FILE NO. 33-16048
FILE NO. 811-5254
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 22 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
Amendment No. 24 [X]
(Check appropriate box or boxes)
JOHN HANCOCK SERIES, INC.
(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
(Address of principal executive office)
Registrant's Telephone Number, including Area Code (617) 375-1700
Thomas H. Drohan
Senior Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199-7603
(Name and Address of Agent for Service)
It is proposed that this filing will become efective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[X] on July 1, 1996 pursuant to paragraph (a) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has registered an indefinite number of securities under the Securities Act of
1933. The Registrant filed the notice required by Rule 24f-2 for its most recent
fiscal year on or about December 26, 1996.
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<PAGE>
<TABLE>
<CAPTION>
Item Number Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
------ ------------------ -------------------
<S> <C> <C>
1 Front Cover Page *
2 Overview; Investor Expenses; *
3 Financial Highlights *
4 Overview; Goal and Strategy; Portfolio *
Securities; Risk Factors; Business
Structure; More About Risk
5 Overview; Business Structure; *
Manager/Subadviser; Investor Expenses
6 Choosing a Share Class; Buying Shares; *
Selling Shares; Transaction Policies;
Dividends and Account Policies;
Additional Investor Services
7 Choosing a Share Class; How Sales Charges *
are Calculated; Sales Charge Deductions
and Waivers; Opening an Account; Buying
Shares; Transaction Policies; Additional
Investor Services
8 Selling Shares; Transaction Policies; *
Dividends and Account Policies
9 Not Applicable *
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
13 * Investment Objectives and Policies;
Certain Investment Practices;
Investment Restrictions
14 * Those Responsible for Management
15 * Those Responsible for Management
16 * Investment Advisory; Subadvisory
and Other Services; Distribution
Contract; Transfer Agent Services;
Custody of Portfolio; Independent
Auditors
17 * Brokerage Allocation
18 * Description of Fund's Shares
19 * Net Asset Value; Additional
Services and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of Performance
23 * Financial Statements
</TABLE>
<PAGE>
JOHN HANCOCK
GROWTH
FUNDS
[LOGO]
- -------------------------------------------------------------------------------
PROSPECTUS DISCIPLINED GROWTH FUND
JULY 1, 1996
DISCOVERY FUND
This prospectus gives vital information
about these funds. For your own benefit EMERGING GROWTH FUND
and protection, please read it before
you invest, and keep it on hand for GROWTH FUND
future reference.
REGIONAL BANK FUND
Please note that these funds:
* are not bank deposits SPECIAL EQUITIES FUND
* are not federally insured
* are not endorsed by any bank or SPECIAL OPPORTUNITIES FUND
government agency
* are not guaranteed to achieve
their goal(s)
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 [LOGO] JOHN HANCOCK FUNDS
is a criminal offense. A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avanue,
Boston, Massachusetts 02199-7603
<PAGE>
<TABLE>
CONTENTS
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<S> <C> <C>
A fund-by-fund look at goals, DISCIPLINED GROWTH FUND 4
strategies, risks, expenses and
financial history. DISCOVERY FUND 6
EMERGING GROWTH FUND 8
GROWTH FUND 10
REGIONAL BANK FUND 12
SPECIAL EQUITIES FUND 14
SPECIAL OPPORTUNITIES FUND 16
Policies and instructions for opening, YOUR ACCOUNT
maintaining and closing an account Choosing a share class 18
in any growth fund. How sales charges are calculated 18
Sales charge reductions and waivers 19
Opening an account 19
Buying shares 20
Selling shares 21
Transaction policies 22
Dividends and account policies 23
Additional investor services 24
Details that apply to the growth FUND DETAILS
funds as a group. Business structure 25
Sales compensation 26
More about risk 27
Higher risk securities and
practices 29
FOR MORE INFORMATION BACK COVER
</TABLE>
<PAGE>
OVERVIEW
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GOAL OF THE GROWTH FUNDS
John Hancock growth funds seek long-term growth by investing primarily in common
stocks. Each fund employs its own strategy and has its own risk/reward profile.
Because you could lose money by investing in these funds, be sure to read all
risk disclosure carefully before investing.
WHO MAY WANT TO INVEST
John Hancock growth funds may be appropriate for:
- - investors with longer time horizons
- - investors willing to accept higher short-term risk in exchange for higher
potential long-term returns
- - investors who want to diversify their portfolios
- - investors seeking funds for the growth portion of an asset allocation
portfolio
- - retirement investors or others whose goals are many years in the future
Growth funds may NOT be appropriate if you:
- - are investing with a shorter time horizon in mind
- - are uncomfortable with an investment that will go up and down in value
PORTFOLIO MANAGEMENT
All John Hancock growth funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Mutual Life Insurance Company and manages more than $16 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[A graphic image of a bullseye with an arrow in the middle of it.] GOAL AND
STRATEGY The fund's particular investment goals and the strategies it intends
to use in pursuing those goals.
[A graphic image of a black folder that contains a couple sheets of paper.]
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.
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] RISK FACTORS The major risk factors associated with the fund.
[A graphic image of a generic person.] PORTFOLIO MANAGER The individual or
group (including subadvisers, if any) designated by the investment adviser to
handle the fund's day-to-day management.
[A graphic image of a percent symbol.] EXPENSES The overall costs borne by an
investor in the fund, including sales charges and annual expenses.
[A graphic image of a dollar sign.] FINANCIAL HIGHLIGHTS A table showing the
fund's financial performance for up to ten years, by share class. There is also
a bar graph of year-by-year total return which is intended to show the fund's
volatility in recent years.
<PAGE>
DISCIPLINED GROWTH FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME:FREEDOM INVESTMENT TRUST TICKER SYMBOL CLASS A:SVAAX CLASSB:FEQVX
- ----------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
established, growing companies that have demonstrated superior earnings growth
and stability. In normal circumstances the fund will invest at least 65% of its
assets in these companies, without concentration in any one industry. The fund
also looks for the following characteristics:
- - a low level of debt
- - seasoned management
- - a strong market position
The fund invests for income as a secondary goal.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in the common stocks of U.S. companies. It may also
invest in warrants, preferred stocks and investment-grade convertible debt
securities. The fund expects any foreign investments to remain below 10% of
assets. For liquidity and flexibility, the fund may place up to 15% of its net
assets in cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
To a limited extent, the fund also may invest in certain higher risk securities,
and may engage in other investment practices. For details, see "More about risk"
at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market and the success or failure of the
fund's investment strategies. To the extent that the fund invests in restricted
securities, foreign securities, and junk bonds, it takes on additional risks
which could adversely affect its performance.
PORTFOLIO MANAGERS
[A graphic image of a generic person.] Thomas Weary and John Snyder III,
leaders of the fund's portfolio management team, are responsible for the
day-to-day investment management of the fund. A vice president of the investment
adviser, Mr. Weary has been a part of the fund's management team since 1992. He
joined John Hancock in 1983. Mr. Snyder is an executive vice president of the
investment adviser and has been a team member since 1992. He has been an
investment manager since 1971.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic symbol of a percent symbol.] 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.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.75% 0.75%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.40% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.45% 2.15%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
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%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $64 $94 $125 $215
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $72 $97 $135 $231
- --------------------------------------------------------------------------------
Assuming no redemption $22 $67 $115 $231
- --------------------------------------------------------------------------------
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) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
4 DISCIPLINED GROWTH FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<CAPTION>
==========================================================================================================
Class A - year ended October 31, 1992(1) 1993 1994 1995
==========================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.81 $10.99 $12.39 $12.02
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.06(2) 0.08(2) 0.10 0.08(2)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.06) 1.34 0.07 1.29
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 0.00 1.42 0.17 1.37
- ---------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.07) (0.02) (0.10) (0.10)
- ---------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold (1.74) -- (0.44) (0.52)
- ---------------------------------------------------------------------------------------------------------
Distributions from capital paid-in (0.01) -- -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions (1.82) (0.02) (0.54) (0.62)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.99 $12.39 $12.02 $12.77
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) 0.19(4) 12.97 1.35 12.21
- ---------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 1,771 23,372 23,292 27,692
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.73(5) 1.60 1.53 1.46
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets(%) 0.62(5) 0.64 0.83 0.69
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(%) 246 71 60 65
- ---------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================================================
Class B - year ended October 31, 1987(6) 1988 1989 1990 1991 1992 1993 1994 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 10.00 $ 8.34 $ 10.29 $ 11.52 $ 9.22 $ 11.71 $ 10.97 $ 12.31 $ 11.95
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.06 0.13 0.19 0.18 0.07 0.01(2) 0.02(2) 0.03 0.01(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.70) 2.05 1.25 (2.00) 2.67 1.05 1.33 0.07 1.28
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (1.64) 2.18 1.44 (1.82) 2.74 1.06 1.35 0.10 1.29
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment
income (0.02) (0.09) (0.12) (0.20) (0.20) (0.03) (0.01) (0.02) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold -- (0.14) (0.09) (0.28) (0.05) (1.76) -- (0.44) (0.52)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from capital
paid-in -- -- -- -- -- (0.01) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.02) (0.23) (0.21) (0.48) (0.25) (1.80) (0.01) (0.46) (0.55)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.34 $ 10.29 $ 11.52 $ 9.22 $ 11.71 $ 10.97 $ 12.31 $ 11.95 $ 12.69
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE(3) (%) (16.44)(4) 26.69 14.27 (16.46) 30.21 7.22 12.34 0.78 11.51
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 14,016 14,927 23,813 17,714 21,826 23,525 93,853 94,431 86,178
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 2.56(5,7) 2.61(7) 2.30 2.13 2.24 2.27 2.09 2.10 2.11
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 0.93(5,7) 1.46(7) 1.75 1.64 0.66 0.10 0.17 0.25 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 40(5) 54 94 165 217 246 71 60 65
- ---------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission
rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
(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) Class B shares commenced operations April 22, 1987.
(7) Net of advisory expense reimbursements per share of $0.01 for the fiscal
year ended October 31, 1988 and less than $.01 for the fiscal year ended
October 31, 1987.
</TABLE>
DISCIPLINED GROWTH FUND 5
<PAGE>
DISCOVERY FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST III TICKER SYMBOL CLASS A:FRDAX CLASS B:FRIDX
- -----------------------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
companies that appear to offer superior growth prospects. Under normal
circumstances, the fund will invest at least 65% of its assets in these
companies. The fund looks for companies that have broad market opportunities
and consistent or accelerating earnings growth. This may include companies that:
- - occupy a profitable market niche
- - have products or technologies that are new, unique or proprietary
- - are in an industry that has a favorable long-term growth outlook
- - have a capable management team with a significant equity stake
The fund does not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in common stocks of U.S. companies and may also
invest in warrants, preferred stocks and investment-grade convertible debt
securities.
For liquidity and flexibility, the fund may place up to 15% of its net assets in
cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The Fund may invest up to 25% of its assets in foreign securities, which carry
additional risks; however, foreign securities typically do not exceed 10% of its
assets. To a limited extent, the fund also may invest in certain higher-risk
securities, including foreign securities, and may engage in other investment
practices. For details, see "More about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart that depicts some peaks and valleys.] The
value of an investment in the fund will fluctuate with the performance of the
stock market. Small and medium-sized company stocks tend to be more volatile
than the market as a whole.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since March 1994, is a senior vice president of the
investment adviser. She joined the investment adviser in 1991 and has worked as
an investment professional since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] 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.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.75% 0.75%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.80% 0.80%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.85% 2.55%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
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%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $68 $105 $145 $256
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $76 $109 $155 $271
- --------------------------------------------------------------------------------
Assuming no redemption $26 $ 79 $135 $271
- --------------------------------------------------------------------------------
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) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
6 DISCOVERY FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below for the period ended July
31, 1992, were audited by the fund's former independent auditors, Price
Waterhouse LLP. Figures for the subsequent years have been audited by the fund's
current independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
================================================================================
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED JULY 31, 1992(1) 1993 1994 1995 1996(2)
====================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.40 $ 8.95 $ 10.81 $ 8.56 $ 12.95
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) (0.05) (0.16) (0.16)(3) (0.17)(3) (0.10)(3)
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (0.40) 2.15 (0.43) 4.83 0.55
- ----------------------------------------------------------------------------------------------------
Total from investment operations (0.45) 1.99 (0.59) 4.66 0.45
- ----------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold -- (0.13) (1.66) (0.27) (0.13)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.95 $ 10.81 $ 8.56 $12.95 $ 13.27
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4)(%) (4.79)(5) 22.33 (6.45) 55.80 3.52(5)
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 3,866 4,692 3,266 5,075 6,583
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.78(6) 2.17 2.01 2.10 1.74(6)
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets(%) (1.20)(6) (1.61) (1.64) (1.73) (1.51)(6)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 138 148 108 118 73
- ----------------------------------------------------------------------------------------------------
Average brokerage commission rate(%) N/A N/A N/A N/A N/A
====================================================================================================
CLASS B - YEAR ENDED JULY 31, 1992(1) 1993 1994 1995 1996(2)
====================================================================================================
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.00 $ 8.87 $ 10.65 $ 8.34 $ 12.54
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) (0.11) (0.23) (0.22)(3) (0.22)(3) (0.14)(3)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.98 2.14 (0.43) 4.69 0.53
- ----------------------------------------------------------------------------------------------------
Total from investment operations 0.87 1.91 (0.65) 4.47 0.39
- ----------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold -- (0.13) (1.66) (0.27) (0.13)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.87 $ 10.65 $ 8.34 $ 12.54 $ 12.80
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 10.88(5) 21.63 (7.18) 54.97 3.15(5)
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 34,636 38,672 26,537 31,645 34,452
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.56(6) 2.86 2.62 2.70 2.43(6)
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets(%) (1.56)(6) (2.26) (2.24) (2.34) (2.20)(6)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(%) 138 148 108 118 73
- ----------------------------------------------------------------------------------------------------
Average brokerage commission rate(%) N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
(1) Class A and Class B shares commenced operations on January 3, 1992 and
August 30, 1991, respectively.
(2) Six months ended January 31, 1996 (unaudited).
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
</TABLE>
DISCOVERY FUND 7
<PAGE>
EMERGING GROWTH FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: JOHN HANCOCK SERIES, INC. TICKER SYMBOL CLASS A:TAEMX CLASS B:TSEGX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
emerging companies (market capitalization of less than $1 billion). In normal
circumstances the fund will invest at least 80% of its assets in a diversified
portfolio of these companies. The fund looks for companies that show rapid
growth but are not yet widely recognized. The fund also may invest in
established companies that, because of new management, products or
opportunities, offer the possibility of accelerating earnings. The fund does
not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in the common stocks of U.S. and foreign emerging
growth companies, although it may invest up to 20% of assets in other types of
companies. The fund may also invest in warrants, preferred stocks and
investment-grade convertible debt securities.
For liquidity and flexibility, the fund may place up to 20% in cash or in
short-term investment-grade securities; in abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. To a limited
extent, the fund also may invest in certain higher-risk securities, including
derivatives, and may engage in other investment practices. For details, see
"More about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market. Stocks of emerging growth companies
carry higher risks than stocks of larger companies. This is because emerging
growth companies:
- - may be in the early stages of development
- - may be dependent on a small number of products or services
- - may lack substantial capital reserves
- - do not have proven track records
In addition, stocks of emerging companies are often traded in low volumes, which
can increase market and liquidity risks.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since February 1996, is a senior vice president of
the investment adviser. She joined the investment adviser in 1991 and has
worked as an investment professional since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] 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.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.75% 0.75%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.25% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.40% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.40% 2.15%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
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%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $64 $92 $123 $210
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $72 $97 $135 $229
- --------------------------------------------------------------------------------
Assuming no redemption $22 $67 $115 $229
- --------------------------------------------------------------------------------
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) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
8 EMERGING GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's current independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
====================================================================================================
<CAPTION>
CLASS A - YEAR ENDED OCTOBER 31, 1991(1) 1992 1993 1994 1995(2)
====================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.12 $ 19.26 $ 20.60 $ 25.89 $ 26.82
- ----------------------------------------------------------------------------------------------------
Net investment income (loss)(3) (0.03) (0.20) (0.16) (0.18) (0.25)
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1.17 1.60 5.45 1.11 9.52
- ----------------------------------------------------------------------------------------------------
Total from investment operations 1.14 1.40 5.29 0.93 9.27
- ----------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------
Distributions from net realized gain on
investments sold -- (0.06) -- -- --
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 19.26 $ 20.60 $ 25.89 $ 26.82 $ 36.09
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE(4) (%) 6.29 7.32 25.68 3.59 34.56
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 38,859 46,137 81,263 131,053 179,481
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 0.33 1.67 1.40 1.44 1.38
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (%) (0.15) (1.03) (0.70) (0.71) (0.83)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 66 48 29 25 23
- ----------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(5) 1988 1989 1990 1991 1992 1993 1994 1995(2)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.89 $ 7.89 $10.54 $ 12.76 $ 11.06 $ 19.22 $ 20.34 $ 25.33 $ 26.04
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(3) (0.0021) 0.09 (0.08) (0.22) (0.30) (0.38) (0.36) (0.36) (0.45)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 0.0021 2.56 2.83 (1.26) 8.46 1.56 5.35 1.07 9.20
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.0000 2.65 2.75 (1.48) 8.16 1.18 4.99 0.71 8.75
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income -- -- (0.04) -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on
investments sold -- -- (0.49) (0.22) -- (0.06) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions -- -- (0.53) (0.22) -- (0.06) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.89 $10.54 $12.76 $ 11.06 $ 19.22 $ 20.34 $ 25.33 $ 26.04 $ 34.79
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 0.00 33.59 27.40 (11.82) 73.78 6.19 24.53 2.80 33.60
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 79 3,232 7,877 11,668 52,743 86,923 219,484 283,435 393,478
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 0.44 5.64 3.51 3.11 2.85 2.64 2.28 2.19 2.11
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to
average net assets (%) (0.41) (2.59) (0.03) -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net expenses to
average net assets (%) 0.03 3.05 3.48 3.11 2.85 2.64 2.28 2.19 2.11
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (%) (0.03) 0.81 (0.67) (1.64) (1.83) (1.99) (1.58) (1.46) (1.55)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 0 252 90 82 66 48 29 25 23
- --------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
(1) Class A shares commenced operations on August 22, 1991. Financial
highlights, including total return, have not been annualized.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Class B shares commenced operations on October 26, 1987. Financial
highlights, including total return, have not been annualized.
</TABLE>
EMERGING GROWTH FUND 9
<PAGE>
GROWTH FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A:JHNGX CLASS B:JHGNX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
stocks that are diversified with regard to industries and issuers. The fund
favors stocks of companies whose operating earnings and revenues have grown more
than twice as fast as the Gross Domestic Product (GDP) over the past five years,
although not all stocks in the fund's portfolio will meet this criterion.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The portfolio invests primarily in the common stocks of U.S. companies. It may
also invest in warrants, preferred stocks and convertible debt securities.
For liquidity and flexibility, the fund may invest up to 35% of its net assets
in short-term investment-grade securities; in abnormal market conditions, it may
invest more than 35% in these securities as a defensive tactic. To a limited
extent, the fund may also invest in certain higher risk securities, and may
engage in other investment practices. For details, see "More about risk" at the
end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market and the success or failure of the
fund's investment strategies. To the extent that the fund invests in restricted
securities, foreign securities, and junk bonds, it takes on additional risks
which could adversely affect its performance.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since September 1995, is a senior vice president of
the investment adviser. She joined the investment adviser in 1991 and has worked
as an investment professional since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] 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.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.80% 0.80%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.40% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.50% 2.20%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
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%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $95 $128 $220
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption
at end of period $72 $99 $138 $236
- --------------------------------------------------------------------------------
Assuming no redemption $22 $69 $118 $236
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
10 GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS A - YEAR ENDED DECEMBER 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.50 $ 14.03 $ 12.34 $ 13.33 $ 15.18 $ 12.93 $ 17.48 $ 17.32 $ 17.40 $ 15.89
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.11 0.22 0.23 0.28 0.16 0.04 (0.06) (0.11) (0.10) (0.09)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1.79 0.64 1.16 3.81 (1.47) 5.36 1.10 2.33 (1.21) 4.40
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.90 0.86 1.39 4.09 (1.31) 5.40 1.04 2.22 (1.31) 4.31
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.17) (0.28) (0.23) (0.29) (0.16) (0.04) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments sold (2.20) (2.27) (0.17) (1.95) (0.78) (0.81) (1.20) (2.14) (0.20) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.37) (2.55) (0.40) (2.24) (0.94) (0.85) (1.20) (2.14) (0.20) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.03 $12.34 $13.33 $ 15.18 $ 12.93 $ 17.48 $ 17.32 $ 17.40 $ 15.89 $ 19.51
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 13.83 6.03 11.23 30.96 (8.34) 41.68 6.06 13.03 (7.50) 27.17
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 87,468 86,426 101,497 105,014 102,416 145,287 153,057 162,937 146,466 241,700
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.03 1.00 1.06 0.96 1.46 1.44 1.60 1.56 1.65 1.48
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 0.77 1.41 1.76 1.73 1.12 0.27 (0.36) (0.67) (0.64) (0.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 62 68 47 61 102 82 71 68 52 68
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
===============================================================================
CLASS B - YEAR ENDED DECEMBER 31, 1994(2) 1995
===============================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------
Net asset value, beginning of period $17.16(3) $ 15.83(1)
- -------------------------------------------------------------------------------
Net investment income (loss) (0.20)(1) (0.26)
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.93) 4.37
- --------------------------------------------------------------------------------
Total from investment operations (1.13) 4.11
- --------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold (0.20) (0.69)
- --------------------------------------------------------------------------------
Net asset value, end of period $15.83 $ 19.25
- --------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) (6.56)(5) 26.01
- --------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 3,807 15,913
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.38(6) 2.31
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (%) (1.25)(6) (1.39)
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 52 68
- --------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A
(1) Based on the average of the shares outstanding at the end of each month.
(2) Class B shares commenced operations on January 3, 1994.
(3) Initial price at commencement of operations.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
</TABLE>
GROWTH FUND 11
<PAGE>
REGIONAL BANK FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST TICKER SYMBOL CLASS A:FRBAX CLASS B:FRBFX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
regional banks and lending institutions, including:
- - commercial and industrial banks
- - savings and loan associations
- - bank holding companies
These financial institutions provide full-service banking, have primarily
domestic assets, and are typically based outside of New York City and Chicago.
They may or may not be members of the Federal Reserve, and their deposits may or
may not be FDIC-insured. In normal circumstances the fund will invest at least
65% of its assets in these companies; it may invest up to 35% of assets in other
financial services companies, including lending companies and money center
banks. Because regional banks typically pay regular dividends, moderate income
is an investment goal.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in the common stocks of U.S. and foreign companies.
It may also invest in warrants, preferred stocks, and investment-grade
convertible debt securities.
For liquidity and flexibility, the fund may place up to 15% of its net assets in
cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
To a limited extent, the fund may also invest in certain higher risk securities,
including derivatives, and may engage in other investment practices. For
details, see "More about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate.
Because the fund concentrates in a single industry, its performance is largely
dependent on the industry's performance, which may differ in direction and
degree from that of the overall stock market. Falling interest rates or
deteriorating economic conditions can adversely affect the performance of bank
stocks, while rising interest rates will cause a decline in the value of any
debt securities the fund holds.
PORTFOLIO MANAGER
[A graphic image of a generic person.] James K. Schmidt joined John Hancock in
1985 and has served as the fund's portfolio manager since its inception that
year. A senior vice president of the investment adviser, he has worked as an
investment professional since 1974.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] 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.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.78% 0.78%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.31% 0.31%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.39% 2.09%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
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%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $63 $92 $122 $209
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $71 $95 $132 $224
- --------------------------------------------------------------------------------
Assuming no redemption $21 $65 $112 $224
- --------------------------------------------------------------------------------
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) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
12 REGIONAL BANK FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
===================================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1992(1) 1993 1994 1995
===================================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.47 $ 17.47 $ 21.62 $ 21.52
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.21 0.26(2) 0.39(2) 0.52(2)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.98 5.84 0.91 5.92
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.19 6.10 1.30 6.44
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.19) (0.26) (0.34) (0.48)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold -- (1.69) (1.06) (0.34)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.19) (1.95) (1.40) (0.82)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.47 $ 21.62 $ 21.52 $ 27.14
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 31.26(4) 37.45 6.44 31.00
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 31,306 94,158 216,978 486,631
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.41(5) 1.35 1.34 1.39
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.64(5) 1.29 1.78 2.23
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 53 35 13 14
- -----------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(6) 1987(7) 1988 1989 1990 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.51 $ 12.68 $ 10.02 $ 11.89 $ 13.00 $ 8.13 $ 13.76 $ 17.44 $ 21.56 $ 21.43
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.20 0.05 0.16 0.20 0.30 0.29 0.18 0.15(2) 0.23(2) 0.36(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment 1.74 (2.17) 3.12 2.02 (4.19) 5.68 4.56 5.83 0.91 5.89
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.94 (2.12) 3.28 2.22 (3.89) 5.97 4.74 5.98 1.14 6.25
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.26) (0.04) (0.15) (0.16) (0.19) (0.34) (0.28) (0.17) (0.21) (0.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments sold (1.51) (0.50) (1.26) (0.95) (0.76) -- (0.78) (1.69) (1.06) (0.34)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from capital paid-in -- -- -- -- (0.03) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.77) (0.54) (1.41) (1.11) (0.98) (0.34) (1.06) (1.86) (1.27) (0.66)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.68 $ 10.02 $ 11.89 $ 13.00 $ 8.13 $ 13.76 $ 17.44 $ 21.56 $ 21.43 $ 27.02
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(3) (%) 17.44 (17.36)(4) 36.89 20.46 (32.29) 75.35 37.20 36.71 5.69 30.11
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted)($) 54,626 38,721 50,965 81,167 38,992 52,098 56,016 171,808 522,207 1,236,447
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.48 2.47(5) 2.17 1.99 1.99 2.04 1.96 1.88 2.06 2.09
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) 1.62 0.73(5) 1.50 1.67 2.51 2.65 1.21 0.76 1.07 1.53
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 89 58(5) 87 85 56 75 53 35 13 14
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
(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) Year ended March 31, 1987.
(7) For the period April 1, 1987 to October 31, 1987.
</TABLE>
REGIONAL BANK FUND 13
<PAGE>
SPECIAL EQUITIES FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: JOHN HANCOCK SPECIAL EQUITIES FUND TICKER SYMBOL CLASS A:JHNSX CLASS B:SPQBX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
small-capitalization companies and companies in situations offering unusual or
non-recurring opportunities. In normal circumstances the fund will invest at
least 65% of its assets in a diversified portfolio of these companies. The fund
looks for companies that dominate an emerging industry or hold a growing market
share in a fragmented industry, and that have demonstrated earnings and revenue
growth of at least 25%, self-financing capabilities and strong management. The
fund does not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in the common stocks of U.S. and foreign companies.
It may also invest in warrants, preferred stocks and investment-grade
convertible debt securities.
For liquidity and flexibility, the fund may place up to 35% of its net assets in
cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest more than 35% in these securities as a defensive
tactic. To a limited extent, the fund also may invest in certain higher risk
securities, and may engage in other investment practices. For details, see "More
about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market. Stocks of small-capitalization and
special-situation companies carry higher risks than stocks of larger companies.
This is because these companies:
- - may lack proven track records
- - may be dependent on a small number of products or services
- - may be undercapitalized
- - may have highly priced stocks which are sensitive to adverse news
In addition, stocks of these companies are often traded in low volumes, which
can increase market and liquidity risks.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Michael P. DiCarlo is responsible for the
fund's day-to-day investment management. He has served as the fund's portfolio
manager since 1988, and has worked as an investment professional since 1984. He
is currently one of three principals in DFS Advisors, LLC, which was founded in
1996 and serves as subadviser to the fund.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] 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.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
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) 0.82% 0.82%
- --------------------------------------------------------------------------------
12b-1 fee(4) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.38% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.50% 2.22%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
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%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $95 $128 $220
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $73 $99 $139 $237
- --------------------------------------------------------------------------------
Assuming no redemption $23 $69 $119 $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 equal to 25% of the management fee.
(4) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
14 SPECIAL EQUITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited
by the fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.21 $ 6.08 $ 4.30 $ 4.89 $ 6.38 $ 4.97 $ 9.71 $ 10.99 $ 16.13 $ 16.11
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(1) (0.03) (0.03) 0.04 0.01 (0.12) (0.10) (0.19)(2) (0.20)(2) (0.21)(2) (0.18)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 0.93 (1.26) 0.55 1.53 (1.27) 4.84 2.14 5.43 0.19 6.22
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.90 (1.29) 0.59 1.54 (1.39) 4.74 1.95 5.23 (0.02) 6.04
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.02) -- -- (0.05) (0.02) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments sold (0.01) (0.45) -- -- -- -- (0.67) (0.09) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from capital paid-in -- (0.04) -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.03) (0.49) -- (0.05) (0.02) -- (0.67) (0.09) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.08 $ 4.30 $ 4.89 $ 6.38 $ 4.97 $ 9.71 $ 10.99 $ 16.13 $ 16.11 $ 22.15
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(1,3) (%) 17.38 (28.68) 13.72 31.82 (21.89) 95.37 20.25 47.83 (0.12) 37.49
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 13,780 10,637 11,714 12,285 8,166 19,713 44,665 296,793 310,625 555,655
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets(1) (%) 1.50 1.50 1.50 1.50 2.63 2.75 2.24 1.84 1.62 1.48
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets(1) (%) (0.57) (0.57) 0.82 0.47 (1.58) (2.12) (1.91) (1.49) (1.40) (0.97)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 64 93 91 115 113 163 114 33 66 82
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1993(4) 1994 1995
=========================================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.30 $ 16.08 $ 15.97
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.18)(2) (0.30)(2) (0.31)(2)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.96 0.19 6.15
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 3.78 (0.11) 5.84
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.08 $ 15.97 $ 21.81
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 30.73(5) (0.68) 36.57
- ---------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 158,281 191,979 454,934
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.34(6) 2.25 2.20
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) (2.03)(6) (2.02) (1.69)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 66 82
- ---------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A
(1) Reflects expense limitation in effect during the years ended October 31, 1986 through
1991 (see note B to the financial statements in the Statement of Additional Information).
