) 10/97 10/98 10/99
- ------------------------------------------------------------------------------------------------------------------------------------
Per share operating performance
Net asset value, beginning of period $15.84 $13.96 $14.49 $14.20 $11.32
Net investment income (loss)(2) (0.09) (0.13) (0.04) (0.18) (0.04)
Net realized and unrealized gain (loss) on investments and foreign
currency transactions (1.24) 0.66 (0.25) (2.59) (2.81)
Total from investment operations (1.33) 0.53 (0.29) (2.77) (2.85)
Less distributions:
Distributions from net realized gain on investments sold and
foreign currency transactions (0.55) -- -- (0.11) --
Net asset value, end of period $13.96 $14.49 $14.20 $11.32 $8.47
Total investment return at net asset value(4) (%) (8.38) 3.80 (2.00)(5) (19.67) (25.18)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 14,368 32,342 30,147 17,320 13,166
Ratio of expenses to average net assets (%) 2.77 2.64 2.90(6) 2.76 3.16
Ratio of net investment income (loss) to average net assets (%) (0.66) (0.86) (1.52)(6) (1.19) (0.48)
Portfolio turnover rate (%) 48 73 15 118 230
</TABLE>
(1) Effective October 31, 1996, the fiscal year end changed from August 31 to
October 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) 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.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
FUND DETAILS 25
<PAGE>
- --------------------------------------------------------------------------------
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
international 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.jhfunds.com
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC. For access to
the Reference Room call 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
(C) 2000 John Hancock Funds, Inc.
GLIPN 3/00
John Hancock(R)
<PAGE>
JOHN HANCOCK GLOBAL FUND
Class A, Class B and Class C Shares
Statement of Additional Information
March 1, 2000
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 Funds' current Prospectus (the "Prospectus"). The
Fund is a diversified series of John Hancock Investment Trust III (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, 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............................... 23
Distribution Contracts............................................... 26
Sales Compensation................................................... 27
Net Asset Value...................................................... 30
Initial Sales Charge on Class A Shares............................... 31
Deferred Sales Charge on Class B and Class C Shares.................. 33
Special Redemptions.................................................. 37
Additional Services and Programs..................................... 37
Purchases and Redemptions through Third Parties...................... 39
Description of the Fund's Shares..................................... 39
Tax Status........................................................... 40
Calculation of Performance........................................... 45
Brokerage Allocation................................................. 47
Transfer Agent Services.............................................. 49
Custody of Portfolio................................................. 49
Independent Auditors................................................. 49
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.
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.
The Fund has two Sub-Advisers: Indocam International Investment Services
("IIIS") and John Hancock Advisers International Limited ("JHAI") (collectively,
the "Sub-Advisers"). IIIS is organized under the laws of France and indirectly
owned by Caisse Nationale de Credit Agricole. Together IIIS and JHAI, a London
based wholly owned subsidiary of the Adviser, are responsible for providing
advice to the Fund with respect to investments, subject to the review of the
Trustees and overall supervision of the Adviser.
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-Advisers. 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-Advisers 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.
2
<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 debt 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 directly in the
securities of foreign issuers as well as 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.
Foreign Currency Transactions. The Fund's foreign currency transactions may be
conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market.
The Fund may also enter into forward foreign currency exchange contracts to
enhance return, to hedge against fluctuations in currency exchange rates
affecting a particular transaction or portfolio position, or as a substitute for
the purchase or sale of a currency or assets denominated in that currency.
Forward contracts are agreements to purchase or sell a specified currency at a
specified future date and price set at the time of the contract. Transaction
hedging is the purchase or sale of forward foreign currency contracts with
respect to specific receivables or payables of the Fund accruing in connection
with the purchase and sale of its portfolio securities quoted or denominated in
the same or related foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in the same or related foreign currencies. The Fund may elect to hedge
less than all of its foreign portfolio positions as deemed appropriate by the
Adviser and Sub-Adviser.
3
<PAGE>
If the Fund purchases a forward contract or sells a forward contract for
non-hedging purposes, the Fund will segregate cash or liquid securities in a
separate account of the Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of such forward contract. The assets in the
segregated account will be valued at market daily and if the value of the
securities in the separate account declines, additional cash or securities will
be placed in the account so that the value of the account will be equal 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.
Risks in Foreign Securities. Investments in foreign securities may involve a
greater degree of risks than those in domestic securities. 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.
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 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".
4
<PAGE>
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. 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. 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.
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
5
<PAGE>
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 for the following
extraordinary or emergency purposes: (i) from banks for temporary or short-term
purposes or for the clearance of transactions in amounts not to exceed 33 1/3%
of the value of the Fund's total assets (including the amount borrowed) taken at
market value; (ii) in connection with redemption of Fund shares or to finance
failed settlement of portfolio trades without immediately liquidating portfolio
securities or other assets; and (iii) in order to fulfill commitments or plans
to purchase additional securities pending the anticipated sale of other
portfolio securities or assets. For purposes of this investment restriction, the
deferral of Trustees' fees and transactions in short sales, futures contracts,
options on futures contracts, securities or indices and forward commitment
transactions shall not constitute borrowing. The Fund will enter into reverse
repurchase agreements only with federally insured banks which are approved in
advance as being creditworthy by the Board of 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 have adopted guidelines and delegated 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.
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.
6
<PAGE>
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 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.
7
<PAGE>
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 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.
8
<PAGE>
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 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.
9
<PAGE>
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 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.
10
<PAGE>
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.
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.
11
<PAGE>
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 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. 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 realized 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 .
12
<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) Borrow money, except: (i) for temporary or short-term purposes or
for the clearance of transactions in amounts not to exceed 33 1/3% of
the value of the fund's total assets (including the amount borrowed)
taken at market value; (ii) in connection with the redemption of fund
shares or to finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other assets; (iii) in
order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or other
assets; (iv) in connection with entering into reverse repurchase
agreements and dollar rolls, but only if after each such borrowing
there is asset coverage of at least 300% as defined in the 1940 Act;
and (v) as otherwise permitted under the 1940 Act. For purposes of this
investment restriction, the deferral of trustees' fees and transactions
in all types of derivative instruments are not considered to be
borrowing.
(2) 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.
(3) Issue senior securities, except to the extent permitted by the 1940
Act. 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 exchange contracts and repurchase
agreements entered into in accordance with the fund's investment
policies, are not considered an issuance of senior securities.
(4) Purchase, sell or invest in real estate, but subject to its other
investment policies and restrictions may invest in securities of
companies that deal in real estate or are engaged in the real estate
business. These companies include real estate investment trusts and
securities secured by real estate or interests in real estate. The fund
may hold and sell real estate acquired through default, liquidation or
other distributions of an interest in real estate as a result of the
fund's ownership of securities.
(5) Invest in commodities or commodity futures contracts, other than
financial derivative contracts. Financial derivatives include forward
currency contracts; financial futures contracts and options on
financial futures contracts; options and warrants on securities,
currencies and financial indices; swaps, caps, floors, collars and
swaptions; and repurchase agreements entered into in accordance with
the fund's investment policies.
(6) Make loans, except that the fund may (1) 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 an issue of publicly
distributed debt securities, 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.
13
<PAGE>
(7) Purchase the securities of issuers conducting their principal
activity in the same industry if, immediately after such purchase, the
value of its investments in such industry would equal or exceed 25% of
its total assets taken at market value at the time of such purchase.
This limitation does not apply to investments in obligations of the
U.S. government or any of 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.
The Fund may not:
(1) 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.
(2) Invest more than 15% of its net assets in illiquid securities.
(3) Purchase securities of any issuer for the purpose of exercising
control or management, except in connection with a merger,
consolidation, acquisition or reorganization.
(4) 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).
(5) 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.
(6) Purchase securities on margin or sell short, except that the Fund
may obtain such short term credits as may be necessary for the
clearance of securities transactions.
(7) Purchase securities of an issuer (other than the U.S. government,
its agencies or instrumentalities), to an extent inconsistent with the
Fund's diversified status under the Investment Company Act of 1940.
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.
14
<PAGE>
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").
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Stephen L. Brown* Trustee and Chairman (1, 2) Chairman and Chief Executive Officer,
John Hancock Place John Hancock Mutual Life Insurance
P.O. Box 111 Company; Chairman and Director, John
Boston, MA 02117 Hancock Advisers, Inc. (The Adviser),
July 1937 John Hancock Funds, Inc. (John
Hancock Funds), The Berkeley
Financial Group, Inc. (The Berkeley
Group); Director, John Hancock
Subsidiaries, Inc.; John Hancock
Insurance Agency, Inc.; (Insurance
Agency), (until June 1999); Federal
Reserve Bank of Boston (until March
1999); John Hancock Signature
Services, Inc. (Signature Services)
(until January 1997) ; Trustee,
John Hancock Asset Management
(until March 1997).
Maureen R. Ford * Trustee, Vice Chairman and Chief President, Broker/Dealer Distributor,
Executive Officer John Hancock Mutual Life Insurance
Company; Vice Chairman, Director
and Chief Executive Officer, the
Advisers, The Berkeley Group, John
Hancock Funds; Chairman, Director
and President, Insurance Agency,
Inc.; Chairman, Director and Chief
Executive Officer, Sovereign Asset
Management Corporation (SAMCorp.);
Senior Vice President, MassMutual
Insurance Co. (until 1996); Senior
Vice President, Connecticut Mutual
Insurance Co. (until 1989).
- -------------------
* 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.
15
<PAGE>
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) Chairman, President, and Chief
160 Washington Street Executive Officer, 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.;
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.
16
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
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 Apollo Gold, Inc.; Director Original
Sixteen to One Mines, Inc. (until
1999); Management Consultant (from
1984-1987 and 1991-1998); Director,
Freeport-McMoran Copper & Gold, Inc.
(until 1997); Vice President, Chief
Financial Officer and Director of
Amax Gold, Inc. (until 1998).
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,
23rd Floor headed the venture capital group at
Boston, MA 02110 Bank of 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.
- -------------------
* 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
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 and
April 1953 President, NM Capital and SAMCorp.;
Director, John Hancock Funds,
Advisers International, and John
Hancock Advisers International
(Ireland) Ltd.; Executive Vice
President, the Adviser (until
1994); Director, Insurance Agency,
Inc. (until June 1999); Director,
Signature Services (until January
1997).
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
Council For International Exchange of International Exchange of Scholars
Scholars (since January 1998), Vice
3007 Tilden Street, N.W. President, Institute of
Washington, D.C. 20008 International Education (since
May 1943 January 1998); Senior Fellow,
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).
- -------------------
* 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
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).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Mutual
John Hancock Place Life Insurance Company; Director,
P.O. Box 111 the Adviser, John Hancock Funds,
Boston, MA 02117 Signator Investors, Inc., John
August 1937 Hancock Subsidiaries, Inc.,
SAMCorp.., NM Capital, The Berkeley
Group, JH Networking Insurance
Agency, Inc.; Insurance Agency, Inc.
(until June 1999), 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
Osbert M. Hood Executive Vice President and Chief Executive Vice President and Chief
101 Huntington Avenue Financial Officer Financial Officer, each of the John
Boston, MA 02199 Hancock Funds; Executive Vice
August 1952 President, Treasurer and Chief
Financial Officer of the Adviser,
the Berkeley Group, John Hancock
Funds, and SAMCorp.; Senior Vice
President, Chief Financial Officer
and Treasurer, Signature Services,
NM Capital; Director IndoCam Japan
Limited; 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, John Hancock
July 1950 Funds, NM Capital, SAMCorp. and
Insurance Agency, Inc.; Counsel,
John Hancock Mutual Life Insurance
Company (until February 1996).
- -------------------
* 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
Susan S. Newton Vice President, Secretary and Chief Vice President and Chief Legal
101 Huntington Avenue Legal Officer Officer the Adviser; John Hancock
Boston, MA 02199 Funds, Signature Services, The
March 1950 Berkeley Group, NM Capital and
SAMCorp..
James J. Stokowski Vice President, Treasurer and Chief Vice President, the Adviser.
101 Huntington Avenue Accounting Officer
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
21
<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. Brown and Scipione and Ms. Ford
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
received no compensation from the Fund for their services.
Total Compensation
Aggregate From all Funds in
Compensation from John Hancock Fund
Trustees the Fund(1) Complex to Trustee(2)
-------- ----------- ---------------------
Dennis S. Aronowitz
Richard P. Chapman, Jr.*
William J. Cosgrove*
Douglas M. Costle(3)
Leland O. Erdahl
Richard A. Farrell
Gail D. Fosler
William F. Glavin*
Dr. John A. Moore*
Patti McGill Peterson
John W. Pratt
Total
(1) Compensation is for the fiscal year ended October 31, 1999.
(2) Total compensation paid by the John Hancock Fund Complex to the Independent
Trustees is as of December 31, 1999. As of this date, there were sixty-five
funds in the John Hancock Fund Complex, with each of these Independent Trustees
serving on thirty-one funds.
(3) Mr. Costle resigned as of December 31, 1999.
*As of December 31, 1999, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Fund 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 December 1, 1999, 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:
22
<PAGE>
Percentage of total
Class of outstanding shares of
Name and Address of Shareholder Shares the Class of the Fund
- ------------------------------- ------ ---------------------
MLPF&S For The Sole Benefit of Its Customers B 7.60%
Attn: Fund Administration 9739B
4800 Deer Lake Drive East 2nd Fl
Jacksonville FLA 32246-6484
Oregon Wire Products C 7.95%
Mapped Conversion Account
101 Huntington Ave
Boston, MA
Central Collision Center C 7.90%
216 South Harlem
Peotone, IL
Lyon Electric Company, Inc. C 7.10%
1690 A Brandywine Avenue
Chula Vista, CA
John Hancock Mutual Life Ins Co. Custodian C 5.78%
for the Rollover IRA of Michael YO Lee
49 Uilani St
Kihie HI
Sterling Trust Co. C 5.25%
FBO Dean T Stange TTEE
Barbara M Black Irrev Trust
P.O. box 2518
Waco TX
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 funds in the
John Hancock group of funds as well as institutional accounts. 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
23
<PAGE>
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, 1997, 1998 and 1999, the Adviser's
management fee was $1,251,029, $1,489,223 and $ , respectively
The Adviser has entered into sub-investment management contracts with
Co-Sub-Advisers (the "Sub-Advisory Agreements") under which the Co-Sub-Advisers,
subject to the review of the Trustees and the overall supervision of the
Adviser, are responsible for providing the Fund with advice with respect to that
portion of the assets invested in countries other than the United States and
Canada.
As of January 1, 2000 the primary Sub-Adviser to the Fund will be Indocam
International Investment Services ("IIIS"). Under its Sub-Advisory Agreement
with the Adviser, IIIS will provide the Fund with advise and recommendations
regarding the fund's investments. IIIS will also provide the Fund on a
continuous basis with economic, financial and political information research and
assistance concerning international markets. IIIS is organized under the laws of
France and is a wholly owned subsidiary of Credit Agricole, a French banking
group. IIIS is located at 90 Boulevard Pasteur, Paris, France 75025. As
compensation for its services under the Sub-Advisory Agreement, the Adviser will
pay IIIS quarterly, in arrears, a fee at the annual rate of 50% of the
investment advisory fee received by the Adviser. The existing Sub-Adviser, John
Hancock Advisers, International ("JHAI"), is located at 6th Floor, Duke's Court,
32-36 Duke Street, St. James's, London, England SW1Y6DF. JHAI 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, JHAI 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. JHAI has agreed to waive all
but 0.05% of the fee, as of January 1, 2000. The Fund is not responsible for
paying either Sub-Adviser's fee.
24
<PAGE>
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, Sub-Advisers or any of their respective
affiliates provides 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 the Advisory Agreement and the Sub-Advisory Agreements, neither the
Adviser nor Sub-Advisers is 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
Agreements relate, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Adviser or Sub-Advisers 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 Agreements and the
Distribution Agreement was approved by all Trustees. The Advisory Agreement,
Sub-Advisory Agreements 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. Each of these
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, 1997, 1998 and 1999,
the Fund paid the Adviser $24,127, $28,542 and $ , respectively, for services
under this Agreement.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser, the
Sub-Advisers and the Fund have adopted extensive restrictions on personal
securities trading by personnel of the 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-Advisers' 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.
25
<PAGE>
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. These Selling Brokers are authorized to
designate other intermediaries to receive purchase and redemption orders on
behalf of the Fund. 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, 1997, 1998 and 1999 were $114,878, $170,892 and $
, respectively. Of such amounts $18,135, $28,661 and $ , respectively, were
retained by John Hancock Funds in 1997, 1998 and 1999. 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 with interest on the balance of these unreimbursed
expenses. The Fund does not treat unreimbursed expenses under 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, 1999,
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 the John Hancock Funds
through the receipt of deferred sales charges or 12b-1 fees in prior periods.
For the fiscal year ended October 31, 1999, 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 the John Hancock Funds through the receipt of
deferred sales charges or 12b-1 fees.
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.
26
<PAGE>
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
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 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 o f
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, 1999, 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 John Other
New to Selling Hancock Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A
Class B
Class C
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.
27
<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 the arrears by the Fund.
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>
Maximum First year
Sales charge reallowance service fee Maximum total
paid by investors or commission (% of net compensation (1)
Class A investments (% of offering price) (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- -------------------- --------------- ---------------------
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
Class A shares of
$1 million or more (4)
- ----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Retirement investments of
Class A shares of
$1 million or more*
- -------------------
First $1M - $24,999,999 0.75% 0.25% 1.00%
Next $25M -$49,999,999 0.25% 0.25% 0.50%
Next $1 or more above that 0.00% 0.25% 0.25%
Maximum First year
reallowance service fee Maximum total
or commission (% of net compensation (1)
Class B investments (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------- ---------------------
All amounts 3.75% 0.25% 4.00%
Maximum First year
reallowance service fee Maximum total
or commission (% of net compensation (1)
Class C investments (% of offering price) investment) (3) (% 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
(2) For Group Investment Programs sales, the maximum total compensation for
investments of $1 million or more is 1.00% of the offering price (one year
CDSC of 1.00% applies for each sale).
29
<PAGE>
(3) After first year subsequent service fees are paid quarterly in arrears.
(4) Includes new investments aggregated with investments since the last annual
reset. John Hancock Funds may take recent redemptions into account in
determining if an investment qualifies as a new investment.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
*Retirement investments only. These include 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 retirement plans as
described in the Internal Revenue Code.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned categories for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the 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 their 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.
30
<PAGE>
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:
oA 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.
oA 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.
oA 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.
oA member of a class action lawsuit against insurance companies
who is investing settlement proceeds.
oRetirement 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.
oRetirement plans investing through the PruArray Program sponsored
by Prudential Securities.
oPension 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.
31
<PAGE>
oShareholders of John Hancock Funds PLC who become U.S. residents or
citizens and transfer their existing assets from John Hancock Fund PLC
to the Fund.
oExisting 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). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. 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. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
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
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<PAGE>
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. An individaul's 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 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 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 price or on 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 purchase 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
33
<PAGE>
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 subject
to a 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:
oProceeds 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)
-------
oAmount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account 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:
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 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.)
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<PAGE>
* 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 some examples.
35
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP) 457 & 408
(SEPs & Simple
IRAs)
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
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 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually
12% of account in periodic
value annually payments
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 annually in annually in annually in
payments. 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
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
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.
36
<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,
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 500 Index Fund and John Hancock
Intermediate 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 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.
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<PAGE>
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 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 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."
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).
38
<PAGE>
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers.
Brokers may charge for their services or place limitations on the extent to
which you may use the services of the Fund. The Fund will be deemed to have
received a purchase or redemption order when an authorized broker, or if
applicable, a broker's authorized designee, receives the order. If a broker is
an agent or designee of the Fund, orders are processed at the NAV next
calculated after the broker receives the order. The broker must segregate any
orders it receives after the close of regular trading on the New York Stock
Exchange and transmit those orders to the Fund for execution at NAV next
determined. Some brokers that maintain nominee accounts with the Fund for their
clients charge an annual fee on the average net assets held in such accounts for
accounting, servicing, and distribution services they provide with respect to
the underlying Fund shares. The Adviser, the Fund, and John Hancock Funds, Inc.
(the Fund's principal distributor), share in the expense of these fees.
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 and
classes, without further action by shareholders. As of the date of this
Statement of Additional Information, the Trustees have authorized shares of the
Fund and one other series. Additional series may be added in the future. 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 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.
39
<PAGE>
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 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
40
<PAGE>
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions 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 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. 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.
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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.
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 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.
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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 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
realized 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
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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.
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.
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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 a Fund and, unless an effective IRS Form W-8, Form W-8BEN or
other authorized withholding certificate 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) 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, 1999 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,
1999. Class C shares commenced operations on March 1, 1999; therefore, there is
no average total return to report.
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
10/31/99 10/31/99 10/31/99 10/31/99 10/31/99 10/31/99
- -------- ------- ---------- -------- -------- --------
% % % % % %
Class C
Shares
One Year
Ended`
3/1/99* to
10/31/99
- ----------
%
* 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:
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n ______
T = \ / ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
investment made at the beginning of the 1 year, 5 years,
and life-of-fund periods.
The result of the foregoing calculation is an average and is not the same as the
actual year-to-year results.
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.
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BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Sub-Adviser under the
supervision of and under the guidelines established by the Adviser, which
consists of officers and directors of the 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
maker reflect a "spread." Debt securities are generally traded on a net basis
through dealers acting for their own account as principals and not as brokers;
no brokerage commissions are payable on these transactions.
In the U.S. Government securities market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account without a
stated commission, although the price of the security usually includes a profit
to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. 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.
The Sub-Advisory Agreements between both Adviser and the Sub-Advisers authorize
the Sub-Advisers (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-Advisers,
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-Advisers. The receipt of research information is not
expected to reduce significantly the expenses of the Adviser or Sub-Advisers.
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-Advisers may result in research
information and statistical assistance beneficial to the Fund. The Fund will
make no commitment to allocate portfolio transactions upon any prescribed basis.
While the Adviser and Sub-Advisers 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 subject
to review by the Trustees. For the fiscal years ended October 31, 1997, 1998 and
1999, the Fund paid negotiated brokerage commissions of $38,297, $991,065 and
$ , respectively.
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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,
1999, the Fund paid $ in 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 Signator Investors, Inc., a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" or "Affiliated Broker"). Credit
Agricole, IIIS parent, has several affiliates engaged in the brokerage business
in Europe and Asia: Credit Agricole Indosuez Cheuvreux; CPR Action (ex-Schelcher
Prince Cheuvreux de Virieu International Ltd, London; Cheuvreux de Virieu,
Nordic AB, Stockholm, Cheuvreux de Virieu, Espana, Madrid, Credit Agricole
Indosuez Cheuvreux Deutschland GMBH, Frankfourt/ Main; Caboto Sim in Italy; Carr
Securities; Carr Futures SNC. (Paris) and Carr Futures PTE, Singapore (all
"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. 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 the Affiliated Brokers. During the fiscal years ending October 31, 1997,
1998 and 1999, no brokerage commissions were paid to the Affiliated Brokers in
connection with the portfolio transactions of the Fund.
Affiliated Brokers may act as broker for the Fund on exchange transactions,
subject, however, to the general policy of the Fund set forth above and the
procedures adopted by the Trustees pursuant to the Investment Company Act.
Commissions paid to an Affiliated Broker must be at least as favorable as those
which the Trustees believe to be contemporaneously charged by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold. A transaction would not be placed with an Affiliated Broker
if the Fund would have to pay a commission rate less favorable than the
Affiliated Broker's contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated, customers except for accounts for which
the Affiliated Broker acts as clearing broker 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.
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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. The Affiliated Broker 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 the Affiliated
Broker in the over-the-counter securities in which the Affiliated Broker 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. Because of this, client accounts
in a particular style may sometimes not sell or acquire securities as quickly or
at the same prices as they might if each were managed and traded individually.
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of account
objective, account size ( a small account's allocation may be increased to
provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a meaningful allocation. For new issues, when a
complete order is not filled, a partial allocation will be made to each account
pro rata based on the order size. However, if a partial allocation is too small
to be meaningful, it may be reallocated based on such factors as account
objectives, duration benchmarks and credit and sector exposure. 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
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.
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.
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INDEPENDENT AUDITORS
The independent auditors of the Fund are __________________________, 160 Federal
Street, Boston, Massachusetts 02110. ________________________________ 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).
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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, when-issued securities and forward commitments,
currency contracts, financial futures and options; securities and index
options).
A-2
<PAGE>
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 LARGE CAP GROWTH FUND
Class A, Class B and Class C Shares
Statement of Additional Information
March 1, 2000
This Statement of Additional Information provides information about John Hancock
Large Cap Growth Fund (the "Fund") in addition to the information that is
contained in the combined Equity Funds' current Prospectus (the "Prospectus").
The Fund is a diversified series of John Hancock Investment Trust III (the
"Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, 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................................. 25
Distribution Contracts................................................. 27
Sales Compensation..................................................... 29
Net Asset Value........................................................ 31
Initial Sales Charge on Class A Shares................................. 32
Deferred Sales Charge on Class B and Class C Shares.................... 34
Special Redemptions.................................................... 39
Additional Services and Programs....................................... 39
Purchases and Redemptions Through Third Parties........................ 41
Description of the Fund's Shares....................................... 41
Tax Status............................................................. 43
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 in 1984 under the laws of The
Commonwealth of Massachusetts. Prior to July 1996, the Fund was a series of John
Hancock Capital Series. Prior to June 1, 1999, the Fund was called John Hancock
Growth Fund.
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. To
pursue this goal, the Fund normally invests at least 65% of total assets in
stocks of large-capitalization companies (companies in the capitalization range
of the Standard & Poor's 500 Stock Index).
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 Fund generally invests in 30 to 60 U.S.
companies 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 managers use fundamental financial analysis
to identify companies with:
o Strong cash flows
o Secure market franchises
o Sales growth that outpaces their industries
The 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 managers project at least 15% annual growth for
the next two years.
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".
2
<PAGE>
Lower Rated High Yield Debt Obligations. The Fund may invest in debt securities
rated as low as C by Moody's Investors Service, Inc. ("Moody's") or Standard &
Poor's Ratings Group ("S&P") and unrated securities deemed of equivalent quality
by the Adviser. These securities are speculative to a high degree and often have
very poor prospects of attaining real investment standing. Lower rated
securities are generally referred to as junk bonds. No more than 5% of the
Fund's net assets, however, will be invested in securities rated lower than BBB
by S&P or Baa by Moody's. In addition, no more than 5% of the Fund's net assets
may be invested in securities rated BBB or Baa and unrated securities deemed of
equivalent quality. See the Appendix attached to this Statement of Additional
Information which describes the characteristics of the securities in the various
ratings categories. The Fund may invest in comparable quality unrated securities
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 debt 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.
3
<PAGE>
Investments In Foreign Securities. The Fund may invest up to 15% of its total
assets in securities of foreign issuers as well as securities in the form of
sponsored or unsponsored American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") or other securities convertible into securities of
foreign issuers. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. EDRs are receipts issued in Europe which evidence a similar
ownership arrangement. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information, including financial information, in
the United States. Generally, ADRs are designed for use in the United States
securities markets and EDRs are designed for use in European securities markets.
Issuers of upsonsored ADRs are not contractually obligated to disclose material
information including financial information in the U.S.
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.
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, auditing and financial reporting requirements comparable to those
applicable to United States issuers.
4
<PAGE>
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 of the 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 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 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.
5
<PAGE>
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 these 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 securities. The Trustees have adopted guidelines and delegated
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.
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
6
<PAGE>
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 realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
7
<PAGE>
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.
8
<PAGE>
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 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.
9
<PAGE>
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
10
<PAGE>
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 liquid securities of any type of 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.
12
<PAGE>
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 for that year.
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>
Stephen L. Brown* Trustee and Chairman (1, 2) Chairman and Chief Executive Officer,
John Hancock Place John Hancock Mutual Life Insurance
P.O. Box 111 Company; Chairman and Director, John
Boston, MA 02117 Hancock Advisers, Inc. (The Adviser),
July 1937 John Hancock Funds, Inc. (John
Hancock Funds), The Berkeley
Financial Group, Inc. (The Berkeley
Group); Director, John Hancock
Subsidiaries, Inc.; John Hancock
Insurance Agency, Inc.; (Insurance
Agency), (until June 1999); Federal
Reserve Bank of Boston (until March
1999); John Hancock Signature
Services, Inc. (Signature Services)
(until January 1997) ; Trustee,
John Hancock Asset Management
(until March 1997).
Maureen R. Ford * Trustee, Vice Chairman and Chief President, Broker/Dealer Distributor,
Executive Officer John Hancock Mutual Life Insurance
Company; Vice Chairman, Director
and Chief Executive Officer, the
Advisers, The Berkeley Group, John
Hancock Funds; Chairman, Director
and President, Insurance Agency,
Inc.; Chairman, Director and Chief
Executive Officer, Sovereign Asset
Management Corporation (SAMCorp.);
Senior Vice President, MassMutual
Insurance Co. (until 1996); Senior
Vice President, Connecticut Mutual
Insurance Co. (until 1989).
- -------------------
* 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
- ---------------- ---------------- --------------------------
<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) Chairman, President, and Chief
160 Washington Street Executive Officer, 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.;
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.
18
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
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 Apollo Gold, Inc.; Director Original
Sixteen to One Mines, Inc. (until
1999); Management Consultant (from
1984-1987 and 1991-1998); Director,
Freeport-McMoran Copper & Gold, Inc.
(until 1997); Vice President, Chief
Financial Officer and Director of
Amax Gold, Inc. (until 1998).
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,
23rd Floor headed the venture capital group at
Boston, MA 02110 Bank of 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.
- -------------------
* 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
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 and
April 1953 President, NM Capital and SAMCorp.;
Director, John Hancock Funds,
Advisers International, and John
Hancock Advisers International
(Ireland) Ltd.; Executive Vice
President, the Adviser (until
1994); Director, Insurance Agency,
Inc. (until June 1999); Director,
Signature Services (until January
1997).
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
Council For International Exchange of International Exchange of Scholars
Scholars (since January 1998), Vice
3007 Tilden Street, N.W. President, Institute of
Washington, D.C. 20008 International Education (since
May 1943 January 1998); Senior Fellow,
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).
- -------------------
* 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
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).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Mutual
John Hancock Place Life Insurance Company; Director,
P.O. Box 111 the Adviser, John Hancock Funds,
Boston, MA 02117 Signator Investors, Inc., John
August 1937 Hancock Subsidiaries, Inc.,
SAMCorp.., NM Capital, The Berkeley
Group, JH Networking Insurance
Agency, Inc.; Insurance Agency, Inc.
(until June 1999), 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
Osbert M. Hood Executive Vice President and Chief Executive Vice President and Chief
101 Huntington Avenue Financial Officer Financial Officer, each of the John
Boston, MA 02199 Hancock Funds; Executive Vice
August 1952 President, Treasurer and Chief
Financial Officer of the Adviser,
the Berkeley Group, John Hancock
Funds, and SAMCorp.; Senior Vice
President, Chief Financial Officer
and Treasurer, Signature Services,
NM Capital; Director IndoCam Japan
Limited; 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, John Hancock
July 1950 Funds, NM Capital, SAMCorp. and
Insurance Agency, Inc.; Counsel,
John Hancock Mutual Life Insurance
Company (until February 1996).
- -------------------
* 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
Susan S. Newton Vice President, Secretary and Chief Vice President and Chief Legal
101 Huntington Avenue Legal Officer Officer the Adviser; John Hancock
Boston, MA 02199 Funds, Signature Services, The
March 1950 Berkeley Group, NM Capital and
SAMCorp..
James J. Stokowski Vice President, Treasurer and Chief Vice President, the Adviser.
101 Huntington Avenue Accounting Officer
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
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. Brown and Scipione and Ms. Ford
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 (3)
Leland O. Erdahl
Richard A. Farrell
Gail D. Fosler
William F. Glavin*
Dr. John A. Moore*
Patti McGill Peterson
John W. Pratt
Total
(1) Compensation is for the fiscal year ended October 31, 1999.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 1999. As of this date, there were sixty-five
funds in the John Hancock Fund Complex, with each of these Independent Trustees
serving on thirty-one funds.
(3) Mr. Costle resigned as of December 31, 1999.
*As of December 31, 1999, 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 December 1, 1999, 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>
- --------------------------------------------------------------------------------
Percentage of Total
Outstanding Shares
Name and Address of Shareholder lass of Shares of the Fund
- ------------------------------- -------------- -----------
- --------------------------------------------------------------------------------
MLPF&S For The Sole Benefit of
Its Customers B 10.46%
Attn: Fund Administration 97DA7
4800 Deer Lake Drive East 2nd Fl
Jacksonville FL 32246-6484
- --------------------------------------------------------------------------------
MLPF&S For The Sole Benefit of
Its Customers C 10.55%
Attn: Fund Administration 97DA7
4800 Deer Lake Drive East 2nd Fl
Jacksonville FL 32246-6484
- --------------------------------------------------------------------------------
Edward D. Jones & Co. FBO C 5.64%
Leon Cook
P.O. Box 2500
Maryland HTS, MO 63043
- --------------------------------------------------------------------------------
Sheryl Lynn Castor C 5.07%
2450 N. Fillmore Ave
Rialto, CA 92377
- --------------------------------------------------------------------------------
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 funds and in the
John Hancock group of funds as well as institutional accounts. 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
25
<PAGE>
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.
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 fiscal years ended October 31, 1997., 1998 and 1999, the Fund paid the
Adviser an investment advisory fees of $2,560,785, $4,442,408 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 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 its 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
26
<PAGE>
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 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 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 fiscal years ended October 31, 1997, 1998 and 1999,
the Fund paid the Adviser $59,616, $97,772 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") that have entered into selling agency
agreements with John Hancock Funds. These Selling Brokers are authorized to
designate other intermediaries to receive purchase and redemption orders on
behalf of the Fund. 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, 1997, 1998 and 1999 were $376,266, $464,798 and $
, respectively. Of such amounts, $58,043, $75,201 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.
27
<PAGE>
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 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 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,
1999, 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 fiscal year ended October 31, 1999, 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 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, 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.
28
<PAGE>
Amounts paid to the John Hancock Funds by any class of shares of the Fund will
not be used to pay the expenses incurred with respect to any other class of
shares of the Fund; provided, however, that expenses attributable to the Fund as
a whole will be allocated, to the extent permitted by law, according to the
formula based upon gross sales dollars and/or average daily net assets of each
such class, as may be approved from time to time by vote of a majority of the
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, 1999, 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 John Other
New to Selling Hancock Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A
Class B
Class C
SALES COMPENSATION
As part of their business strategies, the Fund, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund's 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 in the Fund.
29
<PAGE>
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.
Maximum First year
Sales charge reallowance service Maximum total
paid by investors or commission fee (% of net compensation (1)
Class A investments (% of offering price) (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------------- --------------- ---------------------
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 Class A share of
$1 million or more (4)
- ----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Retirement investments
of Class A shares of
$1 million or more *
- --------------------
First $1M - $24,999,999 -- 0.75% 0.25% 1.00%
Next $25M -$49,999,999 -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Maximum
reallowance First year Maximum total
or commission service fee (% of Compensation (1)
Class B investments (% of offering price) net investment)(3) (% of offering price)
- ------------------- --------------------- ------------------ ---------------------
All amounts 3.75% 0.25% 4.00%
Maximum
reallowance First year Maximum total
or commission service fee (% of Compensation (1)
Class C investments (% of offering price) net investment) (3) (% 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.
