JOHN HANCOCK
International/
Global Funds
[LOGO]
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Prospectus
August 30, 1996
This prospectus gives vital information about these funds. For your own benefit
and protection, please read it before you invest, and keep it on hand for future
reference.
Please note that these funds:
o are not bank deposits
o are not federally insured
o are not endorsed by any bank
or government agency
o are not guaranteed to achieve their goal(s)
Short-Term Strategic Income Fund may invest up to 67% in junk bonds; read risk
information carefully.
Like all mutual fund shares, these securities have not been approved or
disapproved by the Securities and Exchange Commission or any state securities
commission, nor has the Securities and Exchange Commission or any state
securities commission passed upon the accuracy or adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
Growth
Global Fund
Global Marketplace Fund
Global Rx Fund
Global Technology Fund
International Fund
Pacific Basin Equities Fund
Income
Short-Term Strategic Income Fund
World Bond Fund
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue, Boston, Massachusetts 02199-7603
<PAGE>
Contents
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A fund-by-fund look at goals, strategies, risks, expenses and financial history.
[LOGO] Growth
Global Fund 4
Global Marketplace Fund 6
Global Rx Fund 8
Global Technology Fund 10
International Fund 12
Pacific Basin Equities Fund 14
[LOGO] Income
Short-Term Strategic Income Fund 16
World Bond Fund 18
Policies and instructions for opening, maintaining and closing an account in any
international/global fund.
Your account
Choosing a share class 20
How sales charges are calculated 20
Sales charge reductions and waivers 21
Opening an account 22
Buying shares 23
Selling shares 24
Transaction policies 26
Dividends and account policies 26
Additional investor services 27
Details that apply to the international/global funds as a group.
Fund details
Business structure 28
Sales compensation 29
More about risk 31
For more information back cover
<PAGE>
Overview
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GOAL OF THE INTERNATIONAL/GLOBAL FUNDS
John Hancock international/global funds invest in foreign and U.S. securities.
Most of the funds invest primarily in stocks and seek long-term growth of
capital. Two funds invest primarily in bonds and seek current income or maximum
total return. Each fund employs its own strategy and has its own risk/reward
profile. Because you could lose money by investing in these funds, be sure to
read all risk disclosure carefully before investing.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o are seeking to diversify a portfolio of domestic investments
o are seeking access to markets that can be less accessible to individual
investors
o are seeking funds for the growth or income portion of an asset allocation
portfolio
o are investing for goals that are many years in the future
International/global funds may NOT be appropriate if you:
o are investing with a shorter time horizon in mind
o are uncomfortable with an investment whose value may vary substantially
o want to limit your exposure to foreign securities
THE MANAGEMENT FIRM
All John Hancock international/global funds are managed by John Hancock
Advisers, Inc. Founded in 1968, John Hancock Advisers is a wholly owned
subsidiary of John Hancock Mutual Life Insurance Company and manages more than
$19 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[LOGO] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[LOGO] Portfolio securities The primary types of securities in which the fund
invests. Secondary investments are described in "More about risk" at the
end of the prospectus.
[LOGO] Risk factors The major risk factors associated with the fund.
[LOGO] Portfolio management The individual or group (including subadvisers, if
any) designated by the investment adviser to handle the fund's
day-to-day management.
[LOGO] Expenses The overall costs borne by an investor in the fund, including
sales charges and annual expenses.
[LOGO] Financial highlights A table showing the fund's financial performance
for up to ten years, by share class. A bar chart showing total return
allows you to compare the fund's historical risk level to those of other
funds.
<PAGE>
Global Fund
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: JHGAX
CLASS B: FGLOX
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GOAL AND STRATEGY
[LOGO] The fund seeks long-term growth of capital. To pursue this goal, the fund
invests primarily in common stocks of foreign and U.S. companies. The fund
maintains a diversified portfolio of company and government securities from
around the world. Under normal circumstances, the fund expects to invest in the
securities markets of at least three countries at any one time, potentially
including the U.S.
The fund does not maintain a fixed allocation of assets, either with respect to
securities type or to geography.
PORTFOLIO SECURITIES
[LOGO] Under normal circumstances, the fund invests at least 65% of assets in
common stocks and convertible securities, but may invest in virtually any type
of security, foreign or domestic, including preferred and convertible
securities, warrants and investment-grade debt securities. Not counting
short-term securities, the fund generally expects that no more than 5% of assets
will be invested in debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[LOGO] As with any growth fund, the value of your investment will fluctuate in
response to stock market movements.
Because it invests internationally, the fund carries additional risks, including
currency, information, natural event and political risks. These risks, which may
make the fund more volatile than a comparable domestic growth fund, are defined
in "More about risk" starting on page 31. The risks of international investing
are higher in emerging markets such as those of Latin America, Southeast Asia
and Eastern Europe.
To the extent that the fund utilizes higher-risk securities and practices, it
takes on further risks that could adversely affect its performance. Please read
"More about risk" carefully before investing.
MANAGEMENT/SUBADVISER
[LOGO] John L.F. Wills, leader of the fund's portfolio management team, is a
vice president of the adviser and managing director of the subadviser, John
Hancock Advisers International. He joined John Hancock Funds in 1987 and has
been in the investment business since 1969.
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INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
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Shareholder transaction expenses Class A Class B
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Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
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Annual fund operating expenses (as a % of average net assets)
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Management fee(3) 0.96% 0.96%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.61% 0.61%
Total fund operating expenses 1.87% 2.57%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
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Share class Year 1 Year 3 Year 5 Year 10
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Class A shares $68 $106 $146 $258
Class B shares
Assuming redemption
at end of period $76 $110 $157 $273
Assuming no redemption $26 $80 $137 $273
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Includes a subadviser fee equal to 0.70% of the fund's net assets.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
4 GROWTH - GLOBAL FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1987 (8) 35.42(5)
1987 (9) (16.97)(5)
1988 7.05
1989 30.22
1990 (10.42)
1991 14.04
1992 (3.85)
1993 34.95
1994 7.97
1995 (1.01)
1996(2) 11.71(5)
<TABLE>
<CAPTION>
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Class A - year ended October 31, 1992(1) 1993 1994 1995 1996(2)
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<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $11.31 $10.55 $14.30 $14.16 $12.67
Net investment income (loss) (0.04)(3) (0.10)(3) (0.07)(3) (0.03)(3) (0.04)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.72) 3.85 1.24 (0.13) 1.48
Total from investment operations (0.76) 3.75 1.17 (0.16) 1.44
Less distributions:
Distributions from net realized gain on investments
sold and foreign currency transactions -- -- (1.31) (1.33) (0.88)
Net asset value, end of period $10.55 $14.30 $14.16 $12.67 $13.23
Total investment return at net asset value(4) (%) (6.72)(5) 35.55 8.64 (0.37) 12.07(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 76,980 90,787 100,973 93,597 99,606
Ratio of expenses to average net assets (%) 2.47(6) 2.12 1.98 1.87 1.89(6)
Ratio of net investment income (loss) to average
net assets (%) (0.60)(6) (0.86) (0.54) (0.23) (0.69)(6)
Portfolio turnover rate (%) 69 108 61 60 40
Average brokerage commission rate(7) ($) N/A N/A N/A N/A 0.02
</TABLE>
<TABLE>
<CAPTION>
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Class B - year ended October 31, 1987(8) 1987(9) 1988 1989 1990 1991
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<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.60 $13.00 $10.42 $10.67 $13.58 $9.94
Net investment income (loss) 0.08 (0.05) 0.01 (0.10) (0.02) (0.01)(3)
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions 3.32 (2.08) 0.69 3.25 (1.12) 1.35
Total from investment operations 3.40 (2.13) 0.70 3.15 (1.14) 1.34
Less distributions:
Distributions from net
investment income -- (0.12) -- (0.01) -- --
Distributions from net realized
gain on investments sold and
foreign currency transactions -- (0.33) (0.45) (0.23) (2.50) (0.36)
Total distributions -- (0.45) (0.45) (0.24) (2.50) (0.36)
Net asset value, end of period $13.00 $10.42 $10.67 $13.58 $9.94 $10.92
Total investment return at
net asset value(4)(%) 35.42(5) (16.97)(5) 7.05 30.22 (10.42) 14.04
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 62,264 50,883 34,380 35,596 33,281 28,686
Ratio of expenses to average
net assets (%) 2.38(6) 2.56(6) 2.55 2.30 2.46 2.60
Ratio of net investment income
(loss) to average net assets (%) 0.99(6) (0.78)(6) 0.09 (0.47) (0.59) (0.12)
Portfolio turnover rate (%) 91 81 142 138 58 106
Average brokerage commission
rate(7) ($) N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
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Class B - year ended October 31, (continued) 1992 1993 1994 1995 1996(2)
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<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.92 $10.50 $14.17 $13.93 $12.36
Net investment income (loss) (0.12)(3) (0.15)(3) (0.15)(3) (0.11)(3) (0.08)
Net realized and unrealized gain
(loss) on investments and foreign
currency transactions (0.30) 3.82 1.22 (0.13) 1.44
Total from investment operations (0.42) 3.67 1.07 (0.24) 1.36
Less distributions:
Distributions from net
investment income -- -- -- -- --
Distributions from net realized
gain on investments sold and
foreign currency transactions -- -- (1.31) (1.33) (0.88)
Total distributions -- -- (1.31) (1.33) (0.88)
Net asset value, end of period $10.50 $14.17 $13.93 $12.36 $12.84
Total investment return at
net asset value(4)(%) (3.85) 34.95 7.97 (1.01) 11.71(5)
Ratios and supplemental data
Net assets, end of period
(000s omitted)($) 11,475 19,340 31,822 24,570 27,201
Ratio of expenses to average
net assets (%) 2.68 2.49 2.59 2.57 2.55(6)
Ratio of net investment income
(loss) to average net assets (%) (1.03) (1.25) (1.12) (0.89) (1.35)(6)
Portfolio turnover rate (%) 69 108 61 60 40
Average brokerage commission
rate(7) ($) N/A N/A N/A N/A 0.02
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Six months ended April 30, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(8) For the period September 2, 1986 (commencement of operations) to May 31,
1987.
(9) For the period June 1, 1987 to October 31, 1987.
GROWTH - GLOBAL FUND 5
<PAGE>
Global Marketplace Fund
REGISTRANT NAME: JOHN HANCOCK WORLD FUND TICKER SYMBOL CLASS A: JHMBX
CLASS B: JHMBX
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GOAL AND STRATEGY
[LOGO] The fund seeks long-term capital appreciation. To pursue this goal, the
fund invests primarily in foreign and U.S. stocks of companies that merchandise
goods and services to consumers or to consumer companies. The fund seeks
companies of any size that appear to possess a competitive advantage, such as a
unique product or distribution method, new technologies or innovative marketing
or sales methods. Under normal circumstances, the fund invests at least 65% of
assets in these companies, and expects to invest in the securities markets of at
least three countries at any one time, potentially including the U.S.
PORTFOLIO SECURITIES
[LOGO] The fund invests primarily in the common stocks of U.S. and foreign
companies. It also may invest in warrants, preferred stocks and convertible
securities.
For liquidity and flexibility, the fund may invest up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[LOGO] As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. Because the fund concentrates on a single
sector (consumer businesses), its performance may be disproportionately affected
by a few key factors, such as economic conditions and consumer confidence
levels.
Also, because the fund invests internationally, it carries additional risks,
including currency, information, natural event and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are defined in "More about risk" starting on page 31.
To the extent that the fund invests in smaller capitalization companies or
emerging markets, or utilizes higher-risk securities and practices, it takes on
further risks that could adversely affect its performance. Please read "More
about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[LOGO] Bernice S. Behar, leader of the fund's portfolio management team since
the fund's inception in September 1994, is a senior vice president of the
adviser. She joined the adviser in 1991 and has been in the investment business
since 1986.
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INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below are based on Class A expenses for the past year, adjusted to
reflect any changes. No Class B shares were issued or outstanding during the
last fiscal year. Future expenses may be greater or less.
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Shareholder transaction expenses Class A Class B
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Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
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Annual fund operating expenses (as a % of average net assets)
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Management fee (after expense limitation)(3) 0.00% 0.00%
12b-1 fee(4) 0.30% 1.00%
Other expenses (after limitation)(3) 1.20% 1.20%
Total fund operating expenses (after limitation)(3) 1.50% 2.20%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
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Share class Year 1 Year 3 Year 5 Year 10
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Class A shares $65 $95 $128 $220
Class B shares
Assuming redemption
at end of period $72 $99 $138 $236
Assuming no redemption $22 $69 $118 $236
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser`s temporary agreement to limit expenses (except for
12b-1 and transfer agent expenses). Without this limitation, management
fees would be 0.80% for each class, other expenses would be 7.92% for each
class and total fund operating expenses would be 9.02% for Class A and
9.72% for Class B.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
6 GROWTH - GLOBAL MARKETPLACE FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1995(1) 35.61(5)
1996(2) 17.84(5)
<TABLE>
<CAPTION>
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Class A - year ended August 31, 1995(1) 1996(2)
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<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $11.49
Net investment income (loss) 0.01(3) (0.05)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 3.01 2.10
Total from investment operations 3.02 2.05
Less distributions:
Dividends from net investment income (0.01) --
Distributions in excess of net investment income (0.02) --
Total distributions (0.03) --
Net asset value, end of period $11.49 $13.54
Total investment return at net asset value(4) (%) 35.61(5) 17.84(5)
Total adjusted investment return at net asset value(4,6) (%) 28.69(5) 11.37(5)
Ratios and supplemental data
Net assets, end of period (000s omitted)($) 712 1,022
Ratio of expenses to average net assets (%) 1.50(7) 1.50(7)
Ratio of adjusted expenses to average net assets(8) (%) 9.00(7) 14.48(7)
Ratio of net investment income (loss) to average net assets(%) 0.06(7) (0.88)(7)
Ratio of adjusted net investment income (loss) to average net assets(8)(%) (7.44)(7) (13.86)(7)
Portfolio turnover rate (%) 63 86
Fee reduction per share($) 0.65(3) 0.74
Average brokerage commission rate(9)($) N/A 0.00(10)
</TABLE>
<TABLE>
<CAPTION>
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Class B - year ended August 31, 1996(11)
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<S> <C>
Per share operating performance
Net asset value, beginning of period $11.95
Net investment income (loss) (0.02)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 1.60
Total from investment operations 1.58
Net asset value, end of period $13.53
Total investment return at net asset value(4) (%) 13.22(5)
Total adjusted investment return at net asset value(4,6) (%) 11.94(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) $218
Ratio of expenses to average net assets (%) 2.20(7)
Ratio of adjusted expenses to average net assets(8) (%) 15.18(7)
Ratio of net investment income (loss) to average net assets (%) (1.18)(7)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (14.16)(7)
Portfolio turnover rate (%) 86
Fee reduction per share ($) 0.74(3)
Average brokerage commission rate(9) ($) 0.00(10)
</TABLE>
(1) Class A shares commenced operations September 29, 1994.
(2) Six months ended February 29, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(10) Less than one cent per share.
(11) For the period January 22, 1996 (commencement of operations) to February
29, 1996. (Unaudited.)
GROWTH - GLOBAL MARKETPLACE FUND 7
<PAGE>
Global Rx Fund
REGISTRANT NAME: JOHN HANCOCK WORLD FUND TICKER SYMBOL CLASS A: JHGRX
CLASS B: JHRBX
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GOAL AND STRATEGY
[LOGO] The fund seeks long-term growth of capital. To pursue this goal, the fund
invests primarily in stocks of foreign and U.S. health care companies. The fund
defines health care companies as those deriving at least half of their gross
revenues, or committing at least half of their gross assets, to health
care-related activities. Under normal circumstances, the fund will invest at
least 65% of assets in these companies, including small- and medium-sized
companies. The fund expects to invest in the securities markets of at least
three countries at any one time, potentially including the U.S. Because the fund
is non-diversified, it may invest more than 5% of assets in securities of a
single issuer.
The fund has an independent advisory board composed of scientific and medical
experts to provide advice and consultation on health care developments.
PORTFOLIO SECURITIES
[LOGO] The fund invests primarily in foreign and domestic common stocks, and may
invest in warrants, preferred stocks and convertible debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[LOGO] As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. Because the fund concentrates on a single
sector (health care), and because this sector has historically been volatile,
investors should expect above-average volatility.
Also, because the fund invests internationally, it carries additional risks,
including currency, information, natural event and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are defined in "More about risk" starting on page 31.
To the extent that the fund invests in smaller capitalization companies or
utilizes higher-risk securities and practices, it takes on further risks that
could adversely affect its performance. Please read "More about risk" carefully
before investing.
PORTFOLIO MANAGEMENT
[LOGO] Linda I. Miller, leader of the fund's portfolio management team since
January 1996, is a vice president of the adviser. She joined John Hancock Funds
in November 1995 and has been in the investment business with a focus on the
health care industry since 1980.
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INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.80% 0.80%
12b-1 fee(3) 0.30% 1.00%
Other expenses 1.50% 1.50%
Total fund operating expenses 2.60% 3.30%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $75 $127 $181 $329
Class B shares
Assuming redemption
at end of period $83 $132 $192 $344
Assuming no redemption $33 $102 $172 $344
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
8 GROWTH - GLOBAL RX FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1992(1) 33.40(5)
1993 30.89
1994 23.39
1995 22.16(5)
1996(2) 0.30
<TABLE>
<CAPTION>
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Class A - year ended August 31, 1992(1) 1993 1994 1995 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.00 $13.34 $13.38 $16.51 $21.61
Net investment income (loss) (0.03) (0.23) (0.32) (0.36)(3) (0.12)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 3.37 0.27 3.45 5.46 4.89
Total from investment operations 3.34 0.04 3.13 5.10 4.77
Less distributions:
Distributions from net realized gain on investments sold and
foreign currency transactions -- -- -- -- (0.14)
Net asset value, end of period $13.34 $13.38 $16.51 $21.61 $26.24
Total investment return at net asset value(4) (%) 33.40(5) 0.30 23.39 30.89 22.16(5)
Total adjusted investment return at net asset value (4,6) (%) 32.11(5) 0.04 -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 14,702 15,647 18,643 24,394 34,719
Ratio of expenses to average net assets (%) 1.98(7) 2.50 2.55 2.56 2.14(7)
Ratio of adjusted expenses to average net assets(8) (%) 3.39(7) 2.76 -- -- --
Ratio of net investment income (loss) to average net assets (%) (0.51)(7) (1.67) (2.01) (1.99) (1.08)(7)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) (1.92)(7) (1.93) -- -- --
Portfolio turnover rate (%) 48 93 52 38 12
Fee reduction per share ($) 0.085 0.035 -- -- --
Average brokerage commission rate(9) ($) N/A N/A N/A N/A 0.00(10)
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class B - year ended August 31, 1994(1) 1995 1996(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.29 $16.46 $21.35
Net investment income (loss) (0.17)(3) (0.55)(3) (0.19)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.66) 5.44 4.81
Total from investment operations (0.83) 4.89 4.62
Less distributions:
Distributions from net realized gain on investments sold and
foreign currency transactions -- -- (0.14)
Net asset value, end of period $16.46 $21.35 $25.83
Total investment return at net asset value(4) (%) (4.80)(5) 29.71 21.73(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,071 6,333 22,185
Ratio of expenses to average net assets (%) 3.34(7) 3.45 2.79(7)
Ratio of net investment income (loss) to average net assets (%) (2.65)(7) (2.91) (1.65)(7)
Portfolio turnover rate (%) 52 38 12
Average brokerage commission rate(9) ($) N/A N/A 0.00(10)
</TABLE>
(1) Class A and Class B shares commenced operations on October 1, 1991 and
March 7, 1994, respectively.
(2) Six months ended February 29, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(10) Less than one cent per share.
GROWTH - GLOBAL RX FUND 9
<PAGE>
Global Technology Fund
REGISTRANT NAME: JOHN HANCOCK TECHNOLOGY SERIES, INC. TICKER SYMBOL
CLASS A: NTTFX
CLASS B: FGTBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO] The fund seeks long-term growth of capital. To pursue this goal, the fund
invests primarily in stocks of foreign and U.S. companies that rely extensively
on technology in their product development or operations. Under normal
circumstances, the fund will invest at least 65% of assets in these companies,
and expects to invest in the securities markets of at least three countries at
any one time, potentially including the U.S. Income is a secondary goal.
PORTFOLIO SECURITIES
[LOGO] The fund invests primarily in foreign and domestic common stocks, and may
invest in warrants, preferred stocks and convertible debt securities. The fund
may invest up to 10% of assets in debt securities of any maturity. These may
include securities rated as low as CC/Ca and their unrated equivalents. Bonds
rated lower than BBB/Baa are considered junk bonds.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, including restricted securities, and
may engage in other investment practices.
RISK FACTORS
[LOGO] As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. Because the fund concentrates on a single
sector (technology), and because this sector has historically been volatile,
investors should expect above-average volatility.
Also, because the fund invests internationally, it carries additional risks,
including currency, information, natural event and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are defined in "More about risk" starting on page 31. The risks of international
investing are higher in emerging markets such as those of Latin America, Asia
and Eastern Europe. To the extent that the fund invests in smaller
capitalization companies or junk bonds, it further increases the chances for
fluctuations in share price and total return. Please read "More about risk"
carefully before investing.
MANAGEMENT/SUBADVISER
[LOGO] Barry J. Gordon and Marc H. Klee lead the fund's management team, as they
have since the fund's inception in 1983. They are principals of American Fund
Advisors, Inc. (AFA), which was the fund's adviser until 1991. Since 1991, AFA
has been the fund's subadviser.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee (net of reduction)(3) 0.82% 0.82%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.55% 0.55%
Total fund operating expenses (net of reduction) 1.67% 2.37%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $66 $100 $136 $238
Class B shares
Assuming redemption
at end of period $74 $104 $147 $253
Assuming no redemption $24 $74 $127 $253
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Includes a subadviser fee that will not exceed 0.40% of the fund's net
assets.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
10 GROWTH - GLOBAL TECHNOLOGY FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1986 46.53
1987 33.05
1988 32.06
1989 16.61
1990 9.62
1991 10.48
1992 5.70
1993 2.89
1994 2.84
1995 (18.46)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - year ended December 31, 1986 1987 1988 1989 1990
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $13.57 $13.80 $13.98 $15.31 $16.93
Net investment income (loss) 0.14 0.15 0.15 0.10 (0.04)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 0.25 0.26 1.32 2.43 (3.09)
Total from investment operations 0.39 0.41 1.47 2.53 (3.13)
Less distributions:
Dividends from net investment income (0.16) (0.23) (0.14) (0.13) --
Distributions from net realized gain on investments
and foreign currency transactions -- -- -- (0.78) (1.36)
Total distributions (0.16) (0.23) (0.14) (0.91) (1.36)
Net asset value, end of period $13.80 $13.98 $15.31 $16.93 $12.44
Total investment return at net asset value(2) (%) 2.89 2.84 10.48 16.61 (18.46)
Total adjusted investment return at net asset value(2,3) -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 56,927 44,224 38,594 40,341 28,864
Ratio of expenses to average net assets (%) 1.75 1.63 1.75 1.90 2.36
Ratio of adjusted expenses to average net assets(4) (%) -- -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 0.77 0.75 0.89 0.60 (0.28)
Ratio of adjusted net investment income (loss) to
average net assets(4) (%) -- -- -- -- --
Portfolio turnover rate (%) 6 9 12 30 38
Fee reduction per share ($) -- -- -- -- --
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - year ended December 31, (continued) 1991 1992 1993 1994 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $12.44 $15.60 $14.94 $17.45 $17.84
Net investment income (loss) 0.05 (0.15) (0.21) (0.22)(1) (0.22)(1)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 4.11 1.00 4.92 1.87 8.53
Total from investment operations 4.16 0.85 4.71 1.65 8.31
Less distributions:
Dividends from net investment income (0.04) -- -- -- --
Distributions from net realized gain on investments
and foreign currency transactions (0.96) (1.51) (2.20) (1.26) (1.64)
Total distributions (1.00) (1.51) (2.20) (1.26) (1.64)
Net asset value, end of period $15.60 $14.94 $17.45 $17.84 $24.51
Total investment return at net asset value(2) (%) 33.05 5.70 32.06 9.62 46.53
Total adjusted investment return at net asset value(2,3) -- 5.53 -- -- 46.41
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 31,580 32,094 41,749 52,193 155,001
Ratio of expenses to average net assets (%) 2.32 2.05 2.10 2.16 1.67
Ratio of adjusted expenses to average net assets(4) (%) -- 2.22 -- -- 1.79
Ratio of net investment income (loss) to average net assets (%) 0.34 (0.88) (1.49) (1.25) (0.89)
Ratio of adjusted net investment income (loss) to
average net assets(4) (%) -- (1.05) -- -- (1.01)
Portfolio turnover rate (%) 67 76 86 67 70
Fee reduction per share -- 0.03 -- -- 0.03(1)
Average brokerage commission rate(5) ($) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Class B - year ended December 31, 1994(6) 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.24 $17.68
Net investment income (loss) (0.35)(1) (0.39)(1)
Net realized and unrealized gain (loss) on investments 2.05 8.43
Total from investment operations 1.70 8.04
Less distributions:
Distributions from net realized gain on investments sold (1.26) (1.64)
Net asset value, end of period $17.68 $24.08
Total investment return at net asset value(2) (%) 10.02 45.42
Total adjusted investment return at net asset value(2,3) -- 45.30
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 9,324 35,754
Ratio of expenses to average net assets (%) 2.90(7) 2.41
Ratio of adjusted expenses to average net assets(4) (%) -- 2.53
Ratio of net investment income (loss) to average net assets (%) (1.98)(7) (1.62)
Ratio of adjusted net investment income (loss) to
average net assets(4) (%) -- (1.74)
Portfolio turnover rate (%) 67 70
Fee reduction per share ($) -- 0.03(1)
Average brokerage commission rate(5)($) N/A N/A
</TABLE>
(1) Based on the average of the shares outstanding at the end of each month.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(4) Unreimbursed, without fee reduction.
(5) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(6) Class B shares commenced operations on January 3, 1994.
(7) Annualized.
GROWTH - GLOBAL TECHNOLOGY FUND 11
<PAGE>
International Fund
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: FINAX
CLASS B: FINBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO] The fund seeks long-term growth of capital. To pursue this goal, the fund
invests primarily in stocks of foreign companies. Under normal circumstances,
the fund will invest at least 65% of assets in these companies. The fund
maintains a diversified portfolio of company and government securities from
around the world, and generally expects that at any one time it will invest in
the securities markets of at least three non-U.S. countries.
The fund does not maintain a fixed allocation of assets, either with respect to
securities type or to geography. The fund looks for companies of any size whose
earnings show strong growth or that appear to be undervalued.
PORTFOLIO SECURITIES
[LOGO] Under normal circumstances, the fund invests primarily in common stocks
and other equity securities, but may invest in almost any type of security,
foreign or domestic, including preferred and convertible securities, warrants
and investment-grade debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[LOGO] As with any growth fund, the value of your investment will fluctuate in
response to stock market movements.
Because it invests internationally, the fund carries additional risks, including
currency, information, natural event and political risks. These risks, which may
make the fund more volatile than a comparable domestic growth fund, are defined
in "More about risk" starting on page 31. The risks of international investing
are higher in emerging markets such as those of Latin America, Asia and Eastern
Europe.
To the extent that the fund invests in smaller capitalization companies or
utilizes higher-risk securities and practices, it takes on further risks that
could adversely affect its performance. Please read "More about risk" carefully
before investing.
MANAGEMENT/SUBADVISER
[LOGO] John L.F. Wills, leader of the fund's portfolio management team, is a
vice president of the adviser and managing director of the subadviser, John
Hancock Advisers International. He joined John Hancock Funds in 1987 and has
been in the investment business since 1969.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee (after expense limitation)(3,4) 0.00% 0.00%
12b-1 fee(5) 0.30% 1.00%
Other expenses (after limitation)(3) 1.42% 1.42%
Total fund operating expenses (after limitation)(3) 1.72% 2.42%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $67 $101 $139 $243
Class B shares
Assuming redemption
at end of period $75 $105 $149 $258
Assuming no redemption $25 $75 $129 $258
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser`s temporary agreement to limit expenses (except for
12b-1 and transfer agent expenses). Without this limitation, management
fees would be 1.00% for each class, other expenses would be 3.58% for each
class and total fund operating expenses would be 4.88% for Class A and
5.58% for Class B.
(4) Includes a subadviser fee equal to 0.70% of the fund's net assets.
