As filed with the Securities and Exchange Commission on August 31, 1995.
Registration No. 33-5186
Registration No. 811-4651
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 22 [X]
and/or
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 22 [X]
(Check appropriate box or boxes.)
John Hancock Strategic Series
(Exact Name of Registrant as Specified in Charter)
101 Huntington Avenue
Boston, Massachusetts 02199
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code
(617) 375-1500
THOMAS H. DROHAN
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and Address of Agent for Service)
------------------
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on September 1, 1995 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
------------------
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
registered an indefinite number of its shares of securities under the
Securities Act of 1933. The Registrant filed the notice required by Rule 24f-2
for its most recent fiscal year on or about July 28, 1995.
===============================================================================
<PAGE>
JOHN HANCOCK STRATEGIC SERIES
JOHN HANCOCK STRATEGIC INCOME FUND
JOHN HANCOCK UTILITIES FUND
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND
CROSS REFERENCE SHEET
Pursuant to Rule 495(a) under the Securities Act of 1933
Item Number Statement of Additional
Form N-1A Part A Prospectus Caption Information Caption
1 Front Cover Page *
2 Expense Information; *
The Fund's Expenses;
Share Price;
Additional Services and Programs
3 The Fund's Financial Highlights; *
Performance
4 Investment Objective and Policies; *
Organization and Management of
the Fund
5 Organization and Management of the *
Fund; The Fund's Expenses; Back
Cover Page
6 Organization and Management of the *
Fund; Dividends and Taxes; How to
Buy Shares; How to Redeem Shares;
Additional Services and Programs
7 How to Buy Shares; Share Price; *
Additional Services and Programs;
Alternative Purchase Arrangements;
The Fund's Expenses; Back cover
page
8 How to Redeem Shares *
9 Not Applicable *
<PAGE>
Item Number Statement of Additional
Form N-1A Part B Prospectus Caption Information Caption
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the
Fund
13 * Investment Objective
and Policies;
Investment
Restrictions
14 * Those Responsible for
Management
15 * Those Responsible for
Management
16 * Investment Advisory
and Other Services;
Distribution Contract;
Transfer Agent
Services; Custody of
Portfolio; Independent
Auditors
17 * Brokerage Allocation
18 * Description of the
Fund's Shares
19 * Net Asset Value;
Additional Services
and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of
Performance
23 * Not Applicable
<PAGE>
John Hancock
Strategic Income Fund
Class A and B Shares
Prospectus
September 1, 1995
TABLE OF CONTENTS
Page
-------
Expense Information 2
The Fund's Financial Highlights 3
Investment Objective and Policies 5
Organization and Management of the Fund 11
Alternative Purchase Arrangements 12
The Fund's Expenses 14
Dividends and Taxes 14
Performance 15
How to Buy Shares 16
Share Price 17
How to Redeem Shares 22
Additional Services and Programs 24
Appendix 28
This Prospectus sets forth information about John Hancock Strategic Income
Fund (the "Fund"), a diversified series of John Hancock Strategic Series (the
"Trust"), that you should know before investing. Please read and retain it
for future reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the "SEC"). You can obtain a copy of the Fund's
Statement of Additional Information, dated September 1, 1995, free of charge
by writing or telephoning: John Hancock Investor Services Corporation, P.O.
Box 9116, Boston, Massachusetts 02205-9116, 1-800-225-5291, (1-800-554-6713
TDD).
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THE FUND MAY INVEST UP TO 100% OF ITS ASSETS IN LOWER RATED BONDS, COMMONLY
KNOWN AS "JUNK BONDS," THAT ENTAIL GREATER RISKS, INCLUDING DEFAULT RISKS,
THAN THOSE FOUND IN HIGHER RATED SECURITIES. INVESTORS SHOULD CAREFULLY
CONSIDER THESE RISKS BEFORE INVESTING. SEE "INVESTMENT OBJECTIVE AND
POLICIES," P. 5 AND THE APPENDIX.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various fees and expenses that you will bear, directly or indirectly, when
you purchase Fund shares. The operating expenses included in the table and
the hypothetical example below are based on fees and expenses of the Fund's
Class A and Class B shares for the fiscal year ended May 31, 1995, adjusted
to reflect current fees and expenses. Actual fees and expenses in the future
may be greater or less than those indicated.
Class A Class B
Shares Shares
------- --------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as
a percentage of offering price) 4.50%* None
Maximum sales charge imposed on reinvested
dividends None None
Maximum deferred sales charge None* 5.00%
Redemption fee+ None None
Exchange fee None None
Annual Fund Operating Expenses (as a
percentage of average net assets after
expense limitation)
Management fee 0.46% 0.46%
12b-1 fee** 0.30% 1.00%
Other expenses 0.32% 0.29%
Total Fund operating expenses 1.08% 1.75%
===== ======
*No sales charge is payable at the time of purchase on investments of $1
million or more, but a contingent deferred sales charge may be imposed on
these investments, as described below under the caption "Share Price," in the
event of certain redemption transactions within one year of purchase.
**The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average net assets, and the remaining portion will be
used to cover distribution expenses. See "The Fund's Expenses."
+Redemption by wire fee (currently $4.00) not included.
Example: 1 3 5 10
Year Years Years Years
You would pay the following
expenses (excluding foreign taxes)
for the indicated
period of years on a hypothetical
$1,000 investment, assuming 5%
annual return:
Class A shares $56 $78 $102 $171
Class B shares
--Assuming complete redemption
at end of period $68 $85 $115 $188
--Assuming no redemption $18 $55 $ 95 $188
(This example should not be
considered a representation
of past or future expenses.
Actual expenses may be
greater or less than those shown.)
The Fund's payment of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the
maximum front-end sales charge permitted under the National Association of
Securities Dealers Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement
of Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following table of Financial Highlights has been audited by Price
Waterhouse LLP, the Fund's independent accountants, whose unqualified report
is included in the Fund's 1995 Annual Report and the Fund's Statement of
Additional Information. Further information about the Fund's performance is
contained in the Annual Report to shareholders, which may be obtained free of
charge by writing or telephoning John Hancock Investor Services Corporation
("Investor Services") at the address or telephone number listed on the front
page of this Prospectus.
Selected data for each class of shares outstanding throughout each period is
as follows:
<TABLE>
<CAPTION>
For the Period
August 18, 1986
Year Ended May 31, (Commencement
---------------------------------------------------------------------------------- of Operations)
CLASS A 1995 1994 1993 1992 1991 1990 1989 1988 to May 31, 1987
------- ------- ------- ------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning
of Period $7.17 $7.55 $7.78 $7.20 $7.33 $8.98 $9.24 $9.71 $10.00
----- ----- ----- ----- ----- ----- ----- ----- ------------
Net Investment Income 0.64 0.68 0.71 0.80 0.93 1.04* 1.12* 1.13* .79*
Net Realized and
Unrealized Gain (Loss)
on Investments, Foreign
Currency Transactions,
and Financial Futures
Contracts (0.02) (0.33) (0.22) 0.52 (0.13) (1.65) (0.26) ( .47) ( .29)
----- ----- ----- ----- ----- ----- ----- ----- ------------
Total from Investment
Operations 0.62 0.35 0.49 1.32 0.80 (0.61) 0.86 .66 .50
----- ----- ----- ----- ----- ----- ----- ----- ------------
Less Distributions:
Dividends from Net
Investment Income (0.55) (0.58)+ (0.72) (0.74)+ (0.93) (1.04) (1.12) (1.13) ( .79)
Distributions in Excess of
Net Investment Income -- (0.05)
Distributions from Capital
Paid-in (0.09) (0.10)
----- -----
Total Distributions (0.64) (0.73) (0.72) (0.74) (0.93) (1.04) (1.12) (1.13) ( .79)
----- ----- ----- ----- ----- ----- ----- ----- ------------
Net Asset Value, End of
Period $7.15 $7.17 $7.55 $7.78 $7.20 $7.33 $8.98 $9.24 $ 9.71
===== ===== ===== ===== ===== ===== ===== ===== ============
Total Investment Return at
Net Asset Value 9.33% 4.54% 6.81% 19.92% 12.31% (7.36%) 9.72% 6.89% 4.81%**
----- ----- ----- ----- ----- ----- ----- ----- ------------
Ratios and Supplemental Data
Net Assets, End of Period
(000's omitted) $327,876 $335,261 $262,137 $153,568 $79,272 $80,890 $95,430 $67,140 $30,260
Ratio of Expenses to
Average Net Assets 1.09% 1.32% 1.58% 1.69% 1.75% 1.53%* 1.33%* 1.09%* 1.00%*+++
Ratio of Net Investment
Income to Average Net
Assets 9.24% 8.71% 9.63% 10.64% 13.46% 12.60%* 12.28%* 12.07%* 10.87%*+++
Portfolio Turnover Rate 55% 91% 97% 80% 60% 81% 125% 67% 207%
</TABLE>
3
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS (continued)
For the Period
October 4, 1993
(Commencement of
Year Ended Operations) to
May 31, 1995 May 31, 1994
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 7.17 $ 7.58(a)
---------- --------------
Net Investment Income 0.60(b) 0.40
Net Realized and Unrealized Loss
on Investments, Foreign Currency
Transactions and
Financial Futures Contracts (0.02) (0.41)
---------- --------------
Total from Investment Operations 0.58 (0.01)
---------- --------------
Less Distributions:
Dividends from Net Investment Income (0.52) (0.32)
Distributions in Excess of Net
Investment Income -- (0.03)
Distributions from Capital Paid-in (0.08) (0.05)
Total Distributions (0.60) (0.40)
---------- --------------
Net Asset Value, End of Period $ 7.15 $ 7.17
Total Investment Return at Net Asset Value 8.58% (0.22%)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $134,527 $77,691
Ratio of Expenses to Average Net Assets 1.76% 1.91%+++
Ratio of Net Investment Income to
Average Net Assets 8.55% 8.12%+++
Portfolio Turnover Rate 55% 91%
* Reflects expense limitations in effect during the years indicated. As a
result of these limitations, the Fund's expenses for the years ended May 31,
1990, 1989, 1988 and 1987 reflect reductions of $0.0073, $0.0128, $0.0373
and $0.0856, respectively. Absent from the limitations, for the years ended
May 31, 1990, 1989, 1988 and 1987, the ratio of expenses to average net
assets would have been 1.62%, 1.47%, 1.49% and 2.17%, respectively, and the
ratio of net investment income to average net assets would have been 12.51%,
12.14%, 11.67% and 9.70%, respectively.
+ The dividend policy of the Fund was changed, effective August 1, 1991, from
one which utilized daily dividend declarations to one which declares
dividends monthly. Additionally, the dividend policy of the Fund was
changed, effective October 1, 1993, from one which declared dividends
monthly to daily dividend declarations.
+++ On an annualized basis.
** Total return is not annualized.
(a) Initial price at commencement of operations.
(b) On average month end shares outstanding.
4
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is a high level of current income. The Fund
seeks to achieve this objective by investing primarily in: (i) foreign
government and corporate debt securities, (ii) U.S. Government securities and
(iii) lower-rated high yield high risk debt securities of U.S. issuers. The
Fund may invest up to 10% of its net assets in common stocks and similar
equity securities of U.S. and foreign companies. There is no fixed allocation
among the types of securities listed above, and there can be no assurance
that the Fund will achieve its investment objective.
The Fund may invest in all types of debt securities. The debt securities in
which the Fund may invest include bonds, debentures, notes (including
variable and floating rate instruments), preferred and preference stock, zero
coupon bonds, payment-in-kind securities, increasing rate note securities,
participation interests, multiple class pass through securities,
collateralized mortgage obligations, stripped debt securities, other
mortgage-backed securities, asset-backed securities and other derivative debt
securities. Under normal circumstances, the Fund's assets will be invested in
each of the foregoing three sectors. However, from time to time the Fund may
invest up to 100% of its total assets in any one sector.
Lower Rated Securities. The higher yields and high income sought by the Fund
are generally obtainable from high yield high risk securities in the lower
rating categories of the established rating services. These securities are
rated Baa or lower by Moody's Investors Service, Inc. ("Moody's") or BBB or
lower by Standard & Poor's Ratings Group ("Standard & Poor's"). The Fund may
invest in securities rated as low as Ca by Moody's or CC by Standard &
Poor's, which may indicate that the obligations are speculative to a high
degree and in default. Lower rated securities are generally referred to as
junk bonds. See the Appendix attached to this Prospectus for a description of
the characteristics of, and distribution of the Fund's investments across,
the various ratings categories. The Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the minimum ratings noted above. The credit ratings of Moody's and
Standard & Poor's (the "Rating Agencies"), such as those ratings described in
this Prospectus, may not be changed by the Rating Agencies in a timely
fashion to reflect subsequent economic events. The credit ratings of
securities do not evaluate market risk. The Fund may also invest in unrated
securities which, in the opinion of the Fund's investment adviser, John
Hancock Advisers, Inc. (the "Adviser"), offer comparable yields and risks to
the rated securities in which the Fund may invest.
Debt securities that are 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 market price and liquidity of
lower rated fixed income securities generally respond to short-term corporate
and market developments to a greater extent than the price and liquidity of
higher rated securities, because these developments are perceived to have a
more direct relationship to the ability of an issuer of lower rated
securities to meet its ongoing debt obligations. The Fund's investments in
debt securities may include increasing rate note securities, zero coupon
bonds and payment-in-kind bonds. The
[callout]
The investment objective of the Fund is high current income.
5
<PAGE>
market prices of zero coupon and payment-in-kind bonds are affected to a
greater extent by interest rate changes, and thereby tend to be more volatile
than securities which pay interest periodically and in cash. Increasing rate
note securities are typically refinanced by the issuers within a short period
of time.
Reduced volume and liquidity in the high yield high risk bond market or the
reduced availability of market quotations may make it more difficult to
dispose of the Fund's investments in high yield high risk securities and to
value accurately these assets. The reduced availability of reliable,
objective data may increase the Fund's reliance on management's judgment in
valuing high yield high risk bonds. In addition, the Fund's investments in
high yield high risk securities may be susceptible to adverse publicity and
investor perceptions, whether or not justified by fundamental factors. The
Fund's investments, and consequently its net asset value, will be subject to
the market fluctuations and risk inherent in all securities.
Foreign Securities. The Fund may invest in debt obligations (which may be
denominated in the U.S. dollar or in non-U.S. currencies) issued or
guaranteed by foreign corporations, certain supranational entities (such as
the World Bank), and foreign governments (including political subdivisions
having taxing authority) or their agencies or instrumentalities. The Fund may
also invest in debt securities that are issued by U.S. corporations and
denominated in non-U.S. currencies. No more than 25% of the Fund's total
assets, at the time of purchase, will be invested in government securities of
any one foreign country.
The Fund may also invest in American Depository Receipts (ADRs). ADRs
(sponsored and unsponsored) are receipts typically issued by an American bank
or trust company which evidence ownership of underlying securities issued by
a foreign corporation, and are designed for trading in United States
securities markets. Issuers of unsponsored ADRs are not contractually
obligated to disclose material information in the United States, and,
therefore, there may not be a correlation between that information and the
market value of an unsponsored ADR.
Foreign Currency Transactions. The Fund may enter into forward currency
exchange contracts to hedge against fluctuations in currency exchange rates,
to enhance return or as a substitute for the purchase or sale of currency.
For example, if a portfolio security with an attractive rate of return is
denominated in a currency (including the U.S. dollar) that is not expected to
perform well, a Fund may use forward contracts to offset its exposure to the
non-performing currency while retaining the security. A forward contract
involves an obligation to purchase or sell a specific currency at a future
date at the contract price. There is no limitation on the value of a Fund's
assets that may be committed to forward contracts or on the term of a forward
contract. Forward contracts are subject to the following risks: (1) that a
Fund's performance will be adversely affected by unexpected changes in
currency exchange rates; (2) that the counterparty to a forward contract will
fail to perform its contractual obligations; (3) that a Fund will be unable
to terminate or dispose of its position in a forward contract; and (4) with
respect to hedging transactions in forward contracts, that there will be
imperfect correlation between price changes in the forward contract and price
changes in the hedged portfolio assets.
[callout]
The Fund may invest in securities issued by U.S. and foreign corporations and
governments which may be rated in any rating category.
6
<PAGE>
U.S. Government Securities. Certain U.S. Government securities, including
U.S. Treasury bills, notes and bonds, and Government National Mortgage
Association mortgage-backed 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 instrumentalities such
as the Federal Home Loan Mortgage Corporation ("Freddie Macs"), the Federal
National Mortgage Association ("Fannie Maes") and the Student Loan Marketing
Association ("Sallie Maes"). No assurance can be given that the U.S.
Government will provide financial support to these Federal agencies,
authorities, instrumentalities and government sponsored enterprises in the
future.
Mortgage-Backed Securities. Ginnie Maes, Freddie Macs and Fannie Maes are
mortgage-backed securities which provide monthly payments that 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 also invest, are securities issued by a U.S. Government
instrumentality that are collateralized by a portfolio of mortgages or
mortgage-backed securities. During periods of declining interest rates,
principal and interest on mortgage-backed securities may be prepaid at
faster-than-expected rates. The proceeds of these prepayments typically can
only be invested in lower-yielding securities. Therefore, mortgage-backed
securities may be less effective at maintaining yields during periods of
declining interest rates than traditional debt securities of similar
maturity.
Risks of Mortgage-Backed Securities. Different types of mortgage-backed
securities are subject to different combinations of prepayment, extension,
interest rate and/or other market risks. Conventional mortgage pass-through
securities and sequential pay CMOs are subject to all of these risks, but are
typically not leveraged. PACs, TACs and other senior classes of sequential
and parallel pay CMOs involve less exposure to prepayment, extension and
interest rate risk than other mortgage-backed securities, provided that
prepayment rates remain within expected prepayment ranges or "collars."
The value of mortgage-backed securities may also change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage-backed securities market as a whole.
Non-government mortgage-backed securities may offer higher yields than those
issued by government entities, but also may be subject to greater price
changes than government issues.
Structured Securities. The Fund may invest in structured notes, bonds or
debentures, the value of the principal of and/or interest on which is to be
determined by reference to changes in the value of specific currencies,
interest rates, commodities, indices or other financial indicators (the
"Reference") or the relative change in two or more References. The interest
rate or the principal amount payable upon maturity or redemption may be
increased or decreased depending upon changes in the applicable Reference.
The terms of the structured securities may provide that in certain
circumstances no principal is due at maturity and, therefore, may result in
the loss of the
[callouts]
The Fund may invest in Ginnie Mae mortgage-backed certificates and other U.S.
Government securities, including Fannie Maes and Freddie Macs, and in REMICs
and CMOs, representing ownership interests in mortgage pools.
The Fund may invest in structured debt securities indexed to various
financial assets or rates.
7
<PAGE>
Fund's investment. Structured securities may be positively or negatively
indexed, so that appreciation of the Reference may produce an increase or
decrease in the interest rate or value of the security at maturity. In
addition, the change in interest rate or the value of the security at
maturity may be a multiple of the change in the value of the Reference.
Consequently, structured securities entail a greater degree of market risk
than other types of debt securities. Structured securities may also be more
volatile, less liquid and more difficult to price accurately than less
complex fixed income investments.
Participation Interests. Participation interests, which may take the form of
interests in, or assignments of certain loans, are acquired from banks who
have made these loans or are members of a lending syndicate. The Fund's
investments in participation interests are subject to its 15% limitation on
investments in illiquid securities. The Fund may purchase only those
participation interests that mature in 60 days or less, or, if maturing in
more than 60 days, that have a floating rate that is automatically adjusted
at least once every 60 days.
Restricted Securities. The Fund may purchase restricted securities, including
those eligible for resale to "qualified institutional buyers" pursuant to
Rule 144A under the Securities Act of 1933 (the "Securities Act"). The
Trustees will monitor the Fund's investments in these securities, focusing on
certain factors, including valuation, liquidity and availability of
information. Purchases of other restricted securities are subject to an
investment restriction limiting all the Fund's illiquid securities to not
more than 15% of its net assets.
Rights and Warrants. The Fund may invest up to 5% of its total assets (at the
time of purchase) in rights and warrants. However, this limitation does not
apply to those warrants or rights (i) acquired as part of a unit or attached
to other securities purchased by the Fund or (ii) acquired as part of a
distribution from the issuer.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements.
The Fund may reinvest any cash collateral in short-term securities. When the
Fund lends portfolio securities, there is a risk that the borrower may fail
to return the 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 in excess of 33-1/3% of its total assets.
Repurchase Agreements, Forward Commitments and When-Issued Securities. The
Fund may enter into repurchase agreements and may purchase securities on a
forward commitment or when-issued basis. In a repurchase agreement, the Fund
buys a security subject to the right and obligation to sell it back to the
issuer at a higher price. These transactions must be fully collateralized at
all times, but involve some credit risk to the Fund if the other party
defaults on its obligations and the Fund is delayed in or prevented from
liquidating the collateral. The Fund will segregate in a separate account
cash or liquid, high grade debt securities equal in value to its forward
commitments and when-issued securities. Purchasing securities for future
delivery or on a when-issued basis may increase the Fund's overall investment
exposure and involves a risk of loss if the value of the securities declines
before the settlement date.
[callout]
The Fund may employ certain investment strategies to help achieve its
investment objectives.
8
<PAGE>
Borrowing. The Fund may also leverage its purchases of portfolio securities
by borrowing within prescribed limits. Borrowing to purchase portfolio
securities which may be considered to be a speculative investment method
shall not be in an amount exceeding 33-1/3% of the Fund's total assets.
Borrowing involves risks and costs that may not be present in a fund that
does not borrow, including the possible reduction of income by interest
payments and increased fluctuation in the Fund's net asset value per share.
Futures and Options Transactions. The Fund may engage in transactions in
futures contracts for hedging and speculative purposes. All of the Fund's
futures contracts will be traded on a U.S. or foreign commodity exchange or
board of trade. The Fund will not engage in a futures or options transaction
for speculative purposes if, immediately thereafter, the sum of initial
margin deposits and premiums required to establish these speculative
positions in futures contracts and options on futures exceeds 5% of the
Fund's net assets. The potential loss from futures transactions is
potentially unlimited and may exceed the amount of the premium received.
The Fund may write listed and over-the-counter covered call options and
covered put options on debt and equity securities and foreign currency to
earn income from the premiums received. The Fund may write listed and
over-the-counter covered call and put options on up to 100% of its net
assets. In addition, the Fund may purchase listed and over-the-counter call
and put options on securities and currency with an aggregate value not
exceeding 5% of the Fund's total assets. The SEC considers over-the-counter
options to be illiquid, except under prescribed conditions which are
discussed in detail in the Statement of Additional Information.
The Fund's ability to use futures contracts and options to hedge or earn
income successfully will depend on the Adviser's ability to predict
accurately the future direction of interest rate changes, currency rate
fluctuations and other market factors. Successful hedging also depends on a
strong correlation between the market for the underlying security or currency
and the futures or options market for it. This correlation is unlikely to be
perfect due to differences in respective market demand for futures and
options contracts and the hedged instrument and technical differences
relating to creditworthiness of issuers, maturities and interest rate levels.
The degree of imperfection in this correlation is increased in the case of
lower rated debt securities. There is no assurance that a liquid market for
futures and options will always exist. In addition, the Fund could be
prevented from opening or realizing the benefits of closing out a futures or
options position because of position limits or limits on daily price
fluctuations imposed by an exchange.
Defensive Investments. If the Adviser believes that the Fund should
temporarily assume a defensive investment posture due to unfavorable
investment conditions, the Fund may hold cash or invest all or part of its
assets in short-term instruments. These short-term instruments consist of:
corporate commercial paper and other short-term commercial obligations, that
are rated, or issued by companies with similar securities outstanding that
are rated, at least A-3 by Standard & Poor's or P-3 by Moody's, or, if
unrated considered by the Adviser to be of comparable quality; obligations
(including certificates of deposit, time deposits, demand deposits and
bankers' acceptances) of banks with securities outstanding; U.S. Government
Securities;
9
<PAGE>
and repurchase agreements. The Fund's temporary defensive investments may
also include: debt obligations of U.S. companies rated at least BBB or Baa by
Standard & Poor's or Moody's, respectively, or, if unrated, of comparable
quality in the opinion of the Adviser; commercial paper and corporate debt
obligations not satisfying the above credit standards if they are (a) subject
to demand features or puts or (b) guaranteed as to principal and interest by
a domestic or foreign bank having total assets in excess of $1 billion, by a
corporation whose commercial paper may be purchased by the Fund, or by a
foreign government having an existing debt security rated at least BBB or Baa
by Standard & Poor's or Moody's, respectively; and other short-term
investments which the Fund's Board of Trustees determines 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 Board.
Global Risks. Investments in foreign securities may involve certain risks not
present in domestic investments due to exchange controls, less publicly
available information, more volatile or less liquid securities markets, and
the possibility of expropriation, confiscatory taxation or political,
economic or social instability. There may be difficulty in enforcing legal
rights outside the United States. Some foreign companies are not subject to
the same uniform financial reporting requirements, accounting standards and
government supervision as domestic companies, and foreign exchange markets
are regulated differently from the U.S. stock market. Security trading
practices abroad may offer less protection to investors such as the Fund. In
addition, foreign securities may be denominated in the currency of the
country in which the issuer is located. Consequently, changes in the foreign
exchange rate will affect the value of the Fund's shares and dividends.
Finally, you should be aware that the expense ratios of international funds
generally are higher than those of domestic funds, because there are greater
costs associated with maintaining custody of foreign securities and the
increased research necessary for international investing results in a higher
advisory fee.
These risks may be intensified in the case of investments in emerging markets
or countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America
and Africa. Security prices in these markets can be significantly more
volatile than in more developed countries, reflecting the greater
uncertainties of investing in less established markets and economies.
Political, legal and economic structures in many of these emerging market
countries may be undergoing significant evolution and rapid development, and
they may lack the social, political, legal and economic stability
characteristic of more developed countries. Emerging market countries may
have failed in the past to recognize private property rights. They may have
relatively unstable governments, present the risk of nationalization of
businesses, restrictions on foreign ownership, or prohibitions on
repatriation of assets, and may have less protection of property rights than
more developed countries. Their economies may be predominately based on only
a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. 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
10
<PAGE>
required to establish special custodial or other arrangements before making
certain investments in these countries. Securities of issuers located in
these countries may have limited marketability and may be subject to more
abrupt or erratic price movements.
Investment Restrictions. The Fund has adopted certain investment restrictions
which are detailed in the Statement of Additional Information, where they are
classified as fundamental or nonfundamental. The Fund's investment objective
and those restrictions designated as fundamental may not be changed without
shareholder approval. All other investment policies and restrictions are
nonfundamental and can be changed by a vote of the Trustees without
shareholder approval. The Fund's policies and restrictions may help to reduce
investment risk by limiting the types of securities in which the Fund may
invest and by limiting the extent to which the Fund may utilize certain
investment techniques and concentrate its investments in particular
securities, issues and industries. The Fund's portfolio turnover rates for
recent years are shown in the section "The Fund's Financial Highlights."
When choosing brokerage firms to carry out the Fund's transactions, the
Adviser gives primary consideration to execution at the most favorable
prices, taking into account the broker's professional ability and quality of
service. Consideration may also be given to the broker's sales of Fund
shares. Pursuant to procedures established by the Trustees, the Adviser may
place securities transactions with brokers affiliated with the Adviser. These
brokers include Tucker Anthony Incorporated, John Hancock Distributors, Inc.
and Sutro & Company, Inc., which are indirectly owned by John Hancock Mutual
Life Insurance Company (the "Life Insurance"), which in turn indirectly owns
the Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a separate, diversified series of the Trust, an open-end
management investment company organized as a Massachusetts business trust in
1986. The Trust's Declaration of Trust permits the Trustees to create and
classify shares of beneficial interest into separate series of the Trust with
different investment objectives. The Trustees may also classify or reclassify
any series into one or more classes. Accordingly, the Trustees have
authorized the issuance of two classes of the Fund, designated Class A and
Class B. The shares of each class represent an interest in the same portfolio
of investments of the Fund and have equal rights as to voting, redemption,
dividends and liquidation. However, each class of shares bears different
distribution and transfer agent fees, and Class A and Class B shareholders
have exclusive voting rights with respect to their distribution plans.
The Fund is not required and does not intend to hold annual meetings of
shareholders, although special meetings may be held for such purposes as
electing or removing Trustees, changing fundamental investment restrictions
and policies or approving a management contract. The Fund, under certain
circumstances, will assist in shareholder communications with other
shareholders.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary
of the Life Company, a financial services company. The Adviser provides the
Fund, and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds,
Inc. ("John Hancock
[callouts]
The Fund follows certain policies which may help to reduce investment risk.
Brokers are chosen based on best price and execution.
The Trustees elect officers and retain the investment adviser who is
responsible for the day-to-day operations of the Fund, subject to the
Trustees' policies and supervision.
John Hancock Advisers, Inc. advises investment companies having total assets
of more than $13 billion.
11
<PAGE>
Funds") distributes shares for all of the John Hancock mutual funds through
selected broker-dealers ("Selling Brokers"). Certain Fund officers are also
officers of the Adviser and John Hancock Funds. Pursuant to an order granted
by the Securities and Exchange Commission, the Fund has adopted a deferred
compensation plan for its independent Trustees, which allows Trustees' fees
to be invested by the Fund in other John Hancock funds.
Frederick L. Cavanaugh, Jr. is vice president and portfolio manager of the
Fund. The Fund, formerly called John Hancock High Income Fund--Fixed Income
Portfolio, began operation in 1986 and has been managed by Mr. Cavanaugh
since 1988.
Mr. Cavanaugh's areas of expertise include the high-yield bond market and
international economies. Prior to joining the Advisers, Mr. Cavanaugh
accumulated 13 years of investment experience with Dewey Square Investors,
the Bank of Boston and the J.T. Thomson Rivert Corporation.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities
trading by personnel of the Adviser and its affiliates. Some of these
restrictions are: pre-clearance for all personal trades and a ban on the
purchase of initial public offerings, as well as contributions to specified
charities of profits on securities held for less than 91 days. These
restrictions are a continuation of the basic principle that the interests of
the Fund and its shareholders come first.
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Fund at a price equal to their net asset value
per share plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge
Alternative--Class A Shares") or on a contingent deferred basis (see
"Contingent Deferred Sales Charge Alternative--Class B Shares"). If you do
not specify on your account application the class of shares you are
purchasing, it will be assumed that you are investing in Class A shares.
Class A Shares. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount you purchase is $1 million or more. If
you purchase $1 million or more of Class A shares, you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.30% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price--Qualifying for a Reduced Sales Charge."
Class B Shares. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them
within six years of purchase (the "contingent deferred sales charge" or the
"CDSC"). Class B shares are subject to ongoing distribution and service fees
at a combined annual rate of up to 1.00% of the Fund's average daily net
assets attributable to the Class B shares. Investing in Class B shares
permits all of your dollars to work from the time you make your investment,
but the higher ongoing distribution fee will cause these shares to have
higher expenses than Class A shares. To the extent that any dividends are
paid by the Fund, these higher expenses will also result in lower dividends
than those paid on Class A shares.
[callouts]
An alternative purchase plan allows you to choose the method of payment that
is best for you.
Investments in Class A shares are subject to an initial sales charge.
Investments in Class B shares are subject to a contingent deferred sales
charge.
12
<PAGE>
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
Factors to Consider in Choosing an Alternative
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider
whether, during the anticipated life of your Fund investment, the CDSC and
accumulated fees on Class B shares would be less than the initial sales
charge and accumulated fees on Class A shares purchased at the same time, and
to what extent this differential would be offset by the Class A shares' lower
expenses. To help you make this determination, the table under the caption
"Expense Information" on the inside cover page of this Prospectus shows
examples of the charges applicable to each class of shares. Class A shares
will normally be more beneficial if you qualify for a reduced sales charge.
See "Share Price--Qualifying for a Reduced Sales Charge."
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent
that any dividends are paid. However, because initial sales charges are
deducted at the time of purchase, you would not have all of your funds
invested initially and, therefore, would initially own fewer shares. If you
do not qualify for reduced initial sales charges and expect to maintain your
investment for an extended period of time, you might consider purchasing
Class A shares. This is because the accumulated distribution and service
charges on Class B shares may exceed the initial sales charge and accumulated
distribution and service charges on Class A shares during the life of your
investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you
will be subject to higher distribution fees, and, for a six-year period, a
CDSC.
In the case of Class A shares, the distribution expenses that John Hancock
Funds incurs in connection with the sale of the shares will be paid from the
proceeds of the initial sales charge and the ongoing distribution and service
fees. In the case of Class B shares, the expenses will be paid from the
proceeds of the ongoing distribution and service fees, as well as from the
CDSC incurred upon redemption within six years of purchase. The purpose and
function of the Class B shares' CDSC and ongoing distribution and service
fees are the same as those of the Class A shares' initial sales charge and
ongoing distribution and service fees. Sales personnel distributing the
Fund's shares may receive different compensation for selling each class of
shares.
Dividends, if any, on Class A and Class B shares will be calculated in the
same manner, at the same time and on the same day. They will also be in the
same amount, except for differences resulting from each class bearing only
its own distribution and service fees, shareholder meeting expenses and any
incremental transfer agency costs. See "Dividends and Taxes."
[callout]
You should consider which class of shares would be more beneficial for you.
13
<PAGE>
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a fee to the
Adviser. For the 1995 fiscal year, this fee was 0.46% of the Fund's average
daily net asset value.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, the Fund will pay distribution and service
fees at an aggregate annual rate of up to 0.30% of the Class A shares'
average daily net assets and an aggregate annual rate of up to 1.00% of the
Class B shares' average daily net assets. In each case, up to 0.25% is for
service expenses and the remaining amount is for distribution expenses. The
distribution fees will be used to reimburse John Hancock Funds for its
distribution expenses including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of
John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing,
promotional and overhead expenses incurred in connection with the
distribution of Fund shares; and (iii) with respect to Class B shares only,
interest expenses on unreimbursed distribution expenses. The service fees
will be used to compensate Selling Brokers for providing personal and account
maintenance services to shareholders. In the event John Hancock Funds is not
fully reimbursed for its payments or expenses under the Class A Plan, the
expenses will not be carried beyond one year from the date they were
incurred. These unreimbursed expenses under the Class B Plan will be carried
forward together with interest. For the fiscal year ended May 31, 1995 an
aggregate of $4,200,974 of distribution expenses, or 3.93% of the average net
assets of the Class B shares of the Fund, was not reimbursed or recovered by
the John Hancock Funds through the receipt of deferred sales charges or 12b-1
fees in prior periods.
Information on the Fund's total expenses is in the Fund's Financial
Highlights section of the prospectus.
DIVIDENDS AND TAXES
Dividends from the Fund's net investment income are generally declared daily
and distributed monthly. Capital gains, if any, are generally distributed
annually. Dividends are reinvested in additional shares of your class unless
you elect the option to receive them in cash. If you elect the cash option
and the U.S. Postal Service cannot deliver your checks, your election will be
converted to the reinvestment option. Because of the higher expenses
associated with Class B shares, any dividend on these shares will be lower
than those of Class A shares. See "Share Price."
Taxation. Dividends from the Fund's net investment income, net short-term
capital gains and certain net foreign currency gains are taxable to you as
ordinary income. Dividends from the Fund's net long-term capital gains are
taxable as long-term capital gains. These dividends are taxable whether
received in cash or reinvested in additional shares. Certain dividends may be
paid in January of a given year, but they may be taxable as if received the
previous December. The Fund will send you a statement by January 31 showing
the tax status of the dividends you received for the prior year.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986,
as amended (the "Code"). As a regulated investment company, the Fund will not
be subject to Fed-
[callouts]
The Fund pays distribution and service fees for marketing and sales-related
shareholder servicing.
Dividends are generally declared daily and distributed monthly.
14
<PAGE>
eral income tax on any net investment income and net realized capital gains
that are distributed to its shareholders within the time period prescribed by
the Code. When you redeem (sell) or exchange shares, you may realize a
taxable gain or loss.
On the account application, you must certify that the social security or
other taxpayer identification number you provide is your correct number and
that you are not subject to backup withholding of Federal income tax. If you
do not provide this information or are otherwise subject to backup
withholding, the Fund may be required to withhold 31% of your dividends and
the proceeds of redemptions and exchanges.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investment in and distributions from the Fund.
Non-U.S. shareholders and tax-exempt shareholders are subject to different
tax treatment not described above. You should consult your tax adviser for
specific advice.
PERFORMANCE
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of its share price. Yield is computed by annualizing the result of
dividing the net investment income per share over a 30 day period by the
maximum offering price per share on the last day of that period. Yield is
calculated according to accounting methods that are standardized for all
stock and bond funds. Because yield accounting methods differ from the
methods used for other accounting purposes, the Fund's yield may not equal
the income paid on your shares or the income reported in the Fund's financial
statements.
Total return shows the overall dollar or percentage change in value of a
hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period
of time. Average annual total return shows the cumulative return divided over
the number of years included in the period. Because average annual total
return tends to smooth out variations in the Fund's performance, you should
recognize that it is not the same as actual year-to-year results.
Both total return and yield calculations for Class A shares generally include
the effect of paying the maximum sales charge (except as shown in "The Fund's
Financial Highlights"). Investments at lower sales charges would result in
higher performance figures. Yield and total return for the Class B shares
reflect the deduction of the applicable CDSC imposed on a redemption of
shares held for the applicable period. All calculations assume that all
dividends are reinvested at net asset value on the reinvestment dates during
the periods. Yield and total return for Class A and Class B shares will be
calculated separately, and because each class is subject to different
expenses, the total return and yield calculations may differ with respect to
each class for the same period. The relative performance of the Class A and
Class B shares will be affected by a variety of factors, including the higher
operating expenses attributable to the Class B shares, whether the Fund's
investment performance is better in the earlier or later portion of the
period measured and the level of net assets of the classes during the period.
The Fund will include the yield and total return for both Class A and Class B
shares in any advertisement or promotional materials including the Fund's
performance data. Both yield and total return are historical calculations,
and
[callout]
The Fund may advertise its yield and total return.
15
<PAGE>
are not an indication of future performance. The value of the Fund's shares,
when redeemed, may be more or less than their original cost. See "Factors to
Consider in Choosing an Alternative."
HOW TO BUY SHARES
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
The minimum initial investment is $1,000 ($250 for group investments and for retirement plans).
Complete the Account Application attached to this Prospectus. Indicate whether you are purchasing Class A
or Class B shares. If you do not specify which class of shares you are purchasing, Investor Services will
assume you are investing in Class A shares.
- -----------------------------------------------------------------------------------------------------------
<S> <C>
By Check 1. Make your check payable to John Hancock Investor Services Corporation.
2. Deliver the completed application and check to your registered representative or
Selling Broker, or mail it directly to Investor Services.
- -----------------------------------------------------------------------------------------------------------
By Wire 1. Obtain an account number by contacting your registered representative or Selling
Broker, or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Strategic Income Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered representative or Selling
Broker, or mail it directly to Investor Services.
- -----------------------------------------------------------------------------------------------------------
Monthly Automatic 1. Complete the "Automatic Investing" and "Bank Information" sections on the
Accumulation Account Privileges Application, designating a bank account from which your funds
Program (MAAP) may be drawn.
2. The amount you elect to invest will be automatically withdrawn from your bank or
credit union account.
- -----------------------------------------------------------------------------------------------------------
By Telephone 1. Complete the "Invest-By-Phone" and "Bank Information" sections on the Account
Privileges Application designating a bank account from which your funds may be
drawn. Note that in order to invest by phone, your account must be in a bank or
credit union that is a member of the Automated Clearing House system (ACH).
2. After your authorization form has been processed, you may purchase additional
Class A or Class B shares by calling Investor Services toll-free at 1-800-225-5291.
3. Give the Investor Services representative the name(s) in which your account is
registered, the Fund name, the class of shares you own, your account number and the
amount you wish to invest.
4. Your investment normally will be credited to your account the business day
following your phone request.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
[callouts]
Opening an account
Buying additional Class A
and Class B shares
16
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------
<S> <C>
By Check 1. Either complete the detachable stub included on your account statement or
include a note with your investment listing the name of the Fund, the class of
shares you own, your account number and the name(s) in which the account is
registered.
2. Make your check payable to John Hancock Investor Services Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling Broker.
- -----------------------------------------------------------------------------------------------------------
By Wire Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Strategic Income Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
- -----------------------------------------------------------------------------------------------------------
Other Requirements All purchases must be made in U.S. dollars. Checks written on foreign banks will delay
purchases until U.S. funds are received, and a collection charge may be imposed. Shares of the Fund are
priced at the offering price based on the net asset value computed after John Hancock Funds receives
notification of the dollar equivalent from the Fund's custodian bank. Wire purchases normally take two or
more hours to complete and, to be accepted the same day, must be received by 4:00 p.m., New York time.
Your bank may charge a fee to wire funds. Telephone transactions are recorded to verify information.
Certificates are not issued unless a request is made in writing to Investor Services.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
You will receive a statement of your account after any transaction that
affects your share balance or registration (statements related to
reinvestment of dividends and automatic investment/withdrawal plans will be
sent to you quarterly). A tax information statement will be mailed to you by
January 31 of each year.
SHARE PRICE
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of
outstanding shares of that class. The NAV of each class can differ.
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services, or at fair
value as determined in good faith according to procedures approved by the
Trustees. Short-term debt investments maturing within 60 days are valued at
amortized cost which approximates market value. Foreign securities are valued
on the basis of quotations from the primary market in which they are traded,
and are translated from the local currency into U.S. dollars using current
exchange rates. If quotations are not readily available, or the value has
been materially affected by events occurring after the closing of a foreign
market, assets are valued by a method that the Trustees believe accurately
reflects fair value. The NAV is calculated once daily as of the close of
regular trading on the New York Stock Exchange (generally at 4:00 p.m., New
York time) on each day that the New York Stock Exchange is open.
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock
Funds. If you buy shares of the Fund through a Selling Broker, the Selling
Broker must receive your
[callouts]
You will receive account statements, which you should keep to help with your
personal recordkeeping.
The offering price of your shares is their net asset value plus a sales
charge, if applicable, which will vary with the purchase alternative you
choose.
17
<PAGE>
investment before the close of regular trading on the New York Stock Exchange
and transmit it to John Hancock Funds before its close of business to receive
that day's offering price.
Initial Sales Charge Alternative--Class A Shares. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge as follows:
Sales Sales Combined Reallowance
Charge Charge Reallowance to Selling
as a as a and Service Brokers as a
Percentage Percentage Fee as a Percentage
Amount Invested of the of the Percentage of the
(Including Sales Offering Amount of Offering Offering
Charge) Price Invested Price(+) Price(*)
- --------------------- -------- -------- ----------- ------------
Less than $100,000 4.50% 4.71% 4.00% 3.76%
$100,000 to $249,999 3.75% 3.90% 3.25% 3.01%
$250,000 to $499,999 2.75% 2.83% 2.30% 2.06%
$500,000 to $999,999 2.00% 2.04% 1.75% 1.51%
$1,000,000 and over 0.00%((**)) 0.00%((**)) ((***)) 0.00%((***))
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. A Selling Broker to whom substantially the entire sales charge is
reallowed may be deemed to be an underwriter under the Securities Act of
1933.
(**) No sales charge is payable at the time of purchase of Class A shares of $1
million or more, but a contingent deferred sales charge may be imposed in
the event of certain redemption transactions made within one year of
purchase.
(***) John Hancock Funds may pay a commission and the first year's service fee
(as described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of $1 million or more in the aggregate as
follows: 1% on sales to $4,999,999, 0.50% on the next $5 million and 0.25%
on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first
year's service fee in advance, in an amount equal to 0.25% of the net
assets invested in the Fund. Thereafter, it pays the service fee
periodically in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in
additional shares of the Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual
rate of up to 0.05% of the daily net assets of the accounts attributable to
these brokers.
Under certain circumstances described below, investors in Class A shares may
be entitled to pay reduced sales charges. See "Qualifying For a Reduced Sales
Charge."
Contingent Deferred Sales Charge--Investments of $1 million or more in Class
A Shares. Purchases of $1 million or more of Class A shares will be made at
net asset value with no initial sales charge, but if the shares are redeemed
within 12 months after the end of the calendar month in which the purchase
was made (the contingent
18
<PAGE>
deferred sales charge period), a contingent deferred sales charge will be
imposed. The rate of the CDSC will depend on the amount invested as follows:
Amount Invested CDSC Rate
- ----------------------------------- ----------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Existing full service clients of Life Company who were group annuity contract
holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a contingent deferred sales
charge will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current
market value or the original purchase cost of the redeemed Class A shares.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends which have been reinvested in
additional Class A shares.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. Therefore, it will be assumed that the redemption is first made from
any shares in your account not subject to the CDSC. The CDSC is waived on
redemption in certain circumstances. See "Waiver of Contingent Deferred Sales
Charges."
Qualifying for a Reduced Sales Charge. If you invest more than $100,000 in
Class A shares of the Fund or a combination of John Hancock funds (except
money market funds), you may qualify for a reduced sales charge on your
investments in Class A shares through a LETTER OF INTENTION. You may also be
able to use the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE to take
advantage of the value of your previous investments in shares of the John
Hancock funds in meeting the breakpoints for a reduced sales charge. For the
ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE the applicable sales charge
will be based on the total of:
1. Your current purchase of Class A shares of the Fund.
2. The net asset value (at the close of business on the previous day) of (a)
all Class A shares of the Fund you hold, and (b) all Class A shares of any
other John Hancock mutual fund you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
Example:
If you hold Class A shares of a John Hancock mutual fund with a net asset
value of $20,000 and, subsequently, invested $80,000 in Class A shares of the
Fund, the sales charge on this subsequent investment would be 3.75% and not
4.50% (the rate that would otherwise be applicable to investments of less
than $100,000. See "Initial Sales Charge Alternative--Class A Shares.")
[callout]
You may qualify for a reduced sales charge on your investments in Class A
shares.
19
<PAGE>
If you are in one of the following categories, you may purchase Class A
shares of the Fund without paying a sales charge:
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 of any of the foregoing; or any
Fund, pension, profit sharing or other benefit plan for the individuals
described above.
o Any state, county, city or any instrumentality, department, authority or
agency of these entities which is prohibited by applicable investment laws
from paying a sales charge or commission when it purchases shares of any
registered investment management company.*
o A bank, trust company, credit union, savings institution or other type of
depository institution, its trust departments or common trust funds if it is
purchasing $1 million or more for non-discretionary customers or accounts.*
o A broker, dealer or registered investment adviser that has entered into an
agreement with John Hancock Funds providing specifically for the use of Fund
shares in fee-based investment products 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 to the Fund.
- -----------
For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may also be purchased without an initial sales
charge in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
Contingent Deferred Sales Charge Alternative--Class B Shares. Class B shares
are offered at net asset value per share without a sales charge, so that your
entire initial investment will go to work at the time of purchase. However,
Class B shares redeemed within six years of purchase will be subject to a
CDSC at the rates set forth below. This charge will be assessed on an amount
equal to the lesser of the current market value or the original purchase cost
of the shares being redeemed. Accordingly, you will not be assessed a CDSC on
increases in account value above the initial purchase price, including shares
derived from dividend reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
have held beyond the six-year CDSC redemption period or those you acquire
through reinvestment of dividends or distributions, and next from the shares
you have held the longest during the six-year period. The CDSC is waived on
redemptions in certain circumstances. See the discussion "Waiver of
Contingent Deferred Sales Charges" below.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and
[callout]
Class A shares may be available without a sales charge to certain individuals
and organizations.
20
<PAGE>
you have gained 10 additional shares through dividend reinvestment. If you
redeem 50 shares at this time, your CDSC will be calculated as follows:
o Proceeds of 50 shares redeemed at $12 per share $ 600
o Minus proceeds of 10 shares not subject to CDSC because
they were acquired through dividend reinvestment (10 x $12) -120
o Minus appreciation on remaining shares, also not
subject to CDSC (40 x $2) -80
-------
o Amount subject to CDSC $ 400
=======
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds
uses them to defray its expenses related to providing the Fund with
distribution services in connection with the sale of Class B shares, such as
compensating Selling Brokers for selling these shares. The combination of the
CDSC and the distribution and service fees makes it possible for the Fund to
sell Class B shares without an initial sales charge.
The amount of the CDSC, if any, will vary depending on the number of years
from the time you purchase your Class B shares until the time you redeem
them. Solely for purposes of determining this holding period, any payments
you make during the month will be aggregated and deemed to have been made on
the last day of the month.
Year In Which
Class B Shares Contingent Deferred Sales
Redeemed Charge As a Percentage of
Following Purchase Dollar Amount Subject to CDSC
- ------------------------- --------------------------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision
of personal and account maintenance services to shareholders during the
twelve months following the sale, and thereafter the service fee is paid in
arrears.
Waiver of Contingent Deferred Sales Charges. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a
CDSC, unless indicated otherwise, in these circumstances:
o Redemptions of Class B shares made under a Systematic Withdrawal
Plan (see "How To Redeem Shares"), as long as your annual redemptions do not
exceed 10% of your account value at the time you established your Systematic
Withdrawal Plan and 10% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor Services. This
waiver does not apply to Systematic Withdrawal Plan redemptions of Class A
shares that are subject to a CDSC.
o Redemptions made to effect distributions from an Individual
Retirement Account either before or after age 59-1/2, as long as the
distributions are based on your life expectancy or the joint-and-last
survivor life expectancy of you and your beneficiary. These distributions
must be free from penalty under the Code.
[callout]
Under certain circumstances, the CDSC on Class B share redemptions will be
waived.
21
<PAGE>
o Redemptions made to effect mandatory distributions under the Code after age
70-1/2 from a tax-deferred retirement plan.
o Redemptions made to effect distributions to participants or beneficiaries from
certain employer-sponsored retirement plans including those qualified under
Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the
Code and deferred compensation plans under Section 457 of the Code. The waiver
also applies to certain returns of excess contributions made to these plans.
In all cases, the distributions must be free from penalty under the Code.
o Redemptions due to death or disability.
o Redemptions made under the Reinvestment Privilege, as described in "Additional
Services and Programs" of this Prospectus.
o Redemptions made pursuant to the Fund's right to liquidate your account if you
own fewer than 50 shares.
o Redemptions made under certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
o Redemptions from certain IRA and retirement plans that purchased shares prior
to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must
notify Investor Services either directly or through your Selling Broker at
the time you make your redemption. The waiver will be granted once Investor
Services has confirmed that you are entitled to the waiver.
Conversion of Class B Shares. Your Class B shares and an appropriate portion
of reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur at the end of the month eight years after the
shares were purchased, and will result in lower annual distribution fees. If
you exchanged Class B shares into the Fund from another John Hancock fund,
the calculation will be based on the time you purchase the shares in the
original fund. The Fund has been advised that the conversion of Class B
shares to Class A shares should not be taxable for Federal income tax
purposes, nor should it change your tax basis or tax holding period for the
converted shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your
shares will be redeemed at the next NAV calculated after your redemption
request is received in good order by Investor Services, less any applicable
CDSC. The Fund may hold payment until reasonably satisfied that investments
which were recently made by check or Invest-by-Phone have been collected
(which may take up to 10 calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the
next business day. When you redeem your shares, you may realize a taxable
gain or loss depending usually on the difference between what you paid for
them and what you receive for them, subject to certain tax rules. Under
unusual circumstances, the Fund may suspend redemptions or postpone payment
for up to seven days or longer, as permitted by Federal securities laws.
[callout]
To assure acceptance of your redemption request, please follow these
procedures.
22
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------------------
By Telephone All Fund shareholders are automatically eligible for the telephone redemption privilege.
Call 1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New York time), Monday through Friday,
excluding days on which the New York Stock Exchange is closed. Investor Services employs
the following procedures to confirm that instructions received by telephone are genuine.
Your name, the account number, taxpayer identification number applicable to the account
and other relevant information may be requested. In addition, telephone instructions are
recorded.
You may redeem up to $100,000 by telephone, but the address on the account must not have
changed for the last 30 days. A check will be mailed to the exact name(s) and address
shown on the account.
If reasonable procedures, such as those described above, are not followed, the Fund may
be liable for any loss due to unauthorized or fraudulent telephone instructions. In all
other cases, neither the Fund nor Investor Services will be liable for any loss or
expense for acting upon telephone instructions made in accordance with the telephone
transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other tax-qualified retirement plans
or shares of the Fund that are in certificate form.
During periods of extreme economic conditions or market changes, telephone requests may
be difficult to implement due to a large volume of calls. During these times, you should
consider placing redemption requests in writing or using EASI-Line. EASI-Line's
telephone number is 1-800-338-8080.
- -----------------------------------------------------------------------------------------------------------
By Wire If you have a telephone redemption form on file with the Fund, redemption proceeds of
$1,000 or more can be wired on the next business day to your designated bank account,
and a fee (currently $4.00) will be deducted. You may also use electronic funds transfer
to your assigned bank account, and the funds are usually collectible after two business
days. Your bank may or may not charge a fee for this service. Redemptions of less than
$1,000 will be sent by check or electronic funds transfer.
This feature may be elected by completing the "Telephone Redemption" section on the
Account Privileges Application that is included with this Prospectus.
- -----------------------------------------------------------------------------------------------------------
By Check You may elect the checkwriting option on the account application. This allows you to
(Class A write checks in amounts from a minimum of $100. Checks may not be written against shares
Shares only) in your account which have been purchased within the last 15 days, except for shares
purchased by wire transfer (which are immediately available), or for Fund shares that
are in certificate form.
You should make sure that there are sufficient shares in the account to cover the amount
of any check drawn, since the net asset value of shares will fluctuate. If insufficient
shares are in the account, the check will be returned marked "insufficient funds" and no
shares will be redeemed.
It is not possible to determine in advance the total value of your account so as to
write a check for the value of the entire account because dividends declared on shares
held in the account or prior redemptions and possible changes in net asset value may
cause the account to change in amount. Accordingly, you should not close your account by
writing a check. Shareholders may not maintain a Systematic Withdrawal Plan and utilize
the checkwriting service at the same time.
----------------------------------------------------------------------------------------------------------
In Writing Send a stock power or "letter of instruction" specifying the name of the Fund, the
dollar amount or the number of shares to be redeemed, your name, class of shares, your
account number, and the additional requirements listed below that apply to your
particular account.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- -----------------------------------------------------------------------------------------------------------
Type of Registration Requirements
Individual, Joint Tenants, Sole A letter of instruction signed (with titles where applicable)
Proprietorship, Custodial by all persons authorized to sign for the account, exactly as
(Uniform Gifts or Transfer to it is registered with the signature(s) guaranteed.
Minors Act), General Partners.
Corporation, Association A letter of instruction and a corporate resolution, signed by
person(s) authorized to act on the account, with the
signature(s) guaranteed.
Trusts A letter of instruction signed by the Trustee(s) with the
signature(s) guaranteed. (If the Trustee's name is not
registered on your account, also provide a copy of the trust
document, certified within the last 60 days.)
If you do not fall into any of these registration categories, please call 1-800-225-5291 for further
instructions.
- -----------------------------------------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect you and the Fund by verifying the
signature on your request. It may not be provided by a notary public. If the net asset value of the
shares redeemed is $100,000 or less, John Hancock Funds may guarantee the signature. The following
institutions may provide you with a signature guarantee, provided that the institution meets credit
standards established by Investor Services: (i) a bank; (ii) a securities broker or dealer,
including a government or municipal securities broker or dealer, that is a member of a clearing
corporation or meets certain net capital requirements; (iii) a credit union having authority to
issue signature guarantees; (iv) a savings and loan association, a building and loan association, a
cooperative bank, a federal savings bank or association; or (v) a national securities exchange, a
registered securities exchange or a clearing agency.
- -----------------------------------------------------------------------------------------------------------
Through Your Broker Your broker may be able to initiate the redemption. Contact
your broker for instructions.
- -----------------------------------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your stock power or a letter of
instruction. Unless you specify to the contrary, any outstanding Class A shares will be redeemed
before Class B shares. You may not redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining smaller accounts, the Fund reserves the right to
redeem at net asset value all shares in an account which holds fewer than 50 shares (except accounts
under retirement plans) and to mail the proceeds to the shareholder, or the transfer agent may
impose an annual fee of $10.00. No account will be involuntarily redeemed or any additional fee
imposed, if the value of the account is in excess of the Fund's minimum initial investment. No CDSC
will be imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or this fee is imposed, and
will have 30 days to purchase additional shares to bring their account balance up to the required
minimum. Unless the number of shares acquired by additional purchases and any dividend
reinvestments, if any, exceeds the number of shares redeemed, repeated redemptions from a smaller
account may eventually trigger this policy.
- -----------------------------------------------------------------------------------------------------------
</TABLE>
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of
investment goals. Contact your registered representative or Selling Broker
and request a prospectus for the John Hancock funds that interest you. Read
the prospectus carefully before exchanging your shares. You can exchange
shares of each class of the Fund only for shares of the same class of another
John Hancock fund. For this purpose, John Hancock funds with only one class
of shares will be treated as Class A whether or not they have been so
designated.