30
<PAGE>
(2) For Group Investment Programs sales, the maximum total compensation for
investments of $1 million or more is 1.00% of the offering price (one year CDSC
of 1.00% applies for each sale).
(3) After first year subsequent service fees are paid quarterly in arrears.
(4) Includes new investments aggregated with investments since the last annual
reset. John Hancock Funds may take recent redemptions into account in
determining if an investment qualifies as a new investment.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
*Retirement investments only. These include 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 retirement plans as
described in the Internal Revenue Code.
NET ASSET VALUE
For purposes of calculating the net asset value (NAV) of the Fund's shares, the
following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market- maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of a determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by the
events occurring after the closing of a foreign market, assets are valued by a
method that the Trustees 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.
31
<PAGE>
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, 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.
32
<PAGE>
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 Shareholders of John Hancock Funds PLC who become U.S. residents or
citizens and transfer their existing assets from John Hancock Funds
PLC to the Fund.
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). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. 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. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
33
<PAGE>
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 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. An individual's 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 during the specified period from the
date of the LOI or from a date within ninety (90) days prior thereto, upon
written request to Signature Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount intended
to be invested had been invested immediately. If such aggregate amount is not
actually invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the investor.
However, for the purchases actually made within the specified period (either 13
or 48 months) the sales charge applicable will not be higher than that which
would have applied (including accumulations and combinations) had the LOI been
for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay such sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his or her
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the 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.
34
<PAGE>
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 price or on 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 subject
to a 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:
oProceeds 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 account not just
the shares being redeemed.
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<PAGE>
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray 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.
* 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 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 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.
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<PAGE>
* 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 some examples.
37
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP) 457 & 408
(SEPs & Simple
IRAs)
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
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 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually
12% of account in periodic
value annually payments
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 annually in annually in annually in
payments. 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
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
Return of Excess Waived Waived Waived Waived N/A
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
</TABLE>
38
<PAGE>
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 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 500 Index Fund and John Hancock
Intermediate 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 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
39
<PAGE>
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."
40
<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).
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers.
Brokers may charge for their services or place limitations on the extent to
which you may use the services of the Fund. The Fund will be deemed to have
received a purchase or redemption order when an authorized broker, or if
applicable, a broker's authorized designee, receives the order. If a broker is
an agent or designee of the Fund, orders are processed at the NAV next
calculated after the broker receives the order. The broker must segregate any
orders it receives after the close of regular trading on the New York Stock
Exchange and transmit those orders to the Fund for execution at NAV next
determined. Some brokers that maintain nominee accounts with the Fund for their
clients charge an annual fee on the average net assets held in such accounts for
accounting, servicing, and distribution services they provide with respect to
the underlying Fund shares. The Adviser, the Fund, and John Hancock Funds, Inc.
(the Fund's principal distributor), share in the expense of these fees.
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 and
classes, 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
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 of shares will be borne
exclusively by that class, (ii) Class B and Class C shares will pay higher
distribution and service fees than
41
<PAGE>
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 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.
42
<PAGE>
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 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 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. 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.
43
<PAGE>
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 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.
44
<PAGE>
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.
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.
45
<PAGE>
For Federal income tax purposes, the Fund is permitted to carry forward a net
realized 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 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.
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<PAGE>
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 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, Form
W-8BEN or other authorized withholding certificate 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.
47
<PAGE>
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, 1999 was %, % and %, respectively.
The average annual total return on Class B shares of the Fund for the 1 year
period ended October 31, 1999 and since inception on January 3, 1994 was % and
%, respectively.
The average annual total return on Class C shares of the Fund for the 1 year
period ended October 31, 1999 and since inception on June 1, 1998 was % and %,
respectively.
Total return is computed by finding the average annual compounded rate of return
over the 1 year, 5 year and 10 year periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
n _____
T = \ /ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1 year, 5 year, and 10 year periods.
Because each 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
48
<PAGE>
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:
6
Yield = 2 ( [ ( a - b ) + 1 ] - 1 )
-----
cd
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.
49
<PAGE>
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 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 instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. 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 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 fiscal years end October 31,
1997, 1998 and 1999, the Fund paid negotiated brokerage commissions in the
amount of $662,164, $2,074,796 and $ , respectively.
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<PAGE>
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay a broker which provides brokerage and research services to the Fund an
amount of disclosed commission in excess of the commission which another broker
would have charged for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that such 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, 1999, the Fund directed
commissions in the amount of $ 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 Signator Investors, Inc., a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" 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 the Affiliated Broker. During the fiscal year ended October 31, 1997,
1998 and 1999, the Fund did not execute any portfolio transactions with the
Affiliated Broker.
Signator 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
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. Because of
this, client accounts in a particular style may sometimes not sell or acquire
securities as quickly or at the same prices as they might if each were managed
and traded individually.
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of account
objective, account size ( a small account's allocation may be increased to
provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation
51
<PAGE>
may be increased if that account's portfolio manager was responsible for
generating the investment idea or the portfolio manager intends to buy more
shares in the secondary market. For fixed income accounts, generally securities
will be allocated when appropriate among accounts based on account size, except
if the accounts have different objectives or if an account is too small to get a
meaningful allocation. For new issues, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. However, if a partial allocation is too small to be meaningful, it may be
reallocated based on such factors as account objectives, duration benchmarks and
credit and sector exposure. 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.
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
__________________, 200 Clarendon Street, Boston, Massachusetts 02116, has been
selected as the independent auditors of the Fund. The financial statements of
the Fund included in the Prospectus and this Statement of Additional Information
have been audited by ________________________ for the periods indicated in their
report, appearing elsewhere herein, and have been included in reliance on their
report as experts in accounting and auditing.
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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 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.
B-1
<PAGE>
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
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FINANCIAL STATEMENTS
F-1
<PAGE>
JOHN HANCOCK INTERNATIONAL FUND
Class A, Class B and Class C Shares
Statement of Additional Information
March 1, 2000
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 Funds' current Prospectus (the
"Prospectus"). The Fund is a diversified series of John Hancock Investment Trust
III (the "Trust").
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............................................... 12
Those Responsible for Management...................................... 15
Investment Advisory and Other Services................................ 24
Distribution Contracts................................................ 27
Sales Compensation.................................................... 29
Net Asset Value....................................................... 31
Initial Sales Charge on Class A Shares................................ 31
Deferred Sales Charge on Class B and Class C Shares................... 34
Special Redemptions................................................... 38
Additional Services and Programs...................................... 38
Purchases and Redemptions through Third Parties....................... 40
Description of the Fund's Shares...................................... 40
Tax Status............................................................ 41
Calculation of Performance............................................ 46
Brokerage Allocation.................................................. 47
Transfer Agent Services............................................... 49
Custody of Portfolio.................................................. 49
Independent Auditors.................................................. 50
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 under the laws of The Commonwealth
of Massachusetts.
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.
The Fund has two Sub-Advisers: Indocam International Investment Services
("IIIS") and John Hancock Advisers International Limited ("JHAI") (collectively,
the "Sub-Advisers"). IIIS is organized under the laws of France and indirectly
owned by Caisse Nationale de Credit Agricole. Together IIIS and JHAI, a London
based wholly owned subsidiary of the Adviser are responsible for providing
advice to the Fund with respect to investments, subject to the review of the
Trustees and overall supervision of the Adviser.
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. Under normal conditions the Fund may not invest more than 10% of total
assets in cash and/or cash equivalents (except cash segregated in relation to
futures, forward and option contracts. 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.
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 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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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.
Under normal market conditions the fund will not invest in any fixed income
securities. However, in abnormal market conditions the fund may temporarily
invest in US Government securities and US Government agency securities with
maturities of up to three years, and may also invest more than 10% of total
assets in cash and/or cash equivalents (including US Government securities
maturing in 90 days or less).
In these situations, 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: short-term 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 short-term 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
3
<PAGE>
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 debt
securities. Among the factors which will be considered are the 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 directly in the
securities of foreign issuers as well as 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.
Foreign Currency Transactions. The Fund's foreign currency transactions may be
conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market.
The Fund may also enter into forward foreign currency exchange contracts to
enhance return, to hedge against fluctuations in currency exchange rates
affecting a particular transaction or portfolio position, or as a substitute for
the purchase or sale of a currency or assets denominated in that currency.
Forward contracts are agreements to purchase or sell a specified currency at a
specified future date and price set at the time of the contract. Transaction
hedging is the purchase or sale of forward foreign currency contracts with
respect to specific receivables or payables of the Fund accruing in connection
with the purchase and sale of its portfolio securities quoted or denominated in
the same or related foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in the same or related foreign currencies. The Fund may elect to hedge
less than all of its foreign portfolio positions as deemed appropriate by the
Adviser and Sub-Adviser.
If the Fund purchases a forward contract or sells a forward contract for
non-hedging purposes, the Fund will segregate cash or liquid securities in a
separate account of the Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of such forward contract. The assets in the
segregated account will be valued at market daily and if the value of the
securities in the separate account declines, additional cash or securities will
be placed in the account so that the value of the account will be equal the
amount of the Fund's commitment with respect to such contracts.
4
<PAGE>
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.
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.
The Fund normally invests at least 80% of total assets in a diversified
portfolio of foreign stocks from both developed and emerging countries. The Fund
may invest up to 30% of total assets in emerging markets as classified by the
Morgan Stanley (MCI). Foreign equities include but are not limited to common
stocks, convertible preferred stocks, preferred stocks, warrants, ADRs, GDRs and
EDRs. The risks of foreign investing may be intensified in the case of
investments in emerging markets or countries with limited or developing capital
5
<PAGE>
markets. These countries are located in the Asia-Pacific region, Eastern Europe,
Latin and South America and Africa. Security prices in these markets can be
significantly more volatile than in more developed countries, reflecting the
greater uncertainties of investing in less established markets and economies.
Political, legal and economic structures in many of these emerging market
countries may be undergoing significant evolution and rapid development, and
they may lack the social, political, legal and economic stability characteristic
of more developed countries. Emerging market countries may have failed in the
past to recognize private property rights. They may have relatively unstable
governments, present the risk of nationalization of businesses, restrictions on
foreign ownership, or prohibitions on repatriation of assets, and may have less
protection of property rights than more developed countries. Their economies may
be predominantly based on only a few industries, may be highly vulnerable to
changes in local or global trade conditions, and may suffer from extreme and
volatile debt burdens or inflation 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.
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 in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income, decline in
value of the underlying securities or lack of access to income during this
period as well as the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
6
<PAGE>
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 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 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 have adopted guidelines and delegated 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 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.
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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 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
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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 hedge against
changes in interest rates or for other non-speculative purposes, 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.
9
<PAGE>
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 for bona fide hedging or other non-speculative purposes as
permitted by the CFTC. These purposes may include using futures and options on
futures as a substitute for the purchase or sale of securities to increase or
reduce exposure to particular bond markets. To the extent that the Fund is using
futures and related options for hedging purposes, futures contracts will be sold
to protect against a decline in the price of securities that the Fund owns or
futures contracts will be purchased to protect the Fund against an increase in
the price of securities it intends to purchase. The Fund will determine that the
price fluctuations in the futures contracts and options on futures used for
hedging purposes are substantially related to price fluctuations in securities
held by the Fund or securities or instruments which it expects to purchase. As
evidence of its hedging intent, the Fund expects that on 75% or more of the
10
<PAGE>
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.
11
<PAGE>
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.
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.
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.
12
<PAGE>
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.
(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.
(8) For each Fund with respect to 75% of total assets [see
nonfundamental investment restriction (h)], purchase
securities of an issuer (other then the U.S. government, its
agencies, instrumentalities or authorities), if:
(a) 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
13
<PAGE>
(b) such purchase would at the time result in more
than 10% of the outstanding voting securities
of such issuer being held by the Fund.
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
(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.
(g) Under normal conditions the Fund may not invest more
than 10% of total assets in cash and /or cash
equivalents (except cash segregated in relation to
futures, forward and option contracts).
(h) The Fund may not invest more than 5% of its total
assets at time of purchase in any one securitiy
(other than US Government securities).
14
<PAGE>
(i) Under normal market conditions the Fund will not
invest in any fixed income securities. However, in
abnormal market conditions the Fund may temporarily
invest US Government securities and US Government
agency securities with maturities of up to three
years, and may also invest more than 10% of total
assets in cash and/or cash equivalents (including US
Government securities maturing in 90 days or less).
(j) The Fund normally invests at least 80% of total
assets in a diversified portfolio of foreign stocks
form both developed and emerging countries. The fund
may invest up to 30% of total assets in emerging
markets as classified by the Morgan Stanley (MSCI).
Foreign equities include but are not limited to
common stocks, convertible preferred stocks,
preferred stocks, warrants, ADRs, GDRs and EDRs.
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>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Stephen L. Brown* Trustee and Chairman (1, 2) Chairman and Chief Executive Officer,
John Hancock Place John Hancock Mutual Life Insurance
P.O. Box 111 Company; Chairman and Director, John
Boston, MA 02117 Hancock Advisers, Inc. (The Adviser),
July 1937 John Hancock Funds, Inc. (John
Hancock Funds), The Berkeley
Financial Group, Inc. (The Berkeley
Group); Director, John Hancock
Subsidiaries, Inc.; John Hancock
Insurance Agency, Inc.; (Insurance
Agency), (until June 1999); Federal
Reserve Bank of Boston (until March
1999); John Hancock Signature
Services, Inc. (Signature Services)
(until January 1997) ; Trustee,
John Hancock Asset Management
(until March 1997).
Maureen R. Ford * Trustee, Vice Chairman and Chief President, Broker/Dealer Distributor,
Executive Officer John Hancock Mutual Life Insurance
Company; Vice Chairman, Director
and Chief Executive Officer, the
Advisers, The Berkeley Group, John
Hancock Funds; Chairman, Director
and President, Insurance Agency,
Inc.; Chairman, Director and Chief
Executive Officer, Sovereign Asset
Management Corporation (SAMCorp.);
Senior Vice President, MassMutual
Insurance Co. (until 1996); Senior
Vice President, Connecticut Mutual
Insurance Co. (until 1989).
- -------------------
* 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
- ---------------- ---------------- --------------------------
<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) Chairman, President, and Chief
160 Washington Street Executive Officer, 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.;
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
- ---------------- ---------------- --------------------------
<S> <C> <C>
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 Apollo Gold, Inc.; Director Original
Sixteen to One Mines, Inc. (until
1999); Management Consultant (from
1984-1987 and 1991-1998); Director,
Freeport-McMoran Copper & Gold, Inc.
(until 1997); Vice President, Chief
Financial Officer and Director of
Amax Gold, Inc. (until 1998).
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,
23rd Floor headed the venture capital group at
Boston, MA 02110 Bank of 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.
- -------------------
* 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
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 and
April 1953 President, NM Capital and SAMCorp.;
Director, John Hancock Funds,
Advisers International, and John
Hancock Advisers International
(Ireland) Ltd.; Executive Vice
President, the Adviser (until
1994); Director, Insurance Agency,
Inc. (until June 1999); Director,
Signature Services (until January
1997).
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
Council For International Exchange of International Exchange of Scholars
Scholars (since January 1998), Vice
3007 Tilden Street, N.W. President, Institute of
Washington, D.C. 20008 International Education (since
May 1943 January 1998); Senior Fellow,
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).
- -------------------
* 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
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).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Mutual
John Hancock Place Life Insurance Company; Director,
P.O. Box 111 the Adviser, John Hancock Funds,
Boston, MA 02117 Signator Investors, Inc., John
August 1937 Hancock Subsidiaries, Inc.,
SAMCorp.., NM Capital, The Berkeley
Group, JH Networking Insurance
Agency, Inc.; Insurance Agency, Inc.
(until June 1999), 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.
20
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Osbert M. Hood Executive Vice President and Chief Executive Vice President and Chief
101 Huntington Avenue Financial Officer Financial Officer, each of the John
Boston, MA 02199 Hancock Funds; Executive Vice
August 1952 President, Treasurer and Chief
Financial Officer of the Adviser,
the Berkeley Group, John Hancock
Funds, and SAMCorp.; Senior Vice
President, Chief Financial Officer
and Treasurer, Signature Services,
NM Capital; Director IndoCam Japan
Limited; 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, John Hancock
July 1950 Funds, NM Capital, SAMCorp. and
Insurance Agency, Inc.; Counsel,
John Hancock Mutual Life Insurance
Company (until February 1996).
- -------------------
* 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
Susan S. Newton Vice President, Secretary and Chief Vice President and Chief Legal
101 Huntington Avenue Legal Officer Officer the Adviser; John Hancock
Boston, MA 02199 Funds, Signature Services, The
March 1950 Berkeley Group, NM Capital and
SAMCorp..
James J. Stokowski Vice President, Treasurer and Chief Vice President, the Adviser.
101 Huntington Avenue Accounting Officer
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
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. Brown and Scipione and Mr. Ford
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
received 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(3)
Leland O. Erdahl
Richard A. Farrell
Gail D. Fosler
William F. Glavin*
Dr. John A. Moore*
Patti McGill Peterson
John W. Pratt
Total
(1) Compensation is for the fiscal year ended October 31, 1999.
(2) Total compensation paid by the John Hancock Fund Complex to the Independent
Trustees is as of December 31, 1999. As of this date, there were sixty-five
funds in the John Hancock Fund Complex, with each of these Independent Trustees
serving on thirty-one funds.
(3) Mr. Costle resigned as of December 31, 1999.
*As of December 31, 1999, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Fund 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 December 1, 1999, 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 the
Name and Address of Shareholders Class of Shares Class of the Fund
- -------------------------------- --------------- -----------------
Ernie Williams LTD A 5.01%
2613 HWY 18 East
P.O. Box 737
Algona, IA 50511
MLPF&S For The Benefit of Its Customers B 19.35%
Attn: Fund Administration 97DA3
4800 Deer Lake Drive East 2nd Fl
Jacksonville FL 32246-6484
Int'l Development & Resources C 17.05%
10560 Main Street
Fairfax VA
West Grand Medical Retirement Plan C 12.55%
Robert H. Major, M.D.
1931 Summerhill Drive
Winterset IA
Copa Casino C 12.07%
777 Copa Casino Blvd.
Gulfport MS
NFSC FEBO C 10.04%
Richard Michael Jones
1653 arksode Dr
Clearwter FL
Quinstar Techonology, Inc. C 11.03%
24085 Garnier Street
Torrance CA
Jim Peach Motors, Inc. C 6.43%
518 South Blvd.
Brewton, AL
Saloman Smith Barney Inc. C 5.84%
333 West 34th Street
New York New York
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 funds in the
John Hancock group of funds as well as institutional accounts. 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.
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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.
For the fiscal years ended October 31, 1997, 1998 and 1999, the Adviser's
management fee was $150,931 $153,986 and $ , respectively. After expense
reductions by the Adviser, the Adviser received no management fees for the
fiscal years ended October 31, 1997, 1998, and 1999.
The Adviser has entered into sub-investment management contracts with
Co-Sub-Advisers (the "Sub-Advisory Agreements") under which the Co-Sub-Advisers,
subject to the review of the Trustees and the overall supervision of the
Adviser, are 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.
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As of January 1, 2000 the primary Sub-Adviser to the Fund will be Indocam
International Investment Services ("IIIS"). Under its Sub-Advisory Agreement
with the Adviser, IIIS will provide the Fund with advice and recommendations
regarding the fund's investments. IIIS will also provide the Fund on a
continuous basis with economic, financial and political information research and
assistance concerning international markets. IIIS is organized under the laws of
France and is a wholly owned subsidiary of Credit Agricole, a French banking
group. IIIS is located at 90 Boulevard Pasteur, Paris, France 75025. As
compensation for its services under the Sub-Advisory Agreement, the Adviser will
pay IIIS quarterly, in arrears, a fee at the annual rate of 55% of the
investment advisory fee received by the Adviser. The existing Sub-Adviser, John
Hancock Advisers, International ("JHAI"), is located at 6th Floor, Duke's Court,
32-36 Duke Street, St. James's, London, England SW1Y6DF. JHAI 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, JHAI 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. JHAI has agreed to waive all
but 0.05% of the fee, as of January 1, 2000. The Fund is not responsible for
paying either 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, the Sub-Advisers or any of their
respective 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 their Advisory Agreements, the Adviser nor Sub-Advisers are 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 Agreements relate, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser or Sub-Advisers 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, the Sub-Advisory Agreements and the
Distribution Agreement was approved by all Trustees. The Advisory Agreement,
Sub-Advisory Agreements 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
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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. Each of these
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, 1997, 1998 and 1999,
the Fund paid the Adviser $ $2,771, $2,549 and $ , respectively, for services
under this Agreement.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser, the
Sub-Advisers and the Fund have adopted extensive restrictions on personal
securities trading by personnel of the Adviser, the Sub-Advisers 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-Advisers' 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 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. These Selling Brokers are authorized to
designate other intermediaries to receive purchase and redemption orders on
behalf of the Fund. 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, 1997, 1998 and 1999 were $41,697, $29,259, and
$ , respectively. Of such amounts $6,635, $4,638 and $ , respectively, were
retained by John Hancock Funds in 1997, 1998 and 1999. 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 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
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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 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,
1999, 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 fiscal year ended October 31, 1999, 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 in prior periods.
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.
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During the fiscal year ended October 31, 1999, the Fund paid John Hancock Funds
the following amount of expenses in connection with their services for the Fund.
<TABLE>
<CAPTION>
Expense Items
-------------
Printing and Interest,
Mailing of Expenses of Carrying or
Prospectuses Compensation John Other
to New to Selling Hancock Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A $ $ $ $ $ 0
Class B $ $ $ $ $
Class C $ $ $ $ $
SALES COMPENSATION
As part of their business strategies, the fund, along with John Hancock Funds,
pay compensation to financial services firms that sell the fund's shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund's 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 by the Fund.
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.
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Maximum First year
Sales charge reallowance service fee Maximum total
paid by investors or commission (% of net compensation (1)
Class A investments (% of offering price) (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- -------------------- --------------- ---------------------
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
Class A shares of
$1 million or more (4)
- ----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Retirement investments of
Class A shares of
$1 million or more*
- -------------------
First $1M - $24,999,999 0.75% 0.25% 1.00%
Next $25M -$49,999,999 0.25% 0.25% 0.50%
Next $1 or more above that 0.00% 0.25% 0.25%
Maximum First year
reallowance service fee Maximum total
or commission (% of net compensation (1)
Class B investments (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------- ---------------------
All amounts 3.75% 0.25% 4.00%
Maximum First year
reallowance service fee Maximum total
or commission (% of net compensation (1)
Class C investments (% of offering price) investment) (3) (% 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
(2) For Group Investment Programs sales, the maximum total compensation for
investments of $1 million or more is 1.00% of the offering price (one year CDSC
of 1.00% applies for each sale).
(3) After first year subsequent service fees are paid quarterly in arrears.
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(4) Includes new investments aggregated with investments since the last annual
reset. John Hancock Funds may take recent redemptions into account in
determining if an investment qualifies as a new investment.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
*Retirement investments only. These include 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 retirement plans as
described in the Internal Revenue Code.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market- maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned categories for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the 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
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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, mother-in-law, father-in-law, daughter,
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.
oA 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.
oA 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.
oA member of a class action lawsuit against insurance companies who is investing
settlement proceeds.
oRetirement 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.
oRetirement plans investing through the PruArray Program sponsored by Prudential
Securities.
oPension 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.
oShareholders of John Hancock Funds PLC who become U.S. residents or citizens
and transfer their existing assets from John Hancock Fund PLC to the Fund.
oExisting 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:
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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). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. 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. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
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. An individual's 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 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.
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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 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 price or on 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 subject
to a 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.
34
<PAGE>
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
oProceeds 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)
-------
oAmount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account 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 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.
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<PAGE>
* Redemptions of Class A 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 some examples.
36
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP) 457 & 408
(SEPs & Simple
IRAs)
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
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 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually
12% of account in periodic
value annually payments
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 annually in annually in annually in
payments. 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
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
- ----------------------- ------------------ ---------------- ---------------- ----------------- ----------------
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.
37
<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 a 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,
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 500 Index Fund and John Hancock
Intermediate 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 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.
38
<PAGE>
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 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).
39
<PAGE>
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers.
Brokers may charge for their services or place limitations on the extent to
which you may use the services of the Fund. The Fund will be deemed to have
received a purchase or redemption order when an authorized broker, or if
applicable, a broker's authorized designee, receives the order. If a broker is
an agent or designee of the Fund, orders are processed at the NAV next
calculated after the broker receives the order. The broker must segregate any
orders it receives after the close of regular trading on the New York Stock
Exchange and transmit those orders to the Fund for execution at NAV next
determined. Some brokers that maintain nominee accounts with the Fund for their
clients charge an annual fee on the average net assets held in such accounts for
accounting, servicing, and distribution services they provide with respect to
the underlying Fund shares. The Adviser, the Fund, and John Hancock Funds, Inc.
(the Fund's principal distributor), share in the expense of these fees.
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 and
classes, without further action by shareholders. As of the date of this
Statement of Additional Information, the Trustees have authorized shares of the
Fund and one other series. Additional series may be added in the future. 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 matter 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.
40
<PAGE>
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 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 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 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
41
<PAGE>
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions 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 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. 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.
42
<PAGE>
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. 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 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 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
43
<PAGE>
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
realized 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 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 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
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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 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
45
<PAGE>
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, Form W-8BEN or
other authorized withholding certificate 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, 1999 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, 1999 and from commencement of operations on January 3,
1994 was -% and 0.02%, respectively.
The average total return for Class C shares of the Fund for the period from June
1, 1998 to October 31, 1999 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:
n ______
T = \ / ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000
investment made at the beginning of the 1 year and
life of the fund periods.
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.
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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.
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 Sub-Advisers under the
supervision of and under the guidelines established by the Adviser, which
consists of officers and directors of the 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
maker reflect a "spread." Debt securities are generally traded on a net basis
through dealers acting for their own account as principals and not as brokers;
no brokerage commissions are payable on these transactions.
In the U.S. Government securities market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account without a
stated commission, although the price of the security usually includes a profit
to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. 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.
47
<PAGE>
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser or Sub-Advisers,
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-Advisers. The receipt of research information is not
expected to reduce significantly the expenses of the Adviser or Sub-Advisers.
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-Advisers may result in research
information and statistical assistance beneficial to the Fund. The Fund will
make no commitment to allocate portfolio transactions upon any prescribed basis.
While the Adviser and Sub-Advisers 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, 1997, 1998
and 1999, the Fund paid negotiated brokerage commissions of $102,299, $106,317
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 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, 1999, the Fund paid $ in
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 Signator Investors, Inc., a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" or "Affiliated Broker"). Credit
Agricole, IIIS parent, has several affiliates engaged in the brokerage business
in Europe and Asia: Credit Agricole Indosuez Cheuvreux; CPR Action (ex-Schelcher
Prince Cheuvreux de Virieu International Ltd, London; Cheuvreux de Virieu,
Nordic AB, Stockholm, Cheuvreux de Virieu, Espana, Madrid, Credit Agricole
Indosuez Cheuvreux Deutschland GMBH, Frankfourt/ Main; Caboto Sim in Italy; Carr
Securities; Carr Futures SNC. (Paris) and Carr Futures PTE, Singapore (all
"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 years ending October 31, 1997, 1998 and 1999, the Fund did not execute
any portfolio transactions with Affiliated Brokers.
Affiliated Brokers may act as broker for the Fund on exchange transactions,
subject, however, to the general policy of the Fund set forth above and the
procedures adopted by the Trustees pursuant to the Investment Company Act.
Commissions paid to an Affiliated Broker must be at least as favorable as those
which the Trustees believe to be contemporaneously charged by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold. A transaction would not be placed with an Affiliated Broker
48
<PAGE>
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. Because of
this, client accounts in a particular style may sometimes not sell or acquire
securities as quickly or at the same prices as they might if each were managed
and traded individually.
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of account
objective, account size ( a small account's allocation may be increased to
provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a meaningful allocation. For new issues, when a
complete order is not filled, a partial allocation will be made to each account
pro rata based on the order size. However, if a partial allocation is too small
to be meaningful, it may be reallocated based on such factors as account
objectives, duration benchmarks and credit and sector exposure. 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
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 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.
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INDEPENDENT AUDITORS
The independent auditors of the Fund are __________________________, 160 Federal
Street, Boston, Massachusetts 02110. ________________________________ audits and
renders an opinion on the Fund's annual financial statements and reviews the
Fund's annual Federal income tax return.
50
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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, when-issued securities and forward commitments,
currency contracts, financial futures and options; securities and index
options).
A-2
<PAGE>
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 MID CAP GROWTH FUND
Class A, Class B and Class C Shares
Statement of Additional Information
March 1, 2000
This Statement of Additional Information provides information about John Hancock
Mid Cap Growth Fund (the "Fund"), in addition to the information that is
contained in the combined Equity Funds' current Prospectus (the "Prospectus").
The Fund is a diversified series of John Hancock Investment Trust III (the
"Trust).
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.............................................. 11
Those Responsible for Management..................................... 13
Investment Advisory and Other Services............................... 22
Distribution Contracts............................................... 24
Sales Compensation................................................... 26
Net Asset Value...................................................... 28
Initial Sales Charge on Class A Shares............................... 28
Deferred Sales Charge on Class B and Class C Shares.................. 31
Special Redemptions.................................................. 35
Additional Services and Programs..................................... 35
Purchases and Redemptions through Third Parties...................... 37
Description of the Fund's Shares..................................... 37
Tax Status........................................................... 38
Calculation of Performance........................................... 43
Brokerage Allocation................................................. 44
Transfer Agent Services.............................................. 46
Custody of Portfolio................................................. 46
Independent Auditors................................................. 46
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. Prior to June 1, 1999, the Fund was called
John Hancock Special Opportunities Fund.
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 and may be changed by a vote of the Trustees without shareholder
approval. There is no assurance that the Fund will achieve its investment
objective.
The Fund's investment objective is long-term capital appreciation. To pursue
this goal, the fund normally invests at least 80% of total assets in stocks of
medium-capitalization companies--companies in the capitalization range of the
Russell MidCap Growth Index. On ____1, 2000, that range was $__ million to
$___billion.
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.
The fund generally invests in more than 100 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 not invest more than 5% of assets in any one security (other than
securities of the U.S. government, its agencies or instrumentalities).
The fund may invest up to 10% of assets in foreign securities. It may also use
certain derivatives (investments whose value is based on indices or currencies).
Under normal conditions, the fund may not invest more than 10% of total assets
in cash and/or cash equivalents (except cash segregated in relation to futures,
forward and option contracts). Under normal conditions, the fund will not invest
in any fixed income securities. However, in abnormal market conditions, the fund
may temporarily invest in U.S. government securities and U.S. government agency
securities with maturities of up to three years, and may also invest more than
10% of total assets in cash and/or cash equivalents (including U.S. government
securities maturing in 90 days or less). 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 and warrants.
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Government Securities. Under normal conditions the fund will not invest in any
fixed income securities. However, in abnormal conditions the fund may
temporarily invest in US Government securities and US Government agency
securities with maturities of up to three years, and may also invest more than
10% of total assets in cash and/or cash equivalents (including US Government
securities maturing in 90 days or less). 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 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 debt 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.
Investment in Foreign Securities. The Fund may invest up to 10% of total assets
in the securities of foreign issuers, including securities in the form of
sponsored or unsponsored American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs"), Global Depository Receipts (GDRs), convertible
preferred stocks, preferred stocks and warrants 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.
Issuers of unsponsored ADRs are not contractually obligated to disclose material
information including financial information in the United States.
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.
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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.
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.
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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 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
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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 have adopted guidelines and
delegated 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.
Options on Securities Indices. The Fund may purchase and write (sell) call and
put options on any securities index based on securities in which it may invest.
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 for any
non-speculative purpose. These include using options as a substitute for the
purchase or sale of securities or to protect against declines in the value of
portfolio securities and against increases in the cost of securities to be
acquired.
Writing Covered Options. A call option on a securities index written by the Fund
obligates the Fund to make a cash payment reflecting any increase in the index
above a specified level to the holder of the option if the option is exercised
at any time before the expiration date. A put option on a securities index
written by the Fund obligates the Fund to make a cash payment reflecting any
decrease in the index below a specified level from the option holder if the
option is exercised at any time before the expiration date. Options on
securities indices do 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 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
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. The
Fund may also 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 index call options in
anticipation of an increase, or index put options in anticipation of a decrease
("protective puts"), in the market value of securities of the type in which it
may invest. The Fund may also sell call and put options to close out its
purchased options.
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The purchase of an index call option would entitle the Fund, in return for the
premium paid, to receive a cash payment reflecting any increase in the index
above a specified level upon exercising the option during the option period. The
Fund would ordinarily realize a gain on the purchase of a call option if the
amount of this cash payment exceeded 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 an index put option would entitle the Fund, in exchange for the
premium paid, to receive a cash payment reflecting any decrease in the index
below a specified level upon exercising the option 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. The Fund would ordinarily
realize a gain if, during the option period, the level of the index 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 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.
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.
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The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities markets.
Futures Contracts and Options on Futures Contracts. The Fund may purchase and
sell various kinds of futures contracts on securities indices, and purchase and
write call and put options on these futures contracts, for any non-speculative
purpose. The Fund may also enter into closing purchase and sale transactions
with respect to any of these contracts and options. 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. An index futures contract may generally be described as an
agreement between two parties to deliver a final cash settlement price based on
an increase or decrease in the level of the index above or below a specified
level. Unlike some futures contracts, index futures do not involve the physical
delivery of securities 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. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the contract 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
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 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 decline
in market prices that would adversely affect the value of the Fund's portfolio
securities. Such futures contracts may be based on indices that include
securities held by the Fund or securities with characteristics similar to those
of the Fund's portfolio securities. 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 index
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 rates then available in the applicable market to be less
favorable than prices that are currently available. The Fund may also purchase
index futures contracts as a substitute for transactions in securities. For
example, the Fund may engage in these substitution transactions in order to
remain fully invested in the stock market while maintaining a sufficient cash
position to meet the Fund's liquidity needs.
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Options on Futures Contracts. The Fund may purchase and write options on index
futures for the same purposes as its transactions in index futures contracts.
The purchase of put and call options on index 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 an index 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 an index 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 index 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 index futures and related options
transactions for bona fide hedging or other non-speculative purposes. To the
extent that the Fund is using futures and related options for hedging purposes,
futures contracts will be sold to protect against a decline in the price of
securities that the Fund owns or futures contracts will be purchased to protect
the Fund against an increase in the price of securities it intends to purchase.
The Fund will determine that the price fluctuations in the futures contracts and
options on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long index 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.
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 index futures contracts and options on index futures involve
brokerage costs, require margin deposits and, in the case of contracts and
options that are economically equivalent to the purchase of 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.
