JOHN HANCOCK
International/
Global Funds
[LOGO]
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Prospectus
June 1, 1998*
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.
*March 1, 1998 for European Equity Fund, Global Rx Fund, Global Technology Fund
and Pacific Basin Equities Fund.
Growth
European Equity Fund
Global 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
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Contents
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A fund-by-fund look at o Growth
goals, strategies,
risks, expenses and European Equity Fund 4
financial history. Global Fund 6
Global Rx Fund 8
Global Technology Fund 10
International Fund 12
Pacific Basin Equities Fund 14
o Income
Short-Term Strategic Income Fund 16
World Bond Fund 18
Policies and instructions Your account
for opening, maintaining
and closing an account in any Choosing a share class 20
international/global fund. 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 Fund details
international/global funds
as a group. Business structure 28
Sales compensation 29
More about risk 31
For more information back cover
<PAGE>
Overview
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FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[Clip Art] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clip Art] Portfolio securities The primary types of securities in which the
fund invests. Secondary investments are described in "More about risk" at the
end of the prospectus.
[Clip Art] Risk factors The major risk factors associated with the fund.
[Clip Art] Portfolio management The individual or group (including subadvisers,
if any) designated by the investment adviser to handle the fund's day-to-day
management.
[Clip Art] Expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
[Clip Art] Financial highlights A table showing the fund's financial performance
for up to ten years, by share class. A bar chart showing total return allows you
to compare the fund's historical risk level to those of other funds.
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 has its own strategy and 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
$30 billion in assets.
<PAGE>
European Equity Fund
REGISTRANT NAME:
JOHN HANCOCK WORLD FUND TICKER SYMBOL CLASS A: N/A CLASS B: N/A
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GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital. To pursue this goal, the
fund invests primarily in stocks of European companies. Under normal
circumstances, the fund invests at least 80% of assets in companies that earn
more than half of their revenue from European operations, are organized under
European law or are principally traded on European stock exchanges.
The fund has not established limitations on the allocation of investments among
the European countries. However, the fund will invest principally in countries
with established economies and securities markets.
The fund may also invest in stocks of European companies that are traded on
emerging market stock exchanges.
PORTFOLIO SECURITIES
[Clip Art] The fund invests primarily in common stock, warrants and convertible
securities. The fund may also invest in investment-grade debt securities issued
by European or U.S. companies and governments.
For liquidity and flexibility, the fund may place up to 20% 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 engage in other investment
practices.
RISK FACTORS
[Clip Art] As with any growth fund, the value of your investment will fluctuate
in response to stock market movements. Because the fund concentrates on one
region, investors should expect above-average volatility.
Also, because the fund invests internationally, it carries additional risks,
including currency, natural event, information and political risks. These risks,
which may make the fund more volatile than a comparable domestic growth fund,
are described in "More about risk" starting on page 31. The risks of
international investing may be higher in emerging markets, a category that
includes some European countries.
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
[Clip Art] Under the supervision of John Hancock Advisers, Inc., a team of
portfolio managers at Indocam International Investment Services, the fund's
subadviser, is responsible for the fund's day-to-day investment management.
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INVESTOR EXPENSES
[Clip Art] Fund investors pay various expenses, either directly or indirectly.
The figures below show estimated expenses for the fiscal year ending October 31,
1998. Actual 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) 0.81% 0.81%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.79% 0.79%
Total fund operating expenses (after limitation)(3) 1.90% 2.60%
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 $107 $148 $261
Class B shares
Assuming redemption
at end of period $76 $111 $158 $276
Assuming no redemption $26 $81 $138 $276
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's agreement to limit expenses. Without this
limitation, management fees would be 0.90% for each class and total fund
operating expenses would be 1.99% for Class A and 2.69% for Class B. The
adviser may terminate this limitation in the future.
(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 - EUROPEAN EQUITY FUND
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FINANCIAL HIGHLIGHTS
[Clip Art] The figures below cover the period from the commencement of
operations on March 2, 1998 to April 30, 1998 for Class A shares. These figures
are unaudited.
[The following table was represented by a bar graph in the printed materials.]
Volatility, as indicated by Class A 7.10(4)
year-by-year total investment return (%) two
(scale varies from fund to fund) months
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Class A - period ended: 4/98(1)
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Per share operating performance
Net asset value, beginning of period $10.00
Net investment income(2) 0.01
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.70
Total from investment operations 0.71
Net asset value, end of period $10.71
Total investment return at net asset value(3)(%) 7.10(4)
Total adjusted investment return at net asset value(3,5)(%) 6.79(4)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,478
Ratio of expenses to average net assets (%) 1.90(6)
Ratio of adjusted expenses to average net assets(7)(%) 3.83(6)
Ratio of net investment income to average net assets (%) 0.49(6)
Ratio of adjusted net investment (loss) to
average net assets(7)(%) (1.44)(6)
Portfolio turnover rate (%) 4
Fee reduction per share(2)($) 0.03
Average brokerage commission rate ($) 0.0239
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Class B - period ended: 4/98(1)
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Per share operating performance
Net asset value, beginning of period --
Net investment income --
Net realized and unrealized gain (loss) on
investments and foreign currency transactions --
Total from investment operations --
Net asset value, end of period --
Total investment return at net asset value (%) --
Total adjusted investment return at net asset value (%) --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) --
Ratio of expenses to average net assets (%) --
Ratio of adjusted expenses to average net assets (%) --
Ratio of net investment income to average net assets (%) --
Ratio of adjusted net investment income to
average net assets (%) --
Portfolio turnover rate (%) --
Fee reduction per share ($) --
Average brokerage commission rate ($) --
(1) Class A shares commenced operations on March 2, 1998. There were no Class B
shares outstanding during the period ended April 30, 1998.
(2) Based on the average of shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into consideration
fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
GROWTH - EUROPEAN EQUITY FUND 5
<PAGE>
Global Fund
REGISTRANT NAME:
JOHN HANCOCK INVESTMENT TRUST III TICKER SYMBOL CLASS A: JHGAX CLASS B: FGLOX
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GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital. To pursue this goal, the
fund invests primarily in common stocks of foreign and U.S. companies. The fund
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
[Clip Art] 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
[Clip Art] 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
[Clip Art] Miren Etcheverry, John L.F. Wills, and Gerardo J. Espinoza lead the
portfolio management team. Ms. Etcheverry and Mr. Espinoza are senior vice
presidents and joined John Hancock Funds in December 1996, having been in the
investment business since 1978 and 1979, respectively. Mr. Wills is a senior
vice president of the adviser and managing director of the subadviser, John
Hancock Advisers International Limited. He joined John Hancock Funds in 1987 and
has been in the investment business since 1969.
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INVESTOR EXPENSES
[Clip Art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
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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) 0.88% 0.88%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.56% 0.56%
Total fund operating expenses 1.74% 2.44%
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 $67 $102 $140 $245
Class B shares
Assuming redemption
at end of period $75 $106 $150 $260
Assuming no redemption $25 $76 $130 $260
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.
6 GROWTH - GLOBAL FUND
<PAGE>
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FINANCIAL HIGHLIGHTS
[Clip Art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The following table was represented by a bar graph in the printed materials.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class B
year-by-year total investment return (%) 7.05 30.22 (10.42) 14.04 (3.85) 34.95 7.97 (1.01) 9.10 8.67
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
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Class A - period ended: 10/92(1) 10/93 10/94 10/95 10/96 10/97
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<S> <C> <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 $12.97
Net investment income (loss)(2) (0.04) (0.10) (0.07) (0.03) (0.02) (0.05)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.72) 3.85 1.24 (0.13) 1.20 1.21
Total from investment operations (0.76) 3.75 1.17 (0.16) 1.18 1.16
Less distributions:
Distributions from net realized gain on investments
sold and foreign currency transactions -- -- (1.31) (1.33) (0.88) (1.19)
Net asset value, end of period $10.55 $14.30 $14.16 $12.67 $12.97 $12.94
Total investment return at net asset value(3) (%) (6.72)(4) 35.55 8.64 (0.37) 9.87 9.36
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 76,980 90,787 100,973 93,597 94,746 92,127
Ratio of expenses to average net assets (%) 2.47(5) 2.12 1.98 1.87 1.88 1.81(6)
Ratio of net investment income (loss) to average
net assets (%) (0.60)(5) (0.86) (0.54) (0.23) (0.19) (0.36)
Portfolio turnover rate (%) 69 108 61 60 98 81
Average brokerage commission rate(7) ($) N/A N/A N/A N/A 0.0221 0.0216
<CAPTION>
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Class B - period ended: 10/88 10/89 10/90 10/91 10/92 10/93
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<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.42 $10.67 $13.58 $9.94 $10.92 $10.50
Net investment income (loss) 0.01 (0.10) (0.02) (0.01)(2) (0.12)(2) (0.15)(2)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.69 3.25 (1.12) 1.35 (0.30) 3.82
Total from investment operations 0.70 3.15 (1.14) 1.34 (0.42) 3.67
Less distributions:
Distributions from net investment income -- (0.01) -- -- -- --
Distributions from net realized gain on investments
sold and foreign currency transactions (0.45) (0.23) (2.50) (0.36) -- --
Total distributions (0.45) (0.24) (2.50) (0.36) -- --
Net asset value, end of period $10.67 $13.58 $9.94 $10.92 $10.50 $14.17
Total investment return at net asset value(3) (%) 7.05 30.22 (10.42) 14.04 (3.85) 34.95
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 34,380 35,596 33,281 28,686 11,475 19,340
Ratio of expenses to average net assets (%) 2.55 2.30 2.46 2.60 2.68 2.49
Ratio of net investment income (loss) to average
net assets (%) 0.09 (0.47) (0.59) (0.12) (1.03) (1.25)
Portfolio turnover rate (%) 142 138 58 106 69 108
Average brokerage commission rate(7) ($) N/A N/A N/A N/A N/A N/A
<CAPTION>
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Class B - period ended: 10/94 10/95 10/96 10/97
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<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $14.17 $13.93 $12.36 $12.54
Net investment income (loss) (0.15)(2) (0.11)(2) (0.10)(2) (0.14)(2)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 1.22 (0.13) 1.16 1.18
Total from investment operations 1.07 (0.24) 1.06 1.04
Less distributions:
Distributions from net investment income -- -- -- --
Distributions from net realized gain on investments
sold and foreign currency transactions (1.31) (1.33) (0.88) (1.19)
Total distributions (1.31) (1.33) (0.88) (1.19)
Net asset value, end of period $13.93 $12.36 $12.54 $12.39
Total investment return at net asset value(3) (%) 7.97 (1.01) 9.10 8.67
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 31,822 24,570 27,599 28,007
Ratio of expenses to average net assets (%) 2.59 2.57 2.54 2.49(6)
Ratio of net investment income (loss) to average
net assets (%) (1.12) (0.89) (0.83) (1.04)
Portfolio turnover rate (%) 61 60 98 81
Average brokerage commission rate(7) ($) N/A N/A 0.0221 0.0216
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 per share.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
GROWTH - GLOBAL 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
[Clip Art] 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 invests 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
[Clip Art] 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
[Clip Art] 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
[Clip Art] Linda I. Miller, CFA, 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
[Clip Art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
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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 0.80% 0.80%
12b-1 fee(3) 0.30% 1.00%
Other expenses 0.58% 0.58%
Total fund operating expenses 1.68% 2.38%
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 $66 $100 $137 $239
Class B shares
Assuming redemption
at end of period $74 $104 $147 $254
Assuming no redemption $24 $74 $127 $254
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
[Clip Art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The following table was represented as a bar graph in the printed materials.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class A
year-by-year total investment return (%) 33.40(5) 0.30 23.39 30.89 18.39 (1.26)(5) 26.63
(scale varies from fund to fund) two months
</TABLE>
<TABLE>
<CAPTION>
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Class A - period ended: 8/92(1) 8/93 8/94 8/95
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<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.00 $13.34 $13.38 $16.51
Net investment income (loss) (0.03) (0.23) (0.32) (0.36)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 3.37 0.27 3.45 5.46
Total from investment operations 3.34 0.04 3.13 5.10
Less distributions:
Distributions from net realized gain on investments sold and
foreign currency transactions -- -- -- --
Net asset value, end of period $13.34 $13.38 $16.51 $21.61
Total investment return at net asset value(4) (%) 33.40(5) 0.30 23.39 30.89
Total adjusted investment return at net asset value(4,6) (%) 32.11(5) 0.04 -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 14,702 15,647 18,643 24,394
Ratio of expenses to average net assets (%) 1.98(7) 2.50 2.55 2.56
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)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) (1.92)(7) (1.93) -- --
Portfolio turnover rate (%) 48 93 52 38
Fee reduction per share ($) 0.085 0.035 -- --
Average brokerage commission rate(9) ($) N/A N/A N/A N/A
<CAPTION>
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Class A - period ended: 8/96 10/96(2) 10/97
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<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $21.61 $25.43 $25.11
Net investment income (loss) (0.19)(3) (0.05)(3) (0.19)(3)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 4.15 (0.27) 6.56
Total from investment operations 3.96 (0.32) 6.37
Less distributions:
Distributions from net realized gain on investments sold and
foreign currency transactions (0.14) -- (1.23)
Net asset value, end of period $25.43 $25.11 $30.25
Total investment return at net asset value(4) (%) 18.39 (1.26)(5) 26.63
Total adjusted investment return at net asset value(4,6) (%) -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 42,405 42,618 53,122
Ratio of expenses to average net assets (%) 1.80 1.92(7) 1.68
Ratio of adjusted expenses to average net assets(8) (%) -- -- --
Ratio of net investment income (loss) to average net assets (%) (0.75) (1.04)(7) (0.71)
Ratio of adjusted net investment income (loss) to average
net assets(8) (%) -- -- --
Portfolio turnover rate (%) 68 24 57
Fee reduction per share ($) -- -- --
Average brokerage commission rate(9) ($) 0.0181 0.0726 0.0749
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 8/94(1) 8/95 8/96 10/96(2) 10/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.29 $16.46 $21.35 $24.94 $24.60
Net investment income (loss)(3) (0.17) (0.55) (0.34) (0.08) (0.37)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions (0.66) 5.44 4.07 (0.26) 6.40
Total from investment operations (0.83) 4.89 3.73 (0.34) 6.03
Less distributions:
Distributions from net realized gain on investments sold and
foreign currency transactions -- -- (0.14) -- (1.23)
Net asset value, end of period $16.46 $21.35 $24.94 $24.60 $29.40
Total investment return at net asset value(4) (%) (4.80)(5) 29.71 17.53 (1.36)(5) 25.76
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 1,071 6,333 36,591 37,521 53,436
Ratio of expenses to average net assets (%) 3.34(7) 3.45 2.42 2.62(7) 2.38
Ratio of net investment income (loss) to average net assets (%) (2.65)(7) (2.91) (1.33) (1.74)(7) (1.41)
Portfolio turnover rate (%) 52 38 68 24 57
Average brokerage commission rate(9) ($) N/A N/A 0.0181 0.0726 0.0749
</TABLE>
(1) Class A and Class B shares commenced operations on October 1, 1991 and
March 7, 1994, respectively.