[callouts]
Who may guarantee your signature
Additional information about redemptions
You may exchange shares of the Fund only for shares of the same class of
another John Hancock fund.
24
<PAGE>
Exchanges between funds that are not subject to a CDSC are based on their
respective net asset values. No sales charge or transaction charge is
imposed. Class B shares of the Fund which are subject to a CDSC may be
exchanged into Class B shares of another John Hancock fund without incurring
the CDSC; however, these shares will be subject to the CDSC schedule of the
shares acquired (except that exchanges into John Hancock Short-Term Strategic
Income Fund, John Hancock Intermediate Maturity Government Trust and John
Hancock Limited Term Government Fund, will be subject to the initial fund's
CDSC). For purposes of computing the CDSC payable upon redemption of shares
acquired in an exchange, the holding period of the original shares is added
to the holding period of the shares acquired in an exchange. However, if you
exchange Class B shares purchased prior to January 1, 1994 for Class B shares
of any other John Hancock fund, you will be subject to the CDSC schedule in
effect on your initial purchase date.
You may exchange Class B shares of the Fund into shares of John Hancock Money
Market Fund (Class B shares) at net asset value. Shares so acquired will
continue to be subject to a CDSC upon redemption. The rate of the CDSC will
be the rate in effect for the original fund at the time of the exchange.
The Fund reserves the right to require you to keep previously exchanged
shares (and reinvested dividends) in the Fund for 90 days before you are
permitted a new exchange. The Fund may also terminate or alter the terms of
the exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and
the purchase of shares in another for Federal income tax purposes. An
exchange may result in a taxable gain or loss.
When you make an exchange, your account registration must be identical in
both the existing and new account. The exchange privilege is available only
in states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers
and investment advisers may exchange their clients' Fund shares, subject to
the terms of those agreements and John Hancock Funds' right to reject or
suspend those exchanges at any time. Because of the restrictions and
procedures under those agreements, the exchanges may be subject to timing
limitations and other restrictions that do not apply to exchanges requested
by shareholders directly, as described above.
Because Fund performance and shareholders can be hurt by excessive trading,
the Fund reserves the right to terminate the exchange privilege for any
person or group that, in John Hancock Funds' judgment, is involved in a
pattern of exchanges that coincide with a "market timing" strategy that may
disrupt the Fund's ability to invest effectively according to its investment
objective and policies, or might otherwise affect the Fund and its
shareholders adversely. The Fund may also temporarily or permanently
terminate the exchange privilege for any person who makes seven or more
exchanges out of the Fund per calendar year. Accounts under common control or
ownership will be aggregated for this purpose. Although the Fund will attempt
to give prior notice whenever it is reasonably able to do so, it may impose
these restrictions at any time.
25
<PAGE>
By Telephone
1. When you complete the application for your initial purchase of Fund
shares, you automatically authorize exchanges by telephone unless you check
the box indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable
to the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
In Writing
1. In a letter, request an exchange and list the following:
-- the name and class of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or the dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Reinvestment Privilege
1. You will not be subject to a sales charge on Class A shares that you
reinvest in any of the John Hancock funds that is otherwise subject to a
sales charge as long as you reinvest within 120 days from the redemption
date. If you paid a CDSC upon a redemption, you may reinvest at net asset
value in the same class of shares from which you redeemed within 120 days.
Your account will be credited with the amount of the CDSC that was charged
previously, and the reinvested shares will continue to be subject to a CDSC.
For purposes of computing the CDSC payable upon a subsequent redemption, the
holding period of the shares you acquired through reinvestment will include
the holding period of the redeemed shares.
2. Any portion of your redemption may be reinvested in Fund shares or in
shares of any of the other John Hancock funds, subject to the minimum
investment limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the
Fund's name, account number and class from which your shares were originally
redeemed.
[callout]
If you redeem shares of the Fund, you may be able to reinvest all or part of
the proceeds in shares of the Fund or another John Hancock fund without
paying an additional sales charge.
26
<PAGE>
Systematic Withdrawal Plan
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application, which is attached to this Prospectus. You can
also obtain this application by calling your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account may be made monthly, quarterly, semi-annually,
annually or on a selected monthly basis, and can be sent to you or any other
designated payee.
4. There is no limit on the number of payees you may authorize, but all
payments must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares, because
you may be subject to an initial sales charge on your purchases of Class A
shares or to a CDSC imposed on your redemptions of Class B shares. In
addition, your redemptions are taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks, or if deposits to a bank account are returned for any reason.
Monthly Automatic Accumulation Program (MAAP)
1. You can authorize an investment to be automatically drawn each month from
your bank for investment in Fund shares under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
2. You can also authorize automatic investment through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program at any time.
4. There is no charge to you for this program, and there is no cost to the
Fund.
5. If you have payments withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
Group Investment Program
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for this
program, contact your registered representative or call 1-800-225-5291.
2. The initial aggregate investment of all participants in the group must be
at least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at any
time.
[callouts]
You can pay routine bills from your account, or make periodic disbursements
from your retirement account to comply with IRS regulations.
You can make automatic investments and simplify your investing.
Organized groups of at least four persons may establish accounts.
27
<PAGE>
Retirement Plans
1. You may use the Fund to fund various types of qualified retirement plans,
including Individual Retirement Accounts, Keogh Plans (H.R. 10), Pension and
Profit Sharing Plans (including 401(k) Plans), Tax Sheltered Annuity
Retirement Plans (403(b) or TSA Plans), and 457 Plans.
2. The initial investment minimum or aggregate minimum for any of these plans
is $250. However, accounts being established as group IRA's, SEP, SARSEP, TSA
and 401(k) 457 plans will be accepted without an initial minimum investment.
APPENDIX
As described in the Prospectus, the debt securities offering the high current
income sought by the Fund are ordinarily in the lower rating categories (that
is, rated Baa or lower by Moody's or BBB or lower by Standard & Poor's, or
are unrated).
Moody's describes its lower ratings for corporate bonds as follows:
Bonds that 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 represent 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.
Standard & Poor's describes its lower ratings for corporate bonds as follows:
Debt rated BBB is regarded as having an adequate capacity to pay interest and
repay principal. Whereas it normally exhibits adequate protection parameters,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
Debt rated BB, B, CCC, or CC is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. BB indicates the
lowest degree of speculation and
28
<PAGE>
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 protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash
generation; and (5) well established access to a range of financial markets
and assured sources of alternate liquidity.
Standard & Poor's describes its three highest ratings for commercial paper as
follows:
A-1. This designation indicates that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
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.
Issuers rated P-2 (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample 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.
29
<PAGE>
Quality Distribution
The average weighted quality distribution of the Fund's portfolio for the
fiscal year ended May 31, 1995 was as follows:
<TABLE>
<CAPTION>
Y-T-D Rating Rating
Average % of Assigned % of Assigned % of
Security Rating Value Portfolio by Adviser Portfolio by Service Portfolio
- ------------------- --------------- -------- ---------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
AAA $112,362,779 26.3% $23,168,057 5.4% $ 89,194,722 20.9%
AA 35,957,453 8.4% 0 0.0% 35,957,453 8.4%
A 17,855,069 4.2% 0 0.0% 17,855,069 4.2%
BAA 5,853,747 1.4% 0 0.0% 5,853,747 1.4%
BA 38,721,043 9.1% 2,820,577 0.7% 35,900,466 8.4%
B 175,409,549 41.1% 13,242,103 3.1% 162,167,446 38.0%
CAA 6,458,029 1.5% 0 0.0% 6,458,029 1.5%
CA 0 0.0% 0 0.0% 0 0.0%
C 0 0.0% 0 0.0% 0 0.0%
D 574,855 0.1% 574,855 0.1% 0 0.0%
------------- ------ -------- ------ --------- --------
0
Debt Securities 393,192,524 92.1% $39,805,592 9.3% $353,386,932 82.8%
0
Equity Securities 26,583,738 6.2%
0
Short-Term
Securities 7,002,664 1.7%
-------------
0
Total Portfolio 426,778,926 100.0%
0
Other Assets--Net 6,289,563
-------------
0
Net Assets $433,068,489
=============
</TABLE>
30
<PAGE>
[Back Cover]
JOHN HANCOCK STRATEGIC INCOME FUND
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Custodian
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
Transfer Agent
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For: Service Information
Telephone Exchange call 1-800-225-5291
Investment-by-Phone
Telephone Redemption
TDD call 1-800-554-6713
JHD-9100P 9/95
[Front Cover
JOHN HANCOCK
STRATEGIC
INCOME FUND
Class A and Class B Shares
Prospectus
September 1, 1995
A mutual fund seeking a
high level of current
income through a diversified
portfolio of debt securities.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-225-5291
[recycle symbol] Printed on recycled paper using soybean ink
<PAGE>
[Front cover]
John Hancock
Independence
Diversified Core
Equity Fund
Class A and Class B Shares
Prospectus
September 1, 1995
TABLE OF CONTENTS
Page
-------
Expense Information 2
The Fund's Financial Highlights 3
Investment Objective and Policies and Risk Factors 4
Organization and Management of the Fund 5
Alternative Purchase Arrangements 6
The Fund's Expenses 8
Dividends and Taxes 9
Performance 10
How to Buy Shares 11
Share Price 12
How to Redeem Shares 17
Additional Services and Programs 19
This Prospectus sets forth information about John Hancock Independence
Diversified Core Equity Fund (the "Fund"), a series of John Hancock Strategic
Series (the "Trust") that you should know before investing. Please read and
retain it for future reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the "SEC"). You can obtain a copy of the Fund's Statement
of Additional Information, dated September 1, 1995, and incorporated by
reference in this Prospectus, free of charge by writing or telephoning: John
Hancock Investor Services Corporation, P.O. Box 9116, Boston, Massachusetts
02205-9116, 1-800-225-5291.
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various costs and expenses that you will bear, directly or indirectly, when you
purchase Fund shares. The operating expenses included in the table and the
hypothetical example below are based on fees and expenses for the Class A shares
of the Fund for the fiscal year ended May 31, 1995, adjusted to reflect the
current fees and expenses. No Class B shares were outstanding during the period.
Actual fees and expenses may be greater or less than those indicated.
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
----- -------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a percentage of offering price) 5.00% None
Maximum sales charge imposed on reinvested dividends None None
Maximum deferred sales charge None* 5.00%
Redemption fee+ None None
Exchange fee None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fee*** (net of fee reduction) 0.58% 0.58%
12b-1 fee** 0.30% 1.00%
Other expenses 0.42% 0.42%
Total Fund operating expenses*** 1.30% 2.00%
</TABLE>
* No sales charge is payable at the time of purchase on investments in Class
A shares of $1 million or more, but a contingent deferred sales charge may
be imposed on these investments, as described below under the caption
"Share Price," in the event of certain redemption transactions within one
year of purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average net assets, and the remaining portion will
be used to cover distribution expenses. See "The Fund's Expenses."
+ Redemption by wire fee (currently $4.00) not included.
*** Expenses reflect a fee reduction by the Adviser. Without this fee
reduction the annual Fund operating expenses for Class A and Class B
shares, respectively, would be: Management fee, 0.75% and 0.75%; Total
Fund operating expenses of 1.47% and 2.17% of the first $100 million of
the Fund's average daily net assets. The Adviser reserves the right to
terminate this fee reduction in the future.
<TABLE>
<CAPTION>
Example: 1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
You would pay the following expenses for the indicated period of years on a
hypothetical $1,000 investment, assuming a 5% annual rate of return:
Class A shares $63 $89 $118 $199
Class B shares
--Assuming complete redemption at end of period $70 $93 $128 $215
--Assuming no redemption $20 $63 $108 $215
</TABLE>
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.)
The Fund's payment of a distribution fee may result in a long-term shareholder
indirectly paying more than the economic equivalent of the maximum front-end
sales charge permitted under the National Association of Securities Dealers
Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement of
Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following table of Financial Highlights has been audited by Price
Waterhouse LLP, the Fund's independent accountants, whose unqualified report is
included in the Fund's 1995 Annual Report and is included in the Fund's
Statement of Additional Information. Further information about the performance
of the Fund is contained in the Annual Report to shareholders, which may be
obtained free of charge by writing or telephoning John Hancock Investor Services
Corporation ("Investor Services") at the address or telephone number listed on
the front page of this Prospectus. No Class B shares were outstanding during
these periods.
Selected data for Class A shares outstanding throughout each period indicated
is as follows:
<TABLE>
<CAPTION>
For the Period
June 10, 1991
Year Ended May 31, (commencement
----------------------------------- of operations) to
CLASS A 1995 1994 1993 May 31, 1992
--------- --------- --------- ----------------
<S> <C> <C> <C> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $12.68 $12.16 $10.98 $10.00
-------- ------- ------- ------
Net Investment Income 0.32(b) 0.28(b) 0.22 0.15
Net Realized and Unrealized Gain (Loss) on Investments 1.77 .52 1.25 0.94
-------- ------- ------- ------
Total from Investment Operations 2.09 0.80 1.47 1.09
-------- ------- ------- ------
Less Distributions:
Dividends from Net Investment Income (0.28) (0.23) (0.23) (0.11)
Distributions from Net Realized Gain on Investments Sold (0.08) (0.05) (0.06) --
-------- ------- ------- ------
Total Distributions (0.36) (0.28) (0.29) (0.11)
-------- ------- ------- ------
Net Asset Value, End of Period $14.41 $12.68 $12.16 $10.98
======== ======= ======= ======
Total Investment Return at Net Asset Value 16.98% 6.60% 13.58% 10.95%
-------- ------- ------- ------
Total Adjusted Investment Return at Net Asset Value (a)(c) 16.94% 6.15% 11.40% 9.23%
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $101,418 $66,612 $12,488 $2,622
Ratio of Expenses to Average Net Assets 0.70% 0.70% 0.76% 1.66%*
Ratio of Adjusted Expenses to Average Net Assets (a) 0.74% 1.15% 2.94% 3.38%*
Ratio of Net Investment Income to Average Net Assets 2.43% 2.20% 2.36% 1.77%*
Ratio of Adjusted Net Investment Income to Average Net Assets (a) 2.39% 1.75% 0.18% 0.05%*
Portfolio Turnover Rate 71% 43% 53% 53%
**Fee Reduction per Share $0.005(b) $0.06(b) $0.20 $0.15
</TABLE>
* In an annualized basis
(a) Net of any fee reductions
(b) On average month end shares outstanding.
(c) Unaudited
3
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES AND RISK FACTORS
The Fund has an investment objective of seeking above average total return.
The investment objective of the Fund is to seek above-average total return,
consisting of capital appreciation and income. The Fund will diversify its
investments to create a portfolio with a risk profile and characteristics
similar to the Standard & Poor's 500 Stock Index. Consequently, the Fund will
invest in a number of industry groups without concentration in any particular
industry. The Fund's investments will be subject to the market fluctuation and
risks inherent in all securities. There can be no assurance that the Fund will
realize its objective.
Most Fund investments consist of common stocks.
Under normal conditions, the Fund invests principally (at least 65% of its total
assets) in common stocks. The Fund will focus on securities of companies which
the Fund's management believes offer outstanding capital growth and/or income
potential over both the intermediate and long term. The Fund's management
considers stocks which combine value and improving fundamentals to be attractive
investments for the Fund. In determining what constitutes "value," the Fund's
management seeks stocks with the following attributes: high growth relative to
price/earnings ratio, rising dividend stream, and high asset value. To determine
whether a company's stock exhibits improving fundamentals, the Fund's management
looks for accelerating earnings growth, positive earnings surprises when
compared to the market's expectations and favorable cyclical timing.
American Depository Receipts. The Fund may invest in securities of foreign
issuers in the form of American Depository Receipts ("ADRs"). ADRs (sponsored
and unsponsored) are receipts, typically issued by U.S. banks, which evidence
ownership of underlying securities issued by a foreign corporation. ADRs are
publicly traded on a U.S. stock exchange or in the over-the-counter market. An
investment in foreign securities including ADRs may be affected by changes in
currency rates and in exchange control regulations. Issuers of unsponsored ADRs
are not contractually obligated to disclose material information in the United
States and, therefore, there may not be a correlation between such information
and the market value of the unsponsored ADR. Foreign companies may not be
subject to accounting standards or government supervision comparable to U.S.
companies, and there is often less publicly available information about their
operations. Foreign companies may also be affected by political or financial
instability abroad. These risk considerations may be intensified in the case of
investments in ADRs of foreign companies that are located in emerging market
countries. ADRs of companies located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
The Fund may respond to market conditions by investing temporarily in other
types of securities.
When, in the opinion of John Hancock Advisers, Inc. (the "Adviser") and
Independence Investment Associates, Inc. ("IIA" or the "Sub-Adviser" and
collectively with the Adviser, the "Advisers"), market or economic conditions
warrant, for defensive purposes the Fund may temporarily invest in fixed-income
securities (including debt securities and preferred stocks) without limitation.
All fixed income securities purchased by the Fund, however, must be rated A or
better by Moody's Investors Service, Inc. or Standard and Poor's Ratings Group
or, if unrated, determined to be of comparable quality by the Advisers. The
value of fixed-income securities varies inversely with changes in the prevailing
levels of interest rates.
Repurchase Agreements. The Fund may enter into repurchase agreements. In a
repurchase agreement, the Fund buys a security subject to the right and
obligation
4
<PAGE>
to sell it back to the issuer at a higher price. These transactions must be
fully collateralized at all times, but they involve some credit risk to the Fund
if the other party defaults on its obligations and the Fund is delayed in or
prevented from liquidating the collateral.
Restricted Securities. The Fund may purchase restricted securities including
those eligible for resale to "qualified institutional buyers" under Rule 144A
under the Securities Act of 1933 (the "Securities Act"). The Trustees will
monitor the Fund's investments in these securities, focusing on certain factors,
including valuation, liquidity and availability of information. Purchases of
restricted securities are subject to an investment restriction limiting all the
Fund's illiquid securities to not more than 15% of its net assets.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities. When the Fund
lends portfolio securities, there is a risk that the borrower may fail to return
the securities. 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.
The Fund follows certain policies that may help to reduce investment risk.
Investment Restrictions. The Fund has adopted certain investment restrictions
that are detailed in the Statement of Additional Information, where they are
classified as fundamental or nonfundamental. The Fund's investment objective and
those investment restrictions designated as fundamental may not be changed
without shareholder approval. All other investment policies and restrictions,
however, are nonfundamental and can be changed by a vote of the Trustees without
shareholder approval.
Brokers are chosen based on best price and execution.
When choosing brokerage firms to carry out the Fund's transactions, the Advisers
give primary consideration to execution at the most favorable price, taking into
account the broker's professional ability and quality of service. Consideration
may also be given to the broker's sales of Fund shares. Pursuant to procedures
established by the Trustees, the Advisers may place securities transactions with
brokers affiliated with the Adviser and Sub-Adviser. These brokers include
Tucker Anthony Incorporated, John Hancock Distributors, Inc. and Sutro &
Company, Inc., which are indirectly owned by John Hancock Mutual Life Insurance
Company (the "Life Company"), which in turn indirectly owns the Adviser and
Sub-Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Trustees elect officers and retain the investment adviser who is
responsible for the day-to-day operations of the Fund, subject to the
Trustees' policies and supervision.
The Fund is organized as a separate, diversified series of the Trust, an
open-end investment management company organized as a Massachusetts business
trust in 1986. The Fund was organized in 1991 and was formerly known as the John
Hancock Growth and Income Fund. On July 1, 1993, the Fund changed its name from
John Hancock Diversified Core Equity Fund. The Trust's Declaration of Trust
permits the Trustees to create and classify shares of beneficial interest into
separate series of the Trust with different investment objectives. The Trustees
may also classify or reclassify any series into one or more classes.
Accordingly, the Trustees have authorized the
5
<PAGE>
issuance of two classes of the Fund, designated Class A and Class B. The shares
of each class represent an interest in the same portfolio of investments of the
Fund. Each class has equal rights as to voting, redemption, dividends and
liquidation. However, each class bears different distribution and transfer agent
fees and other expenses. Also, Class A and Class B shareholders have exclusive
voting rights with respect to their distribution plans.
The Trust is not required to hold annual shareholder meetings, although special
meetings may be called for such purposes as electing or removing Trustees,
changing fundamental restrictions or approving a management contract. The Fund,
under certain circumstances, will assist in shareholder communications with
other shareholders.
John Hancock Advisers, Inc. advises investment companies having total assets
of more than $13 billion.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Fund,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. The Sub-Adviser was
formed in 1982 and is also an indirect subsidiary of the Life Company. The
Sub-Adviser provides investment advice and advisory services to various clients,
primarily institutional clients. Total assets managed by the Sub-Adviser amount
to over $17 billion. John Hancock Funds, Inc. ("John Hancock Funds") distributes
shares for all of the John Hancock funds directly and through selected
broker-dealers ("Selling Brokers"). Certain Fund officers are also officers of
the Adviser and John Hancock Funds. Pursuant to an order granted by the
Securities and Exchange Commission, the Fund has adopted a deferred compensation
plan for its independent Trustees which allows Trustees' fees to be invested by
the Fund in other John Hancock funds. All investment decisions for the Fund are
made by a portfolio management team of investment professionals employed by the
Sub-Adviser and no single person is primarily responsible for making
recommendations to the team.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser, the
Sub-Adviser and the Fund have adopted extensive restrictions on personal
securities trading by personnel of the Adviser and its affiliates. In the case
of the Adviser, some of these restrictions are: pre-clearance for all personal
trades and a ban on the purchase of initial public offerings, as well as
contributions to specified charities of profits on securities held for less than
91 days. The Sub-Adviser has adopted similar restrictions which may differ where
appropriate, as long as they have the same intent. These restrictions are a
continuation of the basic principle that the interests of the Fund and its
shareholders come before those of management.
ALTERNATIVE PURCHASE ARRANGEMENTS
An alternative purchase plan allows you to choose the method of purchase that
is best for you.
You can purchase shares of the Fund at a price equal to their net asset value
per share, plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (See "Initial Sales Charge Alternative--Class
A Shares") or on a contingent deferred basis (See "Contingent Deferred Sales
Charge Alternative--Class B Shares"). If you do not specify on your account
application the class of shares you are purchasing, it will be assumed that you
are investing in Class A shares.
Investments in Class A shares are subject to an initial sales charge.
Class A Shares. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount you purchase is $1 million or more. If
you purchase $1 million or more of Class A shares, you will not be subject to an
initial sales charge,
6
<PAGE>
but you will incur a sales charge if you redeem your shares within one year of
purchase. Class A shares are subject to ongoing distribution and service fees at
a combined annual rate of up to 0.30% of the Fund's average daily net assets
attributable to the Class A shares. Certain purchases of Class A shares qualify
for reduced initial sales charges. See "Share Price--Qualifying for a Reduced
Sales Charge."
Investments in Class B shares are subject to a contingent deferred sales charge.
Class B Shares. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all of
your dollars to work from the time your investment is made, but the higher
ongoing distribution fee will cause these shares to have higher expenses than
those of Class A shares. To the extent that any dividends are paid by the Fund,
these higher expenses will also result in lower dividends than those paid on
Class A shares.
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
Factors to Consider in Choosing an Alternative
You should consider which
class of shares would be more beneficial for you.
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares, given the amount of your purchase, the length of time that
you expect to hold your shares and other circumstances. You should consider
whether, during the anticipated life of your Fund investment, the accumulated
CDSC and fees on Class B shares would be less than the initial sales charge and
accumulated fees on Class A shares purchased at the same time, and to what
extent this differential would be offset by the Class A shares' lower expenses.
To help you make this determination, the table under the caption "Expense
Information" on page 2 of this Prospectus shows examples of the charges
applicable to each class of shares. Class A shares will normally be more
beneficial if you qualify for a reduced sales charge. See "Share
Price--Qualifying for a Reduced Sales Charge."
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent that
any dividends are paid. However, because initial sales charges are deducted at
the time of purchase, you would not have all of your funds invested initially
and, therefore, would initially own fewer shares. If you do not qualify for
reduced initial sales charges and expect to maintain your investment for an
extended period of time, you might consider purchasing Class A shares. This is
because the accumulated distribution and service charges on Class B shares may
exceed the initial sales charge and accumulated distribution and service charges
on Class A shares during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you will
be subject to higher distribution fees and, for a six-year period, a CDSC.
In the case of Class A shares, distribution expenses that John Hancock Funds
incurs in connection with the sale of the shares will be paid from the proceeds
of the initial
7
<PAGE>
sales charge and the ongoing distribution and service fees. In the case of Class
B shares, expenses will be paid from the proceeds of the ongoing distribution
and service fees, as well as from the CDSC incurred upon redemption within six
years of purchase. The purpose and function of the Class B shares' CDSC and
ongoing distribution and service fees are the same as those of the Class A
shares' initial sales charge and ongoing distribution and service fees. Sales
personnel distributing the Fund's shares may receive different compensation for
selling each class of shares.
Dividends, if any, on Class A and Class B shares will be calculated in the same
manner, at the same time and on the same day. They will also be in the same
amount, except for differences resulting from each class bearing only its own
distribution and service fees, and shareholder meeting expenses and incremental
transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a monthly fee
to the Adviser. This is based on a stated percentage of the Fund's average
daily net asset value, as follows:
Net Asset Value Annual Rate
- -------------------------- ------------
First $750,000,000 0.75%
Amount over $750,000,000 0.70%
Prior to September 1, 1995, the Adviser managed the Fund under a different fee
schedule. The investment management fee for the 1995 fiscal year was 0.50% of
the Fund's average daily net asset value.
The Fund's investment management fee is higher than the fees paid by most mutual
funds, but is comparable to fees paid by funds that invest in similar
securities.
The Adviser pays the Sub-Adviser a quarterly fee at the annual rate of 55% of
the investment management fee paid by the Fund to the Adviser for the preceding
three months. The Fund is not responsible for payment of the Sub-Adviser's fee.
Prior to the date of this Prospectus, the Sub-Adviser provided services pursuant
to a contract that provided for different compensation. The Sub-Advisory fee for
the Fund's fiscal year ended May 31, 1995 was 0.32% of the Fund's average daily
net asset value.
The Adviser has agreed to limit Fund expenses, including the management fee, to
1.30% and 2.00% attributable to Class A and Class B shares, respectively, of the
Fund's average daily net assets. The Adviser reserves the right to terminate
this fee reduction in the future.
The Fund pays distribution and service fees for marketing and sales-related
shareholder servicing.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under
these Plans, the Fund will pay distribution and service fees at an aggregate
annual rate of up to 0.30% of the Class A shares' average daily net assets and
an aggregate annual rate of up to 1.00% of the Class B shares' average daily net
assets. In each case, up to 0.25% is for service expenses and the remaining
amount is for distribution expenses. The distribution fees are 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)
8
<PAGE>
engaged in the sale of Fund shares; (ii) marketing, promotional and overhead
expenses incurred in connection with the distribution of Fund shares; and (iii)
with respect to Class B shares only, interest expenses on unreimbursed
distribution expenses. The service fees will be used to compensate Selling
Brokers for providing personal and account maintenance services to shareholders.
In the event John Hancock Funds is not fully reimbursed for payments it makes or
expenses it incurs under the Class A Plan, these expenses will not be carried
beyond one year from the date they were incurred. These unreimbursed expenses
under the Class B Plan will be carried forward together with interest. For the
fiscal year ended May 31, 1995, there was no Distribution Plan in effect.
Information on the Fund's total expenses is in the Fund's Financial
Highlights section of this Prospectus.
DIVIDENDS AND TAXES
Dividends. Dividends from the Fund's net investment income are paid quarterly.
Capital gains are generally declared and paid annually. Dividends are reinvested
in additional shares of your class unless you elect the option to receive them
in cash. If you elect the cash option and the U.S. Postal Service cannot deliver
your checks, your election will be converted to the reinvestment option. Because
of the higher expenses associated with Class B shares, any dividend on Class B
shares will be lower than that on Class A shares. See "Share Price."
Taxation. Dividends from the Fund's net investment income, certain net foreign
currency gains, and net short-term capital gains are taxable to you as ordinary
income. Dividends from the Fund's net long-term capital gains are taxable as
long-term capital gains. These dividends are taxable whether you receive cash or
reinvest in additional shares. Certain dividends paid in January of a given year
may be taxable as if you received them the previous December. Corporate
shareholders may be entitled to take a corporate dividends-received deduction
for dividends received by the Fund from U.S. domestic corporations, subject to
certain restrictions under the Internal Revenue Code of 1986, as amended (the
"Code"). The Fund will send you a statement by January 31 showing the tax status
of the dividends you received for the prior year.
The Fund has qualified and intends to qualify in the future as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund will not be subject to Federal income tax on any net
investment income and net realized capital gains that are distributed to
shareholders within the time period prescribed by the Code. When you redeem
(sell) or exchange shares, you may realize a taxable gain or loss.
On the account application, you are asked to certify that the social security or
other taxpayer identification number you provide is your correct number and that
you are not subject to back-up withholding of federal income tax. If you do not
provide this information or are otherwise subject to this withholding, the Fund
may be required to withhold 31% of your dividends and the proceeds of
redemptions and exchanges.
The Fund may be subject to foreign withholding taxes or other foreign taxes on
income (possibly including capital gains) on certain of its foreign investments,
if any, which will reduce the yield or return from those investments. The Fund
expects that it will
9
<PAGE>
generally not qualify to pass such taxes through to its shareholders, who
consequently will generally not include them in income or be entitled to
associated foreign tax credits or deductions.
In addition to Federal taxes, you may be subject to state and local or foreign
taxes with respect to your investment in and distributions from the Fund. A
state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangibles taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Non-U.S. shareholders and tax-exempt shareholders
are subject to different tax treatment not described above. You should consult
your tax adviser for specific advice.
PERFORMANCE
The Fund may advertise its total return.
The Fund's total return shows the overall dollar or percentage change in value
of a hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period of
time. Average annual total return shows the cumulative return divided over the
number of years included in the period. Because average annual total return
tends to smooth out variations in the Fund's performance, you should recognize
that it is not the same as actual year-to-year results.
Total return calculations for Class A shares generally include the effect of
paying the maximum sales charge (except as shown in "The Fund's Financial
Highlights"). Investments at a lower sales charge would result in higher
performance figures. Total return for the Class B shares reflects the deduction
of the applicable CDSC imposed on a redemption of shares held for the applicable
period. All calculations assume that all dividends are reinvested at net asset
value on the reinvestment dates during the periods. The total return of Class A
and Class B shares will be calculated separately and, because each class is
subject to different expenses, the total return may differ with respect to each
class for the same period. The relative performance of the Class A and Class B
shares will be affected by a variety of factors, including the higher operating
expenses attributable to the Class B shares, whether the Fund's investment
performance is better in the earlier or later portions of the period measured
and the level of net assets of the classes during the period. The Fund will
include the total return of Class A and Class B shares in any advertisement or
promotional materials including Fund performance data. The value of the Fund's
shares, when redeemed, may be more or less than their original cost. Total
return is a historical calculation and is not an indication of future
performance. See "Factors to Consider in Choosing an Alternative."
10
<PAGE>
HOW TO BUY SHARES
Opening an account
The minimum initial investment in Class A and Class B shares is $1,000 ($250
for group investments and retirement plans). Complete the Account Application
attached to this Prospectus. Indicate whether you are buying Class A or Class B
shares. If you do not specify which class of shares you are purchasing, Investor
Services will assume you are investing in Class A shares.
By Check 1. Make your check payable to John Hancock Investor
Services Corporation ("Investor Services").
2. Deliver the completed application and check to your
registered representative or Selling Broker, or mail it
directly to Investor Services.
By Wire 1. Obtain an account number by contacting your
registered representative or Selling Broker, or by
calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Independence
Diversified Core Equity Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative or Selling Broker, or mail it
directly to Investor Services.
Monthly Automatic 1. Complete the "Automatic Investing" and "Bank
Accumulation Information" sections on the Account Privileges
Program (MAAP) Application, designating a bank account from which
your funds may be drawn.
2. The amount you elect to invest will be automatically
withdrawn from your bank or credit union account.
Buying additional Class A
and Class B shares
By Telephone 1. Complete the "Invest-By-Phone" and "Bank
Information" sections on the Account Privileges
Application, designating a bank account from which your
funds may be drawn. Note that in order to invest by
phone, your account must be in a bank or credit union
that is a member of the Automated Clearing House system
(ACH).
2. After your authorization form has been processed, you
may purchase additional Class A and Class B shares by
calling Investor Services toll-free at 1-800-225-5291.
3. Give the Investor Services representative the name(s)
in which your account is registered, the Fund name, the
class of shares you own, your account number and the
amount you wish to invest.
4. Your investment normally will be credited to your
account the business day following your phone
request.
By Check 1. Either fill out the detachable stub included
on your account statement or include a note with your
investment listing the name of the Fund, the class of
shares you own, your account number and the name(s) in
which the account is registered.
2. Make your check payable to John Hancock Investor
Services Corporation
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or
Selling Broker.
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By Wire Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Independence Diversified
Core Equity Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
Other Requirements: All purchases must be made in U.S. dollars. Checks written
on foreign banks will delay purchases until U.S. funds are received, and a
collection charge may be imposed. Shares of the Fund are priced at the offering
price based on the net asset value computed after John Hancock Funds receives
notification of the dollar equivalent from the Fund's custodian bank. Wire
purchases normally take two or more hours to complete and, to be accepted the
same day, must be received by 4:00 p.m., New York time. Your bank may charge a
fee to wire funds. Telephone transactions are recorded to verify information.
Certificates are not issued unless a request is made to Investor Services.
You will receive account statements, which you should keep to help with your
personal recordkeeping.
You will receive a statement of your account after any transaction that affects
your share balance or registration (statements related to reinvestment of
dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
SHARE PRICE
The offering price of your shares is their net asset value plus a sales charge,
if applicable, which will vary with the purchase alternative you choose.
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of outstanding
shares of that class. The NAV of each class can differ. Securities in the Fund's
portfolio are valued on the basis of market quotations, valuations provided by
independent pricing services, or fair value as determined in good faith
according to procedures approved by the Trustees. Short-term debt investments
maturing within 60 days are valued at amortized cost, which the Trustees have
determined approximates market value. The NAV is calculated once daily as of the
close of regular trading on the New York Stock Exchange (generally at 4:00 p.m.,
New York time) on each day that the Exchange is open.
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Fund through a Selling Broker, the Selling Broker must
receive your investment before the close of regular trading on the New York
Stock Exchange, and transmit it to John Hancock Funds before its close of
business, to receive that day's offering price.
Initial Sales Charge Alternative--Class A Shares. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge, as
follows:
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Sales Sales Combined Reallowance
Charge Charge Reallowance to Selling
as a as a and Service Brokers as a
Percentage Percentage Fee as a Percentage
Amount Invested of the of the Percentage of the
(Including Sales Offering Amount of Offering Offering
Charge) Price Invested Price(+) Price (*)
- --------------------- -------- -------- ------------- ------------
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to $249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to $499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to $999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. Other than distribution fees, the Fund does not bear
distribution expenses. A Selling Broker to whom substantially the entire
sales charge is reallowed or who receives these incentives may be deemed
to be an underwriter under the Securities Act of 1933.
(**) No sales charge is payable at the time of purchase of Class A shares of
$1 million or more, but a CDSC may be imposed in the event of certain
redemption transactions made within one year of purchase.
(***) John Hancock Funds may pay a commission and first year's service fee (as
described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of $1 million or more in the aggregate, as
follows: 1% on sales to $4,999,999, 0.50% on the next $5 million and
0.25% on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the
first year's service fee in advance, in an amount equal to 0.25% of the
net assets invested in the Fund. Thereafter it pays the service fee
periodically in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
Sales charges ARE NOT APPLIED to any dividends that are reinvested in
additional shares of the Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual rate
of up to 0.05% of the daily net assets of the accounts attributable to these
brokers.
Under certain circumstances described below, investors in Class A shares may
be entitled to pay reduced sales charges. See "Qualifying for a Reduced Sales
Charge" below.
Contingent Deferred Sales Charge--Investments of $1 million or more in Class A
Shares. Purchases of $1 million or more in Class A shares will be made at net
asset value with no initial sales charge, but if the shares are redeemed within
12 months after the end of the calendar month in which the purchase was made
(the CDSC), a CDSC will be imposed. The rate of the CDSC will depend on the
amount invested as follows:
Amount Invested CDSC Rate
-------------------------------- ----------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans
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with at least 100 eligible employees at the inception of the Fund account, may
purchase Class A shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which the
purchase was made, a CDSC will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current market
value or the original purchase cost of the redeemed Class A shares. Accordingly,
no CDSC will be imposed on increases in account value above the initial purchase
price, including any dividends that have been reinvested in additional Class A
shares.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
Therefore, it will be assumed that redemption is first made from any shares in
your account that are not subject to the CDSC. The CDSC is waived on redemptions
in certain circumstances. See the discussion under "Waiver of Contingent
Deferred Sales Charges."
You may qualify for a reduced
sales charge on your investments in Class A shares.
Qualifying for a Reduced Sales Charge. If you invest more than $50,000 in Class
A shares of the Fund or a combination of funds in the John Hancock funds (except
money market funds), you may qualify for a reduced sales charge on your
investments in Class A shares through a LETTER OF INTENTION. You may also be
able to use the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE to take
advantage of the value of your previous investments in Class A shares of John
Hancock funds when meeting the breakpoints for a reduced sales charge. For the
ACCUMULATION and COMBINATION PRIVILEGE, the applicable sales charge will be
based on the total of:
1. Your current purchase of Class A shares of the Fund;
2. The net asset value (at the close of business on the previous day) of (a)
all Class A shares of the Fund you hold, and (b) all Class A shares of any
other John Hancock funds you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
Example:
If you hold Class A shares of a John Hancock mutual fund with a net asset value
of $20,000, and subsequently invest $30,000 in Class A shares of the Fund, the
sales charge on this subsequent investment would be 4.50% and not 5.00%. This
rate is the rate that would otherwise be applicable to investments of less than
$50,000. See "Initial Sales Charge Alternative--Class A Shares."
Class A shares may be available without a sales charge
to certain individuals and organizations.
If you are in one of the following categories, you may purchase Class A
shares of the Fund without paying a sales charge:
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 of any of the foregoing; or any
fund, pension, profit sharing or other benefit plan for the individuals
described above.
o Any state, county, city or any instrumentality, department, authority or
agency of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any registered
investment management company.*
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o A bank, trust company, credit union, savings institution or other type of
depository institution, its trust departments or common trust funds (an
"eligible depository institution") if it is purchasing $1 million or more for
non-discretionary customers or accounts.*
o A broker, dealer or registered investment adviser that has entered into an
agreement with John Hancock Funds providing specifically for the use of Fund
shares in fee-based investment products made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds, when
he/she withdraws from his/her plan and transfers any or all of his/her plan
distributions directly to the Fund.
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may also be purchased without an initial sales charge
in connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Contingent Deferred Sales Charge Alternative--Class B Shares. Class B shares are
offered at net asset value per share without a sales charge so that your entire
investment will go to work at the time of purchase. Class B shares redeemed
within six years of purchase will be subject to a CDSC at the rates set forth
below. This charge will be assessed on an amount equal to the lesser of the
current market value or the original purchase cost of the shares being redeemed.
Accordingly, you will not be assessed a CDSC on increases in account value above
the initial purchase price, including shares derived from dividend reinvestment
or capital gains distributions.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
reinvestment of dividends or distributions, and next from the shares you have
held the longest during the six-year period. The CDSC is waived on redemptions
in certain circumstances. See the discussion "Waiver of Contingent Deferred
Sales Charges" below.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time, your CDSC will be calculated as follows:
o Proceeds of 50 shares redeemed at $12 per share $ 600
o Minus proceeds of 10 shares not subject to CDSC because -120
they were acquired through dividend reinvestment (10 X $12)
o Minus appreciation on remaining shares, also not subject to
CDSC (40 X $2) -80
------
o Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds
uses all or part of them to defray its expenses related to providing the
Fund with distribution
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services connected to the sale of Class B shares, such as compensating Selling
Brokers for selling these shares. The combination of the CDSC and the
distribution and service fees makes it possible for the Fund to sell Class B
shares without deducting a sales charge at the time of the purchase.
The amount of the CDSC, if any, will vary depending on the number of years from
the time you purchase your Class B shares until the time you redeem them. Solely
for purposes of determining the holding period, any payments you make during the
month will be aggregated and deemed to have been made on the last day of the
month.
Contingent Deferred Sales
Year in Which Class B Shares Charge As a Percentage of
Redeemed Following Purchase Dollar Amount Subject to CDSC
- ------------------------------ --------------------------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for personal and
account maintenance services provided to shareholders during the twelve months
following the sale. Thereafter the service fee is paid in arrears.
Under certain circumstances, the CDSC on Class B and certain Class A share
redemptions will be waived.
Waiver of Contingent Deferred Sales Charges. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a
CDSC, unless indicated otherwise, in these circumstances defined below:
o Redemptions of Class B shares made under a Systematic Withdrawal Plan (see
"How to Redeem Shares"), as long as your annual redemptions do not exceed 10%
of your account value at the time you established your Systematic Withdrawal
Plan and 10% of the value of your subsequent investments (less redemptions) in
that account at the time you notify Investor Services. This waiver does not
apply to Systematic Withdrawal Plan redemptions of Class A shares that are
subject to a CDSC.
o Redemptions made to effect distributions from an Individual Retirement Account
either before or after age 59-1/2, as long as the distributions are based on
the life expectancy or the joint-and-last survivor life expectancy of you and
your beneficiary. These distributions must be free from penalty under the
Code.
o Redemptions made to effect mandatory distributions under the Code after age
70-1/2 from a tax-deferred retirement plan.
o Redemptions made to effect distributions to participants or beneficiaries from
certain employer-sponsored retirement plans, including those qualified under
Section 401(a) of the Code, custodial accounts under Section 403(b)(7) of the
Code and deferred compensation plans under Section 457 of the Code. The waiver
also applies to certain returns of excess contributions made to these plans.
In all cases, the distributions must be free from penalty under the Code.
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o Redemptions due to death or disability.
o Redemptions made under the Reinvestment Privilege, as described in "Additional
Services and Programs" of this Prospectus.
o Redemptions made pursuant to the Fund's right to liquidate your account if you
own fewer than 50 shares.
o Redemptions made in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
o Redemptions from certain IRA and retirement plans that purchased shares prior
to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services either directly or through your Selling Broker at the time you
make your redemption. The waiver will be granted once Investor Services has
confirmed that you are entitled to the waiver.
Conversion of Class B Shares. Your Class B shares, and an appropriate portion of
reinvested dividends on those shares, will be converted into Class A shares
automatically. This will occur at the end of the month eight years after the
shares were purchased, and will result in lower annual distribution fees. If you
exchanged Class B shares into this Fund from another John Hancock fund, the
calculation will be based on the time you purchased the shares in the original
fund. The Fund has been advised that the conversion of Class B shares to Class A
shares should not be taxable for Federal income tax purposes, nor should it
change your tax basis or tax holding period for the converted shares.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your shares
will be redeemed at the next NAV calculated after your redemption request is
received in good order by Investor Services, less any applicable CDSC. The Fund
may hold payment until it is reasonably satisfied that investments recently made
by check or Invest-by-Phone have been collected (which may take up to 10
calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the next
business day. When you redeem your shares, you may realize a taxable gain or
loss depending usually on the difference between what you paid for your shares
and what you receive for them, subject to certain tax rules. Under unusual
circumstances, the Fund may suspend redemptions or postpone payment for up to
seven days or longer, as permitted by Federal securities laws.
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To assure acceptance of your redemption request, please follow these procedures.
By Telephone All Fund shareholders are automatically eligible for
the telephone redemption privilege. Call
1-800-225-5291, from 8:00 A.M. to 4:00 P.M. (New York
time), Monday through Friday, excluding days on which
the New York Stock Exchange is closed. Investor
Services employs the following procedures to confirm
that instructions received by telephone are genuine.
Your name, the account number, taxpayer identification
number applicable to the account and other relevant
information may be requested. In addition, telephone
instructions are recorded.
You may redeem up to $100,000 by telephone, but the
address on the account must not have changed for the
last 30 days. A check will be mailed to the exact
name(s) and address shown on the account.
If reasonable procedures, such as those described
above, are not followed, the Fund may be liable for any
loss due to unauthorized or fraudulent telephone
instructions. In all other cases, neither the Fund nor
Investor Services will be liable for any loss or
expense for acting upon telephone instructions made in
accordance with the telephone transaction procedures
mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Fund
that are in certificate form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to
implement due to a large volume of calls. During these
times you should consider placing redemption requests
in writing or using EASI-Line. EASI-Line's telephone
number is 1-800-338-8080.
By Wire If you have a telephone redemption form on file with
the Fund, redemption proceeds of $1,000 or more can be
wired on the next business day to your designated bank
account, and a fee (currently $4.00) will be deducted.
You may also use electronic funds transfer to your
assigned bank account, and the funds are usually
collectable after two business days. Your bank may or
may not charge for this service. Redemptions of less
than $1,000 will be sent by check or electronic funds
transfer.
This feature may be elected by completing the
"Telephone Redemption" section on the Account
Privileges Application that is included with this
Prospectus.
In Writing Send a stock power or "letter of instruction"
specifying the name of the Fund, the dollar amount or
the number of shares to be redeemed, your name, class
of shares, your account number and the additional
requirements listed below that apply to your particular
account.
Type of Registration Requirements
- -------------------------- --------------------------------------------
Individual, Joint Tenants, A letter of instruction signed (with titles
Sole Proprietorship, where applicable) by all persons authorized
Custodial (Uniform Gifts to sign for the account, exactly as it is
or Transfer to Minors registered with the signature(s) guaranteed.
Act), General Partners.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized to act
on the account, with the signature(s) guaranteed.
Trusts A letter of instruction signed by the Trustee(s)
with the signature(s) guaranteed. (If the Trustee's
name is not registered on your account, also
provide a copy of the trust document, certified
within the last 60 days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
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Who may guarantee your
signature
A signature guarantee is a widely accepted way to protect you and the Fund by
verifying the signature on your request. It may not be provided by a notary
public. If the net asset value of the shares redeemed is $100,000 or less, John
Hancock Funds may guarantee the signature. The following institutions may
provide you with a signature guarantee, provided that any such institution meets
credit standards established by Investor Services: (i) a bank; (ii) a securities
broker or dealer, including a goverment or municipal securities broker or
dealer, that is a member of a clearing corporation or meets certain net capital
requirements; (iii) a credit union having authority to issue signature
guarantees; (ic) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national securities exchange, a registered securities exchange or a clearing
agency.
Through Your Broker Your broker may be able to initiate the
redemption. Contact your broker for instructions.
Additional information
about redemptions
If you have certificates for your shares, you must submit them with your stock
power or a letter of instruction. Unless you specify to the contrary, any
outstanding Class A shares will be redeemed before Class B shares. You may not
redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining smaller accounts, the Fund
reserves the right to redeem at net asset value all shares in an account which
holds fewer than 50 shares (except accounts under retirement plans) and to mail
the proceeds to the shareholder, or the transfer agent may impose an annual fee
of $10. No account will be involuntarily redeemed or additional fee imposed, if
the value of the account is in excess of the Fund's minimum initial investment.
No CDSC will be imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or this
fee is imposed, and will have 30 days to purchase additional shares to bring
their account balance up to the required minimum. Unless the number of shares
acquired by further purchases and dividend reinvestments, if any, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this policy.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege
You may exchange shares of the Fund only for shares of the same class of another
John Hancock fund.
If your investment objective changes, or if you would like to achieve further
diversification, John Hancock offers other funds with a wide range of investment
goals. Contact your registered representative or Selling Broker and request a
prospectus for the John Hancock funds that interest you. Read the prospectus
carefully before exchanging your shares. You can exchange shares of each class
of the Fund only for shares of the same class of another John Hancock fund. For
this purpose, John Hancock funds with only one class of shares will be treated
as Class A whether or not they have been so designated.
Exchanges between funds that are not subject to a CDSC are based on their
respective net asset values. No sales charge or transaction charge is imposed.
Class B shares of the Fund that are subject to a CDSC may be exchanged for Class
B shares of another John Hancock fund without incurring the CDSC; but these
shares will be subject to the CDSC schedule of the shares acquired (except that
exchanges into John Hancock Short-Term Strategic Income Fund, John Hancock
Adjustable Intermediate Maturity Government Fund and John Hancock Limited-Term
Government Fund will be subject to the initial fund's CDSC). For purposes of
computing the CDSC payable upon redemption of shares acquired in an exchange,
the holding period of the original shares is added to the holding period of the
shares acquired in an exchange. However, if you exchange Class B shares
purchased prior to January 1, 1994 for Class B shares of any other John Hancock
fund, you will continue to be subject to the CDSC schedule that was in effect at
your initial purchase date.
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You may exchange Class B shares of the Fund into John Hancock Money Market Fund
(Class B Shares) at net asset value. However, you will continue to be subject to
a CDSC upon redemption. The rate of the CDSC will be the rate in effect on the
original fund at the time of the exchange.
The Fund reserves the right to require that you keep previously exchanged shares
(and reinvested dividends) in the Fund for 90 days before you are permitted a
new exchange. The Fund may also terminate or alter the terms of the exchange
privilege, upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and
the purchase of shares in another fund for Federal income tax purposes. An
exchange may result in a taxable gain or loss.
When you make an exchange, your account registration in both the existing and
new account must be identical. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers and
investment advisers may exchange their clients' Fund shares, subject to the
terms of those agreements and John Hancock Funds' right to reject or suspend
those exchanges at any time. Because of the restrictions and procedures under
those agreements, the exchanges may be subject to timing limitations and other
restrictions that do not apply to exchanges requested by shareholders directly,
as described above.
Because Fund performance and shareholders can be hurt by excessive trading, the
Fund reserves the right to terminate the exchange privilege for any person or
group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely. The
Fund may also temporarily or permanently terminate the exchange privilege for
any person who makes seven or more exchanges out of the Fund per calendar year.
Accounts under common control or ownership will be aggregated for this purpose.
Although the Fund will attempt to give you prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
By Telephone
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
service representative.
3. Your name, the account number, taxpayer identification number applicable
to the account and other relevant information may be requested. In
addition, telephone instructions are recorded.
In Writing
1. In a letter request an exchange and list the following:
-- the name and class of the fund whose shares you currently own
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-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or the dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Reinvestment Privilege
If you redeem shares of the Fund, you may be able to reinvest all or part of the
proceeds in shares of the Fund or another John Hancock fund without paying an
additional sales charge.
1. You will not be subject to a sales charge on Class A shares that you reinvest
in any John Hancock fund that is otherwise subject to a sales charge, as long
as you reinvest within 120 days from the redemption date. If you paid a CDSC
upon a redemption, you may reinvest at net asset value in the same class of
shares from which you redeemed within 120 days. Your account will be credited
with the amount of the CDSC previously charged, and the reinvested shares
will continue to be subject to a CDSC. The holding period of the shares
acquired through reinvestment, for purposes of computing the CDSC payable
upon a subsequent redemption, will include the holding period of the redeemed
shares.
2. Any portion of your redemption may be reinvested in Fund shares or in shares
of any of the other John Hancock funds, subject to the minimum investment
limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the Fund's
name, account number and class from which your shares were originally
redeemed.
Systematic Withdrawal Plan
You can pay routine bills from your account, or make periodic disbursements from
your retirement account to comply with IRS reguations.
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application that is attached to this Prospectus. You can
also obtain the application by calling your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually or
annually or on a selected monthly basis to yourself or any other designated
payee.
4. There is no limit on the number of payees you may authorize, but all
payments must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan concurrently
with purchases of additional Class A or Class B shares because you may be
subject to an initial sales charge on your purchases of Class A shares or a
CDSC on your redemptions of Class B shares. In addition, your redemptions are
taxable events.
21
<PAGE>
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks, or if deposits to a bank account are returned for any reason.
Monthly Automatic Accumulation Program (MAAP)
You can make automatic investments and simplify your investing.
1. You can authorize an investment to be drawn automatically each month from
your bank for investment in Fund shares, under the "Automatic Investing" and
"Bank Information" sections of the Account Privileges Application.
2. You can also authorize automatic investing through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program at any time.
4. There is no charge to you for this program, and there is no cost to the
Fund.
5. If you have payments being withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
Group Investment Program
Organized groups of at least four persons may establish accounts.
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for this
program, contact your registered representative or call 1-800-225-5291.
2. The initial aggregate investment of all participants in the group must be
at least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at
any time.
Retirement Plans
1. You may use the Fund to fund various types of qualified retirement plans,
including Individual Retirement Accounts, Keogh Plans (H.R. 10), Pension and
Profit Sharing Plans (including 401(k) plans), Tax-Sheltered Annuity
Retirement Plans (403(b) or TSA Plans) and 457 Plans.
2. The initial investment minimum or aggregate minimum for any of these plans is
$250. However, accounts being established as group IRA, SEP, SARSEP, TSA,
401(k) and 457 Plans will be accepted without an initial minimum investment.
22
<PAGE>
[Back Cover]
JOHN HANCOCK INDEPENDENCE
DIVERSIFIED CORE EQUITY FUND
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Sub-Investment Adviser
Independence Investment Associates, Inc. ("IIA")
53 State Street
Boston, MA 02109
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Custodian
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
Transfer Agent
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Independent Accountants
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For: Service Information
Telephone Exchange
Investment-by-Phone call 1-800-225-5291
Telephone Redemption
For: TDD call 1-800-554-6713
JHD-2500P 9/95
JOHN HANCOCK
INDEPENDENCE
DIVERSIFIED CORE
EQUITY FUND
Class A and Class B Shares
Prospectus
September 1, 1995
A mutual fund seeking above-average total return.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-225-5291
[recycle logo] Printed on recycled paper using soybean ink
<PAGE>
John Hancock
Utilities Fund
Class A and Class B Shares
Prospectus
September 1, 1995
TABLE OF CONTENTS
Page
-------
Expense Information 2
The Fund's Financial Highlights 3
Investment Objectives and Policies 4
Organization and Management of the Fund 7
Alternative Purchase Arrangements 8
The Fund's Expenses 10
Dividends and Taxes 11
Performance 11
How to Buy Shares 12
Share Price 14
How to Redeem Shares 19
Additional Services and Programs 20
This Prospectus sets forth the information about John Hancock Utilities Fund
(the "Fund"), a diversified series of John Hancock Strategic Series (the
"Trust"), that you should know before investing. Please read and retain it
for future reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission (the "SEC"). You can obtain a copy of the Fund's
Statement of Additional Information, dated September 1, 1995, and
incorporated by reference in this Prospectus, free of charge by writing to or
by telephoning: John Hancock Investor Services Corporation, P.O. Box 9116,
Boston, Massachusetts 02205-9116, 1-800-225-5291 (1-800-554-6713 TDD).
Shares of the Fund are not deposits or obligations of, or guaranteed or
endorsed by, any bank, and the shares are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other agency.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
1
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various fees and expenses that you will bear, directly or indirectly, when
you purchase Fund shares. The operating expenses included in the table and
the hypothetical example below are based on actual fees and expenses of the
Fund's Class A and Class B shares for the fiscal year ended May 31, 1995,
adjusted to reflect current fees and expenses. Actual fees and the expense
limitation of Class A shares and Class B shares may be greater or less than
those indicated.
Class A Class B
Shares Shares
------- ---------
Shareholder Transaction Expenses
(as a percentage of offering price)
Maximum sales charge imposed on purchases 5.00% None
Maximum sales charge imposed on reinvested
dividends None None
Maximum deferred sales charge None* 5.00%
Redemption fee+ None None
Exchange fee None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fee*** (net of fee reduction) 0.04% 0.04%
12b-1 fee** 0.30% 1.00%
Other expenses*** 0.77% 0.79%
----- -------
Total Fund operating expenses (net of fee
reduction)*** 1.11% 1.83%
===== =======
* No sales charge is payable at the time of purchase on investments in Class A
shares of $1 million or more, but a contingent deferred sales charge may be
imposed on these investments, as described below under the caption "Share
Price," in the event of certain redemption transactions within one year of
purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to
0.25% of the Fund's average net assets, and the remaining portion will be
used to cover distribution expenses. See "The Fund's Expenses."
*** Expenses reflect a fee reduction by John Hancock Advisers, Inc. (the
"Adviser"), the Fund's investment adviser. Without this fee reduction, the
expenses shown for Class A and Class B shares, respectively, would be:
Management fee, 0.70% and 0.70% and total expenses 1.77% and 2.49%. The
Adviser reserves the right to terminate this fee reduction in the future.
+Redemption by wire fee (currently $4.00) not included.
1 3 5 10
Example: Year Years Years Years
You would pay the following
expenses for the indicated
period of years on a hypothetical
$1,000 investment, assuming a
5% annual return:
Class A Shares $61 $84 $108 $178
Class B Shares
--Assuming complete redemption
at end of period ................ $69 $88 $119 $196
--Assuming no redemption .......... $19 $58 $ 99 $196
(This example should not be considered a representation of past or future
expenses. Actual expenses may be greater or less than those shown.)