As a result of such limitations, expenses of the Fund for the years ended October 31,
1986, 1987, 1988, 1989, 1990, and 1991 reflect reductions of $.09, $.04, $.07, $.03, $.02 and
$.002 respectively. Absent of such limitation, for the years ended October 31, 1986,
1987, 1988, 1989, 1990, and 1991, the ratio of net expenses would have been 3.47%, 2.23%,
2.94%, 2.57%, 2.95%, and 2.79% respectively, and the ratio of net investment income
(loss) to average net assets would have been (2.55%), (1.30%), (0.62%), (0.60%), (1.90%)
and (2.16%), respectively. Without the limitation, total investment return would be
lower.
(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) Class B shares commenced operations on March 1, 1993.
(5) Not annualized.
(6) Annualized.
</TABLE>
SPECIAL EQUITIES FUND 15
<PAGE>
SPECIAL OPPORTUNITIES FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A:SPOAX CLASS B:SPOBX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
those economic sectors that appear to have a higher earning potential.
Under normal circumstances, at least 90% of the fund's equity securities will be
invested within five or fewer sectors (e.g. financial services, energy,
technology). Up to 25% may be invested in any one sector. The inclusion and
weighting of any sector is determined on the basis of macroeconomic factors as
well as the outlook for that sector. The fund may add or drop sectors. Because
the fund may invest more than 5% of its assets in a single issuer, it is
classified as a non-diversified fund.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in common stocks of U.S. and foreign companies of
any size. It may also invest in warrants, preferred stocks, convertible debt
securities, U.S. Government securities and corporate bonds rated at least
BBB/Baa, or equivalent.
To a limited extent, the fund also may invest in certain higher risk securities,
and may engage in other investment practices. For details, see "More about risk"
at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] By focusing on a relatively small number of industries or issuers,
the fund runs the risk that any factor influencing those industries or issuers
will have a major effect on performance. The fund may invest in companies with
smaller market capitalizations, which represent higher near-term risks than
larger capitalization companies. The fund's use of derivatives could expose it
to losses substantially in excess of the purchase or sale price of the
derivative. These factors make the fund likely to experience higher volatility
than most other types of growth funds.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Kevin R. Baker is leader of the portfolio
management for the fund. A second vice president of John Hancock Advisers, he
has been an active member of the fund's management team since joining the
investment adviser in 1994. He has worked as an investment professional since
1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] 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.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.80% 0.80%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.49% 0.49%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.59% 2.29%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
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%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $ 98 $132 $229
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $73 $102 $143 $245
- --------------------------------------------------------------------------------
Assuming no redemption $23 $ 72 $123 $245
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) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
16 SPECIAL OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by
the fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
==================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1994(1) 1995
==================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.50 $ 7.93
- ----------------------------------------------------------------------------------
Net investment income (loss) (0.03)(2) (0.07)(2)
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.54) 1.46
- ----------------------------------------------------------------------------------
Total from investment operations (0.57) 1.39
- ----------------------------------------------------------------------------------
Net asset value, end of period $ 7.93 $ 9.32
- ----------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) (6.71)(3) 17.53
- ----------------------------------------------------------------------------------
Total adjusted investment return at
net asset value(5) (%) (6.83)(6) --
- ----------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 92,325 101,562
- ----------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.50 1.59
- ----------------------------------------------------------------------------------
Ratio of adjusted expenses to average
net assets(5) (%) 1.62 --
- ----------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (0.41) (0.87)
- ----------------------------------------------------------------------------------
Ratio of adjusted net investment loss
to average net assets(5) (%) (0.53) --
- ----------------------------------------------------------------------------------
Portfolio turnover rate (%) 57 155
- ----------------------------------------------------------------------------------
Expense reimbursement per share (%) 0.01(2) --
- ----------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A
==================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1994(1) 1995
==================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.50 $ 7.87
- ----------------------------------------------------------------------------------
Net investment income (loss) (0.09)(2) (0.13)(2)
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.54) 1.45
- ----------------------------------------------------------------------------------
Total from investment operations (0.63) 1.32
- ----------------------------------------------------------------------------------
Net asset value, end of period $ 7.87 $ 9.19
- ----------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) (7.41)(3) 16.77
- ----------------------------------------------------------------------------------
Total adjusted investment return at
net asset value(5) (%) (7.53)(6) --
- ----------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 131,983 137,363
- ----------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.22 2.30
- ----------------------------------------------------------------------------------
Ratio of adjusted expenses to average
net assets(5) (%) 2.34 --
- ----------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to
average net assets (%) (1.13) (1.55)
- ----------------------------------------------------------------------------------
Ratio of adjusted net investment loss to
average net assets(5) (%) (1.25) --
- ----------------------------------------------------------------------------------
Portfolio turnover rate (%) 57 155
- ----------------------------------------------------------------------------------
Expense reimbursement per share (%) 0.01(2) --
- ----------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A
(1) Class A and B shares commenced operations on November 1, 1993.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Without the reimbursement, total investment return would be lower.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Unreimbursed, without expense reduction.
(6) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the adviser during the periods shown.
</TABLE>
SPECIAL OPPORTUNITIES FUND 17
<PAGE>
YOUR ACCOUNT
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
<TABLE>
All John Hancock growth funds offer two classes of shares, Class A and Class B.
Each class has its own cost structure, allowing you to choose the one that best
meets your requirements. Your financial representative can help you decide.
<CAPTION>
================================================================================
CLASS A CLASS B
================================================================================
<S> <C>
- - Front-end sales charges, as - No front-end sales charge; all
described below. There are of your money goes to work for
several ways to reduce these you right away.
charges, also described below.
- Higher annual expenses than
- - Lower annual expenses than Class A shares.
Class B shares.
- A deferred sales charge on
shares you sell within six
years of purchase, as
described below.
- Automatic conversion to
Class A shares after eight
years, thus reducing
future annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
Special Equities Fund offers Class C shares, which have their own sales charge
and expense structure and are available to financial institutions only. Call
Investor Services or contact your financial representative for more information.
</TABLE>
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
<TABLE>
CLASS A Sales charges are as follows:
================================================================================
CLASS A SALES CHARGES
================================================================================
<CAPTION>
AS A % OF AS A % OF YOUR
YOUR INVESTMENTS OFFERING PRICE INVESTMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
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
</TABLE>
<TABLE>
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+ INVESTMENT
================================================================================
<CAPTION>
YOUR INVESTMENT CDSC ON SHARES BEING SOLD
- --------------------------------------------------------------------------------
<S> <C>
First $1M - $4,999,999 1.00%
- --------------------------------------------------------------------------------
Next $1 - $5M above that 0.50%
- --------------------------------------------------------------------------------
Next $1M or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month.
</TABLE>
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, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. 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:
<TABLE>
================================================================================
CLASS B DEFERRED CHARGES
================================================================================
<CAPTION>
YEARS AFTER PURCHASE CDSC ON SHARES BEING SOLD
- --------------------------------------------------------------------------------
<S> <C>
1 year 5.0%
- --------------------------------------------------------------------------------
2 years 4.0%
- --------------------------------------------------------------------------------
3 or 4 years 3.0%
- --------------------------------------------------------------------------------
5 years 2.0%
- --------------------------------------------------------------------------------
6 years 1.0%
- --------------------------------------------------------------------------------
7 or more years None
- --------------------------------------------------------------------------------
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.
</TABLE>
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.
18 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES There are several ways you can combine
multiple purchases of Class A shares in John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
- - 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.
- - 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.
- - Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section on your application, or contact
your financial representative or Investor Services to add these options to an
existing account.
GROUP INVESTMENT PROGRAM Allows four or more accountholders to declare
themselves a group. Each has an individual account, but for sales charge
purposes, their investments are lumped together, making the investors
potentially eligible for reduced sales charges. There is no charge, no
obligation to invest (although initial aggregate investments must be at least
$250), and you may terminate the program at any time.
To utilize: contact your financial representative or Investor Services to find
out how to qualify.
CDSC WAIVERS In general, the CDSC for either share class may be waived on
shares you sell for the following reasons:
- - to make payments through certain Systematic Withdrawal Plans
- - to make distributions from a retirement plan
- - because of shareholder death or disability
To utilize: contact your financial representative or Investor Services.
REINSTATEMENT PRIVILEGE If you sell shares in a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
To utilize: contact your financial representative or Investor Services.
WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
- - government entities who are prohibited from paying mutual fund sales
charges
- - financial institutions or common trust funds investing $1 million or more
for non-discretionary accounts
- - selling brokers and their employees and sales representatives
- - financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
- - fund trustees and other individuals who are affiliated with these or other
John Hancock funds
- - individuals transferring assets to a John Hancock growth fund from an
employee benefit plan that has John Hancock funds
To utilize: if you think you may be eligible for a sales charge waiver, contact
Investor Services or consult the SAI (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock growth funds are as follows:
- non-retirement account: $1,000
- retirement account: $250
- group investments: $250
- Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
3 Complete the appropriate parts of the Account Application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Investor Services at 1-800-225-5291.
4 Complete the appropriate parts of the Account Privileges 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 on.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
YOUR ACCOUNT 19
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
BUYING SHARES
===============================================================================================================================
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BY CHECK
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a blank check.]
- - Make out a check for the investment amount, payable - Make out a check for the investment amount payable
to "John Hancock Investor Services Corporation." to "John Hancock Investor Services Corporation."
- - Deliver the check and your completed application to - Fill out the detachable investment slip from an account
your financial representative, or mail to Investor Services statement. If no slip is available, include a note specifying
(address on next page). the fund name, your share class, your account number,
and the name(s) in which the account is registered.
- Deliver the check and your investment slip or note to
your financial representative, or mail to Investor Services
(address on next page).
- ---------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- ---------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a white arrow outlined in black that points to the right above a black that points to the left.]
- - Call your financial representative or Investor Services - Call Investor Services to request an exchange.
to request an exchange.
- ---------------------------------------------------------------------------------------------------------------------------------
BY WIRE
- ---------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a jagged white arrow outlined in black that points upwards at a 45 degree angle.]
- - Deliver your completed application to your financial - Instruct your bank to wire the amount of your
representative, or mail it to Investor Services. investment to:
First Signature Bank & Trust
- - Obtain your account number by calling your financial Account #900000260
representative or Investor Services. Routing #211475000
Specify the fund name, your share class, your account
- - Instruct your bank to wire the amount of your number, and the name(s) in which the account is registered.
investment to: Your bank may charge a fee to wire funds.
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your choice of share class, the new
account number, and the name(s) in which the account is
registered. Your bank may charge a fee to wire funds.
- -------------------------------------------------------------------------------------------------------------------------------
BY PHONE
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a telephone.]
See "By wire" and "By exchange." - Verify that your bank or credit union is a member of
the Automated Clearing House (ACH) system.
- Complete the "Invest-By-Phone" and "Bank Information"
sections on your Account Privileges Application.
- Call Investor Services to verify that these features are in
place on your account.
- Tell the Investor Services representative the fund name,
your share class, your account number, the name(s)
in which the account is registered, and the amount of
your investment.
To open or add to an account using the Monthly Automatic Accumulation Program, see "Additional investor services."
</TABLE>
20 YOUR ACCOUNT
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
SELLING SHARES
===============================================================================================================================
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BY LETTER
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of the back of an envelope.]
- - Accounts of any type. - Write a letter of instruction or stock power indicating
the fund name, your share class, your account number,
- - Sales of any amount. the name(s) in which the account is registered, and the
dollar value or number of shares you wish to sell.
- Include all signatures and any additional documents
that may be required (see next page).
- Mail the materials to Investor Services.
- 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
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a telephone.]
- - Most accounts. - For automated service 24 hours a day using your
Touch-Tone phone, call the John Hancock Funds
- - Sales of up to $100,000. EASI-Line at 1-800-338-8080.
- To place your order with a representative at John
Hancock Funds, call Investor Services between 8 a.m. and
4 p.m. on most business days.
- -------------------------------------------------------------------------------------------------------------------------------
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a jagged white arrow outlined in black that points upwards at a 45 degree angle.]
- - Requests by letter to sell any amount (accounts of - Fill out the "Telephone redemption" section of your
any type). new account application.
- - Requests by phone to sell up to $100,000 (accounts - To verify that the telephone redemption privilege is in
with telephone redemption privileges). place on an account, or to request the forms to add it
to an existing account, call Investor Services.
- Amounts of $1,000 or more will be wired on the next
business day. A $4 fee will be deducted from your
account.
- 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
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a white arrow outlined in black that points to the right above a black that points to the left.]
- - Accounts of any type. - Obtain a current prospectus for the fund into which
you are exchanging by calling your financial representative
- - Sales of any amount. Investor Services.
- Call Investor Services to request an exchange.
============================================
Address for opening an account
John Hancock Investor Services Corporation
P.O. Box 9115 Boston, MA 02205-9115
Address for all other transactions
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
Phone number for all transactions
1-800-225-5291
Or contact your financial representative for To sell shares through a systematic withdrawal plan,
instructions and assistance see "Additional investor services."
============================================
</TABLE>
YOUR ACCOUNT 21
<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:
- - your address of record has changed within the past 30 days
- - you are selling more than $100,000 worth of shares
- - you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
- - you are an executor
You can generally obtain a signature guarantee from the following sources:
- - a broker or securities dealer
- - a federal savings, cooperative or other type of bank
- - a savings and loan or other thrift institution
- - a credit union
- - a securities exchange or clearing agency
A notary public cannot provide a signature guarantee.
<TABLE>
<CAPTION>
===================================================================================================================================
SELLER REQUIREMENTS FOR WRITTEN REQUESTS [A graphic image of the back of
an envelope.]
===================================================================================================================================
<S> <C>
Owners of individual, joint, sole proprietorship, UGMA/UTMA - Letter of instruction
(custodial accounts for minors) or general partner accounts.
- On the letter, the signatures and titles of all persons authorized
to sign for the account, exactly as the account is registered.
- -----------------------------------------------------------------------------------------------------------------------------------
Owners of corporate or association accounts. - Letter of instruction.
- Corporate resolution.
- On the letter and the resolution, the signature of the
person(s) authorized to sign for the account.
- -----------------------------------------------------------------------------------------------------------------------------------
Owners or trustees of trust accounts. - Letter of instruction.
- On the letter, the signature(s) of the trustee(s).
- If the names of all trustees are not registered on the account,
please also provide a copy of the trust document certified
within the last 60 days.
- -----------------------------------------------------------------------------------------------------------------------------------
Joint tenancy shareholders whose co-tenants are deceased. - Letter of instruction signed by surviving tenant.
- Copy of death certificate.
- -----------------------------------------------------------------------------------------------------------------------------------
Executors of shareholder estates. - Letter of instruction signed by executor.
- Copy of order appointing executor.
- -----------------------------------------------------------------------------------------------------------------------------------
Administrators, conservators, guardians and other sellers or - Call 1-800-225-5291 for instructions.
account types not listed above.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22 YOUR ACCOUNT
<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, as described earlier.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday-Friday. Buy and sell requests are executed
at the next NAV to be calculated after your request is accepted by Investor
Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Investor Services will take
measures to verify the identity of the caller, such as asking for name,
account number, Social Security or taxpayer ID number, and other relevant
information. If these measures are not taken, Investor Services is responsible
for any losses that may occur to any account due to an unauthorized telephone
call. Also for your protection, telephone transactions are not permitted on
accounts whose names or addresses have changed within the past 30 days.
Proceeds from telephone transactions can only be mailed to the address of
record.
EXCHANGES You may exchange shares of your John Hancock fund for shares of the
same class in any other John Hancock fund. You will not be charged any front-end
sales charges, and in general any CDSC calculations will be based on the date of
your original investment (although the CDSC will generally be that of the fund
with the higher rates). Class B shares that are exchanged into a fund that has
no CDSC will retain their original CDSC terms.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
CERTIFICATED SHARES Most shares are electronically recorded. If you wish to
have certificates for your shares, please write to Investor Services.
Certificated shares can only be sold by returning the certificates to Investor
Services, along with a letter of instruction or a stock power and a signature
guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten calendar days after
the purchase.
FOREIGN CURRENCIES Purchases must be made in U.S. dollars. Purchases in foreign
currencies must be converted, which may result in a fee and delayed execution.
- -------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
ACCOUNT STATEMENTS In general, you will receive account statements as follows:
- - after every transaction (except a dividend reinvestment) that affects your
account balance
- - after any changes of name or address of the registered owner(s)
- - every quarter during which there is a transaction, an automatic
investment/withdrawal plan activity or a dividend reinvestment
- - in all other circumstances, once a year
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS The funds generally distribute most or all of their net earnings in
the form of dividends.Capital gains dividends, if any, are typically paid once
a year. Most of the funds do not typically pay income dividends, with the
exception of Disciplined Growth Fund and Regional Bank Fund, which typically
pay income dividends quarterly and semi-annually respectively.
YOUR ACCOUNT 23
<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, any dividends you receive from a fund, whether reinvested or taken
as cash, are 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.
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, your fund's transfer agent
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) 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:
- - Complete the appropriate parts of your Account Privileges Application.
- - If you are using MAAP to open an account, make out a check ($25 minimum)
for your first investment amount payable to "John Hancock Investor Services
Corporation" and deliver your check and application to your financial
services representative or Investor Services.
SYSTEMATIC WITHDRAWAL PLAN May be used for routine bill payment or periodic
withdrawals from your account. To establish:
- - Make sure you have at least $5,000 worth of shares in your account.
- - 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).
- - 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.
- - Determine the schedule: monthly, quarterly, semi-annually, annually, or in
certain selected months.
- - Fill out the relevant part of the Account Privileges Application. To add a
Systematic Withdrawal Plan to an existing account, contact your financial
representative or Investor Services.
RETIREMENT PLANS John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, SARSEPs, TSAs, 401(k) plans, 403(b) plans, and
other pension and profit-sharing plans. Using these plans, you can invest in any
John Hancock fund with a low minimum investment of $250 or, for some group
plans, no minimum investment at all. To find out more, call Investor Services at
1-800-225-5291.
24 YOUR ACCOUNT
<PAGE>
FUND DETAILS
- -------------------------------------------------------------------------------
BUSINESS STRUCTURE
HOW THE FUNDS ARE ORGANIZED Each John Hancock growth fund is an open-end
management investment company or a series of such a company.
Each fund is supervised by a Board of Trustees or a Board of Directors, an
independent body which 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 that 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 growth 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").
[A flow chart that contains 9 rectangular-shaped boxes and illustrates the
hierarchy of how the funds are organized. Within the flowchart, there are 5
tiers. The tiers are connected by shaded lines.
Shareholders represent the first tier. There is a shaded vertical arrow on the
left-hand side of the page. The arrow has arrowheads on both ends and is
contained within two horizontal, shaded lines. This is meant to highlight
tiers two and three which focus on Distribution and Shareholder Services.
Financial Services Firms and their Representatives is shown on the second
tier. Principal Distributor and Transfer Agent are shown on the third tier.
A shaded vertical arrow on the right-hand side of the page denotes those
entities involved in Asset Management. The arrow has arrowheads on both ends
and is contained within two horizontal, shaded lines. This fourth tier
includes the Subadvisor, Investment Advisor and the Custodian.
The fifth tier contains the Trustees/Directors.]
FUND DETAILS 25
<PAGE>
ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax and
financial management services. Annual compensation for 1996 is estimated to be
0.01875% of each fund's average net assets.
PORTFOLIO TRADES In placing portfolio trades, the adviser may give preference to
brokerage firms that market the fund's shares or that are affiliated with John
Hancock Mutual Life Insurance Company, but only in cases where no other firm
appears to offer a better combination of quality execution (i.e., timeliness and
completeness) and favorable price.
<TABLE>
ADVERTISEMENT OF PERFORMANCE The funds may include figures for yield (where
appropriate) and total return in advertisements and other sales materials, as
follows:
<CAPTION>
===============================================================================
DEFINITIONS OF PERFORMANCE MEASURES
===============================================================================
Measure Definition
<S> <C>
Cumulative total Overall dollar or percentage change of a
return hypothetical investment over the stated time
period.
Average annual Cumulative total return divided by the
total return number of years in the period. The result is
an average and is not the same as the actual
year-to-year results.
Yield A measure of income, calculated by taking
the net investment income per share for a
30-day period, dividing it by the offering
price per share on the last day of the period
(if there is more than one offering price, the
highest price is used), and annualizing the
result. While this is the standard accounting
method for calculating yield, it does not
reflect the fund's actual bookkeeping; as a
result, the income reported or paid by the
fund may be different.
</TABLE>
All performance figures assume that dividends are reinvested, and show the
effect of all applicable sales charges. Class A performance figures generally
are calculated using the maximum sales charge. Because each share class has its
own sales charge structure, the classes have different performance results.
- -------------------------------------------------------------------------------
SALES COMPENSATION As part of their business strategies, the funds, along with
John Hancock Funds, pay compensation to financial services firms that sell the
funds' shares. These firms typically pass along a portion of this compensation
to your financial representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund in assets (the name refers to the
federal securities regulation that authorizes annual fees of this type). The
12b-1 fee rates vary by fund and by share class, according to Rule 12b-1 plans
adopted by the funds' respective boards. The sales charges and 12b-1 fees paid
by investors are detailed in the fund-by-fund information. The portions of these
expenses that are reallowed to financial services firms are shown below.
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.
From time to time, as an additional incentive to these firms, John Hancock Funds
may increase the reallowance on Class A shares to as much as the entire
front-end sales charge.
ANNUAL COMPENSATION Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears. Firms affiliated
with John Hancock, which include Tucker Anthony, Sutro & Company and John
Hancock Distributors, may receive an additional fee of up to 0.05% a year of
their total eligible net assets.
STATE REGISTRATION OF FUNDS You may only invest in or exchange into funds that
are registered in the state in which you live.
INVESTMENT GOALS Except for Discovery Fund, Special Opportunities Fund and
Emerging Growth Fund, each fund's investment goal is fundamental, meaning that
it may only be changed with shareholder approval.
26 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
CLASS A INVESTMENTS
==========================================================================================================================
MAXIMUM
SALES CHARGE REALLOWANCE 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>
- --------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------
First $1M - $4,999,999 -- 1.00% 0.25% 1.24%
- --------------------------------------------------------------------------------------------------------------------------
Next $1 - $5M above that -- 0.50% 0.25% 0.74%
- --------------------------------------------------------------------------------------------------------------------------
Next $1M and more above that -- 0.25% 0.25% 0.49%
- --------------------------------------------------------------------------------------------------------------------------
Waiver investments(2) -- 0.00% 0.25% 0.25%
==========================================================================================================================
CLASS B INVESTMENTS
==========================================================================================================================
MAXIMUM
REALLOWANCE MAXIMUM
OR COMMISSION SERVICE FEE TOTAL COMPENSATION (1)
(% of offering price) (% of net investment) (% of offering price)
- --------------------------------------------------------------------------------------------------------------------------
All amounts 3.75% 0.25% 4.00%
- --------------------------------------------------------------------------------------------------------------------------
(1) Reallowance/commission percentages and service fee percentages are calculated from different amounts, and therefore
may not equal total compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions and trusts that take advantage of the sales
charge waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to fund commission payments when there is no initial sales charge.
</TABLE>
FUND DETAILS 27
<PAGE>
- -------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the Trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following page are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies which may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock growth fund will be positive over any period of time -- days, months, or
years. However, stock funds as a category have historically performed better
over the long term than bond or money market funds.
Below are definitions of the types of investment risk associated with higher
risk securities and practices:
CORRELATION RISK The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated leverage risk.
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.
INFORMATION RISK The risk that key information about a security or market is
inaccurate or unavailable.
INTEREST RATE RISK The risk of losses attributable to the behavior of 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
"leverage" small changes in the value of a given index or security into large
changes.
- - HEDGED When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position which
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
- - 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 affect on fund management or
performance.
MANAGEMENT RISK The risk that strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk operates on all levels of a market; it 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 other investments.
POLITICAL RISK The risk of losses directly attributable to government or
political actions of any sort. These actions may range from changes in tax or
trade statutes to expropriation, governmental collapse and war.
VALUATION RISK The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
28 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
HIGHER RISK SECURITIES AND PRACTICES
====================================================================================================================================
This table shows each funs's investment limitations as
a percent of portfolio assets italic type if gross
assets, roman type if net assets). "NPL" indicates there
is no policy limit. In each case the principal types of DISICI-
risk are listed (see previous page for definitions). PLINED EMERGING REGIONAL SPECIAL SPECIAL
GROWTH DISCOVERY GROWTH GROWTH BANK EQUITIES OPPORTUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
REPURCHASE AGREEMENTS The purchase of a security that must
later be sold back to the issuer at the same price plus
interest. Credit risk. NPL NPL NPL NPL NPL NPL NPL
REVERSE REPURCHASE AGREEMENTS The sale of a security that
must later be bought back at the same price minus interest.
Leverage, credit risks. 33.3% 5% 33.3% 33.3% 33.3% 33.3% 33.3%
SECURITIES LENDING The lending of securities to financial
institutions, which provide cash or government securities as
collateral. Credit risk. 5% 33.3% 30% 33.3% 0% 33.3% 33.3%
SHORT SALES The selling of securities which have been
borrowed on the expectation that the market price will drop.
- - Hedged. Hedged leverage, market, correlation, liquidity,
opportunity risks. 0% NPL NPL NPL 0% NPL NPL
- - Speculative. Speculative leverage, market, liquidity risks. 0% 0% 0% 0% 0% 0% 5%
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. NPL NPL NPL NPL NPL NPL NPL
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. NPL NPL NPL NPL NPL NPL NPL
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES -- NON-DERIVATIVE
NON-INVESTMENT GRADE CONVERTIBLE SECURITIES Debt securities
that convert into equity securities at a future time.
Convertibles rated below BBB/Baa are considered "junk" bonds.
Credit, market, interest rate risks, liquidity, valuation and
information risks. 0% 0% 10% 5% 0% 0% 0%
FOREIGN EQUITIES
- - Stocks issued by foreign corporations. Market, currency,
information, natural event, political risks. 0% 25% NPL 0% 0% NPL NPL
- - American or European depository receipts, which are
dollar-denominated securities typically issued by American
or European banks and are based on ownership of securities
issued by a foreign corporation. Market, currency, information,
natural event, political risks. 10% 25% NPL 15% 0% NPL NPL
RESTRICTED AND ILLIQUID SECURITIES Securities not traded on the
open market. May include illiquid Rule 144A securities.
Liquidity, market risks. 15% 15% 10% 15% 10% 15% 15%
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES -- DERIVATIVE
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.
- - Futures and related options. Market, hedged or speculative
leverage, correlation, liquidity, opportunity risks. NPL NPL NPL NPL NPL NPL NPL
- - Options on securities and indices. Market, hedged or
speculative leverage, correlation, liquidity, opportunity
risks. 5% 5%(1) 10%(1) NPL 5% NPL NPL
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.
- - Hedged. Currency, hedged leverage, correlation, liquidity,
opportunity risks. 0% 25% NPL NPL 0% NPL NPL
- - Speculative. Currency, speculative leverage, liquidity risks. 0% 0% 0% 0% 0% 0% 0%
(1) Applies to purchases only.
</TABLE>
FUND DETAILS 29
<PAGE>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
Growth Funds:
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from the portfolio manager, and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/semi-annual report is included in the SAI.
The Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated by reference into this prospectus (is
legally part of this prospectus).
To request a free copy of the current annual/semi-annual report or the SAI,
please write or call:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, MA 02205-9116
Telephone: 1-800-225-5291
TDD: 1-800-544-6713
Email: http://jhancockfunds.com
[LOGO] JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avenue
Boston, Massachusetts 02199-7603
[LOGO]
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JOHN HANCOCK SERIES, INC.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
consisting of six series,
John Hancock Money Market Fund
John Hancock Global Resources Fund
John Hancock Government Income Fund
John Hancock High Yield Bond Fund
John Hancock High Yield Tax-Free Fund
John Hancock Emerging Growth Fund
(each, a "Fund" and collectively, the "Funds")
CLASS A AND CLASS B SHARES
STATEMENT OF ADDITIONAL INFORMATION
JULY 1, 1996
This Statement of Additional Information ("SAI") provides information about
John Hancock Series, Inc. (the "Corporation") and the Funds, in addition to the
information that is contained in the Funds' Prospectuses dated July 1, 1996
(collectively, the "Prospectuses"). Each Fund is a series portfolio of the
Corporation.
This SAI is not a prospectus. It should be read in conjunction with the
Prospectuses, copies of which can be obtained free of charge by writing or
telephoning:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Page
Organization of the Corporation........................................... 2
Investment Objectives and Policies........................................ 2
Certain Investment Practices.............................................. 4
Investment Restrictions................................................... 24
Those Responsible for Management.......................................... 29
Investment Advisory and Other Services.................................... 38
Distribution Agreement.................................................... 42
Net Asset Value........................................................... 45
Initial Sales Charge on Class A Shares.................................... 46
Deferred Sales Charge on Class B Shares................................... 47
Special Redemptions....................................................... 48
Additional Services and Programs.......................................... 48
Description of the Corporation's Shares................................... 49
Tax Status................................................................ 51
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Calculation of Performance................................................ 56
Brokerage Allocation...................................................... 60
Transfer Agent Services................................................... 62
Custody of Portfolio...................................................... 62
Independent Auditors...................................................... 62
Appendix.................................................................. 63
Financial Statements
ORGANIZATION OF THE CORPORATION
The Corporation is an open-end management investment company organized as a
Maryland corporation on June 22, 1987. The Corporation currently has six series:
John Hancock Emerging Growth Fund, John Hancock Global Resources Fund, John
Hancock Government Income Fund, John Hancock High Yield Bond Fund, John Hancock
High Yield Tax-Free Fund and John Hancock Money Market Fund. Prior to September
12, 1995, the John Hancock Money Market Fund was called John Hancock Money
Market Fund B. Prior to December 22, 1994, the Funds were called Transamerica
Emerging Growth Fund, Transamerica Global Resources Fund, Transamerica
Government Income Fund, Transamerica High Yield Bond Fund, Transamerica High
Yield Tax-Free Fund and Transamerica Money Market Fund B.