(5) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
12 GROWTH - INTERNATIONAL FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1994(1) 9.09(5)
1995 1.77(5)
1996(2) (4.96)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class A - year ended October 31, 1994(1) 1995 1996(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $8.65 $8.14
Net investment income (loss) 0.07(3) 0.04 0.02(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.08 (0.47) 0.72
Total from investment operations 0.15 (0.43) 0.74
Less distributions:
Dividends from net investment income -- (0.03) --
Distributions from net realized gain on investments
sold and foreign currency transactions -- (0.05) --
Total distributions -- (0.08) --
Net asset value, end of period $8.65 $8.14 $8.88
Total investment return at net asset value(4) (%) 1.77(5) (4.96) 9.09(5)
Total adjusted investment return at net asset value(4,6) (%) (0.52)(5) (8.12) 8.37(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,426 4,215 6,076
Ratio of expenses to average net assets (%) 1.50(7) 1.64 1.69(7)
Ratio of adjusted expenses to average net assets(8) (%) 3.79(7) 4.80 3.12(7)
Ratio of net investment income (loss) to average net assets (%) 1.02(7) 0.56 0.40(7)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) (1.27)(7) (2.60) (1.03)(7)
Portfolio turnover rate (%) 50 69 34
Fee reduction per share ($) 0.16(3) 0.25 0.07(3)
Average brokerage commission rate(9) ($) N/A N/A 0.00(10)
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Class B - year ended October 31, 1994(1) 1995 1996(2)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $8.61 $8.05
Net investment income (loss) 0.02(3) (0.03) (0.01)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.09 (0.48) 0.72
Total from investment operations 0.11 (0.51) 0.71
Less distributions:
Distributions from net realized gain on investments
sold and foreign currency transactions -- (0.05) --
Net asset value, end of period $8.61 $8.05 $8.76
Total investment return at net asset value(4) (%) 1.29(5) (5.89) 8.82(5)
Total adjusted investment return at net asset value(4,6) (%) (1.00)(5) (9.05) 8.10(5)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,948 3,990 8,192
Ratio of expenses to average net assets (%) 2.22(7) 2.52 2.39(7)
Ratio of adjusted expenses to average net assets(8) (%) 4.51(7) 5.68 3.82(7)
Ratio of net investment income (loss) to average net assets (%) 0.31(7) (0.37) (0.25)(7)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) (1.98)(7) (3.53) (1.68)(7)
Portfolio turnover rate (%) 50 69 34
Fee reduction per share ($) 0.16(3) 0.25 0.07(3)
Average brokerage commission rate(9) ($) N/A N/A 0.00(10)
</TABLE>
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Six months ended April 30, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(7) Annualized.
(8) Unreimbursed, without fee reduction.
(9) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(10) Less than one cent per share.
GROWTH - INTERNATIONAL FUND 13
<PAGE>
Pacific Basin Equities Fund
REGISTRANT NAME: JOHN HANCOCK WORLD FUND TICKER SYMBOL CLASS A: JHWPX
CLASS B: FPBBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO] The fund seeks long-term growth of capital. To pursue this goal, the fund
invests primarily in a diversified portfolio of stocks of companies located in
countries bordering the Pacific Ocean. Under normal circumstances, the fund will
invest at least 65% of assets in these companies, with the balance invested in
equities of companies not in the Pacific Basin countries and in investment-grade
debt securities of U.S., Japanese, Australian and New Zealand issuers.
The fund does not maintain a fixed allocation of assets. The fund may at times
invest less than 65% of assets in Pacific Basin equities.
PORTFOLIO SECURITIES
[LOGO] Under normal circumstances, the fund invests primarily in common stocks
and other equity securities, but may invest in virtually any type of security,
foreign or domestic, including preferred and convertible securities, warrants
and investment-grade debt securities.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest up to 100% in these securities as a defensive tactic. The fund also may
invest in certain higher-risk securities, and may engage in other investment
practices.
RISK FACTORS
[LOGO] As with any growth fund, the value of your investment will fluctuate in
response to stock market movements. Because the fund concentrates on one region,
investors should expect above-average volatility.
Also, because the fund invests internationally, it carries additional risks,
including currency, information, natural event and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are defined in "More about risk" starting on page 31. The risks of international
investing are higher in emerging markets, a category that includes many Pacific
Basin countries.
To the extent that the fund utilizes higher-risk securities practices, it takes
on further risks that could adversely affect its performance. Please read "More
about risk" carefully before investing.
MANAGEMENT/SUBADVISERS
[LOGO] The fund's management is carried out jointly by the adviser's
international equities portfolio management team and two subadvisers, Indosuez
Asia Advisers Limited and John Hancock Advisers International. Indosuez is
majority owned by Caisse Nationale de Credit Agricole, a French banking
institution.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee(3) 0.80% 0.80%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.97% 0.97%
Total fund operating expenses 2.07% 2.77%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $70 $112 $156 $278
Class B shares
Assuming redemption
at end of period $78 $116 $166 $293
Assuming no redemption $28 $86 $146 $293
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Includes a subadviser fee equal to 0.35% of the fund's net assets.
(4) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
14 GROWTH - PACIFIC BASIN EQUITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class A year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1988(1) 49.61
1989 22.82
1990 18.06
1991 7.80(6)
1992 (3.61)(6)
1993 (1.99)
1994 (0.44)
1995 (2.15)
1996(2) (7.65)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended August 31, 1988(1) 1989 1990 1991 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.00 $9.61 $11.10 $10.34 $9.05
Net investment income (loss) 0.01 (0.02) (0.04) (0.01) (0.07)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.37) 1.75 0.11 (0.33) (0.11)
Total from investment operations (0.36) 1.73 0.07 (0.34) (0.18)
Less distributions:
Dividends from net investment income (0.03) (0.01) -- -- --
Distributions from net realized gain on investments sold
and foreign currency transactions -- (0.23) (0.83) (0.95) --
Total distributions (0.03) (0.24) (0.83) (0.95) --
Net asset value, end of period $9.61 $11.10 $10.34 $9.05 $8.87
Total investment return at net asset value(5) (%) (3.61)(6) 18.06 (0.44) (2.15) (1.99)
Total adjusted investment return at net asset value(5,7) (%) (8.05)(6) 15.12 (2.86) (5.19) (5.57)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,771 5,116 4,578 4,065 3,222
Ratio of expenses to average net assets (%) 1.75(8) 1.75 2.45 2.75 2.73
Ratio of adjusted expenses to average net assets(9) (%) 6.19(8) 4.69 4.89 5.79 6.31
Ratio of net investment income (loss) to average net assets (%) 0.04(8) (0.15) (0.28) (0.06) (0.82)
Ratio of adjusted net investment income (loss) to average
net assets(9) (%) (4.40)(8) (3.09) (2.70) (3.10) (4.40)
Portfolio turnover rate (%) 148 227 154 151 179
Fee reduction per share ($) 1.15 0.39 0.31 0.24 0.31(3)
Average brokerage commission rate(10) ($) N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended August 31, (continued) 1993 1994 1995 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.87 $13.27 $15.88 $14.11
Net investment income (loss) (0.11)(3) (0.10)(3) 0.02(3,4) (0.02)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 4.51 3.12 (1.24) 1.12
Total from investment operations 4.40 3.02 (1.22) 1.10
Less distributions:
Dividends from net investment income -- -- -- --
Distributions from net realized gain on investments sold
and foreign currency transactions -- (0.41) (0.55) --
Total distributions -- (0.41) (0.55) --
Net asset value, end of period $13.27 $15.88 $14.11 $15.21
Total investment return at net asset value(5) (%) 49.61 22.82 (7.65) 7.80(6)
Total adjusted investment return at net asset value(5,7) (%) 48.31 -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 14,568 50,261 37,417 43,051
Ratio of expenses to average net assets (%) 2.94 2.43 2.05 2.12(8)
Ratio of adjusted expenses to average net assets(9) (%) 4.24 -- -- --
Ratio of net investment income (loss) to average net assets (%) (0.98) (0.66) 0.13(4) (0.30)(8)
Ratio of adjusted net investment income (loss) to average
net assets(9) (%) (2.28) -- -- --
Portfolio turnover rate (%) 171 68 48 26
Fee reduction per share ($) 0.14(3) -- -- --
Average brokerage commission rate(10) ($) N/A N/A N/A 0.01
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - year ended August 31, 1994(1) 1995 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.11 $15.84 $13.96
Net investment income (loss) (0.09)(3) (0.09)(3) (0.08)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.82 (1.24) 1.12
Total from investment operations 0.73 (1.33) 1.04
Less distributions:
Distributions from net realized gain on investments sold
and foreign currency transactions -- (0.55) --
Net asset value, end of period $15.84 $13.96 $15.00
Total investment return at net asset value(5) (%) (4.83)(6) (8.38) 7.45(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 9,480 14,368 30,399
Ratio of expenses to average net assets (%) 3.00(8) 2.77 2.84(8)
Ratio of net investment income (loss) to average net assets (%) (1.40)(8) (0.66) (1.09)(8)
Portfolio turnover rate (%) 68 48 26
Average brokerage commission rate(10) ($) N/A N/A 0.01
</TABLE>
(1) Class A and Class B shares commenced operations on September 8, 1987 and
March 7, 1994, respectively.
(2) Six months ended February 29, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) May not accord to amounts shown elsewhere in the financial statements due
to the timing of sales and repurchases of fund shares in relation to
fluctuating market values of the investments of the fund.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(8) Annualized.
(9) Unreimbursed, without fee reduction.
(10) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
GROWTH - PACIFIC BASIN EQUITIES FUND 15
<PAGE>
Short-Term Strategic Income Fund
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: JHSAX
CLASS B: FRSWX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO] The fund seeks a high level of current income. To pursue this goal, the
fund invests primarily in debt securities issued or guaranteed by:
o foreign governments and companies including those in emerging markets
o the U.S. Government, its agencies or instrumentalities
o U.S. companies
Under normal circumstances, the fund will invest assets in all three of these
sectors, but may invest up to 100% in any one sector. The fund maintains an
average portfolio maturity of three years or less.
PORTFOLIO SECURITIES
[LOGO] The fund may invest in all types of debt securities. The fund's U.S.
Government securities may include mortgage-backed securities. The fund may
invest up to 67% of assets in securities rated as low as B and their unrated
equivalents. Bonds rated lower than BBB/Baa are considered junk bonds. However,
the fund maintains an average portfolio quality rating of A, which is an
investment-grade rating.
Because the fund is non-diversified, it may invest more than 5% of assets in
securities of a single issuer, but no more than 25% of assets in the securities
of any one foreign government. The fund also may invest in certain other
investments, including derivatives, and may engage in other investment
practices.
RISK FACTORS
[LOGO] The value of your investment in the fund will fluctuate with changes in
currency exchange rates as well as interest rates. Typically, a rise in interest
rates causes a decline in the market value of fixed income securities.
International investing, particularly in emerging markets, carries additional
risks, including currency information, natural event and political risks. Junk
bonds may carry above-average credit and market risks and mortgage-backed
securities may carry extension and prepayment risks. These risks are defined in
"More about risk" starting on page 31.
To the extent that the fund utilizes higher-risk securities practices, it takes
on further risks that could adversely affect its performance. Please read "More
about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[LOGO] Anthony A. Goodchild, Lawrence J. Daly and Janet L. Clay lead the
portfolio management team. Messrs. Goodchild and Daly are senior vice presidents
and joined John Hancock Funds in July 1994, having been in the investment
business since 1968 and 1972, respectively. Ms. Clay, a second vice president,
joined John Hancock Funds in August 1995 and has been in the investment business
since 1990.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 3.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 3.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.65% 0.65%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.42% 0.42%
Total fund operating expenses 1.37% 2.07%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $44 $72 $103 $190
Class B shares
Assuming redemption
at end of period $51 $85 $111 $198
Assuming no redemption $21 $65 $111 $198
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
16 INCOME - SHORT-TERM STRATEGIC INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1991(1) 8.85(5)
1992 7.97
1993 5.98
1994 1.93
1995 3.77(6)
1996(2) 0.64
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - year ended October 31, 1992(1) 1993 1994 1995 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.86 $9.32 $9.12 $8.47 $8.41
Net investment income (loss) 0.65 0.83(3) 0.76(3) 0.77(3) 0.33(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.55) (0.20) (0.53) (0.06) 0.01
Total from investment operations 0.10 0.63 0.23 0.71 0.34
Less distributions:
Dividends from net investment income (0.64) (0.83) (0.62) (0.61) (0.34)
Distributions in excess of net investment income -- -- (0.04) -- --
Distributions in excess of net realized gain on investments sold -- -- (0.12) -- --
Distributions from capital paid-in -- -- (0.10) (0.16) --
Total distributions (0.64) (0.83) (0.88) (0.77) (0.34)
Net asset value, end of period $9.32 $9.12 $8.47 $8.41 $8.41
Total investment return at net asset value(4) (%) 1.16(5) 6.78 2.64 8.75 4.10(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 20,468 11,130 13,091 16,997 34,290
Ratio of expenses to average net assets (%) 1.37(5) 1.21 1.26 1.33 1.40(5)
Ratio of net investment income (loss) to average net assets (%) 8.09(5) 8.59 8.71 9.13 8.05(5)
Portfolio turnover rate (%) 86 306 150 147 39
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - year ended October 31, 1991(1) 1992 1993 1994 1995 1996(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.00 $10.01 $9.31 $9.11 $8.46 $8.40
Net investment income (loss) 0.76 0.87 0.75(3) 0.70(3) 0.70(3) 0.31(3)
Net realized and unrealized gain
(loss) on investments and
foreign currency transactions 0.01 (0.80) (0.20) (0.53) (0.06) 0.00
Total from investment operations 0.77 0.07 0.55 0.17 0.64 0.31
Less distributions:
Dividends from net investment income (0.76) (0.77) (0.75) (0.56) (0.56) (0.31)
Distributions in excess of net investment income -- -- -- (0.04) -- --
Distributions in excess of net realized gain
on investments sold -- -- -- (0.12) -- --
Distributions from capital paid-in -- -- -- (0.10) (0.14) --
Total distributions (0.76) (0.77) (0.75) (0.82) (0.70) (0.31)
Net asset value, end of period $10.01 $9.31 $9.11 $8.46 $8.40 $8.40
Total investment return at net asset value(4) (%) 8.85(5) 0.64 5.98 1.93 7.97 3.77(6)
Total adjusted investment return at net asset value(4,7) (%) 8.81(5) -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 218,562 236,059 142,873 98,390 84,601 64,684
Ratio of expenses to average net assets (%) 1.89(5) 2.07 2.01 1.99 2.07 2.06(5)
Ratio of adjusted expenses to average net assets(8) (%) 1.93(5) -- -- -- -- --
Ratio of net investment income (loss) to average net assets (%) 8.72(5) 8.69 7.81 8.00 8.40 7.44(5)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) 8.68(5) -- -- -- -- --
Portfolio turnover rate (%) 22 86 306 150 147 39
Fee reduction per share ($) 0.0039 -- -- -- -- --
</TABLE>
(1) Class A and Class B shares commenced operations on January 3, 1992 and
December 28,1990, respectively.
(2) Six months ended April 30, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Annualized.
(6) Not annualized.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(8) Unreimbursed, without fee reduction.
INCOME - SHORT-TERM STRATEGIC INCOME FUND 17
<PAGE>
World Bond Fund
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A: FGLAX
CLASS B: FGLIX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[LOGO] The fund seeks a high total investment return -- a combination of current
income and capital appreciation. To pursue this goal, the fund invests at least
65% of assets in debt securities issued or guaranteed by:
o foreign governments and companies including those in emerging markets
o multinational organizations such as the World Bank
o the U.S. Government, its agencies or instrumentalities
Under normal circumstances, the fund expects to invest in the securities markets
of at least three countries at any one time, potentially including the U.S. The
fund does not maintain a fixed allocation of assets.
PORTFOLIO SECURITIES
[LOGO] The fund may invest in all types of debt securities of any maturity,
including preferred and convertible securities. Less than 35% of assets may be
invested in junk bonds rated as low as CCC/Caa, or equivalent.
Because the fund is non-diversified, it may invest more than 5% of assets in
securities of a single issuer, but no more than 25% of assets in the securities
of any one foreign government.
For liquidity and flexibility, the fund may place up to 35% of assets in
investment-grade short-term securities. In abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. The fund also may
invest in certain other investments, including derivatives, and may engage in
other investment practices.
RISK FACTORS
[LOGO] As with most bond funds, the value of your investment in the fund will
fluctuate with changes in interest rates. Typically, a rise in interest rates
causes a decline in the market value of fixed income securities.
International investing, particularly in emerging markets, carries additional
risks, including currency, information, natural event and political risks. Junk
bonds may carry above-average credit and market risks and mortgage-backed
securities may carry extension and prepayment risks. These risks are defined in
"More about risk" starting on page 31.
To the extent that the fund utilizes higher-risk securities practices, it takes
on further risks that could adversely affect its performance. Please read "More
about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[LOGO] Anthony A. Goodchild, Lawrence J. Daly and Janet L. Clay lead the
portfolio management team. Messrs. Goodchild and Daly are senior vice presidents
and joined John Hancock Funds in July 1994, having been in the investment
business since 1968 and 1972, respectively. Ms. Clay, a second vice president,
joined John Hancock Funds in August 1995 and has been in the investment business
since 1990.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[LOGO] Fund investors pay various expenses, either directly or indirectly. The
figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee 0.75% 0.75%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.43% 0.43%
Total fund operating expenses 1.48% 2.18%
Example The table below shows what you would pay
if you invested $1,000 over the various time frames indicated. The example
assumes you reinvested all dividends and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $59 $90 $122 $214
Class B shares
Assuming redemption
at end of period $72 $98 $137 $234
Assuming no redemption $22 $68 $117 $234
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Because of the 12b-1 fee, long-term shareholders may indirectly pay more
than the equivalent of the maximum permitted front-end sales charge.
18 INCOME - WORLD BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[LOGO] The figures below have been audited by the fund's independent auditors,
Price Waterhouse LLP.
Volatility, as indicated by Class B year-by-year total investment return (%)
[The following table was presented as a graph in the printed document]
Total
Investment
Return
At Net
Year Asset Value(4)
---- -----------
1987(7) 65.96(5)
1987(8) 1.59(5)
1988 20.09
1989 5.47
1990 11.84
1991 10.44
1992 1.72
1993 6.77
1994 (1.88)
1995 11.51
1996(2) 0.30(6)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Class A - year ended October 31, 1992(1) 1993 1994 1995 1996(2)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.57 $9.76 $9.62 $8.85 $9.30
Net investment income (loss) 0.64 0.76 0.64(3) 0.57(3) 0.25(3)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.74) (0.10) (0.78) 0.48 (0.19)
Total from investment operations (0.10) 0.66 (0.14) 1.05 0.06
Less distributions:
Dividends from net investment income (0.71) (0.38) (0.11) (0.59) (0.25)
Distributions in excess of net investment income -- (0.04) -- -- --
Distributions from capital paid-in -- (0.38) (0.52) (0.01) --
Total distributions (0.71) (0.80) (0.63) (0.60) (0.25)
Net asset value, end of period $9.76 $9.62 $8.85 $9.30 $9.11
Total investment return at net asset value(4) (%) (0.88)(5) 7.14 (1.30) 12.25 0.63(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 12,880 12,882 8,949 35,334 31,336
Ratio of expenses to average net assets (%) 1.41(5) 1.46 1.59 1.48 1.56(5)
Ratio of net investment income (loss) to average
net assets (%) 7.64(5) 7.89 7.00 6.43 5.38(5)
Portfolio turnover rate (%) 476 363 174 263 141
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Class B - year ended October 31, 1987(7) 1987(8) 1988 1989 1990 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $9.60 $10.79 $10.32 $10.98 $10.21 $10.38
Net investment income (loss) 0.31 0.25 0.67 0.83 0.85 0.90
Net realized and unrealized gain (loss) on investments
and foreign currency transactions 1.29 (0.18) 1.31 (0.27) 0.28 0.13
Total from investment operations 1.60 0.07 1.98 0.56 1.13 1.03
Less distributions:
Dividends from net investment income (0.26) (0.28) (0.68) (0.84) (0.85) (0.73)
Distributions from net realized gain on investments (0.15) (0.26) (0.64) (0.49) -- (0.24)
Distributions in excess of net investment income -- -- -- -- -- --
Distributions from capital paid-in -- -- -- -- (0.11) --
Total distributions (0.41) (0.54) (1.32) (1.33) (0.96) (0.97)
Net asset value, end of period $10.79 $10.32 $10.98 $10.21 $10.38 $10.44
Total investment return at net asset value(4) (%) 65.96(5) 1.59(5) 20.09 5.47 11.84 10.44
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 18,253 58,658 174,833 255,214 186,524 192,687
Ratio of expenses to average net assets (%) 2.41(5) 2.19(5) 1.74 1.75 1.82 1.90
Ratio of net investment income (loss) to average
net assets (%) 8.69(5) 6.32(5) 6.04 8.07 8.67 8.74
Portfolio turnover rate (%) 140(5) 152(5) 364 333 186 159
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class B - year ended October 31, (continued) 1992 1993 1994 1995 1996(2)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.44 $9.74 $9.62 $8.85 $9.30
Net investment income (loss) 0.78 0.72 0.59(3) 0.55(3) 0.22(3)
Net realized and unrealized gain (loss) on investments
and foreign currency transactions (0.59) (0.09) (0.78) 0.44 (0.19)
Total from investment operations 0.19 0.63 (0.19) 0.99 0.03
Less distributions:
Dividends from net investment income (0.89) (0.33) (0.06) (0.53) (0.22)
Distributions from net realized gain on investments -- -- -- -- --
Distributions in excess of net investment income -- (0.04) -- -- --
Distributions from capital paid-in -- (0.38) (0.52) (0.01) --
Total distributions (0.89) (0.75) (0.58) (0.54) (0.22)
Net asset value, end of period $9.74 $9.62 $8.85 $9.30 $9.11
Total investment return at net asset value(4) (%) 1.72 6.77 (1.88) 11.51 0.30(6)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 199,102 197,166 114,656 65,600 53,963
Ratio of expenses to average net assets (%) 1.91 1.91 2.17 2.16 2.22(5)
Ratio of net investment income (loss) to average
net assets (%) 7.59 7.45 6.41 6.03 4.72(5)
Portfolio turnover rate (%) 476 363 174 263 141
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Six months ended April 30, 1996. (Unaudited.)
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Annualized.
(6) Not annualized.
(7) For the period December 17, 1986 (commencement of operations) to May 31,
1987.
(8) For the period June 1, 1987 to October 31, 1987.
INCOME - WORLD BOND FUND 19
<PAGE>
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
All John Hancock international/global funds offer two classes of shares, Class A
and Class B. Each class has its own cost structure, allowing you to choose the
one that best meets your requirements. Your financial representative can help
you decide.
- --------------------------------------------------------------------------------
Class A Class B
- --------------------------------------------------------------------------------
o Front-end sales charges, as o No front-end sales charge;
described below. There are all your money goes to
several ways to reduce work for you right away.
these charges, also o Higher annual expenses
described below. than Class A shares.
o Lower annual expenses o A deferred sales charge, as
than Class B shares. described below.
o Automatic conversion to
Class A shares after eight
years (five years for Short-
Term Strategic Income
Fund), thus reducing future
annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A Sales charges are as follows:
- --------------------------------------------------------------------------------
Class A sales charges - Short-Term Strategic Income
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $99,999 3.00% 3.09%
$100,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
- --------------------------------------------------------------------------------
Class A sales charges - World Bond
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $99,999 4.50% 4.71%
$100,000 - $249,999 3.75% 3.90%
$250,000 - $499,999 2.75% 2.83%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
- --------------------------------------------------------------------------------
Class A sales charges - growth funds
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
Investments of $1 million or more Class A shares are available with no front-end
sales charge. However, there is a contingent deferred sales charge (CDSC) on any
shares sold within one year of purchase, as follows:
- --------------------------------------------------------------------------------
CDSC on $1 million+ investments (all funds)
- --------------------------------------------------------------------------------
Your investment CDSC on shares being sold
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
20 YOUR ACCOUNT
<PAGE>
Class B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within a certain time after you bought them, as
described in the table below. There is no CDSC on shares acquired through
reinvestment of dividends. The CDSC is based on the original purchase cost or
the current market value of the shares being sold, whichever is less. The longer
the time between the purchase and the sale of shares, the lower the rate of the
CDSC:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
Years after CDSC on Short-Term CDSC on all
purchase Strategic Income other fund shares
shares being sold being sold
1st year 3.00% 5.00%
2nd year 2.00% 4.00%
3rd year 2.00% 3.00%
4th year 1.00% 3.00%
5th year None 2.00%
6th year None 1.00%
After 6 years None None
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the FIRST day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
o Letter of Intention-- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
o Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Investor Services to add these options (see the
back cover of this prospectus).
Group Investment Program Allows established groups of four or more investors to
invest as a group. Each investor has an individual account, but for sales charge
purposes the group's investments are lumped together, making the investors
potentially eligible for reduced sales charges. There is no charge, no
obligation to invest (although initial aggregate investments must be at least
$250) and you may terminate the program at any time.
To utilize: contact your financial representative or Investor Services to find
out how to qualify.
CDSC waivers As long as Investor Services is notified at the time you sell, the
CDSC for either share class will generally be waived in the following cases:
o to make payments through certain systematic withdrawal plans
o to make certain distributions from a retirement plan
o because of shareholder death or disability
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Investor Services, or consult the SAI (see the back
cover of this prospectus).
Reinstatement privilege If you sell shares of a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
To utilize: contact your financial representative or Investor Services.
YOUR ACCOUNT 21
<PAGE>
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o government entities that are prohibited from paying mutual fund sales
charges
o financial institutions or common trust funds investing $1 million or more
for non-discretionary accounts
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
o fund trustees and other individuals who are affiliated with these or other
John Hancock funds
o individuals transferring assets to a John Hancock growth fund from an
employee benefit plan that has John Hancock funds
o members of an approved affinity group financial services program
o certain insurance company contract holders (one-year CDSC usually applies)
o participants in certain retirement plans with at least 100 members
(one-year CDSC applies)
o clients of AFA, when their funds are transferred directly to Global
Technology Fund from accounts managed by AFA
o certain former shareholders of John Hancock National Aviation & Technology
Fund and Nova Fund (applies to Global Technology Fund only).
To utilize: if you think you may be eligible for a sales charge waiver, contact
Investor Services or consult the SAI.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
o non-retirement account: $1,000
o retirement account: $250
o group investments: $250
o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Investor Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to
add privileges later.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
22 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account
By check
[LOGO]
o Make out a check for the investment amount, payable to "John Hancock
Investor Services Corporation."
o Deliver the check and your completed application to your financial
representative, or mail them to Investor Services (address below).
By exchange
[LOGO]
o Call your financial representative or Investor Services to request an
exchange.
By wire
[LOGO]
o Deliver your completed application to your financial representative, or
mail it to Investor Services.
o Obtain your account number by calling your financial representative or
Investor Services.
o Instruct your bank to wire the amount of your investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your choice of share class, the new account number
and the name(s) in which the account is registered. Your bank may charge a
fee to wire funds.
By phone
[LOGO]
See "By wire" and "By exchange."
Adding to an account
By check
[LOGO]
o Make out a check for the investment amount payable to "John Hancock
Investor Services Corporation."
o Fill out the detachable investment slip from an account statement. If no
slip is available, include a note specifying the fund name, your share
class, your account number and the name(s) in which the account is
registered.
o Deliver the check and your investment slip or note to your financial
representative, or mail them to Investor Services (address below).
By exchange
[LOGO]
o Call Investor Services to request an exchange.
By wire
[LOGO]
o Instruct your bank to wire the amount of your investment to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your share class, your account number and the
name(s) in which the account is registered. Your bank may charge a fee to
wire funds.
By phone
[LOGO]
o Verify that your bank or credit union is a member of the Automated Clearing
House (ACH) system.
o Complete the "Invest-By-Phone" and "Bank Information" sections on your
account application.
o Call Investor Services to verify that these features are in place on your
account.
o Tell the Investor Services representative the fund name, your share class,
your account number, the name(s) in which the account is registered and the
amount of your investment.
- --------------------------------------------------------------------------------
Address
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
Phone number
1-800-225-5291
Or contact your financial representative for instructions and assistance.
- --------------------------------------------------------------------------------
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
YOUR ACCOUNT 23
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for
- --------------------------------------------------------------------------------
By letter
- --------------------------------------------------------------------------------
[LOGO]
o Accounts of any type.
o Sales of any amount.
- --------------------------------------------------------------------------------
By phone
- --------------------------------------------------------------------------------
[LOGO]
o Most accounts.
o Sales of up to $100,000.
- --------------------------------------------------------------------------------
By wire or electronic funds transfer (EFT)
- --------------------------------------------------------------------------------
[LOGO]
o Requests by letter to sell any amount (accounts of any type).
o Requests by phone to sell up to $100,000 (accounts with telephone
redemption privileges).
- --------------------------------------------------------------------------------
By exchange
- --------------------------------------------------------------------------------
[LOGO]
o Accounts of any type.
o Sales of any amount.
- --------------------------------------------------------------------------------
By check
- --------------------------------------------------------------------------------
[LOGO]
o Short-Term Strategic Income Fund only.
o Any account with checkwriting privileges.
o Sales of over $100.
To sell some or all of your shares
- --------------------------------------------------------------------------------
By letter
- --------------------------------------------------------------------------------
[LOGO]
o Write a letter of instruction or complete a stock power indicating the fund
name, your share class, your account number, the name(s) in which the
account is registered and the dollar value or number of shares you wish to
sell.
o Include all signatures and any additional documents that may be required
(see next page).
o Mail the materials to Investor Services.
o A check will be mailed to the name(s) and address in which the account is
registered, or otherwise according to your letter of instruction.
- --------------------------------------------------------------------------------
By phone
- --------------------------------------------------------------------------------
[LOGO]
o For automated service 24 hours a day using your touch-tone phone, call the
EASI-Line at 1-800-338-8080.
o To place your order with a representative at John Hancock Funds, call
Investor Services between 8 A.M. and 4 P.M. on most business days.
- --------------------------------------------------------------------------------
By wire or electronic funds transfer (EFT)
- --------------------------------------------------------------------------------
[LOGO]
o Fill out the "Telephone Redemption" section of your new account
application.
o To verify that the telephone redemption privilege is in place on an
account, or to request the forms to add it to an existing account, call
Investor Services.
o Amounts of $1,000 or more will be wired on the next business day. A $4 fee
will be deducted from your account.
o Amounts of less than $1,000 may be sent by EFT or by check. Funds from EFT
transactions are generally available by the second business day. Your bank
may charge a fee for this service.
- --------------------------------------------------------------------------------
By exchange
- --------------------------------------------------------------------------------
[LOGO]
o Obtain a current prospectus for the fund into which you are exchanging by
calling your financial representative or Investor Services.
o Call Investor Services to request an exchange.