The Fund's payment of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the
maximum front-end sales charge permitted under the National Association of
Securities Dealers, Inc.'s Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained in
this Prospectus under the caption "The Fund's Expenses" and in the Statement
of Additional Information under the captions "Investment Advisory and Other
Services" and "Distribution Contract."
2
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following table of Financial Highlights has been audited by Price
Waterhouse LLP, the Fund's independent accountants, whose unqualified report
is included in the Fund's 1995 Annual Report and in the Statement of
Additional Information. Further information about the Fund's performance is
contained in the Annual Report to shareholders, which may be obtained free of
charge by writing or telephoning John Hancock Investor Services Corporation
("Investor Services") at the address or telephone number listed on the front
page of this Prospectus.
Selected data for each class of shares outstanding throughout each period
are as follows:
For the Period
February 1,
1994
(Commencement
Year Ended of Operations)
May 31, to May 31,
CLASS A 1995 1994
- ---------------------------------------------- ----------- --------------
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.26 $ 8.50
--------- ------------
Net Investment Income 0.44(b) 0.12(b)
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions 0.12 (0.36)
--------- ------------
Total from Investment Operations 0.56 (0.24)
--------- ------------
Less Distributions:
Dividends from Net Investment Income (0.34) --
--------- ------------
Net Asset Value, End of Period $ 8.48 $ 8.26
========= ============
Total Investment Return at Net Asset Value 7.10% (2.82%)
Total Adjusted Investment Return at
Net Asset Value (a)(c) 6.44% (13.89%)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $19,229 $781
Ratio of Expenses to Average Net Assets** 1.04% 1.00%*
Ratio of Adjusted Expenses to
Average Net Assets (a) 1.70% 12.07%*
Ratio of Net Investment Income
to Average Net Assets 5.39% 4.53%*
Ratio of Adjusted Net Investment
Income (Loss) to Average Net Assets (a) 4.73% (6.54%)*
Portfolio Turnover Rate 98% 6%
**Fee Reduction Per Share $ 0.05(b) $ 0.27(b)
CLASS B
- -------------------------------------------------------------------------------
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.25 $ 8.50
--------- ------------
Net Investment Income 0.38(b) 0.08(b)
Net Realized and Unrealized Gain (Loss)
on Investments and Foreign Currency
Transactions 0.12 (0.33)
--------- ------------
Total from Investment Operations 0.50 (0.25)
--------- ------------
Less Distributions:
Dividends from Net Investment Income (0.30) --
--------- ------------
Net Asset Value, End of Period $ 8.45 $ 8.25
========= ============
Total Investment Return at
Net Asset Value 6.31% (2.94%)
Total Adjusted Investment
Return at Net Asset Value (a)(c) 5.65% (14.01%)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $38,344 $445
Ratio of Expenses to Average Net Assets** 1.71% 1.72%*
Ratio of Adjusted Expenses to
Average Net Assets (a) 2.37% 12.79%*
Ratio of Net Investment Income to
Average Net Assets 4.64% 4.20%*
Ratio of Adjusted Net Investment
Income (Loss) to Average
Net Assets (a) 3.98% (6.87%)*
Portfolio Turnover Rate 98% 6%
**Fee Reduction Per Share $ 0.05(b) $ 0.27(b)
* On an annualized basis. (a) Net of any fee reductions. (b) On average
month-end shares outstanding. (c) Unaudited.
3
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Fund seeks current income,
and, to the extent consistent
with that objective, growth of
income and long-term capital
growth.
The investment objectives of the Fund are to seek current income, and, to the
extent consistent with that objective, growth of income and long-term capital
growth. The Fund will seek to achieve these objectives by investing under
normal market conditions substantially all of its assets in equity securities
issued by companies in the public utilities industries. There can be no
assurance that the objectives of the Fund will be realized.
The Fund will emphasize equity
securities issued by companies in
the public utilities industries.
Under normal market conditions, the Fund will invest at least 65% of its
total assets in equity securities of companies in the public utilities
industries. These companies include those engaged in the generation,
transmission, sale or distribution of electric energy; the distribution,
purification and treatment of water; the provision of waste management and
the treatment of other sanitary services; the production, transmission or
distribution of natural gas and other types of energy; the provision of
pollution control or abatement services; and telephone, telegraph, satellite,
microwave and other communication services (but not including companies in
the public broadcasting or cable television industries). A particular company
is in one or more public utilities industries, if at the time of investment,
the Adviser determines that at least 50% of the company's assets, revenues or
profits are derived from these industries. The Fund may invest in debt and
equity securities of issuers in other industries if John Hancock Advisers,
Inc. (the "Adviser") believes that those investments will help the Fund
achieve its investment objectives.
Equity securities in which the Fund may invest consist of common and
preferred stocks and securities with stock characteristics, such as warrants
to purchase, and debt securities convertible into, common or preferred
stocks. The Fund may invest up to 5% of its net assets (at the time of
purchase) in rights and warrants, except those (i) acquired as part of a unit
or attached to other securities purchased by the Fund or (ii) acquired as
part of a distribution from the issuer, which are not subject to any limit.
The Fund's emphasis on securities of public utilities makes the Fund more
susceptible to adverse conditions affecting those industries than a fund that
does not have its assets concentrated similarly. Public utilities are subject
to a variety of factors that may adversely affect their business or
operations, including high interest costs in connection with capital
construction programs; governmental regulation of rates charged to customers;
costs associated with environmental, nuclear safety and other regulations;
service interruption due to environmental, operational or other mishaps; the
effects of economic slowdowns; surplus capacity; increased competition from
other providers of utility services; uncertainties concerning the
availability of fuel at reasonable prices; the effects of energy conservation
policies and other factors. Public utilities may also be subject to
regulation by various governmental authorities and may be affected by the
imposition of special tariffs and changes in tax laws, regulatory policies
and accounting standards. Prices charged by public utilities are generally
regulated in the U.S. with the intention of protecting the public while
ensuring that the public utilities' rate of return allows them to attract
enough capital to grow and provide appropriate services. There can be no
assurance that these pricing policies or rates of return will continue in the
future. The nature of the regulation of public utilities is evolving. Changes
in regulation increasingly allow public utilities to provide
4
<PAGE>
services and products outside their traditional geographic areas and lines of
business, offering new sources of revenue but also creating new areas of
competition within their industries. The emergence of competition may result
in certain companies being forced to defend their core businesses, which may
cause them to be less profitable. Generally, the dividend yield of public
utilities' equity securities has been above the stock market average.
Consequently, their market price tends to be more influenced by changes in
prevailing interest rates than does the price of other issuers' securities.
The Fund may also invest in
investment grade fixed income
securities.
The Fund may invest up to 25% of its total assets in fixed income securities,
consisting of U.S. Government securities and corporate debt securities,
including convertible securities, rated at least BBB by Standard & Poors'
Ratings Group ("S&P") or at least Baa by Moody's Investors Service, Inc.
("Moody's"), or, if unrated, determined to be of comparable quality by the
Adviser. The market value of fixed income securities varies inversely with
changes in the prevailing levels of interest rates. The market value of
convertible securities, while influenced by the prevailing level of interest
rates, is also affected by the changing value of the equity securities into
which they are convertible. The Fund may purchase debt securities with stated
maturities of up to thirty years. Debt securities rated BBB or Baa are
considered medium-grade obligations with speculative characteristics, and
adverse economic conditions or changing circumstances may weaken the issuer's
capacity to pay interest and repay principal. If the rating of a fixed income
security is reduced below Baa or BBB, the Adviser will sell it when it is
appropriate, consistent with the Fund's investment objectives and policies.
The Fund may employ certain
investment strategies to help
achieve its investment objective.
Foreign Securities. The Fund may invest up to 25% of its total assets in
securities of foreign issuers, including American Depositary Receipts
("ADRs"). ADRs (sponsored and unsponsored) are receipts typically issued by
an American bank or trust company which evidence ownership of the underlying
securities issued by a foreign corporation, and are designed for trading in
the United States securities markets. Issuers of unsponsored ADRs are not
contractually obligated to disclose material information in the United States
and, therefore, there may not be a correlation between that information and
the market value of an unsponsored ADR. Investment in foreign equity
securities may involve risks not present in domestic investments. An
investment in foreign securities or the holding of foreign currency may be
affected favorably or unfavorably by changes in currency rates and in
exchange control regulations. There may be a transaction charge or
restrictions on the exchange of currency. Foreign issuers may not be subject
to accounting standards or government supervision comparable to those imposed
on domestic companies, and there may often be less publicly available
information about their operations. Foreign markets generally provide less
liquidity than U.S. markets (and thus potentially greater price volatility),
and typically provide fewer regulatory protections for investors. Foreign
securities can also be affected by political or financial instability abroad.
Foreign Currencies. Due to its investments in foreign securities, the Fund
may hold a portion of its assets in foreign currencies. As a result, the Fund
may enter into forward foreign currency exchange contracts to protect against
changes in foreign currency exchange rates. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific
currency at a future date at a price set at the
5
<PAGE>
time of the contract. Although hedging strategies could reduce the risk of
loss due to a decline in the value of the hedged foreign currency, they may
also limit any potential gain which might result from an increase in the
value of that currency.
Restricted Securities. The Fund may purchase restricted securities, including
those eligible for resale to "qualified institutional buyers" pursuant to
Rule 144A under the Securities Act of 1933 (the "Securities Act"). The
Trustees will monitor the Fund's investments in these securities, focusing on
certain factors, including valuation, liquidity and availability of
information. Purchases of other restricted securities are subject to an
investment restriction limiting all the Fund's illiquid securities to not
more than 15% of its net assets.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements.
The Fund may reinvest any cash collateral in short-term securities. When the
Fund lends portfolio securities, there is a risk that the borrower may fail
to return the 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 in excess of 33-1/3% of its total assets.
Repurchase Agreements, Forward Commitments and When-Issued Securities. The
Fund may enter into repurchase agreements and may purchase securities on a
forward commitment or when-issued basis. In a repurchase agreement, the Fund
buys a security subject to the right and obligation to sell it back to the
issuer at a higher price. These transactions must be fully collateralized at
all times, but involve some credit risk to the Fund if the other party
defaults on its obligation and the Fund is delayed in or prevented from
liquidating the collateral. The Fund will segregate in a separate account
cash or liquid, high grade debt securities equal in value to its forward
commitments and when-issued securities. Purchasing securities for future
delivery or on a when-issued basis may increase the Fund's overall investment
exposure and involves a risk of loss if the value of the securities declines
before the settlement date.
Defensive Investments. If the Adviser believes that the Fund should
temporarily assume a defensive investment posture due to unfavorable
investment conditions, the Fund may hold cash or invest all or part of its
assets in short-term instruments. These short-term instruments consist of:
corporate commercial paper and other short-term commercial obligations that
are rated or issued by companies with similar outstanding securities that are
rated, at least Prime-1 or Aa by Moody's or at least A-1 or AA by S&P;
obligations (including certificates of deposit, time deposits, demand
deposits and banker's acceptances) of banks with securities outstanding that
are rated at least Prime-1 or Aa by Moody's, or at least A-1 or AA by S&P;
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities with remaining maturities not exceeding 18 months; and
repurchase agreements.
The Fund's portfolio securities may be changed without regard to their
holding period (subject to certain tax restrictions) when the Adviser deems
that this action is appropriate in view of a change in the issuer's financial
or business operations or a change
6
<PAGE>
in general market conditions. The Fund does not generally consider the length
of time it has held a particular security in making its investment decisions.
The Fund's portfolio turnover rate is not expected to exceed 100%.
The Fund follows certain policies
which may help reduce investment
risk.
The Fund has adopted certain investment restrictions which are detailed in
the Statement of Additional Information, where they are classified as
fundamental or non-fundamental. The Fund's fundamental investment
restrictions may not be changed without shareholder approval. All other
restrictions, investment objectives and investment policies are
nonfundamental and can be changed by a vote of the Trustees without
shareholder approval. If there is a change in the Fund's investment
objectives, shareholders should consider whether the Fund remains an
appropriate investment in light of their current financial position and
needs.
Investments in foreign securities
may involve risks and
considerations that are not
present in domestic investments.
Global: Risks. Investments in foreign securities may involve risks not
present in domestic securities due to exchange controls, less publicly
available information, more volatile or less liquid securities markets, and
the possibility of expropriation, confiscatory taxation or political,
economic or social instability. There may be difficulty in enforcing legal
rights outside the United States. Some foreign companies are not subject to
the same uniform financial reporting requirements, accounting standards and
government supervision as domestic companies, and foreign exchange markets
are regulated differently from the U.S. stock market. Additionally, 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 net investment income and gains, if
any, that the Fund distributes to shareholders. Securities transactions
undertaken in some foreign markets may not be settled promptly. Therefore,
the Fund's investments on foreign exchanges may be less liquid and subject to
the risk of fluctuating currency exchange rates pending settlement. The
expense ratio of the Fund can be expected to be higher than that of mutual
funds investing only in domestic securities since the expenses of the Fund,
such as the cost of maintaining custody of foreign securities and advisory
fees, are higher.
Brokers are chosen based on best
price and execution.
When choosing brokerage firms to carry out the Fund's transactions, the
Adviser gives primary consideration to execution at the most favorable
prices, taking into account the broker's professional ability and quality of
service. Consideration may also be given to the broker's sale of Fund shares.
Pursuant to procedures established by the Trustees, the Adviser may place
securities transactions with brokers affiliated with the Adviser. These
brokers include Tucker Anthony Incorporated, John Hancock Distributors, Inc.,
and Sutro & Company, Inc. They are indirectly owned by John Hancock Mutual
Life Insurance Company, which in turn indirectly owns the Adviser.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Trustees elect officers and
retain the investment adviser who
is responsible for the day-to-day
operations of the Fund, subject
to the Trustees' policies and
supervision.
The Fund is a separate, diversified series of the Trust, an open-end
management investment company organized as a Massachusetts business trust in
1986. The Trust's Declaration of Trust permits the Trustees to create and
classify shares of beneficial interest into separate series of the Trust with
different investment objectives. The Trustees may also classify or reclassify
any series into one or more classes. Accordingly, the Trustees have
authorized the issuance of two classes of the Fund,
7
<PAGE>
designated as Class A shares and Class B. The shares of each class represent
an interest in the same portfolio of investments of the Fund and have equal
rights as to voting, redemption, dividends and liquidation. However, each
class of shares bears different distribution and transfer agent fees, and
Class A and Class B shareholders have exclusive voting rights with respect to
their distribution plans.
The Fund is not required and does not intend to hold annual meetings of
shareholders, although special meetings may be held for such purposes as
electing or removing Trustees, changing fundamental investment restrictions
and policies or approving a management contract. The Fund, under certain
circumstances, will assist in shareholder communications with other
shareholders.
John Hancock Advisers, Inc.
advises investment companies
having total assets of more than
$13 billion.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary
of the Life Company, a financial services company. The Adviser provides the
Fund, and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services. John Hancock Funds,
Inc. ("John Hancock Funds") distributes shares for all of the John Hancock
mutual funds through selected broker-dealers ("Selling Brokers"). Certain of
the Fund's officers are also officers of the Adviser and John Hancock Funds.
Pursuant to an order granted by the Securities and Exchange Commission, the
Fund has adopted a deferred compensation plan for its independent Trustees
which allows Trustees' fees to be invested by the Fund in other John Hancock
funds.
Andrew F. St. Pierre is Senior Vice President of the Adviser and portfolio
manager of the Fund and Patriot Premium Dividend Fund I, Patriot Premium
Dividend Fund II, Patriot Select Dividend Trust, Patriot Global Dividend Fund
and Patriot Preferred Dividend Fund. He is assisted by a team of analysts in
the day-to-day management of the Fund. Mr. St. Pierre has more than 10 years
of investment experience. He joined the Adviser in 1991. Prior to that date
Mr. St. Pierre was a portfolio manager for Harvard Management Corp.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities
trading by personnel of the Adviser and its affiliates. Some of these
restrictions are: pre-clearance for all personal trades and a ban on the
purchase of initial public offerings, as well as contributions to specified
charities of profits on securities held for less than 91 days. These
restrictions are a continuation of the basic principle that the interests of
the Fund and its shareholders come first.
ALTERNATIVE PURCHASE ARRANGEMENTS
An alternative purchase plan
allows you to choose the method
of payment that is best for you.
You can purchase shares of the Fund at a price equal to their net asset value
per share plus a sales charge. At your election, this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge
Alternative--Class A Shares") or on a contingent deferred basis (see
"Contingent Deferred Sales Charge Alternative--Class B Shares"). If you do
not specify on your account application the class of shares you are
purchasing, it will be assumed that you are investing in Class A shares.
Investments in Class A shares are
subject to an initial sales
charge.
Class A Shares. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount of your purchase is $1 million or
more. If you purchase $1 million or more of Class A shares, you will not be
subject to an initial sales charge, but you will incur a sales charge if you
redeem your shares within one year of pur-
8
<PAGE>
chase. Class A shares are subject to ongoing distribution and service fees at
a combined annual rate of up to 0.30% of the Fund's average daily net assets
attributable to the Class A shares. Certain purchases of Class A shares
qualify for reduced initial sales charges. See "Share Price--Qualifying for a
Reduced Sales Charge."
Investments in Class B shares are
subject to a contingent deferred
sales charge.
Class B Shares. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them
within six years of purchase (the "contingent deferred sales charge" or the
"CDSC"). Class B shares are subject to ongoing distribution and service fees
at a combined annual rate of up to 1.00% of the Fund's average daily net
assets attributable to the Class B shares. Investing in Class B shares
permits all your dollars to work from the time you make your investment, but
the higher ongoing distribution fee will cause these shares to have higher
expenses than Class A shares. To the extent that any dividends are paid by
the Fund, these higher expenses will also result in lower dividends than
those paid on Class A shares.
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
Factors to Consider in Choosing an Alternative
You should consider which class
of shares would be more
beneficial for you.
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares given the amount of your purchase, the length of time that
you expect to hold your shares and other circumstances. You should consider
whether, during the anticipated life of your Fund investment, the CDSC and
accumulated fees on Class B shares would be less than the initial sales
charge and accumulated fees on Class A shares purchased at the same time, and
to what extent this differential would be offset by the Class A shares' lower
expenses. To help you make this determination, the table under the caption
"Expense Information" on the inside cover page of this Prospectus shows
examples of the charges applicable to each class of shares. Class A shares
will normally be more beneficial if you qualify for a reduced sales charge.
See "Share Price--Qualifying for a Reduced Sales Charge."
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent
any dividends are paid. However, because initial sales charges are deducted
at the time of purchase, you would not have all of your funds invested
initially, and, therefore, would initially own fewer shares. If you do not
qualify for reduced initial sales charges and expect to maintain your
investment for an extended period of time, you might consider purchasing
Class A shares. This is because the accumulated distribution and service
charges on Class B shares may exceed the initial sales charge and accumulated
distribution and service charges on Class A shares during the life of your
investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares to have all of your funds invested initially. However, you
will be subject to higher distribution fees, and, for a six-year period, a
CDSC.
In the case of Class A shares, the distribution expenses that John Hancock
Funds incurs in connection with the sale of the shares will be paid from the
proceeds of the initial sales charge and the ongoing distribution and service
fees. In the case of Class
9
<PAGE>
B shares, the expenses will be paid from the proceeds of the ongoing
distribution and service fees, as well as from the CDSC incurred upon
redemption within six years of purchase. The purpose and function of the
Class B shares' CDSC and ongoing distribution and service fees are the same
as those of the Class A shares' initial sales charge and ongoing distribution
and service fees. Sales personnel distributing the Fund's shares may receive
different compensation for each class of shares.
Dividends, if any, on Class A and Class B shares will be calculated in the
same manner, at the same time and on the same day. They will also be in the
same amount, except for differences resulting from each class bearing only
its own distribution and service fees, shareholder meeting expenses and any
incremental transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investments and business affairs, the fund pays a fee to the
Adviser which is based on a stated percentage of the Fund's average daily net
asset value as follows:
Net Asset Value Annual Rate
- ----------------------------------- ------------
First $250,000,000 0.70%
Amount over $250,000,000 0.65%
The investment management fee for the 1995 fiscal year was 0.04% after
reimbursement.
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 has agreed to limit Fund expenses, including the
management fee (but not including the transfer agent fee and the 12b-1 fee),
to .50% of the Fund's average daily net assets. The Adviser reserves the
right to terminate this limitation in the future. The Adviser retains the
right to re-impose a fee and recover any other payments to the extent that,
at the end of any fiscal year, the Fund's actual expenses fall below this
limit.
The Fund pays distribution and
service fees for marketing and
sales-related shareholder
servicing.
The Class A and Class B shareholders have adopted distribution plans (each a
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under these Plans, the Fund will pay distribution and service
fees at an aggregate annual rate of up to 0.30% of the Class A shares'
average daily net assets and an aggregate annual rate of up to 1.00% of the
Class B shares' average daily net assets. In each case, up to 0.25% is for
service expenses and the remaining amount is for distribution expenses. The
distribution fees will be used to reimburse John Hancock Funds for its
distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of
John Hancock Funds) engaged in the sale of Fund shares; (ii) marketing,
promotional and overhead expenses incurred in connection with the
distribution of Fund shares; and (iii) with respect to Class B shares only,
interest expenses on unreimbursed distribution expenses. The service fees
will be used to compensate Selling Brokers for providing personal and account
maintenance services to shareholders. In the event John Hancock Funds is not
fully reimbursed for its payments or expenses under the Class A Plan, the
expenses will not be carried beyond one year from the date they were
incurred. Unreimbursed expenses under the Class B Plan will be carried
forward together with interest. For the fiscal year ended May 31, 1995 an
10
<PAGE>
aggregate of $1,891,012 of distribution expenses or 9.04% of the average net
assets of the Class B shares of the Fund, was not reimbursed or recovered by
John Hancock Funds through the receipt of deferred sales charges or 12b-1
fees in prior periods.
Information on the Fund's total expenses is in the Fund's Financial
Highlights section of the Prospectus.
DIVIDENDS AND TAXES
Dividends from the Fund's net investment income are generally declared and
paid quarterly. Capital gains, if any, are generally declared and distributed
annually. From time to time the Fund may declare a special dividend at year's
end. Dividends are reinvested in additional shares of your class unless you
elect the option to receive them in cash. If you elect the cash option and
the U.S. Postal Service cannot deliver your checks, your election will be
converted to the reinvestment option. Because of the higher expenses
associated with Class B shares, any dividend on these shares will be lower
than that on the Class A shares. See "Share Price."
Taxation. Dividends from the Fund's net investment income, certain net
foreign currency gains, and net short-term capital gains are taxable to you
as ordinary income. Dividends from the Fund's net long-term capital gains are
taxable as long-term capital gain. These dividends are taxable whether
received in cash or reinvested in additional shares. Certain dividends may be
paid in January of a given year, but may be taxable as if you received them
the previous December 31. The Fund will send you a statement by January 31
showing the tax status of the distributions you received for the prior year.
The Fund has qualified and intends to continue to qualify each year as a
regulated investment company under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). As a regulated investment company, the Fund
will not be subject to Federal income tax on any net investment income and
net realized capital gains that are distributed to its shareholders within
the time period prescribed by the Code. When you redeem (sell) or exchange
shares, you may realize a taxable gain or loss.
On the account application, you must certify that the social security or
other taxpayer identification number you provide is correct and that you are
not subject to back-up withholding of Federal income tax. If you do not
provide this information or are otherwise subject to backup withholding, the
Fund may be required to withhold 31% of your dividends and the proceeds of
redemptions and exchanges.
In addition to Federal taxes, you may be subject to state, local or foreign
taxes with respect to your investment in and distributions from the Fund. In
many states, a portion of the Fund's dividends that represents interest
received by the Fund on direct U.S. Government obligations may be exempt from
tax. You should consult your tax adviser for specific advice.
PERFORMANCE
The Fund may advertise its yield
and total return.
Yield reflects the Fund's rate of income on portfolio investments as a
percentage of its share price. Yield is computed by annualizing the result of
dividing the net investment income per share over a 30 day period by the
maximum offering price per share on the last day of that period. Yield is
calculated according to accounting methods that are standardized for all
stock and bond funds. Because yield accounting methods differ from the
11
<PAGE>
methods used for other accounting purposes, the Fund's yield may not equal
the income paid on your shares or the income reported in the Fund's financial
statements.
Total return shows the overall dollar or percentage change in value of a
hypothetical investment in the Fund, assuming the reinvestment of all
dividends. Cumulative total return shows the Fund's performance over a period
of time. Average annual total return shows the cumulative return divided over
the number of years included in the period. Because average annual total
return tends to smooth out variations in the Fund's performance, you should
recognize that it is not the same as actual year-to-year results.
Both total return and yield calculations for Class A shares generally include
the effect of paying the maximum sales charge (except as shown in "The Fund's
Financial Highlights"). Investments at lower sales charges would result in
higher performance figures. Yield and total return for the Class B shares
reflect the deduction of the applicable CDSC imposed on a redemption of
shares held for the applicable period. All calculations assume that all
dividends are reinvested at net asset value on the reinvestment dates during
the periods. Yield and total return of Class A and Class B shares will be
calculated separately and, because each class is subject to different
expenses, the yield or total return may differ with respect to each class for
the same period. The relative performance of the Class A and Class B shares
will be affected by a variety of factors, including the higher operating
expenses attributable to the Class B shares, whether the Fund's investment
performance is better in the earlier or later portions of the period measured
and the level of net assets of the classes during the period. The Fund will
include the total return of both Class A and Class B shares in any
advertisement or promotional materials including the Fund's performance data.
Both yield and total return are historical calculations and are not an
indication of future performance. The value of the Fund's shares, when
redeemed, may be more or less than their original cost. See "Factors to
Consider in Choosing an Alternative."
HOW TO BUY SHARES
Opening an account
The minimum initial investment is $1,000 ($250 for group investments and for
retirement plans). Complete the Account Application attached to this
Prospectus. Indicate whether you are purchasing Class A or Class B shares.
If you do not specify which class of shares you are purchasing, Investor
Services will assume you are investing in Class A shares.
-----------------------------------------------------------------------------
By Check 1. Make your check payable to John Hancock Investor Services
Corporation.
2. Deliver the completed application and check to your
registered representative or Selling Broker, or mail it
directly to Investor Services.
- ------------------------------------------------------------------------------
By Wire 1. Obtain an account number by contacting your registered
representative or Selling Broker or by calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Utilities Fund
(Class A or Class B shares)
Your account number
Name(s) under which account is registered.
3. Deliver the completed application to your registered
representative or Selling Broker, or mail it directly to
Investor Services.
12
<PAGE>
Buying additional Class A and
Class B shares
Monthly
Automatic
Accumulation 1. Complete the "Automatic Investing" and "Bank Information"
Program sections on the Account Privileges Application, designating a
(MAAP) bank account from which your funds may be drawn.
2. The amount you elect to invest will be automatically
withdrawn from your bank or credit union account.
- -------------------------------------------------------------------------------
By 1. Complete the "Invest-By-Phone" and "Bank Information"
Telephone sections on the Account Privileges Application designating a
bank account from which your funds may be drawn. Note that in
order to invest by phone, your account must be in a bank or
credit union that is a member of the Automated Clearing House
system (ACH).
2. After your authorization form has been processed, you may
purchase additional Class A or Class B shares by calling
Investor Services toll-free at 1-800-225-5291.
3. Give the Investor Services representative the name(s) in
which your account is registered, the Fund name, the class of
shares you own, your account number and the amount you wish
to invest.
4. Your investment normally will be credited to your account
the business day following your phone request.
- -------------------------------------------------------------------------------
By Check 1. Either complete the detachable stub included on your
account statement or include a note with your investment
listing the name of the Fund, the class of shares you own,
your account number and the name(s) in which the account is
registered.
2. Make your check payable to John Hancock Investor Services
Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative or Selling
Broker.
- -------------------------------------------------------------------------------
By Wire Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Utilities Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered.
Other Requirements. All purchases must be made in U.S. dollars. Checks
written on foreign banks will delay purchases until U.S. funds are received,
and a collection charge may be imposed. Shares of the Fund are priced at the
offering price based upon the net asset value computed after John Hancock
Funds receives notification of the dollar equivalent from the Fund's
custodian bank. Wire purchases normally take two or more hours to complete
and, to be accepted the same day, must be received by 4:00 P.M., New York
time. Your bank may charge a fee to wire funds. Telephone transactions are
recorded to verify information. Certificates are not issued unless a request
is made in writing to Investor Services.
You will receive account
statements, which you should keep
to help with your personal
recordkeeping.
You will receive a statement of your account after any transaction that
affects your share balance or registration (statements related to
reinvestment of dividends and automatic investment/withdrawal plans will be
sent to you quarterly). A tax information statement will be mailed to you by
January 31 of each year.
13
<PAGE>
SHARE PRICE
The offering price of your shares
is their net asset value plus a
sales charge, if applicable,
which will vary with the purchase
alternative you choose.
The net asset value per share ("NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of
outstanding shares of that class. The NAV of each class can differ.
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services, or at fair
value as determined in good faith according to procedures approved by the
Trustees. Short-term debt investments maturing within 60 days are valued at
amortized cost which the Board of Trustees has determined approximates market
value. Foreign securities are valued on the basis of quotations from the
primary market in which they are traded, and are translated from the local
currency into U.S. dollars using current exchange rates. If quotations are
not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a
method that the Trustees believe accurately reflects fair value. The NAV is
calculated once daily as of the close of regular trading on the New York
Stock Exchange (generally at 4:00 p.m., New York time) on each day that the
Exchange is open.
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock
Funds. If you buy shares of the Fund through a Selling Broker, the Selling
Broker must receive your investment before the close of regular trading on
the New York Stock Exchange and transmit it to John Hancock Funds before its
close of business to receive that day's offering price.
Initial Sales Charge Alternative--Class A Shares. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge as follows:
Combined
Reallowance
Sales Sales and Reallowance
Charge Charge Service to Selling
as a as a Fee as a Broker as a
Percentage Percentage Percentage Percentage
Amount Invested of the of the of of
(Including Sales Offering Amount Offering Offering
Charge) Price Invested Price(+) Price(*)
- --------------------- --------- --------- ---------- ------------
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to $249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to $499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to $999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%((**)) 0.00%((**)) ( ***) 0.00%(***)
- ------------
(*) Upon notice to Selling Brokers with whom it has sales agreements, John
Hancock Funds may reallow an amount up to the full applicable sales
charge. A Selling Broker to whom substantially the entire sales charge
is reallowed may be deemed to be an underwriter under the Securities
Act of 1933.
(**) No sales charge is payable at the time of purchase of Class A shares of
$1 million or more, but a contingent deferred sales charge may be
imposed in the event of certain redemption transactions made within one
year of purchase.
(***) John Hancock Funds may pay a commission and the first year's service
fee (as described in (+) below) to Selling Brokers who initiate and are
responsible for purchases of $1 million or more in the aggregate as
follows: 1% on sales to $4,999,999, 0.50% on the next $5 million and
0.25% on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the
first year's service fee in advance, in an amount equal to 0.25% of the
net assets invested in the Fund. Thereafter, it pays the service fee
periodically in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as compensation for
providing personal and account maintenance services to shareholders.
14
<PAGE>
Sales charges ARE NOT APPLIED to any dividends that are reinvested in
additional Class A shares of the Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual
rate of up to 0.05% of the daily net assets of accounts attributable to these
brokers.
Under certain circumstances described below, investors in Class A shares may
be entitled to pay reduced sales charges. See "Qualifying For a Reduced Sales
Charge".
Contingent Deferred Sales Charge--Investments of $1 Million or more in Class
A Shares. Purchases of $1 million or more of Class A shares will be made at
net asset value with no initial sales charge, but if the shares are redeemed
within 12 months after the end of the calendar month in which the purchase
was made (the contingent deferred sales charge period), a contingent deferred
sales charge will be imposed. The rate of the CDSC will depend on the amount
invested as follows:
CDSC
Amount Invested Rate
- ---------------------------------- ---------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a contingent deferred sales
charge will be imposed at the above rate.
The CDSC will be assessed on an amount equal to the lesser of the current
market value or the original purchase cost of the redeemed Class A shares.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends which have been reinvested in
additional Class A shares.
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. Therefore, it will be assumed that the redemption is first made from
any shares in your account that are not subject to the CDSC. The CDSC is
waived on redemptions in certain circumstances. See "Waiver of Contingent
Deferred Sales Charges" below.
You may qualify for a reduced
sales charge on your investments
in Class A shares.
Qualifying For a Reduced Sales Charge. If you invest more than $50,000 in
Class A shares of the Fund or a combination of John Hancock funds (except
money market funds), you may qualify for a reduced sales charge on your
investments in Class A shares through a LETTER OF INTENTION. You may also be
able to use the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE to take
advantage of the value of your previous investments in shares of the John
Hancock funds in meeting the breakpoints for a reduced sales charge. For the
ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE the applicable sales charge
will be based on the total of:
1. Your current purchase of Class A shares of the Fund.
2. The net asset value (at the close of business on the previous day) of (a)
all Class A shares of the Fund you hold, and (b) all Class A shares of any
other John Hancock mutual fund you hold; and
15
<PAGE>
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
Example:
If you hold Class A shares of a John Hancock mutual fund with a net asset
value of $20,000 and, subsequently, invested $30,000 in Class A shares of the
Fund, the sales charge on this subsequent investment would be 4.50% and not
5.00% (the rate that would otherwise be applicable to investments of less
than $50,000. See "Initial Sales Charge Alternative--Class A Shares.")
Class A shares may be available
without a sales charge to certain
individuals and organizations.
If you are in one of the following categories, you may purchase Class A
shares of the Fund without paying a sales charge:
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 of any of the foregoing; or
any Fund, pension, profit sharing or other benefit plan for the individuals
described above.
o Any state, county, city or any instrumentality, department, authority or
agency of these entities (an "eligible governmental authority") which is
prohibited by applicable investment laws from paying a sales charge or
commission when it purchases shares of any registered investment management
company.*
o A bank, trust company, credit union, savings institution or other type of
depository institution, its trust departments or common trust funds (an
"eligible depository institution") if it is purchasing $1 million or more
for non-discretionary customers or accounts.*
o A broker, dealer or registered investment adviser that has entered into an
agreement with John Hancock Funds providing specifically for the use of
Fund shares in fee-based investment products made available to their
clients.
o A former participant in an employee benefit plan with John Hancock funds,
when s/he withdraws from his/her plan and transfers any or all of his/her
plan distributions to the Fund.
For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares of the Fund may also be purchased without an initial sales
charge in connection with certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
Contingent Deferred Sales Charge Alternative--Class B Shares. Class B shares
are offered at net asset value per share without an initial sales charge, so
that your entire initial investment will go to work at the time of purchase.
However, Class B shares redeemed within six years of purchase will be subject
to a CDSC at the rates set forth below. The charge will be assessed on an
amount equal to the lesser of the current market value or the original
purchase cost of the shares being redeemed. Accordingly, you will not be
assessed a CDSC on increases in account value above the initial purchase
price, including shares derived from dividend reinvestment or capital gains
distributions.
16
<PAGE>
In determining whether a CDSC applies to a redemption, the calculation will
be determined in a manner that results in the lowest possible rate being
charged. It will be assumed that your redemption comes first from shares you
have held beyond the six-year CDSC redemption period or those you acquired
through dividend reinvestment, and next from the shares you have held the
longest during the six-year period. The CDSC is waived on redemptions in
certain circumstances. See the discussion "Waiver of Contingent Deferred
Sales Charge" below.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time, your CDSC will be calculated as
follows:
o Proceeds of 50 shares redeemed at $12 per share $ 600
o Minus proceeds of 10 shares not subject to CDSC
because they were acquired through dividend
reinvestment (10 x $12) -120
o Minus appreciation on remaining shares, also not
subject to CDSC (40 x $2) -80
---
o Amount subject to CDSC $ 400
===
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds
uses them to defray its expenses related to providing the Fund with
distribution services in connection with the sale of the Class B shares, such
as compensating Selling Brokers for selling these shares. The combination of
the CDSC and the distribution and service fees makes it possible for the Fund
to sell Class B shares without an initial sales charge.
The amount of the CDSC, if any, will vary depending on the number of years
from the time you purchase your Class B shares until the time you redeem
them. Solely for purposes of determining this holding period, any payments
you make during the month will be aggregated and deemed to have been made on
the last day of the month.
Year In Which Contingent Deferred Sales
Class B Shares Redeemed Charge As a Percentage of
Following Purchase Dollar Amount Subject to CDSC
- ---------------------------- --------------------------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
A commission equal to 3.75% of the amount invested and a first year's service
fee equal to 0.25% of the amount invested are paid to Selling Brokers. The
initial service fee is paid in advance at the time of sale for the provision
of personal and account maintenance services to shareholders during the
twelve months following the sale, and thereafter the service fee is paid in
arrears.
17
<PAGE>
Under certain circumstances, the
CDSC on Class B share redemptions
will be waived.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and Class A shares that are subject to a CDSC,
unless indicated otherwise, in these circumstances defined below:
o Redemptions of Class B shares made under a Systematic Withdrawal Plan (see
"How To Redeem Shares"), as long as your annual redemptions do not exceed
10% of your account value at the time you established your Systematic
Withdrawal Plan and 10% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor Services. This
waiver does not apply to Systematic Withdrawal Plan redemptions of Class A
shares that are subject to a CDSC.
o Redemptions made to effect distributions from an Individual Retirement
Account either before or after age 59-1/2, as long as the distributions are
based on your life expectancy or the joint-and-last survivor life
expectancy of you and your beneficiary. These distributions must be free
from penalty under the Code.
o Redemptions made to effect mandatory distributions under the Code after age
70-1/2 from a tax-deferred retirement plan.
o Redemptions made to effect distributions to participants or beneficiaries
from certain employer-sponsored retirement plans including those qualified
under Section 401(a) of the Code, custodial accounts under Section
403(b)(7) of the Code and deferred compensation plans under Section 457 of
the Code. The waiver also applies to certain returns of excess
contributions made to these plans. In all cases, the distributions must be
free from penalty under the Code.
o Redemptions due to death or disability.
o Redemptions made under the Reinvestment Privilege, as described in
"Additional Services and Programs" of this Prospectus.
o Redemptions made pursuant to the Fund's right to liquidate your account if
you own fewer than 50 shares.
o Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
o Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must
notify Investor Services either directly or through your Selling Broker at
the time you make your redemption. The waiver will be granted once Investor
Services has confirmed that you are entitled to the waiver.
Conversion of Class B Shares. Your Class B shares and an appropriate portion
of reinvested dividends on those shares will be converted into Class A shares
automatically no later than the month following eight years after the shares
were purchased, resulting in lower annual distribution fees. If you exchanged
Class B shares into the Fund from another John Hancock fund, the calculation
will be based on the time the shares in the original fund were purchased. The
Fund has been advised that the conversion of Class B shares to Class A shares
should not be taxable for Federal income tax purposes, nor should it change
your tax basis or tax holding period for the converted shares.
18
<PAGE>
HOW TO REDEEM SHARES
To assure acceptance of your
redemption request, please follow
these procedures.
You may redeem all or a portion of your shares on any business day. Your
shares will be redeemed at the next NAV calculated after your redemption
request is received in good order by Investor Services, less any applicable
CDSC. The Fund may hold payment until reasonably satisfied that investments
which were recently made by check or Invest-by-Phone have been collected
(which may take up to 10 calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the
next business day. When you redeem your shares, you may realize a taxable
gain or loss depending usually on the difference between what you paid for
them and what you receive for them, subject to certain tax rules. Under
unusual circumstances, the Fund may suspend redemptions or postpone payment
for up to seven days or longer, as permitted by Federal securities laws.
By Telephone All Fund shareholders are automatically eligible for the
telephone redemption privilege. Call 1-800-225-5291, from
8:00 A.M. to 4:00 P.M. (New York time), Monday through
Friday, excluding days on which the New York Stock Exchange
is closed. Investor Services employs the following procedures
to confirm that instructions received by telephone are
genuine. Your name, the account number, taxpayer
identification number applicable to the account and other
relevant information may be requested. In addition, telephone
instructions are recorded.
You may redeem up to $100,000 by telephone, but the address
on the account must not have changed for the last 30 days. A
check will be mailed to the exact name(s) and address shown
on the account.
If reasonable procedures, such as those described above, are
not followed, the Fund may be liable for any loss due to
unauthorized or fraudulent telephone instructions. In all
other cases, neither the Fund nor Investor Services will be
liable for any loss or expense for acting upon telephone
instructions made in accordance with the telephone
transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Fund that are
in certificate form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement due
to a large volume of calls. During these times, you should
consider placing redemption requests in writing or using
EASI-Line. EASI-Line's telephone number is 1-800-338-8080.
- --------------------------------------------------------------------------------
By Wire If you have a telephone redemption form on file with the
Fund, redemption proceeds of $1,000 or more can be wired on
the next business day to your designated bank account, and a
fee (currently $4.00) will be deducted. You may also use
electronic funds transfer to your assigned bank account and
the funds are usually collectible after two business days.
Your bank may or may not charge for this service. Redemptions
of less than $1,000 will be sent by check or electronic funds
transfer.
This feature may be elected by completing the "Telephone
Redemption" section on the Account Privileges Application
that is included with this Prospectus.
- --------------------------------------------------------------------------------
In Writing Send a stock power or "letter of instruction" specifying the
name of the Fund, the dollar amount or the number of shares
to be redeemed, your name, class of shares, your account
number and the additional requirements listed below that
apply to your particular account.
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<PAGE>
Type of Registration Requirements
Individual, Joint Tenants,
Sole Proprietorship, A letter of instruction signed (with titles where
Custodial (Uniform Gifts applicable) by all persons authorized to sign for
or Transfer to Minors the account, exactly as it is registered with the
Act), General Partners. signature(s) guaranteed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s) authorized to
act on the account with the signature(s)
guaranteed.
Trusts A letter of instruction signed by the Trustee(s)
with the signature(s) guaranteed. (If the
Trustee's name is not registered on your account,
also provide a copy of the trust document,
certified within the last 60 days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
Who may guarantee your signature
A signature guarantee is a widely accepted way to protect you and the Fund by
verifying the signature on your request. It may not be provided by a notary
public. If the net asset value of the shares redeemed is $100,000 or less,
John Hancock Funds may guarantee the signature. The following institutions may
provide you with a signature guarantee, provided that the institution meets
credit standards established by Investor Services: (i) a bank; (ii) a
securities broker or dealer, including a government or municipal securities
broker or dealer, that is a member of a clearing corporation or meets certain
net capital requirements; (iii) a credit union having authority to issue
signature guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v)
a national securities exchange, a registered securities exchange or a clearing
agency.
Through Your Broker Your broker may be able to initiate the redemption.
Contact your broker for instructions.
Additional information about
redemptions
If you have certificates for your shares, you must submit them with your stock
power or a letter of instruction. Unless you specify to the contrary, any
outstanding Class A shares will be redeemed before Class B shares. You may not
redeem certificated shares by telephone.
Due to the proportionately high cost of maintaining smaller accounts, the Fund
reserves the right to redeem at net asset value all shares in an account which
holds fewer than 50 shares (except accounts under retirement plans) and to
mail the proceeds to the shareholder, or the transfer agent may impose an
annual fee of $10.00. No account will be involuntarily redeemed or any
additional fee imposed, if the value of the account is in excess of the Fund's
minimum initial investment. No CDSC will be imposed on involuntary redemptions
of shares.
Shareholders will be notified before these redemptions are to be made or this
fee is imposed and will have 30 days to purchase additional shares to bring
their account balance up to the required minimum. Unless the number of shares
acquired by additional purchases and any dividend reinvestments, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this redemption policy.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege
You may exchange shares of the
Fund for shares of the same class
of another John Hancock fund.
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of
investment goals. Contact your registered representative or Selling Broker
and request a prospectus for the John Hancock funds that interest you. Read
the prospectus carefully before exchanging your shares. You can exchange
shares of each class of the Fund only for shares of the same class of another
John Hancock fund. For this purpose, John Hancock funds with only one class
of shares will be treated as Class A whether or not they have been so
designated.
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<PAGE>
Exchanges between funds which are not subject to a CDSC are based on their
respective net asset values. No sales charge or transaction charge is
imposed. Class B shares of the Fund which are subject to a CDSC may be
exchanged into Class B shares of another John Hancock fund without incurring
the CDSC; however, these shares will be subject to the CDSC schedule of the
shares acquired (except that exchanges into John Hancock Short-Term Strategic
Income Fund, John Hancock Intermediate Maturity Government Fund and John
Hancock Limited-Term Government Fund, will be subject to the initial fund's
CDSC). For purposes of computing the CDSC payable upon redemption of shares
acquired in an exchange, the holding period of the original shares is added
to the holding period of the shares acquired in an exchange. However, if you
exchange Class B shares purchased prior to January 1, 1994 for Class B shares
of any other John Hancock fund, you will be subject to the CDSC schedule in
effect on your initial purchase date.
You may exchange Class B shares of the Fund into shares of John Hancock Money
Market Fund (Class B shares) at net asset value. Shares so acquired will
continue to be subject to a CDSC upon redemption. The rate of the CDSC will
be the rate in effect for the original fund at the time of exchange.
The Fund reserves the right to require you to keep previously exchanged
shares (and reinvested dividends) in the Fund for 90 days before you are
permitted a new exchange. The Fund may also terminate or alter the terms of
the exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and
the purchase of shares of another for Federal income tax purposes. An
exchange may result in a taxable gain or loss.
When you make an exchange, your account registration must be identical in
both the existing and new account. The exchange privilege is available only
in states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers
and investment advisers may exchange their clients' Fund shares, subject to
the terms of those agreements and John Hancock Funds' right to reject or
suspend those exchanges at any time. Because of the restrictions and
procedures under those agreements, the exchanges may be subject to timing
limitations and other restrictions that do not apply to exchanges requested
by shareholders directly, as described above.
Because Fund performance and shareholders can be hurt by excessive trading,
the Fund reserves the right to terminate the exchange privilege for any
person or group that, in John Hancock Funds' judgment, is involved in a
pattern of exchanges that coincide with a "market timing" strategy that may
disrupt the Fund's ability to invest effectively according to its investment
objective and policies, or might otherwise affect the Fund and its
shareholders adversely. The Fund may also temporarily or permanently
terminate the exchange privilege for any person who makes seven or more
exchanges out of the Fund per calendar year. Accounts under common control or
ownership will be aggregated for this purpose. Although the Fund will attempt
to give prior notice whenever it is reasonably able to do so, it may impose
these restrictions at any time.
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<PAGE>
By Telephone
1. When you complete the application for your initial purchase of Fund
shares, you automatically authorize exchanges by telephone unless you check
the box indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable
to the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
In Writing
1. In a letter request an exchange and list the following: --the name and
class of the Fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or the dollar amount you wish to
exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Reinvestment Privilege
If you redeem shares of the Fund,
you may be able to reinvest all
or part of the proceeds in shares
of this Fund or another John
Hancock fund without paying an
additional sales charge.
1. You will not be subject to a sales charge on Class A shares that you
reinvest in any John Hancock funds that is otherwise subject to a sales
charge you will not pay a sales charge on your reinvestment as long as you
reinvest within 120 days of the redemption date. If you paid a CDSC upon a
redemption, you may reinvest at net asset value in the same class of
shares from which you redeemed within 120 days. Your account will be
credited with the amount of the CDSC that was charged previously, and the
reinvested shares will continue to be subject to a CDSC. For purposes of
computing any CDSC payable upon a subsequent redemption, the holding
period of the shares you acquired through reinvestment will include the
holding period of the redeemed shares.
2. Any portion of your redemption may be reinvested in Fund shares or in
shares of any of the other John Hancock funds, subject to the minimum
investment limit of that fund.
3. To reinvest, you must notify Investor Services in writing. Include the
Fund's name, account number and class from which your shares were
originally redeemed.
Systematic Withdrawal Plan
You can pay routine bills from
your account, or make periodic
disbursements from your
retirement account to comply with
IRS regulations.
1. You can elect the Systematic Withdrawal Plan at any time by completing the
Account Privileges Application which is attached to this Prospectus. You
can also obtain the application from your registered representative or by
calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
22
<PAGE>
3. Payments from your account can be made monthly, quarterly, semi-annually
or annually or on a selected monthly basis and they can be sent to you or
any other designated payee.
4. There is no limit on the number of payees you may authorize, but all
payments must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares,
because you may be subject to an initial sales charge on your purchases of
Class A shares or to a CDSC on your redemptions of Class B shares. In
addition, your redemptions are taxable events.
6. Redemptions will be discontinued if the U.S. Postal service cannot deliver
your checks, or if deposits to a bank account are returned for any reason.
Monthly Automatic Accumulation Program (MAAP)
You can make automatic
investments and simplify your
investing.
1. You can authorize an investment to be automatically drawn each month from
your bank for investment in Fund shares under the "Automatic Investing"
and "Bank Information" sections of the Account Privileges Application.
2. You can also authorize automatic investing through payroll deduction by
completing the "Direct Deposit Investing" section of the Account
Privileges Application.
3. You can terminate your Monthly Automatic Accumulation Program at any time.
4. There is no charge to you for this program, and there is no cost to the
Fund.
5. If you have payments withdrawn from a bank account and we are notified
that the account has been closed, your withdrawals will be discontinued.
Group Investment Program
Organized groups of at least four
persons may establish accounts.
1. An individual account will be established for each participant, but the
initial sales charge for Class A shares will be based on the aggregate
dollar amount of all participants' investments. To determine how to
qualify for this program, contact your registered representative or call
1-800-225-5291.
2. The initial aggregate investment of all participants in the group must be
at least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at
any time.
Retirement Plans
1. You may use the Fund to fund various types of qualified retirement plans,
including Individual Retirement Accounts, Keogh Plans (H.R. 10), Pension
and Profit-Sharing Plans (including 401(k) plans), Tax Sheltered Annuity
Retirement Plans (403(b) or TSA Plans) and 457 Plans.
2. The initial investment minimum or aggregate minimum for any of these plans
is $250. However, accounts being established as group IRA, SEP, SARSEP,
TSA, 401(k) and 457 Plans will be accepted without an initial minimum
investment.
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<PAGE>
[Back Cover]
JOHN HANCOCK UTILITIES FUND
Investment Adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Principal Distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Custodian
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02110
Transfer Agent
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
Independent Auditors
Price Waterhouse LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For: Service Information
Telephone Exchange Call 1-800-225-5291
Telephone Redemption
Invest-by-Phone
For: TDD Call 1-800-554-6713
JHD-4100P 9/95
[Front Cover]
JOHN HANCOCK
UTILITIES FUND
Class A and Class B Shares
Prospectus
September 1, 1995
A mutual fund seeking current
income and, to the extent
consistent with that objective,
growth of income and long-term
capital growth.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
Telephone 1-800-225-5291
["Recycled" logo] Printed on Recycled Paper
<PAGE>
JOHN HANCOCK STRATEGIC INCOME FUND
Class A and Class B Shares
Statement of
Additional Information
This Statement of Additional Information provides information about John Hancock
Strategic Income Fund (the "Fund") in addition to the information that is
contained in the Fund's Class A and Class B Prospectus, dated September 1, 1995
(the "Prospectus"). The Fund is a series portfolio of John Hancock Strategic
Series (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 Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Statement Cross-Referenced
of to Class A
Additional and Class B
Information Prospectus
Page Page
Organization of the Fund 2 11
Investment Objective and Policies 2 5
Certain Investment Practices 2 5
Investment Restrictions 10 5
Those Responsible for Management 14 11
Investment Advisory and Other Services 20 13
Distribution Contract 23 13
Net Asset Value 24 17
Initial Sales Charge on Class A Shares 25 17
Deferred Sales Charge on Class B Shares 27 19
Special Redemptions 27 21
Additional Services and Programs 27 23
Description of the Fund's Shares 29 --
Tax Status 30 13
Calculation of Performance 35 14
Brokerage Allocation 36 --
Transfer Agent Services 38 --
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<PAGE>
Custody of Portfolio 38 --
Independent Accountants 38 --
Financial Statements 2
ORGANIZATION OF THE FUND
John Hancock Strategic Income Fund (the "Fund") is organized as a separate,
diversified series of John Hancock Strategic Series (the "Trust"), an open-end
investment management company organized in April 1986 by as a Massachusetts
business trust under the laws of The Commonwealth of Massachusetts. The Trust
currently consists of three separate series: the Fund, John Hancock Independence
Diversified Core Equity Fund, and John Hancock Utilities Fund. The Fund is
managed by John Hancock Advisers, Inc. (the "Adviser"). The Adviser is an
indirect wholly-owned subsidiary of John Hancock Mutual Life 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 investment objective of the Fund is a high level of current income. The Fund
will seek to achieve its investment objective by investing primarily in: (i)
foreign government and corporate debt securities, (ii) U.S. Government
securities and (iii) lower-rated high yield high risk debt securities of U.S.
issuers. See "Investment Objectives and Policies" in the Prospectus. There can
be no assurance that the investment objective of the Fund will be realized.
As described in the Fund's Prospectus, the Fund may invest in all types of debt
securities, both domestic and foreign.
CERTAIN INVESTMENT PRACTICES
Foreign Securities. The percentage of the Fund's assets that will be allocated
to foreign securities will vary depending on the relative yields of foreign and
U.S. securities, the economies of foreign countries, the condition of such
countries' financial markets, the interest rate climate of such countries and
the relationship of such countries' currency to the U.S. dollar. These factors
are judged on the basis of fundamental economic criteria (e.g., relative
inflation levels and trends, growth rate forecasts, balance of payments status
and economic policies) as well as technical and political data. Although the
Fund may invest in any country where the Adviser believes there is a potential
to achieve the Fund's investment objective, it presently expects to invest
primarily in securities of issuers in industrialized Western European countries
(including Scandinavian countries) and in Canada, Japan, Australia and New
Zealand. Investments in securities of issuers in non-industrialized countries
generally involve more risk and may be considered highly speculative.
The value of portfolio securities denominated in foreign currencies may increase
or decrease in response to changes in currency exchange rates. The Fund will
incur costs in connection with converting between currencies. The other risks
associated with foreign investments are disclosed in the Fund's Prospectus.
2
<PAGE>
U.S. Government Securities and Mortgage-Backed Securities. Certain U.S.
Government securities, including U.S. Treasury bills, notes and bonds, and
Government National Mortgage Association certificates ("Ginnie Maes"), are
supported by the full faith and credit of the United States. Certain other U.S.
Government securities, issued or guaranteed by Federal agencies or government
sponsored enterprises, are not supported by the full faith and credit of the
United States, but may be supported by the right of the issuer to borrow from
the U.S. Treasury. These securities include obligations of the Federal Home Loan
Mortgage Corporation ("Freddie Macs"), and the Federal National Mortgage
Association ("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. U.S. Government agencies and
instrumentalities include, but are not limited to, Federal Farm Credit Banks,
Federal Home Loan Banks, the Federal Home Loan Mortgage Corporation, the Student
Loan Marketing Association, and the Federal National Mortgage Association. Some
obligations issued by an agency or instrumentality may be supported by the full
faith and credit of the U.S. Treasury.
A real estate mortgage investment conduit, or REMIC, is a private entity formed
for the purpose of holding a fixed pool of mortgages secured by an interest in
real property, and of issuing multiple classes of interests therein to investors
such as the Fund. The Fund may consider REMIC securities as possible investments
when the mortgage collateral is insured, guaranteed or otherwise backed by the
U.S. Government or one or more of its agencies or instrumentalities. The Fund
will not invest in "residual" interests in REMIC's because of certain tax
disadvantages for regulated investment companies that own such interests.
Forward Commitments and "When-Issued" Securities. "When-issued" refers to
securities whose terms are available and for which a market exists, but which
have not yet been issued. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. No payment is made with respect to a when-issued or
forward commitment transaction until delivery is due, often a month or more
after the purchase.
The Fund may engage in when-issued and forward commitment transactions with
respect to securities purchased for its portfolio in order to obtain an
advantageous price and yield at the time of the transactions. When the Fund
engages in a when-issued or forward commitment transaction, it relies on the
seller (or buyer, if the Fund has not yet taken delivery of a when-issued
security) to consummate the transaction. The failure of the issuer or seller to
consummate the transaction may result in the Fund's losing the opportunity to
obtain a price and yield considered to be advantageous. On the date the Fund
enters into an agreement to purchase securities on a when-issued or forward
commitment basis, the Fund will segregate in a separate account cash or
3
<PAGE>
liquid, high grade debt securities equal in value to the when-issued or forward
commitment. These assets will be valued daily at market, and additional cash or
liquid, high grade debt securities will be segregated in a separate account to
the extent that the total value of the assets in the account declines below the
amount of the Fund's commitments for when-issued or forward commitment
transactions.
Repurchase Agreements. A repurchase agreement is a contract under which the Fund
would acquire a security for a relatively short period (usually not more than 7
days) subject to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's cost
plus interest). The Fund will enter into repurchase agreements only with member
banks of the Federal Reserve System and with "primary dealers" in U.S.