Each Fund is managed by John Hancock Advisers, Inc. (the "Adviser"), a wholly-
owned indirect subsidiary of John Hancock Mutual Life Insurance Company (the
"Life Company"), chartered in 1862 with national headquarters at John Hancock
Place, Boston, Massachusetts. John Hancock Funds, Inc. ("John Hancock Funds")
acts as principal distributor of the shares of the Funds.
INVESTMENT OBJECTIVES AND POLICIES
John Hancock Money Market Fund ("Money Market Fund") seeks to provide maximum
current income consistent with capital preservation and liquidity. The Fund's
investments will be subject to the market fluctuation and risks inherent in all
securities.
John Hancock Global Resources Fund's ("Global Resources Fund") investment
objectives are to protect the purchasing power of shareholders' capital and to
achieve growth of capital. The first of these objectives means that the Fund
seeks to protect generally shareholders' invested capital against erosion of the
value of the U.S. dollar through inflation. Current income will not be a primary
consideration in selecting securities. However, it will be an important factor
in making selections among securities believed otherwise comparable by the
Adviser.
Investment Philosophy of Global Resources Fund. The Adviser believes that, based
upon past performance, the securities of specific companies that hold different
types of substantial resource assets or engage in resource- related or
energy-related activities may move relatively independently of one another
during different stages of inflationary or deflationary cycles because of
different degrees of demand for, or market values of, their respective resource
holdings or resource-related or energy-related business during particular
portions of such cycles. For example, during the period 1976 to 1980, the prices
of oil company stocks increased relatively more than the prices of coal company
stocks when compared to the performance of relevant stock market indices. The
Adviser will seek to identify companies or asset- based securities which it
believes are attractively priced relative to the intrinsic value of the
underlying resource assets or resource-related or energy-related business or are
especially well positioned to benefit during particular portions of inflationary
or deflationary cycles. It is expected that when management of the Fund
anticipates significant economic, political or financial instability, such as
high inflationary or deflationary pressures or major dislocations in the foreign
currency exchange
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markets, the Fund may, in seeking to protect the purchasing power of
shareholders' capital, invest a majority of its assets in companies that explore
for, extract, process or deal in gold or in asset-based securities indexed to
the value of gold bullion. Such a switch in investment strategies could result
in substantial liquidation of portfolio securities and significant transaction
costs. The Fund's approach of active investment management enables it to switch
its emphasis among various industry groups, depending upon the Adviser's outlook
with respect to prevailing trends and developments. The Fund may seek to hedge
its portfolio partially by writing covered call options or purchasing put
options on its portfolio holdings.
John Hancock Government Income Fund's ("Government Income Fund") investment
objective is to earn a high level of current income consistent with preservation
of capital by investing primarily in securities that are issued or guaranteed as
to principal and interest by the U.S. Government, its agencies or
instrumentalities. The Fund may seek to enhance its current return and may seek
to hedge against changes in interest rates by engaging in transactions involving
options (subject to certain limits), futures and options on futures. The Fund
expects that under normal market conditions it will invest at least 80% of its
total assets in U.S. Government securities (and related repurchase agreements
and forward commitments).
John Hancock High Yield Bond Fund's ("High Yield Bond Fund") primary investment
objective is to maximize current income without assuming undue risk by investing
in a diversified portfolio consisting primarily of lower-rated, high yielding,
fixed income securities, such as: domestic and foreign corporate bonds;
debentures and notes; convertible securities; preferred stocks; and domestic and
foreign government obligations. As a secondary objective, the Fund seeks capital
appreciation, but only when it is consistent with the primary objective of
maximizing current income.
John Hancock High Yield Tax-Free Fund's ("High Yield Tax-Free Fund") primary
investment objective is to obtain a high level of current income that is largely
exempt from federal income taxes and is consistent with the preservation of
capital. The Fund pursues this objective by normally investing substantially all
of its assets in medium and lower quality obligations, including bonds, notes
and commercial paper, issued by or on behalf of states, territories and
possessions of the United States, The District of Columbia and their political
subdivisions, agencies or instrumentalities, the interest on which is exempt
from federal income tax ("tax-exempt securities"). The Fund seeks as its
secondary objective preservation of capital by purchasing and selling interest
rate futures contracts ("financial futures") and tax-exempt bond index futures
contracts ("index futures"), and by purchasing and writing put and call options
on debt securities, financial futures, tax-exempt bond indices and index futures
to hedge against changes in the general level of interest rates.
John Hancock Emerging Growth Fund ("Emerging Growth Fund") seeks long-term
growth of capital through investing primarily (at least 80% of its assets in
normal circumstances) in the common stocks of emerging companies (those with a
market capitalization of less than $1 billion). Current income is not a factor
of consequence in the selection of stocks for the Fund.
In order to achieve its objective, the Fund invests in a diversified group of
companies whose growth rates are expected to significantly exceed that of the
average industrial company. It invests in these companies early in their
corporate life cycle before they become widely recognized and well known, and
while their reputations and track records are still emerging ("emerging
companies"). Consequently, the Fund invests in the stocks of emerging companies
whose capitalization, sales and earnings are smaller than those of the Fortune
500 companies. Further, the Fund's investments in emerging company stocks may
include those of more established companies which offer the possibility of
rapidly accelerating earnings because of revitalized management, new products,
or structural changes in the economy.
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The nature of investing in emerging companies involves greater risk than is
customarily associated with investments in more established companies. In
particular, the value of securities of emerging companies tends to fluctuate
more widely than other types of investments. Because emerging companies may be
in the early stages of their development, they may be dependent on a relatively
few products or services. They may also lack adequate capital reserves or may be
dependent on one or two management individuals. Their stocks are often traded
"over-the-counter" or on a regional exchange, and may not be traded in volumes
typical of trading on a national exchange. Consequently, the investment risk is
higher than that normally associated with larger, older, better-known companies.
In order to help reduce this risk, the Fund allocates its investments among
different industries.
Most of the Fund's investments will be in equity securities of U.S. companies.
However, since many emerging companies are located outside the United States, a
significant portion of the Fund's investments may occasionally be invested in
equity securities of non-U.S. companies.
While the Fund will invest primarily in emerging companies, the balance of the
Fund's assets may be invested in: (1) other common stocks; (2) preferred stocks;
(3) convertible securities (up to 10% of the Fund's total assets may be invested
in convertible securities rated as low as "B" by Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's") to be comparable in
quality to those rated "B"); (4) warrants; and (5) debt obligations of the U.S.
Government, its agencies and instrumentalities.
In order to provide liquidity for the purchase of new investments and to effect
redemptions of its shares, the Fund will invest a portion of its assets in high
quality, short-term debt securities with remaining maturities of one year or
less, including U.S. Government securities, certificates of deposit, bankers'
acceptances, commercial paper, corporate debt securities and related repurchase
agreements.
During periods of unusual market conditions when the Adviser believes that
investing for temporary defensive purposes is appropriate, part or all of the
Fund's assets may be invested in cash or cash equivalents consisting of: (1)
obligations of banks (including certificates of deposit, bankers' acceptances
and repurchase agreements) with assets of $100,000,000 or more; (2) commercial
paper rated within the two highest rating categories of a nationally recognized
rating organization; (3) investment grade short-term notes; (4) obligations
issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities; and (5) related repurchase agreements.
There can be no assurance that the Funds will achieve their respective
investment objectives.
CERTAIN INVESTMENT PRACTICES
Government Securities. Each Fund may invest in U.S. Government securities, which
are obligations issued or guaranteed by the U.S. Government and its agencies,
authorities or instrumentalities. Certain U.S. Government securities, including
U.S. Treasury bills, notes and bonds, and Government National Mortgage
Association certificates ("Ginnie Maes"), are supported by the full faith and
credit of the United States. Certain other U.S. Government securities, issued or
guaranteed by Federal agencies or government sponsored enterprises, are not
supported by the full faith and credit of the United States, but may be
supported by the right of the issuer to borrow from the U.S. Treasury. These
securities include obligations of the Federal Home Loan Mortgage Corporation
("Freddie Macs"), and obligations supported by the credit of the
instrumentality, such as Federal National Mortgage Association Bonds ("Fannie
Maes"). No assurance can be given that the U.S. Government will provide
financial support to such Federal agencies, authorities, instrumentalities and
government sponsored enterprises in the future.
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Custodial Receipts. The Funds may each acquire custodial receipts in respect of
U.S. government securities. Such custodial receipts evidence ownership of future
interest payments, principal payments or both on certain notes or bonds. These
custodial receipts are known by various names, including Treasury Receipts,
Treasury Investors Growth Receipts ("TIGRs"), and Certificates of Accrual on
Treasury Securities ("CATS"). For certain securities law purposes, custodial
receipts are not considered U.S. government securities.
Bank and Corporate Obligations. Each of the Funds may invest in commercial
paper. Commercial paper represents short-term unsecured promissory notes issued
in bearer form by banks or bank holding companies, corporations and finance
companies. The commercial paper purchased by the Funds consists of direct U.S.
dollar denominated obligations of domestic or foreign issuers. Bank obligations
in which a Fund may invest include certificates of deposit, bankers' acceptances
and fixed time deposits. Certificates of deposit are negotiable certificates
issued against funds deposited in a commercial bank for a definite period of
time and earning a specified return.
Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn
by an importer or exporter to pay for specific merchandise, which are "accepted"
by a bank, meaning, in effect, that the bank unconditionally agrees to pay the
face value of the instrument on maturity. Fixed time deposits are bank
obligations payable at a stated maturity date and bearing interest at a fixed
rate. Fixed time deposits may be withdrawn on demand by the investor, but may be
subject to early withdrawal penalties which vary depending upon market
conditions and the remaining maturity of the obligation. There are no
contractual restrictions on the right to transfer a beneficial interest in a
fixed time deposit to a third party, although there is no market for such
deposits. Bank notes and bankers' acceptances rank junior to domestic deposit
liabilities of the bank and pari passu with other senior, unsecured obligations
of the bank. Bank notes are not insured by the Federal Deposit Insurance
Corporation or any other insurer. Deposit notes are insured by the Federal
Deposit Insurance Corporation only to the extent of $100,000 per depositor per
bank.
Municipal Obligations. Money Market Fund, High Yield Bond Fund and High Yield
Tax- Free Fund may invest in a variety of municipal obligations which consist of
municipal bonds, municipal notes and municipal commercial paper.
Municipal Bonds. Municipal bonds are issued to obtain funds for various public
purposes including the construction of a wide range of public facilities such as
airports, highways, bridges, schools, hospitals, housing, mass transportation,
streets and water and sewer works. Other public purposes for which municipal
bonds may be issued include refunding outstanding obligations, obtaining funds
for general operating expenses and obtaining funds to lend to other public
institutions and facilities. In addition, certain types of industrial
development bonds are issued by or on behalf of public authorities to obtain
funds for many types of local, privately operated facilities. Such debt
instruments are considered municipal obligations if the interest paid on them is
exempt from federal income tax. The payment of principal and interest by issuers
of certain obligations purchased by a Fund may be guaranteed by a letter of
credit, note repurchase agreement, insurance or other credit facility agreement
offered by a bank or other financial institution. Such guarantees and the
creditworthiness of guarantors will be considered by the Adviser in determining
whether a municipal obligation meets the Fund's investment quality requirements.
No assurance can be given that a municipality or guarantor will be able to
satisfy the payment of principal or interest on a municipal obligation.
Municipal Notes. Municipal notes are short-term obligations of municipalities,
generally with a maturity ranging from six months to three years. The principal
types of such notes include tax, bond and revenue anticipation notes and project
notes.
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Municipal Commercial Paper. Municipal commercial paper is a short-term
obligation of a municipality, generally issued at a discount with a maturity of
less than one year. Such paper is likely to be issued to meet seasonal working
capital needs of a municipality or interim construction financing. Municipal
commercial paper is backed in many cases by letters of credit, lending
agreements, note repurchase agreements or other credit facility agreements
offered by banks and other institutions.
Federal tax legislation enacted in the 1980s placed substantial new restrictions
on the issuance of the bonds described above and in some cases eliminated the
ability of state or local governments to issue municipal obligations for some of
the above purposes. Such restrictions do not affect the Federal income tax
treatment of municipal obligations in which a Fund may invest which were issued
prior to the effective dates of the provisions imposing such restrictions. The
effect of these restrictions may be to reduce the volume of newly issued
municipal obligations.
Issuers of municipal obligations are subject to the provisions of bankruptcy,
insolvency and other laws affecting the rights and remedies of creditors, such
as the Federal Bankruptcy Act, and laws, if any, which may be enacted by
Congress or state legislatures extending the time for payment of principal or
interest, or both, or imposing other constraints upon enforcement of such
obligations. There is also the possibility that as a result of litigation or
other conditions the power or ability of any one or more issuers to pay when due
the principal of and interest on their municipal obligations may be affected.
The yields of municipal bonds depend upon, among other things, general money
market conditions, general conditions of the municipal bond market, size of a
particular offering, the maturity of the obligation and rating of the issue. The
ratings of Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service,
Inc. ("Moody's") and Fitch Investors Service ("Fitch") represent their
respective opinions on the quality of the municipal bonds they undertake to
rate. It should be emphasized, however, that ratings are general and not
absolute standards of quality. Consequently, municipal bonds with the same
maturity, coupon and rating may have different yields and municipal bonds of the
same maturity and coupon with different ratings may have the same yield. See the
Appendix for a description of ratings. Many issuers of securities choose not to
have their obligations rated. Although unrated securities eligible for purchase
by a Fund must be determined to be comparable in quality to securities having
certain specified ratings, the market for unrated securities may not be as broad
as for rated securities since many investors rely on rating organizations for
credit appraisal.
Mortgage-Backed Securities. Government Income Fund and High Yield Bond Fund may
invest in mortgage pass-through certificates and multiple-class pass- through
securities, such as real estate mortgage investment conduits ("REMIC")
pass-through certificates, collateralized mortgage obligations ("CMOs") and
stripped mortgage-backed securities ("SMBS"), and other types of "Mortgage-
Backed Securities" that may be available in the future.
Guaranteed Mortgage Pass-Through Securities. Guaranteed mortgage pass-through
securities represent participation interests in pools of residential mortgage
loans and are issued by U.S. Governmental or private lenders and guaranteed by
the U.S. Government or one of its agencies or instrumentalities, including but
not limited to the Government National Mortgage Association ("Ginnie Mae"), the
Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan
Mortgage Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by
the full faith and credit of the U.S. Government for timely payment of principal
and interest on the certificates. Fannie Mae certificates are guaranteed by
Fannie Mae, a federally chartered and privately owned corporation, for full and
timely payment of principal and interest on the certificates. Freddie Mac
certificates are guaranteed by Freddie Mac, a corporate
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instrumentality of the U.S. Government, for timely payment of interest and the
ultimate collection of all principal of the related mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
CMOs and REMIC pass-through or participation certificates may be issued by,
among others, U.S. Government agencies and instrumentalities as well as private
lenders. CMOs and REMIC certificates are issued in multiple classes and the
principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Generally, interest is paid or accrues on all
classes of CMOs or REMIC certificates on a monthly basis.
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac
certificates but also may be collateralized by other mortgage assets such as
whole loans or private mortgage pass-through securities. Debt service on CMOs is
provided from payments of principal and interest on collateral of mortgaged
assets and any reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Internal
Revenue Code of 1986, as amended (the "Code") and invests in certain mortgages
primarily secured by interests in real property and other permitted investments.
Stripped Mortgage-Backed Securities. SMBS are derivative multiple-class
mortgage-backed securities. SMBS are usually structured with two classes that
receive different proportions of interest and principal distributions on a pool
of mortgage assets. A typical SMBS will have one class receiving some of the
interest and most of the principal, while the other class will receive most of
the interest and the remaining principal. In the most extreme case, one class
will receive all of the interest (the "interest only" class) while the other
class will receive all of the principal (the "principal only" class). The yields
and market risk of interest only and principal only SMBS, respectively, may be
more volatile than those of other fixed income securities. The staff of the SEC
considers privately issued SMBS to be illiquid.
Structured or Hybrid Notes. Government Income Fund, High Yield Bond Fund and
High Yield Tax-Free Fund may invest in "structured" or "hybrid" notes. The
distinguishing feature of a structured or hybrid note is that the amount of
interest and/or principal payable on the note is based on the performance of a
benchmark asset or market other than fixed income securities or interest rates.
Examples of these benchmarks include stock prices, currency exchange rates and
physical commodity prices. Investing in a structured note allows a Fund to gain
exposure to the benchmark market while fixing the maximum loss that the Fund may
experience in the event that market does not perform as expected. Depending on
the terms of the note, a Fund may forego all or part of the interest and
principal that would be payable on a comparable conventional note; a Fund's loss
cannot exceed this foregone interest and/or principal. An investment in
structured or hybrid notes involves risks similar to those associated with a
direct investment in the benchmark asset.
Risk Factors Associated with Mortgage-Backed Securities. Investing in
Mortgage-Backed Securities involves certain risks, including the failure of a
counter-party to meet its commitments, adverse interest rate changes and the
effects of prepayments on mortgage cash flows. In addition, investing in the
lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. Further, the yield
characteristics of Mortgage-Backed Securities differ from those of traditional
fixed income securities. The major differences typically include more frequent
interest and principal payments (usually monthly), the adjustability of interest
rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates.
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Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing interest rate environment. Under certain interest
rate and prepayment rate scenarios, a Fund may fail to recoup fully its
investment in Mortgage-Backed Securities notwithstanding any direct or indirect
governmental, agency or other guarantee. When a Fund reinvests amounts
representing payments and unscheduled prepayments of principal, it may receive a
rate of interest that is lower than the rate on existing adjustable rate
mortgage pass-through securities. Thus, Mortgage-Backed Securities, and
adjustable rate mortgage pass-through securities in particular, may be less
effective than other types of U.S. Government securities as a means of "locking
in" interest rates.
Conversely, in a rising interest rate environment, a declining prepayment rate
will extend the average life of many Mortgage-Backed Securities. This
possibility is often referred to as extension risk. Extending the average life
of a Mortgage-Backed Security increases the risk of depreciation due to future
increases in market interest rates.
Risk Associated With Specific Types of Derivative Debt Securities. Different
types of derivative debt securities are subject to different combinations of
prepayment, extension and/or interest rate risk. Conventional mortgage pass-
through securities and sequential pay CMOs are subject to all of these risks,
but are typically not leveraged. Thus, the magnitude of exposure may be less
than for more leveraged Mortgage-Backed Securities.
The risk of early prepayments is the primary risk associated with interest only
debt securities ("IOs"), super floaters, other leveraged floating rate
instruments and Mortgage-Backed Securities purchased at a premium to their par
value. In some instances, early prepayments may result in a complete loss of
investment in certain of these securities. The primary risks associated with
certain other derivative debt securities are the potential extension of average
life and/or depreciation due to rising interest rates.
These securities include floating rate securities based on the Cost of Funds
Index ("COFI floaters"), other "lagging rate" floating rate securities, floating
rate securities that are subject to a maximum interest rate ("capped floaters"),
Mortgage-Backed Securities purchased at a discount, leveraged inverse floating
rate securities ("inverse floaters"), principal only debt securities ("POs"),
certain residual or support tranches of CMOs and index amortizing notes. Index
amortizing notes are not Mortgage-Backed Securities, but are subject to
extension risk resulting from the issuer's failure to exercise its option to
call or redeem the notes before their stated maturity date. Leveraged inverse
IOs combine several elements of the Mortgage-Backed Securities described above
and thus present an especially intense combination of prepayment, extension and
interest rate risks.
Planned amortization class ("PAC") and target amortization class ("TAC") CMO
bonds involve less exposure to prepayment, extension and interest rate risk than
other Mortgage-Backed Securities, provided that prepayment rates remain within
expected prepayment ranges or "collars." To the extent that prepayment rates
remain within these prepayment ranges, the residual or support tranches of PAC
and TAC CMOs assume the extra prepayment, extension and interest rate risk
associated with the underlying mortgage assets.
Other types of floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates. X- reset
floaters have a coupon that
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remains fixed for more than one accrual period.
Thus, the type of risk involved in these securities depends on the terms of each
individual X-reset floater.
Asset-Backed Securities. Government Income Fund and High Yield Bond Fund may
invest a portion of their assets in asset-backed securities which are rated in
one of the two highest rating categories by a nationally recognized statistical
rating organization (e.g., S&P or Moody's) or if not so rated, of equivalent
investment quality in the opinion of the Adviser.
Asset-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments of principal on the underlying loans. During periods of declining
interest rates, prepayment of loans underlying asset-backed securities can be
expected to accelerate. Accordingly, a Fund's ability to maintain positions in
such securities will be affected by reductions in the principal amount of such
securities resulting from prepayments, and its ability to reinvest the returns
of principal at comparable yields is subject to generally prevailing interest
rates at that time.
Credit card receivables are generally unsecured and the debtors on such
receivables are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set-off
certain amounts owed on the credit cards, thereby reducing the balance due.
Automobile receivables generally are secured, but by automobiles rather than
residential real property. Most issuers of automobile receivables permit the
loan servicers to retain possession of the underlying obligations. If the
servicer were to sell these obligations to another party, there is a risk that
the purchaser would acquire an interest superior to that of the holders of the
asset-backed securities. In addition, because of the large number of vehicles
involved in a typical issuance and technical requirements under state laws, the
trustee for the holders of the automobile receivables may not have a proper
security interest in the underlying automobiles. Therefore, there is the
possibility that, in some cases, recoveries on repossessed collateral may not be
available to support payments on these securities.
Asset-Based Securities. Global Resources Fund may invest in debt securities,
preferred stocks or convertible securities, the principal amount, redemption
terms or conversion terms of which are related to the market price of some
resource asset such as gold bullion. For the purposes of the Fund's investment
policies, these securities are referred to as asset-based securities.
If the asset-based security is backed by a bank letter of credit or other
similar facility, the Adviser may take such backing into account in determining
the credit quality of the asset-based security. Although an asset-based security
and the related natural resource asset generally are expected to move in the
same direction, there may not be perfect correlation in the two price movements.
Asset-based securities may not be secured by a security interest in or claim on
the underlying natural resource assets. The Fund's holdings of such securities
may not generate appreciable current income and the return from such securities
primarily will be from any profit on the sale, maturity or conversion thereof at
a time when the price of the related asset is higher than it was when the Fund
purchased such securities.
The asset-based securities in which the Fund may invest may bear interest or pay
preferred dividends at below market (or even relatively nominal) rates. Certain
asset-based securities may be payable at maturity in cash at the stated
principal amount or, at the option of the holder, directly in a stated amount of
the asset to which it is related. In such instance, because the Fund presently
does not intend to invest directly in natural resource assets other than gold
bullion, the Fund would sell the asset-based security in the secondary market,
to the extent one exists, prior to maturity if the value of the stated amount of
the asset exceeds the stated principal amount and thereby realize the
appreciation in the underlying asset.
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The Fund will not acquire asset-based securities for which no established
secondary trading market exists if at the time of acquisition more than 10% of
its total assets are invested in securities which are not readily marketable.
The Fund may invest in asset-based securities without limit when it has the
right to sell such securities to the issuer or a stand-by bank or broker and
receive the principal amount or redemption price thereof less transaction costs
on no more than seven days notice or when the Fund has the right to convert such
securities into a readily marketable security in which it could otherwise invest
upon not more than seven days notice.
Special Considerations Related to Investment in Gold. Under certain
circumstances, Global Resources Fund may invest a majority of its assets in
gold, gold related securities or securities of gold-related companies. Based on
historic experience, during periods of economic or financial instability the
securities of such companies may be subject to extreme price fluctuations,
reflecting the high volatility of gold prices during such periods. Gold may be
affected by unpredictable international monetary and political policies, social
conditions within a particular country, trade imbalances or trade or currency
restrictions between countries. In addition, the instability of gold prices may
result in volatile earnings of gold-related companies which, in turn, may affect
adversely the financial condition of such companies. Gold mining companies also
are subject to the risks generally associated with mining operations.
The major producers of gold include the Republic of South Africa, Russia,
Canada, the United States, Brazil and Australia. Sales of gold by Russia are
largely unpredictable and often relate to political and economic considerations
rather than to market forces. Economic, social and political developments within
South Africa may affect significantly South African gold production and the
markets for South African gold which may in turn significantly affect the price
of gold.
The Fund is currently authorized to invest up to 10% of its assets in gold
bullion and coins, although it does not currently intend to invest in coins. The
Fund may seek to increase this limit to 25% through negotiation with a certain
state which imposes the 10% limit as a condition for qualifying the shares of
the Fund for sale in that state.
Investments in gold may help to hedge against inflation and major fluctuations
in the Fund's shares because at certain times the price of gold has fluctuated
less widely than the value of the securities which are permitted investments.
When the Fund purchases bullion, the Adviser currently intends that it will be
only in a form that is readily marketable and that it will be delivered to and
stored with a qualified U.S. bank. An investment in bullion earns no investment
income and involves higher custody and transaction costs than investments in
securities. The Fund will also incur the cost of insurance in connection with
holding gold. The market for gold bullion is presently unregulated which could
affect the ability of the Fund to acquire or dispose of gold bullion. In order
to qualify as a regulated investment company for federal income taxes, the Fund
may receive no more than 10% of its yearly gross income from gains caused by
selling gold bullion or coins and from certain other sources that do not produce
"qualifying" income. The Fund may be required, therefore, either to hold its
gold bullion or sell it at a loss, or to sell its portfolio securities at a
gain, when it would not otherwise do so for investment reasons. The Fund may
also purchase precious metal warehouse receipts that may be convertible into
cash or gold bullion as an alternative to a direct investment in gold. Whereas
gold bullion is traded in the form of contracts to buy or sell bullion which are
in the nature of futures or commodities contracts, warehouse receipts represent
ownership of a specified quantity of identified gold bars held in storage.
Although ownership of gold in this manner entails storage and insurance expense,
there is an active over-the-counter market in such receipts so that they are a
liquid investment. For purposes of the Fund's investment limitations, such
warehouse receipts would be considered to be equivalent to direct investments in
the precious metals.
Foreign Securities and Emerging Countries. Emerging Growth Fund, Global
Resources Fund and High Yield Bond Fund may invest in securities of foreign
issuers. These Funds may also
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invest in debt and equity securities of corporate and governmental issuers of
countries with emerging economies or securities markets. Government Income Fund
may invest in foreign currency denominated securities of foreign governments
considered stable by the Adviser and may hedge such investments through various
options and futures transactions involving foreign currencies. Money Market Fund
may invest in foreign securities and in certificates of deposit, bankers'
acceptances and fixed time deposits and other obligations issued by foreign
banks and their U.S. and foreign branches and foreign branches of U.S. banks.
Money Market Fund may also invest in municipal instruments backed by letters of
credit issued by certain of such banks. Under current Securities and Exchange
Commission ("SEC") rules relating to the use of the amortized cost method of
portfolio securities valuation, Money Market Fund is restricted to purchasing
U.S. dollar denominated securities.
Investing in obligations of non-U.S. issuers and foreign banks, particularly
securities of issuers located in emerging countries, may entail greater risks
than investing in similar securities of U.S. issuers. These risks include (i)
social, political and economic instability; (ii) the small current size of the
markets for many such securities and the currently low or nonexistent volume of
trading, which may result in a lack of liquidity and in greater price
volatility; (iii) certain national policies which may restrict a Fund's
investment opportunities, including restrictions on investment in issuers or
industries deemed sensitive to national interests; (iv) foreign taxation; and
(v) the absence of developed structures governing private or foreign investment
or allowing for judicial redress for injury to private property.
Investing in securities of non-U.S. companies may entail additional risks due to
the potential political and economic instability of certain countries and the
risks of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment and on repatriation of capital invested. In
the event of such expropriation, nationalization or other confiscation by any
country, a Fund could lose its entire investment in any such country.
In addition, even though opportunities for investment may exist in foreign
countries, and in particular emerging markets, any change in the leadership or
policies of the governments of those countries or in the leadership or policies
of any other government which exercises a significant influence over those
countries, may halt the expansion of or reverse the liberalization of foreign
investment policies now occurring and thereby eliminate any investment
opportunities which may currently exist.
Investors should note that upon the accession to power of authoritarian regimes,
the governments of a number of Latin American countries previously expropriated
large quantities of real and personal property similar to the property which may
be represented by the securities purchased by the Funds. The claims of property
owners against those governments were never finally settled. There can be no
assurance that any property represented by foreign securities purchased by a
Fund will not also be expropriated, nationalized, or otherwise confiscated. If
such confiscation were to occur, a Fund could lose a substantial portion of its
investments in such countries. A Fund's investments would similarly be adversely
affected by exchange control regulation in any of those countries.
Certain countries in which the Funds may invest may have vocal minorities that
advocate radical religious or revolutionary philosophies or support ethnic
independence. Any disturbance on the part of such individuals could carry the
potential for widespread destruction or confiscation of property owned by
individuals and entities foreign to such country and could cause the loss of a
Fund's investment in those countries.
Certain countries prohibit or impose substantial restrictions on investments in
their capital markets, particularly their equity markets, by foreign entities
such as the Funds. As illustrations, certain countries require governmental
approval prior to investments by foreign persons, or limit
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the amount of investment by foreign persons in a particular company, or limit
the investment by foreign persons to only a specific class of securities of a
company that may have less advantageous terms than securities of the company
available for purchase by nationals. Moreover, the national policies of certain
countries may restrict investment opportunities in issuers or industries deemed
sensitive to national interests. In addition, some countries require
governmental approval for the repatriation of investment income, capital or the
proceeds of securities sales by foreign investors. A Fund could be adversely
affected by delays in, or a refusal to grant, any required governmental approval
for repatriation, as well as by the application to it of other restrictions on
investments.
Foreign companies are subject to accounting, auditing and financial standards
and requirements that differ, in some cases significantly, from those applicable
to U.S. companies. In particular, the assets, liabilities and profits appearing
on the financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. Most foreign securities held by the Funds will not be
registered with the SEC and such issuers thereof will not be subject to the
SEC's reporting requirements. Thus, there will be less available information
concerning foreign issuers of securities held by the Funds than is available
concerning U.S. issuers. In instances where the financial statements of an
issuer are not deemed to reflect accurately the financial situation of the
issuer, the Adviser or Subadviser will take appropriate steps to evaluate the
proposed investment, which may include on- site inspection of the issuer,
interviews with its management and consultations with accountants, bankers and
other specialists. There is substantially less publicly available information
about foreign companies than there are reports and ratings published about U.S.
companies and the U.S. government. In addition, where public information is
available, it may be less reliable than such information regarding U.S. issuers.