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While transactions in index futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in 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 index 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 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 not make short sales.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
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When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, equal in value to
the Fund's commitment. These assets will be valued daily at market, and
additional cash or securities will be segregated in a separate account to the
extent that the total value of the assets in the account declines below the
amount of the when-issued commitments. Alternatively, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income.
Short-term trading may have the effect of increasing portfolio turnover rate. A
high rate of portfolio turnover (100% or greater) involves correspondingly
greater brokerage expenses. 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.
11
<PAGE>
(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.
(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. See also nonfundamental (h)
(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. See
also nonfundamental (g)
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.
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.
12
<PAGE>
(b) Make short sales of securities.
(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.
(g) The fund may not invest more than 5% of its total assets at
time of purchase in any one security (other than U.S.
Government securities).
(h) purchase or sell currency options or currency futures.
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").
13
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Stephen L. Brown* Trustee and Chairman (1, 2) Chairman and Chief Executive Officer,
John Hancock Place John Hancock Mutual Life Insurance
P.O. Box 111 Company; Chairman and Director, John
Boston, MA 02117 Hancock Advisers, Inc. (The Adviser),
July 1937 John Hancock Funds, Inc. (John
Hancock Funds), The Berkeley
Financial Group, Inc. (The Berkeley
Group); Director, John Hancock
Subsidiaries, Inc.; John Hancock
Insurance Agency, Inc.; (Insurance
Agency), (until June 1999); Federal
Reserve Bank of Boston (until March
1999); John Hancock Signature
Services, Inc. (Signature Services)
(until January 1997) ; Trustee,
John Hancock Asset Management
(until March 1997).
Maureen R. Ford * Trustee, Vice Chairman and Chief President, Broker/Dealer Distributor,
Executive Officer John Hancock Mutual Life Insurance
Company; Vice Chairman, Director
and Chief Executive Officer, the
Advisers, The Berkeley Group, John
Hancock Funds; Chairman, Director
and President, Insurance Agency,
Inc.; Chairman, Director and Chief
Executive Officer, Sovereign Asset
Management Corporation (SAMCorp.);
Senior Vice President, MassMutual
Insurance Co. (until 1996); Senior
Vice President, Connecticut Mutual
Insurance Co. (until 1989).
- -------------------
* 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.
14
<PAGE>
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) Chairman, President, and Chief
160 Washington Street Executive Officer, 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.;
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.
15
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
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 Apollo Gold, Inc.; Director Original
Sixteen to One Mines, Inc. (until
1999); Management Consultant (from
1984-1987 and 1991-1998); Director,
Freeport-McMoran Copper & Gold, Inc.
(until 1997); Vice President, Chief
Financial Officer and Director of
Amax Gold, Inc. (until 1998).
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,
23rd Floor headed the venture capital group at
Boston, MA 02110 Bank of 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.
- -------------------
* 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
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 and
April 1953 President, NM Capital and SAMCorp.;
Director, John Hancock Funds,
Advisers International, and John
Hancock Advisers International
(Ireland) Ltd.; Executive Vice
President, the Adviser (until
1994); Director, Insurance Agency,
Inc. (until June 1999); Director,
Signature Services (until January
1997).
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
Council For International Exchange of International Exchange of Scholars
Scholars (since January 1998), Vice
3007 Tilden Street, N.W. President, Institute of
Washington, D.C. 20008 International Education (since
May 1943 January 1998); Senior Fellow,
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).
- -------------------
* 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
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).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Mutual
John Hancock Place Life Insurance Company; Director,
P.O. Box 111 the Adviser, John Hancock Funds,
Boston, MA 02117 Signator Investors, Inc., John
August 1937 Hancock Subsidiaries, Inc.,
SAMCorp.., NM Capital, The Berkeley
Group, JH Networking Insurance
Agency, Inc.; Insurance Agency, Inc.
(until June 1999), 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.
18
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Osbert M. Hood Executive Vice President and Chief Executive Vice President and Chief
101 Huntington Avenue Financial Officer Financial Officer, each of the John
Boston, MA 02199 Hancock Funds; Executive Vice
August 1952 President, Treasurer and Chief
Financial Officer of the Adviser,
the Berkeley Group, John Hancock
Funds, and SAMCorp.; Senior Vice
President, Chief Financial Officer
and Treasurer, Signature Services,
NM Capital; Director IndoCam Japan
Limited; 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, John Hancock
July 1950 Funds, NM Capital, SAMCorp. and
Insurance Agency, Inc.; Counsel,
John Hancock Mutual Life Insurance
Company (until February 1996).
- -------------------
* 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
- ---------------- ---------------- --------------------------
<S> <C> <C>
Susan S. Newton Vice President, Secretary and Chief Vice President and Chief Legal
101 Huntington Avenue Legal Officer Officer the Adviser; John Hancock
Boston, MA 02199 Funds, Signature Services, The
March 1950 Berkeley Group, NM Capital and
SAMCorp..
James J. Stokowski Vice President, Treasurer and Chief Vice President, the Adviser.
101 Huntington Avenue Accounting Officer
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined
in the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
20
<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. Brown and Scipione and Ms. Ford
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
Total
1 Compensation is for the fiscal year ended October 31, 1999.
2 Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 1999. As of this date, there were sixty-five
funds in the John Hancock Fund Complex, with each of these Independent Trustees
serving on thirty-one funds.
* As of December 31, 1999, 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 December 1, 1999, 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.
21
<PAGE>
- --------------------------------------------------------------------------------
Percentage of Total
Outstanding Shares
Name and Address of Shareholder Class of Shares of the Fund
- ------------------------------- --------------- -----------
- --------------------------------------------------------------------------------
MLPF&S For The Sole Benefit of
Its Customers C 19.26%
Attn: Fund Administration 97DA5
4800 Deer Lake Drive E 2nd Flr
Jacksonville FLA 32246-6484
- --------------------------------------------------------------------------------
John Hancock Mutual Life Ins Co. C 14.99%
Custodian for the Rollover IRA of
Roberto Rodriguez
PO Box 818
Maywood CA
- --------------------------------------------------------------------------------
Paul F. Lufbery C 11.76%
187 Pond Hill
North Haven CT
- --------------------------------------------------------------------------------
John Hancock Mutual Life Ins Co C 11.44%
Custodian For the IRA of
Jarvis R. Dennis
1915 Mesa Trl
Edmond OK
- --------------------------------------------------------------------------------
Southwest Securities Inc C 5.76%
James D. Smith IRA
P.O. Box 509002
Dallas Tx
- --------------------------------------------------------------------------------
John Hancock Mutual Life Ins Co C 5.22%
Custodian For the IRA of
Louise M Fratarcangelo
303 Tuscarora St
Syre PA
- --------------------------------------------------------------------------------
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 funds and in the
John Hancock group of funds as well as institutional accounts. 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.
22
<PAGE>
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, 1997, 1998 and 1999, the Fund paid the
Adviser an investment advisory fee of $3,039,997, $2,380,126 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 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.
23
<PAGE>
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 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, 1997, 1998 and 1999,
the Fund paid the Adviser $69,934, $49,802 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") that have entered into selling agency
agreements with John Hancock Funds. These Selling Brokers are authorized to
designate other intermediaries to receive purchase and redemption orders on
behalf of the Fund. 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, 1997, 1998 and 1999 were $579,686, $193,713 and
$ , respectively. Of such amounts $91,952, $30,378 and $ , respectively,
were retained by John Hancock Funds in 1996, 1997 and 1998. The remainder of the
underwriting commissions were reallowed to Selling Brokers.
24
<PAGE>
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 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 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 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, 1999, 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 year
ended October 31, 1999, 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 fees in prior period.
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 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 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 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
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.
25
<PAGE>
During the fiscal year ended October 31, 1999, 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 John Other
New to Selling Hancock Finance
Advertising Shareholders Brokers Funds Charges
----------- ------------ ------- ----- -------
<S> <C> <C> <C> <C> <C>
Class A $ $ $ $ $ 0
Class B $ $ $ $ $
Class C $ $ $ $ $
SALES COMPENSATION
As part of their business strategies, the fund, along with John Hancock Funds,
pay compensation to financial services firms that sell the fund's shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund's 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 in the Fund.
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.
26
<PAGE>
Maximum First year
Sales charge reallowance service Maximum total
paid by investors or commission fee (% of net compensation (1)
Class A investments (% of offering price) (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------------- --------------- ---------------------
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 Class A share of
$1 million or more (4)
- ----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Retirement investments
of Class A shares of
$1 million or more *
- --------------------
First $1M - $24,999,999 -- 0.75% 0.25% 1.00%
Next $25M -$49,999,999 -- 0.25% 0.25% 0.50%
Next $1 or more above that -- 0.00% 0.25% 0.25%
Maximum
reallowance First year Maximum total
or commission service fee (% of Compensation (1)
Class B investments (% of offering price) net investment)(3) (% of offering price)
- ------------------- --------------------- ------------------ ---------------------
All amounts 3.75% 0.25% 4.00%
Maximum
reallowance First year Maximum total
or commission service fee (% of Compensation (1)
Class C investments (% of offering price) net investment)(3) (% 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.
(2) For Group Investment Programs sales, the maximum total compensation for
investments of $1 million or more is 1.00% of the offering price (one year CDSC
of 1.00% applies for each sale).
(3) After first year subsequent service fees are paid quarterly in arrears.
(4) Includes new investments aggregated with investments since the last annual
reset. John Hancock Funds may take recent redemptions into account in
determining if an investment qualifies as a new investment.
27
<PAGE>
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
*Retirement investments only. These include 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 retirement plans as
described in the Internal Revenue Code.
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.
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.
28
<PAGE>
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, 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.
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 Shareholders of John Hancock Funds PLC who become U.S.
residents or citizens and transfer their existing assets fro
John Hancock Funds PLC to the Fund
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:
29
<PAGE>
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). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. 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. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
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 ("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. An individual's non-qualified and qualified retirement plan investments
cannot be combined to satisfy LOI of 48 months. Such an investment (including
accumulations and combinations but
30
<PAGE>
not including reinvested dividends) must aggregate $50,000 or more 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 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 price or on 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 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 subject to a 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.
31
<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:
oProceeds 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)
-------
oAmount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account 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 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.
32
<PAGE>
* Redemptions of Class A 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 some examples.
33
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP)
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Death or 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 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually
12% of account in periodic
value annually payments
in periodic
payments.
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account
(Class B only) annuity annuity annuity annuity value annually
payments (72t) payments (72t) payments (72t) payments (72t) in periodic
or 12% of or 12% of or 12% of or 12% of payments
account value account value account value account value
annually in annually in annually in annually in
periodic periodic periodic periodic
payments. 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
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
- ----------------------- ----------------- ----------------- ---------------- ----------------- ----------------
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.
34
<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,
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 500 Index Fund and John Hancock
Intermediate 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 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.
35
<PAGE>
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."
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).
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PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers.
Brokers may charge for their services or place limitations on the extent to
which you may use the services of the Fund. The Fund will be deemed to have
received a purchase or redemption order when an authorized broker, or if
applicable, a broker's authorized designee, receives the order. If a broker is
an agent or designee of the Fund, orders are processed at the NAV next
calculated after the broker receives the order. The broker must segregate any
orders it receives after the close of regular trading on the New York Stock
Exchange and transmit those orders to the Fund for execution at NAV next
determined. Some brokers that maintain nominee accounts with the Fund for their
clients charge an annual fee on the average net assets held in such accounts for
accounting, servicing, and distribution services they provide with respect to
the underlying Fund shares. The Adviser, the Fund, and John Hancock Funds, Inc.
(the Fund's principal distributor), share in the expense of these fees.
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 by 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 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 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 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.
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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 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% 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.
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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 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 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. 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.
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<PAGE>
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 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
realized 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 $8,860,270 of capital loss carry forwards
available to the extent provided by regulations to offset future net realized
capital gains. The carry forwards expire as follows: October 31, 1999-
$1,297,087, October 31, 2000- $12,856, October 31, 2001- $3,094,744, and October
31, 2002- $4,455,583.
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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 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 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
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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 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, Form W-8BEN or
other authorized withholding certificate 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, 1999 and for the five year period from commencement of
operations on November 1, 1993 through October 31, 1999 was -% and %,
respectively.
The average annual total return for Class B shares of the Fund for the 1 year
period ended October 31, 1999 and for the five year period from commencement of
operations on November 1, 1993 through October 31, 1999, was % and %,
respectively.
The average total return for Class C shares of the fund for the period from
commencement of operations on June 1, 1998 to October 31, 1999 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:
n ______
T = \ / ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 investment made
at the beginning of the 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.
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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 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. Government securities market, securities are generally traded on a
"net" basis with dealers acting as principal for their own account without a
stated commission, although the price of the security usually includes a profit
to the dealer. On occasion, certain money market instruments and agency
securities may be purchased directly from the issuer, in which case no
commissions or premiums are paid. 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
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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, 1997, 1998 and 1999, the Fund paid negotiated brokerage
commissions of $535,844, $1,541,022, and $ , 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, 1997,
1998 and 1999, the Fund directed commissions in the amount of $838,762, $414,949
and $ , 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 Signator Investors, Inc., a broker-dealer (until January 1, 1999,
the John Hancock Distributors, Inc.) ("Signator" 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 the Affiliated Broker. For the fiscal years ended
October 31, 1997, 1998 and 1999, the Fund paid no commissions with the
Affiliated Broker.
Signator 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
Broker, 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. Because of
this, client accounts in a particular style may sometimes not sell or acquire
securities as quickly or at the same prices as they might if each were managed
and traded individually.
45
<PAGE>
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. For high demand issues (for example, initial public offerings), shares
will be allocated pro rata by account size as well as on the basis of account
objective, account size ( a small account's allocation may be increased to
provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a meaningful allocation. For new issues, when a
complete order is not filled, a partial allocation will be made to each account
pro rata based on the order size. However, if a partial allocation is too small
to be meaningful, it may be reallocated based on such factors as account
objectives, duration benchmarks and credit and sector exposure. 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, $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.
INDEPENDENT AUDITORS
The independent auditors of the Fund are __________________________, 160 Federal
Street, Boston, Massachusetts 02110. ________________________________ audits and
renders an opinion on the Fund's annual financial statements and reviews the
Fund's annual Federal income tax return.
46
<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).
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).
A-1
<PAGE>
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).
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-2
<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 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
James V. Bowhers President None
101 Huntington Avenue
Boston, Massachusetts
Osbert Hood Executive Vice President, Senior Vice President
101 Huntington Avenue Chief Financial Officer and Chief Financial
Boston, Massachusetts and Treasurer Officer
David A. King Director None
101 Huntington Avenue
Boston, Massachusetts
Maureen R. Ford Director 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
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
---------------- ---------------- ---------------
Renee M. Humphrey Vice President None
6501 Americas Parkway
Suite 950
Albuquerque, New Mexico
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
23rd day of December, 1999.
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 J. Stokowski
- ------------------------ Vice President, Treasurer and December 23, 1999
James J. Stokowski Chief Accounting Officer
*
- ------------------------ Trustee
Dennis S. Aronowitz
*
- ------------------------ Trustee
Stephen L. Brown
*
- ------------------------ Trustee
Richard P. Chapman, Jr.
*
- ------------------------ Trustee
William J. Cosgrove
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 23, 1999
-------------------
Susan S. Newton
Attorney-in-Fact under
Powers of Attorney
filed herewith
</TABLE>
C-11
<PAGE>
POWER OF ATTORNEY
The undersigned Trustee of John Hancock Capital Series, John Hancock
Declaration Trust, John Hancock Income Securities Trust, John Hancock Investment
Trust II, John Hancock Investment Trust III, John Hancock Investors Trust, John
Hancock Sovereign Bond Fund, John Hancock Special Equities Fund, John Hancock
Strategic Series, John Hancock Tax-Exempt Series Fund, and John Hancock World
Fund, each a Massachusetts business trust, does hereby severally constitute and
appoint Edward J. Boudreau, Jr., Susan S. Newton, and James J. Stokowksi, and
each acting singly, to be my true, sufficient and lawful attorneys, with full
power to each of them, and each acting singly, to sign for me, in my name and in
the capacity indicated below, any Registration Statement on Form N-1A and any
Registration Statement on Form N-14 to be filed by the Trust or the Corporation
under the Investment Company Act of 1940, as amended ( the "1940 Act"), and
under the Securities Act of 1933, as amended (the "1933 Act"), and any and all
amendments to said Registration Statements, with respect to the offering of
shares and any and all other documents and papers relating thereto, and
generally to do all such things in my name and on my behalf in the capacity
indicated to enable the Trust or Corporation to comply with the 1940 Act and the
1933 Act, and all requirements of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be signed by
said attorneys or each of them to any such Registration Statements and any and
all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 1st day of January, 1999.
/s/Dennis S. Aronowitz /s/Richard A. Farrell
- ---------------------- ---------------------
Dennis S. Aronowitz, Trustee Richard A. Farrell, Trustee
/s/Richard P. Chapman, Jr. /s/Gail D. Fosler
- -------------------------- -----------------
Richard P. Chapman, Jr., Trustee Gail D. Fosler, Trustee
/s/William J. Cosgrove /s/William F. Glavin
- ---------------------- --------------------
William J. Cosgrove, Trustee William F. Glavin, Truste
/s/Douglas M. Costle /s/John A. Moore
- -------------------- ----------------
Douglas M. Costle, Trustee John A. Moore, Trustee
/s/Leland O. Erdahl /s/Patti McGill Peterson
- ------------------- ------------------------
Leland O. Erdahl, Trustee Patti McGill Peterson, Trustee
/s/John W. Pratt
- ----------------
John W. Pratt, Trustee
s:corpsecty:trustees\pwrattypanel A
<PAGE>
POWER OF ATTORNEY
The undersigned Trustee of John Hancock Bank and Thrift Opportunity
Fund, John Hancock Bond Trust, John Hancock California Tax-Free Income Fund,
John Hancock Capital Series, John Hancock Current Interest, John Hancock
Declaration Trust, John Hancock Income Securities Trust, John Hancock
Institutional Series Trust, John Hancock Investment Trust, John Hancock
Investment Trust II, John Hancock Investment Trust III, John Hancock Investors
Trust, John Hancock Patriot Global Dividend Fund, John Hancock Patriot Preferred
Dividend Fund, John Hancock Patriot Premium Dividend Fund I, John Hancock
Patriot Premium Dividend Fund II, John Hancock Patriot Select Dividend Trust,
John Hancock Series Trust, John Hancock Sovereign Bond Fund, John Hancock
Special Equities Fund, John Hancock Strategic Series, John Hancock Tax-Exempt
Series Fund, John Hancock Tax-Free Bond Trust, and John Hancock World Fund,
(each a "Trust"), and Director of John Hancock Cash Reserve, Inc., (a
"Corporation") does hereby severally constitute and appoint Edward J. Boudreau,
Jr., Susan S. Newton, and James J. Stokowski, and each acting singly, to be my
true, sufficient and lawful attorneys, with full power to each of them, and each
acting singly, to sign for me, in my name and in the capacity indicated below,
any Registration Statement on Form N-1A and any Registration Statement on Form
N-14 to be filed by the Trust or the Corporation under the Investment Company
Act of 1940, as amended ( the "1940 Act"), and under the Securities Act of 1933,
as amended (the "1933 Act"), and any and all amendments to said Registration
Statements, with respect to the offering of shares and any and all other
documents and papers relating thereto, and generally to do all such things in my
name and on my behalf in the capacity indicated to enable the Trust or
Corporation to comply with the 1940 Act and the 1933 Act, and all requirements
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by said attorneys or each of them to
any such Registration Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 1st day of January, 1999.
/s/Anne C. Hodsdon
- ------------------
Anne C. Hodsdon, Trustee
/s/Richard S. Scipione
- ----------------------
Richard S. Scipione, Trustee
s:corpsecty:trustees\pwrattypanelsAB
<PAGE>
POWER OF ATTORNEY
The undersigned Trustee of John Hancock Bank and Thrift Opportunity
Fund, John Hancock Bond Trust, John Hancock California Tax-Free Income Fund,
John Hancock Capital Series, John Hancock Current Interest, John Hancock
Declaration Trust, John Hancock Income Securities Trust, John Hancock
Institutional Series Trust, John Hancock Investment Trust, John Hancock
Investment Trust II, John Hancock Investment Trust III, John Hancock Investors
Trust, John Hancock Patriot Global Dividend Fund, John Hancock Patriot Preferred
Dividend Fund, John Hancock Patriot Premium Dividend Fund I, John Hancock
Patriot Premium Dividend Fund II, John Hancock Patriot Select Dividend Trust,
John Hancock Series Trust, John Hancock Sovereign Bond Fund, John Hancock
Special Equities Fund, John Hancock Strategic Series, John Hancock Tax-Exempt
Series Fund, John Hancock Tax-Free Bond Trust, and John Hancock World Fund,
(each a "Trust"), and Director of John Hancock Cash Reserve, Inc., (a
"Corporation") does hereby severally constitute and appoint Susan S. Newton, and
James J. Stokowski, and each acting singly, to be my true, sufficient and lawful
attorneys, with full power to each of them, and each acting singly, to sign for
me, in my name and in the capacity indicated below, any Registration Statement
on Form N-1A and any Registration Statement on Form N-14 to be filed by the
Trust or the Corporation under the Investment Company Act of 1940, as amended (
the "1940 Act"), and under the Securities Act of 1933, as amended (the "1933
Act"), and any and all amendments to said Registration Statements, with respect
to the offering of shares and any and all other documents and papers relating
thereto, and generally to do all such things in my name and on my behalf in the
capacity indicated to enable the Trust or Corporation to comply with the 1940
Act and the 1933 Act, and all requirements of the Securities and Exchange
Commission thereunder, hereby ratifying and confirming my signature as it may be
signed by said attorneys or each of them to any such Registration Statements and
any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 1st day of January, 1999.
/s/Edward J. Boudreau, Jr.
- --------------------------
Edward J. Boudreau, Jr., Trustee
s:corpsecty:trustees\pwrtyattypanelsAB EJB
<PAGE>
POWER OF ATTORNEY
-----------------
The undersigned Trustee of John Hancock Bank and Thrift Opportunity
Fund, John Hancock Bond Trust, John Hancock California Tax-Free Income Fund,
John Hancock Capital Series, John Hancock Current Interest, John Hancock
Declaration Trust, John Hancock Income Securities Trust, John Hancock
Institutional Series Trust, John Hancock Investment Trust, John Hancock
Investment Trust II, John Hancock Investment Trust III, John Hancock Investors
Trust, John Hancock Patriot Global Dividend Fund, John Hancock Patriot Preferred
Dividend Fund, John Hancock Patriot Premium Dividend Fund I, John Hancock
Patriot Premium Dividend Fund II, John Hancock Patriot Select Dividend Trust,
John Hancock Series Trust, John Hancock Sovereign Bond Fund, John Hancock
Special Equities Fund, John Hancock Strategic Series, John Hancock Tax-Exempt
Series Fund, John Hancock Tax-Free Bond Trust, and John Hancock World Fund,
(each a "Trust"), does hereby severally constitute and appoint Edward J.
Boudreau, Jr., Susan S. Newton, and James J. Stokowski, and each acting singly,
to be my true, sufficient and lawful attorneys, with full power to each of them,
and each acting singly, to sign for me, in my name and in the capacity indicated
below, any Registration Statement on Form N-1A and any Registration Statement on
Form N-14 to be filed by the Trust or the Corporation under the Investment
Company Act of 1940, as amended ( the "1940 Act"), and under the Securities Act
of 1933, as amended (the "1933 Act"), and any and all amendments to said
Registration Statements, with respect to the offering of shares and any and all
other documents and papers relating thereto, and generally to do all such things
in my name and on my behalf in the capacity indicated to enable the Trust or
Corporation to comply with the 1940 Act and the 1933 Act, and all requirements
of the Securities and Exchange Commission thereunder, hereby ratifying and
confirming my signature as it may be signed by said attorneys or each of them to
any such Registration Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 17th day of March, 1999.
/s/Stephen L Brown
------------------
Stephen L. Brown, Trustee
<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.(a).4 Abolition of John Hancock World Bond Fund and Amendment of Section
5.11 and Establishment and Designation of Class C Shares of
Beneficial Interest of John Hancock Global Fund and John Hancock
Short-Term Strategic Income Fund.****
99.(a).5 Instrument Changing Names of Series of Shares of the Trust effective
June 1, 1999.+
99.(a).6 Abolition of John Hancock Short-Term Income Fund and Amendment of
Section 5.11.+
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 January 1, 1994 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.(d).9 Sub-Advisory Agreement among International Fund, Indocam
International Investment Services and John Hancock Advisers, Inc.
dated January 1, 2000.+
99.(d).10 Sub-Advisory Agreement among Global Fund, Indocam International
Investment Services and John Hancock Advisers, Inc. dated
January 1, 2000.+
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 March 9, 1999.+
99.(g).1 Custodian Contract with Investors Bank and Trust Company Bank, dated
March 9, 1999.+
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 the Registrant as of January 1, 1996.*
99.(i) Legal Opinion.+
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.*****
99.(m).6 Class C Distribution Plan between John Hancock Global Fund and John
Hancock Funds, Inc. dated March 1, 1999.+
<PAGE>
99.(n) Financial Data Schedule. Not Applicable.
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; 33-4559) on February 27, 1998, accession number
0001010521-98-000202.
***** Previously filed with post-effective amendment number 36 (file
nos. 811-4630; 33-4559) on December 21, 1998, accession number
0001010521-98-000397.
****** Previously filed with post-effective amendment number 37 (file
nos. 811-4630; 33-4559) on February 25, 1999, accession number
0001010521-99-000143.
+ Filed herewith.
JOHN HANCOCK INVESTMENT TRUST III
Instrument Changing Names of Series of Shares of the Trust
The Trustees of John Hancock Investment Trust III (the "Trust"), hereby
amend the Trust's Amended and Restated Declaration of Trust dated July 1, 1996,
as amended from time to time, to the extent necessary to reflect the change of
the names of John Hancock Growth Fund to John Hancock Large Cap Growth Fund and
John Hancock Special Opportunities Fund to John Hancock Mid Cap Growth Fund,
effective June 1, 1999.
IN WITNESS WHEREOF, the undersigned have executed this instrument this
9th day of March, 1999.
/s/Gail D. Fosler
- ---------------------- -----------------
Dennis S. Aronowitz Gail D. Fosler
/s/Edward J. Boudreau, Jr. /s/William F. Glavin
- -------------------------- --------------------
Edward J. Boudreau, Jr. William F. Glavin
/s/Richard P. Chapman, Jr /s/Anne C. Hodsdon
- ------------------------- ------------------
Richard P. Chapman, Jr. Anne C. Hodsdon
/s/William J. Cosgrove /s/John A. Moore
- ---------------------- ----------------
William J. Cosgrove John A. Moore
/s/Patti McGill Peterson
- ---------------------- ------------------------
Douglas M. Costle Patti McGill Peterson
/s/Leland O. Erdahl /s/John W. Pratt
- ------------------- ----------------
Leland O. Erdahl John W. Pratt
/s/Richard A. Farrell
- --------------------- -----------------
Richard A. Farrell Richard S. Scipione
The Declaration of Trust, a copy of which, together with all amendments
thereto, is on file in the office of the Secretary of State of The Commonwealth
of Massachusetts, provides that no Trustee, officer, employee or agent of the
Trust or any Series thereof shall be subject to any personal liability
whatsoever to any Person, other than to the Trust or its shareholders, in
connection with Trust Property or the affairs of the Trust, save only that
arising from bad faith, willful misfeasance, gross negligence or reckless
disregard of his/her duties with respect to such Person; and all such Persons
shall look solely to the Trust Property, or to the Trust Property of one or more
specific Series of the Trust if the claim arises from the conduct of such
Trustee, officer, employee or agent with respect to only such Series, for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust.
<PAGE>
STATE OF FLORIDA )
)ss
COUNTY OF DADE )
Then personally appeared the above-named Edward J. Boudreau, Jr.,
Richard P. Chapman, Jr., William J. Cosgrove, Leland O. Erdahl, Richard A.
Farrell, Gail D. Fosler, William F. Glavin, Anne C. Hodsdon, John A. Moore,
Patti McGill Peterson, and John W. Pratt, who acknowledged the foregoing
instrument to be his or her free act and deed, before me, this 9th day of March
1999. In the country of Dade, State of Florida
/s/Gloria Ashby
---------------
Notary Public
My Commission Expires: May 10, 1999
s:\dectrust\amendmts\invtrst3\June99 name change
JOHN HANCOCK INVESTMENT TRUST III
John Hancock Short-Term Strategic Income Fund
Abolition of John Hancock Short-Term Strategic Income Fund and
Amendment of Section 5.11
Abolition of John Hancock Short-Term Strategic Income Fund
----------------------------------------------------------
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 abolish the John Hancock Short-Term Strategic Income Fund (Class A
Shares, Class B Shares, and Class C Shares) and in connection therewith do
hereby extinguish any and all rights and preferences of such John Hancock
Short-Term Strategic Income Fund, Class A Shares, Class B Shares, and Class C
Shares, as set forth in the Declaration of Trust and the Trust's Registration
Statement on Form N-1A. The abolition of the Fund is effective as of October 22,
1999.
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, do hereby amend Section 5.11,
effective October 22, 1999, 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, Class B Shares, and
Class C Shares: John Hancock Global Fund, John Hancock Large
Cap Growth Fund, John Hancock International Fund, and John
Hancock Mid Cap Growth Fund (the "Existing Series").
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this instrument on
the 14th day of September 1999.
/s/Gail D. Fosler
- ------------------------ -----------------
Dennis S. Aronowitz Gail D. Fosler
/s/Edward J. Boudreau, Jr. /s/William F. Glavin
- -------------------------- --------------------
Edward J. Boudreau, Jr. William F. Glavin
/s/Stephen L. Brown /s/Anne C. Hodsdon
- ------------------- ------------------
Stephen L. Brown 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/John W. Pratt
- ------------------- ----------------
Douglas M. Costle John W. Pratt
/s/Leland O. Erdahl Richard S. Scipione
- ------------------- -------------------
Leland O. Erdahl Richard S. Scipione
/s/Richard A. Farrell
- ---------------------
Richard A. Farrell
The Declaration of Trust, a copy of which, together with all amendments
thereto, is on file in the office of the Secretary of State of The Commonwealth
of Massachusetts, provides that no Trustee, officer, employee or agent of the
Trust or any Series thereof shall be subject to any personal liability
whatsoever to any Person, other than to the Trust or its shareholders, in
connection with Trust Property or the affairs of the Trust, save only that
arising from bad faith, willful misfeasance, gross negligence or reckless
disregard of his/her duties with respect to such Person; and all such Persons
shall look solely to the Trust Property, or to the Trust Property of one or more
specific Series of the Trust if the claim arises from the conduct of such
Trustee, officer, employee or agent with respect to only such Series, for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust.
<PAGE>
COMMONWEALTH OF MASSACHUSETTS )
)ss
COUNTY OF SUFFOLK )
Then personally appeared the above-named Edward J. Boudreau, Jr.,
Stephen L. Brown, Richard P. Chapman, Jr., William J. Cosgrove, 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 Richard S. Scipione,
who acknowledged the foregoing instrument to be his or her free act and deed,
before me, this 14th day of September, 1999.
/s/Anne Marie White
-------------------
Notary Public
My Commission Expires: 10/20/00
s:\dectrust\amendmts\invtrst3\abolishststrategic
JOHN HANCOCK INVESTMENT TRUST III
John Hancock International Fund
Sub-Investment Management Contract
Dated January 1, 2000
<PAGE>
JOHN HANCOCK ADVISERS, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
JOHN HANCOCK INVESTMENT TRUST III
- John Hancock International Fund
101 Huntington Avenue
Boston, Massachusetts 02199
INDOCAM INTERNATIONAL INVESTMENT SERVICES
90 Boulevard Pasteur
Paris, FRANCE 75015
Sub-Investment Management Contract
----------------------------------
Ladies and Gentlemen:
John Hancock Investment Trust III (the "Trust") has been organized as a
business trust under the laws of The Commonwealth of Massachusetts to engage in
the business of an investment company. The Trust's shares of beneficial interest
may be classified into series, each series representing the entire undivided
interest in a separate portfolio of assets. Series may be established or
terminated from time to time by action of the Board of Trustees of the Trust. As
of the date hereof, the Trust has four series of shares, representing interests
in John Hancock Global Fund, John Hancock Large Cap Growth Fund, John Hancock
International Fund, and John Hancock Mid Cap Growth Fund.
The Board of Trustees of the Trust (the "Trustees") has selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the John Hancock International Fund (the "Fund"), and to provide
certain other services, under the terms and conditions provided in the
Investment Management Contract, dated July 1, 1996, between the Trust, the Fund
and the Adviser (the "Investment Management Contract").
The Adviser and the Trustees have selected Indocam International
Investment Services (the "Sub-Adviser") to provide the Adviser and the Fund with
the advice and services set forth below, and the Sub-Adviser is willing to
provide such advice and services, subject to the review of the Trustees and
overall supervision of the Adviser, under the terms and conditions hereinafter
set forth. The Sub-Adviser hereby represents and warrants that it is registered
as an investment adviser under the Investment Advisers Act of 1940, as amended.
Accordingly, the Trust, on behalf of the Fund, and the Adviser agree with the
Sub-Adviser as follows:
<PAGE>
1. Delivery of Documents. The Trust has furnished the Sub-Adviser with
copies, properly certified or otherwise authenticated, of each of the following:
(a) Amended and Restated Declaration of Trust of the Trust, dated July
1, 1996, as amended from time to time (the "Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees approving the form of this Agreement by
and among the Adviser, the Sub-Adviser and the Trust, on behalf of the Fund;
(d) Resolutions of the Trustees selecting the Adviser as investment
adviser for the Fund and approving the form of the Investment Management
Contract;
(e) the Investment Management Contract;
(f) the Fund's portfolio compliance checklists;
(g) the Fund's current Registration Statement, including the Fund's
Prospectus and Statement of Additional Information; and
(h) the Fund's Code of Ethics.
The Trust will furnish to the Sub-Adviser from time to time copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any.
2. Investment Services. The Sub-Adviser will use its best efforts to provide to
the Fund continuing and suitable investment advice with respect to investments,
consistent with the investment policies, objectives and restrictions of the Fund
as set forth in the Fund's Prospectus and Statement of Additional Information.