Government securities. The Adviser will continuously monitor the
creditworthiness of the parties with whom the Fund enters into repurchase
agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities and could experience losses, including the
possible decline in the value of the underlying securities during the period
while the Fund seeks to enforce its rights thereto, possible subnormal levels of
income and lack of access to income during this period and the expense of
enforcing its rights.
Borrowing. The Fund may borrow money in amount that does not exceed 33 1/3% of
its total assets. Borrowing by the Fund involves leverage, which may exaggerate
any increase or decrease in the Fund's investment performance and in that
respect may be considered a speculative practice. The interest that the Fund
must pay on any borrowed money, additional fees to maintain a line of credit or
any minimum average balances required to be maintained are additional costs
which will reduce or eliminate any potential investment income and may offset
any capital gains. Unless the appreciation and income, if any, on the asset
acquired with borrowed funds exceed the cost of borrowing, the use of leverage
will diminish the investment performance of the Fund.
Forward Foreign Currency Transactions. The Fund's foreign currency exchange
transactions may be conducted on a spot (i.e., cash) basis at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market. The
Fund may also deal in forward foreign currency exchange contracts involving
currencies of the different countries in which it will invest as a hedge against
possible variations in the foreign exchange rate between these currencies. This
is accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
The Fund's dealings in forward foreign currency exchange contracts will be
limited to hedging either specified transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency
contracts with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities quoted or
denominated in foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in such foreign currencies. The Fund may not attempt to hedge all of its
foreign portfolio positions and will enter into such transactions only to the
extent, if any,
4
<PAGE>
deemed appropriate by the Adviser. The Fund will not engage in speculative
forward foreign currency exchange transactions.
If the Fund purchases a forward contract, its custodian bank will segregate cash
or high grade, liquid debt securities in a separate account of the Fund in an
amount equal to the value of the Fund's total assets committed to the
consummation of such forward contract. The assets in the segregated account will
be valued at market daily and if the value of the securities in the separate
account declines, additional cash or securities will be placed in the account so
that the value of the account will be equal to the amount of the Fund's
commitment with respect to such contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency exchange transactions
varies with such factors as the currency involved, the length of the contract
period and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
Financial Futures Contracts. The Fund may hedge its portfolio by selling
financial futures contracts on debt or equity securities, securities indices or
currency as an offset against the effect of expected increases in interest rates
for declines in securities prices or foreign currency values. In addition, the
Fund may purchase such futures contracts as an offset against the effect of
expected changes in interest rates or in security or foreign currency values.
Although other techniques could be used to reduce the Fund's exposure to
interest rate, securities market, and currency fluctuations, the Fund may be
able to hedge its exposure more effectively and at a lower cost by using
financial futures contracts. The Fund will enter into futures contracts for
hedging and speculative purposes to the extent permitted by regulations of the
Commodity Futures Trading Commission ("CFTC").
Futures contracts have been designed by boards of trade which have been
designated as "contract markets" by the CFTC. Futures contracts are traded on
these markets in a manner that is similar to the way a stock is traded on a
stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. It is expected that if new types
of financial futures contracts are developed and traded the Fund may engage in
transactions in such contracts.
Although certain futures contracts by their terms call for actual delivery or
acceptance of securities or currency, in most cases the contracts are closed out
prior to delivery by offsetting purchases or sales of matching futures contracts
(same exchange, underlying security or currency and delivery month). Other
financial futures contracts, such as futures contracts on securities indices, by
their terms call for cash settlements. If the Fund sells a futures contract and
the offsetting purchase price is less than the Fund's original sale price, the
Fund realizes a gain, or if it is more, the Fund realizes a loss. Conversely, if
the Fund purchases a futures contract and the
5
<PAGE>
offsetting sale price is more than the Fund's original purchase price, the Fund
a gain, or if it is less, the Fund realizes a loss. The transaction costs must
also be included in these calculations. The Fund will pay a commission in
connection with each purchase or sale of futures contracts, including a closing
transaction. For a discussion of the Federal income tax considerations of
trading in futures contracts, see the information under the caption "Tax Status"
below.
At the time the Fund enters into a futures contract, it is required to deposit
with its custodian a specified amount of cash or U.S. Government securities,
known as "initial margin." The margin required for a futures contract is set by
the board of trade or exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is in the nature of
a performance bond or good faith deposit on the futures contract which is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn interest income on its
initial margin deposits. Each day, the futures contract is valued at the
official settlement price of the board of trade or exchange on which it is
traded. Subsequent payments, known as "variation margin," to and from the
broker, are made on a daily basis as the market price of the futures contract
fluctuates. This process is known as "mark to the market." Variation margin does
not represent a borrowing or lending by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing net asset value, the Fund will mark to
the market its open futures positions.
A decision as to whether, when and how to hedge involves the exercise of skill
and judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected interest rate, securities market or
currency trends. The Fund will bear the risk that the price of the securities or
currency being hedged will not move in complete correlation with the price of
the futures contracts used as a hedging instrument. Although the Adviser
believes that the use of futures contracts will benefit the Fund, an incorrect
prediction could result in a loss on both the hedged securities or currency in
the Fund's portfolio and the hedging vehicle so that the Fund's return might
have been better had hedging not been attempted. However, in the absence of the
ability to hedge, the Adviser might have taken portfolio actions in anticipation
of the same market movements with similar investment results but, presumably, at
greater transaction costs. In addition, the low margin deposits for futures
transactions permit an extremely high degree of leverage. A relatively small
movement in a futures contract may result in losses or gains in excess of the
amount invested.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movement during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
6
<PAGE>
Finally, although the Fund engages in futures transactions only on boards of
trade or exchanges where there appears to be an adequate secondary market, there
is no assurance that a liquid market will exist for a particular futures
contract at any given time. The liquidity of the market depends on participants
closing out contracts rather than making or taking delivery. In the event
participants decide to make or take delivery, liquidity in the market could be
reduced. In addition, the Fund could be prevented from executing a buy or sell
order at a specified price or closing out a position due to limits on open
positions or daily price fluctuation limits imposed by the exchanges or boards
of trade. If the Fund cannot close out a position, it will be required to
continue to meet margin requirements until the position is closed.
Other Considerations. The Fund will engage in futures and transactions only for
bona fide hedging or speculative purposes to the extent permitted by CFTC
regulations. The Fund will determine that the price fluctuations in the futures
contracts and options on futures used for hedging purposes are substantially
related to price fluctuations in securities held by the Fund or which it expects
to purchase. Except as stated below, the Fund's futures transactions will be
entered into for traditional hedging purposes -- i.e., futures contracts will be
sold to protect against a decline in the price of securities or the currency in
which they are denominated that the Fund owns, or futures contracts will be
purchased to protect the Fund against an increase in the price of securities or
the currency in which they are denominated it intends to purchase. As evidence
of this hedging intent, the Fund expects that on 75% or more of the occasions on
which it takes a long futures or option position (involving the purchase of
futures contracts), the Fund will have purchased, or will be in the process of
purchasing, equivalent amounts of related securities or assets denominated in
the related currency in the cash market at the time when the futures or option
position is closed out. However, in particular cases, when it is economically
advantageous for the Fund to do so, a long futures position may be terminated or
an option may expire without the corresponding purchase of securities or other
assets.
As an alternative to literal compliance with the bona fide hedging definition, a
CFTC regulation permits the Fund to elect to comply with a different test, under
which the aggregate initial margin and premiums required to establish
speculative positions in futures contracts and options on futures will not
exceed 5 percent of the net asset value of the Fund's portfolio, after taking
into account unrealized profits and losses on any such positions and excluding
the amount by which such options were in-the-money at the time of purchase. The
Fund will engage in transactions in futures contracts and related options only
to the extent such transactions are consistent with the requirements of the
Internal Revenue Code of 1986, as amended (the "Code") for maintaining its
qualification as a regulated investment company for Federal income tax purposes.
When the Fund enters into a futures contract, writes a put option thereon or
purchases a call option thereon an amount of cash or high grade, liquid debt
securities will be deposited in a segregated account with the Fund's custodian
which is equal to the underlying value of the futures contract reduced by the
amount of initial and variation margin held in the account of its broker.
Options Transactions. The Fund may write listed and over-the-counter covered
call options and put options on securities, securities indices and currency in
order to earn additional income from the premiums received. In addition, the
Fund may purchase listed and over-the-counter call and put options. The extent
to which the Fund will engage in options transactions will depend upon market
conditions, the availability of alternative strategies, and the future movement
of securities
7
<PAGE>
prices, interest rates and currency exchange rates. The Fund may
write covered listed and over-the-counter call and put options on up to 100% of
its net assets.
The Fund will write listed and over-the counter call options only if they are
"covered," which means that the Fund owns or has the immediate right to acquire
the securities or currencies underlying the options without additional cash
consideration upon conversion or exchange of other securities held in its
portfolio. A call option written by the Fund will also be "covered" if the Fund
holds on a share-for-share basis a covering call on the same securities or
currencies and (i) the exercise price of the covering call held is equal to or
less than the exercise price of the call written or, if the exercise price of
the covering call is greater than the exercise price of the written call, if the
difference is maintained by the Fund in cash, U.S. Government securities, or
liquid high grade debt securities (i.e., securities rated in one of the top
three rating categories by Moody's Investors Service, Inc. ("Moody's") or
Standard & Poor's Ratings Group ("S&P") in a segregated account with the Fund's
custodian, and (ii) the covering call expires at the same time as the call
written. The Fund will cover call options on securities indices by maintaining
an adequate degree of correlation between the securities represented by the
underlying index and the securities in all or part of its portfolio. If a
covered call option is not exercised, the Fund would keep both the option
premium and the underlying security or currency. If the covered call option
written by the Fund is exercised and the exercise price, less the transaction
costs, is less than the cost to the Fund of the underlying securities or
currency, the Fund would realize a gain in addition to the amount of the option
premium it received. If the exercise price, less transaction costs, is less than
the cost of the underlying security, the Fund's loss would be reduced by the
amount of the option premium.
The Fund may write a put option only with respect to the underlying securities
or currency it intends to acquire for the Fund's portfolio and will maintain in
a segregated account with its custodian bank cash, U.S. Government securities,
or liquid, high-grade debt securities with a value equal to the price at which
the underlying security or currency may be sold to the Fund in the event the put
option is exercised by the purchaser. The Fund can also write a "covered" put
option by purchasing on a share-for-share basis a put on the same security or
currency as the put written by the Fund where the exercise price of the covering
put held is equal to or greater than the exercise price of the put written and
the covering put expires at the same time or later than the put written.
In writing listed or over-the-counter covered put options on securities or
currency, the Fund would earn income from the premiums received. If a covered
put option is not exercised, the Fund would keep the option premium and the
assets maintained to cover the option. If the option is exercised and the
exercise price, including transaction costs, exceeds the market price of the
underlying security or currency, the Fund would realize a loss, but the amount
of the loss would be reduced by the amount of the option premium.
If the Fund as the writer of an exchange-traded option wishes to terminate its
obligation prior to its exercise, the Fund may effect a "closing purchase
transaction." This is accomplished by buying an option of the same series as the
option previously written. The effect of the purchase is that the Fund's
position will be offset by the Options Clearing Corporation.
8
<PAGE>
The Fund may not effect a closing purchase transaction after it has been
notified of the exercise of an option. There is no guarantee that a closing
purchase transaction can be effected. Although the Fund will generally write
only those options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange or board of
trade will exist for any particular option or at any particular time, and for
some options no secondary market on an exchange may exist.
In the case of a written call option, effecting a closing transaction will
permit the Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. In the case of a
written put option, it will permit the cash or proceeds from the concurrent sale
of any securities or currency covering to the option to be used for other
investments. If the Fund desires to sell a particular security from its
portfolio on which it has written a call option, it will effect a closing
transaction prior to or concurrent with the sale of the security.
The Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option.
The Fund will realize a loss from a closing transaction if the cost of the
closing transaction is more than the premium received for writing the option.
However, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security or currency,
any loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying security or currency owned
by the Fund.
Over-the-Counter Options. The Fund may engage in options transactions on
exchanges and in the over-the-counter markets. In general, exchange-traded
options are third-party contracts (i.e. performance of the parties' obligations
is guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. Over-the-counter ("OTC") transactions are two-party
contracts with price and terms negotiated by the buyer and seller. The Fund will
acquire only those OTC options for which management believes the Fund can
receive on each business day at least two separate bids or offers (one of which
will be from an entity other than a party to the option) or those OTC options
valued by an independent pricing service. The Fund will write and purchase OTC
options only with member banks of the Federal Reserve System and primary dealers
in U.S. Government securities or their affiliates which have capital of at least
$50 million or whose obligations are guaranteed by an entity having capital of
at least $50 million.
The Securities and Exchange Commission (the "SEC") has taken the position that
OTC options are illiquid securities subject to the restriction that illiquid
securities are limited to not more than 15% of the Fund's assets. The SEC,
however, has provided a partial exemption from the above restrictions on
transactions in OTC options. The SEC allows a fund to exclude from the 15%
limitation on illiquid securities a portion of the value of the OTC options
written by the Fund, provided that two conditions are met. First, the other
party to the OTC options has to be a primary U.S. Government securities dealer
designated as such by the Federal Reserve Bank. Second, the Fund may have an
absolute contractual right to repurchase the OTC options at a formula price. If
the above conditions are met, the Fund must treat as illiquid only that portion
of the OTC option's value (and the value of its underlying securities) which is
equal to the formula price for repurchasing the OTC option, less the OTC
option's intrinsic value.
9
<PAGE>
Lower Rated High Yield "High Risk" Debt Obligations. As discussed in the
Prospectus, the Fund seeks high current income and may invest in high yielding,
fixed income securities rated Ba or lower by Moody's or BB or lower by Standard
& Poor's. Ratings are based largely on the historical financial condition of the
issuer. Consequently, the rating assigned to any particular security is not
necessarily a reflection of the issuer's current financial condition, which may
be better or worse than the rating would indicate.
The values of lower-rated securities generally fluctuate more than those of
high-rated securities. In addition, the lower rating reflects a greater
possibility of an adverse change in financial condition affecting the ability of
the issuer to make payments of interest and principal. Although the Adviser
seeks to minimize these risks through diversification, investment analysis and
attention to current developments in interest rates and economic conditions,
there can be no assurance that the Adviser will be successful in limiting the
Fund's exposure to the risks associated with lower rated securities. Because the
Fund invests in securities in the lower rated categories, the achievement of the
Fund's goals is more dependent on the Adviser's ability than would be the case
if the Fund were investing in securities in the higher rated categories.
As noted in the Prospectus, the Fund may invest in pay-in-kind (PIK) securities,
which pay interest in either cash or additional securities, at the issuer's
option, for a specified period. The Fund also may invest in zero coupon bonds,
which have a determined interest rate, but payment of the interest is deferred
until maturity of the bonds. Both types of bonds may be more speculative and
subject to greater fluctuations in value than securities which pay interest
periodically and in cash, due to changes in interest rates.
The market value of debt securities which carry no equity participation usually
reflects yields generally available on securities of similar quality and type.
When such yields decline, the market value of a portfolio already invested at
higher yields can be expected to rise if such securities are protected against
early call. In general, in selecting securities for its portfolio, the Fund
intends to seek protection against early call. Similarly, when such yields
increase, the market value of a portfolio already invested at lower yields can
be expected to decline. The Fund's portfolio may include debt securities which
sell at substantial discounts from par. These securities are low coupon bonds
which, because of their lower acquisition cost tend to sell on a yield basis
approximating current interest rates during periods of high interest rates.
Time Deposits. The SEC considers time deposits with periods of greater than
seven days to be illiquid, subject to the restriction that illiquid securities
are limited to no more than 15% of the Fund's assets.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of a majority of the Fund's outstanding voting
securities which, as used in the Prospectus and this Statement of Additional
Information, means approval of the lesser of (1) the holders of 67% or more of
the shares represented at a meeting if the holders of more than 50% of the
Fund's outstanding shares are present in person or by proxy or (2) the holders
of more than 50% of the Fund's outstanding shares.
10
<PAGE>
The Fund observes the fundamental restrictions listed in item (1) through (9)
below. The Fund may not:
(1) Issue senior securities, except as permitted by paragraphs (2), (6) and (7)
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, forward foreign currency exchange
contracts, forward commitments 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 in amounts exceeding 33% of the Fund's total assets (including
the amount borrowed) taken at market value. Interest paid on borrowings will
reduce income available to shareholders.
(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% of the Fund's total assets taken at market
value.
(4) Act as an underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Fund may be deemed to be an underwriter
for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate or any interest therein, except that the Fund
may invest in securities of corporate or governmental entities secured by real
estate or marketable interests therein or securities issued by companies that
invest in real estate or interests therein.
(6) 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 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.
(7) Buy or sell commodity contracts, except futures contracts on securities,
securities indices and currency and options on such futures, forward foreign
currency exchange contracts, forward commitments, and repurchase agreements
entered into in accordance with the Fund's investment policies.
(8) Purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after such purchase, the value of
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) Purchase securities of an issuer (other than the U.S. Government, its
agencies or instrumentalities), if
11
<PAGE>
(i) more than 5% of the Fund's total assets taken at market value would be
invested in the securities of such issuer, except that up to 25% of the Fund's
total assets may be invested in securities issued or guaranteed by any foreign
government or its agencies or instrumentalities, 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.
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.
Nonfundamental Investment Restrictions. The following investment restrictions
are designated as nonfundamental and may be changed by the Board of Trustees
without shareholders' 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
joint securities trading account.
(b)...Purchase securities on margin (except that it may obtain such short-term
credits as may be necessary for the clearance of transactions in securities and
forward foreign currency exchange contracts and may make margin payments in
connection with transactions in futures contracts and options on futures) or
make short sales of securities 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.
(c)...Purchase or hold securities of an issuer if, to the Fund's knowledge, one
or more of the Trustees or officers of the Fund or the directors or officers of
the Adviser individually owns beneficially more than 0.5% and together own
beneficially more than 5% of the securities of such issuer.
(d)...Purchase a security if, as a result, (a) more than 10% of the Fund's
assets would be invested in securities of other investment companies, (b) such
purchase would result in more than 3% of the total outstanding voting securities
of any one such investment company being held by the Fund, or (c) more than 5%
of the Fund's assets would be invested in any one such investment company. The
Fund may not purchase securities of any open-end investment company except when
such purchase is part of a plan of merger, consolidation, reorganization or
purchase of substantially all of the assets of any other investment company.
(e)...Purchase securities of any issuer which, together with any predecessor,
has a record of less than three years' continuous operations prior to the
purchase if such purchase would cause investments of the Fund in all such
issuers to exceed 5% of the value of the total assets of the Fund.
12
<PAGE>
(f)...Invest for the purpose of exercising control over or management of any
company.
(g)...Purchase warrants of any issuer, if, as a result of such purchases, more
than 2% of the Fund's total assets valued at the lower of cost or market value
would be invested in warrants which are not listed on the New York Stock
Exchange or the American Stock Exchange or more than 5% of the total assets of
the Fund, valued as aforesaid, would be invested in warrants generally, whether
or not so listed; provided that for these purposes, warrants are to be valued at
the lesser of cost or market, but warrants acquired by the Fund in units with or
attached to debt securities shall be deemed to be without value.
(h)...Purchase any security, including any repurchase agreement maturing in more
than seven days, which is not readily marketable, if more than 15% of the net
assets of the Fund, taken at market value, would be invested in such securities.
(The Staff of the Securities and Exchange Commission may consider
over-the-counter options to be illiquid securities subject to the 15% limit.)
(i)...Purchase interests in oil, gas or other mineral leases or exploration
programs; however, this policy will not prohibit the acquisition of securities
of companies engaged in the production or transmission of oil, gas or other
minerals.
(j)...Notwithstanding any investment restriction to the contrary, the Fund may,
in connection with the John Hancock Group of Funds Deferred Compensation Plan
for Independent Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds provided that, as a result, (i)
no more than 10% of the Fund's assets would be invested in securities of all
other investment companies, (ii) such purchase would not result in more than 3%
of the total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets would be
invested in any one such investment company.
In addition, the Fund complies with the following nonfundamental limitation on
its investments:
The Fund will not exercise any conversion, exchange or purchase rights
associated with corporate debt securities in the portfolio if, at the time, the
value of all equity interests would exceed 10% of the Fund's total assets taken
at market value.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt investment restrictions or
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interest of the Fund and its shareholders, the Fund may cease offering shares in
the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Trustees may, at their sole discretion, revoke such policy.
The Fund will not invest in real estate limited partnership interests.
13
<PAGE>
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 or the total costs of the Fund's
assets will not be considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees, who elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers and Trustees of the Fund are
also officers and directors of the Adviser, or officers and directors of the
Fund's principal distributor, John Hancock Funds, Inc. ("John Hancock Funds").
The following table sets forth the principal occupation or employment of the
Trustees and principal officers of the Fund during the past five years:
14
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- -------------- --------------------------
*Edward J. Boudreau, Jr. Chairman (1,2) Chairman and Chief Executive
101 Huntington Avenue Officer, the Adviser and The
Boston, Massachusetts Berkeley Financial Group ("The
Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited ("Advisers
International"); John Hancock
Funds, Inc., ("John Hancock
Funds"); John Hancock Investor
Services Corporation ("Investor
Services") and Sovereign Asset
Management Corporation
("SAMCorp") (herein after the
Adviser, the Berkeley Group, NM
Capital, Advisers International,
John Hancock Funds, Investor
Services and SAMCorp are
collectively referred to as the
"Affiliated Companies");
Chairman, First Signature Bank &
Trust; Director, John Hancock
Freedom Securities Corp., John
Hancock Capital Corp., New
England/Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; President, the Adviser
(until July 1992). Chairman John
Hancock Distributors, Inc. (until
April, 1994).
- --------------
*An "interested person" of the Fund, as such term is defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act:).
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
15
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- -------------- --------------------------
Dennis S. Aronowitz Trustee (4) Professor of Law, Boston
Boston University University School of Law;
Boston, Massachusetts Trustee, Brookline Savings
Bank; Director, Boston
University Center for Banking
Law Studies (until 1990).
Richard P. Chapman, Jr. Trustee (4) President, Brookline Savings
160 Washington Street Bank.
Brookline, Massachusetts
William J. Cosgrove Trustee (4) Vice President, Senior Banker
20 Buttonwood Place and Senior Credit Officer,
Saddle River, New Jersey Citibank, N.A. (retired
September 1991); Executive Vice
President, Citadel Group
Representatives, Inc.
Gail D. Fosler Trustee (4) Vice President and Chief
4104 Woodbine Street Economist, The Conference Board
Chevy Chase, MD (non-profit economic and
business research).
Bayard Henry Trustee (4) Corporate Advisor; Director,
31 Milk Street Fiduciary Trust Company (a
Boston, Massachusetts trust company); Director,
Groundwater Technology, Inc.
(remediation); Samuel Cabot,
Inc.; Advisor, Kestrel Venture
Management.
- -------------------
* An "interested person" of the Fund, as such term is defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act").
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
16
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- -------------- --------------------------
*Richard S. Scipione Trustee (3) General Counsel, the Life
John Hancock Place Company; Director, the
P.O. Box 111 Adviser, the Affiliated
Boston, Massachusetts Companies, John Hancock
Distributors, Inc., JH Networking
Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp, NM Capital and John
Hancock Property and Casualty
Insurance and its affiliates
(until November, 1993); Trustee,
The Berkeley Group; Director,
John Hancock Home Mortgages Corp.
and John Hancock Financial
Access, Inc. (until July 1990).
Edward J. Spellman, CPA Trustee (4) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL
*Robert G. Freedman Vice Chairman and Vice Chairman and Chief
101 Huntington Avenue Chief Investment Investment Officer, the
Boston, Massachusetts Officer (2) Adviser; President, the
Adviser (until December 1994).
*Anne C. Hodsdon President (2) President and Chief Operating
101 Huntington Avenue Officer, the Adviser;
Boston, Massachusetts Executive Vice President, the
Adviser (until December 1994);
Senior Vice President; the
Adviser (until December 1993);
Vice President, the Adviser,
(until 1991).
- ------------------
* An "interested person" of the Fund, as such term is defined in the Investment
Company Act.
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
17
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- -------------- --------------------------
*Thomas H. Drohan Senior Vice President Senior Vice President and
101 Huntington Avenue and Secretary Secretary, the Adviser.
Boston, Massachusetts
*James K. Ho Senior Vice President Executive Vice President,
101 Huntington Avenue (2) the Adviser.
Boston, Massachusetts
*James B. Little Senior Vice President Senior Vice President the
101 Huntington Avenue and Chief Financial Adviser.
Boston, Massachusetts Officer
*Michael P. DiCarlo Senior Vice President Executive Vice President,
101 Huntington Avenue (2) the Adviser.
Boston, Massachusetts
*John A. Morin Vice President Vice President, the
101 Huntington Avenue Adviser.
Boston, Massachusetts
*Susan S. Newton Vice President, Vice President and
101 Huntington Avenue Assistant Secretary and Assistant Secretary, the
Boston, Massachusetts Compliance Officer Adviser.
*James J. Stokowski Vice President and Vice President, the
101 Huntington Avenue Treasurer Adviser.
Boston, Massachusetts
- ------------------
* An "interested person" of the Fund, as such term is defined in the Investment
Company Act.
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
18
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- -------------- --------------------------
*Frederick L. Cavanaugh, Jr. Senior Vice President Senior Vice President, the
(2) Adviser.
101 Huntington Avenue
Boston, Massachusetts
*Andrew F. St. Pierre Senior Vice Senior Vice President, the
101 Huntington Avenue President (2) Adviser; President, John
Boston, Massachusetts Hancock Closed-End Funds;
Portfolio Manager, Harvard
Management Corp. (until
October, 1991).
*Anthony A. Goodchild Senior Vice President Senior Vice President, the
101 Huntington Avenue (2) Adviser; Senior Vice
Boston, Massachusetts President, Putnam Investment
Management, Inc.
*Lawrence J. Daly Senior Vice President Senior Vice President, the
101 Huntington Avenue (2) Adviser; Senior Vice
Boston, Massachusetts President, Putnam Investment
Management, Inc.
- ------------------
* An "interested person" of the Fund, as such term is defined in the Investment
Company Act.
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
19
<PAGE>
As of the date of this Statement of Additional Information, the officers and
Trustees of the Fund as a group owned less than 1% of the outstanding shares of
the Fund and to the knowledge of the registrant, no persons owned of record or
beneficially 5% or more of any class of the Fund's outstanding securities.
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services for each Fund's 1995 fiscal year. The
two non-Independent Trustees, Messrs. Boudreau and Scipione, and each of the
officers of the Funds are interested persons of the Adviser, are compensated by
the Adviser and receive no compensation from the Fund for their services.
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated From the Fund
Aggregate Accrued as Annual and John
Compensation Part of the Benefits Hancock Fund
From the Fund's Upon Complex to
Independent Trustees Fund Expenses Retirement Trustees(1)
- -------------------- ------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
- - (Total of 18 Funds)
- -
Dennis S. Aronowitz $ 6,850 - - $ 60,950
Richard P. Chapman 7,060 - - 62,950
William J. Cosgrove 6,850 - - 60,950
Gail D. Fosler 6,850 - - 60,950
Bayard Henry 7,060 - - 62,950
Edward J. Spellman 6,850 - - 60,950
------- ---------
$41,520 $369,700
</TABLE>
(1) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1994.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund receives investment advice from the Adviser. Investors should refer to
the Prospectus and below for a description of certain information concerning the
investment management contract.
Each of the Trustees and principal officers affiliated with the Fund who is also
an affiliated person of the Adviser is named above, together with the capacity
in which such person is affiliated with the Fund and the Adviser.
20
<PAGE>
As described in the Fund's Prospectus under the caption "Organization and
Management of the Fund," the Trust, on behalf of the Fund has entered into an
investment management contract with the Adviser. Under the investment management
contract, the Adviser provides the Fund with (i) a continuous investment
program, consistent with the Fund's stated investment objective and policies,
(ii) supervision of all aspects of the Fund's operations except those that are
delegated to a custodian, transfer agent or other agent and (iii) such
executive, administrative and clerical personnel, officers and equipment as are
necessary for the conduct of its business. The Adviser is responsible for the
management of the Fund's portfolio assets.
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 of
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.
No person other than the Adviser and its directors and employees regularly
furnishes advice to the Fund with respect to the desirability of the Fund's
investing in, purchasing or selling securities. The Adviser may from time to
time receive statistical or other similar factual information, and information
regarding general economic factors and trends, from the Life Company and its
affiliates.
Under the terms of the investment management contract with the Fund, the Adviser
provides the Fund with office space, supplies and other facilities required for
the business of the Fund. The Adviser pays the compensation of all officers and
employees of the Fund, and pays the expenses of clerical services relating to
the administration of the Fund.
All expenses which are not specifically paid by the Adviser and which are
incurred in the operation of the Fund (including fees of Trustees of the Trust
who are not "interested persons," as such term is defined in the Investment
Company Act, but excluding certain distribution related activities required to
be paid by the Adviser or John Hancock Funds) and the continuous public offering
of the shares of the Fund are borne by the Fund. Class expenses properly
allocable to either Class A shares or Class B shares will be borne exclusively
by such class of shares subject to conditions the Internal Revenue Service
imposes with respect to multiple-class structures.
As discussed in the Prospectus and as provided by the investment management
contract, the Fund pays the Adviser monthly an investment management fee, which
is accrued daily, based on a stated percentage of the Fund's average daily net
assets as follows:
21
<PAGE>
Net Asset Value Annual Rate
--------------- -----------
First $100,000,000 0.60%
Next $150,000,000 0.45%
Next $250,000,000 0.40%
Next $150,000,000 0.35%
Amount over $650,000,000 0.30%
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 re-impose 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.
If the total of all ordinary business expenses of the Fund for any fiscal year
exceeds limitations prescribed in any state in which shares of the Fund are
qualified for sale, the fee payable to the Adviser will be reduced to the extent
required by law, and the Adviser will make any additional arrangements necessary
to eliminate remaining excess expenses. At this time, the most restrictive limit
on expenses imposed by a state applicable to the Fund requires that expenses
charged to the Fund in any fiscal year not exceed 2.5 % of the first $30,000,000
of the Fund's average net asset value, 2% of the next $70,000,000 of such net
asset value and 1.5% of the remaining average net asset value. When calculating
the limit above, the Fund may exclude interest, brokerage commissions and
extraordinary expenses.
On May 31, 1995, the net assets of the Fund were $462,402,686. For the years
ended May 31, 1993, 1994 and 1995 the Adviser received a fee of $1,099,253
$1,657,249 and $2,007,777, respectively.
Pursuant to its investment management contract, the Adviser is not liable to the
Fund or its shareholders for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with the matters to which the investment
management contract relates, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Adviser in the performance of
its duties or from reckless disregard by the Adviser of its obligations and
duties under the investment management contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and presently has more than $13 billion in assets under
management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,068,000 shareholders. The Adviser is
an affiliate of the Life Company, one of the most recognized and respected
financial institutions in the nation. With total assets under management of $80
billion, the Life Company is one of the ten largest life insurance companies in
the United States, and carries high ratings from S&P and A.M. Best. Founded in
1862, the Life Company has been serving clients for over 130 years.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent
22
<PAGE>
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 non-exclusive right to use the name
"John Hancock" or any similar name to any other corporation or entity, including
but not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
The investment management contract continues in effect from year to year if
approved annually by vote of a majority of the Fund's Trustees who are not
interested persons of one of the parties to the contract, cast in person at a
meeting called for the purpose of voting on such approval, and by either the
Fund's Trustees or the holders of a majority of the Fund's outstanding voting
securities. The contract automatically terminates upon assignment and may be
terminated without penalty on 60 days' notice at the option of either party to
the contract or by vote of a majority of the outstanding voting securities of
the Fund.
DISTRIBUTION CONTRACT
The Fund has entered into a distribution contract with John Hancock Funds. Under
the contract, John Hancock Funds is obligated to use its best efforts to sell
shares of each class on behalf of the Fund. Shares of the Fund are also sold by
selected broker-dealers (the "Selling Brokers") which have entered into selling
agency agreements with John Hancock Funds. John Hancock Funds accepts orders for
the purchase of the shares of the Fund which are continually offered at net
asset value next determined, plus any applicable sales charge. In connection
with the sale of Class A and Class B shares, John Hancock Funds and Selling
Brokers receive compensation in the form of a sales charge imposed, in the case
of Class A shares at the time of sale, or, in the case of Class B shares, on a
deferred basis. The sales charges are discussed further in the Prospectus.
The Funds' Trustees adopted Distribution Plans with respect to Class A and Class
B shares pursuant to Rule 12b-1 under the Investment Company Act. Under the
Class A and Class B Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% and 1.00% respectively, of the Fund's
average daily net assets. However, the amount of the service fee will not exceed
0.25% of the Fund's average daily net assets attributable to each class of
shares. The distribution fees reimburse John Hancock Funds for its distribution
costs incurred in the promotion of sales of shares of the Fund, and the service
fees compensate Selling Brokers for providing personal and account maintenance
services to shareholders. In the event that John Hancock Funds is not fully
reimbursed for expenses incurred by it under the Class B Plan in any fiscal
year, John Hancock Funds may carry these expenses forward, provided however,
that the Trustees may terminate the Class B Plan and thus the Fund's obligation
to make further payments at any time. Accordingly, the Fund does not treat
unreimbursed expenses relating to the Class B shares as a liability of the Fund.
The Plans were approved by a majority of the voting securities of the applicable
class of shareholders. The Plans and all amendments have also been approved by a
majority of the Trustees, including a majority of the Trustees who are not
interested persons of the Fund and who have no direct or indirect financial
interest in the operation of the Plan (the "Independent Trustees"), by votes
cast in person at meetings called for the purpose of voting on such Plan.
23
<PAGE>
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis.
During the fiscal year ended May 31, 1995 the Fund paid John Hancock Funds the
following amounts of expenses with respect to the Class A shares and Class B
shares of the Fund:
Expense Items
Printing and
Mailing of Expense Interest
Prospectus Compensation of John Carrying or
to New to Selling Hancock Other Finance
Advertising Shareholders Brokers Funds Charges Other
----------- ------------ ------- ----- -------------
Class A Shares $192,786 $12,896 $432,513 $340,139 $ 0
Class B Shares 58,614 3,085 773,000 108,104 125,572
Each of the Plans provides that it will continue in effect only so long as its
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. Each of the Plans provides that it may be terminated
without penalty (a) by vote of a majority of the Independent Trustees, (b) by a
vote of a majority of the Fund's outstanding shares of the applicable class upon
60 days' written notice to Broker Services and (c) automatically in the event of
assignment. Each of the Plans further provides that it may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to the Plan. Each of the Plans
provides that no material amendment to the Plan will, in any event, be effective
unless it is approved by a majority vote of the Trustees and the Independent
Trustees of the Trust. The holders of Class A shares and Class B shares have
exclusive voting rights with respect to the Plan applicable to their respective
class of shares. In adopting the Plans, the Trustees concluded that, in their
judgment, there is a reasonable likelihood that each Plan will benefit the
holders of the applicable class of shares of the Fund.
When the Trust seeks an Independent Trustee to fill a vacancy or as a nominee
for election by shareholders, the selection or nomination of the Independent
Trustee is, under resolutions adopted by the Trustees contemporaneously with
their adoption of the Plans, committed to the discretion of the Committee on
Administration of the Trustees. The members of the Committee on Administration
are all Independent Trustees and are identified in this Statement of Additional
Information under the heading "Those Responsible for Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's shares,
the following procedures are utilized wherever applicable.
24
<PAGE>
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of the Fund's NAV.
The Fund will not price its securities on the following national holidays:
New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day' Thanksgiving Day; and Chritmas Day.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's porfolio securities may trade and the NAV of the Fund's
redeemable securities may be significantly affected on days when a shareholder
has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Prospectus. Methods of obtaining the reduced sales charges
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares
of the Fund, the investor is entitled to cumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Fund owned by the investor, or, if Investor Services is notified by the
investor's dealer or the investor at the time of the purchase, the cost of the
Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his 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 single fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information
25
<PAGE>
about combined purchases, including certain restrictions on combined group
purchases, is available from Investor Services or a Selling Broker's
representative.
Without Sales Charges. As described in the Prospectus, Class A shares of the
Fund may be sold without a sales charge to certain persons described in the
Prospectus.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current value of the Class A shares already held by
such persons.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Prospectus) also are available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares of
the Fund and of all other John Hancock funds which carry a sales charge.
Letter of Intention. The reduced sales charges are also applicable to
investments in shares made over a specified period pursuant to a Letter of
Intention (the "LOI"), which should be read carefully prior to its execution by
an investor. The Fund offers two options regarding the specified period for
making investments under the LOI. All investors have the option of making their
investments over a specified period of thirteen (13) months. Investors who are
using the Fund as a funding medium for a qualified retirement plan, however, may
opt to make the necessary investments called for by the LOI over a forty-eight
(48) month period. These qualified retirement plans include group IRAs, SEP,
SARSEP, TSA, 401(k), and 457 plans. Such an investment (including accumulations
and combinations) must aggregate $100,000 or more invested during the specified
period from the date of the LOI or from a date within ninety (90) days prior
thereto, upon written request to Investor Services. The sales charge applicable
to all amounts invested under the LOI is computed as if the aggregate amount
intended to be invested had been invested immediately. If such aggregate amount
is not actually invested, the difference in the sales charge actually paid and
the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made within the specified period
the sales charge applicable will not be higher than that which would have
applied (including accumulations and combinations) had the LOI been for the
amount actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient Class A shares
(approximately 5% of the aggregate) to make up any difference in sales charges
on the amount intended to be invested and the amount actually invested, until
such investment is completed within the specified period, at which time the
escrow Class A shares will be released. If the total investment specified in the
LOI is not completed, the shares held in escrow may be redeemed and the proceeds
used as required to pay such sales charge as may be due. By signing the LOI, the
investor authorizes Investor Services to act as his attorney-in-fact to redeem
any escrowed Class A shares and adjust the sales charge, if necessary. An 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.
26
<PAGE>
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so that the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. Accordingly, no CDSC will be imposed on increases in
account value above the initial purchase prices, including Class B shares
derived from reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for the purpose of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to selected Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in readily marketable
portfolio securities as prescribed by the Trustees. When the shareholder sells
portfolio securities received in this fashion he would incur a brokerage charge.
Any such securities would be valued for the purposes of making such payment at
the same value as used in determining net asset value. The Fund has, however,
elected to be governed by Rule 18f-1 under the Investment Company Act. Under
that rule, the Fund must redeem its shares for cash except to the extent that
the redemption payments to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of
such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. As described more fully in the Prospectus, the Fund permits
exchanges of shares of any class of the Fund for shares of the same class in any
other John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Prospectus, the Fund
permits the establishment of a Systematic Withdrawal Plan. Payments under this
plan represent proceeds
27
<PAGE>
arising from the redemption of Fund shares. Since the redemption price of the
Fund shares may be more or less than the shareholder's cost, depending upon the
market value of the securities owned by the Fund at the time of redemption, the
distribution of cash pursuant to this plan may result in realization of gain or
loss for purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional Class A or
Class B shares of the Fund could be disadvantageous to a shareholder because of
the initial sales charge payable on purchases of Class A shares and the CDSC
imposed on redemptions of Class B shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase Class A or Class B shares
of the Fund at the same time that a Systematic Withdrawal Plan is in effect. The
Fund reserves the right to modify or discontinue the Systematic Withdrawal Plan
of any shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Investor Services.
Monthly Automatic Accumulation Program (MAAP). This program is explained more
fully in the Prospectus. The program, as it relates to automatic investment
checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic Accumulation
Program may be revoked by Investor Services without prior notice if any check is
not honored by your bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any check.
The program may be discontinued by the shareholder either by calling Investor
Services or upon written notice to Investor Services which is received at least
five (5) business days prior to the due date of any investment.
Reinvestment Privilege. A shareholder who has redeemed shares of the Fund may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
the Fund or in shares of any of the other John Hancock mutual funds, subject to
the minimum investment limit of that fund. The proceeds from the redemption of
Class A shares may be reinvested at net asset value without paying a sales
charge in Class A shares of the Fund or in Class A shares of any of the other
John Hancock mutual funds. If a CDSC was paid upon a redemption, a shareholder
may reinvest the proceeds from such redemption at net asset value in additional
shares of the class from which the redemption was made. Such shareholder's
account will be credited with the amount of any CDSC charged upon the prior
redemption and such new shares will continue to be subject to the CDSC. The
holding period of the shares acquired through reinvestment will, for purposes of
computing the CDSC payable upon a subsequent redemption, include the holding
period of the redeemed shares. The Fund may modify or terminate the reinvestment
privilege at any time.
A redemption or exchange of shares of the Fund is a taxable transaction for
Federal income tax purposes, even if the reinvestment privilege is exercised,
and any gian 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."
28
<PAGE>
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and two other
series. The Declaration of Trust also authorizes the Trustees to classify and
reclassify the shares of the Fund, or any new series of the Fund, into one or
more classes. As of the date of this Statement of Additional Information, the
Trustees have authorized the issuance of two classes of shares of the Fund,
designated as Class A and Class B.
Class A and Class B shares of the Fund represent an equal proportionate interest
in the aggregate net assets attributed to that class of the Fund. The holders of
Class A shares and Class B shares each have certain exclusive voting rights on
matters relating to their respective Rule 12b-1 distribution plans. The
different classes of the Fund may bear different expenses relating to the cost
of holding shareholder meetings necessitated by the exclusive voting rights of
any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except that (i) Class B shares will pay higher distribution
and service fees than Class A shares and (ii) each of Class A shares and Class B
shares will bear any other class expenses properly allocable to such 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 the class of shares purchased. In the event of
liquidation, shareholders are entitled to share pro rata in proportion to the
net asset value of the shares in the net assets of the Fund available for
distribution to such shareholders. Shares entitle their holders to one vote per
share, are freely transferable and have no preemptive, subscription or
conversion rights. When issued, shares are fully paid and non-assessable, except
as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Trust has no intention of holding annual meetings of shareholders.
Trust shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares, and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the trust. However, the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's
29
<PAGE>
assets for all losses and expenses of any shareholder held personally liable
by reason of being or having been a shareholder. Liability is therefore limited
to circumstances in which the Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate entity
for accounting and tax purposes. The Fund has qualified and elected to be
treated as a "regulated investment company" under Subchapter M of the Code and
intends to continue to so qualify in the future. As such and by complying with
the applicable provisions of the Code regarding the sources of its income, the
timing of its distributions, and the diversification of its assets, the Fund
will not be subject to Federal income tax on taxable income (including net
realized capital gains) which is distributed to shareholders at least annually
in accordance with the timing required of the Code.
The Fund will be subject to a four percent non-deductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
Distribution from the Fund's current or accumulated earnings and profits
("E&P"),as computed for Federal income tax purposes, will be taxable as
described in the Prospectus, whether taken in shares or in cash. Distributions,
if any, in excess of E&P will constitute a return of capital, which will first
reduce an investor's tax basis in Fund shares and thereafter (after such basis
is reduced to zero) will generally give rise to capital gains. Shareholders
electing to receive distributions in the form of additional shares will have a
cost basis for Federal income tax purposes in each share so received equal to
the amount of cash that they would have received had they elected to receive the
distribution in cash, divided by the number of shares received.
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, and foreign currency forward
contracts, foreign currencies, or payables or receivables denominated in a
foreign currency are subject to Section 988 of the Code, which generally causes
such gains and losses to be treated as ordinary income and losses and may affect
the amount, timing and character of distributions to shareholders. Any such
transactions that are not directly-related to the Fund's investment in stock or
securities, possibly including speculative currency positions or currency
derivatives not used for hedging purposes, may increase the amount of gain it is
deemed to recognize from the sale of certain investments held for less than
three months, which gain is limited under the Code to less than 30% of its
annual gross income, and may under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
least 90% of its annual gross income. If the net foreign exchange loss for a
year treated as ordinary loss under Section 988 were to exceed the Fund's
investment company taxable income computed without regard to such loss (i.e.,
all of the Fund's net income other than any excess of net long-term capital gain
over net short-term capital loss) the resulting overall ordinary loss for such
year would not be deductible by the Fund or its shareholders in future years.
30
<PAGE>
If the Fund invests in stock of certain non-U.S. corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from 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. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require the Fund to recognize taxable
income or gain without the concurrent receipt of cash. The Fund may limit and/or
manage its holdings in passive foreign investment companies to minimize its tax
liability or maximize its return from these investments.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
Investors may be entitled to claim U.S. foreign tax credits with respect to such
taxes, subject to certain provisions and limitations contained in the Code.
Specifically, if more than 50% of the value of the Fund's total assets at the
close of any taxable year consists of stock or securities of foreign
corporations, the Fund may file an election with the Internal Revenue Service
pursuant to which shareholders of the Fund will be required to (i) include in
ordinary gross income (in addition to taxable dividends actually received) their
pro rata shares of foreign income taxes paid by the Fund even though not
actually received by them, and (ii) treat such respective pro rata portions as
foreign income taxes paid by them.
If the Fund makes this election, shareholders may then deduct such pro rata
portions of foreign income taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign income taxes paid by the Fund, although
such shareholders will be required to include their share of such taxes in gross
income. Shareholders who claim a foreign income tax credit for such foreign
taxes may be required to treat a portion of dividends received from the Fund as
a separate category of income for purposes of computing the limitations on the
foreign tax credit. Tax-exempt shareholders will ordinarily not benefit from
this election. Each year that the Fund files the election described above, its
shareholders will be notified of the amount of (i) each shareholder's pro rata
share of foreign income taxes paid by the Fund and (ii) the portion of Fund
dividends which represents income from each foreign country
The amount of net realized 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 that will generate capital gains. At the time of an investor's
purchase of Fund shares, a portion of the purchase price is often attributable
to realized or unrealized appreciation in the Fund's portfolio. Consequently,
subsequent distributions on such 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 (or portions thereof) in reality represent a
return of a portion of the purchase price.
31
<PAGE>
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent the Fund's distributions are
derived from interest on (or, in the case of intangible taxes, the value of its
assets is attributable to) certain U.S. Government obligations, provided in some
states that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied.
Upon a redemption of shares of the Fund (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon his basis in his shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's hands
and will be long-term or short-term, depending upon the shareholder's tax
holding period for the shares. A sales charge paid in purchasing Class A shares
of the Fund cannot be taken into account for purposes of determining gain or
loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent Class A shares of the Fund or another John Hancock fund
are subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. Such disregarded load will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange may be disallowed to the
extent the shares disposed of are replaced with other shares of the Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to automatic dividend reinvestments. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term capital loss
to the extent of any amounts treated as distributions of long-term capital gain
with respect to such shares.
Although its present intention is to distribute all net capital gains, 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 long-term capital gains realized in any year to the extent
that a capital loss is carried forward from prior years against such gain. To
the extent such excess was retained and not exhausted by the carryforward of
prior years' capital losses, it would be subject to Federal income tax in the
hands of the Fund. Each shareholder would be treated for Federal income tax
purposes as if the Fund had distributed to him on the last day of its taxable
year his pro rata share of such excess, and he had paid his pro rata share of
the taxes paid by the Fund and reinvested the remainder in the Fund.
Accordingly, each shareholder would (a) include his pro rata share of such
excess as long-term capital gain income in his return for his taxable year in
which the last day of the Fund's taxable year falls, (b) be entitled either to a
tax credit on his return for, or to a refund of, his pro rata share of the taxes
paid by the Fund, and (c) be entitled to increase the adjusted tax basis for his
shares in the Fund by the difference between his pro rata share of such excess
and his pro rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund has $36,343,494 of capital loss carry-forwards, which
expire as follows: May 31, 1998-$2,471,816, May 31, 1999-$13,103,961, May 31,
2002-$454,810 and May 31, 2003-$20,312,907, available to offset future net
capital gains.
32
<PAGE>
Only a small portion, if any, of the distributions from the Fund may qualify for
the dividends-received deduction for corporations, subject to the limitations
applicable under the Code. The qualifying portion is limited to properly
designated distributions attributed to dividend income (if any) the Fund
receives from certain stock in U.S. domestic corporations and the deduction is
subject to holding period requirements and debt-financing limitations under the
Code.
The Fund accrues income on certain PIKs, zero coupon securities or certain
increasing rate securities (and, in general, any other securities with original
issue discount or with market discount if the Fund elects to include market
discount in income currently) prior to the receipt of the corresponding cash
payments. However, the Fund must distribute at least annually substantially all
of its net income, including such accrued income, to shareholders to qualify as
a regulated investment company and avoid liability for federal income or excise
tax. Therefore, the Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy distribution requirements.
Investment in debt obligations that are at risk of or in default presents
special tax issues for the Fund. Tax rules are not entirely clear about issues
such as when the Fund may cease to accrue interest, original issue discount or
market discount, when and to what extent deductions may be taken for bad debts
or worthless securities, how payments received on obligations in default should
be allocated between principal and income, and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fund in order to reduce the risk of distributing insufficient
income to preserve its status as a regulated investment company and to avoid
becoming subject to Federal income or excise tax.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into futures, options and forward
foreign currencies transactions. Certain payments received by the Fund with
respect to loan participations, such as commitment fees or facility fees, may
not be treated as qualifying income under the 90% requirement referred to above
if they are not properly treated as interest under the Code.
Certain options, futures and forward foreign currency transactions undertaken by
the Fund may cause the Fund to recognize gains or losses from marking to market
even though its positions have not been sold or terminated and affect the
character as long-term or short-term (or, in the case of certain currency
forwards, options and futures as ordinary income or loss) of some capital gains
and losses realized by the Fund. Also, certain of the Fund's losses on its
transactions involving options, futures or forward contracts may be deferred
rather than being taken into account currently in calculating the Fund's taxable
income. These transactions may therefore affect the amount, timing and character
of the Fund's distributions to shareholders. Certain of the applicable tax rules
may be modified if the Fund is eligible and choose to make one or more of
certain tax elections that may be available. The Fund will take into account the
special tax rules
33
<PAGE>
applicable to options, futures or forward contracts in order to seek to
minimize any potential adverse tax consequences.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption of Fund shares may also be subject to state and local
taxes. As noted in the Prospectus, in many states distributions from interest
the Fund receives on direct U.S. Government obligations is exempt from tax.
Shareholders should consult their own tax advisers as to the Federal, state or
local tax consequences of ownership of shares of, and receipt of distributions
from, the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to nonresident alien withholding tax at the rate of 30% (or a lower rate
under an applicable tax treaty) on amounts treated as ordinary dividends from
the Fund and, unless an effective IRS Form W-8 or authorized substitute is on
file, to 31% backup withholding on certain other payments from the Fund.
Non-U.S. investors should consult their tax advisers regarding such treatment
and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
34
<PAGE>
CALCULATION OF PERFORMANCE
For the 30-day period ended May 31, 1995, the Fund's annualized yield for Class
A and Class B shares of the Fund were 8.22% and 7.92%. The average annual total
return on Class A shares of the Fund for the 1 year, 5 year and life-of-fund
period ended May 31, 1995 was (4.38)%, 9.32% and 6.85%, respectively. The total
return for the 1-year and since inception on October 4, 1993 for Class B shares
was 3.58% and 3.20%.
The Fund's yield is computed by dividing net investment income per share
determined for a 30-day period by the maximum offering price per share (which
includes the full sales charge) on the last day of the period, according to the
following standard formula:
(Graphic)
Yield = 2 ([(a minus b divided by cd) + 1] to the sixth power minus 1)
(End graphic)
Where:
a = dividends and interest earned during the period.
b = 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.
The Fund's total return is computed by finding the average annual compounded
rate of return over the 1-year and life-of-fund periods that would equate the
initial amount invested to the ending redeemable value according to the
following formula:
(Graphic)
T = (the nth root of ERV divided by P) minus 1
(End graphic)
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-fund periods.
35
<PAGE>
This calculation assumes the maximum sales charge of 4.5% is included in the
initial investment and 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
load 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 4.5% sales charge on Class A
shares and the CDSC on Class B shares into account. Excluding the Fund's sales
charge on Class A shares and the CDSC on Class B shares from a total return
calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's yield and
total return will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc.'s "Lipper - Fixed Income Fund
Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on approximately 1,700 fixed income mutual funds in the United
States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are also used
for comparison purposes, as well as the Russell and Wilshire Indices.
Comparisons may also be made to bank certificates of deposit, ("CD's") which
differ from mutual funds, such as the Fund, in several ways. The interest rate
established by the sponsoring bank is fixed for the term of a CD. There are
penalties for early withdrawal from CDs, and the principal on a CD is insured.
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 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 officers of the Fund
pursuant to recommendations made by an investment committee of the Adviser,
which consists of officers and directors of the Adviser and affiliates, and
officers and Trustees who are interested persons of the Fund. Orders for
purchases and sales of securities are placed in a manner which, in the opinion
of the officers of the Fund, will offer the best price and market for the
execution of each such transaction. Purchases from underwriters of portfolio
securities may include a commission or commission paid by the issuer
36
<PAGE>
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 such transactions.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and, conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Fund. The
Fund will make no commitment to allocate portfolio transactions upon any
prescribed basis. While the Fund'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 years ended on May 31, 1993, 1994 and
1995, the Fund paid negotiated brokerage commissions in the amount of $3,470,
$32,337 and $2,751, 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 fiscal year ended May 31, 1995,
the Fund directed no commissions to compensate brokers for research services
such as industry, economic and company reviews and evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc. ("Distributors"), a broker-dealer
and John Hancock Freedom Securities Corporation and its two broker-dealer
subsidiaries, Tucker Anthony Incorporated ("Tucker Anthony") and Sutro &
Company, Inc. ("Sutro") ("each an 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
Tucker Anthony, Sutro and Distributors. During the year ending May 31, 1995, the
Fund did not execute any portfolio transactions with Affiliated Brokers.
37
<PAGE>
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Trustees believe to be contemporaneously charged by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with an
Affiliated Broker if the Fund would have to pay a commission rate less favorable
than the Affiliated Broker's contemporaneous charges for comparable transactions
for its other most favored, but unaffiliated, customers, except for accounts for
which the Affiliated Broker acts as clearing broker for another firm, and any
customers of the Affiliated Broker not comparable to the Fund as determined by a
majority of the Trustees who are not interested persons (as defined in the
Investment Company Act) of the Fund, the Adviser or the Affiliated Broker.
Because the Adviser, which is affiliated with the Affiliated Brokers, has, as an
investment adviser to the fund, the obligation to provide investment management
services, which include elements of research and related investment skills, such
research and related skills will not be used by the Affiliated Brokers as a
basis for negotiating commissions at a rate higher than that determined in
accordance with the above criteria. The Fund will not effect principal
transactions with Affiliated Brokers.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation ("Investor Services"), P.O. Box 9116,
Boston, MA 02205-9116, a wholly-owned indirect subsidiary of the Life Company,
is the transfer and dividend paying agent for the Fund. The Fund pays Investor
Services an annual fee of $20.00 per shareholder account for Class A shares and
$22.50 per shareholder account for Class B shares, plus certain out-of pocket
expenses.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 24 Federal Street, Boston,
MA 02110. Under the custodian agreement, Investors Bank & Trust Company performs
custody, portfolio and fund accounting services.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Fund are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts 02110. Price Waterhouse audits and renders an
opinion on the Fund's annual financial statements, and reviews the Fund's annual
Federal income tax return.
<PAGE>
*********************************************
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Bonds (cost - $409,334,970)...................................................................... $416,704,662
Common and preferred stocks and warrants (cost - $29,865,995).................................... 31,994,989
Short-term investments (cost - $5,677,280)....................................................... 5,677,280
------------
454,376,931
Receivable for shares sold......................................................................... 674,353
Receivable for investments sold.................................................................... 3,776,818
Interest receivable................................................................................ 10,648,047
Dividends receivable............................................................................... 105,153
Foreign tax receivable............................................................................. 199,599
------------
Total Assets.................................................................... 469,780,901
----------------------------------------------------------------------------------------------
LIABILITIES:
Payable for shares repurchased..................................................................... 310,748
Payable for foreign exchange contracts closed...................................................... 147,222
Payable for forward foreign currency exchange contracts sold - Note A.............................. 1,195,980
Payable for investments purchased.................................................................. 2,984,229
Dividend payable................................................................................... 2,325,850
Payable to John Hancock Advisers, Inc. and affiliates - Note B..................................... 275,693
Accounts payable and accrued expenses.............................................................. 138,493
------------
Total Liabilities............................................................... 7,378,215
----------------------------------------------------------------------------------------------
NET ASSETS:
Capital paid-in.................................................................................... 497,909,836
Accumulated net realized loss on investments, foreign currency transactions and financial
futures contracts................................................................................ (40,085,425)
Net unrealized appreciation of investments and foreign currency transactions....................... 8,413,497
Distributions in excess of net investment income................................................... (3,835,222)
------------
Net Assets...................................................................... $462,402,686
==============================================================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial interest outstanding -
unlimited number of shares authorized with no par value, respectively)
Class A - $327,875,996/45,879,631............................................... $ 7.15
==============================================================================================
Class B - $134,526,690/18,825,999............................................... $ 7.15
==============================================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - ($7.15 x 104.71%)..................................................... $ 7.49
==============================================================================================
<FN>
* On single retail sales of less than $100,000. On sales of $100,000 or more and on group sales the offering price
is reduced.