- --------------------------------------------------------------------------------
By check
- --------------------------------------------------------------------------------
[LOGO]
o Request checkwriting on your account application.
o Verify that the shares to be sold were purchased more than 15 days earlier
or were purchased by wire.
o Write a check for any amount over $100.
- --------------------------------------------------------------------------------
Address
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
Phone number
1-800-225-5291
Or contact your financial representative for instructions and assistance.
- --------------------------------------------------------------------------------
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
24 YOUR ACCOUNT
<PAGE>
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will need
a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You can generally obtain a signature guarantee from the following sources:
o a broker or securities dealer
o a federal savings, cooperative or other type of bank
o a savings and loan or other thrift institution
o a credit union
o a securities exchange or clearing agency
A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
[LOGO]
Owners of individual, joint, sole o Letter of instruction.
proprietorship, UGMA/UTMA
(custodial accounts for minors) or o On the letter, the signatures and
general partner accounts. titles of all persons authorized to
sign for the account, exactly as the
account is registered.
o Signature guarantee if applicable
(see above).
Owners of corporate or association o Letter of instruction.
accounts.
o Corporate resolution, certified
within the past 90 days.
o On the letter and the resolution,
the signature of the person(s)
authorized to sign for the account.
o Signature guarantee if applicable
(see above).
Owners or trustees of trust o Letter of instruction.
accounts.
o On the letter, the signature(s) of
the trustee(s).
o If the names of all trustees are not
registered on the account, please
also provide a copy of the trust
document certified within the past
60 days.
o Signature guarantee if applicable
(see above).
Joint tenancy shareholders whose o Letter of instruction signed by
co-tenants are deceased. surviving tenant.
o Copy of death certificate.
o Signature guarantee if applicable
(see above).
Executors of shareholder estates. o Letter of instruction signed by
executor.
o Copy of order appointing executor.
o Signature guarantee if applicable
(see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
YOUR ACCOUNT 25
<PAGE>
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after your request is accepted by
Investor Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Investor Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or other taxpayer ID number and other relevant
information. If appropriate measures are not taken, Investor Services is
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
Class B shares will continue to age from the original date and will retain the
same CDSC rate as they had before the exchange, except that the rate will change
to that of the new fund if the new fund's rate is higher. A CDSC rate that has
increased will drop again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
Certificated shares Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Investor Services. Certificated
shares can only be sold by returning the certificates to Investor Services,
along with a letter of instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten calendar days after
the purchase.
Foreign currencies Purchases must be made in U.S. dollars. Purchases in foreign
currencies must be converted, which may result in a fee and delayed execution.
Eligibility by state You may only invest in, or exchange into, fund shares
legally available in your state.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
26 YOUR ACCOUNT
<PAGE>
Dividends The income funds generally declare income dividends daily and pay them
monthly. These income dividends begin accruing the day after payment is received
by the fund and continue through the day your shares are actually sold. The
growth funds pay income dividends, if any, annually. All funds distribute
capital gains, if any, annually.
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
Taxability of dividends As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive from the growth funds.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Investor Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum)
for your first investment amount payable to "John Hancock Investor Services
Corporation." Deliver your check and application to your financial
representative or Investor Services.
Systematic withdrawal plan This plan may be used for routine bill payment or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they are
all on the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial
representative or Investor Services.
Retirement plans John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, SARSEPs, 401(k) plans, 403(b) plans (including
TSAs) and other pension and profit-sharing plans. Using these plans, you can
invest in any John Hancock fund with a low minimum investment of $250 or, for
some group plans, no minimum investment at all. To find out more, call Investor
Services at 1-800-225-5291.
YOUR ACCOUNT 27
<PAGE>
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
How the funds are organized Each John Hancock international/global fund is an
open-end management investment company or a series of such a company.
Each fund is supervised by a board of trustees or a board of directors, an
independent body that has ultimate responsibility for the fund's activities. The
board retains various companies to carry out the fund's operations, including
the investment adviser, custodian, transfer agent and others (see diagram). The
board has the right, and the obligation, to terminate the fund's relationship
with any of these companies and to retain a different company if the board
believes it is in the shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock international/global
funds may include individuals who are affiliated with the investment adviser.
However, the majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
{The following table was presented as a flow chart in the printed document]
--------------------------------------
Shareholders
--------------------------------------
--------------------------------------
Financial service firms and
their representatives
Distribution and
shareholder services
Advise current and prospective
shareholders on their fund investments,
often in the context of an overall
financial plan.
--------------------------------------
--------------------------- -----------------------------
Principle distributor Transfer agent
John Hancock Funds, Inc. John Hancock Investor
101 Huntington Avenue Services Corporation
Boston, MA 02199-7603 P.O. Box 9116
Boston, MA 02205-9116
Markets the funds and
distributes shares through Handles shareholder services,
selling brokers, financial including record-keeping and
planners and other financial statements, distribution of
representatives. dividends and processing of
buy and sell requests
--------------------------- -----------------------------
<TABLE>
<CAPTION>
Asset management
- ------------------------------- ----------------------------- -------------------------------------
<S> <C> <C>
Subadvisers Investment Adviser Custodians
American Fund Advisers, Inc. John Hancock Advisers, Inc. Investors Bank & Trust Co.
1415 Kellum Place 101 Huntington Avenue 89 South Street
Garden City, NY 11530 Boston, MA 02199-7603 Boston, MA 02111
John Hancock Advisers Manages the funds' business State Street Bank and Trust Company
International Limited and investment activities. 225 Franklin Street
34 Dover Street Boston, MA 02110
London, UK W1X3Ra
Hold the funds' assets, settle
Indosuez Asia Advisers Limited all portfolio trades and
One Exchange Square collect most of the valuation
Hong Kong data required for calculating
each fund's NAV.
Provide portfolio management
to certain funds.
- ------------------------------- ----------------------------- -------------------------------------
</TABLE>
--------------------------------
Trustees/Directors
Supervise the funds' activities.
--------------------------------
28 FUND DETAILS
<PAGE>
Accounting compensation The funds compensate the adviser for performing tax and
financial management services. Annual compensation for 1996 will not exceed
0.02% of each fund's average net assets.
Portfolio trades In placing portfolio trades, the adviser may use brokerage
firms that market the fund's shares or are affiliated with John Hancock Mutual
Life Insurance Company, but only when the adviser believes no other firm offers
a better combination of quality execution (i.e., timeliness and completeness)
and favorable price.
Investment goals Except for Global Rx Fund, International Fund and World Bond
Fund, each fund's investment goal is fundamental and may only be changed with
shareholder approval.
Diversification Except for Global Rx Fund, Short-Term Strategic Income Fund and
World Bond Fund, all of the international/global funds are diversified.
- --------------------------------------------------------------------------------
SALES COMPENSATION
As part of their business strategies, the funds, along with John Hancock Funds,
pay compensation to financial services firms that sell the funds' shares. These
firms typically pass along a portion of this compensation to your financial
representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund in assets ("12b-1" refers to the
federal securities regulation authorizing annual fees of this type). The 12b-1
fee rates vary by fund and by share class, according to Rule 12b-1 plans adopted
by the funds' respective boards. The sales charges and 12b-1 fees paid by
investors are detailed in the fund-by-fund information. The portions of these
expenses that are reallowed to financial services firms are shown on the next
page.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B shares,
interest expenses.
- --------------------------------------------------------------------------------
Class B unreimbursed distribution expenses(1)
- --------------------------------------------------------------------------------
Unreimbursed As a % of
Fund expenses net assets
Global $ 750,008 2.74%
Global Marketplace $ N/A N/A
Global Rx $ 205,352 6.09%
Global Technology $ 987,619 4.34%
International $ 358,785 9.76%
Pacific Basin Equities $ 749,799 6.06%
Short-Term Strategic Income $ 2,610,556 2.93%
World Bond $ 4,753,035 5.13%
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
Initial compensation Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
Annual compensation Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears. Firms affiliated
with John Hancock, which include Tucker Anthony, Sutro & Company and John
Hancock Distributors, may receive an additional fee of up to 0.05% a year of
their total eligible net assets.
To compensate for continuing services, John Hancock Funds will pay Merrill
Lynch, Pierce, Fenner & Smith, Inc. an annual fee equal to 0.15% of the value of
Class A shares held by its customers for more than four years.
FUND DETAILS 29
- --------------------------------------------------------------------------------
Class A investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Maximum
Sales charge reallowance First year Maximum
paid by investors or commission service fee total compensation(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
Short-Term Strategic Income Fund
Up to $99,999 3.00% 2.26% 0.25% 2.50%
$100,000 - $499,999 2.50% 2.01% 0.25% 2.25%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
World Bond Fund
Up to $99,999 4.50% 3.76% 0.25% 4.00%
$100,000 - $249,999 3.75% 3.01% 0.25% 3.25%
$250,000 - $499,999 2.75% 2.06% 0.25% 2.30%
$500,000 - $999,999 2.00% 1.51% 0.25% 1.75%
Growth funds
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Regular investments of
$1 million or more (all funds)
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50%
Next $1 and more above that -- 0.00% 0.25% 0.25%
Waiver investments(2) -- 0.00% 0.25% 0.25%
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Class B investments
- --------------------------------------------------------------------------------
Maximum
reallowance First year Maximum
or commission service fee total compensation
(% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C>
Short-Term Strategic Income Fund
All amounts 2.25% 0.25% 2.50%
All other funds
All amounts 3.75% 0.25% 4.00%
</TABLE>
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to fund commission
payments when there is no initial sales charge.
30 FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's
primary securities and investment practices. You may find the most concise
description of each fund's risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock international/global fund will be positive over any period of time --
days, months or years. However, international markets have performed better over
the past two decades than domestic markets.
- --------------------------------------------------------------------------------
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of
a hedging instrument will not match those of the asset being hedged (hedging is
the use of one investment to offset the effects of another investment).
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments, and may widen any losses.
Extension risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.
Information risk The risk that key information about a security or market is
inaccurate or unavailable.
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value.
o Hedged When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position which
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance.
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than it was worth at an earlier time. Market risk may affect a
single issuer, industry, sector of the economy or the market as a whole. Common
to all stocks and bonds and the mutual funds that invest in them.
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events.
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
Political risk The risk of losses directly attributable to government or
political actions of any sort. These actions may range from changes in tax or
trade statutes to expropriation, governmental collapse and war.
Prepayment risk The risk that unanticipated prepayments may occur, reducing the
value of mortgage-backed securities.
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
FUND DETAILS 31
<PAGE>
- --------------------------------------------------------------------------------
Higher-risk securities and practices
- --------------------------------------------------------------------------------
This table shows each fund's investment limitations as a percentage of portfolio
assets. In each case the principal types of risk are listed (see previous page
for definitions). Numbers in this table show allowable usage only; for actual
usage, consult the fund's annual/semi-annual reports.
[The following symbols have been modified from those presented in the
printed document in order to facilitate understanding of the EDGAR table]
* 10 Percent of total assets
+ 10 Percent of net assets
o No policy limitation on usage;
fund may be using currently
oo Permitted, but has not
typically been used
- -- Not permitted
<TABLE>
<CAPTION>
Pacific Short-Term
Global Global Global Basin Strategic World
Global Marketplace Rx Technology International Equities Income Bond
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment practices
Borrowing; reverse repurchase
agreements The borrowing of
money from banks or through
reverse repurchase agreements.
Leverage, credit risks. 10* 33.3* 33.3* 10+ 33.3* 33.3* 10* 10+
Currency trading The direct
trading or holding of foreign
currencies as an asset.
Currency risk. o o o o o o o o
Repurchase agreements The
purchase of a security that
must later be sold back to the
issuer at the same price plus
interest. Credit risk. o o o o o o o o
Securities lending The lending
of securities to financial
institutions, which provide
cash or government securities
as collateral. Credit risk. 10* 33.3* 33.3* 33.3* 33.3* 33.3* 30* 30*
Short sales The selling of
securities which have been
borrowed on the expectation
that the market price will
drop.
o Hedged. Hedged leverage,
market, correlation,
liquidity, opportunity
risks. -- oo oo -- oo oo -- --
o Speculative. Speculative
leverage, market,
liquidity risks. -- oo oo -- oo -- -- --
Short-term trading Selling a
security soon after purchase.
A portfolio engaging in
short-term trading will have
higher turnover and
transaction expenses. Market
risk. o o o o o o o o
When-issued securities and
forward commitments The
purchase or sale of securities
for delivery at a future date;
market value may change before
delivery. Market, opportunity,
leverage risks. o o o o o o o o
- ---------------------------------------------------------------------------------------------------------------------------------
Conventional securities
Foreign debt securities Debt
securities issued by foreign
governments or companies.
Credit, currency, interest
rate, market, political risks. 5* 35(1)* 35(1)* 10(2)+ 35(1)* 35(1)* o(1) o(1)
Non-investment-grade debt
securities Debt securities
rated below BBB/Baa are
considered junk bonds. Credit,
market, interest rate,
liquidity, valuation,
information risks. -- -- 35* 10(2)+ -- -- 67* 35*
Restricted and illiquid
securities Securities not
traded on the open market. May
include illiquid Rule 144A
securities. Liquidity,
valuation, market risks. 15+ 15+ 15+ 15+ 15+ 15+ 15+ 15+
- ---------------------------------------------------------------------------------------------------------------------------------
Unleveraged derivative securities
Asset-backed securities
Securities backed by unsecured
debt, such as credit card
debt; these securities are
often guaranteed or
over-collateralized to enhance
their credit quality. Credit,
interest rate risks. oo oo oo oo oo oo o o
Mortgage-backed securities
Securities backed by pools of
mortgages, including
passthrough certificates,
PACs, TACs and other senior
classes of collateralized
mortgage obligations (CMOs).
Credit, extension, prepayment,
interest rate risks. oo oo oo oo oo oo o o
Participation interests
Securities representing an
interest in another security
or in bank loans. Credit,
interest rate, liquidity,
valuation risks. -- -- -- 10(2)+ -- -- 15(3)+ 15(3)+
</TABLE>
32 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
Pacific Short-Term
Global Global Global Basin Strategic World
Global Marketplace Rx Technology International Equities Income Bond
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Leveraged derivative securities
Currency contracts Contracts
involving the right or
obligation to buy or sell a
given amount of foreign
currency at a specified price
and future date.
o Hedged. Currency, hedged
leverage, correlation,
liquidity, opportunity
risks. o o o o o o o o
o Speculative. Currency,
speculative leverage,
liquidity risks. oo oo oo oo oo oo oo oo
Financial futures and options;
securities and index options
Contracts involving the right
or obligation to deliver or
receive assets or money
depending on the performance
of one or more assets or an
economic index.
o Futures and related
options. Interest rate,
currency, market, hedged
or speculative leverage,
correlation, liquidity,
opportunity risks. o o o oo o oo o o
o Options on securities and
indices. Interest rate,
currency, market, hedged
or speculative leverage,
correlation, liquidity,
credit, opportunity
risks. 5(4)* oo oo 5(4)* oo oo 5(4)* 5(4)*
Structured securities Indexed
and/or leveraged
mortgage-backed and other debt
securities, including
principal-only and
interest-only securities,
leveraged floating rate
securities, and others. These
securities tend to be highly
sensitive to interest rate
movements and their
performance may not correlate
to these movements in a
conventional fashion. Credit,
interest rate, extension,
prepayment, market,
speculative leverage,
liquidity, valuation risks. o o o 10(2)+ o oo o o
</TABLE>
(1) No more than 25% of the fund`s assets will be invested in securities of any
one foreign government.
(2) Included in the 10% limitation on debt securities.
(3) Included in the 15% limitation on illiquid securities.
(4) Applies to purchased options only.
- --------------------------------------------------------------------------------
Analysis of funds with 5% or more in junk bonds(1)
- --------------------------------------------------------------------------------
Quality rating Short-Term Strategic
(S&P/Moody's)(2) Income Fund
Investment Grade Bonds
AAA/Aaa 43.3%
AA/Aa 10.6%
A/A 8.4%
BBB/Baa 1.7%
- --------------------------------------------------------------------------------
Junk Bonds
BB/Ba 8.4%
B/B 13.5%
CCC/Caa 5.3%
CC/Ca 0.0%
C/C 0.0%
% of portfolio in bonds 91.2%
o Rated by S&P or Moody's o Rated by the adviser
(1) Data as of fund's last fiscal year end.
(2) In cases where the S&P and Moody's ratings for a given bond issue do not
agree, the issue has been counted in the higher category.
FUND DETAILS 33
<PAGE>
For more information
- --------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
international/global funds:
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/ semi-annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (is legally a part of this prospectus).
To request a free copy of the current annual/semi-annual report or SAI, please
write or call:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, MA 02205-9116
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
[LOGO] JOHN HANCOCK FUNDS
A Global Investment Management Firm
101 Huntington Avenue,
Boston, Massachusetts 02199-7603
[LOGO]
(C) 1996 John Hancock Funds, Inc.
<PAGE>
JOHN HANCOCK GLOBAL Rx FUND
Statement of Additional Information
August 30, 1996
This Statement of Additional Information provides information about John Hancock
Global Rx Fund (the "Fund"), a non-diversified series of John Hancock World Fund
(the "Trust"), in addition to the information that is contained in the Fund's
Prospectus dated August 30, 1996 (the "Prospectus").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Fund's Prospectus, a copy of which 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
Page
----
Organization Of The Fund................................................ 2
Investment Objective And Policies....................................... 2
Certain Investment Practices............................................ 3
Investment Restrictions................................................. 16
Those Responsible for Management........................................ 19
Investment Advisory And Other Services.................................. 27
Distribution Contract................................................... 30
Net Asset Value......................................................... 32
Initial Sales Charge on Class A Shares.................................. 33
Deferred Sales Charge on Class B Shares ................................ 36
Special Redemptions..................................................... 39
Additional Services And Programs........................................ 39
Description Of The Fund's Shares........................................ 41
Tax Status.............................................................. 42
Calculation Of Performance.............................................. 49
Brokerage Allocation.................................................... 50
Transfer Agent Services................................................. 52
Custody Of Portfolio.................................................... 53
Independent Auditors.................................................... 53
Appendix A-Description of Bond and Commercial Paper Ratings............. 54
Financial Statements.................................................... F-1
<PAGE>
ORGANIZATION OF THE FUND
John Hancock Global Rx Fund (the "Fund") is organized as a separate,
non-diversified series of John Hancock World Fund (the "Trust"), an open-end
management investment company organized in August 1986 as a Massachusetts
business trust under the laws of The Commonwealth of Massachusetts. Prior to
January 1, 1991, when the Trust changed its name, the Trust was known as John
Hancock World Trust. On January 1, 1995, the Fund changed its name from John
Hancock Freedom Global Rx. The Adviser is an indirect, wholly owned subsidiary
of John Hancock Mutual Life Insurance Company (the "Life Company"), a
Massachusetts life insurance company chartered in 1862, with national
headquarters at John Hancock Place, Boston, Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation through
investments in an international portfolio consisting primarily of equity
securities of issuers in the health care industry. Accordingly, the Fund seeks
to increase the value of shareholder investments, and any current income is
incidental to this objective. There can be no assurance that the Fund will
achieve its investment objective.
Under normal conditions, the Fund will invest at least 65% of its total assets
in the securities of health care companies. A "health care" company is one in
which at least 50% of gross revenues are derived from, or 50% of gross assets
are committed to, health care activities as of the end of its last fiscal year
or its most recent publicly available financial statement. The health care
industry is diverse, including companies which design, produce and/or sell
prescription drugs and over-the-counter medicines, drug delivery systems and
medical and analytical instruments; companies which own and/or manage health
care facilities; and companies involved in biotechnology. Because the Fund
concentrates its investments in the health care industry, its performance is
closely tied to conditions in this industry. The types of products and services
comprising this industry tend to become obsolete quickly with the discovery of
more effective medical techniques. Additionally, the companies providing these
services and products are subject to strict government regulation which could
have an unfavorable impact on the price and supply of their services and
products. Because the Fund is non-diversified it will be more susceptible to
adverse developments affecting any single issuer.
The Fund invests in common stocks and in securities convertible into or with
rights to purchase common stock of U.S. and foreign issuers. The value of
convertible securities, while influenced by the level of interest rates, is also
affected by the changing value of the underlying common stock into which the
securities are convertible. The Fund will not purchase any convertible
securities rated below "B" by a major rating agency.
-2-
<PAGE>
A significant portion of the Fund's investments are expected to be in countries
with developing markets, and in smaller capitalization developing-growth
companies with relatively limited operating histories as publicly traded
companies, and without regard to a record of profits or dividends. Investing in
securities of smaller capitalization developing-growth companies also involves
greater risk and the possibility of greater portfolio price volatility. Among
the reasons for the greater price volatility in these small companies and
unseasoned stocks are the less certain growth prospects of smaller firms, the
lower degree of liquidity in the markets for these stocks and the greater
sensitivity of small companies to changing economic conditions in their
geographic region. Securities of these companies involve higher investment risks
than those normally associated with larger firms due to the greater business
risks of small size and limited product lines, markets, distribution channels
and financial and managerial resources.
CERTAIN INVESTMENT PRACTICES
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. Although the Fund will not make a practice of short-term
trading, the Fund may engage in short-term trading in response to stock market
conditions, changes in interest rates or other economic trends and developments,
or to take advantage of yield disparities between various fixed income
securities in order to realize capital gains or improve income. Over the past
several years, political and economic events in foreign countries and in the
health care industry have affected the Fund's geographic allocation of assets.
Consequently, the Fund's portfolio turnover has been relatively high, as the
Fund repositioned its investments to limit risk and take advantage of evolving
investment opportunities. A high rate of portfolio turnover (100% or more)
involves correspondingly greater brokerage transaction costs which will be borne
by the Fund and its shareholders, and may, under certain circumstances, make it
more difficult for the Fund to qualify as a regulated investment company for
federal income tax purposes.
Foreign Currencies and Forward Currency Transactions. Due to its investments in
foreign securities, the Fund may hold a portion of its assets in foreign
currencies. The foreign currency transactions of the Fund may be conducted on a
spot (i.e., cash) basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market. The Fund may enter into forward
foreign currency contracts involving currencies of the different countries in
which it will invest as a hedge against possible variations in the foreign
exchange rate between these currencies. The Fund may also engage in speculative
forward currency transactions, and may use forward currency contracts as a
substitute for investing in securities denominated in that currency or in order
to create a synthetic position consisting of a security issued in one country
and denominated in the currency of another country. Forward currency
transactions are accomplished through contractual agreements to purchase or
sell a
-3-
<PAGE>
specified currency at a specified future date and price set at the time of the
contract. Transaction hedging is the purchase or sale of forward foreign
currency contracts with respect to specific receivables or payables of the Fund
accruing in connection with the purchase and sale of its portfolio securities
denominated in foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in such foreign currencies. The Fund will not attempt to hedge all of its
foreign portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by the Adviser.
If the Fund enters into a forward contract requiring it to purchase foreign
currency, its custodian bank will segregate cash or liquid securities in a
separate account of the Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of such forward contract. Those assets will
be valued at market daily and if the value of the assets in the separate account
declines, additional cash or liquid assets will be placed in the account so that
the value of the account will equal the amount of the Fund's commitment with
respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency are
usually conducted on a principal basis, no fees or commissions are involved.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward
-4-
<PAGE>
commitment transaction, the Fund contracts to purchase securities for a fixed
price at a future date beyond customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities equal in value to the Fund's commitment. These
assets will be valued daily at market, and additional cash or securities will be
segregated in a separate account to the extent that the total value of the
assets in the account declines below the amount of the when-issued commitments.
Alternatively, the Fund may enter into offsetting contracts for the forward sale
of other securities that it owns.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is a contract under which the Fund acquires 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 in
which the Fund seeks to enforce its rights thereto, possible subnormal levels of
income and lack of access to income during this period and the expense of
enforcing its rights.
American Depository Receipts. The Fund may invest in the securities of foreign
issuers in the form of American Depository Receipts ("ADRs"). These securities
may not necessarily be denominated in the same currency as the securities into
which they may be converted but rather in the currency of the market in which
they are traded. ADRs are receipts typically issued by an American bank or trust
company which evidence ownership of underlying securities issued by a foreign
corporation. Generally, ADRs,
-5-
<PAGE>
in registered form, are designed for use in U.S. securities markets. Issuers of
unsponsored ADRs are not required 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.
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 and offset each other, there
may be a corresponding reduction in risk for the Fund's portfolio as a whole.
This lack of correlation among the movements of the world's securities markets
may also affect unrealized gains the Fund has derived from movements in any one
market.
If securities traded in markets moving in different directions are combined into
a single portfolio, such as that of the Fund, total portfolio volatility may be
reduced. Since the Fund may invest in securities quoted or denominated in
currencies other than U.S. dollars, changes in foreign currency exchange rates
may affect the value of its portfolio securities. Currency exchange rates may
not move in the same direction as the securities markets in a particular
country. As a result, market gains may be offset by unfavorable exchange rate
fluctuations.
Investments in foreign securities may involve risks and considerations 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 and accounting standards 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. Since foreign securities generally may be denominated 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 may be affected
favorably or unfavorably by changes in the relationship of the U.S. dollar to
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 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 three
-6-
<PAGE>
(3) day customary settlement time for U.S. securities, or less frequent than in
the U.S., which could affect the liquidity of the Fund's investments. The
Adviser will monitor the settlement time for foreign securities and take undue
settlement delays into account in considering the desirability of allocating
investments among specific countries. Finally, the expense ratios of
international funds such as the Fund generally are higher than those of domestic
funds because there are greater costs associated with maintaining custody of
foreign securities, and the increased research necessary for international
investing results in a higher advisory fee.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. The Fund may be required to establish special custodial or
other arrangements before making certain investments in those countries.
Securities of issuers located in these countries may have limited marketability
and may be subject to more abrupt or erratic price movements.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such as
the Fund. If such restrictions should be reinstituted, it might become necessary
for the Fund to invest all or substantially all of its assets in U.S.
securities. In such event, the Fund would review its investment objective and
investment policies to determine whether changes are appropriate.
The Fund's ability and decisions to purchase or sell portfolio securities may be
affected by laws or regulations relating to the convertibility and repatriation
of assets. Because the shares of the Fund are redeemable on a daily basis in
U.S. dollars, the Fund intends to manage its portfolio so as to give reasonable
assurance that it will be able to obtain U.S. dollars. Under present conditions,
it is not believed that these considerations will have any significant effect on
its portfolio strategy.
-7-
<PAGE>
Short Sales. The Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. The Fund may also engage in
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, the Fund must borrow the security sold
short to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. Until the security is replaced the Fund is required to pay to the
lender any accrued interest and may be required to pay a premium.
The Fund will realize a gain if the security declines in price between the date
of the short sale and the date on which the Fund replaces the borrowed security.
On the other hand, the Fund will incur a loss as a result of the short sale if
the price of the security increases between those dates. The amount of any gain
will be decreased, and the amount of any loss increased, by the amount of any
premium or interest the Fund may be required to pay in connection with a short
sale. The successful use of short selling as a hedging device may be adversely
affected by imperfect correlation between movements in the price of the security
sold short and the securities being hedged.
Under applicable guidelines of the staff of the Securities and Exchange
Commission (the "SEC"), if the Fund engages in short sales of the type referred
to in non-fundamental Investment Restriction No. (c) (ii) and (iii) below, it
must put in a segregated account (not with the broker) an amount of cash or U.S.
Government securities equal to the difference between (1) the market value of
the securities sold short at the time they were sold short and (2) any cash or
U.S. Government securities required to be deposited as collateral with the
broker in connection with the short sale (not including the proceeds from the
short sale). In addition, until the Fund replaces the borrowed security, it must
daily maintain the segregated account at such a level that the amount deposited
in it plus the amount deposited with the broker as collateral will equal the
current market value of the securities sold short. Except for short sales
against the box, the amount of the Fund's net assets that may be committed to
short sales is limited and the securities in which short sales are made must be
listed on a national securities exchange.
Short selling may produce higher than normal portfolio turnover which may result
in increased transaction costs to the Fund and may result in gains from the sale
of securities deemed to have been held for less than three months, which gains
must constitute less than 30% of the Fund's gross income for its taxable year in
order for the Fund to qualify for treatment as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"), for that year.
The Fund does not intend to enter into short sales (other than those "against
the box") if immediately after such sale the aggregate of the value of all
collateral plus the amount in such segregated account exceeds 5% of the value of
the Fund's net assets. A short
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<PAGE>
sale is "against the box" to the extent that the Fund contemporaneously owns or
has the right to obtain at no added cost securities identical to those sold
short.
Financial Futures Contracts. The Fund may buy and sell futures contracts (and
related options) on stocks, stock indices, debt securities, currencies, interest
rate indices, and other instruments. The Fund may hedge its portfolio by selling
or purchasing financial futures contracts as an offset against the effects of
changes in interest rates or in security or foreign currency values. Although
other techniques could be used to reduce exposure to market fluctuations, the
Fund may be able to hedge its exposure more effectively and perhaps at a lower
cost by using financial futures contracts. The Fund may enter into financial
futures contracts for hedging and non-hedging purposes to the extent permitted
by regulations of the Commodity Futures Trading Commission ("CFTC").
Financial futures contracts have been designed by boards of trade which have
been designated "contract markets" by the CFTC. Futures contracts are traded on
these markets in a manner that is similar to the way a stock is traded on a
stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. Currently, financial futures
contracts are based on interest rate instruments such as long-term U.S. Treasury
bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA")
modified pass-through mortgage-backed securities, three-month U.S. Treasury
bills, 90-day commercial paper, bank certificates of deposit and Eurodollar
certificates of deposit. It is expected that if other financial futures
contracts are developed and traded the Fund may engage in transactions in such
contracts.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts are
closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts (same exchange, underlying security and delivery
month). Other financial futures contracts, such as futures contracts on
securities indices, by their terms call for cash settlements. If the offsetting
purchase price is less than the Fund's original sale price, the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than the Fund's original purchase price, the Fund realizes a
gain, or if it is less, the Fund realizes a loss. The transaction costs must
also be included in these calculations. The Fund will pay a commission in
connection with each purchase or sale of financial futures contracts, including
a closing transaction. For a discussion of the Federal income tax considerations
of trading in financial futures contracts, see the information under the caption
"Tax Status" below.