(2) Effective October 31, 1996, the fiscal year end changed from August 31 to
October 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) 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.
GROWTH - GLOBAL RX FUND 9
<PAGE>
Global Technology Fund
REGISTRANT NAME: JOHN HANCOCK SERIES TRUST
TICKER SYMBOL CLASS A: NTTFX CLASS B: FGTBX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip Art] 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 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. Income is a secondary
goal.
PORTFOLIO SECURITIES
[Clip Art] 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
[Clip Art] 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
[Clip Art] 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
[Clip Art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee(3) 0.79% 0.79%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.42% 0.42%
Total fund operating expenses 1.51% 2.21%
Example The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
- --------------------------------------------------------------------------------
Share class Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A shares $65 $95 $128 $221
Class B shares
Assuming redemption
at end of period $72 $99 $138 $237
Assuming no redemption $22 $69 $118 $237
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 0.35% 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.
10 GROWTH - GLOBAL TECHNOLOGY FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[Clip Art] The figures below for the one-year period ended October 31, 1997 have
been audited by the fund's independent auditors, Ernst & Young LLP. Figures for
previous years were audited by another independent auditor.
[The following table was represented as a bar graph in the printed materials.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class A
year-by-year total investment return (%) 2.84 10.48 16.61 (18.46) 33.05 5.70 32.06 9.62 46.53 5.22(4) 21.90
(scale varies from fund to fund) ten months
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/87 12/88 12/89 12/90 12/91 12/92
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $13.80 $13.98 $15.31 $16.93 $12.44 $15.60
Net investment income (loss) 0.15 0.15 0.10 (0.04) 0.05 (0.15)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 0.26 1.32 2.43 (3.09) 4.11 1.00
Total from investment operations 0.41 1.47 2.53 (3.13) 4.16 0.85
Less distributions:
Dividends from net investment income (0.23) (0.14) (0.13) -- (0.04) --
Distributions from net realized gain on
investments and foreign currency transactions -- -- (0.78) (1.36) (0.96) (1.51)
Total distributions (0.23) (0.14) (0.91) (1.36) (1.00) (1.51)
Net asset value, end of period $13.98 $15.31 $16.93 $12.44 $15.60 $14.94
Total investment return at net asset value(3) (%) 2.84 10.48 16.61 (18.46) 33.05 5.70
Total adjusted investment return at net asset value(3,5) -- -- -- -- -- 5.53
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 44,224 38,594 40,341 28,864 31,580 32,094
Ratio of expenses to average net assets (%) 1.63 1.75 1.90 2.36 2.32 2.05
Ratio of adjusted expenses to average net assets(7) (%) -- -- -- -- -- 2.22
Ratio of net investment income (loss) to average
net assets (%) 0.75 0.89 0.60 (0.28) 0.34 (0.88)
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) -- -- -- -- -- (1.05)
Portfolio turnover rate (%) 9 12 30 38 67 76
Fee reduction per share ($) -- -- -- -- -- 0.03
Average brokerage commission rate(8) ($) N/A N/A N/A N/A N/A N/A
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 12/93 12/94 12/95 10/96(1) 10/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $14.94 $17.45 $17.84 $24.51 $25.79
Net investment income (loss) (0.21) (0.22)(2) (0.22)(2) (0.14)(2) (0.27)(2)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions 4.92 1.87 8.53 1.42 5.76
Total from investment operations 4.71 1.65 8.31 1.28 5.49
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from net realized gain on
investments and foreign currency transactions (2.20) (1.26) (1.64) -- (1.23)
Total distributions (2.20) (1.26) (1.64) -- (1.23)
Net asset value, end of period $17.45 $17.84 $24.51 $25.79 $30.05
Total investment return at net asset value(3) (%) 32.06 9.62 46.53 5.22(4) 21.90
Total adjusted investment return at net asset value(3,5) -- -- 46.41 -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 41,749 52,193 155,001 166,010 184,048
Ratio of expenses to average net assets (%) 2.10 2.16 1.67 1.57(6) 1.51
Ratio of adjusted expenses to average net assets(7) (%) -- -- 1.79 -- --
Ratio of net investment income (loss) to average
net assets (%) (1.49) (1.25) (0.89) (0.68)(6) (0.95)
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) -- -- (1.01) -- --
Portfolio turnover rate (%) 86 67 70 64 104
Fee reduction per share ($) -- -- 0.02(2) -- --
Average brokerage commission rate(8) ($) N/A N/A N/A 0.0685 0.0628
- -----------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 12/94(9) 12/95 10/96(1) 10/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $17.24 $17.68 $24.08 $25.20
Net investment income (loss)(2) (0.35) (0.39) (0.28) (0.45)
Net realized and unrealized gain (loss) on investments 2.05 8.43 1.40 5.60
Total from investment operations 1.70 8.04 1.12 5.15
Less distributions:
Distributions from net realized gain on investments sold (1.26) (1.64) -- (1.23)
Net asset value, end of period $17.68 $24.08 $25.20 $29.12
Total investment return at net asset value(3) (%) 10.02 45.42 4.65(4) 21.04
Total adjusted investment return at net asset value(3,5) -- 45.30 -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 9,324 35,754 50,949 65,851
Ratio of expenses to average net assets (%) 2.90(6) 2.41 2.27(6) 2.21
Ratio of adjusted expenses to average net assets(7) (%) -- 2.53 -- --
Ratio of net investment income (loss) to average net assets (%) (1.98)(6) (1.62) (1.38)(6) (1.65)
Ratio of adjusted net investment income (loss) to
average net assets(7) (%) -- (1.74) -- --
Portfolio turnover rate (%) 67 70 64 104
Fee reduction per share ($) -- 0.03(2) -- --
Average brokerage commission rate(8) ($) N/A N/A 0.0685 0.0628
</TABLE>
(1) Effective October 31, 1996, the fiscal year end changed from December 31
to October 31.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Unreimbursed, without fee reduction.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(9) Class B shares commenced operations on January 3, 1994.
GROWTH - GLOBAL TECHNOLOGY FUND 11
<PAGE>
International Fund
REGISTRANT NAME:
JOHN HANCOCK INVESTMENT TRUST III TICKER SYMBOL
CLASS A: FINAX CLASS B: FINBX CLASS C: N/A
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip Art] 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 invests 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
[Clip Art] 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
[Clip Art] 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
[Clip Art] Miren Etcheverry, John L.F. Wills, and Gerardo J. Espinoza lead the
fund's portfolio management team. Ms. Etcheverry and Mr. Espinoza are senior
vice presidents and joined John Hancock Funds in December 1996, having been in
the investment business since 1978 and 1979, respectively. Mr. Wills is a senior
vice president of the adviser and managing director of the subadviser, John
Hancock Advisers International Limited. He joined John Hancock Funds in 1987 and
has been in the investment business since 1969.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip Art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past fiscal year, adjusted to
reflect any changes. Because no Class C shares were outstanding during the past
year, Class C expenses are based on Class B expenses. Future expenses may be
greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B Class C
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none none
Maximum sales charge imposed on
reinvested dividends none none none
Maximum deferred sales charge none(1) 5.00% 1.00%
Redemption fee(2) none none none
Exchange fee none none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee (after expense
limitation)(3,4) 0.00% 0.00% 0.00%
12b-1 fee(5) 0.30% 1.00% 1.00%
Other expenses (after limitation)(3) 1.43% 1.43% 1.43%
Total fund operating expenses
(after limitation)(3) 1.73% 2.43% 2.43%
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 $102 $139 $244
Class B shares
Assuming redemption
at end of period $75 $106 $150 $259
Assuming no redemption $25 $76 $130 $259
Class C shares
Assuming redemption
at end of period $35 $76 $130 $277
Assuming no redemption $25 $76 $130 $277
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Reflects the adviser's agreement to limit expenses (except for 12b-1 and
transfer agent expenses). Without this limitation, management fees would
be 1.00% for each class, other expenses would be 1.73% for each class and
total fund operating expenses would be 3.03% for Class A and 3.73% for
Class B and Class C. The adviser may terminate this limitation at any
time.
(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
[Clip Art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The following table was represented as a bar graph in the printed materials.]
Volatility, as indicated by Class A
year-by-year total investment return (%) 1.77(4) (4.96) 6.88 (3.22)
(scale varies from fund to fund)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/94(1) 10/95 10/96 10/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $8.65 $8.14 $8.70
Net investment income (loss) 0.07(2) 0.04 0.06(2) (0.02)(2)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.08 (0.47) 0.50 (0.26)
Total from investment operations 0.15 (0.43) 0.56 (0.28)
Less distributions:
Dividends from net investment income -- (0.03) -- (0.01)
Distributions from net realized gain on investments
sold and foreign currency transactions -- (0.05) -- --
Total distributions -- (0.08) -- (0.01)
Net asset value, end of period $8.65 $8.14 $8.70 $8.41
Total investment return at net asset value(3) (%) 1.77(4) (4.96) 6.88 (3.22)
Total adjusted investment return at net asset value(3,5) (%) (0.52)(4) (8.12) 5.33 (4.52)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,426 4,215 5,098 4,965
Ratio of expenses to average net assets (%) 1.50(6) 1.64 1.75 1.73(7)
Ratio of adjusted expenses to average net assets(8) (%) 3.79(6) 4.80 3.30 3.03(7)
Ratio of net investment income (loss) to average net assets (%) 1.02(6) 0.56 0.68 (0.16)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (1.27)(6) (2.60) (0.87) (1.46)
Portfolio turnover rate (%) 50 69 83 169
Fee reduction per share(2) ($) 0.16 0.25 0.14 0.12
Average brokerage commission rate(9) ($) N/A N/A 0.0192 0.0186
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/94(1) 10/95 10/96 10/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.50 $8.61 $8.05 $8.55
Net investment income (loss) 0.02(2) (0.03) 0.00(2,10) (0.08)(2)
Net realized and unrealized gain (loss) on investments and
foreign currency transactions 0.09 (0.48) 0.50 (0.25)
Total from investment operations 0.11 (0.51) 0.50 (0.33)
Less distributions:
Distributions from net realized gain on investments
sold and foreign currency transactions -- (0.05) -- --
Net asset value, end of period $8.61 $8.05 $8.55 $8.22
Total investment return at net asset value(3) (%) 1.29(4) (5.89) 6.21 (3.86)
Total adjusted investment return at net asset value(3,5) (%) (1.00)(4) (9.05) 4.66 (5.16)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 3,948 3,990 8,175 8,713
Ratio of expenses to average net assets (%) 2.22(6) 2.52 2.45 2.43(7)
Ratio of adjusted expenses to average net assets(8) (%) 4.51(6) 5.68 4.00 3.73(7)
Ratio of net investment income (loss) to average net assets (%) 0.31(6) (0.37) 0.02 (0.88)
Ratio of adjusted net investment income (loss) to average net assets(8) (%) (1.98)(6) (3.53) (1.53) (2.18)
Portfolio turnover rate (%) 50 69 83 169
Fee reduction per share(2) ($) 0.16 0.25 0.14 0.12
Average brokerage commission rate(9) ($) N/A N/A 0.0192 0.0186
</TABLE>
(1) Class A and Class B shares commenced operations on January 3, 1994.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(6) Annualized.
(7) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 cents per share.
(8) Unreimbursed, without fee reduction.
(9) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(10) Less than $0.01 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
[Clip Art] The fund seeks long-term growth of capital. To pursue this goal, the
fund invests primarily in a diversified portfolio of stocks of Pacific Basin
companies. The Pacific Basin includes countries bordering the Pacific Ocean.
Under normal circumstances, the fund invests 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
[Clip Art] 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
[Clip Art] 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 and practices, it
takes on further risks that could adversely affect its performance. Please read
"More about risk" carefully before investing.