In the performance of the Sub-Adviser's duties hereunder, subject always (x) to
the provisions contained in the documents delivered to the Sub-Adviser pursuant
to Section 1, as each of the same may from time to time be amended or
supplemented, and (y) to the limitations set forth in the Registration Statement
of the Trust, on behalf of the Fund, as in effect from time to time under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended (the "1940 Act"), the Sub-Adviser will have investment discretion with
respect to the Fund and will, at its own expense:
(a) furnish the Adviser and the Fund with advice and recommendations,
consistent with the investment policies, objectives and restrictions of the Fund
as set forth in the Fund's Prospectus and Statement of Additional Information,
with respect to the purchase, holding and disposition of portfolio securities
including the purchase and sale of options;
(b) furnish the Adviser and the Fund with advice as to the manner in
which voting rights, subscription rights, rights to consent to corporate action
and any other rights pertaining to the Fund's assets shall be exercised, the
Fund having the responsibility to exercise such voting and other rights;
2
<PAGE>
(c) furnish the Adviser and the Fund with research, economic and
statistical data in connection with the Fund's investments and investment
policies;
(d) submit such reports relating to the valuation of the Fund's
securities as the Trustees may reasonably request;
(e) subject to prior consultation with the Adviser, engage in
negotiations relating to the Fund's investments with issuers, investment banking
firms, securities brokers or dealers and other institutions or investors;
(f) consistent with provisions of Section 7 of this Agreement, place
orders for the purchase, sale or exchange of portfolio securities with brokers
or dealers selected by the Adviser or the Sub-Adviser, provided that in
connection with the placing of such orders and the selection of such brokers or
dealers the Sub-Adviser shall seek to obtain execution and pricing within the
policy guidelines determined by the Trustees and set forth in the Prospectus and
Statement of Additional Information of the Fund as in effect and furnished to
the Sub-Adviser from time to time;
(g) from time to time or at any time requested by the Adviser or the
Trustees, make reports to the Adviser or the Trust of the Sub-Adviser's
performance of the foregoing services;
(h) subject to the supervision of the Adviser, maintain all books and
records with respect to the Fund's securities transactions required by the 1940
Act, and preserve such records for the periods prescribed therefor by the 1940
Act (the Sub-Adviser agrees that such records are the property of the Trust and
copies will be surrendered to the Trust promptly upon request therefor);
(i) give instructions to the Fund's custodian as to deliveries of
securities to and from such custodian and transfer of payment of cash for the
account of the Fund, and advise the Adviser on the same day such instructions
are given; and
(j) cooperate generally with the Fund and the Adviser to provide
information necessary for the preparation of registration statements and
periodic reports to be filed with the Securities and Exchange Commission,
including Form N-1A, 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 agencies responsible for tax matters,
and other reports and filings of like nature.
3. Expenses Paid by the Sub-Adviser. The Sub-Adviser will pay the cost of
maintaining the staff and personnel necessary for it to perform its obligations
under this Agreement, the expenses of office rent, telephone, telecommunications
and other facilities it is obligated to provide in order to perform the services
specified in Section 2, and any other expenses incurred by it in connection with
the performance of its duties hereunder.
3
<PAGE>
4. Expenses of the Fund Not Paid by the Sub-Adviser. The Sub-Adviser will not be
required to pay any expenses which this Agreement does not expressly make
payable by the Sub-Adviser. In particular, and without limiting the generality
of the foregoing but subject to the provisions of Section 3, the Sub-Adviser
will not be required to pay under this Agreement:
(a) the compensation and expenses of Trustees and of independent
advisers, independent contractors, consultants, managers and other agents
employed by the Trust or the Fund other than through the Sub-Adviser;
(b) legal, accounting and auditing fees and expenses of the Trust or
the Fund;
(c) the fees and disbursements of custodians and depositories of the
Trust or the Fund's assets, transfer agents, disbursing agents, plan agents and
registrars;
(d) taxes and governmental fees assessed against the Trust or the
Fund's assets and payable by the Trust or the Fund;
(e) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders of the Trust or the Fund
except that the Sub-Adviser shall bear the costs of providing the information
referred to in Section 2(j) to the Adviser;
(f) brokers' commissions and underwriting fees; and
(g) the expense of periodic calculations of the net asset value of the
shares of the Fund.
5. Compensation of the Sub-Adviser. For all services to be rendered, facilities
furnished and expenses paid or assumed by the Sub-Adviser as herein provided for
the Fund, the Adviser will pay the Sub-Adviser quarterly, in arrears, a fee at
the annual rate of 55% of the investment advisory fee received by the Adviser.
The "average daily net assets" of the Fund shall be determined on the
basis set forth in the Fund's Prospectus or otherwise consistent with the 1940
Act and the regulations promulgated thereunder. The Sub-Adviser will receive a
pro rata portion of such fee for any periods in which the Sub-Adviser advises
the Fund less than a full quarter. The Fund shall not be liable to the
Sub-Adviser for the Sub-Adviser's compensation hereunder. Calculations of the
Sub-Adviser's fee will be based on average net asset values as provided by the
Adviser.
In addition to the foregoing, the Sub-Adviser may from time to time
agree not to impose all or a portion of its fee otherwise payable hereunder (in
advance of the time such fee or portion thereof would otherwise accrue) and/or
undertake to pay or reimburse the Fund for all or a portion of its expenses not
otherwise required to be borne or reimbursed by it. Any such fee reduction or
undertaking may be discontinued or modified by the Sub-Adviser at any time.
4
<PAGE>
6. Other Activities of the Sub-Adviser and Its Affiliates. Nothing herein
contained shall prevent the Sub-Adviser or any associate of the Sub-Adviser from
engaging in any other business or from acting as investment adviser or
investment manager for any other person or entity, understood that officers,
directors and employees of the Sub-Adviser or its affiliates may continue to
engage in providing portfolio management services and advice to other investment
companies, whether or not registered, to other investment advisory clients of
the Sub-Adviser or its affiliates and to said affiliates themselves.
7. Avoidance of Inconsistent Position. In connection with purchases or sales of
portfolio securities for the account of the Fund, neither the Sub-Adviser nor
any of its investment management subsidiaries nor any of such investment
management subsidiaries' directors, officers or employees will act as principal
or agent or receive any commission, except as may be permitted by the 1940 Act
and rules and regulations promulgated thereunder. The Sub-Adviser shall not
knowingly recommend that the Fund purchase, sell or retain securities of any
issuer in which the Sub-Adviser has a financial interest without obtaining prior
approval of the Adviser prior to the execution of any such transaction.
Nothing herein contained shall limit or restrict the Sub-Adviser or any
of its officers, affiliates or employees from buying, selling or trading in any
securities for its or their own account or accounts. The Trust and Fund
acknowledge the Sub-Adviser and its officers, affiliates, and employees, and its
other clients may at any time have, acquire, increase, decrease or dispose of
positions in investments which are at the same time being acquired or disposed
of hereunder. The Sub-Adviser shall have no obligation to acquire with respect
to the Fund, a position in any investment which the Sub-Adviser, its officers,
affiliates or employees may acquire for its or their own accounts or for the
account of another client, if in the sole discretion of the Sub-Adviser, it is
not feasible or desirable to acquire a position in such investment on behalf of
the Fund. Nothing herein contained shall prevent the Sub-Adviser from purchasing
or recommending the purchase of a particular security for one or more funds or
clients while other funds or clients may be selling the same security.
8. No Partnership or Joint Venture. The Trust, the Fund, the Adviser and the
Sub-Adviser are not partners of or joint venturers with each other and nothing
herein shall be construed so as to make them such partners or joint venturers or
impose any liability as such on any of them.
9. Name of the Trust and the Fund. The Trust and the Fund may use the name "John
Hancock" or any name or names derived from or similar to the names "John Hancock
Advisers, Inc." or "John Hancock Mutual Life Insurance Company" only for so long
as this Agreement remains in effect. At such time as this Agreement shall no
longer be in effect, the Trust and the Fund will (to the extent that they
lawfully can) cease to use such a name or any other name indicating that the
Fund is advised by or otherwise connected with the Adviser. The Fund
acknowledges that it has adopted the name John Hancock International Fund
through permission of John Hancock Mutual Life Insurance Company, a
Massachusetts insurance company, and agrees that John Hancock Mutual Life
Insurance Company reserves to itself and any successor to its business the right
to grant the nonexclusive right to use the name "John Hancock" or any similar
name or names to any other corporation or entity, including but not limited to
any investment company of which John Hancock Mutual Life Insurance Company or
any subsidiary or affiliate thereof shall be the investment adviser.
5
<PAGE>
10. Limitation of Liability of Sub-Adviser. The Sub-Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust or the Fund or the Adviser in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the Sub-Adviser's part in the performance of its duties
or from reckless disregard by it of its obligations and duties under this
Agreement. Any person, even though also employed by the Sub-Adviser, who may be
or become an employee of and paid by the Trust or the Fund shall be deemed, when
acting within the scope of his employment by the Trust or the Fund, to be acting
in such employment solely for the Trust or the Fund and not as the Sub-Adviser's
employee or agent.
11. Duration and Termination of this Agreement. This Agreement shall remain in
force until June 30, 2001, and from year to year thereafter, but only so long as
such continuance is specifically approved at least annually by (a) a majority of
the Trustees who are not interested persons of the Adviser, the Sub-Adviser, or
(other than as Board members) of the Trust or the Fund, cast in person at a
meeting called for the purpose of voting on such approval, and (b) either (i)
the Trustees or (ii) a majority of the outstanding voting securities of the
Fund. This Agreement may, on 60 days' written notice, be terminated at any time
without the payment of any penalty by the Trust or the Fund by vote of a
majority of the outstanding voting securities of the Fund, by the Trustees, the
Adviser or the Sub-Adviser. Termination of this Agreement with respect to the
Fund shall not be deemed to terminate or otherwise invalidate any provisions of
any contract between the Sub-Adviser and any other series of the Trust. This
Agreement shall automatically terminate in the event of its assignment or upon
termination of the Investment Management Contract. In interpreting the
provisions of this Section 11, the definitions contained in Section 2(a) of the
1940 Act (particularly the definitions of "assignment," "interested person" or
"voting security"), shall be applied.
12. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, and no amendment, transfer, assignment, sale,
hypothecation or pledge of this Agreement shall be effective until approved by
(a) the Trustees, including a majority of the Trustees who are not interested
persons of the Adviser, the Sub-Adviser, or (other than as Board members) of the
Trust or the Fund, cast in person at a meeting called for the purpose of voting
on such approval, and (b) a majority of the outstanding voting securities of the
Fund, as defined in the 1940 Act.
13. Governing Law. This Agreement shall be governed and construed in accordance
with the laws of the Commonwealth of Massachusetts.
6
<PAGE>
14. Severability. The provisions of this Agreement are independent of and
separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be deemed invalid or unenforceable in whole or in part.
15. Miscellaneous. (a) The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. The name John Hancock Investment Trust III is the
designation of the Trustees under the Amended and Restated Declaration of Trust
dated July 1, 1996, as amended from time to time. The Declaration of Trust has
been filed with the Secretary 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. The Trust or the Fund shall not be liable for the obligations of any
other series of the Trust. (b) Any information supplied by the Sub-Adviser,
which is not otherwise in the public domain, in connection with the performance
of its duties hereunder is to be regarded as confidential and for use only by
the Fund and/or its agents, and only in connection with the Fund and its
investments.
Yours very truly,
JOHN HANCOCK INVESTMENT TRUST III
on behalf of John Hancock International Fund
By: /s/ Anne C. Hodsdon
-------------------
President
The foregoing contract
is hereby agreed to as
of the date hereof.
JOHN HANCOCK ADVISERS, INC.
By: /s/ Anne C. Hodsdon
-------------------
President
INDOCAM INTERNATIONAL INVESTMENT SERVICES
By: /s/Jean Claude Kaltenbach
-------------------------
Name:
Title:
7
JOHN HANCOCK INVESTMENT TRUST III
John Hancock Global Fund
Sub-Investment Management Contract
Dated January 1, 2000
<PAGE>
JOHN HANCOCK ADVISERS, INC.
101 Huntington Avenue
Boston, Massachusetts 02199
JOHN HANCOCK INVESTMENT TRUST III
- John Hancock Global Fund
101 Huntington Avenue
Boston, Massachusetts 02199
INDOCAM INTERNATIONAL INVESTMENT SERVICES
90 Boulevard Pasteur
Paris, FRANCE 75015
Sub-Investment Management Contract
----------------------------------
Ladies and Gentlemen:
John Hancock Investment Trust III (the "Trust") has been organized as a
business trust under the laws of The Commonwealth of Massachusetts to engage in
the business of an investment company. The Trust's shares of beneficial interest
may be classified into series, each series representing the entire undivided
interest in a separate portfolio of assets. Series may be established or
terminated from time to time by action of the Board of Trustees of the Trust. As
of the date hereof, the Trust has four series of shares, representing interests
in John Hancock Global Fund, John Hancock Large Cap Growth Fund, John Hancock
International Fund and John Hancock Mid Cap Growth Fund.
The Board of Trustees of the Trust (the "Trustees") has selected John
Hancock Advisers, Inc. (the "Adviser") to provide overall investment advice and
management for the John Hancock Global Fund (the "Fund"), and to provide certain
other services, under the terms and conditions provided in the Investment
Management Contract, dated July 1, 1996, between the Trust, the Fund and the
Adviser (the "Investment Management Contract").
The Adviser and the Trustees have selected Indocam International
Investment Services (the "Sub-Adviser") to provide the Adviser and the Fund with
the advice and services set forth below, and the Sub-Adviser is willing to
provide such advice and services, subject to the review of the Trustees and
overall supervision of the Adviser, under the terms and conditions hereinafter
set forth. The Sub-Adviser hereby represents and warrants that it is registered
as an investment adviser under the Investment Advisers Act of 1940, as amended.
Accordingly, the Trust, on behalf of the Fund, and the Adviser agree with the
Sub-Adviser as follows:
<PAGE>
1. Delivery of Documents. The Trust has furnished the Sub-Adviser with
copies, properly certified or otherwise authenticated, of each of the following:
(a) Amended and Restated Declaration of Trust of the Trust, dated July
1, 1996, as amended from time to time (the "Declaration of Trust");
(b) By-Laws of the Trust as in effect on the date hereof;
(c) Resolutions of the Trustees approving the form of this Agreement by
and among the Adviser, the Sub-Adviser and the Trust, on behalf of the Fund;
(d) Resolutions of the Trustees selecting the Adviser as investment
adviser for the Fund and approving the form of the Investment Management
Contract;
(e) the Investment Management Contract;
(f) the Fund's portfolio compliance checklists;
(g) the Fund's current Registration Statement, including the Fund's
Prospectus and Statement of Additional Information; and
(h) the Fund's Code of Ethics.
The Trust will furnish to the Sub-Adviser from time to time copies,
properly certified or otherwise authenticated, of all amendments of or
supplements to the foregoing, if any.
2. Investment Services. The Sub-Adviser will use its best efforts to provide to
the Fund continuing and suitable investment advice with respect to investments,
consistent with the investment policies, objectives and restrictions of the Fund
as set forth in the Fund's Prospectus and Statement of Additional Information.
In the performance of the Sub-Adviser's duties hereunder, subject always (x) to
the provisions contained in the documents delivered to the Sub-Adviser pursuant
to Section 1, as each of the same may from time to time be amended or
supplemented, and (y) to the limitations set forth in the Registration Statement
of the Trust, on behalf of the Fund, as in effect from time to time under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended (the "1940 Act"), the Sub-Adviser will have investment discretion with
respect to the Fund and will, at its own expense:
(a) furnish the Adviser and the Fund with advice and recommendations,
consistent with the investment policies, objectives and restrictions of the Fund
as set forth in the Fund's Prospectus and Statement of Additional Information,
with respect to the purchase, holding and disposition of portfolio securities
including the purchase and sale of options;
(b) furnish the Adviser and the Fund with advice as to the manner in
which voting rights, subscription rights, rights to consent to corporate action
and any other rights pertaining to the Fund's assets shall be exercised, the
Fund having the responsibility to exercise such voting and other rights;
2
<PAGE>
(c) furnish the Adviser and the Fund with research, economic and
statistical data in connection with the Fund's investments and investment
policies;
(d) submit such reports relating to the valuation of the Fund's
securities as the Trustees may reasonably request;
(e) subject to prior consultation with the Adviser, engage in
negotiations relating to the Fund's investments with issuers, investment banking
firms, securities brokers or dealers and other institutions or investors;
(f) consistent with provisions of Section 7 of this Agreement, place
orders for the purchase, sale or exchange of portfolio securities with brokers
or dealers selected by the Adviser or the Sub-Adviser, provided that in
connection with the placing of such orders and the selection of such brokers or
dealers the Sub-Adviser shall seek to obtain execution and pricing within the
policy guidelines determined by the Trustees and set forth in the Prospectus and
Statement of Additional Information of the Fund as in effect and furnished to
the Sub-Adviser from time to time;
(g) from time to time or at any time requested by the Adviser or the
Trustees, make reports to the Adviser or the Trust of the Sub-Adviser's
performance of the foregoing services;
(h) subject to the supervision of the Adviser, maintain all books and
records with respect to the Fund's securities transactions required by the 1940
Act, and preserve such records for the periods prescribed therefor by the 1940
Act (the Sub-Adviser agrees that such records are the property of the Trust and
copies will be surrendered to the Trust promptly upon request therefor);
(i) give instructions to the Fund's custodian as to deliveries of
securities to and from such custodian and transfer of payment of cash for the
account of the Fund, and advise the Adviser on the same day such instructions
are given; and
(j) cooperate generally with the Fund and the Adviser to provide
information necessary for the preparation of registration statements and
periodic reports to be filed with the Securities and Exchange Commission,
including Form N-1A, 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 agencies responsible for tax matters,
and other reports and filings of like nature.
3. Expenses Paid by the Sub-Adviser. The Sub-Adviser will pay the cost of
maintaining the staff and personnel necessary for it to perform its obligations
under this Agreement, the expenses of office rent, telephone, telecommunications
and other facilities it is obligated to provide in order to perform the services
specified in Section 2, and any other expenses incurred by it in connection with
the performance of its duties hereunder.
3
<PAGE>
4. Expenses of the Fund Not Paid by the Sub-Adviser. The Sub-Adviser will not be
required to pay any expenses which this Agreement does not expressly make
payable by the Sub-Adviser. In particular, and without limiting the generality
of the foregoing but subject to the provisions of Section 3, the Sub-Adviser
will not be required to pay under this Agreement:
(a) the compensation and expenses of Trustees and of independent
advisers, independent contractors, consultants, managers and other agents
employed by the Trust or the Fund other than through the Sub-Adviser;
(b) legal, accounting and auditing fees and expenses of the Trust or
the Fund;
(c) the fees and disbursements of custodians and depositories of the
Trust or the Fund's assets, transfer agents, disbursing agents, plan agents and
registrars;
(d) taxes and governmental fees assessed against the Trust or the
Fund's assets and payable by the Trust or the Fund;
(e) the cost of preparing and mailing dividends, distributions,
reports, notices and proxy materials to shareholders of the Trust or the Fund
except that the Sub-Adviser shall bear the costs of providing the information
referred to in Section 2(j) to the Adviser;
(f) brokers' commissions and underwriting fees; and
(g) the expense of periodic calculations of the net asset value of the
shares of the Fund.
5. Compensation of the Sub-Adviser. For all services to be rendered, facilities
furnished and expenses paid or assumed by the Sub-Adviser as herein provided for
the Fund, the Adviser will pay the Sub-Adviser quarterly, in arrears, a fee at
the annual rate of 50% of the investment advisory fee received by the Adviser.
The "average daily net assets" of the Fund shall be determined on the
basis set forth in the Fund's Prospectus or otherwise consistent with the 1940
Act and the regulations promulgated thereunder. The Sub-Adviser will receive a
pro rata portion of such fee for any periods in which the Sub-Adviser advises
the Fund less than a full quarter. The Fund shall not be liable to the
Sub-Adviser for the Sub-Adviser's compensation hereunder. Calculations of the
Sub-Adviser's fee will be based on average net asset values as provided by the
Adviser.
In addition to the foregoing, the Sub-Adviser may from time to time
agree not to impose all or a portion of its fee otherwise payable hereunder (in
advance of the time such fee or portion thereof would otherwise accrue) and/or
undertake to pay or reimburse the Fund for all or a portion of its expenses not
otherwise required to be borne or reimbursed by it. Any such fee reduction or
undertaking may be discontinued or modified by the Sub-Adviser at any time.
4
<PAGE>
6. Other Activities of the Sub-Adviser and Its Affiliates. Nothing herein
contained shall prevent the Sub-Adviser or any associate of the Sub-Adviser from
engaging in any other business or from acting as investment adviser or
investment manager for any other person or entity, understood that officers,
directors and employees of the Sub-Adviser or its affiliates may continue to
engage in providing portfolio management services and advice to other investment
companies, whether or not registered, to other investment advisory clients of
the Sub-Adviser or its affiliates and to said affiliates themselves.
7. Avoidance of Inconsistent Position. In connection with purchases or sales of
portfolio securities for the account of the Fund, neither the Sub-Adviser nor
any of its investment management subsidiaries nor any of such investment
management subsidiaries' directors, officers or employees will act as principal
or agent or receive any commission, except as may be permitted by the 1940 Act
and rules and regulations promulgated thereunder. The Sub-Adviser shall not
knowingly recommend that the Fund purchase, sell or retain securities of any
issuer in which the Sub-Adviser has a financial interest without obtaining prior
approval of the Adviser prior to the execution of any such transaction.
Nothing herein contained shall limit or restrict the Sub-Adviser or any
of its officers, affiliates or employees from buying, selling or trading in any
securities for its or their own account or accounts. The Trust and Fund
acknowledge the Sub-Adviser and its officers, affiliates, and employees, and its
other clients may at any time have, acquire, increase, decrease or dispose of
positions in investments which are at the same time being acquired or disposed
of hereunder. The Sub-Adviser shall have no obligation to acquire with respect
to the Fund, a position in any investment which the Sub-Adviser, its officers,
affiliates or employees may acquire for its or their own accounts or for the
account of another client, if in the sole discretion of the Sub-Adviser, it is
not feasible or desirable to acquire a position in such investment on behalf of
the Fund. Nothing herein contained shall prevent the Sub-Adviser from purchasing
or recommending the purchase of a particular security for one or more funds or
clients while other funds or clients may be selling the same security.
8. No Partnership or Joint Venture. The Trust, the Fund, the Adviser and the
Sub-Adviser are not partners of or joint venturers with each other and nothing
herein shall be construed so as to make them such partners or joint venturers or
impose any liability as such on any of them.
9. Name of the Trust and the Fund. The Trust and the Fund may use the name "John
Hancock" or any name or names derived from or similar to the names "John Hancock
Advisers, Inc." or "John Hancock Mutual Life Insurance Company" only for so long
as this Agreement remains in effect. At such time as this Agreement shall no
longer be in effect, the Trust and the Fund will (to the extent that they
lawfully can) cease to use such a name or any other name indicating that the
Fund is advised by or otherwise connected with the Adviser. The Fund
acknowledges that it has adopted the name John Hancock Global Fund through
permission of John Hancock Mutual Life Insurance Company, a Massachusetts
insurance company, and agrees that John Hancock Mutual Life Insurance Company
reserves to itself and any successor to its business the right to grant the
nonexclusive right to use the name "John Hancock" or any similar name or names
to any other corporation or entity, including but not limited to any investment
company of which John Hancock Mutual Life Insurance Company or any subsidiary or
affiliate thereof shall be the investment adviser.
5
<PAGE>
10. Limitation of Liability of Sub-Adviser. The Sub-Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Trust or the Fund or the Adviser in connection with the matters to which this
Agreement relates, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the Sub-Adviser's part in the performance of its duties
or from reckless disregard by it of its obligations and duties under this
Agreement. Any person, even though also employed by the Sub-Adviser, who may be
or become an employee of and paid by the Trust or the Fund shall be deemed, when
acting within the scope of his employment by the Trust or the Fund, to be acting
in such employment solely for the Trust or the Fund and not as the Sub-Adviser's
employee or agent.
11. Duration and Termination of this Agreement. This Agreement shall remain in
force until June 30, 2001, and from year to year thereafter, but only so long as
such continuance is specifically approved at least annually by (a) a majority of
the Trustees who are not interested persons of the Adviser, the Sub-Adviser, or
(other than as Board members) of the Trust or the Fund, cast in person at a
meeting called for the purpose of voting on such approval, and (b) either (i)
the Trustees or (ii) a majority of the outstanding voting securities of the
Fund. This Agreement may, on 60 days' written notice, be terminated at any time
without the payment of any penalty by the Trust or the Fund by vote of a
majority of the outstanding voting securities of the Fund, by the Trustees, the
Adviser or the Sub-Adviser. Termination of this Agreement with respect to the
Fund shall not be deemed to terminate or otherwise invalidate any provisions of
any contract between the Sub-Adviser and any other series of the Trust. This
Agreement shall automatically terminate in the event of its assignment or upon
termination of the Investment Management Contract. In interpreting the
provisions of this Section 11, the definitions contained in Section 2(a) of the
1940 Act (particularly the definitions of "assignment," "interested person" or
"voting security"), shall be applied.
12. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the party against which enforcement of the change, waiver, discharge
or termination is sought, and no amendment, transfer, assignment, sale,
hypothecation or pledge of this Agreement shall be effective until approved by
(a) the Trustees, including a majority of the Trustees who are not interested
persons of the Adviser, the Sub-Adviser, or (other than as Board members) of the
Trust or the Fund, cast in person at a meeting called for the purpose of voting
on such approval, and (b) a majority of the outstanding voting securities of the
Fund, as defined in the 1940 Act.
13. Governing Law. This Agreement shall be governed and construed in accordance
with the laws of the Commonwealth of Massachusetts.
6
<PAGE>
14. Severability. The provisions of this Agreement are independent of and
separable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be deemed invalid or unenforceable in whole or in part.
15. Miscellaneous. (a) The captions in this Agreement are included for
convenience of reference only and in no way define or limit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. The name John Hancock Investment Trust III is the
designation of the Trustees under the Amended and Restated Declaration of Trust
dated July 1, 1996, as amended from time to time. The Declaration of Trust has
been filed with the Secretary 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. The Trust or the Fund shall not be liable for the obligations of any
other series of the Trust. (b) Any information supplied by the Sub-Adviser,
which is not otherwise in the public domain, in connection with the performance
of its duties hereunder is to be regarded as confidential and for use only by
the Fund and/or its agents, and only in connection with the Fund and its
investments.
Yours very truly,
JOHN HANCOCK INVESTMENT TRUST III
on behalf of John Hancock Global Fund
By: /s/ Anne C. Hodsdon
-------------------
President
The foregoing contract
is hereby agreed to as
of the date hereof.
JOHN HANCOCK ADVISERS, INC.
By: /s/Anne C. Hodsdon
------------------
President
INDOCAM INTERNATIONAL INVESTMENT SERVICES
By: /s/Jean Claude Kaltenbach
-------------------------
Name:
Title:
7
MASTER CUSTODIAN AGREEMENT
between
JOHN HANCOCK MUTUAL FUNDS
and
STATE STREET BANK AND TRUST COMPANY
Amended and Restated
March 9, 1999
<PAGE>
TABLE OF CONTENTS
1. Definitions.............................................................1-3
2. Employment of Custodian and Property to be Held by It.....................3
3. The Custodian as a Foreign Custody Manager................................3
A. Definitions......................................................3-4
B. Delegation to the Custodian as Foreign Custody Manager.............4
C. Countries Covered..................................................4
D. Scope of Delegated Responsibilities..............................4-6
E. Standard of Care as Foreign Custody Manager of the Fund............7
F. Reporting Requirements.............................................7
G. Representations with respect to Rule 17f-5.........................7
H. Effective Date and Termination of the Custodian as Foreign.........7
Custody Manager
I. Withdrawal of Custsodian as Foreign Custody Manager................8
with Respect to Designated Countries and with Respect
to Eligible Foreign Custodians
J. Guidelines for the Exercise of Delegated Authority...............8-9
and Provision of Information Regarding Country Risk
K. Most Favored Client.............................................9-10
L. Direction as to Eligible Foreign Custodians.......................10
4. Duties of the Custodian with Respect to..................................10
Property of the Fund
A. Safekeeping and Holding of Property...............................10
B. Delivery of Securities.........................................10-13
i
<PAGE>
C. Registration of Securities........................................13
D. Bank Accounts..................................................13-14
E. Payments for Shares of the Fund...................................14
F. Investment and Availability of Federal Funds......................14
G. Collections....................................................14-15
H. Payment of Fund Moneys.........................................15-16
I. Liability for Payment in Advance of............................16-17
Receipt of Securities Purchased
J. Payments for Repurchases of Redemptions...........................17
of Shares of the Fund
K. Appointment of Agents by the Custodian............................17
L. Deposit of Fund Portfolio Securities in........................18-19
Securities Systems
M. Deposit of Fund Commercial Paper in an Approved................19-21
Book-Entry System for Commercial Paper
N. Segregated Account................................................22
O. Ownership Certificates for Tax Purposes...........................22
P. Proxies...........................................................22
Q. Communications Relating to Fund Portfolio......................22-23
Securities
R. Exercise of Rights; Tender Offers................................23
S. Depository Receipts............................................23-24
T. Interest Bearing Call or Time Deposits............................24
U. Options, Futures Contracts and Foreign.........................24-25
Currency Transactions
V. Actions Permitted Without Express Authority....................25-26
ii
<PAGE>
5. Duties of Bank with Respect to Books of Account and......................26
Calculations of Net Asset Value
6. Records and Miscellaneous Duties......................................26-27
7. Opinion of Fund's Independent Public Accountants.........................27
8. Compensation and Expenses of Bank........................................27
9. Responsibility of Bank................................................27-28
10. Persons Having Access to Assets of the Fund...........................28-29
11. Effective Period, Termination and Amendment;..........................29-30
Successor Custodian
12. Interpretive and Additional Provisions...................................30
13. Certification as to Authorized Officers..................................30
14. Notices..................................................................30
15. Massachusetts Law to Apply; Limitations on Liability..................30-31
16. Adoption of the Agreement by the Fund....................................31
iii
<PAGE>
MASTER CUSTODIAN AGREEMENT
This Agreement made as of June 15, 1994 as amended and restated March 9,
1999 between each investment company advised by John Hancock Advisers, Inc.
which has adopted this Agreement in the manner provided herein and State Street
Bank and Trust Company (hereinafter called "Bank", "Custodian" and "Agent"), a
trust company established under the laws of Massachusetts with a principal place
of business in Boston, Massachusetts.
Whereas, each such investment company is registered under the Investment
Company Act of 1940 and has appointed the Bank to act as Custodian of its
property and to perform certain duties as its Agent, as more fully hereinafter
set forth; and
Whereas, the Bank is willing and able to act as each such investment
company's Custodian and Agent, subject to and in accordance with the provisions
hereof;
Now, therefore, in consideration of the premises and of the mutual
covenants and agreements herein contained, each such investment company and the
Bank agree as follows:
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 "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.
(c) "The Depository Trust Company", a clearing agency registered with
the Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934 which acts as a securities depository and which has been
specifically approved as a securities depository for the Fund by the Board.
(d) "Authorized Officer", shall mean any of the following officers of
the Fund : The Chairman of the Board of Trustees, the President, a Vice
President, the Secretary, the Treasurer or Assistant Secretary or Assistant
Treasurer, or any other officer of the Fund duly authorized to sign by
appropriate resolution of the Board of Trustees. .
(e) "Participants Trust Company", a clearing agency registered with the
Securities and Exchange Commission under Section 17A of the Securities Exchange
Act of 1934 which acts as a securities depository and which has been
specifically approved as a securities depository for the Fund by the Board.
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(f) "Approved Clearing Agency" shall mean any other domestic clearing
agency registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934 which acts as a securities depository but
only if the Custodian has received a certified copy of a vote of the Board
approving such clearing agency as a securities depository for the Fund.
(g) "Federal Book-Entry System" shall mean the book-entry system
referred to in Rule 17f-4(b) under the Investment Company Act of 1940 for United
States and federal agency securities (i.e., as provided in Subpart O of Treasury
Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, and the book-entry
regulations of federal agencies substantially in the form of Subpart O).
(h) "Approved Book-Entry System for Commercial Paper" shall mean a
system maintained by the Custodian or by a subcustodian employed pursuant to
Section 2 hereof for the holding of commercial paper in book-entry form but only
if the Custodian has received a certified copy of a vote of the Board approving
the participation by the Fund in such system.
(i) The Custodian shall be deemed to have received "proper instructions"
in respect of any of the matters referred to in this Agreement upon receipt of
written or facsimile instructions signed by such one or more person or persons
as the Board shall have from time to time authorized to give the particular
class of instructions in question. Electronic instructions for the purchase and
sale of securities which are transmitted by John Hancock Advisers, Inc. (the
"Adviser") to the Custodian shall be deemed to be proper instructions; the Fund
shall cause all such instructions to be confirmed in writing. Different persons
may be authorized to give instructions for different purposes. A certified copy
of a vote of the Board may be received and accepted by the Custodian as
conclusive evidence of the authority of any such person to act and may be
considered as in full force and effect until receipt of written notice to the
contrary. Such instructions may be general or specific in terms and, where
appropriate, may be standing instructions. Unless the vote delegating authority
to any person or persons to give a particular class of instructions specifically
requires that the approval of any person, persons or committee shall first have
been obtained before the Custodian may act on instructions of that class, the
Custodian shall be under no obligation to question the right of the person or
persons giving such instructions in so doing. Oral instructions will be
considered proper instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing. The Fund authorizes the Custodian to
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tape record any and all telephonic or other oral instructions given to the
Custodian. "Proper instructions" may also include communications effected
directly between electromechanical or electronic devices provided that the
President and Treasurer of the Fund and the Custodian are satisfied that such
procedures afford adequate safeguards for the Fund's assets. In performing its
duties generally, and more particularly in connection with the purchase, sale
and exchange of securities made by or for the Fund, the Custodian may take
cognizance of the provisions of the governing documents and registration
statement of the Fund as the same may from time to time be in effect (and votes,
resolutions or proceedings of the shareholders or the Board), but, nevertheless,
except as otherwise expressly provided herein, the Custodian may assume unless
and until notified in writing to the contrary that so-called proper instructions
received by it are not in conflict with or in any way contrary to any provisions
of such governing documents and registration statement, or votes, resolutions or
proceedings of the shareholders or the Board.
2. Employment of Custodian and Property to be Held by It
The Fund hereby appoints and employs the Bank as its Custodian and Agent
in accordance with and subject to the provisions hereof, and the Bank hereby
accepts such appointment and employment. The Fund agrees to deliver to the
Custodian all securities, participation interests, cash and other assets owned
by it, and all payments of income, payments of principal and capital
distributions and adjustments received by it with respect to all securities and
participation interests owned by the Fund from time to time, and the cash
consideration received by it for such new or treasury shares ("Shares") of the
Fund as may be issued or sold from time to time. The Custodian shall not be
responsible for any property of the Fund held by the Fund and not delivered by
the Fund to the Custodian. The Fund will also deliver to the Bank from time to
time copies of its currently effective charter (or declaration of trust or
partnership agreement, as the case may be), By-Laws, prospectus, statement of
additional information and distribution agreement with its principal
underwriter, together with such resolutions, votes and other proceedings of the
Fund as may be necessary for or convenient to the Bank in the performance of its
duties hereunder.
The Custodian may from time to time employ one or more subcustodians to
perform such acts and services upon such terms and conditions as shall be
approved from time to time by the Board. Any such subcustodian so employed by
the Custodian shall be deemed to be the agent of the Custodian, and the
Custodian shall remain primarily responsible for the securities, participation
interests, moneys and other property of the Fund held by such subcustodian. For
the purposes of this Agreement, any property of the Fund held by any such
subcustodian (domestic or foreign) shall be deemed to be held by the Custodian
under the terms of this Agreement.