At the time the Fund enters into a financial futures contract, it is required to
deposit with its custodian a specified amount of cash or U.S. Government
securities, known as "initial margin," ranging upward from 1.1% of the value of
the financial futures contract being traded. The margin required for a financial
futures contract is set by the board
-9-
<PAGE>
of trade or exchange on which the contract is traded and may be modified during
the term of the contract. The initial margin is in the nature of a performance
bond or good faith deposit on the financial futures contract which is returned
to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn interest income on its
initial margin deposits. Each day, the futures contract is valued at the
official settlement price of the board of trade or exchange on which it is
traded. Subsequent payments, known as "variation margin," to and from the broker
are made on a daily basis as the market price of the financial futures contract
fluctuates. This process is known as "mark to market." Variation margin does not
represent a borrowing or lending by the Fund but is instead a settlement between
the Fund and the broker of the amount one would owe the other if the financial
futures contract expired. In computing net asset value, the Fund will mark to
market its open financial futures positions.
Successful hedging depends on a strong correlation between the market for the
underlying securities and the futures contract market for those securities.
There are several factors that will probably prevent this correlation from being
a perfect one, and even a correct forecast of general interest rate trends may
not result in a successful hedging transaction. There are significant
differences between the securities and futures markets which could create an
imperfect correlation between the markets and which could affect the success of
a given hedge. The degree of imperfection of correlation depends on
circumstances such as variations in speculative market demand for financial
futures and debt securities, including technical influences in futures trading
and differences between the financial instruments being hedged and the
instruments underlying the standard financial futures contracts available for
trading in such respects as interest rate levels, maturities and
creditworthiness of issuers. The degree of imperfection may be increased where
the underlying debt securities are lower-rated and, thus, subject to greater
fluctuation in price than higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise of skill
and judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of unexpected market or interest rate trends. The Fund will bear the
risk that the price of the securities being hedged will not move in complete
correlation with the price of the futures contracts used as a hedging
instrument. Although the Adviser believes that the use of financial futures
contracts will benefit the Fund, an incorrect market prediction could result in
a loss on both the hedged securities 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. The
low margin deposits required for futures transactions permit an extremely high
degree of leverage. A relatively small movement in a futures contract may result
in losses or gains in excess of the amount invested.
-10-
<PAGE>
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount the price of a futures contract may vary either up or down
from the previous day's settlement price, at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day
and, therefore, does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses.
Finally, although the Fund engages in financial futures transactions only on
boards of trade or exchanges where there appears to be an adequate secondary
market, there is no assurance that a liquid market will exist for a particular
futures contract at any given time. The liquidity of the market depends on
participants closing out contracts rather than making or taking delivery. In the
event participants decide to make or take delivery, liquidity in the market
could be reduced. In addition, the 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 must continue to
meet margin requirements until the position is closed.
Options on Financial Futures Contracts. The Fund may buy and sell options on
financial futures contracts on stocks, stock indices, debt securities,
currencies, interest rate indices, and other instruments. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract at a specified exercise price at any
time during the period of the option. Upon exercise, the writer of the option
delivers the futures contract to the holder at the exercise price. The Fund
would be required to deposit with its custodian initial and variation margin
with respect to put and call options on futures contracts written by them.
Options on futures contracts involve risks similar to the risks of transactions
in financial futures contracts. Also, an option purchased by the Fund may expire
worthless, in which case the Fund would lose the premium it paid for the option.
Other Considerations. The Fund will engage in futures and options
transactions for bona fide hedging or non-hedging 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 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
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<PAGE>
denominated, the Fund 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 contract 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 nonhedging
positions in futures contracts and options on futures will not exceed 5% of the
net asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. The Fund will engage in
transactions in futures contracts only to the extent such transactions are
consistent with the requirements of the Code for maintaining its qualification
as a regulated investment company for Federal income tax purposes.
When the Fund purchases financial futures contracts, or writes put options or
purchases call options thereon, cash or liquid securities will be deposited in a
segregated account with the Fund's custodian in an amount that, together with
the amount of initial and variation margin held in the account of the broker,
equals the market value of the futures contracts.
Options Transactions. The Fund may write listed and over-the-counter covered
call options and covered put options on securities, securities indices and
foreign 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 on securities, securities indices and foreign currency. The extent to
which covered options will be used by the Fund will depend upon market
conditions and the availability of alternative strategies.
The Fund will write listed and over-the-counter call options only if they are
"covered," which means that the Fund owns or has the immediate right to acquire
the securities underlying the options without additional cash consideration upon
conversion or exchange of other securities held in its portfolio. A call option
written by the Fund may also be "covered" if the Fund holds on a share-for-share
basis a covering call on the same securities where (i) the exercise price of the
covering call held is equal to or less than the exercise price of the call
written or the exercise price of the covering call is greater than the exercise
price of the call written, in the latter case only if the difference is
maintained by the Fund in cash or liquid securities in a segregated account with
the Fund's custodian, and (ii) the covering call expires at the same time as the
call written. If a covered call option is not exercised, the Fund would keep
both the
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<PAGE>
option premium and the underlying security. If the covered call option written
by the Fund is exercised and the exercise price, less the transaction costs,
exceeds the cost of the underlying security, the Fund would realize a gain in
addition to the amount of the option premium it received. If the exercise price,
less transaction costs, is less than the cost of the underlying security, the
Fund's loss would be reduced by the amount of the option premium.
As the writer of a covered put option, the Fund will write a put option only
with respect to securities it intends to acquire for its portfolio and will
maintain in a segregated account with its custodian bank cash or liquid
securities with a value equal to the price at which the underlying security may
be sold to the Fund in the event the put option is exercised by the purchaser.
The Fund may also write a "covered" put option by purchasing on a
share-for-share basis a put on the same security as the put written by the Fund
if the exercise price of the covering put held is equal to or greater than the
exercise price of the put written and the covering put expires at the same time
as or later than the put written.
When writing listed and over-the-counter covered put options on securities, the
Fund would earn income from the premiums received. If a covered put option is
not exercised, the Fund would keep the option premium and the assets maintained
to cover the option. If the option is exercised and the exercise price,
including transaction costs, exceeds the market price of the underlying
security, the Fund would realize a loss, but the amount of the loss would be
reduced by the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate its obligation
prior to its exercise, it may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that the Fund's position will be offset
by the Options Clearing Corporation. The Fund may not effect a closing purchase
transaction after it has been notified of the exercise of an option. There is no
guarantee that a closing purchase transaction can be effected. Although the Fund
will generally write only those options for which there appears to be an active
secondary market, there is no assurance that a liquid secondary market on an
exchange or board of trade will exist for any particular option or at any
particular time, and for some options no secondary market on an exchange may
exist.
In the case of a written call option, effecting a closing transaction will
permit the Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. In the case of a
written put option, it will permit the Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other investments. If 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.
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<PAGE>
The Fund will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option.
The Fund will realize a loss from a closing transaction if the cost of the
closing transaction is more than the premium received for writing the option.
However, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation in the value of the underlying security owned by the
Fund.
Over-the-Counter Options. The Fund may engage in options transactions on
exchanges and in the over-the-counter markets. In general, exchange-traded
options are third-party contracts (i.e., performance of the parties' obligations
is guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. Over-the-counter ("OTC") transactions are
two-party contracts with price and terms negotiated by the buyer and seller. The
Fund will acquire only those OTC options for which 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 SEC has taken the position that OTC
options are subject to the Fund's 15% restriction on illiquid investments. The
SEC, however, allows the Fund to exclude from the 15% limitation on illiquid
securities a portion of the value of the OTC options written by the Fund,
provided that certain conditions are met. First, the other party to the OTC
options has to be a primary U.S. Government securities dealer designated as such
by the Federal Reserve Bank. Second, the Fund must have an absolute contractual
right to repurchase the OTC options at a formula price. If the above conditions
are met, the Fund may treat as illiquid only that portion of the OTC option's
value (and the value of its underlying securities) which is equal to the formula
price for repurchasing the OTC option, less the OTC option's intrinsic value.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including securities offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. However, 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 such 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
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<PAGE>
in these securities, focusing on such important factors, among others, as
valuation, liquidity and availability of information. This investment practice
could have the effect of increasing the level of illiquidity in the Fund if
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
The Fund may acquire other restricted securities including securities for which
market quotations are not readily available. These securities may be sold only
in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the 1933 Act. Where
registration is required, the Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell. Restricted securities will be priced at
fair market value as determined in good faith by the Fund's Trustees.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers and financial institutions if the loan is collateralized by cash or U.S.
Government securities according to applicable regulatory requirements. The Fund
may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price. Generally, warrants and stock
purchase rights do not carry with them the right to receive dividends or
exercise voting rights with respect to the underlying securities, and they do
not represent any rights in the assets of the issuer. As a result, an investment
in warrants and rights may be considered to entail greater investment risk than
certain other types of investments. In addition, the value of warrants and
rights does not necessarily change with the value of the underlying securities,
and they cease to have value if they are not exercised on or prior to their
expiration date. Investment in warrants and rights increases the potential
profit or loss to be realized from the investment of a given amount of the
Fund's assets as compared with investing the same amount in the underlying
stock.
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<PAGE>
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. The Fund will not enter into reverse repurchase
agreements and other borrowings exceeding in the aggregate 33 1/3% of the market
value of its total assets. The Fund will enter into reverse repurchase
agreements only with federally insured banks or savings and loan associations
which are approved in advance as being creditworthy by the Board of Trustees.
Under procedures established by the Board of Trustees, the Adviser will monitor
the creditworthiness of the banks involved.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of a majority of the Fund's outstanding voting
securities which, as used in the Prospectus and this Statement of Additional
Information, means approval by the lesser of (1) 67% or more of the shares
represented at a meeting if at least 50% of the Fund's outstanding shares are
present in person or by proxy at that meeting or (2) more than 50% of the Fund's
outstanding shares.
The Fund observes the following fundamental 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 classes or series, the purchase or sale of options, futures
contracts and options on futures contracts, forward 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
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<PAGE>
assets (including the amount borrowed) taken at market value. The Fund will not
use leverage to attempt to increase income. The Fund will not purchase
securities while outstanding borrowings exceed 5% of the Fund's total assets.
(3) Pledge, mortgage or hypothecate its assets, except to secure indebtedness
permitted by paragraph (2) above and then only if such pledging, mortgaging or
hypothecating does not exceed 33 1/3% of the Fund's total assets taken at market
value.
(4) Act as an underwriter, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed to be an underwriter
for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate or any interest therein, except that the Fund
may invest in securities 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 may (1) lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the Fund's total
assets taken at market value, (2) enter into repurchase agreements, and (3)
purchase all or a portion of an issue of publicly distributed debt securities,
bank loan participation interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the purchase is made
upon the original issuance of the securities.
(7) Invest in commodities or in commodity contracts or in puts, calls, or
combinations of both, except options on currency, securities and securities
indices, futures contracts on currency, securities and securities indices 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.
(8) Purchase securities, other than obligations of the U.S. Government or any of
its agencies or instrumentalities, if such purchase would cause 25% or more of
the value of the Fund's total assets to be invested in securities of issuers
conducting their principal business activities in the same industry, except that
the Fund shall invest at least 25% of the value of its total assets in
securities of issuers in the health care industry.
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:
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<PAGE>
(a) Participate on a joint or joint-and-several basis in any securities trading
account. The "bunching" of orders for the sale or repurchase 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 be
participation in a joint securities trading account.
(b) Purchase securities on margin except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and sales
of securities.
(c) Make short sales of securities or maintain a short position unless (i) at
all times when a short position is open the Fund owns an equal amount of such
securities or securities convertible into or exchangeable, without payment of
any further consideration, for securities of the same issue as, and equal in
amount to, the securities sold short; (ii) for the purpose of hedging the Fund's
exposure to an actual or anticipated market decline in the value of its
investments; or (iii) in order to profit from an anticipated decline in the
value of a security.
(d) 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.
(e) Purchase a security if, as a result, (i) more than 10% of the Fund's total
assets would be invested in the securities of other investment companies, (ii)
the Fund would hold more than 3% of the total outstanding voting securities of
any one investment company, or (iii) more than 5% of the Fund's total assets
would be invested in the securities of any one investment company. These
limitations do not apply to (a) the investment of cash collateral, received by
the Fund in connection with lending the Fund's portfolio securities, in the
securities of open-end investment companies or (b) the purchase of shares of any
investment company in connection with a merger, consolidation, reorganization or
purchase of substantially all of the assets of another investment company.
Subject to the above percentage limitations, the Fund may, in connection with
the John Hancock Group of Funds Deferred Compensation Plan for Independent
Trustees/Directors, purchase securities of other investment companies within the
John Hancock Group of Funds. In addition, as a nonfundamental restriction, the
Fund may not purchase the shares of any closed-end investment company except in
the open market where no commission or profit to a sponsor or dealer results
from the purchase, other than customary brokerage fees.
(f) 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.
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<PAGE>
(g) 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.)
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, in their sole discretion, revoke such policy. The Fund
has agreed with a states securities administrator that it will not purchase the
following securities:
The Fund will not invest in real estate limited partnership interests.
Purchase warrants of any issuer, if, as a result of such purchases, more
than 2% of the value of the Fund's total assets would be invested in
warrants which are not listed on the New York Stock Exchange or the
American Stock Exchange or more than 5% of the value of the total assets of
the Fund would be invested in warrants generally, whether or not so listed.
For these purposes, warrants are to be valued at the lesser of cost or
market, but warrants acquired by the Fund in units with or attached to debt
securities shall be deemed to be without value.
Purchase interests in oil, gas or other mineral 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.
The Fund will not invest more than 15% of its total assets in the aggregate
in securities of issuers which, together with any predecessors, have a
record of less than three years continuous operation.
The Fund will not, with respect to 75% of its total assets, acquire more
than 10% of the outstanding voting securities of any issuer.
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<PAGE>
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 or 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 of employment of the
Trustees and principal officers of the Trust:
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<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------------- -----------------------
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
101 Huntington Avenue Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("The
October 1944 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"),
Transamerica Fund Management
Company ("TFMC") 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.
("Distributors") until April
1994.
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<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------------- -----------------------
Dennis S. Aronowitz Trustee (1,2) Professor of Law, Boston
Boston University University School of Law;
Boston, Massachusetts Trustee, Brookline Savings
June 1931 Bank.
Richard P. Chapman, Jr. Trustee (1,2) President, Brookline Savings
160 Washington Street Bank. Director, Federal Home
Brookline, Massachusetts Loan Bank of Boston (lending);
February 1935 Director, Lumber Insurance
Companies (fire and casualty
insurance); Trustee,
Northeastern University
(education); Director,
Depositors Insurance Fund, Inc.
(insurance).
William J. Cosgrove Trustee (1,2) Vice President, Senior Banker
20 Buttonwood Place and Senior Credit Officer,
Saddle River, New Jersey Citibank, N.A. (retired
January 1933 September 1991); Executive Vice
President, Citadel Group
Representatives, Inc.; EVP
Resource Evaluation Inc.
(consulting, October 1991 -
October 1993); Trustee, the
Hudson City Savings Bank (until
October 1995).
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<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------------- -----------------------
Douglas M. Costle Trustee (1,2,3) Director, Chairman of the Board
RR2 Box 480 and Distinguished Senior Fellow,
Woodstock, Vermont 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991). Dean, Vermont Law
School (until 1991). Director,
Air and Water Technologies
Corporation (environmental
services and equipment), Niagara
Mohawk Power Company (electric
services) and MITRE Corporation
(governmental consulting
services).
Leland O. Erdahl Trustee (1,2) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company,
December 1928 Inc. (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991)
and President of Albuquerque
Uranium Corporation (from
1985-1992); Director of
Freeport-McMoRan Copper & Cold
Company Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original Sixteen
to One Mine, Inc. (from
1984-1987 and from 1991 to 1995)
(management consultant).
Richard A. Farrell Trustee (1,2) President of Farrell, Healer &
Farrell, Healer & Company, Co., (venture capital management
Inc. firm) (since 1980); Prior to
160 Federal Street -- 23rd 1980, headed the venture capital
Floor group at Bank of Boston
Boston, MA 02110 Corporation.
November 1932
-23-
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------------- -----------------------
Gail D. Fosler Trustee (1,2) Vice President and Chief
4104 Woodbine Street Economist, The Conference Board
Chevy Chase, MD (non-profit economic and
December 1947 business research).
William F. Glavin Trustee (1,2) President, Babson College; Vice
Babson College Chairman, Xerox Corporation
Horn Library until June 1989; Director,
Babson Park, MA 02157 Caldor Inc., Reebok, Ltd. (since
March 1931 1994), and Inco Ltd.
*Anne C. Hodsdon Trustee and President and Chief Operating
101 Huntington Avenue President (3)(4) Officer, the Adviser; Executive
Boston, MA 02199 Vice President, the Adviser
April 1953 (until December 1994); Senior
Vice President; the Adviser
(until December 1993); Vice
President, the Adviser, 1991.
Dr. John A. Moore Trustee (1,2) President and Chief Executive
Institute for Evaluating Officer, Institute for
Health Risks Evaluating Health Risks,
1101 Vermont Avenue N.W. (nonprofit institution) (since
Suite 608 September 1989).
Washington, DC 20005
February 1939
Patti McGill Peterson Trustee (1,2) President, St. Lawrence
Institute for Public University; Director, Niagara
Affairs 364 Upson Hall Mohawk Power Corporation and
Cornell University Security Mutual Life.
Ithaca, NY 14853
May 1943
-24-
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------------- -----------------------
John W. Pratt Trustee (1,2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
*Richard S. Scipione Trustee (3) General Counsel, the Life
John Hancock Place Insurance Company; Director, the
P.O. Box 111 Adviser, the Affiliated
Boston, Massachusetts Companies, John Hancock
August 1937 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.
Edward J. Spellman, CPA Trustee (1,2,4) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL
November 1932
- ----------
* Trustee may be deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
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<PAGE>
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
The executive officers of the Trust and their principal occupations during the
past five years are set forth below. Unless otherwise indicated, the business
address of each is 101 Huntington Avenue, Boston, Massachusetts 02199.
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief
July 1938 Investment Officer (4) Investment Officer, the Adviser;
President (until December 1994).
James B. Little Senior Vice President, Senior Vice President, the
February 1935 Chief Financial Officer Adviser.
John A. Morin Vice President Vice President, the Adviser.
July 1950
Susan S. Newton Vice President and Vice President and Assistant
March 1950 Secretary Secretary, the Adviser.
James J. Stokowski Vice President and Vice President, the Adviser.
November 1946 Treasurer
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<PAGE>
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of May 31, 1996, the officers and Trustees of the Trust as a group owned less
than 1% of the outstanding shares of the Fund. To the knowledge of the Trust,
only the following person owned of record or beneficially 5% or more of any
class of the Fund's outstanding securities:
Percentage of
Outstanding
Name and Address Class Shares Shares of
of Shareholder of Shares Owned Class of Fund
-------------- --------- ----- -------------
Merrill Lynch Pierce Class B 171,071 13.74%
Fenner & Smith, Inc.
4800 Deerlake Dr. East
Jacksonville, FL 32246-6484
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. Ms. Hodsdon and Messrs. Boudreau and
Scipione, each a non-Independent Trustee, and each of the officers of the Funds
are interested persons of the Adviser, are compensated by the Adviser and
receive no compensation from the Fund for their services. The compensation to
the Trustees from the Fund shown below is for the Fund's fiscal year ended
August 31, 1995. Those Trustees listed below who received no compensation from
the Fund for such year first became Trustees of the Trust on June 26, 1996.
-27-
<PAGE>
Total Compensation From
Aggregate All Funds in John Hancock
Compensation From Fund Complex to
Independent Trustees the Fund Trustees(*)
-------------------- ----------------- --------------------------
Dennis S. Aronowitz $ 357 $ 61,050
Richard P. Chapman, Jr.+ 367 62,800
William J. Cosgrove+ 357 61,050
Gail D. Fosler 357 60,800
Bayard Henry** 341 58,850
Edward J. Spellman 357 61,050
Douglas M. Costle -- 41,750
Leland O. Erdahl -- 41,750
Richard A. Farrell -- 43,250
William F. Glavin+ -- 37,500
John A. Moore -- 41,750
Patti McGill Peterson -- 41,750
John W. Pratt -- 41,750
------ --------
2,136 655,100
* Total compensation paid by the John Hancock Fund Complex to the Independent
Trustees is for the calendar year ended December 31, 1995. On this date, there
were 61 funds in the John Hancock Fund Complex. Messrs. Aronwitz, Chapman,
Cosgrove, Henry and Spellman and Ms. Fosler served 16 and Messrs. Costle,
Erdahl, Farrell, Glavin, Moore and Pratt and Ms. Peterson served 12 of these
funds.
** Mr. Henry retired from his position as a Trustee effective April 26, 1996.
+ On December 31, 1995, the value of the aggregate deferred compensation from
all funds in the John Hancock Fund Complex for Mr. Chapman was $54,681, for Mr.
Cosgrove was $54,243 and for Mr. Glavin was $32,061.
As of June 16, 1992, the Trustees established an advisory board in order to
provide information of a general medical and scientific nature to investment
officers of the Fund. The members of the advisory board are distinct from the
Board of Trustees, hold office at the pleasure of the Trustees, are persons with
scientific and medical expertise who do not serve the Fund in any other
capacity, and are persons who have no power to determine what securities are
purchased or sold.
Currently, the advisory board consists of: Mark S. Klempner, M.D., Professor of
Medicine, physician and scientist, since 1978 with the New England Medical
Center Hospitals - Tufts University School Of Medicine, located at 750
Washington Street, Boston, Massachusetts 02111; Deeb Salem, M.D., since 1987 the
Chief of Cardiology
-28-
<PAGE>
and Professor of Medicine with the New England Medical Center Hospitals - Tufts
University School of Medicine, located at 750 Washington Street, Boston,
Massachusetts 02111; Martin A. Samuels, M.D., since 1988 Chief of Neurology with
Brigham and Woman's Hospitals, 75 Francis Street, Boston, Massachusetts 02115
and Charles Cooney, M.D., a founder of Genzyme Corporation and Chairman of the
Biochemistry Department and Pharmaceutical Program at Massachusetts Institute of
Technology. The Fund pays each member of the advisory board an annual retainer
fee of $10,000.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund receives its investment advice from the Adviser. Investors should refer
to the Prospectus for a description of certain information concerning the
investment management contract. Each of the Trustees and principal officers
affiliated with the Trust who is also an affiliated person of the Adviser is
named above, together with the capacity in which such person is affiliated with
the Trust and the Adviser.
The Trust, on behalf of the Fund, has entered into an investment management
contract with the Adviser, under which the Adviser provides the Fund with (i) a
continuous investment program, consistent with the Fund's stated investment
objective and policies, and (ii) supervision of all aspects of the Fund's
operations except those that are delegated to a custodian, transfer agent or
other agent.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser or affiliates provide investment advice.
Because of different investment objectives or other factors, a particular
security may be bought for one or more funds or clients when one or more other
funds or clients are selling the same security. If opportunities for purchase or
sale of securities by the Adviser for the Fund or for other funds or clients for
which the Adviser renders investment advice arise for consideration at or about
the same time, transactions in such securities will be made, insofar as
feasible, for the respective funds or clients in a manner deemed equitable to
all of them. To the extent that transactions on behalf of more than one client
of the Adviser or 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 and
the Fund's advisory board 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.
Allexpenses 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
-29-
<PAGE>
"interested persons", as such term is defined in the Investment Company Act),
but excluding certain distribution-related expenses 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 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 $200,000,000 0.80%
Amount over $200,000,000 0.70%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to 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.
On August 31, 1995, the net assets of the Fund were $30,727,481. For the fiscal
years ended August 31, 1995 and 1994, the Adviser received fees of $190,775 and
$145,229, respectively . For the fiscal year ended August 31, 1993, the Adviser
received a fee of $86,937, net of a reduction of expenses to the Fund in the
amount of $40,548.
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.
Pursuant to the investment management contract, the Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which its contract relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
the Adviser in the performance of its duties or from reckless disregard of the
obligations and duties under the contract.
-30-
<PAGE>
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and currently has more than $18 billion in assets under
management in its capacity as investment adviser to the Fund and other mutual
funds and publicly traded investment companies in the John Hancock group of
funds having a combined total of over approximately 1,080,000 shareholders. The
Adviser is an affiliate of the Life Company, one of the most recognized and
respected financial institutions in the nation. With total assets under
management of more than $80 billion, the Life Company is one of 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.
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a name or any other name indicating that it is
advised by or otherwise connected with the Adviser. In addition, the Adviser or
the Life Company may grant the nonexclusive right to use the name "John Hancock"
or any similar name to any other corporation or entity, including but not
limited to any investment company of which the Life Company or any subsidiary or
affiliate thereof or any successor to the business of any subsidiary or
affiliate thereof shall be the investment adviser.
The investment management contract, and the distribution contract discussed
below, continue in effect from year to year if approved annually by vote of a
majority of the Trustees who are not interested persons of one of the parties to
the contract, cast in person at a meeting called for the purpose of voting on
such approval, and by either the Trustees or the holders of a majority of the
Fund's outstanding voting securities. Each of these contracts 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.
-31-
<PAGE>
DISTRIBUTION CONTRACT
The Fund has entered into a distribution contract with John Hancock Funds. Under
the contract, John Hancock Funds is obligated to use its best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined, plus any applicable sales charge. In connection with the
sale of Class A or Class B shares of the Fund, 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. Upon notice to all Selling Brokers, John Hancock Funds may allow
them up to the full applicable sales charge during periods specified in such
notice. During these periods, Selling Brokers may be deemed to be underwriters
as that term is defined in the 1933 Act. 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 (together, the "Plans"), pursuant to Rule 12b-1 under the Investment
Company Act. Under the Plans, the Fund will pay distribution and service fees
for Class A and Class B shares at an aggregate annual rate of up to 0.30% and
1.00%, respectively, of the Fund's daily net assets attributable to shares of
each class. 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. In
accordance with generally accepted accounting principles, the Fund does not
treat unreimbursed distribution expenses attributable to Class B shares as a
liability of the Fund and does not reduce the current net assets of Class B by
such amount, although the amount may be payable under the Class B Plan in the
future.
Under the Plans, expenditures shall be calculated and accrued daily and paid
monthly or at such other intervals as the Trustees shall determine. The fee may
be spent by John Hancock Funds on Distribution Expenses or Service Expenses.
"Distribution Expenses" include any activities or expenses primarily intended to
result in the sale of shares of the relevant class of the Fund, including, but
not limited to: (i) initial and ongoing sales compensation 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 payments made to, or on account
of, account executives of selected broker-dealers (including affiliates of John
Hancock Funds) and others who furnish personal and account maintenance services
to shareholders of the relevant class of the Fund. For the fiscal year ended
August 31, 1995, an aggregate of $205,352 of Distribution Expenses or 6.09% of
the average net assets of the Fund's Class B shares
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<PAGE>
was not reimbursed or recovered by John Hancock Funds through the receipt of
deferred sales charges or Rule 12b-1 fees in prior periods.
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 August 31, 1995 the Funds paid John Hancock Funds
the following amounts of expenses with respect to the Class A and Class B shares
of the Fund:
Expense Items
Printing and Interest,
Mailing of Carrying
Prospectus to Compensation Expenses or Other
New to Selling of Finance
Advertising Shareholders Brokers Distributor Charges
----------- ------------ ------- ----------- -------
Class A shares $19,753 $411 $18,110 $23,159 $ 0
Class B shares $11,932 0 $ 2,782 $13,617 $5,530
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 the vote of a majority of the Independent Trustees or
(b) by the vote of a majority of the Fund's outstanding voting securities, in
each case upon 60 days' written notice to John Hancock Funds, and (c)
automatically in the event of assignment. Each of the Plans further provides
that it may not be amended to increase the maximum amount of the fees for the
services described therein without the approval of a majority of the outstanding
shares of the class of the Fund which has voting rights with respect to the
Plan. And finally, each of the Plans provides that no material amendment to the
Plan will, in any event, be effective unless it is approved by a vote of the
Trustees and the Independent Trustees of the Trust. The holders of Class A and
Class B shares have exclusive voting rights with respect to the Plan applicable
to their respective class of shares. In adopting the Plans the Trustees
concluded that, in their judgment, there is a reasonable likelihood that the
Plans will benefit the holders of the applicable class of shares of the Fund.
When the Trust seeks an Independent Trustee to fill a vacancy or as a nominee
for election by shareholders, the selection or nomination of the Independent
Trustee is, under resolutions adopted by the Trustees contemporaneously with
their adoption of
-33-
<PAGE>
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 a Fund's shares, the
following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of a Fund's NAV. If quotations
are not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
The Fund will not price its securities on the following national holidays: New
Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor
Day; Thanksgiving Day; and Christmas Day. On any day an international market is
closed and the New York Stock Exchange is open, any foreign securities will be
valued at the prior day's close with the current day's exchange rate. Trading of
foreign securities may take place on Saturdays and U.S. business holidays on
which the Fund's NAV is not calculated. Consequently, the Fund's portfolio
securities may
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<PAGE>
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
Class A shares of the Fund are offered at a price equal to their net asset value
plus a sales charge which, at the option of the purchaser, may be imposed either
at the time of purchase (the "initial sales charge alternative") or on a
contingent deferred basis (the "deferred sales charge alternative"). Share
certificates will not be issued unless requested by the shareholder in writing,
and then they will only be issued for full shares. The Trustees reserve the
right to change or waive the Fund's minimum investment requirements and to
reject any order to purchase shares (including purchase by exchange) when in the
judgment of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of shares 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 John Hancock Investor Services ("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 Charge. Class A shares may be offered without a front-end sales
charge to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or agency
of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any
registered investment management company.