</FN>
</TABLE>
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON MAY 31, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF THAT
DATE.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
STATEMENT OF OPERATIONS
Year ended May 31, 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $185,645)............................................ $42,679,585
Dividends (net of foreign withholding taxes of $8,578)............................................. 2,043,068
----------
44,722,653
----------
Expenses:
Investment management fee - Note B............................................................... 2,007,777
Distribution/service fee - Note B
Class A......................................................................................... 978,334
Class B......................................................................................... 1,068,375
Transfer agent fee - Note B
Class A......................................................................................... 694,814
Class B......................................................................................... 203,289
Custodian fee.................................................................................... 188,019
Registration and filing fees..................................................................... 114,884
Trustees' fees................................................................................... 54,225
Auditing fee..................................................................................... 42,750
Printing......................................................................................... 39,296
Miscellaneous.................................................................................... 31,904
Legal fees....................................................................................... 16,902
----------
Total Expenses.................................................................. 5,440,569
----------------------------------------------------------------------------------------------
Net Investment Income........................................................... 39,282,084
----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, FOREIGN CURRENCY TRANSACTIONS AND FINANCIAL
FUTURES CONTRACTS
Net realized loss on investments sold.............................................................. (15,487,029)
Net realized gain on financial futures contracts................................................... 205,575
Net realized loss on foreign currency transactions................................................. (13,158,431)
Change in net unrealized appreciation/depreciation of investments.................................. 26,884,608
Change in net unrealized appreciation/depreciation of financial futures contracts.................. 9,375
Change in net unrealized appreciation/depreciation of foreign currency transactions................ 1,025,139
----------
Net Realized and Unrealized Loss on Investments, Foreign Currency Transactions
and Financial Futures Contracts................................................. (520,763)
----------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations............................ $38,761,321
==============================================================================================
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED MAY 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income................................................................. $ 39,282,084 $ 29,950,911
Net realized loss on investments sold, foreign currency transactions and financial
futures contracts .................................................................. (28,439,885) (7,635,281)
Change in net unrealized appreciation/depreciation of investments, foreign currency
transactions and financial futures contracts........................................ 27,919,122 (12,669,935)
------------ ------------
Net Increase in Net Assets Resulting from Operations................................ 38,761,321 9,645,695
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.5563 and $0.5847 per share, respectively)............................. (26,071,776) (24,525,225)
Class B** - ($0.5151 and $0.3235 per share, respectively)........................... (7,895,442) (1,640,903)
Distributions in excess of net investment income
Class A - (none and $0.0451 per share, respectively)................................ -- (1,891,896)
Class B** - (none and $0.0250 per share, respectively).............................. -- (126,581)
Distributions from capital paid-in
Class A - ($0.0870 and $0.0967 per share, respectively)............................. (4,079,463) (4,057,515)
Class B** - ($0.0806 and $0.0535 per share, respectively)........................... (1,235,403) (271,475)
------------ ------------
Total Distributions to Shareholders................................................ (39,282,084) (32,513,595)
------------ ------------
FROM FUND SHARE TRANSACTIONS-- NET*.................................................... 49,971,675 173,682,461
------------ ------------
NET ASSETS:
Beginning of period................................................................... 412,951,774 262,137,213
------------ ------------
End of period (including distributions in excess of net investment income of
$3,835,222 and $54,719, respectively)............................................... $462,402,686 $412,951,774
============ ============
</TABLE>
<TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<CAPTION>
YEAR ENDED MAY 31,
-------------------------------------------------------
1995 1994
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold...................................................... 8,980,711 $62,660,103 20,643,480 $156,715,885
Shares issued to shareholders in reinvestment of distributions .. 2,633,453 18,333,201 2,312,786 17,468,966
----------- ----------- ---------- ------------
11,614,164 80,993,304 22,956,266 174,184,851
Less shares repurchased.......................................... (12,502,115) (86,921,900) (10,904,772) (82,506,916)
----------- ----------- ---------- ------------
Net increase (decrease).......................................... (887,951) ($ 5,928,596) 12,051,494 $ 91,677,935
=========== =========== ========== ============
CLASS B**
Shares sold...................................................... 9,883,638 $69,070,960 11,217,497 $ 84,809,481
Shares issued to shareholders in reinvestment of distributions .. 600,041 4,173,148 112,236 830,903
----------- ----------- ---------- ------------
10,483,679 73,244,108 11,329,733 85,640,384
Less shares repurchased.......................................... (2,496,190) (17,343,837) (491,223) (3,635,858)
----------- ----------- ---------- ------------
Net increase..................................................... 7,987,489 $55,900,271 10,838,510 $ 82,004,526
=========== =========== ========== ============
** Class B shares became available on October 4, 1993.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.............................. $ 7.17 $ 7.55 $ 7.78 $ 7.20 $ 7.33
-------- -------- -------- -------- -------
Net Investment Income............................................. 0.64 0.68 0.71 0.80 0.93
Net Realized and Unrealized Gain (Loss) on Investments,
Foreign Currency Transactions and Financial Futures Contracts .. (0.02) (0.33) (0.22) 0.52 (0.13)
-------- -------- -------- -------- -------
Total from Investment Operations................................ 0.62 0.35 0.49 1.32 0.80
-------- -------- -------- -------- -------
Less Distributions:
Dividends from Net Investment Income............................ (0.55) (0.58)+ (0.72) (0.74)+ (0.93)
Distributions in Excess of Net Investment Income................ -- (0.05) -- -- --
Distributions from Capital Paid-in.............................. (0.09) (0.10) -- -- --
-------- -------- -------- -------- -------
Total Distributions............................................... (0.64) (0.73) (0.72) (0.74) (0.93)
-------- -------- -------- -------- -------
Net Asset Value, End of Period.................................... $ 7.15 $ 7.17 $ 7.55 $ 7.78 $ 7.20
======== ======== ======== ======== =======
Total Investment Return at Net Asset Value........................ 9.33% 4.54% 6.81% 19.92% 12.31%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)......................... $327,876 $335,261 $262,137 $153,568 $79,272
Ratio of Expenses to Average Net Assets........................... 1.09% 1.32% 1.58% 1.69% 1.75%
Ratio of Net Investment Income to Average Net Assets.............. 9.24% 8.71% 9.63% 10.64% 13.46%
Portfolio Turnover Rate........................................... 55% 91% 97% 80% 60%
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DIVIDENDS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE
FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- ---------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
OCTOBER 4, 1993
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
MAY 31, 1995 MAY 31, 1994
------------ ----------------
<S> <C> <C>
CLASS B
Per Share Operating Performance
Net Asset Value, Beginning of Period..................................................... $ 7.17 $ 7.58(a)
-------- -------
Net Investment Income.................................................................... 0.60(b) 0.40
Net Realized and Unrealized Loss on Investments, Foreign Currency Transactions and
Financial Futures Contracts............................................................ (0.02) (0.41)
-------- -------
Total from Investment Operations....................................................... 0.58 (0.01)
-------- -------
Less Distributions:
Dividends from Net Investment Income................................................... (0.52) (0.32)
Distributions in Excess of Net Investment Income....................................... -- (0.03)
Distributions from Capital Paid-in..................................................... (0.08) (0.05)
-------- -------
Total Distributions...................................................................... (0.60) (0.40)
-------- -------
Net Asset Value, End of Period........................................................... $ 7.15 $ 7.17
======== =======
Total Investment Return at Net Asset Value............................................... 8.58% (0.22%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................................ $134,527 $77,691
Ratio of Expenses to Average Net Assets.................................................. 1.76% 1.91%*
Ratio of Net Investment Income to Average Net Assets..................................... 8.55% 8.12%*
Portfolio Turnover Rate.................................................................. 55% 91%
<FN>
* On an annualized basis
(a) Initial price at commencement of operations.
(b) On average month end shares outstanding.
+ The dividend policy of the Fund was changed, effective August 1, 1991, from one which
utilized daily dividend declarations to one which declares dividends monthly.
Additionally, the dividend policy of the Fund was changed, effective October 1, 1993,
from one which declared dividends monthly to daily dividend declarations.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
STRATEGIC INCOME FUND ON MAY 31, 1995. IT'S DIVIDED INTO FOUR MAIN CATEGORIES:
BONDS, COMMON AND PREFERRED STOCKS, WARRANTS AND RIGHTS, AND SHORT-TERM
INVESTMENTS. THE BONDS ARE FURTHER BROKEN DOWN BY INDUSTRY GROUPS. UNDER EACH
INDUSTRY GROUP IS A LIST OF THE BONDS OWNED BY THE FUND. SHORT-TERM INVESTMENTS,
WHICH REPRESENT THE FUND'S "CASH" POSITION, ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
May 31, 1995
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
BONDS
AEROSPACE (0.63%)
Rohr Inc., Sr Note 05-15-03.............................................. 11.625% BB- 2,750 $2,901,250
----------
AUTOMOBILE/TRUCK (1.51%)
*Harvard Industries, Inc., Sr Note 07-15-04............................... 12.000 B 2,500 2,643,750
*JPS Automotive Products Corp., Sr Note 06-15-01.......................... 11.125 B 3,500 3,465,000
Venture Holdings Trust, Sr Sub Note 04-01-04............................. 9.750 B 1,000 870,000
----------
6,978,750
----------
BANKS (0.70% )
Barclays Bank, (England), Foreign Corp Bond 05-12-49#.................... 9.875 A+ 2,000 3,233,381
----------
BROADCASTING (1.79%)
*Australis Media, Unit (Sr Sub Disc Note 05-15-03 and Warrant) (Y)........ 14.000 CCC 3,000 1,530,000
*Chancellor Broadcasting Co., Sr Sub Notes 10-01-04....................... 12.500 B- 1,500 1,552,500
Outlet Broadcasting Inc., Sr Sub Note 07-15-03........................... 10.875 B- 2,000 2,060,000
SFX Broadcasting, Inc., Sr Sub Note 10-01-00............................. 11.375 B 3,000 3,135,000
----------
8,277,500
----------
BUILDING PRODUCTS (1.67%)
Nortek Inc., Sr Sub Note 03-01-04........................................ 9.875 CCC+ 1,500 1,417,500
*NVR Inc., Sr Note 04-15-03............................................... 11.000 B 2,500 2,375,000
P.T. Semen Cibinong, (Indonesia), Deb 12-15-98 (R), (Y).................. 9.000 BB 3,000 2,962,500
Tarkett International, (Germany), Sr Sub Note 03-01-02 (Y)............... 9.000 B+ 1,000 980,000
----------
7,735,000
----------
CABLE TV (6.69%)
Adelphia Communications Corp., Sr Note 05-15-02.......................... 12.500 B 3,000 2,970,000
*Bell Cablemedia PLC, (United Kingdom), Sr Discount Note, Stepped Coupon
(11.950%, 7-15-99), 07-15-04 (B)(Y).................................... Zero B+ 4,000 2,610,000
*CF Cable TV Inc., (Canada), Sr Note 02-15-05............................. 11.625 BB+ 1,000 1,065,000
Cablevision Systems Corp., Sr Sub Deb 04-01-23........................... 9.875 B 2,000 2,040,000
*Comcast Corp., Sr Sub Deb 05-15-05....................................... 9.375 B+ 4,000 3,960,000
*Diamond Cable Communications Co., (United Kingdom), Sr Discount Note,
Stepped Coupon (13.250%, 9-30-99), 09-30-04 (B)(Y)..................... Zero B- 3,000 1,852,500
Falcon Holdings Group, L.P., Payment-In-Kind Sr Sub Note 09-15-03........ 11.000 B 3,523 3,240,906
*International Cabletel, Sr Note, Stepped Coupon (12.750%, 4-15-00),
04-15-05 (B)(R)........................................................ Zero B3 1,500 855,000
Jones Intercable, Inc., Sr Sub Deb 07-15-04.............................. 11.500 B+ 3,000 3,300,000
*Jones Intercable, Inc., Sr Note 03-15-02................................. 9.625 BB 3,000 3,082,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
SCHEDULE OF INVESTMENTS
May 31, 1995
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
CABLE TV (CONTINUED)
*Le Groupe Videotron, (Canada), Sr Note 02-15-05 (Y)...................... 10.625% BB+ 1,250 $ 1,321,875
*Rogers Cablesystems, (Canada), Sr Note 03-15-05 (R)(Y)................... 10.000 BB+ 3,000 3,045,000
*Videotron Holdings PLC, (United Kingdom), Sr Discount Note, Stepped
Coupon (11.125%, 7-1-99), 07-01-04 (B)(Y).............................. Zero B 2,500 1,600,000
-----------
30,942,781
-----------
CHEMICALS (0.40%)
NL Industries, Inc., Sr Note 10-15-03.................................... 11.750 B 1,750 1,850,625
-----------
COMPUTERS (1.61%)
Comdata Network, Inc., Sr Note 12-15-99.................................. 12.500 B+ 1,500 1,636,875
*Computervision Corp., Sr Sub Note 08-15-99............................... 11.375 CCC+ 4,000 3,840,000
Unisys Corp., Deb 09-15-16............................................... 9.750 BB- 2,000 1,980,000
-----------
7,456,875
-----------
CONTAINERS (1.43%)
Crown Packaging, Sr Note 11-01-00........................................ 10.750 B3 2,000 1,980,000
Stone Container Corp., Sr Note 02-01-01.................................. 9.875 B 2,500 2,487,500
*Stone Container Corp., Sr Note 10-01-04.................................. 11.500 B 2,000 2,140,000
-----------
6,607,500
-----------
COSMETICS & TOILETRIES (0.42%)
*Renaissance Cosmetics, Sr Note 08-15-01,................................. 13.750 B 2,000 1,940,000
-----------
DIVERSIFIED MANUFACTURING (1.91%)
Calpine Corp., Sr Note 02-01-04.......................................... 9.250 B 2,000 1,760,000
Great Dane Holdings, Sr Sub Deb 08-01-01................................. 12.750 B- 3,000 3,030,000
*Great Dane Holdings, Sub Deb 01-01-06.................................... 14.500 CCC 1,000 997,500
Interlake Corp. (The), Sr Sub Deb 03-01-02............................... 12.125 CCC+ 3,000 3,060,000
-----------
8,847,500
-----------
ELECTRONICS (0.54%)
*Alliant Techsystems, Inc., Sr Sub Note 03-01-03 (R)...................... 11.750 B2 1,375 1,450,625
Tracor, Inc., Sr Sub Note 08-15-01....................................... 10.875 B 1,000 1,030,000
-----------
2,480,625
-----------
FINANCE (1.26%)
Norgeskreditt, (Norway), Foreign Corp Bond 06-19-96#..................... 10.750 AAA 35,000 5,848,640
-----------
FOODS (0.63%)
PMI Acquisition Corp., Sr Sub Note 09-01-03.............................. 10.250 B 1,000 1,030,000
Pilgrim's Pride Corp., Sr Sub Note 08-01-03.............................. 10.875 B- 2,000 1,885,000
-----------
2,915,000
-----------
GOVERNMENTAL - FOREIGN (19.98%)
Government of New Zealand, (New Zealand), Government Bond 04-15-04#...... 8.000 AA3 10,000 6,914,399
*Government of New Zealand, (New Zealand), Foreign Government Debt
07-15-98# ............................................................. 8.000 AA3 10,000 6,671,987
*Kingdom of Denmark, (Denmark), Foreign Government Debt 12-15-04#......... 7.000 AAA 60,000 10,104,750
*Kingdom of Denmark, (Denmark), Government Bond 11-10-24#................. 7.000 AA1 65,000 9,750,000
Kingdom of Denmark, (Denmark), Government Bond-Bullet 11-15-95#.......... 9.000 AAA 20,000 3,657,848
Kingdom of Denmark, (Denmark), Government Bond-Bullet 11-15-96#.......... 9.000 AAA 25,000 4,670,623
Kingdom of Spain, (Spain), Government Bond 04-15-96#..................... 13.450 AA1 1,400,000 11,673,480
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
SCHEDULE OF INVESTMENTS
May 31, 1995
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
GOVERNMENTAL - FOREIGN (CONTINUED)
Kingdom of Sweden, (Sweden), Government Bond 09-01-95#................... 11.500% AA2 20,000 $ 2,738,806
*Mexican Tesobonos, (Mexico), Government Bond 06-01-95 (Y)................ Zero B 6,000 6,000,000
*Queensland Treasury, (Australia), Government Bond 06-14-05#.............. 6.500 AAA 5,700 3,384,002
*Republic of Brazil, (Brazil), Government Bond (Floating Rate Note)
04-15-24 (Y)........................................................... 4.250 B 10,000 4,512,500
United Kingdom of Great Britain Treasury Gilts, (England), Government
Bond 11-06-01#......................................................... 7.000 AAA 3,000 4,535,043
United Kingdom of Great Britain Treasury Gilts, (England), Government
Bond 08-27-02#......................................................... 9.750 AAA 4,000 6,988,736
United Kingdom of Great Britain Treasury Gilts, (England), Government
Bond 10-13-08#......................................................... 9.000 AAA 3,000 5,167,182
*United Mexican States, (Mexico), Series A, Deb 12-31-19 (Y).............. 6.250 BA3 7,000 3,937,500
*United Mexican States, (Mexico), Series B, Deb 12-31-19 (Y).............. 6.250 BA3 3,000 1,664,064
-----------
92,370,920
-----------
GOVERNMENTAL - FOREIGN AGENCY (1.08%)
Treasury Corp. of, Victoria, (Australia), Government Bond 10-15-03#...... 8.250 AA 7,300 4,984,513
-----------
GOVERNMENTAL - U.S. (10.43%)
*United States Treasury, Bond 02-15-16.................................... 9.250 AAA 11,000 14,013,010
United States Treasury, Bond 08-15-19.................................... 8.125 AAA 5,500 6,354,205
*United States Treasury, Note 11-15-95.................................... 8.500 AAA 7,000 7,079,870
United States Treasury, Note 05-15-01.................................... 8.000 AAA 19,000 20,772,320
-----------
48,219,405
-----------
GOVERNMENTAL - U.S. AGENCIES (0.45%)
Federal Home Loan Mortgage Corp., Remic 44-E 11-15-19.................... 9.000 AAA 1,523 1,605,124
Federal National Mortgage Association, Reverse PERLS 06-07-95............ 13.050 AAA 500 0
Federal National Mortgage Association, Multicurrency PERLS 07-10-96...... 11.450 AAA 500 60,000
Student Loan Marketing Association, Reverse PERLS 07-12-95............... 11.750 AAA 500 322,500
Student Loan Marketing Association, Multicurrency PERLS 11-19-96......... 10.000 AAA 500 75,000
-----------
2,062,624
-----------
HEALTHCARE (0.56%)
*Continental Medical Systems, Sr Sub Notes 08-15-02....................... 10.875 B+ 2,500 2,600,000
-----------
INSURANCE (0.85%)
*American Life Holding Co., Sr Sub Note 09-15-04.......................... 11.250 BB- 1,000 1,040,000
Bankers Life Holdings Corp., Sr Sub Note Ser B 11-01-02.................. 13.000 BB+ 2,500 2,887,500
-----------
3,927,500
-----------
LEASING (0.32%)
Scotsman Group, Sr Sec Note 12-15-00..................................... 9.500 BB- 1,500 1,462,500
-----------
LEISURE & RECREATION (3.59%)
*Act III Theatres, Inc., Sr Sub Notes 02-01-03............................ 11.875 B- 1,550 1,658,500
Bally's Grand, 1st Mtg Note 12-15-03..................................... 10.375 B+ 3,000 2,925,000
*GB Property Funding, 1st Mtg Note 01-15-04............................... 10.875 B+ 3,000 2,625,000
*Players International Inc., Sr Note 04-15-05 (R)......................... 10.875 BB 4,000 4,040,000
Roadmaster Industries Inc., Sr Sub Note 07-15-02......................... 11.750 B- 2,000 1,940,000
Station Casinos, Sr Sub Notes 06-01-03................................... 9.625 B 2,000 1,845,000
*Stratosphere Corp., 1st Mtg Note 05-15-02................................ 14.250 B 1,500 1,560,000
-----------
16,593,500
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
SCHEDULE OF INVESTMENTS
May 31, 1995
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
MEDIA (0.90%)
*News America Holdings, Inc., (Australia), Deb 02-07-14#.................. 8.625% BBB- 7,000 $ 4,160,380
-----------
METALS (2.14%)
Easco Corp., Sr Note 03-15-01............................................ 10.000 B 2,000 2,020,000
Horsehead Industries, Inc., Sub Note 06-01-99............................ 14.000 CCC- 3,500 3,578,750
Kaiser Aluminum, Sr Sub Note 02-01-03.................................... 12.750 B- 4,000 4,310,000
-----------
9,908,750
-----------
OIL & GAS (4.12%)
*Columbia Gas System, Deb 08-01-93 (A)***................................. 9.000 D 3,000 4,170,000
Dual Drilling Co., Sr Sub Note 01-15-04.................................. 9.875 B- 1,000 882,500
*Falcon Drilling Company Inc., Sr Sub Notes 03-15-05...................... 12.500 B- 1,500 1,560,000
Mobil North Sea, Inc., (England), Foreign Corp Bond 07-15-99#............ 9.625 A 1,000 1,666,349
*Petroleum Heat & Power Company, Inc., Sub Deb 02-01-05................... 12.250 B+ 1,700 1,814,750
Santa Fe Energy Resource, Sr Sub Deb 05-15-04............................ 11.000 B 1,000 1,060,000
*Transamerican Refining Corp., Unit (1st Mtg Note 02-15-02 and Warrant)... 16.500 B- 2,000 2,239,460
TransTexas Gas Corp., Sr Note 09-01-00................................... 10.500 BB- 1,000 1,077,500
Wainoco Oil Corp., Sr Note 08-01-02...................................... 12.000 B- 2,500 2,575,000
Wilrig AS, (Norway), Sr Sec Note 03-15-04 (Y)............................ 11.250 B 2,000 2,010,000
-----------
19,055,559
-----------
PAPER (1.50%)
*Data Documents Inc., Unit (Sr Note 07-15-02 and Warrant)................. 13.500 B+ 2,000 2,020,000
P.T. Indah Kiat Pulp & Paper Corp., (Indonesia), Deb 11-01-00 (Y)........ 8.875 BB 3,000 2,730,000
*SD Warren Co., Sr Sub Notes 12-15-04..................................... 12.000 B+ 2,000 2,180,000
-----------
6,930,000
-----------
POLLUTION CONTROL (0.70%)
*Clean Harbors, Inc., Sr Note 05-15-01.................................... 12.500 B 1,000 890,000
ICF Kaiser International, Sr Sub Note 12-31-03........................... 12.000 B- 2,500 2,368,750
-----------
3,258,750
-----------
PRECIOUS METALS/JEWELRY (0.62%)
*Finlay Fine Jewelry, Sr Note 05-01-03.................................... 10.625 B 3,000 2,880,000
-----------
PRINTING (1.39%)
Mail-Well Envelope, Sr Sub Note 02-15-04................................. 10.500 B 3,000 2,670,000
Webcraft Tech, Sr Sub Note 02-15-02...................................... 9.375 B 2,000 1,760,000
Williamhouse-Regency of Delaware, Inc., Sr Sub Deb 06-15-05.............. 11.500 B- 2,000 1,990,000
-----------
6,420,000
-----------
RETAIL (4.53%)
American Restaurant Group Inc., Gtd Sr Sec Note 09-15-98................. 12.000 B+ 500 425,000
American Restaurant Group Inc., Sr Sec Note 09-15-98..................... 12.000 B+ 2,500 2,125,000
Cole National Group, Inc., Sr Note 10-01-01.............................. 11.250 B+ 3,000 2,865,000
*Flagstar Corp., Sr Sub Deb 11-01-04...................................... 11.250 CCC+ 3,000 2,295,000
Pathmark Stores Inc., Sub Note 06-15-02.................................. 11.625 B 1,000 1,040,000
Pathmark Stores Inc., Sub Note 06-15-02.................................. 12.625 B 2,500 2,662,500
Petro PSC Properties, L.P., Sr Note 06-01-02............................. 12.500 B 2,500 2,531,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
SCHEDULE OF INVESTMENTS
May 31, 1995
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
RETAIL (CONTINUED)
*Specialty Retailers, Inc., Sr Sub Note 08-15-03.......................... 11.000% B- 3,000 $ 2,835,000
Thrifty Payless, Inc., Sr Sub Note 04-15-04.............................. 12.250 B- 4,000 4,160,000
-----------
20,938,750
-----------
SHOES (0.28%)
United States Leather, Inc., Sr Note 07-31-03............................ 10.250 B+ 1,500 1,275,000
-----------
STEEL (4.00%)
AK Steel Holding Corp., Sr Note 04-01-04................................. 10.750 B+ 2,000 2,107,500
ARMCO Steel Corp., Sr Note 11-01-00...................................... 9.375 B 2,000 1,940,000
*Acme Metals, Inc., Sr Sec Note 08-01-02.................................. 12.500 B 3,000 3,105,000
Geneva Steel Co., Sr Note 03-15-01....................................... 11.125 B+ 2,000 1,750,000
Inland Steel Industries, Inc., Note 12-15-02............................. 12.750 B+ 2,000 2,220,000
WCI Steel Inc., Sr Note Ser B 03-01-02................................... 10.500 B+ 1,000 1,012,500
Weirton Steel Corp., Sr Note 10-15-99.................................... 10.875 B 3,500 3,561,250
*Wheeling-Pittsburgh Steel Corp., Sr Note 11-15-03........................ 9.375 BB 3,000 2,797,500
-----------
18,493,750
-----------
TELECOMMUNICATIONS (1.12%)
Dial Page, Inc., Sr Note 02-15-00........................................ 12.250 CCC- 2,000 2,075,000
MFS Communication, Sr Note, Stepped Coupon (9.375%, 1-15-99) 01-15-04 (B) Zero B 2,400 1,632,000
*Nextel Communications, Inc. Sr Discount Note 08-15-04.................... 9.750 CCC- 3,000 1,485,000
-----------
5,192,000
-----------
TEXTILES (1.97%)
CMI Industries, Inc., Sr Sub Note 10-01-03............................... 9.500 B+ 2,000 1,860,000
Consoltex Group, Inc., Sr Sub Note Ser B 10-01-03........................ 11.000 B 2,500 2,287,500
Dan River, Inc., Sr Sub Note 12-15-03.................................... 10.125 B 2,000 2,000,000
Westpoint Stevens, Sr Sub Deb 12-15-05................................... 9.375 B+ 3,000 2,940,000
-----------
9,087,500
-----------
TRANSPORTATION (6.40%)
*AmGeneral Corp., Sr Note 05-01-02 (R).................................... 12.875 B3 2,000 1,990,000
Burlington Motor Holdings, Inc., Sr Sub Note 11-01-03.................... 11.500 CCC+ 3,000 2,625,000
*Fruehauf Trailer Corp., Sr Sec Note 04-30-02 (r)......................... 14.750 B 3,000 2,992,500
NWA, Inc., Note 08-01-96................................................. 8.625 B- 5,000 5,025,000
*Terex Corp., Unit (Sr Sec Note 05-15-02 and Stock Rights) (R)............ 13.750 Caa 3,000 2,917,500
TNT Transport PLC/TNT USA, Sr Note 04-15-04.............................. 11.500 B+ 4,000 4,160,000
*UAL Corporation, Sub Deb 02-01-25........................................ 6.375 B+ 3,000 2,778,750
*USAfrica Airways Inc., Unit (Sr Note 05-31-99 and Warrant), (r).......... 12.000 D 2,000 1,915,600
*USAir Inc., Sr Note 02-01-01............................................. 9.625 CCC+ 6,000 5,190,000
-----------
29,594,350
-----------
UTILITIES (0.98%)
*Cleveland Electric Illuminating Co., 1st Mtg Note 05-15-05............... 9.500 BB 2,625 2,628,518
Midland Cogeneration Venture, Deb 07-23-02............................... 10.330 BB- 1,832 1,896,573
-----------
4,525,091
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
SCHEDULE OF INVESTMENTS
May 31, 1995
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
PAR VALUE
INTEREST S&P (000'S MARKET
ISSUER, DESCRIPTION RATE RATING** OMITTED) VALUE
- ------------------- -------- -------- --------- ------
<S> <C> <C> <C> <C>
WHOLESALE (0.73%)
Apparel Ventures Inc., Sr Note 12-31-00.................................. 12.250% B- 1,500 $ 1,335,000
*United Stationer Supply, Sr Sub Note 05-01-05 (R)........................ 12.750 B- 2,000 2,055,000
------------
3,390,000
------------
OTHER (0.29%)
Collateralized Mortgage Obligation, Trust 63, Class D 04-20-97........... 9.000 AAA 1,347 1,358,393
------------
<CAPTION>
TOTAL BONDS
<S> <C> <C>
(Cost $409,334,970) (90.12%) 416,704,662
------ ------------
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNITS OR WARRANTS
-----------------
<S> <C> <C>
COMMON AND PREFERRED STOCKS, WARRANTS AND RIGHTS
*Apparel Ventures Inc., Warrants (r)........................................................ 1,500 67,500
Avnet, Inc., Common Stock.................................................................. 3,606 164,073
California Federal Bank, 10.625% Ser B Pref Stock.......................................... 6,667 706,702
Credit Lyonnais Capital S.C.A., American Depositary Shares, 9.50% Ser DTC Pref Stock (R)... 100,000 2,320,000
*Finlay Enterprises, Inc., Common Stock***.................................................. 4,000 47,000
*First Nationwide Bank, 11.50% Pref Stock................................................... 5,000 537,500
Grand Union Holdings Corp., 12.00% Series C Pref Stock***.................................. 9,550 0
Greater New York Savings Bank, Inc., 12.00% Ser B Pref Stock............................... 80,000 2,180,000
ICF International, Inc., Warrants***....................................................... 12,000 9,000
Indosuez Holdings S.C.A., American Depositary Receipts, 10.375% Pref Stock (R)............. 40,000 1,040,000
K-III Communications Corp., $2.875 Sr Exch Pref Stock...................................... 60,000 1,567,500
Lasmos PLC , 10.00% Ser A Pref Stock....................................................... 50,000 1,218,750
Maxus Energy Corp., 10.00% Pref Stock...................................................... 40,000 925,000
Northwest Airlines Corp., Common Stock (Class A)***........................................ 200,000 5,675,000
*Panamsat Corp., 12.75% Pref Stock.......................................................... 1,750 1,833,125
*Petro PSC Properties, LP, Warrants (r)..................................................... 2,000 68,000
RJR Nabisco Holdings, $2.3125, Ser B Pref Stock............................................ 80,000 1,980,000
*Renaissance Cosmetics, Warrants............................................................ 4,000 70,000
St Johnsbury Trucking Co Inc., Common Stock (r)***......................................... 47,224 472
Specialty Equipment Co., Common Stock***................................................... 50,000 590,625
Sun Carriers Inc., Common Stock (r) ***.................................................... 195,600 1,956
TLC Beatrice International Holdings, Common Stock (Class A) (r)............................ 20,000 1,000,000
*Thrifty Payless Holdings, Common Stock (Class C) (r)....................................... 38,000 142,500
*TransTexas Gas Corp., Common Stock***...................................................... 10,000 143,750
*Tyco International Ltd., Common Stock...................................................... 2,817 152,470
*UAL Corp., 12.25% Ser B Pref Stock......................................................... 280,000 8,365,000
*Valero Energy Corp., $3.125, Pref Stock.................................................... 25,000 1,184,375
*Walter Industries Inc., Common Stock***.................................................... 354 4,691
-----------
TOTAL COMMON AND PREFERRED STOCKS AND WARRANTS
(Cost $29,865,995) (6.92%) 31,994,989
----- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
<TABLE>
<CAPTION>
PAR VALUE
(000'S MARKET
ISSUER, DESCRIPTION OMITTED) VALUE
- ------------------- --------- ------
<S> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (1.21%)
Investment in a joint repurchase agreement transaction with Bankers Trust -
Dated 05-31-95, Due 06-01-95 (secured by U.S. Treasury Bonds, 11.25% Due
02-15-15, 9.125% Due 05-15-09, 13.25% Due 05-15-14, and U.S Treasury Note
6.75% Due 05-31-97).............................................................. $5,631 $ 5,631,000
CORPORATE SAVINGS ACCOUNT (0.01%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%............................................................... 46,280
------------
TOTAL SHORT TERM INVESTMENTS ( 1.22%) 5,677,280
------ ------------
TOTAL INVESTMENTS (98.26%) $454,376,931
====== ============
<FN>
* Securities, other than short-term investments, newly added to the portfolio during the year ended May 31, 1995.
** Credit ratings are unaudited and rated by Moody's Investors Service or John Hancock Advisers, Inc. where Standard
& Poor's ratings are not available.
*** Non-income producing security.
# Par value of foreign bonds is expressed in local currency, as shown parenthetically in security description.
(A) Issuer filed for protection under the Federal Bankruptcy Code and has filed a comprehensive reorganization plan.
(B) Cash interest will be paid on this obligation at the stated rate beginning on the stated date.
(R) Security is exempt from registration under rule 144A of the Securities Act of 1933. Such securities may be resold,
normally to qualified institutional buyers, in transactions exempt from registration. See Note A of the Notes to
Financial Statements for valuation policy. Rule 144A securities amounted to $22,675,625 as of May 31, 1995.
(Y) Parenthetical disclosure of a foreign country in the security description represents country of foreign issuer,
however, security is U.S. dollar denominated.
(r) Direct placement securities are restricted to resale. They have been valued at fair value by the Trustees after
considerations of restrictions as to resale, financial condition and prospects of the issuer, general market
conditions and pertinent information in accordance with the Fund's By-Laws and the Investment Company Act of 1940,
as amended. The Fund has limited rights to registration under the Securities Act of 1933 with respect to these
restricted securities.
</FN>
</TABLE>
Additional information on each restricted security is as follows:
<TABLE>
<CAPTION>
VALUE AS A
PERCENTAGE
AQUISITION AQUISITION OF FUND'S VALUE AT
DATE COST NET ASSETS MAY 31, 1995
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Apparel Ventures, Warrants........................................... 10-27-94 $ 1,125 0.01% $ 67,500
Fruehauf Trailer Corp., Sr Sec Note 04-30-02......................... 05-31-95 2,975,625 0.65 2,992,500
Petro PSC Properties, LP Warrants.................................... 05-17-94 73,140 0.01 68,000
St. Johnsbury Trucking Co., Inc., Common Stock....................... 01-19-93 1,301,659 0.00 472
Sun Carriers Inc., Common Stock...................................... 11-23-88 218,247 0.00 1,956
TLC Beatrice International Holdings, Common Stock (Class A).......... 11-25-87 1,006,000 0.22 1,000,000
Thrifty Payless Holdings, Class C Shares............................. 07-22-94 213,334 0.03 142,500
USAfrica Airways Inc, Unit (Sr Note 05-31-99 and Warrants)........... 10-13-94 2,000,000 0.41 1,915,600
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
THE STRATEGIC INCOME FUND INVESTS PRIMARILY IN SECURITIES ISSUED IN THE UNITED
STATES OF AMERICA. THE PERFORMANCE OF THIS FUND IS CLOSELY TIED TO THE ECONOMIC
AND FINANCIAL CONDITIONS WITHIN THE COUNTRIES IT INVESTS. THE CONCENTRATION OF
INVESTMENTS BY INDUSTRY CATEGORY FOR INDIVIDUAL SECURITIES HELD BY THE FUND IS
SHOWN IN THE SCHEDULE OF INVESTMENTS.
IN ADDITION, CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY VARIOUS
COUNTRIES. THE TABLE BELOW SHOWS THE PERCENTAGES OF THE FUND'S INVESTMENTS AT
MAY 31, 1995 ASSIGNED TO COUNTRY CATEGORIES.
PORTFOLIO CONCENTRATION (Unaudited)
- -------------------------------------------------------------------------------
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION: NET ASSETS
- ----------------------- ---------------
Australia............................................... 2.71%
Brazil.................................................. 0.98
Canada.................................................. 1.18
Denmark................................................. 6.10
England................................................. 5.98
Germany................................................. 0.21
Indonesia............................................... 1.23
Mexico.................................................. 2.51
New Zealand............................................. 2.94
Norway.................................................. 1.70
Spain................................................... 2.52
Sweden.................................................. 0.59
United States........................................... 69.61
-----
TOTAL INVESTMENTS 98.26%
=====
ADDITIONALLY, THE CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY THE QUALITY
RATING FOR EACH DEBT SECURITY.
MARKET VALUE
AS A PERCENTAGE
OF FUND'S
QUALITY DISTRIBUTION: NET ASSETS
- -------------------- ---------------
AAA................................................ 21.20%
AA................................................. 9.24
A.................................................. 1.06
BAA................................................ 0.90
BA................................................. 10.28
B.................................................. 45.69
CAA................................................ 1.34
D.................................................. 0.41
-----
TOTAL BONDS 90.12%
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Strategic Series (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of three series of portfolios: John Hancock Strategic Income Fund (the "Fund"),
John Hancock Utilities Fund and John Hancock Independence Diversified Core
Equity Fund.
The Trustees have authorized the issuance of two classes of shares of the
Fund, designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemption, dividends, and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution/service expenses under the
terms of a distribution plan, have exclusive voting rights regarding such
distribution plan. Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below. The Fund may invest in indexed securities whose value is linked either
directly or inversely to changes in foreign currencies, interest rates,
commodities, indices or other reference instruments. Indexed securities may be
more volatile than the reference instrument itself, but any loss is limited to
the amount of the original investment.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies. It
will not be subject to Federal income tax on taxable earnings which are
distributed to shareholders. For Federal income tax purposes, net currency
exchange gains and losses from sales of foreign debt securities may be treated
as ordinary income even though such items are capital gains and losses for
accounting purposes. The Fund has $36,343,494 of capital loss carryforwards
available, to the extent provided by regulations, to offset future net realized
capital gains. To the extent that such carryforwards are used by the Fund, no
capital gains distributions will be made. The carryforwards expire as follows:
May 31, 1998 -- $2,471,816, May 31, 1999 -- $13,103,961, May 31, 2002 --
$454,810 and May 31, 2003 -- $20,312,907. Expired capital loss carryforwards are
reclassified to capital paid-in, in the year of expiration. Additionally, net
capital losses of $1,474,240 attributable to security transactions incurred
after October 31, 1994 are treated as arising on the first day (June 1, 1995) of
the Fund's current taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
distributions are determined in conformity with income tax regulations, which
may differ from generally accepted accounting principles. Dividends paid by the
Fund with respect to each class of shares will be calculated in the same manner,
at the same time and will be in the same amount, except for the effect of
expenses that may be applied differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS The Fund may enter into forward
foreign currency exchange contracts as a hedge against the effect of
fluctuations in currency exchange rates. A forward foreign currency exchange
contract involves an obligation to purchase or sell a specific currency at a
future date at a set price. The aggregate principal amounts of the contracts are
marked-to-market daily at the applicable foreign currency exchange rates. Any
resulting unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at the time
the forward foreign currency contract is closed out or offset by a matching
contract. Risks may arise upon entering these contracts from potential inability
of counterparties to meet the terms of the contract and from unanticipated
movements in the value of a foreign currency relative to the U.S. dollar.
These contracts involve market or credit risk in excess of the unrealized
gain or loss reflected in the Fund's Statement of Assets and Liabilities. The
Fund may also purchase and sell forward contracts to facilitate the settlement
of foreign currency denominated portfolio transactions, under which it intends
to take delivery of the foreign currency. Such contracts normally involve no
market risk other than that offset by the currency amount of the underlying
transaction.
Open foreign currency forward sell contracts at May 31, 1995 were as follows:
PRINCIPAL AMOUNT EXPIRATION UNREALIZED
CURRENCY: COVERED BY CONTRACT MONTH DEPRECIATION
GERMAN MARK 4,563,000 JUNE 95 $ (66,413)
SPANISH PESETA 1,482,000,000 JULY 95 (310,073)
GERMAN MARK 38,600,000 JULY 95 (819,494)
-----------
$(1,195,980)
===========
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m. London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/(loss) on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities resulting
from changes in the exchange rate.
OPTIONS Listed options will be valued at the last quoted sales price on the
exchange on which they are primarily traded. Purchased put or call
over-the-counter options will be valued at the average of the "bid" prices
obtained from two independent brokers. Written put or call
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
over-the-counter options will be valued at the average of the "asked" prices
obtained from two independent brokers. Upon the writing of a call or put option,
an amount equal to the premium received by the Fund will be included in the
Statement of Assets and Liabilities as an asset and corresponding liability. The
amount of the liability will be subsequently marked-to-market to reflect the
current market value of the written option.
The Fund may use option contracts to manage its exposure to the stock market.
Writing puts and buying calls will tend to increase the Fund's exposure to the
underlying instrument and buying puts and writing calls will tend to decrease
the Fund's exposure to the underlying instrument, or hedge other Fund
investments.
The maximum exposure to loss for any purchased options will be limited to the
premium initially paid for the option. In all other cases, the face (or
"notional") amount of each contract at value will reflect the maximum exposure
of the Fund in these contracts, but the actual exposure will be limited to the
change in value of the contract over the period the contract remains open.
Risks may also arise if counterparties do not perform under the contracts'
terms, or if the Fund is unable to offset a contract with a counterparty on a
timely basis ("liquidity risk"). Exchange-traded options have minimal credit
risk as the exchanges act as counterparties to each transaction, and only
present liquidity risk in highly unusual market conditions. To minimize credit
and liquidity risks in over-the-counter option contracts, the Fund will
continuously monitor the creditworthiness of all its counterparties.
At any particular time, except for purchased options, market or credit risk
may involve amounts in excess of those reflected in the Fund's period-end
Statement of Assets and Liabilities.
There were no written option transactions for the period ended May 31, 1995.
FINANCIAL FUTURES CONTRACTS The Fund may buy and sell financial futures
contracts for speculative purposes and/or to hedge against the effects of
fluctuations in interest rates, currency exchange rates and other market
conditions. At the time the Fund enters into a financial futures contract, it
will be required to deposit with its custodian a specified amount of cash or
U.S. government securities, known as "initial margin," equal to a certain
percentage of the value of the financial futures contract being traded. Each
day, the futures contract is valued at the official settlement price on the
board of trade or U.S. commodities exchange. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. Daily variation
margin adjustments, arising from this "mark to market", will be recorded by the
Fund as unrealized gains or losses.
When the contracts are closed, the Fund recognizes a gain or loss. Risks of
entering into futures contracts include the possibility that there may be an
illiquid market and/or that a change in the value of the contracts may not
correlate with changes in the value of the underlying securities. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out futures positions because of position limits or limits on daily price
fluctuations imposed by an exchange.
For Federal income tax purposes, the amount, character and timing of the
Fund's gains and/or losses can be affected as a result of futures contracts.
At May 31, 1995, there were no open positions in financial futures contracts.
DISCOUNTS ON SECURITIES The Fund accretes discounts from par value on securities
purchased from either the date of issue or the date of purchase over the life of
the security, as required by the Internal Revenue Code.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser for a continuous investment program equivalent, on
an annual basis, to the sum of: (a) 0.60% of the first $100,000,000 of the
Fund's average daily net asset value,
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
(b) 0.45% of the next $150,000,000, (c) 0.40% of the next $250,000,000, (d)
0.35% of the next $150,000,000, and (e) 0.30% of the Fund's average daily net
asset value in excess of $650,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. Prior to January 1, 1995, JH
Funds was known as John Hancock Broker Distributions Services, Inc. For the
period ended May 31, 1995, JH Funds received net sales charges of $1,746,666
with regard to sales of Class A shares. Out of this amount, $205,192 was
retained and used for printing of prospectuses, advertising, sales literature
and other purposes, $522,502 was paid as sales commissions and service fees to
unrelated broker-dealers and $1,018,972 was paid as sales commissions and
service fees to sales personnel of John Hancock Distributors, Inc.
("Distributors"), Tucker Anthony, Incorporated ("Tucker Anthony") and Sutro &
Co., Inc. ("Sutro"), all of which are broker dealers. The Adviser's indirect
parent, John Hancock Mutual Life Insurance Company, is the indirect sole
shareholder of Distributors and John Hancock Freedom Securities Corporation and
its subsidiaries, which include Tucker Anthony and Sutro.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended May 31, 1995,
contingent deferred sales charges received by JH Funds amounted to $401,317.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses at an annual rate not to exceed
0.30% of Class A average daily net assets and 1.00% of Class B average daily net
assets, to reimburse JH Funds for its distribution and service costs. Up to a
maximum of 0.25% of these payments may be service fees as defined by the amended
Rules of Fair Practice of the National Association of Securities Dealers. Under
the amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc. Effective January 1, 1995, the Fund pays transfer
agent fees based on transaction volume and the number of shareholder accounts.
Prior to January 1, 1995, the Fund paid Investor Services a monthly transfer
agent fee equivalent, on an annual basis, to 0.22% of the average daily net
asset value of Class A and Class B shares of the Fund, respectively, plus out of
pocket expenses incurred by Investor Services on behalf of the Fund for proxy
mailings.
Messrs. Edward J. Boudreau, Jr. and Richard S. Scipione are directors and
officers of the Adviser and its affiliates, as well as Trustees of the Fund. The
Adviser owns 10,000 shares of beneficial interest in the Fund. The compensation
of unaffiliated Trustees is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund will make investments into other John Hancock funds,
as applicable, to cover its liability for the deferred compensation. Investments
to cover the Fund's deferred
23
<PAGE>
Notes to Financial Statements
John Hancock Funds - Strategic Income Fund
compensation liability will be recorded on the Fund's books as an other asset.
The deferred compensation liability will be marked to market on a periodic basis
and income earned by the investment will be recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales and maturities of securities, other than
obligations of the U.S. government and its agencies and short-term investments,
during the period ended May 31, 1995, aggregated $227,151,871 and $198,645,958,
respectively. Purchases and proceeds from sales of obligations of the U.S.
government and its agencies during the period ended May 31, 1995, aggregated
$145,074,405 and $143,134,643 respectively.
The cost of investments owned at May 31, 1995 (excluding the corporate
savings account), for Federal income tax purposes was $449,494,935. Gross
unrealized appreciation and depreciation of investments aggregated $16,390,547
and $11,554,831, respectively, resulting in net unrealized appreciation of
$4,835,716.
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year end May 31, 1995, the Fund reclassified amounts to reflect a
decrease in undistributed net investment income $3,780,503, a decrease in
accumulated net realized loss on investments of $9,093,416 and a decrease in
capital paid-in of $5,312,913. This represents the cumulative amount necessary
to report these balances on a tax basis, excluding certain temporary
differences, as of May 31, 1995. Additional adjustments may be needed in
subsequent reporting periods. These reclassifications, which have no impact on
the net asset value of the Fund, are primarily attributable to certain
differences in the computation of distributable income and capital gains under
federal tax rules versus generally accepted accounting principles.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Strategic Income Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Strategic Income Fund and the Trustees of
John Hancock Strategic Series
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, (except for Moody's and Standard and Poor's
ratings), and the related statements of operations and of changes in net assets
and the financial highlights present fairly, in all material respects, the
financial position of John Hancock Strategic Income Fund (the "Fund") (a
portfolio of John Hancock Strategic Series) at May 31, 1995, the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for the periods indicated, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31, 1995 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
July 17, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal income tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended May 31, 1995.
With respect to the Fund's ordinary taxable income for the fiscal year ended
May 31, 1995, 5% of the dividends qualify for the corporate dividends received
deduction.
Shareholders will receive a 1995 U.S. Treasury Department Form 1099-DIV in
January of 1996. This will reflect the total of all distributions which are
taxable for the calendar year 1995.
25
<PAGE>
JOHN HANCOCK INDEPENDENCE
DIVERSIFIED CORE EQUITY FUND
Statement of
Additional Information
September 1, 1995
This Statement of Additional Information provides information about John
Hancock Independence Diversified Core Equity Fund (the "Fund"), a series of
John Hancock Strategic Series (the "Trust"), in addition to the information
that is contained in the Fund's Class A and Class B Shares Prospectus, dated
September 1, 1995 (the "Prospectus").
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 Investor Services Corporation
P.O. Box 9116 Boston,
Massachusetts 02205-9116
1-(800)-225-5291
TABLE OF CONTENTS
Statement of Cross-
Additional Referenced to
Information Prospectus
Page Page
Organization of the Fund 2 5
Investment Objective and Policies 2 4
Investment Restrictions 4 4
Those Responsible for Management 8 5
Investment Advisory and Other Services 14 6
Distribution Contract 18 6
Net Asset Value 20 9
Initial Sales Charge on Class A Shares 20
Deferred Sales Charge on Class B Shares 22
Special Redemptions 23 10
Additional Services and Programs 23
Description of the Fund's Shares 25 7
Tax Status 26 --
Calculation of Performance 30 7
Brokerage Allocation 32 --
Transfer Agent Services 34 --
Custody of Portfolio 34 --
Independent Auditors 35 --
Financial Statements F-1 2
1
<PAGE>
ORGANIZATION OF THE FUND
John Hancock Independence Diversified Core Equity Fund (the "Fund") is
organized as a separate diversified series of John Hancock Strategic Series
(the "Trust"), an open-end investment management company organized as a
Massachusetts business trust under the laws of The Commonwealth of
Massachusetts in 1986. The Trust currently consists of three separate series:
the Fund, John Hancock Strategic Income Fund and John Hancock Utilities Fund.
The Fund was established in 1991 and is managed by John Hancock Advisers,
Inc. (the "Adviser") and Independence Investment Associates, Inc. ("IIA" or
the "Sub-Adviser"). The Adviser and the Sub-Adviser are indirect,
wholly-owned subsidiaries 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. On
October 1, 1992, the Fund changed its name from John Hancock Growth and
Income Fund to John Hancock Diversified Core Equity Fund, and on July 1,
1993, from John Hancock Diversified Core Equity Fund to John Hancock
Independence Diversified Core Equity Fund.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is above average total return,
consisting of capital appreciation and income. To achieve its objective the
Fund will select some securities for their current income potential. See "
Investment Objectives and Policies" in the Prospectus. There can be no
assurance that the objective of the Fund will be realized.
The Sub-Adviser also uses a quantitative, multifactor proprietary
stock-ranking model called "Cybercode." "Cybercode" is fueled by estimates
generated by the Sub-Adviser's in-house team of professional securities
analysts. All of the firm's analysts are focused on tasks that are important
for the Cybercode ranking system: projecting current year and next year's
earnings and cash flows; developing five-year growth forecasts; and
understanding the strategic plan of the companies they follow, and how this
plan might affect capital expenditures and stock dividends. The Sub-Adviser's
research analysts concentrate on 500 stocks, a closely-followed subset of the
firm's unbiased 3,000 stock universe. The macroeconomic assumptions needed to
forecast individual company progress are determined by senior investment
professionals and worked into the approach by the research analysts. This
distinguishes the Sub-Adviser's process as a bottom-up, stock picking
approach.
Using the analysts' inputs, the ranking model (Cybercode) evaluates each
stock in the stock selection universe on discrete criteria and scores each
for how cheap they are and how much their
2
<PAGE>
fundamentals are improving. The result is a listing of the selection
universe from most attractive to least attractive. The top stock on the
ranked list exhibits the most favorable combination of cheapness and
improving fundamentals; the bottom stock the least favorable. Through this
process, the Sub-Adviser seeks to avoid bad stocks when constructing
diversified core equity portfolios.
The Sub-Adviser uses an investment strategy it calls NIXDEX. To produce
NIXDEX portfolios, the Sub-Adviser generally excludes from consideration the
bottom two quintiles of its ranked selection universe and optimizes the
remaining stocks to market-like risk exposures. NIXDEX portfolios have a
risk profile like that of the S&P 500, but by "nixing" the bad stocks at the
time of the Fund's purchase, the Sub-Adviser seeks to produce consistent
excess returns in most types of market environments. The Sub-Adviser reserves
the right to purchase from the bottom two quintiles under unusual market
conditions when needed for diversification.
The types of securities the Fund invests in are more fully described in the
Prospectus.
Repurchase Agreements. A repurchase agreement is a contract under which the
Fund would acquire a security for a relatively short period (usually not more
than 7 days) subject to the obligation of the seller to repurchase and the
Fund to resell such security at a fixed time and price (representing the
Fund's cost plus interest). The Fund will enter into repurchase agreements
only with member banks of the Federal Reserve System and with "primary
dealers" in U.S. Government securities. The Adviser will continuously monitor
the creditworthiness of the parties with whom the Fund enters into repurchase
agreements.
The Fund has established a procedure providing that the securities serving
as collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral
must be marked to market daily to ensure that each repurchase agreement is
fully collateralized at all times. In the event of bankruptcy or other
default by a seller of a repurchase agreement, the Fund could experience
delays in liquidating the underlying securities and could experience losses,
including a possible decline in the value of the underlying securities during
the period in which the Fund seeks to enforce its rights, possible subnormal
levels of income, lack of access to income during this period, and the
expense of enforcing its rights.
Portfolio Trading. Although the Fund will not make a practice of short-term
trading, purchases and sales of securities will be made whenever necessary in
the management's view to
3
<PAGE>
achieve the Fund's objective. Management does not expect that in pursuing
the Fund's objective, unusual portfolio turnover will be required and intends
to keep portfolio turnover to a minimum consistent with such objective.
Management believes unsettled market and economic conditions during certain
periods require greater portfolio turnover in pursuing the Fund's objective
than would otherwise be the case.
Restricted Securities. The Fund may invest in restricted securities,
including those eligible for resale to certain institutional investors
pursuant to Rule 144A under the Securities Act of 1933 (the "1933 Act"). The
Fund will not invest more than 15% of its net assets in illiquid investments,
which include repurchase agreements maturing in more than seven days,
securities that are not readily marketable and restricted securities.
However, if the Board of Trustees determines, based upon a continuing review
of the trading markets for specific Rule 144A securities, that they are
liquid, then these securities may be purchased without regard to the 15%
limit. The Trustees may adopt guidelines and delegate to the Adviser the
daily function of determining and monitoring the liquidity of restricted
securities. The Trustees, however, will retain sufficient oversight and be
ultimately responsible for the determinations. The Trustees will carefully
monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for
a time uninterested in purchasing these restricted securities.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following fundamental investment
restrictions (as well as the Fund's investment objective) will not be changed
without approval of the holders of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means approval of the lesser of (1) the holders of
67% or more of the shares represented at a meeting if the holders of more
than 50% of outstanding shares are present in person or by proxy or (2) the
holders of more than 50% of the outstanding shares.
The Fund observes the following fundamental investment restrictions.
The Fund may not:
(1) Issue senior securities, except as permitted by paragraphs (2), (6) and (7)
below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple
4
<PAGE>
classes or series, the purchase or sale of options, futures contracts,
forward commitments 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
emergency purposes 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.
The Fund will not leverage to attempt to increase income. The Fund will not
purchase securities while outstanding borrowings exceed 5% of the Fund's
total assets.
(3) Pledge, mortgage or hypothecate its assets, except to secure indebtedness
permitted by paragraph (2) above and then only if such pledging, mortgaging
or hypothecating does not exceed 33 1/3% of the Fund's total assets taken at
market value.
(4) Act as an underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purpose of the 1933 Act.
(5) 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 securities issued by
companies that invest in real estate or interests therein.
(6) 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 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.
(7) Invest in commodities or in commodity contracts or in puts, calls, or
combinations of both, except options on securities, securities indices and
currency, futures contracts on securities, securities indices and currency
and options on such futures, 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.
5
<PAGE>
(8) 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 exceed 25% of its total assets taken at
market value at the time of such investment. This limitation does not apply
to investments in obligations of the U.S. Government or any of its agencies
or instrumentalities.
(9) Purchase securities of an issuer (other than the U.S. Government, its
agencies or instrumentalities), 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
(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 paragraph (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 Board of Trustees
without shareholder approval.
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or purchase of marketable
portfolio securities with other accounts under the management of the Adviser
or Sub-Adviser to save commissions or to average prices among them is not
deemed to result in a joint securities trading account.
(b) 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 a Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities.
(c) Knowingly purchase or retain securities of an issuer if one or more of the
Trustees or officers of the Trust or directors
6
<PAGE>
or officers of the Adviser, Sub-Adviser or any investment management
subsidiary of the Adviser individually owns beneficially more than 0.5% and
together own beneficially more than 5% of the securities of such issuer.
(d) Purchase a security if, as a result, (i) more than 10% of the Fund's 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 such investment company being held by the Fund or
(iii) more than 5% of the Fund's assets would be invested in any one such
investment company.
(e) Purchase securities of any issuer which, together with any predecessor, has
a record of less than three years' continuous operations prior to the
purchase if such purchase would cause investments of the Fund in all such
issuers to exceed 5% of the value of the total assets of the Fund.
(f) Purchase any security, including any repurchase agreement maturing in more
than seven days, which is not readily marketable, if more than 15% of the
net assets of the Fund, taken at market value, would be invested in such
securities. (The Staff of the Securities and Exchange Commission considers
over-the-counter options to be illiquid securities subject to the 15%
limit.)