3. The Custodian as a Foreign Custody Manager
A. Definitions Capitalized terms in this Article 3 shall have the
following meanings:
(a) "Country risk" means all factors reasonably related to the systemic
risk of holding Foreign Assets in a particular country including, but not
limited to, a country's political environment; economic and financial
infrastructure (including financial institutions such as any Mandatory
Securities Depositories operating in the country); prevailing custody and
settlement practices; and laws and regulations applicable to the
safekeeping and recovery of Foreign Assets held in custody in that country.
(b) "Eligible Foreign Custodian" has the meaning set forth in section
(a)(1) of Rule 17f-5 and also includes a U.S. Bank.
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(c) "Foreign Assets" means any of the Fund's investments (including foreign
currencies) for which the primary market is outside the United States and
cash and cash equivalents as are reasonably necessary to effect the Fund's
transactions in these investments.
(d) "Foreign Custody Manager" has the meaning set forth in section (a)(2)
of Rule 17f-5; it is a Fund's Board of Directors or any person serving as
the Board's delegate under sections (b) or (d) of Rule 17f-5.
(e) "Mandatory Securities Depository" means a Securities Depository the use
of which is mandatory (i) by law or regulation; (ii) because securities
cannot be withdrawn from the depository; (iii) because maintaining
securities outside the Securities Depository would impair the liquidity of
the securities because settlement within the depository is mandatory and
the period of time required to deposit securities is longer than the
settlement period or where particular classes of transactions, such as
large trades or turn-around trades, are not available if the securities are
held in physical form; or (iv) because maintaining securities outside of
the Securities Depository is not consistent with prevailing custodial or
market practices generally accepted by institutional investors.
(f) "Securities Depository" has the same meaning set forth in section
(a)(6) of Rule 17f-5: it is a system for the central handling of securities
where all securities are of a particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred
or pledged by bookkeeping entry without physical delivery of the
securities.
(g) "U.S. Bank" means a bank which qualifies to serve as a custodian of
assets of investment companies under ss.17(f) of the Investment Company Act
of 1940, as amended.
B. Delegation to the Custodian as Foreign Custody Manager Each Fund,
by resolution adopted by its Board, hereby appoints the Custodian
as the Foreign Custody Manager of the Fund and delegates to the
Custodian, the responsibilities set forth in this Article 3 with
respect to Foreign Assets held outside the United States, and the
Custodian hereby accepts this delegation.
C. Countries Covered The Foreign Custody Manager shall be responsible
for performing the delegated responsibilities defined below only
with respect to the countries listed on Schedule A, which may be
amended from time to time by the Foreign Custody Manager.
Mandatory Securities Depositories are listed on Schedule B, which
may be amended from time to time by the Foreign Custody Manager.
Schedules A and B may also be amended in accordance with
subsection F of Article 3.
D. Scope of Delegated Responsibilities
1) Selection of Eligible Foreign Custodians Subject to the
provisions of this Article 3 and Rule 17f-5 (and any other
applicable law), the Foreign Custody Manager may place and
maintain the Foreign Assets in the care of an Eligible
Foreign Custodian selected by the Foreign Custody Manager in
each country listed
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on Schedule A, as amended from time to time. In addition,
the Foreign Custody Manager shall provide the Fund with all
requisite forms and documentation to open an account in any
country listed on Schedule A as requested by any Authorized
Officer and shall assist the Fund with the filing and
processing of these forms and documents. Execution of this
amended and restated Agreement by the Fund shall be deemed
to be a Proper Instruction to open an account, or to place
or maintain Foreign Assets in each country listed on
Schedule A.
In performing its delegated responsibilities as Foreign
Custody Manager to place or maintain Foreign Assets with an
Eligible Foreign Custodian, the Foreign Custody Manager
shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to
custodians in the country in which the Foreign Assets will
be held by that Eligible Foreign Custodian, after
considering all factors relevant to the safekeeping of those
assets. These factors include, without limitation:
(i) the Eligible Foreign Custodian's practices, procedures
and internal controls, including but not limited to, the
physical protections available for certificated securities
(if applicable), its methods of keeping custodial records
and its security and data protection practices;
(ii) whether the Eligible Foreign Custodian has the
requisite financial strength to provide reasonable care for
Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation
and standing and, in the case of any Securities Depository,
the Securities Depository's operating history and the number
of participants; and
(iv) whether the Fund will have jurisdiction over and be
able to enforce judgments against the Eligible Foreign
Custodian, such as by virtue of the existence of any offices
of the Eligible Foreign Custodian in the United States or
the Eligible Foreign Custodian's consent to service of
process in the United States.
2) Contracts With Eligible Foreign Custodians For each Eligible
Foreign Custodian selected by the Foreign Custody Manager,
the Foreign Custody Manager shall (or, in the case of a
Securities Depository which is not a Mandatory Securities
Depository, may under the rules or established practices or
procedures of the Securities Depository) enter into a
written contract governing the Fund's foreign custody
arrangements with the Eligible Foreign Custodian. The
Foreign Custody Manager shall determine that each contract
will provide reasonable care for the Foreign Assets held by
that Eligible Foreign Custodian based on the standards
specified in paragraph 1 of subsection D of Article 3 of
this Agreement. Each contract shall include provisions that
provide:
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(i) for indemnification or insurance arrangements (or any
combination of the foregoing) so that the Fund will be
adequately protected against the risk of loss of the
Foreign Assets held in accordance with the contract;
(ii) that the Foreign Assets will not be subject to any
right, security interest, lien or claim of any kind in
favor of the Eligible Foreign Custodian or its creditors
except a claim of payment for their safe custody or
administration or, in the case of cash deposits, liens or
rights in favor of creditors of the Eligible Foreign
Custodian arising under bankruptcy, insolvency or similar
laws;
(iii) that beneficial ownership of the Foreign Assets will
be freely transferable without the payment of money or
value other than for safe custody or administration;
(iv) that adequate records will be maintained identifying
the Foreign Assets as belonging to the Fund or as being
held by a third party for the benefit of the Fund;
(v) that the Fund's independent public accountants will be
given access to those records or confirmation of the
contents of those records; and
(vi) that the Fund will receive periodic reports with
respect to the safekeeping of the Foreign Assets,
including, but not limited to, notification of any
transfer of the Foreign Assets to or from the Fund's
account or a third party account containing the Foreign
Assets held for the benefit of the Fund, or, in lieu of
any or all of the provisions set forth in (i) through (vi)
above, such other provisions that the Foreign Custody
Manager determines will provide, in their entirety, the
same or greater level of care and protection for the
Foreign Assets as the provisions set forth in (i) through
(vi) above in their entirety.
3) Monitoring In each case in which the Foreign Custody
Manager maintains Foreign Assets with an Eligible Foreign
Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to
monitor at reasonable intervals the initial and continued
appropriateness of (i) maintaining the Foreign Assets with
the Eligible Foreign Custodian and (ii) the contract
governing the custody arrangements established by the
Foreign Custody Manager with the Eligible Foreign
Custodian. The Foreign Custody Manager shall consider all
factors and criteria set forth in subparagraphs 1 and 2 of
subsection D of Article 3 of this Agreement.
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E. Standard of Care as Foreign Custody Manager of the Fund In
performing the responsibilities delegated to it, the Foreign
Custody Manager agrees to exercise reasonable care, prudence and
diligence as a person having responsibility for the safekeeping of
assets of management investment companies registered under the
Investment Company Act of 1940, as amended, would exercise. The
Foreign Custody Manager agrees to notify immediately the Adviser
and the Board if, at any time, the Foreign Custody Manager
believes it cannot perform, in accordance with the foregoing
standard of care, its duties hereunder generally or with respect
to any country specified in Schedule A.
F. Reporting Requirements The Foreign Custody Manager shall list on
Schedule A the Eligible Foreign Custodians selected by the Foreign
Custody Manager to maintain the Fund's assets. The Foreign
Custody Manager shall report the withdrawal of the Foreign Assets
from an Eligible Foreign Custodian and the placement of the
Foreign Assets with another Eligible Foreign Custodian by
providing to the Adviser an amended Schedule A promptly. The
Foreign Custody Manager shall make written reports notifying the
Adviser and the Board of any other material change in the foreign
custody arrangements of the Fund described in this Article 3.
Amended Schedules A or B and material change reports shall be
provided to the Board quarterly, provided that, if the Foreign
Custody Manager or the Adviser determines that any matter should
be reported sooner, the Foreign Custody Manager shall promptly,
following the occurrence of the event, direct the report to the
Fund's Secretary for forwarding to the Board. At least annually,
the Foreign Custody Manager shall provide the Adviser and the
Board a written statement enabling the Board to determine that it
is reasonable to rely on the Foreign Custody Manager to perform
its delegated duties under this Article 3 and that the foreign
custody arrangements delegated to the Foreign Custody Manager
continue to meet the requirements of Rule 17f-5 under the
Investment Company Act of 1940, as amended. The Foreign Custody
Manager will also provide monthly reports on each Eligible Foreign
Custodian listing all holdings and current market values.
G. Representations with respect to Rule 17f-5 The Foreign Custody
Manager represents to the Fund that it is a U.S. Bank as defined
in section (a)(7) of Rule 17f-5.
The Fund represents to the Custodian that the Board has determined
that it is reasonable for the Board to rely on the Custodian to
perform the responsibilities delegated pursuant to this Article as
the Foreign Custody Manager of the Fund.
H. Effective Date and Termination of the Custodian as Foreign Custody
Manager The Board's delegation to the Custodian as Foreign Custody
Manager of the Fund shall be effective as of the date of execution
of this amended and restated Agreement and shall remain in effect
until terminated at any time, without penalty, by written notice
from the terminating party to the non-terminating party.
Termination will become effective sixty days after receipt by the
non-terminating party of the notice.
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I. Withdrawal of Custodian as Foreign Custody Manager with respect to
Designated Countries and with respect to Eligible Foreign
Custodians Following the receipt of Proper Instructions directing
the Foreign Custody Manager to close the account of the Fund with
the Eligible Foreign Custodian selected by the Foreign Custody
Manager in a designated country and to remove that country from
Schedule A, the delegation by the Board to the Custodian as
Foreign Custody Manager for that country shall be deemed to have
been withdrawn with respect to that country and the Custodian
shall cease to be the Foreign Custody Manager of the Fund with
respect to that country after settlement of all pending trades.
The Foreign Custody Manager may withdraw its acceptance of
delegated responsibilities with respect to a country listed on
Schedule A upon written notice to the Fund in accordance with
subsection F. Sixty days (or other period agreed to by the parties
in writing) after receipt of any notice by the Fund, the Custodian
shall have no further responsibility as Foreign Custody Manager to
the Fund with respect to that country.
In the event the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian it has
selected are no longer appropriate because the applicable Eligible
Foreign Custodian is no longer able to provide reasonable care for
Foreign Assets held in the country, or an arrangement no longer
meets the requirements of Rule 17f-5, the Foreign Custody Manager
shall notify the Adviser, the Board and the Fund in accordance
with subsection F hereunder. If the Adviser determines that
withdrawal is in the best interest of the Fund, the Foreign
Custody Manager shall withdraw all Foreign Assets from the
Eligible Foreign Custodian, as soon as reasonably practicable, and
shall provide alternative safe keeping acceptable to the Foreign
Custody Manager. If the Adviser determines that it is in the best
interest of the Fund to withdraw all Foreign Assets and this
withdrawal would require liquidation of any Foreign Assets or
would materially and adversely impair the liquidity, value or
other investment characteristic of any Foreign Assets, the Foreign
Custody Manager shall immediately provide information regarding
the particular circumstances to the Adviser and to the Board and
shall act in accordance with instructions received from an
Authorized Officer, with respect to the liquidation or other
withdrawal.
J. Guidelines for the Exercise of Delegated Authority and Provision
of Information Regarding Country Risk Nothing in this Article 3
shall require the Foreign Custody Manager to consider Country Risk
as part of its delegated responsibilities under subsection D of
Article 3. The Fund and the Custodian each expressly acknowledge
that the Foreign Custody Manager shall not be responsible for, or
liable for any loss in connection with the placement of Foreign
Assets with or withdrawal of Foreign Assets from a Mandatory
Securities Depository nor be delegated any responsibilities under
this Article 3 with respect to Mandatory Securities Depositories
other than those set forth below.
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With respect to the countries listed in Schedule A, or added
thereto, the Foreign Custody Manager agrees to provide annually to
the Board and the Adviser, information relating to the Country
Risks of holding Foreign Assets in such countries, including but
not limited to, the Mandatory Securities Depositories, if any,
operating in the country. In addition, the Foreign Custody Manager
shall use reasonable care in the gathering of this information and
with regard to, among other things, the completeness and accuracy
of this information. The information furnished annually by the
Foreign Custody Manager to the Board should include but not be
limited to the following, if available:
(i) Legal Opinion regarding whether applicable foreign law
would restrict the access of the Fund's independent public
accountants to the books and records of the foreign
custodian, whether applicable foreign law would restrict
the Fund's ability to recover its assets in the event of
bankruptcy of the foreign custodian, whether applicable
foreign law would restrict the Fund's ability to recover
assets lost while under the foreign custodian's control,
the likelihood of expropriation, nationalization, freezes
or confiscation of the Fund's assets and whether there are
reasonably foreseeable difficulties in converting the
Fund's cash into U.S. dollars, or such other form of Legal
Opinion as is customary in association with Rule 17f-5
from time to time,
(ii) audit report of the Foreign Custody Manager,
(iii) copy of balance sheet from annual report of the
custodian,
(iv) summary of Central Depository Information,
(v) country profile materials containing market practice
for: delivery versus payment, settlement method, currency
restrictions, buy-in practice, Foreign ownership limits
and unique market arrangements,
(vi) The Foreign Custody Manager shall also provide such
other information as may be reasonably available relating
to Mandatory Securities Depositories, and, in accordance
with applicable requirements promulgated by the SEC from
time to time, to the criteria as set forth on Appendix B
hereto, as such Appendix may be revised by the parties
hereto from time to time; and,
(vii) such other materials as the Board may reasonably
request from time to time, including copies of contracts
with the subcustodians.
K. Most Favored Client If at any time the Foreign Custody Manager
shall be a party to an agreement, to serve as a Foreign Custody
Manager to an investment company, that provides for either (a) a
standard of care with respect to the selection of Eligible Foreign
Custodians in any jurisdiction higher than that set forth in
paragraph 1 of subsection D of Article 3 of this Agreement or
(b) a standard of care with respect to the exercise of the Foreign
Custody Manager's duties other than
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that set forth in subsection F of Article 3 of this Agreement, the
Foreign Custody Manager agrees to notify the Fund of this fact and
to raise the applicable standard of care hereunder to the standard
specified in the other agreement. In the event that the Foreign
Custody Manager shall in the future offer review or information
services with respect to Mandatory Securities Depositories in
addition to any services provided hereunder, the Foreign Custody
Manager agrees that it shall notify the Fund of this fact and
shall offer these services to the Fund.
L. Direction as to Eligible Foreign Custodians Notwithstanding
Article 3 of this Agreement, the Fund or the Adviser may direct
the Custodian to place and maintain Foreign Assets with a
particular Eligible Foreign Custodian acceptable to the Foreign
Custody Manager. In such event, the Custodian shall be entitled to
rely on any instruction as a Proper Instruction and may limit its
duties under this Article 3 of the Agreement with respect to such
arrangements by describing any limitations in writing with respect
to each instance.
4. Duties of the Custodian with Respect to Property of the Fund
A. Safekeeping and Holding of Property The Custodian shall keep
safely all property of the Fund and on behalf of the Fund shall
from time to time receive delivery of Fund property for
safekeeping. The Custodian shall hold, earmark and segregate on
its books and records for the account of the Fund all property of
the Fund, including all securities, participation interests and
other assets of the Fund (1) physically held by the Custodian,
(2) held by any subcustodian referred to in Section 2 hereof or by
any agent referred to in Paragraph K hereof, (3) held by or
maintained in The Depository Trust Company or in Participants
Trust Company or in an Approved Clearing Agency or in the Federal
Book-Entry System or in an Approved Foreign Securities Depository,
each of which from time to time is referred to herein as a
"Securities System", and (4) held by the Custodian or by any
subcustodian referred to in Section 2 hereof and maintained in any
Approved Book-Entry System for Commercial Paper.
B. Delivery of Securities The Custodian shall release and deliver
securities or participation interests owned by the Fund held (or
deemed to be held) by the Custodian or maintained in a Securities
System account or in an Approved Book-Entry System for Commercial
Paper account only upon receipt of proper instructions, which may
be continuing instructions when deemed appropriate by the parties,
and only in the following cases:
1) Upon sale of such securities or participation interests
for the account of the Fund, but only against receipt of
payment therefor; if delivery is made in Boston or New
York City, payment therefor shall be made in accordance
with generally accepted clearing house procedures or by
use of Federal Reserve Wire System procedures; if delivery
is made elsewhere payment therefor shall be in accordance
with the then current "street delivery" custom or in
accordance with such procedures agreed to in writing from
time to time by the parties hereto; if the sale is
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effected through a Securities System, delivery and payment
therefor shall be made in accordance with the provisions
of Paragraph L hereof; if the sale of commercial paper is
to be effected through an Approved Book-Entry System for
Commercial Paper, delivery and payment therefor shall be
made in accordance with the provisions of Paragraph M
hereof; if the securities are to be sold outside the
United States, delivery may be made in accordance with
procedures agreed to in writing from time to time by the
parties hereto; for the purposes of this subparagraph, the
term "sale" shall include the disposition of a portfolio
security (i) upon the exercise of an option written by the
Fund and (ii) upon the failure by the Fund to make a
successful bid with respect to a portfolio security, the
continued holding of which is contingent upon the making
of such a bid;
2) Upon the receipt of payment in connection with any
repurchase agreement or reverse repurchase agreement
relating to such securities and entered into by the Fund;
3) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
4) To the issuer thereof or its agent when such securities or
participation interests are called, redeemed, retired or
otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
5) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee of the
Custodian or into the name or nominee name of any agent
appointed pursuant to Paragraph K hereof or into the name
or nominee name of any subcustodian employed pursuant to
Section 2 hereof; or for exchange for a different number
of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided
that, in any such case, the new securities or
participation interests are to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
6) To the broker selling the same for examination in
accordance with the "street delivery" custom; provided
that the Custodian shall adopt such procedures as the Fund
from time to time shall approve to ensure their prompt
return to the Custodian by the broker in the event the
broker elects not to accept them;
7) For exchange or conversion pursuant to any plan of merger,
consolidation, re capitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion of
such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof;
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<PAGE>
8) In the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such
warrants, rights or similar securities, or the surrender
of interim receipts or temporary securities for definitive
securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
9) For delivery in connection with any loans of securities
made by the Fund (such loans to be made pursuant to the
terms of the Fund's current registration statement), but
only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund, which may
be in the form of cash or obligations issued by the United
States government, its agencies or instrumentalities.
10) For delivery as security in connection with any borrowings
by the Fund requiring a pledge or hypothecation of assets
by the Fund (if then permitted under circumstances
described in the current registration statement of the
Fund), provided, that the securities shall be released
only upon payment to the Custodian of the monies borrowed,
except that in cases where additional collateral is
required to secure a borrowing already made, further
securities may be released for that purpose; upon receipt
of proper instructions, the Custodian may pay any such
loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
11) When required for delivery in connection with any
redemption or repurchase of Shares of the Fund in
accordance with the provisions of Paragraph J hereof;
12) For delivery in accordance with the provisions of any
agreement between the Custodian (or a subcustodian
employed pursuant to Section 2 hereof) and a broker-dealer
registered under the Securities Exchange Act of 1934 and,
if necessary, the Fund, relating to compliance with the
rules of The Options Clearing Corporation or of any
registered national securities exchange, or of any similar
organization or organizations, regarding deposit or escrow
or other arrangements in connection with options
transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian (or a subcustodian
employed pursuant to Section 2 hereof), and a futures
commission merchant, relating to compliance with the rules
of the Commodity Futures Trading Commission and/or of any
contract market or commodities exchange or similar
organization, regarding futures margin account deposits or
payments in connection with futures transactions by the
Fund;
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14) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a
certified copy of a vote of the Board specifying the
securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose
to be proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
C. Registration of Securities Securities held by the Custodian
(other than bearer securities) for the account of the Fund shall
be registered in the name of the Fund or in the name of any
nominee of the Fund or of any nominee of the Custodian, or in the
name or nominee name of any agent appointed pursuant to Paragraph
K hereof, or in the name or nominee name of any subcustodian
employed pursuant to Section 2 hereof, or in the name or nominee
name of The Depository Trust Company or Participants Trust Company
or Approved Clearing Agency or Federal Book-Entry System or
Approved Book-Entry System for Commercial Paper; provided, that
securities are held in an account of the Custodian or of such
agent or of such subcustodian containing only assets of the Fund
or only assets held by the Custodian or such agent or such
subcustodian as a custodian or subcustodian or in a fiduciary
capacity for customers. All certificates for securities accepted
by the Custodian or any such agent or subcustodian on behalf of
the Fund shall be in "street" or other good delivery form or shall
be returned to the selling broker or dealer who shall be advised
of the reason thereof.
D. Bank Accounts The Custodian shall open and maintain a separate
bank account or accounts in the name of the Fund, subject only to
draft or order by the Custodian acting in pursuant to the terms
of this Agreement, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or
for the account of the Fund other than cash maintained by the Fund
in a bank account established and used in accordance with Rule
17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for the Fund may be deposited by it to its credit as
Custodian in the banking department of the Custodian or in such
other banks or trust companies as the Custodian may in its
discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each
such bank or trust company and the funds to be deposited with each
such bank or trust company shall be approved in writing by an
Authorized Officer. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be subject to
withdrawal only by the Custodian in that capacity.
The Custodian may, on behalf of any Fund, open and cause to be
maintained outside the United States a bank account with (a) an
Eligible Foreign Custodian (as defined in Article 3) or (b) any
person with whom property of the Fund may be placed and maintained
outside of the United States under (i) ss.17(f) or 26(a) of the
1940 Act, without regard to Rule 17f-5 or (ii) an order of the
U.S. Securities and Exchange Commission (a "permissible Foreign
Custodian"). Such account(s) shall be subject only to draft or
order by the Custodian or Eligible Foreign Custodian or
Permissible Foreign Custodian acting pursuant to the terms of this
Agreement to hold cash received by or from or for the account of
the Fund.
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E. Payment for Shares of the Fund The Custodian shall make
appropriate arrangements with the Transfer Agent and the principal
underwriter of the Fund to enable the Custodian to make certain it
promptly receives the cash or other consideration due to the Fund
for such new or treasury Shares as may be issued or sold from time
to time by the Fund, in accordance with the governing documents
and offering prospectus and statement of additional information of
the Fund. The Custodian will provide prompt notification to the
Fund of any receipt by it of payments for Shares of the Fund.
F. Investment and Availability of Federal Funds Upon agreement
between the Fund and the Custodian, the Custodian shall, upon the
receipt of proper instructions, which may be continuing
instructions when deemed appropriate by the parties, invest in
such securities and instruments as may be set forth in such
instructions on the same day as received all federal funds
received after a time agreed upon between the Custodian and the
Fund.
G. Collections The Custodian shall promptly collect all income and
other payments with respect to registered securities held
hereunder to which the Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall promptly
collect all income and other payments with respect to bearer
securities if, on the date of payment by the issuer, such
securities are held by the Custodian or agent thereof and shall
credit such income, as collected, to the Fund's custodian account.
The Custodian shall do all things necessary and proper in connection with such
prompt collections and, without limiting the generality of the foregoing, the
Custodian shall
1) Present for payment all coupons and other income items
requiring presentations;
2) Present for payment all securities which may mature or be
called, redeemed, retired or otherwise become payable;
3) Endorse and deposit for collection, in the name of the
Fund, checks, drafts or other negotiable instruments;
4) Credit income from securities maintained in a Securities
System or in an Approved Book-Entry System for Commercial
Paper at the time funds become available to the Custodian;
in the case of securities maintained in The Depository
Trust Company funds shall be deemed available to the Fund
not later than the opening of business on the first
business day after receipt of such funds by the Custodian.
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<PAGE>
The Custodian shall notify the Fund as soon as reasonably practicable whenever
income due on any security is not promptly collected. In any case in which the
Custodian does not receive any due and unpaid income after it has made demand
for the same, it shall immediately so notify the Fund in writing, enclosing
copies of any demand letter, any written response thereto, and memoranda of all
oral responses thereto and to telephonic demands, and await instructions from
the Fund; the Custodian shall in no case have any liability for any nonpayment
of such income provided the Custodian meets the standard of care set forth in
Section 8 hereof. The Custodian shall not be obligated to take legal action for
collection unless and until reasonably indemnified to its satisfaction.
The Custodian shall also receive and collect all stock dividends, rights and
other items of like nature, and deal with the same pursuant to proper
instructions relative thereto.
H. Payment of Fund Moneys Upon receipt of proper instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of the Fund in the
following cases only:
1) Upon the purchase of securities, participation interests,
options, futures contracts, forward contracts and options
on futures contracts purchased for the account of the Fund
but only (a) against the receipt of:
(i) such securities registered as provided in
Paragraph C hereof or in proper form for
transfer or
(ii) detailed instructions signed by an officer of the
Fund regarding the participation interests to be
purchased or
(iii) written confirmation of the purchase by the Fund
of the options, futures contracts, forward
contracts or options on futures contracts
by the Custodian (or by a subcustodian employed pursuant
to Section 2 hereof or by a clearing corporation of a
national securities exchange of which the Custodian is a
member or by any bank, banking institution or trust
company doing business in the United States or abroad
which is qualified under the Investment Company Act of
1940 to act as a custodian and which has been designated
by the Custodian as its agent for this purpose or by the
agent specifically designated in such instructions as
representing the purchasers of a new issue of privately
placed securities); (b) in the case of a purchase effected
through a Securities System, upon receipt of the
securities by the Securities System in accordance with the
conditions set forth in Paragraph L hereof; (c) in the
case of a purchase of commercial paper effected through an
Approved
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<PAGE>
Book-Entry System for Commercial Paper, upon
receipt of the paper by the Custodian or subcustodian in
accordance with the conditions set forth in Paragraph M
hereof; (d) in the case of repurchase agreements entered
into between the Fund and another bank or a broker-dealer,
against receipt by the Custodian of the securities
underlying the repurchase agreement either in certificate
form or through an entry crediting the Custodian's
segregated, non-proprietary account at the Federal Reserve
Bank of Boston with such securities along with written
evidence of the agreement by the bank or broker-dealer to
repurchase such securities from the Fund; or (e) with
respect to securities purchased outside of the United
States, in accordance with written procedures agreed to
from time to time in writing by the parties hereto;
2) When required in connection with the conversion, exchange
or surrender of securities owned by the Fund as set forth
in Paragraph B hereof;
3) When required for the redemption or repurchase of Shares
of the Fund in accordance with the provisions of Paragraph
J hereof;
4) For the payment of any expense or liability incurred by
the Fund, including but not limited to the following
payments for the account of the Fund: advisory fees,
distribution plan payments, interest, taxes, management
compensation and expenses, accounting, transfer agent and
legal fees, and other operating expenses of the Fund
whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends or other distributions to
holders of Shares declared or authorized by the Board; and
6) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a
certified copy of a vote of the Board, specifying the
amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose
to be a proper corporate purpose, and naming the person or
persons to whom such payment is to be made.
I. Liability for Payment in Advance of Receipt of Securities
Purchased In any and every case where payment for purchase of
securities for the account of the Fund is made by the Custodian in
advance of receipt of the securities purchased in the absence of
specific written instructions signed by two officers of the Fund
to so pay in advance, the Custodian shall be absolutely liable to
the Fund for such securities to the same extent as if the
securities had been received by the Custodian; except that in the
case of a repurchase agreement entered into by the Fund with a
bank which is a member of the Federal Reserve System, the
Custodian may transfer funds to the account of such bank prior to
the receipt of (i) the securities in certificate form subject to
such repurchase agreement
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<PAGE>
or (ii) written evidence that the securities subject to such
repurchase agreement have been transferred by book-entry into a
segregated non-proprietary account of the Custodian maintained
with the Federal Reserve Bank of Boston or (iii) the safekeeping
receipt, provided that such securities have in fact been so
transferred by book-entry and the written repurchase agreement is
received by the Custodian in due course. With respect to
securities and funds held by a subcustodian, either directly or
indirectly (including by a Securities Depository or clearing
corporation), notwithstanding any provisions of this Agreement to
the contrary, payment for securities purchased and delivery of
securities sold may be made prior to receipt of securities or
payment respectively, and securities or payment may be received in
a form in accordance with (a) governmental regulations, (b) rules
of Securities Depositories and clearing agencies, (c) generally
accepted trade practice in the applicable local market, (d) the
terms and characteristics of the particular investment, or (e) the
terms of instructions.
J. Payments for Repurchases or Redemptions of Shares of the Fund From
such funds as may be available for the purpose, but subject to any
applicable votes of the Board and the current redemption and
repurchase procedures of the Fund, the Custodian shall, upon
receipt of written instructions from the Fund or from the Fund's
transfer agent or from the principal underwriter, make funds
and/or portfolio securities available for payment to holders of
Shares who have caused their Shares to be redeemed or repurchased
by the Fund or for the Fund's account by its transfer agent or
principal underwriter.
The Custodian may maintain a special checking account upon which
special checks may be drawn by shareholders of the Fund holding
Shares for which certificates have not been issued. Such checking
account and such special checks shall be subject to such rules and
regulations as the Custodian and the Fund may from time to time
adopt. The Custodian or the Fund may suspend or terminate use of
such checking account or such special checks (either generally or
for one or more shareholders) at any time. The Custodian and the
Fund shall notify the other immediately of any such suspension or
termination.
K. Appointment of Agents by the Custodian The Custodian may at any
time or times in its discretion appoint (and may at any time
remove) any other bank or trust company (provided such bank or
trust company is itself qualified under the Investment Company Act
of 1940 to act as a custodian or is itself an eligible foreign
custodian within the meaning of Rule 17f-5 under said Act) as the
agent of the Custodian to carry out such of the duties and
functions of the Custodian described in this Section 3 as the
Custodian may from time to time direct; provided, however, that
the appointment of any such agent shall not relieve the Custodian
of any of its responsibilities or liabilities hereunder, and as
between the Fund and the Custodian the Custodian shall be fully
responsible for the acts and omissions of any such agent. For the
purposes of this Agreement, any property of the Fund held by any
such agent shall be deemed to be held by the Custodian hereunder.
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<PAGE>
L. Deposit of Fund Portfolio Securities in Securities Systems The
Custodian may deposit and/or maintain securities owned by the Fund
(1) in The Depository Trust Company;
(2) in Participants Trust Company;
(3) in any other Approved Clearing Agency;
(4) in the Federal Book-Entry System; or
(5) in a Securities Depository (as defined in
Article 3).
in each case only in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and
regulations, and at all times subject to the following
provisions:
(a) The Custodian may (either directly or through one or more
subcustodians employed pursuant to Section 2) keep securities of
the Fund in a Securities System provided that such securities are
maintained in a non-proprietary account ("Account") of the
Custodian or such subcustodian in the Securities System which
shall not include any assets of the Custodian or such subcustodian
or any other person other than assets held by the Custodian or
such subcustodian as a fiduciary, custodian, or otherwise for its
customers.
(b) The records of the Custodian with respect to securities of the
Fund which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund, and the
Custodian shall be fully and completely responsible for
maintaining a record keeping system capable of accurately and
currently stating the Fund's holdings maintained in each such
Securities System.
(c) The Custodian shall pay for securities purchased in book-entry
form for the account of the Fund only upon (i) receipt of notice
or advice from the Securities System that such securities have
been transferred to the Account, and (ii) the making of any entry
on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund only upon
(i) receipt of notice or advice from the Securities System that
payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for the account of the Fund.
Copies of all notices or advises from the Securities System of
transfers of securities for the account of the Fund shall identify
the Fund, be maintained for the Fund by the Custodian and be
promptly provided to the Fund at its request. The Custodian shall
promptly send to the Fund confirmation of each transfer to or from
the account of the Fund in the form of a written advice or notice
of each such transaction, and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's transactions in the
Securities System for the account of the Fund on the next business
day.
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<PAGE>
(d) The Custodian shall promptly send to the Fund any report or other
communication received or obtained by the Custodian relating to the
Securities System's accounting system, system of internal accounting
controls or procedures for safeguarding securities deposited in the
Securities System; the Custodian shall promptly send to the Fund any
report or other communication relating to the Custodian's internal
accounting controls and procedures for safeguarding securities
deposited in any Securities System; and the Custodian shall ensure that
any agent appointed pursuant to Paragraph K hereof or any subcustodian
employed pursuant to Section 2 hereof shall promptly send to the Fund
and to the Custodian any report or other communication relating to such
agent's or subcustodian's internal accounting controls and procedures
for safeguarding securities deposited in any Securities System. The
Custodian's books and records relating to the Fund's participation in
each Securities System will at all times during regular business hours
be open to the inspection of the Fund's Authorized Officers, employees
or agents.
(e) The Custodian shall not act under this Paragraph L in the absence
of receipt of a certificate of an Authorized Officer that the Board has
approved the use of a particular Securities System; the Custodian shall
also obtain appropriate assurance from an Authorized Officer that the
Board has annually reviewed and approved the continued use by the Fund
of each Securities System, so long as such review and approval is
required by Rule 17f-4 under the Investment Company Act of 1940, and
the Fund shall promptly notify the Custodian if the use of a Securities
System is to be discontinued; at the request of the Fund, the Custodian
will terminate the use of any such Securities System as promptly as
practicable.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to the
Fund resulting from use of the Securities System by reason of any
negligence, misfeasance or misconduct of the Custodian or any of its
agents or subcustodians or of any of its or their employees or from any
failure of the Custodian or any such agent or subcustodian to enforce
effectively such rights as it may have against the Securities System or
any other person; at the election of the Fund, it shall be entitled to
be subrogated to the rights of the Custodian with respect to any claim
against the Securities System or any other person which the Custodian
may have as a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such loss or
damage.
M. Deposit of Fund Commercial Paper in an Approved Book-Entry System
for Commercial Paper Upon receipt of proper instructions with respect
to each issue of direct issue commercial paper purchased by the Fund,
the Custodian may deposit and/or maintain direct issue commercial paper
owned by the Fund in any Approved Book-Entry System for Commercial
Paper, in each case only in accordance with applicable Securities and
Exchange Commission rules, regulations, and no-action correspondence,
and at all times subject to the following provisions:
19
<PAGE>
(a) The Custodian may (either directly or through one or more
subcustodians employed pursuant to Section 2) keep
commercial paper of the Fund in an Approved Book-Entry
System for Commercial Paper, provided that such paper is
issued in book entry form by the Custodian or
subcustodian on behalf of an issuer with which the
Custodian or subcustodian has entered into a book-entry
agreement and provided further that such paper is
maintained in a non-proprietary account ("Account") of the
Custodian or such subcustodian in an Approved Book-Entry
System for Commercial Paper which shall not include any
assets of the Custodian or such subcustodian or any other
person other than assets held by the Custodian or such
subcustodian as a fiduciary, custodian, or otherwise for
its customers.
