<PAGE>
JOHN HANCOCK
DISCOVERY FUND
CLASS A AND CLASS B SHARES
PROSPECTUS
DECEMBER 1, 1995
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TABLE OF CONTENTS
Page
----
Expense Information .................................................... 2
The Fund's Financial Highlights ........................................ 3
Investment Objective and Policies ...................................... 4
Organization and Management of the Fund ................................ 7
Alternative Purchase Arrangements ...................................... 8
The Fund's Expenses .................................................... 9
Dividends and Taxes .................................................... 10
Performance ............................................................ 11
How to Buy Shares ...................................................... 12
Share Price ............................................................ 13
How to Redeem Shares ................................................... 18
Additional Services and Programs ....................................... 20
This Prospectus sets forth information about John Hancock Discovery Fund
(the "Fund"), a diversified series of Freedom Investment Trust III, that you
should know before investing. Please read and retain it for future reference.
Additional information about the Fund has been filed with the Securities
and Exchange Commission (the "SEC"). You can obtain a copy of the Fund's
Statement of Additional Information, dated December 1, 1995, free of charge by
writing or telephoning: John Hancock Investor Services Corporation, P.O. Box
9116, Boston, Massachusetts 02205-9116, 1-800-225-5291, (1-800-554-6713 TDD).
SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various fees and expenses that you will bear, directly or indirectly, when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on fees and expenses of Class A and Class
B shares for the fiscal year ended July 31, 1995 adjusted to reflect current
fees and expenses. Actual fees and expenses may be greater or less than those
indicated.
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
-------- -------
<S> <C> <C>
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases (as a percentage of
offering price) ............................................. 5.00% None
Maximum sales charge imposed on reinvested dividends .......... None None
Maximum deferred sales charge ................................. None* 5.00%
Redemption fee+ .. ............................................ None None
Exchange fee .................................................. None None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fee ................................................ 0.75% 0.75%
12b-1 fee** ................................................... 0.30% 1.00%
0.80% 0.80%
Other expenses ................................................ ---- ----
1.85% 2.55%
Total Fund operating expenses ................................. ==== ====
* No sales charge is payable at the time of purchase on investments of $1 million or more, a
contingent deferred sales charge may be imposed but for these investments, as described under
the caption "Share Price," in the event of certain redemption transactions within one year of
purchase.
** The amount of the 12b-1 fee used to cover service expenses will be up to 0.25% of average daily
net assets, and the remaining portion will be used to cover distribution expenses.
+ Redemption by wire fee (currently $4.00) not included.
</TABLE>
EXAMPLE: 1 YEAR 3 YEARS 5 YEARS 10 YEARS
You would pay the following expenses on
a $1,000 investment, assuming a 5%
annual return throughout the periods
and reinvestment of all dividends:
Class A Shares ........................ $68 $105 $145 $256
Class B Shares
--Assuming complete redemption at end
of period ............................. $76 $109 $155 $271
--Assuming no redemption ............ $26 $ 79 $135 $271
- -------------------
(The example should not be considered as a representation of past or future
expenses or future investment returns. Actual expenses may be greater or less
than shown.)
The Fund's payment of a distribution fee may result in a long-term
shareholder indirectly paying more than the economic equivalent of the maximum
front-end sales charge permitted under the National Association of Securities
Dealers Rules of Fair Practice.
The management and 12b-1 fees referred to above are more fully explained
in this Prospectus under the caption "The Fund's Expenses" and in the
Statement of Additional Information under the captions "Investment Advisory
and Other Services" and "Distribution Contract."
<PAGE>
THE FUND'S FINANCIAL HIGHLIGHTS
The following table of Financial Highlights for each of the three years in
the period ended July 31, 1995 has been audited by Ernst & Young LLP, the
Fund's independent auditors whose unqualified report is included in the Fund's
1995 Annual Report and is included in the Statement of Additional Information.
The Fund's Financial Highlights were audited by Price Waterhouse LLP for the
period ended July 31, 1992. Further information about the performance of the
Fund is contained in the Fund's Annual Report to shareholders which may be
obtained free of charge by writing or telephoning John Hancock Investor
Services Corporation, at the address or telephone number listed on the front
page of this Prospectus.
Selected data for each class of shares outstanding throughout each period
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-----------------------------------------------------
1995 1994 1993 1992(a)
---- ---- ---- -------
<S> <C> <C> <C> <C>
CLASS A
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ..................... $ 8.56 $ 10.81 $ 8.95 $ 9.40
------- ------- ------- -------
Net Investment Loss ...................................... (0.17)+ (0.16)+ (0.16) (0.05)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions .......................... 4.83 (0.43) 2.15 (0.40)
------- ------- ------- -------
Total from Investment Operations ................... 4.66 (0.59) 1.99 (0.45)
------- ------- ------- -------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold (0.27) (1.66) (0.13) --
------- ------- ------- -------
Net Asset Value, End of Period ........................... $ 12.95 $ 8.56 $ 10.81 $ 8.95
------- ------- ------- -------
Total Investment Return at Net Asset Value ............... 55.80% (6.45%) 22.33% (4.79%)(b)
------- ------- ------- -------
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .............. $ 5,075 $ 3,226 $ 4,692 $ 3,866
Ratio of Expenses to Average Net Assets ................ 2.10% 2.01% 2.17% 1.78%*
Ratio of Net Investment Loss to Average Net Assets ..... (1.73%) (1.64%) (1.61%) (1.20%)*
Portfolio Turnover Rate ................................ 118% 108% 148% 138%
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ..................... $ 8.34 $ 10.65 $ 8.87 $ 8.00
------- ------- ------- -------
Net Investment Loss ...................................... (0.22)+ (0.22)+ (0.23) (0.11)
Net Realized and Unrealized Gain (Loss) on Investments and
Foreign Currency Transactions .......................... 4.69 (0.43) 2.14 0.98
------- ------- ------- -------
Total from Investment Operations ................... 4.47 (0.65) 1.91 0.87
------- ------- ------- -------
Less Distributions:
Distributions from Net Relized Gain on Investments Sold (0.27) (1.66) (0.13) --
------- ------- ------- -------
Net Asset Value, End of Period ........................... $ 12.54 $ 8.34 $ 10.65 $ 8.87
======= ======= ======= =======
Total Investment Return at Net Asset Value ............... 54.97% (7.18%) 21.63% 10.88%(b)
------- ------- ------- -------
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) .............. $31,645 $26,537 $38,672 $34,636
Ratio of Expenses to Average Net Assets ................ 2.70% 2.62% 2.86% 2.56%*
Ratio of Net Investment Loss to Average Net Assets ..... (2.34%) (2.24%) (2.26%) (1.56%)*
Portfolio Turnover Rate ................................ 118% 108% 148% 138%
- ----------
* On an annualized basis.
(a) Class A and Class B shares commenced operations on January 3, 1992 and August 30, 1991, respectively.
(b) Not annualized.
+ On average month end shares outstanding.
</TABLE>
<PAGE>
THE FUND'S INVESTMENT
OBJECTIVE IS TO ACHIEVE
LONG-TERM GROWTH OF CAPITAL.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve long-term growth of capital. The
Fund will invest primarily in common stocks that are believed by the Fund's
managers to offer superior prospects for growth. Any income received on the
Fund's investments will be incidental to the Fund's objective of long-term
growth of capital. There are market fluctuations and risks in any investment,
and therefore there is no assurance that the Fund will achieve its investment
objective.
John Hancock Advisers, Inc. (the "Adviser") will seek to identify companies
with growth rates exceeding the market in general in the belief that superior
earnings growth may lead to more rapid share price appreciation. The market
valuation of these companies tends to fluctuate during economic or market
cycles, presenting attractive investment opportunities as the cycles develop.
The Adviser constantly monitors the markets looking for companies that are
creating new technologies, a unique or proprietary product or a profitable
market niche.
Under normal circumstances, the Fund will invest at least 65% of its total
assets in equity securities, including common stock, preferred stock and
investment grade debt securities convertible into common stock. The selection
of portfolio investments by the Adviser will focus on companies with broad
market opportunities and consistent or accelerating earnings growth. These
companies may be in a relatively early stage of development, but have usually
established a record of profitability and a strong financial position. They
may possess a new technology, a unique or proprietary product, or a profitable
market niche--all of which help drive strong unit volume growth, profitability
and ultimately earnings per share growth. Other desirable attributes of
portfolio investments may include participation by a company in an industrial
sector with a favorable secular growth outlook (e.g., medical/healthcare,
communications, technology, etc.), a capable management team with a
significant equity stake in its company, and financial cash flows sufficient
to sustain estimated growth rates.
The Fund may invest up to 25% of its assets in the securities of foreign
issuers, including securities in the form of sponsored or unsponsored American
Depositary Receipts (ADRs), European Depositary Receipts (EDRs) or other
securities convertible into securities of foreign issuers. ADRs are receipts
typically issued by an American bank or trust company which evidence ownership
of underlying securities issued by a foreign corporation. EDRs are receipts
issued in Europe which evidence a similar ownership arrangement. Issuers of
unsponsored ADRs are not contractually obligated to disclose material
information, including financial information, in the United States. Generally,
ADRs are designed for use in the United States securities markets and EDRs are
designed for use in European securities markets.
To avoid the need to sell equity securities in the portfolio to provide funds
for redemption, and to give the Fund the flexibility to take advantage of
investment opportunities, the Fund may invest up to 15% of its net assets in
short-term (less than one year) investment grade (i.e., rated at the time of
purchase AAA, AA, A or BBB by Standard & Poor's Ratings Group or Aaa, Aa, A or
Baa by Moody's Investors Service, Inc.) debt securities of corporations (such
as commercial paper, notes, bonds or debentures), certificates of deposit,
money market securities, U.S. Government agency securities, or repurchase
agreements that are fully collateralized by U.S. Government obligations. When
the Adviser believes that abnormal financial conditions warrant it, up to 80%
of the Fund's assets may be temporarily invested in these securities rated in
the three highest categories for defensive purposes. Medium grade obligations
(i.e., BBB or Baa) lack outstanding investment characteristics and, in fact,
have speculative characteristics. In the event these securities are
subsequently downgraded below the three highest ratings, the Adviser will
consider this event when it determines whether the Fund should continue to
hold the securities. See Appendix A to the Statement of Additional Information
for a description of the various ratings of investment grade debt securities.
THE FUND MAY EMPLOY CERTAIN
INVESTMENT STRATEGIES TO
HELP ACHIEVE ITS
INVESTMENT OBJECTIVE.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest up to 25% of its total
assets in securities of foreign issuers. Investments in foreign securities may
involve a greater degree of risk than those in domestic securities due to
exchange controls, less publicly available information, more volatile or less
liquid securities markets, and the possibility of expropriation,
nationalization, confiscatory taxation or political, economic or social
instability. Some foreign companies are not generally subject to the same
uniform accounting, auditing and financial reporting requirements as domestic
companies; also foreign regulation may differ considerably from domestic
regulation of stock exchanges, brokers and securities. Additionally, because
foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains
that the Fund distributes to shareholders. Securities transactions undertaken
in some foreign markets may not be settled promptly. Therefore, the Fund's
investments on foreign exchanges may be less liquid and subject to the risk of
fluctuating currency exchange rates pending settlement.
OPTIONS TRANSACTIONS. The Fund may purchase listed put and call options on
securities and foreign currencies. However, no more than an aggregate of 5% of
the Fund's total assets, measured by the amount of the premium, will be
invested in these options.
FUTURES TRANSACTIONS FOR HEDGING PURPOSES. Although it has no present
intention to engage in these strategies, the Fund has also reserved the right
to purchase or write (sell) financial futures contracts and related options
that are traded on a U.S. exchange or board of trade, for hedging purposes
(i.e., to reduce the risks of fluctuations in the value of the Fund's
portfolio). Before the Fund will invest in any futures contracts or related
options, shareholders of the Fund will be notified and the Prospectus will be
supplemented accordingly.
The Fund's ability to use options and futures contracts, either to earn income
successfully or to hedge, will depend on the Adviser's ability to predict
accurately the future direction of stock market prices, interest rate changes,
currency rate fluctuations and other market factors. There is no assurance
that a liquid market for options and futures will always exist. In addition,
the Fund could be prevented from opening or realizing the benefits of closing
out an options or futures position because of position limits or limits on
daily price fluctuations imposed by an exchange. See the Statement of
Additional Information for further discussion of options and futures
transactions, including tax effects and investment risks.
FOREIGN CURRENCY TRANSACTIONS FOR HEDGING PURPOSES. The Fund may enter into
transactions in foreign currencies or in forward foreign currency exchange
contracts, but only in connection with its hedging strategies. A forward
foreign currency exchange contract involves an obligation to purchase or sell
a specific currency at a future date at a price set at the time of the
contract. The Fund will not enter into a forward contract with a term greater
than one year or commit more than 25% of the value of its total assets to
these contracts. Although certain strategies could minimize the risk of loss
due to a decline in the value of the hedged foreign currency, they could also
limit any potential gain which might result from an increase in the value of
the currency. See the Statement of Additional Information for further
discussion of the uses and risks of forward foreign currency exchange
contracts.
RESTRICTED SECURITIES. The Fund may purchase restricted securities, including
those eligible for resale to "qualified institutional buyers" pursuant to Rule
144A under the Securities Act of 1933 (the "Securities Act"). The Trustees
will carefully monitor the Fund's investments in these securities, focusing on
certain factors, including valuation, liquidity and availability of
information. Purchase of other restricted securities are subject to an
investment restriction limiting all the Fund's illiquid securities to not more
than 15% of its net assets.
SHORT SALES. The Fund may engage in short sales "against the box", as well as
short sales to hedge against or profit from an anticipated decline in the
value of a security. When the Fund engages in a short sale, it will place in a
segregated account and mark to market daily, cash or U.S. government
securities in accordance with applicable regulatory requirements. See the
Statement of Additional Information.
LENDING OF SECURITIES. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements.
The Fund may reinvest any cash collateral in short-term securities. When the
Fund lends portfolio securities, there is a risk that the borrower may fail to
return the securities involved in the transaction. As a result, the Fund may
incur a loss or, in the event of the borrower's bankruptcy, the Fund may be
delayed in or prevented from liquidating the collateral. It is a fundamental
policy of the Fund not to lend portfolio securities having a total value
exceeding 33 1/3% of its total assets.
REPURCHASE AGREEMENTS. In a repurchase agreement, the Fund buys a security
subject to the right and obligation to sell it back to the issuer at the same
price plus accrued interest. These transactions must be fully collateralized
at all times, but they involve some credit risk to the Fund if the other party
defaults on its obligations and the Fund is delayed or prevented from
liquidating the collateral.
The Fund has adopted certain investment restrictions which are enumerated in
detail in the Statement of Additional Information, where they are classified
as fundamental or non-fundamental. The Fund's investment objective and those
investment restrictions designated as fundamental may not be changed without
shareholder approval. All other restrictions and investment policies are
nonfundamental and can be changed by a vote of the Trustees without
shareholder approval.
A high rate of portfolio turnover (greater than 100%) involves correspondingly
greater brokerage expense which will be borne by the Fund and may, under
certain circumstances, make it more difficult for the Fund to qualify as a
regulated investment company under the Internal Revenue Code. The Fund's
portfolio turnover rates for recent periods are shown in the section "The
Fund's Financial Highlights."