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<PAGE>
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if it
is purchasing $1 million or more for non-discretionary customers or
accounts.
o A Trustee or officer of the Trust; a Director or officer of the Adviser and
its affiliates or Selling Brokers; employees or sales representatives of
any of the foregoing; retired officers, employees or Directors of any of
the foregoing; a member of the immediate family (spouse, children, mother,
father, sister, brother, mother-in-law, father-in-law) of any of the
foregoing; or any fund, pension, profit sharing or other benefit plan for
the individuals described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
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<PAGE>
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of a reduced sales
charge by taking into account not only the amount then being invested but also
the purchase price or current account value of the Class A shares already held
by such person.
Combination Privilege. Reduced sales charges (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. 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 IRAs, SEP, SARSEP, 401(k),
403(b) (including TSAs) 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 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 Class A shares will be released. If the total investment specified in the
LOI is not completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charge as may be due. By signing the
LOI, the investor authorizes 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.
-37-
<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. No CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions. No CDSC will be
imposed on shares derived from reinvestment of dividends or capital gains
distributions.
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
dividend and capital gain reinvestment, and next from the shares you have held
the longest during the six-year period. For this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price. Upon redemption, appreciation is effective only on a per share basis for
those shares being redeemed. Appreciation of shares cannot be redeemed CDSC free
at the account level.
When requesting a redemption for a specific dollar amount please indicate if you
require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
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<PAGE>
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $ 600
* Minus proceeds of 10 shares not subject to CDSC (dividend
reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
-----
* Amount subject to CDSC $ 400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the Distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account value,
including reinvested dividends, at the time you established your periodic
withdrawal plan and 12% of the value of subsequent investments (less
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<PAGE>
redemptions) in that account at the time you notify Investor Services.
(Please note that this waiver does not apply to periodic withdrawal plan
redemptions of Class A shares that are subject to a CDSC).
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other qualified plans as
described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions under
the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under Section 401(a) of the Code
(such as 401(k), Money Purchase Pension Plan, Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
-40-
<PAGE>
CDSC Waiver Matrix for Class B Funds
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
401(a) Plan
Type of (401(k), MPP, IRA, IRA
Distribution PSP) 403(b) 457 Rollover Non-retirement
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- ------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually
distributions in periodic
or 12% payments
of account
value
annually in
periodic
payments
- ------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for 12% of account
and 70 1/2 Life value annually
Expectancy in periodic
or 12% payments
of account
value
annually in
periodic
payments
- ------------------------------------------------------------------------------------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of account
59 1/2 annuity annuity annuity value annually
payments payments payments in periodic
(72t) or 12% (72t) or 12% (72t) or 12% payments
of account of account of account
value value value
annually in annually in annually in
periodic periodic periodic
payments payments payments
- ------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- ------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- ------------------------------------------------------------------------------------------
Return of Waived Waived Waived Waived N/A
Excess
- ------------------------------------------------------------------------------------------
</TABLE>
-41-
<PAGE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services at the time you make your redemption. The waiver will be
granted once Investor Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he will incur a brokerage charge. Any such
securities would be valued for the purposes of making such payment at the same
value as used in determining net asset value. The Fund has, however, elected to
be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the
Fund must redeem its shares for cash except to the extent that the redemption
payments to any shareholder during any 90-day period would exceed the lesser of
$250,000 or 1% of the Fund's net asset value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. 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
-42-
<PAGE>
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 Planis 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 investment 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 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 any of the other John Hancock mutual funds, subject to the
minimum investment limit in that fund. The proceeds from the redemption of Class
A shares may be reinvested at net asset value without paying a sales charge in
Class A shares of the Fund or in Class A shares of any 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. The shareholder's account will be
credited with the amount of any CDSC charge upon the prior redemption and the
new shares will continue to be subject to the CDSC. The holding period of the
shares acquired through reinvestment will, for purposes of computing the CDSC
payable upon a subsequent redemption, include the holding period of the redeemed
shares. The Fund may modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "Tax
Status."
-43-
<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. Additional series may be added in the future. The Declaration of Trust
also authorizes the Trustees to classify and reclassify the shares of the Fund,
or any new series of the Trust, into one or more classes. As of the date of this
Statement of Additional Information, the Trustees have authorized the issuance
of two classes of shares of the Fund, designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. A sales
charge will be imposed either at the time of the purchase, for Class A shares,
or on a contingent deferred basis, for Class B shares. For Class A shares, no
sales charge is payable at the time of purchase on investments of $1 million or
more, but for such investments a contingent deferred sales charge may be imposed
in the event of certain redemption transactions within one year of purchase.
Class A shares and Class B shares have certain exclusive voting rights on
matters relating to their respective distribution plans. The different classes
of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class (ii) Class B shares will pay higher distribution
and service fees than Class A shares and (iii) each of Class A and Class B
shares will bear any 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 the
net assets of the Fund available for distribution to such shareholders. Shares
entitle their holders to one vote per share, are freely transferable and have no
preemptive, subscription or conversion rights. When issued, shares are fully
paid and non-assessable by the Trust, except as set forth below.
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<PAGE>
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 Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any Fund shareholder held
personally liable by reason of being or having been a shareholder. The
Declaration of Trust also provides that no series of the Trust shall be liable
for the liabilities of any other series. 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.
Notwithstanding the fact that the Prospectus is a combined prospectus for the
Fund and other John Hancock mutual funds, the Fund shall not be liable for the
liabilities of any other John Hancock mutual fund.
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
requirements of the Code.
The Fund will be subject to a four percent nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
-45-
<PAGE>
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currency forward contracts, certain options or futures contracts on
foreign currencies, 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 or
derivatives held for less than three months, which gain is limited under the
Code to less than 30% of its gross income for each taxable year, and may under
future Treasury regulations produce income not among the types of "qualifying
income" from which the Fund must derive at least 90% of its gross income for
each taxable year. If the net foreign exchange loss for a year treated as
ordinary loss under Section 988 were to exceed the Fund's investment company
taxable income computed without regard to such loss, the resulting overall
ordinary loss for such year would not be deductible by the Fund or its
shareholders in future years.
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
-46-
<PAGE>
such passive income ("passive foreign investment companies"), the Fund could be
subject to Federal income tax and additional interest charges on "excess
distributions" received from these passive foreign investment companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election could require the Fund to recognize taxable
income or gain without the concurrent receipt of cash. The Fund may limit and/or
manage its investments in passive foreign investment companies to minimize its
tax liability or maximize its return from these investments.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options and futures contracts,
foreign currency positions and foreign currency forward contracts. Certain of
these transactions may cause the Fund to recognize gains or losses from marking
to market even though its positions have not been sold or terminated and may
affect the character as long-term or short-term (or, in the case of certain
foreign currency options, futures and forward contracts, as ordinary income or
loss) of some capital gains and losses realized by the Fund. Additionally,
certain of the Fund's losses on transactions involving options, futures, forward
contracts, and any offsetting or successor positions in its portfolio may be
deferred rather than being taken into account currently in calculating the
Fund's taxable income or gain. Certain of such transactions may also cause the
Fund to dispose of investments sooner than would otherwise have occurred. These
transactions may therefore affect the amount, timing and character of the Fund's
distributions to shareholders. The Fund will take into account the special tax
rules applicable to options, futures or forward contracts, including
consideration of available elections, in order to seek to minimize any potential
adverse tax consequences.
The amount of net realized capital gains, if any, in any given year will result
from sales of securities or the use of options or futures contracts 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 sales and transactions, and any
resulting gains or losses, may therefore vary considerably from year to year. At
the time of an investor's purchase of Fund shares, a portion of the purchase
price is often attributable to realized or unrealized appreciation in the Fund's
portfolio or undistributed taxable income of the Fund. Consequently, subsequent
distributions on those shares from such appreciation or income may be taxable to
such investor even if the net asset value of the investor's shares is, as a
result of the distributions, reduced below the investor's cost for such shares,
and the distributions in reality represent a return of a portion of the purchase
price.
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<PAGE>
Upon a redemption of shares of the Fund (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing Class A shares of the Fund cannot be taken into account for purposes
of determining gain or loss on the redemption or exchange of such shares within
90 days after their purchase to the extent Class A shares of the Fund or another
John Hancock fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. This disregarded charge will
result in an increase in the shareholder's tax basis in the Class A shares
subsequently acquired. Also, any loss realized on a redemption or exchange may
be disallowed to the extent the shares disposed of are replaced with other
shares of the Fund within a period of 61 days beginning 30 daysbefore and ending
30 days after the shares are disposed of, such as pursuant to automatic dividend
reinvestments. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss. Any loss realized upon the redemption of shares
with a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain 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
realized capital loss in any year to offset net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are
-48-
<PAGE>
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.
On January 1, 1996, the Fund had no capital loss carryforwards to offset future
net realized capital gains.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund from U.S. domestic corporations in respect of any
share of stock held by the Fund, for U.S. Federal income tax purposes, for at
least 46 days (91 days in the case of certain preferred stock) and distributed
and properly designated by the Fund may be treated as qualifying dividends.
Corporate shareholders must meet the minimum holding period requirement stated
above (46 or 91 days) with respect to their Fund shares in order to qualify for
the deduction and, if they have any debt that is deemed under the Code directly
attributable to Fund shares, may be denied a portion of the dividends received
deduction. The entire qualifying dividend, including the otherwise-deductible
amount, will be included in determining alternative minimum tax liability, if
any. Additionally, any corporate shareholder should consult its tax adviser
regarding the possibility that its tax basis in its shares may be reduced, for
Federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares, for the purpose of computing its gain or loss on
redemption or other disposition of the shares.
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. or deductions may reduce or eliminate
such taxes in some cases. Investors may be entitled to claim U.S. foreign tax
credits or deductions with respect to foreign income taxes or certain other
foreign taxes ("qualified foreign taxes"), subject to certain provisions and
limitations contained in the Code. Specifically, if more than 50% of the value
of the Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund will be
required to (i) include in ordinary gross income (in addition to taxable
dividends and distributions actually received) their pro rata shares of
qualified foreign taxes paid by the Fund even though not actually received by
them, and (ii) treat such respective pro rata portions as foreign taxes paid by
them.
If the Fund makes this election, shareholders may then deduct such pro rata
portions of qualified foreign taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of qualified foreign taxes paid by the Fund,
although such shareholders will be required to include their shares of such
taxes in gross income. Shareholders who claim a foreign tax credit for such
foreign taxes may be required to treat a portion of dividends
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<PAGE>
received from the Fund as a separate category of income for purposes of
computing the limitations on the foreign tax credit. Tax-exempt shareholders
will ordinarily not benefit from this election. Each year (if any) that the Fund
files the election described above, its shareholders will be notified of the
amount of (i) each shareholder's pro rata share of qualified foreign taxes paid
by the Fund and (ii) the portion of Fund dividends which represents income from
each foreign country. If the Fund cannot or does not make this election, the
Fund will deduct the foreign taxes it pays in determining the amount it has
available for distribution to shareholders, and shareholders will not include
these foreign taxes in their income, nor will they be entitled to any tax
deductions or credits with respect to such taxes.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options, futures contracts and forward
contracts may also require the Fund to recognize income or gain without a
concurrent receipt of cash. However, the Fund must distribute to shareholders
for each taxable year substantially all of its net income and net capital gains,
including such income or gain, to qualify as a regulated investment company and
avoid liability for any federal income or excise tax. Therefore, the Fund may
have to dispose of its portfolio securities under disadvantageous circumstances
to generate cash, or may have to leverage itself by borrowing the cash, to
satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to
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backup withholding as a result of failure to report interest or dividend income.
The Fund may refuse to accept an application that does not contain any required
taxpayer identification number or certification that the number provided is
correct. If the backup withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in shares, will
be reduced by the amounts required to be withheld. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability. Investors
should consult their tax advisers about the applicability of the backup
withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to non-resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund and, unless an effective IRS Form W-8 or authorized substitute for
Form W-8 is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
The average annual total return on Class A shares of the Fund for the one year
ended February 29, 1996 and from commencement of operations on October 1, 1991
was 35.03% and
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23.17%, respectively. The average annual total return on Class B shares of the
Fund for the year ended February 29, 1996 and since commencement of operations
on March 7, 1994 was 35.94% and 22.05%, respectively.
Total return is computed by finding the average annual compounded rate of return
over the 1 year, 5 year and 10 year periods that would equate the initial amount
invested to the ending redeemable value according to the following formula:
T = NROOT n {ERV/P} - 1
P = a hypothetical initial investment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 investment made at the
beginning of the 1 year, 5 year, and 10 year periods.
In the case of Class A or Class B shares, this calculation assumes the maximum
sales charge is included in the initial investment or the CDSC is applied at the
end of the period, respectively. This calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period. The "distribution rate" is determined by annualizing the result of
dividing the declared dividends of the Fund during the period stated by the
maximum offering price or net asset value at the end of the period. Excluding
the Fund's sales charge from the distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B shares into account. Excluding the Fund's sales charge on
Class A shares and the CDSC on Class B shares from a total return calculation
produces a higher total return figure.
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 and total return on mutual funds in the United States.
Ibottson and Associates, CDA
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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, STANGERS, 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 of the Fund
are made by officers of the Trust pursuant to recommendations made by an
investment committee of the Adviser, which consists of officers and directors of
the Adviser and officers and Trustees who are interested persons of the Trust.
Orders for purchases and sales of securities are placed in a manner, which, in
the opinion of the officers of the 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 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.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association
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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 broker 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 their value
and expected contribution to the performance of the Fund. It is not possible to
place a dollar value on information and services to be received from brokers and
dealers, since it is only supplementary to the research efforts of the Adviser.
The receipt of research information is not expected to reduce significantly the
expenses of the Adviser. The research information and statistical assistance
furnished by brokers and dealers may benefit the Life Company or other advisory
clients of the Adviser, and, conversely, brokerage commissions and spreads paid
by other advisory clients of the Adviser may result in research information and
statistical assistance beneficial to the Fund. The Fund will make no commitment
to allocate portfolio transactions upon any prescribed basis. While the Adviser
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 August 31, 1993, 1994, and 1995, the Fund paid
negotiated brokerage commissions in the amount of $31,430, $18,059, and $21,243,
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 August 31,
1995, the Fund did not pay commissions as compensation to any brokers for
research services such as industry, economic and company reviews and evaluations
of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc. ("Distributors"), a broker-dealer
and John Hancock Freedom Securities Corporation and its two broker-dealer
subsidiaries, Tucker Anthony Incorporated and Sutro & Company, Inc. ("Sutro")
(each an "Affiliated Broker"). Pursuant to procedures determined by the Trustees
and consistent with the above policy of obtaining best net results, the Fund may
execute portfolio transactions with or through Affiliated Brokers. For the
fiscal year ended August 31, 1995, the Fund paid no commissions to Affiliated
Brokers.
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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 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. The Fund may, however, purchase
securities from other members of underwriting syndicates of which Tucker Anthony
or Sutro are members, but only in accordance with the policy set forth above and
procedures adopted and reviewed periodically by the Trustees.
Brokerage or other transaction costs of the Fund are generally commensurate with
the rate of portfolio activity. The portfolio turnover rates for the Fund for
the fiscal periods ended August 31, 1995 and 1994 were 38% and 52%.
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.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, ("Investor Services"), P.O. Box
9116, Boston, MA 02205-9116, a wholly owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Fund. The Fund pays
an annual fee of $16.00 for each Class A shareholder and $18.50 for each Class B
shareholder, plus certain out-of-pocket expenses. These expenses are aggregated
and charged to the Fund and allocated to each class on the basis of the relative
net asset values.
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CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Trust and State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110. Under the custodian agreement, State Street Bank
and Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent accountants of the Fund are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts 02110. Price Waterhouse LLP audits and renders an
opinion on the Fund's annual financial statements and reviews the Fund's annual
Federal income tax return.
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APPENDIX A
DESCRIPTION OF BOND RATINGS(1)
Moody's Bond Ratings
"Bonds which are rated 'Aaa' are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as 'gilt
edge.' Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Bonds which are rated 'Aa' are judged to be of high quality by all standards.
Together with the 'Aaa' group they comprise what are generally known as high
grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in 'Aaa' securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long term risks appear somewhat larger than in 'Aaa'
securities."
"Bonds which are rated 'A' possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future."
"Bonds which are rated 'Baa' are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well."
"Bonds which are rated 'Ba' are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position,
characterizes bonds in this class."
"Bonds which are rated 'B' generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small."
- ----------
(1) As described by the rating companies themselves.
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Where no rating has been assigned or where a rating has been suspended or
withdrawn, it may be for reasons unrelated to the quality of the issue. Should
no rating be assigned, the reason may be one of the following: (i) an
application for rating was not received or accepted; (ii) the issue or issuer
belongs to a group of securities that are not rated as a matter of policy; (iii)
there is a lack of essential data pertaining to the issue or issuer; or (iv) the
issue was privately placed, in which case the rating is not published in Moody's
publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Standard & Poor's Bond Ratings
"AAA. Debt rated 'AAA' has the highest rating by Standard & Poor's. Capacity to
pay interest and repay principal is extremely strong."
"AA. Debt rated 'AA' has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree."
"A. Debt rated 'A' has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories."
"BBB. Debt rated 'BBB' is regarded as having adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories."
"Debt rated "BB" or "B" is regarded, on balance, as predominantly speculative
with respect to the issuer's capacity to pay interest and pay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "CC" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these may be outweighed
by large uncertainties or major risk exposures to adverse conditions."
Unrated. This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy.
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COMMERCIAL PAPER RATINGS
Moody's Commercial Paper Ratings
Moody's ratings for commercial paper are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Moody's two highest commercial paper rating categories
are as follows:
"P-1 -- "Prime-1" indicates the highest quality repayment capacity of the rated
issues.
"P-2 -- "Prime-2" indicates that the issuer has a strong capacity for repayment
of short-term promissory obligations. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained."
Standard & Poor's Commercial Paper Ratings
Standard & Poor's commercial paper ratings are current assessments of the
likelihood of timely payment of debts having an original maturity of no more
than 365 days. Standard & Poor's two highest commercial paper rating categories
are as follows:
"A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong. Those issues determined to possess overwhelming safety
characteristics will be denoted with a plus (+) sign designation."
"A-2 -- Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1."
<PAGE>
JOHN HANCOCK GLOBAL MARKETPLACE FUND
Class A and Class B Shares
Statement of
Additional Information
August 30, 1996
This Statement of Additional Information provides information about John Hancock
Global Marketplace Fund (the "Fund"), a series of John Hancock World Fund (the
"Trust"), in addition to the information that is contained in the Fund's Class A
and Class B Shares Prospectus (the "Prospectus"), dated August 30, 1996.
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Fund's Prospectus, a copy of which can be obtained free
of charge by writing or telephoning:
John Hancock Investors Services Corporation
P.O. Box 9116
Boston, Massachusetts 02199-9116
1-(800)-225-5291
TABLE OF CONTENTS
Statement of
Additional
Information
Page
Organization of the Fund 2
Investment Objective And Policies 2
Certain Investment Practices 5
Investment Restrictions 12
Those Responsible for Management 15
Investment Advisory And Other Services 22
Distribution Contract 25
Net Asset Value 27
Initial Sales Charge on Class A Shares 28
Deferred Sales Charge On Class B Shares 31
Special Redemptions 34
<PAGE>
Additional Services And Programs For Class A and Class B Shares 34
Description of The Fund's Shares 36
Tax Status 37
Calculation of Performance 43
Brokerage Allocation 45
Transfer Agent Services 47
Custody of Portfolio 47
Independent Auditors 47
Financial Statements F-1
ORGANIZATION OF THE FUND
John Hancock Global Marketplace Fund (the "Fund") is organized as a separate
diversified portfolio of John Hancock World Fund (the "Trust"), an open-end
investment management company organized in August 1986 by John Hancock Advisers,
Inc. (the "Adviser"), as a Massachusetts business trust under the laws of The
Commonwealth of Massachusetts. The Fund changed its name on December 11, 1995
from John Hancock Global Retail Fund to John Hancock Global Marketplace Fund.
The Trust currently consists of three separate series: the Fund, John Hancock
Pacific Basin Equities Fund and John Hancock Global Rx Fund. The Fund was
established in 1988. The Adviser is an indirect wholly-owned subsidiary of John
Hancock Mutual Life Insurance Company (the "Life Company"), a Massachusetts life
insurance company chartered in 1862, with national headquarters at John Hancock
Place, Boston, Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of the Fund is long-term capital appreciation. The Fund
will invest in a global portfolio consisting primarily equity securities of
issuers engaged in retail sales of consumer products and services. The types of
securities in which the Fund invests are listed in the Prospectus. See "Goal and
Strategy" and "Portfolio Securities" in the Prospectus. There can be no
assurance that the Fund will achieve its investment objective.
Under normal circumstances, the Fund invests at least 65% of its assets in the
securities of companies that merchandise goods and services to consumers and to
consumer companies.
Foreign Securities. The Fund invests in common stocks and in securities
convertible into or with rights to purchase common stock of corporations in
which the Fund is permitted to invest. The Fund may invest in American
Depository Receipts ("ADRs"), or European Depository Receipts ("EDRs") which are
receipts typically issued by an American or
2
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European bank or trust company representing underlying shares of foreign
issuers. Issuers of unsponsored ADRs are not required to disclose material
information in the United States and, therefore, there may not be a correlation
between this information and the market value of the ADR. Because the Fund has a
limited scope of investment through its concentration in the retail sales group
of industries, the Fund seeks investments without regard to geographical
borders. Normally, the Fund will invest in the securities markets of at least
three countries including the United States. A significant portion of the Fund's
investments are expected to be in countries with developing markets; and in
smaller capitalization, developing growth companies with relatively limited
operating histories as publicly traded companies. These investments may be made
without regard to a record of profits or dividends.
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 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 maybe
reduced. Since the Fund will invest in securities denominated in currencies
other than U.S. dollars, changes in foreign currency exchange rates will affect
the value of its portfolio securities. Currency exchange rates may not move in
the same direction as the securities markets in a particular country. As a
result, market gains may be offset by unfavorable exchange rate fluctuations.
Investments in foreign securities may involve risks and considerations not
present in domestic investments. Since foreign securities generally may be
denominated and pay interest or dividends in foreign currencies, the value of
the assets of the Fund as-measured in U.S. dollars will be affected favorably or
unfavorably by changes in the relationship of the U.S. dollar and other currency
rates. The Fund may incur costs in connection with the conversion of foreign
currencies into U.S. dollars and may be adversely affected by restrictions on
the conversion or transfer of foreign currencies. In addition, there may be less
publicly available information about foreign companies than U.S. companies.
Foreign companies may not be subject to accounting, auditing, and financial
reporting standards, practices and requirements comparable to those applicable
to U.S. companies.
Foreign securities markets, while growing in volume, have for the most part
substantially less volume than U.S. securities markets and securities of foreign
companies are generally less liquid and at times their prices may be more
volatile than securities of comparable U.S. companies. Foreign stock exchanges,
brokers and listed companies
3
<PAGE>
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 three (3) day customary settlement time for U.S. securities, or less
frequent than in the U.S., which could affect the liquidity of the Fund's
investments. The Adviser will monitor the settlement time for foreign securities
and take undue settlement delays into account in considering the desirability of
allocating investments among specific countries.
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 and volume of securities. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. 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. Political, legal and economic structures in many
of these emerging market countries may be undergoing significant evolution and
rapid development, and they may lack the social, political, legal and economic
stability characteristic of more developed countries. Emerging market countries
may have failed in the past to recognize private property rights. They may have
relatively unstable governments, present the risk of nationalization of
business, restrictions on foreign ownership, or prohibitions on repatriation of
assets, and may have less protection of property rights than more developed
countries. Their economies may be predominantly based on only a few industries,
may be highly vulnerable to changes in local or global trade conditions, and may
suffer from extreme and volatile debt burdens or inflation rates. Local
securities markets may trade a small number of securities and may be unable to
respond effectively to increases in trading volume, potentially making prompt
liquidation of substantial holdings difficult or impossible at times. The Fund
may be required to establish special custodial or other arrangements before
making certain investments in those countries. Securities of issuers located in
these countries may have limited marketability and may be subject to more abrupt
or erratic price movements.
Investing in securities of smaller capitalization developing-growth companies
also involves greater risk and the possibility of greater portfolio price
volatility. Among the reasons for the greater price volatility in these small
companies and unseasoned stocks are the less certain growth prospects of smaller
firms, the lower degree of liquidity in the markets for these stocks and the
greater sensitivity of small companies to changing economic conditions in their
geographic region. Securities of these companies involve higher investment risks
than those normally associated with larger firms due to the greater business
risks of small size and limited product lines, markets, distribution channels
and financial and managerial resources.
In some countries, there is the possibility of expropriation or confiscatory
taxation, seizure or nationalization of foreign bank deposits or other assets,
establishment of
4
<PAGE>
exchange controls, the adoption of foreign government restrictions or other
adverse political, social or diplomatic developments that could affect
investments in these countries.
CERTAIN INVESTMENT PRACTICES
Foreign Currencies and Foreign Currency Transactions. Due to its investments in
foreign securities, the Fund may hold a portion of its assets in foreign
currencies. The foreign currency transactions of the Fund may be conducted on a
spot (i.e., cash) basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market. The fund may enter into forward
foreign currency contracts involving currencies of the different countries in
which it will invest as a hedge against possible variations in the foreign
exchange rate between these currencies. The Fund may also engage in speculative
forward currency transactions, and may use forward currency contracts as a
substitute for investing in securities denominated in that currency or in order
to create a synthetic position consisting of a security issued in one country
and denominated in the currency of another country. Forward currency
transactions are 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. 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 or sale of its portfolio securities
denominated in foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in such foreign currencies. The Fund will not attempt to hedge all of its
foreign portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by the Adviser.
If the Fund enters into a forward contract requiring it to purchase foreign
currency, its custodian bank will segregate cash or liquid securities in a
separate account of the Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of such forward contract. Those assets will
be valued at market daily and if the value of the assets in the separate account
declines, additional cash or liquid assets will be placed in the account so that
the value of the account will equal the amount of the Fund's commitment with
respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as the currency involved, the length of the contract period and the
market
5
<PAGE>
conditions then prevailing. Since transactions in foreign currency are usually
conducted on a principal basis, no fees or commissions are involved.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities equal in value to the Fund's commitment. These
assets will be valued daily at market, and additional cash or securities will be
segregated in a separate account to the extent that the total value of the
assets in the account declines below the amount of the when-issued commitments.
Alternatively, the Fund may enter into offsetting contracts for the forward sale
of other securities that it owns.
Repurchase Agreements. The Fund may invest in 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
6
<PAGE>
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.
Short Sales. The Fund may engage in short sales "against the box" as well as
short sales to hedge against or profit from an anticipated decline in the value
of a security. The Fund may also engage in short sales to attempt to limit its
exposure to a possible market decline in the value of its portfolio securities
through short sales of securities which the Adviser believes possess volatility
characteristics similar to those being hedged. To effect such a transaction, the
Fund must borrow the security sold short to make delivery to the buyer. The Fund
then is obligated to replace the security borrowed by purchasing it at the
market price at the time of replacement. Until the security is replaced the Fund
is required to pay to the lender any accrued interest or dividends and may be
required to pay a premium.
The Fund will realize a gain if the security declines in price between the date
of the short sale and the date on which the Fund replaces the borrowed security.
On the other hand, the Fund will incur a loss as a result of the short sale if
the price of the security increases between those dates. The amount of any gain
will be decreased, and the amount of any loss increased, by the amount of any
premium, interest or dividends the Fund may be required to pay in connection
with a short sale. The successful use of short selling as a hedging device may
be adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the Securities and Exchange
Commission, if the Fund engages in short sales of the type referred to in
non-fundamental Investment Restriction No. (c) (ii) and (iii) below, it must put
in a segregated account (not with the broker) an amount of cash or U.S.
Government securities equal to the difference between (1) the market value of
the securities sold short at the time they were sold short and (2) any cash or
U.S. Government securities required to be deposited as collateral with the
broker in connection with the short sale (not including the proceeds from the
short sale). In addition, until the Fund replaces the borrowed security, it must
daily maintain the segregated account at such a level that the amount deposited
in it plus the amount deposited with the broker as collateral will equal the
current market value of the securities sold short.
Short selling may produce higher than normal portfolio turnover which may result
in increased transaction costs to the Fund and may result in gains from the sale
of securities deemed to have been held for less than three months, which gains
must be less than 30% of the Fund's gross income for a taxable year in order for
the Fund to qualify for treatment as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code") for that year. See "Tax
Status."
7
<PAGE>
The Fund does not intend to enter into short sales (other than those "against
the box") if immediately after such sale the aggregate of the value of all
collateral plus the amount in such segregated account exceeds 5% of the value of
the Fund's net assets. A short sale is "against the box" to the extent that the
Fund contemporaneously owns or has the right to obtain at no added cost
securities identical to those sold short.
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
or 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 decreases in interest rates or increases in securities prices 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 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 offsetting sale price is more than
the Fund's original purchase price, the Fund realizes a gain, or if it is less,
the Fund realizes a loss. The 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
certain Federal income tax considerations of transactions 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
8
<PAGE>
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 a 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 contract 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
change in the value of the instrument underlying a futures contract may result
in losses or gains in excess of the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount 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 movements during a particular trading day and
therefore does not limit potential losses because the limit may work to prevent
the liquidation of unfavorable positions. For example, futures prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of positions and
subjecting some holders of futures contracts to substantial losses.