Because the Funds (other than Money Market Fund) may invest, and Global
Resources Fund will (under normal circumstances) invest a substantial portion of
their total assets, in securities which are denominated or quoted in foreign
currencies, the strength or weakness of the U.S. dollar against such currencies
may account for part of the Funds' investment performance. A decline in the
value of any particular currency against the U.S. dollar will cause a decline in
the U.S. dollar value of a Fund's holdings of securities denominated in such
currency and, therefore, will cause an overall decline in the Fund's net asset
value and any net investment income and capital gains to be distributed in U.S.
dollars to shareholders of the Fund.
The rate of exchange between the U.S. dollar and other currencies is determined
by several factors including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the movement of interest
rates, the pace of business activity in certain other countries and the U.S.,
and other economic and financial conditions affecting the world economy.
Although the Funds value their respective assets daily in terms of U.S. dollars,
the Funds do not intend to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. However, the Funds may do so from time to time,
and investors should be aware of the costs of currency conversion. Although
currency dealers do not charge a fee for conversion, they do realize a profit
based on the difference ("spread") between the prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a foreign
currency to a Fund at one rate, while offering a lesser rate of exchange should
the Fund desire to sell that currency to the dealer.
Securities of foreign issuers, and in particular many emerging country issuers,
may be less liquid and their prices more volatile than securities of comparable
U.S. issuers. In addition, foreign securities exchanges and brokers are
generally subject to less governmental supervision and regulation than in the
U.S., and foreign securities exchange transactions are usually subject to fixed
commissions, which are generally higher than negotiated commissions on U.S.
transactions.
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In addition, foreign securities exchange transactions may be subject to
difficulties associated with the settlement of such transactions. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to a Fund due
to subsequent declines in value of the portfolio security or, if the Fund has
entered into a contract to sell the security could result in possible liability
to the purchaser.
The Funds' investment income or, in some cases, capital gains from foreign
issuers may be subject to foreign withholding or other taxes, thereby reducing
the Funds' net investment income and/or net realized capital gains.
See "Tax Status."
Depositary Receipts. As discussed in the Prospectuses, Emerging Growth Fund,
Global Resources Fund and High Yield Bond Fund may invest in the securities of
foreign issuers in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") or other securities convertible into securities of
foreign issuers. These securities may not necessarily be denominated in the same
currency as the securities into which they may be converted but rather in the
currency of the market in which they are traded. ADRs are receipts typically
issued by an American bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs are receipts issued
in Europe by banks or depositories which evidence a similar ownership
arrangement. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs, in bearer form, are designed for use in European
securities markets.
Options on Foreign Currencies. Global Resources Fund may purchase and write put
and call options on foreign currencies for the purpose of protecting against
declines in the dollar value of portfolio securities and against increases in
the dollar cost of securities to be acquired.
As in the case of other types of options, however, the writing of an option on
foreign currency will constitute only a partial hedge, such as the amount of the
premium received and the Fund could be required to purchase or sell foreign
currencies at disadvantageous exchange rates, thereby incurring losses. The
purchase of an option on foreign currency may constitute an effective hedge
against fluctuations in exchange rates although, in the event of rate movements
adverse to the Fund's position, it may forfeit the entire amount of the premium
plus related transaction costs.
Options on foreign currencies are traded in a manner substantially similar to
options on securities. In particular, an option on foreign currency provides the
holder with the right to purchase, in the case of a call option, or to sell, in
the case of a put option, a stated quantity of a particular currency for a fixed
price up to a stated expiration date. The writer of the option undertakes the
obligation to deliver, in the case of a call option, or to purchase, in the case
of a put option, the quantity of the currency called for in the option, upon
exercise of the option by the holder.
As in the case of other types of options, the holder of an option on foreign
currency is required to pay a one-time, non-refundable premium, which represents
the cost of purchasing the option. The holder can lose the entire amount of this
premium, as well as related transaction costs, but not more than this amount.
The writer of the option, in contrast, generally is required to make initial and
variation margin payments similar to margin deposits required in the trading of
futures contracts and the writing of other types of options. The writer is
therefore subject to risk of loss beyond the amount originally invested and
above the value of the option at the time it is entered into. Certain options on
foreign currencies like forward contracts are traded over-the-counter through
financial institutions acting as market- makers in such options and the
underlying currencies. Such transactions therefore involve risks not generally
associated with exchange-traded instruments. Options on foreign currencies may
also be traded on national
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securities exchanges regulated by the SEC or commodities exchanges regulated by
the Commodity Futures Trading Commission.
Forward Foreign Currency Contracts. Emerging Growth Fund, Global Resources Fund
and High Yield Bond Fund may engage in forward foreign currency transactions.
Generally, the foreign currency exchange transactions of the Funds 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. A Fund may also deal
in forward foreign currency exchange contracts involving currencies of the
different countries in which it may invest as a hedge against possible
variations in the foreign exchange rate between these currencies. This is
accomplished through contractual agreements to purchase or sell a specified
currency at a specified future date and price set at the time of the contract.
The Funds' dealings in forward foreign currency exchange contracts will be
limited to hedging either specified transactions or portfolio positions.
Transaction hedging is the purchase or sale of forward foreign currency
contracts with respect to specific receivables or payables of a Fund accruing in
connection with the purchase and sale of its portfolio securities denominated in
foreign currencies. Portfolio hedging is the use of forward foreign currency
contracts to offset portfolio security positions denominated or quoted in such
foreign currencies. A Fund will not attempt to hedge all of its foreign
portfolio positions and will enter into such transactions only to the extent, if
any, deemed appropriate by the Adviser. The Board of Directors has adopted a
policy of monitoring the Funds' foreign currency contract income to assure that
the Funds qualify as regulated investment companies under the Code. The Fund
will not engage in speculative forward foreign currency exchange transactions.
If a Fund purchases a forward contract, its custodian bank will segregate cash
or high grade liquid debt securities in a separate account of the Fund in an
amount equal to the value of the Fund's total assets committed to the
consummation of such forward contract. Those assets will be valued at market
daily and if the value of the securities in the separate account declines,
additional cash or securities will be placed in the account so that the value of
the account will be equal to the amount of the Fund's commitment with respect to
such contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for a 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 a Fund of engaging in foreign currency exchange transactions varies
with such factors as the currency involved, the length of the contract period
and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
Repurchase Agreements. Each Fund may enter into repurchase agreements. A
repurchase agreement is a contract under which the Fund would acquire a security
for a relatively short period (generally not more than seven days) subject to
the obligation of the seller to repurchase and the Fund to resell such security
at a fixed time and price (representing the Fund's cost plus interest). The Fund
will enter into repurchase agreements only with member banks of the Federal
Reserve System and with securities dealers. The Adviser will continuously
monitor the creditworthiness of the parties with whom the Fund enters into
repurchase agreements. The Fund has established a procedure providing that the
securities serving as collateral for each repurchase agreement must be delivered
to the Fund's custodian either physically or in book-entry form and that the
collateral must be marked to market daily to ensure that each repurchase
agreement is fully collateralized at all times. In the event of bankruptcy or
other default by a seller of a repurchase agreement, the Fund could experience
delays in liquidating the underlying securities and could experience losses,
including the possible decline in the value of the underlying securities during
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the period which the Fund seeks to enforce its rights thereto, possible
subnormal levels of income and lack of access to income during this period, and
the expense of enforcing its rights. The Fund will not invest in a repurchase
agreement maturing in more than seven days, if such investment, together with
other illiquid securities held by the Fund (including restricted securities)
would exceed 10% of the Fund's total assets.
Reverse Repurchase Agreements. Each Fund may also enter into reverse repurchase
agreements which involve the sale of government securities held in its portfolio
to a bank or securities firm with an agreement that the Fund will buy back the
securities at a fixed future date at a fixed price plus an agreed amount of
"interest" which may be reflected in the repurchase price. Reverse repurchase
agreements are considered to be borrowings by the Fund. The Fund will use
proceeds obtained from the sale of securities pursuant to reverse repurchase
agreements to purchase other investments. The use of borrowed funds to make
investments is a practice known as "leverage," which is considered speculative.
Use of reverse repurchase agreements is an investment technique that is intended
to increase income. Thus, a Fund will enter into a reverse repurchase agreement
only when the Adviser determines that the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. However, there is a risk that interest expense will nevertheless
exceed the income earned. Reverse repurchase agreements involve the risk that
the market value of securities purchased by a 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. A 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, a 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 the securities (plus any accrued
interest thereon) under such agreements. In addition, a Fund will not enter into
reverse repurchase agreements and other borrowings exceeding in the aggregate
more than 33 1/3% of the market value of its total net assets. A Fund will enter
into reverse repurchase agreements only with selected registered broker/dealers
or with federally insured banks or savings and loan associations which are
approved in advance as being creditworthy by the Board of Directors. Under
procedures established by the Board of Directors, the Adviser will monitor the
creditworthiness of the firms involved.
Forward Commitment and When-Issued Securities. Each 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. A 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, a Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When a 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 Funds losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued and forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date a Fund enters into an agreement to purchase securities on a when-
issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
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.
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Alternatively, a Fund may enter into offsetting contracts for the forward sale
of other securities that it owns.
Short Sales. Global Resources Fund may engage in short sales in order to profit
from an anticipated decline in the value of a security. Each of Global Resources
Fund and Emerging Growth Fund may engage in short sales to attempt to limit its
exposure to a possible market decline in the value of its portfolio securities
through short sales of securities which the Adviser believes possess volatility
characteristics similar to those being hedged. To effect such a transaction, the
Fund must borrow the security sold short to make delivery to the buyer. The Fund
then is obligated to replace the security borrowed by purchasing it at the
market price at the time of replacement. Until the security is replaced, the
Fund is required to pay to the lender any accrued interest and may be required
to pay a premium.
A Fund will realize a gain if the security declines in price between the date of
the short sale and the date on which the Fund replaces the borrowed security. On
the other hand, the Fund will incur a loss as a result of the short sale if the
price of the security increases between those dates. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of any premium
or interest or dividends the Fund may be required to pay in connection with a
short sale. The successful use of short selling as a hedging device may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the SEC, if a Fund engages in short
sales, it must put in a segregated account (not with the broker) an amount of
cash or U.S. Government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). In addition, until the Fund replaces the borrowed
security, it must daily maintain the segregated account at such a level that (1)
the amount deposited in it plus the amount deposited with the broker as
collateral will equal the current market value of the securities sold short, and
(2) the amount deposited in it plus the amount deposited with the broker as
collateral will not be less than the market value of the securities at the time
they were sold short.
Short selling may produce higher than normal portfolio turnover which may result
in increased transaction costs to a Fund and may result in gains from the sale
of securities deemed to have been held for less than three months, which gains
must be less than 30% of the Fund's gross income in order for the Fund to
qualify as a regulated investment company under the Code.
Lower Rated High Yield Debt Obligations. Emerging Growth Fund, Government Income
Fund, High Yield Bond Fund and High Yield Tax-Free Fund may invest in high
yielding, fixed income securities rated below investment grade (e.g., rated Baa
or lower by Moody's or BBB or lower by S&P).
Ratings are based largely on the historical financial condition of the issuer.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate.
See the Appendix to this SAI which describes the characteristics of corporate
bonds in the various rating categories. The Fund may invest in comparable
quality unrated securities which, in the opinion of the Adviser, offer
comparable yields and risks to those securities which are rated.
Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the ability of the issuer to
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make payments of interest and principal. The high yield fixed income market is
relatively new and its growth occurred during a period of economic expansion.
The market has not yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities generally
respond to short term corporate and market developments to a greater extent than
do the price and liquidity of higher rated securities because such developments
are perceived to have a more direct relationship to the ability of an issuer of
such lower rated securities to meet its ongoing debt obligations.
Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations will make it more difficult to dispose of the
bonds and to value accurately a Fund's assets. The reduced availability of
reliable, objective data may increase a Fund's reliance on management's judgment
in valuing high yield bonds. In addition, a Fund's investments in high yield
securities may be susceptible to adverse publicity and investor perceptions,
whether or not justified by fundamental factors. A Fund's investments, and
consequently its net asset value, will be subject to the market fluctuations and
risks inherent in all securities.
Credit and Interest Rate Risks. In addition to the information contained in the
Prospectuses, investors should note that while ratings by a rating institution
provide a generally useful guide to credit risks, they do not, nor do they
purport to, offer any criteria for evaluating interest rate risk. Changes in the
general level of interest rates cause fluctuations in the prices of fixed-income
securities already outstanding and will therefore result in fluctuation in net
asset value of the shares of Funds to the extent the Funds invest in these
securities. The extent of the fluctuation is determined by a complex interaction
of a number of factors. The Adviser will evaluate those factors it considers
relevant and will make portfolio changes when it deems it appropriate in seeking
to reduce the risk of depreciation in the value of a Fund's portfolio. However,
in seeking to achieve a Fund's primary objectives, there will be times, such as
during periods of rising interest rates, when depreciation and realization of
comparable losses on securities in the portfolio will be unavoidable. Moreover,
medium and lower- rated securities and unrated securities of comparable quality
tend to be subject to wider fluctuations in yield and market values than higher
rated securities. Such fluctuations after a security is acquired do not affect
the cash income received from that security but are reflected in the net asset
value of the Fund's portfolio. Other risks of lower quality securities include:
(i) subordination to the prior claims of banks and other senior
lenders and
(ii) the operation of mandatory sinking fund or call/redemption
provisions during periods of declining interest rates whereby the
Funds may reinvest premature redemption proceeds in lower
yielding portfolio securities.
In determining which securities to purchase or hold in a Fund's portfolio
(including, in the case of High Yield Bond Fund, investments in either unrated
or rated securities which are in default) and in seeking to reduce credit and
interest rate risk consistent with a Fund's investment objective and policies,
the Adviser will rely on information from various sources, including: the rating
of the security; research, analysis and appraisals of brokers and dealers; the
views of the Fund's Directors and others regarding economic developments and
interest rate trends; and the Adviser's own analysis of factors it deems
relevant as it pertains to achieving a Fund's investment objective(s).
Purchases of Warrants. Emerging Growth Fund's and Global Resources Fund's
investment policies permit the purchase of rights and warrants, which represent
rights to purchase the common stock of companies at designated prices. No such
purchase will be made by a Fund, however, if the Fund's holdings of warrants
(valued at lower of cost or market) would exceed 5% of the value of the Fund's
total net assets as a result of the purchase. In addition, no Fund will
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purchase a warrant or right which is not listed on the New York or American
Stock Exchanges if the purchase would result in the Fund's owning unlisted
warrants in an amount exceeding 2% of its net assets.
Convertible Securities. Emerging Growth Fund, Global Resources Fund and High
Yield Bond Fund may invest in convertible securities. Convertible securities are
securities that may be converted at either a stated price or stated rate into
underlying shares of common stock of the same issuer. Convertible securities
have general characteristics similar to both fixed income and equity securities.
Although to a lesser extent than with straight debt securities, the market value
of convertible securities tends to decline as interest rates increase, and,
conversely, tends to increase as interest rates decline. In addition, because of
the conversion feature, the market value of convertible securities tends to vary
with fluctuations in the market value of the underlying common stocks and
therefore will also react to variations in the general market for equity
securities. A unique feature of convertible securities is that as the market
price of the underlying common stock declines, convertible securities tend to
trade increasingly on a yield basis, and consequently may not experience market
value declines to the same extent as the underlying common stock. When the
market price of the underlying common stock increases, the prices of the
convertible securities tend to rise as a reflection of the value of the
underlying common stock. While no securities investments are without risk,
investments in convertible securities generally entail less risk than
investments in common stock of the same issuer. However, the issuers of
convertible securities may default on their obligations.
Mortgage "Dollar Roll" Transactions. Government Income Fund and High Yield Bond
Fund may enter into mortgage "dollar roll" transactions with selected banks and
broker-dealers pursuant to which a Fund sells Mortgage-Backed Securities for
delivery in the future (generally within 30 days) and simultaneously contracts
to repurchase substantially similar (same type, coupon and maturity) securities
on a specified future date. These Funds will only enter into covered rolls. A
"covered roll" is a specific type of dollar roll for which there is an
offsetting cash position or a cash equivalent security position which matures on
or before the forward settlement date of the dollar roll transaction. Covered
rolls are not treated as a borrowing or other senior securities.
Dollar rolls in which the Funds may invest will be limited to covered rolls.
For financial reporting and tax purposes, the Funds propose to treat mortgage
dollar rolls as two separate transactions; one involving the purchase of a
security and a separate transaction involving a sale. The Funds do not currently
intend to enter into mortgage dollar rolls that are accounted for as a
financing. Mortgage dollar rolls involve certain risks including the following:
if the broker-dealer to whom a Fund sells the security becomes insolvent, the
Fund's right to purchase or repurchase the Mortgage-Backed Securities subject to
the mortgage dollar roll may be restricted and the instrument which the Fund is
required to repurchase may be worth less than an instrument which the Fund
originally held. Successful use of mortgage dollar rolls will depend upon the
Adviser's ability to predict correctly interest rates and mortgage prepayments.
For these reasons, there is no assurance that mortgage dollar rolls can be
successfully employed.
Financial Futures Contracts. To the extent set forth in their Prospectuses, the
Funds (other than Money Market Fund) may buy and sell futures contracts (and
related options) on stocks, stock indices, debt securities, currencies, interest
rate indices, and other instruments. Each Fund may hedge its portfolio by
selling or purchasing financial futures contracts as an offset against the
effects of changes in interest rates or in security or foreign currency values.
Although other techniques could be used to reduce exposure to interest rate
fluctuations, a Fund may be able to hedge its exposure more effectively and
perhaps at a lower cost by using financial futures contracts. The Funds may
enter into financial futures contracts for hedging and other purposes to the
extent permitted by regulations of the Commodity Futures Trading Commission
("CFTC").
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<PAGE>
Financial futures contracts have been designed by boards of trade which have
been designated "contract markets" by the CFTC. Futures contracts are traded on
these markets in a manner that is similar to the way a stock is traded on a
stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. Currently, financial futures
contracts are based on interest rate instruments such as long-term U.S. Treasury
bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA")
modified pass-through mortgage-backed securities, three-month U.S. Treasury
bills, 90-day commercial paper, bank certificates of deposit and Eurodollar
certificates of deposit. It is expected that if other financial futures
contracts are developed and traded the Funds may engage in transactions in such
contracts.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts are
closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts (same exchange, underlying security and delivery
month). Other financial futures contracts, such as futures contracts on
securities indices, by their terms call for cash settlements. If the offsetting
purchase price is less than a Fund's original sale price, the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than a Fund's original purchase price, the Fund realizes a
gain, or if it is less, the Fund realizes a loss. The transaction costs must
also be included in these calculations. Each Fund will pay a commission in
connection with each purchase or sale of financial futures contracts, including
a closing transaction. For a discussion of the Federal income tax considerations
of trading in financial futures contracts, see the information under the caption
"Tax Status" below.
At the time a Fund enters into a financial futures contract, it is required to
deposit with its custodian a specified amount of cash or U.S. Government
securities, known as "initial margin," ranging upward from 1.1% of the value of
the financial futures contract being traded. The margin required for a financial
futures contract is set by the board of trade or exchange on which the contract
is traded and may be modified during the term of the contract. The initial
margin is in the nature of a performance bond or good faith deposit on the
financial futures contract which is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. The Funds
expect to earn interest income on their initial margin deposits. Each day, the
futures contract is valued at the official settlement price of the board of
trade or exchange on which it is traded. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the financial futures contract fluctuates. This process is known
as "mark to market." Variation margin does not represent a borrowing or lending
by the Funds but is instead settlement between the Funds and the broker of the
amount one would owe the other if the financial futures contract expired. In
computing net asset value, the Funds will mark to market their respective open
financial futures positions.
Successful hedging depends on a strong correlation between the market for the
underlying securities and the futures contract market for those securities.
There are several factors that will probably prevent this correlation from being
a perfect one, and even a correct forecast of general interest rate trends may
not result in a successful hedging transaction. There are significant
differences between the securities and futures markets which could create an
imperfect correlation between the markets and which could affect the success of
a given hedge. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for financial
futures and debt securities, including technical influences in futures trading
and differences between the financial instruments being hedged and the
instruments underlying the standard financial futures contracts available for
trading in such respects as interest rate levels, maturities and
creditworthiness of issuers. The degree of imperfection may be increased where
the underlying debt securities are lower-rated and, thus, subject to greater
fluctuation in price than higher-rated securities.
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A decision as to whether, when and how to hedge involves the exercise of skill
and judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected interest rate trends. The Funds will
bear the risk that the price of the securities being hedged will not move in
complete correlation with the price of the futures contracts used as a hedging
instrument. Although the Adviser believes that the use of financial futures
contracts will benefit the Funds, an incorrect prediction could result in a loss
on both the hedged securities in the respective Fund's portfolio and the hedging
vehicle so that the Fund's return might have been better had hedging not been
attempted. However, in the absence of the ability to hedge, the Adviser might
have taken portfolio actions in anticipation of the same market movements with
similar investment results but, presumably, at greater transaction costs. The
low margin deposits required for futures transactions permit an extremely high
degree of leverage. A relatively small movement in a futures contract may result
in losses or gains in excess of the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount the price of a futures contract may vary either up or down
from the previous day's settlement price, at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day
and, therefore, does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses.
Finally, although the Funds engage in financial futures transactions only on
boards of trade or exchanges where there appears to be an adequate secondary
market, there is no assurance that a liquid market will exist for a particular
futures contract at any given time. The liquidity of the market depends on
participants closing out contracts rather than making or taking delivery. In the
event participants decide to make or take delivery, liquidity in the market
could be reduced. In addition, the Funds could be prevented from executing a buy
or sell order at a specified price or closing out a position due to limits on
open positions or daily price fluctuation limits imposed by the exchanges or
boards of trade. If a Fund cannot close out a position, it will be required to
continue to meet margin requirements until the position is closed.
Options on Financial Futures Contracts. To the extent set forth in their
Prospectuses, the Funds (other than Money Market Fund) may buy and sell options
on financial futures contracts on stocks, stock indices, debt securities,
currencies, interest rate indices, and other instruments. An option on a futures
contract gives the purchaser the right, in return for the premium paid, to
assume a position in a futures contract at a specified exercise price at any
time during the period of the option. Upon exercise, the writer of the option
delivers the futures contract to the holder at the exercise price. The Funds
would be required to deposit with their custodian initial and variation margin
with respect to put and call options on futures contracts written by them.
Options on futures contracts involve risks similar to the risks relating to
transactions in financial futures contracts. Also, an option purchased by a Fund
may expire worthless, in which case a Fund would lose the premium it paid for
the option.
Other Considerations. The Funds will engage in futures and options transactions
for bona fide hedging or other purposes to the extent permitted by CFTC
regulations. A Fund will determine that the price fluctuations in the futures
contracts and options on futures used for hedging purposes are substantially
related to price fluctuations in securities held by the Fund or which it expects
to purchase. Except as stated below, the Funds' futures transactions will be
entered into for traditional hedging purposes -- i.e., futures contracts will be
sold to protect against a decline in the price of securities that the Funds own,
or futures contracts will be purchased to protect the Funds against an increase
in the price of securities, or the currency in which they are denominated, the
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<PAGE>
Fund intends to purchase. As evidence of this hedging intent, the Funds expect
that on 75% or more of the occasions on which they take a long futures or option
position (involving the purchase of futures contracts), the Funds will have
purchased, or will be in the process of purchasing equivalent amounts of related
securities or assets denominated in the related currency in the cash market at
the time when the futures contract or option position is closed out. However, in
particular cases, when it is economically advantageous for a Fund to do so, a
long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging definition, a
CFTC regulation permits the Funds to elect to comply with a different test,
under which the aggregate initial margin and premiums required to establish
nonhedging positions in futures contracts and options on futures will not exceed
5% of the net asset value of the respective 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
Funds will engage in transactions in futures contracts only to the extent such
transactions are consistent with the requirements of the Code for maintaining
their qualifications as regulated investment companies for Federal income tax
purposes.
When the Funds purchase financial futures contracts, or write put options or
purchase call options thereon, cash or liquid, high grade debt securities will
be deposited in a segregated account with the Funds' custodian in an amount
that, together with the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contracts.
Options Transactions. To the extent set forth in their Prospectuses, the Funds
(other than Money Market Fund) may write listed and over-the-counter covered
call options and covered put options on securities in order to earn additional
income from the premiums received. In addition, to the extent set forth in their
Prospectuses, the Funds may purchase listed and over-the- counter call and put
options. The extent to which covered options will be used by the Funds will
depend upon market conditions and the availability of alternative strategies.
A Fund will write listed and over-the-counter call options only if they are
"covered," which means that the Fund owns or has the immediate right to acquire
the securities underlying the options without additional cash consideration upon
conversion or exchange of other securities held in its portfolio. A call option
written by a Fund may also be "covered" if the Fund holds on a share-for-share
basis a covering call on the same securities where (i) the exercise price of the
covering call held is equal to or less than the exercise price of the call
written if the difference is maintained by the Fund in cash, U.S. Treasury bills
or high grade liquid debt obligations in a segregated account with the Fund's
custodian, and (ii) the covering call expires at the same time as the call
written. If a covered call option is not exercised, a Fund would keep both the
option premium and the underlying security. If the covered call option written
by a Fund is exercised and the exercise price, less the transaction costs,
exceeds the cost of the underlying security, the Fund would realize a gain in
addition to the amount of the option premium it received. If the exercise price,
less transaction costs, is less than the cost of the underlying security, a
Fund's loss would be reduced by the amount of the option premium.
As the writer of a covered put option, each Fund will write a put option only
with respect to securities it intends to acquire for its portfolio and will
maintain in a segregated account with its custodian bank cash, U.S. Government
securities or high-grade liquid debt securities with a value equal to the price
at which the underlying security may be sold to the Fund in the event the put
option is exercised by the purchaser. The Funds may also write a "covered" put
option by purchasing on a share-for-share basis a put on the same security as
the put written by the Fund if the exercise price of the covering put held is
equal to or greater than the exercise price of the put written and the covering
put expires at the same time or later than the put written.
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When writing listed and over-the-counter covered put options on securities, the
Funds would earn income from the premiums received. If a covered put option is
not exercised, the Funds would keep the option premium and the assets maintained
to cover the option. If the option is exercised and the exercise price,
including transaction costs, exceeds the market price of the underlying
security, a Fund would realize a loss, but the amount of the loss would be
reduced by the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate its obligation
prior to its exercise, it may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that a Fund's position will be offset by
the Options Clearing Corporation. The Funds may not effect a closing purchase
transaction after they have been notified of the exercise of an option. There is
no guarantee that a closing purchase transaction can be effected. Although the
Funds will generally write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange or board of trade will exist for any particular option or at any
particular time, and for some options no secondary market on an exchange may
exist.
In the case of a written call option, effecting a closing transaction will
permit a Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. In the case of a
written put option, it will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or short-
term securities. Also, effecting a closing transaction will permit the cash or
proceeds from the concurrent sale of any securities subject to the option to be
used for other investments. If a Fund desires to sell a particular security from
its portfolio on which it has written a call option, it will effect a closing
transaction prior to or concurrent with the sale of the security.
A Fund will realize a gain from a closing transaction if the cost of the closing
transaction is less than the premium received from writing the option. The Funds
will realize a loss from a closing transaction if the cost of the closing
transaction is more than the premium received for writing the option. However,
because increases in the market price of a call option will generally reflect
increases in the market price of the underlying security, any loss resulting
from the repurchase of a call option is likely to be offset in whole or in part
by appreciation of the underlying security owned by the Fund.
Over-the-Counter Options. Funds that may engage in options transactions may
engage in options transactions on exchanges and in the over-the-counter markets.
In general, exchange-traded options are third-party contracts (i.e., performance
of the parties' obligations is guaranteed by an exchange or clearing
corporation) with standardized strike prices and expiration dates.
Over-the-counter ("OTC") transactions are two-party contracts with price and
terms negotiated by the buyer and seller. A Fund will acquire only those OTC
options for which management believes the Fund can receive on each business day
at least two separate bids or offers (one of which will be from an entity other
than a party to the option) or those OTC options valued by an independent
pricing service. The Funds will write and purchase OTC options only with member
banks of the Federal Reserve System and primary dealers in U.S. Government
securities or their affiliates which have capital of at least $50 million or
whose obligations are guaranteed by an entity having capital of at least $50
million. The SEC has taken the position that OTC options are illiquid securities
subject to each Fund's restriction that illiquid securities are limited to not
more than 10% of the Fund's net assets. The SEC, however, has a partial
exemption from the above restrictions on transactions in OTC options. The SEC
allows a Fund to exclude from the 10% limitation on illiquid securities a
portion of the value of the OTC options written by the Fund, provided that
certain conditions are met. First, the other party to the OTC options has to be
a primary U.S. Government securities dealer designated as such by the Federal
Reserve Bank. Second, the Fund must have an absolute contractual right to
repurchase
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the OTC options at a formula price. If the above conditions are met, a Fund may
treat as illiquid only that portion of the OTC option's value (and the value of
its underlying securities) which is equal to the formula price for repurchasing
the OTC option, less the OTC option's intrinsic value.
Restricted Securities. Emerging Growth Fund may purchase securities that are not
registered ("restricted securities") under the Securities Act of 1933 ("1933
Act"), including securities offered and sold to "qualified institutional buyers"
under Rule 144A under the 1933 Act. However, the Fund will not invest more than
10% of its assets in illiquid investments, which include repurchase agreements
maturing in more than seven days, securities that are not readily marketable and
restricted securities. However, if the Board of Directors determines, based upon
a continuing review of the trading markets for specific Rule 144A securities,
that they are liquid, then such securities may be purchased without regard to
the 10% limit. The Directors may adopt guidelines and delegate to the Adviser
the daily function of determining the monitoring and liquidity of restricted
securities. The Directors, however, will retain sufficient oversight and be
ultimately responsible for the determinations. The Directors will carefully
monitor the Fund's investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of information.