(b) The records of the Custodian with respect to commercial
paper of the Fund which is maintained in an Approved
Book-Entry System for Commercial Paper shall identify by
book-entry each specific issue of commercial paper
purchased by the Fund which is included in the System and
shall at all times during regular business hours be open
for inspection by authorized officers, employees or agents
of the Fund. The Custodian shall be fully and completely
responsible for maintaining a record keeping system
capable of accurately and currently stating the Fund's
holdings of commercial paper maintained in each such
System.
(c) The Custodian shall pay for commercial paper purchased in
book-entry form for the account of the Fund only upon
contemporaneous (i) receipt of notice or advice from the
issuer that such paper has been issued, sold and
transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such
purchase, payment and transfer for the account of the
Fund. The Custodian shall transfer such commercial paper
which is sold or cancel such commercial paper which is
redeemed for the account of the Fund only upon
contemporaneous (i) receipt of notice or advice that
payment for such paper has been transferred to the
Account, and (ii) the making of an entry on the records of
the Custodian to reflect such transfer or redemption and
payment for the account of the Fund. Copies of all
notices, advises and confirmations of transfers of
commercial paper for the account of the Fund shall
identify the Fund, be maintained for the Fund by the
Custodian and be promptly provided to the Fund at its
request. The Custodian shall promptly send to the Fund
confirmation of each transfer to or from the account of
the Fund in the form of a written advice or notice of each
such transaction, and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's
transactions in the System for the account of the Fund on
the next business day.
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<PAGE>
(d) The Custodian shall promptly send to the Fund any report
or other communication received or obtained by the Custodian
relating to each System's accounting system, system of
internal accounting controls or procedures for safeguarding
commercial paper deposited in the System; the Custodian shall
promptly send to the Fund any report or other communication
relating to the Custodian's internal accounting controls and
procedures for safeguarding commercial paper deposited in any
Approved Book-Entry System for Commercial Paper; and the
Custodian shall ensure that any agent appointed pursuant to
Paragraph K hereof or any subcustodian employed pursuant to
Section 2 hereof shall promptly send to the Fund and to the
Custodian any report or other communication relating to such
agent's or subcustodian's internal accounting controls and
procedures for safeguarding securities deposited in any
Approved Book-Entry System for Commercial Paper.
(e) The Custodian shall not act under this Paragraph M in the
absence of receipt of a certificate of an officer of the Fund
that the Board has approved the use of a particular Approved
Book-Entry System for Commercial Paper; the Custodian shall
also obtain appropriate assurance from an Authorized Officer
that the Board has annually reviewed and approved the
continued use by the Fund of each Approved Book-Entry System
for Commercial Paper, so long as such review and approval is
required by Rule 17f-4 under the Investment Company Act of
1940, and the Fund shall promptly notify the Custodian if the
use of an Approved Book-Entry System for Commercial Paper is
to be discontinued; at the request of the Fund, the Custodian
will terminate the use of any such System as promptly as
practicable.
(f) The Custodian (or subcustodian, if the Approved Book-Entry
System for Commercial Paper is maintained by the subcustodian)
shall issue physical commercial paper or promissory notes
whenever requested to do so by the Fund or in the event of an
electronic system failure which impedes issuance, transfer or
custody of direct issue commercial paper by book-entry.
(g) Anything to the contrary in this Agreement notwithstanding,
the Custodian shall be liable to the Fund for any loss or
damage to the Fund resulting from use of any Approved
Book-Entry System for Commercial Paper by reason of any
negligence, misfeasance or misconduct of the Custodian or any
of its agents or subcustodians or of any of its or their
employees or from any failure of the Custodian or any such
agent or subcustodian to enforce effectively such rights as it
may have against this System, the issuer of the commercial
paper or any other person; at the election of the Fund, it
shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against this System, the
issuer of the commercial paper or any other person which the
Custodian may have as a consequence of any such loss or damage
if and to the extent that the Fund has not been made whole for
any such loss or damage.
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<PAGE>
N. Segregated Account The Custodian shall upon receipt of proper
instructions establish and maintain a segregated account or
accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Paragraph L hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and any registered
broker-dealer (or any futures commission merchant), relating to
compliance with the rules of the Options Clearing Corporation and
of any registered national securities exchange (or of the
Commodity Futures Trading Commission or of any contract market or
commodities exchange), or of any similar organization or
organizations, regarding escrow or deposit or other arrangements
in connection with transactions by the Fund, (ii) for purposes of
segregating cash or U.S. Government securities in connection with
options purchased, sold or written by the Fund or futures
contracts or options thereon purchased or sold by the Fund, (iii)
for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper
purposes, but only, in the case of clause (iv), upon receipt of,
in addition to proper instructions, a certificate signed by two
officers of the Fund, setting forth the purpose such segregated
account and declaring such purpose to be a proper purpose.
O. Ownership Certificates for Tax Purposes The Custodian shall
execute ownership and other certificates and affidavits for all
foreign, federal and state tax purposes in connection with
receipt of income or other payments with respect to securities
of the Fund held by it and in connection with transfers of
securities.
P. Proxies The Custodian shall, with respect to the securities
held by it hereunder, cause to be promptly delivered to the Fund
all forms of proxies and all notices of meetings and any other
notices or announcements or other written information affecting
or relating to the securities, and upon receipt of proper
instructions shall execute and deliver or cause its nominee to
execute and deliver such proxies or other authorizations as may
be required. Neither the Custodian nor its nominee shall
vote upon any of the securities or execute any proxy to
vote thereon or give any consent or take any other action with
respect thereto (except as otherwise herein provided) unless
ordered to do so by proper instructions.
Q. Communications Relating to Fund Portfolio Securities The Custodian
shall deliver promptly to the Fund all written information
(including, without limitation, pendency of call and maturities
of securities and participation interests and expirations of
rights in connection therewith and notices of exercise of call
and put options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the
Custodian from issuers and other persons relating to the
securities and participation interests being held for the Fund.
With respect to tender or exchange offers, the Custodian shall
deliver promptly to the Fund all written information received by
the Custodian from issuers and other persons relating to
the securities and participation interests whose tender or
exchange is sought and from the party (or his agents) making
the tender or exchange offer.
22
<PAGE>
R. Exercise of Rights; Tender Offers In the case of tender offers,
similar offers to purchase or exercise rights (including,
without limitation, pendency of calls and maturities of
securities and participation interests and expirations of rights
in connection therewith and notices of exercise of call and put
options and the maturity of futures contracts) affecting or
relating to securities and participation interests held by the
Custodian under this Agreement, the Custodian shall have
responsibility for promptly notifying the Fund of all such
offers in accordance with the standard of reasonable care set
forth in Section 8 hereof. For all such offers for which the
Custodian is responsible as provided in this Paragraph R, the
Fund shall have responsibility for providing the Custodian with
all necessary instructions in timely fashion. Upon receipt of
proper instructions, the Custodian shall timely deliver to the
issuer or trustee thereof, or to the agent of either,
warrants, puts, calls, rights or similar securities for
the purpose of being exercised or sold upon proper receipt
therefor and upon receipt of assurances satisfactory to the
Custodian that the new securities and cash, if any, acquired by
such action are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof. Upon receipt
of proper instructions, the Custodian shall timely deposit
securities upon invitations for tenders of securities upon proper
receipt therefor and upon receipt of assurances satisfactory to
the Custodian that the consideration to be paid or delivered or
the tendered securities are to be returned to the Custodian or
subcustodian employed pursuant to Section 2 hereof.
Notwithstanding any provision of this Agreement to the contrary,
the Custodian shall take all necessary action, unless otherwise
directed to the contrary by proper instructions, to comply with
the terms of all mandatory or compulsory exchanges, calls,
tenders, redemptions, or similar rights of security ownership, and
shall thereafter promptly notify the Fund in writing of such
action.
S. Depository Receipts The Custodian shall, upon receipt of proper
instructions, surrender or cause to be surrendered foreign
securities to the depository used by an issuer of American
Depository Receipts, European Depository Receipts or International
Depository Receipts (hereinafter collectively referred to as
"ADRs") for such securities, against a written receipt therefor
adequately describing such securities and written evidence
satisfactory to the Custodian that the depository has acknowledged
receipt of instructions to issue with respect to such securities
ADRs in the name of a nominee of the Custodian or in the name or
nominee name of any subcustodian employed pursuant to Section 2
hereof, for delivery to the Custodian or such subcustodian at such
place as the Custodian or such subcustodian may from time to time
designate. The Custodian shall, upon receipt of proper
instructions, surrender ADRs to the issuer thereof against a
written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian
that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver the securities
underlying such ADRs to the Custodian or to a subcustodian
employed pursuant to Section 2 hereof.
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<PAGE>
T. Interest Bearing Call or Time Deposits The Custodian shall, upon
receipt of proper instructions, place interest bearing fixed term
and call deposits with the banking department of such banking
institution (other than the Custodian) and in such amounts as
the Fund may designate. Deposits may be denominated in U.S.
Dollars or other currencies. The Custodian shall include in its
records with respect to the assets of the Fund appropriate
notation as to the amount and currency of each such deposit, the
accepting banking institution and other appropriate details
and shall retain such forms of advice or receipt evidencing the
deposit, if any, as may be forwarded to the Custodian by the
banking institution. Such deposits shall be deemed portfolio
securities of the applicable Fund for the purposes of this
Agreement, and the Custodian shall be responsible for the
collection of income from such accounts and the transmission of
cash to and from such accounts.
U. Options, Futures Contracts and Foreign Currency Transactions
1. Options. The Custodians shall, upon receipt of proper
instructions and in accordance with the provisions of any
agreement between the Custodian, any registered broker-dealer
and, if necessary, the Fund, relating to compliance with the
rules of the Options Clearing Corporation or of any registered
national securities exchange or similar organization or
organizations, receive and retain confirmations or other
documents, if any, evidencing the purchase or writing of an
option on a security, securities index, currency or other
financial instrument or index by the Fund; deposit and
maintain in a segregated account for each Fund separately,
either physically or by book-entry in a Securities System,
securities subject to a covered call option written by the
Fund; and release and/or transfer such securities or other
assets only in accordance with a notice or other communication
evidencing the expiration, termination or exercise of such
covered option furnished by the Options Clearing Corporation,
the securities or options exchange on which such covered
option is traded or such other organization as may be
responsible for handling such options transactions.
2. Futures Contracts The Custodian shall, upon receipt of
proper instructions, receive and retain confirmations and
other documents, if any, evidencing the purchase or sale of a
futures contract or an option on a futures contract by the
Fund; deposit and maintain in a segregated account, for the
benefit of any futures commission merchant, assets designated
by the Fund as initial, maintenance or variation "margin"
deposits (including mark-to-market payments) intended to
secure the Fund's performance of its obligations under any
futures contracts purchased or sold or any options on futures
contracts written by Fund, in accordance with the provisions
of any agreement or agreements among the Fund, the Custodian
and such futures commission merchant, designed to comply with
the rules of the Commodity Futures Trading Commission and/or
of any contract market or commodities exchange or similar
organization regarding such margin deposits or payments; and
release and/or transfer assets in such margin accounts only in
accordance with any such agreements or rules.
24
<PAGE>
3. Foreign Exchange Transactions The Custodian shall, pursuant
to proper instructions, enter into or cause a subcustodian to
enter into foreign exchange contracts, currency swaps or
options to purchase and sell foreign currencies for spot and
future delivery on behalf and for the account of the Fund.
Such transactions may be undertaken by the Custodian or
subcustodian with such banking or financial institutions or
other currency brokers, as set forth in proper instructions.
Foreign exchange contracts, swaps and options shall be deemed
to be portfolio securities of the Fund; and accordingly, the
responsibility of the Custodian therefor shall be the same as
and no greater than the Custodian's responsibility in respect
of other portfolio securities of the Fund. The Custodian shall
be responsible for the transmittal to and receipt of cash from
the currency broker or banking or financial institution with
which the contract or option is made, the maintenance of
proper records with respect to the transaction and the
maintenance of any segregated account required in connection
with the transaction. The Custodian shall have no duty with
respect to the selection of the currency brokers or banking or
financial institutions with which the Fund deals or for their
failure to comply with the terms of any contract or option.
Without limiting the foregoing, it is agreed that upon receipt
of proper instructions, the Custodian may, and insofar as
funds are made available to the Custodian for the purpose, (if
determined necessary by the Custodian to consummate a
particular transaction on behalf and for the account of the
Fund) make free outgoing payments of cash in the form of U.S.
dollars or foreign currency before receiving confirmation of a
foreign exchange contract or swap or confirmation that the
countervalue currency completing the foreign exchange contract
or swap has been delivered or received. The Custodian shall
not be responsible for any costs and interest charges which
may be incurred by the Fund or the Custodian as a result of
the failure or delay of third parties to deliver foreign
exchange; provided that the Custodian shall nevertheless be
held to the standard of care set forth in, and shall be liable
to the Fund in accordance with, the provisions of Section 9.
V. Actions Permitted Without Express Authority The Custodian may in its
discretion, without express authority from the Fund:
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Agreement, provided, that all such
payments shall be accounted for by the Custodian to the
Treasurer of the Fund;
25
<PAGE>
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all nondiscretionary details in
connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the securities
and property of the Fund except as otherwise directed by
the Fund.
5. Duties of Bank with Respect to Books of Account and Calculations of Net
Asset Value
The Bank shall as Agent (or as Custodian, as the case may be) keep such books of
account and render as at the close of business on each day a detailed statement
of the amounts received or paid out and of securities received or delivered for
the account of the Fund during said day and such other statements, including a
daily trial balance and inventory of the Fund's portfolio securities; and shall
furnish such other financial information and data as from time to time requested
by the Treasurer or any Authorized Officer of the Fund; and shall compute and
determine, as of the close of regular trading on the New York Stock Exchange, or
at such other time or times as the Board may determine, the net asset value of a
share in the Fund, such computation and determination to be made in accordance
with the governing documents of the Fund and the votes and instructions of the
Board at the time in force and applicable, and promptly notify the Fund and its
investment adviser and such other persons as the Fund may request of the result
of such computation and determination. In computing the net asset value the
Custodian may rely upon security quotations received by telephone or otherwise
from sources or pricing services designated by the Fund by proper instructions,
and may further rely upon information furnished to it by any authorized officer
of the Fund relative (a) to liabilities of the Fund not appearing on its books
of account, (b) to the existence, status and proper treatment of any reserve or
reserves, (c) to any procedures established by the Board regarding the valuation
of portfolio securities, and (d) to the value to be assigned to any bond, note,
debenture, Treasury bill, repurchase agreement, subscription right, security,
participation interest or other asset or property for which market quotations
are not readily available.
6. Records and Miscellaneous Duties
The Bank shall create, maintain and preserve all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All books of account and
records maintained by the Bank in connection with the performance of its duties
under this Agreement shall be the property of the Fund, shall at all times
during the regular business hours of the Bank be open for inspection by
authorized officers, employees or agents of the Fund, and in the event of
termination of this Agreement shall be delivered to the Fund or to such other
person or persons as shall be designated by the Fund. Disposition of any account
or record after any required period of
26
<PAGE>
preservation shall be only in accordance with specific instructions received
from the Fund. The Bank shall assist generally in the preparation of reports to
shareholders, audits of accounts, and other ministerial matters of like nature;
and, upon request, shall furnish the Fund's auditors with an attested inventory
of securities held with appropriate information as to securities in transit or
in the process of purchase or sale and with such other information as said
auditors may from time to time request. The Custodian shall also maintain
records of all receipts, deliveries and locations of such securities, together
with a current inventory thereof, and shall conduct periodic verifications
(including sampling counts at the Custodian) of certificates representing bonds
and other securities for which it is responsible under this Agreement in such
manner as the Custodian shall determine from time to time to be advisable in
order to verify the accuracy of such inventory. The Bank shall not disclose or
use any books or records it has prepared or maintained by reason of this
Agreement in any manner except as expressly authorized herein or directed by the
Fund, and the Bank shall keep confidential any information obtained by reason of
this Agreement.
7. Opinion of Fund's Independent Public Accountants
The Custodian shall take all reasonable action, as the Fund may from time to
time request, to enable the Fund to obtain from year to year favorable opinions
from the Fund's independent public accountants with respect to its activities
hereunder in connection with the preparation of the Fund's registration
statement and Form N-SAR or other periodic reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
8. Compensation and Expenses of Bank
The Bank shall be entitled to reasonable compensation for its services as
Custodian and Agent, as agreed upon from time to time between the Fund and the
Bank. The Bank shall be entitled to receive from the Fund on demand
reimbursement for its cash disbursements, expenses and charges, including
counsel fees, in connection with its duties as Custodian and Agent hereunder,
but excluding salaries and usual overhead expenses.
9. Responsibility of Bank
So long as and to the extent that it is in the exercise of reasonable care, the
Bank as Custodian and Agent shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties.
The Bank as Custodian and Agent shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
The Bank as Custodian and Agent shall be held to the exercise of reasonable care
in carrying out the provisions of this Agreement but shall be liable only for
its own negligent or bad faith acts or failures to act. Notwithstanding the
foregoing, nothing contained in this paragraph is intended to nor shall it be
construed to modify the standards of care and responsibility set forth in
Section 2 hereof with respect to subcustodians and in subparagraph f of
Paragraph L of Section 3 hereof with respect to Securities Systems and in
subparagraph g of Paragraph M of Section 3 hereof with respect to an Approved
Book-Entry System for Commercial Paper.
27
<PAGE>
The Custodian shall be liable for the acts or omissions of a foreign banking
institution to the same extent as set forth with respect to subcustodians
generally in Section 2 hereof, provided that, regardless of whether assets are
maintained in the custody of a foreign banking institution, a foreign securities
depository or a branch of a U.S. bank, the Custodian shall not be liable for any
loss, damage, cost, expense, liability or claim resulting from, or caused by,
the direction of or authorization by the Fund to maintain custody of any
securities or cash of the Fund in a foreign county including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
acts of war, civil war or terrorism, insurrection, revolution, military or
usurped powers, nuclear fission, fusion or radiation, earthquake, storm or other
disturbance of nature or acts of God.
If the Fund requires the Bank in any capacity to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Bank, result in the Bank or its nominee assigned to the Fund
being liable for the payment of money or incurring liability of some other form,
the Fund, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
If the Fund requires the Custodian, its affiliates, subsidiaries or agents, to
advance cash or securities for any purpose (including but not limited to
securities settlements, foreign exchange contracts and assumed settlement) or in
the event that the Custodian or its nominee shall incur or be assessed any
taxes, charges, expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from its or its
nominee's own negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be security
therefor and should the Fund fail to repay the Custodian promptly, the Custodian
shall be entitled to utilize available cash and to dispose of the Fund assets to
the extent necessary to obtain reimbursement.
Except as may arise from the Custodian's own negligence or bad faith, the
Custodian shall be without liability to any Fund for any loss, liability, claim
or expense resulting from or caused by anything which is (a) part of Country
Risk or (b) part of the "prevailing country risk" of the Fund, as that term is
used in SEC Release Nos. IC-22658; IS-1080 (May 12, 1997) or as that term is now
or in the future interpreted by the U.S. Securities and Exchange Commission or
by the staff of the Division of Investment Management of the Commission.
10. Persons Having Access to Assets of the Fund
(i) No trustee, director, general partner, officer, employee
or agent of the Fund shall have physical access to the
assets of the Fund held by the Custodian or be authorized
or permitted to withdraw any investments of the Fund, nor
shall the Custodian deliver any assets of the Fund to any
such person. No officer or director, employee or agent of
the Custodian who holds any similar position with the Fund
or the investment adviser of the Fund shall have access to
the assets of the Fund.
28
<PAGE>
(ii) Access to assets of the Fund held hereunder shall only be
available to duly Authorized Officers, employees,
representatives or agents of the Custodian or other
persons or entities for whose actions the Custodian shall
be responsible to the extent permitted hereunder, or to
the Fund's independent public accountants in connection
with their auditing duties performed on behalf of the
Fund.
(iii) Nothing in this Section 9 shall prohibit any Authorized
Officer, employee or agent of the Fund or of the
investment adviser of the Fund from giving instructions to
the Custodian or executing a certificate so long as it
does not result in delivery of or access to assets of the
Fund prohibited by paragraph (i) of this Section 9.
11. Effective Period, Termination and Amendment; Successor Custodian
This Agreement shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing; provided, that the Fund may at any
time by action of its Board, (i) substitute another bank or trust company for
the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by the Federal Deposit Insurance
Corporation or by the Banking Commissioner of The Commonwealth of Massachusetts
or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction. Upon termination of the
Agreement, the Fund shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
Unless the holders of a majority of the outstanding shares of the Fund vote to
have the securities, funds and other properties held hereunder delivered and
paid over to some other bank or trust company, specified in the vote, having not
less than $2,000,000 of aggregate capital, surplus and undivided profits, as
shown by its last published report, and meeting such other qualifications for
custodians set forth in the Investment Company Act of 1940, the Board shall,
forthwith, upon giving or receiving notice of termination of this Agreement,
appoint as successor custodian, a bank or trust company having such
qualifications. The Bank, as Custodian, Agent or otherwise, shall, upon
termination of the Agreement, deliver to such successor custodian, all
securities then held hereunder and all funds or other properties of the Fund
deposited with or held by the Bank hereunder and all books of account and
records kept by the Bank pursuant to this Agreement, and all documents held by
the Bank relative thereto. In the event that no such vote has
29
<PAGE>
been adopted by the shareholders and that no written order designating a
successor custodian shall have been delivered to the Bank on or before the date
when such termination shall become effective, then the Bank shall not deliver
the securities, funds and other properties of the Fund to the Fund but shall
have the right to deliver to a bank or trust company doing business in Boston,
Massachusetts of its own selection, having an aggregate capital, surplus and
undivided profits, as shown by its last published report, of not less than
$2,000,000, all funds, securities and properties of the Fund held by or
deposited with the Bank, and all books of account and records kept by the Bank
pursuant to this Agreement, and all documents held by the Bank relative thereto.
Thereafter such bank or trust company shall be the successor of the Custodian
under this Agreement.
12. Interpretive and Additional Provisions
In connection with the operation of this Agreement, the Custodian and the Fund
may from time to time agree on such provisions interpretive of or in addition to
the provisions of this Agreement as may in their joint opinion be consistent
with the general tenor of this Agreement. Any such interpretive or additional
provisions shall be in a writing signed by both parties and shall be annexed
hereto, provided that no such interpretive or additional provisions shall
contravene any applicable federal or state regulations or any provision of the
governing instruments of the Fund. No interpretive or additional provisions made
as provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
13. Certification as to Authorized Officers
The Secretary of the Fund shall at all times maintain on file with the Bank his
certification to the Bank, in such form as may be acceptable to the Bank, of the
names and signatures of the Authorized Officers of each fund, it being
understood that upon the occurrence of any change in the information set forth
in the most recent certification on file (including without limitation any
person named in the most recent certification who has ceased to hold the office
designated therein), the Secretary of the Fund shall sign a new or amended
certification setting forth the change and the new, additional or omitted names
or signatures. The Bank shall be entitled to rely and act upon instructions from
any officers named in the most recent certification.
14. Notices
Notices and other writings delivered or mailed postage prepaid to the Fund
addressed to Susan S. Newton, John Hancock Advisers, Inc., 101 Huntington
Avenue, Boston, Massachusetts 02199, or to such other address as the Fund may
have designated to the Bank, in writing, or to State Street Bank and Trust
Company, shall be deemed to have been properly delivered or given hereunder to
the respective addressees.
15. Massachusetts Law to Apply; Limitations on Liability
This Agreement shall be construed and the provisions thereof interpreted under
and in accordance with the laws of The Commonwealth of Massachusetts.
30
<PAGE>
If the Fund is a Massachusetts business trust, the Custodian expressly
acknowledges the provision in the Fund's declaration of trust limiting the
personal liability of the trustees and shareholders of the Fund; and the
Custodian agrees that it shall have recourse only to the assets of the Fund for
the payment of claims or obligations as between the Custodian and the Fund
arising out of this Agreement, and the Custodian shall not seek satisfaction of
any such claim or obligation from the trustees or shareholders of the Fund. Each
Fund, and each series or portfolio of a Fund, shall be liable only for its own
obligations to the Custodian under this Agreement and shall not be jointly or
severally liable for the obligations of any other Fund, series or portfolio
hereunder.
16. Adoption of the Agreement by the Fund
The Fund represents that its Board has approved this Agreement and has duly
authorized the Fund to adopt this Agreement. This Agreement shall be deemed to
supersede and terminate, as of the date first written above, all prior
agreements between the Fund and the Bank relating to the custody of the Fund's
assets.
* * * * *
31
<PAGE>
In Witness Whereof, the parties hereto have caused this agreement to be executed
in duplicate as of the date first written above by their respective officers
thereunto duly authorized.
John Hancock Mutual Funds listed on Appendix A
by: /s/ Osbert Hood
---------------
Osbert Hood
Senior Vice President and Chief Financial Officer
Attest: Theresa Apruzzese
_______________________________
State Street Bank and Trust Company
by: /s/ Ronald Logue
----------------
Attest:
/s/ Gen Cioti
- -------------
s:\agrcont\agreement\custodia\state street amended with delegation
32
<PAGE>
APPENDIX B
Additional Information Relating to Mandatory Securities Depositories
The Foreign Custody Manager shall furnish annually to the Board such
information as may be reasonably available relating to the proposed
"safeharbor" criteria with respect to Mandatory Securities Depositories
as set forth below:
(a) whether an Eligible Foreign Custodian or a U.S. bank holding
assets at the depository undertakes to adhere to the rules, practices
and procedures of the depository;
(b) whether a regulatory authority with oversight responsibility for
the depository has issued a public notice that the depository is not in
compliance with any material capital, solvency, insurance, or other
similar financial strength requirements imposed by such authority, or,
in the case of such a notice having been issued, that such notice has
been withdrawn or the remedy of such noncompliance has been publicly
announced by the depository;
(c) whether a regulatory authority with oversight responsibility over
the depository has issued a public notice that the depository is not in
compliance with any material internal controls requirement imposed by
such authority, or, in the case of such notice having been issued, that
such notice has been withdrawn or the remedy of such noncompliance has
been publicly announced by the depository;
(d) whether the depository maintains the assets of the Fund's depositor
under no less favorable safekeeping conditions than those that apply
generally to depositors;
(e) whether the depository maintains records that segregate the
depository's own assets from the assets of depositors;
(f) whether the depository maintains records that identify the assets
of each of its depositors;
(g) whether the depository provides periodic reports to its depositors
with respect to the safekeeping of assets maintained by the depository,
including, but not limited to, notification of any transfer to or from
a depositor's account; and
(h) whether the depository is subject to periodic review, such as
audits by independent accountants or inspections by regulatory
authorities.
B-1
MASTER CUSTODIAN AGREEMENT
between
JOHN HANCOCK MUTUAL FUNDS
and
INVESTORS BANK & TRUST COMPANY
Amended and Restated
March 9, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
1. Definitions.............................................................1-3
2. Employment of Custodian and Property to be held by it.....................3
3. The Custodian as a Foreign Custody Manager................................3
A. Definitions......................................................3-4
B. Delegation to the Custodian as Foreign Custody Manager.............4
C. Countries Covered..................................................4
D. Scope of Delegated Responsibilities..............................5-7
E. Standard of Care as Foreign Custody Manager of the Fund............7
F. Reporting Requirements.............................................7
G. Representations with respect to Rule 17f-5.........................7
H. Effective Date and Termination of the Custodian as Foreign.......7-8
Custody Manager
I. Withdrawal of Custodian as Foreign Custody Manager with............8
Respect to Designated Countries and with Respect to
Eligible Foreign Custodians
J. Guidelines for the Exercise of Delegated Authority and ..........8-9
Provision of Information Regarding Country Risk
K. Most Favored Client.............................................9-10
L. Direction as to Eligible Foreign Custodians.......................10
4. Duties of the Custodian with Respect toProperty of the Fund..............10
A. Safekeeping and Holding of Property...............................10
B. Delivery of Securities.........................................10-13
C. Registration of Securities........................................13
D. Bank Accounts..................................................13-14
i
<PAGE>
E. Payments for Shares of the Fund...................................14
F. Investment and Availability of Federal Funds......................14
G. Collections....................................................14-15
H. Payment of Fund Moneys.........................................15-16
I. Liability for Payment in Advance of Receipt of.................16-17
Securities Purchased
J. Payments for Repurchases of Redemptions of Shares of the Fund.....17
K. Appointment of Agents by the Custodian.........................17-18
L. Deposit of Fund Portfolio Securities in Securities Systems.....18-19
M. Deposit of Fund Commercial Paper in an Approved................19-22
Book-Entry System for Commercial Paper
N. Segregated Account................................................22
O. Ownership Certificates for Tax Purposes...........................22
P. Proxies...........................................................22
Q. Communications Relating to Fund Portfolio Securities...........22-23
R. Exercise of Rights; Tender Offers................................23
S. Depository Receipts............................................23-24
T. Interest Bearing Call or Time Deposits............................24
U. Options, Futures Contracts and Foreign Currency Transactions...24-25
V. Actions Permitted Without Express Authority.......................25
5. Duties of Bank with Respect to Books of Account and......................26
Calculations of Net Asset Value
6. Records and Miscellaneous Duties......................................26-27
7. Opinion of Fund`s Independent Public Accountants.........................27
ii
<PAGE>
8. Compensation and Expenses of Bank........................................27
9. Responsibility of Bank................................................27-28
10. Persons Having Access to Assets of the Fund...........................28-29
11. Effective Period, Termination and Amendment;..........................29-30
Successor Custodian
12. Interpretive and Additional Provisions...................................30
13. Certification as to Authorized Officers..................................30
14. Notices..................................................................30
15. Massachusetts Law to Apply; Limitations on Liability..................30-31
16. Adoption of the Agreement by the Fund....................................31
iii
<PAGE>
MASTER CUSTODIAN AGREEMENT
This Agreement is made as of December 15, 1992 as amended and restated
March 9, 1999 between each investment company advised by John Hancock Advisers,
Inc. which has adopted this Agreement in the manner provided herein and
Investors Bank & Trust Company (hereinafter called "Bank", "Custodian" and
"Agent"), a trust company established under the laws of Massachusetts with a
principal place of business in Boston, Massachusetts.
Whereas, each such investment company is registered under the Investment
Company Act of 1940 and has appointed the Bank to act as Custodian of its
property and to perform certain duties as its Agent, as more fully hereinafter
set forth; and
Whereas, the Bank is willing and able to act as each such investment
company's Custodian and Agent, subject to and in accordance with the provisions
hereof;
Now, therefore, in consideration of the premises and of the mutual
covenants and agreements herein contained, each such investment company and the
Bank agree as follows:
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 "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.
(c) "The Depository Trust Company", a clearing agency registered with
the Securities and Exchange Commission under Section 17A of the Securities
Exchange Act of 1934 which acts as a securities depository and which has been
specifically approved as a securities depository for the Fund by the Board.
(d) "Authorized Officer", shall mean any of the following officers of
the Fund: The Chairman of the Board of Trustees, the President, a Vice
President, the Secretary, the Treasurer or Assistant Secretary or Assistant
Treasurer, or any other officer of the Fund duly authorized to sign by
appropriate resolution of the Board of Trustees of the Trust.
(e) "Participants Trust Company", a clearing agency registered with the
Securities and Exchange Commission under Section 17A of the Securities Exchange
Act of 1934 which acts as a securities depository and which has been
specifically approved as a securities depository for the Fund by the Board.
1
<PAGE>
(f) "Approved Clearing Agency" shall mean any other domestic clearing
agency registered with the Securities and Exchange Commission under Section 17A
of the Securities Exchange Act of 1934 which acts as a securities depository but
only if the Custodian has received a certified copy of a vote of the Board
approving such clearing agency as a securities depository for the Fund.
(g) "Federal Book-Entry System" shall mean the book-entry system
referred to in Rule 17f-4(b) under the Investment Company Act of 1940 for United
States and federal agency securities (i.e., as provided in Subpart O of Treasury
Circular No. 300, 31 CFR 306, Subpart B of 31 CFR Part 350, and the book-entry
regulations of federal agencies substantially in the form of Subpart O).
(h) "Approved Book-Entry System for Commercial Paper" shall mean a
system maintained by the Custodian or by a subcustodian employed pursuant to
Section 2 hereof for the holding of commercial paper in book-entry form but only
if the Custodian has received a certified copy of a vote of the Board approving
the participation by the Fund in such system.
(i) The Custodian shall be deemed to have received "proper instructions"
in respect of any of the matters referred to in this Agreement upon receipt of
written or facsimile instructions signed by such one or more person or persons
as the Board shall have from time to time authorized to give the particular
class of instructions in question. Electronic instructions for the purchase and
sale of securities which are transmitted by John Hancock Advisers, Inc. (the
"Adviser") to the Custodian shall be deemed to be proper instructions; the Fund
shall cause all such instructions to be confirmed in writing. Different persons
may be authorized to give instructions for different purposes. A certified copy
of a vote of the Board may be received and accepted by the Custodian as
conclusive evidence of the authority of any such person to act and may be
considered as in full force and effect until receipt of written notice to the
contrary. Such instructions may be general or specific in terms and, where
appropriate, may be standing instructions. Unless the vote delegating authority
to any person or persons to give a particular class of instructions specifically
requires that the approval of any person, persons or committee shall first have
been obtained before the Custodian may act on instructions of that class, the
Custodian shall be under no obligation to question the right of the person or
persons giving such instructions in so doing. Oral instructions will be
considered proper instructions if the Custodian reasonably believes them to have
been given by a person authorized to give such instructions with respect to the
transaction involved. The Fund shall cause all oral instructions to be confirmed
in writing. The Fund authorizes
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the Custodian to tape record any and all telephonic or other oral instructions
given to the Custodian. "Proper instructions" may also include communications
effected directly between electromechanical or electronic devices provided that
the President and Treasurer of the Fund and the Custodian are satisfied that
such procedures afford adequate safeguards for the Fund's assets. In performing
its duties generally, and more particularly in connection with the purchase,
sale and exchange of securities made by or for the Fund, the Custodian may take
cognizance of the provisions of the governing documents and registration
statement of the Fund as the same may from time to time be in effect (and votes,
resolutions or proceedings of the shareholders or the Board), but, nevertheless,
except as otherwise expressly provided herein, the Custodian may assume unless
and until notified in writing to the contrary that so-called proper instructions
received by it are not in conflict with or in any way contrary to any provisions
of such governing documents and registration statement, or votes, resolutions or
proceedings of the shareholders or the Board.