The Fund believes that its shares are suitable for investment by persons who
are in a financial position to assume above-average investment risk in search
of above-average long-term reward, and who can invest without concern for
current income. The Fund is not intended as a complete investment program, but
is most appropriately considered as only one portion of your overall
investment portfolio.
BROKERS ARE CHOSEN BASED
ON BEST PRICE AND EXECUTION.
When choosing brokerage firms to carry out the Fund's transactions, the
primary consideration is execution at the most favorable prices, taking into
account the broker's professional ability and quality of service.
Consideration may also be given to the broker's sales of shares of the Fund.
Pursuant to procedures established by the Trustees, the Adviser may place
securities transactions with brokers affiliated with the Adviser. These
brokers include Tucker Anthony Incorporated John Hancock Distributors, Inc.
and Sutro & Company Inc. which are indirectly owned by John Hancock Mutual
Life Insurance Company, which in turn indirectly owns the Adviser.
THE TRUSTEES ELECT OFFICERS AND
RETAIN THE INVESTMENT ADVISER
WHO IS RESPONSIBLE FOR THE
DAY-TO-DAY OPERATIONS OF THE
FUND, SUBJECT TO THE TRUSTEES'
POLICIES AND SUPERVISION.
ORGANIZATION AND MANAGEMENT OF THE FUND
The Fund is a diversified series of Freedom Investment Trust III, an open-end
management investment company organized as a Massachusetts business trust in
1989 (the "Trust"). The Trust reserves the right to create and issue a number
of series of shares, or funds or classes of shares of those series, which are
separately managed and have different investment objectives. The Trust is not
required and does not intend to hold annual meetings of shareholders, although
special meetings may be held for such purposes as electing or removing
Trustees, changing fundamental policies or approving a management contract.
The Fund, under certain circumstances, will assist in shareholder
communications with other shareholders.
JOHN HANCOCK ADVISERS, INC.
ADVISES INVESTMENT COMPANIES
HAVING A TOTAL ASSET VALUE
OF MORE THAN $16 BILLION.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
John Hancock Mutual Life Insurance Company, a financial services company. The
Adviser provides the Fund, and other investment companies in the John Hancock
group of funds, with investment research and portfolio management services.
John Hancock Funds, Inc. ("John Hancock Funds") distributes shares for all of
the John Hancock funds directly and through selected broker-dealers ("Selling
Brokers"). Freedom Distributors Corporation, a co-distributor of the Fund, is
also an indirect subsidiary of John Hancock Mutual Life Insurance Company
(together with John Hancock Funds, the "Distributor"). Certain Fund officers
are also officers of the Adviser and John Hancock Funds. Pursuant to an order
granted by the Securities and Exchange Commission, the Fund has adopted a
deferred compensation plan for its independent Trustees, which allows
Trustees' fees to be invested by the Fund in other John Hancock funds.
Day-to-day management of the Fund is carried out by Bernice S. Behar, who also
manages John Hancock Growth Fund and John Hancock Global Retail Fund. Ms.
Behar has been with the Adviser since 1991 and prior to that was a portfolio
manager and investment analyst with Sanyo Securities America.
In order to avoid conflicts with portfolio trades for the Fund, the Adviser
and the Fund have adopted extensive restrictions on personal securities
trading by personnel of the Adviser and its affiliates. Some of these
restrictions are: pre-clearance for all personal trades and a ban on the
purchase of initial public offerings, as well as contributions to specified
charities of profits on securities held for less than 91 days. These
restrictions are a continuation of the basic principle that the interests of
the Fund and its shareholders come first.
ALTERNATIVE PURCHASE ARRANGEMENTS
You can purchase shares of the Fund at a price equal to their net asset value
per share, plus a sales charge. At your election this charge may be imposed
either at the time of the purchase (see "Initial Sales Charge Alternative,"
Class A Shares) or on a contingent deferred basis (see "Contingent Deferred
Sales Charge Alternative," Class B Shares). If you do not specify on your
account application the class of shares you are purchasing, it will be assumed
that you are investing in Class A shares.
INVESTMENTS IN CLASS A SHARES
ARE SUBJECT TO AN INITIAL
SALES CHARGE.
CLASS A SHARES. If you elect to purchase Class A shares, you will incur an
initial sales charge unless the amount you purchase is $1 million or more. If
you purchase $1 million or more of Class A shares, you will not be subject to
an initial sales charge, but you will incur a sales charge if you redeem your
shares within one year of purchase. Class A shares are subject to ongoing
distribution and service fees at a combined annual rate of up to 0.30% of the
Fund's average daily net assets attributable to the Class A shares. Certain
purchases of Class A shares qualify for reduced initial sales charges. See
"Share Price -- Qualifying for a Reduced Sales Charge."
INVESTMENTS IN CLASS B SHARES
ARE SUBJECT TO A CONTINGENT
DEFERRED SALES CHARGE.
CLASS B SHARES. You will not incur a sales charge when you purchase Class B
shares, but the shares are subject to a sales charge if you redeem them within
six years of purchase (the "contingent deferred sales charge" or the "CDSC").
Class B shares are subject to ongoing distribution and service fees at a
combined annual rate of up to 1.00% of the Fund's average daily net assets
attributable to the Class B shares. Investing in Class B shares permits all of
your dollars to work from the time you make your investment, but the higher
ongoing distribution fee will cause the shares to have higher expenses than
Class A shares. To the extent that any dividends are paid by the Fund, these
higher expenses will also result in lower dividends than those paid on Class A
shares.
Class B shares are not available to full-service defined contribution plans
administered by John Hancock Investor Services Corporation or the Life Company
that had more than 100 eligible employees at the inception of the Fund
account.
YOU SHOULD CONSIDER WHICH
CLASS OF SHARES WOULD BE
MORE BENEFICIAL FOR YOU.
FACTORS TO CONSIDER IN CHOOSING AN ALTERNATIVE
The alternative purchase arrangement allows you to choose the most beneficial
way to buy shares given the amount of your purchase, the length of time you
expect to hold your shares and other circumstances. You should consider
whether, during the anticipated life of your Fund investment, the CDSC and
accumulated fees on Class B shares would be less than the initial sales charge
and accumulated fees on Class A shares purchased at the same time; and to what
extent this differential would be offset by the Class A shares' lower
expenses. To help you make this determination, the table under the caption
"Expense Information" on the inside cover page of this Prospectus shows
examples of the charges applicable to each class of shares. Class A shares
will normally be more beneficial if you qualify for reduced sales charges. See
"Share Price -- Qualifying for a Reduced Sales Charge."
Class A shares are subject to lower distribution and service fees and,
accordingly, pay correspondingly higher dividends per share, to the extent any
dividends are paid. However, because initial sales charges are deducted at the
time of purchase, you would not have all of your funds invested initially and,
therefore, would initially own fewer shares. If you do not qualify for reduced
initial sales charges and expect to maintain your investment for an extended
period of time, you might consider purchasing Class A shares. This is because
the accumulated distribution and service charges on Class B shares may exceed
the initial sales charge and accumulated distribution and service charges on
Class A shares during the life of your investment.
Alternatively, you might determine that it is more advantageous to purchase
Class B shares in order to have all your funds invested initially. However,
you will be subject to higher distribution charges and, for a six-year period,
a CDSC.
In the case of Class A shares, the distribution expenses that John Hancock
Funds incurs in connection with the sale of the shares will be paid from the
proceeds of the initial sales charge and the ongoing distribution and service
fees. In the case of Class B shares, the expenses will be paid from the
proceeds of the ongoing distribution and service fees, as well as from CDSC
incurred upon redemption within six years of purchase. The purpose and
function of the Class B shares' CDSC and ongoing distribution and service fees
are the same as those of the Class A shares' initial sales charge and ongoing
distribution and service fees. Sales personnel distributing the Fund's shares
may receive different compensation for selling each class of shares.
Dividends, if any on Class A and Class B shares will be calculated in the same
manner, at the same time, and on the same day. They will also be in the same
amount, except for differences resulting from the fact that each class bearing
only its own distribution and service fees, shareholder meeting expenses and
any incremental transfer agency costs. See "Dividends and Taxes."
THE FUND'S EXPENSES
For managing its investment and business affairs, the Fund pays a fee,
effective December 1, 1995, to the Adviser which is based on a stated
percentage of the Fund's average daily net asset value, as follows:
NET ASSET VALUE ANNUAL RATE
--------------- -----------
First $750,000,000 0.75%
Amount over $750,000,000 0.70%
The investment management fee for the 1995 fiscal year was 1.00% of the Fund's
average daily net asset value.
The investment management fee is higher than the fees paid to most mutual
funds, but comparable to fees paid by funds that invest in similar securities.
From time to time, the Adviser may reduce its fee or make other arrangements
to limit the Fund's expenses to not more than a specified percentage of
average daily net assets. The Adviser retains the right to re-impose a fee and
recover any other payments to the extent that, at the end of any fiscal year,
the Fund's annual expenses fall below the limit.
THE FUND PAYS DISTRIBUTION
AND SERVICE FEES FOR MARKETING
AND SALES-RELATED
SHAREHOLDER SERVICING.
The Class A and Class B shareholders have adopted a distribution plan (the
"Plan") pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
"1940 Act"). Under the Plan, the Fund will pay distribution and service fees
at an aggregate annual rate of up to 0.30% of the Class A shares' average
daily net assets and an aggregate annual rate of up to 1.00% of the Class B
shares' average daily net assets. In each case, up to 0.25% is for service
expenses and the remaining amount is for distribution expenses. The
distribution fees will be used to reimburse the Distributor for its
distribution expenses, including but not limited to: (i) initial and ongoing
sales compensation to Selling Brokers and others (including affiliates of the
Distributor) engaged in the sale of Fund shares; (ii) marketing, promotional
and overhead expenses incurred in connection with the distribution of Fund
shares; and (iii) with respect to Class B shares only, interest expenses on
unreimbursed distribution expenses. The service fees will be used to
compensate Selling Brokers for providing personal and account maintenance
services to shareholders. In the event the Distributor is not fully reimbursed
for payments or expenses it incurs under the Plan, these expenses will not be
carried beyond twelve months from the date they were incurred. Unreimbursed
expenses under the Class B Plan will be carried forward together with interest
on the balance of these unreimbursed expenses.
For the fiscal year ended July 31, 1995 an aggregate of $552,329 of
distribution expenses or 1.75% of the average net assets of the Class B shares
of the Fund, was not reimbursed or recovered by the Distributor through the
receipt of deferred sales charges or 12b-1 fees in prior periods.
Information on the Fund's total expenses is in the Fund's Financial Highlights
section of this Prospectus.
DIVIDENDS ARE GENERALLY
DECLARED ANNUALLY.
DIVIDENDS AND TAXES
DIVIDENDS. Dividends from the Fund's net investment income and capital gains,
if any, are generally declared annually. Dividends are reinvested in
additional shares of your class unless you elect the option to receive them in
cash. If you elect the cash option and the U.S. Postal Service cannot deliver
your checks, your election will be converted to the reinvestment option.
Because of the higher expenses associated with Class B shares, any dividends
on these shares will be lower than those of Class A shares. See "Share Price."
TAXATION. Dividends from the Fund's net investment income, certain net foreign
exchange gains, and net short-term capital gains are taxable to you as
ordinary income, and dividends from the Fund's net long-term capital gains are
taxable as long-term capital gains. These dividends are taxable whether
received in cash or reinvested in additional shares. Certain dividends paid by
the Fund in January of a given year will be taxable to you as if you received
them the prior December. The Fund will send you a statement by January 31
showing the tax status of the dividends you received for the prior year.
The Fund has qualified and intends to continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, the Fund will not be
subject to Federal income taxes on any net investment income and net realized
capital gains that are distributed to its shareholders at least annually. When
you redeem (sell) or exchange shares, you may realize a gain or loss.
On the account application, you must certify that your social security or
other taxpayer identification number you provide is your correct number and
that you are not subject to back-up withholding of Federal income tax. If you
do not provide this information, or are otherwise subject to backup
withholding, the Fund may be required to withhold 31% of your dividends and
proceeds of redemptions and exchanges.
In addition to Federal taxes, you may be subject to state and local or foreign
taxes with respect to your investment in and distributions from the Fund. In
many states, any portion of the Fund's dividends that represents interest
received by the Fund on direct U.S. Government obligations may be exempt from
tax. You should consult your tax advisor for specific advice.
THE FUND MAY ADVERTISE
ITS TOTAL RETURN.
PERFORMANCE
Total return is based on the overall change in value of a hypothetical
investment in the Fund. The Fund's total return shows the overall dollar or
percentage change in value, assuming the reinvestment of all dividends.
Cumulative total return shows the Fund's performance over a period of time.
Average annual total return shows the cumulative return divided over the
number of years included in the period. Because average annual total return
tends to smooth out variations in the Fund's performance, you should recognize
that it is not the same as actual year-to-year results.
Total return for Class A shares includes the effect of paying the maximum
sales charge (except as shown in "The Fund's Financial Highlights").
Investments at lower sales charges would result in higher performance figures.
Total return for the Class B shares reflects deduction of the applicable
contingent deferred sales charge imposed on a redemption of shares held for
the applicable period. All calculations assume that all dividends are
reinvested at net asset value on the reinvestment dates during the periods.
The total return of Class A and Class B shares will be calculated separately
and, because each class is subject to certain different expenses, the total
return with respect to that class for the same period may differ. The relative
performance of the Class A and Class B shares will be affected by a variety of
factors, including the higher operating expenses attributable to the Class B
shares, whether the Fund's investment performance is better in the earlier or
later portions of the period measured, and the level of net assets of the
classes during the period. The Fund will include the total return of both
classes in any advertisement or promotional materials including Fund
performance data. Total return is an historical calculation and is not an
indication of future performance. The value of the Fund's shares, when
redeemed, may be more or less than their original cost. See "Factors to
Consider in Choosing an Alternative."
HOW TO BUY SHARES
- --------------------------------------------------------------------------------
The minimum initial investment in Class A or Class B shares is $1,000 ($250
for group investments and retirement plans).
Complete the Account Application attached to this Prospectus. Indicate whether
you are purchasing Class A or Class B shares. If you do not specify which
class of shares you are purchasing, Investor Services will assume you are
investing in Class A shares.
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT.
BY CHECK 1. Make your check payable to John Hancock Investor
Services Corporation.
2. Deliver the completed application and check to your
registered representative, Selling Broker, or mail
it directly to Investor Services.
- --------------------------------------------------------------------------------
BY WIRE 1. Obtain an account number by contacting your
registered representative or Selling Broker, or by
calling 1-800-225-5291.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For Credit To: John Hancock Discovery Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
3. Deliver the completed application to your registered
representative or Selling Broker or mail it directly
to Investor Services.
- --------------------------------------------------------------------------------
MONTHLY AUTOMATIC 1. Complete the "Automatic Investing" and "Bank
ACCUMULATION Information" sections on the Account Privileges
PROGRAM (MAAP) Application, designating a bank account from which
your funds may be drawn.
2. The amount you elect to invest will be automatically
withdrawn from your bank or credit union account.
- --------------------------------------------------------------------------------
BUYING ADDITIONAL CLASS A AND CLASS B SHARES.
BY TELEPHONE 1. Complete the "Invest-By-Phone" and "Bank
Information" section on the Account Privileges
Application, designating a bank account from which
your funds may be drawn. Note that in order to
invest by phone, your account must be in a bank or
credit union that is a member of the Automated
Clearing House system (ACH).