This investment practice could have the effect of increasing the level of
illiquidity in the Fund if qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
The Fund may acquire other restricted securities including securities for which
market quotations are not readily available. These securities may be sold only
in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the Securities Act of 1933.
Where registration is required, the Fund may be obligated to pay all or part of
the registration expenses and a considerable period may elapse between the time
of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell. Restricted securities
will be priced at fair market value as determined in good faith by the Fund's
Directors. If through the appreciation of restricted securities or the
depreciation of unrestricted securities, the Fund should be in a position where
more than 10% of the value of its assets is invested in illiquid securities
(including repurchase agreements which mature in more than seven days and
options which are traded over-the-counter and their underlying securities), the
Fund will bring its holdings of illiquid securities below the 10% limitation.
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. A 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 corresponding higher
transaction expenses and may make it more difficult for a Fund to qualify as a
regulated investment company for federal income tax purposes.
Lending of Securities. To the extent permitted by their respective Prospectuses,
the Funds 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. A Fund may reinvest any cash
collateral in short-term securities. When a 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
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of the borrower's bankruptcy, the Fund may be delayed in or prevented from
liquidating the collateral.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions
Each Fund has adopted certain fundamental investment restrictions upon its
investments as set forth below which cannot be changed as to any Fund without
the approval of the holders of a majority of that Fund's outstanding shares. A
majority for this purpose means: (a) more than 50% of the outstanding shares of
a Fund, or (b) 67% or more of the shares represented at a meeting where more
than 50% of the outstanding shares of a Fund are represented, whichever is less.
If a percentage restriction or rating restriction on investment or utilization
of assets is adhered to at the time an investment is made or assets are so
utilized, a later change in percentage resulting from changes in the value of a
Fund's portfolio securities or a later change in the rating of a portfolio
security will not be considered a violation of policy.
For the purpose of these restrictions, High Yield Bond Fund, Government Income
Fund and Money Market Fund are referred to as the "Fixed Income Funds" and
Emerging Growth Fund and Global Resources Fund are referred to as the "Equity
Funds." The restrictions applicable to High Yield Tax-Free Fund are set out
subsequently.
Each Fixed Income Fund and each Equity Fund may not:
(1) Borrow money in an amount in excess of 33-1/3% of its total assets, and then
only as a temporary measure for extraordinary or emergency purposes (except that
it may enter into a reverse repurchase agreement within the limits described in
the Prospectus or this SAI), or pledge, mortgage or hypothecate an amount of its
assets (taken at market value) in excess of 15% of its total assets, in each
case taken at the lower of cost or market value. For the purpose of this
restriction, collateral arrangements with respect to options, futures contracts,
options on futures contracts and collateral arrangements with respect to initial
and variation margins are not considered a pledge of assets.
(2) Underwrite securities issued by other persons except insofar as such Fund
may technically be deemed an underwriter under the Securities Act of 1933 in
selling a portfolio security.
(3) Purchase or retain real estate (including limited partnership interests but
excluding securities of companies, such as real estate investment trusts, which
deal in real estate or interests therein and securities secured by real estate),
or mineral leases, commodities or commodity contracts except, in the case of
Resources Fund, precious metals (except contracts for the future delivery of
fixed income securities, stock index and currency futures and options on such
futures) in the ordinary course of its business. Each Fund reserves the freedom
of action to hold and to sell real estate or mineral leases, commodities or
commodity contracts acquired as a result of the ownership of securities.
(4) Invest in direct participation interests in oil, gas or other mineral
exploration or development programs.
(5) Make loans to other persons except by the purchase of obligations in which
such Fund is authorized to invest and by entering into repurchase agreements;
provided that a Fund may lend its portfolio securities not in excess of 30% of
its total assets (taken at market value). Not more than 10% of a Fund's total
assets (taken at market value) will be subject to repurchase agreements maturing
in more than seven days. For these purposes the purchase of all or a portion of
an issue
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of debt securities shall not be considered the making of a loan. In addition,
the Equity Funds may purchase a portion of an issue of debt securities of types
commonly distributed privately to financial institutions.
(6) Purchase the securities of any issuer if such purchase, at the time thereof,
would cause more than 5% of its total assets (taken at market value) to be
invested in the securities of such issuer, other than securities issued or
guaranteed by the United States or, in the case of the Fixed Income Funds, any
state or political subdivision thereof, or any political subdivision of any such
state, or any agency or instrumentality of the United States, any state or
political subdivision thereof, or any political subdivision of any such state.
In applying these limitations, a guarantee of a security will not be considered
a security of the guarantor, provided that the value of all securities issued or
guaranteed by that guarantor, and owned by the Fund, does not exceed 10% of the
Fund's total assets. In determining the issuer of a security, each state and
each political subdivision agency, and instrumentality of each state and each
multi-state agency of which such state is a member is a separate issuer. Where
securities are backed only by assets and revenues of a particular
instrumentality, facility or subdivision, such entity is considered the issuer.
(7) Invest in companies for the purpose of exercising control or management.
(8) Purchase or retain in its portfolio any securities issued by an issuer any
of whose officers, directors, trustees or security holders is an officer or
Director of such Fund, or is a member, partner, officer or Director of the
Adviser, if after the purchase of the securities of such issuer by such Fund one
or more of such persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such persons
owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all taken at
market value.
(9) Purchase any securities or evidences of interest therein on margin, except
that each Fund may obtain such short-term credit as may be necessary for the
clearance of purchases and sales of securities and each Fund (other than the
Money Market Fund) may make deposits on margin in connection with Futures
Contracts and related options.
(10) Sell any security which such Fund does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to obtain
securities without payment of further consideration equivalent in kind and
amount to the securities sold and provided that if such right is conditional the
sale is made upon equivalent conditions.
(11) Purchase securities issued by any other investment company or investment
trust except by purchase in the open market where no commission or profit to a
sponsor or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open market, is
part of a plan of merger or consolidation; provided, however, that a Fund will
not purchase such securities if such purchase at the time thereof would cause
more than 10% of its total assets (taken at market value) to be invested in the
securities of such issuers; provided, further, that a Fund will not purchase
securities issued by an open-end investment company; and provided, further, that
the foregoing fundamental investment restriction shall not apply to Emerging
Growth Fund.
(12) Knowingly invest in securities which are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
trading in the security is suspended or market makers do not exist or will not
entertain bids or offers), except for repurchase agreements, if, as a result
thereof more than 10% of such Fund's total assets (taken at market value) would
be so invested. (The Staff of the Securities and Exchange Commission has taken
the position that a money market fund may not invest more than 10% of its net
assets in illiquid
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securities. The Money Market Fund has undertaken with the Staff to require, that
as a matter of operating policy, it will not invest in illiquid securities in an
amount exceeding 10% of its net assets.)
(13) Issue any senior security (as that term is defined in the Investment
Company Act of 1940 (the "1940 Act")) if such issuance is specifically
prohibited by the 1940 Act or the rules and regulations promulgated thereunder.
For the purpose of this restriction, collateral arrangements with respect to
options, Futures Contracts and Options on futures contracts and collateral
arrangements with respect to initial and variation margins are not deemed to be
the issuance of a senior security.
In addition, no Fixed Income Fund (except for Money Market Fund and High Yield
Bond Fund) may invest more than 25% of its total assets (taken at market value)
in the securities of issuers engaged in any one industry. Money Market Fund may
not invest more than 25% of its total assets in obligations issued by (i)
foreign banks or (ii) foreign branches of U.S. banks where the Adviser has
determined that the U.S. bank is not unconditionally responsible for the payment
obligations of the foreign branch. High Yield Bond Fund may not invest more than
25% of its total assets (taken at market value) in the securities of issuers
engaged in any one industry, except that High Yield Bond Fund may invest up to
40% of the value of its total assets in the securities of issuers engaged in the
electric utility and telephone industries. Obligations issued or guaranteed by
the U.S. Government or its agencies or instrumentalities are not subject to the
Fixed Income Fund's limitations on industry concentration. Determinations of
industries for purposes of the foregoing limitations are made in accordance with
specific industry codes set forth in the Standard Industrial Classification
Manual and without considering groups of industries (e.g., all utilities or all
finance companies) to be an industry. Also, a Fixed Income Fund may not purchase
securities of any issuer (other than securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities) if such purchase, at the time
thereof, would cause a Fund to hold more than 10% of any class of securities of
such issuer. For this purpose, all indebtedness of an issuer (for the Money
Market Fund, all indebtedness of an issuer maturing in less than one year) shall
be deemed a single class and all preferred stock of an issuer shall be deemed a
single class.
In addition, an Equity Fund may not:
(1) Concentrate its investments in any particular industry, but if it is deemed
appropriate for the attainment of its investment objective, such Fund may invest
up to 25% of its assets (taken at market value at the time of each investment)
in securities of issuers in any one industry.
(2) Purchase voting securities of any issuer if such purchase, at the time
thereof, would cause more than 10% of the outstanding voting securities of such
issuer to be held by such Fund; or purchase securities of any issuer if such
purchase at the time thereof would cause more than 10% of any class of
securities of such issuer to be held by such Fund. For this purpose all
indebtedness of an issuer shall be deemed a single class and all preferred stock
of an issuer shall be deemed a single class. In applying these limitations, a
guarantee of a security will not be considered a security of the guarantor,
provided that the value of all securities issued or guaranteed by that
guarantor, and owned by the Fund, does not exceed 10% of the Fund's total
assets. In determining the issuer of a security, each state and each political
subdivision agency, and instrumentality of each state and each multi- state
agency of which such state is a member is a separate issuer. Where securities
are backed only by assets and revenues of a particular instrumentality, facility
or subdivision, such entity is considered the issuer.
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High Yield Tax-Free Fund may not:
(1) Borrow money except from banks for temporary or emergency (not leveraging)
purposes, including the meeting of redemption requests that might otherwise
require the untimely disposition of securities, in an amount up to 15% of the
value of the Fund's total assets (including the amount borrowed) valued at
market less liabilities (not including the amount borrowed) at the time the
borrowing was made. While borrowings exceed 5% of the value of the Fund's total
assets, the Fund will not purchase any additional securities. Interest paid on
borrowings will reduce the Fund's net investment income. The borrowing
restriction set forth above does not prohibit the use of reverse repurchase
agreements, in an amount (including any borrowings) not to exceed 33-1/3% of net
assets.
(2) Pledge, hypothecate, mortgage or otherwise encumber its assets, except in an
amount up to 10% of the value of its total assets but only to secure borrowings
for temporary or emergency purposes as may be necessary in connection with
maintaining collateral in connection with writing put or call options or making
initial margin deposits in connection with the purchase or sale of financial
futures or index futures contracts and related options.
(3) Purchase securities (except obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) if the purchase would cause the
Fund at the time to have more than 5% of the value of its total assets invested
in the securities of any one issuer or to own more than 10% of the outstanding
debt securities of any one issuer; provided, however, that up to 25% of the
value of the Fund's asset may be invested without regard to these restrictions.
(4) Purchase or retain the securities of any issuer, if to the knowledge of the
Fund, any officer or director of the Fund or its Adviser owns more than 1/2 of
1% of the outstanding securities of such issuer, and all such officers and
directors own in the aggregate more than 5% of the outstanding securities of
such issuer.
(5) Write, purchase or sell puts, calls or combinations thereof, except put and
call options on debt securities, futures contracts based on debt securities,
indices of debt securities and futures contracts based on indices of debt
securities, sell securities on margin or make short sales of securities or
maintain a short position, unless at all times when a short position is open it
owns an equal amount of such securities or securities convertible into or
exchangeable, without payment of any further consideration, for securities of
the same issue as, and equal in amount to, the securities sold short, and unless
not more than 10% of the Fund's net assets (taken at current value) is held as
collateral for such sales at any one time.
(6) Underwrite the securities of other issuers, except insofar as the Fund may
be deemed an underwriter under the Securities Act of 1933 in disposing of a
portfolio security.
(7) Purchase the securities of any issuer if as a result more than 10% of the
value of the Fund's total assets would be invested in securities that are
subject to legal or contractual restrictions on resale ("restricted securities")
and in securities for which there are no readily available market quotations; or
enter into a repurchase agreement maturing in more than seven days, if as a
result such repurchase agreement together with restricted securities and
securities for which there are no readily available market quotations would
constitute more than 10% of the Fund's total assets.
(8) Purchase or sell real estate, real estate investment trust securities,
commodities or commodity contracts, except commodities and commodities contracts
which are necessary to enable the Fund to engage in permitted futures and
options transactions necessary to implement hedging strategies, or oil and gas
interests, but this shall not prevent the Fund from investing in municipal
obligations secured by real estate or interests in real estate.
-27-
<PAGE>
(9) Make loans to others, except insofar as the Fund may enter in repurchase
agreements as set forth in the Prospectus or this SAI. The purchase of an issue
of publicly distributed bonds or other securities, whether or not the purchase
was made upon the original issuance of securities, is not to be considered the
making of a loan.
(10) Invest more than 25% of its assets in the securities of the "issuers" in
any single industry; provided that there shall be no limitation on the purchase
of municipal obligations and obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities. For purposes of this
limitation and that set forth in investment restriction (3) above, when the
assets and revenues of an agency, authority, instrumentality or other political
subdivision are separate from those of the government creating the issuing
entity and a security is backed only by the assets and revenues of the entity,
the entity would be deemed to be the sole issuer of the security. Similarly, in
the case of an industrial development or pollution control bond, if that bond is
backed only by the assets and revenues of the nongovernmental user, then such
non governmental user would be deemed to be the sole issuer. If, however, in
either case, the creating government or some other entity guarantees a security,
such a guarantee would be considered a separate security and would be treated as
an issue of such government or other entity.
(11) Invest in securities of other investment companies, except as they may be
acquired as part of a merger, consolidation or acquisition of assets, and except
for the purchase, to the extent permitted by Section 12 of the 1940 Act, of
shares of registered unit investment trusts whose assets consist substantially
of municipal obligations.
(12) Invest more than 5% of the value of its total assets in the securities of
issuers having a record, including predecessors, of fewer than three years of
continuous operation, except obligations issued or guaranteed by the United
States Government, its agencies or instrumentalities, unless the securities are
rated by a nationally recognized rating service.
(13) Invest for the purpose of exercising control or management of another
company.
(14) Issue any senior security (as that term is defined in the 1940 Act) if such
issuance is specifically prohibited by the 1940 Act or the rules and regulations
promulgated thereunder. For the purpose of this restriction, collateral
arrangements with respect to options, futures contracts and options on futures
contracts and collateral arrangements with respect to initial and variation
margins are not deemed to be the issuance of a senior security.
Other Operating Policies
Each of the Equity Funds (whose investment restrictions permit holdings in
warrants not to exceed 10% of its assets) may, due to an undertaking with a
state in which the Fund's shares are currently qualified for sale, purchase
warrants not to exceed 5% of such Fund's net assets. Included within that
amount, but not exceeding 2% of a Fund's net assets, may be warrants for which
there is no public market. Any such warrants which are attached to securities at
the time such securities are acquired by a Fund will be deemed to be without
value for the purpose of this restriction.
Each Fund (other than High Yield Tax-Free Fund) will not invest more than 5% of
its total assets in companies which, including their respective predecessors,
have a record of less than three years' continuous operation.
In order to comply with certain state regulatory policies, no Fund will, as a
matter of operating policy, pledge, mortgage or hypothecate its portfolio
securities if the percentage of securities so pledged, mortgaged or hypothecated
would exceed 15%.
-28-
<PAGE>
In order to comply with certain state regulatory policies, the cost of
investments in options, financial futures, stock index futures and currency
futures, other than those acquired for hedging purposes, may not exceed 10% of a
Fund's total net assets.
As a nonfundamental investment restriction, Emerging Growth Fund may not
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. The Fund may not purchase the shares of any
closed-end investment company except in the open market where no commission or
profit to a sponsor or dealer results from the purchase, other than customary
brokerage fees.
These operating policies are not fundamental and may be changed without
shareholder approval. In order to comply with certain state regulatory
practices, certain policies, if changed, would require advance written notice to
shareholders.
The Corporation's Board of Directors has approved the following nonfundamental
investment policy pursuant to an order of the SEC: Notwithstanding any
investment restriction to the contrary, each Fund may, in connection with the
John Hancock Group of Funds Deferred Compensation Plan for Independent
Trustees/Directors, purchase securities of other investment companies within the
John Hancock Group of Funds provided that, as a result, (i) no more than 10% of
the Fund's assets would be invested in securities of all other investment
companies, (ii) such purchase would not result in more than 3% of the total
outstanding voting securities of any one such investment company being held by
the Fund and (iii) no more than 5% of the Fund's assets would be invested in any
one such investment company.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Corporation is managed by its Directors who elect officers
who are responsible for the day-to-day operations of the Corporation and the
Funds and who execute policies formulated by the Directors. Several of the
officers and Directors of the Corporation are also officers and directors of the
Adviser or officers and directors of the Funds' principal distributor, John
Hancock Funds, Inc. ("John Hancock Funds").
Set forth below is the principal occupation or employment of the Directors and
principal officers of the Corporation during the past five years:
-29-
<PAGE>
<TABLE>
<CAPTION>
Position Held with Principal Occupation(s)
Name and Address the Corporation During Past Five Years
- ---------------- --------------- ----------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Director, Chairman and Chief Chairman and Chief Executive
101 Huntington Avenue Executive Officer(1)(2) Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("The
Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited ("Advisers
International"); John Hancock
Funds, Inc.; John Hancock Investor
Services Corporation ("Investor
Services"); and Sovereign Asset
Management Corporation ("SAMCorp");
(hereinafter the Adviser, the
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Inc., Investor
Services and SAMCorp are
collectively referred to as the
"Affiliated Companies"); Chairman,
First Signature Bank & Trust;
Director, John Hancock Freedom
Securities Corporation, John
Hancock Capital Corporation, New
England/ Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Trustee, Museum of Science;
President, the Adviser (until July
1992); and Chairman, John Hancock
Distributors, Inc. (until April,
1994).
</TABLE>
* An "interested person" of the Portfolio, as such term is defined in the
1940 Act. (1) Member of the Executive Committee. Under the Trust's
Declaration of Trust, the Executive Committee may generally exercise most
of the powers of the Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
-30-
<PAGE>
<TABLE>
<CAPTION>
Position Held with Principal Occupation(s)
Name and Address the Corporation During Past Five Years
- ---------------- --------------- ----------------------
<S> <C> <C>
James F. Carlin Director(3) Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc. (insurance);
Natick, MA 01760 Chairman, Massachusetts Higher
Education Coordinating Council
(since 1995); Trustee,
Massachusetts Health and Education
Tax-Exempt Trust (Financial);
Director, Rizzo Associates, Inc.
(Engineering), Arbella Mutual
Insurance Company (insurance),
Consolidated Group Trust (group
health plan), Carlin Insurance
Agency, Inc., West Insurance
Agency, Inc., Allied American
Agency, Inc. (insurance);
Treasurer, Alpha Analytical, Inc.
(Chemistry Lab); Receiver, the City
of Chelsea (until August 1992).
William H. Cunningham Director(3) Chancellor, University of Texas
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin, Texas;
Austin, TX 78701 Regents Chair for Free Enterprise;
Director, LaQuinta Motor Inns, Inc.
(hotel management company);
Director, Jefferson-Pilot
Corporation (diversified life
insurance company); Director,
Freeport-McMoran Inc. (oil and gas
company); LBJ Foundation Board
(education foundation); and
Advisory Director, Texas Commerce
Bank - Austin.
Harold R. Hiser, Jr. Director(3) Executive Vice President,
Schering-Plough Corporation Schering-Plough Corporation
One Giralda Farms (pharmaceuticals) (until 1995);
Madison, NJ 07940-1000 Director, ReCapital Corporation
(reinsurance).
</TABLE>
* An "interested person" of the Portfolio, as such term is defined in the
1940 Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
-31-
<PAGE>
<TABLE>
<CAPTION>
Position Held with Principal Occupation(s)
Name and Address the Corporation During Past Five Years
- ---------------- --------------- ----------------------
<S> <C> <C>
Charles L. Ladner Director(3) Director, Energy North, Inc.
UGI Corporation (public utility holding
460 North Gulph Road company)(until 1992); Senior Vice
King of Prussia, PA 19406 President, Finance UGI Corp.
(public utility holding company).
Leo E. Linbeck, Jr. Director(3) Chairman, President, Chief
3810 W. Alabama Executive Officer and Director,
Houston, TX 77027 Linbeck Corporation (a holding
company engaged in various phases
of the construction industry and
warehousing interests); Director
and Chairman, Federal Reserve Bank
of Dallas; Chairman of the Board
and Chief Executive Officer,
Linbeck Construction Corporation;
Director, Panhandle Eastern
Corporation (a diversified energy
company), Daniel Industries, Inc.
(manufacturer of gas measuring
products and energy related
equipment), GeoQuest International,
Inc. (a geophysical consulting
firm); and Director, Greater
Houston Partnership.
Patricia P. McCarter Director(3) Director and Secretary, the
Swedesford Road McCarter Corp. (machine
RD #3, Box 121 manufacturer).
Malvern, PA 19355
Steven R. Pruchansky Director(1)(3) Director and President, Mast
360 Horse Creek Drive, #208 Holdings, Inc.; Director, First
Naples, FL 33942 Signature Bank & Trust Company
(until August 1991); General
Partner, Mast Realty Trust (until
1994); President, Maxwell Building
Corp. (until 1991).
</TABLE>
* An "interested person" of the Portfolio, as such term is defined in the
1940 Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
-32-
<PAGE>
<TABLE>
<CAPTION>
Position Held with Principal Occupation(s)
Name and Address the Corporation During Past Five Years
- ---------------- --------------- ----------------------
<S> <C> <C>
Norman H. Smith Director(3) Lieutenant General, USMC, Deputy
Rt. 1, Box 249 E Chief of Staff for Manpower and
Linden, VA 22642 Reserve Affairs, Headquarters
Marine Corps; Commanding General
III Marine Expeditionary Force/3rd
Marine Division (retired 1991).
John P. Toolan Director(3) Director, The Smith Barney Muni
13 Chadwell Place Bond Funds, The Smith Barney
Morristown, NJ 07960 Tax-Free Money Fund, Inc., Vantage
Money Market Funds (mutual funds),
The Inefficient- Market Fund, Inc.
(closed-end investment company) and
Smith Barney Trust Company of
Florida; Chairman, Smith Barney
Trust Company (retired December,
1991); Director, Smith Barney,
Inc., Mutual Management Company and
Smith, Barney Advisers, Inc.
(investment advisers) (retired
1991); and Senior Executive Vice
President, Director and member of
the Executive Committee, Smith
Barney, Harris Upham & Co.,
Incorporated (investment bankers)
(until 1991).
Robert G. Freedman* Vice Chairman and Chief Vice Chairman and Chief Investment
101 Huntington Avenue Investment Officer(2) Officer, the Adviser; President,
Boston, MA 02199 the Adviser (until December 1994).
Anne C. Hodsdon* President(2) President and Chief Operating
101 Huntington Avenue Officer, the Adviser; Executive
Boston, MA 02199 Vice President, the Adviser (until
December 1994); Senior Vice
President, the Adviser (until
December 1993; Vice President, the
Adviser (until 1991).
</TABLE>
* An "interested person" of the Portfolio, as such term is defined in the
1940 Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
(3) Member of the Audit Committee and the Administration Committee.
-33-
<PAGE>
<TABLE>
<CAPTION>
Position Held with Principal Occupation(s)
Name and Address the Corporation During Past Five Years
- ---------------- --------------- ----------------------
<S> <C> <C>
James B. Little* Senior Vice President and Senior Vice President, the Adviser
101 Huntington Avenue Chief Financial Officer
Boston, MA 02199
Thomas H. Drohan* Senior Vice President Senior Vice President and
101 Huntington Avenue and Secretary Secretary, the Adviser.
Boston, MA 02199
James J. Stokowski* Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue President(2) Adviser.
Boston, MA 02199
Susan S. Newton* Vice President and Compliance Vice President and Assistant
101 Huntington Avenue Officer Senior Vice President, Secretary, the Adviser.
Boston, MA 02199 the Adviser.
John A. Morin* Vice President Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
</TABLE>
* An "interested person" of the Portfolio, as such term is defined in the
1940 Act.
(1) Member of the Executive Committee. Under the Trust's Declaration of Trust,
the Executive Committee may generally exercise most of the powers of the
Board of Directors.
(2) A Member of the Investment Committee of the Adviser.
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Directors and officers may also be officers
and/or Directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of March 31, 1996, the officers and Directors of the Corporation as a
group beneficially owned less than 1% of the outstanding shares of the
Corporation and of each of the Funds. On such date, the following shareholders
were the only record holders and beneficial owners of 5% or more of the shares
of the respective Funds:
Number of Shares held (expressed as Percentage
of Fund's outstanding shares)
Emerging Growth Fund:
Class A
758,924 Shares National Westminster Bank PLC as Trustee of
15.16% American Smaller Companies Trust
Juno Court
24 Prescott Street
London, England E18BB
-34-
<PAGE>
713,078 Shares Merrill Lynch Pierce Fenner & Smith
14.02% 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
Class B
3,047,100 Shares Merrill Lynch Pierce Fenner & Smith
25.70% 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
Global Resources Fund:
Class A
17,804 Shares Oscar L. Faircloth TTEE
8.82% Chartered Pension Trust
5927 Indian Queen Pt. Rd.
Fort Washington, Maryland
Class B
115,449 Shares Merrill Lynch Pierce Fenner & Smith
5.82% 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
Government Income Fund:
Class B
2,998,359 Shares Merrill Lynch Pierce Fenner & Smith
12.69% 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
High Yield Bond Fund:
Class A
700,333 Shares Novell Incorporated
16.88% 1555 North Technology Way
Orem, Utah 84057
475,233 Shares National City Bank TTEE
11.33% FBO Building Laborers Local
310 Pension Plan
P.O. Box 94777
Cleveland, Ohio
-35-
<PAGE>
308,858 Shares National City Bank TTEE
7.36% Building Laborer Local 310
Health & Welfare Plan
P.O. Box 94777
Cleveland, Ohio
Class B
2,454,852 Shares Merrill Lynch Pierce Fenner & Smith
9.56% 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
High Yield Tax-Free Fund:
Class A
176,464 Shares The Private Bank & Trust Co.
9.68% as Custodian for Daniel R. Lee
10 Dearborn Street
Chicago, Illinois 60602-4209
Class B
2,955,422 Shares Merrill Lynch Pierce Fenner & Smith
17.80% 4800 Deerlake Drive East
Jacksonville, Florida 32246-6484
At such date, no other person(s), owned of record or was known by the
Corporation to beneficially own as much as 5% of the outstanding shares of the
Corporation or of any of the Funds.
As of December 22, 1994, the Directors have established an Advisory Board which
acts to facilitate a smooth transition of management over a two-year period
(between Transamerica Fund Management Company ("TFMC"), the prior investment
adviser, and the Adviser). The members of the Advisory Board are distinct from
the Board of Directors, do not serve the Funds in any other capacity and are
persons who have no power to determine what securities are purchased or sold and
behalf of the Funds. Each member of the Advisory Board may be contacted at 101
Huntington Avenue, Boston, Massachusetts 02199.
Members of the Advisory Board and their respective principal occupations during
the past five years are as follows:
R. Trent Campbell, President, FMS, Inc. (financial and management services);
former Chairman of the Board, Mosher Steel Company.
Mrs. Lloyd Bentsen, Formerly National Democratic Committeewoman from Texas;
co-founder, Houston Parents' League; former board member of various
civic and cultural organizations in Houston, including the Houston
Symphony, Museum of Fine Arts and YWCA. Mrs. Bentsen is presently
active in various civic and cultural activities in the Washington,
D.C. area, including membership on the Area Board for The March of
Dimes and is a National Trustee for the Botanic Gardens of Washington,
D. C.
-36-
<PAGE>
Thomas R. Powers, Formerly Chairman of the Board, President and Chief Executive
Officer, TFMC; Director, West Central Advisory Board, Texas Commerce
Bank; Trustee, Memorial Hospital System; Chairman of the Board of
Regents of Baylor University; Member, Board of Governors, National
Association of Securities Dealers, Inc.; Formerly, Chairman,
Investment Company Institute; formerly, President, Houston Chapter of
Financial Executive Institute.
Thomas B. McDade, Chairman and Director, TransTexas Gas Company; Director,
Houston Industries and Houston Lighting and Power Company; Director,
TransAmerican Companies (natural gas producer and transportation);
Member, Board of Managers, Harris County Hospital District; Advisory
Director, Commercial State Bank, El Campo; Advisory Director, First National
Bank of Bryan; Advisory Director, Sterling Bancshares; Former Director
and Vice Chairman, Texas Commerce Bancshares; and Vice Chairman,
Texas Commerce Bank.
Compensation of the Board of Directors and Advisory Board. The following tables
provide information regarding the compensation paid by the Funds and the other
investment companies in the John Hancock Fund Complex to the Independent
Directors and the Advisory Board members for their services for the Funds' most
recently completed fiscal year. Mr. Boudreau, a non- Independent Director, 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 Funds for their
services.
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Directors from the Funds* Funds' Expenses* Directors**
- --------- --------------- ---------------- -----------
James F. Carlin $ 8,411 $ 0 $ 60,700
William H. Cunningham 6,080 16,964 $ 69,700
Charles F. Fretz 789 0 $ 56,200
Harold R. Hiser. Jr. 0 1,099 $ 60,200
Charles L. Ladner 10,776 0 $ 60,700
Leo E. Linbeck, Jr. 25,263 0 $ 73,200
Patricia P. McCarter 10,776 0 $ 60,700
Steven R. Pruchansky 11,157 0 $ 62,700
Norman H. Smith 11,142 0 $ 62,700
John P. Toolan 56 8,340 $ 60,700
------- ------- --------
Total $84,450 $26,403 $627,500
* Compensation made pursuant to different compensation arrangements then in
effect for the fiscal year ended October 31, 1995.
** The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is $627,500 as of the calendar year ended December 31,
1995. All Trustees/Directors except Messrs. Cunningham and Linbeck are
Trustees/Directors of 32 funds in the John Hancock Fund Complex. Messrs.