2. Employment of Custodian and Property to be Held by It
The Fund hereby appoints and employs the Bank as its Custodian and Agent
in accordance with and subject to the provisions hereof, and the Bank hereby
accepts such appointment and employment. The Fund agrees to deliver to the
Custodian all securities, participation interests, cash and other assets owned
by it, and all payments of income, payments of principal and capital
distributions and adjustments received by it with respect to all securities and
participation interests owned by the Fund from time to time, and the cash
consideration received by it for such new or treasury shares ("Shares") of the
Fund as may be issued or sold from time to time. The Custodian shall not be
responsible for any property of the Fund held by the Fund and not delivered by
the Fund to the Custodian. The Fund will also deliver to the Bank from time to
time copies of its currently effective charter (or declaration of trust or
partnership agreement, as the case may be), by-laws, prospectus, statement of
additional information and distribution agreement with its principal
underwriter, together with such resolutions, votes and other proceedings of the
Fund as may be necessary for or convenient to the Bank in the performance of its
duties hereunder.
The Custodian may from time to time employ one or more subcustodians to
perform such acts and services upon such terms and conditions as shall be
approved from time to time by the Board. Any such subcustodian so employed by
the Custodian shall be deemed to be the agent of the Custodian, and the
Custodian shall remain primarily responsible for the securities, participation
interests, moneys and other property of the Fund held by such subcustodian. For
the purposes of this Agreement, any property of the Fund held by any such
subcustodian (domestic or foreign) shall be deemed to be held by the Custodian
under the terms of this Agreement.
3. The Custodian as a Foreign Custody Manager
A. Definitions Capitalized terms in this Article 3 shall have the
following meanings:
(a) "Country risk" means all factors reasonably related to
the systemic risk of holding Foreign Assets in a
particular country including, but not limited to, a
country's political environment; economic and financial
infrastructure (including financial institutions such as
any Mandatory Securities Depositories operating in the
country); prevailing custody and settlement practices; and
laws and regulations applicable to the safekeeping and
recovery of Foreign Assets held in custody in that
country.
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(b) "Eligible Foreign Custodian" has the meaning set forth in section
(a)(1) of Rule 17f-5 and also includes a U.S. Bank.
(c) "Foreign Assets" means any of the Fund's investments (including foreign
currencies) for which the primary market is outside the United States and
cash and cash equivalents as are reasonably necessary to effect the Fund's
transactions in these investments.
(d) "Foreign Custody Manager" has the meaning set forth in section (a)(2)
of Rule 17f-5; it is a Fund's Board of Directors or any person serving as
the Board's delegate under sections (b) or (d) of Rule 17f-5.
(e) "Mandatory Securities Depository" means a Securities Depository the use
of which is mandatory (i) by law or regulation; (ii) because securities
cannot be withdrawn from the depository; (iii) because maintaining
securities outside the Securities Depository would impair the liquidity of
the securities because settlement within the depository is mandatory and
the period of time required to deposit securities is longer than the
settlement period or where particular classes of transactions, such as
large trades or turn-around trades, are not available if the securities are
held in physical form; or (iv) because maintaining securities outside of
the Securities Depository is not consistent with prevailing custodial or
market practices generally accepted by institutional investors.
(f) "Securities Depository" has the same meaning set forth in section
(a)(6) of Rule 17f-5: it is a system for the central handling of securities
where all securities are of a particular class or series of any issuer
deposited within the system are treated as fungible and may be transferred
or pledged by bookkeeping entry without physical delivery of the
securities.
(g) "U.S. Bank" means a bank which qualifies to serve as a custodian of
assets of investment companies under ss.17(f) of the Investment Company Act
of 1940, as amended.
B. Delegation to the Custodian as Foreign Custody Manager Each Fund,
by resolution adopted by its Board, hereby appoints the Custodian
as the Foreign Custody Manager of the Fund and delegates to the
Custodian, the responsibilities set forth in this Article 3 with
respect to Foreign Assets held outside the United States, and the
Custodian hereby accepts this delegation.
C. Countries Covered The Foreign Custody Manager shall be responsible
for performing the delegated responsibilities defined below only
with respect to the countries listed on Schedule A, which may be
amended from time to time by the Foreign Custody Manager.
Mandatory Securities Depositories are listed on Schedule B, which
may be amended from time to time by the Foreign Custody Manager.
Schedules A and B may also be amended in accordance with
subsection F of Article 3.
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D. Scope of Delegated Responsibilities
1) Selection of Eligible Foreign Custodians Subject to the
provisions of this Article 3 and Rule 17f-5 (and any other
applicable law), the Foreign Custody Manager may place and
maintain the Foreign Assets in the care of an Eligible
Foreign Custodian selected by the Foreign Custody Manager in
each country listed on Schedule A, as amended from time to
time. In addition, the Foreign Custody Manager shall provide
the Fund with all requisite forms and documentation to open
an account in any country listed on Schedule A as requested
by any Authorized Officer and shall assist the Fund with the
filing and processing of these forms and documents.
Execution of this amended and restated Agreement by the Fund
shall be deemed to be a Proper Instruction to open an
account, or to place or maintain Foreign Assets in each
country listed on Schedule A.
In performing its delegated responsibilities as Foreign
Custody Manager to place or maintain Foreign Assets with an
Eligible Foreign Custodian, the Foreign Custody Manager
shall determine that the Foreign Assets will be subject to
reasonable care, based on the standards applicable to
custodians in the country in which the Foreign Assets will
be held by that Eligible Foreign Custodian, after
considering all factors relevant to the safekeeping of those
assets. These factors include, without limitation:
(i) the Eligible Foreign Custodian's practices, procedures
and internal controls, including but not limited to, the
physical protections available for certificated securities
(if applicable), its methods of keeping custodial records
and its security and data protection practices;
(ii) whether the Eligible Foreign Custodian has the
requisite financial strength to provide reasonable care for
Foreign Assets;
(iii) the Eligible Foreign Custodian's general reputation
and standing and, in the case of any Securities Depository,
the Securities Depository's operating history and the number
of participants; and
(iv) whether the Fund will have jurisdiction over and be
able to enforce judgments against the Eligible Foreign
Custodian, such as by virtue of the existence of any offices
of the Eligible Foreign Custodian in the United States or
the Eligible Foreign Custodian's consent to service of
process in the United States.
2) Contracts With Eligible Foreign Custodians For each Eligible
Foreign Custodian selected by the Foreign Custody Manager,
the Foreign Custody Manager shall (or, in the case of a
Securities Depository which is not a Mandatory Securities
Depository, may under the rules or established practices or
procedures of the Securities Depository) enter into a
written
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contract governing the Fund's foreign custody
arrangements with the Eligible Foreign Custodian. The
Foreign Custody Manager shall determine that each contract
will provide reasonable care for the Foreign Assets held by
that Eligible Foreign Custodian based on the standards
specified in paragraph 1 of subsection D of Article 3 of
this Agreement. Each contract shall include provisions that
provide:
(i) for indemnification or insurance arrangements (or any
combination of the foregoing) so that the Fund will be
adequately protected against the risk of loss of the
Foreign Assets held in accordance with the contract;
(ii) that the Foreign Assets will not be subject to any
right, security interest, lien or claim of any kind in
favor of the Eligible Foreign Custodian or its creditors
except a claim of payment for their safe custody or
administration or, in the case of cash deposits, liens or
rights in favor of creditors of the Eligible Foreign
Custodian arising under bankruptcy, insolvency or similar
laws;
(iii) that beneficial ownership of the Foreign Assets will
be freely transferable without the payment of money or
value other than for safe custody or administration;
(iv) that adequate records will be maintained identifying
the Foreign Assets as belonging to the Fund or as being
held by a third party for the benefit of the Fund;
(v) that the Fund's independent public accountants will be
given access to those records or confirmation of the
contents of those records; and
(vi) that the Fund will receive periodic reports with
respect to the safekeeping of the Foreign Assets,
including, but not limited to, notification of any
transfer of the Foreign Assets to or from the Fund's
account or a third party account containing the Foreign
Assets held for the benefit of the Fund, or, in lieu of
any or all of the provisions set forth in (i) through (vi)
above, such other provisions that the Foreign Custody
Manager determines will provide, in their entirety, the
same or greater level of care and protection for the
Foreign Assets as the provisions set forth in (i) through
(vi) above in their entirety.
3) Monitoring In each case in which the Foreign Custody
Manager maintains Foreign Assets with an Eligible Foreign
Custodian selected by the Foreign Custody Manager, the
Foreign Custody Manager shall establish a system to
monitor at reasonable intervals the initial and continued
appropriateness of (i) maintaining the Foreign Assets with
the Eligible Foreign Custodian and (ii) the contract
governing the custody arrangements established by the
Foreign Custody Manager with the Eligible Foreign
Custodian. The Foreign Custody Manager shall consider all
factors and criteria set forth in subparagraphs 1 and 2 of
subsection D of Article 3 of this Agreement.
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<PAGE>
E. Standard of Care as Foreign Custody Manager of the Fund In
performing the responsibilities delegated to it, the Foreign
Custody Manager agrees to exercise reasonable care, prudence and
diligence as a person having responsibility for the safekeeping of
assets of management investment companies registered under the
Investment Company Act of 1940, as amended, would exercise. The
Foreign Custody Manager agrees to notify immediately the Adviser
and the Board if, at any time, the Foreign Custody Manager
believes it cannot perform, in accordance with the foregoing
standard of care, its duties hereunder generally or with respect
to any country specified in Schedule A.
F. Reporting Requirements The Foreign Custody Manager shall list on
Schedule A the Eligible Foreign Custodians selected by the Foreign
Custody Manager to maintain the Fund's assets. The Foreign Custody
Manager shall report the withdrawal of the Foreign Assets from an
Eligible Foreign Custodian and the placement of the Foreign Assets
with another Eligible Foreign Custodian by providing to the
Adviser an amended Schedule A promptly. The Foreign Custody
Manager shall make written reports notifying the Adviser and the
Board of any other material change in the foreign custody
arrangements of the Fund described in this Article 3. Amended
Schedules A or B and material change reports shall be provided to
the Board quarterly, provided that, if the Foreign Custody Manager
or the Adviser determines that any matter should be reported
sooner, the Foreign Custody Manager shall promptly, following the
occurrence of the event, direct the report to the Fund's Secretary
for forwarding to the Board. At least annually, the Foreign
Custody Manager shall provide the Adviser and the Board a
written statement enabling the Board to determine that it is
reasonable to rely on the Foreign Custody Manager to perform its
delegated duties under this Article 3 and that the foreign custody
arrangements delegated to the Foreign Custody Manager continue to
meet the requirements of Rule 17f-5 under the Investment Company
Act of 1940, as amended. The Foreign Custody Manager will also
provide monthly reports on each Eligible Foreign Custodian listing
all holdings and current market values.
G. Representations with respect to Rule 17f-5 The Foreign Custody
Manager represents to the Fund that it is a U.S. Bank as defined
in section (a)(7) of Rule 17f-5.
The Fund represents to the Custodian that the Board has determined
that it is reasonable for the Board to rely on the Custodian to
perform the responsibilities delegated pursuant to this Article as
the Foreign Custody Manager of the Fund.
H. Effective Date and Termination of the Custodian as Foreign Custody
Manager The Board's delegation to the Custodian as Foreign Custody
Manager of the Fund shall be effective as of the date of execution
of this amended and restated Agreement and shall remain in effect
until terminated at any time, without penalty, by written notice
from the terminating party to the non-terminating party.
Termination will become effective sixty days after receipt by the
non-terminating party of the notice.
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<PAGE>
I. Withdrawal of Custodian as Foreign Custody Manager with respect to
Designated Countries and with respect to Eligible Foreign
Custodians Following the receipt of Proper Instructions directing
the Foreign Custody Manager to close the account of the Fund with
the Eligible Foreign Custodian selected by the Foreign Custody
Manager in a designated country and to remove that country from
Schedule A, the delegation by the Board to the Custodian as
Foreign Custody Manager for that country shall be deemed to have
been withdrawn with respect to that country and the Custodian
shall cease to be the Foreign Custody Manager of the Fund with
respect to that country after settlement of all pending trades.
The Foreign Custody Manager may withdraw its acceptance of
delegated responsibilities with respect to a country listed on
Schedule A upon written notice to the Fund in accordance with
subsection F. Sixty days (or other period agreed to by the parties
in writing) after receipt of any notice by the Fund, the Custodian
shall have no further responsibility as Foreign Custody Manager to
the Fund with respect to that country.
In the event the Foreign Custody Manager determines that the
custody arrangements with an Eligible Foreign Custodian it has
selected are no longer appropriate because the applicable Eligible
Foreign Custodian is no longer able to provide reasonable care for
Foreign Assets held in the country, or an arrangement no longer
meets the requirements of Rule 17f-5, the Foreign Custody Manager
shall notify the Adviser, the Board and the Fund in accordance
with subsection F hereunder. If the Adviser determines that
withdrawal is in the best interest of the Fund, the Foreign
Custody Manager shall withdraw all Foreign Assets from the
Eligible Foreign Custodian, as soon as reasonably practicable, and
shall provide alternative safe keeping acceptable to the Foreign
Custody Manager. If the Adviser determines that it is in the best
interest of the Fund to withdraw all Foreign Assets and this
withdrawal would require liquidation of any Foreign Assets or
would materially and adversely impair the liquidity, value or
other investment characteristic of any Foreign Assets, the Foreign
Custody Manager shall immediately provide information regarding
the particular circumstances to the Adviser and to the Board and
shall act in accordance with instructions received from an
Authorized Officer, with respect to the liquidation or other
withdrawal.
J. Guidelines for the Exercise of Delegated Authority and Provision
of Information Regarding Country Risk Nothing in this Article 3
shall require the Foreign Custody Manager to consider Country Risk
as part of its delegated responsibilities under subsection D of
Article 3. The Fund and the Custodian each expressly acknowledge
that the Foreign Custody Manager shall not be responsible for, or
liable for any loss in connection with the placement of Foreign
Assets with or withdrawal of Foreign Assets from a Mandatory
Securities Depository nor be delegated any responsibilities under
this Article 3 with respect to Mandatory Securities Depositories
other than those set forth below.
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<PAGE>
With respect to the countries listed in Schedule A, or added
thereto, the Foreign Custody Manager agrees to provide annually to
the Board and the Adviser, information relating to the Country
Risks of holding Foreign Assets in such countries, including but
not limited to, the Mandatory Securities Depositories, if any,
operating in the country. In addition, the Foreign Custody Manager
shall use reasonable care in the gathering of this information and
with regard to, among other things, the completeness and accuracy
of this information. The information furnished annually by the
Foreign Custody Manager to the Board should include but not be
limited to the following, if available:
(i) Legal Opinion regarding whether applicable foreign law
would restrict the access of the Fund's independent public
accountants to the books and records of the foreign
custodian, whether applicable foreign law would restrict
the Fund's ability to recover its assets in the event of
bankruptcy of the foreign custodian, whether applicable
foreign law would restrict the Fund's ability to recover
assets lost while under the foreign custodian's control,
the likelihood of expropriation, nationalization, freezes
or confiscation of the Fund's assets and whether there are
reasonably foreseeable difficulties in converting the
Fund's cash into U.S. dollars, or such other form of Legal
Opinion as is customary in association with Rule 17f-5
from time to time,
(ii) audit report of the Foreign Custody Manager,
(iii) copy of balance sheet from annual report of the
custodian,
(iv) summary of Central Depository Information,
(v) country profile materials containing market practice
for: delivery versus payment, settlement method, currency
restrictions, buy-in practice, Foreign ownership limits
and unique market arrangements,
(vi) The Foreign Custody Manager shall also provide such
other information as may be reasonably available relating
to Mandatory Securities Depositories, and, in accordance
with applicable requirements promulgated by the SEC from
time to time, to the criteria as set forth on Appendix B
hereto, as such Appendix may be revised by the parties
hereto from time to time; and,
(vii) such other materials as the Board may reasonably
request from time to time, including copies of contracts
with the subcustodians.
K. Most Favored Client If at any time the Foreign Custody Manager
shall be a party to an agreement, to serve as a Foreign Custody
Manager to an investment company, that provides for either (a) a
standard of care with respect to the selection of Eligible
Foreign Custodians in any jurisdiction higher than that set forth
in paragraph 1 of subsection D of Article 3 of this Agreement or
(b) a standard of care with respect to the exercise of the Foreign
Custody Manager's duties other than that set forth in subsection F
of Article 3 of this Agreement, the Foreign Custody Manager
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<PAGE>
agrees to notify the Fund of this fact and to negotiate in good
faith the applicable standard of care hereunder to the standard
specified in the other agreement. In the event that the Foreign
Custody Manager shall in the future offer review or information
services with respect to Mandatory Securities Depositories in
addition to any services provided hereunder, the Foreign Custody
Manager agrees that it shall notify the Fund of this fact and
shall offer these services to the Fund.
L. Direction as to Eligible Foreign Custodians Notwithstanding
Article 3 of this Agreement, the Fund or the Adviser may direct
the Custodian to place and maintain Foreign Assets with a
particular Eligible Foreign Custodian acceptable to the Foreign
Custody Manager. In such event, the Custodian shall be entitled to
rely on any instruction as a Proper Instruction and may limit its
duties under this Article 3 of the Agreement with respect to such
arrangements by describing any limitations in writing with respect
to each instance.
4. Duties of the Custodian with Respect to Property of the Fund
A. Safekeeping and Holding of Property The Custodian shall keep
safely all property of the Fund and on behalf of the Fund shall
from time to time receive delivery of Fund property for
safekeeping. The Custodian shall hold, earmark and segregate on
its books and records for the account of the Fund all property of
the Fund, including all securities, participation interests and
other assets of the Fund (1) physically held by the Custodian,
(2) held by any subcustodian referred to in Section 2 hereof or by
any agent referred to in Paragraph K hereof, (3) held by or
maintained in The Depository Trust Company or in Participants
Trust Company or in an Approved Clearing Agency or in the Federal
Book-Entry System or in an Approved Foreign Securities Depository,
each of which from time to time is referred to herein as a
"Securities System", and (4) held by the Custodian or by any
subcustodian referred to in Section 2 hereof and maintained in any
Approved Book-Entry System for Commercial Paper.
B. Delivery of Securities The Custodian shall release and deliver
securities or participation interests owned by the Fund held (or
deemed to be held) by the Custodian or maintained in a Securities
System account or in an Approved Book-Entry System for Commercial
Paper account only upon receipt of proper instructions, which may
be continuing instructions when deemed appropriate by the parties,
and only in the following cases:
1) Upon sale of such securities or participation interests
for the account of the Fund, but only against receipt of
payment therefor; if delivery is made in Boston or New
York City, payment therefor shall be made in accordance
with generally accepted clearing house procedures or by
use of Federal Reserve Wire System procedures; if delivery
is made elsewhere payment therefor shall be in accordance
with the then current "street delivery" custom or in
accordance with such procedures
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<PAGE>
agreed to in writing from time to time by the parties
hereto; if the sale is effected through a Securities
System, delivery and payment therefor shall be made in
accordance with the provisions of Paragraph L hereof; if
the sale of commercial paper is to be effected through an
Approved Book-Entry System for Commercial Paper,
delivery and payment therefor shall be made in accordance
with the provisions of Paragraph M hereof; if the
securities are to be sold outside the United States,
delivery may be made in accordance with procedures
agreed to in writing from time to time by the parties
hereto; for the purposes of this subparagraph, the
term "sale" shall include the disposition of a portfolio
security (i) upon the exercise of an option written by the
Fund and (ii) upon the failure by the Fund to make a
successful bid with respect to a portfolio security, the
continued holding of which is contingent upon the making
of such a bid;
2) Upon the receipt of payment in connection with any
repurchase agreement or reverse repurchase agreement
relating to such securities and entered into by the Fund;
3) To the depository agent in connection with tender or other
similar offers for portfolio securities of the Fund;
4) To the issuer thereof or its agent when such securities or
participation interests are called, redeemed, retired or
otherwise become payable; provided that, in any such case,
the cash or other consideration is to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
5) To the issuer thereof, or its agent, for transfer into the
name of the Fund or into the name of any nominee of the
Custodian or into the name or nominee name of any agent
appointed pursuant to Paragraph K hereof or into the name
or nominee name of any subcustodian employed pursuant to
Section 2 hereof; or for exchange for a different number
of bonds, certificates or other evidence representing the
same aggregate face amount or number of units; provided
that, in any such case, the new securities or
participation interests are to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
6) To the broker selling the same for examination in
accordance with the "street delivery" custom; provided
that the Custodian shall adopt such procedures as the Fund
from time to time shall approve to ensure their prompt
return to the Custodian by the broker in the event the
broker elects not to accept them;
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<PAGE>
7) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or
readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion of
such securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities and
cash, if any, are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof;
8) In the case of warrants, rights or similar securities, the
surrender thereof in connection with the exercise of such
warrants, rights or similar securities, or the surrender
of interim receipts or temporary securities for definitive
securities; provided that, in any such case, the new
securities and cash, if any, are to be delivered to the
Custodian or any subcustodian employed pursuant to Section
2 hereof;
9) For delivery in connection with any loans of securities
made by the Fund (such loans to be made pursuant to the
terms of the Fund's current registration statement), but
only against receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund, which may
be in the form of cash or obligations issued by the United
States government, its agencies or instrumentalities.
10) For delivery as security in connection with any borrowings
by the Fund requiring a pledge or hypothecation of assets
by the Fund (if then permitted under circumstances
described in the current registration statement of the
Fund), provided, that the securities shall be released
only upon payment to the Custodian of the monies borrowed,
except that in cases where additional collateral is
required to secure a borrowing already made, further
securities may be released for that purpose; upon receipt
of proper instructions, the Custodian may pay any such
loan upon redelivery to it of the securities pledged or
hypothecated therefor and upon surrender of the note or
notes evidencing the loan;
11) When required for delivery in connection with any
redemption or repurchase of Shares of the Fund in
accordance with the provisions of Paragraph J hereof;
12) For delivery in accordance with the provisions of any
agreement between the Custodian (or a subcustodian
employed pursuant to Section 2 hereof) and a broker-dealer
registered under the Securities Exchange Act of 1934 and,
if necessary, the Fund, relating to compliance with the
rules of The Options Clearing Corporation or of any
registered national securities exchange, or of any similar
organization or organizations, regarding deposit or escrow
or other arrangements in connection with options
transactions by the Fund;
13) For delivery in accordance with the provisions of any
agreement among the Fund, the Custodian (or a subcustodian
employed pursuant to Section 2 hereof), and a futures
commission merchant, relating to compliance with the rules
of the Commodity Futures Trading
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<PAGE>
Commission and/or of any contract market or commodities
exchange or similar organization, regarding futures
margin account deposits or payments in connection with
futures transactions by the Fund;
14) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a
certified copy of a vote of the Board specifying the
securities to be delivered, setting forth the purpose for
which such delivery is to be made, declaring such purpose
to be proper corporate purpose, and naming the person or
persons to whom delivery of such securities shall be made.
C. Registration of Securities Securities held by the Custodian (other
than bearer securities) for the account of the Fund shall be
registered in the name of the Fund or in the name of any nominee
of the Fund or of any nominee of the Custodian, or in the name or
nominee name of any agent appointed pursuant to Paragraph K
hereof, or in the name or nominee name of any subcustodian
employed pursuant to Section 2 hereof, or in the name or nominee
name of The Depository Trust Company or Participants Trust Company
or Approved Clearing Agency or Federal Book-Entry System or
Approved Book-Entry System for Commercial Paper; provided, that
securities are held in an account of the Custodian or of such
agent or of such subcustodian containing only assets of the Fund
or only assets held by the Custodian or such agent or such
subcustodian as a custodian or subcustodian or in a fiduciary
capacity for customers. All certificates for securities accepted
by the Custodian or any such agent or subcustodian on behalf of
the Fund shall be in "street" or other good delivery form or shall
be returned to the selling broker or dealer who shall be advised
of the reason thereof.
D. Bank Accounts The Custodian shall open and maintain a separate
bank account or accounts in the name of the Fund, subject only to
draft or order by the Custodian acting in pursuant to the terms
of this Agreement, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or
for the account of the Fund other than cash maintained by the Fund
in a bank account established and used in accordance with Rule
17f-3 under the Investment Company Act of 1940. Funds held by the
Custodian for the Fund may be deposited by it to its credit as
Custodian in the Banking Department of the Custodian or in such
other banks or trust companies as the Custodian may in its
discretion deem necessary or desirable; provided, however, that
every such bank or trust company shall be qualified to act as a
custodian under the Investment Company Act of 1940 and that each
such bank or trust company and the funds to be deposited with each
such bank or trust company shall be approved in writing by two
officers of the Fund. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be subject to
withdrawal only by the Custodian in that capacity.
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The Custodian may, on behalf of any Fund, open and cause to be
maintained outside the United States a bank account with (a) an
Eligible Foreign Custodian (as defined in Article 3) or (b) any
person with whom property of the Fund may be placed and maintained
outside of the United States under (i) ss.17(f) or 26(a) of the
1940 Act, without regard to Rule 17f-5 or (ii) an order of the
U.S. Securities and Exchange Commission (a "Permissible Foreign
Custodian"). Such account(s) shall be subject only to draft or
order by the Custodian or Eligible Foreign Custodian or
Permissible Foreign Custodian acting pursuant to the terms of this
Agreement to hold cash received by or from or for the account of
the Fund.
E. Payment for Shares of the Fund The Custodian shall make
appropriate arrangements with the Transfer Agent and the principal
underwriter of the Fund to enable the Custodian to make certain it
promptly receives the cash or other consideration due to the Fund
for such new or treasury Shares as may be issued or sold from time
to time by the Fund, in accordance with the governing documents
and offering prospectus and statement of additional information of
the Fund. The Custodian will provide prompt notification to the
Fund of any receipt by it of payments for Shares of the Fund.
F. Investment and Availability of Federal Funds Upon agreement
between the Fund and the Custodian, the Custodian shall, upon the
receipt of proper instructions, which may be continuing
instructions when deemed appropriate by the parties, invest in
such securities and instruments as may be set forth in such
instructions on the same day as received all federal funds
received after a time agreed upon between the Custodian and the
Fund.
G. Collections The Custodian shall promptly collect all income and
other payments with respect to registered securities held
hereunder to which the Fund shall be entitled either by law or
pursuant to custom in the securities business, and shall promptly
collect all income and other payments with respect to bearer
securities if, on the date of payment by the issuer, such
securities are held by the Custodian or agent thereof and shall
credit such income, as collected, to the Fund's custodian account.
The Custodian shall do all things necessary and proper in connection with such
prompt collections and, without limiting the generality of the foregoing, the
Custodian shall
1) Present for payment all coupons and other income items
requiring presentations;
2) Present for payment all securities which may mature or be
called, redeemed, retired or otherwise become payable;
3) Endorse and deposit for collection, in the name of the
Fund, checks, drafts or other negotiable instruments;
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4) Credit income from securities maintained in a Securities
System or in an Approved Book-Entry System for Commercial
Paper at the time funds become available to the Custodian;
in the case of securities maintained in The Depository
Trust Company funds shall be deemed available to the Fund
not later than the opening of business on the first
business day after receipt of such funds by the Custodian.
The Custodian shall notify the Fund as soon as reasonably practicable whenever
income due on any security is not promptly collected. In any case in which the
Custodian does not receive any due and unpaid income after it has made demand
for the same, it shall immediately so notify the Fund in writing, enclosing
copies of any demand letter, any written response thereto, and memoranda of all
oral responses thereto and to telephonic demands, and await instructions from
the Fund; the Custodian shall in no case have any liability for any nonpayment
of such income provided the Custodian meets the standard of care set forth in
Section 8 hereof. The Custodian shall not be obligated to take legal action for
collection unless and until reasonably indemnified to its satisfaction.
The Custodian shall also receive and collect all stock dividends, rights and
other items of like nature, and deal with the same pursuant to proper
instructions relative thereto.
H. Payment of Fund Moneys Upon receipt of proper instructions, which
may be continuing instructions when deemed appropriate by the
parties, the Custodian shall pay out moneys of the Fund in the
following cases only:
1) Upon the purchase of securities, participation interests,
options, futures contracts, forward contracts and options
on futures contracts purchased for the account of the Fund
but only (a) against the receipt of
(i) such securities registered as provided in
Paragraph C hereof or in proper form for transfer
or
(ii) detailed instructions signed by an officer of the
Fund regarding the participation interests to be
purchased or
(iii) written confirmation of the purchase by the Fund
of the options, futures contracts, forward
contracts or options on futures contracts
by the Custodian (or by a subcustodian employed pursuant
to Section 2 hereof or by a clearing corporation of a
national securities exchange of which the Custodian is a
member or by any bank, banking institution or trust
company doing business in the United States or abroad
which is qualified under the Investment Company Act of
1940 to act as a custodian and which has been designated
by the Custodian as its agent for this purpose or by the
agent specifically designated in such instructions as
representing the purchasers of a new issue of privately
placed securities); (b) in the case of a purchase effected
through a Securities System, upon receipt of the
15
<PAGE>
securities by the Securities System in accordance with the
conditions set forth in Paragraph L hereof; (c) in the
case of a purchase of commercial paper effected through an
Approved Book-Entry System for Commercial Paper, upon
receipt of the paper by the Custodian or subcustodian in
accordance with the conditions set forth in Paragraph M
hereof; (d) in the case of repurchase agreements entered
into between the Fund and another bank or a broker-dealer,
against receipt by the Custodian of the securities
underlying the repurchase agreement either in certificate
form or through an entry crediting the Custodian's
segregated, non-proprietary account at the Federal Reserve
Bank of Boston with such securities along with written
evidence of the agreement by the bank or broker-dealer to
repurchase such securities from the Fund; or (e) with
respect to securities purchased outside of the United
States, in accordance with written procedures agreed to
from time to time in writing by the parties hereto;
2) When required in connection with the conversion, exchange
or surrender of securities owned by the Fund as set forth
in Paragraph B hereof;
3) When required for the redemption or repurchase of Shares
of the Fund in accordance with the provisions of Paragraph
J hereof;
4) For the payment of any expense or liability incurred by
the Fund, including but not limited to the following
payments for the account of the Fund: advisory fees,
distribution plan payments, interest, taxes, management
compensation and expenses, accounting, transfer agent and
legal fees, and other operating expenses of the Fund
whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
5) For the payment of any dividends or other distributions to
holders of Shares declared or authorized by the Board; and
6) For any other proper corporate purpose, but only upon
receipt of, in addition to proper instructions, a
certified copy of a vote of the Board, specifying the
amount of such payment, setting forth the purpose for
which such payment is to be made, declaring such purpose
to be a proper corporate purpose, and naming the person or
persons to whom such payment is to be made.
I. Liability for Payment in Advance of Receipt of Securities
Purchased In any and every case where payment for purchase of
securities for the account of the Fund is made by the Custodian in
advance of receipt of the securities purchased in the absence of
specific written instructions signed by two officers of the Fund
to so pay in advance, the Custodian shall be absolutely liable to
the Fund for such securities to the same extent as if the
securities had been received by the Custodian; except that in the
case of a repurchase agreement entered into by the Fund with a
bank which is a member of the Federal Reserve System, the
Custodian may transfer funds
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<PAGE>
to the account of such bank prior to the receipt of (i) the
securities in certificate form subject to such repurchase
agreement or (ii) written evidence that the securities subject to
such repurchase agreement have been transferred by book-entry into
a segregated non-proprietary account of the Custodian maintained
with the Federal Reserve Bank of Boston or (iii) the safekeeping
receipt, provided that such securities have in fact been so
transferred by book-entry and the written repurchase agreement is
received by the Custodian in due course. With respect to
securities and funds held by a subcustodian, either directly or
indirectly (including by a Securities Depository or clearing
corporation), notwithstanding any provisions of this Agreement to
the contrary, payment for securities purchased and delivery of
securities sold may be made prior to receipt of securities or
payment respectively, and securities or payment may be received in
a form in accordance with (a) governmental regulations, (b) rules
of Securities Depositories and clearing agencies, (c) generally
accepted trade practice in the applicable local market, (d) the
terms and characteristics of the particular investment, or (e) the
terms of instructions.
J. Payments for Repurchases or Redemptions of Shares of the Fund From
such funds as may be available for the purpose, but subject to any
applicable votes of the Board and the current redemption and
repurchase procedures of the Fund, the Custodian shall, upon
receipt of written instructions from the Fund or from the Fund's
transfer agent or from the principal underwriter, make funds
and/or portfolio securities available for payment to holders of
Shares who have caused their Shares to be redeemed or repurchased
by the Fund or for the Fund's account by its transfer agent or
principal underwriter.
The Custodian may maintain a special checking account upon which
special checks may be drawn by shareholders of the Fund holding
Shares for which certificates have not been issued. Such checking
account and such special checks shall be subject to such rules and
regulations as the Custodian and the Fund may from time to time
adopt. The Custodian or the Fund may suspend or terminate use of
such checking account or such special checks (either generally or
for one or more shareholders) at any time. The Custodian and the
Fund shall notify the other immediately of any such suspension or
termination.
K. Appointment of Agents by the Custodian The Custodian may at any
time or times in its discretion appoint (and may at any time
remove) any other bank or trust company (provided such bank or
trust company is itself qualified under the Investment Company Act
of 1940 to act as a custodian or is itself an eligible foreign
custodian within the meaning of Rule 17f-5 under said Act) as the
agent of the Custodian to carry out such of the duties and
functions of the Custodian described in this Section 3 as the
Custodian may from time to time direct; provided, however, that
the appointment of any such agent shall not relieve the Custodian
of any of its responsibilities or liabilities hereunder, and as
between the Fund and the Custodian the Custodian shall be fully
responsible for the acts and omissions of any such agent. For the
purposes of this Agreement, any property of the Fund held by any
such agent shall be deemed to be held by the Custodian hereunder.
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<PAGE>
L. Deposit of Fund Portfolio Securities in Securities Systems The
Custodian may deposit and/or maintain securities owned by the Fund
(1) in The Depository Trust Company;
(2) in Participants Trust Company;
(3) in any other Approved Clearing Agency;
(4) in the Federal Book-Entry System; or
(5) in a Securities Depository (as defined in
Article 3).
in each case only in accordance with applicable Federal Reserve
Board and Securities and Exchange Commission rules and
regulations, and at all times subject to the following
provisions:
(a) The Custodian may (either directly or through one or more
subcustodians employed pursuant to Section 2) keep securities of
the Fund in a Securities System provided that such securities are
maintained in a non-proprietary account ("Account") of the
Custodian or such subcustodian in the Securities System which
shall not include any assets of the Custodian or such subcustodian
or any other person other than assets held by the Custodian or
such subcustodian as a fiduciary, custodian, or otherwise for its
customers.
(b) The records of the Custodian with respect to securities of the
Fund which are maintained in a Securities System shall identify by
book-entry those securities belonging to the Fund, and the
Custodian shall be fully and completely responsible for
maintaining a recordkeeping system capable of accurately and
currently stating the Fund's holdings maintained in each such
Securities System.
(c) The Custodian shall pay for securities purchased in book-entry
form for the account of the Fund only upon (i) receipt of notice
or advice from the Securities System that such securities have
been transferred to the Account, and (ii) the making of any entry
on the records of the Custodian to reflect such payment and
transfer for the account of the Fund. The Custodian shall
transfer securities sold for the account of the Fund only upon (i)
receipt of notice or advice from the Securities System that
payment for such securities has been transferred to the Account,
and (ii) the making of an entry on the records of the Custodian to
reflect such transfer and payment for
18
<PAGE>
the account of the Fund. Copies of all notices or advises from
the Securities System of transfers of securities for the account
of the Fund shall identify the Fund, be maintained for the Fund by
the Custodian and be promptly provided to the Fund at its request.