2. After your authorization form has been processed,
you may purchase additional Class A or Class B
shares by calling Investor Services toll-free at
1-800-225-5291.
3. Give the Investor Services representative the
name(s) in which your account is registered, the
Fund name, the class of shares you own, your account
number, and the amount you wish to invest.
4. Your investment normally will be credited to your
account the business day following your phone
request.
- --------------------------------------------------------------------------------
BY CHECK 1. Either complete the detachable stub included on your
account statement or include a note with your
investment listing the name of the Fund, the class
of shares you own, your account number and the
name(s) in which the account is registered.
2. Make your check payable to John Hancock Investor
Services Corporation.
3. Mail the account information and check to:
John Hancock Investor Services Corporation
P.O. Box 9115
Boston, MA 02205-9115
or deliver it to your registered representative
or Selling Broker.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BY WIRE Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900000260
ABA Routing No. 211475000
For credit to: John Hancock Discovery Fund
(Class A or Class B shares)
Your Account Number
Name(s) under which account is registered
- --------------------------------------------------------------------------------
Other Requirements: All purchases must be made in U.S. dollars. Checks written
on foreign banks will delay purchases until U.S. funds are received, and a
collection charge may be imposed. Shares of the Fund are priced at the
offering price listed or the net asset value computed after John Hancock Funds
receives notification of the dollar equivalent from the Fund's custodian bank.
Wire purchases normally take two or more hours to complete and, to be accepted
the same day, must be received by 4:00 P.M., New York time. Your bank may
charge a fee to wire funds. Telephone transactions are recorded to verify
information. Certificates are not issued unless a request is made in writing
to Investor Services.
- --------------------------------------------------------------------------------
YOU WILL RECEIVE ACCOUNT
STATEMENTS, WHICH YOU SHOULD
KEEP TO HELP WITH YOUR
PERSONAL RECORDKEEPING.
You will receive a statement of your account after any transaction that
affects your share balance or registration (statements related to reinvestment
of dividends and automatic investment/withdrawal plans will be sent to you
quarterly). A tax information statement will be mailed to you by January 31 of
each year.
THE OFFERING PRICE OF YOUR
SHARES IS THEIR NET ASSET VALUE
PLUS A SALES CHARGE, IF APPLICABLE,
WHICH WILL VARY WITH THE PURCHASE
ALTERNATIVE YOU CHOOSE.
SHARE PRICE
The net asset value (the "NAV") is the value of one share. The NAV is
calculated by dividing the net assets of each class by the number of
outstanding shares of that class. The NAV of each class can differ. Securities
in the Fund's portfolio are valued on the basis of market quotations,
valuations provided by independent pricing services, or at fair value as
determined in good faith according to procedures approved by the Trustees.
Short-term debt investments maturing within 60 days are valued at amortized
cost, which approximates market value. Foreign securities are valued on the
basis of quotations from the primary market in which they are traded, and are
translated from the local currency into U.S. dollars using current exchange
rates. If quotations are not readily available, or the value has been
materially affected by events occurring after the closing of a foreign market,
assets are valued by a method that the Trustees believe accurately reflects
fair value. The NAV is calcuated once daily as of the close of regular trading
on the New York Stock Exchange (generally at 4:00 p.m., New York time) on each
day that the Exchange is open.
Shares of the Fund are sold at the offering price based on the NAV computed
after your investment request is received in good order by John Hancock Funds.
If you buy shares of the Fund through a Selling Broker, the Selling Broker
must receive your investment before the close of regular trading on the New
York Stock Exchange and transmit it to John Hancock Funds before its close of
business to receive that day's offering price.
INITIAL SALES CHARGE ALTERNATIVE -- CLASS A SHARES. The offering price you pay
for Class A shares of the Fund equals the NAV plus a sales charge, as follows:
<TABLE>
<CAPTION>
COMBINED
SALES CHARGE REALLOWANCE REALLOWANCE TO
SALES CHARGE AS A PERCENTAGE AND SERVICE FEE SELLING BROKER AS
AMOUNT INVESTED AS A PERCENTAGE OF THE AS A PERCENTAGE A PERCENTAGE OF
INCLUCING SALES CHARGE OF OFFERING PRICE AMOUNT INVESTED OF OFFERING PRICE(+) OFFERING PRICE(*)
- ---------------------- ----------------- --------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Less than $50,000 5.00% 5.26% 4.25% 4.01%
$50,000 to $99,999 4.50% 4.71% 3.75% 3.51%
$100,000 to $249,999 3.50% 3.63% 2.85% 2.61%
$250,000 to $499,999 2.50% 2.56% 2.10% 1.86%
$500,000 to $999,999 2.00% 2.04% 1.60% 1.36%
$1,000,000 and over 0.00%(**) 0.00%(**) (***) 0.00%(***)
(*) Upon notice to Selling Brokers with whom it has sales agreements, John Hancock Funds may
reallow an amount up to the full applicable sales charge. A Selling Broker to whom
substantially the entire sales charge is reallowed may be deemed to be an underwriter under
the Securities Act of 1933.
(**) No sales charge is payable at the time of purchase of Class A shares of $1 million or more,
but a contingent deferred sales charge may be imposed in the event of certain redemption
transactions made within one year of purchase.
(***) John Hancock Funds may pay a commission and first year's service fee (as described in (+)
below) to Selling Brokers who initiate and are responsible for purchases of Class A shares of
$1 million or more in the aggregate as follows: 1% on sales up to $4,999,999, 0.50% on the
next $5 million and 0.25% on $10 million and over.
(+) At the time of sale, John Hancock Funds pays to Selling Brokers the first year's service fee
in advance, in an amount equal to 0.25% of the net assets invested in the Fund. Thereafter, it
pays the service fee periodically in arrears in an amount up to 0.25% of the Fund's average
annual net assets. Selling Brokers receive the fee as compensation for providing personal and
account maintenance services to shareholders.
</TABLE>
Sales charges ARE NOT APPLIED to any dividends that are reinvested in
additional shares of the Fund.
John Hancock Funds will pay certain affiliated Selling Brokers at an annual
rate of up to 0.05% of the daily net assets of the accounts attributable to
these brokers.
Under certain circumstances as described below, investors in Class A shares
may be entitled to pay reduced sales charges. See "Qualifying for a Reduced
Sales Charge."
CONTINGENT DEFERRED SALES CHARGE -- INVESTMENTS OF $1 MILLION OR MORE IN CLASS
A SHARES. Purchases of $1 million or more of the Class A shares will be made
at net asset value with no initial sales charge, but if the shares are
redeemed within 12 months after the end of the calendar month in which the
purchase was made (the contingent deferred sales charge period), a contingent
deferred sales charge will be imposed. The rate of the CDSC will depend on the
amount invested as follows:
AMOUNT INVESTED CDSC RATE
--------------- ---------
$1 Million to $4,999,999 1.00%
Next $5 Million to $9,999,999 0.50%
Amounts of $10 Million and over 0.25%
Existing full service clients of the Life Company who were group annuity
contract holders as of September 1, 1994, and participant directed defined
contribution plans with at least 100 eligible employees at the inception of
the Fund account, may purchase Class A shares with no initial sales charge.
However, if the shares are redeemed within 12 months after the end of the
calendar year in which the purchase was made, a CDSC will be imposed at the
above rate.
The CDSC will be assessed on an amount equal to the lesser of the current
market value or the original purchase cost of the redeemed Class A shares.
Accordingly, no CDSC will be imposed on increases in account value above the
initial purchase price, including any dividends which have been reinvested in
additional Class A shares.
In determining whether a CDSC is applicable to a redemption of Class A shares,
the calculation will be determined in a manner that results in the lowest
possible rate being charged. Therefore, it will be assumed that the redemption
is first made from any shares in the shareholder's account that are not
subject to the CDSC. The CDSC is waived on redemptions in certain
circumstances. See "Waiver of Contingent Deferred Sales Charge".
YOU MAY QUALIFY FOR A REDUCED
SALES CHARGE ON YOUR INVESTMENT
IN CLASS A SHARES.
QUALIFYING FOR A REDUCED SALES CHARGE -- CLASS A SHARES. If you invest more
than $50,000 in Class A shares of the Fund or a combination of John Hancock
funds (except money market funds), you may qualify for a reduced sales charge
on your investments in Class A shares through a LETTER OF INTENTION. You may
also be able to use the ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE to
take advantage of the value of your previous investments in shares of John
Hancock funds in meeting the breakpoints for a reduced sales charge. For the
ACCUMULATION PRIVILEGE and COMBINATION PRIVILEGE the applicable sales charge
will be based on the total of:
1. Your current purchase of Class A shares of the Fund;
2. The net asset value (at the close of business on the previous day) of (a)
all Class A shares of the Fund you hold, and (b) all Class A shares of any
other John Hancock mutual fund you hold; and
3. The net asset value of all shares held by another shareholder eligible to
combine his or her holdings with you into a single "purchase."
EXAMPLE:
If you hold Class A shares of a John Hancock mutual fund with a net asset
value of $20,000 and, subsequently, invested $30,000 in Class A shares of the
Fund, the sales charge on this subsequent investment would be 4.50% and not
5.00% (the rate that would otherwise be applicable to investments of less than
$50,000. (See "Initial Sales Charge Alternative -- Class A Shares.")
CLASS A SHARES MAY BE AVAILABLE
WITHOUT A SALES CHARGE TO
CERTAIN INDIVIDUALS
AND ORGANIZATIONS.
If you are in under one of the following categories, you may purchase Class A
shares of the Fund without paying a sales charge:
* A Trustee/Director or officer of the Trust/Company; a Director or officer of
the Adviser and its affiliates or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family of any
of the foregoing; or any Fund, pension, profit sharing or other benefit plan
for the individuals described above.
* Any state, county, city or any instrumentality, department, authority or
agency of these entities which is prohibited by applicable investment laws
from paying a sales charge or commission when it purchases shares of any
registered investment management company.*
* A bank, trust company, credit union, savings institution or other type of
depository institution, its trust department or common trust funds if it is
purchasing $1 million or more for non-discretionary customers or accounts.*
* A broker, dealer, financial planner, consultant or registered investment
adviser that has entered into an agreement with John Hancock Funds providing
specifically for the use of Fund shares in fee-based investment products or
services made available to their clients.
* A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions to the Fund.
- -------------------
*For investments made under these provisions, John Hancock Funds may make a
payment out of its own resources to the Selling Broker in an amount not to
exceed 0.25% of the amount invested.
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
CONTINGENT DEFERRED SALES CHARGE ALTERNATIVE -- CLASS B SHARES. Class B shares
are offered at net asset value per share without an initial sales charge, so
that your entire initial investment will go to work at the time of purchase.
However, Class B shares redeemed within six years of purchase will be subject
to a CDSC at the rates set forth below. This charge will be assessed on an
amount equal to the lesser of the current market value or the original
purchase cost of the shares being redeemed. Accordingly, you will not be
assessed a CDSC on increases in account value above the initial purchase
price, including shares derived from dividend reinvestment.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period or those you acquired through
reinvestment of dividends, and next from the shares you have held the longest
during the six-year period. The CDSC is waived on redemptions in certain
circumstances. See the discussion "Waiver of Contingent Deferred Sales
Charges" below.
EXAMPLE:
You have purchased 100 shares at $10 per share. The second year after your
purchase, your investment's net asset value per share has increased by $2 to
$12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time, your CDSC will be calculated as follows:
* Proceeds of 50 shares redeemed at $12 per share $600
* Minus proceeds of 10 shares not subject to CDSC
because they were acquired through
dividend reinvestment (10 x $12) -120
* Minus appreciation on remaining shares,
also not subject to CDSC (40 x $2) - 80
----
* Amount subject to CDSC $400
Proceeds from the CDSC are paid to John Hancock Funds. John Hancock Funds will
use all or part of them to defray its expenses related to providing the Fund
with distribution services in connection with the sale of the Class B shares,
such as compensating selected Selling Brokers for selling Class B shares. The
combination of the CDSC and the distribution and service fees makes it
possible for the Fund to sell the Class B shares without an initial sales
charge.
The amount of the CDSC, if any, will vary depending on the number of years
from the time you purchase your Class B shares until the time you redeem them.
Solely for purposes of determining this holding period, any payments you make
during the month will be aggregated and deemed to have been made on the last
day of the month.
CONTINGENT
DEFERRED SALES
CHARGE AS A
PERCENTAGE
YEAR IN WHICH CLASS B SHARES OF DOLLAR AMOUNT
REDEEMED FOLLOWING PURCHASE SUBJECT TO CDSC
- --------------------------- ----------------
First 5.0%
Second 4.0%
Third 3.0%
Fourth 3.0%
Fifth 2.0%
Sixth 1.0%
Seventh and thereafter None
John Hancock Funds pays to Selling Brokers a commission equal to 3.75% of the
amount invested and a first year's service fee equal to 0.25% of the amount
invested. The initial service fee is paid in advance at the time of sale for
the provision of personal and account maintenance services to shareholders
during the twelve months following the sale and thereafter the service fee is
paid in arrears.
If you purchased Class B shares prior to January 1, 1994, the applicable CDSC
as a percentage of the amount redeemed will be: 4% for redemptions during the
first year after purchase, 3.5% for redemptions during the second year, 3% for
redemptions during the third year, 2.5% for redemptions during the fourth
year, 2% for redemptions during the fifth year, 1% for redemptions during the
sixth year, and no CDSC for the seventh year and thereafter.
UNDER CERTAIN CIRCUMSTANCES, THE
CDSC ON CLASS B SHARE REDEMPTIONS
WILL BE WAIVED.
WAIVER OF CONTINGENT DEFERRED SALES CHARGE. The CDSC will be waived on
redemptions of Class B shares and of Class A shares that are subject to a
CDSC, unless indicated otherwise, in these circumstances:
* Redemptions of Class B shares made under a Systematic Withdrawal Plan (see
"How to Redeem Shares"), as long as your annual redemptions do not exceed
10% of your account value at the time you established your Systematic
Withdrawal Plan and 10% of the value of subsequent investments (less
redemptions) in that account at the time you notify Investor Services. This
waiver does not apply to Systematic Withdrawal Plan redemptions of Class A
shares that are subject to a CDSC.
* Redemptions made to effect distributions from an Individual Retirement
Account either before or after age 59 1/2, as long as the distributions are
based on your life expectancy or the joint-and-last survivor life expectancy
of you and your beneficiary. These distributions must be free from penalty
under the Internal Revenue Code (the "Code").
* Redemptions made to effect mandatory distributions under the Code after age
70 1/2 from a tax-deferred retirement plan.
* Redemptions made to effect distributions to participants or beneficiaries
from certain employer-sponsored retirement plans, including those qualified
under Section 401(a) of the Code, custodial accounts under Section 403(b)(7)
of the Code and deferred compensation plans under Section 457 of the Code.
The waiver also applies to certain returns of excess contributions made to
these plans. In all cases, the distributions must be free from penalty under
the Code.
* Redemptions due to death or disability.
* Redemptions made under the Reinvestment Privilege, as described in
"Additional Services and Programs" of this Prospectus.
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own fewer than 50 shares.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992.
If you qualify for a CDSC waiver under one of these situations, you must
notify Investor Services either directly or through your Selling Broker at the
time you make your redemption. The waiver will be granted once Investor
Services has confirmed that you are entitled to the waiver.