MANAGEMENT/SUBADVISERS
[Clip Art] The fund's management is carried out jointly by the adviser's
international equities portfolio management team and two subadvisers, Indocam
Asia Advisers Limited and John Hancock Advisers International Limited. Indocam
is majority owned by Caisse Nationale de Credit Agricole, a French banking
institution.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip Art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
Maximum sales charge imposed on
reinvested dividends none none
Maximum deferred sales charge none(1) 5.00%
Redemption fee(2) none none
Exchange fee none none
- --------------------------------------------------------------------------------
Annual fund operating expenses (as a % of average net assets)
- --------------------------------------------------------------------------------
Management fee(3) 0.80% 0.80%
12b-1 fee(4) 0.30% 1.00%
Other expenses 0.96% 0.96%
Total fund operating expenses 2.06% 2.76%
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 $111 $155 $277
Class B shares
Assuming redemption
at end of period $78 $116 $166 $292
Assuming no redemption $28 $86 $146 $292
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
[Clip Art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The following table was represented as a bar graph in the printed materials.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class
A year-by-year total investment return (%) (3.61)(6) 18.06 (0.44) (2.15) (1.99) 49.61 22.82 (7.65) 4.47 (1.83)(6) (19.03)
(scale varies from fund to fund) two
months
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 8/88(1) 8/89 8/90 8/91 8/92 8/93
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $8.87
Net investment income (loss) 0.01 (0.02) (0.04) (0.01) (0.07)(3) (0.11)(3)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (0.37) 1.75 0.11 (0.33) (0.11) 4.51
Total from investment operations (0.36) 1.73 0.07 (0.34) (0.18) 4.40
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 $13.27
Total investment return at net asset
value(5) (%) (3.61)(6) 18.06 (0.44) (2.15) (1.99) 49.61
Total adjusted investment return at net
asset value(5,7) (%) (8.05)(6) 15.12 (2.86) (5.19) (5.57) 48.31
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 4,771 5,116 4,578 4,065 3,222 14,568
Ratio of expenses to average net assets (%) 1.75(8) 1.75 2.45 2.75 2.73 2.94
Ratio of adjusted expenses to average
net assets(9) (%) 6.19(8) 4.69 4.89 5.79 6.31 4.24
Ratio of net investment income (loss) to
average net assets (%) 0.04(8) (0.15) (0.28) (0.06) (0.82) (0.98)
Ratio of adjusted net investment income
(loss) to average net assets(9) (%) (4.40)(8) (3.09) (2.70) (3.10) (4.40) (2.28)
Portfolio turnover rate (%) 148 227 154 151 179 171
Fee reduction per share ($) 1.15 0.39 0.31 0.24 0.31(3) 0.14(3)
Average brokerage commission rate(10) ($) N/A N/A N/A N/A N/A N/A
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 8/94 8/95 8/96 10/96(2) 10/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $13.27 $15.88 $14.11 $14.74 $14.47
Net investment income (loss) (0.10)(3) 0.02(3,4) (0.02)(3) (0.02)(3) (0.07)(3)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 3.12 (1.24) 0.65 (0.25) (2.66)
Total from investment operations 3.02 (1.22) 0.63 (0.27) (2.73)
Less distributions:
Dividends from net investment income -- -- -- -- --
Distributions from net realized gain on
investments sold and foreign
currency transactions (0.41) (0.55) -- -- (0.11)
Total distributions (0.41) (0.55) -- -- (0.11)
Net asset value, end of period $15.88 $14.11 $14.74 $14.47 $11.63
Total investment return at net asset
value(5) (%) 22.82 (7.65) 4.47 (1.83)(6) (19.03)
Total adjusted investment return at net
asset value(5,7) (%) -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 50,261 37,417 41,951 38,694 21,109
Ratio of expenses to average net assets (%) 2.43 2.05 1.97 2.21(8) 2.06
Ratio of adjusted expenses to average
net assets(9) (%) -- -- -- -- --
Ratio of net investment income (loss) to
average net assets (%) (0.66) 0.13(4) (0.15) (0.83)(8) (0.49)
Ratio of adjusted net investment income
(loss) to average net assets(9) (%) -- -- -- -- --
Portfolio turnover rate (%) 68 48 73 15 118
Fee reduction per share ($) -- -- -- -- --
Average brokerage commission rate(10) ($) N/A N/A 0.0183 0.0221 0.0076
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 8/94(1) 8/95 8/96 10/96(2) 10/97
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $15.11 $15.84 $13.96 $14.49 $14.20
Net investment income (loss) (3) (0.09) (0.09) (0.13) (0.04) (0.18)
Net realized and unrealized gain (loss)
on investments and
foreign currency transactions 0.82 (1.24) 0.66 (0.25) (2.59)
Total from investment operations 0.73 (1.33) 0.53 (0.29) (2.77)
Less distributions:
Distributions from net realized gain on
investments sold and foreign currency
transactions -- (0.55) -- -- (0.11)
Net asset value, end of period $15.84 $13.96 $14.49 $14.20 $11.32
Total investment return at net asset value(5) (%) (4.83)(6) (8.38) 3.80 (2.00)(6) (19.67)
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 9,480 14,368 32,342 30,147 17,320
Ratio of expenses to average net assets (%) 3.00(8) 2.77 2.64 2.90(8) 2.76
Ratio of net investment income (loss) to
average net assets (%) (1.40)(8) (0.66) (0.86) (1.52)(8) (1.19)
Portfolio turnover rate (%) 68 48 73 15 118
Average brokerage commission rate(10) ($) N/A N/A 0.0183 0.0221 0.0076
</TABLE>
(1) Class A and Class B shares commenced operations on September 8, 1987 and
March 7, 1994, respectively.
(2) Effective October 31, 1996, the fiscal year end changed from August 31 to
October 31.
(3) Based on the average of the shares outstanding at the end of each month.
(4) May not accord to amounts shown elsewhere in the financial statements due
to the timing of sales and repurchases of fund shares in relation to
fluctuating market values of the investments of the fund.
(5) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(6) Not annualized.
(7) 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:
JOHN HANCOCK INVESTMENT TRUST III TICKER SYMBOL
CLASS A: JHSAX CLASS B: FRSWX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip Art] 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 invests 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
[Clip Art] 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
[Clip Art] 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 and practices, it
takes on further risks that could adversely affect its performance. Please read
"More about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[Clip Art] Anthony A. Goodchild and Lawrence J. Daly 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.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip Art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 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 0.48% 0.48%
Total fund operating expenses 1.43% 2.13%
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 $74 $106 $196
Class B shares
Assuming redemption
at end of period $52 $87 $114 $204
Assuming no redemption $22 $67 $114 $204
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) 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
[Clip Art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The following table was represented as a bar graph in the printed materials.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class B
year-by-year total investment return (%) 8.85(4) 0.64 5.98 1.93 7.97 7.89 4.83
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/92(1) 10/93 10/94 10/95 10/96 10/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $8.46
Net investment income (loss) 0.65 0.83(2) 0.76(2) 0.77(2) 0.65 0.61(2)
Net realized and unrealized gain (loss) on
investments and
foreign currency transactions (0.55) (0.20) (0.53) (0.06) 0.05 (0.15)
Total from investment operations 0.10 0.63 0.23 0.71 0.70 0.46
Less distributions:
Dividends from net investment income (0.64) (0.83) (0.62) (0.61) (0.57) (0.52)
Distributions in excess of net investment income -- -- (0.04) -- -- (0.08)
Distributions in excess of net realized gain on
investments sold -- -- (0.12) -- -- --
Distributions from capital paid-in -- -- (0.10) (0.16) (0.08) (0.01)
Total distributions (0.64) (0.83) (0.88) (0.77) (0.65) (0.61)
Net asset value, end of period $9.32 $9.12 $8.47 $8.41 $8.46 $8.31
Total investment return at net asset value(3) (%) 1.16(4) 6.78 2.64 8.75 8.60 5.55
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 20,468 11,130 13,091 16,997 49,338 64,059
Ratio of expenses to average net assets (%) 1.37(4) 1.21 1.26 1.33 1.48 1.43
Ratio of net investment income (loss) to average
net assets (%) 8.09(4) 8.59 8.71 9.13 7.59 7.22
Portfolio turnover rate (%) 86 306 150 147 77 71
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/91(1) 10/92 10/93 10/94 10/95 10/96 10/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $8.45
Net investment income (loss) 0.76 0.87 0.75(2) 0.70(2) 0.70(2) 0.59 0.55(2)
Net realized and unrealized gain (loss) on
investments and foreign currency
transactions 0.01 (0.80) (0.20) (0.53) (0.06) 0.05 (0.15)
Total from investment operations 0.77 0.07 0.55 0.17 0.64 0.64 0.40
Less distributions:
Dividends from net investment income (0.76) (0.77) (0.75) (0.56) (0.56) (0.52) (0.47)
Distributions in excess of net
investment income -- -- -- (0.04) -- -- (0.07)
Distributions in excess of net realized
gain on investments sold -- -- -- (0.12) -- -- --
Distributions from capital paid-in -- -- -- (0.10) (0.14) (0.07) (0.01)
Total distributions (0.76) (0.77) (0.75) (0.82) (0.70) (0.59) (0.55)
Net asset value, end of period $10.01 $9.31 $9.11 $8.46 $8.40 $8.45 $8.30
Total investment return at net asset
value(3) (%) 8.85(4) 0.64 5.98 1.93 7.97 7.89 4.83
Total adjusted investment return at net
asset value(3,5) (%) 8.81(4) -- -- -- -- -- --
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 218,562 236,059 142,873 98,390 84,601 48,137 25,908
Ratio of expenses to average net assets (%) 1.89(4) 2.07 2.01 1.99 2.07 2.12 2.13
Ratio of adjusted expenses to average net
assets(6) (%) 1.93(4) -- -- -- -- -- --
Ratio of net investment income to average
net assets (%) 8.72(4) 8.69 7.81 8.00 8.40 7.07 6.51
Ratio of adjusted net investment income
to average net assets(6) (%) 8.68(4) -- -- -- -- -- --
Portfolio turnover rate (%) 22 86 306 150 147 77 71
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) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Annualized.
(5) An estimated total return calculation that does not take into
consideration fee reductions by the adviser during the periods shown.
(6) Unreimbursed, without fee reduction.
INCOME - SHORT-TERM STRATEGIC INCOME FUND 17
<PAGE>
World Bond Fund
REGISTRANT NAME:
JOHN HANCOCK INVESTMENT TRUST III TICKER SYMBOL
CLASS A: FGLAX CLASS B: FGLIX
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[Clip Art] 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
[Clip Art] 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
[Clip Art] 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 and practices, it
takes on further risks that could adversely affect its performance. Please read
"More about risk" carefully before investing.
PORTFOLIO MANAGEMENT
[Clip Art] Anthony A. Goodchild and Lawrence J. Daly 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.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
[Clip Art] Fund investors pay various expenses, either directly or indirectly.
The figures below show the expenses for the past year, adjusted to reflect any
changes. Future expenses may be greater or less.
- --------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class B
- --------------------------------------------------------------------------------
Maximum sales charge imposed on purchases
(as a percentage of offering price) 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 0.63% 0.63%
Total fund operating expenses 1.68% 2.38%
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 $61 $96 $132 $235
Class B shares
Assuming redemption
at end of period $74 $104 $147 $254
Assuming no redemption $24 $74 $127 $254
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
[Clip Art] The figures below have been audited by the fund's independent
auditors, Price Waterhouse LLP.
[The following table was represented as a bar graph in the printed materials.]
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Volatility, as indicated by Class B
year-by-year total investment return (%) 20.09 5.47 11.84 10.44 1.72 6.77 (1.88) 11.51 4.78 2.43
(scale varies from fund to fund)
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A - period ended: 10/92(1) 10/93 10/94 10/95 10/96 10/97
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 $9.28
Net investment income (loss) 0.64 0.76 0.64(2) 0.57(2) 0.51(2) 0.53(2)
Net realized and unrealized gain (loss) on
investments and foreign currency transactions (0.74) (0.10) (0.78) 0.48 (0.02) (0.25)
Total from investment operations (0.10) 0.66 (0.14) 1.05 0.49 0.28
Less distributions:
Dividends from net investment income (0.71) (0.38) (0.11) (0.59) (0.50) (0.25)
Distributions in excess of net investment
income -- (0.04) -- -- -- (0.02)
Distributions from capital paid-in -- (0.38) (0.52) (0.01) (0.01) (0.26)
Total distributions (0.71) (0.80) (0.63) (0.60) (0.51) (0.53)
Net asset value, end of period $9.76 $9.62 $8.85 $9.30 $9.28 $9.03
Total investment return at net asset
value(3) (%) (0.88)(4) 7.14 (1.30) 12.25 5.48 3.15
Ratios and supplemental data
Net assets, end of period (000s omitted) ($) 12,880 12,882 8,949 35,334 27,537 28,959
Ratio of expenses to average net assets (%) 1.41(4) 1.46 1.59 1.48 1.58 1.68(5)
Ratio of net investment income (loss)
to average net assets (%) 7.64(4) 7.89 7.00 6.43 5.54 5.84
Portfolio turnover rate (%) 476 363 174 263 214 153
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class B - period ended: 10/88 10/89 10/90 10/91 10/92 10/93 10/94
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $10.32 $10.98 $10.21 $10.38 $10.44 $9.74 $9.62
Net investment income (loss) 0.67 0.83 0.85 0.90 0.78 0.72 0.59(2)
Net realized and unrealized gain
(loss) on investments
and foreign currency transactions 1.31 (0.27) 0.28 0.13 (0.59) (0.09) (0.78)
Total from investment operations 1.98 0.56 1.13 1.03 0.19 0.63 (0.19)
Less distributions:
Dividends from net investment income (0.68) (0.84) (0.85) (0.73) (0.89) (0.33) (0.06)
Distributions from net realized gain
on investments (0.64) (0.49) -- (0.24) -- -- --
Distributions in excess of net
investment income -- -- -- -- -- (0.04) --
Distributions from capital paid-in -- -- (0.11) -- -- (0.38) (0.52)
Total distributions (1.32) (1.33) (0.96) (0.97) (0.89) (0.75) (0.58)
Net asset value, end of period $10.98 $10.21 $10.38 $10.44 $9.74 $9.62 $8.85
Total investment return at net
asset value(3) (%) 20.09 5.47 11.84 10.44 1.72 6.77 (1.88)
Ratios and supplemental data
Net assets, end of period
(000s omitted) ($) 174,833 255,214 186,524 192,687 199,102 197,166 114,656
Ratio of expenses to average net
assets (%) 1.74 1.75 1.82 1.90 1.91 1.91 2.17
Ratio of net investment income
(loss) to average net assets (%) 6.04 8.07 8.67 8.74 7.59 7.45 6.41
Portfolio turnover rate (%) 364 333 186 159 476 363 174
<CAPTION>
- --------------------------------------------------------------------------------
Class B - period ended: 10/95 10/96 10/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per share operating performance
Net asset value, beginning of period $8.85 $9.30 $9.28
Net investment income (loss) 0.55(2) 0.45(2) 0.47(2)
Net realized and unrealized gain
(loss) on investments
and foreign currency transactions 0.44 (0.02) (0.25)
Total from investment operations 0.99 0.43 0.22
Less distributions:
Dividends from net investment income (0.53) (0.44) (0.23)
Distributions from net realized gain
on investments -- -- --
Distributions in excess of net
investment income -- -- (0.01)
Distributions from capital paid-in (0.01) (0.01) (0.23)
Total distributions (0.54) (0.45) (0.47)
Net asset value, end of period $9.30 $9.28 $9.03
Total investment return at net
asset value(3) (%) 11.51 4.78 2.43
Ratios and supplemental data
Net assets, end of period
(000s omitted) ($) 65,600 45,897 24,082
Ratio of expenses to average net
assets (%) 2.16 2.25 2.38(5)
Ratio of net investment income
(loss) to average net assets (%) 6.03 4.87 5.13
Portfolio turnover rate (%) 263 214 153
</TABLE>
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Annualized.