Finally, although the 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
9
<PAGE>
than making or taking delivery. To the extent other participants make or take
delivery rather than closing out positions, liquidity in the market could be
reduced. In addition, the Fund could be prevented from executing a buy or sell
order at a specified price or closing out a position due to limits on open
positions or daily price fluctuation limits imposed by the exchanges or boards
of trade. If the Fund cannot close out a position, it will be required to
continue to meet margin requirements until the position is closed.
Options on Financial Futures Contracts. The Fund may purchase and write call and
put options on financial futures contracts. An option on a futures contract
gives the purchaser the right, in return for the premium paid, to assume a
position in a futures contract at a specified exercise price at any time during
the period of the option. Upon exercise, the writer of the option delivers the
futures contract to the holder at the exercise price. The Fund would be required
to deposit with its custodian initial and variation margin with respect to put
and call options on futures contracts written by it. Options on futures
contracts involve risks similar to the risks relating to transactions in
financial futures contracts. Also, an option purchased by the Fund may expire
worthless, in which case the Fund would lose the premium paid therefor.
Other Considerations. The Fund will engage in futures transactions 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 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 a Fund to do so, a long futures
position may be terminated or an option may expire without the corresponding
purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging definition, a
CFTC regulation permits the 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% 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 options and futures contracts only to the extent
such transactions are consistent with the requirements of the Code for
10
<PAGE>
maintaining its qualification as a regulated investment company for federal
income tax purposes.
When the Fund purchases a financial futures contract, writes a put option
thereon or purchases a call option thereon, an amount of cash or liquid
securities will be deposited in a segregated account with the Fund's custodian
that, together with the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contract.
Portfolio Trading. Purchases and sales of securities will be made whenever
necessary in the management's view to achieve the objectives of the Fund.
Management does not expect that in pursuing the Fund's objective, unusual
portfolio turnover will be required and intends to keep turnover to a minimum
consistent with such objective. Management believes unsettled market and
economic conditions during certain periods may 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 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 Trustee, however, will retain sufficient
oversight and be ultimately responsible for the determinations. The Adviser 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.
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 or money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
11
<PAGE>
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
The following investment restrictions may not be changed without approval of a
majority of outstanding voting securities which, as used in the Prospectus and
this Statement of Additional Information, means approval by the lesser of (1)
67% or more of the shares represented at a meeting if at least 50% of the Fund's
outstanding shares are present in person or by proxy at that meeting or (2) of
50% of the outstanding shares.
The Fund observes the following fundamental 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 classes or series, the purchase or sale of options, futures
contracts, forward contracts, forward commitments 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
(3) below, are not deemed to be the issuance of 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.
(3) Pledge, mortgage or hypothecate its assets, except to secure indebtedness
permitted by paragraph (2) above and then only if such pledging, mortgaging or
hypothecating does not exceed 33 1/3% of the Fund's total assets taken at market
value.
(4) Act as an underwriter, except to the extent that, in connection with the
disposition of portfolio securities, the Fund may be deemed to be an underwriter
for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate, any interest therein, or real estate limited
partnership interests, 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 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, enter into repurchase agreements and purchase all or a
portion of an issue of publicly distributed debt securities, bank loan
participation interests, bank certificates of
12
<PAGE>
deposit, banker's 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 currency, securities and securities
indices, futures contracts on currency, securities and securities indices 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.
(8) 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.
(9) Purchase securities, other than obligations of the U.S. Government or any of
its agencies or instrumentalities, if such purchase would cause 25% or more of
the value of the Fund's total assets to be invested in securities of issuers
conducting their principal business activities in the same industry, except that
the Fund shall invest at least 25% of the value of its total assets in
securities of issuers in the retail sales group of industries.
For purposes of fundamental investment restriction (9) above, the "retail sales
group of industries" consists of the group of retail industries included under
the caption "Retail and Wholesale Trade-Retail" in the Directory of Companies
Filing Annual Reports with the Securities and Exchange Commission published by
the Securities and Exchange Commission.
Non-Fundamental Investment Restrictions
The following restrictions are designated as non-fundamental and may be changed
by the Board of Trustees without the approval of the Fund's shareholders.
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 repurchase 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 be participation in a joint securities trading account.
13
<PAGE>
(b) Purchase securities on margin except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities.
(c) Make short sales of securities or maintain a short position unless (i) at
all times when a short position is open the Fund owns an equal amount of
such securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue as,
and equal in amount to, the securities sold short; (ii) for the purpose of
hedging the Fund's exposure to an actual or anticipated market decline in
the value of its investments; or (iii) in order to profit from an
anticipated decline in the value of a security.
(d) 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.
(e) Purchase a security if, as a result, (i) more than 10% of the Fund's total
assets would be invested in the securities of other investment companies,
(ii) the Fund would hold more than 3% of the total outstanding voting
securities of any one investment company, or (iii) more than 5% of the
Fund's total assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the investment of
cash collateral, received by the Fund in connection with lending the Fund's
portfolio securities, in the securities of open-end investment companies
or (b) the purchase of shares of any investment company in connection with
a merger, consolidation, reorganization or purchase of substantially all of
the assets of another investment company. Subject to the above percentage
limitations, the Fund may, in connection with the John Hancock Group of
Funds Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John Hancock
Group of Fund. In addition, as a nonfundamental restriction, the Fund may
not purchase the shares of any closed-end investment company except in the
open market where no commission or profit to a sponsor or dealer results
from the purchase, other than customary brokerage fees.
(f) 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.
(g) 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.
14
<PAGE>
(h) The Fund will not purchase warrants of any issuer, if, as a result of such
purchases, more than 2% of the value of the Fund's total assets would be
invested in warrants which are not listed on the New York Stock Exchange or
the American Stock Exchange or more than 5% of the value of the total
assets of the Fund would be invested in warrants generally, whether or not
so listed. For these purposes, warrants are to be valued at the lesser of
cost or market, but warrants acquired by the Fund in units with or attached
to debt securities shall be deemed to be without value.
(i) The Fund will not purchase interests in oil, gas or other mineral
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) The Fund will not purchase securities while outstanding borrowings exceed
5% of the Fund's total assets.
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 state
securities administrators that it will not purchase the following securities:
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.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees' who elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers and Trustees of the Trust
are also officers 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 Trust during the past five years.
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<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
101 Huntington Avenue Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("The
October 1944 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"), Transamerica Fund
Management Company ("TFMC") 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.
Dennis S. Aronowitz Trustee (1,2) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank.
June 1931
* An "interested person" of the Company, as such term is defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act").
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
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<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Richard P. Chapman, Jr. Trustee (1,2) President, Brookline Savings Bank.
160 Washington Street Director, Federal Home Loan Bank of
Brookline, Massachusetts Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee (1,2) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, New Jersey N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation Inc.
(consulting, October 1991 - October
1993); Trustee, the Hudson City
Savings Bank (until October 1995).
Douglas M. Costle Trustee (1,2,3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, Vermont 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991). Dean, Vermont Law
School (until 1991). Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
MITRE Corporation (governmental
consulting services).
* An "interested person" of the Company, as such term is defined in the
Investment Company Act.
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
17
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Leland O. Erdahl Trustee (1,2) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991) and
President of Albuquerque Uranium
Corporation (from 1985-1992);
Director of Freeport-McMoRan Copper
& Cold Company Inc., Hecla Mining
Company, Canyon Resources
Corporation and Original Sixteen to
One Mine, Inc. (from 1984-1987 and
from 1991 to 1995) (management
consultant).
Richard A. Farrell Trustee (1,2) President of Farrell, Healer & Co.,
Farrell, Healer (venture capital management firm)
& Company, Inc. (since 1980); Prior to 1980, headed
160 Federal Street -- the venture capital group at Bank
23rd Floor of Boston Corporation.
Boston, MA 02110
November 1932
Gail D. Fosler Trustee (1,2) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD economic and business research).
December 1947
William F. Glavin Trustee (1,2) President, Babson College; Vice
Babson College Chairman, Xerox Corporation until
Horn Library June 1989; Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994), and Inco
March 1931 Ltd.
Dr. John A. Moore Trustee (1,2) President and Chief Executive
Institute for Evaluating Officer, Institute for Evaluating
Health Risks Health Risks, (nonprofit
1101 Vermont Avenue N.W. institution) (since September
Suite 608 1989).
Washington, DC 20005
February 1939
* An "interested person" of the Company, as such term is defined in the
Investment Company Act.
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
18
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Patti McGill Peterson Trustee (1,2) President, St. Lawrence University;
364 Upson Hall Director, Niagara Mohawk Power
Cornell University Corporation and Security Mutual
Ithaca, NY 14853 Life.
May 1943
John W. Pratt Trustee (1,2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
*Richard S. Scipione Trustee (3) General Counsel, the Life Insurance
John Hancock Place Company; Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking
August 1937 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.
Edward J. Spellman, CPA Trustee (1,2,4) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL
November 1932
Anne C. Hodsdon Trustee and President and Chief Operating
101 Huntington Avenue President (3)(4) Officer, the Adviser; Executive
Boston, MA 02199 Vice President, the Adviser (until
April 1953 December 1994); Senior Vice
President; the Adviser (until
December 1993); Vice President, the
Adviser, 1991.
*Robert G. Freedman Vice Chairman and Vice Chairman and Chief Investment
July 1938 Chief Investment Officer, the Adviser; President,
Officer (2) the Adviser (until December 1994);
Director, the Adviser, Advisers
International, John Hancock Funds,
Investor Services, SAMCorp., and NM
Capital; Senior Vice President, The
Berkeley Group.
* An "interested person" of the Company, as such term is defined in the
Investment Company Act.
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
19
<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
*James B. Little Senior Vice Senior Vice President, the Adviser,
February 1935 President, Chief The Berkeley Group, John Hancock
Financial Officer Funds and Investor Services; Senior
Vice President and Chief Financial
Officer, each of the John Hancock
funds.
*John A. Morin Vice President Vice President and Secretary, the
July 1950 Adviser; Vice President, Investor
Services, John Hancock Funds and
each of the John Hancock funds;
Compliance Officer, certain John
Hancock funds; Counsel, the Life
Company; Vice President and
Assistant Secretary, The Berkeley
Group.
*Susan S. Newton Vice President, Vice President and Assistant
March 1950 Secretary Secretary, the Adviser; Vice
President and Secretary, certain
John Hancock funds; Vice President
and Secretary, John Hancock Funds,
Investor Services and John Hancock
Distributors, Inc. (until 1994);
Secretary, SAMCorp; Vice President,
The Berkeley Group.
*James J. Stokowski Vice President Vice President, the Adviser; Vice
November 1946 and Treasurer President and Treasurer, each of
the John Hancock funds.
* An "interested person" of the Company, as such term is defined in the
Investment Company Act.
(1) Member of the Executive Committee. Under the Company's charter, the
Executive Committee may generally exercise most of the powers of the Board
of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
20
<PAGE>
As of May 31, 1996, the Adviser owned 6.44% (38,824 shares) of the Class A
shares of the Fund and the officers and Trustees of the Fund as a group owned
less than 1% of the outstanding shares of the Fund. At such date, the following
shareholders held, as record owner, 5% or more of the Fund's shares:
Percentage Ownership
Class A Shares Owned of Outstanding Shares
------- ------------ ---------------------
Prudential Securities Inc. FBO 79,859 13.25%
Pan American Management Co.
c/o Durling & Durling
Air Mail
Panama
Percentage Ownership
Class B Shares Owned of Outstanding Shares
------- ------------ ---------------------
Merrill Lynch Pierce Fenner 179,328 27.00%
& Smith Inc.
Attn: Mutual Fund Operations
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
Prudential Securities, Inc. FBO 35,361 5.32%
County Employee Annuity
Benefit Fund
c/o OTC Illinois Trust Company
Attn: Al Szewczyk
Chicago, IL 60608
At such date, no other person owned of record or beneficially as much as 5% of
the outstanding shares of the Fund.
Shareholders of a Fund having beneficial ownership of more than 25% of the
shares of the Fund may be deemed for purposes of the Investment Company Act to
control the Fund.
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 the 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. The three non-Independent Trustees,
Messrs.
21
<PAGE>
Boudreau and Scipione and Ms. Hodsdon, and each of the officers of the Fund are
interested persons of the Adviser, are compensated by the Adviser and receive no
compensation from the Fund for their services. The Trustees not listed below
were not Trustees of the Fund during its most recently completed fiscal year.
Aggregate Total Compensation From
Compensation the Fund and John Hancock
Independent Trustees From the Fund Fund Complex to Trustees(1)
- -------------------- ------------- ---------------------------
(Total of 17 Funds)
Dennis S. Aronowitz $ $ 61,050
Richard P. Chapman, Jr.+ 6 62,800
William J. Cosgrove+ 6 61,050
Gail D. Fosler - 60,800
Bayard Henry* - 58,850
Edward J. Spellman - 61,050
--- --------
$12 $365,600
- ----------
(1) Compensation is for the fiscal year ended August 31, 1995.
(2) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1995. As
of this date there were sixty-five funds in the John Hancock Fund Complex
of which each of these independent trustees served.
* Mr. Henry retired from his position as a Trustee of the Fund effective
April 26, 1996.
+ As of December 31, 1995 the value of the aggregate accrued deferred
compensation from each Fund in the John Hancock Fund Complex for Mr.
Chapman was $54,681 and for Mr. Cosgrove was $54,243 under the John Hancock
Deferred Compensation Plan for Independent Trustees.
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund receives its investment advice from the Adviser. Investors should refer
to the Prospectus for a description of certain information concerning the
investment management contract.
Each of the Trustees and principal officers affiliated with the Trust who is
also an affiliated person of the Adviser is named above, together with the
capacity in which such person is affiliated with the Trust or the Adviser.
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
22
<PAGE>
Fund (i) with a continuous investment program, consistent with the Fund's stated
investment objectives and policies, and (ii) supervision of all aspects of the
Fund's operations except those that are delegated to a custodian, transfer agent
or other agent. 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 affiliates provide investment advice.
Because of different investment objectives or other factors, a particular
security may be bought for one or more funds or clients when one or more are
selling the same security. If opportunities for purchase or sale of securities
by the Adviser for the Fund or for other funds or clients for which the Adviser
renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of them. To the
extent that transactions on behalf of more than one client of the Adviser or
affiliates may increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on price.
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.
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) are borne by the Fund.
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 average of the daily net assets of the Fund as follows:
Net Asset Value Annual Rate
--------------- -----------
First $250,000,000 0.80%
Amount over $250,000,000 0.70%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to 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. On August 31, 1995, the net assets of the Fund were
$711,600. For the period ended August
23
<PAGE>
31, 1995, the Adviser's management fee was $4,205. After the expense reduction
by the Adviser, the management fee for the period ended August 31, 1995 was
zero. The Adviser did not impose any investment management fee.
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 1/2% 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 1/2% of
the remaining average net asset value. When calculating the limit above, the
Fund may exclude interest, brokerage commissions and extraordinary expenses.
On March 5, 1996, the Board of Trustees approved retroactively to January 1,
1996, an agreement to compensate the Adviser for performing necessary tax and
financial management services for the Fund. The compensation for 1996 is
estimated to be at an annual rate of 0.01875% of the average net assets of the
Fund.
Pursuant to the investment management contract, the Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in
connection with the matters to which their respective contract relates, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser in the performance of its duties or from reckless disregard
of the obligations and duties under the applicable contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and currently has more than $18 billion in assets under
management in its capacity as investment adviser to the Fund and other mutual
funds and publicly traded investment companies in the John Hancock group of
funds having approximately 1,080,000 shareholders. The Adviser is an affiliate
of the Life Company, one of the most recognized and respected financial
institutions in the nation. With total assets under management of more than $80
billion, the Life Company is one of 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.
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,
24
<PAGE>
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.
DISTRIBUTION CONTRACT
The Fund has a distribution contract with John Hancock Funds. 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 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, 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 (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act.
Under the Plans, the Fund will pay distribution and service fees at an aggregate
annual rate of up to 0.30% and 1.00% for Class A and Class B, respectively, of
the Fund's average daily net assets attributable to shares of that class.
However, the service fee will not exceed 0.25% of the Fund's average daily net
assets attributable to each class of shares. The distribution fees will be used
to reimburse the Distributor for its distribution expenses, including but not
limited to: (i) initial and ongoing sales compensation to Selling Brokers and
others (including affiliates of the Distributor) 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 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 Plans (the "Independent Trustees"), by votes cast in person at
meetings called for the purpose of voting on such Plans.
25
<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 August 31, 1995 the Funds paid John Hancock Funds
the following amounts of expenses with respect to the Class A and Class B shares
of the Fund:
Expense Items
Printing and Interest
Mailing of Compensation Carrying or
Prospectus to to Selling Other Finance
Fund Advertising New Shareholders Brokers Charges
---- ----------- ---------------- ------- -------
Class A Shares $163 $ 0 $544 $870
Class B Shares $ 0 $ 0 $ 0 $ 0
No Class B shares were outstanding during the period ended August 31, 1995.
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 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 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
26
<PAGE>
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 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
securities traded over-the-counter are generally valued at the last available
bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
The Fund will not price its securities on the following national holidays: New
Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day; Labor
Day; Thanksgiving Day; and Christmas Day. On any day an international market is
closed and the New York Stock Exchange is open, any foreign securities will be
valued at the prior day's close with the current day's exchange rate. Trading of
foreign securities may take place on Saturdays and U.S. business holidays on
which the Fund's NAV is not calculated. Consequently, the Fund's portfolio
securities may trade and the NAV of the Fund's redeemable securities may be
significantly affected on days when a shareholder has no access to the Fund.
27
<PAGE>
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charges applicable to purchases of Class A shares of the Fund are
described in the Fund's Prospectus. Methods of obtaining reduced sales charges
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares
of the Fund, the investor is entitled to cumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Fund owned by the investor, or if Investor Services is notified by the
investor's dealer or the investor at the time of the purchase, the cost of the
Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
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. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
o Any state, county or any instrumentality, department, authority, or agency
of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any
registered investment management company.
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if it
is purchasing $1 million or more for non-discretionary customers or
accounts.
o A Trustee or officer of the Trust; a Director or officer of the Adviser and
its affiliates or Selling Brokers; employees or sales representatives of
any of the foregoing; retired officers, employees or Directors of any of
the foregoing; a member of the immediate family (spouse, children, mother,
father, sister, brother, mother-in-law, father-in-law) of any of the
foregoing; or any fund, pension, profit sharing or other benefit plan for
the individuals described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds
providing
28
<PAGE>
specifically for the use of Fund shares in fee-based investment products or
services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Shareholders of the John Hancock Global Technology Fund who were shareholders of
John Hancock National Aviation & Technology Fund ("National Aviation") who held
shares prior to May 1, 1984 are permitted for an indefinite period to purchase
additional shares of the John Hancock Global Technology Fund at net asset value,
without a sales charge, provided that the purchasing shareholder held shares of
National Aviation continuously from April 30, 1984 to July 28, 1995 (the date of
the merger of National Aviation into the John Hancock Global Technology Fund)
and shares of the John Hancock Global Technology Fund from that date to the date
of the purchase in question.
Class A shares may also be acquired without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
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
29
<PAGE>
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 an initial sales
charge.
Letter of Intention. The reduced sales charges are also applicable to
investments made over a thirteen-month 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 IRA, SEP, SARSEP,
401(k), 403(b) (including TSA) 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 between the sales charge
actually paid and the sales charge payable had the LOI not been in effect is due
from the investor. However, for the purchases actually made within the specified
period (either 13 or 48 months) the sales charge applicable will not be higher
than that which would have applied (including accumulations and combinations)
had the LOI been for the amount actually invested.
The LOI authorizes 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
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 shares and adjust the sales charge, if necessary. A LOI does not
constitute a binding commitment by an investor to purchase, or by the Fund to
sell, any additional shares and may be terminated at any time.
30
<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. No CDSC
will be imposed on shares derived from reinvestment of dividends or capital
gains distributions.
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
dividend and capital gain reinvestment, and next from the shares you have held
the longest during the six-year period. For this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price. Upon redemption, appreciation is effective only on a per share basis for
those shares being redeemed. Appreciation of shares cannot be redeemed CDSC free
at the account level.
When requesting a redemption for a specific dollar amount please indicate if you
require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
31
<PAGE>
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account value,
including reinvested dividends, at the time you established your periodic
withdrawal plan and 12% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor Services.
(Please
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note that this waiver does not apply to periodic withdrawal plan
redemptions of Class A shares that are subject to a CDSC.)
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other qualified plans as
described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions under
the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under Section 401(a) of the Code
(such as 401(k), Money Purchase Pension Plan, Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
- --------------------------------------------------------------------------------
Type of 401(a) Plan 403(b) 457 IRA, IRA Non-retirement
Distribution (401(k), MPP, Rollover
PSP)
- --------------------------------------------------------------------------------
Death or Waived Waived Waived Waived Waived
Disability
- --------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
mandatory value annually
distributions in periodic
or 12% of payments
account value
annually in
periodic
payments
- --------------------------------------------------------------------------------
Between Waived Waived Waived Waived for 12% of account
59 1/2 Life value annually
and 70 1/2 Expectancy in periodic
or 12% of payments
account value
annually in
periodic
payments
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- --------------------------------------------------------------------------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of
annuity annuity annuity account
payments payments payments value
(72+) or (72+) or (72+) or annually
12% of 12% of 12% of in periodic
account account account payments
value value value
annually in annually in annually
periodic periodic in periodic
payments payments payments
- --------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- --------------------------------------------------------------------------------
Termination Not Waived Not Waived Not Waived Not Waived N/A
of Plan
- --------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- --------------------------------------------------------------------------------
Return of Waived Waived Waived Waived N/A
Excess
- --------------------------------------------------------------------------------
If you qualify for a waiver under one of these situations, you must notify
Investor Services at the time you make your redemption. The waiver will be
granted once Investor Services has confirmed you are entitled to the waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion he 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 FOR CLASS A AND CLASS B SHARES
Exchange Privilege. As described 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 Fund's 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,
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<PAGE>
depending upon the market value of the securities owned by the Fund at the time
of redemption, a withdrawal pursuant to this plan may result in recognition 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"). The program, as it relates to
automatic investment checks, is subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic Accumulation
Program may be revoked by Investor Services without prior notice if any
investment is not honored by the shareholder's bank. The bank shall be under no
obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Fund
Services or upon written notice to Fund 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.
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<PAGE>
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 Fund shares will be treated for tax purposes as described under
the caption "Tax Status."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series, without
further action by shareholders. As of the date of this Statement of Additional
Information, the Trustees have authorized shares of the Fund and three 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.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to the relevant 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. Dividends
paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i)
Class B shares will pay higher distribution and service fees than Class A shares
and (ii) each of Class A and Class B shares will bear any class expenses
properly allocable to such class of shares, subject to the requirements imposed
by the Internal Revenue Service or funds that have a multiple-class structure.
Similarly, the net asset value per share may vary depending on the class of
shares purchased. When issued, shares are fully paid and non-assessable by the
Trust. 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.
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
36
<PAGE>
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
Trust. The Declaration of Trust also provides for indemnification out of the
Trust assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Liability is therefore limited to circumstances in which the
Trust itself would be unable to meet its obligations, and the possibility of
this occurrence is remote.
Notwithstanding the fact that the Prospectus is a combined prospectus for the
Fund and other John Hancock mutual funds, the Fund shall not be liable for the
liabilities of any other John Hancock mutual fund.
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.
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 Code and intends to
continue to so qualify for each taxable year. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timing of its distributions, and the diversification of its assets, the Fund
will not be subject to Federal income tax on taxable income (including net
realized capital gains) which is distributed to shareholders in accordance with
the timing requirements of the Code.
The Fund will be subject to a four percent nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to seek to avoid or minimize liability
for such tax by satisfying such distribution requirements.
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<PAGE>
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currency forward contracts, certain options or futures contracts on
foreign currencies, 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 or
derivatives held for less than three months, which gain is limited under the
Code to less than 30% of its gross income for each taxable year, and may under
future Treasury regulations produce income not among the types of "qualifying
income" from which the Fund must derive at least 90% of its gross income for
each taxable year. If the net foreign exchange loss for a year treated as
ordinary loss under Section 988 were to exceed the Fund's investment company
taxable income computed without regard to such loss the resulting overall
ordinary loss for such year would not be deductible by the Fund or its
shareholders in future years.
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, rentals, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund
38
<PAGE>
could be subject to Federal income tax and additional interest charges on
"excess distributions" received from these passive foreign investment companies
or gain from the sale of stock in such companies, even if all income or gain
actually received by the Fund is timely distributed to its shareholders. The
Fund would not be able to pass through to its shareholders any credit or
deduction for such a tax. Certain elections may, if available, ameliorate these
adverse tax consequences, but any such election could require the Fund to
recognize taxable income or gain without the concurrent receipt of cash. The
Fund may limit and/or manage its investments in passive foreign investment
companies to minimize its tax liability or maximize its return from these
investments.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options and futures contracts,
foreign currency positions and foreign currency forward contracts. Certain of
these transactions may cause the Fund to recognize gains or losses from marking
to market even though its positions have not been sold or terminated and may
affect the character as long-term or short-term (or, in the case of certain
foreign currency options, futures and forward contracts, as ordinary income or
loss) of some capital gains and losses realized by the Fund. Additionally,
certain of the Fund's losses on transactions involving options, futures, forward
contracts, and any offsetting or successor positions in its portfolio may be
deferred rather than being taken into account currently in calculating the
Fund's taxable income or gain. Certain of such transactions may also cause the
Fund to dispose of investments sooner than would otherwise have occurred. These
transactions may therefore affect the amount, timing and character of the Fund's
distributions to shareholders. The Fund will take into account the special tax
rules applicable to options, futures or forward contracts, including
consideration of available elections, in order to seek to minimize any potential
adverse tax consequences.
The amount of net realized capital gains, if any, in any given year will result
from sales of securities or the use of options or future contracts 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 sales and transactions, and any
resulting gains or losses, may therefore vary considerably from year to year. At
the time of an investor's purchase of Fund shares, a portion of the purchase
price is often attributable to realized or unrealized appreciation in the Fund's
portfolio or undistributed taxable income of the Fund. Consequently, subsequent
distributions on those shares from such appreciation or income may be taxable to
such investor even if the net asset value of the investor's shares is, as a
result of the distributions, reduced below the investor's cost for such shares
and the distributions in reality represent a return of a portion of the purchase
price.
Upon a redemption of shares of the Fund (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon
39
<PAGE>
the amount of the proceeds and the investor's basis in his shares. Such gain or
loss will be treated as capital gain or loss if the shares are capital assets in
the shareholder's hands and will be long-term or short-term, depending upon the
shareholder's tax holding period for the shares and subject to the special rules
described below. A sales charge paid in purchasing Class A shares of the Fund
cannot be taken into account for purposes of determining gain or loss on the
redemption or exchange of such shares within 90 days after their purchase to the
extent shares of the Fund or another John Hancock fund are subsequently acquired
without payment of a sales charge pursuant to the reinvestment or exchange
privilege. This disregarded charge will result in an increase in the
shareholder's tax basis in the shares subsequently acquired. Also, any loss
realized on a redemption or exchange may be disallowed to the extent the shares
disposed of are replaced with other shares of the Fund within a period of 61
days, beginning 30 days before and ending 30 days after the shares are disposed
of, such as pursuant to automatic dividend reinvestments. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
Any loss realized upon the redemption of shares with a tax holding period of six
months or less will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain with respect to such
shares.
Although the Fund's present intention is to distribute, at least annually, all
net capital gain, if any, the Fund reserves the right to retain and reinvest all
or any portion of the excess, as computed for Federal income tax purposes, of
net long-term capital gain over net short-term capital loss in any year. The
Fund will not in any event distribute net capital gain realized in any year to
the extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Upon proper designation of this amount by
the Fund, each shareholder would be treated for Federal income tax purposes as
if the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain in his return for his taxable year in which the last day of the
Fund's taxable year falls, (b) be entitled either to a tax credit on his return
for, or to a refund of, his pro rata share of the taxes paid by the Fund, and
(c) be entitled to increase the adjusted tax basis for his Fund shares by the
difference between his pro rata share of such excess and his pro rata share of
such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
realized capital loss in any year to offset net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
realized 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.
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Presently, there are no capital loss carryforwards available to offset against
future net realized capital gains.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund from U.S. domestic corporations in respect of any
share of stock held by the Fund, for U.S. Federal income tax purposes, for at
least 46 days (91 days in the case of certain preferred stock) and distributed
and properly designated by the Fund may be treated as qualifying dividends.
Corporate shareholders must meet the minimum holding period requirement stated
above (46 or 91 days) with respect to their Fund shares in order to qualify for
the deduction and, if they have any debt that is deemed under the Code directly
attributable to Fund shares, may be denied a portion of the dividends received
deduction. The entire qualifying dividend, including the otherwise-deductible
amount, will be included in determining alternative minimum tax liability, if
any. Additionally, any corporate shareholder should consult its tax adviser
regarding the possibility that its tax basis in its shares may be reduced, for
Federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares, for the purpose of computing its gain or loss on
redemption or other disposition of the shares.
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. or deductions may reduce or eliminate
such taxes in some cases. Investors may be entitled to claim U.S. foreign tax
credits or deductions with respect to foreign income taxes or certain other
foreign taxes ("qualified foreign taxes"), subject to certain provisions and
limitations contained in the Code. Specifically, if more than 50% of the Fund's
total assets at the close of any taxable year consist of stock or securities of
foreign corporations, the Fund may file an election with the Internal Revenue
Service pursuant to which shareholders of the Fund will be required to (i)
include in ordinary gross income (in addition to taxable dividends and
distributions actually received) their pro rata shares of qualified foreign
taxes paid by the Fund even though not actually received by them, and (ii) treat
such respective pro rata portions as foreign taxes paid by them.