CONVERSION OF CLASS B SHARES. Your Class B shares and an appropriate portion
of reinvested dividends on those shares will be converted into Class A shares
automatically. This will occur at the end of the month following eight years
after the shares were purchased, resulting in lower annual distribution fees.
If you exchanged Class B shares into this Fund from another John Hancock fund,
the conversion will be based on the time you purchase the shares in the
original fund. The Fund has been advised that the conversion of Class B shares
to Class A shares should not be taxable for Federal income tax purposes, nor
should it change your tax basis or tax holding period for the converted
shares.
TO ASSURE ACCEPTANCE OF YOUR
REDEMPTION REQUEST, PLEASE
FOLLOW THESE PROCEDURES.
HOW TO REDEEM SHARES
You may redeem all or a portion of your shares on any business day. Your
shares will be redeemed at the next NAV calculated after your redemption
request is received in good order by Investor Services less any applicable
CDSC. The Fund may hold payment until reasonably satisfied that investments
which were recently made by check or Invest-by-Phone have been collected
(which may take up to 10 calendar days).
Once your shares are redeemed, the Fund generally sends you payment on the
next business day. When you redeem your shares, you may realize a taxable gain
or loss depending usually on the difference between what you paid for them and
what you receive for them, subject to certain tax rules. Under unusual
circumstances, the Fund may suspend redemptions or postpone payment for up to
seven days or longer, as permitted by Federal securities laws.
- --------------------------------------------------------------------------------
BY TELEPHONE All Fund shareholders are automatically eligible for the
telephone redemption privilege. Call 1-800-225-5291, from
8:00 A.M. to 4:00 P.M. (New York time), Monday through
Friday, excluding days on which the New York Stock Exchange
is closed. Investor Services employs the following procedures
to confirm that instructions received by telephone are
genuine. Your name, the account number, taxpayer
identification number applicable to the account and other
relevant information. In addition, telephone instructions are
recorded.
You may redeem up to $100,000 by telephone, but the address
on the account must not have changed for the last 30 days. A
check will be mailed to the exact name(s) and address shown
on the account.
If reasonable procedures, such as those described above, are
not followed, the Fund may be liable for any loss due to
unauthorized or fraudulent telephone instructions. In all
other cases, neither the Fund nor Investor Services will be
liable for any loss or expense for acting upon telephone
instructions made in accordance with the telephone
transaction procedures mentioned above.
Telephone redemption is not available for IRAs or other
tax-qualified retirement plans or shares of the Fund that are
in certificate form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement due
to a large volume of calls. During these times you should
consider placing redemption requests in writing or using
EASI-Line. EASI-Line's telephone number is 1-800-338-8080.
- -------------------------------------------------------------------------------
BY WIRE
If you have a telephone redemption form on file with the
Fund, redemption proceeds of $1,000 or more can be wired on
the next business day to your designated bank account and a
fee (currently $4.00) will be deducted. You may also use
electronic funds transfer to your assigned bank account and
the funds are usually collectable after two business days.
Your bank may or may not charge for this service. Redemptions
of less than $1,000 will be sent by check or electronic funds
transfer.
This feature may be elected by completing the "Telephone
Redemption" section on the Account Privileges Application
that is included with this Prospectus.
- ------------------------------------------------------------------------------
IN WRITING Send a stock power or letter of instruction specifying the
name of the Fund, the dollar amount or the number of shares
to be redeemed, your name, class of shares, your account
number, and the additional requirements listed below that
apply to your particular account.
- ------------------------------------------------------------------------------
TYPE OF REGISTRATION REQUIREMENTS
- -------------------- ------------
Individual, Joint Tenants, Sole A letter of instruction signed
Proprietorship, Custodial (with titles where applicable) by all
(Uniform Gifts or Transfer to persons authorized to sign for the
Minors Act), General Partners. account, exactly as it is registered,
with the signature(s) guaranteed.
Corporation, Association A letter of instruction and a corporate
resolution, signed by person(s)
authorized to act on the account with
the signature(s) guaranteed.
Trusts A letter of instruction signed by the
Trustee(s) with the signature(s)
guaranteed. (If the Trustee's name is
not registered on your account, also
provide a copy of the trust document,
certified within the last 60 days.)
If you do not fall into any of these registration categories, please call
1-800-225-5291 for further instructions.
- --------------------------------------------------------------------------------
WHO MAY GUARANTEE YOUR SIGNATURE.
- --------------------------------------------------------------------------------
A signature guarantee is a widely accepted way to protect on your request. It
may not be provided by a notary public. If the net asset value of the shares
redeemed is $100,000 or less, John Hancock Funds may guarantee the signature.
The following institutions may provide you with a signature guarantee, provided
that any such institution meets credit standards established by Investor
Services: (i) a bank; (ii) a securities broker or dealer, including a government
or municipal securities broker or dealer, that is a member of a clearing
corporation or meets certain net capital requirements; (iii) a credit union
having authority to issue signature guarantees; (iv) a savings and loan
association, a building and loan association, a cooperative bank, a federal
savings bank or association; or (v) a national securities exchange, a registered
securities exchange or a clearing agency.
- ------------------------------------------------------------------------------
ADDITIONAL INFORMATION ABOUT REDEMPTIONS.
- --------------------------------------------------------------------------------
THROUGH YOUR BROKER. Your broker may be able to initiate instructions.
Contact him or her for instructions.
- ------------------------------------------------------------------------------
If you have certificates for your shares, you must submit them with your stock
power or a letter of instruction. Unless you specify to the contrary, any
outstanding Class A shares will be redeemed before Class B shares. Redemptions
of certificated shares may not be made by telephone.
Due to the proportionately high cost of maintaining small accounts, the Fund
reserves the right to redeem at net asset value all shares in an account which
holds fewer than 50 shares (except accounts under retirement plans) and to mail
the proceeds to the shareholder, or the transfer agent may impose an annual fee
of $10.00. No account will be involuntarily redeemed or any additional fee
imposed, if the value of the account is in excess of the Fund's minimum initial
investment. No CDSC will be imposed on involuntary redemptions of shares.
Shareholders will be notified before these redemptions are to be made or this
fee is imposed, and will have 30 days to purchase additional shares to bring
their account balance up to the required minimum. Unless the number of shares
acquired by additional purchases and any dividend reinvestments, exceeds the
number of shares redeemed, repeated redemptions from a smaller account may
eventually trigger this redemption policy.
- -------------------------------------------------------------------------------
YOU MAY EXCHANGE SHARES OF THE FUND
ONLY FOR SHARES OF THE SAME CLASS
OF ANOTHER JOHN HANCOCK FUND.
ADDITIONAL SERVICES AND PROGRAMS
EXCHANGE PRIVILEGE
If your investment objective changes, or if you wish to achieve further
diversification, John Hancock offers other funds with a wide range of
investment goals. Contact your registered representative or Selling Broker and
request a prospectus for the John Hancock mutual funds that interest you.
Please read the prospectus carefully before exchanging your shares. You can
exchange shares of each class of the Fund only for shares of the same class of
another John Hancock mutual fund. For this purpose, John Hancock mutual funds
with only one class of shares will be treated as Class A whether or not they
have been so designated.
Exchanges between funds that are not subject to a CDSC are based on their
respective net asset values. No sales charge or transaction charge is imposed.
Class B shares of the Fund which are subject to a CDSC may be exchanged for
Class B shares of another John Hancock fund without incurring the CDSC;
however the shares will be subject to the CDSC schedule of the shares acquired
(except that exchanged into John Hancock Short-Term Strategic Income Fund,
John Hancock Intermediate Maturity Government Trust and John Hancock Limited-
Term Government Fund, which will be subject to the initial fund's CDSC). For
purposes of computing the CDSC payable upon redemption of shares acquired in
an exchange, the holding period of the original shares is added to the holding
period of the shares acquired in an exchange. However, if you exchange Class B
shares purchased prior to January 1, 1994 for Class B shares of any other John
Hancock fund, you will continue to be subject to the CDSC schedule that was in
effect at your initial purchase date.
The Fund reserves the right to require that you keep previously exchanged
shares (and reinvested dividends) in the Fund for 90 days before you are
permitted to execute a new exchange. The Fund may also terminate or alter the
terms of the exchange privilege upon 60 days' notice to shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares in another for Federal income tax purposes. An exchange may
result in a gain or loss.
When you make an exchange your account registration must be identical in both
the existing and new account. The exchange privilege is available only in
states where the exchange can be made legally.
Under exchange agreements with John Hancock Funds, certain dealers, brokers
and investment advisers may exchange their clients' Fund shares, subject to
the terms of those agreements and John Hancock Funds' right to reject or
suspend those exchanges at any time. Because of the restrictions and
procedures under those agreements, the exchanges may be subject to timing
limitations and other restrictions that do not apply to exchanges requested by
shareholders directly, as described above.
Because Fund performance and shareholders can be hurt by excessive trading,
the Fund reserves the right to terminate the exchange privilege for any person
or group that, in John Hancock Funds' judgment, is involved in a pattern of
exchanges that coincide with a "market timing" strategy that may disrupt the
Fund's ability to invest effectively according to its investment objective and
policies, or might otherwise affect the Fund and its shareholders adversely.
The Fund may also temporarily or permanently terminate the exchange privilege
for any person who makes seven or more exchanges out of the Fund per calendar
year. Accounts under common control or ownership will be aggregated for this
purpose. Although the Fund will attempt to give prior notice whenever it is
reasonably able to do so, it may impose these restrictions at any time.
BY TELEPHONE
1. When you complete the application for your initial purchase of Fund shares,
you automatically authorize exchanges by telephone unless you check the box
indicating that you do not wish to authorize telephone exchanges.
2. Call 1-800-225-5291. Have the account number of your current fund and the
exact name in which it is registered available to give to the telephone
representative.
3. Your name, the account number, taxpayer identification number applicable to
the account and other relevant information may be requested. In addition,
telephone instructions are recorded.
IN WRITING
1. In a letter request an exchange and list the following:
-- the name and class of the fund whose shares you currently own
-- your account number
-- the name(s) in which the account is registered
-- the name of the fund in which you wish your exchange to be invested
-- the number of shares, all shares or the dollar amount you wish to exchange
Sign your request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
IF YOU REDEEM SHARES OF THE
FUND, YOU MAY BE ABLE TO
REINVEST ALL OR PART OF THE
PROCEEDS IN SHARES OF THIS OR
ANOTHER JOHN HANCOCK FUND
WITHOUT PAYING AN ADDITIONAL
SALES CHARGE.
REINVESTMENT PRIVILEGE
1. You will not be subject to a sales charge on Class A shares reinvested in
any John Hancock fund that is otherwise subject to a sales charge as long
as you invest within 120 days of the redemption date. If you paid a CDSC
upon a redemption, you may reinvest at net asset value in the same class of
shares from which you redeemed within 120 days. Your account will be
credited with the amount of the CDSC that was charged previously and the
reinvested shares will continue to be subject to a CDSC. For purposes of
computing the CDSC payable upon a subsequent redemption, the holding period
of the shares you acquired through reinvestment will include the holding
period of the redeemed shares.
2. Any portion of the redemption may be reinvested in the Fund or in any of
the other John Hancock funds, subject to the minimum investment limit of
that fund.
3. To reinvest, you must notify Investor Services in writing. Include the Fund
(s) name, account number and class from which your shares were originally
redeemed.
YOU CAN PAY ROUTINE BILLS FROM
YOUR ACCOUNT, OR MAKE PERIODIC
DISBURSEMENTS FROM YOUR
RETIREMENT ACCOUNTS TO COMPLY
WITH IRS REGULATIONS.
SYSTEMATIC WITHDRAWAL PLAN
1. You can elect the Systematic Withdrawal Plan at any time by completing the
attached Account Privileges Application which is attached to this
Prospectus. You can also obtain the application by calling your registered
representative or by calling 1-800-225-5291.
2. To be eligible, you must have at least $5,000 in your account.
3. Payments from your account can be made monthly, quarterly, semi-annually or
on a selected monthly basis and they can be sent to you or any other
designated payee.
4. There is no limit on the number of payees you may authorize, but all
payments must be made at the same time or intervals.
5. It is not advantageous to maintain a Systematic Withdrawal Plan
concurrently with purchases of additional shares, because you may be
subject to initial sales charges on purchases of Class A shares or you will
be subject to a CDSC imposed on redemptions of Class B shares. In addition,
your redemptions are taxable events.
6. Redemptions will be discontinued if the U.S. Postal Service cannot deliver
your checks, or if deposits to a bank account are returned for any reason.
YOU CAN MAKE AUTOMATIC INVESTMENTS
AND SIMPLIFY YOUR INVESTING.
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP)
1. You can authorize an investment to be drawn automatically drawn each month
from your bank for investment under the "Automatic Investing" and "Bank
Information" sections on the Account Privileges Application.
2. You can also authorize automatic investing through payroll deduction by
completing the "Direct Deposit Investing" section of the Account Privileges
Application.
3. You can terminate your Monthly Automatic Accumulation Program at any time.
4. There is no charge to you for this program, and there is no cost to the
Fund.
5. If you have payments being withdrawn from a bank account and we are
notified that the account has been closed, your withdrawals will be
discontinued.
ORGANIZED GROUPS OF AT LEAST FOUR
PERSONS MAY ESTABLISH ACCOUNTS.
GROUP INVESTMENT PROGRAM
1. An individual account will be established for each participant, but the
sales charge for Class A shares will be based on the aggregate dollar
amount of all participants' investments. To determine how to qualify for
this program, contact your registered representative or call 1-800-225-5291.
2. The initial aggregate investment of all participants in the group must be
at least $250.
3. There is no additional charge for this program. There is no obligation to
make investments beyond the minimum, and you may terminate the program at
any time.
RETIREMENT PLANS
1. You may use the Fund to fund various types of qualified retirement plans,
including Individual Retirement Accounts, Keogh Plans (H.R. 10), Pension
and Profit-Sharing Plans (including 401(k) Plans), Tax-Sheltered Annuity
Retirement Plans, (403(b) or TSA Plans), and 457 Plans.
2. The initial investment minimum or aggregate minimum for any of these plans
is $250. However, accounts being established as group IRA, SEP, SARSEP,
TSA, 401(k) and 457 Plans will be accepted without an initial minimum
investment.
<PAGE>
JOHN HANCOCK DISCOVERY FUND JOHN HANCOCK
DISCOVERY
INVESTMENT ADVISER FUND
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CLASS A AND CLASS B SHARES
CUSTODIAN PROSPECTUS
Investors Bank & Trust Company DECEMBER 1, 1995
24 Federal Street
Boston, Massachusetts 02110
A MUTUAL FUND SEEKING LONG-TERM
TRANSFER AGENT GROWTH OF CAPITAL PRIMARILY IN
John Hancock Investor Services Corporation COMMON STOCKS WHICH ARE BELIEVED
P.O. Box 9116 BY THE FUND'S MANAGERS TO OFFER
Boston, Massachusetts 02205-9116 SUPERIOR PROSPECTS FOR GROWTH.