(5) Expense ratios do not include interest expense due to bank loans, which
amounted to less than $0.01 per share.
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. In addition, Class C shares are available for International Fund.
Each class has its own cost structure as outlined below, allowing you to choose
the one that best meets your requirements. For more details, see "How sales
charges are calculated." Your financial representative can help you decide which
share class is best for you.
- --------------------------------------------------------------------------------
Class A - for all funds
- --------------------------------------------------------------------------------
o Front-end sales charges. There are several ways to reduce these
charges, described under "Sales charge reductions and waivers" on the
following page.
o Lower annual expenses than Class B and Class C shares.
- --------------------------------------------------------------------------------
Class B - for all funds
- --------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right
away.
o Higher annual expenses than Class A shares.
o A contingent deferred sales charge that declines from 5% over six
years (3% over four years for Short-Term Strategic Income Fund).
o Automatic conversion to Class A shares after eight years, thus
reducing future annual expenses.
- --------------------------------------------------------------------------------
Class C - for International Fund
- --------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right
away.
o Higher annual expenses than Class A shares.
o A 1% contingent deferred sales charge on shares sold within one year
of purchase.
o No automatic conversion to Class A shares, so the fund's annual
expenses continue at the same level throughout the life of your
investment.
For actual past expenses of Class A and Class 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.
20 YOUR ACCOUNT
<PAGE>
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
Class B Shares are offered at their net asset value per share, without any
initial sales charge. However, you may be charged a contingent deferred sales
charge (CDSC) on shares you sell within a certain time after you bought them, as
described in the 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.
Class C Shares are offered at their net asset value per share, without any
initial sales charge. However, you may be charged a contingent deferred sales
charge (CDSC) of 1% on shares you sell within one year of purchase. 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.
CDSC calculations are based on the number of shares involved, not on the value
of your account. Each time you place a request to sell shares we will first sell
any shares in your account that carry no CDSC.
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.
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge. Retirement plans investing $1 million in
Class B shares may add that value to Class A purchases to calculate sales
charges.
o Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
o Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, contact your
financial representative or Signature Services or consult the SAI (see the back
cover of this prospectus).
Group Investment Program A group may be treated as a single purchase under the
accumulation and combination privileges. Each investor has an individual
account, but the group's investments are lumped together for sales charge
purposes, making the investors potentially eligible for reduced sales charges.
There is no charge, no obligation to invest (although initial investments must
total at least $250) and individual investors may close their accounts at any
time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify, or consult the SAI (see the back cover of this prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for each share class will generally be waived in the following cases:
o to make payments through certain systematic withdrawal plans
o to make certain distributions from a retirement plan
o because of shareholder death or disability
o to purchase a John Hancock Declaration annuity
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI.
YOUR ACCOUNT 21
<PAGE>
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under signed agreement with John Hancock Funds
o fund trustees and other individuals who are affiliated with these or other
John Hancock funds
o individuals transferring assets from an employee benefit plan with John
Hancock Funds into an individual account in a John Hancock fund
o certain insurance company contract holders (one-year CDSC usually applies)
o participants in certain retirement plans with at least 100 eligible
employees (one-year CDSC applies)
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
Signature Services or consult the SAI.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The
minimum initial investments for the John Hancock funds are as follows:
o non-retirement account: $1,000
o retirement account: $250
o group investments: $250
o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest at
least $25 a month
o fee-based clients of selling brokers who placed at least $2 billion in John
Hancock funds: $250
3 Complete the appropriate parts of the account application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges section of the
application. By applying for privileges now, you can avoid the delay and
inconvenience of having to file an additional application if you want to add
privileges later.
5 Make your initial investment using the table on the next page. You and your
financial representative can initiate any purchase, exchange or sale of
shares.
22 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clip art] o Make out a check for the o Make out a check for the
investment amount, payable to investment amount payable
"John Hancock Signature to "John Hancock Signature
Services, Inc." Services, Inc."
o Deliver the check and your o Fill out the detachable
completed application to your investment slip from an
financial representative, or account statement. If no
mail them to Signature Services slip is available, include
(address below). a note specifying the fund
name, your share class,
your account number and
the name(s) in which the
account is registered.
o Deliver the check and your
investment slip or note to
your financial
representative, or mail
them to Signature Services
(address below).
By exchange
[Clip art] o Call your financial o Call your financial
representative or Signature representative or Signature
Services to request an Services to request an
exchange. exchange.
By wire
[Clip art] o Deliver your completed o Instruct your bank to wire
application to your financial the amount of your
representative, or mail investment to:
it to Signature Services. First Signature Bank & Trust
Account # 900000260
o Obtain your account number Routing # 211475000
by calling your financial Specify the fund name, your
representative or share class, your account
Signature Services. number and the name(s)
in which the account is
o Instruct your bank to wire registered. Your bank may
the amount of your investment charge a fee to wire funds.
to:
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the new
account number and the name(s)
in which the account is
registered. Your bank may charge
a fee to wire funds.
By phone
[Clip art] See "By wire" and "By exchange." o Verify that your bank or
credit union is a member of
the Automated Clearing
House (ACH) system.
o Complete the "Invest-By-
Phone" and "Bank
Information" sections on
your account application.
o Call Signature Services to
verify that these features
are in place on your account.
o Tell the Signature Services
representative the fund name,
your share class, your
account number, the name(s)
in which the account is
registered and the amount
of your investment.
- ----------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone number
1-800-225-5291
Or contact your financial representative
for instructions and assistance.
- ----------------------------------------
To open or add to an account using the Monthly Automatic Accumulation Program,
see "Additional investor services."
YOUR ACCOUNT 23
<PAGE>
- --------------------------------------------------------------------------------
Selling shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip art] o Accounts of any type. o Write a letter of instruction
or complete a stock power
o Sales of any amount. indicating the fund name, your
share class, your account
number, the name(s) in which
the account is registered and
the dollar value or number of
shares you wish to sell.
o Include all signatures and any
additional documents that may
be required (see next page).
o Mail the materials to Signature
Services.
o A check will be mailed to the
name(s) and address in which
the account is registered, or
otherwise according to your
letter of instruction.
By phone
[Clip art] o Most accounts. o For automated service 24 hours
a day using your touch-tone
o Sales of up to $100,000. phone, call the EASI-Line at
1-800-338-8080.
o To place your order with a
representative at John Hancock
Funds, call Signature Services
between 8 A.M. and 4 P.M.
Eastern Time on most business
days.
By wire or electronic funds transfer (EFT)
[Clip art] o Requests by letter to o Fill out the "Telephone
sell any amount (accounts Redemption" section of your
of any type). new account application.
o Requests by phone to sell o To verify that the telephone
up to $100,000 (accounts redemption privilege is in
with telephone redemption place on an account, or to
privileges). request the forms to add it
to an existing account, call
Signature Services.
o Amounts of $1,000 or more will
be wired on the next business
day. A $4 fee will be deducted
from your account.
o Amounts of less than $1,000
may be sent by EFT or by check.
Funds from EFT transactions
are generally available by
the second business day.
Your bank may charge a fee
for this service.
By exchange
[Clip art] o Accounts of any type. o Obtain a current prospectus for
the fund into which you are
o Sales of any amount. exchanging by calling your
financial representative or
Signature Services.
o Call your financial
representative or Signature
Services to request an exchange.
By check
[Clip art] o Short-Term Strategic Income o Request checkwriting on your
Fund only. account application.
o Any account with o Verify that the shares to be
checkwriting privileges. sold were purchased more
than 10 days earlier or were
o Sales of over $100. purchased by wire.
o Write a check for any amount
over $100.
----------------------------------------
Address
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone
1-800-225-5291
Or contact your financial representative
for instructions and assistance.
----------------------------------------
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
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)
The signature guarantee must be from a member of the Signature Guarantee
Medallion Program (generally, a broker or securities dealer). We may refuse any
other source. A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
[Clip art]
- --------------------------------------------------------------------------------
Owners of individual, joint, o Letter of instruction.
sole proprietorship, UGMA/UTMA o On the letter, the signatures and
(custodial accounts for minors) titles of all persons authorized to
or general partner accounts. sign for the account, exactly as
the account is registered.
o Signature guarantee if applicable
(see above).
Owners of corporate or o Letter of instruction.
association accounts. o Corporate resolution, certified
within the past twelve months.
o On the letter and the resolution,
the signature of the person(s)
authorized to sign for the account.
o Signature guarantee if applicable
(see above).
Owners or trustees of trust accounts. o Letter of instruction.
o On the letter, the signature(s) of
the trustee(s).
o 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 twelve months.
o Signature guarantee if applicable
(see above).
Joint tenancy shareholders whose o Letter of instruction signed by
co-tenants are deceased. surviving tenant.
o Copy of death certificate.
o Signature guarantee if applicable
(see above).
Executors of shareholder estates. o Letter of instruction signed by
executor.
o Copy of order appointing executor.
o Signature guarantee if applicable
(see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
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 received by
Signature Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Signature Services will take
measures to verify the identity of the caller, such as asking for name, account
number, Social Security or other taxpayer ID number and other relevant
information. If appropriate measures are taken, Signature Services is not
responsible for any losses that may occur to any account due to an unauthorized
telephone call. Also for your protection, telephone transactions are not
permitted on accounts whose names or addresses have changed within the past 30
days. Proceeds from telephone transactions can only be mailed to the address of
record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B and Class
C shares will continue to age from the original date and will retain the same
CDSC rate as they had before the exchange, except that the rate will change to
the new fund's rate if that rate is higher. A CDSC rate that has increased will
drop again with a future exchange into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may also refuse any exchange order.
A fund may change or cancel its exchange policies at any time, upon 60 days'
notice to its shareholders.
Certificated shares Most shares are electronically recorded. If you wish to have
certificates for your shares, please write to Signature Services. Certificated
shares can only be sold by returning the certificates to Signature Services,
along with a letter of instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
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.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The 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.
26 YOUR ACCOUNT
<PAGE>
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
Taxability of dividends As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, dividends you receive from a fund, whether reinvested or taken as
cash, are generally considered taxable. Dividends from a fund's long-term
capital gains are taxable as capital gains; dividends from other sources are
generally taxable as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive from the growth funds.
Dividends may include a return of capital.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum) for
your first investment amount payable to "John Hancock Signature Services,
Inc." Deliver your check and application to your financial representative or
Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and there
is no limit to the number of payees you may have, as long as they are all on
the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial representative
or Signature Services.
Retirement plans John Hancock Funds offers a range of retirement plans,
including Traditional and Roth IRAs, SIMPLE IRAs, SIMPLE 401(k)s, SEPs, 401(k)s,
money purchase pension and profit-sharing plans. Using these plans, you can
invest in any John Hancock fund (except tax-free income funds) with a low
minimum investment of $250 or, for some group plans, no minimum investment at
all. To find out more, call Signature Services at 1-800-225-5291.
YOUR ACCOUNT 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, 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 information was represented as a flow chart in the printed
material.]
-----------------
Shareholders
-----------------
Distribution and
shareholder services
-------------------------------------------------
Financial services firms and
their representatives
Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
-------------------------------------------------
-------------------------------------------------
Principal distributor
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
-------------------------------------------------
------------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Handles shareholder services, including record-
keeping and statements, distribution of dividends
and processing of buy and sell requests.
------------------------------------------------------
-------------------------------
Subadvisers
American Fund Advisors, Inc.
1415 Kellum Place
Garden City, NY 11530
John Hancock Advisers
International Limited
34 Dover Street
London, UK W1X 3RA
Indocam Asia Advisers Limited
One Exchange Square
Hong Kong
Indocam International
Investment Services
90 Boulevard Pasteur
Paris, France 75015
Provide portfolio management
to certain funds
-------------------------------
------------------------------------
Investment adviser
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
------------------------------------
------------------------------------
Custodians
Investors Bank & Trust Co.
200 Clarendon Street
Boston, MA 02116
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
Hold the funds' assets, settle all
portfolio trades and collect most of
the valuation data required for
calculating each fund's NAV.
------------------------------------
Asset
management
------------------------------------
Trustees
Supervise the funds' activities.
------------------------------------
28 FUND DETAILS
<PAGE>
Accounting compensation The funds (except for Global Technology) compensate the
adviser for performing tax and financial management services. Annual
compensation is not expected to exceed 0.02% of each fund's average net assets.
Global Technology pays a $100,000 administration fee to the adviser.
Portfolio trades In placing portfolio trades, the adviser or subadvisers may use
brokerage firms that market the fund's shares or are affiliated with John
Hancock Mutual Life Insurance Company or subadvisers, 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 European Equity Fund, 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 funds' assets ("12b-1" refers to the federal
securities regulation authorizing annual fees of this type). The 12b-1 fee rates
vary by fund and by share class, according to Rule 12b-1 plans adopted by the
funds. The sales charges and 12b-1 fees paid by investors are detailed in the
fund-by-fund information. The portions of these expenses that are reallowed to
financial services firms are shown on the next page.
Distribution fees may be used to pay for sales compensation to financial
services firms, marketing and overhead expenses and, for Class B and Class C
shares, interest expenses.
- --------------------------------------------------------------------------------
Class B unreimbursed distribution expenses(1)
- --------------------------------------------------------------------------------
Unreimbursed As a % of
Fund expenses net assets
European Equity Fund N/A N/A
Global $ 795,893 2.56%
Global Rx $ 466,209 1.06%
Global Technology $ 1,198,204 2.00%
International $ 460,399 4.90%
Pacific Basin Equities $ 1,045,211 3.85%
Short-Term Strategic Income $ 2,554,608 7.17%
World Bond $ 5,324,432 15.75%
(1) As of the most recent fiscal year end covered by each fund's financial
highlights. These expenses may be carried forward indefinitely.