(g) Notwithstanding any investment restriction to the contrary, the Fund may, in
connection with the John Hancock group of Funds Deferred Compensation Plan
for Independent Trustees/Directors, purchase securities of other investment
companies within the John Hancock Group of Funds provided that, as a result,
(i) no more than 10% of the Fund's assets would be invested in securities of
all other investment companies, (ii) such purchase would not result in more
than 3% of the total outstanding voting securities of any one such
investment company being held by the Fund and (iii) no more than 5% of the
Fund's assets would be invested in any one such investment company.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt restrictions on investment
policy more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interest of the Fund and its shareholders, the Fund may cease offering shares
in the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Trustees may, in their sole discretion, revoke such policy. The
Fund has agreed with a state
7
<PAGE>
securities administrator that it will comply with the following investment
restrictions:
The Fund will not invest in real estate limited partnership interests.
The Fund will not purchase the securities of any open-end investment company
except when such purchase is part of a plan of merger, consolidation,
reorganization or purchase of substantially all of the assets of any other
investment company.
The Fund will not purchase warrants of any issuer, if, as a result of such
purchase, more than 2% of the value of the Fund's total assets would be
invested in warrants which are not listed on the New York Stock Exchange or
the American Stock Exchange or more than 5% of the value of the total assets
of the Fund would be invested in warrants generally, whether or not so
listed. For these purposes, warrants are to be valued at the lesser of cost
or market, but warrants acquired by the Fund in units with or attached to
debt securities shall be deemed to be without value.
The Fund will not purchase interests in oil, gas, or other mineral
exploration programs or mineral leases; however, this policy will not
prohibit the acquisition of securities of companies engaged in the production
or transmission of oil, gas, or other minerals.
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change
in percentage resulting from changes in the values of the Fund's assets will
not be considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees of the Trust who elect
officers who are responsible for the day-to-day operations of the Fund and
who execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers or directors of the Adviser, or
officers or directors of the Fund's principal distributor, John Hancock
Funds, Inc. ("John Hancock Funds").
The following table sets forth the principal occupation or employment of the
Trustees and principal officers of the Fund during the past five years.
8
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- ------------- --------------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman Chairman and Chief Executive Officer, the Adviser
101 Huntington Avenue (1,2) and The Berkeley Financial Group ("The Berkeley
Boston, Massachusetts Group"); Chairman, NM Capital Management, Inc.
("NM Capital"); John Hancock Advisers
International Limited ("Advisers International");
John Hancock Funds; John Hancock Investor Services
Corporation ("Investor Services") and Sovereign
Asset Management Corporation ("SAMCorp");
(hereinafter the Adviser, the Berkeley Group, NM
Capital, Advisers International, John Hancock
Funds, Investor Services and SAMCorp are
collectively referred to as the "Affiliated
Companies"); Chairman, First Signature Bank &
Trust; Director, John Hancock Freedom Securities
Corp., John Hancock Capital Corp., New
England/Canada Business Council; Member,
Investment Company Institute Board of Governors;
Director, Asia Strategic Growth Fund, Inc.;
Trustee, Museum of Science; President, the Adviser
(until July 1992). Chairman John Hancock
Distributors, Inc. (until April, 1994).
</TABLE>
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(1) A Member of the Executive Committee.
(2) A Member of the Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
9
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- ------------- --------------------------
<S> <C> <C>
Dennis S. Aronowitz Trustee (4) Professor of Law, Boston University School of Law;
Boston University Trustee, Brookline Savings Bank; Director, Boston
Boston, Massachusetts University Center for Banking Law Studies (until
1990).
Richard P. Chapman, Jr. Trustee (4) President, Brookline Savings Bank.
160 Washington Street
Brookline, Massachusetts
William J. Cosgrove Trustee (4) Vice President, Senior Banker and Senior Credit
20 Buttonwood Place Officer, Citibank, N.A. (retired September 1991);
Saddle River, New Jersey Executive Vice President, Citadel Group
Representative, Inc.
Gail D. Fosler Trustee (4) Vice President and Chief Economist, The Conference
4104 Woodbine Street Board (non-profit economic and business research).
Chevy Chase, Maryland
Bayard Henry Trustee (4) Corporate Advisor; Director, Fiduciary Trust Company
121 High Street (a trust company); Director, Groundwater Technology,
Boston, Massachusetts Inc. (remediation); Samuel Cabot, Inc.; Advisor,
Corning Capital Corp.
</TABLE>
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(1) A Member of the Executive Committee. (2) A Member of the Investment
Committee of the Adviser. (3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
10
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- ------------- --------------------------
<S> <C> <C>
*Richard S. Scipione Trustee (3) General Counsel, the Life Company; Director, the
John Hancock Place Adviser, the Affiliated Companies, John Hancock
P.O. Box 111 Distributors, Inc., JH Networking Insurance Agency,
Boston, Massachusetts Inc., John Hancock Subsidiaries, Inc., SAMCorp, NM
Capital and John Hancock Property and Casualty
Insurance and its affiliates (until November, 1993);
Trustee, The Berkeley Group; Director, John Hancock
Home Mortgages Corp. and John Hancock Financial
Access, Inc. (until July 1990).
Edward J. Spellman Trustee (4) Partner, KPMG Peat Marwick (retired June 1990).
259C Commercial Bld.
Suite 200
Lauderdale by the Sea,
*Robert G. Freedman Vice Chairman Vice Chairman and Chief Investment Officer, the
101 Huntington Avenue and Adviser; President, the Adviser (until December
Boston, Massachusetts Chief 1994).
Investment
Officer (2)
*Anne C. Hodsdon President (2) President and Chief Operations Officer, the Adviser;
101 Huntington Avenue Executive Vice President, the Adviser (until December
Boston, Massachusetts 1994).
*Thomas H. Drohan Senior Vice Senior Vice President and Secretary, the Adviser.
101 Huntington Avenue President and
Boston, Massachusetts Secretary
</TABLE>
* An "interested person" of the Fund, as such term is defined in the
Investment Company Act.
(1) A Member of the Executive Committee.
(2) A Member of the Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
11
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- ------------- --------------------------
<S> <C> <C>
*James K. Ho Senior Vice Senior Vice President, the
101 Huntington Avenue President (2) Adviser
Boston, Massachusetts
*James B. Little Senior Vice Senior Vice President the Adviser.
101 Huntington Avenue President and Chief
Boston, Massachusetts Financial Officer
(2)
*Michael P. DiCarlo Senior Vice Senior Vice President, the Adviser.
101 Huntington Avenue President (2)
Boston, Massachusetts
*John A. Morin Vice President Vice President, the Adviser.
101 Huntington Avenue
Boston, Massachusetts
*Susan S. Newton Vice President, Vice President and Assistant Secretary, the Adviser.
101 Huntington Avenue Assistant Secretary
Boston, Massachusetts and Compliance
Officer
*James J. Stokowski Vice President and Vice President, the Adviser.
101 Huntington Avenue Treasurer
Boston, Massachusetts
*Frederick L. Senior Vice Senior Vice President, the Adviser.
Cavanaugh, Jr. President
101 Huntington Avenue
Boston, Massachusetts
*Andrew F. St. Pierre Senior Vice Senior Vice President, the Adviser; President, John
101 Huntington Avenue President (2) Hancock Closed-End Funds; Portfolio Manager, Harvard
Boston, Massachusetts Management Corp. (until October, 1991).
</TABLE>
* An "interested person" of the Fund, as such term is defined in ihe
Investment Company Act.
(1) A Member of the Executive Committee.
(2) A Member of the Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
12
<PAGE>
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or trustees of one or more of the other funds for which
the Adviser serves as investment adviser.
The following table provides information regarding the compensation paid by
the Fund and the 67 other investment companies in the John Hancock Fund
Complex to the Independent Trustees for their services. The two non-
Independent Trustees, Messrs. Boudreau and Scipione, and each of the officers
of the Funds are interested persons of the Adviser, are compensated by the
Adviser and received no compensation from the Fund for their services. The
compensation figures shown for the Fund are for the Fund's fiscal year ended
May 31, 1995. The total compensation figures shown on the right-hand side of
the table are for the calendar year ended December 31, 1994.
<TABLE>
<CAPTION>
Pensions
or
Retirement Total
Benefits Compensation
Aggregate Accrued as From all
Compensation Part of the Funds in
Independent From The Fund's John Hancock
Directors Fund Expenses Fund Complex
- ---------- ------------ ----------- -------------
<S> <C> <C> <C>
Directors
Dennis S. Aronowitz $1,601 0 $ 60,950
Richard P.
Chapman,Jr. $1,638 0 $ 62,950
William J. Cosgrove $1,601 0 $ 60,950
Gail D. Fosler $1,601 0 $ 60,950
Bayard Henry $1,638 0 $ 62,950
Edward J.Spellman $1,601 0 $ 60,950
Totals: $9,680 0 $369,700
</TABLE>
As of August 17, 1995, the officers and Trustees of the Trust as a group
owned less than 1% of the outstanding shares of the Fund. As of August 17,
1995, the following shareholders beneficially owned 5% or more of the
outstanding shares of the Fund:
13
<PAGE>
Name and Address Percentage of Fund
Daniel Rader, Trustee 13.95%
First Professional Bank 401(k)
Savings Plan
606 Broadway
Santa Monica, CA
William A. Boyan and Gail A. Boyan, 12.86%
as joint tenants
21 Phillips Road
Nahant, MA
Diane M. Capstaff and Arthur E.
Capstaff, 10.35%
as joint tenants
146 Atlantic Avenue
Marblehead, MA
Foster L. Aborn 8.81%
P.O. Box 111
Boston, MA
Outstanding shares of the Fund that were outstanding prior to September 1,
1995 will become Class A shares automatically on September 1, 1995.
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Prospectus, the Fund receives its investment advice from
the Adviser and the Sub-Adviser. Investors should refer to the Prospectus for
information concerning the investment management contract and the sub-
investment management contract. Each of the Trustees and principal officers
affiliated with the Trust who is also an affiliated person of the Adviser or
Sub-Adviser is named above, together with the capacity in which such person
is affiliated with the Trust, the Adviser or Sub-Adviser.
As described in the Prospectus under the caption "Organization and
Management of the Fund," the Trust, on behalf of the Fund, has entered into
an investment management contract with the Adviser. Under the investment
management contract, the Adviser provides the Fund with (i) a continuous
investment program, consistent with the Fund's stated investment objective
and policies, (ii) supervision of all aspects of the Fund's operations except
those that are delegated to a custodian, transfer agent or other agent and
(iii) such executive,
14
<PAGE>
administrative and clerical personnel, officers and equipment as are
necessary for the conduct of its business.
The Adviser has entered into a sub-investment management contract with the
Sub-Adviser under which the Sub-Adviser, subject to the review of the
Trustees and the overall supervision of the Adviser, is responsible for
managing the investment operations of the Fund and the composition of the
Fund's portfolio and furnishing the Fund with advice and recommendations with
respect to investments, investment policies and the purchase and sale of
securities.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, the Sub-Adviser or 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 or
Sub-Adviser for the Fund or for other funds or clients for which the Adviser
or Sub-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, the Sub-Adviser or their respective affiliates may
increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price.
No person other than the Adviser and Sub-Adviser and their directors,
officers, and employees regularly furnishes advice to the Fund with respect
to the desirability of the Fund's investing in, purchasing or selling
securities. The Adviser and Sub-Adviser may from time to time receive
statistical or other similar factual information, and information regarding
general economic factors and trends, from the Life Company and its
affiliates.
Under the terms of the investment management contract with the Fund, the
Adviser provides the Fund with office space, supplies and other facilities
required for the business of the Fund. The Adviser pays the compensation of
all officers and employees of the Trust and the compensation of the Trustees
of the Trust affiliated with Adviser, and pays the expenses of clerical
services relating to the administration of the Fund.
All expenses which are not specifically paid by the Adviser and which are
incurred in the operation of the Fund (including fees of Trustees of the
Trust who are not "interested persons," as such term is defined in the
Investment Company Act, but excluding the expenses of certain
distribution-related activities required
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to be paid by the Adviser or John Hancock Funds) and the continuous public
offering of the shares of the Fund are borne by the Fund. Class expenses
properly allocable to Class A and Class B shares will be borne exclusively by
such class of shares subject to conditions set forth in a private letter
ruling that the Fund has received from the Internal Revenue Service relating
to its multiple-class structure.
As discussed in the Prospectus and as provided by the investment management
contract, the Fund pays the Adviser an investment management fee, which is
accrued daily and paid monthly, based on a stated percentage of the average
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 %
On May 31, 1995, the net assets of the Fund were $101,418,291. From June 1,
1992 to July 31, 1992, the Adviser voluntarily limited the Fund's total
expenses, including the investment management fee, to 1.25% of its average
daily net assets. Effective August 1, 1992, the Adviser limited the Fund's
expenses further to the extent required to prevent expenses from exceeding
.70% of the Fund's average daily net asset value. As of September 1, 1995,
the Fund's expenses will be limited to 1.30% for Class A shares and to 2.00%
for Class B shares. The Adviser reserves the right to terminate this
limitation in the future. For the fiscal years ended May 31, 1993, 1994 and
1995, the Adviser received fees of $19,328, $162,875, and $457,613,
respectively. These management fee figures reflect the different management
fee that was in effect before September 1, 1995.
As discussed in the Prospectus and as provided in the sub-investment
management contract, as of September 1, 1995, the Adviser (not the Fund) pays
the Sub-Adviser a quarterly subadvisory fee at the annual rate of 55% of the
management fee paid by the Fund to the Adviser for the preceding three
months. Effective August 1, 1992, the Sub-Adviser reduced its subadvisory
fee. Effective as of January 1, 1994, this limitation was reflected in the
Fund's sub-investment management contract. As of September 1, 1995, this
limitation is no longer in effect. For the fiscal years ended May 31, 1993,
1994, and 1995, the Sub-Adviser received subadvisory fees from the Adviser
of $11,348, $88,486, and $290,249, respectively. These subadvisory fee
figures reflect the limitation referred to above, as well as the different
subadvisory fee that was in effect before September 1, 1995.
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If the total of all ordinary business expenses of the Fund for any fiscal
year exceeds limitations prescribed in any state in which shares of the Fund
are qualified for sale, the fee payable to the Adviser will be reduced to the
extent required by these limitations. At this time, the most restrictive
limit on expenses imposed by a state requires that expenses charged to the
Fund in any fiscal year not exceed 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value. When calculating the limit
above, the Fund may exclude interest, brokerage commissions and extraordinary
expenses.
Pursuant to the investment management contract and sub-investment
management contract, the Adviser and Sub-Adviser are not liable to the Fund
or its shareholders for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with the matters to which their
respective contract relates, except a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Adviser or Sub-
Adviser in the performance of their duties or from their reckless disregard
of the obligations and duties under the applicable contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and currently has more than $13 billion in
assets under management in its capacity as investment adviser to the Fund and
the other mutual funds and publicly traded investment companies in the John
Hancock group of funds having a combined total of over 1,067,000
shareholders. The Adviser is an affiliate of the Life Company, one of the
most recognized and respected financial institutions in the nation. With
total assets under management of $80 billion, the Life Company is one of the
ten largest life insurance companies in the United States, and carries high
ratings from Standard & Poor's and A.M. Best's. Founded in 1862, the Life
Company has been serving clients for over 130 years.
The Sub-Adviser, located at 53 State Street, Boston, Massachusetts 02109,
was organized in 1982 and currently manages over $17 billion in assets for
primarily institutional clients. The Sub-Adviser is a wholly-owned indirect
subsidiary of the Life Company.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If the investment management contract is no longer in
effect, the Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or otherwise
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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.
Under the subadvisory contract, the Fund may use the name "Independence" or
any name derived from or similar to it only for so long as the sub-investment
management contract or any extension, renewal or amendment thereof remains in
effect. If the sub-investment management contract is no longer in effect, the
Fund (to the extent that it lawfully can) will cease to use such name or any
other name indicating that it is advised by or otherwise connected with the
Sub-Adviser. In addition, the Sub-Adviser or the Life Company may grant the
nonexclusive right to use the name "Independence" or any similar name to any
other corporation or entity, including but not limited to any investment
company of which the Sub-Adviser or any subsidiary or affiliate thereof or
any successor to the business of any subsidiary or affiliate thereof shall be
the investment adviser.
The investment management contract and sub-investment management contract
continue in effect until September 1, 1997, and thereafter from year to year
if approved annually by a vote of a majority of the Trustees of the Trust who
are not interested persons of one of the parties to the contract, cast in
person at a meeting called for the purpose of voting on such approval, and by
either the Trustees or the holders of a majority of the Fund's outstanding
voting securities. Each of these contracts automatically terminates upon
assignment. Each contract may be terminated without penalty on 60 days'
notice at the option of either party to the respective contract or by vote of
the holders of a majority of the outstanding voting securities of the Fund.
The sub-investment management contract terminates automatically upon the
termination of the investment management contract.
DISTRIBUTION CONTRACT
The Fund has a distribution contract with John Hancock funds pertaining to
each class of shares. Under the contract, John Hancock Funds is obligated to
use its best efforts to sell shares on behalf of the Fund. Shares of the Fund
are also sold by selected broker-dealers (the "Selling Brokers") which have
entered into selling agency agreements with John Hancock Funds. John Hancock
Funds accepts orders for the purchase of the shares of the Fund which are
continually offered at net asset value next determined, plus any applicable
sales charge. In connection with the sale of Class A or Class B shares of the
Fund, John Hancock
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Funds and Selling Brokers receive compensation in the form of a sales charge
imposed, in the case of Class A shares, at the time of sale or, in the case
of Class B shares, on a deferred basis. The sales charges are listed in the
Fund's Prospectus.
The Fund's Trustees have adopted Distribution Plans with respect to Class A
and Class B shares (together, the "Plans") pursuant to Rule 12b-1 under the
Investment Company Act. Under the Class A Plan and the Class B Plan, the Fund
will pay distribution and service fees at an aggregate annual rate of up to
0.30% and 1.00%, respectively, of the Fund's average daily net assets.
However, the service fee will not exceed 0.25% of the Fund's average daily
net assets attributable to each class of shares. The distribution fees
reimburse John Hancock Funds for its distribution costs incurred in the
promotion of sales of Fund shares, and the service fees compensate Selling
Brokers for providing personal and account maintenance services to
shareholders. The Plans were approved by a majority of the voting securities
of the applicable class of the Fund. Both Plans and all amendments were
approved by a majority of the Trustees, including a majority of the Trustees
who are not interested persons of the Fund and who have no direct or indirect
financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of
voting on these Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the
Fund with a written report of the amounts expended under the Plan and the
purpose for which these expenditures were made. The Trustees review these
reports on a quarterly basis.
Each of the Plans provides that it will continue in effect only so long as
its continuance is approved at least annually by a majority of both the
Trustees and the Independent Trustees. Each of the Plans may be terminated
without penalty (a) by vote of a majority of the Independent Trustees, (b) by
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. Each of the Plans further provides that it may not be
amended to increase the maximum amount of the fees for the services described
therein without the approval of a majority of the outstanding shares of the
class of the Fund which has voting rights with respect to the Plan. Each of
the Plans provides that no material amendment to the Plan will, in any event,
be effective unless it is approved by a vote of a majority of both the
Trustees and the Independent Trustees of the Fund. The holders of Class A and
Class B shares have exclusive voting rights with respect to the Plan
applicable to their respective class of shares. In adopting the Plans, the
Trustees concluded that, in their judgment, there is a reasonable likelihood
that
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each of the Plans will benefit the holders of the applicable class of shares
of the Fund.
When the Trust seeks an Independent Trustee to fill a vacancy or as a
nominee for election by shareholders, the selection or nomination of the
Independent Trustee is committed to the discretion of the Committee on
Administration of the Trustees. The members of the Committee on
Administration are all Independent Trustees and are identified in this
Statement of Additional Information under the heading "Those Responsible for
Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's
shares, the following procedures are utilized wherever applicable.
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.
The Fund will not price its securities on the following national holidays:
New Year's Day; President's Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Fund's Prospectus. Methods of obtaining reduced sales
charges referred to generally in the Prospectus are described in detail
below. In calculating the sales charge applicable to current purchases of
Class A shares of the Fund, the investor is entitled to cumulate current
purchases with the greater of the current value (at offering price) of the
Class A shares of the Fund, or if Investor Services is notified by the
investor's dealer or the investor at the time of the purchase, the cost of
the Class A shares owned.
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Combined Purchases. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined if made by
(a) an individual, his spouse and their children under the age of 21,
purchasing securities for his or their own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information about combined purchases, including
certain restrictions on combined group purchases, is available from Investor
Services or a Selling Broker's representative.
Without Sales Charges. As described in the Prospectus, Class A shares of the
Fund may be sold without a sales charge to certain persons described in the
Prospectus.
Accumulation Privilege. Investors (including investors combining purchases)
who are already Class A shareholders may also obtain the benefit of the
reduced sales charge by taking into account not only the amount then being
invested but also the purchase price or value of the Class A shares already
held by such person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Prospectus) also are available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares of
the Fund and shares of all other John Hancock funds which carry a sales
charge.
Letter of Intention. The reduced sales charges are also applicable to
investments made over a specified period pursuant to a Letter of Intention
(the "LOI"), which should be read carefully prior to its execution by an
investor. The Fund offers two options regarding the specified period for
making investments under the LOI. All investors have the option of making
their investments over a specified period of thirteen (13) months. Investors
who are using the Fund as a funding medium for a qualified retirement plan,
however, may opt to make the necessary investments called for by the LOI over
a forty-eight (48) month period. These qualified retirement plans include
group IRA, SEP, SARSEP, TSA, 401(k), 403(b) and 457 plans. Such an investment
(including accumulations and combinations) must aggregate $50,000 or more
invested during the specified period from the date of the LOI or from a date
within ninety (90) days prior thereto, upon written request to Investor
Services. The sales charge applicable to all amounts invested under the LOI
is computed as if the aggregate amount intended to be invested had been
invested immediately. If such aggregate amount is not actually invested, the
difference in the sales charge actually paid and the sales
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<PAGE>
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 Investor Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually
invested, until such investment is completed within the specified period, at
which time the escrow shares will be released. If the total investment
specified in the LOI is not completed, the Class A shares held in escrow may
be redeemed and the proceeds used as required to pay such sales charge as may
be due. By signing the LOI, the investor authorizes Investor Services to act
as his attorney-in-fact to redeem any escrowed Class A shares and adjust the
sales charge, if necessary. An LOI does not constitute a binding commitment
by an investor to purchase, or by the Fund to sell, any additional Class A
shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so the Fund will receive
the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within
six years of purchase will be subject to a contingent deferred sales charge
("CDSC") at the rates set forth in the Prospectus as a percentage of the
dollar amount subject to the CDSC. The charge will be assessed on an amount
equal to the lesser of the current market value or the original purchase cost
of the Class B shares being redeemed. Accordingly, no CDSC will be imposed on
increases in account value above the initial purchase prices, including Class
B shares derived from reinvestment of dividends or capital gains
distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last
day of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole
or in part by John Hancock Funds to defray its
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expenses related to providing distribution-related services to the Fund in
connection with the sale of the Class B shares, such as the payment of
compensation to select Selling Brokers for selling Class B shares. The
combination of the CDSC and the distribution and service fees facilitates the
ability of the Fund to sell the Class B shares without a sales charge being
deducted at the time of the purchase. See the Prospectus for additional
information regarding the CDSC.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. If the shareholder were to sell
portfolio securities received in this fashion, he would incur a brokerage
charge. Any such securities would be valued for the purposes of making such
payment at the same value as used in determining net asset value. The 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 one shareholder during any
90-day period would exceed the lesser of $250,000 or 1% of the Fund's net
asset value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. As described more fully in the Prospectus, the Fund
permits exchanges of shares of any class of the Fund for shares of the same
class in any other John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Prospectus, the Fund
permits the establishment of a Systematic Withdrawal Plan. Payments under
this plan represent proceeds from the redemption of shares of the Fund. Since
the redemption price of the shares of the Fund may be more or less than the
shareholder's cost, depending upon the market value of the securities owned
by the Fund at the time of redemption, the distribution of cash pursuant to
this plan may result in realization of gain or loss for purposes of Federal,
state and local income taxes. The maintenance of a Systematic Withdrawal Plan
concurrently with purchases of additional Class A or Class B shares of the
Fund could be disadvantageous to a shareholder because of the initial sales
charge payable on such purchases of Class A shares and the CDSC imposed on
redemptions of Class B shares and because redemptions are taxable events.
Therefore, a shareholder should not purchase Class A or Class B shares at the
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same time that a Systematic Withdrawal Plan is in effect. The Fund reserves
the right to modify or discontinue the Systematic Withdrawal Plan of any
shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Investor Services.
Monthly Automatic Accumulation Program (MAAP). This program is explained
fully in the Prospectus. The program, as it relates to automatic investment
checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice
if any investment is not honored by the shareholder's bank. The bank shall be
under no obligation to notify the shareholder as to the nonpayment of any
check.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is
received at least five (5) business days prior to the due date of any
investment.
Reinvestment Privilege. A shareholder who has redeemed Fund shares may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class
of the Fund or any of the other John Hancock funds, subject to the minimum
investment limit of that fund. The proceeds from the redemption of Class A
shares may be reinvested at net asset value without paying a sales charge in
Class A shares of the Fund or in Class A shares of any of the other John
Hancock funds. If a CDSC was paid upon a redemption, a shareholder may
reinvest the proceeds from this redemption at net asset value in additional
shares of the class from which the redemption was made. The shareholder's
account will be credited with the amount of any CDSC charged upon the prior
redemption and the new shares will continue to be subject to the CDSC. The
holding period of the shares acquired through reinvestment will, for purposes
of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares. The Fund may modify or terminate the
reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition
of Fund
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shares will be treated for tax purposes as described under the caption "Tax
Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision
of the Fund. The Declaration of Trust permits the Trustees to issue an
unlimited number of full and fractional shares of beneficial interest of the
Fund without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this
Statement of Additional Information, the Trustees have authorized shares of
the Fund and two other series. Additional series may be added in the future.
The Declaration of Trust also authorizes the Trustees to classify and
reclassify the shares of the Fund, or any other series of the Fund, into one
or more classes. As of the date of this Statement of Additional Information,
the Trustees have authorized the issuance of two classes of shares of the
Fund, designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate
interest in the aggregate net assets attributable to that class of the Fund.
The holders of Class A and Class B shares have certain exclusive voting
rights on matters relating to their respective Rule 12b-1 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 that (i) the distribution and service fees relating to
Class A and Class B shares will be borne exclusively by that class, (ii)
Class B shares will pay higher distribution and service fees than Class A
shares and (iii) each of Class A and Class B shares will bear any class
expenses properly allocable to that class of shares, subject to the
conditions set forth in a private letter ruling that the Fund has received
from the Internal Revenue Service relating to its multiple-class structure.
Similarly, the net asset value per share may vary depending on whether Class
A shares or Class B shares are purchased.
In the event of liquidation, shareholders of each class are entitled to
share pro rata in the net assets of the class 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
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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 Trust has no intention of holding annual meetings of
shareholders. Trust shareholders may remove a Trustee by the affirmative vote
of at lease two-thirds of the Trust's outstanding shares and the Trustees
shall promptly call a meeting for such purpose when requested to do so in
writing by the record holders of not less than 10% of the outstanding shares
of the Trust. Shareholders may, under certain circumstances, communicate with
other shareholders in connection with requesting a special meeting of
shareholders. However, at any time that less than a majority of the Trustees
holding office were elected by the shareholders, the Trustees will call a
special meeting of shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the trust. However, the Fund's Declaration of Trust contains
an express disclaimer of shareholder liability for acts, obligations or
affairs of the Fund. The Declaration of Trust also provides for
indemnification out of the Fund's assets for all losses and expenses of any
shareholder held personally liable by reason of being or having been a
shareholder. Liability is therefore limited to circumstances in which the
Fund itself would be unable to meet its obligations, and the possibility of
this occurrence is remote.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate
entity for accounting and tax purposes. The Fund has qualified and has
elected to be treated as a "regulated investment company" under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code") and intends to
continue to so qualify in the future. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timing of its distributions and the diversification of its assets, the Fund
will not be subject to Federal income tax on taxable income (including net
realized capital gains) which is distributed to shareholders at least
annually in accordance with the timing requirements of the Code.
The Fund will be subject to a four percent nondeductible Federal excise tax
on certain amounts not distributed (and not treated as having been
distributed) on a timely basis in accordance with annual minimum distribution
requirements. The
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Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Fund's Prospectus, whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital
gains. Shareholders electing to receive distributions in the form of
additional shares will have a cost basis for Federal income tax purposes in
each share so received equal to the amount of cash that they would have
received had they elected to receive the distribution in cash, divided by the
number of shares received.
The Fund may be subject to foreign taxes on its income from investments in
certain ADRs representing foreign securities. Tax conventions between certain
countries and the U.S. may reduce or eliminate such taxes. Because more than
50% of the Fund's assets at the close of any taxable year will not consist of
stocks or securities of foreign corporation, 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.
If the Fund acquires ADRs representing stock in certain non-U.S.
corporations that receive at least 75% of their annual gross income from
passive sources (such as interest, dividends, rents royalties or capital
gain) or hold at least 50% of their asset in investments producing such
passive income ("passive foreign investment companies'), the Fund could be
subject to Federal income tax and additional interest charges on "excess
distributions" received from such companies or gain from the sale of stock in
such companies, even if all income or gain actually received by the Fund is
timely distributed to its shareholders. The Fund would not be able to pass
through to its shareholders any credit or deduction for such a tax. Certain
elections may, if available, ameliorate these adverse tax consequences, but
any such election would require the Fund to recognize taxable income or gain
without the concurrent receipt of cash. The Fund may limit and/or manage its
holdings in passive foreign investment companies to minimize its tax
liability or maximize its return for these investments.
The amount of net realized capital gains, if any, in any given year will
result from sales of securities made with a view to the maintenance of a
portfolio believed by the Fund's management to be most likely to attain the
Fund's objective. Such
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sales, and any resulting gains or losses, may therefore vary considerably
from year to year. At the time of an investor's purchase of shares of the
Fund, a portion of the purchase price is often attributable to realized or
unrealized appreciation in the Fund's portfolio or undistributed taxable
income of the Fund. Consequently, subsequent distributions on such shares may
be taxable to such investor even if the net asset value of the investor's
shares is, as a result of the distributions, reduced below the investor's
cost for such shares, and the distributions in reality represent a return of
a portion of the purchase price.
Upon a redemption of shares (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon his basis in his shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's
hands and will be long-term or short-term, depending upon the shareholder's
holding period for the shares. A sales charge paid in purchasing Class A
shares of the Fund cannot be taken into account for purposes of determining
gain or loss on the redemption or exchange of such shares within 90 days
after their purchase to the extent Class A shares of the Fund or another John
Hancock fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. Such disregarded charge
will result in an increase in the shareholder's tax basis in the Class A
shares subsequently acquired. Also, any loss realized on a redemption or
exchange may be disallowed to the extent the shares disposed of are replaced
with other shares of the Fund within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of, such as pursuant
to the Dividend Reinvestment Plan. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized
upon the redemption of shares with a tax holding period of six months or less
will be treated as a long-term capital loss to the extent of any amounts
treated as distributions of long-term capital gain with respect to such
shares.
Although its present intention is to distribute all net capital gains, 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 long-term capital gains realized in any year to
the extent that a capital loss is carried forward from prior years against
such gain. To the extent such excess was retained and not exhausted by the
carry forward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Each shareholder would be treated for
Federal income tax purposes as if the Fund had distributed to him on the last
day of its taxable year his pro rata share of such excess, and he had paid
28
<PAGE>
his pro rata share of the taxes paid by the Fund and reinvested the remainder
in the Fund. Accordingly, each shareholder would (a) include his pro rata
share of such excess as long-term capital gain in his return for his taxable
year in which the last day of the Fund's taxable year falls, (b) be entitled
either to a tax credit on his return for, or to a refund of, his pro rata
share of the taxes paid by the Fund, and (c) be entitled to increase the
adjusted tax basis for his shares in the Fund by the difference between his
pro rata share of such excess and his pro rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a
net capital loss in any year to offset net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in Federal
income tax liability to the Fund and, as noted above, would not be
distributed as such to shareholders. Presently, there are no realized capital
loss carry forwards available to offset future net realized capital gains.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund, if any, from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their shares
of the Fund in order to qualify for the deduction and, if they borrow to
acquire such shares, may be denied a portion of the dividends-received
deduction. The entire qualifying dividend, including the otherwise-deductible
amount, will be included in determining the excess (if any) of a corporate
shareholder's adjusted current earnings over its alternative minimum taxable
income, which may increase its alternative minimum tax liability, if any.
Additionally, any corporate shareholder should consult its tax adviser
regarding the possibility that its tax basis in its shares may be reduced,
for Federal income tax purposes, by reason of "extraordinary dividends"
received with respect to the shares, for the purpose of computing its gain or
loss on redemption or other disposition of the shares.
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.
29
<PAGE>
The foregoing discussion relates solely to Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance
companies and financial institutions. Dividends, capital gain distributions
and ownership of or gains realized on the redemption (including an exchange)
of shares of the Fund may also be subject to state and local taxes.
Shareholders should consult their own tax advisers as to the Federal, state
or local tax consequences of ownership of shares of, and receipt of
distributions from, the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
Fund investment is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividends from the Fund and, unless an effective IRS Form W-8 or
authorized substitute is on file, to 31% backup withholding on certain other
payments from the Fund. Non-U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an
investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company
under the Code, it will also not be required to pay any Massachusetts income
tax.
CALCULATION OF PERFORMANCE
The average annual total return on Class A shares of the Fund for the 1 year
and life-of-fund period ended May 31, 1995 was 16.98% and 12.06%,
respectively. No Class B shares were outstanding prior to September 1, 1995.
The Fund's total return is computed by finding the average annual compounded
rate of return over the one-year and life-of-fund periods that would equate
the initial amount invested to the ending redeemable value according to the
following formula:
30
<PAGE>
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 1st year and life-of-fund periods.
In the case of Class A shares and Class B shares, this calculation assumes
the maximum sales charge of 5.00%, is included in the initial investment, and
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.
In addition to average annual total returns, the Fund may quote unaveraged
or cumulative total returns reflecting the 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 5.00% sales
charge on Class A shares or the CDSC on Class B shares into account. 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 on Class A shares and the CDSC on Class B shares from a
total return calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper-Mutual Performance Analysis," a monthly publication
which tracks net assets, total return, and yield on more than 1,000 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 may also be
utilized.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be
31
<PAGE>
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-Adviser, or the
Adviser pursuant to recommendations made by an investment committee, which
consists of officers and directors of the Adviser and officers and Trustees
of the Trust who are interested persons of the Fund. Orders for purchases and
sales of securities are placed in a manner, which, in the opinion of the
officers of the Fund, will offer the best price and market for the execution
of each such transaction. Purchases from underwriters of portfolio securities
may include a commission or commissions paid by the issuer and transactions
with dealers serving as market 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
such transactions.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage
commissions. The 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 and Sub-Adviser may consider sales of shares of the
Fund as a factor in the selection of broker-dealers to execute the Fund's
portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in
the selection of brokers and dealers, and the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research
information and, to a lesser extent, statistical assistance furnished to the
Adviser and Sub-Adviser of the Fund. It is not possible to place a dollar
value on information and services to be received from brokers and dealers,
since it is only supplementary to the research efforts of the Adviser and
Sub-Adviser. The receipt of research information
32
<PAGE>
is not expected to reduce significantly the expenses of the Adviser and
Sub-Adviser. The research information and statistical assistance furnished by
brokers and dealers may benefit the Life Company or other advisory clients of
the Adviser, 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. Similarly, research
information and assistance provided to the Sub-Adviser by brokers and dealers
may benefit other advisory clients or affiliates of the Sub-Adviser, and,
conversely, brokerage commissions and spreads paid by other advisory clients
of the Sub-Adviser may result in research information and statistical
assistance beneficial to the Fund. The Fund will make no commitment to
allocate portfolio transactions upon any prescribed basis. While the Adviser,
in conjunction with the Sub-Adviser, will be primarily responsible for the
allocation of the Fund's brokerage business, the policies and practices of
the Adviser in this regard must be consistent with the foregoing and will at
all times be subject to review by the Trustees. For the years ended in May
31, 1995, 1994, and 1993, the Fund paid negotiated brokerage commissions in
the amount of $130,973, $58,663, and $7,354, 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 fiscal year ended May
31, 1995, the Fund directed no 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 Tucker Anthony Incorporated, John Hancock Distributors, Inc.,
and Sutro & Company, Inc. all of which are broker-dealers ("Affiliated
Brokers"). Pursuant to procedures adopted by the Trustees consistent with the
above policy of obtaining best net results, the Fund may execute portfolio
transactions with or through Affiliated Brokers. During the year ended May
31, 1995, the Fund did not execute any portfolio transactions with Affiliated
Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those
33
<PAGE>
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, the
Sub-Adviser or the Affiliated Broker. Because the Adviser, which is
affiliated with the Affiliated Brokers, and the Sub-Adviser have, as
investment advisers to the Fund, the obligation to provide investment
management services, which includes elements of research and related
investment skills, such research and related skills will not be used by the
Affiliated Broker as a basis for negotiating commissions at a rate higher
than that determined in accordance with the above criteria. The Fund will not
effect principal transactions with Affiliated Brokers.
Brokerage or other transactions costs of the Fund are generally commensurate
with the rate of portfolio activity. The portfolio turnover rates for the
Fund for the fiscal years ended May 31, 1995 and 1994 were 71% and 43%
respectively.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston,
Massachusetts 02205-9116, a wholly-owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Fund. The Fund
pays Investor Services an annual fee of $16.00 per shareholder account for
Class A shares and $18.50 per shareholder account for Class B shares, plus
certain out-of-pocket expenses.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and Investors Bank & Trust Company, 24 Federal Street,
Boston, Massachusetts 02110. Under the custodian agreement, Investors Bank &
Trust Company performs custody, portfolio and fund accounting services.
34
<PAGE>
INDEPENDENT AUDITORS
The independent accountants of the Fund are Price Waterhouse LLP. Price
Waterhouse LLP audits and renders an opinion on the Fund's annual financial
statements and reviews the Fund's annual Federal income tax return.
35
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund
Statement of Assets and Liabilities
Year ended May 31, 1995
- -------------------------------------------------------------------------------
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON MAY 31, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AS OF THAT DATE.
Statement of Operations
Year ended May 31, 1995
- -------------------------------------------------------------------------------
ASSETS:
Investments at value - Note C:
Common stocks (cost - $88,325,775)......................... $100,129,227
Joint repurchase agreement (cost - $966,000)............... 966,000
Corporate savings account.................................. 861
------------
101,096,088
Receivable for shares sold................................... 128,127
Dividends receivable......................................... 377,702
Interest receivable.......................................... 375
Deferred organization expenses - Note A...................... 3,316
------------
Total Assets......................... 101,605,608
-------------------------------------------------------
LIABILITIES:
Payable for shares repurchased............................... 29,445
Payable to John Hancock Advisers, Inc.
and affiliates - Note B.................................... 109,690
Accounts payable and accrued expenses........................ 48,182
------------
Total Liabilities.................... 187,317
-------------------------------------------------------
NET ASSETS:
Capital paid-in.............................................. 87,156,203
Accumulated net realized gain on investments 2,036,220
Net unrealized appreciation of investments 11,803,452
Undistributed net investment income.......................... 422,416
------------
Net Assets........................... $101,418,291
=======================================================
NET ASSET VALUE PER SHARE:
(based on 7,037,190 shares of
beneficial interest outstanding -
unlimited number of shares
authorized with no par value)........ $ 14.41
=======================================================
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
Statement of Operations
Year ended May 31, 1995
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $10,824) $ 2,730,474
Interest...................................................... 132,509
-----------
2,862,983
-----------
Expenses:
Investment management fee - Note B.......................... 457,613
Transfer agent fee - Note B................................. 91,521
Custodian fee............................................... 43,897
Registration and filing fees................................ 36,626
Auditing fee................................................ 18,376
Trustees' fees.............................................. 9,913
Printing.................................................... 6,041
Legal fees.................................................. 5,782
Organization expense - Note A............................... 3,231
Miscellaneous............................................... 1,956
-----------
Total Expenses......................... 674,956
Less expenses reimbursable by
John Hancock Advisers, Inc.-
Note B................................. ( 34,298)
--------------------------------------------------------
Net Expenses........................... 640,658
--------------------------------------------------------
Net Investment Income.................. 2,222,325
--------------------------------------------------------
Realized and Unrealized Gain (Loss) on Investments:
Net realized gain on investments sold......................... 2,252,968
Change in net unrealized appreciation/depreciation
of investments.............................................. 12,046,702
-----------
Net Realized and Unrealized
Gain on Investments.................... 14,299,670
--------------------------------------------------------
Net Increase in Net Assets
Resulting from Operations.............. $16,521,995
========================================================
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income.................................................................. $ 2,222,325 $ 718,061
Net realized gain on investments sold.................................................. 2,252,968 436,390
Change in net unrealized appreciation/depreciation of investments...................... 12,046,702 (711,982)
------------ ------------
Net Increase in Net Assets Resulting from Operations................................. 16,521,995 442,469
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income - ($0.2834 and $0.2315 per share, respectively)... (2,008,180) (540,372)
Distributions from net realized gain on investments sold - ($0.0849 and $0.0497
per share, respectively) (608,472) (120,219)
------------ -----------
Total Distributions to Shareholders.................................................. (2,616,652) (660,591)
------------ -----------
FROM FUND SHARE TRANSACTIONS--NET* ..................................................... 20,901,056 54,342,092
------------ -----------
NET ASSETS:
Beginning of period.................................................................... 66,611,892 12,487,922
------------ -----------
End of period (including undistributed net investment income of $422,416 and
$208,271, respectively)............................................................... $101,418,291 $66,611,892
============ ===========
</TABLE>
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
YEAR ENDED MAY 31,
-----------------------------------------------------------
1995 1994
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Shares sold.................................................... 3,969,193 $50,176,705 4,325,185 $55,641,514
Shares issued to shareholders in reinvestment of distributions. 205,957 2,611,824 51,749 654,541
---------- ----------- --------- -----------
4,175,150 52,788,529 4,376,934 56,296,055
Less shares repurchased........................................ (2,389,312) (31,887,473) (152,260) (1,953,963)
---------- ----------- --------- -----------
Net increase................................................... 1,785,838 $20,901,056 4,224,674 $54,342,092
========== =========== ========= ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for each share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios, and supplemental data are as
follows:
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
JUNE 10, 1991
(COMMENCEMENT OF
YEAR ENDED MAY 31, OPERATIONS) TO
--------------------------------
1995 1994 1993 MAY 31, 1992
-------- ------- ------- ----------------
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.................................... $ 12.68 $ 12.16 $ 10.98 $ 10.00
-------- ------- ------- -------
Net Investment Income................................................... 0.32(b) 0.28(b) 0.22 0.15
Net Realized and Unrealized Gain (Loss) on Investments.................. 1.77 0.52 1.25 0.94
-------- ------- ------- -------
Total from Investment Operations.................................... 2.09 0.80 1.47 1.09
-------- ------- ------- -------
Less Distributions:
Dividends from Net Investment Income.................................. (0.28) (0.23) (0.23) (0.11)
Distributions from Net Realized Gain on Investments Sold.............. (0.08) (0.05) (0.06) --
-------- ------- ------- -------
Total Distributions................................................. (0.36) (0.28) (0.29) (0.11)
-------- ------- ------- -------
Net Asset Value, End of Period.......................................... $ 14.41 $ 12.68 $ 12.16 $ 10.98
======== ======= ======= =======
Total Investment Return at Net Asset Value.............................. 16.98% 6.60% 13.58% 10.95%
Total Adjusted Investment Return at Net Asset Value (a)(c).............. 16.94% 6.15% 11.40% 9.23%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)............................... $101,418 $66,612 $12,488 $ 2,622
Ratio of Expenses to Average Net Assets................................. 0.70% 0.70% 0.76% 1.66%*
Ratio of Adjusted Expenses to Average Net Assets (a).................... 0.74% 1.15% 2.94% 3.38%*
Ratio of Net Investment Income to Average Net Assets.................... 2.43% 2.20% 2.36% 1.77%*
Ratio of Adjusted Net Investment Income to Average Net Assets (a)....... 2.39% 1.75% 0.18% 0.05%*
Portfolio Turnover Rate................................................. 71% 43% 53% 53%
** Fee Reduction Per Share.............................................. $ 0.005(b) $ 0.06(b) $ 0.20 $ 0.15
<FN>
* On an annualized basis.
(a) Net of any fee reductions.
(b) On average month end shares outstanding.
(c) Unaudited.
</FN>
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZES THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: NET INVESTMENT INCOME, GAINS (LOSSES),
DIVIDENDS AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW THE FUND'S NET
ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD.
ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE
FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund
The Schedule of Investments is a complete list of all securities owned by the
Independence Diversified Core Equity Fund on May 31, 1995. It's divided into two
main categories:common stocks and short-term investments. Common stocks are
further broken down by industry group. Under each industry group is a list of
the securities owned by the Fund. Short-term investments, which represent the
Fund's "cash" position, are listed last.
SCHEDULE OF INVESTMENTS
May 31, 1995
- ---------------------------------------------------------------------------
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
COMMON STOCKS
AEROSPACE (0.42%)
Lockheed Martin Corp.................. 7,172 $ 426,734
-----------
AUTOMOBILE/TRUCK (1.26%)
Dana Corp............................. 23,600 666,700
Eaton Corp............................ 10,000 611,250
-----------
1,277,950
-----------
BANKS (5.90%)
Barnett Banks, Inc.................... 8,200 406,925
Chemical Banking Corp................. 18,900 871,762
Citicorp.............................. 29,300 1,567,580
First Interstate Bancorp.............. 10,100 848,400
First Union Corp...................... 8,300 406,700
Fleet Financial Group, Inc............ 11,000 383,625
NationsBank Corp...................... 26,500 1,500,562
-----------
5,985,554
-----------
BEVERAGES (3.33%)
Anheuser-Busch Cos., Inc.............. 5,200 307,450
Coca-Cola Co. (The)................... 16,800 1,039,500
PepsiCo, Inc.......................... 41,400 2,028,600
-----------
3,375,550
-----------
BIOMEDICS/GENETICS (0.61%)
Amgen, Inc.**......................... 8,500 616,250
-----------
BROADCASTING (1.34%)
Walt Disney Co., (The)................ 24,400* 1,357,250
-----------
BUILDING PRODUCTS (2.40%)
Home Depot, Inc. (The)................ 26,500 1,103,062
Weyerhauser Co........................ 30,300 1,329,413
-----------
2,432,475
-----------
CHEMICALS (3.41%)
Eastman Chemical Co................... 7,100* 426,000
Hercules, Inc......................... 15,800 829,500
Monsanto Co........................... 4,500 374,625
Morton International, Inc............. 25,600 812,800
PPG Industries, Inc................... 24,500* 1,019,813
-----------
3,462,738
-----------
COMPUTERS (3.74%)
Ceridian Corp. **..................... 11,600 374,100
International Business Machines Corp.. 30,700 2,862,775
Microsoft Corp.**..................... 6,600* 558,937
-----------
3,795,812
-----------
COSMETICS & TOILETRIES (0.29%)
Avon Products, Inc.................... 4,400 $ 296,450
-----------
DIVERSIFIED OPERATIONS (11.06%)
Dial Corp............................. 10,000 245,000
Du Pont (E.I.) De Nemours & Co........ 45,200 3,067,950
General Electric Co................... 74,400 4,315,200
Raytheon Co........................... 9,800 759,500
Tenneco Inc........................... 35,000 1,680,000
Textron Inc........................... 9,300 566,138
Whitman Corp.......................... 32,200 583,625
-----------
11,217,413
-----------
DRUGS (4.12%)
Bristol-Myers Squibb Co............... 33,100* 2,197,012
Merck & Co., Inc...................... 28,600 1,347,775
Schering-Plough Corp.................. 6,400 504,000
Warner-Lambert Co..................... 1,600* 132,600
-----------
4,181,387
-----------
ELECTRONICS (6.46%)
Hewlett-Packard Co.................... 12,100 800,112
Intel Corp............................ 20,200 2,267,450
Lam Research Corp.**.................. 12,400 709,900
Parker-Hannifin Corp.................. 35,700* 2,039,363
Teradyne, Inc.**...................... 9,300* 503,363
Texas Instruments, Inc................ 2,000 231,250
-----------
6,551,438
-----------
FINANCE (3.50%)
American Express Co................... 48,100 1,713,562
Dean Witter Discover & Co............. 30,400 1,447,800
Equifax, Inc.......................... 3,800 119,225
Ryder System, Inc..................... 10,700 271,513
-----------
3,552,100
-----------
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
FOODS (2.50%)
Archer Daniels Midland Co....... 34,600* $ 640,100
Sara Lee Corp................... 29,900 833,463
Unilever N.V.................... 8,300 1,056,175
------------
2,529,738
------------
HEALTHCARE (1.01%)
Columbia/HCA Healthcare Corp.... 18,800 768,450
Health Management Associates, Inc.
(Class A)**................... 9,337 255,600
------------
1,024,050
------------
INSURANCE (3.86%)
Allstate Corp................... 29,500* 888,687
Cigna Corp...................... 11,600* 867,100
Lincoln National Corp........... 34,000 1,538,500
Marsh & McLennan Cos., Inc...... 4,700 374,237
St. Paul Cos., Inc.............. 4,800* 244,200
------------
3,912,724
------------
MACHINERY (0.77%)
Millipore Corp.................. 11,800 774,375
------------
MEDICAL/DENTAL (3.99%)
Baxter International, Inc....... 20,100 700,987
Johnson & Johnson............... 29,600 1,961,000
Medtronic Inc................... 8,900 669,725
Pfizer, Inc..................... 8,100 713,813
------------
4,045,525
------------
METALS (1.56%)
Phelps Dodge Corp............... 28,700 1,582,088
------------
OFFICE EQUIPMENT & SUPPLIES (1.53%)
Xerox Corp...................... 13,700 1,553,238
------------
OIL & GAS (9.67%)
Amoco Corp...................... 28,700* 1,962,362
Anadarko Petroleum Corp......... 16,800 728,700
Chevron Corp.................... 15,200 746,700
Exxon Corp...................... 12,200* 870,775
Imperial Oil Ltd................ 22,400* 870,800
Mobil Corp...................... 22,300 2,238,363
Panhandle Eastern Corp.......... 25,500 640,688
Phillips Petroleum Co........... 48,100 1,743,625
------------
9,802,013
------------
PAPER (2.59%)
Georgia Pacific Corp............ 6,200* 482,050
Mead Corp....................... 25,700 1,384,587
Willamette Industries, Inc...... 15,100* 758,775
------------
2,625,412
------------
PHOTO EQUIPMENT (0.83%)
Eastman Kodak Co................ 14,000 845,250
------------
RETAIL (4.99%)
Albertson's Inc................. 32,400 907,200
Gap, Inc. (The)................. 7,800 268,125
Price/Costco Inc.**............. 44,000 621,500
Sears, Roebuck & Co............. 40,900* 2,305,738
Wal-Mart Stores, Inc............ 38,100 952,500
------------
5,055,063
------------
RUBBER (0.88%)
Goodyear Tire & Rubber Co....... 21,200 895,700
------------
SOAP & CLEANING PREPARATIONS (0.35%)
Proctor & Gamble Co. (The)...... 4,900 352,188
------------
STEEL (0.51%)
British Steel, PLC, American Depositary
Receipt....................... 18,500* 520,312
------------
TELECOMMUNICATIONS (4.13%)
AT & T Corp..................... 62,300 3,161,725
SBC Communications, Inc......... 22,900* 1,030,500
------------
4,192,225
------------
TOBACCO (3.56%)
Philip Morris Cos., Inc......... 36,100 2,630,788
UST, Inc........................ 32,900 982,888
------------
3,613,676
------------
TRANSPORTATION (0.68%)
Conrail, Inc.................... 4,000* 216,000
UAL Corp.**..................... 4,100 471,500
------------
687,500
------------
UTILITIES (7.48%)
Ameritech Corp.................. 19,000* 843,125
GTE Corp........................ 63,900 2,132,662
Pacific Gas & Electric Co....... 90,500 2,624,500
Peco Energy Co.................. 11,900 334,687
Unicom Corp..................... 60,700* 1,654,075
------------
7,589,049
------------
TOTAL COMMON STOCKS
(Cost $88,325,775) (98.73%) 100,129,227
------ ------------
See notes to financial statements.
11
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund
INTEREST PAR VALUE MARKET
ISSUER, DESCRIPTION RATE (000'S OMITTED) VALUE
- ------------------- -------- --------------- ------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.95%)
Investment in a joint repurchase
agreement transaction with
BT Securites Corp.,
Dated 05-31-95, Due 06-01-95
(secured by U.S. Treasury Bonds,
9.125% Due 05-15-09, 13.250%
Due 05-15-14, 11.250%
Due 02-15-15, and U.S.
Treasury Note, 6.75 %
Due 05-31-97)........... 6.15% $ 966 $ 966,000
------------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00%...... 861
------------
TOTAL SHORT-TERM INVESTMENTS (0.95%) 966,861
------- ------------
TOTAL INVESTMENTS (99.68%) $101,096,088
======= ============
* Securities, other than short-term investments, newly added to the portfolio
during the period ended May 31, 1995.
** Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Strategic Series (the "Trust"), is an open-end management
investment company, registered under the Investment Company Act of 1940. The
Trust consists of three series portfolios: John Hancock Independence Diversified
Core Equity Fund (the "Fund"), John Hancock Utilities Fund and John Hancock
Strategic Income Fund. Significant accounting policies of the Fund are as
follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. ("the Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in joint repurchase agreement transactions. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collaterized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies. It
will not be subject to Federal income tax on taxable earnings which are
distributed to shareholders.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and relative
sizes of the Funds.
DEFERRED ORGANIZATION EXPENSES Expenses incurred in connection with the
organization of the Fund have been capitalized and are being charged to the
Fund's operations ratably over a five-year period that commenced with the
investment operations of the Fund.
DISCOUNT ON SECURITIES The Fund accretes discount from par value on securities
from either the date of issue or the date of purchase over the life of the
security, as required by the Internal Revenue Code.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS
WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to 0.50% of the Fund's average daily net asset value.
The Fund and the Adviser have a sub-investment management contract with
Independence Investment Associates, Inc. (the "Sub-Adviser"), a wholly-owned
subsidiary of John Hancock Asset Management, under which the Sub-Adviser
provides the Fund with investment research and portfolio management services.
The Adviser pays the Sub-Adviser a monthly management fee equivalent, on an
annual basis, to the sum of (a) 0.00% of the first $10,000,000 of the Fund's
average daily net asset value, (b) 0.15% of the next $10,000,000, and (c) 0.225%
of the next $10,000,000. While the Fund's average daily net assets exceed $30
million, the fee will be 0.30% of the average daily net assets up to
$50,000,000, plus 0.35%
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Independence Diversified Core Equity Fund
of the next $50,000,000, plus 0.40% of the Fund's average daily net asset value
in excess of $100,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000, and 1.5% of
the remaining Fund's average daily net asset value.
In addition to the foregoing, effective August 1, 1992, the Adviser has
undertaken to limit the Fund's expenses further to the extent required to
prevent expenses from exceeding 0.70% of the Fund's average daily net asset
value. Accordingly, for the period ended May 31, 1995, the reduction in the
Adviser's fee collectively with any additional amounts not borne by the Fund by
virtue of the expense limit amounted to $34,298.
The Fund has a distribution agreement with John Hancock Funds, Inc., ("JH
Funds"), a wholly owned subsidiary of the Adviser. Prior to January 1, 1995, JH
Funds was known as John Hancock Broker Distribution Services, Inc. For the
period ended May 31, 1995 all sales of shares of beneficial interest were sold
at net asset value. In addition, to compensate JH Funds for the service it
provides as distributor of shares of the Fund, the Trust has adopted a
Distribution Plan pursuant to Rule 12b-1 under the Investment Company Act of
1940. Under the terms of the Distribution Plan, the Fund will make payments to
JH Funds for distribution expenses at an annual rate not to exceed 0.50% of the
Fund's average daily net asset value to reimburse JH Funds for their
distribution/costs. Up to a maximum of 0.25% of these payments may be service
fees as defined by the amended Rules of Fair Practice of the National
Association of Securities Dealers. Under the amended Rules of Fair Practice,
curtailment of a portion of the Fund's 12b-1 fees could occur under certain
circumstances. There were no payments under the Distribution Plan for the period
ended May 31, 1995. Payment of fees under the Distribution Plan has been
suspended until further notice is given to the shareholders.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc. The Fund pays Investor Services a monthly transfer
agent fee equivalent, on an annual basis, to 0.10% of the Fund's average daily
net asset value plus out of pocket expenses incurred by Investor Services on
behalf of the Fund for proxy mailings.