INDEPENDENT AUDITORS
Ernst & Young LLP
200 Clarendon Street
Boston, Massachusetts 02116
HOW TO OBTAIN INFORMATION
ABOUT THE FUND
For: Service Information
Telephone Exchange call 1-800-225-5291
Investment-by-Phone
Telephone Redemption
For: TDD call 1-800-544-6713
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
TELEPHONE 1-800-225-5291
[recycle symbol] Printed on Recycled Paper
JHD -- 3400P 12/95
<PAGE>
JOHN HANCOCK DISCOVERY FUND
Statement of Additional Information
Class A and Class B Shares
December 1, 1995
This Statement of Additional Information provides information about John Hancock
Discovery Fund (the "Fund") in addition to the information that is contained in
the Fund's Class A and Class B Prospectus dated December 1, 1995 (the
"Prospectus"). The Fund is a series portfolio of Freedom Investment Trust III
(the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus, a copy of which can be obtained free of
charge by writing or telephoning:
John Hancock Investor Services, Corporation
P.O. Box 9116
Boston, Massachusetts 02205-9116
1-800-225-5291
TABLE OF CONTENTS
Statement of Cross
Additional Referenced to
Information Page Prospectus Page
Organization of the Fund 2 7
Investment Objective and Policies 2 4
Investment Restrictions 10 4
Those Responsible for Management 13 7
Investment Advisory and Other Services 20 7
Distribution Contracts 22 9
Net Asset Value 23 13
Initial Sales Charge on Class A Shares 24 14
Deferred Sales Charge on Class B Shares 25 16
Special Redemptions 26 18
Additional Services and Programs for
Class A and Class B Shares 26 20
Description of the Fund's Shares 27 --
Tax Status 28 10
Calculation of Performance 32 10
Brokerage Allocation 33 --
Transfer Agent Services 34 --
Custody of Portfolio 35 --
Independent Auditors 35 --
Appendix A - Description of Bond and
Commercial Paper Ratings 36 --
Financial Statements -- 3
ORGANIZATION OF THE FUND
The Fund is a diversified portfolio of the Trust, an open-end management
investment company organized as a Massachusetts business trust on June 16, 1989.
The Board of Trustees has authority to issue an unlimited number of shares of
beneficial interest of separate series without par value. The Fund was
established on May 14, 1991. Prior to August 1, 1992, the Fund was named Freedom
Discovery Fund.
The Fund's investment manager, John Hancock Advisers, Inc. (the "Adviser"), is
an indirect wholly-owned subsidiary of John Hancock Mutual Life Insurance
Company (the "Life Company"), a Massachusetts life insurance company chartered
in 1862, with national headquarters at John Hancock Place, Boston,
Massachusetts.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus.
The Fund's investment objective is to "achieve long-term growth of capital". The
Fund will seek to achieve this objective through investment primarily in common
stocks that are believed by the Fund's manager to offer superior prospects for
growth.
Common Stocks and Convertible Securities: The Fund may invest in common stocks
and securities convertible into common stocks of companies which, in the
Adviser's opinion, have high long term growth characteristics, as more fully
described in the Prospectus. See "Investment Objective and Policies."
Investment in Foreign Securities. There is generally less publicly available
information about foreign companies and other issuers comparable to reports and
ratings that are published about issuers in the United States. Foreign issuers
are also generally not subject to uniform accounting and auditing and financial
reporting standards, practices and requirements comparable to those applicable
to United States issuers.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on exchanges located in the countries in which the
respective principal offices of the issuers of the various securities are
located, if that is the best available market. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation or
confiscatory taxation, limitations on the removal of funds or other assets of
the Fund, political or social instability, or diplomatic developments which
could affect United States investments in those countries. Moreover, individual
foreign economies may differ favorably or unfavorably from the United States'
economy in such respects as growth of gross national product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
The dividends and interest payable on certain of the Fund's foreign portfolio
securities, as well as, in some cases, capital gains, may be subject to foreign
withholding or other foreign taxes, thus reducing the net amount of income or
gains available for distribution to the Fund's shareholders.
Securities of Other Investment Companies. Currently, the Fund does not intend to
invest more than 5% of its total assets in securities of closed-end investment
companies.
Repurchase Agreements. The Fund may also enter into repurchase agreements with
domestic broker-dealers, banks and financial institutions, but the Fund may not
invest more than 10% of its net assets in repurchase agreements having
maturities of greater than seven days.
A repurchase agreement is a contract pursuant to which the Fund, against receipt
of securities of at least equal value including accrued interest, agrees to
advance a specified sum to a broker-dealer, bank or financial institution which
agrees to reacquire the securities at a mutually agreed upon time and price.
Repurchase agreements, which are usually for periods of one week or less, enable
the Fund to invest its cash reserves at fixed rates of return. The Fund may
enter into repurchase agreements with domestic broker-dealers, banks and other
financial institutions, provided the Fund's custodian always has possession of
securities serving as collateral whose market value at least equals the amount
of the institution's repurchase obligation. The Fund will only enter into
repurchase agreements which are collateralized at all times by U.S. Government
obligations. To minimize the risk of loss the Fund will enter into repurchase
agreements only with institutions and dealers which the Trustees considers to be
creditworthy. If an institution enters an insolvency proceeding, the resulting
delay in liquidation of the securities serving as collateral could cause the
Fund some loss, as well as legal expense, if the value of the securities
declined prior to liquidation.
Investment in Rule 144A Securities and Other Restricted Securities. The Fund may
purchase restricted securities eligible for resale to "qualified institutional
buyers" pursuant to Rule 144A under the Securities Act of 1933 if the Fund's
Trustees or the Adviser has determined under Board-approved guidelines that such
restricted securities are liquid. The Trustees will determine as a question of
fact the liquidity of Rule 144A securities in the Fund's portfolio using the
guidelines set forth below.
In its determination of liquidity, the Trustees will consider the following
factors, among others: (1) the frequency of trades and quotes for the security,
(2) the number of dealers willing to purchase or sell the security and the
number of other potential purchasers, (3) dealer undertakings to make a market
in the security, and (4) the nature of the security and the nature of the
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). In accordance with Rule
144A, the Trustees intend to delegate their responsibility to the Adviser to
determine the liquidity of each restricted security purchased by the Fund
pursuant to Rule 144A, subject to the Trustees oversight and review. The
foregoing investment practice could have the effect of increasing the level of
illiquidity in the Fund to the extent that qualified institutional buyers become
for a time uninterested in purchasing these Rule 144A 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
Trustees. If through the appreciation of restricted securities or the
depreciation of unrestricted securities, the Fund should be in a position where
more than 15% 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 15% limitation.
Ratings as Investment Criteria. In general, the ratings of Moody's Investors
Service, Inc. ("Moody's") and Standard & Poor's Ratings Group ("S&P") represent
the opinions of these agencies as to the quality of the securities which they
rate. It should be emphasized, however, that such ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Fund as initial criteria for the selection of portfolio securities. Among
the factors which will be considered are the long-term ability of the issuer to
pay principal and interest and general economic trends. Appendix A contains
further information concerning the ratings of Moody's and S&P and their
significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of the foregoing events will require the sale of such
securities by the Fund, but the Adviser will consider such event in its
determination of whether the Fund should continue to hold the securities.
Foreign Currency Transactions. With respect to its foreign securities
investments, the Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market, or through entering into forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific amount of currency at a
future date, which may be any fixed number of days from the date of the contract
agreed upon by the parties, at a price set at the time of the contract. These
contracts are usually traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for such trades.
The Fund may purchase or sell call and put options on foreign currencies as a
hedge against changes in the value of the U.S. dollar in relation to a foreign
currency or multi-national currency unit in which portfolio securities of the
Fund may be denominated. A call option on a foreign currency gives the buyer the
right to buy, and a put option the right to sell, a certain amount of foreign
currency at a specified price during a fixed period of time. Currently, options
are traded on such foreign currencies as the British pound, Canadian dollar,
West German mark, Japanese yen, French franc and Swiss franc. See "The Fund's
Options Trading Activities" below for more information.
The Fund may also enter into forward foreign currency exchange contracts in two
circumstances. First, when the Fund enters into a contract for the purchase or
sale of a security denominated in a foreign currency, the Fund may desire to
"lock-in" the United States dollar price of the security. By entering into a
forward contract for a fixed amount of dollars for the purchase or sale of the
amount of foreign currency involved in the underlying transactions, the Fund
will be able to protect itself against a possible loss resulting from an adverse
change in the relationship between the United States dollar and such foreign
currency during the period between the date on which the security is purchased
or sold and the date on which payment is made or received.
Second, when the Adviser believes that the currency of a particular foreign
country may suffer or enjoy a substantial movement against another currency, the
Fund may enter into a forward contract to sell or buy the amount of the former
foreign currency approximating the value of some or all of that Fund's portfolio
securities denominated in such foreign currency. This second investment practice
is generally referred to as "cross-hedging." The precise matching of the forward
contract amounts and the value of the securities involved will not generally be
possible since the future value of securities in foreign currencies will change
as a consequence of market movements in the value of these securities between
the date on which the forward contract is entered into and the date it matures.
The projection of short-term currency market movement is extremely difficult,
and the successful execution of a short-term hedging strategy is highly
uncertain. The Fund does not intend to enter into forward contracts under this
second circumstance on a regular or continuous basis, and the Fund will not do
so, if, as a result, it will have more than 25% of the value of its total
assets, computed at market value, at the time of commitment, committed to the
consummation of such contracts. The Fund will also not enter into such forward
contracts or maintain a net exposure to such contracts where the consummation of
the contracts would obligate the Fund to deliver an amount of foreign currency
in excess of the value of the Fund's portfolio securities or other assets
denominated in that currency. Under normal circumstances, consideration of the
prospects for currency exchange rates will be incorporated into the Fund's
long-term investment decisions made with regard to overall investment
strategies. However, the Fund believes that it is important to have the
flexibility to enter into such forward contracts when it determines that the
best interests of the Fund will thereby be served. Investors Bank & Trust
Company, the Fund's custodian, will place cash or liquid or debt securities into
a segregated account of the Fund in an amount equal to the value of the Fund's
total assets committed to the consummation of forward foreign currency exchange
contracts. If the value of the securities placed in the segregated account
declines, additional cash or securities will be placed in the account on a daily
basis so that the value of the account will equal the amount of the Fund's
commitments with respect to such contracts. The Fund will not enter into any
forward contract with a term of greater than one year. At the maturity of a
forward contract, the Fund may either sell the portfolio security and make
delivery of the foreign currency, or it may retain the security and terminate
its contractual obligation to deliver the foreign currency by purchasing an
"offsetting" contract with the same currency trader obligating it to purchase,
on the same maturity date, the same amount of the foreign currency. There can be
no assurance, however, that the Fund will be able to effect such a closing
purchase transaction. It is impossible to forecast the market value of a
particular portfolio security at the expiration of the contract. Accordingly, it
may be necessary for the Fund to purchase additional foreign currency on the
spot market (and bear the expense of such purchase) if the market value of the
security is less than the amount of foreign currency that the Fund is obligated
to deliver and if a decision is made to sell the security and make delivery of
the foreign currency.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below) to the
extent that there has been movement in forward contract prices. Should forward
prices decline during the period between the Fund's entering into a forward
contract for the sale of a foreign currency and the date it enters into an
offsetting contract for the purchase of the foreign currency, the Fund will
realize a gain to the extent that the price of the currency it has agreed to
sell exceeds the price of the currency it has agreed to purchase. Should forward
prices increase, the Fund will suffer a loss to the extent that the price of the
currency it has agreed to purchase exceeds the price of the currency it has
agreed to sell.
Transactions in forward foreign currency exchange contracts by the Fund will be
limited to the transactions described above. The Fund is not required to enter
into such transactions with regard to its foreign currency-denominated
securities. It also should be realized that this method of protecting the value
of the Fund's portfolio securities against a decline in the value of a currency
does not eliminate fluctuations in the underlying prices of the securities. It
simply establishes a rate of exchange which one can achieve at some future point
in time. Additionally, although such contracts tend to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain which might result should the value of such currency
increase.
Although the Fund values its assets daily in terms of United States dollars, the
Fund does not intend physically to convert its holdings of foreign currencies
into United States dollars on a daily basis. The Fund will do so from time to
time, and investors should be aware of the costs of currency conversion.
Although foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the prices at
which they are buying and selling various currencies. Thus, a dealer may offer
to sell a foreign currency to the Fund at one rate, while offering a lesser rate
of exchange should the Fund desire to resell that currency to the dealer.
The Fund's Options Trading Activities. The following information supplements the
discussion in the Prospectus regarding options transactions in which the Fund
may engage.
Financial Futures Contracts. The Fund may hedge its portfolio by selling
interest rate and currency futures contracts as an offset against the effect of
expected increases in interest rates or declines in foreign currency values and
by purchasing such futures contracts as an offset against the effect of expected
declines in interest rates or increase in foreign currency values. Although
other techniques could be used to reduce the Fund's exposure to interest rate
and currency fluctuations, the Fund may be able to hedge its exposure more
effectively and perhaps at a lower cost by using futures contracts. The Fund
will enter into futures contracts for hedging and non-hedging purposes to the
extent permitted by regulations of the Commodity Futures Trading Commission
("CFTC").
Futures contracts have been designed by boards of trade which have been
designated "contract markets" by the ("CFTC"). Futures contracts are traded on
these markets in a manner that is similar to the way a stock is traded on a
stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. It is expected that if new types
of interest rate and currency futures contracts are developed and traded the
Fund may engage in transactions in such contracts.
Although futures contracts by their terms call for actual delivery or acceptance
of interest rate instruments or currency, in most cases the contracts are closed
out prior to delivery by offsetting purchases or sales of matching futures
contracts (same exchange, underlying security or currency and delivery month).
If the offsetting purchase price is less than the Fund's original sale price,
the Fund realizes a gain, or if it is more, the Fund realizes a loss.
Conversely, if the offsetting sale price is more than the Fund's original
purchase price, the Fund realizes a gain, or if it is less, the Fund realizes a
loss. The transaction costs must also be included in these calculations. The
Fund will pay a commission in connection with each purchase or sale of futures
contracts, including a closing out transaction. For a discussion of the Federal
income tax considerations of trading in futures contracts, see the information
under the caption "Tax Status" below.
At the time the Fund enters into a futures contract, it is required to deposit
with its custodian a specified amount of cash or U.S. Government securities,
known as "initial margin." The margin required for a futures contract is set by
the board of trade or exchange on which the contract is traded and may be
modified during the term of the contract. The initial margin is in the nature of
a performance bond or good faith deposit on the futures contract which is
returned to the Fund upon termination of the contract, assuming all contractual
obligations have been satisfied. The Fund expects to earn interest income on its
initial margin deposits. Each day, the futures contract is valued at the
official settlement price of the board of trade or exchange on which it is
traded. Subsequent payments, known as "variation margin," to and from the
broker, are made on a daily basis as the market price of the futures contract
fluctuates. This process is known as "mark to the market." Variation margin does
not represent a borrowing or lending by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures position was closed out. In computing net asset value, the Fund will
mark to the market its open futures positions. The Fund will maintain with its
custodian bank, State Street Bank and Trust Co., a segregated asset account
consisting of cash or cash equivalents in an amount sufficient to cover its
obligations with respect to open futures contracts.
Successful hedging depends on a strong correlation between the market
for the underlying securities or currency and the futures contract market for
those securities or currency. There are several factors that will probably
prevent this correlation from being a perfect one and even a correct forecast of
general interest rate or currency trends may not result in a successful hedging
transaction. There are significant differences between the securities or
currency and futures markets which could create an imperfect correlation between
the markets and which could cause a given hedge not to achieve its objectives.