Class C Class C shares began operations after the 1997 fiscal year. Therefore,
there are no unreimbursed expenses to report.
Initial compensation Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives the first
year's service fee at this time.
Annual compensation Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears.
Financial services firms selling large amounts of fund shares may receive extra
compensation. This compensation, which John Hancock Funds pays out of its own
resources, may include asset retention fees as well as reimbursement for
marketing expenses.
FUND DETAILS 29
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class A investments
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum
Sales charge reallowance First year Maximum
paid by investors or commission service fee total compensation(1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
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 or more above that -- 0.00% 0.25% 0.25%
Waiver investments(2) -- 0.00% 0.25% 0.25%
<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%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Class C investments
- ------------------------------------------------------------------------------------------------------------------------------------
Maximum
reallowance First year Maximum
or commission service fee total compensation
(% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C>
All amounts 0.75% 0.25% 1.00%
</TABLE>
(1) Reallowance/commission percentages and service fee percentages are
calculated from different amounts, and therefore may not equal total
compensation percentages if combined using simple addition. For European
Equity Fund, John Hancock Funds may allow an amount up to the full
applicable sales charge.
(2) Refers to any investments made by municipalities, financial institutions,
trusts and affinity group members that take advantage of the sales charge
waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to pay commissions
when there is no initial sales charge.
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 that 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 that the fund also
holds, any loss generated by the derivative should be substantially offset by
gains on the hedged investment, and vice versa. While hedging can reduce or
eliminate losses, it can also reduce or eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the fund
is directly exposed to the risks of that derivative. Gains or losses from
speculative positions in a derivative may be substantially greater than the
derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance.
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than it was worth at an earlier time. Market risk may affect a
single issuer, industry, sector of the economy or the market as a whole. Common
to all stocks and bonds and the mutual funds that invest in them.
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events.
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments.
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
Prepayment risk The risk that unanticipated prepayments may occur during periods
of falling interest rates, 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.
Year 2000 risk The risk that the funds' operations could be disrupted by the
year 2000-related computer system problems. Although the adviser and the funds'
service providers are taking steps to address this issue, there may still be
some risk of adverse effects. Common to all mutual funds.
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/semiannual reports.
10 Percent of total assets (italic type)
10 Percent of net assets (roman type)
* No policy limitation on usage; fund may be using currently
o Permitted, but has not typically been used
- -- Not permitted
<TABLE>
<CAPTION>
European Pacific Short-Term
Equity Global Global Inter- Basin Strategic World
Fund Global RX Technology national Equities Income Bond
- ----------------------------------------------------------------------------------------------------------------------------------
Investment practices
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Borrowing; reverse repurchase agreements
The borrowing of money from banks or through
reverse repurchase agreements.
Leverage, credit risks. 33.3 10 33.3 10 33.3 33.3 10 10
Currency trading The direct trading or
holding of foreign currencies as an asset.
Currency risk. * * * * * * * *
Repurchase agreements The purchase of a
security that must later be sold back
to the issuer at the same price plus interest.
Credit risk. * * * * * * * *
Securities lending The lending of securities
to financial institutions, which provide cash
or government securities as collateral.
Credit risk. 33.3 10 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. o -- o -- o o -- --
o Speculative. Speculative leverage, market,
liquidity risks. -- -- o -- o -- -- --
Short-term trading Selling a security soon
after purchase. A portfolio engaging
in short-term trading will have higher
turnover and transaction expenses.
Market risk. * * * * * * * *
When-issued securities and forward commitments
The purchase or sale of securities for
delivery at a future date; market value may
change before delivery. Market, opportunity,
leverage risks. * * * * * * * *
- --------------------------------------------------------------------------------------------------------------------------------
Conventional securities
Foreign debt securities Debt securities
issued by foreign governments or
companies. Credit, currency, interest rate,
market, political risks. 20 5 35(1) 10(2) 35(1) 35(1) *(1) *(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. -- o o o o o * *
Mortgage-backed securities Securities
backed by pools of mortgages, including
pass-through certificates, PACs, TACs
and other senior classes of
collateralized mortgage obligations
(CMOs). Credit, extension, prepayment,
liquidity, interest rate risks. -- o o o 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>
- ----------------------------------------------------------------------------------------------------------------------------------
Higher-risk securities and practices (cont'd)
- ----------------------------------------------------------------------------------------------------------------------------------
European Pacific Short-Term
Equity Global Global Inter- Basin Strategic World
Fund Global RX Technology national Equities Income Bond
- ----------------------------------------------------------------------------------------------------------------------------------
Leveraged derivative securities
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 Speculative. Currency, speculative
leverage, liquidity risks. * o o o o o o o
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 Options on securities and indices.
Interest rate, currency, market,
hedged or speculative leverage,
correlation, liquidity, credit,
opportunity risks. * o o o o o o o
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. -- * * 10(2) * * * *
</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.
- --------------------------------------------------------------------------------
Analysis of funds with 5% or more in junk bonds(1)
- --------------------------------------------------------------------------------
[The table below was represented by a bar chart in the printed materials.]
<TABLE>
<CAPTION>
Quality rating Short-Term Strategic Quality rating World Bond
(S&P/Moody's)(2) Income Fund (S&P/Moody's)(2) Fund
<S> <C> <C> <C> <C> <C>
Invest- AAA/Aaa 40.8% Invest- AAA/Aaa 70.2%
ment- AA/Aa 0.0% ment- AA/Aa 0.0%
Grade A/A 5.4% Grade A/A 0.4%
Bonds BBB/Baa 8.0% Bonds BBB/Baa 0.3%
- ------------------------------------------------------------------------------------------------------
Junk BB/Ba 32.0% Junk BB/Ba 17.9%
Bonds B/B 9.9% Bonds B/B 8.3%
CCC/Caa 0.0% CCC/Caa 0.0%
CC/Ca 0.0% CC/Ca 0.0%
C/C 0.0% C/C 0.0%
D 0.0% D 0.0%
% of portfolio in bonds 96.1% % of portfolio in bonds 97.1%
</TABLE>
o Rated by Standard & Poor's or Moody's Rated by the adviser
(1) Average weighted quality distribution for the most recent fiscal year.
(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/SEMIANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from portfolio management and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/semiannual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference (is legally a part of this prospectus). You may visit
the Securities and Exchange Commission's Internet website (www.sec.gov) to view
the SAI, material incorporated by reference and other information.
To request a free copy of the current annual/semiannual report or SAI, please
write or call:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Telephone: 1-800-225-5291
EASI-Line: 1-800-338-8080
TDD: 1-800-544-6713
Internet: www.jhancock.com/funds
[LOGO] John Hancock Funds
A Global Investment Management Firm
101 Huntington Avenue
Boston, Massachusetts 02199-7603
John Hancock(R) (C) 1996 John Hancock Funds, Inc.
GLIPN 6/98
<PAGE>
JOHN HANCOCK EUROPEAN EQUITY FUND
Class A and Class B Shares
Statement of Additional Information
March 1, 1998 as revised June 1, 1998
This Statement of Additional Information provides information about John Hancock
European Equity Fund (the "Fund") in addition to the information that is
contained in the Prospectus dated March 1, 1998 as revised June 1, 1998 (the
"Prospectus"). The Fund is a diversified series of John Hancock World Fund (the
"Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston MA 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Fund.......................................................2
Investment Objective and Policies..............................................2
Investment Restrictions.......................................................11
Those Responsible for Management..............................................14
Investment Advisory and Other Services........................................22
Distribution Contracts........................................................24
Net Asset Value...............................................................26
Initial Sales Charge on Class A Shares........................................26
Deferred Sales Charge on Class B Shares.......................................29
Special Redemptions...........................................................32
Additional Services and Programs..............................................33
Description of the Fund's Shares..............................................35
Tax Status....................................................................36
Calculation of Performance....................................................41
Brokerage Allocation..........................................................42
Transfer Agent Services.......................................................44
Custody of Portfolio..........................................................44
Independent Auditors..........................................................44
Appendix A - Description of Bond Ratings ....................................A-1
Financial Statements.........................................................F-1
1
<PAGE>
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end, investment management company
organized as a Massachusetts business trust on August 8, 1986 under the laws of
The Commonwealth of Massachusetts.
John Hancock Advisers, Inc. (the "Adviser") is the Fund's investment adviser and
provides advice with respect to any investments in the U.S. 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's Sub-Adviser, Indocam International Investment Services ("IIIS") (the
"Sub-Adviser"), is an experienced investment adviser for funds authorized to
invest in Europe, and investment personnel of IIIS also act as portfolio
managers of IIIS in connection with these European funds. IIIS is responsible
for providing advice to the Fund with respect to investments other than in the
U.S., 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.
The Fund will seek to accomplish this objective through investment in a
diversified portfolio of European equity securities. These issuers ("European
Issuers") will consist of:
(1) companies the equity securities of which are traded principally on
stock exchanges in Europe; (2) companies deriving at least 50% of their
total revenue from goods produced, sales made or services
performed in Europe; or
(3) companies that are organized under the laws of European countries,
The principal European countries in which the Fund will invest are the
established markets of Germany, France, England, Sweden, Denmark, Spain,
Switzerland, Italy, Netherlands, Belgium, Norway, Portugal, Ireland and Finland.
There can be no assurance that the Fund will achieve its investment objective.
Under normal conditions, the Fund will invest at least 80% its total assets in
the equity securities (consisting of common stock, warrants and securities
convertible into common stock) of European Issuers. The balance of the Fund's
assets will be invested in (1) equity securities of European Issuers which trade
principally on developing or "emerging" market stock exchanges and (2)
investment grade debt securities (i.e., rated BBB, Baa or higher by Standard &
Poor's Ratings Group ("S&P") or Moody's Investors Services, Inc. ("Moody's"),
or, if unrated by either such service, determined to be of comparable quality by
the Adviser or the Sub-Adviser) of U.S. and European companies and governments
and U.S. and European 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.
Under normal conditions, up to 20% 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-Adviser believe it is appropriate to maintain a
defensive position, all or any part of the Fund's assets may be temporarily
invested in money market instruments, including but not limited to governmental
2
<PAGE>
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.
The Fund has not established any limitations on the allocation of investments
among the European countries. The portion of the Fund's assets to be allocated
to each of the European countries will be determined by the Adviser and the
Subadviser. In making this allocation several factors will be considered,
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 consideration, the domestic
and international strength of the leading industrial sectors and currency
stability relative to the U.S.
Investment in Foreign Securities. The Fund may invest directly in the securities
of foreign issuers as well as in the form of sponsored and unsponsored American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or other
securities convertible into securities of foreign issuers. These convertible
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 a United
States 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.
Investments in foreign securities may involve a greater degree of risk than
those in domestic securities. There is generally less publicly available
information about foreign companies in the form of reports and ratings similar
to those that are published about issuers in the United States. Also, foreign
issuers are generally not subject to uniform accounting, auditing and financial
reporting requirements comparable to those applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation limitations on the removal of funds or
3
<PAGE>
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States' economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends, in some cases capital gains and interest payable on certain of
the Fund's foreign portfolio securities, may be subject to foreign withholding
or other foreign taxes, thus reducing the net amount of income or gains
available for distribution to the Fund's shareholders.
These risks may be intensified in the case of investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and 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.
Foreign Currency Transactions. The Fund's foreign currency exchange transactions
may be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Fund may also
enter into forward foreign currency exchange contracts to enhance return, to
hedge against fluctuations in currency exchange rates affecting a particular
transaction or portfolio position, or as a substitute for the purchase or sale
of a currency or assets denominated in that currency. Forward contracts are
agreements to purchase or sell a specified currency at a specified future date
and price set at the time of the contract. Transaction hedging is the purchase
or sale of forward foreign currency contracts with respect to specific
receivables or payables of the Fund accruing in connection with the purchase and
sale of its portfolio securities quoted or denominated in the same or related
4
<PAGE>
foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in the
same or related foreign currencies. The Fund may elect to hedge less than all of
its foreign portfolio positions deemed appropriate by the Adviser and
Sub-Adviser.
If the Fund purchases a forward contract or sells a forward contract for
non-hedging purposes, its custodian will segregate cash or liquid securities in
a separate account of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of such forward contract. The assets
in the segregated account will be valued at market daily and if the value of the
securities in the separate account declines, additional cash or securities will
be placed in the account so that the value of the account will be equal to the
amount of the Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency are
usually conducted on a principal basis, no fees or commissions are involved.
Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees Adviser or Sub-Adviser
determines, based upon a continuing review of the trading markets for specific
Section 4(2) paper or Rule 144A securities, that they are liquid, they will not
be subject to the 15% limit. The Trustees may adopt guidelines and delegate to
the Adviser and Sub-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 these 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.
Repurchase Agreements. In a repurchase agreement the Fund buys a security for a
relatively short period (usually not more than 7 days) subject to the obligation
to sell it back to the issuer at a fixed time and price plus accrued interest.
The Fund will enter into repurchase agreements only with member banks of the
Federal Reserve System and with "primary dealers" in U.S. Government securities.
The Adviser or 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 decline in
5
<PAGE>
value of the underlying securities or lack of access to income during this
period as well as the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain with the
Fund's custodian a separate account consisting of highly liquid, marketable
securities in an amount at least equal to the repurchase prices of these
securities (plus any accrued interest thereon) under such agreements. In
addition, the Fund will not purchase additional securities while all borrowings
exceed 5% 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 Trustees. Under the
procedures established by the Trustees, the Adviser will monitor the
creditworthiness of the banks involved.
Options on Securities, and Securities Indices. The Fund may purchase and write
(sell) call and put options on any securities in which it may invest, or on any
securities index based on securities in which it may invest. These options may
be listed on national domestic securities exchanges or foreign securities
exchanges or traded in the over-the-counter market. The Fund may write covered
put and call options and purchase put and call options to enhance total return,
as a substitute for the purchase or sale of securities or to protect against
declines in the value of portfolio securities and against increases in the cost
of securities to be acquired.