Cunningham and Linbeck are Trustees/Directors of 30 funds.
-37-
<PAGE>
Pension or Total Compensation
Retirement from all Funds in
Aggregate Benefits Accrued John Hancock
Compensation as Part of the Fund Complex to
Advisory Board*** from the Funds* Funds' Expenses* Directors**
- ----------------- --------------- ---------------- -----------
R. Trent Campbell $ 29,238 $ 0 $70,000
Mrs. Lloyd Bentsen 25,683 0 63,000
Thomas R. Powers 26,237 0 63,000
Thomas B. McDade 26,737 0 63,000
TOTAL $107,895 $ 0 $259,000
* For the fiscal year ended October 31, 1995.
** As of December 31, 1995.
INVESTMENT ADVISORY AND OTHER SERVICES
As described in the Funds' Prospectuses, the Funds receive their investment
advice from the Adviser. Investors should refer to the Prospectuses for a
description of certain information concerning the Funds' investment management
contracts. Each of the Directors and principal officers affiliated with the
Corporation who is also an affiliated person of the Adviser is named above,
together with the capacity in which such person is affiliated with the
Corporation and the Adviser.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-
7603, was organized in 1968 and has more than $16 billion in total assets under
management in its capacity as investment adviser to the Funds and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,080,000 shareholders. The Adviser is
a wholly-owned subsidiary of The Berkeley Financial Group, which is in turn a
wholly-owned subsidiary of John Hancock Subsidiaries, Inc., which is in turn a
wholly-owned subsidiary of John Hancock Mutual Life Insurance Company (the "Life
Company"), one of the most recognized and respected financial institutions in
the nation. With total assets under management of more than $80 billion, the
Life Company is one of 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.
As described in the Prospectuses, the Corporation, on behalf of each Fund, has
entered into investment management contracts with the Adviser. Under each
investment management contract, the Adviser provides the Funds with (i) a
continuous investment program, consistent with each Fund's stated investment
objective and policies, (ii) supervision of all aspects of each Fund's
operations except those that are delegated to a custodian, transfer agent or
other agent and (iii) such executive, administrative and clerical personnel,
officers and equipment as are necessary for the conduct of their business. The
Adviser is responsible for the day-to-day management of each Fund's portfolio
assets.
No person other than the Adviser and its directors and employees regularly
furnish advice to the Funds with respect to the desirability of a Fund investing
in, purchasing or selling securities. The Adviser may from time to time receive
statistical or other similar factual information, and information regarding
general economic factors and trends, from the Life Company and its affiliates.
-38-
<PAGE>
Under the terms of the investment management contracts with the Corporation, on
behalf of each Fund, the Adviser provides the Corporation with office space,
equipment and supplies and other facilities required for the business of the
Funds. The Adviser pays the compensation of all officers and employees of the
Corporation, and pays the expenses of clerical services relating to the
administration of the Funds. All expenses which are not specifically paid by the
Adviser and which are incurred in the operation of the Funds including, but not
limited to, (i) the fees of the Directors of the Corporation who are not
"interested persons," as such term is defined in the 1940 Act (the "Independent
Directors"), (ii) the fees of the members of the Corporation's Advisory Board
(described above) and (iii) the continuous public offering of the shares of each
Fund are borne by the Funds.
As provided by the investment management contracts, each Fund pays the Adviser
an investment management fee, which is accrued daily and paid monthly in arrears
at the following rates of the Funds' average daily net assets:
John Hancock Emerging Growth Fund Fee
John Hancock Global Resources Fund (Annual Rate)
Average Daily Net Assets 0.75%
John Hancock Government Income Fund
Fee
Average Daily Net Assets (Annual Rate)
The first $200 million 0.65%
The next $300 million 0.625%
Over $500 million 0.60%
John Hancock High Yield Tax-Free Fund
John Hancock High Yield Bond Fund
Fee
Average Daily Net Assets (Annual Rate)
The first $75 million 0.625%
The next $75 million 0.5625%
Over $150 million 0.50%
John Hancock Money Market Fund
Fee
Average Daily Net Assets (Annual rate)
The first $500 million 0.50%*
The next $250 million 0.425%
The next $250 million 0.375%
The next $500 million 0.35%
The next $500 million 0.325%
The next $500 million 0.30%
Over $2.5 billion 0.275%
* The Adviser has reduced the fee to 0.40% of the Fund's average daily net
assets and can not reinstate the fee to 0.50% without the Directors' consent.
-39-
<PAGE>
The Adviser may temporarily reduce its advisory fee or make other arrangements
to reduce a Fund's expenses to a specified percentage of average daily net
assets. The Adviser retains the right to re-impose the advisory fee and recover
any other payments to the extent that, at the end of any fiscal year, a Fund's
annual expenses fall below this limit.
In the event normal operating expenses of a Fund, exclusive of certain expenses
prescribed by state law, are in excess of any state limit where such Fund is
registered to sell shares of common stock, the fee payable to the Adviser will
be reduced to the extent of such excess and the Adviser will make any additional
arrangements necessary to eliminate any remaining excess expenses. The most
restrictive limit applicable to the Funds is 2.5% of the first $30,000,000 of a
Fund's average daily net asset value, 2% of the next $70,000,000 of such assets
and 1.5% of the remaining average daily net asset value.
Pursuant to the investment management contracts, the Adviser is not liable for
any error of judgment or mistake of law or for any loss suffered by a Fund in
connection with the matters to which their respective contracts relate, except a
loss resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser in the performance of its duties or from its reckless
disregard of the obligations and duties under the applicable contract.
The initial term of the investment management contracts expires on December 22,
1996, and will continue in effect from year to year thereafter if approved
annually by a vote of a majority of the Independent Directors, cast in person at
a meeting called for the purpose of voting on such approval, and by either a
majority of the Directors or the holders of a majority of the affected Fund's
outstanding voting securities. Each management contract may be terminated
without penalty on 60 days' notice at the option of either party or by vote of a
majority of the outstanding voting securities of the Fund. Each management
contract terminates automatically in the event of its assignment.
Securities held by a Fund may also be held by other funds or investment advisory
clients for which the Adviser or its affiliates provide investment advice.
Because of different investment objectives or other factors, a particular
security may be bought for one or more funds or clients when one or more are
selling the same security. If opportunities for purchase or sale of securities
by the Adviser for the Funds or for other funds or clients for which the Adviser
renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of them. To the
extent that transactions on behalf of more than one client of the Adviser or its
affiliates may increase the demand for securities being purchased or the supply
of securities being sold, there may be an adverse effect on price.
Under the investment management contracts, the Funds may use the name "John
Hancock" or any name derived from or similar to it only for as long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If a Fund's investment management contract is no longer in
effect, the Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or otherwise connected
with the Adviser. In addition, the Adviser or the Life Company may grant the
non-exclusive right to use the name "John Hancock" or any similar name to any
other corporation or entity, including but not limited to any investment company
of which the Life Company or any subsidiary or affiliate thereof or any
successor to the business of any subsidiary or affiliate thereof shall be the
investment adviser.
For the period from November 1, 1994 to December 22, 1994(a) and for the fiscal
years ended October 31, 1994(b), and 1993(c) advisory fees payable by the Funds
to TFMC, each Fund's former investment adviser, were as follows:
(1) Emerging Growth Fund - (a) $496,208 (b) $2,706,438 and (c) $1,668,514
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<PAGE>
(2) Global Resources Fund - (a) $50,516 (b) $220,869 and (c) $95,411
(3) Government Income Fund - (a) $256,721(b) $1,728,997 and (c) $1,698,937
(4) High Yield Bond Fund - (a) $162,374 (b) $976,834 and (c) $777,673
(5) High Yield Tax-Free Fund - (a) $161,643 (b) $886,380 and (c) $541,737
(6) Money Market Fund - (a) $50,611 (b) $214,088 and (c) $142,298
For the period from December 22, 1994 to October 31, 1995 advisory fees payable
by the Funds to the Adviser, were as follows:
(1) Emerging Growth Fund - $2,978,791
(2) Global Resources Fund - $212,918
(3) Government Income Fund - $1,612,806
(4) High Yield Bond Fund - $897,349
(5) High Yield Tax-Free Fund - $830,016
(6) Money Market Fund - $221,171
During the period of December 22, 1994 to April 17, 1995, the Adviser paid
subadvisory fees to Transamerica Investment Services, Inc. $147,903.
Administrative Services Agreement. The Corporation, on behalf of each Fund, was
a party to an administrative services agreement with TFMC (the "Services
Agreement"), pursuant to which TFMC performed bookkeeping and accounting
services and functions, including preparing and maintaining various accounting
books, records and other documents and keeping such general ledgers and
portfolio accounts as are reasonably necessary for the operation of the Funds.
Other administrative services included communications in response to shareholder
inquiries and certain printing expenses of various financial reports. In
addition, such staff and office space, facilities and equipment was provided as
necessary to provide administrative services to the Funds. The Services
Agreement was amended in connection with the appointment of the Adviser as
adviser to the Fund to permit services under the Agreement to be provided to the
Funds by the Adviser and its affiliates. The Services Agreement was terminated
during the fiscal year 1995.
The following amounts for each of the following Funds for their respective
periods reflect (a) the total of administrative services fees paid to TFMC ( and
to the Adviser during the period December 22, 1994 to January 16, 1995):
Emerging Growth Fund- For the fiscal years ended October 31, 1995, 1994
and 1993 fees paid were $34,231, $222,044, and $157,911, respectively.
Global Resources Fund -For the fiscal years ended October 31, 1995,
1994 and 1993 fees paid were $9,309, $54,259 and $44,306, respectively.
Government Income Fund - For the fiscal years ended October 31, 1995,
1994 and 1993 fees paid were $16,694, $132,786 , and $116,354,
respectively.
-41-
High Yield Bond Fund -For the fiscal years ended October 31, 1995,
1994, and 1993 fees paid were $13,697, $100,822, and $82,030.
High Yield Tax-Free Fund -For the fiscal years ended October 31, 1995 ,
1994 and 1993 fees paid were $10,565, $88,709, and $69,485,
respectively.
Money Market Fund - For the fiscal years ended October 31, 1995, 1994
and 1993 fee paid were $7,517, $46,621, and $42,511, respectively.
DISTRIBUTION AGREEMENT
Distribution Agreement. As discussed in the Prospectuses, each Fund's shares are
sold on a continuous basis at the public offering price. John Hancock Funds, a
wholly-owned subsidiary of the Adviser, has the exclusive right, pursuant to the
Distribution Agreement dated December 22, 1994 (the "Distribution Agreement"),
to purchase shares from the Funds at net asset value for resale to the public or
to broker-dealers at the public offering price. Upon notice to all
broker-dealers with whom it has sales agreements ("Selling Brokers"), John
Hancock Funds may allow such Selling Brokers up to the full applicable sales
charge during periods specified in such notice. During these periods, such
Selling Brokers may be deemed to be underwriters as that term is defined in the
Securities Act of 1933.
The Distribution Agreement was initially adopted by the affirmative vote of the
Corporation's Board of Directors including the vote of a majority of Directors
who are not parties to the agreement or interested persons of any such party,
cast in person at a meeting called for such purpose. The Distribution Agreement
shall continue in effect with respect to each Fund until December 22, 1996 and
from year to year if approved by either the vote of the Fund's shareholders or
the Board of Directors including the vote of a majority of the Directors who are
not parties to the agreement or interested persons of any such party, cast in
person at a meeting called for such purpose. The Distribution Agreement may be
terminated at any time as to one or more of the Funds, without penalty, by
either party upon sixty (60) days' written notice or by a vote of a majority of
the outstanding voting securities of the affected Fund and terminates
automatically in the case of an assignment by John Hancock Funds.
For the fiscal year ended October 31, 1995, the following amounts for each of
Emerging Growth and High Yield Bond Fund reflect (a) the total underwriting
commissions for sales of the Fund's Class A shares and (b) the portion of such
amount retained by the Fund's distributor, John Hancock Funds Inc. and the
former distributor, Transamerica Fund Distributors, Inc. In each case, the
remainder of such underwriting commissions was reallowed to dealers.
Emerging Growth Fund
(a) $604,527 and (b) $67,705
High Yield Bond Fund
(a) $239,238 and (b) $19,285
Global Resources Fund
(a) $13,467 and (b) $2,273
High Yield Tax Free Fund
(a) $118,032 and (b) $15,719
Government Income Fund
(a) $35,314 and (b) $6,442
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<PAGE>
Distribution Plans. The Board of Directors approved distribution plans pursuant
to Rule 12b-1 under the 1940 Act for Class A Shares ("Class A Plans") and Class
B Shares ("Class B Plans") of each Fund. Such Plans were approved by a majority
of the outstanding shares of each respective class of each Fund (except for the
Class A Plan for Money Market Fund) on December 16, 1994 and became effective on
December 22, 1994. The Class A Plan for Money Market Fund was approved by the
sole shareholder of the Class A shares of the Fund on September 12, 1995 and
became effective on September 12, 1995.
Under each Class A Plan, the distribution or service fee will not exceed an
annual rate of 0.25% of the average daily net asset value of the Class A shares
of a Fund (determined in accordance with the Fund's Prospectus as from time to
time in effect). Money Market Fund has determined that it will pay distribution
and service fees of 0.15% to John Hancock Funds but may in the future determine
to pay up to 0.25% under the Class A Plan. Any expenses under the Class A Plan
not reimbursed within 12 months of being presented to the Fund for repayment are
forfeited and not carried over to future years. Under each Class B Plan, the
distribution or services fee to be paid by the applicable Fund will not exceed
an annual rate of 1.00% of the average daily net assets of the Class B shares of
the Fund (in each case, determined in accordance with such Fund's prospectus as
from time to time in effect); provided that the portion of such fee used to
cover Service Expenses (described below) shall not exceed an annual rate of
0.25% of the average daily net asset value of the Class B Shares of the Fund. In
accordance with generally accepted accounting principles, the Fund does not
treat unreimbursed distribution expenses attributable to Class B shares as a
liability of the Fund and does not reduce the current net assets of Class B by
such amount although the amount may be payable under the Class B Plan in the
future.
Under the Plans, expenditures shall be calculated and accrued daily and paid
monthly or at such other intervals as the Directors shall determine. The fee may
be spent by John Hancock Funds on Distribution Expenses or Service Expenses.
"Distribution Expenses" include any activities or expenses primarily intended to
result in the sale of shares of the relevant class of the Fund, including, but
not limited to: (i) initial and ongoing sales compensation payable out of such
fee as such compensation is received by John Hancock Funds or by Selling
Brokers, (ii) direct out-of-pocket expenses incurred in connection with the
distribution of shares, including expenses related to printing of prospectuses
and reports; (iii) preparation, printing and distribution of sales literature
and advertising material; (iv) an allocation of overhead and other branch office
expenses of John Hancock Funds related to the distribution of Fund Shares; (v)
distribution expenses that were incurred by the Fund's former distributor and
not recovered through payments under the Class A or Class B former plans or
through receipt of contingent deferred sales charges ("CDSCs"); and (vi) in the
event that any other investment company (the "Acquired Fund") sells all or
substantially all of its assets, merges with or otherwise engages in a
combination with the Fund, distribution expenses originally incurred in
connection with the distribution of the Acquired Fund's shares. Service Expenses
under the Plans include payments made to, or on account of, account executives
of selected broker-dealers (including affiliates of John Hancock Funds) and
others who furnish personal and shareholder account maintenance services to
shareholders of the relevant class of the Fund.
During the fiscal year ended October 31, 1995, the Funds paid the Distributors
the following amounts of expenses with respect to the Class A shares and Class B
shares of each of the Funds:
-43-
<PAGE>
<TABLE>
<CAPTION>
Expense Items
Interest,
Printing and Mailing Carrying or
of Prospectuses to Compensation to Expenses of Other Finance
Advertising New Shareholders Selling Brokers John Hancock Funds Charges
Money Market Fund
<S> <C> <C> <C> <C> <C>
Class A Shares
Class B Shares 0 0 $ 7,724 $ 6,107 NONE
$ 5,434 $6,766 $ 226,733 $ 3,472 $ 203,757
Global Resources Fund
Class A Shares $ 2,777 $ 157 $ 934 $ 4,414 NONE
Class B Shares $19,510 $9,541 $ 112,225 $ 48,249 $ 116,252
Government Income Fund $18,322 $5,106 $ 65,653 $ 58,444 NONE
$41,081 $3,224 $ 985,054 $153,626 $1,109,310
Class A Shares
Class B Shares
High Yield Bond Fund
Class A Shares $ 11,193 $ 1,229 $ 3,830 $ 30,680 NONE
Class B Shares $113,854 $10,183 $ 529,660 $365,331 $ 601,737
Emerging Growth Fund
Class A Shares $ 60,215 $ 6,025 $ 86,447 $205,221 NONE
Class B Shares $191,492 $22,622 $1,142,644 $690,198 $1,093,651
High Yield Tax Free
Class A Shares $ 5,882 $ 1,187 $ 5,714 $ 24,657 NONE
Class B Shares $62,187 $ 6,679 $ 525,782 $258,750 $ 666,273
</TABLE>
Each of the Plans provides that it will continue in effect only so long as its
continuance is approved at least annually by a majority of both the Directors
and the Independent Directors. Each of the Plans provides that it may be
terminated without penalty (a) by vote of a majority of the Independent
Directors, (b) by a majority of the respective Class' outstanding voting
securities upon 60 days' written notice to John Hancock Funds, and (c)
automatically in the event of assignment. Each of the Plans further provides
that it may not be amended to increase the maximum amount of the fees for the
services described therein without the approval of a majority of the outstanding
shares of the class of the Fund which has voting rights with respect to the
Plan. Each of the Plans provides that no material amendment to the Plan will, in
any event, be effective unless it is approved by a majority vote of the
Directors and the Independent Directors of the Corporation. The holders of Class
A Shares and Class B Shares have exclusive voting rights with respect to the
Plan applicable to their respective class of shares. In adopting the Plans, the
Board of Directors has determined that, in their judgment, there is a reasonable
likelihood that each Plan will benefit the holders of the applicable class of
shares of the affected Fund.
Information regarding the services rendered under the Plans and the Distribution
Agreement and the amounts paid therefore by the respective Class of the Funds
are provided to, and reviewed by, the Board of Directors on a quarterly basis.
In its quarterly review, the Board of Directors considers the continued
appropriateness of the Plans and the Distribution Agreement and the level of
compensation provided therein.
-44-
<PAGE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the shares of the
Funds, the following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Directors.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of the Fund's NAV.
The Funds will not price their securities on the following national holidays:
New Year's Day; Presidents' Day; Good Friday; Memorial Day; Independence Day;
Labor Day; Thanksgiving Day; and Christmas Day. On any day an international
market is closed and the New York Stock Exchange is open, any foreign securities
will be valued at the prior day's close with the current day's exchange rate.
Trading of foreign securities may take place on Saturdays and U.S. business
holidays on which a Fund's NAV is not calculated. Consequently, a 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.
Amortized Cost Method of Portfolio Valuation
Money Market Fund utilizes the amortized cost valuation method of valuing
portfolio instruments in the absence of extraordinary or unusual circumstances.
Under the amortized cost method, assets are valued by constantly amortizing over
the remaining life of an instrument the difference between the principal amount
due at maturity and the cost of the instrument to the Fund. The Directors will
from time to time review the extent of any deviation of the net asset value, as
determined on the basis of the amortized cost method, from net asset value as it
would be determined on the basis of available market quotations. If any
deviation occurs which may result in unfairness either to new investors or
existing shareholders, the Directors will take such actions as they deem
appropriate to eliminate or reduce such unfairness to the extent reasonably
practicable. These actions may include selling portfolio instruments prior to
maturity to realize gains or losses or to shorten the Fund's average portfolio
maturity, withholding dividends, splitting, combining or otherwise
recapitalizing outstanding shares or utilizing available market quotations to
determine net asset value per share.
Since a dividend is declared to shareholders each time net asset value is
determined, the net asset value per share of each class of the Money Market Fund
will normally remain constant at $1.00 per share. There is no assurance that the
Fund can maintain the $1.00 per share value. Monthly, any increase in the value
of a shareholder's investment in either class from dividends is reflected
-45-
<PAGE>
as an increase in the number of shares of such class in the shareholder's
account or is distributed as cash if a shareholder has so elected.
It is expected that the Fund's net income will be positive each time it is
determined. However, if because of a sudden rise in interest rates or for any
other reason the net income of the Fund determined at any time is a negative
amount, the Fund will offset the negative amount against income and accrued
during the month for each shareholder account. If at the time of payment of a
distribution such negative amount exceeds a shareholder's portion of accrued
income, the Fund may reduce the number of its outstanding shares by treating the
shareholder as having contributed to the capital of the Fund that number of full
or fractional shares which represent the amount of excess. By investing in
either class of shares of the Fund, shareholders are deemed to have agreed to
make such a contribution. This procedure permits the Fund to maintain its net
asset value at $1.00 per share.
If in the view of the Directors it is inadvisable to continue the practice of
maintaining net asset value at $1.00 per share, the Directors reserve the right
to alter the procedures for determining net asset value. The Fund will notify
shareholders of any such alteration.
The Fund is permitted to redeem shares of either class in kind. Nevertheless,
the Fund has filed with the Securities and Exchange Commission a notification of
election committing itself to pay in cash on redemption by a shareholder of
record, limited during any 90-day period to the lesser of $250,000 or 1% of the
net asset value of the Fund at the beginning of such period.
The Fund will not price its securities on the following national holidays: New
Year's Day; President's Day; Good Friday; Memorial Day; Independence Day; Labor
Day; Thanksgiving Day and Christmas Day.
INITIAL SALES CHARGE ON CLASS A SHARES
Class A shares of the Funds (except for Money Market 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"). Class A shares of Money Market Fund will be sold at their
net asset value without a sales charge. Share certificates will not be issued
unless requested by the shareholder in writing, and then only will be issued for
full shares. The Directors reserve the right to change or waive a Fund's minimum
investment requirements and to reject any order to purchase shares (including
purchase by exchange) when in the judgment of the Adviser such rejection is in
the Fund's best interest.
The sales charges applicable to purchases of Class A shares of the Funds are
described in each Fund's Prospectus. Methods of obtaining reduced sales charges
referred to generally in the Prospectuses are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares,
the investor is entitled to cumulate current purchases with the greater of the
current value (at offering price) of the Class A shares of the Fund, or if
Investor Services is notified by the investor's dealer or the investor at the
time of the purchase, the cost of the Class A shares owned.
Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his or her spouse and their children under the age of 21
purchasing securities for his or her own account, (b) a trustee or other
fiduciary purchasing for a single trust, estate or fiduciary account and (c)
certain groups of four or more individuals making use of salary deductions or
similar group methods of payment whose funds are combined for the purchase of
mutual fund shares. Further information
-46-
<PAGE>
about combined purchases, including certain restrictions on combined group
purchases, is available from Investor Services or a Selling Broker's
representative.
Without Sales Charge. As described in the Prospectuses, Class A shares of the
Funds may be sold without a sales charge to persons described in the
Prospectuses.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount then being invested but
also the purchase price or value of the Class A shares already held by such
person.
Combination Privilege. Reduced sales charges (according to the schedule set
forth in the Prospectuses) also are available to an investor based on the
aggregate amount of his concurrent and prior investments in Class A shares of a
Fund and shares of all other John Hancock funds which carry a sales charge.
Letter of Intention. The reduced sales loads are also applicable to investments
made over a specified period pursuant to a Letter of Intention (LOI), which
should be read carefully prior to its execution by an investor. Each Fund (other
than Money Market Fund) offers two options regarding the specified period for
making investments under the LOI. All investors have the option of making their
investments over a period of thirteen (13) months. Investors who are using the
Fund as a funding medium for a qualified retirement plan, however, may opt to
make the necessary investments called for by the LOI over a forty-eight (48)
month period. These qualified retirement plans include IRA's, SEP, SARSEP, TSA,
401(k) plans, TSA plans and Section 457 plans. Such an investment (including
accumulations and combinations) must aggregate $100,000 or more invested during
the specified period from the date of the LOI or from a date within ninety (90)
days prior thereto, upon written request to Investor Services ($50,000 in the
case of Emerging Growth Fund and Global Resources Fund). The sales charge
applicable to all amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If such aggregate
amount is not actually invested, the difference in the sales charge actually
paid and the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made with the specified period
(either 13 or 48 months), the sales charge applicable will not be higher than
that which would have been applied (including accumulations and combinations)
had the LOI been for the amount actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient Class A shares
(approximately 5% of the aggregate) to make up any difference in sales charges
on the amount intended to be invested and the amount actually invested, until
such investment is completed within the specified period, at which time the
escrow shares will be released. If the total investment specified in the LOI is
not completed, the Class A shares held in escrow may be redeemed and the
proceeds used as required to pay such sales charges as may be due. By signing
the LOI, the investor authorizes Investor Services to act as his
attorney-in-fact to redeem any escrowed shares and adjust the sales charge, if
necessary. A LOI does not constitute a binding commitment by an investor to
purchase, or by a Fund to sell, any additional 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 a sales charge so that the Fund will receive the full amount
of the purchase payment.
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<PAGE>
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a CDSC at the rates set forth in the Funds'
respective Prospectuses as a percentage of the dollar amount subject to the
CDSC. The charge will be assessed on an amount equal to the lesser of the
current market value or the original purchase cost of the Class B shares being
redeemed. Accordingly, no CDSC will be imposed on increases in account value
above the initial purchase prices, including Class B shares derived from
reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month. Class B shares of Money Market Fund, not purchased directly, will
be subject upon redemption to the CDSC set forth in the Prospectus of the John
Hancock fund from which the investor initially exchanged his/her shares.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to select Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the
Prospectuses for additional information regarding the CDSC.
SPECIAL REDEMPTIONS
Although the Funds would not normally do so, each 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 Directors. When the shareholder sells portfolio
securities received in this fashion, he would incur a brokerage charge. Any such
security would be valued for the purpose of making such payment at the same
value as used in determining the Fund's net asset value. Each Fund has elected
to be governed by Rule 18f-1 under the 1940 Act, pursuant to which the Fund is
obligated to redeem shares solely in cash up to the lesser of $250,000 or 1% of
the net asset value of the Fund during any 90- day period for any one account.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. As described more fully in the Prospectuses, the Funds
permit exchanges of shares of any class for shares of the same class in any
other John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Prospectuses, the Funds
permit 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 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 (except with respect to the Money Market Fund)
or Class B shares of a 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 Fund shares at the
same time as a Systematic Withdrawal Plan is in effect. Each Fund reserves the
right to modify or discontinue the
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<PAGE>
Systematic Withdrawal Plan of any shareholder on 30 days' prior written notice
to such shareholder, or to discontinue the availability of such plan in the
future. The shareholder may terminate the plan at any time by giving proper
notice to Investor Services.
Monthly Automatic Accumulation Program ("MAAP"). This program is explained fully
in each Fund's Prospectus and the Account Privileges Application. The program,
as it relates to automatic investment checks, is subject to the following
conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the Monthly Automatic Accumulation
Program may be revoked by Investor Services without prior notice if any
investment is not honored by the shareholder's bank. The bank shall be under no
obligation to notify the shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Investor
Services or upon written notice to Investor Services which is received at least
five (5) business days prior to the due date of any investment.
Reinvestment Privilege. A shareholder who has redeemed Fund shares may, within
120 days after the date of redemption, reinvest without payment of a sales
charge any part of the redemption proceeds in shares of the same class of the
Fund or another John Hancock mutual 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 another John Hancock mutual fund. If a CDSC was
paid upon a redemption, a shareholder may reinvest the proceeds from that
redemption at net asset value in additional shares of the class from which the
redemption was made. The shareholder's account will be credited with the amount
of any CDSC charged upon the prior redemption and the new shares will continue
to be subject to the CDSC. The holding period of the shares acquired through
reinvestment will, for purposes of computing the CDSC payable upon a subsequent
redemption, include the holding period of the redeemed shares. The Fund may
modify or terminate the reinvestment privilege at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes, even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "Tax
Status."
DESCRIPTION OF THE CORPORATION'S SHARES
Each Fund operates as one series of the Corporation. All shares of stock of the
Corporation ($.01 par value per share) have equal voting rights among shares of
the same series (except that each class of shares within a series has sole
voting rights with respect to matters solely affecting that class). On September
12, 1995, the Corporation's Articles of Incorporation were amended to increase
the authorized common stock of the Corporation from 375,000,000 to 2,500,000,000
shares of Class A Common Stock, from 625,000,000 to 3,000,000,000 shares of
Class B Common Stock; and from 0 to 1,000,000,000 shares of Class S Common
Stock. No shares of any series or class have pre- emptive or conversion rights.
Each series of shares represents interests in a separate portfolio of
investments. Each is entitled to all income and gains (or losses) and bears all
of the expenses associated with the operations of that portfolio except that
each class of a series bears its own distribution expenses. Common expenses of
the Corporation are allocated among the series, based upon the respective net
assets or ratably or a combination of both whichever is more appropriate, of
each series.
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The Board of Directors is authorized to create additional series of shares and
classes within any series at any time without approval by shareholders. Six
series of shares representing interests in the Corporation are presently
authorized.
Each share of each series or class of the Corporation represents an equal
proportionate interest with each other share in that series or class, none
having priority or preference over other shares of the same series or class. The
interest of investors in the various series or classes of the Corporation is
separate and distinct. All consideration received for the sales of shares of a
particular series or class of the Corporation, all assets in which such
consideration is invested and all income, earnings and profits derived from such
investments will be allocated to and belong to that series or class. As such,
each share is entitled to dividends and distributions out of the net income
belonging to that series or class as declared by the Board of Directors. The
assets of each series are charged with the liabilities of that series and with a
share of the Corporation's general liabilities.
The Board of Directors determines those assets and liabilities deemed to be
general assets or liabilities of the Corporation, and these items are allocated
among each series in proportion to the relative total net assets of each series.
In the unlikely event that the liabilities allocable to a series exceed the
assets of that series, the amount to be deemed available for distribution to
each affected series shall be determined by the Board of Directors in order to
effect an equitable allocation among each series of the Corporation.