The degree of imperfection of correlation depends on circumstances such as:
variations in speculative market demand for interest rate futures and debt
securities, including technical influences in futures trading and differences
between the financial instruments being hedged and the instruments underlying
the standard interest rate futures contracts available for trading in such
respects as interest rate levels, maturities, and creditworthiness of issuers.
The degree of imperfection may be increased where the underlying debt securities
are lower-rated and, thus, subject to greater fluctuation in price than
higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise of
skill and judgment, and even a well-conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected interest rate or currency
volatility. The Fund will bear the risk that the price of the securities or
currency being hedged will not move in complete correlation with the price of
the futures contracts used as a hedging instrument. Although the Adviser
believes that the use of futures contracts will benefit the Fund, an incorrect
prediction could result in a loss on both the hedged securities or currency in
the Fund's portfolio and the hedging vehicle so that the Fund's return might
have been better had hedging not been attempted. However, in the absence of the
ability to hedge, the Adviser might have taken portfolio actions in anticipation
of the same market movements with similar investment results but, presumably, at
greater transaction costs. In addition, the low margin deposits for futures
transactions permit an extremely high degree of leverage. A relatively small
movement in a futures contract may result in losses or gains in excess of the
amount invested.
Futures exchanges may limit the amount of fluctuation permitted in
certain futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of the
current trading session. Once the daily limit has been reached in a futures
contract subject to the limit, no more trades may be made on that day at a price
beyond that limit. The daily limit governs only price movement during a
particular trading day and therefore does not limit potential losses because the
limit may work to prevent the liquidation of unfavorable positions. For example,
futures prices have occasionally moved to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of positions and subjecting some holders of futures contracts to
substantial losses.
Finally, although the Fund engages in futures transactions only on
boards of trade or exchanges where there appears to be an adequate secondary
market, there is no assurance that a liquid market will exist for a particular
futures contract at any given time. The liquidity of the market depends on
participants closing out contracts rather than making or taking delivery. In the
event participants decide to make or take delivery, liquidity in the market
could be reduced. In addition, the Fund could be prevented from executing a buy
or sell order at a specified price or closing out a position due to limits on
open positions or daily price fluctuation limits imposed by the exchanges or
boards of trade. If the Fund cannot close out a position, it will be required to
continue to meet margin requirements until the position is closed.
Other Considerations. The Fund will engage in futures and related options
transactions only for bona fide hedging or non-hedging purposes to the extent
permitted by CFTC regulations. The Fund will determine that the price
fluctuations in the futures contracts and options on futures used for hedging
purposes are substantially related to price fluctuations in securities held by
the Fund or which it expects to purchase. Except as stated below, the Fund's
futures transactions will be entered into for traditional hedging purposes --
i.e., futures contracts will be sold to protect against a decline in the price
of securities or the currency in which they are denominated that the Fund owns,
or futures contracts will be purchased to protect the Fund against an increase
in the price of securities or the currency in which they are denominated it
intends to purchase. As evidence of this hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities or assets denominated in the related currency in the cash
market at the time when the futures or option position is closed out. However,
in particular cases, when it is economically advantageous for the Fund to do so,
a long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging
definition a CFTC regulation permits the Fund to elect to comply with a
different test, under which the aggregate initial margin and premiums required
to establish non-hedging positions in futures contracts and options on futures
will not exceed 5 percent of the net asset value of the Fund's portfolio, after
taking into account unrealized profits and losses on any such positions and
excluding the amount by which such options were in-the-money at the time of
purchase. The Fund will engage in transactions in futures contracts and related
options only to the extent such transactions are consistent with the
requirements of the internal Revenue Code for maintaining its qualification as a
regulated investment company for federal income tax purposes.
When the Fund purchases a futures contract, writes a put option thereon
or purchases a call option thereon, an amount of cash or high grade, liquid debt
securities (i.e., securities rated in one of the top three ratings categories by
Moody's Investors Service, Inc. ("Moody's") or Standard & Poor's Ratings Group
("Standard & Poor's") will be deposited in a segregated account with the Fund's
custodian which is equal to the underlying value of the futures contract reduced
by the amount of initial and variation margin held in the account of its broker.
Call Options. The Fund may purchase calls on equity securities only if the calls
are listed on a domestic exchange. The Fund will purchase call options to
attempt to obtain capital appreciation. When the Fund buys a call, it pays a
premium and has the right to buy the callable securities from a seller of a call
during a period at a fixed exercise price. The Fund benefits only if the market
price of the callable securities is above the call price during the call period
and the call is either exercised or sold at a profit. If the call is not
exercised or sold (whether or not at a profit), it will become worthless at its
expiration date and the Fund will lose its premium payment and the right to
purchase the underlying security.
Put Options. The Fund may purchase put options on equity securities ("puts") if
they are listed on a domestic exchange. When the Fund buys a put, it pays a
premium and has the right to sell the underlying assets to a seller of a put
during the put period at a fixed exercise price.
The Fund may buy puts related to securities it owns ("protective puts") or to
securities it does not own ("non-protective puts"). Buying a protective put
permits the Fund to protect itself during the put period against a decline in
the value of the underlying securities below the exercise price by selling them
through the exercise of the put. Thus, protective puts will assist the Fund in
achieving its investment objective of capital appreciation by protecting it
against a decline in the market value of its portfolio securities.
Buying a non-protective put permits the Fund, if the market price of the
underlying securities is below the put price during the put period, either to
resell the put or to buy the underlying securities and sell them at the exercise
price. A non-protective put can enable the Fund to achieve appreciation during a
period when the price of securities underlying such put are declining. If the
market price of the underlying securities is above the exercise price and as a
result, the put is not exercised or resold (whether or not at a profit), the put
will become worthless at its expiration date.
Options-General. An option position may be closed out only on an exchange which
provides a secondary market for options for the same series. Although the Fund
will generally purchase only those exchange-traded options for which there
appears to be an active secondary market, there can be no assurance that a
liquid secondary market on an exchange will exist for any particular option, or
at any particular time. In the event that no liquid secondary market exists, it
might not be possible to effect closing transactions in particular options. If
the Fund cannot close out an exchange-traded option which it holds, it would
have to exercise such option in order to realize any profit and would incur
transaction costs on the purchase or sale of underlying securities. In the
absence of a liquid secondary market, the Fund, as the purchaser of a put or
call option, would be able to realize a profit or limit a loss on such options
only by exercising such options and incurring additional transaction costs on
the disposition of the underlying securities.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) an exchange may impose restrictions on opening transactions or closing
transactions or both; (iii) trading halts, suspensions or other restrictions may
be imposed with respect to particular classes or series of options or underlying
securities; (iv) the facilities of an exchange or the Options Clearing
Corporation may not at all times be adequate to handle current trading volume;
or (v) one or more exchanges could, for economic or other reasons, decide or be
compelled at some future date to discontinue the trading of options (or a
particular class or series of options would cease to exist), although
outstanding options that had been issued by the Options Clearing Corporation as
a result of trades on that exchange would continue to be exercisable in
accordance with their terms.
The put and call options activities of the Fund may affect its turnover rate and
the amount of brokerage commissions paid by it. The exercise of calls written by
the Fund may cause the Fund to sell portfolio securities or other assets at
times and amounts controlled by the holder of a call, thus increasing the Fund's
portfolio turnover rate and brokerage commission payments. The exercise of puts
may also cause the sale of securities, also increasing turnover. Although such
exercise is within the Fund's control, holding a protective put might cause the
Fund to sell the underlying securities for reasons which would not exist in the
absence of the put. Holding a non-protective put might cause the purchase of the
underlying securities to permit the Fund to exercise the put.
The Fund will pay a brokerage commission each time it buys or sells a put or
call or buys or sells a security in connection with the exercise of a put or
call. Such commissions may be higher than those which would apply to direct
purchases or sales of equity securities.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without approval of a majority of the Fund's outstanding voting
securities which, as used in the Prospectus and this Statement of Additional
Information, means approval of the lesser of (1) the holders of 67% or more of
the shares represented at a meeting if the holders of more than 50% of
outstanding shares are present in person or by proxy or (2) the holders of more
than 50% of the outstanding shares.
The Fund may not:
(1) Purchase securities on margin or make short sales, unless, by virtue of
its ownership of other securities, the Fund has the right to obtain
securities equivalent in kind and amount to the securities sold and, if
the right is conditional, the sale is made upon the same conditions,
except (i) in connection with arbitrage transactions, (ii) for hedging
the Fund's exposure to an actual or anticipated market decline in the
value of its securities, (iii) to profit from an anticipated decline in
the value of a security, and (iv) obtaining such short-term credits as
may be necessary for the clearance of purchases and sales of
securities. The deposit or payment by the Fund of initial or
maintenance margin in connection with futures contracts or related
options transactions is not considered the purchase of a security on
margin.
(2) Borrow money, except from banks temporarily for extraordinary or
emergency purposes (not for leveraging or investment) and then in an
aggregate amount not in excess of 5% of the value of the Fund's net
assets at the time of such borrowing.
(3) Act as an underwriter of securities of other issuers, except to the
extent that it may be deemed to act as an underwriter in certain cases
when disposing of restricted securities. (See also Restriction 14.)
(4) Issue senior securities except as appropriate to evidence indebtedness
which the Fund is permitted to incur, provided that (i) the purchase
and sale of futures contracts or related options, (ii) collateral
arrangements with respect to futures contracts, related options,
forward foreign currency exchange contracts or other permitted
investments of the Fund as described in the Prospectus, including
deposits of initial and variation margin, and (iii) the establishment
of separate classes of shares of the Fund for providing alternative
distribution methods are not considered to be the issuance of senior
securities for purposes of this restriction.
(5) Invest more than 5% of the Fund's total assets in warrants, whether or
not the warrants are listed on the New York or American Stock
Exchanges, or more than 2% of the value of the Fund's total assets in
warrants which are not listed on those exchanges. Warrants acquired in
units or attached to securities are not included in this restriction.
(6) Purchase securities of any one issuer, except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
if immediately after such purchase more than 5% of the value of the
Fund's total assets would be invested in such issuer or the Fund would
own or hold more than 10% of the outstanding voting securities of such
issuer; provided, however, that up to 25% of the value of the Fund's
total assets may be invested without regard to these limitations.
(7) Acquire more than 5% of any class of securities of an issuer, except
securities issued or guaranteed by the U.S. Government or its agencies
or instrumentalities. For this purpose, all outstanding bonds and other
evidences of indebtedness shall be deemed a single class regardless of
maturities, priorities, coupon rates, series, designations, conversion
rights, security or other differences, and all preferred stocks of an
issuer shall be deemed a single class.
(8) Purchase or sell real estate although the Fund may purchase and sell
securities which are secured by real estate, mortgages or interests
therein, or issued by companies which invest in real estate or
interests therein; provided, however, that the Fund will not purchase
real estate limited partnership interests.
(9) Purchase or sell commodities or commodity futures contracts or
interests in oil, gas or other mineral exploration or development
programs, except the Fund may engage in such forward foreign currency
contracts and/or purchase or sell such futures contracts and options
thereon as described in the Prospectus.
(10) Make loans, except that the Fund (1) may lend portfolio securities in
accordance with the Fund's investment policies up to 33 1/3% of the
Fund's total assets taken at market value, (2) enter into repurchase
agreements, and (3) purchase all or a portion of an issue of debt
securities, bank loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other securities, whether
or not the purchase is made upon the original issuance of the
securities."
(11) Purchase securities of other open-end investment companies, except in
connection with a merger, consolidation, acquisition or reorganization;
or purchase more than 3% of the total outstanding voting stock of any
closed-end investment company if more than 5% of the Fund's total
assets would be invested in securities of any closed-end investment
company, or more than 10% of the Fund's total assets would be invested
in securities of any closed-end investment companies in general. In
addition, the Fund may not invest in the securities of closed-end
investment companies except by purchase in the open market involving
only customary broker's commissions.
(12) Purchase any securities which would cause more than 25% of the market
value of the Fund's total assets at the time of such purchase to be
invested in the securities of one or more issuers having their
principal business activities in the same industry, provided that there
is no limitation with respect to investments in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities.
Nonfundamental Investment Restrictions. The following investment restrictions
are designated as nonfundamental and may be changed by the Board of Trustees
without the approval of shareholders.
The Fund may not:
(13) Write, purchase, or sell puts, calls or combinations thereof except
that the Fund may write, purchase or sell puts and calls on foreign
currencies and securities as described in the Prospectus.
(14) Purchase or otherwise acquire any security if, as a result, more than
10% of the Fund's net assets (taken at current value) would be invested
in securities that are illiquid by virtue of the absence of a readily
available market or legal or contractual restrictions on resale. This
policy includes repurchase agreements maturing in more than seven days.
This policy does not include restricted securities eligible for resale
pursuant to Rule 144A under the Securities Act of l933 which the Board
of Trustees or the Adviser has determined under Board-approved
guidelines are liquid.
(15) Purchase securities of any issuer for the purpose of exercising control
or management, except in connection with a merger, consolidation,
acquisition or reorganization.
(16) Purchase securities of any issuer with a record of less than three
years continuous operations, including predecessors, if such purchase
would cause the investments of the Fund in all such issuers to exceed
5% of the total assets of the Fund taken at market value, except this
restriction shall not apply to (i) obligations of the U.S. Government,
its agencies or instrumentalities and (ii) securities of such issuers
which are rated by at least one nationally recognized statistical
rating organization.
(17) Purchase or retain the securities of any issuer if those officers or
trustees of the Fund or officers or directors of the Adviser who each
own beneficially more than 1/2 of 1% of the securities of that issuer
together own more than 5% of the securities of such issuer.
(18) Hypothecate, mortgage or pledge any of its assets except as may be
necessary in connection with permitted borrowings and then not in
excess of 5% of the Fund's total assets, taken at cost. For the purpose
of this restriction, (i) forward foreign currency exchange contracts
are not deemed to be a pledge of assets, (ii) collateral arrangements
with respect to the writing of options on debt securities or on futures
contracts are not deemed to be a pledge of assets; and (iii) the
deposit in escrow of underlying securities in connection with the
writing of call options is not deemed to be a pledge of assets.
(19) Participate on a joint or joint and several basis in any trading
accounting securities (except for a joint account with other funds
managed by the Adviser for repurchase agreements permitted by the
Securities and Exchange Commission pursuant to an exemptive order).
(20) Notwithstanding any investment restriction to the contrary, the Fund
may, in connection with the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees/Directors, purchase
securities of other investment companies within the John Hancock Group
of Funds provided that, as a result, (i) no more than 10% of the Fund's
assets would be invested in securities of all other investment
companies, (ii) such purchase would not result in more than 3% of the
total outstanding voting securities of any one such investment company
being held by the Fund and (iii) no more than 5% of the Fund's assets
would be invested in any one such investment company.
In order to permit the sale of shares of the Fund in certain states, the
Trustees may, in their sole discretion, adopt investment policies more
restrictive than those described above. Should the Trustees determine that any
such more restrictive policy is no longer in the best interest of the Fund and
its shareholders, the Fund may cease offering shares in the state involved and
the Trustees may revoke such restrictive policy. Moreover, if the states
involved shall no longer require any such restrictive policy, the Trustees may,
at their sole discretion, revoke such policy. The Fund has agreed with a states
securities administrator that it will not purchase the following securities:
The Fund will not invest more than 15% of its total assets in the aggregate in
securities of issuers which, together with any predessors, have a record of less
than three years continuous operation, and in securities of issuers which are
restricted as to disposition, including securities eligible for resale pursuant
to Rule 144A under the Securities Act of 1933.