Writing Covered Options. A call option on securities written by the Fund
obligates the Fund to sell specified securities to the holder of the option at a
specified price if the option is exercised at any time before the expiration
date. A put option on securities written by the Fund obligates the Fund to
purchase specified securities from the option holder at a specified price if the
option is exercised at any time before the expiration date. Options on
securities indices are similar to options on securities, except that the
exercise of securities index options requires cash settlement payments and does
not involve the actual purchase or sale of securities. In addition, securities
index options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in
a single security. Writing covered call options may deprive the Fund of the
opportunity to profit from an increase in the market price of the securities in
its portfolio. Writing covered put options may deprive the Fund of the
opportunity to profit from a decrease in the market price of the securities to
be acquired for its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities in a
segregated account maintained by the Fund's custodian with a value at least
equal to the Fund's obligation under the option, (ii) entering into an
offsetting forward commitment and/or (iii) purchasing an offsetting option or
any other option which, by virtue of its exercise price or otherwise, reduces
the Fund's net exposure on its written option position. A written call option on
securities is typically covered by maintaining the securities that are subject
to the option in a segregated account. The Fund may cover call options on a
securities index by owning securities whose price changes are expected to be
similar to those of the underlying index.
6
<PAGE>
The Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
Purchasing Options. The Fund would normally purchase call options in
anticipation of an increase, or put options in anticipation of a decrease
("protective puts") in the market value of securities of the type in which it
may invest. The Fund may also sell call and put options to close out its
purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities at a specified price during the option
period. The Fund would ordinarily realize a gain on the purchase of a call
option if, during the option period, the value of such securities exceeded the
sum of the exercise price, the premium paid and transaction costs; otherwise the
Fund would realize either no gain or a loss on the purchase of the call option.
The purchase of a put option would entitle the Fund, in exchange for the premium
paid, to sell specified securities at a specified price during the option
period. The purchase of protective puts is designed to offset or hedge against a
decline in the market value of the Fund's portfolio securities. Put options may
also be purchased by the Fund for the purpose of affirmatively benefiting from a
decline in the price of securities which it does not own. The Fund would
ordinarily realize a gain if, during the option period, the value of the
underlying securities decreased below the exercise price sufficiently to cover
the premium and transaction costs; otherwise the Fund would realize either no
gain or a loss on the purchase of the put option. Gains and losses on the
purchase of put options may be offset by countervailing changes in the value of
the Fund's portfolio securities.
The Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
dispose of assets held in a segregated account until the options expire or are
exercised. Similarly, if the Fund is unable to effect a closing sale transaction
with respect to options it has purchased, it would have to exercise the options
in order to realize any profit and will incur transaction costs upon the
purchase or sale of underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
7
<PAGE>
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options), in which event the secondary
market on that exchange (or in that class or series of options) would cease to
exist although outstanding options on that exchange that had been issued by the
Options Clearing Corporation as a result of trades on that exchange would
continue to be exercisable in accordance with their terms.
The Fund's ability to terminate over-the-counter options is more limited than
with exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates or securities prices, the Fund
may purchase and sell various kinds of futures contracts, and purchase and write
call and put options on these futures contracts. The Fund may also enter into
closing purchase and sale transactions with respect to any of these contracts
and options. The futures contracts may be based on various securities (such as
U.S. Government securities), securities indices and any other financial
instruments and indices. All futures contracts entered into by the Fund are
traded on U.S. or foreign exchanges or boards of trade that are licensed,
regulated or approved by the Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments for an
agreed price during a designated month (or to deliver the final cash settlement
price, in the case of a contract relating to an index or otherwise not calling
for physical delivery at the end of trading in the contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities will usually be liquidated in
this manner, the Fund may instead make, or take, delivery of the underlying
securities whenever it appears economically advantageous to do so. A clearing
corporation associated with the exchange on which futures contracts are traded
guarantees that, if still open, the sale or purchase will be performed on the
settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that the Fund proposes to acquire. When
interest rates are rising or securities prices are falling, the Fund can seek to
offset a decline in the value of its current portfolio securities through the
sale of futures contracts. When interest rates are falling or securities prices
are rising, the Fund, through the purchase of futures contracts, can attempt to
secure better rates or prices than might later be available in the market when
it effects anticipated purchases.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or a decline in market prices that would adversely affect the
value of the Fund's portfolio securities. Such futures contracts may include
contracts for the future delivery of securities held by the Fund or securities
with characteristics similar to those of the Fund's portfolio securities.
8
<PAGE>
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, the Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices then available in the applicable market to be less favorable
than prices that are currently available. The Fund may also purchase futures
contracts as a substitute for transactions in securities, to alter the
investment characteristics of portfolio securities or to gain or increase its
exposure to a particular securities market.
Options on Futures Contracts. The Fund may purchase and write options on futures
for the same purposes as its transactions in futures contracts. The purchase of
put and call options on futures contracts will give the Fund the right (but not
the obligation) for a specified price to sell or to purchase, respectively, the
underlying futures contract at any time during the option period. As the
purchaser of an option on a futures contract, the Fund obtains the benefit of
the futures position if prices move in a favorable direction but limits its risk
of loss in the event of an unfavorable price movement to the loss of the premium
and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, the Fund becomes obligated, in exchange for the premium (upon exercise
of the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
the Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by the Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. The Fund's
ability to establish and close out positions on such options will be subject to
the development and maintenance of a liquid market.
Other Considerations. The Fund will engage in futures and related options
transactions either for bona fide hedging purposes or to seek to increase total
return as permitted by the CFTC. To the extent that the Fund is using futures
and related options for hedging purposes, futures contracts will be sold to
protect against a decline in the price of securities that the Fund owns or
futures contracts will be purchased to protect the Fund against an increase in
the price of securities it intends to purchase. The Fund will determine that the
price fluctuations in the futures contracts and options on futures used for
9
<PAGE>
hedging purposes are substantially related to price fluctuations in securities
held by the Fund or securities or instruments which it expects to purchase. As
evidence of its hedging intent, the Fund expects that on 75% or more of the
occasions on which it takes a long futures or option position (involving the
purchase of futures contracts), the Fund will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities (or assets
denominated in the related currency) in the cash market at the time when the
futures or option position is closed out. However, in particular cases, when it
is economically advantageous for the Fund to do so, a long futures position may
be terminated or an option may expire without the corresponding purchase of
securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. The Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualifications as a
regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating the Fund to purchase securities require the Fund to establish with
the custodian a segregated account consisting of cash or liquid securities in an
amount equal to the underlying value of such contracts and options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, or securities prices may
result in a poorer overall performance for the Fund than if it had not entered
into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge the Fund's portfolio are various futures on
U.S. Government securities and securities indices. In the event of an imperfect
correlation between a futures position and a portfolio position which is
intended to be protected, the desired protection may not be obtained and the
Fund may be exposed to risk of loss.
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.
10
<PAGE>
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities equal in value to the Fund's commitment. These
assets will be valued daily at market, and additional cash or securities will be
segregated in a separate account to the extent that the total value of the
assets in the account declines below the amount of the when-issued commitments.
Alternatively, the Fund may enter into offsetting contracts for the forward sale
of other securities that it owns.
Short Sales. The Fund may engage in short sales against the box. In a short sale
against the box, the Fund agrees to sell at a future date a security that it
either contemporaneously owns or has the right to acquire at no extra cost. If
the price of the security has declined at the time the Fund is required to
deliver the security, the Fund will benefit from the difference in the price. If
the price of the security has increased, the Fund will be required to pay the
difference.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's
Fundamental Investment Restrictions. Generally, warrants and stock purchase
rights do not carry with them the right to receive dividends or exercise voting
rights with respect to the underlying securities, and they do not represent any
rights in the assets of the issuer. As a result, an investment in warrants and
rights may be considered to entail greater investment risk than certain other
types of investments. In addition, the value of warrants and rights does not
necessarily change with the value of the underlying securities, and they cease
to have value if they are not exercised on or prior to their expiration date.
Investment in warrants and rights increases the potential profit or loss to be
realized from the investment of a given amount of the Fund's assets as compared
with investing the same amount in the underlying stock.
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.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income.
Short-term trading may have the effect of increasing portfolio turnover rate. A
high rate of portfolio turnover (100% or greater) involves correspondingly
greater brokerage expenses. The estimated portfolio turnover rate is expected to
be less than 100%.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed. without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means the approval by the lesser of (1) the holders of
67% or more of the Fund's shares represented at a meeting if 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.
11
<PAGE>
The Fund observes the following fundamental restrictions.
The Fund may not:
1. Issue senior securities, except as permitted by paragraphs 2, 5 and
6 below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the deferral of
trustees' fees, the purchase or sale of options, futures contracts,
forward commitments and repurchase agreements entered into in
accordance with the Fund's investment policies or within the meaning of
paragraph 6 below, are not deemed to be senior securities.
2. Borrow money, except for the following extraordinary or emergency
purposes: (i) from banks for temporary or short-term purposes or for
the clearance of transactions in amounts not to exceed 33 1/3% of the
value of the Fund's total assets (including the amount borrowed) taken
at market value; (ii) in connection with the redemption of Fund shares
or to finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other assets; (iii) in
order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets;
and (iv) in connection with entering into reverse repurchase agreements
and dollar rolls, but only if after each such borrowing there is asset
coverage of at least 300% as defined in the 1940 Act. For purposes of
this investment restriction, the deferral of Trustees' fees and
transactions in short sales, futures contracts, options on futures
contracts, securities or indices and forward commitment transactions
shall not constitute borrowing.
3. Act as an underwriter, except to the extent that in connection with
the disposition of portfolio securities, the Fund may be deemed to be
an underwriter for purpose of the 1933 Act.
4. Purchase or sell real estate except that the Fund may (i) acquire or
lease office space for its own use, (ii) invest in securities of
issuers that invest in real estate or interests therein, (iii) invest
in securities that are secured by real estate or interests therein,
(iv) purchase and sell mortgage-related securities and (v) hold and
sell real estate acquired by the Fund as a result of the ownership of
securities.
5. Invest in commodities, except the Fund may purchase and sell options
on securities, securities indices and currency, futures contracts on
securities, securities indices and currency and options on such
futures, forward foreign currency exchange contracts, forward
commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment
policies.
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 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. Purchase the securities of issuers conducting their principal
activity in the same industry if, immediately after such purchase, the
value of its investments in such industry would exceed 25% of its total
assets taken at market value at the time of such investment. This
limitation does not apply to investments in obligations of the U.S.
Government or any of its agencies, instrumentalities or authorities.
12
<PAGE>
8. With respect to 75% of total assets, purchase securities of an
issuer (other than the U.S. Government, its agencies, instrumentalities
or authorities), 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:
1. Purchase securities on margin or make short sales, or unless, by
virtue of its ownership of other securities, the Fund has the right to
obtain securities equivalent in kind and amount to the securities sold
and, if the right is conditional, the sale is made upon the same
conditions, except (i) in connection with arbitrage transactions, (ii)
for hedging the Fund's exposure to an actual or anticipated market
decline in the value of its securities, (iii) to profit from an
anticipated decline in the value of a security, and (iv) obtaining such
short-term credits as may be necessary for the clearance of purchases
and sales of securities.
2. 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 any Sub-adviser to save commissions or to
average prices among them is not deemed to result in a joint securities
trading account.
3. 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.
4. Invest more than 15% of its net assets in illiquid securities.
5. Purchase securities while outstanding borrowings exceed 5% of the
Fund's total assets.
6. Invest for the purpose of exercising control over or management of
any company.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the value 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.
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 Fund 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").
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<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman, Director and Chief
101 Huntington Avenue Executive Officer (1, 2) Executive Officer, the Adviser;
Boston, MA 02199 Chairman, Trustee and Chief
October 1944 Executive Officer, The Berkeley
Financial Group ("The Berkeley
Group"); Chairman and Director, NM
Capital Management, Inc. ("NM
Capital"), John Hancock Advisers
International Limited ("Advisers
International") and Sovereign Asset
Management Corporation ("SAMCorp");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc. ("John Hancock Funds");
Chairman, First Signature Bank and
Trust Company; Director, John
Hancock Insurance Agency, Inc.
("Insurance Agency, Inc."), John
Hancock Advisers International
(Ireland) Limited ("International
Ireland"), John Hancock Capital
Corporation and New England/Canada
Business Council; Member,
Investment Company Institute Board
of Governors; Director, Asia
Strategic Growth Fund, Inc.;
Trustee, Museum of Science;
Director, John Hancock Freedom
Securities Corporation (until
September 1996); Director, John
Hancock Signature Services, Inc.
("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Dennis S. Aronowitz Trustee Professor of Law, Emeritus, Boston
1216 Falls Boulevard University School of Law (as of
Fort Lauderdale, FL 33327 1997); Trustee, Brookline Savings
June 1931 Bank.
Richard P. Chapman, Jr. Trustee (1) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, MA 02147 Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University (education);
Director, Depositors Insurance Fund,
Inc. (insurance).
William J. Cosgrove Trustee Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, NJ 07458 N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation, Inc.
(consulting) (until October 1993);
Trustee, the Hudson City Savings
Bank (since 1995).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Douglas M. Costle Trustee (1) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, VT 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991); Dean Vermont Law
School (until 1991); Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
Mitretek Systems (governmental
consulting services).
Leland O. Erdahl Trustee Director, Santa Fe Ingredients
8046 Mackenzie Court Company of California, Inc. and
Las Vegas, NV 89129 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing companies),
Uranium Resources, Inc.; President,
Stolar, Inc. (1987-1991); President,
Albuquerque Uranium Corporation
(1985-1992); Director,
Freeport-McMoRan Copper & Gold
Company, Inc., Hecla Mining Company,
Canyon Resources Corporation and
Original Sixteen to One Mines, Inc.
(1984-1987 and 1991-1995)
(management consultant).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Richard A. Farrell Trustee President of Farrell, Healer & Co.,
Venture Capital Partners (venture capital management firm)
160 Federal Street (since 1980); Prior to 1980, headed
23rd Floor the venture capital group at Bank of
Boston, MA 02110 Boston Corporation.