The Custodian shall promptly send to the Fund confirmation of each
transfer to or from the account of the Fund in the form of a
written advice or notice of each such transaction, and shall
furnish to the Fund copies of daily transaction sheets reflecting
each day's transactions in the Securities System for the account
of the Fund on the next business day.
(d) The Custodian shall promptly send to the Fund any report or other
communication received or obtained by the Custodian relating to
the Securities System's accounting system, system of internal
accounting controls or procedures for safeguarding securities
deposited in the Securities System; the Custodian shall promptly
send to the Fund any report or other communication relating to the
Custodian's internal accounting controls and procedures for
safeguarding securities deposited in any Securities System; and
the Custodian shall ensure that any agent appointed pursuant to
Paragraph K hereof or any subcustodian employed pursuant to
Section 2 hereof shall promptly send to the Fund and to the
Custodian any report or other communication relating to such
agent's or subcustodian's internal accounting controls and
procedures for safeguarding securities deposited in any Securities
System. The Custodian's books and records relating to the Fund's
participation in each Securities System will at all times during
regular business hours be open to the inspection of the Fund's
authorized officers, employees or agents.
(e) The Custodian shall not act under this Paragraph L in the absence
of receipt of a certificate of an officer of the Fund that the
Board has approved the use of a particular Securities System; the
Custodian shall also obtain appropriate assurance from the
officers of the Fund that the Board has annually reviewed and
approved the continued use by the Fund of each Securities System,
so long as such review and approval is required by Rule 17f-4
under the Investment Company Act of 1940, and the Fund shall
promptly notify the Custodian if the use of a Securities System is
to be discontinued; at the request of the Fund, the Custodian will
terminate the use of any such Securities System as promptly as
practicable.
(f) Anything to the contrary in this Agreement notwithstanding, the
Custodian shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Securities System by reason of
any negligence, misfeasance or misconduct of the Custodian or any
of its agents or subcustodians or of any of its or their employees
or from any failure of the Custodian or any such agent or
subcustodian to enforce effectively such rights as it may have
against the Securities System or any other person; at the election
of the Fund, it shall be entitled to be subrogated to the rights
of the Custodian with respect to any claim against the Securities
System or any other person which the Custodian may have as a
consequence of any such loss or damage if and to the extent that
the Fund has not been made whole for any such loss or damage.
M. Deposit of Fund Commercial Paper in an Approved Book-Entry System for
Commercial Paper Upon receipt of proper instructions with respect to
each issue of direct issue commercial paper purchased by the Fund, the
Custodian may deposit and/or maintain direct issue commercial paper
owned by the Fund in any Approved Book-Entry System for Commercial
Paper, in each case only in accordance with applicable Securities and
Exchange Commission rules, regulations, and no-action correspondence,
and at all times subject to the following provisions:
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<PAGE>
(a) The Custodian may (either directly or through one or more
subcustodians employed pursuant to Section 2) keep
commercial paper of the Fund in an Approved Book-Entry
System for Commercial Paper, provided that such paper is
issued in book entry form by the Custodian or subcustodian
on behalf of an issuer with which the Custodian or
subcustodian has entered into a book-entry agreement and
provided further that such paper is maintained in a
non-proprietary account ("Account") of the Custodian or
such subcustodian in an Approved Book-Entry System for
Commercial Paper which shall not include any assets of the
Custodian or such subcustodian or any other person other
than assets held by the Custodian or such subcustodian as
a fiduciary, custodian, or otherwise for its customers.
(b) The records of the Custodian with respect to commercial
paper of the Fund which is maintained in an Approved
Book-Entry System for Commercial Paper shall identify by
book-entry each specific issue of commercial paper
purchased by the Fund which is included in the System and
shall at all times during regular business hours be open
for inspection by authorized officers, employees or agents
of the Fund. The Custodian shall be fully and completely
responsible for maintaining a recordkeeping system capable
of accurately and currently stating the Fund's holdings of
commercial paper maintained in each such System.
(c) The Custodian shall pay for commercial paper purchased in
book-entry form for the account of the Fund only upon
contemporaneous (i) receipt of notice or advice from the
issuer that such paper has been issued, sold and
transferred to the Account, and (ii) the making of an
entry on the records of the Custodian to reflect such
purchase, payment and transfer for the account of the
Fund. The Custodian shall transfer such commercial paper
which is sold or cancel such commercial paper which is
redeemed for the account of the Fund only upon
contemporaneous (i) receipt of notice or advice that
payment for such paper has been transferred to the
Account, and (ii) the making of an entry on the records of
the Custodian to reflect such transfer or redemption and
payment for the account of the Fund. Copies of all
notices, advises and confirmations of transfers of
commercial paper for the account of the Fund shall
identify the Fund, be maintained for the Fund by the
Custodian and be promptly provided to the Fund at its
request. The Custodian shall promptly send to the Fund
confirmation of each transfer to or from the account of
the Fund in the form of a written advice or notice of each
such transaction, and shall furnish to the Fund copies of
daily transaction sheets reflecting each day's
transactions in the System for the account of the Fund o
the next business day.
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<PAGE>
(d) The Custodian shall promptly send to the Fund any report
or other communication received or obtained by the
Custodian relating to each System's accounting system,
system of internal accounting controls or procedures for
safeguarding commercial paper deposited in the System;
the Custodian shall promptly send to the Fund any report
or other communication relating to the Custodian's
internal accounting controls and procedures for
safeguarding commercial paper deposited in any Approved
Book-Entry System for Commercial Paper; and the Custodian
shall ensure that any agent appointed pursuant to
Paragraph K hereof or any subcustodian employed pursuant
to Section 2 hereof shall promptly send to the Fund and to
the Custodian any report or other communication relating
to such agent's or subcustodian's internal accounting
controls and procedures for safeguarding securities
deposited in any Approved Book-Entry System for Commercial
Paper.
(e) The Custodian shall not act under this Paragraph M in the
absence of receipt of a certificate of an officer of the
Fund that the Board has approved the use of a particular
Approved Book-Entry System for Commercial Paper; the
Custodian shall also obtain appropriate assurance from the
officers of the Fund that the Board has annually reviewed
and approved the continued use by the Fund of each
Approved Book-Entry System for Commercial Paper, so long
as such review and approval is required by Rule 17f-4
under the Investment Company Act of 1940, and the Fund
shall promptly notify the Custodian if the use of an
Approved Book-Entry System for Commercial Paper is to be
discontinued; at the request of the Fund, the Custodian
will terminate the use of any such System as promptly as
practicable.
(f) The Custodian (or subcustodian, if the Approved Book-Entry
System for Commercial Paper is maintained by the
subcustodian) shall issue physical commercial paper or
promissory notes whenever requested to do so by the Fund
or in the event of an electronic system failure which
impedes issuance, transfer or custody of direct issue
commercial paper by book-entry.
(g) Anything to the contrary in this Agreement
notwithstanding, the Custodian shall be liable to the Fund
for any loss or damage to the Fund resulting from use of
any Approved Book-Entry System for Commercial Paper by
reason of any negligence, misfeasance or misconduct of the
Custodian or any of its agents or subcustodians or of any
of its or their employees or from any failure of the
Custodian or any such agent or subcustodian to enforce
effectively such rights as it may have against the System,
the issuer of the commercial paper or any other person; at
the election of the Fund, it shall be entitled to be
subrogated to the rights of the Custodian with respect to
any claim against the System, the issuer of the commercial
paper or any other person which the Custodian may have as
a consequence of any such loss or damage if and to the
extent that the Fund has not been made whole for any such
loss or damage.
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<PAGE>
N. Segregated Account The Custodian shall upon receipt of proper
instructions establish and maintain a segregated account or
accounts for and on behalf of the Fund, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Paragraph L hereof, (i) in accordance with the provisions of any
agreement among the Fund, the Custodian and any registered
broker-dealer (or any futures commission merchant), relating to
compliance with the rules of the Options Clearing Corporation and
of any registered national securities exchange (or of the
Commodity Futures Trading Commission or of any contract market or
commodities exchange), or of any similar organization or
organizations, regarding escrow or deposit or other arrangements
in connection with transactions by the Fund, (ii) for purposes of
segregating cash or U.S. Government securities in connection with
options purchased, sold or written by the Fund or futures
contracts or options thereon purchased or sold by the Fund, (iii)
for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the Securities and Exchange
Commission relating to the maintenance of segregated accounts by
registered investment companies and (iv) for other proper
purposes, but only, in the case of clause (iv), upon receipt of,
in addition to proper instructions, a certificate signed by two
officers of the Fund, setting forth the purpose such segregated
account and declaring such purpose to be a proper purpose.
O. Ownership Certificates for Tax Purposes The Custodian shall
execute ownership and other certificates and affidavits for all
foreign, federal and state tax purposes in connection with
receipt of income or other payments with respect to securities
of the Fund held by it and in connection with transfers of
securities.
P. Proxies The Custodian shall, with respect to the securities
held by it hereunder, cause to be promptly delivered to the Fund
all forms of proxies and all notices of meetings and any
other notices or announcements or other written information
affecting or relating to the securities, and upon receipt of
proper instructions shall execute and deliver or cause its
nominee to execute and deliver such proxies or other
authorizations as may be required. Neither the Custodian nor
its nominee shall vote upon any of the securities or
execute any proxy to vote thereon or give any consent or take
any other action with respect thereto (except as otherwise
herein provided) unless ordered to do so by proper
instructions.
Q. Communications Relating to Fund Portfolio Securities The Custodian
shall deliver promptly to the Fund all written information
(including, without limitation, pendency of call and maturities
of securities and participation interests and expirations of
rights in connection therewith and notices of exercise of call
and put options written by the Fund and the maturity of futures
contracts purchased or sold by the Fund) received by the
Custodian from issuers and other
22
<PAGE>
persons relating to the securities and participation
interests being held for the Fund. With respect to tender or
exchange offers, the Custodian shall deliver promptly to the Fund
all written information received by the Custodian from
issuers and other persons relating to the securities and
participation interests whose tender or exchange is sought and
from the party (or his agents) making the tender or exchange
offer.
R. Exercise of Rights; Tender Offers In the case of tender offers,
similar offers to purchase or exercise rights (including,
without limitation, pendency of calls and maturities of
securities and participation interests and expirations of
rights in connection therewith and notices of exercise of call
and put options and the maturity of futures contracts) affecting
or relating to securities and participation interests held by
the Custodian under this Agreement, the Custodian shall have
responsibility for promptly notifying the Fund of all such
offers in accordance with the standard of reasonable care set
forth in Section 8 hereof. For all such offers for which the
Custodian is responsible as provided in this Paragraph R, the
Fund shall have responsibility for providing the Custodian with
all necessary instructions in timely fashion. Upon receipt of
proper instructions, the Custodian shall timely deliver to the
issuer or trustee thereof, or to the agent of either,
warrants, puts, calls, rights or similar securities for
the purpose of being exercised or sold upon proper receipt
therefor and upon receipt of assurances satisfactory to the
Custodian that the new securities and cash, if any, acquired by
such action are to be delivered to the Custodian or any
subcustodian employed pursuant to Section 2 hereof. Upon receipt
of proper instructions, the Custodian shall timely deposit
securities upon invitations for tenders of securities upon proper
receipt therefor and upon receipt of assurances satisfactory to
the Custodian that the consideration to be paid or delivered or
the tendered securities are to be returned to the Custodian or
subcustodian employed pursuant to Section 2 hereof.
Notwithstanding any provision of this Agreement to the contrary,
the Custodian shall take all necessary action, unless otherwise
directed to the contrary by proper instructions, to comply with
the terms of all mandatory or compulsory exchanges, calls,
tenders, redemptions, or similar rights of security ownership, and
shall thereafter promptly notify the Fund in writing of such
action.
S. Depository Receipts The Custodian shall, upon receipt of proper
instructions, surrender or cause to be surrendered foreign
securities to the depository used by an issuer of American
Depository Receipts, European Depository Receipts or International
Depository Receipts (hereinafter collectively referred to as
"ADRs") for such securities, against a written receipt therefor
adequately describing such securities and written evidence
satisfactory to the Custodian that the depository has acknowledged
receipt of instructions to issue with respect to such securities
ADRs in the name of a nominee of the Custodian or in the name or
nominee name of any subcustodian employed pursuant to Section 2
hereof, for delivery to the Custodian or such subcustodian at such
place as the Custodian or such subcustodian may from time to time
designate. The Custodian shall, upon receipt of proper
instructions, surrender ADRs to the issuer thereof against a
written receipt therefor adequately describing the ADRs
surrendered and written evidence satisfactory to the Custodian
that the issuer of the ADRs has acknowledged receipt of
instructions to cause its depository to deliver the securities
underlying such ADRs to the Custodian or to a subcustodian
employed pursuant to Section 2 hereof.
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<PAGE>
T. Interest Bearing Call or Time Deposits The Custodian shall, upon
receipt of proper instructions, place interest bearing fixed ter
and call deposits with the banking department of such banking
institution (other than the Custodian) and in such amounts as
the Fund may designate. Deposits may be denominated in U.S.
Dollars or other currencies. The Custodian shall include in
its records with respect to the assets of the Fund appropriate
notation as to the amount and currency of each such deposit, the
accepting banking institution and other appropriate details
and shall retain such forms of advice or receipt evidencing the
deposit, if any, as may be forwarded to the Custodian by the
banking institution. Such deposits shall be deemed portfolio
securities of the applicable Fund for the purposes of this
Agreement, and the Custodian shall be responsible for the
collection of income from such accounts and the transmission of
cash to and from such accounts.
U. Options, Futures Contracts and Foreign Currency Transactions
1. Options. The Custodians shall, upon receipt of proper
instructions and in accordance with the provisions of any
agreement between the Custodian, any registered broker-dealer
and, if necessary, the Fund, relating to compliance with the
rules of the Options Clearing Corporation or of any registered
national securities exchange or similar organization or
organizations, receive and retain confirmations or other
documents, if any, evidencing the purchase or writing of an
option on a security, securities index, currency or other
financial instrument or index by the Fund; deposit and
maintain in a segregated account for each Fund separately,
either physically or by book-entry in a Securities System,
securities subject to a covered call option written by the
Fund; and release and/or transfer such securities or other
assets only in accordance with a notice or other communication
evidencing the expiration, termination or exercise of such
covered option furnished by the Options Clearing Corporation,
the securities or options exchange on which such covered
option is traded or such other organization as may be
responsible for handling such options transactions. The
Custodian and the broker-dealer shall be responsible for the
sufficiency of assets held in each Fund's segregated account
in compliance with applicable margin maintenance requirements.
2. Futures Contracts The Custodian shall, upon receipt of
proper instructions, receive and retain confirmations and
other documents, if any, evidencing the purchase or sale of a
futures contract or an option on a futures contract by the
Fund; deposit and maintain in a segregated account, for the
benefit of any futures commission merchant, assets designated
by the Fund as initial, maintenance or variation "margin"
deposits (including mark-to-market payments) intended to
secure the Fund's performance of its obligations under any
futures contracts purchased
24
<PAGE>
or sold or any options on futures contracts written by Fund,
in accordance with the provisions of any agreement or
agreements among the Fund, the Custodian and such futures
commission merchant, designed to comply with the rules of the
Commodity Futures Trading Commission and/or of any contract
market or commodities exchange or similar organization
regarding such margin deposits or payments; and release and/or
transfer assets in such margin accounts only in accordance
with any such agreements or rules. The Custodian and the
futures commission merchant shall be responsible for the
sufficiency of assets held in the segregated account in
compliance with the applicable margin maintenance and
mark-to-market payment requirements.
3. Foreign Exchange Transactions The Custodian shall, pursuant
to proper instructions, enter into or cause a subcustodian to
enter into foreign exchange contracts, currency swaps or
options to purchase and sell foreign currencies for spot and
future delivery on behalf and for the account of the Fund.
Such transactions may be undertaken by the Custodian or
subcustodian with such banking or financial institutions or
other currency brokers, as set forth in proper instructions.
Foreign exchange contracts, swaps and options shall be deemed
to be portfolio securities of the Fund; and accordingly, the
responsibility of the Custodian therefor shall be the same as
and no greater than the Custodian's responsibility in respect
of other portfolio securities of the Fund. The Custodian shall
be responsible for the transmittal to and receipt of cash from
the currency broker or banking or financial institution with
which the contract or option is made, the maintenance of
proper records with respect to the transaction and the
maintenance of any segregated account required in connection
with the transaction. The Custodian shall have no duty with
respect to the selection of the currency brokers or banking or
financial institutions with which the Fund deals or for their
failure to comply with the terms of any contract or option.
Without limiting the foregoing, it is agreed that upon receipt
of proper instructions, the Custodian may, and insofar as
funds are made available to the Custodian for the purpose, (if
determined necessary by the Custodian to consummate a
particular transaction on behalf and for the account of the
Fund) make free outgoing payments of cash in the form of U.S.
dollars or foreign currency before receiving confirmation of a
foreign exchange contract or swap or confirmation that the
countervalue currency completing the foreign exchange contract
or swap has been delivered or received. The Custodian shall
not be responsible for any costs and interest charges which
may be incurred by the Fund or the Custodian as a result of
the failure or delay of third parties to deliver foreign
exchange; provided that the Custodian shall nevertheless be
held to the standard of care set forth in, and shall be liable
to the Fund in accordance with, the provisions of Section 9.
V. Actions Permitted Without Express Authority The Custodian may in its
discretion, without express authority from the Fund:
25
<PAGE>
1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Agreement, provided, that all such
payments shall be accounted for by the Custodian to the
Treasurer of the Fund;
2) surrender securities in temporary form for securities in
definitive form;
3) endorse for collection, in the name of the Fund, checks,
drafts and other negotiable instruments; and
4) in general, attend to all nondiscretionary details in
connection with the sale, exchange, substitution,
purchase, transfer and other dealings with the securities
and property of the Fund except as otherwise directed by
the Fund.
5. Duties of Bank with Respect to Books of Account and Calculations of Net
Asset Value
The Bank shall as Agent (or as Custodian, as the case may be) keep such books of
account and render as at the close of business on each day a detailed statement
of the amounts received or paid out and of securities received or delivered for
the account of the Fund during said day and such other statements, including a
daily trial balance and inventory of the Fund's portfolio securities; and shall
furnish such other financial information and data as from time to time requested
by the Treasurer or any authorized officer of the Fund; and shall compute and
determine, as of the close of regular trading on the New York Stock Exchange, or
at such other time or times as the Board may determine, the net asset value of a
Share in the Fund, such computation and determination to be made in accordance
with the governing documents of the Fund and the votes and instructions of the
Board at the time in force and applicable, and promptly notify the Fund and its
investment adviser and such other persons as the Fund may request of the result
of such computation and determination. In computing the net asset value the
Custodian may rely upon security quotations received by telephone or otherwise
from sources or pricing services designated by the Fund by proper instructions,
and may further rely upon information furnished to it by any authorized officer
of the Fund relative (a) to liabilities of the Fund not appearing on its books
of account, (b) to the existence, status and proper treatment of any reserve or
reserves, (c) to any procedures established by the Board regarding the valuation
of portfolio securities, and (d) to the value to be assigned to any bond, note,
debenture, Treasury bill, repurchase agreement, subscription right, security,
participation interest or other asset or property for which market quotations
are not readily available.
6. Records and Miscellaneous Duties
The Bank shall create, maintain and preserve all records relating to its
activities and obligations under this Agreement in such manner as will meet the
obligations of the Fund under the Investment Company Act of 1940, with
particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder,
applicable federal and state tax laws and any other law or administrative rules
or procedures which may be applicable to the Fund. All books of account and
records maintained by the Bank in connection with the performance of its duties
under this Agreement shall be the property of the Fund, shall at all times
during the regular business hours of the Bank be open for inspection by
authorized officers, employees or agents of the Fund, and in the event of
termination of this Agreement
26
<PAGE>
shall be delivered to the Fund or to such other person or persons as shall be
designated by the Fund. Disposition of any account or record after any required
period of preservation shall be only in accordance with specific instructions
received from the Fund. The Bank shall assist generally in the preparation of
reports to shareholders, audits of accounts, and other ministerial matters of
like nature; and, upon request, shall furnish the Fund's auditors with an
attested inventory of securities held with appropriate information as to
securities in transit or in the process of purchase or sale and with such other
information as said auditors may from time to time request. The Custodian shall
also maintain records of all receipts, deliveries and locations of such
securities, together with a current inventory thereof, and shall conduct
periodic verifications (including sampling counts at the Custodian) of
certificates representing bonds and other securities for which it is responsible
under this Agreement in such manner as the Custodian shall determine from time
to time to be advisable in order to verify the accuracy of such inventory. The
Bank shall not disclose or use any books or records it has prepared or
maintained by reason of this Agreement in any manner except as expressly
authorized herein or directed by the Fund, and the Bank shall keep confidential
any information obtained by reason of this Agreement.
7. Opinion of Fund's Independent Public Accountants
The Custodian shall take all reasonable action, as the Fund may from time to
time request, to enable the Fund to obtain from year to year favorable opinions
from the Fund's independent public accountants with respect to its activities
hereunder in connection with the preparation of the Fund's registration
statement and Form N-SAR or other periodic reports to the Securities and
Exchange Commission and with respect to any other requirements of such
Commission.
8. Compensation and Expenses of Bank
The Bank shall be entitled to reasonable compensation for its services as
Custodian and Agent, as agreed upon from time to time between the Fund and the
Bank. The Bank shall entitled to receive from the Fund on demand reimbursement
for its cash disbursements, expenses and charges, including counsel fees, in
connection with its duties as Custodian and Agent hereunder, but excluding
salaries and usual overhead expenses.
9. Responsibility of Bank
So long as and to the extent that it is in the exercise of reasonable care, the
Bank as Custodian and Agent shall be held harmless in acting upon any notice,
request, consent, certificate or other instrument reasonably believed by it to
be genuine and to be signed by the proper party or parties.
27
<PAGE>
The Bank as Custodian and Agent shall be entitled to rely on and may act upon
advice of counsel (who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted pursuant to such
advice.
The Bank as Custodian and Agent shall be held to the exercise of reasonable care
in carrying out the provisions of this Agreement but shall be liable only for
its own negligent or bad faith acts or failures to act. Notwithstanding the
foregoing, nothing contained in this paragraph is intended to nor shall it be
construed to modify the standards of care and responsibility set forth in
Section 2 hereof with respect to subcustodians and in subparagraph f of
Paragraph L of Section 3 hereof with respect to Securities Systems and in
subparagraph g of Paragraph M of Section 3 hereof with respect to an Approved
Book-Entry System for Commercial Paper.
The Custodian shall be liable for the acts or omissions of a foreign banking
institution to the same extent as set forth with respect to subcustodians
generally in Section 2 hereof, provided that, regardless of whether assets are
maintained in the custody of a foreign banking institution, a foreign securities
depository or a branch of a U.S. bank, the Custodian shall not be liable for any
loss, damage, cost, expense, liability or claim resulting from, or caused by,
the direction of or authorization by the Fund to maintain custody of any
securities or cash of the Fund in a foreign county including, but not limited
to, losses resulting from nationalization, expropriation, currency restrictions,
acts of war, civil war or terrorism, insurrection, revolution, military or
usurped powers, nuclear fission, fusion or radiation, earthquake, storm or other
disturbance of nature or acts of God.
If the Fund requires the Bank in any capacity to take any action with respect to
securities, which action involves the payment of money or which action may, in
the opinion of the Bank, result in the Bank or its nominee assigned to the Fund
being liable for the payment of money or incurring liability of some other form,
the Fund, as a prerequisite to requiring the Custodian to take such action,
shall provide indemnity to the Custodian in an amount and form satisfactory to
it.
Except as may arise from the Custodian's own negligence or bad faith, the
Custodian shall be without liability to any Fund for any loss, liability, claim
or expense resulting from or caused by anything which is (a) part of Country
Risk or (b) part of the "prevailing country risk" of the Fund, as that term is
used in SEC Release Nos. IC-22658; IS-1080 (May 12, 1997) or as that term is now
or in the future interpreted by the U.S. Securities and Exchange Commission or
by the staff of the Division of Investment Management of the Commission.
10. Persons Having Access to Assets of the Fund
(i) No trustee, director, general partner, officer, employee
or agent of the Fund shall have physical access to the
assets of the Fund held by the Custodian or be authorized
or permitted to withdraw any investments of the Fund, nor
shall the Custodian deliver any assets of the Fund to any
such person. No officer or director, employee or agent of
the Custodian who holds any similar position with the Fund
or the investment adviser of the Fund shall have access to
the assets of the Fund.
28
<PAGE>
(ii) Access to assets of the Fund held hereunder shall only be
available to duly authorized officers, employees,
representatives or agents of the Custodian or other
persons or entities for whose actions the Custodian shall
be responsible to the extent permitted hereunder, or to
the Fund's independent public accountants in connection
with their auditing duties performed on behalf of the
Fund.
(iii) Nothing in this Section 9 shall prohibit any officer,
employee or agent of the Fund or of the investment adviser
of the Fund from giving instructions to the Custodian or
executing a certificate so long as it does not result in
delivery of or access to assets of the Fund prohibited by
paragraph (i) of this Section 9.
11. Effective Period, Termination and Amendment; Successor Custodian
This Agreement shall become effective as of its execution, shall continue in
full force and effect until terminated as hereinafter provided, may be amended
at any time by mutual agreement of the parties hereto and may be terminated by
either party by an instrument in writing delivered or mailed, postage prepaid to
the other party, such termination to take effect not sooner than sixty (60) days
after the date of such delivery or mailing; provided, that the Fund may at any
time by action of its Board, (i) substitute another bank or trust company for
the Custodian by giving notice as described above to the Custodian, or (ii)
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by the Federal Deposit Insurance
Corporation or by the Banking Commissioner of The Commonwealth of Massachusetts
or upon the happening of a like event at the direction of an appropriate
regulatory agency or court of competent jurisdiction. Upon termination of the
Agreement, the Fund shall pay to the Custodian such compensation as may be due
as of the date of such termination and shall likewise reimburse the Custodian
for its costs, expenses and disbursements.
Unless the holders of a majority of the outstanding Shares of the Fund vote to
have the securities, funds and other properties held hereunder delivered and
paid over to some other bank or trust company, specified in the vote, having not
less than $2,000,000 of aggregate capital, surplus and undivided profits, as
shown by its last published report, and meeting such other qualifications for
custodians set forth in the Investment Company Act of 1940, the Board shall,
forthwith, upon giving or receiving notice of termination of this Agreement,
appoint as successor custodian, a bank or trust company having such
qualifications. The Bank, as Custodian, Agent or otherwise, shall, upon
termination of the Agreement, deliver to such successor custodian, all
securities then held hereunder and all funds or other properties of the Fund
deposited with or held by the Bank hereunder and all books of account and
records kept by the Bank pursuant to this Agreement, and all documents held by
the Bank relative thereto. In the event that no such vote has been adopted by
the shareholders and that no written order designating a successor custodian
shall have been delivered to the Bank on or before the date when such
termination shall become effective, then the Bank shall not deliver the
securities, funds and other properties of the Fund to the Fund but shall have
the right to deliver to a bank or trust company doing business in Boston,
Massachusetts of its own selection, having an aggregate capital, surplus and
undivided profits, as shown by its last published report, of not less than
$2,000,000, all funds, securities and properties of the Fund held by or
deposited with the Bank, and all books of account and records kept by the Bank
pursuant to this Agreement, and all documents held by the Bank relative thereto.
Thereafter such bank or trust company shall be the successor of the Custodian
under this Agreement.
29
<PAGE>
12. Interpretive and Additional Provisions
In connection with the operation of this Agreement, the Custodian and the Fund
may from time to time agree on such provisions interpretive of or in addition to
the provisions of this Agreement as may in their joint opinion be consistent
with the general tenor of this Agreement. Any such interpretive or additional
provisions shall be in a writing signed by both parties and shall be annexed
hereto, provided that no such interpretive or additional provisions shall
contravene any applicable federal or state regulations or any provision of the
governing instruments of the Fund. No interpretive or additional provisions made
as provided in the preceding sentence shall be deemed to be an amendment of this
Agreement.
13. Certification as to Authorized Officers
The Secretary of the Fund shall at all times maintain on file with the Bank his
certification to the Bank, in such form as may be acceptable to the Bank, of the
names and signatures of the authorized officers of each fund, it being
understood that upon the occurence of any change in the information set forth in
the most recent certification on file (including without limitation any person
named in the most recent certification who has ceased to hold the office
designated therein), the Secretary of the Fund shall sign a new or amended
certification setting forth the change and the new, additional or ommitted names
or signatures. The Bank shall be entitled to rely and act upon any officers
named in the most recent certification.
14. Notices
Notices and other writings delivered or mailed postage prepaid to the Fund
addressed to Susan S. Newton, John Hancock Advisers, Inc., 101 Huntington
Avenue, Boston, Massachusetts 02199, or to such other address as the Fund may
have designated to the Bank, in writing, or to Investors Bank & Trust Company,
200 Clarendon Street, Boston, Massachusetts 02116, with a copy to its General
Counsel at the same address, or such other address as the Custodian may
designate to the Fund in writing, shall be deemed to have been properly
delivered or given hereunder to the respective addressees.
15. Massachusetts Law to Apply; Limitations on Liability
This Agreement shall be construed and the provisions thereof interpreted under
and in accordance with the laws of The Commonwealth of Massachusetts.
If the Fund is a Massachusetts business trust, the Custodian expressly
acknowledges the provision in the Fund's declaration of trust limiting the
personal liability of the trustees and shareholders of the Fund; and the
Custodian agrees that it shall have recourse only to the assets of the Fund for
the payment of claims or obligations as between the Custodian and the Fund
arising out of this Agreement, and the Custodian
30
<PAGE>
shall not seek satisfaction of any such claim or obligation from the trustees or
shareholders of the Fund. Each Fund, and each series or portfolio of a Fund,
shall be liable only for its own obligations to the Custodian under this
Agreement and shall not be jointly or severally liable for the obligations of
any other Fund, series or portfolio hereunder.
16. Adoption of the Agreement by the Fund
The Fund represents that its Board has approved this Agreement and has duly
authorized the Fund to adopt this Agreement. This Agreement shall be deemed to
supersede and terminate, as of the date first written above, all prior
agreements between the Fund and the Bank relating to the custody of the Fund's
assets.
In Witness Whereof, the parties hereto have caused this agreement to be executed
in duplicate as of the date first written above by their respective officers
thereunto duly authorized.
John Hancock Funds
By: /s/ Osbert Hood
---------------
Osbert Hood
Senior Vice President and Chief Financial Officer
Attest:
Investors Bank & Trust Company
By: /s/ Robert D. Mancuso
---------------------
Name: Robert D. Mancuso
Title: Senior Vice President
Attest:
31
<PAGE>
Appendix B
Additional Information Relating to Mandatory Securities Depositories
The Foreign Custody Manager shall furnish annually to the Board such
information as may be reasonably available relating to the proposed
"safeharbor" criteria with respect to Mandatory Securities Depositories
as set forth below:
(a) whether an Eligible Foreign Custodian or a U.S. bank holding
assets at the depository undertakes to adhere to the rules, practices
and procedures of the depository;
(b) whether a regulatory authority with oversight responsibility for
the depository has issued a public notice that the depository is not in
compliance with any material capital, solvency, insurance, or other
similar financial strength requirements imposed by such authority, or,
in the case of such a notice having been issued, that such notice has
been withdrawn or the remedy of such noncompliance has been publicly
announced by the depository;
(c) whether a regulatory authority with oversight responsibility over
the depository has issued a public notice that the depository is not in
compliance with any material internal controls requirement imposed by
such authority, or, in the case of such notice having been issued, that
such notice has been withdrawn or the remedy of such noncompliance has
been publicly announced by the depository;
(d) whether the depository maintains the assets of the Fund's depositor
under no less favorable safekeeping conditions than those that apply
generally to depositors;
(e) whether the depository maintains records that segregate the
depository's own assets from the assets of depositors;
(f) whether the depository maintains records that identify the assets
of each of its depositors;
(g) whether the depository provides periodic reports to its depositors
with respect to the safekeeping of assets maintained by the depository,
including, but not limited to, notification of any transfer to or from
a depositor's account; and
(h) whether the depository is subject to periodic review, such as
audits by independent accountants or inspections by regulatory
authorities, and
s:\agrcont\agreement\custodia\ibt amended with delegation
B-1
December 20, 1999
John Hancock Investment Trust III
101 Huntington Avenue
Boston, MA 02199
RE: John Hancock Investment Trust III (the "Trust")
John Hancock Global Fund
John Hancock Large Cap Growth Fund
John Hancock International Fund
John Hancock Mid Cap Growth Fund (the "Funds")
File Nos. 33-4559; 811-4630 (0000791271)
Ladies and Gentlemen:
In connection with the filing of Post Effective Amendment No. 38 under the
Securities Act of 1933, as amended, and Amendment No. 39 under the Investment
Company Act of 1940, as amended, for John Hancock Investment Trust III it is the
opinion of the undersigned that the Trust's shares when sold will be legally
issued, fully paid and nonassessable.
In connection with this opinion it should be noted that each Fund is an entity
of the type generally known as a "Massachusetts business trust." The Trust has
been duly organized and is validly existing under the laws of the Commonwealth
of Massachusetts. Under Massachusetts law, shareholders of a Massachusetts
business trust may be held personally liable for the obligations of the Trust.
However, the Trust's Declaration of Trust disclaims shareholder liability for
obligations of the Trust and indemnifies the shareholders of a Fund, with this
indemnification to be paid solely out of the assets of that Fund. Therefore, the
shareholder's risk is limited to circumstances in which the assets of a Fund are
insufficient to meet the obligations asserted against that Fund's assets.
Sincerely,
/s/Avery Maher
--------------
Avery Maher
Second Vice President
JOHN HANCOCK INVESTMENT TRUST III
JOHN HANCOCK GLOBAL FUND
Distribution Plan
Class C Shares
March 1, 1999
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 Global 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 Fund 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.
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.
<PAGE>
Article III. Maximum Expenditures
The expenditures to be made by the Fund pursuant to this Plan, and the
basis upon which such expenditures will be made, shall be determined by the
Fund, and in no event shall such expenditures exceed 1.00% of the average daily
net asset value of the Class 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.
Such 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 as contemplated hereunder, in any fiscal year, JH Funds
shall be entitled to carry forward such 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 between them, dated July 1, 1996 as from time to time continued and
amended (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").
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.
<PAGE>
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 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 VI.
Article XII. Limitation of Liability
The names "John Hancock Investment Trust III" and "John Hancock Global
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 March, 1999 in Boston, Massachusetts.
JOHN HANCOCK INVESTMENT TRUST III --
JOHN HANCOCK GLOBAL FUND
By: /s/Anne C. Hodsdon
----------------------
President
JOHN HANCOCK FUNDS, INC.
By: /s/ James V. Bowhers
------------------------
President
s:\funds\invtriii\global\12b1planc.doc