The Fund will not, with respect to 75% of its total assets, acquire more than
10% of the outstanding voting securities of any issuer.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the values or the total costs of the Fund's
assets will not be considered a violation of the restriction.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees who elect officers who are
responsible for the day-to-day operations of the Fund and who execute policies
formulated by the Trustees. Several of the officers and Trustees of the Fund are
also officers and directors of the Adviser, or directors of the Fund's principal
distributor, John Hancock Funds, Inc. ("John Hancock Funds").
The following table sets forth the principal occupation or employment of the
Trustees and principal officers of the Fund during the past five years.
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH REGISTRANTS DURING PAST 5 YEARS
---------------- ---------------- -------------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive Officer, the
Adviser and The Berkeley Financial Group
("The Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM Capital");
John Hancock Advisers International
Limited; ("Advisers International"); John
Hancock Funds, Inc., ("John Hancock
Funds"); John Hancock Investor Services
Corporation ("Investor Services") and
Sovereign Asset Management Corporation
("SAMCorp"); (herein after the Adviser,
the Berkeley Group, NM Capital, Advisers
International, John Hancock Funds,
Investor Services and SAMCorp are
collectively referred to as the
"Affiliated Companies"); Chairman, First
Signature Bank & Trust; Director, John
Hancock Freedom Securities Corp., John
Hancock Capital Corp., New England/Canada
Business Council; Member, Investment
Company Institute Board of Governors;
Director, Asia Strategic Growth Fund,
Inc.; Trustee, Museum of Science;
President, the Adviser (until July 1992);
Chairman, John Hancock Distributors, Inc.
("Distributors") until April 1994.
- ------------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee may generally exercise most
powers of the Trustees between regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH REGISTRANTS DURING PAST 5 YEARS
----------------- ------------------ --------------------------
<S> <C> <C>
Dennis S. Aronowitz Trustee (4) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank; Director, Boston
University Center for Banking Law
Studies (until 1990).
William A. Barron, III Trustee (1, 2) Trustee, H.M. Payson & Company since
RR 1 1991.
325 Sea Meadows Lane
Yarmouth, Maine 04096
Richard P. Chapman, Jr. Trustee (4) President, Brookline Savings Bank.
160 Washington Street
Brookline, Massachusetts
William J. Cosgrove Trustee (4) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank, N.A.
Saddle River, New Jersey (retired September 1991); Executive
Vice President, Citadel Group
Representatives, Inc.; Director, the
Hudson City Savings Bank.
Douglas M. Costle Trustee (1, 2) Director Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow, Institute
Woodstock, Vermont 05091 for Sustainable Communities, Montpelier,
Vermont, since 1991. Dean Vermont Law
School, until 1991. Director, Air and
Water
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee may generally exercise most
powers of the Trustees between regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH REGISTRANTS DURING PAST 5 YEARS
- ---------------- ---------------- -----------------------
<S> <C> <C>
Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
MITRE Corporation (governmental
consulting services).
Leland O. Erdahl Trustee (1, 2) President and Director of Nature
9449 Navy Blue Court Quality Ingredients Company, Inc. and
Las Vegas, NV 89117 Sante Fe Ingredients Company, Inc. ,
private food processing companies.
Director of Uranium Resources, Inc.
President of Stolar, Inc. from 1987 to
1991 and President of Albuquerque
Uranium Corporation from 1985 to 1992.
Director of Freeport-McMoRan Copper &
Gold Company, Inc., Hecla Mining
Company, Canyon Resources Corporation
and Original Sixteen to One Mines,
Inc. From 1984 to 1987 and 1991,
management consultant.
Richard A. Farrell Trustee(1, 2) President of Farrell, Healer & Co., a
Farrell, Healer & Company, Inc. venture capital management firm, since
160 Federal Street -- 23rd Floor 1980. Prior to that date, Mr. Farrell
Boston, MA 02110 headed the venture capital group at
Bank of Boston Corporation.
Gail D. Fosler Trustee (4) Vice President and Chief Economist, The
4104 Woodbine Street Conference Board (non-profit economic
Chevy Chase, MD and business research).
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee may generally exercise most
powers of the Trustees between regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH REGISTRANTS DURING PAST 5 YEARS
- ---------------- ---------------- ----------------------
<S> <C> <C>
William F. Glavin Trustee (1, 2) President, Babson College; Vice
Babson College Chairman, Xerox Corporation until June
Horn Library 1989. Director, Caldor Inc. and Inco
Babson Park, MA 02157 Ltd.
Patrick Grant Trustee (1, 2, 3) President, Financial Management
5 Haven Street Incorporated, a professional treasurer,
Dedham, MA 02026 since 1978. Prior to that date Mr.
Grant was Treasurer of Endowment
Management & Research Corp., an
investment advisory firm, and
Omega Fund, Inc., an open-end
investment company.
Bayard Henry Trustee (4) Corporate Advisor; Director, Fiduciary
31 Milk Street Trust Company (a trust company);
Boston, Massachusetts Director, Groundwater Technology, Inc.
(remediation); Samuel Cabot, Inc.;
Advisor, Kestrel Venture Management.
Ralph Lowell, Jr. Trustee (1, 2) Director, Lowell Blake and Associates, a
45 Mill Street registered investment adviser since
Edgartown, MA 02539 1978. Mr. Lowell was Vice President of
that company from 1978 to 1985.
Dr. John A. Moore Trustee (1, 2) President and Chief Executive Officer,
Institute for Evaluating Health Risks Institute for Evaluating Health Risks, a
1101 Vermont Avenue N.W. nonprofit institution, since September
Suite 608 1989. Assistant Administrator of the
Washington, DC 20005 Office of Pesticides and Toxic
Substances at the Environmental
Protection Agency from December
1983 to July 1989.
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee may generally exercise most
powers of the Trustees between regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH REGISTRANTS DURING PAST 5 YEARS
- ---------------- ---------------- -----------------------
<S> <C> <C>
Patti McGill Peterson Trustee (1, 2) President, St. Lawrence University;
St. Lawrence University Director, Niagara Mohawk Power
110 Vilas Hall Corporation and Security Mutual Life.
Canton, NY 13617
John W. Pratt Trustee (1, 2) Since 1961, Professor of Business
2 Gray Gardens East Administration at Harvard University
Cambridge, MA 02138 Graduate School of Business
Administration.
*Richard S. Scipione Trustee (3) General Counsel, the Life Insurance
John Hancock Place Company; Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking
Insurance Agency, Inc., John Hancock
Subsidiaries, Inc., SAMCorp, NM
Capital and John Hancock Property and
Casualty Insurance and its affiliates
(until November, 1993); Trustee; The
Berkeley Group; Director, John
Hancock Home Mortgages Corp. and John
Hancock Financial Access, Inc. (until
July 1990).
Edward J. Spellman, CPA Trustee (4) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee may generally exercise most
powers of the Trustees between regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</TABLE>
Each of the Trustees also serves as Trustee of Freedom Investment Trust and
Freedom Investment Trust II - two other investment companies for which the
Adviser serves as adviser.
The executive officers of the Trust (who are not also Trustees) and their
principal occupations during the past five years are set forth below. Unless
otherwise indicated, the business address of each is 101 Huntington Avenue,
Boston, Massachusetts 02199.
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH REGISTRANTS DURING PAST 5 YEARS
- ---------------- ---------------- -----------------------
<S> <C> <C>
Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment
Investment Officer (4) Officer, the Adviser; President
(until December 1994).
Anne C. Hodsdon President (4) President and Chief Operating
Officer, the Adviser; Executive Vice
President, the Adviser (until
December 1994); Senior Vice
President; the Adviser (until
December 1993); Vice President, the
Adviser, 1991.
James B. Little Senior Vice President, Chief Senior Vice President, the Adviser.
Financial Officer
Thomas H. Drohan Senior Vice President Senior Vice President and Secretary,
and Secretary the Adviser.
- -----------
*Trustee may be deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940.
(1) Member of the Audit Committees of the Trusts.
(2) Member of the Committees on Administration of the Trusts.
(3) Member of the Executive Committee of each Trust. The Executive Committee may generally exercise most
powers of the Trustees between regularly scheduled meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
</TABLE>
As of August 31, 1995, there were 536,431 shares of Class A shares of the Fund
outstanding and 2,538,762 shares of Class B shares of the Fund outstanding and
officers and trustees of the Fund as a group beneficially owned less than 1% of
these outstanding shares. At that date, J.C. Bradford & Co., Cust FBO, RCIP
Limited Partners II, 330 Commerce St., Nashville, TN held of record 130,427
Class A shares representing approximately 24.31% of the shares outstanding. At
that date, no other person owned of record or beneficially as much as 5% of the
outstanding shares of the Fund.
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services for each Fund's fiscal year. The two
non-Independent Trustees, Messrs. Boudreau and Scipione, and each of the
officers of the Funds are interested persons of the Adviser, are compensated by
the Adviser and receive no compensation from the Fund for their services.
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM THE FUND
AGGREGATE PENSIONS OR ESTIMATED ANNUAL AND JOHN HANCOCK FUND COMPLEX TO
COMPENSATION FROM RETIREMENT BENEFITS UPON TRUSTEES FUND'S EXPENSES (1) AS
INDEPENDENT TRUSTEES THE FUND BENEFITS ACCRUED RETIREMENT PART OF THE (TOTAL OF FUNDS)
- -------------------- ----------------- ---------------- ---------------- --------------------------------
<S> <C> <C> <C> <C>
Dennis S. Aronowitz* $ 0 -- -- $ 60,950
William A. Barron, III** $ 551 -- -- $ 42,000
Richard P. Chapman, Jr.* $ 0 -- -- $ 62,950
William J. Cosgrove* $ 0 -- -- $ 60,950
Douglas M. Costle** $ 551 -- -- $ 42,000
Leland O. Erdahl** $ 551 -- -- $ 42,000
Richard A. Farrell** $ 571 -- -- $ 43,500
Gail D. Fosler* $ 0 -- -- $ 60,950
William F. Glavin** $ 551 -- -- $ 41,750
Patrick Grant** $ 578 -- -- $ 44,000
Bayard Henry* $ 0 -- -- $ 62,950
Ralph Lowell, Jr.** $ 551 -- -- $ 42,000
Dr. John A. Moore** $ 551 -- -- $ 41,750
Patti McGill Peterson** $ 551 -- -- $ 42,000
John W. Pratt** $ 551 -- -- $ 42,000
Edward J. Spellman* $ 0 -- -- $ 60,950
------ ---------
$5,557 $792,700
(1)The total compensation paid by the John Hancock Fund Complex to the Independent Trustees is as of the
calendar year ended December 31, 1994.
*Trustees of 17 funds in the John Hancock Complex. As of the date of this document, these Trustees have not
received any compensation from the Fund.
**Trustees of 10 funds in the John Hancock Complex.
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
The investment adviser for the Fund is the Adviser, a Massachusetts corporation
with offices at 101 Huntington Avenue, Boston, Massachusetts 02199-7603. The
Adviser is a registered investment advisory firm which maintains a securities
research department, the efforts of which will be made available to the Fund.
The Adviser was organized in 1968 and presently has more than $16 billion in
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/Freedom group of funds having a combined total of over 1,060,000
shareholders. The Adviser is an affiliate of the Life Company, one of the most
recognized and respected financial institutions in the nation. With total assets
under management of $80 billion, John Hancock Mutual Life Insurance Company is
one of the 10 largest life insurance companies in the United States, and carries
a high rating from Standard & Poor's and A.M. Best's. Founded in 1862, the Life
Company has been serving clients for over 125 years.
Pursuant to an investment advisory agreement dated as of August 29, 1989 and
restated July 1, 1992, between Freedom Investment Trust III and the Advisor
(successor to Freedom Capital Management Corporation ("Freedom Capital"), the
Fund's former investment adviser) (the "Advisory Agreement"), as manager and
investment adviser, the Adviser will: (a) furnish continuously an investment
program for the Fund and determine, subject to the overall supervision and
review of the Board of Trustees, which investments should be purchased, held,
sold or exchanged, (b) provide supervision over all aspects of the Fund's
operations except those which are delegated to a custodian, transfer agent or
other agent, and (c) provide the Fund with such executive, administrative and
clerical personnel, officers and equipment as are deemed necessary for the
conduct of its business.
The Fund bears all costs of its organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses of redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of independent accountants, legal counsel,
transfer agents and dividend disbursing agents; the compensation and expenses of
Trustees who are not otherwise affiliated with the Trust, the Adviser or any of
their affiliates; expenses of Trustees' and shareholders' meetings; trade
association memberships; insurance premiums; and any extraordinary expenses.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
If the total of all ordinary business expenses of the Fund for any fiscal year
exceeds limitations prescribed in any state in which shares of the Fund are
qualified for sale, the fee payable to the Adviser will be reduced to the extent
required by these limitations. At this time, the most restrictive limit on
expenses imposed by a state requires that expenses charged to the Fund in any
fiscal year may not exceed 2 1/2% of the first $30,000,000 of the Fund's average
net assets, 2% of the next $70,000,000 of such net assets and 1 1/2% of the
remaining average net assets. When calculating the above limit, the Fund may
exclude interest, brokerage commissions and extraordinary expenses.
The continuation of the Advisory Agreement for Freedom Investment Trust III was
last approved on August 28, 1995 by all of the Trustees, including all of the
Trustees who are not parties to the Advisory Agreement or "interested persons"
(as defined in the Investment Company Act of 1940) of any such party; and on
November 15, 1995 by the Fund's shareholders, to be effective December 1, 1995.
The Advisory Agreement will continue in effect from year to year, provided that
its continuance is approved annually both (i) by the holders of a majority of
the outstanding voting securities of the Trust or by the Board of Trustees, and
(ii) by a majority of the Trustees who are not parties to the Agreement or
"interested persons" of any such parties. The Advisory Agreement may be
terminated on 60 days written notice by either party and will terminate
automatically if it is assigned.
For the fiscal years ended July 31, 1993, 1994 and 1995, the Fund paid the
Adviser investment advisory fees, respectively, of $424,825, $383,127 and
$294,993.
DISTRIBUTION CONTRACTS
The Trust has entered into a Distribution Contract with John Hancock Funds and
Freedom Distributors Corporation (together the "Distributors").
Under the contract, Distributors are obligated to use their best efforts to sell
shares of each class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") which have entered into selling agency
agreements with the Distributors. The Distributors accepts orders for the
purchase of the shares of the Fund which are continually offered at net asset
value next determined plus an applicable sales charge, if any. In connection
with the sale of Class A or Class B shares of the Fund, the Distributors and
Selling Brokers receive compensation in the form of a sales charge imposed, in
the case of Class A shares at the time of sale or, in the case of Class B
shares, on a deferred basis. The sales charges are discussed further in the
Class A and Class B shares Prospectus.
The Fund's Trustees adopted a Distribution Plan with respect to Class A and
Class B shares ("the Plan"), pursuant to rule 12b-1 under the Investment Company
Act of 1940. Under the Plan the Fund will pay distribution and service fees at
an aggregate annual rate of 0.30% and 1.00% respectively, of the Fund's daily
net assets. However, the amount of the service fee will not exceed 0.25% of the
Fund's average daily net assets attributable to each class of shares. The
distribution fees reimburse the Distributors for its distribution costs incurred
in the promotion of sales of shares of the Fund, and the service fees compensate
Selling Brokers for providing personal and account maintenance services to
shareholders. In the event that the Distributors may carry these expenses
forward, provided, however, that the Trustees may terminate the Plan and thus
the Fund's obligation to make further payments at any time. Accordingly, the
Fund does not treat unreimbursed expenses under the Plan as a liability of the
Fund. The Plan was approved by a majority of the voting securities of the Fund.