November 1932
Gail D. Fosler Trustee Vice President and Chief Economist,
3054 So. Abingdon Street The Conference Board (non-profit
Arlington, VA 22206 economic and business research);
December 1947 Director, Unisys Corp.; and H.B.
Fuller Company.
William F. Glavin Trustee President Emeritus, Babson College
120 Paget Court - John's Island (as of 1997); Vice Chairman, Xerox
Vero Beach, FL 32963 Corporation (until June 1989);
March 1932 Director, Caldor Inc., Reebok, Inc.
(since 1994) and Inco Ltd.
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser; Trustee,
Boston, MA 02199 The Berkeley Group; Director, John
April 1953 Hancock Funds, Advisers
International, Insurance Agency,
Inc. and International Ireland;
President and Director, SAMCorp. and
NM Capital; Executive Vice
President, the Adviser (until
December 1994); Director, Signature
Services (until January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Dr. John A. Moore Trustee President and Chief Executive
Institute for Evaluating Health Risks Officer, Institute for Evaluating
1629 K Street NW Health Risks, (nonprofit
Suite 402 institution) (since September 1989).
Washington, DC 20006-1602
February 1939
Patti McGill Peterson Trustee Executive Director, Council for
Council for International Exchange of International Exchange of Scholars
Scholars (since January 1998), Vice
3007 Tilden Street, N.W., Suite 5L President, Institute of
Washington, DC 20008-3009 International Education (since
May 1943 January 1998); Cornell Institute of
Public Affairs, Cornell University
(until December 1997); President
Emeritus of Wells College and St.
Lawrence University; Director,
Niagara Mohawk Power Corporation
(electric utility) and Security
Mutual Life (insurance).
John W. Pratt Trustee Professor of Business Administration
2 Gray Gardens East at Harvard University Graduate
Cambridge, MA 02138 School of Business Administration
September 1931 (since 1961).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, John Hancock Distributors,
August 1937 Inc., Insurance Agency, Inc., John
Hancock Subsidiaries, Inc., SAMCorp.
and NM Capital; Trustee, The
Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, Signature Services (until
January 1997).
Edward J. Spellman, CPA Trustee Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Ft. Lauderdale, FL 33308
November 1932
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank Fund and
NM Capital; Senior Vice President,
The Berkeley Group; President, the
Adviser (until December 1994);
Director, Signature Services (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupations(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Secretary, NM Capital and
SAMCorp.; Clerk, Insurance Agency,
Inc.; Counsel, John Hancock Mutual
Life Insurance Company (until
February 1996), and Vice President
of John Hancock Distributors, Inc.
(until April 1994).
Susan S. Newton Vice President and Secretary Vice President, the Adviser; John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group; Vice
March 1950 President, John Hancock
Distributors, Inc. (until April
1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers and
Trustees of one or more of the other funds for which the Adviser serves as
investment adviser.
The following table provides information regarding the compensation paid by the
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
October 31, 1997.
21
<PAGE>
Independent Trustees Aggregate Compensation Total Compensation From the
- -------------------- From the Fund Fund and John Hancock Fund
------------- --------------------------
Complex to Trustees*
Dennis S. Aronowitz $0 $ 72,000
Richard P. Chapman, Jr.+ 0 75,000
William J. Cosgrove+ 0 72,000
Douglas M. Costle 0 75,000
Leland O. Erdahl 0 72,000
Richard A. Farrell 0 75,000
Gail D. Fosler 0 72,000
William F. Glavin+ 0 72,000
John A. Moore 0 72,000
Patti McGill Peterson 0 72,000
John W. Pratt 0 72,000
Edward J. Spellman 0 75,000
--- -------
$0 $876,000
*Total compensation paid by the John Hancock Fund Complex to the Independent
Trustees is for the calendar year ended December 31, 1997. As of this date,
there were 67 funds in the John Hancock Fund Complex of which each of these
independent trustees served on 35 funds.
+On December 31, 1997, the value of the aggregate deferred compensation
from all funds in the John Hancock Fund Complex for Mr. Chapman was $69,148, for
Mr. Cosgrove was $167,829, for Mr. Glavin was $193,514 and for Mr. Moore was
$84,315 under the Deferred Compensation Plan for Independent Trustees.
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and presently has more than $30 billion in assets under
management in its capacity as investment adviser to the Fund and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over approximately 1,400,000 shareholders.
The Adviser is an affiliate of the Life Company, one of the most recognized and
respected financial institutions in the nation. With total assets under
management of more than $100 billion, the Life Company is one of the ten largest
life insurance companies in the United States, and carries high ratings from
Standard & Poor's and A.M. Best's. Founded in 1862, the Life Company has been
serving clients for over 130 years.
IIIS is a French corporation and a subsidiary of Indocam, the asset management
affiliate of Credit Agricole, a French bank group. IIIS is located at 44/46 rue
de Courcelles, Paris, FRANCE 75008. IIIS has more than $200 million in assets
under management. Credit Agricole is one of the largest bank groups in the
world.
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser. Pursuant to the Advisory Agreement, the Adviser
will: (a) furnish continuously an investment program for the Fund and determine,
subject to the overall supervision and review of the Trustees, which investments
should be purchased, held, sold or exchanged, and (b) provide supervision over
all aspects of the Fund's operations except those which are delegated to a
custodian, transfer agent or other agent.
22
<PAGE>
The Adviser has entered into a sub-investment management ("Sub-Advisory
Agreement") contract with the Sub-Adviser under which the Sub-Adviser, subject
to the review of the Trustees and the overall supervision of the Adviser, is
responsible for providing the Fund with advice with respect to that portion of
the assets invested in European countries.
The Fund bears all costs of its organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of the
Adviser's employees rendering such services to the Fund); the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders'
meetings; trade association membership; insurance premiums; and any
extraordinary expenses.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
Net Asset Value Annual Rate
First $500,000,000 0.90%
Amount over $500,000,000 0.70%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser has agreed to limit Fund expenses on Class A and Class B shares to
1.90% and 2.60%, respectively, of the Fund's 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.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, the 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-Adviser for the Fund or for other funds or clients for which
the Adviser or the Sub-Adviser renders investment advice arise for consideration
at or about the same time, transactions in such securities will be made insofar
as feasible, for the respective funds or clients in a manner deemed equitable to
all of them. To the extent that transactions on behalf of more than one client
of the Adviser, the Sub-Adviser or 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.
The Advisory Agreement 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.
23
<PAGE>
Under the Sub-Advisory Agreement, the Sub-Adviser pays all expenses that it
incurs in connection with the performance of its duties under the Agreement. The
Adviser, and not the Fund, pays IIIS a fee. Under the Sub-Advisory Agreement,
the Adviser pays the Sub-Adviser a fee at the annual rate of 0.35% of the
average daily net assets of the Fund.
Pursuant to their respective Advisory Agreements, the Adviser and Sub-Adviser
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 Advisory
Agreements relate, except a loss resulting from willful misfeasance, bad faith
or gross negligence on the part of the Adviser or Sub-Adviser in the performance
of their duties or from reckless disregard by them of their obligations and
duties under the applicable Advisory Agreement.
Under the Advisory Agreement, the Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If the Advisory
Agreement is no longer in effect, the Fund (to the extent that it lawfully can)
will cease to use such a name or any other name indicating that it is advised by
or otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the nonexclusive right to use the name "John Hancock" or any
similar name to any other corporation or entity, including but not limited to
any investment company of which the Life Company or any subsidiary or affiliate
thereof or any successor to the business of any subsidiary or affiliate thereof
shall be the investment adviser.
The Advisory Agreement, the Sub-Advisory Agreement, and the Distribution
Agreement discussed below, continue in effect from year to year if approved
annually by vote of a majority of the Trustees who are not interested persons of
one of the parties to these Agreements, 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.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser, the
Sub-Adviser and the Fund have adopted extensive restrictions on personal
securities trading by personnel of the Adviser, the Sub-Adviser and their
respective affiliates. In the case of the Adviser, some of these restrictions
are: pre-clearance for all personal trades and a ban on the purchase of initial
public offerings, as well as contributions to specified charities of profits on
securities held for less than 91 days. The Sub-Adviser's restrictions may differ
where appropriate, as long as they maintain the same intent. These restrictions
are a continuation of the basic principle that the interests of the Fund and its
shareholders come first.
DISTRIBUTION CONTRACTS
The Fund has a Distribution Agreement with John Hancock Funds. Under the
agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with John Hancock Funds. John Hancock Funds accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined, plus an applicable sales charge, if any. In connection
with the sale of Class A or Class B shares, John Hancock Funds and Selling
24
<PAGE>
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 John Hancock Funds may pay extra compensation to financial
services firms selling large amounts of fund shares. This compensation would be
calculated as a percentage of fund shares sold by the firm.
The Fund's Trustees adopted Distribution Plans with respect to Class A and Class
B shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act
of 1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% and 1.00%, respectively, of the Fund's
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. In each case, up to 0.25% is for service expenses and the
remaining amount is for distribution expenses. The distribution fees will be
used to reimburse John Hancock Funds for their distribution expenses, including
but not limited to: (i) initial and ongoing sales compensation to Selling
Brokers and others (including affiliates of John Hancock Funds) engaged in the
sale of Fund shares; (ii) marketing, promotional and overhead expenses incurred
in connection with the distribution of Fund shares; and (iii) with respect to
Class B shares only, interest expenses on unreimbursed distribution expenses.
The service fees will be used to compensate Selling Brokers for providing
personal and account maintenance services to shareholders. In the event the John
Hancock Funds is not fully reimbursed for payments or expenses they incur under
the Class A Plan, these expenses will not be carried beyond twelve months from
the date they were incurred. Unreimbursed expenses under the Class B Plan will
be carried forward together with interest on the balance of these unreimbursed
expenses. The Fund does not treat unreimbursed expenses under the Class B Plan
as a liability of the Fund because the Trustees may terminate Class B Plan at
any time.
The Plans were approved by a majority of the voting securities of the Fund. The
Plans and all amendments were approved by the Trustees, including a majority of
the Trustees who are not interested persons of the Fund and who have no direct
or indirect financial interest in the operation of the Plans (the "Independent
Trustees"), by votes cast in person at meetings called for the purpose of voting
on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provide the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
Independent Trustees. The Plans provide that they may be terminated without
penalty, (a) by vote of a majority of the Independent Trustees, (b) by a vote of
a majority of the Fund's outstanding shares of the applicable class upon 60
days' written notice to John Hancock Funds, and (c) automatically in the event
of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to that Plan. Each plan provides, that
no material amendment to the Plans will, in any event, be effective unless it is
approved by a vote of a majority of the Trustees and the Independent Trustees of
the Fund. The holders of Class A and Class B shares have exclusive voting rights
with respect to the Plan applicable to their respective class of shares. In
adopting the Plans, the Trustees concluded that, in their judgment, there is a
reasonable likelihood that the Plans will benefit the holders of the applicable
class of shares of the Fund.
25
<PAGE>
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of Trustees.
From time to time, the Fund may participate in joint distribution activities
with other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Funds.
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.
The NAV for each fund and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's net assets by the number of its shares outstanding.
On any day an international market is closed and the New York Stock Exchange is
open, any foreign securities will be valued at the prior day's close with the
current day's exchange rate. Trading of foreign securities may take place on
Saturdays and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
INITIAL SALES CHARGE ON CLASS A SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). Share certificates
26
<PAGE>
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 Signature Services, Inc.
("Signature Services") is notified by the investor's dealer or the investor at
the time of the purchase, the cost of the Class A shares owned.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or CDSC to various individuals and institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, mother, father, sister, brother, mother-in-law,
father-in-law, daughter-in-law, son-in-law, niece, nephew and domestic
partner) of any of the foregoing; or any fund, pension, profit sharing
or other benefit plan for the individuals described above.
o A broker, dealer, financial planner, consultant or registered
investment advisor that has entered into a signed agreement with John
Hancock Funds providing specifically for the use of Fund shares in
fee-based investment products or services made available to their
clients.
o A former participant in an employee benefit plan with John Hancock
funds, when he or she withdraws from his or her plan and transfers any
or all of his or her plan distributions directly to the Fund.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing programs, if
the Plan has more than $3 million in assets or 500 eligible employees
at the date the Plan Sponsor signs the Merrill Lynch Recordkeeping
Service Agreement. See you Merill Lynch financial
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
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:
27
<PAGE>
Amount Invested CDSC Rate
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Signature Services
or a Selling Broker's representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
made over a thirteen-month (13) 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 retirement plan, however, may opt to
make the necessary investments called for by the LOI over a forty-eight (48)
month period. These retirement plans include Traditional, Roth and Education
IRAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE IRA, SIMPLE 401(k),
Money Purchase Pension, Profit Sharing and 457 plans. Such an investment
(including accumulations and combinations but not including reinvested
dividends) must aggregate $50,000 or more invested during the specified period
from the date of the LOI or from a date within ninety (90) days prior thereto,
upon written request to Signature Services. The sales charge applicable to all
amounts invested under the LOI is computed as if the aggregate amount intended
to be invested had been invested immediately. If such aggregate amount is not
actually invested, the difference in the sales charge actually paid and the
sales charge payable had the LOI not been in effect is due from the investor.
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<PAGE>
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 Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay the sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his or her
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase or by the Fund to sell any additional Class A shares and
may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. No CDSC will be imposed on increases in account value
above the initial purchase prices, including all shares derived from
reinvestment of dividends or capital gains distributions.
Class B shares are not available to full-service retirement plans administered
by Signature Services or the Life Company that had more than 100 eligible
employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of 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. However, you cannot redeem appreciation value only in order to avoid a
CDSC.
When requesting a redemption for a specific dollar amount, please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
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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:
oProceeds of 50 shares redeemed at $12 per share (50 x 12) $600.00
o*Minus Appreciation ($12 - $10) x 100 shares (200.00)
oMinus proceeds of 10 shares not subject to CDSC (dividend
reinvestment) (120.00)
------
oAmount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the lot not just the
shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Funds in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Funds to sell the Class B shares
without a sales charge being deducted at the time of the purchase.