If the Fund makes this election, shareholders may then deduct such pro rata
portions of qualified foreign taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of qualified foreign taxes paid by the Fund,
although such shareholders will be required to include their shares of such
taxes in gross income. Shareholders who claim a foreign tax credit for such
foreign taxes may be required to treat a portion of dividends received from the
Fund as a separate category of income for purposes of computing the limitations
on the foreign tax credit. Tax-exempt shareholders will ordinarily not benefit
from this election. Each year (if any) that the Fund files the election
described
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above, its shareholders will be notified of the amount of (i) each shareholder's
pro rata share of qualified foreign taxes paid by the Fund and (ii) the portion
of Fund dividends that represents income from each foreign country. If the Fund
cannot or does not make this election, the Fund will deduct the foreign taxes it
pays in determining the amount it has available for distribution to
shareholders, and shareholders will not include these foreign taxes in their
income, nor will they be entitled to any tax deductions or credits with respect
to such taxes.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options, futures contracts, and forward
contracts may also require the Fund to recognize income or gain without a
concurrent receipt of cash. However, the Fund must distribute to shareholders
for each taxable year substantially all of its net income and net capital gains,
including such income or gain, to qualify as a regulated investment company and
avoid liability for any federal income or excise tax. Therefore, the Fund may
have to dispose of its portfolio securities under disadvantageous circumstances
to generate cash, or may have to leverage itself by borrowing the cash, to
satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. The Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the
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backup withholding provisions are applicable, any such distributions and
proceeds, whether taken in cash or reinvested in shares, will be reduced by the
amounts required to be withheld. Any amounts withheld may be credited against a
shareholder's U.S. federal income tax liability. Investors should consult their
tax advisers about the applicability of the backup withholding provision.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to nonresident alien withholding tax at the rate of 30% (or a lower rate
under an applicable tax treaty) on amounts treated as ordinary dividends from
the Fund and, unless an effective IRS Form W-8 or authorized substitute for Form
W-8 is on file, to 31% backup withholding on certain other payments from the
Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
The average annual total return for Class A shares of the Fund for the year
ended February 29, 1996 and from commencement of operations on September 29,
1994 was 49.28% and 34.15% respectively. The total return (not annualized) for
Class B shares of the Fund at February 29, 1996 from commencement of operations
on February 22, 1996 was 8.22%. 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
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following formula:
T = NROOT n{\ERV/P} - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1 year, 5 year and life
of fund periods.
In the case of Class A or Class B shares, this calculation assumes the maximum
sales charge is included in the initial investment or the CDSC is applied at the
end of the period. This calculation 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 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.
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 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
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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.
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."
Investments in debt securities are generally traded on a net basis through
dealers acting for their own account as principals and not as brokers; no
brokerage commissions are payable on such transactions.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and 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
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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 year ended
August 31, 1995, the Fund paid negotiated brokerage commissions in the amount of
$1,273.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay a broker which provides brokerage and research services to the Fund an
amount of disclosed commission in excess of the commission which another broker
would have charged for effecting that transaction. This practice is subject to a
good faith determination by the Trustees that 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 August 31, 1995, the Fund did not pay
commissions as compensation to any brokers for research services such as
industry, economics, and company reviews and evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and other
subsidiaries, three of which, Tucker Anthony Incorporated, John Hancock
Distributors, Inc. and Sutro & Company, Inc., are broker-dealers ("Affiliated
Brokers"). Pursuant to procedures determined by the Trustees and consistent with
the above policy of obtaining best net results, the Fund may execute portfolio
transactions with or through Affiliated Brokers. For the fiscal year ended
August 31, 1995, the Fund paid no brokerage commissions to Affiliated Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Trustees believe to be contemporaneously charged by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with an
Affiliated Broker if the Fund would have to pay a commission rate less favorable
than the Affiliated Broker's contemporaneous charges for comparable transactions
for its other most favored, but unaffiliated, customers except for accounts for
which the Affiliated Broker acts as clearing broker 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
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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 Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays an annual fee of
$16.00 for each Class A shareholder and $18.50 for each Class B shareholder,
plus certain out-of-pocket expenses. These expenses are aggregated and charged
to the Fund and allocated to each class on the basis of the relative net asset
values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Trust and State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110. Under the custodian agreement, State Street Bank &
Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts 02110. Price Waterhouse audits and renders an
opinion on the Fund's annual financial statements and prepares the Fund's annual
Federal income tax return.
47
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FINANCIAL STATEMENTS
F-1
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JOHN HANCOCK PACIFIC BASIN EQUITIES FUND
Statement of Additional Information
August 30, 1996
This Statement of Additional Information provides information about John Hancock
Pacific Basin Equities Fund (the "Fund"), a diversified series of John Hancock
World Fund (the "Trust"), in addition to the information that is contained in
the Fund's Prospectus, dated August 30, 1996 (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
Page
----
Organization of the Fund ..................................... 2
Investment Objective and Policies ............................ 2
Certain Investment Practices ................................. 4
Investment Restrictions ...................................... 9
Ratings ...................................................... 13
Those Responsible for Management ............................. 14
Investment Advisory and Other Services ....................... 22
Distribution Contract ........................................ 25
Net Asset Value .............................................. 27
Initial Sales Charge on Class A Shares ....................... 28
Deferred Sales Charge on Class B Shares ...................... 31
Special Redemptions .......................................... 34
Additional Services and Programs ............................. 34
Description of the Fund's Shares ............................. 36
Tax Status ................................................... 37
Calculation of Performance ................................... 44
Brokerage Allocation ......................................... 45
Transfer Agent Services ...................................... 48
Custody of Portfolio ......................................... 48
Independent Auditors ......................................... 48
Financial Statements ......................................... F-1
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ORGANIZATION OF THE FUND
John Hancock Pacific Basin Equities Fund (the "Fund") is organized as a
separate, diversified series of John Hancock World Fund (the "Trust"), an
open-end, management investment company organized in August 1986 as a
Massachusetts business trust under the laws of The Commonwealth of
Massachusetts. Prior to January 1, 1991, when the Trust changed its name, the
Trust was known as John Hancock World Trust. On October 1, 1992, the Fund
changed its name from John Hancock World Fund - Pacific Basin Equities Portfolio
to John Hancock Freedom Pacific Basin Equities Fund. As of January 1, 1994, the
word "Freedom" was deleted from the Fund's name.
John Hancock Advisers, Inc. (the "Adviser") is solely responsible for advising
the Fund with respect to investments in the U.S. and Canada. The Adviser is an
indirect, wholly owned subsidiary of John Hancock Mutual Life Insurance Company
(the "Life Company"), a Massachusetts life insurance company chartered in 1862,
with national headquarters at John Hancock Place, Boston, Massachusetts.
The Fund has two sub-advisers: Indosuez Asia Advisers Limited ("IAAL") and John
Hancock Advisers International Limited ("JHAI") (collectively, the
"Sub-Advisers"). IAAL is organized under the laws of Hong Kong and indirectly
owned by Banque Indosuez through Banque Indosuez's wholly owned subsidiary,
Indosuez Asset Management Asia Limited ("IAMA"). Banque Indosuez is a subsidiary
Compagnie de Suez, which has sold 51% of its ownership interest in Banque
Indosuez to Caisse Nationale de Credit Agricole. IAMA is an experienced
investment adviser for funds authorized to invest in the Asian region, and
investment personnel of IAAL also act as portfolio managers of IAMA in
connection with these Asian country funds. Together IAAL and JHAI, a London
based wholly owned subsidiary of the Adviser, are responsible for providing
advice to the Fund with respect to investments other than in the U.S. and
Canada, subject to the review of the Trustees and overall supervision of the
Adviser.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve long-term capital appreciation
through investment in a diversified portfolio of equity securities of issuers
located in countries of the Pacific Basin. These investments will consist of (1)
securities of companies traded principally on stock exchanges in Pacific Basin
countries; (2) securities of companies deriving at least 50% of their total
revenue from goods produced, sales made or services performed in Pacific Basin
countries; (3) securities of companies that are organized under the laws of
Pacific Basin countries, which are publicly traded on recognized securities
exchanges outside these countries; and (4) securities of investment companies
and trusts that invest principally in the foregoing. The Pacific Basin is
defined as those countries bordering on the Pacific Ocean. The principal Pacific
Basin countries in which
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the Fund's securities are issued and traded are Australia, Canada, China, Hong
Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines,
Singapore, Taiwan, Thailand, Vietnam and the United States. There can be no
assurance that the Fund will achieve its investment objective.
Under normal conditions, the Fund will invest at least 65% of its total assets
in Pacific Basin corporate common stock and other equity securities (consisting
of common stock, warrants and securities convertible into common stock). The
balance of the Fund's assets will be invested in (1) equity securities of
issuers located in Asian countries not in the Pacific Basin (including India,
Pakistan, Sri Lanka and Bangladesh) and (2) investment grade debt securities
(i.e., rated BBB, Baa or higher by Standard & Poor's Ratings Group or Moody's
Investors Services, Inc., or, if unrated by either such service, determined to
be of comparable quality by the Adviser or a Sub-Adviser) of U.S., Japanese,
Australian and New Zealand companies and governments and bank certificates of
deposit. Debt securities rated BBB or Baa and unrated securities of equivalent
quality 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.
The Fund has not established any limitations on the allocation of investments
among the Pacific Basin countries. The portion of the Fund's assets to be
allocated to each of the Pacific Basin countries will be determined by the
Trustees based on recommendations of the Adviser, in consultation with the
Sub-Advisers, as described under the caption "Those Responsible for Management."
In making this allocation recommendation, the Adviser and the Sub-Advisers will
consider several factors, including the relative economic growth and potential
of the various economies and securities markets, expected levels of inflation,
governmental policies influencing business conditions, regulatory and tax
considerations, the domestic and international strength of the leading
industrial sectors and currency stability relative to the U.S. When the Adviser
and the Sub-Advisers believe that investment conditions are unfavorable, they
may recommend a temporary reduction in the proportion of assets assigned to
Pacific Basin countries and investment of a higher than normal proportion in the
debt and other securities described above.
Under normal conditions, up to 35% of the Fund's total assets may be held in
cash or investment grade short-term securities and repurchase agreements
(denominated in U.S. dollars) to meet anticipated redemptions of the Fund's
shares. When the Adviser or Sub-Advisers believe it is appropriate to maintain
a defensive position, any of them may temporarily maintain all or any part of
the Fund's assets in money market instruments, including but not limited to
governmental obligations, certificates of deposit, bankers' acceptances,
commercial paper and investment grade short-term corporate debt securities, cash
and repurchase agreements. Any of the foregoing, including cash, may be
denominated in U.S. or foreign currencies and may be obligations of foreign
issuers.
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CERTAIN INVESTMENT PRACTICES
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income.
Short-term trading may have the effect of increasing portfolio turnover rate. A
high rate of portfolio turnover (100% or greater) involves correspondingly
higher transaction expenses and may make it more difficult for the Fund to
qualify as a regulated investment company for federal income tax purposes.
Depository Receipts. The Fund may invest directly in the securities of foreign
issuers as well as in the form of American Depository Receipts ("ADRs"),
European Depository Receipts ("EDRs") or other securities convertible into
securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities into which they may be
converted but rather in the currency of the market in which they are traded.
ADRs are receipts typically issued by an American bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs are receipts issued in Europe by banks or depositories which evidence a
similar ownership arrangement. Generally, ADRs, in registered form, are designed
for use in U.S. securities markets and EDRs, in bearer form, are designed for
use in European securities markets. Issuers of unsponsored ADRs are not required
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 Currencies and Forward Currency Transactions. Due to its investments in
foreign securities, the Fund may hold a portion of its assets in foreign
currencies. The foreign currency transactions of the Fund may be conducted on a
spot (i.e., cash) basis at the spot rate for purchasing or selling currency
prevailing in the foreign exchange market. The Fund may enter into forward
foreign currency contracts involving currencies of the different countries in
which it will invest as a hedge against possible variations in the foreign
exchange rate between these currencies. The Fund may also engage in speculative
forward currency transactions, and may use forward currency contracts as a
substitute for investing in securities denominated in that currency or in order
to create a synthetic position consisting of a security issued in one country
and denominated in the currency of another country. Forward currency
transactions are 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. Transaction hedging is the purchase or sale of forward foreign
currency contracts with respect to specific receivables or payables of the Fund
accruing in connection with the purchase and sale of its portfolio securities
denominated in foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in such foreign currencies. The Fund will not attempt to hedge all of its
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foreign portfolio positions and will enter into such transactions only to the
extent, if any, deemed appropriate by the Adviser and Sub-Advisers.
If the Fund enters into a portfolio hedging transaction in a forward contract
requiring it to purchase a foreign currency, its custodian bank will segregate
cash or liquid securities in a separate account of the Fund in an amount equal
to the value of the Fund's total assets committed to the consummation of such
forward contract. Those assets will be valued at market daily and if the value
of the assets in the separate account declines, additional cash or securities
will be placed in the account so that the value of the account will equal the
amount of the Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency are
usually conducted on a principal basis, no fees or commissions are involved.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities equal in value to the Fund's commitment. These
assets will be valued daily at market, and additional cash or securities will be
segregated in a separate account
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to the extent that the total value of the assets in the account declines below
the amount of the when-issued commitments. Alternatively, the Fund may enter
into offsetting contracts for the forward sale of other securities that it owns.
Repurchase Agreements. The Fund may invest in repurchase agreements. A
repurchase agreement is a contract under which the Fund acquires 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 or
a Sub-Adviser will continuously monitor the creditworthiness of the parties with
whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income and lack of
access to income during this period and the expense of enforcing its rights.
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 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 may be
reduced. Since the Fund may invest in securities denominated in currencies other
than U.S. dollars, changes, due to exchange controls, less publicly available
information, more volatile or 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, 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
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same uniform financial reporting requirements and accounting standards 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. Since foreign securities generally may
be denominated 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 may be affected favorably or unfavorably by changes in the relationship
of the U.S. dollar to 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 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 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 and the Sub-Advisers
monitor the settlement time for foreign securities and take undue settlement
delays into account in considering investment allocations to specific countries.
Finally, the expense ratios of international funds such as the Fund generally
are higher than those of domestic funds because there are greater costs
associated with maintaining custody of foreign securities, and the increased
research necessary for international investing results in a higher advisory fee.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt burdens or
inflation rates. Local securities markets may trade a small number of securities
and may be unable to respond effectively to increases in trading volume,
potentially making prompt liquidation of substantial holdings difficult or
impossible at times. The Fund may be required to
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establish special custodial or other arrangements before making certain
investments in those countries. Securities of issuers located in these countries
may have limited marketability and may be subject to more abrupt or erratic
price movements.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such as
the Fund. If such restrictions should be reinstituted, it might become necessary
for the Fund to invest all or substantially all of its assets in U.S.
securities. In such event, the Fund would review its investment objective and
investment policies to determine whether changes are appropriate.
The Fund's ability and decisions to purchase or sell portfolio securities may be
affected by laws or regulations relating to the convertibility and repatriation
of assets. Because the shares of the Fund are redeemable on a daily basis in
U.S. dollars, the Fund intends to manage its portfolio so as to give reasonable
assurance that it will be able to obtain U.S. dollars. Under present conditions,
it is not believed that these considerations will have any significant effect on
its portfolio strategy.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including securities offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. However, 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 such 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.
The Fund may acquire other restricted securities including securities for which
market quotations are not readily available. These securities may be sold only
in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the 1933 Act. Where
registration is required, the Fund may be obligated to pay all or part of the
registration expenses and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, the Fund might obtain a less favorable price
than prevailed when it decided to sell. Restricted securities will be priced at
fair market value as determined in good faith by the Fund's Trustees.
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Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers and financial institutions if the loan is collateralized by cash or U.S.
Government securities according to applicable regulatory requirements. The Fund
may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price. Generally, warrants and stock
purchase rights do not carry with them the right to receive dividends or
exercise voting rights with respect to the underlying securities, and they do
not represent any rights in the assets of the issuer. As a result, an investment
in warrants and rights may be considered to entail greater investment risk than
certain other types of investments. In addition, the value of warrants and
rights does not necessarily change with the value of the underlying securities,
and they cease to have value if they are not exercised on or prior to their
expiration date. Investment in warrants and rights increases the potential
profit or loss to be realized from the investment of a given amount of the
Fund's assets as compared with investing the same amount in the underlying
stock.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
The following investment restrictions will not be changed without approval of a
majority of the Fund's outstanding voting securities which, as used in the
Prospectus and this Statement of Additional Information, means approval by the
lesser of (1) 67% or more of the Fund's shares represented at a meeting if at
least 50% of the Fund's outstanding shares are present in person or by proxy at
that meeting or (2) more than 50% of the Fund's outstanding shares.
The Fund observes the following fundamental 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 classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, and forward
foreign exchange contracts, forward commitments and repurchase agreements
entered into in
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<PAGE>
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
Fund's total assets (including the amount borrowed) taken at market value.
The Fund will not use leverage to attempt to increase income. The Fund will
not purchase securities while outstanding borrowings exceed 5% of the
Fund's total assets.
(3) Pledge, mortgage or hypothecate its assets, except to secure
indebtedness permitted by paragraph (2) above and then only if such
pledging, mortgaging or hypothecating does not exceed 33 1/3% of the Fund's
total assets taken at market value.
(4) Act as an underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purposes of the Securities Act of 1933.
(5) Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities 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
deposits, 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 and securities indices,
futures contracts on securities and securities indices and options on such
futures, forward foreign exchange contracts, forward commitments,
securities index put or call warrants and repurchase agreements entered
into in accordance with the Fund's investment policies.
(8) Purchase the securities of issuers conducting their principal business
activity in the same industry if, immediately after such purchase, the
value of 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
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<PAGE>
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
(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.
Non-Fundamental Investment Restrictions
The following restrictions are designated as non-fundamental and may be changed
by the Trustees without shareholder approval.
The Fund may not:
(a) Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the management of
the Adviser or the Sub-Advisers 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, unless by virtue of
its ownership of other securities, the Fund has the right to obtain
securities equivalent in kind and amount to the securities sold and, if the
right is conditional, the sale is made upon the same conditions, except
that the Fund may obtain such short-term credits as may be necessary for
the clearance of purchases and sales of securities and in connection with
transactions involving forward foreign currency exchange contracts.
(c) 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 Sub- Advisers or any investment management subsidiary of the
Adviser or Sub- Advisers 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
total assets would be invested in the securities of other investment
companies, (ii) the Fund would hold more than 3% of the total outstanding
voting securities of any one investment company, or (iii) more than 5% of
the Fund's total assets would be invested in the securities of any one
investment company. These limitations do not apply to (a) the investment of
cash collateral, received by the Fund in
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<PAGE>
connection with lending the Fund's portfolio securities, in the securities
of open-end investment companies or (b) the purchase of shares of any
investment company in connection with a merger, consolidation,
reorganization or purchase of substantially all of the assets of another
investment company. Subject to the above percentage limitations, the Fund
may, in connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/Directors, purchase securities
of other investment companies within the John Hancock Group of Funds. In
addition, as a nonfundamental restriction, the Fund may not purchase the
shares of any closed-end investment company except in the open market where
no commission or profit to a sponsor or dealer results from the purchase,
other than customary brokerage fees.
(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) 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 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.
(h) Purchase interests in oil, gas or other mineral exploration programs;
however, this policy will not prohibit the acquisition of securities of
companies engaged in the production or transmission of oil, gas, or other
minerals.
(i) Purchase 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).
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
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<PAGE>
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.
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.
Nothing in the foregoing investment restrictions shall be deemed to prohibit the
Fund from purchasing the securities of any issuer pursuant to the exercise of
subscription rights distributed to the Fund by the issuer, except that no such
purchase may be made if as a result, the Fund will no longer be a diversified
investment company as defined in the Investment Company Act or will fail to meet
the diversification requirements for a regulated investment company under the
Internal Revenue Code of 1986, as amended. Japanese corporations frequently
issue additional capital stock by means of subscription rights offerings to
existing shareholders at a price substantially below the market prices of the
shares. The failure to exercise such rights would result in the Fund's interest
in the issuing company being diluted. The market for such rights is not well
developed in all cases and, accordingly, the Fund may not always realize full
value on the sale of rights. Therefore, the exception applies in cases where the
limits set forth in the investment restrictions in the Prospectus would
otherwise be exceeded as a result of fluctuations in the market value of the
Fund's portfolio securities with the result that the Fund would be forced either
to sell securities at a time when it might not otherwise have done so, or to
forego exercising the rights.
RATINGS
The Fund's investments in debt securities must be in obligations rated Baa or
better by Moody's Investor Services, Inc. ("Moody's") or BBB or better by
Standard & Poor's Ratings Group ("Standard & Poor's") or be of comparable
quality in the judgment of the Adviser or a Sub-Adviser if no rating has been
assigned by either service.
Moody's describes its four highest ratings for corporate bonds as follows:
"Bonds which are rated Aaa are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as 'gilt edge'.
Interest payments are protected by a large or by an exceptionally stable margin
and principal is secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
"Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude
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<PAGE>
or there may be other elements present which make the long term risks appear
somewhat larger than in Aaa securities.
"Bonds which are rated A possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment some time in the future."
"Bonds which are rated Baa are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Standard & Poor's describes its four highest ratings for corporate bonds as
follows:
"AAA. Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
"AA. Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
"A. Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories."
"BBB. Bonds rated BBB are regarded as having an adequate capacity to pay
principal and interest. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay principal and interest for bonds in
this category than for bonds in the A category.
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 of the Trust during the past five years:
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<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
101 Huntington Avenue Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("The
October 1944 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"),
Transamerica Fund Management
Company ("TFMC") 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.
("Distributors") until April
1994.
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<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Dennis S. Aronowitz Trustee (1,2) Professor of Law, Boston
Boston University University School of Law;
Boston, Massachusetts Trustee, Brookline Savings
June 1931 Bank.
Richard P. Chapman, Jr. Trustee (1,2) President, Brookline Savings
160 Washington Street Bank. Director, Federal Home
Brookline, Massachusetts Loan Bank of Boston (lending);
February 1935 Director, Lumber Insurance
Companies (fire and casualty
insurance); Trustee,
Northeastern University
(education); Director,
Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee (1,2) Vice President, Senior Banker
20 Buttonwood Place and Senior Credit Officer,
Saddle River, New Jersey Citibank, N.A. (retired
January 1933 September 1991); Executive
Vice President, Citadel Group
Representatives, Inc.; EVP
Resource Evaluation Inc.
(consulting, October 1991 -
October 1993); Trustee, the
Hudson City Savings Bank
(until October 1995).
Douglas M. Costle Trustee (1,2,3) Director, Chairman of the
RR2 Box 480 Board and Distinguished Senior
Woodstock, Vermont 05091 Fellow, Institute for
July 1939 Sustainable Communities,
Montpelier, Vermont (since
1991). Dean, Vermont Law
School (until 1991). Director,
Air and Water Technologies
Corporation (environmental
services and equipment),
Niagara Mohawk Power Company
(electric services) and MITRE
Corporation (governmental
consulting services).
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<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Leland O. Erdahl Trustee (1,2) Director of Santa Fe
9449 Navy Blue Court Ingredients Company of
Las Vegas, NV 89117 California, Inc. and Santa Fe
December 1928 Ingredients Company, Inc.
(private food processing
companies); Director of
Uranium Resources, Inc.;
President of Stolar, Inc.
(from 1987-1991) and President
of Albuquerque Uranium
Corporation (from 1985-1992);
Director of Freeport-McMoRan
Copper & Cold Company Inc.,
Hecla Mining Company,
Canyon Resources Corporation
and Original Sixteen to One
Mine, Inc. (from 1984-1987 and
from 1991 to 1995) (management
consultant).
Richard A. Farrell Trustee (1,2) President of Farrell, Healer &
Farrell, Healer & Company, Co., (venture capital
Inc. management firm) (since 1980);
160 Federal Street -- 23rd Prior to 1980, headed the
Floor venture capital group at Bank
Boston, MA 02110 of Boston Corporation.
November 1932
Gail D. Fosler Trustee (1,2) Vice President and Chief
4104 Woodbine Street Economist, The Conference
Chevy Chase, MD Board (non-profit economic and
December 1947 business research).
William F. Glavin Trustee (1,2) President, Babson College;
Babson College Vice Chairman, Xerox
Horn Library Corporation until June 1989;
Babson Park, MA 02157 Director, Caldor Inc., Reebok,
March 1931 Ltd. (since 1994), and Inco
Ltd.
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<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
*Anne C. Hodsdon Trustee and President and Chief Operating
101 Huntington Avenue President (3)(4) Officer, the Adviser;
Boston, MA 02199 Executive Vice President, the
April 1953 Adviser (until December 1994);
Senior Vice President; the
Adviser (until December 1993);
Vice President, the Adviser,
1991.
Dr. John A. Moore Trustee (1,2) President and Chief Executive
Institute for Evaluating Officer, Institute for
Health Risks Evaluating Health Risks,
1101 Vermont Avenue N.W. (nonprofit institution) (since
Suite 608 September 1989).
Washington, DC 20005
February 1939
Patti McGill Peterson Trustee (1,2) President, St. Lawrence
Institute for Public Affairs University; Director, Niagara
364 Upson Hall Mohawk Power Corporation and
Cornell University Security Mutual Life.
Ithaca, NY 14853
May 1943
John W. Pratt Trustee (1,2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
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<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
*Richard S. Scipione Trustee (3) General Counsel, the Life
John Hancock Place Insurance Company; Director,
P.O. Box 111 the Adviser, the Affiliated
Boston, Massachusetts Companies, John Hancock
August 1937 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;
Edward J. Spellman, CPA Trustee (1,2,4) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL
November 1932
- ----------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
The executive officers of the Trust and their principal occupations during the
past five years are set forth below. Unless otherwise indicated, the business
address of each is 101 Huntington Avenue, Boston, Massachusetts 02199.
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<PAGE>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Trust During Past 5 Years
- ----------------- ---------- -------------------
Robert G. Freedman Vice Chairman and Vice Chairman and Chief
July 1938 Chief Investment Investment Officer, the
Officer (4) Adviser; President (until
December 1994).
James B. Little Senior Vice Senior Vice President, the
February 1935 President, Chief Adviser.
Financial Officer
John A. Morin Vice President Vice President, the Adviser.
July 1950
Susan S. Newton Vice President Vice President and Assistant
March 1950 and Secretary Secretary, the Adviser.
James J. Stokowski Vice President Vice President, the Adviser.
November 1946 and Treasurer
As of May 31, 1996, the officers and Trustees of the Trust as a group owned
less than 1% of the outstanding shares of the Fund. To the knowledge of the
Trust, only the following person owned of record or beneficially 5% or more of
any class of the Fund's outstanding securities:
Percentage of
Outstanding
Name and Address Class Shares Shares of
of Shareholder of Shares Owned Class of Fund
-------------- --------- ----- -------------
Merrill Lynch Pierce Class B 358,353 15.51%
Fenner & Smith, Inc.
4800 Deerlake Dr. East
Jacksonville, FL 32246-6484
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.
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<PAGE>
The following table provides information regarding the compensation paid by
the Fund and the other investment companies in the John Hancock Fund Complex to
the Independent Trustees for their services. Ms. Hodsdon and Messrs. Boudreau
and Scipione, each a non-Independent Trustee, and each of the officers of the
Funds are interested persons of the Adviser, are compensated by the Adviser and
receive no compensation from the Fund for their services. The compensation to
the Trustees from the Fund shown below is for the Fund's fiscal year ended
August 31, 1995. Those Trustees listed below who received no compensation from
the Fund for such year first became Trustees of the Trust on June 26, 1996.
Total Compensation From
Aggregate All Funds in John Hancock
Compensation From Fund Complex to
Independent Trustees the Fund Trustees(*)
- -------------------- -------- -----------
Dennis S. Aronowitz $ 858 $ 61,050
Richard P. Chapman, Jr.+ 884 62,800
William J. Cosgrove+ 858 61,050
Gail D. Fosler 858 60,800
Bayard Henry** 833 58,850
Edward J. Spellman 858 61,050
Douglas M. Costle ___ 41,750
Leland O. Erdahl ___ 41,750
Richard A. Farrell ___ 43,250
William F. Glavin+ ___ 37,500
John A. Moore ___ 41,750
Patti McGill Peterson ___ 41,750
John W. Pratt 41,750
-------- --------
5,149 655,100
* Total compensation paid by the John Hancock Fund Complex to the Independent
Trustees is for the calendar year ended December 31, 1995. On this date,
there were 61 funds in the John Hancock Fund Complex. Messrs. Aronwitz,
Chapman, Cosgrove, Henry and Spellman and Ms. Fosler served 16 and Messrs.
Costle, Erdahl, Farrell, Glavin, Moore and Pratt and Ms. Peterson served 12
of these funds.
** Mr. Henry retired from his position as a Trustee effective April 26, 1996.
+ On December 31, 1995, the value of the aggregate deferred compensation from
all funds in the John Hancock Fund Complex for Mr. Chapman was $54,681, for
Mr. Cosgrove was $54,243 and for Mr. Glavin was $32,061.
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<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Fund receives its investment advice from the Adviser and the Sub-Advisers.
Investors should refer to the Prospectus and below for a description of certain
information concerning the investment management contract and the sub-investment
management contracts.
Each of the Trustees and principal officers of the Trust who is also an
affiliated person of the Adviser or the Sub-Advisers is named above, together
with the capacity in which such person is affiliated with the Fund and the
Adviser or the Sub-Advisers.
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, and (ii) supervision of all
aspects of the Fund's operations except those that are delegated to a custodian,
transfer agent or other agent.