The directors of the Corporation have authorized the issuance of two classes of
common stock for each Fund, designated as Class A and Class B shares, and, in
the case of the Money Market Fund has authorized the issuance of a third class
of common stock, designated as Class S shares. Class A, Class B shares and, in
the case of Money Market Fund, Class S shares each represent an interest in the
same assets of the respective Funds and are identical in all respects except
that each class bears certain expenses related to the distribution of such
shares and certain expenses related to transfer agency services. Class S shares
of Money Market Fund are available exclusively to investors who maintain
brokerage accounts with certain brokers who offer shares of Money Market Fund as
part of a sweep account arrangement. Class S shares of Money Market Fund are not
subject to a sales charge on purchases, redemptions or reinvested dividends, nor
are they subject to deferred sales charges or an exchange fee. The holders of
Class A and Class B shares and, in the case of Money Market Fund, Class S shares
have certain exclusive voting rights on matters relating to their respective
distribution plans. The different classes of the Funds may bear different
expenses relating to the cost of holding shareholder meetings necessitated by
the exclusive voting rights of any class of shares. The Directors of the
Corporation may classify and reclassify the shares of all Funds into additional
classes of common stock at a future date.
Voting Rights. Each shareholder of the Corporation is entitled to a full vote
for each full share held (and fractional votes for fractional shares).
Shareholders of each series or class vote separately from other shareholders of
the Corporation with respect to all matters which affect solely the interests of
that series or class. After Directors have been elected by shareholders, they
will continue to serve indefinitely and they may appoint their own successors,
provided that always at least a majority of the Directors have been elected by
the Corporation's shareholders. The voting rights of stockholders are not
cumulative, so that the holders of more than 50 percent of the shares voting
can, if they choose, elect all Directors being selected, while the holders of
the remaining shares would be unable to elect any Directors. It is the intention
of the Corporation not to hold annual meetings of shareholders. The Directors
may call annual or special meetings of shareholders of the Corporation or any
class of a series for action by shareholder vote as may be required by the
Investment Company Act of 1940. Pursuant to an undertaking to the Securities and
Exchange Commission, the Corporation will call a meeting of shareholders for any
purpose, including voting to remove one or more Directors, on the written
request of the holders of at least
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10% of the outstanding shares of the Corporation. The Funds, under certain
circumstances, will assist shareholders with communications including
shareholder proposals.
Director and Officer Liability. Under the Corporation's Articles of
Incorporation and the Maryland General Corporation Law, the directors, officers,
employees and agents of the Corporation are entitled to indemnification under
certain circumstances against liabilities, claims and expenses arising from any
threatened, pending or completed action, suit or proceeding to which they are
made parties by reason of the fact that they are or were such directors,
officers, employees or agents of the Corporation except as such liability may
arise from their own bad faith, willful misfeasance, gross negligence or
reckless disregard of duties.
The Corporation is not required to issue stock certificates. The Corporation
shall continue without limitation of time subject to the provisions in the
Articles of Incorporation concerning termination by action of the shareholders.
TAX STATUS
Each Fund is treated as a separate entity for accounting and tax purposes. Each
Fund has qualified and elected to be treated as a "regulated investment company"
under Subchapter M of the Code, and intends to continue to so qualify for each
taxable year. As such and by complying with the applicable provisions of the
Code regarding the sources of its income, the timing of its distributions, and
the diversification of its assets, each 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.
Each Fund will be subject to a 4% non-deductible Federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a timely
basis in accordance with annual minimum distribution requirements. Each Fund
intends under normal circumstances to avoid liability for such tax by satisfying
such distribution requirements.
Distributions from a Fund's current or accumulated earnings and profits ("E&P"),
as computed for Federal income tax purposes, will be taxable as described in
such Fund's Prospectus whether taken in shares or in cash. Distributions, if
any, in excess of E&P will constitute a return of capital, which will first
reduce an investor's tax basis in Fund shares and thereafter (after such basis
is reduced to zero) will generally give rise to capital gains. Shareholders
electing to receive distributions in the form of additional shares will have a
cost basis for Federal income tax purposes in each share so received equal to
the amount of cash they would have received had they elected to receive the
distributions in cash, divided by the number of shares received.
Distributions of tax-exempt interest ("exempt-interest dividends") timely
designated as such by High Yield Tax-Free Fund will be treated as tax-exempt
interest under the Code, provided that such Fund qualifies as a regulated
investment company and at least 50% of the value of its assets at the end of
each quarter of its taxable year is invested in tax-exempt obligations.
Shareholders are required to report their receipt of tax-exempt interest,
including such distributions, on their Federal income tax returns. The portion
of High Yield Tax-Free Fund's distributions designated as exempt- interest
dividends may differ from the actual percentage that its tax-exempt income
comprised of its total income during the period of any particular shareholder's
investment. High Yield Tax-Free Fund will report to shareholders the amount
designated as exempt-interest dividends for each year.
Interest income from certain types of tax-exempt bonds that are private activity
bonds in which High Yield Tax-Free Fund may invest is treated as an item of tax
preference for purposes of the Federal alternative minimum tax. To the extent
that High Yield Tax-Free Fund invests in
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these types of tax- exempt bonds, shareholders will be required to treat as an
item of tax preference for Federal alternative minimum purposes that part of
such Fund's exempt-interest dividends which is derived from interest on these
tax-exempt bonds. Exempt-interest dividends derived from interest income from
all tax- exempt bonds may be included in corporate "adjusted current earnings"
for purposes of computing the alternative minimum tax liability, if any, of
corporate shareholders of High Yield Tax-Free Fund.
If Global Resources Fund or Emerging Growth Fund acquires stock in certain non-
U.S. corporations that receive at least 75% of their annual gross income from
passive sources (such as interest, dividends, rents, royalties or capital gain)
or hold at least 50% of their assets in investments producing such passive
income ("passive foreign investment companies"), that Fund could be subject to
Federal income tax and additional interest charges on "excess distributions"
received from such companies or gain from the sale of stock in such companies,
even if all income or gain actually received by the Fund is timely distributed
to its shareholders. The Fund would not be able to pass through to its
shareholders any credit or deduction for such a tax. Certain elections may, if
available, ameliorate these adverse tax consequences, but any such election
would require the applicable Fund to recognize taxable income or gain without
the concurrent receipt of cash. Any Fund that is permitted to acquire stock in
foreign corporations may limit and/or manage its holdings in passive foreign
investment companies to minimize its tax liability or maximize its return from
these investments.
Foreign exchange gains and losses realized by Emerging Growth Fund, Global
Resources Fund, Government Income Fund or High Yield Bond Fund in connection
with certain transactions involving foreign currency-denominated debt
securities, certain foreign currency futures and options, foreign currency
forward contracts, foreign currencies, or payables or receivables denominated in
a foreign currency are subject to Section 988 of the Code, which generally
causes such gains and losses to be treated as ordinary income and losses and may
affect the amount, timing and character of distributions to shareholders. Any
such transactions that are not directly related to a Fund's investment in stock
or securities, possibly including speculative currency positions or currency
derivatives not used for hedging purposes, may increase the amount of gain it is
deemed to recognize from the sale of certain investments held for less than
three months, which gain is limited under the Code to less than 30% of its
annual gross income, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which the Fund must derive at
least 90% of its annual gross income. Income from investments in commodities,
such as gold and certain related derivative instruments, is also not treated as
qualifying income under this test. If the net foreign exchange loss for a year
treated as ordinary loss under Section 988 were to exceed a Fund's investment
company taxable income computed without regard to such loss but after
considering the post-October loss regulations (i.e., all of the Fund's net
income other than any excess of net long-term capital gain over net short-term
capital loss) the resulting overall ordinary loss for such year would not be
deductible by the Fund or its shareholders in future years.
Global Resources Fund, Emerging Growth Fund, Government Income Fund and High
Yield Bond Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to their investments in foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax credits or deductions
with respect to such taxes, subject to certain provisions and limitations
contained in the Code. Specifically, if more than 50% of the value of a Fund's
total assets at the close of any taxable year consists of stock or securities of
foreign corporations, the Fund may file an election with the Internal Revenue
Service pursuant to which shareholders of the Fund will be required to (i)
include in ordinary gross income (in addition to taxable dividends actually
received) their pro rata shares of foreign income taxes paid by the Fund even
though not actually received by them, and (ii) treat such respective pro rata
portions as foreign income taxes paid by them. Global
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Resources Fund or Emerging Growth Fund may, but the other Funds probably will
not satisfy this 50% requirement.
If a Fund makes this election, shareholders may then deduct such pro rata
portions of foreign income taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of foreign income taxes paid by the Fund, although
such shareholders will be required to include their share of such taxes in gross
income. Shareholders who claim a foreign tax credit for such foreign taxes may
be required to treat a portion of dividends received from the Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credit. Tax-exempt shareholders will ordinarily not benefit from this election.
Each year that a Fund files the election described above, its shareholders will
be notified of the amount of (i) each shareholder's pro rata share of foreign
income taxes paid by the Fund and (ii) the portion of Fund dividends which
represents income from each foreign country. A Fund that cannot or does not make
this election may deduct such taxes in computing its taxable income.
The amount of a Fund's net realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of such Fund to dispose of
portfolio securities or enter into options or futures transactions that will
generate capital gains. At the time of an investor's purchase of Fund shares, a
portion of the purchase price is often attributable to realized or unrealized
appreciation in the Fund's portfolio or, in the case of Global Resources Fund
and Emerging Growth Fund, to undistributed taxable income of the Fund.
Consequently, subsequent distributions from such appreciation or income may be
taxable to such investor even if the net asset value of the investor's shares
is, as a result of the distributions, reduced below the investor's cost for such
shares, and the distributions in reality represent a return of a portion of the
purchase price.
Upon a redemption of shares of a Fund (including by exercise of the exchange
privilege) a shareholder may realize a taxable gain or loss depending upon his
basis in his shares, except that a redemption of shares of Money Market Fund may
not result in a gain or loss if the Fund always successfully maintains a
constant net asset value per share, although a loss may still arise if a CDSC is
paid. Any gain or loss will be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands and will be long-term or short-term,
depending upon the shareholder's tax holding period for the shares. A sales
charge paid in purchasing Class A shares of a Fund cannot be taken into account
for purposes of determining gain or loss on the redemption or exchange of such
shares within 90 days after their purchase to the extent shares of the Fund or
another John Hancock fund are subsequently acquired without payment of a sales
charge pursuant to the reinvestment or exchange privilege. Such disregarded load
will result in an increase in the shareholder's tax basis in the shares
subsequently acquired. Also, any loss realized on a redemption or exchange may
be disallowed to the extent the shares disposed of are replaced with other
shares of the same Fund within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to an election
to reinvest dividends in additional shares. 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 disallowed (in the case of High Yield Tax-Free Fund) to the
extent of all exempt-interest dividends paid with respect to such shares and, if
not thus disallowed, will (in the case of any Fund) be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
Although its present intention is to distribute all net capital gains, if any,
each Fund reserves the right to retain and reinvest all or any portion of the
excess, as computed for Federal income tax purposes, of net long-term capital
gain over net short-term capital loss in any year. The Funds will not in any
event distribute net long-term capital gain realized in any year to the
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extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Each shareholder would be treated for
Federal income tax purposes as if the Fund had distributed to him on the last
day of its taxable year his pro rata share of such excess, and he had paid his
pro rata share of the taxes paid by the Fund and reinvested the remainder in the
Fund. Accordingly, each shareholder would (a) include his pro rata share of such
excess as long-term capital gain income in his return for his taxable year in
which the last day of such 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 such Fund, and (c) be entitled to increase the adjusted tax basis
for his shares in such 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, each Fund is generally permitted to carry
forward a net capital loss in any year to offset its own net capital gains, if
any, during the eight years following the year of the loss. To the extent
subsequent net capital gains are offset by such losses, they would not result in
Federal income tax liability to the applicable Fund and, as noted above, would
not be distributed as such to shareholders. As of October 31, 1995, Emerging
Growth Fund had capital loss carryforwards of $6,354,280, which will expire in
2003. As of October 31, 1995, Global Resources Fund had capital loss
carryforwards of $421,721, of which $16,520 will expire in 2000, $90,341 will
expire in 2002 and $314,860 will expire in 2003. As of December 31, 1995, High
Yield Bond Fund had capital loss carryforwards of $20,325,151, of which
$9,184,152 expires in 2002 and $11,140,999 expires in 2003, High Yield Tax- Free
Fund had capital loss carryforwards of $3,699,525, of which $2,785,979 expires
in 2002 and $913,546 expires in 2003 and Government Income Fund had capital loss
carryforwards of $116,730,193 of which $19,146,203 expires in 1996, $6,921,927
expires in 1997, $66,593,890 expires in 2000, $6,699,901 expires in 2001,
$15,347,195 expires in 2002 and $2,021,077 expires in 2003. All of the capital
loss carryforwards expiring in 1996, 1997, 2000 and 2001, respectively, were
acquired on September 15, 1995, in the merger with John Hancock Government
Securities Trust. Their availability maybe limited in a given year.
Interest on indebtedness incurred by a shareholder to purchase or carry shares
of High Yield Tax-Free Fund will not be deductible for Federal income tax
purposes to the extent it is deemed related to exempt-interest dividends paid by
such Fund. Pursuant to published guidelines, the Internal Revenue Service may
deem indebtedness to have been incurred for the purpose of purchasing or
carrying shares of this Fund even though the borrowed funds may not be directly
traceable to the purchase of shares.
For purposes of the dividends-received deduction available to corporations,
dividends received by a Fund, if any, from U.S. domestic corporations in respect
of the stock of such corporations held by the Fund, for U.S. Federal income tax
purposes, for at least 46 days (91 days in the case of certain preferred stock)
and distributed and designated by the Fund may be treated as qualifying
dividends. Only Emerging Growth Fund or Global Resources Fund may sometimes have
any significant portion of its distributions treated as qualifying dividends.
Corporate shareholders must meet the minimum holding period requirement stated
above (46 or 91 days) with respect to their shares of the applicable Fund in
order to qualify for the deduction and, if they borrow to acquire such shares,
may be denied a portion of the dividends- received deduction. The entire
qualifying dividend, including the otherwise deductible amount, will be included
in determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability. Additionally, any corporate shareholder
should consult its tax adviser regarding the possibility that its basis in its
shares may be reduced, for Federal income tax purposes, by reason of
"extraordinary dividends" received with respect to the shares, for the purpose
of computing its gain or loss on redemption or other disposition of the shares.
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Each Fund that invests in certain PIKs, zero coupon securities or certain
increasing rate securities (and, in general, any other securities with original
issue discount or with market discount if the Fund elects to include market
discount in income currently) must accrue income on such investments prior to
the receipt of the corresponding cash payments. However, each Fund must
distribute, at least annually, all or substantially all of its net income,
including such accrued income, to shareholders to qualify as a regulated
investment company under the Code and avoid Federal income and excise taxes.
Therefore, a Fund may have to dispose of its portfolio securities under
disadvantageous circumstances to generate cash, or may have to leverage itself
by borrowing the cash, to satisfy distribution requirements.
Investments in debt obligations that are at risk of or are in default present
special tax issues for any Fund that may hold such obligations, such as High
Yield Bond Fund and High Yield Tax-Free Fund. Tax rules are not entirely clear
about issues such as when the Funds may cease to accrue interest, original issue
discount, or market discount, when and to what extent deductions may be taken
for bad debts or worthless securities, how payments received on obligations in
default should be allocated between principal and income, and whether exchanges
of debt obligations in a workout context are taxable. These and other issues
will be addressed by any Fund that may hold such obligations in order to reduce
the risk of distributing insufficient income to preserve its status as a
regulated investment company and seek to avoid becoming subject to Federal
income or excise tax.
Limitations imposed by the Code on regulated investment companies like the Funds
may restrict a Fund's ability to enter into futures, options and currency
forward transactions.
Certain options, futures and forward foreign currency transactions undertaken by
a Fund may cause such Fund to recognize gains or losses from marking to market
even though its positions have not been sold or terminated and affect the
character as long-term or short-term (or, in the case of certain currency
forwards, options and futures, as ordinary income or loss) and timing of some
capital gains and losses realized by the Fund. Also, certain of a Fund's losses
on its transactions involving options, futures and forward foreign currency
contracts and/or offsetting portfolio positions may be deferred rather than
being taken into account currently in calculating the Fund's taxable income or
gains. These transactions may therefore affect the amount, timing and character
of a Fund's distributions to shareholders. Certain of the applicable tax rules
may be modified if the Fund is eligible and chooses to make one or more of
certain tax elections that may be available. The Funds will take into account
the special tax rules (including consideration of available elections)
applicable to options, futures or forward contracts in order to minimize any
potential adverse tax consequences.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, a Fund in their particular
circumstances.
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Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in a Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from a Fund and, unless an effective IRS Form W-8 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 Funds.
Provided that each Fund qualifies as a regulated investment company under the
Code, it will not be required to pay any Massachusetts income, corporate excise
or franchise taxes.
CALCULATION OF PERFORMANCE
Yield (Except for the Money Market Fund). For the 30-day period ended October
31, 1995, the yields of (a) High Yield Bond Fund's Class A and Class B shares
were 9.35% and 9.09%, respectively, (b) High Yield Tax-Free Fund's Class A and
Class B shares were 5.78% and 5.35%, respectively and (c) Government Income
Fund's Class A and Class B shares were 5.36% and 4.91%, respectively.
Each Fund's yield (except for Money Market Fund) is computed by dividing net
investment income per share determined for a 30-day period by the maximum
offering price per share (which includes the full sales charge) on the last day
of the period, according to the following standard formula:
Yield = 2 [(a-b + 1 )6 -1]
---
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during the
period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period
(NAV where applicable).
High Yield Tax-Free Fund may advertise a tax-equivalent yield, which is computed
by dividing that portion of the yield of that Fund which is tax- exempt by one
minus a stated income tax rate and adding the product to that portion, if any,
of the yield of the Fund that is not tax-exempt. The tax- equivalent yields for
the High Yield Tax-Free Fund's Class A and Class B Shares at the 36% federal
income tax rate for the 30-day period ended October 31, 1995 were 9.03% and
8.36%, respectively.
Money Market Fund Yield. For the purposes of calculating yield for both classes
of Money Market Fund, daily income per share consists of interest and discount
earned on the Fund's investments less provision for amortization of premiums and
applicable expenses, divided by the number of shares outstanding, but does not
include realized or unrealized appreciation or depreciation.
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In any case in which the Fund reports its annualized yield, it will also furnish
information as to the average portfolio maturities of the Fund. It will also
report any material effect of realized gains or losses or unrealized
appreciation on dividends which have been excluded from the computation of
yield.
Yield calculations are based on the value of a hypothetical preexisting account
with exactly one share at the beginning of the seven day period. Yield is
computed by determining the net change in the value of the account during the
base period and dividing the net change by the value of the account at the
beginning of the base period to obtain the base period return. Base period is
multiplied by 365/7 and the resulting figure is carried to the nearest 100th of
a percent. Net change in account value during the base period includes dividends
declared on the original share, dividends declared on any shares purchased with
dividends of that share and any account or sales charges that would affect an
account of average size, but excludes any capital changes.
Effective yield is computed by determining the net change, exclusive of capital
changes, in the value of a hypothetical preexisting account having a balance of
one share at the beginning of the period, subtracting a hypothetical charge
reflecting deductions from shareholder accounts, and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and then compounding the base period return by adding 1, raising
the sum to a power equal to 365 divided by 7, and subtracting 1 from the result,
according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1)365/7]-1
The yield of the Fund is not fixed or guaranteed. Yield quotations should not be
considered to be representations of yield of the Fund for any period in the
future. The yield of the Fund is a function of available interest rates on money
market instruments, which can be expected to fluctuate, as well as of the
quality, maturity and types of portfolio instruments held by the Fund and of
changes in operating expenses. The Fund's yield may be affected if, through net
sales of its shares, there is a net investment of new money in the Fund which
the Fund invests at interest rates different from that being earned on current
portfolio instruments. Yield could also vary if the Fund experiences net
redemptions, which may require the disposition of some of the Fund's current
portfolio instruments.
Total Return. Average annual total return is determined separately for each
class of shares.
Set forth below are tables showing the performance on a total return basis
(i.e., with all dividends and distributions reinvested) of a hypothetical $1,000
investment in the Class A and Class B shares of the Global Resources, Government
Income, High Yield Bond, High Yield Tax-Free and Emerging Growth Fund. The
performance information for each Fund is stated for the fiscal year ended
October 31, 1995 and for the five year period ended October 31, 1995 with
respect to the Class B shares of each Fund for the one year period of Class A
shares of each Fund and for the period from the commencement of operations
(indicated by an asterisk), or the ten year period, of the Class A and Class B
shares of each Fund to October 31, 1995.
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Global Resources Fund
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 6/15/94* to One Year Ended Five Years Ended 10/31/87* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
(14.84%) (7.87%) (15.49%) 4.43% 7.39%
Government Income Fund
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 9/30/94* to One Year Ended Five Years Ended 2/23/88* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
10.13% 8.15% 9.47% 7.64% 7.27%
High Yield Bond Fund
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 6/30/93* to One Year Ended Five Years Ended 10/26/87* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
3.85% 3.54% 2.94% 13.95% 8.13%
High Yield Tax-Free Fund
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 12/31/93* to One Year Ended Five Years Ended 8/29/86* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
9.61% 2.39% 8.96% 7.72% 6.71%
Emerging Growth Fund
Class A Shares Class A Shares Class B Shares Class B Shares Class B Shares
One Year Ended 8/22/91* to One Year Ended Five Years Ended 10/26/87* to
10/31/95 10/31/95 10/31/95 10/31/95 10/31/95
27.84% 16.53% 28.60% 25.69% 21.43%
* Commencement of operations.
Total Return. Each Fund's total return is computed by finding the average annual
compounded rate of return over the 1-year, 5-year, and 10-year periods that
would equate the initial amount invested to the ending redeemable value
according to the following formula:
P(1+T)n = ERV
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P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1-year and life-of-fund periods.
In the case of Class A shares or Class B shares, this calculation assumes the
maximum sales charge is included in the initial investment or the CDSC is
applied at the end of the period. This calculation also assumes that all
dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period. The "distribution rate" is determined by
annualizing the result of dividing the declared dividends of a Fund during the
period stated by the maximum offering price or net asset value at the end of the
period.
The total return in the case of Class B shares of each Fund is calculated by
determining the net asset value of all shares held at the end of the period for
each share held from the beginning of the period (assuming reinvestment of all
dividends and distributions at net asset value during the period and the
deduction of any applicable contingent deferred sales charge as if the shares
were redeemed at the end of the period), subtracting the maximum offering price
per share (net asset value per share) at the beginning of such period and then
dividing the result by the maximum offering price per share (net asset value per
share) at the beginning of the same period. Total return for Class A shares of
each of Emerging Growth Fund, Global Resources Fund, Government Income Fund,
High Yield Bond Fund and High Yield Tax-Free Fund is calculated in the same
manner except the maximum offering price reflects the deduction of the maximum
initial sales charge and the redemption value is at net asset value.
In addition to average annual total returns, a 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 maximum sales charge on Class A
shares or the CDSC on Class B shares into account. A Fund's "distribution rate"
is determined by annualizing the result of dividing the declared dividends of
the Fund during the stated period by the maximum offering price or net asset
value at the end of the period. Excluding a 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, a Fund's yield and
total return will be compared to indices of mutual funds and bank deposit
vehicles such as Lipper Analytical Services, Inc.'s "Lipper--Fixed Income Fund
Performance Analysis," a monthly publication which tracks net assets, total
return, and yield on fixed income mutual funds in the United States. Ibottson
and Associates, CDA Weisenberger and F.C. Towers are also used for comparison
purposes, as well as the Russell and Wilshire Indices.
Performance rankings and ratings reported periodically in national financial
publications such as MONEY MAGAZINE, FORBES, BUSINESS WEEK, THE WALL STREET
JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S, etc. will also be
utilized. A Fund's promotional and sales literature may make reference to the
Fund's "beta." Beta reflects the market-related risk of the Fund by showing how
responsive the Fund is to the market.
The performance of a Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of a Fund for any
period in the future. The
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performance of a 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 a Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser and officers of the
Corporation pursuant to recommendations made by its investment committee, which
consists of officers and directors of the Adviser and affiliates and officers
and Directors who are interested persons of the Funds. Orders for purchases and
sales of securities are placed in a manner which, in the opinion of the Adviser,
will offer the best price and market for the execution of each such transaction.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers serving as market
makers reflect a "spread." Investments in debt securities are generally traded
on a net basis through dealers acting for their own account as principals and
not as brokers; no brokerage commissions are payable on such transactions.
Each 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 NASD and other policies that the Directors may
determine, the Adviser may consider sales of shares of the Funds as a factor in
the selection of broker-dealers to execute a Fund's portfolio transactions.
Purchase of securities for Government Income Fund, High Yield Bond Fund and High
Yield Tax-Free Fund are normally principal transactions made directly from the
issuer or from an underwriter or market maker for which no brokerage commissions
are usually paid. Purchases from underwriters will include a commission or
concession paid by the issuer to the underwriter, and purchases and sales from
dealers serving as market makers will usually include a mark up or mark down.
Purchases and sales of options and futures will be effected through brokers who
charge a commission for their services and are reflected in amounts for
Government Income Fund and High Yield Bond Fund below.
To the extent consistent with the foregoing, each Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser, and conversely, brokerage
commissions and spreads paid by other advisory clients of the Adviser may result
in research information and statistical assistance beneficial to the Funds. The
Funds will make no commitments to allocate portfolio transactions upon any
prescribed basis. While the Adviser's officers will be primarily responsible for
the allocation of each Fund's brokerage business, their policies and practices
of the Adviser in this regard must be consistent with the foregoing and will at
all times be subject to review by the Directors.
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Brokerage commissions of those Funds which pay such commissions for their
respective reporting periods, as follows, amounted to:
Emerging Growth Fund - (a) $263,019 for the fiscal year
ended October 31, 1995; (b) $318,023 for the fiscal year
ended October 31, 1994; and (c) $330,454 for the fiscal
year ended October 31, 1993.
Global Resources Fund - (a) $214,507 for the fiscal year
ended October 31, 1995; (b) $148,469 for the fiscal year
ended October 31, 1994; and (c) $54,463 for the fiscal
year ended October 31, 1993.
Government Income Fund - (a) $15,814 for the fiscal year
ended October 31, 1995; (b) $96,931 for the fiscal year
ended October 31, 1994; and (c) $254,859 for the fiscal
year ended October 31, 1993.
High Yield Bond Fund - (a) $40,228 for the fiscal year
ended October 31, 1995; (b) $2,320 for the fiscal year
ended October 31, 1994; and (c) $13,320 for the fiscal
year ended October 31, 1993.
High Yield Tax Free Fund - (a) $6,650 for the fiscal year
ended October 31, 1995, no commissions were paid for 1994
and 1993.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Directors that the price is
reasonable in light of the services provided and to policies that the Directors
may adopt from time to time. During the fiscal year ended October 31, 1995, John
Hancock Emerging Growth Fund directed commissions in the amount of $10,036 and
John Hancock Global Resources Fund directed commissions in the amount of $4,542
to compensate brokers for research services such as industry, economic and
company reviews and evaluations of securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
three of which, Tucker Anthony Incorporated ("Tucker Anthony") John Hancock
Distributors, Inc. ("John Hancock Distributors") and Sutro & Company, Inc.
("Sutro"), are broker-dealers ("Affiliated Brokers"). Pursuant to procedures
determined by the Trustees and consistent with the above policy of obtaining
best net results, the Fund may execute portfolio transactions with or through
Tucker Anthony, Sutro or John Hancock Distributors. During the year ended
October 31, 1995, the Fund did not execute any portfolio transactions with then
affiliated brokers.
Any of the Affiliated Brokers may act as broker for a Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Directors pursuant to the 1940 Act.
Commissions paid to an Affiliated Broker must be at least as favorable as those
which the Directors 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 a clearing broker for another brokerage firm, and
any customers of the Affiliated Broker not comparable to a Fund as determined by
a majority of the Directors who are not "interested persons" (as defined in the
1940 Act) of the Funds, the Adviser or the Affiliated Brokers. Because the
Adviser, which is affiliated with the Affiliated Brokers, has, as an investment
adviser to the Fund, the obligation to provide investment
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management services, which includes elements of research and related investment
skills, such research and related skills will not be used by the Affiliated
Brokers as a basis for negotiating commissions at a rate higher than that
determined in accordance with the above criteria. The Funds will not effect
principal transactions with Affiliated Brokers. The Funds may, however, purchase
securities from other members of underwriting syndicates of which Tucker Anthony
and Sutro are members, but only in accordance with the policy set forth above
and procedures adopted and reviewed periodically by the Directors.
Brokerage or other transactions costs of a Fund are generally commensurate with
the rate of portfolio activity. The portfolio turnover rates for each of the
following Funds for (a) the fiscal year ended October 31, 1995 and (b) the
fiscal year ended October 31, 1994 were:
Emerging Growth Fund - (a) 23% and (b) 25%.
Global Resources Fund - (a) 101% and (b) 96%.
Government Income Fund - (a) 102% and (b) 92%.
High Yield Bond Fund - (a) 98% and (b) 153%*.
High Yield Tax-Free Fund - (a) 64% and (b) 62%.
* Higher turnover rates were due to volatile market conditions.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9116, Boston, MA 02205-
9116, a wholly owned indirect subsidiary of the Life Company, is the transfer
and dividend paying agent for the Funds. Emerging Growth Fund and Global
Resources Fund pay Investor Services monthly a transfer agent fee equal to $16
per account for the Class A Shares and $18.50 per account for the Class B shares
on an annual basis, plus out-of-pocket expenses. Government Income Fund and High
Yield Bond Fund pay Investor Services monthly a transfer agent fee equal to $20
per account for the Class A shares and $22.50 per account for the Class B shares
on an annual basis, plus out-of-pocket expenses. High Yield Tax-Free Fund pays
Investor Services monthly a transfer agent fee of $19 per account for the Class
A shares and $21.50 per account for the Class B shares on an annual basis, plus
out-of-pocket expenses. Money Market Fund pays Investor Services monthly a
transfer agent fee of $25 per account for the Class A shares and $27 per account
for the Class B shares on an annual basis, plus out-of-pocket expenses. These
expenses are aggregated and charged to the Fund and allocated to each class on
the basis of the relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of Money Market Fund are held pursuant to a custodian
agreement between the Corporation and State Street Bank and Trust Company, 225
Franklin Street, Boston, Massachusetts 02110. Portfolio securities of the
Emerging Growth Fund, Global Resources Fund, Government Income Fund, High Yield
Bond Fund and High Yield Tax-Free Fund are held pursuant to a custodian
agreement between the Corporation and Investors Bank & Trust Company, 24 Federal
Street, Boston, Massachusetts. Under the custodian agreements, the custodians
perform custody, portfolio and fund accounting services.