Messrs. Edward J. Boudreau and Richard S. Scipione are directors and officers
of the Adviser and its affiliates, as well as Trustees of the Fund. The
compensation of unaffiliated Trustees is borne by the Fund. Effective with the
fees paid for 1995, the unaffiliated Trustees may elect to defer for tax
purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund will make investments into other John
Hancock funds, as applicable, to cover its liability with regard to the deferred
compensation. Investments to cover the Fund's deferred compensation liability
will be recorded on the Fund's books as an other asset. The deferred
compensation liability will be marked to market on a periodic basis and income
earned by the investment will be recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities during the period ended
May 31, 1995 aggregated $83,606,262 and $63,379,158 respectively.
The cost of investments owned at May 31, 1995 (excluding the corporate
savings account), for Federal income tax purposes was $89,300,927. Gross
unrealized appreciation and depreciation of investments aggregated $12,727,947
and $933,647, respectively, resulting in net unrealized appreciation of
$11,794,300.
14
<PAGE>
John Hancock Funds - Independence Diversified Core Equity Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Independence
Diversified Core Equity Fund and the
Trustees of John Hancock Strategic Series
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of John Hancock Independence
Diversified Core Equity Fund (the "Fund") (a portfolio of John Hancock Strategic
Series) at May 31, 1995, the results of its operations for the year then ended,
and the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
1995 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
July 17, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended May 31, 1995.
The Fund distributed to shareholders of record December 23, 1994 and payable
December 29, 1994 a long-term capital gains dividend of $342,824. This amount
was reported on the 1994 U.S. Treasury Department Form 1099-DIV. With respect to
the Fund's ordinary taxable income for the fiscal year ended May 31, 1995,
74.00% qualified for the dividends received deduction available to corporations.
Shareholders will receive a 1995 U.S. Treasury Department Form 1099-DIV in
January of 1996. This will reflect the total of all distributions which are
taxable for the calendar year 1995.
15
<PAGE>
JOHN HANCOCK UTILITIES FUND
Class A and Class B Shares
Statement of Additional Information
September 1, 1995
This Statement of Additional Information provides information about John
Hancock Utilities Fund (the "Fund"), a series of John Hancock Strategic Series
(the "Trust"), in addition to the information that is contained in the Fund's
Class A and Class B Shares Prospectus (the "Prospectus"), dated September 1,
1995. The Fund is a Series portfolio of John Hancock Strategic Series (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 Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Statement of Cross-referenced
Additional referenced to
Information Class A and
Page Class B
Prospectus
Page
Organization of the Fund 2 8
Investment Objectives And Policies 2 4
Certain Investment Practices 2 4
Investment Restrictions 6 4
Those Responsible for Management 9 8
Investment Advisory And Other Services 15 8
Distribution Contract 17 9
Net Asset Value 19 14
Initial Sales Charge on Class A Shares 20 15
Deferred Sales Charge on Class B Shares 21 17
Special Redemptions 22 19
Additional Services and Programs 22 ---
Description Of The Fund's Shares 23 13
Tax Status 24 11
Calculation Of Performance 28 12
Brokerage Allocation 30 ---
Transfer Agent Services 31 ---
<PAGE>
Custody Of Portfolio 31 ---
Independent Auditors 32 ---
Financial Statements ---
ORGANIZATION OF THE FUND
John Hancock Utilities Fund (the "Fund") is organized as a separate,
diversified portfolio of John Hancock Strategic Series (the "Trust"), an
open-end management investment company organized in April 1986, as a
Massachusetts business trust under the laws of The Commonwealth of
Massachusetts. The Trust currently consists of three separate series: the Fund,
John Hancock Strategic Income Fund and John Hancock Independence Diversified
Core Equity Fund. The Fund is managed by Johh Hancock Advisers, Inc. (the
"Adviser") and was established in 1994. The Adviser is an indirect wholly-owned
subsidiary of John Hancock Mutual Life Insurance Company (the "Life Insurance
Company"), a Massachusetts life insurance company chartered in 1862 with
national headquarters at John Hancock Place, Boston, Massachusetts.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Fund are to seek current income, and to
the extent consistent with that objective, growth of income and long-term
capital growth. The Fund will seek to achieve its objectives by investing
primarily in equity securities of companies in the public utilities industries.
See "Investment Objectives and Policies" in the Prospectus. There can be no
assurance that the objectives of the Fund will be realized.
CERTAIN INVESTMENT PRACTICES
Forward Commitments and When-Issued Securities. "When-issued" refers to
securities whose terms are available and for which a market exists, but which
have not yet been issued. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. No payment is made with respect to a when-issued or
forward commitment transaction until delivery is due, often a month or more
after the purchase.
The Fund may engage in when-issued and forward commitment transactions
with respect to securities purchased for its portfolio in order to obtain an
advantageous price and yield at the time of the transactions. When the Fund
engages in a when-issued or forward commitment transaction, it relies on the
seller (or the buyer, if the Fund has not yet taken delivery) of when-issued
securities to consummate the transaction. The failure of the issuer or seller to
consummate the transaction may result in the Fund's losing the opportunity to
obtain a price and yield considered to be advantageous. On the date the Fund
enters into an agreement to purchase securities on a when-issued or forward
commitment basis, the Fund will segregate in a separate account cash or liquid,
high grade debt securities equal in value to the Fund's commitments for
when-issued or forward commitment transactions. These assets will be valued
daily at market, and additional cash or liquid, high grade debt securities will
be segregated in a separate account to the extent that the total value of the
assets in the account declines below the amount of the Fund's commitments for
when-issued or forward commitment transactions.
2
<PAGE>
Repurchase Agreements. A repurchase agreement is a contract under which the Fund
would acquire a security for a relatively short period (usually not more than 7
days) subject to the obligation of the seller to repurchase and the Fund to
resell such security at a fixed time and price (representing the Fund's cost
plus interest). The Fund will enter into repurchase agreements only with member
banks of the Federal Reserve System and with "primary dealers" in U.S.
Government securities. The Adviser will continuously monitor the
creditworthiness of the parties with whom the Fund enters into repurchase
agreements.
The Fund has established a procedure providing that the securities serving
as collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities and could experience losses, including the
possible decline in the value of the underlying securities during the period
while the Fund seeks to enforce its rights thereto, possible subnormal levels of
income and lack of access to income during this period, and expense of enforcing
its rights.
Restricted Securities. The Fund may invest in restricted securities eligible for
resale to certain institutional investors pursuant to Rule 144A under the
Securities Act of 1933 and foreign securities acquired in accordance with
Regulation S under the Securities Act of 1933. The Fund will not invest more
than 15% of its net assets in illiquid investments, which include repurchase
agreements maturing in more than seven days, securities that are not readily
marketable and restricted securities. However, if the Board of Trustees
determines, based upon a continuing review of the trading markets for specific
Rule 144A securities, that they are liquid, then these securities may be
purchased without regard to the 15% limit. The Trustees may adopt guidelines and
delegate to the Adviser the daily function of determining and monitoring the
liquidity of restricted securities. The Trustees, however, will retain
sufficient oversight and be ultimately responsible for the determinations. The
Trustees will carefully monitor the Fund's investments in these securities,
focusing on such important factors, among others, as valuation, liquidity and
availability of information. This investment practice could have the effect of
increasing the level of illiquidity in the Fund if qualified institutional
buyers become for a time uninterested in purchasing these restricted securities.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities, issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities
which provide monthly payments which are, in effect, a "pass-through" of the
monthly interest and
3
<PAGE>
principal payments (including any prepayments) made the by individual borrowers
on the pooled mortgage loans. Collateralized mortgage obligations ("CMOs") in
which the Fund may invest are securities issued by a U.S. Government
instrumentality that are collateralized by a portfolio of mortgages or
mortgage-backed securities. Mortgage-backed securities may be less effective
than traditional debt obligations of similar maturity at maintaining yields
during periods of declining interest rates.
Forward Foreign Currency Transactions. The Fund's foreign currency exchange
transactions may be conducted on a spot (i.e., cash) basis at the spot rate for
purchasing or selling currency prevailing in the foreign exchange market. The
Fund may also deal in forward foreign currency exchange contracts involving
currencies of the different countries in which it invests as a hedge against
possible variations in the foreign exchange rate between these currencies. This
is accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
The Fund's dealings in forward foreign currency exchange contracts will be
limited to hedging either specified transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency
contracts with respect to specific receivables or payables of the Fund accruing
in connection with the purchase and sale of its portfolio securities quoted or
denominated in foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in such foreign currencies. The Fund may not attempt to hedge all of its
foreign portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by the Adviser. The Fund will not engage in
speculative forward foreign currency exchange transactions.
If the Fund purchases a forward contract, its custodian bank will
segregate cash or high grade, liquid debt securities in a separate account of
the Fund in an amount equal to the value of the Fund's total assets committed to
the consummation of such forward contract. The assets in the segregated account
will be valued at market daily and if the value of the securities in the
separate account declines, additional cash or securities will be placed in the
account so that the value of the account will be equal to the amount of the
Fund's commitment with respect to such contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency exchange transactions
varies with such factors as the currency involved, the length of the contract
period and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
Characteristics and Risks of Foreign Securities Markets. The securities markets
of many countries have in the past moved relatively independently of one
another, due to differing economic, financial, political and social factors.
When markets in fact move in different directions
4
<PAGE>
and offset each other, there may be a corresponding reduction in risk for the
Fund's portfolio as a whole. This lack of correlation among the movements of the
world's securities markets may also affect unrealized gains the Fund has derived
from movements in any one market.
If the securities of markets moving in different directions are combined
into a single portfolio, such as that of the Fund, total portfolio volatility is
reduced. Since the Fund may invest in securities denominated in currencies other
than U.S. dollars, changes in foreign currency exchange rates may affect the
value of portfolio securities. Exchange rates may not move in the same direction
as the securities markets in a particular country. As a result, market gains may
be offset by unfavorable exchange rate fluctuations.
Investments in foreign securities may involve risks and considerations not
present in domestic investments. Since foreign securities generally will be
quoted and pay interest or dividends in foreign currencies, the value of the
assets of the Fund attributable to such investment as measured in U.S. dollars
will be affected favorably or unfavorably by changes in the relationship of the
U.S. dollar and other currency rates. The Fund may incur costs in connection
with the conversion of foreign currencies into U.S. dollars and may be adversely
affected by restrictions on the conversion or transfer of foreign currencies. In
addition, there may be less publicly available information about foreign
companies than U.S. companies. Foreign companies may not be subject to
accounting, auditing, and financial reporting standards, practices and
requirements comparable to those applicable to U.S.
companies.
Foreign securities markets, while growing in volume, have for the most
part substantially less volume than U.S. securities markets and securities of
foreign companies are generally less liquid and at times their prices may be
more volatile than securities of comparable U.S. companies. Foreign stock
exchanges, brokers and listed companies are generally subject to less government
supervision and regulation than those in the U.S. The customary settlement time
for foreign securities may be longer than the current three (3) day customary
settlement time for U.S. securities, or less frequent than in the U.S., which
could affect the liquidity of the Fund's investments. The Adviser monitors the
settlement time for foreign securities and takes undue settlement delays into
account in considering the desirability of an investment.
The Fund may invest in companies located in developing countries which,
compared to the U.S. and other developed countries, may have relatively unstable
governments, economies based on only a few industries and securities markets
which trade only a small number of securities. Prices on exchanges located in
developing countries tend to be volatile and, in the past, securities traded on
those exchanges have offered a greater potential for gain (and loss) than
securities traded on exchanges in the U.S. and more developed countries.
In some countries, there is the possibility of expropriation or
confiscatory taxation, seizure or nationalization of foreign bank deposits or
other assets, establishment of exchange controls, the adoption of foreign
government restrictions or other adverse political, social or diplomatic
developments that could affect investments in these nations.
5
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
- -----------------------------------
The following fundamental investment restrictions will not be changed
without approval of a majority of the Fund's outstanding voting securities
which, as used in the Prospectus, means approval of the lesser of (1) the
holders of 67% or more of the shares represented at a meeting if the holders of
more than 50% of the Fund's outstanding shares are present in person or by proxy
or (2) the holders of more than 50% of the Fund's outstanding shares.
The Fund observes the following fundamental investment restrictions.
The Fund may not:
(1) Purchase or sell real estate or any interest therein, except that the Fund
may invest in securities of corporate entities secured by real estate or
marketable interests therein or issued by companies that invest in real
estate or interests therein and may hold and sell real estate acquired by
the Fund as the result of ownership of securities.
(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 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.
(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) With respect to 75% of the Fund's total assets, 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
or emergency purposes in amounts not to exceed 33-1/3% of the Fund's total
assets (including the amount borrowed) taken at market value.
6
<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) Issue senior securities, except as permitted by paragraph (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, interest rate or currency
swaps, securities index warrants 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.
(9) Purchase any securities which would cause more than 25% of the market
value of the Fund's total assets at the time of such purchase to be
invested in the securities of one or more issuers having their principal
business activities in the same industry, provided that there is no
limitation with respect to investments in obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities; provided that,
notwithstanding the foregoing, the Fund will invest more than 25% of its
total assets in securities of companies that are engaged in one or more of
the public utilities industries, as more fully set forth in the
Prospectus.
In connection with the lending of portfolio securities under item (2)
above, such loans must at all times be fully collateralized and the Fund's
custodian must take possession of the collateral either physically or in book
entry form. Securities used as collateral must be marked to market daily.
Nonfundamental Investment Restrictions
- --------------------------------------
The following restrictions are designated as nonfundamental and may be
changed by the Board of Trustees without shareholder approval.
The Fund may not:
(a) purchase securities on margin or make short sales, except margin
deposits in connection with options, futures and other 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 a Fund may obtain
such short-term credits as may be necessary for the clearance of
purchases and sales of securities and in connection with transactions
involving forward foreign currency exchange contracts.
(b) purchase securities of any issuer which, together with any predecessor,
has a record of less than three years' continuous operation prior to the
purchase if such purchase would cause the Fund's investment in all such
issuers to exceed 5% of the value of the Fund's total assets.
7
<PAGE>
(c) invest for the purpose of exercising control over the management of any
company.
(d) purchase a security if, as a result, (i) more than 10% of the Fund's total
assets would be invested in securities of other investment companies, (ii)
such purchase would result in more than 3% of the total outstanding voting
securities of any one such investment company being held by the Fund, or
(iii) more than 5% of the Fund's total assets would be invested in any
securities of any investment company.
(e) knowingly purchase or retain securities of an issuer if one or more of the
Trustees or officers of the Trust or directors or officers of the Adviser
or any investment management subsidiary of the Adviser individually owns
beneficially more than 0.5%, and together own beneficially more than 5%,
of the securities of such issuer.
(f) invest in interests in oil, gas or other mineral exploration or
development programs; provided, however, that this restriction shall not
prohibit the acquisition of securities of companies engaged in the
production or transmission of oil, gas or other minerals.
(g) purchase warrants if as a result (i) more than 5% of the Fund's net
assets, valued at the lower of cost or market value, would be invested
in warrants or (ii) more than 2% of its net assets would be invested in
warrants, valued as aforesaid, which are not traded on the New York
Stock Exchange or American Stock Exchange; provided that for these
purposes, warrants are to be valued at the lesser of cost or market,
but warrants acquired in units or attached to securities will be deemed
to be without value.
(h) purchase any security, including any repurchase agreement maturing in more
than seven days, which is not readily marketable, if more than 15% of the
net assets of the Fund, taken at market value, would be invested in such
securities.
(i) 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 joint securities trading account.
(j) invest more than 10% of its total assets in restricted securities,
excluding restricted securities eligible for resale pursuant to Rule 144A
under the Securities Act of 1933; provided, however, that no more than 15%
of the Fund's total assets may be invested in restricted securities,
including restricted securities eligible for resale under Rule 144A.
(k) purchase interests in real estate limited partnerships.
(l) purchase securities while outstanding borrowings exceed 5% of the Fund's
total assets.
(m) Notwithstanding any investment restriction to the contrary, the Fund may,
in connection with the John Hancock Group of Funds Deferred Compensation
Plan for Independent Trustees/Directors, purchase securities of other
investment companies within the John Hancock Group of Funds provided
that, as a result, (i) no more than 10% of the Fund's assets would be
invested in securities of all other investment companies, (ii) such
purchase
8
<PAGE>
would not result in more than 3% of the total outstanding voting
securities of any one such investment company being held by the Fund and
(iii) no more than 5% of the Fund's assets would be invested in any one
such investment company.
In order to permit the sale of shares of the Fund in certain states,
the Trustees may, in their sole discretion, adopt restrictions or investment
policies more restrictive than those described above. Should the Trustees
determine that any such more restrictive policy is no longer in the best
interests of the Fund and its shareholders, the Fund may cease offering shares
in the state involved and the Trustees may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Trustees may, at their sole discretion, revoke such policy.
If a percentage restriction on investment or utilization of assets as set
forth above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the values of the Fund's assets will not be
considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by the Trustees of the Trust, who
elect officers who are responsible for the day-to-day operations of the Trust
and who execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers and directors of the Adviser or officers
and directors of the Fund's principal distributor, John Hancock Funds, Inc.
("John Hancock Funds").
9
<PAGE>
The following table sets forth the principal occupation or employment of
the Trustees and principal officers of the Trust during the past five years:
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- -------------- --------------------------
*Edward J. Boudreau, Jr. Chairman (1,2) Chairman and Chief Executive
101 Huntington Avenue Officer, the Adviser and The
Boston, Massachusetts Berkeley Financial Group ("The
Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited ("Advisers
International"); John Hancock
Funds, Inc., ("John Hancock
Funds"); John Hancock Investor
Services Corporation ("Investor
Services") and Sovereign Asset
Management Corporation
("SAMCorp") (herein after the
Adviser, The Berkeley Group, NM
Capital, Advisers International,
John Hancock Funds, Investor
Services and SAMCorp are
collectively referred to as the
"Affiliated Companies");
Chairman, First Signature Bank &
Trust; Director, John Hancock
Freedom Securities Corp., John
Hancock Capital Corp., New
England/Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; President, the Adviser
(until July 1992). Chairman John
Hancock Distributors, Inc. (until
April, 1994).
- --------------
*An "interested person" of the Fund, as such term is defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act:).
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
10
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- -------------- --------------------------
Dennis S. Aronowitz Trustee (4) Professor of Law, Boston
Boston University University School of Law;
Boston, Massachusetts Trustee, Brookline Savings
Bank; Director, Boston
University Center for Banking
Law Studies (until 1990).
Richard P. Chapman, Jr. Trustee (4) President, Brookline Savings
160 Washington Street Bank.
Brookline, Massachusetts
William J. Cosgrove Trustee (4) Vice President, Senior Banker
20 Buttonwood Place and Senior Credit Officer,
Saddle River, New Jersey Citibank, N.A. (retired
September 1991); Executive Vice
President, Citadel Group
Representatives, Inc.
Gail D. Fosler Trustee (4) Vice President and Chief
4104 Woodbine Street Economist, The Conference Board
Chevy Chase, MD (non-profit economic and
business research).
Bayard Henry Trustee (4) Corporate Advisor; Director,
31 Milk Street Fiduciary Trust Company (a
Boston, Massachusetts trust company); Director,
Groundwater Technology, Inc.
(remediation); Samuel Cabot,
Inc.; Advisor, Kestrel Venture
Management.
- -------------------
* An "interested person" of the Fund, as such term is defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act").
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
11
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- -------------- --------------------------
*Richard S. Scipione Trustee (3) General Counsel, the Life
John Hancock Place Company; Director, the
P.O. Box 111 Adviser, the Affiliated
Boston, Massachusetts Companies, John Hancock
Distributors, Inc., JH Networking
Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp, NM Capital and John
Hancock Property and Casualty
Insurance and its affiliates
(until November, 1993); Trustee,
The Berkeley Group; Director,
John Hancock Home Mortgages Corp.
and John Hancock Financial
Access, Inc. (until July 1990).
Edward J. Spellman, CPA Trustee (4) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL
*Robert G. Freedman Vice Chairman and Vice Chairman and Chief
101 Huntington Avenue Chief Investment Investment Officer, the
Boston, Massachusetts Officer (2) Adviser; President, the
Adviser (until December 1994).
*Anne C. Hodsdon President (2) President and Chief Operating
101 Huntington Avenue Officer, the Adviser;
Boston, Massachusetts Executive Vice President, the
Adviser (until December 1994);
Senior Vice President; the
Adviser (until December 1993);
Vice President, the Adviser,
(until 1991).
*Thomas H. Drohan Senior Vice Senior Vice President and
101 Huntington Avenue President and Secretary, the Adviser.
Boston, Massachusetts Secretary
*James K. Ho Senior Vice Senior Vice President, the
101 Huntington Avenue President (2) Adviser.
Boston, Massachusetts
- ------------------
* An "interested person" of the Fund, as such term is defined in the Investment
Company Act.
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
12
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- -------------- --------------------------
*James B. Little Senior Vice Senior Vice President the
101 Huntington Avenue President and Chief Adviser.
Boston, Massachusetts Financial Officer
*Michael P. DiCarlo Senior Vice Senior Vice President, the
101 Huntington Avenue President (2) Adviser.
Boston, Massachusetts
*John A. Morin Vice President Vice President, the Adviser.
101 Huntington Avenue
Boston, Massachusetts
*Susan S. Newton Vice President, Vice President and Assistant
101 Huntington Avenue Assistant Secretary Secretary, the Adviser.
Boston, Massachusetts and Compliance
Officer
*James J. Stokowski Vice President and Vice President, the Adviser.
101 Huntington Avenue Treasurer
Boston, Massachusetts
- ------------------
* An "interested person" of the Fund, as such term is defined in the Investment
Company Act.
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
13
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With The Fund During the Past Five Years
- ---------------- -------------- --------------------------
*Frederick L. Cavanaugh, Jr. Senior Vice President Senior Vice President, the
101 Huntington Avenue (2) Adviser.
Boston, Massachusetts
*Andrew F. St. Pierre Senior Vice Senior Vice President, the
101 Huntington Avenue President (2) Adviser; President, John
Boston, Massachusetts Hancock Closed-End Funds;
Portfolio Manager, Harvard
Management Corp. (until
October, 1991).
*Anthony A. Goodchild Senior Vice President Senior Vice President, the
101 Huntington Avenue (2) Adviser; Senior Vice
Boston, Massachusetts President, Putnam Investment
Management, Inc.
*Lawrence J. Daly Senior Vice President Senior Vice President, the
101 Huntington Avenue (2) Adviser; Senior Vice
Boston, Massachusetts President, Putnam Investment
Management, Inc.
- ------------------
* An "interested person" of the Fund, as such term is defined in the Investment
Company Act.
(1) A Member of the Executive Committee.
(2) A Member of Investment Committee of the Adviser.
(3) An Alternate Member of the Executive Committee.
(4) A Member of the Audit and Administration Committees.
As of the date of this Statement of Additional Information, the officers
and Trustees of the Fund as a group owned less than 1% of the outstanding shares
of the Fund and to the knowledge of the registrant, no persons owned of record
or beneficially 5% or more of any class of the Fund's outstanding securities.
All of the officers listed are officers or employees of the Adviser or the
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
The following table provides information regarding the compensation paid
by the Fund and the other investment companies in the John Hancock Fund Complex
to the Independent Trustees for their services for the Fund's 1995 fiscal year.
The two non-Independent Trustees, Messrs. Boudreau and Scipione, and each of the
officers of the Funds are interested persons of the Adviser, are compensated by
the Adviser and receive no compensation from the Fund for their services.
14
<PAGE>
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Benefits Estimated From the Fund
Accrued as Annual and John
Aggregate Part of the Benefits Hancock Fund
Compensation Fund's Upon Complex to
Independent Trustees From the Fund Expenses Retirement Trustees(1)
- -------------------- ------------- -------- ---------- -----------
<S> <C> <C> <C> <C>
- - (Total of 18 Funds)
- -
Dennis S. Aronowitz $ 524 - - $ 60,950
Richard P. Chapman 544 - - 62,950
William J. Cosgrove 524 - - 60,950
Gail D. Fosler 524 - - 60,950
Bayard Henry 544 - - 62,950
Edward J. Spellman 524 - - 60,950
------ --------
$3,184 $369,700
</TABLE>
(1) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1994.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund receives investment advice from the Adviser. Investors should
refer to the Prospectus and below for a description of certain information
concerning the investment management contract.
Each of the Trustees and principal officers affiliated with the Fund who
is also an affiliated person of the Adviser is named above, together with the
capacity in which such person is affiliated with the Fund and the Adviser.
As described in the Fund's Prospectus under the caption "Organization and
Management of the Fund," the Trust on behalf of the Fund has entered into an
investment management contract with the Adviser. Under the investment management
contract, the Adviser provides the Fund (i) with a continuous investment
program, consistent with the Fund's stated investment objectives and policies,
(ii) supervision of all aspects of the Fund's operations except those that are
delegated to a custodian, transfer agent or other agent and (iii) such
executive, administrative and clerical personnel, officers and equipment as are
necessary for the conduct of its business. The Adviser is responsible for the
management of the Fund's portfolio assets.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or its affiliates provide investment
advice. Because of different investment objectives or other factors, a
particular security may be bought for one or more funds or clients when one or
more other funds or clients are selling the same security. If opportunities for
purchase or sale of securities by the Adviser for the Fund or for other funds or
clients for which the Adviser renders investment advice arise for consideration
at or about the same time, transactions in such securities will be made, insofar
as feasible, for the respective funds or clients
15
<PAGE>
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.
No person other than the Adviser and its directors and employees regularly
furnishes advice to the Fund with respect to the desirability of the Fund's
investing in, purchasing or selling securities. The Adviser may from time to
time receive statistical or other similar factual information, and information
regarding general economic factors and trends, from the Life Company and its
affiliates.
Under the terms of the investment management contract with the Fund, the
Adviser provides the Fund with office space, supplies and other facilities
required for the business of the Fund. The Adviser pays the compensation of all
officers and employees of the Trust, and pays the expenses of clerical services
relating to the administration of the Fund.
All expenses which are not specifically paid by the Adviser and which are
incurred in the operation of the Fund (including fees of Trustees of the Trust
who are not "interested persons," as such term is defined in the Investment
Company Act, but excluding certain distribution-related activities required to
be paid by the Adviser or John Hancock Funds) and the continuous public offering
of the Class A shares of the Fund are borne by the Fund. Class expenses properly
allocable to either Class A shares or Class B shares will be borne exclusively
by such class of shares, subject to conditions the Internal Revenue Service
imposes with respect to multiple-class structures.
As provided by the investment management contract, the Fund pays the
Adviser monthly an investment management fee which is based on a stated
percentage of the Fund's average daily net assets as follows:
Net Asset Value Annual Rate
--------------- -----------
First $250,000,000 0.70%
Amount over $250,000,000 0.65%
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 re-impose 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.
If the total of all ordinary business expenses of the Fund for any fiscal
year exceeds limitations prescribed in any state in which shares of the Fund are
qualified for sale, the fee payable to the Adviser will be reduced to the extent
required by these limitations. At this time, the most restrictive limit on
expenses imposed by a state requires that expenses charged to the Fund in any
fiscal year may not exceed 2 1/2% of the first $30,000,000 of the Fund's average
net assets, 2% of the next $70,000,000 of such net assets and 1 1/2% of the
remaining average net assets. When calculating the above limit, the Fund may
exclude interest, brokerage commissions and extraordinary expenses.
16
<PAGE>
On May 31, 1995, the net assets of the Fund were $57,572,692. For the
period ended May 31, 1994 and the year ended May 31, 1995, the Adviser's
management fee was $1,439 and $233,229, respectively, prior to expense
reduction.
Pursuant to its investment management contract, the Adviser is not liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which the investment management contract
relates, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or from
reckless disregard by the Adviser of its obligations and duties under the
investment management contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and presently has more than $13 billion in
assets under management in its capacity as investment adviser to the Fund and
the other mutual funds and publicly traded investment companies in the John
Hancock group of funds having a combined total of over 1,068,000 shareholders.
The Adviser is an affiliate of the Life Insurance Company, one of the most
recognized and respected financial institutions in the nation. With total assets
under management of $80 billion, the Life Company is one of the ten largest life
insurance companies in the United States, and carries high ratings from S&P and
A.M. Best. Founded in 1862, the Life Company has been serving clients for over
130 years.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a name or any other name indicating that it is
advised by or otherwise connected with the Adviser. In addition, the Adviser or
the Life Company may grant the non-exclusive 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 Insurance Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
The investment management contract, and the distribution contract
discussed below, continue in effect from year to year if approved annually by
vote of a majority of the Trustees of the Trust who are not interested persons
of one of the parties to the contract, cast in person at a meeting called for
the purpose of voting on such approval, and by either the Trustees or the
holders of a majority of the Fund's outstanding voting securities. Each of these
contracts automatically terminates upon assignment. Each contract may be
terminated without penalty on 60 days' notice at the option of either party to
the respective contract or by vote of a majority of the outstanding voting
securities of the Fund.
DISTRIBUTION CONTRACT
The Fund has entered into a distribution contract with John Hancock Funds.
Under the contract John Hancock Funds is obligated to use its best efforts to
sell shares of each class on behalf of the Fund. Shares of the Fund are also
sold by selected broker-dealers (the "Selling Brokers") which have entered into
selling agency agreements with John Hancock Funds. John Hancock Funds accepts
orders for the purchase of the shares of the Fund which are continually
17
<PAGE>
offered at net asset value next determined, plus any applicable sales charge. In
connection with the sale of Class A and Class B shares, John Hancock Funds and
Selling Brokers receive compensation in the form of a sales charge imposed, in
the case of Class A shares, at the time of sale or, in the case of Class B
shares, on a deferred basis. The sales charges are discussed further in the
Prospectus.
The Fund's Trustees adopted Distribution Plans with respect to Class A and
Class B shares pursuant to Rule 12b-1 under the Investment Company Act. Under
the Class A and Class B Plans, the Fund will pay distribution and service fees
at an aggregate annual rate of up to 0.30% and 1.00%, respectively, of each
respective class' average daily net assets. However, the amount of the service
fee will not exceed 0.25% of the Fund's average daily net assets attributable to
each class of shares. The distribution fees reimburse John Hancock Funds for its
distribution costs incurred in the promotion of sales of shares of the Fund, and
the service fees compensate Selling Brokers for providing personal and account
maintenance services to shareholders. In the event that John Hancock Funds is
not fully reimbursed for expenses incurred by it under the Class B Plan in any
fiscal year, John Hancock Funds may carry these expenses forward, provided
however, that the Trustees may terminate the Class B Plan and thus the Fund's
obligation to make further payments at any time. Accordingly, the Fund does not
treat unreimbursed expenses relating to the Class B shares as a liability of the
Fund. The Plans were approved by the Adviser as the initial sole shareholder of
Class A and Class B shares. The Plans have also been approved by a majority of
the Trustees, including a majority of the Trustees who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of the Plan (the "Independent Trustees"), by votes cast in person at
meetings called for the purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provides the
Fund with a written report of the amounts expended under the Plans and the
purpose for which these expenditures were made. The Trustees review these
reports on a quarterly basis.
During the fiscal year ended May 31, 1995 the Fund paid John Hancock Funds
the following amounts of expenses with respect to the Class A shares and Class B
shares of the Fund:
Expense Items
-------------
Printing and
Mailing of Expense Interest
Prospectus Compensation of John Carrying or
to New to Selling Hancock Other Finance
Advertising Shareholders Brokers Funds Charges Other
----------- ------------ ------- ----- -------------
Class A Shares $ 8,227 $1,051 $ 3,649 $24,286 $ 0
Class B Shares 12,920 1,310 137,750 37,539 19,619
Each of the Plans provides that it will continue in effect only so long as
its continuance is approved at least annually by a majority of both the Trustees
and the Independent Trustees. Each of the Plans provides that it may be
terminated without penalty (a) by vote of a majority of the Independent
Trustees, (b) by a vote of a majority of the Fund's outstanding shares of the
18
<PAGE>
applicable class upon 60 days' written notice to John Hancock Funds and (c)
automatically in the event of assignment. Each of the Plans further provides
that it may not be amended to increase the maximum amount of the fees for the
services described therein without the approval of a majority of the outstanding
shares of the class of the Fund which has voting rights with respect to the
Plan. And finally, each of the Plans provides that no material amendment to the
Plan will, in any event, be effective unless it is approved by a majority vote
of both the Trustees and the Independent Trustees of the Trust. The holders of
Class A shares and Class B shares have exclusive voting rights with respect to
the Plan applicable to their respective class of shares. In adopting the Plans,
the Trustees concluded that, in their judgment, there is a reasonable likelihood
that each Plan will benefit the holders of the applicable class of shares of the
Fund.
When the Trust seeks an Independent Trustee to fill a vacancy or as a
nominee for election by shareholders, the selection or nomination of the
Independent Trustee is, under resolutions adopted by the Trustees
contemporaneously with their adoption of the Plans, committed to the discretion
of the Committee on Administration of the Trustees. The members of the Committee
on Administration are all Independent Trustees and are identified in this
Statement of Additional Information under the heading "Those Responsible for
Management."
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the Fund's
shares, the following procedures are utilized wherever applicable.
Debt securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or
less are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of a Fund's NAV.
The Fund will not price its securities on the following national holidays:
New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day' Thanksgiving Day; and Christmas Day.
19
<PAGE>
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 porfolio securities may trade and the NAV
of the Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund
are described in the Prospectus. Methods of obtaining reduced sales charges
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares
of the Fund, the investor is entitled to cumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Fund owned by the investor, or if Investor Services is notified by the
investor's dealer or the investor at the time of the purchase, the cost of the
Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his spouse and their children under the age of 21, purchasing
securities for his or their own account, (b) a trustee or other fiduciary
purchasing for a single trust, estate or fiduciary account and (c) certain
groups of four or more individuals making use of salary deductions or similar
group methods of payment whose funds are combined for the purchase of mutual
fund shares. Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Investor Services or
a Selling Broker's representative.
Without Sales Charges. As described in the Prospectus, Class A shares of the
Fund may be sold without a sales charge to certain persons described in the
Prospectus.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or current account value of the Class A shares already
held by such person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Prospectus) also are available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares of
the Fund and shares of all other John Hancock funds which carry a sales charge.
Letter of Intention. The reduced sales charges are also applicable to
investments made over a specified period pursuant to a Letter of Intention (the
"LOI"), which should be read carefully prior to its execution by an investor.
The Fund offers two options regarding the specified period for making
investments under the LOI. All investors have the option of making their
investments over a specified period of thirteen (13) months. Investors who are
using the Fund as a funding medium for a qualified retirement plan, however, may
opt to make the necessary investments called for by the LOI over a forty-eight
(48) month period. These qualified retirement plans include group IRA, SEP,
SARSEP, TSA, 401(k), and 457 plans. Such an investment (including
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<PAGE>
accumulations and combinations) must aggregate $50,000 or more invested during
the specified period from the date of the LOI or from a date within ninety
(90) days prior thereto, upon written request to Investor Services. The sales
charge applicable to all amounts invested under the LOI is computed as if the
aggregate amount intended to be invested had been invested immediately. If
such aggregate amount is not actually invested, the difference in the sales
charge actually paid and the sales charge payable had the LOI not been in
effect is due from the investor. However, for the purchases actually made
within the specified period the sales charge applicable will not be higher
than that which would have applied (including accumulations and combinations)
had the LOI been for the amount actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient shares
(approximately 5% of the aggregate) to make up any difference in sales charges
on the amount intended to be invested and the amount actually invested, until
such investment is completed within the specified period, at which time the
Class A escrow shares will be released. If the total investment specified in the
LOI is not completed, the shares held in escrow may be redeemed and the proceeds
used as required to pay such sales charge as may be due. By signing the LOI, the
investor authorizes Investor Services to act as his attorney-in-fact to redeem
any escrowed Class A shares and adjust the sales charge, if necessary. A LOI
does not constitute a binding commitment by an investor to purchase, or by the
Fund to sell, any additional Class A shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share
without the imposition of an initial sales charge so that the Fund will receive
the full amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. Accordingly, no CDSC will be imposed on increases in
account value above the initial purchase prices, including Class B shares
derived from reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years
from the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
Proceeds from the CDSC are paid to John Hancock Funds and are used in
whole or in part by John Hancock Funds to defray its expenses related to
providing distribution-related services to the Fund in connection with the sale
of the Class B shares, such as the payment of compensation to select Selling
Brokers for selling Class B shares. The combination of the CDSC and the
distribution and service fees facilitates the ability of the Fund to sell the
Class B shares without a sales charge being deducted at the time of the
purchase. See the Prospectus for additional information regarding the CDSC.
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SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion he would incur a brokerage charge. Any such
securities would be valued for the purposes of making such payment at the same
value as used in determining net asset value. The Fund has, however, elected to
be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the
Fund must redeem its shares for cash except to the extent that the redemption
payments to any shareholder during any 90-day period would exceed the lesser of
$250,000 or 1% of the Fund's net asset value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. As described more fully in the Prospectus, the Fund permits
exchanges of shares of any class of the Fund for shares of the same class in any
other John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Prospectus, the Fund
permits the establishment of a Systematic Withdrawal Plan. Payments under this
plan represent proceeds arising from the redemption of Fund shares. Since the
redemption price of the Fund shares may be more or less than the shareholder's
cost, depending upon the market value of the securities owned by the Fund at the
time of redemption, the distribution of cash pursuant to this plan may result in
realization of gain or loss for purposes of Federal, state and local income
taxes. The maintenance of a Systematic Withdrawal Plan concurrently with
purchases of additional Class A or Class B shares of the Fund could be
disadvantageous to a shareholder because of the initial sales charge payable on
purchases of Class A shares and the CDSC imposed on redemptions of Class B
shares and because redemptions are taxable events. Therefore, a shareholder
should not purchase Class A or Class B shares at the same time that a Systematic
Withdrawal Plan is in effect. The Fund reserves the right to modify or
discontinue the Systematic Withdrawal Plan of any shareholder on 30 days' prior
written notice to such shareholder, or to discontinue the availability of such
plan in the future. The shareholder may terminate the plan at any time by giving
proper notice to Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is explained
fully in the Prospectus. The program, as it relates to automatic investment
checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic
Accumulation Program may be revoked by Investor Services without prior notice if
any investment is not honored by the shareholder's bank. The bank shall be under
no obligation to notify the shareholder as to the non-payment of any drafts.
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The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the due date of any investment.
Reinvestment Privilege. A shareholder who has redeemed shares of the Fund may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
the Fund or in any other John Hancock mutual 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 another John Hancock mutual
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. The Fund may modify or terminate the reinvestment privilege at any time.
A redemption or exchange of shares of the Fund 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 shares of the Fund will be treated for tax purposes as described
under the caption "Tax Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and
supervision of the Fund. The Declaration of Trust permits the Trustees to issue
an unlimited number of full and fractional shares of beneficial interest of the
Fund without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this Statement
of Additional Information, the Trustees have authorized shares of the Fund and
two other series. Additional series may be added in the future. The Declaration
of Trust also authorizes the Trustees to classify and reclassify the shares of
the Fund, or any other series of the Trust, into one or more classes. As of the
date of this Statement of Additional Information, the Trustees have authorized
the issuance of two classes of shares of the Fund, designated as Class A and
Class B.
Class A and Class B shares of each class of the Fund represent an equal
proportionate interest in the aggregate net assets attributed to that class of
the Fund. The holders of Class A and Class B shares each have certain exclusive
voting rights on matters relating to their respective Rule 12b-1 distribution
plans. The different classes of the Fund may bear different expenses relating to
the cost of holding shareholder meetings necessitated by the exclusive voting
rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except that (i) Class B shares will pay higher distribution
and service fees than Class A shares and (ii) each of Class A shares and Class B
shares will bear any class expenses properly allocable to such class of
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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 the class of shares purchased. In the event of
liquidation, shareholders are entitled to share pro rata in proportion to the
net asset value of the shares 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, by the
Trust, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration
of Trust, the Trust has no intention of holding annual meetings of shareholders.
Trust shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust
could, under certain circumstances, be held personally liable for acts or
obligations of the trust. However, the Fund's Declaration of Trust contains an
express disclaimer of shareholder liability for acts, obligations or affairs of
the Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. Liability is therefore
limited to circumstances in which the Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate
entity for tax purposes. The Fund has qualified and elected to be treated as a
"regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"), and intends to continue to so qualify for each
taxable year. As such and by complying with the applicable provisions of the
Code regarding the sources of its income, the timing of its distributions and
the diversification of its assets, the Fund will not be subject to Federal
income tax on taxable income (including net realized capital gains) which is
distributed to shareholders at least annually in accordance with the timing
requirments of the Code.
The Fund will be subject to a four percent nondeductible Federal excise
tax on certain amounts not distributed (and not treated as having been
distributed) on a timely basis in accordance with annual minimum distribution
requirements. The Fund intends under normal circumstances to avoid liability for
this tax by satisfying such distribution requirements.
Distributions of net investment income (which includes original issue
discount and market discount income) and any net realized capital gains, as
computed for Federal income tax purposes, will be taxable as described in the
Prospectus whether taken in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
Federal
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income tax purposes in each share so received equal to the amount of cash that
they would have received had they elected to receive the distributions in cash.
Distribution from the Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Prospectus, whether taken in shares or in cash. Distributions,
if any, in excess of E&P will constitute a return of capital, which will first
reduce an investor's tax basis in Fund shares and thereafter (after such basis
is reduced to zero) will generally give rise to capital gains. Shareholders
electing to receive distributions in the form of additional shares will have a
cost basis for Federal income tax purposes in each share so received equal to
the amount of cash that they would have received had they elected to receive the
distribution in cash, dividend by the number of shares received.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
forward foreign currency contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not
directly-related to the Fund's investment in stock or securities may increase
the amount of gain it is deemed to recognize from the sale of certain
investments held for less than three months, which gain is limited under the
Code to less than 30% of its annual gross income, and may under future Treasury
regulations produce income not among the types of "qualifying income" from which
the Fund must derive at least 90% of its annual gross income. If the net foreign
exchange loss for a year treated as ordinary loss under Section 988 were to
exceed the Fund's investment company taxable income computed without regard to
such loss (i.e., all of the Fund's net income other than any excess of net
long-term capital gain over net short-term capital loss) the resulting overall
ordinary loss for such year would not be deductible by the Fund or its
shareholders in future years.
If the Fund invests in stock of certain non-U.S. corporations that receive
at least 75% of their annual gross income from passive sources (such as
interest, dividends, rents, royalties or capital gain) or hold at least 50% of
their assets in investments producing such passive income ("passive foreign
investment companies"), the Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" received from 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. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election would require the Fund to
recognize taxable income or gain without the concurrent receipt of cash. The
Fund may limit and/or manage its holdings in passive foreign investment
companies to minimize its tax liability or maximize its return from these
investments.
The amount of net realized capital gains, if any, in any given year will
result from sales of securities made with a view to the maintenance of a
portfolio believed by the Fund's management to be most likely to attain the
Fund's objectives. Such sales, and any resulting gains or losses, may therefore
vary considerably from year to year. At the time of an investor's purchase of
shares of the Fund, a portion of the purchase price is often attributed to
realized or unrealized appreciation in the Fund's portfolio or undistributed
taxable income of the Fund. Consequently, subsequent
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distributions on those shares 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 (or
portions thereof) in reality represent a return of a portion of the purchase
price.
Upon a redemption of shares (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon his basis in his shares. This gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's hands
and will be long-term or short-term, depending upon the shareholder's tax
holding period for the shares. A sales charge paid in purchasing Class A shares
of the Fund cannot be taken into account for purposes of determining gain or
loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent Class A shares of the Fund or another John Hancock fund
are subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the Class A shares subsequently
acquired. Also, any loss realized on a redemption or exchange may be disallowed
to the extent the shares disposed of are replaced with other shares of the Fund
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of, such as pursuant to automatic the dividend
reinvestments. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss. Any loss realized upon the redemption of shares
with a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
Although its present intention is to distribute all net capital gains
annually, 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 long-term capital gains realized in any
year to the extent that a capital loss is carried forward from prior years
against such gain. To the extent such excess was retained and not exhausted by
the carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Each shareholder would be treated for
Federal income tax purposes as if the Fund had distributed to him on the last
day of its taxable year his pro rata share of such excess, and he had paid his
pro rata share of the taxes paid by the Fund and reinvested the remainder in the
Fund. Accordingly, each shareholder would (a) include his pro rata share of such
excess as long-term capital gain income in his tax return for his taxable year
in which the last day of the Fund's taxable year falls, (b) be entitled either
to a tax credit on his return for, or to a refund of, his pro rata share of the
taxes paid by the Fund, and (c) be entitled to increase the adjusted tax basis
for his shares in the Fund by the difference between his pro rata share of such
excess and his pro rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a
net capital loss in any year to offset net capital gains, if any, during the
eight years following the year of the loss. To the extent subsequent net capital
gains are offset by such losses, they would not result in Federal income tax
liability to the Fund and, as noted above, would not be distributed as such to
shareholders. Presently, there are no realized capital loss carry forward to
offset future net realized capital gains.
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For purposes of the dividends-received deduction available to
corporations, dividends received by the Fund from U.S. domestic corporations in
respect of the stock of such corporations held by the Fund, for U.S. Federal
income tax purposes, for at least 46 days (91 days in the case of certain
preferred stock) and distributed and designated by the Fund may be treated as
qualifying dividends. Corporate shareholders must meet the minimum holding
period requirement stated above (46 or 91 days) with respect to their shares of
the Fund in order to qualify for the deduction and, if they borrow to acquire
such shares, may be denied a portion of the dividends received deduction. The
entire qualifying dividend, including the otherwise-deductible amount, will be
included in determining the excess (if any) of a corporate shareholder's
adjusted current earnings over its alternative minimum taxable income, which may
increase its alternative minimum tax liability, if any. Additionally, any
corporate shareholder should consult its tax adviser regarding the possibility
that its tax basis in its shares may be reduced, for Federal income tax
purposes, by reason of "extraordinary dividends" received with respect to the
shares, for the purpose of computing its gain or loss on redemption or other
disposition of the shares.
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 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 United States may reduce or eliminate such
taxes. Because more than 50% of the Fund's total assets at the close of any
taxable year will not consist of stock or securities of foreign corporations,
the Fund will not be able to pass such taxes through to its shareholders, who in
consequence will not be able to include any portion of such taxes in their
incomes and will not be entitled to tax credits or deductions with respect to
such taxes. However, the Fund will be entitled to deduct such taxes in
determining the amounts it must distribute in order to avoid Federal income tax.
The foregoing discussion relates solely to U.S. Federal income tax laws
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 these laws.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distirbutions from, the Fund in particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their Fund investment is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividends from the Fund and, unless an effective IRS Form W-8 or
authorized substitute is on file, to 31% backup withholding on cerrtain other
payments from the Fund. Non-
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U.S. investors should consult their tax advisers regarding such treatment
and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Fund qualifies as a regulated investment company under
the Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
The 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, if applicable) on the last day of the period,
according to the following standard formula:
(Graphic)
Yield = 2 ([(a minus b divided by cd) + 1] to the sixth power minus 1)
(End graphic)
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the period that
would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period (NAV
where applicable).
The annualized yield for the 30-day period ended May 31, 1995 for the
Class A and Class B shares was 4.84% and 4.55%. The total return for one year
May 31, 1995 for Class A and Class B shares was (2.65%) and (3.31%),
respectively.
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The Fund's total return is computed by finding the average annual
compounded rate of return over the 1 year, 5 year and 10 year periods that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
(Graphic)
T = (the nth root of ERV/P) minus 1
(End graphic)
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 life of fund periods.
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
load 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 5.0% sales charge
on Class A shares or the CDSC on Class B shares into account. Excluding the
Fund's sales charge on Class A shares and the CDSC on Class B shares from a
total return calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper - Mutual Performance Analysis," a monthly publication
which tracks net assets, total return and yield on more than 1,000 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 may also be
utilized.
The performance of the Fund is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of the
Fund for any period in the future. The performance of the Fund is a function of
many factors including its earnings, expenses and
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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 officers of the Trust
pursuant to recommendations made by an investment committee of the Adviser,
which consists of officers and directors of the Adviser and affiliates and
officers and Trustees who are interested persons of the Fund. Orders for
purchases and sales of securities are placed in a manner which, in the opinion
of the officers of the Trust, will offer the best price and market for the
execution of each such transaction. Purchases from underwriters of portfolio
securities may include a commission or commissions paid by the issuer and
transactions with dealers serving as market makers reflect a "spread". Debt
securities are generally traded on a net basis through dealers acting for their
own account as principals and not as brokers; no brokerage commissions are
payable on such transactions.
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 other policies that 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 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 Trust'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 period ended
February 1, 1994 to May 31, 1994 and the year ended May 31, 1995, the Fund paid
negotiated brokerage commissions in the amount of $2,492 and $189,605.
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
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that transaction. This practice is subject to a good faith determination by the
Trustees that the commission is reasonable in light of the services provided and
to policies that the Trustees may adopt from time to time. During the fiscal
year ended May 31, 1995, the Fund did not pay commissions as compensation to any
brokers for research services such as as industry, economic and company reviews
and evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc. ("Distributors"), a broker-dealer
and John Hancock Freedom Securities Corporation and its two broker-dealer
subsidiaries, Tucker Anthony Incorporated ("Tucker Anthony") and Sutro &
Company, Inc. ("Sutro"), (each, are "Affiliated Brokers"). Pursuant to
procedures determined by the Trustees and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio transactions with or
through Tucker Anthony, Sutro or Distributors. During the period ending May 31,
1995, the Fund did not execute any portfolio transactions with any Affiliated
Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Trustees believe to be contemporaneously charged by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with an
Affiliated Broker if the Fund would have to pay a commission rate less favorable
than the Affiliated Broker's contemporaneous charges for comparable transactions
for its other most favored, but unaffiliated, customers except for accounts for
which the Affiliated Broker acts as clearing broker for another brokerage firm,
and any customers of the Affiliated Broker not comparable to the Fund as
determined by a majority of the Trustees who are not "interested persons" (as
defined in the Investment Company Act) of the Fund, the Adviser or the
Affiliated Broker. Because the Adviser, which is affiliated with the Affiliated
Brokers, has, as an investment adviser to the Fund, the obligation to provide
investment management services, which include elements of research and related
investment skills, such research and related skills will not be used by the
Affiliated Broker as a basis for negotiating commissions at a rate higher than
that determined in accordance with the above criteria. The Fund will not effect
principal transactions with Affiliated Brokers.
TRANSFER AGENT SERVICES
John Hancock Investor ServicesCorporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly owned indirect subsidiary of the Life Insurance Company, is
the transfer and dividend paying agent for the Fund. The Fund pays Investor
Services an annual fee for Class A shares of $20.00 per shareholder account and
for Class B shares of $22.50 per shareholder account, plus certain out of pocket
expenses.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian
agreement between the Trust and Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts 02110. Under the custodian agreement, Investors
Bank & Trust Company performs custody, portfolio and fund accounting services.
31
<PAGE>
INDEPENDENT AUDITORS
The independent auditors of the Fund are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts 02110. Price Waterhouse audits and renders an
opinion of the Fund's annual financial statements and reviews the Fund's annual
Federal income tax return.
32
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $33,147,718)................................................................ $35,091,485
Preferred stocks (cost - $7,626,596).............................................................. 7,858,823
Bonds (cost - $4,992,674)......................................................................... 5,259,689
Short-term investments (cost - $2,728,953)........................................................ 2,728,953
----------
50,938,950
Receivable for shares sold.......................................................................... 444,735
Receivable for investments sold..................................................................... 6,310,819
Dividends receivable................................................................................ 281,557
Interest receivable................................................................................. 158,552
Receivable from John Hancock Advisers, Inc. and affiliates - Note B................................. 6,684
Deferred organization expenses - Note A............................................................. 31,186
----------
Total Assets..................................................................... 58,172,483
-----------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased................................................................... 548,550
Accounts payable and accrued expenses............................................................... 51,241
----------
Total Liabilities................................................................ 599,791
-----------------------------------------------------------------------------------------------
NET ASSETS:
Capital paid-in..................................................................................... 54,731,670
Accumulated net realized loss on investments and foreign currency transactions...................... ( 3,141)
Net unrealized appreciation of investments and foreign currency transactions........................ 2,447,025
Undistributed net investment income................................................................. 397,138
----------
Net Assets....................................................................... $57,572,692
===============================================================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares authorized
with no par value)
Class A - $19,229,055/2,268,646..................................................................... $ 8.48
==================================================================================================================
Class B - $38,343,637/4,537,307..................................................................... $ 8.45
==================================================================================================================
MAXIMUM OFFERING PRICE PER SHARE *
Class A - ($8.48 x 105.26%)......................................................................... $ 8.93
==================================================================================================================
<FN>
* On single retail sales of less than $50,000. On sales of $50,000 or more and on group sales the offering price
is reduced.
</FN>
</TABLE>
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON MAY 31, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF THAT
DATE.
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
<TABLE>
STATEMENT OF OPERATIONS
Year ended May 31, 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $6,659).............................................. $1,653,059
Interest............................................................................................ 473,616
---------
2,126,675
---------
Expenses:
Investment management fee - Note B................................................................ 233,229
Distribution/service fee - Note B
Class A...................................................................................... 37,214
Class B...................................................................................... 209,138
Registration and filing fees...................................................................... 61,858
Transfer agent fee - Note B
Class A...................................................................................... 29,758
Class B...................................................................................... 44,249
Custodian fee..................................................................................... 40,998
Auditing fee...................................................................................... 19,250
Printing.......................................................................................... 15,425
Organization expense - Note A..................................................................... 7,930
Legal fees........................................................................................ 3,718
Trustees' fees.................................................................................... 3,184
Miscellaneous..................................................................................... 746
---------
Total Expenses................................................................... 706,697
Less Expenses Reimbursable by John Hancock Advisers, Inc. - Note B............... ( 219,747)
-----------------------------------------------------------------------------------------------
Net Expenses..................................................................... 486,950
-----------------------------------------------------------------------------------------------
Net Investment Income............................................................ 1,639,725
-----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS:
Net realized loss on investments sold............................................................... ( 662)
Net realized gain on foreign currency transactions.................................................. 2,094
Change in net unrealized appreciation/depreciation of investments................................... 2,462,185
Change in net unrealized appreciation/depreciation of foreign currency transactions................. 4,016
---------
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions 2,467,633
-----------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations............................. $4,107,358
===============================================================================================
</TABLE>
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD
FEBRUARY 1, 1994
(COMMENCEMENT TO
YEAR ENDED OPERATIONS) TO
MAY 31, 1995 MAY 31, 1994
------------ ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income...................................................... ................ $1,639,725 $ 9,226
Net realized gain (loss) on investments sold and foreign currency transactions.............. 1,432 (2,479)
Change in net unrealized appreciation/depreciation of investments and foreign currency
transactions................................................................................ 2,466,201 (19,176)
----------- -----------
Net Increase (Decrease) in Net Assets Resulting from Operations............................ 4,107,358 (12,429)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income
Class A - ($0.3401 and none per share, respectively)....................................... (493,188) --
Class B - ($0.2988 and none per share, respectively)....................................... (767,459) --
----------- -----------
Total Distributions to Shareholders.......................................................... (1,260,647) --
----------- -----------
FROM FUND SHARE TRANSACTIONS-- NET*........................................................... 53,500,247 738,138
----------- -----------
NET ASSETS:
Initial investment by John Hancock Advisers, Inc............................................. -- 500,025
Beginning of period.......................................................................... 1,225,734 --
----------- -----------
End of period (including undistributed net investment income of $397,138 and $9,226,
respectively).............................................................................. $57,572,692 $ 1,225,734
=========== ===========
* ANALYSIS OF FUND SHARE TRANSACTIONS:
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD FEBRUARY 1, 1994
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
MAY 31, 1995 TO MAY 31, 1994
------------------------ -------------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
CLASS A
Shares sold.................................................... 3,085,752 $24,890,175 38,746 $ 318,718
Shares issued to shareholders in reinvestment of distributions. 49,990 400,435 -- --
--------- ----------- ------ ----------
3,135,742 25,290,610 38,746 318,718
Less shares repurchased........................................ (961,612) (7,849,867) (3,056) (25,865)
Initial investment by John Hancock Advisers, Inc............... -- -- 58,826 500,025
--------- ----------- ------ ----------
Net increase................................................... 2,174,130 $17,440,743 94,516 $ 792,878
========= =========== ====== ==========
CLASS B
Shares sold.................................................... 4,745,699 $38,182,620 53,975 $ 445,285
Shares issued to shareholders in reinvestment of distributions. 79,202 633,888 -- --
--------- ----------- ------ ----------
4,824,901 38,816,508 53,975 445,285
Less shares repurchased........................................ (341,569) ( 2,757,004) -- --
--------- ----------- ------ ----------
Net increase................................................... 4,483,332 $36,059,504 53,975 $ 445,285
========= =========== ====== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are as
follows:
- ---------------------------------------------------------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 1, 1994
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
MAY 31, 1995 TO MAY 31, 1994
------------ -------------------------------
<S> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................................... $ 8.26 $ 8.50
------- -------
Net Investment Income.......................................................... 0.44(b) 0.12(b)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
Transactions.................................................................. 0.12 (0.36)
------- -------
Total from Investment Operations............................................. 0.56 ( 0.24)
------- -------
Less Distributions:
Dividends from Net Investment Income........................................... (0.34) --
------- -------
Net Asset Value, End of Period................................................. $ 8.48 $ 8.26
======= =======
Total Investment Return at Net Asset Value..................................... 7.10% ( 2.82%)
Total Adjusted Investment Return at Net Asset Value (a)(c)..................... 6.44% (13.89%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)...................................... $19,229 $ 781
Ratio of Expenses to Average Net Assets **..................................... 1.04% 1.00%*
Ratio of Adjusted Expenses to Average Net Assets (a)........................... 1.70% 12.07%*
Ratio of Net Investment Income to Average Net Assets........................... 5.39% 4.53%*
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (a)....... 4.73% (6.54%)*
Portfolio Turnover Rate........................................................ 98% 6%
** Fee Reduction Per Share..................................................... $ 0.05(b) $ 0.27(b)
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIODS INDICATED: THE NET INVESTMENT INCOME, GAINS
(LOSSES), DISTRIBUTIONS, AND TOTAL INVESTMENT RETURN OF THE FUND. IT SHOWS HOW
THE FUND'S NET ASSET VALUE FOR A SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS
PERIOD. ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN
THE FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
FOR THE PERIOD FEBRUARY 1, 1994
YEAR ENDED (COMMENCEMENT OF OPERATIONS)
MAY 31, 1995 TO MAY 31, 1994
------------ -------------------------------
<S> <C> <C>
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period............................................. $ 8.25 $ 8.50
------- -------
Net Investment Income............................................................ 0.38(b) 0.08(b)
Net Realized and Unrealized Gain (Loss) on Investments and Foreign Currency
Transactions 0.12 (0.33)
------- -------
Total from Investment Operations............................................... 0.50 (0.25)
------- -------
Less Distributions:
Dividends from Net Investment Income............................................. (0.30) --
------- -------
Net Asset Value, End of Period................................................... $ 8.45 $ 8.25
======= =======
Total Investment Return at Net Asset Value....................................... 6.31% ( 2.94%)
Total Adjusted Investment Return at Net Asset Value (a)(c)....................... 5.65% (14.01%)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)........................................ $38,344 $ 445
Ratio of Expenses to Average Net Assets **....................................... 1.71% 1.72%*
Ratio of Adjusted Expenses to Average Net Assets (a)............................. 2.37% 12.79%*
Ratio of Net Investment Income to Average Net Assets............................. 4.64% 4.20%*
Ratio of Adjusted Net Investment Income (Loss) to Average Net Assets (a)......... 3.98% ( 6.87%)*
Portfolio Turnover Rate.......................................................... 98% 6%
** Fee Reduction Per Share....................................................... $ 0.05(b) $ 0.27(b)
<FN>
* On an annualized basis.