The Adviser has entered into a sub-investment management contract with each
Sub-Adviser under which the Sub-Advisers, subject to the review of the Trustees
and the overall supervision of the Adviser, are responsible for providing the
Fund with advice with respect to that portion of the assets invested in
countries other than the U.S. and Canada.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, a Sub-Adviser or any of their respective
affiliates provides investment advice. Because of different investment
objectives or other factors, a particular security may be bought for one or more
funds or clients when one or more other funds or clients are selling the same
security. If opportunities for purchase or sale of securities by the Adviser or
the Sub-Advisers for the Fund or for other funds or clients for which the
Adviser or a 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, a Sub-Adviser or its affiliate 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, the Sub-Advisers and their respective
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 and the Sub-Advisers 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.
-22-
<PAGE>
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 expenses 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 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 $200,000,000 0.80%
Amount over $200,000,000 0.70%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to 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.
On August 31, 1995, the net assets of the Fund were $51,784,889. The investment
management fee paid by the Fund is higher than the fee paid by most mutual funds
but is comparable to the fee paid by similar funds which invest primarily in
international securities. During the years ended August 31, 1995 and 1994, the
Fund paid the Adviser fees in the amount of $430,725 and $307,356, respectively.
For the year ended August 31, 1993, the management fee was $47,408, which the
Adviser reduced to 0.
The Adviser pays JHAI a quarterly management fee at the annual rate as follows:
Net Asset Value Annual Rate
--------------- -----------
First $200,000,000 0.50%
Amount over $200,000,000 0.4375%
The Fund is not responsible for paying JHAI's fee. As of September 1, 1994, JHAI
limited its fee to 0.05% of average daily net assets.
The Adviser pays IAAL a fee at the annual rate equal to (a) .30% of the first
$100 million of the Fund's average daily net assets managed by IAAL plus (b) the
following additional amount, based on a percentage of the gross management fee
received by the Adviser pursuant to the investment management contract with
respect to the Fund's average daily net assets in excess of $100 million which
are managed by IAAL:
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<PAGE>
Net Assets Percentage of Gross
Managed by IAAL Management Fee
--------------- --------------
More than $100 million up to $250 million 40%
More than $250 million 50%
The Fund is not responsible for paying IAAL's fee.
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.
Pursuant to their respective management contracts, the Adviser and Sub-Advisers
are not liable for any error of judgment or mistake of law or for any loss
suffered by the Fund in connection with the matters to which the contracts
relate, except a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser or Sub-Advisers in the performance of
their duties or from reckless disregard by them of their obligations and duties
under the applicable contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and presently has more than $18 billion in assets under
management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over approximately 1,080,000 shareholders.
The Adviser is an affiliate of the Life Company, one of the most recognized and
respected financial institutions in the nation. With total assets under
management of more than $80 billion, the Life Company is one of 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.
JHAI, with offices located at 34 Dover Street, London, England W1X 3RA, is a
wholly owned subsidiary of the Adviser and was formed in 1987 to provide
international investment research and advisory services to U.S. institutional
clients.
IAAL is a Hong-Kong based investment adviser located at One Exchange Square,
Suite 2606-2608, Hong Kong.
-24-
<PAGE>
Under the investment management contract, the Fund may use the name "John
Hancock" or any name derived from or similar to it only for so long as the
contract or any extension, renewal or amendment thereof remains in effect. If
the contract is no longer in effect, the Fund (to the extent that it lawfully
can) will cease to use such a name or any other name indicating that it is
advised by or otherwise connected with the Adviser. In addition, the Adviser or
the Life Company may grant the nonexclusive right to use the name "John Hancock"
or any similar name to any other corporation or entity, including but not
limited to any investment company of which the Life Company or any subsidiary or
affiliate thereof or any successor to the business of any subsidiary or
affiliate thereof shall be the investment adviser.
The investment management contract, the sub-investment management contracts, and
the distribution contract discussed below, continue in effect from year to year
if approved annually by vote of a majority of the Trustees who are not
interested persons of one of the parties to the contract, cast in person at a
meeting called for the purpose of voting on such approval, and by either the
Trustees or the holders of a majority of the Fund's outstanding voting
securities. Each of these contracts automatically terminates upon assignment and
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 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, 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. Upon notice to all Selling Brokers, John Hancock Funds may allow them up
to the full applicable sales charge during periods specified in such notice.
During these periods, Selling Brokers may be deemed to be underwriters as that
term is defined in the 1933 Act. 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 (together, the "Plans") pursuant to Rule 12b-1 under the Investment
Company Act. Under the Plans, the Fund will pay distribution and service fees at
an aggregate annual rate of up to 0.30% and 1.00%, respectively, of the Fund's
daily net assets attributable to shares of that class. 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. In accordance with generally accepted
accounting principles, the Fund does not treat unreimbursed distribution
expenses attributable to Class B shares as a liability of the Fund and does
-25-
<PAGE>
not reduce the current net assets of Class B by such amount, although the amount
may be payable under the Class B Plan in the future.
Under the Plans, expenditures shall be calculated and accrued daily and paid
monthly or at such other intervals as the Trustees shall determine. The fee may
be spent by John Hancock Funds on Distribution Expenses or Service Expenses.
"Distribution Expenses" include any activities or expenses primarily intended to
result in the sale of shares of the relevant class of the Fund, including, but
not limited to: (i) initial and ongoing sales compensation 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 payments made to, or on account
of, account executives of selected broker-dealers (including affiliates of John
Hancock Funds) and others who furnish personal and account maintenance services
to shareholders of the relevant class of the Fund. For the fiscal year ended
August 31, 1995, an aggregate of $749,799 of Distribution Expenses of 6.06% of
the average net assets of the Fund's Class B shares was not reimbursed or
recovered by John Hancock Funds through the receipt of deferred sales charges or
Rule 12b-1 fees in prior periods.
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 August 31, 1995, the Funds paid
John Hancock Funds the following amounts of expenses with respect to the Class A
and Class B shares of the Fund:
Expense Items
<TABLE>
<CAPTION>
Printing and
Mailing of Interest,
Prospectuses Compensation Carrying or
to New Expenses of to Selling Other Finance
Advertising Shareholders Distributors Brokers Charges
----------- ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Class A shares $25,615 $ 2,797 $50,990 $45,003 $ --
Class B shares $ 6,498 $ 486 $11,090 $93,804 $11,846
</TABLE>
Each of the Plans provides that it will continue in effect only so long as its
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. Each of the Plans provides that it may be terminated
without penalty, (a) by vote of a majority of the Independent Trustees, (b) by a
vote of a majority of the Fund's outstanding shares of the applicable class in
each case upon 60 days' written notice to John Hancock Funds and (c)
automatically in the event of assignment. Each of the Plans further provides
that it may not be amended to increase the maximum amount of the fees for the
services described therein without the approval of a majority of the outstanding
shares of the class of the Fund which
-26-
<PAGE>
has voting rights with respect to the Plan. And finally, each of the Plans
provides that no material amendment to the Plan will, in any event, be effective
unless it is approved by a vote of the Trustees and the Independent Trustees of
the Fund. The holders of Class A 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 the Plans will benefit the holders of the applicable
class of shares of the Fund.
When the Trust seeks an Independent Trustee to fill a vacancy or as a nominee
for election by shareholders, the selection or nomination of the Independent
Trustee is, under resolutions adopted by the Trustees contemporaneously with
their adoption of the 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 investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary market
in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
-27-
<PAGE>
A 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. On any day an international market is
closed and the New York Stock Exchange is open, any foreign securities will be
valued at the prior day's close with the current day's exchange rate. Trading of
foreign securities may take place on Saturdays and U.S. business holidays on
which the Fund's NAV is not calculated. Consequently, the Fund's portfolio
securities may trade and the NAV of the Fund's redeemable securities may be
significantly affected on days when a shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
will not be issued unless requested by the shareholder in writing, and then they
will only be issued for full shares. The Trustees reserve the right to change or
waive the Fund's minimum investment requirements and to reject any order to
purchase shares (including purchase by exchange) when in the judgment of the
Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of shares of Class A shares of the
Fund are described in the Prospectus. Methods of obtaining a reduced sales
charge referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares
of the Fund, the investor is entitled to cumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Fund, owned by the investor, or, if John Hancock Investor Services ("Investor
Services") is notified by the investor's dealer or the investor at the time of
the purchase, the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his or her spouse and their children under the age of 21,
purchasing securities for his or 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 Charge. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
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<PAGE>
o Any state, county or any instrumentality, department, authority, or agency
of these entities that is prohibited by applicable investment laws from
paying a sales charge or commission when it purchases shares of any
registered investment management company.
o A bank, trust company, credit union, savings institution or other
depository institution, its trust departments or common trust funds if it
is purchasing $1 million or more for non-discretionary customers or
accounts.
o A Trustee or officer of the Trust; a Director or officer of the Adviser and
its affiliates or Selling Brokers; employees or sales representatives of
any of the foregoing; retired officers, employees or Directors of any of
the foregoing; a member of the immediate family (spouse, children, mother,
father, sister, brother, mother-in-law, father-in-law) of any of the
foregoing; or any fund, pension, profit sharing or other benefit plan for
the individuals described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into an agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of an approved affinity group financial services plan.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 million to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
-29-
<PAGE>
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of a reduced sales
charge by taking into account not only the money 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. 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 IRA, SEP, SARSEP, 401(k),
403(b) (including TSAs) 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 charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made within the specified period
within 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 Class A shares will be released. If the total investment specified in the
LOI is not completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charge as may be due. By signing the
LOI, the investor authorizes Investor Services to act as his or her
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does
-30-
<PAGE>
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. No CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions. No CDSC will be
imposed on shares derived from reinvestment of dividends or capital gains
distributions.
Class B shares are not available to full-service defined contribution plans
administered by Investor Services or the Life Company that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the first day
of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
dividend and capital gain reinvestment, and next from the shares you have held
the longest during the six-year period. For this purpose, the amount of any
increase in a share's value above its initial purchase price is not regarded as
a share exempt from CDSC. Thus, when a share that has appreciated in value is
redeemed during the CDSC period, a CDSC is assessed only on its initial purchase
price. Upon redemption, appreciation is effective only on a per share basis for
those shares being redeemed. Appreciation of shares cannot be redeemed CDSC free
at the account level.
-31-
<PAGE>
When requesting a redemption for a specific dollar amount please indicate if you
require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment. If
you redeem 50 shares at this time your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject
to CDSC (dividend reinvestment) -120
* Minus appreciation on remaining shares (40 shares X $2) -80
-----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the
Prospectus for additional information regarding the CDSC.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a CDSC,
unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability.
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" of the Prospectus.
-32-
<PAGE>
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account value,
including reinvested dividends, at the time you established your periodic
withdrawal plan and 12% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor Services.
(Please note that this waiver does not apply to periodic withdrawal plan
redemptions of Class A shares that are subject to a CDSC).
For Retirement Accounts (such as IRA, Rollover IRA, TSA, 457, 403(b), 401(k),
Money Purchase Pension Plan, Profit-Sharing Plan and other qualified plans as
described in the Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions under
the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under Section 401(a) of the Code
(such as 401(k), Money Purchase Pension Plan, Profit-Sharing Plan).
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for reference.
CDSC Waiver Matrix for Class B Funds
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
401(a) Plan
Type of (401(k), MPP, IRA, IRA
Distribution PSP) 403(b) 457 Rollover Non-retirement
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- --------------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for
mandatory 12% of
distributions account value
or 12% of annually in
account periodic
value payments
annually in
periodic
payments
- --------------------------------------------------------------------------------------------------------------
</TABLE>
-33-
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Between Waived Waived Waived Waived for 12% of
59 1/2 Life Expec- account value
and 70 1/2 tancy or annually in
12% of periodic
account value payments
annually in
periodic
payments
- --------------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived Waived for Waived for Waived for 12% of
annuity annuity annuity account value
payments payments payments annually in
(72t) or 12% (72t) or 12% (72t) or 12% periodic
of account of account of account payments
value value value
annually in annually in annually in
periodic periodic periodic
payments payments payments
- --------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------
Termination Not Waived Not Waived Not Waived Not Waived N/A
of Plan
- --------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- --------------------------------------------------------------------------------------------------------------
Return Waived Waived Waived Waived N/A
of Excess
- --------------------------------------------------------------------------------------------------------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Investor Services at the time you make your redemption. The waiver will be
granted once Investor Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, he will incur a brokerage charge. Any such
securities would be valued for the purposes of making such payment at the same
value as used in determining net asset value. The Fund has, however, elected to
be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the
Fund must redeem its shares for cash except to the extent that the redemption
payments to any shareholder during any 90-day period would exceed the lesser of
$250,000 or 1% of the Fund's net asset value at the beginning of such period.
-34-
<PAGE>
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
such purchases of Class A shares and the CDSC imposed on redemptions of Class B
shares and because redemptions are taxable events. Therefore, a shareholder
should not purchase Class A or Class B shares at the same time that a Systematic
Withdrawal Plan is in effect. The Fund 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 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 shareholders bank. The bank shall be under no
obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Investor
Services or upon written notice to Investor Services which is received at least
five (5) business days prior to the due date of any investment.
Reinvestment Privilege. A shareholder who has redeemed 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 of the other John Hancock funds, subject to the minimum
investment limit in that fund. The proceeds from the redemption of Class A
shares may be reinvested at net asset value without paying a sales charge in
Class A shares of the Fund or in
-35-
<PAGE>
Class A shares of any of the other John Hancock funds. If a CDSC was paid upon a
redemption, a shareholder may reinvest the proceeds from such redemption at net
asset value in additional shares of the class from which the redemption was
made. The shareholder's account will be credited with the amount of any CDSC
charge upon the prior redemption and the new shares will continue to be subject
to the CDSC. The holding period of the shares acquired through reinvestment
will, for purposes of computing the CDSC payable upon a subsequent redemption,
include the holding period of the redeemed shares. The Fund may modify or
terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "Tax
Status."
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 new series of the Trust, into one or more classes. As of the date of this
Statement of Additional Information, the Trustees have authorized the issuance
of two classes of shares of the Fund, designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Class A and
Class B shares of the Fund will be sold exclusively to members of the public
(other than the institutional investors described in the Prospectus) at net
asset value. A sales charge will be imposed either at the time of the purchase,
for Class A shares, or on a contingent deferred basis, for Class B shares. For
Class A shares, no sales charge is payable at the time of purchase on
investments of $1 million or more, but for such investments a contingent
deferred sales charge may be imposed in the event of certain redemption
transactions within one year of purchase.
Class A and Class B shares have certain exclusive voting rights on matters
relating to their respective distribution plans. The different classes of the
Fund may bear different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of shares.
-36-
<PAGE>
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class (ii) Class B shares will pay higher distribution
and service fees than Class A shares and (iii) each of Class A and Class B
shares will bear any 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 whether Class A and Class B shares are purchased.
In the event of liquidation, shareholders are entitled to share pro rata in the
net assets of the Fund available for distribution to such shareholders. Shares
entitle their holders to one vote per share, are freely transferable and have no
preemptive, subscription or conversion rights. When issued, shares are fully
paid and non-assessable by the Trust, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with 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 Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any Fund shareholder held
personally liable by reason of being or having been a shareholder. The
Declaration of Trust also provides that no series of the Trust shall be liable
for the liabilities of any other series. 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.
Notwithstanding the fact that the Prospectus is a combined prospectus for the
Fund and other John Hancock mutual funds, the Fund shall not be liable for the
liabilities of any other John Hancock mutual fund.
TAX STATUS
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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
requirements of the Code.
The Fund will be subject to a four percent nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to avoid liability for such tax by
satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) Some distributions from investment company taxable income
and/or net capital gain may be paid in January but may be taxable to
shareholders as if they had been received on December 31 of the previous year.
The tax treatment described above will apply without regard to whether
distributions are received in cash or reinvested in additional shares of the
Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment. Foreign exchange gains and losses realized
by the Fund in connection with certain transactions involving foreign currency-
denominated debt securities, foreign currency forward contracts, foreign
currencies, or payables or receivables denominated in 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
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investments or derivatives held for less than three months, which gain is
limited under the Code to less than 30% of its gross income for each taxable
year, and may under future Treasury regulations produce income not among the
types of "qualifying income" from which the Fund must derive at least 90% of its
gross income for each taxable year. If the net foreign exchange loss for a year
treated as ordinary loss under Section 988 were to exceed the Fund's investment
company taxable income computed without regard to such loss, the resulting
overall ordinary loss for such year would not be deductible by the Fund or its
shareholders in future years.
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 these passive foreign
investment companies or gain from the sale of stock in such companies, even if
all income or gain actually received by the Fund is timely distributed to its
shareholders. The Fund would not be able to pass through to its shareholders any
credit or deduction for such a tax. Certain elections may, if available,
ameliorate these adverse tax consequences, but any such election could require
the Fund to recognize taxable income or gain without the concurrent receipt of
cash. The Fund may limit and/or manage its investments in passive foreign
investment companies to minimize its tax liability or maximize its return from
these investments.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into foreign currency positions and
foreign currency forward contracts. Certain of these transactions may cause the
Fund to recognize gains or losses from marking to market even though its
positions have not been sold or terminated and may affect the character as
long-term or short-term (or, in the case of certain forward contracts, as
ordinary income or loss) of some capital gains and losses realized by the Fund.
Additionally, certain of the Fund's losses on transactions involving forward
contracts, and any offsetting or successor positions in its portfolio may be
deferred rather than being taken into account currently in calculating the
Fund's taxable income or gain. Certain of such transactions may also cause the
Fund to dispose of investments sooner than would otherwise have occurred. These
transactions may therefore affect the amount, timing and character of the Fund's
distributions to shareholders. The Fund will take into account the special tax
rules applicable to forward contracts, including consideration of available
elections, in order to seek to minimize any potential adverse tax consequences.
The amount of net realized capital gains, if any, in any given year will vary
depending upon the current investment strategy of the Adviser and Sub-Advisers
and whether the Adviser and the Sub-Advisers 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 or undistributed taxable income of the
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Fund. Consequently, subsequent distributions on those shares from such
appreciation or income may be taxable to such investor even if the net asset
value of the investor's shares is, as a result of the distributions, reduced
below the investor's cost for such shares, and the distributions in reality
represent a return of a portion of the purchase price.
Upon a redemption of shares of the Fund (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing Class A shares of the Fund cannot be taken into account for purposes
of determining gain or loss on the redemption or exchange of such shares within
90 days after their purchase to the extent Class A shares of the Fund or another
John Hancock fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. This disregarded charge will
result in an increase in the shareholder's tax basis in the Class A shares
subsequently acquired. Also, any loss realized on a redemption or exchange may
be disallowed to the extent the shares disposed of are replaced with other
shares of the Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to automatic
dividend reinvestments. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized upon the redemption
of shares with a tax holding period of six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long- term capital gain with respect to such shares.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
capital gain over net short-term capital loss in any year. The Fund will not in
any event distribute net capital gain realized in any year to the extent that a
capital loss is carried forward from prior years against such gain. To the
extent such excess was retained and not exhausted by the carryforward of prior
years' capital losses, it would be subject to Federal income tax in the hands of
the Fund. Upon proper designation of this amount by the Fund, each shareholder
would be treated for Federal income tax purposes as if the Fund had distributed
to him on the last day of its taxable year his pro rata share of such excess,
and he had paid his pro rata share of the taxes paid by the Fund and reinvested
the remainder in the Fund. Accordingly, each shareholder would (a) include his
pro rata share of such excess as long-term capital gain 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.
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For Federal income tax purposes, the Fund is permitted to carryforward a net
realized capital loss in any year to offset net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in Federal income
tax liability to the Fund and, as noted above, would not be distributed as such
to shareholders. The Fund has $586,066 of capital loss carryforwards which
expire on August 31, 2003.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund from U.S. domestic corporations in respect of any
share of stock held by the Fund, for U.S. Federal income tax purposes, for at
least 46 days (91 days in the case of certain preferred stock) and distributed
and properly designated by the Fund may be treated as qualifying dividends.
Corporate shareholders must meet the minimum holding period requirement stated
above (46 or 91 days) with respect to their Fund shares in order to qualify for
the deduction and, if they have any debt that is deemed under the Code directly
attributable to Fund shares, may be denied a portion of the dividends received
deduction. The entire qualifying dividend, including the otherwise-deductible
amount, will be included in determining alternative minimum tax liability, if
any. Additionally, any corporate shareholder should consult its tax adviser
regarding the possibility that its tax basis in its shares may be reduced, for
Federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares, for the purpose of computing its gain or loss on
redemption or other disposition of the shares.
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 in
some cases. Investors may be entitled to claim U.S. foreign tax credits or
deductions with respect to foreign income taxes or certain other foreign taxes
("qualified foreign taxes"), subject to certain provisions and limitations
contained in the Code. Specifically, if more than 50% of the value of the Fund's
total assets at the close of any taxable year consists of stock or securities of
foreign corporations, the Fund may file an election with the Internal Revenue
Service pursuant to which shareholders of the Fund will be required to (i)
include in ordinary gross income (in addition to taxable dividends and
distributions actually received) their pro rata shares of foreign income taxes
paid by the Fund even though not actually received by them, and (ii) treat such
respective pro rata portions as foreign taxes paid by them.
If the Fund makes this election, shareholders may then deduct such pro rata
portions of qualified foreign taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of qualified foreign taxes paid by the Fund,
although such shareholders will be required to include their shares of such
taxes in gross income. Shareholders who claim a foreign tax credit for such
foreign taxes may be required to treat a portion of dividends received from the
Fund as a separate
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category of income for purposes of computing the limitations on the foreign tax
credit. Tax-exempt shareholders will ordinarily not benefit from this election.
Each year (if any) that the Fund files the election described above, its
shareholders will be notified of the amount of (i) each shareholder's pro rata
share of qualified foreign taxes paid by the Fund and (ii) the portion of Fund
dividends which represents income from each foreign country. If the Fund cannot
or does not make this election, the Fund will deduct the foreign taxes it pays
in determining the amount it has available for distribution to shareholders, and
shareholders will not include these foreign taxes in their income, nor will they
be entitled to any tax deductions or credits with respect to such taxes.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain forward contracts may also require the Fund
to recognize income or gain without a concurrent receipt of cash. However, the
Fund must distribute to shareholders for each taxable year substantially all of
its net income and net capital gains, including such income or gain, to qualify
as a regulated investment company and avoid liability for any federal income or
excise tax. Therefore, the Fund may have to dispose of its portfolio securities
under disadvantageous circumstances to generate cash, or may have to leverage
itself by borrowing the cash, to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number and certain certifications required by the IRS or if the
IRS or a broker notifies the Fund that the number furnished by the shareholder
is incorrect or that the shareholder is subject to backup withholding as a
result of failure to report interest or dividend income. The Fund may refuse to
accept an application that does not contain any required taxpayer identification
number or certification that the number provided is correct. If the backup
withholding provisions
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are applicable, any such distributions and proceeds, whether taken in cash or
reinvested in shares, will be reduced by the amounts required to be withheld.
Any amounts withheld may be credited against a shareholder's U.S. federal income
tax liability. Investors should consult their tax advisers about the
applicability of the backup withholding provisions.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pare-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to non- resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
from the Fund and, unless an effective IRS Form W-8 or authorized substitute for
Form W-8 is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax advisers regarding such
treatment and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
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Hong Kong Taxes
Taxation of the Fund. The Fund will be subject to Hong Kong profits tax at the
current rate of 16.5% if (i) it carries on business in Hong Kong and (ii) its
profits are derived from a Hong Kong source. Dividends and capital gains are
exempt from profits tax in any event, as are profits from trading in securities
listed on exchanges outside Hong Kong. Profits from trading in securities listed
on a Hong Kong exchange may in certain cases be subject to profits tax.
Taxation of Shareholders. There is no tax in Hong Kong on capital gains arising
from the sale by an investor of shares of the Fund. However, in the case of
certain investors (principally share traders, financial institutions and certain
companies carrying on business in Hong Kong), such gains may be considered to be
part of the investor's normal business profits and in such circumstances will be
subject to Hong Kong profits tax at the current rate of 16.5% for corporations
and 15% for individuals. Dividends which the Fund pays to its shareholders are
not taxable in Hong Kong (whether through withholding or otherwise) under
current legislation and practice. No Hong Kong stamp duty will be payable in
respect of transactions in the Fund's shares provided that the register of
shareholders is maintained outside of Hong Kong.
CALCULATION OF PERFORMANCE
The average annual total return on Class A shares of the Fund for the 1 year, 5
years and life-of-fund periods ended February 29, 1996 was 10.13%, 10.81% and
7.78%, respectively. The average annual total return on Class B shares of the
Fund for the year ended February 29, 1996 and since commencement of operations
on March 7, 1994 was 10.12% and (0.40)%, respectively.
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:
T = ERV /P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
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ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1 year, 5 years, and life-of-fund periods.
In the case of Class A or Class B shares, this calculation assumes the maximum
sales charge is included in the initial investment or the CDSC is applied at the
end of the period, respectively. This calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period. The "distribution rate" is determined by annualizing the result of
dividing the declared dividends of the Fund during the period stated by the
maximum offering price or net asset value at the end of the period. Excluding
the Fund's sales 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 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 Fund Performance Analysis," a monthly
publication which tracks net assets and total return on equity mutual funds in
the United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S, BARRON'S, etc. 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 of the Fund
are made by officers of the Trust pursuant to recommendations made by an
investment committee of the Adviser, which consists of officers and directors of
the Adviser, Sub-Advisers, and
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officers and Trustees who are interested persons of the Trust. Orders for
purchases and sales of securities are placed in a manner which, in the opinion
of the officers of the 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 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.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Adviser or a
Sub-Adviser may consider sales of shares of the Fund as a factor in the
selection of broker-dealers to execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser and the
Sub-Advisers of the Fund, and their value and expected contribution to the
performance of the Fund. It is not possible to place a dollar value on
information and services to be received from brokers and dealers, since it is
only supplementary to the research efforts of the Adviser and the Sub-Advisers.
The receipt of research information is not expected to reduce significantly the
expenses of the Adviser. The research information and statistical assistance
furnished by brokers and dealers may benefit the Life Company or other advisory
clients of the Adviser or Sub- Advisers, and, conversely, brokerage commissions
and spreads paid by other advisory clients of the Adviser and Sub-Advisers may
result in research information and statistical assistance beneficial to the
Fund. The Fund will make no commitment to allocate portfolio transactions upon
any prescribed basis. While the Adviser, in consultation with the Sub-Advisers,
will be primarily responsible for the allocation of the Fund's brokerage
business, the policies and practices of the Adviser and Sub-Advisers in this
regard must be consistent with the foregoing and at all times be subject to
review by the Trustees.
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For the fiscal years ended August 31, 1993, 1994, and 1995 the Fund paid
negotiated brokerage commissions of $157,024, $405,841 and $246,610,
respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker-dealer which provides brokerage and research services to the
Fund an amount of disclosed commission in excess of the commission which another
broker- dealer 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 August 31,
1995, the Fund did not pay commissions as compensation to any brokers for
research services such as industry, economic and company reviews and evaluations
of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc. ("Distributors"), a broker-dealer
and John Hancock Freedom Securities Corporation and its two broker-dealer
subsidiaries, Tucker Anthony Incorporated and Sutro & Company, Inc. ("Sutro")
(each an "Affiliated Broker"). Also included is W.I. Carr Group, a British
brokerage firm specializing in Asian securities, which is directly owned by
Banque Indosuez, one of the indirect parents of IAAL. Pursuant to procedures
determined by the Trustees and consistent with the above policy of obtaining
best net results, the Fund may execute portfolio transactions with or through
Affiliated Brokers. For the fiscal year ended August 31, 1995, the Fund paid no
brokerage commissions to Affiliated Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Trustees believe to be contemporaneously charged by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with an
Affiliated Broker if the Fund would have to pay a commission rate less favorable
than the Affiliated Broker's contemporaneous charges for comparable transactions
for its other most favored, but unaffiliated, customers except for accounts for
which the Affiliated Broker acts as clearing broker 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 and the Sub-Adviser, which are affiliated
with the Affiliated Brokers, 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. The Fund may,
however, purchase securities from other members of underwriting syndicates of
which Tucker
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Anthony or Sutro are members, but only in accordance with the policy set forth
above and procedures adopted and reviewed periodically by the Trustees.
Brokerage or other transaction 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 August 31, 1995 and 1994 were 48% and 68%, respectively.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser, the
Sub-Advisers and the Fund have adopted extensive restrictions on personal
securities trading by personnel of the Adviser, the Sub-Advisers and their
respective affiliates. In the case of the Adviser, some of these restrictions
are: pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. A Sub-Adviser's restrictions may differ
where appropriate, as long as they maintain the same intent. These restrictions
are a continuation of the basic principle that the interests of the Fund and its
shareholders come first.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA
02205-9116, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays an annual fee of
$16.00 for each Class A shareholder and $18.50 for each Class B shareholder,
plus certain out-of-pocket expenses. These expenses are aggregated and charged
to the Fund and allocated to each class on the basis of the relative net asset
values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Trust and State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110. Under the custodian agreement, State Street Bank
and Trust Company performs custody, portfolio and fund accounting services. The
Trustees have determined that, except as otherwise permitted under applicable
Securities and Exchange Commission "no-action" letters or exemptive orders, it
is in the best interests of the Fund to hold foreign assets of the Fund in
qualified foreign banks and depositories meeting the requirements of Rule 17f-5
under the Investment Company Act.
INDEPENDENT AUDITORS
The independent accountants of the Fund are Price Waterhouse LLP, 160 Federal
Street, Boston, Massachusetts 02110. Price Waterhouse LLP audits and renders an
opinion on the Fund's annual financial statements and reviews the Fund's annual
Federal income tax return.