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. (Does not apply to trust
accounts unless trust is being dissolved)
* Redemptions made under the Reinstatement Privilege, as described in
"Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B shares where the proceeds are used to purchase a
John Hancock Declaration Variable annuity.
* Redemptions of Class B shares made under a periodic withdrawal plan, as
long as your annual redemptions do not exceed 12% of your account
value, including reinvested dividends, at the time you established your
periodic withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify Signature
Services. (Please note that this waiver does not apply to periodic
withdrawal plan redemptions of Class A shares that are subject to a
CDSC).
* Redemptions by Retirement plans participating in Merrill Lynch
servicing programs, if the Plan has less than $3 million in assets or
500 eligible employees at the date the Plan Sponsor signs the Merrill
Lynch Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
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<PAGE>
* Redemptions of Class B shares by retirement plans that invested through
the PruArray Program sponsored by Prudential Securities.
For Retirement Accounts (such as Traditional, Roth and Education IRA, SIMPLE
IRA, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money Purchase
Pension Plan, Profit-Sharing Plan and other plans as described in the Internal
Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code.
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under 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 on the following page for reference.
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<PAGE>
CDSC Waiver Matrix for Class B Funds
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), Rollover
MPP, PSP)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Death or Waived Waived Waived Waived Waived
Disability
- -------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of
mandatory account
distributions value
or 12% of annually in
account periodic
value payments
annually in
perodic
payments
- -------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for 12% of
and 70 1/2 Life account
Expectancy value
or 12% of annually in
account periodic
value payments
annually in
periodic
payments
- -------------------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of
annuity annuity annuity annuity account
payments payments payments payments value
(72t) or 12% (72t) or 12% (72t) or (72t) or annually in
of account of account 12% of 12% of periodic
value value account account payments
annually in annually in value value
periodic periodic annually in annually in
payments payments periodic periodic
payments payments
- -------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- -------------------------------------------------------------------------------------------
Termination of Not Waived Not Waived Not Waived Not Waived N/A
Plan
- -------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- -------------------------------------------------------------------------------------------
Return of Excess Waived Waived Waived Waived N/A
- -------------------------------------------------------------------------------------------
</TABLE>
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, 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
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<PAGE>
be governed by Rule 18f-1 under the Investment Company Act. Under that rule, the
Fund must redeem its shares for cash except to the extent that the redemption
payments to any shareholder during any 90-day period would exceed the lesser of
$250,000 or 1% of the Fund's net asset value at the beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock Short-Term Strategic Income Fund
and John Hancock Intermediate Maturity Government Fund will retain the exchanged
fund's CDSC schedule). For purposes of computing the CDSC payable upon
redemption of shares acquired in an exchange, the holding period of the original
shares is added to the holding period of the shares acquired in an exchange.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994
(except John Hancock Short-Term Strategic Income Fund) for Class B shares of any
other John Hancock fund, the acquired shares will continue to be subject to the
CDSC schedule that was in effect when the exchanged shares were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares. 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 a Systematic Withdrawal Plan is in effect. The Fund reserves
the right to modify or discontinue the Systematic Withdrawal Plan of any
shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Signature Services.
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<PAGE>
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the due date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit in that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
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<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. Holders of
Class A and Class B shares have certain exclusive voting rights on matters
relating to their respective distribution plans. The different classes of the
Fund may bear different expenses relating to the cost of holding shareholder
meetings necessitated by the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by that class (ii) Class B shares will pay higher distribution
and service fees than Class A shares and (iii) each of Class A and Class B
shares will bear any class expenses properly allocable to that class of shares,
subject to the conditions the Internal Revenue Service imposes with respect to
multiple-class structures. Similarly, the net asset value per share may vary
depending on whether Class A and Class B shares are purchased.
No interest will be paid on uncashed dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Trust. However, the Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Furthermore, no fund included in this Fund's prospectus shall
be liable for the liabilities of any other John Hancock fund. Liability is
35
<PAGE>
therefore limited to circumstances in which the Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter or credit card checks. All checks returned
by the post office as undeliverable will be reinvested at net asset value in the
fund or funds from which a redemption was made or dividend paid. Use of
information provided on the account application may be used by the Fund to
verify the accuracy of the information or for background or financial history
purposes. A joint account will be administered as a joint tenancy with right of
survivorship, unless the joint owners notify Signature Services of a different
intent. A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate entity
for tax purposes. The Fund has qualified as a "regulated investment company"
under Subchapter M of the Internal Revenue Code, 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 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.) As a result of federal tax legislation enacted on August 5, 1997,
gain recognized after May 6, 1997 from the sale of capital asset is taxable to
individual (noncorporate) investors at different maximum federal income tax
rates, depending generally upon the tax holding period for the asset, the
federal income tax bracket of the taxpayer, and the dates the asset was acquired
and/or sold. The Treasury Department may issue regulations to apply this
legislation (as modified by any "technical corrections" that may be enacted) to
the Fund's distributions from its realized net capital gain, the treatment of
which is uncertain prior to the issuance of these regulations. Shareholders
should consult their own tax advisers on the correct application of these new
rules. 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
36
<PAGE>
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Transactions I foreign currencies that are not
directly related to the Fund's investment in stock or securities, 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.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
Investors may be entitled to claim U.S. foreign tax credits or deductions with
respect to foreign income taxes or certain other foreign taxes ("qualified
foreign taxes"), subject to certain provisions and limitations contained in the
Code, only if, among other things, 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
respective pro rata portions as qualified 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 share of such taxed
in gross income. Shareholders who claim a foreign tax credit for such foreign
taxes may be required to treat a portion of dividends received from the Fund as
a separate category of income for purposes of computing the limitations on the
foreign tax credit. Tax-exempt shareholders will ordinarily not benefit from
this election. Each year (if any) that the Fund files the election described
above, its shareholders will be notified of the amount of (i) each shareholder's
pro rata share of qualified foreign taxes paid by the Fund and (ii) the portion
of Fund dividends which represents income from each foreign country. If the Fund
does not satisfy the 50% requirement described above or otherwise does not make
the election, the Fund will deduct the foreign taxes it pays in determining the
amount it has available for distribution to shareholders, and shareholders will
not include these foreign taxes in their income, nor will they be entitled to
any tax deductions or credits with respect to such taxes.
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, certain rent, and royalties or capital gain) or hold at least 50% of
37
<PAGE>
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 or make an available election 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-Adviser
and whether the Adviser and the Sub-Adviser believe 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
Fund. Consequently, subsequent distributions on those shares from such
appreciation or income may be taxable to such investor even if the net asset
value of the investor's shares is, as a result of the distributions, reduced
below the investor's cost for such shares, and the distributions in reality
represent a return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands. A sales charge paid in purchasing
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
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long- term capital gain with respect to such shares. Shareholders should consult
their own tax advisers regarding their particular circumstances to determine
whether a disposition of Fund shares is properly treated as a sale for tax
purposes, as is assumed in this discussion. Also, future Treasury Department
regulations that affect the taxation of capital gains may contain rules for
determining different tax rates applicable to sales of Fund shares held for more
than one year, more than 18 months, and (for certain sales after the year 2000
or the year 2005) more than five years. These regulations may also contain other
rules coordinating the provisions affecting the taxation of gains recognized by
funds on the sale of their portfolio assets and the gains recognized by the
funds' shareholders who receive distributions attributable to such gains and who
redeem or otherwise dispose of their shares in funds. These new regulations
could modify some of the provisions described above.
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 capital gain in his return for his taxable year
in which the last day of the Fund's taxable year falls, (b) be entitled either
to a tax credit on his return for, or to a refund of, his pro rata share of the
taxes paid by the Fund, and (c) be entitled to increase the adjusted tax basis
for his shares in the Fund by the difference between his pro rata share of such
excess and his pro rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
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.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund from U.S. domestic corporations in respect of the
stock of such corporations held by the Fund, for U.S. Federal income tax
purposes, for at least 46 days (91 days in the case of certain preferred stock)
during a prescribed period extending before and after each such dividend and
distributed and properly designated by the Fund may be treated as qualifying
dividends. Corporate shareholders must meet the holding period requirements
stated above with respect to their shares of the Fund for each dividend in order
to qualify for the deduction and, if they have any debt that is deemed under the
Code directly attributable to 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 the excess (if any)
of a corporate shareholder's adjusted current earnings over its alternative
minimum taxable income, which may increase its alternative minimum tax
liability. Additionally, any corporate shareholder should consult its tax
adviser regarding the possibility that its tax basis in its shares may be
reduced, for Federal income tax purposes, by reason of "extraordinary dividends"
received with respect to the shares, and to the extent such basis would be
reduced below zero, that current recognition of income would be required.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
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retirement plans. Shareholders should consult their tax advisers for more
information.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market or constructive sale rules applicable to certain options, futures 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 borrow cash, to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangibles property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The Fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number or if the IRS or a broker notifies the Fund that the
number furnished by the shareholder is incorrect or that the shareholder is
subject to backup withholding as a result of failure to report interest or
dividend income. The Fund may refuse to accept an application that does not
contain any required taxpayer identification number or certification that the
number provided is correct. If the backup withholding provisions are applicable,
any such distributions and proceeds, whether taken in cash or reinvested in
shares, will be reduced by the amounts required to be withheld. Any amounts
withheld may be credited against a shareholder's U.S. federal income tax
liability. Investors should consult their tax advisers about the applicability
of the backup withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax laws
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to non- resident alien withholding tax at the rate of 30% (or a lower
rate under an applicable tax treaty) on amounts treated as ordinary dividends
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from the Fund and, unless an effective IRS Form W-8 or authorized substitute is
on file, to 31% backup withholding on certain other payments from the Fund.
Non-U.S. investors should consult their tax advisers regarding such treatment
and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
Total return is computed by finding the average annual compounded rate of return
over the 1 year, 5 year and life-of-fund periods that would equate the initial
amount invested to the ending redeemable value according to the following
formula:
n ________
T = \ / ERV / P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at
the beginning of the 1 year, 5 years, and life-of-fund periods.
Because each share has its own sales charge and fee structure, the classes have
different performance results. In the case of Class A or Class B shares, this
calculation assumes the maximum sales charge is included in the initial
investment or the CDSC is applied at the end of the period, respectively. This
calculation assumes that all dividends and distributions are reinvested at net
asset value on the reinvestment dates during the period. The "distribution rate"
is determined by annualizing the result of dividing the declared dividends of
the Fund during the period stated by the maximum offering price or net asset
value at the end of the period. Excluding the Fund's sales charge from the
distribution rate produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B shares into account. Excluding the Fund's sales charge on
Class A shares and the CDSC on Class B shares from a total return calculation
produces a higher total return figure.
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 mutual funds in the
United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes as well as the Russell and Wilshire Indices.
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Performance rankings and ratings reported periodically in national financial
publications such as MONEY Magazine, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S, BARRON'S, etc. may also be
utilized. The Fund's promotional and sales literature may make reference to the
Fund's "beta". Beta is a reflection of the market related risk of the Fund by
showing how responsive the Fund is to the market.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Sub-Adviser under the
supervision of and under the guidelines established by the Adviser.. Orders for
purchases and sales of securities are placed in a manner which, in the opinion
of the officers of the Adviser, will offer the best price and market for the
execution of each such transaction. Purchases from underwriters of portfolio
securities may include a commission or commissions paid by the issuer and
transactions with dealers serving as market maker reflect a "spread." Debt
securities are generally traded on a net basis through dealers acting for their
own account as principals and not as brokers; no brokerage commissions are
payable on these transactions.
In the U.S. and in some other countries, debt securities are traded principally
in the over-the-counter market on a net basis through dealers acting for their
own account and not as brokers. In other countries, both debt and equity
securities are traded on exchanges at fixed commission rates. Commissions on
foreign transactions are generally higher than the negotiated commission rates
available in the U.S. There is generally less government supervision and
regulation of foreign stock exchanges and broker-dealers than in the U.S.
The 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 the
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-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 and the Sub-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
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clients of the Adviser or Sub-Adviser, and, conversely, brokerage commissions
and spreads paid by other advisory clients of the Adviser and Sub-Adviser may
result in research information and statistical assistance beneficial to the
Fund. The Fund will make no commitment to allocate portfolio transactions upon
any prescribed basis. While the Adviser, in consultation with the Sub-Adviser,
will be primarily responsible for the allocation of the Fund's brokerage
business, the policies and practices of the Adviser and Sub-Adviser in this
regard must be consistent with the foregoing and at all times be subject to
review by the Trustees.
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.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Distributors, Inc., a broker-dealer affiliated with
the Adviser. Credit Agricole, the Sub-Adviser's parent, has several affiliates
engaged in the brokerage business in Europe and Asia: Chevreux Virieu; W.I.
Carr; Indosuez Carr Futures S.N.C. (Paris); Schelcher Prince; Dynabourse and
Hayaux du Tilly (all "Affiliated Brokers"). Pursuant to procedures determined by
the Trustees and consistent with the above policy of obtaining best net results,
the Fund may execute portfolio transactions with or through Affiliated Brokers.
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, 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.
Other investment advisory clients advised by the Adviser or the Sub-Adviser may
also invest in the same securities as the Fund. When these clients buy or sell
the same securities at substantially the same time, the Adviser or the
Sub-Adviser may average the transactions as to price and allocate the amount of
available investments in a manner which the Adviser believes to be equitable to
each client, including the Fund. In some instances, this investment procedure
may adversely affect the price paid or received by the Fund or the size of the
position obtainable for it. On the other hand, to the extent permitted by law,
the Adviser may aggregate securities to be sold or purchased for the Fund with
those to be sold or purchased for other clients managed by it in order to obtain
best execution.
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TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly-owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Signature
Services an annual fee of $19.00 for each Class A shareholder and of $21.50 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 their relative net asset values
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110. Under the custodian agreement, State Street Bank
and Trust Company performs custody, portfolio and fund accounting services.
INDEPENDENT AUDITORS
The independent 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
RATINGS
The Fund's investments in debt securities must be in obligations rated Baa or
better by Moody's Signature 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 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.
A-1
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FINANCIAL STATEMENTS
F-1