(a) Net of any fee reductions.
(b) On average month end shares outstanding.
(c) Unaudited.
</FN>
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY
UTILITIES FUND ON MAY 31, 1995. IT'S DIVIDED INTO FOUR MAIN CATEGORIES:COMMON
STOCKS, PREFERRED STOCKS, BONDS AND SHORT-TERM INVESTMENTS. SHORT-TERM
INVESTMENTS, WHICH REPRESENT THE FUND'S "CASH" POSITION, ARE LISTED LAST.
<TABLE>
SCHEDULE OF INVESTMENTS
May 31, 1995
- --------------------------------------------------------------------------------------
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
<S> <C> <C>
COMMON STOCKS
DIVERSIFIED OPERATIONS (0.67%)
Tenneco, Inc................................... 8,000* $ 384,000
-----------
FINANCE (1.98%)
Student Loan Marketing Association 24,000* 1,140,000
-----------
OIL & GAS (5.62%)
Enron Corp..................................... 30,000* 1,095,000
Global Marine, Inc.**.......................... 16,000* 86,000
Occidental Petroleum Corp...................... 50,000 1,150,000
Panhandle Eastern Corp......................... 13,500* 339,187
Sonat, Inc..................................... 17,250* 567,094
-----------
3,237,281
-----------
UTILITIES (52.68%)
Baltimore Gas & Electric Co.................... 21,000* 546,000
BCE, Inc. (Canada)............................. 24,600* 771,825
Bell Atlantic Corp............................. 14,750* 822,313
Boston Edison Co............................... 27,500 711,563
California Water Service Co.................... 20,000* 640,000
Carolina Power & Light Co...................... 26,500* 791,687
Central & South West Corp...................... 42,600* 1,096,950
Central Costanera S.A., American
Depositary Receipt ("ADR") (Argentina)....... 37,000* 1,073,200
Central Hudson Gas & Electric.................. 16,500* 447,563
Citizens Utilities Co. (Class B)............... 46,360* 504,166
CMS Energy Corp................................ 45,860 1,106,373
Commonwealth Energy System Cos................. 7,400* 292,300
Connecticut Energy Corp........................ 4,800 94,200
Connecticut Water Service, Inc................. 26,400 646,800
Consumers Water Co............................. 13,000 191,750
Delmarva Power & Light Co...................... 25,000* 503,125
Detroit Edison Co.............................. 28,000 843,500
Dominguez Services Corp........................ 11,000* 189,750
Eastern Utilities Association.................. 42,000* 971,250
Empire District Electric Co.................... 12,300* 209,100
Empresa Nacional De Electricidad,
ADR (Spain).................................. 14,000* 675,500
FPL Group, Inc................................. 13,950 547,537
General Public Utilities Corp.................. 35,875 1,076,250
GTE Corp....................................... 14,700 490,613
Illinova Corp.................................. 13,240 327,690
IPALCO Enterprises, Inc........................ 21,500* 704,125
KU Energy Corp................................. 13,000* 359,125
Middlesex Water Co............................. 15,000* 240,000
National Fuel Gas Co........................... 21,600* 623,700
National Power PLC, ADR (United Kingdom)....... 25,000* 318,750
New England Electric System.................... 31,600* 1,090,200
Ohio Edison Co................................. 35,000* 765,625
PacifCorp...................................... 42,600* 841,350
Peco Energy Co................................. 31,700 891,563
Philadelphia Suburban Corp..................... 15,000* 271,875
Piedmont Natural Gas Co., Inc.................. 5,000* 101,875
Pinnacle West Capital Corp..................... 31,800* 731,400
Portland General Corp.......................... 22,550 513,012
Providence Energy Corp......................... 7,200 117,000
Public Service Co. Of NM**..................... 54,000* 769,500
Public Service Enterprise Group, Inc........... 26,000* 773,500
SBC Communications, Inc.
(formerly Southwestern Bell Corp.)........... 575 25,875
Shandong Huaneng Power Co. Ltd.,
ADR (China).................................. 80,000* 590,000
Southern Co.................................... 40,200 889,425
Telefonica de Argentina S.A., ADR (Argentina).. 3,800* 101,650
Telefonica De Espana, ADR (Spain).............. 3,000* 120,000
Unicom Corp.................................... 5,950 162,137
United Cities Gas Co........................... 22,300 345,650
United Water Resources, Inc.................... 43,200* 572,400
US West, Inc................................... 22,000* 907,500
Western Resources, Inc......................... 36,800* 1,159,200
Wicor, Inc..................................... 15,100 424,687
WPS Resources Corp............................. 11,900* 348,075
-----------
30,330,204
-----------
TOTAL COMMON STOCKS
(Cost $33,147,718) (60.95%) 35,091,485
------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
<TABLE>
<CAPTION>
ISSUER, DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------- ---------------- ------------
<S> <C> <C>
PREFERRED STOCKS
OIL & GAS (3.53%)
Enron Capital LLC, 8.00%, Gtd MIPS............ 26,500 $ 642,625
Lasmo PLC, 10.00%, American Depositary
Shares, Ser A (United Kingdom).............. 57,000 1,389,375
----------
2,032,000
----------
UTILITIES (10.12%)
Commonwealth Edison Co., $2.425............... 5,000* 136,875
Commonwealth Edison Co., $8.40, Ser A......... 450 43,425
Commonwealth Edison Co., $8.40, Ser B......... 7,137* 714,592
Commonwealth Energy System Cos.,
4.80%, Ser A................................ 4,700* 368,950
Connecticut Light & Power Capital Corp.,
9.30%, Ser A................................ 20,000* 520,000
GTE Florida, Inc., 8.16%...................... 10,000* 1,027,500
Gulf States Utilities Co., $9.96.............. 2,955* 291,806
Illinios Power Co., 8.00%, Ser J.............. 10,000* 472,500
Indianapolis Power & Light Co., 8.20%......... 8,000* 812,000
Long Island Lighting Co., 7.95%, Ser AA....... 5,000* 120,625
MCN Michigan LTD Partnership, 9.375%,
Ser A....................................... 30,000* 802,500
Northern States Power Co. of MN,
Adjustable Rate Preferred, Ser A............ 200 17,300
Sprint Corp., 8.25%, DECS..................... 15,000* 498,750
----------
5,826,823
----------
TOTAL PREFERRED STOCKS
(Cost $7,626,596) (13.65%) 7,858,823
------ ----------
</TABLE>
<TABLE>
<CAPTION>
S&P
INTEREST RATING PARVALUE
RATE (UNAUDITED) (OOO'S OMITTED)
-------- ----------- ---------------
<S> <C> <C> <C> <C>
BONDS
UTILITIES (9.14%)
Electricity Corp. of
New Zealand,
Deb 06-15-96
(New Zealand)#.......... 10.00% AA- 4,800* 3,232,189
Financiera
Energetica Nacional
S.A., Deb 11-08-99
(Colombia) (Y).......... 9.00 BBB- 2,000* 2,027,500
----------
TOTAL BONDS
(Cost $4,992,674) (9.14%) 5,259,689
------ ----------
</TABLE>
<TABLE>
<CAPTION>
INTEREST PAR VALUE
ISSUER, DESCRIPTION RATE (OOO'S OMITTED) MARKET VALUE
- ------------------- -------- --------------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (4.65%)
Investment in a joint repurchase
agreement transaction
with BT Securities Corp. -
Dated 05-31-95, Due 06-01-95
(secured by U.S. Treasury Bonds,
13.25% due 05-15-14, 11.25%
due 02-15-15, 9.125%
due 05-15-09, and U.S.
Treasury Note 6.75%
due 05-31-97) - Note A.............. 6.15% $2,678 $ 2,678,000
-----------
CORPORATE SAVINGS ACCOUNT (0.09%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00% 50,953
-----------
TOTAL SHORT-TERM INVESTMENTS (4.74%) 2,728,953
------ -----------
TOTAL INVESTMENTS (88.48%) $50,938,950
====== ===========
<FN>
* Securities, other than short-term investments, newly added to the portfolio
during the year ended May 31, 1995.
** Non-income producing security.
# Par value of foreign bonds is expressed in local currency, as shown
parenthetically in security description.
(Y) Parenthetical disclosure of a foreign country in the security description
represents country of foreign issuer, however, security is U. S. dollar
denominated.
</FN>
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
NOTE A --
ACCOUNTING POLICIES
John Hancock Strategic Series (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. The Trust consists
of three series portfolios: John Hancock Utilities Fund (the "Fund"), John
Hancock Strategic Income Fund and John Hancock Independence Diversified Core
Equity Fund.
The Trustees have authorized the issuance of two classes of shares of the
Fund designated as Class A and Class B shares. The shares of each class
represent an interest in the same portfolio of investments of the Fund and have
equal rights to voting, redemption, dividends, and liquidation, except that
certain expenses, subject to the approval of the Trustees, may be applied
differently to each class of shares in accordance with current regulations of
the Securities and Exchange Commission and the Internal Revenue Service.
Shareholders of a class which bears distribution/service expenses under the
terms of a distribution plan, have exclusive voting rights regarding such
distribution plan. Significant accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. Additionally, net capital losses of $4,131 attributable to security
transactions incurred after October 31, 1994 are treated as arising on the first
day (June 1, 1995) of the Fund's next taxable year.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date. Interest income on investment securities is
recorded on the accrual basis. Foreign income may be subject to foreign
withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles. Dividends paid by the Fund with respect to each class of
shares will be calculated in the same manner, at the same time and will be in
the same amount, except for the effect of expenses that may be applied
differently to each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Utilities Funds
daily to each class of shares based on the appropriate net assets of the
respective classes. Distribution/service fees if any, are calculated daily at
the class level based on the appropriate net assets of each class and the
specific expense rate(s) applicable to each class.
FOREIGN CURRENCY TRANSLATION All assets and liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/loss on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities, resulting
from changes in the exchange rate.
DEFERRED ORGANIZATION EXPENSES Expenses incurred in connection with the
organization of the Fund have been capitalized and are being charged to the
Fund's operations ratably over a five-year period that began with the
commencement of investment operations of the Fund.
NOTE B --
MANAGEMENT FEE AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to the sum of (a) 0.70% of the first $250,000,000 of the
Fund's average daily net asset value and (b) 0.65% of the Fund's average daily
net asset value in excess of $250,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess, and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000, and 1.5% of
the remaining average daily net asset value.
Additionally, the Adviser has agreed to limit the Fund's expenses, including
the management fee (but not including the transfer agent fee and the 12b-1 fee)
to 0.50% of the Fund's average daily net assets. Accordingly, for the period
ended May 31, 1995, the reduction in the Fund's expenses collectively with any
additional amounts not borne by the Fund by virtue of the expense limit amounted
to $219,747.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly owned subsidiary of the Adviser. Prior to January 1, 1995, JH
Funds was known as John Hancock Broker Distribution Services. For the year ended
May 31, 1995, JH Funds received net sales charges of $689,761 with regard to
sales of Class A shares. Out of this amount, $103,857 was retained and used for
printing prospectuses, advertising, sales literature and other purposes,
$351,876 was paid as sales commissions and service fees to unrelated
broker-dealers and $234,028 was paid as sales commissions and service fees to
sales personnel of John Hancock Distributors, Inc. ("Distributors"), Tucker
Anthony, Incorporated ("Tucker Anthony") and Sutro & Co., Inc. ("Sutro"), all of
which are broker-dealers. The Adviser's indirect parent, John Hancock Mutual
Life Insurance Company, is the indirect sole shareholder of Distributors and
John Hancock Freedom Securities Corporation and its subsidiaries, which include
Tucker Anthony and Sutro.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
Class B shares redeemed within six years of purchase will be subject to a
contingent deferred sales charge ("CDSC") at declining rates beginning at 5.0%
of the lesser of the current market value at the time of redemption or the
original purchase cost of the shares being redeemed. Proceeds from the CDSC are
paid to JH Funds and are used in whole or in part to defray its expenses related
to providing distribution related services to the Fund in connection with the
sale of Class B shares. For the year ended May 31, 1995 contingent deferred
sales charges received by JH Funds amounted to $63,972.
In addition, to compensate JH Funds for the services it provides as
distributor of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B shares pursuant to Rule 12b-1 under the
Investment Company Act of 1940. Accordingly, the Fund will make payments to JH
Funds for distribution and service expenses at an annual rate not to exceed
0.30% of Class A average daily net assets and 1.00% of Class B average daily net
assets to reimburse JH Funds for its distribution/service costs. Up to a maximum
of 0.25% of these payments may be service fees as defined by the amended Rules
of Fair Practice of the National Association of Securities Dealers. Under the
amended Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1
payments could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corp., ("Investor Services"), a wholly-owned subsidiary of the Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc. Effective January 1, 1995, the Fund pays transfer
agent fees based on transaction volume and the number of shareholder accounts.
Prior to January 1, 1995, the Fund paid Investor Services a monthly transfer
agent fee equivalent, on an annual basis, to 0.20% and 0.22% of the average
daily net asset value, of Class A and Class B shares of the Fund, respectively,
plus out of pocket expenses incurred by Investor Services on behalf of the Fund
for proxy mailings.
Messrs. Edward J. Boudreau, Jr., and Richard S. Scipione are directors and
officers of the Adviser, and its affiliates as well as Trustees of the Fund. The
compensation of unaffiliated Trustees is borne by the Fund. Effective with the
fees paid for 1995, the unaffiliated Trustees may elect to defer for tax
purposes their receipt of this compensation under the John Hancock Group of
Funds Deferred Compensation Plan. The Fund will make investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation liability
will be recorded on the Fund's books as an other asset. The deferred
compensation liability will be marked to market on a periodic basis and income
earned by the investment will be recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than short-term
securities, during the year ended May 31, 1995 aggregated $73,707,288 and
$28,997,280, respectively.
The cost of investments owned at May 31, 1995 (including the short-term
investments) for Federal Income Tax purposes was $48,501,310. Gross unrealized
appreciation and depreciation of investments aggregated $3,021,767, and
$584,127, respectively, resulting in net unrealized appreciation of $2,437,640.
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended May 31, 1995, the Fund has reclassified amounts to reflect
a decrease in capital paid-in of $6,740, an increase in accumulated net
investment loss of $2,094 and an increase in accumulated net investment income
of $8,834. This represents the cumulative amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of May 31,
1995. Additional adjustments may be needed in subsequent reporting periods.
These reclassifications, which have no impact on the net asset value of the
Fund, are primarily attributable to certain differences in the computation of
distributable income and capital gains under federal tax rules versus generally
accepted accounting principles.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
John Hancock Funds - Utilities Fund
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders of John Hancock Utilities Fund and the
Trustees of John Hancock Strategic Series
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments (except for Standard and Poors ratings), and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
John Hancock Utilities Fund (the "Fund") (a portfolio of John Hancock Strategic
Series) at May 31, 1995, the results of its operations for the year then ended,
and the changes in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at May 31,
1995 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Boston, Massachusetts
July 17, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended May 31, 1995.
Shareholders will receive a 1995 U.S. Treasury Department Form 1099-DIV in
January of 1996. This will reflect the total of all distributions which are
taxable for the calendar year 1995.
For the fiscal year ending May 31, 1995, 89% of the ordinary income
distributions qualify for the dividends received deduction.
17
<PAGE>
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in the Registration Statement:
John Hancock Strategic Income Fund
Statements of Assets and Liabilities as of May 31, 1995.
Statements of Operations of the year ended May 31, 1995
Statement of changes in Net Assets for each of the two years ended May 31.
Notes to Financial Statments
Financial Highlights for each of the 10 years ended May 31, 1995.
Schedule of Investments as of May 31, 1995.
John Hancock Utilities Fund
Statements of Assets and Liabilities as of May 31, 1995.
Statements of Operations of the year ended May 31, 1995
Statement of changes in Net Assets for each of the two years ended May 31.
Notes to Financial Statments
Financial Highlights for each of the 10 years ended May 31, 1995.
Schedule of Investments as of May 31, 1995.
John Hancock Independence Diversified Core Equity Fund
Statements of Assets and Liabilities as of May 31, 1995.
Statements of Operations of the year ended May 31, 1995
Statement of changes in Net Assets for each of the two years ended May 31.
Notes to Financial Statments
Financial Highlights for each of the 10 years ended May 31, 1995.
Schedule of Investments as of May 31, 1995.
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit
Index hereto and are incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common control
with Registrant.
Item 26. Number of Holders of Securities
As of July 31, 1995 the number of record holders of shares of Registrant was
as follows:
Number of
Series Title of Class Record Holders
John Hancock Strategic Income Fund Class A Shares 22,231
Class B Shares 6,632
John Hancock Independence Diversified Core
Equity Fund 43
John Hancock Utilities Fund Class A Shares 2,111
Class B Shares 3,951
C-1
<PAGE>
Item 27. Indemnification
(a) 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.
(b) 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 liability or expense incurred in
connection with any matter settled without final adjudication unless such
settlement shall have been approved as in the best interests of the
Insurance Company either by vote of the Board of Directors at a meeting
composed of directors who have no interest in the outcome of such vote, or
by vote of the policyholders. The Insurance Company may pay expenses
incurred in defending an action or claim in advance of its final
disposition, but only upon receipt of an undertaking by the person
indemnified to repay such payment if he should be determined 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."
C-2
<PAGE>
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 28. 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.
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of Independence
Investment Associates, Inc., reference is made to Form ADV (801-18048)
filed under the Investment Advisers Act of 1940, which is incorporated herein
by reference.
Item 29. 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 Fund, John Hancock Capital Growth Fund, John
Hancock Current Interest, John Hancock Series, Inc., John Hancock Tax-Free Bond
Fund, John Hancock California Tax-Free Income Fund, John Hancock Capital Series,
John Hancock Limited Term Government Fund, John Hancock Tax-Exempt Income Fund,
John Hancock Sovereign Investors Fund, Inc., John Hancock Cash Management Fund,
John Hancock Special Equities Fund, John Hancock Sovereign Bond Fund, John
Hancock Tax-Exempt Series, John Hancock Technology Series, Inc., John Hancock
World Fund, John Hancock Investment Trust, John Hancock Institutional Series
Trust, Freedom Investment Trust, Freedom Investment Trust II and Freedom
Investment Trust III.
(b) The following table lists, for each director and officer of John Hancock
Funds, the information indicated.
C-3
<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. Chairman Chairman
101 Huntington Avenue
Boston, Massachusetts
Robert H. Watts Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C. Troy Shaver, Jr. President, Chief None
101 Huntington Avenue Executive Officer and
Boston, Massachusetts Director
Robert G. Freedman Director Vice Chairman, Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President- None
101 Huntington Avenue Sales
Boston, Massachusetts
Thomas H. Drohan Senior Vice President Senior Vice President and
101 Huntington Avenue Secretary
Boston, Massachusetts
James W. McLaughlin Senior Vice President None
101 Huntington Avenue and
Boston, Massachusetts Chief Financial Officer
David A. King Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
C-4
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President and Secretary Vice President,
101 Huntington Avenue Assistant Secretary
Boston, Massachusetts and Compliance Officer
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
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 Goldsmith Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-5
<PAGE>
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Michael T. Carpenter Senior Vice President None
1000 Louisiana Street
Houston, Texas
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
(c) None.
Item 30. Location of Accounts and Records
The Registrant maintains the records required to be maintained by it
under Rules 31a-1(a), 31a-l(b), and 31a-2(a) under the Investment
Company Act of 1940 at 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 offices of Registrant's Transfer Agent and
Custodian.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable
(b) Not applicable
C-6
<PAGE>
(c) Registrant hereby undertakes to furnish each person to whom a prospectus
with respect to a series of the Registrant is delivered with a copy of the
latest annual report to shareholders with respect to that series upon
request and without charge.
(d) Registrant undertakes to comply with Section 16(c) of the Investment
Company Act of 1940, as amended which relates to the assistance to be
rendered to shareholders by the Trustees of the Registrant in calling a
meeting of shareholders for the purpose of voting upon the question of the
removal of a trustee.
C-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
31st day of August, 1995.
JOHN HANCOCK STRATEGIC SERIES
By:/s/Edward J. Boudreau, Jr.
--------------------------
Edward J. Boudreau, Jr.
Chairman
Pursuant to the requirments of the Securities Act of 1933,the
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/Edward J. Boudreau, Jr.
- ------------------------- Chairman
Edward J. Boudreau, Jr. (Principal Executive Officer)
/s/James B. Little
- ------------------------- Senior Vice President and August 31, 1995
James B. Little Chief Financial Officer
(Principal Financial and
Accounting Officer)
Dennis S. Aronowitz*
- ------------------------- Trustee
Dennis S. Aronowitz
Richard P. Chapman, Jr.*
- ------------------------- Trustee
Richard P. Chapman, Jr.
William J. Cosgrove*
- ------------------------- Trustee
William J. Cosgrove
Gail D. Fosler*
- ------------------------- Trustee
Gail D. Fosler
Bayard Henry*
- ------------------------- Trustee
Bayard Henry
Richard S. Scipione*
- ------------------------- Trustee
Richard S. Scipione
Edward J. Spellman*
- ------------------------- Trustee
Edward J. Spellman
*By: /s/Thomas H. Drohan August 31, 1995
--------------------
Thomas H. Drohan
(Attorney-in-Fact)
C-8
<PAGE>
John Hancock Strategic Series
EXHIBIT INDEX
Exhibit No. Exhibit Description
99.B1 Amended and Restated Declaration of Trust of Registrant
dated September 21, 1993*
99.B1.1 Instrument Establishing and Designating John Hancock Utilities Fund
as an Additional Series at the Registrant and Establishing and
Designating Class A and Class B Shares of such Series dated
January 31, 1994.*
99.B1.2 Instrument Establishing and Designating Class A and Class B Shares
of John Hancock Independence Diversified Core Equity Fund dated
May 1, 1995.*
99.B1.3 Amendment to Declaration of Trust dated September 7, 1993.*
99.B2 Amended and Restated By-Laws of Registrant as adopted on
December 8, 1993.*
99.B2.1 Amendment to By-Laws dated December 13, 1994.*
99.B4 Specimen share certificate for the Registrant.*
99.B5 Investment Management Contract between John Hancock Strategic Income
Fund and John Hancock Advisers, Inc. dated January 1, 1994.*
99.B5.1 Investment Management Contract between John Hancock Utilities Fund
and John Hancock Advisers, Inc. dated February 1, 1994.*
99.B5.2 Form of Investment Management Contract between John Hancock
Independence Diversified Core Equity Fund and John Hancock Advisers,
Inc.*
99.B5.3 Form of Sub-Investment Management Contract among John Hancock
Independence Diversified Core Equity Fund, John Hancock Advisers,
Inc. and Independence Investment Associates, Inc.*
99.B6 Distribution Agreement between Registrant and John Hancock Funds,
Inc. (formerly named John Hancock Broker Distribution Services,
Inc.) dated August 1, 1991.*
99.B6.1 Amendment to Distribution Agreement between Registrant and John
Hancock Funds, Inc. dated February 1, 1994.*
99.B6.2 Form of Soliciting Dealer Agreement between John Hancock Funds, Inc.
and Selected Dealers.
99.B6.3 Form of Financial Institution Sales and Service Agreement between
John Hancock Funds, Inc. and Selected Financial Institutions.*
99.B7 None
99.B8 Master Custodian Agreement between John Hancock Mutual Funds
(including Registrant) and Investors Bank & Trust Company dated
December 15, 1992.*
99.B9 Transfer Agency and Service Agreement between Registrant and John
Hancock Investor Service Corporation (formerly named John Hancock
Fund Services, Inc.) dated January 1, 1991.*
99.B9.1 Amendment to Transfer Agency and Service Agreement*
99.B10 None
99.B11 Consent of Independent Auditors
99.B12 Financial Statements of Strategic Income, Utilities and Independence
Diversified Core Equity for the year ended May 31, 1995 filed herein
Part A and Part B.
99.B13 None
99.B14 None
99.B15 Class A Distribution Plan between John Hancock Strategic Income Fund
and John Hancock Funds, Inc.
99.B15.1 Class B Distribution Plan between John Hancock Strategic Income and
John Hancock Funds, Inc.*
99.B15.2 Class A Distribution Plan between John Hancock Utilities Fund and
John Hancock Funds, Inc.*
99.B15.3 Class B Distribution Plan between John Hancock Utilities Fund and
John Hancock Funds, Inc.*
99.B15.4 Class A Distribution Plan between John Hancock Independence
Diversified Core Equity Fund and John Hancock Funds, Inc.*
99.B15.5 Class B Distribution Plan John Hancock Independence Diversified Core
Equity Fund and John Hancock Funds, Inc.*
99.B16 Schedule for Computation of Yield and Total Return.*
99.B17 Powers of Attorney dated May 5, 1987, June 24, 1986, November 15,
1988, October 23, 1990, October 15, 1991 and January 1, 1994.*
99.27.1A Strategic Income
99.27.1B Strategic Income
99.27.2A Utilities Fund
99.27.2B Utilities Fund
99.27.3 Independence Diversified core Equity
- ---------------
* Previously filed with Registration Statement on June 29, 1995.
SOLICITING DEALER AGREEMENT
[LOGO]
JOHN HANCOCK FUNDS, INC.
BOSTON -- MASSACHUSETTS -- 02199-7603
<PAGE>
JOHN HANCOCK FUNDS, INC.
101 HUNTINGTON AVENUE
BOSTON, MA 02199-7603
SOLICITING DEALER AGREEMENT
Date
------------------------------
John Hancock Funds, Inc. ("the Distributor" or "Distributor") is the
principal distributor of the shares of beneficial interest (the "securities")
of each of the John Hancock Funds, ("We" or "us"), (the "Funds"). Such Funds
are those listed on Schedule A hereto which may be amended or supplemented from
time to time by the Distributor to include additional Funds for which the
Distributor is the principal distributor. You represent that you are a member
of the National Association of Securities Dealers, Inc., (the "NASD") and,
accordingly, we invite you to become a non-exclusive soliciting dealer to
distribute the securities of the Funds and you agree to solicit orders for the
purchase of the securities on the following terms. Securities are offered
pursuant to each Fund's prospectus and statement of additional information, as
such prospectus and statement of additional information may be amended from
time to time. To the extent that the prospectus or statement of additional
information contains provisions that are inconsistent with the terms of this
Agreement, the terms of the prospectus or statement of additional information
shall be controlling.
OFFERINGS
1. You agree to abide by the Rules of Fair Practice of the NASD and to all
other rules and regulations that are now or may become applicable to
transactions hereunder.
2. As principal distributor of the Funds, we shall have full authority to
take such action as we deem advisable in respect of all matters pertaining to
the distribution. This offer of shares of the Funds to you is made only in
such jurisdictions in which we may lawfully sell such shares of the Funds.
3. You shall not make any representation concerning the Funds or their
securities except those contained in the then-current prospectus or
statement of additional information for each Fund.
4. With the exception of listings of product offerings, you agree not to
furnish or cause to be furnished to any person or display, or publish any
information or materials relating to any Fund (including, without limitation,
promotional materials, sales literature, advertisements, press releases,
announcements, posters, signs and other similar materials), except such
information and materials as may be furnished to you by the Distributor or the
Fund. All other materials must receive written approval by the Distributor
before distribution or display to the public. Use of all approved advertising
and sales literature materials is restricted to appropriate distribution
channels.
5. You are not authorized to act as our agent. Nothing shall constitute you
as a syndicate, association, joint venture, partnership, unincorporated
business, or other separate entity or otherwise partners with us, but you shall
be liable for your proportionate share of any tax, liability or expense based
on any claim arising from the sale of shares of the Funds under this Agreement.
We shall not be under any liability to you, except for obligations expressly
assumed by us in this Agreement and liabilities under Section 11(f) of the
Securities Act of 1933, and no obligations on our part shall be implied or
inferred herefrom.
-2-
<PAGE>
6. DEALER COMPLIANCE/SUITABILITY STANDARDS (CLASS A AND CLASS B SHARES) -
Certain mutual funds distributed by the Distributor are being offered with two
or more classes of shares of the same investment portfolio ("Fund") - refer to
each Fund prospectus for availability and details. It is essential that the
following minimum compliance/suitability standards be adhered to in offering
and selling shares of these Funds to investors. All dealers offering shares of
the Funds and their associated persons agree to comply with these general
suitability and compliance standards.
SUITABILITY
With two classes of shares of certain funds available to individual
investors, (Class A and Class B), it is important that each investor purchases
not only the fund that best suits his or her investment objective but also the
class of shares that offers the most beneficial distribution financing method
for the investor based upon his or her particular situation and preferences.
Fund share recommendations and orders must be carefully reviewed by you and
your registered representatives in light of all the facts and circumstances, to
ascertain that the class of shares to be purchased by each investor is
appropriate and suitable. These recommendations should be based on several
factors, including but not limited to:
(A) the amount of money to be invested initially and over a period of
time;
(B) the current level of front-end sales load or back-end sales load
imposed by the Fund;
(C) the period of time over which the client expects to retain the
investment;
(D) the anticipated level of yield from fixed income funds' Class A and
Class B shares;
(E) any other relevant circumstances such as the availability of
reduced sales charges under letters of intent and/or rights of
accumulation.
There are instances when one distribution financing method may be more
appropriate than another. For example, shares subject to a front-end sales
charge may be more appropriate than shares subject to a contingent deferred
sales charge for large investors who qualify for a significant quantity
discount on the front-end sales charge. In addition, shares subject to a
contingent deferred sales charge may be more appropriate for investors whose
orders would not qualify for quantity discounts and who, therefore, may prefer
to defer sales charges and also for investors who determine it to be
advantageous to have all of their funds invested without deduction of a
front-end sales commission. However, if it is anticipated that an investor may
redeem his or her shares within a short period of time, the investor may,
depending on the amount of his or her purchase, bear higher distribution
expenses by purchasing contingent deferred sales charge shares than if he or
she had purchased shares subject to a front-end sales charge.
COMPLIANCE
Your supervisory procedures should be adequate to assure that an
appropriate person reviews and approves transactions entered into pursuant to
this Soliciting Dealer Agreement for compliance with the foregoing standards.
In certain instances, it may be appropriate to discuss the purchase with the
registered representatives involved or to review the advantages and
disadvantages of selecting one class of shares over another with the client.
The Distributor will not accept orders for Class B Shares in any Fund from you
for accounts maintained in street name. Trades for Class B Shares will only be
accepted in the name of the shareholder.
7. CLASS C SHARES - Certain mutual funds distributed by the Distributor may be
offered with Class C shares. Refer to each Fund prospectus for availability
and details. Class C shares are designed for institutional investors and
qualified benefit plans, including pension funds, and are sold without a sales
charge or 12b-1 fee. If a commission is paid to you for transactions in Class
C shares, it will be paid by the Distributor out of its own resources.
SALES
8. Orders for securities received by you from investors will be for the sale
of the securities at the public offering price, which will be the net asset
value per share as determined in the manner provided in the relevant Fund's
prospectus, as now in effect or as amended from time to time, next after
receipt by us (or the relevant Fund's transfer agent) of the purchase
application and payment for the securities, plus the relevant sales charges set
forth in the relevant Fund's then-current prospectus (the "Public Offering
Price"). The procedures relating to the handling of orders shall be subject to
our instructions which we will forward from time to time to you. All orders
are subject to acceptance by us, and we reserve the right in our sole
discretion to reject any order.
-3-
<PAGE>
In addition to the foregoing, you acknowledge and agree to the initial
and subsequent investment minimums, which may vary from year to year, as
described in the then-current prospectus for each Fund.
9. You agree to sell the securities only (a) to your customers at the public
offering price then in effect, or (b) back to the Funds at the currently quoted
net asset value.
10. The amount of sales charge to be reallowed to you (the "Reallowance") as a
percentage of the offering price is set forth in the then-current prospectus of
each Fund.
If a sales charge on the purchase is reduced in accordance with the
provisions of the relevant Fund's then-current prospectus pertaining to
"Methods of Obtaining Reduced Sales Charges," the Reallowance shall be reduced
pro rata.
11. We shall pay a Reallowance subject to the provisions of this agreement as
set forth in Schedule B hereto on all purchases made by your customers pursuant
to orders accepted by us (a) where an order for the purchase of securities is
obtained by a registered representative in your employ and remitted to us
promptly by you, (b) where a subsequent investment is made to an account
established by a registered representative in your employ or (c) where a
subsequent investment is made to an account established by a broker/dealer
other than you and is accompanied by a signed request from the account
shareholder that your registered representative receive the Reallowance for
that investment and/or for subsequent investments made in such account. If for
any reason, a purchase transaction is reversed, you shall not be entitled to
receive or retain any part of the Reallowance on such purchase and shall pay to
us on demand in full the amount of the Reallowance received by you in
connection with any such purchase. We may withhold and retain from the amount
of the Reallowance due you a sum sufficient to discharge any amount due and
payable by you to us.
12. Certain of the Funds have adopted a plan under Investment Company Act
Rule 12b-1 ("Distribution Plan" as described in the the prospectus). To the
extent you provide distribution and marketing services in the promotion of the
sale of shares of these Funds, including furnishing services and assistance to
your customers who invest in and own shares of such Funds and including, but
not limited to, answering routine inquiries regarding such Funds and assisting
in changing distribution options, account designations and addresses, you may
be entitled to receive compensation from us as set forth in Schedule C hereto.
All compensation, including 12b-1 fees, shall be payable to you only to the
extent that funds are received and in the possession of the Distributor.
13. We will advise you as to the jurisdictions in which we believe the shares
have been qualified for sale under the respective securities or "blue sky" laws
of such jurisdictions, but we assume no responsibility or obligations as to
your right to sell the shares of the Funds in any state or jurisdiction.
14. Orders may be placed through:
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
1-800-338-4265
SETTLEMENT
15. Settlements for wire orders shall be made within five business days after
our acceptance of your order to purchase shares of the Funds. Certificates,
when requested, will be delivered to you upon payment in full of the sum due
for the sale of the shares of the Funds. If payment is not so received or
made, we reserve the right forthwith to cancel the sale, or, at our option, to
liquidate the shares of the Fund subject to such sale at the then prevailing
net asset value, in which latter case you will agree to be responsible for any
loss resulting to the Funds or to us from your failure to make payments as
aforesaid.
-4-
<PAGE>
INDEMNIFICATION
16. The parties to this agreement hereby agree to indemnify and hold harmless
each other, their officers and directors, and any person who is or may be
deemed to be a controlling person of each other, from and against any losses,
claims, damages, liabilities or expenses (including reasonable fees of
counsel), whether joint or several, to which any such person or entity may
become subject insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof) arise out of or are based upon, (a) any untrue
statement or alleged untrue statement of material fact, or any omission or
alleged omission to state a material fact made or omitted by it herein, or, (b)
any willful misfeasance or gross misconduct by it in the performance of its
duties and obligations hereunder.
17. NSCC INDEMNITY - SHAREHOLDER AND HOUSE ACCOUNTS - In consideration of the
Distributor and John Hancock Investor Services Corporation ("Investor
Services") liquidating, exchanging, and/or transferring unissued shares of the
Funds for your customers without the use of original or underlying
documentation supporting such instructions (e.g., a signed stock power or
signature guarantee), you hereby agree to indemnify the Distributor, Investor
Services and each respective Fund against any losses, including reasonable
attorney's fees, that may arise from such liquidation exchange, and/or
transfer of unissued shares upon your direction. This indemnification shall
apply only to the liquidation, exchange and/or transfer of unissued shares in
shareholder and house accounts executed as wire orders transmitted via NSCC's
Fund/SERVsystem. You represent and warrant to the Funds, the Distributor and
Investor Services that all such transactions shall be properly authorized by
your customers.
The indemnification in this Section 16 shall not apply to any losses
(including attorney's fees) caused by a failure of the Distributor, Investor
Services or a Fund to comply with any of your instructions governing any of the
above transactions, or any negligent act or omission of the Distributor,
Investor Services or a Fund, or any of their directors, officers, employees or
agents. All transactions shall be settled upon your confirmation through NSCC
transmission to Investor Services.
The Distributor, Investor Services or you may revoke the indemnity
contained in this Section 16 upon prior written notice to each of the other
parties hereto, and in the case of such revocation, this indemnity agreement
shall remain effective as to trades made prior to such revocation.
MISCELLANEOUS
18. We will supply to you at our expense additional copies of the prospectus
and statement of additional information for each of the Funds and any printed
information supplemental to such material in reasonable quantities upon
request.
19. Any notice to you shall be duly given if mailed or telegraphed to you at
your address as registered from time to time with the NASD.
20. Miscellaneous provisions, if any, are attached hereto and incorporated
herein by reference.
21. This agreement, which shall be construed in accordance with the laws of
the Commonwealth of Massachusetts, may be terminated by any party hereto at any
time upon written notice.
-5-
<PAGE>
SOLICITING DEALER
-------------------------------------------------
Name of Organization
By:-------------------------------------------------
Authorized Signature of Soliciting Dealer
-------------------------------------------------
Please Print or Type Name
-------------------------------------------------
Title
-------------------------------------------------
Print or Type Address
-------------------------------------------------
Telephone Number
Date:
-------------------------------------------------
In order to service you efficiently, please provide the following
information on your Mutual Funds Operations Department:
OPERATIONS MANAGER:
---------------------------------------------
ORDER ROOM MANAGER:
---------------------------------------------
OPERATIONS ADDRESS:
---------------------------------------------
---------------------------------------------
TELEPHONE: FAX:
-------------------------------- ------------------------------
TO BE COMPLETED BY: TO BE COMPLETED BY:
JOHN HANCOCK FUNDS, INC. JOHN HANCOCK INVESTOR
SERVICES CORPORATION
BY: BY:
----------------------------------- -----------------------------------
----------------------------------- -----------------------------------
TITLE TITLE
DEALER NUMBER:
------------------------------------
-6-
<PAGE>
JOHN HANCOCK
MUTUAL FUNDS
John Hancock Broker Distrubution Services, Inc.
101 Huntington Avenue Boston, MA 02199-7608 1-800-225-5291
/s/ John Hancock
<PAGE>
JOHN HANCOCK FUNDS, INC.
SCHEDULE A
DATED JANUARY 1, 1995 TO THE
SOLICITING DEALER AGREEMENT RELATING TO SHARES OF
JOHN HANCOCK FUNDS
<TABLE>
<S> <C>
John Hancock Sovereign Achievers Fund John Hancock National Aviation & Technology Fund
John Hancock Sovereign Investors Fund John Hancock Regional Bank Fund
John Hancock Sovereign Balanced Fund John Hancock Gold and Government Fund
John Hancock Sovereign Bond Fund John Hancock Global Rx Fund
John Hancock Sovereign U.S. Government Income Fund John Hancock Global Technology Fund
John Hancock Special Equities Fund* John Hancock Global Fund
John Hancock Special Opportunities Fund John Hancock Pacific Basin Equities Fund
John Hancock Discovery Fund John Hancock Global Income Fund
John Hancock Growth Fund John Hancock International Fund
John Hancock Strategic Income Fund John Hancock Global Resources Fund
John Hancock Limited-Term Government Fund John Hancock Emerging Growth Fund
John Hancock Cash Management Fund John Hancock Capital Growth Fund
John Hancock Managed Tax-Exempt Fund John Hancock Growth & Income Fund
John Hancock Tax-Exempt Income Fund John Hancock High Yield Bond Fund
John Hancock Tax-Exempt Series Fund John Hancock Investment Quality Bond Fund
John Hancock Special Value Fund John Hancock Government Securities Fund
John Hancock Strategic Short-Term Income Fund John Hancock U.S. Government Fund
John Hancock CA Tax-Free Fund John Hancock Government Income Fund
John Hancock High Yield Tax-Free Fund John Hancock Intermediate Government Fund
John Hancock Tax-Free Bond Fund John Hancock Adjustable U.S. Government Fund
John Hancock U.S. Government Cash Reserve Fund John Hancock Cash Reserve Money Market B Fund
</TABLE>
From time to time John Hancock Funds, Inc., as principal distributor of the
John Hancock funds, will offer additional funds for sale. These funds will
automatically become part of this Agreement and will be subject to all its
provisions unless otherwise directed by John Hancock Funds, Inc.
*Closed to new investors as of 9/30/94
<PAGE>
JOHN HANCOCK FUNDS, INC.
SCHEDULE B
DATED JANUARY 1, 1995 TO THE
SOLICITING DEALER AGREEMENT RELATING TO SHARES OF
JOHN HANCOCK FUNDS
I. REALLOWANCE
The Reallowance paid to the selling Brokers for sales of John Hancock
Funds is set forth in each Fund's then-current prospectus. No Commission will
be paid on sales of John Hancock Cash Management Fund or any John Hancock Fund
that is without a sales charge. Purchases of Class A shares of $1 million or
more, or purchases into an account or accounts whose aggregate value of fund
shares is $1 million or more will be made at net asset value with no initial
sales charge. On purchases of this type, John Hancock Funds, Inc. will pay a
commission as set forth in each Fund's then-current prospectus. John Hancock
Funds, Inc. will pay Brokers for sales of Class B shares of the Funds a
marketing fee as set forth in each Fund's then-current prospectus.
<PAGE>
JOHN HANCOCK FUNDS, INC.
SCHEDULE C
DATED JANUARY 1, 1995 TO THE
SOLICITING DEALER AGREEMENT RELATING TO SHARES OF
JOHN HANCOCK FUNDS
FIRST YEAR SERVICE FEES
Pursuant to the Distribution Plan applicable to each of the Funds
listed in Schedule A, John Hancock Funds, Inc. will advance to you a First Year
Service Fee related to the purchase of Class A shares (only if subject to sales
charge) or Class B shares of any of the Funds, as the case may be, sold by your
firm. This Service Fee will be compensation for your personal service and/or
the maintenance of shareholder accounts ("Customer Servicing") during the
twelve-month period immediately following the purchase of such shares, in the
amount not to exceed .25 of 1% of net assets invested in Class A shares or
Class B shares of the Fund, as the case may be, purchased by your customers.
SERVICE FEE SUBSEQUENT TO THE FIRST YEAR
Pursuant to the Distribution Plan applicable to each of the Funds
listed in Schedule A, the Distributor will pay you quarterly, in arrears, a
Service Fee commencing at the end of the twelve month period immediately
following the purchase of Class A shares (only if subject to sales charge) or
Class B shares, as the case may be, sold by your firm, for Customer Servicing,
in an amount not to exceed .25 of 1% of the average daily net assets
attributable to the Class A shares or Class B shares of the Fund, as the case
may be, purchased by your customers, provided your firm has under management
with the Funds combined average daily net assets for the preceding quarter of
no less than $1 million, or an individual representative of your firm has under
management with the Funds combined average daily net assets for the preceding
quarter of no less than $250,000 (an "Eligible Firm").
<PAGE>
JOHN HANCOCK BROKER DISTRIBUTION SERVICES, INC.
SCHEDULE D
DATED JULY 1, 1992 TO THE
SOLICITING DEALER AGREEMENT RELATING TO SHARES OF
JOHN HANCOCK MUTUAL FUNDS
No broker/dealer shall represent the FUnds or Distribution Services in any
written communications without prior receipt of written approval from John
Hancock Broker Distribution Services, Inc. This includes but is not limited to
all advertising, public relations, marketing and sales literature, and media
contacts.
Further, subsequent to the creation of such materialsbefore written
approval from JHBDS will be given, a copy of the NASD review document
applicable to such materials must be furnished to John Hancock Broker
Distribution Services, Inc. for its review and files.
FOR PURPOSES OF THIS SCHEDULE D, THE FOLLOWING TERMS ARE DEFINED:
Advertising:
materials designed for the mass market, e.g. print ads, radio and tv
commercials, billboards, etc.
Sales literature:
materials designed for a directed market, e.g. prospecting letters,
brochures, mailers, stuffers, etc.
Coop Advertising:
advertising materials (as defined above) used by selling group members
for which John Hancock pays some or all of the costs of publication
whether the materials were developed by JHBDS Marketing or not.
John Hancock Broker Distribution Services, Inc. Approval of Advertising:
Approval has four meanings:approval of the material itself from a
marketing perspective (JHBDS product managers), proactive compliance
officer), parent company corporate advertising approval (John Hancock
Mutual Life Insurance Company Advertising Dept. personnel) and
approval for use and related cost-sharing arrangements (national sales
coordinators).
NASD Filing:
Materials created by JHBDS will be filed with the NASD by the JHBDS
Compliance Department. Materials not created by JHBDS but to be
included in the coop program will be filed with the NASD by the
broker-dealer creating the materials. However, prior to use of the
materials in our coop program, we will need a copy of the final
version of the material as well as the NASDcomment letter. When this
is received, the above approvals can be obtained.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statements of Additional Information
constituting part of this Post Effective Amendment No. 22 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated July
7, 1995, relating to the financial statements and financial highlights appearing
in the May 31, 1995 Annual Reports to Shareholders of John Hancock Strategic
Income Fund, John Hancock Independence Diversified Core Equity Fund and the John
Hancock Utilities Fund (each a series of John Hancock Strategic Series), which
appears in such Statement of Additional Information, and to the incorporation by
reference of our reports into the Prospectuses which constitute part of this
Registration Statement. We further consent to the references to us under the
headings "Independent Accountants" in the Statement of Additional Information
and "The Fund's Financial Highlights" in the Prospectuses.
/s/Price Waterhouse LLP
PRICE WATERHOUSE LLP
Boston, Massachusetts
August 29, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
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<INVESTMENTS-AT-VALUE> 454,376,931
<RECEIVABLES> 15,403,970
<ASSETS-OTHER> 1,085,189
<OTHER-ITEMS-ASSETS> 8,413,497
<TOTAL-ASSETS> 469,780,901
<PAYABLE-FOR-SECURITIES> 2,984,229
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,393,986
<TOTAL-LIABILITIES> 7,378,215
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 497,909,836
<SHARES-COMMON-STOCK> 45,879,631
<SHARES-COMMON-PRIOR> 46,767,582
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3,835,222
<ACCUMULATED-NET-GAINS> (40,085,425)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,413,497
<NET-ASSETS> 462,402,686
<DIVIDEND-INCOME> 2,043,068
<INTEREST-INCOME> 42,679,585
<OTHER-INCOME> 0
<EXPENSES-NET> 5,440,569
<NET-INVESTMENT-INCOME> 39,282,084
<REALIZED-GAINS-CURRENT> (28,439,885)
<APPREC-INCREASE-CURRENT> 27,919,122
<NET-CHANGE-FROM-OPS> 38,761,321
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<DISTRIBUTIONS-OF-GAINS> 0
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<SHARES-REINVESTED> 2,633,453
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<ACCUMULATED-GAINS-PRIOR> (20,738,956)
<OVERDISTRIB-NII-PRIOR> 54,719
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<GROSS-ADVISORY-FEES> 2,007,777
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<GROSS-EXPENSE> 5,440,569
<AVERAGE-NET-ASSETS> 326,359,770
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<PER-SHARE-NII> 0.64
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<PER-SHARE-DIVIDEND> 0.64
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<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
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<INVESTMENTS-AT-VALUE> 454,376,931
<RECEIVABLES> 15,403,970
<ASSETS-OTHER> 1,085,189
<OTHER-ITEMS-ASSETS> 8,413,497
<TOTAL-ASSETS> 469,780,901
<PAYABLE-FOR-SECURITIES> 2,984,229
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<OTHER-ITEMS-LIABILITIES> 4,393,986
<TOTAL-LIABILITIES> 7,378,215
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 497,909,836
<SHARES-COMMON-STOCK> 18,825,999
<SHARES-COMMON-PRIOR> 10,838,510
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 3,835,222
<ACCUMULATED-NET-GAINS> (40,085,425)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,413,497
<NET-ASSETS> 462,402,686
<DIVIDEND-INCOME> 2,043,068
<INTEREST-INCOME> 42,679,585
<OTHER-INCOME> 0
<EXPENSES-NET> 5,440,569
<NET-INVESTMENT-INCOME> 39,282,084
<REALIZED-GAINS-CURRENT> (28,439,885)
<APPREC-INCREASE-CURRENT> 27,919,122
<NET-CHANGE-FROM-OPS> 38,761,321
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,130,845
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,883,638
<NUMBER-OF-SHARES-REDEEMED> 2,496,190
<SHARES-REINVESTED> 600,041
<NET-CHANGE-IN-ASSETS> 49,450,912
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (20,738,956)
<OVERDISTRIB-NII-PRIOR> 54,719
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,007,777
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,440,569
<AVERAGE-NET-ASSETS> 106,838,794
<PER-SHARE-NAV-BEGIN> 7.17
<PER-SHARE-NII> 0.60
<PER-SHARE-GAIN-APPREC> (0.02)
<PER-SHARE-DIVIDEND> 0.60
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 7.15
<EXPENSE-RATIO> 1.76
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
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<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 89,291,775
<INVESTMENTS-AT-VALUE> 101,096,088
<RECEIVABLES> 506,204
<ASSETS-OTHER> 4,177
<OTHER-ITEMS-ASSETS> 11,803,452
<TOTAL-ASSETS> 101,605,608
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 187,317
<TOTAL-LIABILITIES> 187,317
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 87,156,203
<SHARES-COMMON-STOCK> 7,037,190
<SHARES-COMMON-PRIOR> 5,251,352
<ACCUMULATED-NII-CURRENT> 422,416
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,036,220
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 11,803,452
<NET-ASSETS> 101,418,291
<DIVIDEND-INCOME> 2,730,474
<INTEREST-INCOME> 132,509
<OTHER-INCOME> 0
<EXPENSES-NET> 640,658
<NET-INVESTMENT-INCOME> 2,222,325
<REALIZED-GAINS-CURRENT> 2,252,968
<APPREC-INCREASE-CURRENT> 12,046,702
<NET-CHANGE-FROM-OPS> 16,521,995
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (2,008,180)
<DISTRIBUTIONS-OF-GAINS> (608,472)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,969,193
<NUMBER-OF-SHARES-REDEEMED> (2,389,312)
<SHARES-REINVESTED> 205,957
<NET-CHANGE-IN-ASSETS> 34,806,399
<ACCUMULATED-NII-PRIOR> 208,271
<ACCUMULATED-GAINS-PRIOR> 391,724
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 457,613
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 674,956
<AVERAGE-NET-ASSETS> 91,522,698
<PER-SHARE-NAV-BEGIN> 12.68
<PER-SHARE-NII> 0.32
<PER-SHARE-GAIN-APPREC> 1.77
<PER-SHARE-DIVIDEND> (0.28)
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<AVG-DEBT-PER-SHARE> 0
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<NAME> JOHN HANCOCK STRATEGIC SERIES
<SERIES>
<NUMBER> 5
<NAME> JOHN HANCOCK UTILITIES FUND - CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 48,495,941
<INVESTMENTS-AT-VALUE> 50,938,950
<RECEIVABLES> 7,202,347
<ASSETS-OTHER> 31,186
<OTHER-ITEMS-ASSETS> 2,443,009
<TOTAL-ASSETS> 58,172,483
<PAYABLE-FOR-SECURITIES> 548,550
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51,241
<TOTAL-LIABILITIES> 599,791
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,731,670
<SHARES-COMMON-STOCK> 2,268,646
<SHARES-COMMON-PRIOR> 94,516
<ACCUMULATED-NII-CURRENT> 397,138
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,141)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,447,025
<NET-ASSETS> 57,572,692
<DIVIDEND-INCOME> 1,653,059
<INTEREST-INCOME> 473,616
<OTHER-INCOME> 0
<EXPENSES-NET> 486,950
<NET-INVESTMENT-INCOME> 1,639,725
<REALIZED-GAINS-CURRENT> 1,432
<APPREC-INCREASE-CURRENT> 2,466,201
<NET-CHANGE-FROM-OPS> 4,107,358
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 493,188
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,085,752
<NUMBER-OF-SHARES-REDEEMED> 961,612
<SHARES-REINVESTED> 49,990
<NET-CHANGE-IN-ASSETS> 56,346,958
<ACCUMULATED-NII-PRIOR> 9,226
<ACCUMULATED-GAINS-PRIOR> (2,479)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 233,229
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 706,697
<AVERAGE-NET-ASSETS> 12,404,598
<PER-SHARE-NAV-BEGIN> 8.26
<PER-SHARE-NII> 0.44
<PER-SHARE-GAIN-APPREC> 0.12
<PER-SHARE-DIVIDEND> 0.34
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.48
<EXPENSE-RATIO> 1.04
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000792858
<NAME> JOHN HANCOCK STRATEGIC SERIES
<SERIES>
<NUMBER> 5
<NAME> JOHN HANCOCK UTILITIES FUND - CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<INVESTMENTS-AT-COST> 48,495,941
<INVESTMENTS-AT-VALUE> 50,938,950
<RECEIVABLES> 7,202,347
<ASSETS-OTHER> 31,186
<OTHER-ITEMS-ASSETS> 2,443,009
<TOTAL-ASSETS> 58,172,483
<PAYABLE-FOR-SECURITIES> 548,550
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51,241
<TOTAL-LIABILITIES> 599,791
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 54,731,670
<SHARES-COMMON-STOCK> 4,537,307
<SHARES-COMMON-PRIOR> 53,975
<ACCUMULATED-NII-CURRENT> 397,138
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,141)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,447,025
<NET-ASSETS> 57,572,692
<DIVIDEND-INCOME> 1,653,059
<INTEREST-INCOME> 473,616
<OTHER-INCOME> 0
<EXPENSES-NET> 486,950
<NET-INVESTMENT-INCOME> 1,639,725
<REALIZED-GAINS-CURRENT> 1,432
<APPREC-INCREASE-CURRENT> 2,466,201
<NET-CHANGE-FROM-OPS> 4,107,358
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 767,459
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,745,699
<NUMBER-OF-SHARES-REDEEMED> 341,569
<SHARES-REINVESTED> 79,202
<NET-CHANGE-IN-ASSETS> 56,346,958
<ACCUMULATED-NII-PRIOR> 9,226
<ACCUMULATED-GAINS-PRIOR> (2,479)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 233,229
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 706,697
<AVERAGE-NET-ASSETS> 20,913,786
<PER-SHARE-NAV-BEGIN> 8.25
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> 0.12
<PER-SHARE-DIVIDEND> 0.30
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.45
<EXPENSE-RATIO> 1.71
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