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INDEPENDENT AUDITORS
The independent auditors of the Funds are Ernst & Young LLP, 200 Clarendon
Street, Boston, Massachusetts 02116. The independent auditors audit and render
an opinion on the Funds' annual financial statements and prepares the Funds'
annual income tax returns. The financial statements of the Funds included in the
Prospectuses and this Statement of Additional Information have been audited by
Ernst & Young LLP for the periods indicated in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
APPENDIX A
CORPORATE AND TAX-EXEMPT BOND RATINGS
Moody's Investors Service, Inc. ("Moody's)
Aaa, Aa, A and Baa - Tax-exempt bonds rated Aaa are judged to be of the "best
quality." The rating of Aa is assigned to bonds that are of "high quality by all
standards," but long-term risks appear somewhat larger than Aaa rated bonds. The
Aaa and Aa rated bonds are generally known as "high grade bonds." The foregoing
ratings for tax-exempt bonds are rated conditionally. Bonds for which the
security depends upon the completion of some act or upon the fulfillment of some
condition are rated conditionally. These are bonds secured by (a) earnings of
projects under construction, (b) earnings of projects unseasoned in operation
experience, (c) rentals that begin when facilities are completed, or (d)
payments to which some other limiting condition attaches. Such conditional
ratings denote the probable credit stature upon completion of construction or
elimination of the basis of the condition. Bonds rated A are considered as upper
medium grade obligations. Principal and interest are considered adequate, but
elements may be present which suggest a susceptibility to impairment sometime in
the future. Bonds rated Baa are considered a medium grade obligations; i.e.,
they are neither highly protected or 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 Ratings Group ("S&P")
AAA, AA, A and BBB - Bonds rated AAA bear the highest rating assigned to debt
obligations, which indicates an extremely strong capacity to pay principal and
interest. Bonds rated AA are considered "high grade," are only slightly less
marked than those of AAA ratings and have the second strongest capacity for
payment of debt service. Bonds rated A have a strong capacity to pay principal
and interest, although they are somewhat susceptible to the adverse effects of
changes in circumstances and economic conditions. The foregoing ratings are
sometimes followed by a "p" indicating that the rating is provisional. A
provisional rating assumes the successful completion of the project financed by
the bonds being rated and indicates that payment of debt service requirements is
largely or entirely dependent upon the successful and timely completion of the
project. Although a provisional rating addresses credit quality subsequent to
completion of the project, it makes no comment on the likelihood of, or the risk
of default upon failure of, such completion. Bonds rated BBB are regarded as
having an adequate capacity to repay principal and pay interest. Whereas they
normally exhibit protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to repay principal
and pay interest for bonds in this category than for bonds in the A category.
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Fitch Investors Service ("Fitch")
AAA, AA, A, BBB - Bonds rated AAA are considered to be investment grade and of
the highest quality. The obligor has an extraordinary ability to pay interest
and repay principal, which is unlikely to be affected by reasonably foreseeable
events. Bonds rated AA are considered to be investment grade and of high
quality. The obligor's ability to pay interest and repay principal, while very
strong, is somewhat less than for AAA rated securities or more subject to
possible change over the term of the issue. Bonds rated A are considered to be
investment grade and of good quality. The obligor's ability to pay interest and
repay principal is considered to be strong, but may be more vulnerable to
adverse changes in economic conditions and circumstances than bonds with higher
ratings. Bonds rated BBB are considered to be investment grade and of
satisfactory quality. The obligor's ability to pay interest and repay principal
is considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to weaken this ability than bonds with
higher ratings.
TAX-EXEMPT NOTE RATINGS
Moody's - MIG-1 and MIG-2. Notes rated MIG-1 are judged to be of the best
quality, enjoying strong protection from established cash flow or funds for
their services or from established and broad-based access to the market for
refinancing or both. Notes rated MIG-2 are judged to be of high quality with
ample margins of protection, though not as large as MIG-1.
S&P - SP-1 and SP-2. SP-1 denotes a very strong or strong capacity to pay
principal and interest. Issues determined to possess overwhelming safety
characteristics are given a plus (+) designation (SP-1+). SP-2 denotes a
satisfactory capacity to pay principal and interest.
Fitch - FIN-1 and FIN-2. Notes assigned FIN-1 are regarded as having the
strongest degree of assurance for timely payment. A plus symbol may be used to
indicate relative standing. Notes assigned FIN-2 reflect a degree of assurance
for timely payment only slightly less in degree than the highest category.
CORPORATE AND TAX-EXEMPT COMMERCIAL PAPER RATINGS
Moody's - Commercial Paper ratings are opinions of the ability of issuers to
repay punctually promissory obligations not having an original maturity in
excess of nine months. Prime-1, indicates highest quality repayment capacity of
rated issue and Prime-2 indicates higher quality.
S&P - Commercial Paper ratings are a current assessment of the likelihood of
timely payment of debts having an original maturity of no more than 365 days.
Issues rated A have the greatest capacity for a timely payment and the
designation 1, 2 and 3 indicates the relative degree of safety. Issues rated
"A-1+" are those with an "overwhelming degree of credit protection."
Fitch - Commercial Paper ratings reflect current appraisal of the degree of
assurance of timely payment. F-1 issues are regarded as having the strongest
degree of assurance for timely payment. (+) is used to designate the relative
position of an issuer within the rating category. F-2 issues reflect an
assurance of timely payment only slightly less in degree than the strongest
issues. The symbol (LOC) may follow either category and indicates that a letter
of credit issued by a commercial bank is attached to the commercial paper note.
Other Considerations - The ratings of S&P, Moody's, and Fitch represent their
respective opinions of the quality of the municipal securities they undertake to
rate. It should be emphasized, however, that ratings are general and are not
absolute standards of quality. Consequently, municipal securities with the same
maturity, coupon and ratings may have different yields and
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municipal securities of the same maturity and coupon with different ratings may
have the same yield.
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JOHN HANCOCK SERIES, INC.
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements listed below are included in and incorporated
by reference into Part B of the Registration Statement from the 1995 Annual
Report to Shareholders for the year ended October 31, 1995 (filed electronically
on January 3, 1996; file nos. 811-5254 and 33-16048; accession numbers
0000950135-96-000055):
John Hancock Emerging Growth Fund
Statement of Assets and Liabilities as of October 31, 1995.
Statement of Operations for the year ended October 31, 1995.
Statement of Changes in Net Assets for the years ended October 31, 1995.
Notes to Financial Statements.
Financial Highlights for the years ended October 31, 1995.
Schedule of Investments as of October 31, 1995.
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common control
with Registrant.
Item 26. Number of Holders of Securities
As of March 29, 1996, the number of record holders of shares of Registrant
was as follows:
Title of Class Number of Record Holders
John Hancock Emerging Growth Fund
Class A Shares - 11,553
Class B Shares - 24,865
John Hancock High Yield Tax-Free Fund
Class A Shares 3,015
Class B Shares 502
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John Hancock High Yield Bond Fund
Class A Shares 978
Class B Shares 7,260
Title of Class Number of Record Holders
John Hancock Money Market Fund B
Class A Shares 26,235
Class B Shares 3,281
Class S Shares 1
John Hancock Global Resources Fund
Class A Shares 337
Class B Shares 3,284
John Hancock Government Income Fund
Class A Shares 23,177
Class B Shares 7,621
Item 27. Indemnification
(a) Indemnification provisions relating to the Registrant's Directors,
officers, employees and agents is set forth in Article V of the Registrant's By
Laws included as Exhibit 2 herein.
(b) Under Section 12 of the Distribution Agreement, John Hancock Funds,
Inc. ("John Hancock Funds" ) has agreed to indemnify the Registrant and its
Directors, officers and controlling persons against claims arising out of
certain acts and statements of John Hancock Funds.
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Section 9(a) of the By-Laws of the John Hancock Mutual Life Insurance
Company (" the "Insurance Company") provides, in effect, that the Insurance
Company will, subject to limitations of law, indemnify each present and former
director, officer and employee of the of the Insurance Company who serves as a
Directors or officer of the Registrant at the direction or request of the
Insurance Company against litigation expenses and liabilities incurred while
acting as such, except that such indemnification does not cover any expense or
liability incurred or imposed in connection with any matter as to which such
person shall be finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interests of the Insurance
Company. In addition, no such person will be indemnified by the Insurance
Company in respect of any liability or expense incurred in connection with any
matter settled without final adjudication unless such settlement shall have been
approved as in the best interests of the Insurance Company either by vote of the
Board of Directors at a meeting composed of directors who have no interest in
the outcome of such vote, or by vote of the policyholders. The Insurance Company
may pay expenses incurred in defending an action or claim in advance of its
final disposition, but only upon receipt of an undertaking by the person
indemnified to repay such payment if he should be determined to be entitled to
indemnification.
Article IX of the respective By-Laws of John Hancock Funds and John Hancock
Advisers, Inc. (the "Adviser") provide as follows:
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation a director, officer, employee or agent of the
Corporation, or is or was at any time since the inception of the Corporation
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, shall be indemnified by the Corporation against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and the liability was not incurred by reason of gross
negligence or reckless disregard of the duties involved in the conduct of his
office, and expenses in connection therewith may be advanced by the Corporation,
all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person."
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Directors, officers and controlling persons of the
Registrant pursuant to the Registrant's Amended and Restated Articles of
Incorporation and By-Laws, the Distribution Agreement, the By-Laws of John
Hancock Funds, the Adviser, or the Insurance Company or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Directors, officer or controlling person in connection with the securities being
registered,
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the Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of the Adviser,
reference is made to Form ADV (801-8124) filed under the Investment Advisers Act
of 1940, which is incorporated herein by reference.
Item 29. Principal Underwriters
(a) John Hancock Funds acts as principal underwriter for the Registrant and
also serves as principal underwriter or distributor of shares for John Hancock
Cash Reserve, Inc., John Hancock Bond Fund, John Hancock Current Interest, John
Hancock Series, Inc., John Hancock Tax-Free Bond Fund, John Hancock California
Tax-Free Income Fund, John Hancock Capital Series, John Hancock Limited-Term
Government Fund, John Hancock Tax-Exempt Income Fund, John Hancock Sovereign
Investors Fund, Inc., John Hancock Special Equities Fund, John Hancock Sovereign
Bond Fund, John Hancock Tax-Exempt Series, John Hancock Strategic Series, John
Hancock Technology Series, Inc., John Hancock World Fund, John Hancock
Investment Trust, John Hancock Institutional Series Trust, Freedom Investment
Trust, Freedom Investment Trust II and Freedom Investment Trust III.
(b) The following table lists, for each director and officer of John
Hancock Funds, the information indicated.
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<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
<S> <C> <C>
Edward J. Boudreau, Jr. Chairman, President and Chief Chairman
101 Huntington Avenue Executive Officer
Boston, Massachusetts
Robert H. Watts Director and Executive None
John Hancock Place Vice President and Chief
P.O. Box 111 Compliance Officer
Boston, Massachusetts
Robert G. Freedman Director Vice Chairman, Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Thomas H. Drohan Senior Vice President Senior Vice President and
101 Huntington Avenue Secretary
Boston, Massachusetts
James W. McLaughlin Senior Vice President None
101 Huntington Avenue and
Boston, Massachusetts Chief Financial Officer
David A. King Director and Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Anthony P. Petrucci Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
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Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
Charles H. Womack Senior Vice President None
6501 Americans Parkway
Albuquerque, New Mexico
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President and Secretary Vice President,
101 Huntington Avenue Assistant Secretary
Boston, Massachusetts and Compliance Officer
Keith Harstein Vice President None
101 Huntington Avenue
Boston, Massachusetts
Griselda Lyman Vice President None
101 Huntington Avenue
Boston, Massachusetts
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-6
<PAGE>
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director Trustee
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John Goldsmith Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington avenue
Boston, Massachusetts
Michael T. Carpenter Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
C-7
<PAGE>
(c) None.
Item 30. Location of Accounts and Records
The Registrant maintains the records required to be maintained by it under
Rules 31a-1 (a), 31a-1(b), and 31a-2(a) under the Investment Company Act of
1940 at its principal executive offices at 101 Huntington Avenue, Boston
Massachusetts 02199-7603. Certain records, including records relating to
Registrant's shareholders and the physical possession of its securities,
may be maintained pursuant to Rule 31a-3 at the main offices of
Registrant's Transfer Agent and Custodian.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable
(b) Not applicable
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus with respect to a series of the Registrant is delivered with a copy
of the latest annual report to shareholders with respect to that series upon
request and without charge.
(d) Registrant undertakes to comply with Section 16(c) of the Investment
Company Act of 1940, as amended which relates to the assistance to be rendered
to shareholders by the Trustees of the Registrant in calling a meeting of
shareholders for the purpose of voting upon the question of the removal of a
trustee.
C-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
25th day of April, 1996.
JOHN HANCOCK SERIES, INC.
By: *
Edward J. Boudreau, Jr.
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
Signature Title Date
* Chairman and Chief Executive
Edward J. Boudreau, Jr. Officer (Principal Executive
Officer)
/s/James B. Little
James B. Little Senior Vice President and Chief April 25, 1996
Financial Officer (Principal
Financial and Accounting Officer)
* Director
James F. Carlin
* Director
William H. Cunningham
Director
Anne C. Hodsdon
* Director
Charles L. Ladner
C-9
<PAGE>
Signature Title Date
* Director
Leo E. Linbeck, Jr.
* Director
Patricia P. McCarter
* Director
Steven R. Pruchansky
* Director
Norman H. Smith
Director
Richard S. Scipione
* Director
John P. Toolan
*By: /s/Thomas H. Drohan April 25, 1996
-------------------
Thomas H. Drohan,
Attorney-in-Fact
C-10
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
99.B1 Articles of Amendment and Restatement dated June 29, 1987;
Articles of Amendment dated July 23, 1987; Articles
Supplementary dated August 5, 1987; Articles of Amendment
dated October 5, 1987; Articles of Amendment dated June 14,
1989; Articles Supplementary dated June 5, 1991; Articles
Supplementary dated October 22, 1993; Articles
Supplementary dated May 17, 1994; Articles of Amendment
dated May 20, 1994; Articles of Amendment dated December
16, 1994; Articles Supplementary dated September 11,
1995.**
99.B2 Amended and Restated By-Laws dated December 22, 1994.*
99.B3 Not Applicable.
99.B4 Specimen share certificate for Emerging Growth Fund, High
Yield Tax-Free Fund, High Yield Bond Fund, Global Resources
Fund and Government Income Fund (Classes A and B).**
.
99.B5 Investment Management Contract between John Hancock Advisers,
Inc. and the Registrant on behalf of Global Resources Fund
dated December 22, 1994.*
99.B5.1 Investment Management Contract between John Hancock Advisers,
Inc. and the Registrant on behalf of Emerging Growth Fund
dated December 22, 1994.*
99.B5.2 Investment Management Contract between John Hancock Advisers,
Inc. and the Registrant on behalf of High Yield Bond Fund
dated December 22, 1994.*
99.B5.3 Investment Management Contract between John Hancock Advisers,
Inc. and the Registrant on behalf of High Yield Tax-Free
Fund dated December 22, 1994.*
99.B5.4 Investment Management Contract between John Hancock Advisers,
Inc. and the Registrant on behalf of Government Income Fund
dated December 22, 1994.*
99.B5.5 Investment Management Contract between John Hancock Advisers,
Inc. and the Registrant on behalf of Money Market Fund Fund.*
<PAGE>
Exhibit No. Description
99.B6 Distribution Agreement between Registrant and John Hancock
Broker Distribution Services, Inc.*
99.B6.1 Form of Soliciting Dealer Agreement between John Hancock
Funds, Inc. and the John Hancock funds.*
99.B6.2 Form of Financial Institution Sales and Service Agreement
between John Hancock Fund's, Inc. and the John Hancock funds.*
99.B7 Not Applicable
99.B8 Master Custodian agreement between the John Hancock funds and
Investor Bank & Trust Company.*
99.B9 Transfer Agency and Service Agreement with John Hancock Fund
Services, Inc.*
99.B9.1 Accounting and Legal Services Agreement between John Hancock
Advisers, Inc. and Registrant as of January 1, 1996.+
99.B10 None
99.B11 Consent of Independent Auditors.+
99.B12 Not Applicable
99.B13 None
99.B15 Plan of Distribution pursuant to Rule 12b-1 as amended and
restated January 1, 1994.*
99.B15.1 Class A and Class B Distribution Plan between Global Resources
Fund and John Hancock Funds, Inc.*
99.B15.2 Class A and Class B Distribution Plan between Emerging Growth
Fund and John Hancock Funds, Inc.*
99.B15.3 Class A and Class B Distribution Plan between Government
Income Fund and John Hancock Funds, Inc.*
99.B15.4 Class A and Class B Distribution Plan between High Yield Bond
Fund and John Hancock Funds, Inc.*
99.B15.5 Class A and Class B Distribution Plan between High Yield
Tax-Free Fund and John Hancock Funds, Inc.*
<PAGE>
Exhibit No. Description
99.B15.6 Class B Distribution Plan between Money Market Fund and John
Hancock Funds, Inc.*
99.B15.7 Class A and Class S Distribution Plan between Money Market
Fund and John Hancock Funds, Inc.**
99.B16 Schedule for computation of each performance quotation
provided in the Registration Statement in response to Item 22
for each series of the Registrant.**
27.2A John Hancock Emerging Growth Fund
27.2B John Hancock Emerging Growth Fund
* Previously filed electronically with post-effective amendment number 20
(file nos. 33-16048 811-5254) on July 7, 1995, accession number
0000950135-95-001497.
** Previously filed electronically with post-effective amendment number 21
(file nos. 33-16048 and 811-5254) on February 28, 1996, accession number
0000950135-96-001194.
+ Filed herewith.
As of January 1, 1996
ACCOUNTING & LEGAL SERVICES AGREEMENT
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
Dear Sir:
The John Hancock Funds listed on Schedule A (the "Funds") have selected John
Hancock Advisers, Inc. (the "Administrator") to provide certain accounting and
legal services for the Funds, as more fully set forth below, and you are willing
to provide such services under the terms and conditions hereinafter set forth.
Accordingly, the Funds agree with you as follows:
1. Services. Subject to the general supervision of the Board of
Trustees/Directors of the Funds, you will provide certain tax, accounting
and legal services (the "Services") to the Funds. You will, to the extent
such services are not required to be performed by you pursuant to an
investment advisory agreement, provide:
(A) such tax, accounting, recordkeeping and financial management services
and functions as are reasonably necessary for the operation of each
Fund. Such services shall include, but shall not be limited to,
supervision, review and/or preparation and maintenance of the
following books, records and other documents: (1) journals containing
daily itemized records of all purchases and sales, and receipts and
deliveries of securities and all receipts and disbursements of cash
and all other debits and credits, in the form required by Rule
31a-1(b) (1) under the Act; (2) general and auxiliary ledgers
reflecting all asset, liability, reserve, capital, income and expense
accounts, in the form required by Rules 31a-1(b) (2) (i)-(iii) under
the Act; (3) a securities record or ledger reflecting separately for
each portfolio security as of trade date all "long" and "short"
positions carried by each Fund for the account of the Funds, if any,
and showing the location of all securities long and the off-setting
position to all securities short, in the form required by Rule
31a-1(b) (3) under the Act; (4) a record of all portfolio purchases or
sales, in the form required by Rule 31a-1(b) (6) under the Act; (5) a
record of all puts, calls, spreads, straddles and all other options,
if any, in which any Fund has any direct or indirect interest or which
the Funds have granted or guaranteed, in the form required by Rule
31a-1(b) (7) under the Act; (6) a record of the proof of money
balances in all ledger accounts maintained pursuant to this Agreement,
in the form required by Rule 31a-1(b) (8) under the Act; (7) price
make-up sheets and such records as are necessary to reflect the
determination of each Funds' net asset value; and (8) arrange for, or
participate in (a) the preparation for the Fund of all required tax
returns, (b) the preparation and submission of reports to existing
shareholders and (c) the preparation of financial data or reports
required by the Securities and Exchange Commission and other
regulatory authorities;
<PAGE>
(B) certain legal services as are reasonably necessary for the operation
of each Funds. Such services shall include, but shall not be limited
to; (1) maintenance of each Fund's registration statement and federal
and state registrations; (2) preparation of certain notices and proxy
materials furnished to shareholders of the Funds; (3) preparation of
periodic reports of each Fund to regulatory authorities, including
Form N-SAR and Rule 24f-2 legal opinions; (4) preparation of materials
in connection with meetings of the Board of Trustees/Directors of the
Funds; (5) preparation of written contracts, distribution plans,
compliance procedures, corporate and trust documents and other legal
documents; (6) research advice and consultation about certain legal,
regulatory and compliance issues, (7) supervision, coordination and
evaluation of certain services provided by outside counsel.
(C) provide the Funds with staff and personnel to perform such accounting,
bookkeeping and legal services as are reasonably necessary to
effectively service the Fund. Without limiting the generality of the
foregoing, such staff and personnel shall be deemed to include
officers of the Administrator, and persons employed or otherwise
retained by the Administrator to provide or assist in providing of the
services to the Fund.
(D) maintain all books and records relating to the foregoing services; and
(E) provide the Funds with all office facilities to perform tax,
accounting and legal services under this Agreement.
2. Compensation of the Administrator The Funds shall reimburse the
Administrator for: (1) a portion of the compensation, including all
benefits, of officers and employees of the Administrator based upon the
amount of time that such persons actually spend in providing or assisting
in providing the Services to the Funds (including necessary supervision and
review); and (2) such other direct and indirect expenses, including, but
not limited to, those listed in paragraph (1) above, incurred on behalf of
the Fund that are associated with the providing of the Services and (3) 10%
of the reimbursement amount. In no event, however, shall such reimbursement
exceed levels that are fair and reasonable in light of the usual and
customary charges made by others for services of the same nature and
quality. Compensation under this Agreement shall be calculated and paid
monthly in a arrears.
3. No Partnership or Joint Venture. The Funds and you are not partners of or
joint ventures with each other and nothing herein shall be construed so as
to make you such partners or joint venturers or impose any liability as
such on any of you.
4. Limitation of Liability of the Administrator. You shall not be liable for
any error of judgment or mistake of law or for any loss suffered by the
Funds in connection with the matters to which this Agreement relates,
except a loss resulting from willful misfeasance, bad faith or gross
negligence on your part in the performance of your duties or from reckless
disregard by you of your obligations and duties under this Agreement. Any
person, even though also employed by you, who may be or become an employee
of and paid by the Funds shall be deemed, when acting within the scope of
his or her employment by the Funds, to be acting in such employment solely
for the Funds and not as your employee or agent.
<PAGE>
5. Duration and Termination of this Agreement. This Agreement shall remain in
force until the second anniversary of the date upon which this Agreement
was executed by the parties hereto, and from year to year thereafter, but
only so long as such continuance is specifically approved at least annually
by a majority of the Trustees/Directors. This Agreement may, on 60 days'
written notice, be terminated at any time without the payment of any
penalty by the Funds by vote of a majority of the Trustees/Directors, or by
you. This Agreement shall automatically terminate in the event of its
assignment.
6. Amendment of this Agreement. No provision of this Agreement may be changed,
waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver
or termination is sought.
7. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of The Commonwealth of Massachusetts without
regard to the choice of law provisions thereof.
8. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or limit any of the provisions
hereof or otherwise affect their construction or effect. This Agreement may
be executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument. A copy of the Declaration of Trust of each Fund
organized as Massachusetts business trusts is on file with the Secretary of
State of the Commonwealth of Massachusetts. The obligations of each such
Fund are not personally binding upon, nor shall resort be had to the
private property of, any of the Trustees, shareholders, officers, employees
or agents of the Fund, but only the Fund's property shall be bound.
Yours very truly,
JOHN HANCOCK FUNDS (See Schedule A)
By: /s/ James B. Little
James B. Little
Senior Vice President
The foregoing contract is
hereby agreed to as of the
date hereof.
JOHN HANCOCK ADVISERS, INC.
By: /s/ Anne C. Hodsdon
Anne C. Hodsdon
President
<PAGE>
January 1, 1996
SCHEDULE A
John Hancock Capital Series
- John Hancock Growth Fund
- John Hancock Special Value Fund
John Hancock Limited Term Government Fund
John Hancock Sovereign Bond Fund John
Hancock Sovereign Investors Fund, Inc.
- John Hancock Sovereign Investors Fund
- John Hancock Sovereign Balanced Fund
John Hancock Special Equities Fund
John Hancock Strategic Series
- John Hancock Independence Diversified Core Equity Fund
- John Hancock Strategic Income Fund
- John Hancock Utilities Fund
John Hancock Tax-Exempt Income Fund
John Hancock World Fund
- John Hancock Pacific Basin Equities Fund
- John Hancock Global Rx Fund
- John Hancock Global Marketplace Fund
John Hancock Cash Reserve, Inc.
John Hancock Series, Inc.
- John Hancock Emerging Growth Fund
- John Hancock Global Resources Fund
- John Hancock Government Income Fund
- John Hancock High Yield Bond Fund
- John Hancock High Yield Tax-Free Fund
- John Hancock Money Market Fund
John Hancock Institutional Series Trust
- John Hancock Active Bond Fund
- John Hancock Dividend Performers Fund
- John Hancock Fundamental Value Fund
- John Hancock Global Bond Fund
- John Hancock International Equity Fund
- John Hancock Multi-Sector Growth Fund
- John Hancock Small Capitalization Equity Fund
- John Hancock Independence Diversified Core Equity Fund II
- John Hancock Independence Value Fund
- John Hancock Independence Balanced Fund
- John Hancock Independence Medium Capitalization Fund
- John Hancock Independence Growth Fund
John Hancock Declartion Trust
- John Hancock V.A. 500 Index Fund
- John Hancock V.A. Discovery Fund
- John Hancock V.A. Diversified Core Equity Fund
- John Hancock V.A. Emerging Equities Fund
- John Hancock V.A. Global Income Fund
- John Hancock V.A. International Fund
- John Hancock V.A. Money Market Fund
- John Hancock V.A. Sovereign Bond Fund
- John Hancock V.A. Strategic Income Fund
- John Hancokc V.A. Sovereign Investors Fund
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" for Emerging Growth Fund in the John Hancock Growth Funds prospectus
and "Independent Auditors" in the John Hancock Series, Inc. Class A and Class B
Shares Statement of Additional Information with respect to the John Hancock
Emerging Growth Fund and to the use of our report dated December 15, 1995, on
the financial statements and financial highlights of the John Hancock Emerging
Growth Fund (one of the portfolios constituting John Hancock Series, Inc.) in
this Post-Effective Amendment Number 22 to Registration Statement (Form N-1A No.
33-16048) dated July 1, 1996.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 22, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 101
<NAME> JOHN HANCOCK EMERGING GROWTH FUND - A
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 328,885,300
<INVESTMENTS-AT-VALUE> 574,927,900
<RECEIVABLES> 2,319,284
<ASSETS-OTHER> 517,792
<OTHER-ITEMS-ASSETS> 245,565,411
<TOTAL-ASSETS> 577,287,787
<PAYABLE-FOR-SECURITIES> 3,706,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 623,030
<TOTAL-LIABILITIES> 623,030
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 333,863,246
<SHARES-COMMON-STOCK> 4,973,680
<SHARES-COMMON-PRIOR> 4,886,971
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,469,900)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 245,565,411
<NET-ASSETS> 572,958,757
<DIVIDEND-INCOME> 2,174,731
<INTEREST-INCOME> 403,533
<OTHER-INCOME> 0
<EXPENSES-NET> 8,734,994
<NET-INVESTMENT-INCOME> (6,156,730)
<REALIZED-GAINS-CURRENT> 10,693,222
<APPREC-INCREASE-CURRENT> 134,216,496
<NET-CHANGE-FROM-OPS> 138,752,988
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,389,301
<NUMBER-OF-SHARES-REDEEMED> 5,302,592
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 158,471,110
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (17,163,122)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,509,539
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 463,333,235
<PER-SHARE-NAV-BEGIN> 26.82
<PER-SHARE-NII> (0.25)
<PER-SHARE-GAIN-APPREC> 9.52
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 36.09
<EXPENSE-RATIO> 1.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 102
<NAME> JOHN HANCOCK EMERGING GROWTH FUND - B
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 328,885,300
<INVESTMENTS-AT-VALUE> 574,927,900
<RECEIVABLES> 2,319,284
<ASSETS-OTHER> 517,792
<OTHER-ITEMS-ASSETS> 245,565,411
<TOTAL-ASSETS> 577,287,787
<PAYABLE-FOR-SECURITIES> 3,706,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 623,030
<TOTAL-LIABILITIES> 623,030
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 333,863,246
<SHARES-COMMON-STOCK> 11,309,413
<SHARES-COMMON-PRIOR> 10,883,600
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (6,469,900)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 245,565,411
<NET-ASSETS> 572,958,757
<DIVIDEND-INCOME> 2,174,731
<INTEREST-INCOME> 403,533
<OTHER-INCOME> 0
<EXPENSES-NET> 8,734,994
<NET-INVESTMENT-INCOME> (6,156,730)
<REALIZED-GAINS-CURRENT> 10,693,222
<APPREC-INCREASE-CURRENT> 134,216,496
<NET-CHANGE-FROM-OPS> 138,752,988
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,378,294
<NUMBER-OF-SHARES-REDEEMED> 6,952,481
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 158,471,110
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (17,163,122)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,509,539
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 463,333,235
<PER-SHARE-NAV-BEGIN> 26.04
<PER-SHARE-NII> (0.45)
<PER-SHARE-GAIN-APPREC> 9.20
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 34.79
<EXPENSE-RATIO> 2.11
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