The Plan and all amendments were approved by the Trustees, including a majority
of the Trustees who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plan (the
"Independent Trustees"), by votes cast in person at meetings called for the
purpose of voting on such Plans.
Pursuant to the Plan, at least quarterly, the Distributors provide the Fund with
a written report of the amounts expended under the Plan and the purpose for
which these expenditures were made. The Trustees review these reports on a
quarterly basis.
The Plan provides that it will continue in effect only so long as its
continuance is approved at least annually by a majority of both the Trustees and
the Independent Trustees. The Plan provides that it may be terminated without
penalty, (a) by vote of a majority of the Independent Trustees, (b) by a vote of
a majority of the Fund's outstanding shares of the applicable class upon 60
days' written notice to The Distributor, and (c) automatically in the event of
assignment. The Plan further provides that it may not be amended to increase the
maximum amount of the fees for the services described therein without the
approval of a majority of the outstanding shares of the class of the Fund which
has voting rights with respect to the Plan. And finally, the Plan provides that
no material amendment to the Plan will, in any event, be effective unless it is
approved by a vote of the Trustees and the Independent Trustees of the Fund. The
holder 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 Plan the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plan will benefit the holders of the applicable class of
shares of the Fund.
Amounts paid to the Distributors by any class of shares of the Fund will not be
used to pay the expenses incurred with respect to any other class of shares of
the Fund; provided, however, that expenses attributable to the Fund as a whole
will be allocated, to the extent permitted by law, according to a formula based
upon gross sales dollars and/or average daily net assets of each such class, as
may be approved from time to time by vote of a majority of the Trustees. From
time to time the Fund may participate in joint distribution activities with
other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Funds.
For the fiscal year ended July 31, 1995, the Distributors received $11,042 and
$249,491 from the Fund with respect to Class A shares and Class B shares,
respectively. During the fiscal year ended July 31, 1995, the Distributors paid
the following amounts of expenses in connection with its services for the Fund:
<TABLE>
<CAPTION>
Expense Items
- --------------
CLASS A CLASS B
------- -------
<S> <C> <C>
Advertising and Promotion Expense $11,201 $ 29,891
Printing and Mailing of Prospectuses to New Shareholders $ 1,878 $ 2,714
Trail Payments to Underwriters and Selling Brokers $23,602 $440,620
and Compensation to Sales Personnel $40,506 $ 74,431
Interest, Carrying or other Finance Charges $ 0 $148,509
</TABLE>
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's shares, the
following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices. Equity securities traded on a principal exchange or NASDAQ
National Market Issues are generally valued at last sale price on the day of
valuation. Securities in the aforementioned category for which no sales are
reported and other securities traded over-the-counter are generally valued at
the last available bid price. Short-term debt investments which have a remaining
maturity of 60 days or less are generally valued at amortized cost which
approximates market value. If market quotations are not readily available or if
in the opinion of the Adviser any quotation or price is not representative of
true market value, the fair value of the security may be determined in good
faith in accordance with procedures approved by the Trustees.
Any assets or liabilities expressed in terms of foreign currencies are
translated into U.S. dollars by the custodian bank based on London currency
exchange quotations as of 5:00 p.m., London time (12:00 noon, New York time) on
the date of any determination of a Fund's NAV. A Fund will not price its
securities on the following national holidays: New Year's Day; Presidents' Day;
Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and
Christmas Day. On any day an international market is closed and the New York
Stock Exchange is open, any foreign securities will be valued at the prior day's
close with the current Day's exchange rate. Trading of foreign securities may
take place on Saturdays and U.S. business holidays on which 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.
INITIAL SALES CHARGE ON CLASS A SHARES
The sales charge applicable to purchases of Class A shares of the Fund is
described in the Fund's Prospectus. Methods of obtaining the reduced sales
charge referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares,
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 spouse and their children under the age of 21, purchasing
securities for his or their own account, (b) a trustee or other fiduciary
purchasing for a single trust estate or single fiduciary account and (c) certain
groups of four or more individuals making use of salary deductions or similar
group methods of payment whose funds are combined for the purchase of mutual
fund shares. Further information about combined purchases, including certain
restrictions on combined group purchases, is available from Fund Services or a
Selling Broker's representative.
Without Sales Charge. As described in the Prospectus, Class A shares of the Fund
may be sold without a sales charge to the persons described in the Prospectus.
Accumulation Privilege. Investors (including investors combining purchases) who
are already shareholders may also obtain the benefit of a reduced sales charge
by taking into account not only the money then being invested but also the
current account value of the Class A shares already held by such persons.
Combination Privilege. For the Fund, reduced sales charges (according to the
schedule set forth in the Prospectus) also are available to an investor based on
the aggregate amount of his concurrent and prior investments in shares of the
Fund and Class A shares of all other John Hancock funds which carry a sales
charge.
Letter of Intention. Reduced sales charges are also applicable to investments in
shares made over a specified period pursuant to a Letter of Intention (the
"LOI"), which should be read carefully prior to its execution by an investor.
The Fund offers two options regarding the specified period for making
investments under the LOI. All investors have the option of making their
investments over a specified period of thirteen (13) months. Investors who are
using the Fund as a funding medium for a qualified retirement plan, however, may
opt to make the necessary investments called for by the LOI over a forty-eight
(48) month period. These qualified retirement plans include group IRAs, SEP,
SARSEP, TSA, 401(k), 403(b) plans and 457 plans. Such an investment (including
accumulations and combinations) must aggregate $50,000 or more invested during
the specified period from the date of the LOI or from a date within ninety (90)
days prior thereto, upon written request to Fund Services. The sales charge
applicable to all amounts invested under the LOI is computed as if the aggregate
amount intended to be invested had been invested immediately. If such aggregate
amount is not actually invested, the difference in the sales charge actually
paid and the sales charge payable had the LOI not been in effect is due from the
investor. However, for the purchases actually made within the specified period
the sales charge applicable will not be higher than that which would have
applied (including accumulations and combinations) had the LOI been for the
amount actually invested.
The LOI authorizes Investor Services to hold in escrow sufficient Class A shares
(approximately 5% of the aggregate) to make up any difference in sales charges
on the amount intended to be invested and the amount actually invested, until
such investment is completed within the thirteen-month period, at which time the
escrow Class A shares will be released. If the total investment specified in the
LOI is not completed, the shares held in escrow may be redeemed and the proceeds
used as required to pay such sales charge as may be due. By signing the LOI, the
investor authorizes Investor Services to act as his attorney-in-fact to redeem
any escrowed Class A shares and adjust the sales charge, if necessary. A LOI
does not constitute binding commitments by an investor to purchase or by the
Fund to sell any additional Class A shares and may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so that the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. Accordingly, no CDSC will be imposed on increases in
account value above the initial purchase prices, including Class B shares
derived from reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for the purpose of determining the number of
years from the time of any payment for the purchases of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
Proceeds from the CDSC are paid to Broker Services and are used in whole or in
part by Broker Services to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B shares, such as the payment of compensation to selected Selling Brokers
for selling Class B shares. The combination of the CDSC and the distribution and
service fees facilitates the ability of the Fund to sell the Class B shares
without a sales charge being deducted at the time of the purchase. See the
Fund's Prospectus for additional information regarding the CDSC.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees and when the shareholder sells
portfolio securities received in this fashion he would incur a brokerage charge.
Any such securities would be valued for the purposes of making such payment at
the same value as used in determining net asset value. The Fund has, however,
elected to be governed by Rule 18f-1 under the Investment Company Act. Under
that rule, the Fund must redeem its shares for cash except to the extent that
the redemption payments to any shareholder during any 90-day period would exceed
the lesser of $250,000 or 1% of the Fund's net asset value at the beginning of
such period.
ADDITIONAL SERVICES AND PROGRAMS FOR CLASS A AND CLASS B SHARES
Exchange Privilege. As described more fully in the Prospectus, the Fund permits
exchanges of shares of any class of the Fund for shares of the same class in any
other John Hancock fund offering that class.
Systematic Withdrawal Plan. As described briefly in the Fund's Class A and Class
B Prospectus the Fund permits the establishment of a Systematic Withdrawal Plan.
Payments under this plan represent proceeds arising from the redemption of
shares of the Fund. Since the redemption price of the shares of the Fund may be
more or less than the shareholder's cost, depending upon the market value of the
securities owned by the Fund at the time of redemption, the distribution of cash
pursuant to this plan may result in realization of gain or loss for purposes of
Federal, state and local income taxes. The maintenance of a Systematic
Withdrawal Plan concurrently with purchases of additional Class A or Class B
shares of the Fund could be disadvantageous to a shareholder because of the
initial sales charge payable on purchases of Class A shares and the CDSC imposed
on redemptions of Class B shares and because redemptions are taxable events.
Therefore, a shareholder should not purchase Class A or Class B shares of the
Fund at the same time as a Systematic Withdrawal Plan is in effect. The Fund
reserves the right to modify or discontinue the Systematic Withdrawal Plan of
any shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Fund Services.
Monthly Automatic Accumulation Program (MAAP). This program is explained more
fully in the 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 Fund Services without prior notice if any
check is not honored by your bank. The bank shall be under no obligation to
notify the shareholder as to the non-payment of any draft.
The program may be discontinued by the shareholder either by calling
Investor Services or upon written notice to Investor Services which is received
at least five (5) business days prior to the due date of any investment.
Reinvestment Privilege. A shareholder who has redeemed shares of the Fund may,
within 120 days after the date of redemption, reinvest without payment of a
sales charge any part of the redemption proceeds in shares of the same class of
Fund or in shares of any of the other John Hancock mutual funds, subject to the
minimum investment limits in any fund. The proceeds from the redemption of Class
A shares may be reinvested at net asset value without paying a sales charge in
Class A shares of the Fund or in Class A shares of any of the other John Hancock
mutual funds. If a CDSC was paid upon a redemption, a shareholder may reinvest
the proceeds from such redemption at net asset value in additional shares of the
class from which the redemption was made. Such shareholder's account will be
credited with the amount of any CDSC charge upon the prior redemption. 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.
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Master Trust Agreement permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Trust,
without par value. Under the Master Trust Agreement, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this Statement
of Additional Information, the Trustees have authorized shares of the Fund and
two other series. The Master Trust Agreement also authorizes the Trustees to
classify and reclassify the shares of the Fund, or any new series of the Fund,
into one or more classes. As of the date of this Statement of Additional
Information, the Trustees have authorized the issuance of two classes of shares
of the Fund, designated as Class A and Class B.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Class A
shares and Class B shares of the Fund will be sold exclusively to members of the
public (other than the institutional investors described in the Class A and
Class B Prospectus) at net asset value. A sales charge will be imposed either at
the time of the purchase, for Class A shares, or on a contingent deferred basis,
for Class B shares. For Class A shares, no sales charge is payable at the time
of purchase on investments of $1 million or more but for such investments a
contingent deferred sales charge may be imposed in the event of certain
redemption transactions within one year of purchase.
Holders of Class A shares and Class B shares have certain exclusive voting
rights on matters relating to their respective distribution plans. The different
classes of the Fund may bear different expenses relating to the cost of holding
shareholder meetings necessitated by the exclusive voting rights of any class of
shares.
Dividends paid by the Fund, if any, with respect to each class shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except that (i) the distribution and service fees relating
to Class A and Class B shares will be borne exclusively by that class (ii) Class
B shares will pay higher distribution and service fees than Class A shares and
(iii) each of Class A shares and Class B shares will bear any other class
expenses properly allocable to such class of shares, subject to the conditions
set forth in a private letter ruling that the Fund has received from the
Internal Revenue Service relating to its multiple-class structure. Accordingly,
it is expected that the net asset value per share of the Fund's Class B shares,
each of which has a Rule 12b-1 distribution plan and sales load. Similarly, the
net asset value per share may vary depending on whether Class A shares and Class
B shares are purchased.
In the event of liquidation, shareholders are entitled to share pro rata in the
net assets of the Fund available for distribution to such shareholders. Shares
entitle their holders to one vote per share, are freely transferable and have no
preemptive, subscription or conversion rights. When issued, shares are fully
paid and non-assessable except as set forth in the Prospectus.
Unless otherwise required by the Investment Company Act or the Master Trust
Agreement, the Trust has no intention of holding annual meetings of
shareholders. Trust shareholders may remove a Trustee by the affirmative vote of
at least two-thirds of the Trust's outstanding shares and the Trustees shall
promptly call a meeting for such purpose when requested to do so in writing by
the record holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the trust. However, the Trust's Master Trust Agreement contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Master Trust Agreement also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. Liability is therefore
limited to circumstances in which the Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote.
TAX STATUS
Each series of the Trust, including the Fund, is treated as a separate entity
for tax purposes. The Fund has qualified and intends to continue to qualify and
be treated as a "regulated investment company" under Subchapter M of the
Internal Revenue Code (the "Code") for each taxable year. As such and by
complying with the applicable provisions of the Code regarding the sources of
its income, the timing of its distributions and the diversification of its
assets, the Fund will not be subject to Federal income tax on taxable income
(including net realized capital gains) which is distributed to shareholders at
least annually.
Distributions of net investment income (which includes original issue discount
and market discount income) and any net realized capital gains, as computed for
Federal income tax purposes, will be taxable as described in the Prospectus
whether taken in shares or in cash. Shareholders electing to receive
distributions in the form of additional shares will have a cost basis for
Federal income tax purposes in each share so received equal to the amount of
cash that they would have received had they elected to receive the distributions
in cash.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
forward foreign currency contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not
directly-related to the Fund's investment in stock or securities may increase
the amount of gain it is deemed to recognize from the sale of certain
investments held for less than three months, which gain is limited under the
Code to less than 30% of its annual gross income, and may under future Treasury
regulations produce income not among the types of "qualifying income" from which
the Fund must derive at least 90% of its annual gross income. If the net foreign
exchange loss for a year treated as ordinary loss under Section 988 were to
exceed the Fund's investment company taxable income computed without regard to
such loss (i.e., all of the Fund's net income other than any excess of net
long-term capital gain over net short-term capital loss) the resulting overall
ordinary loss for such year would not be deductible by the Fund or its
shareholders in future years.
If the Fund invests in certain non-U.S. corporations that receive at least 75%
of their annual gross income from passive sources (such as sources that produce
interest, dividend, rental, royalty or capital gain income) or hold at least 50%
of their assets in such passive sources ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. In certain cases, an election may be available that would ameliorate
these adverse tax consequences. Accordingly, the Fund may limit its investments
in such passive foreign investment companies and will undertake appropriate
actions, including the consideration of any available elections, to limit its
tax liability, if any, with respect to such investments.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options and futures contracts,
foreign currency positions and foreign currency forward contracts. Certain of
these transactions may cause the Fund to recognize gains or losses from marking
to market even though its positions have not been sold or terminated and may
affect the character as long-term or short-term (or, in the case of certain
foreign currency options, futures and forward contracts, as ordinary income or
loss) of some capital gains and losses realized by the Fund. Additionally,
certain of the Fund's losses on transactions involving options, futures, forward
contracts, and any offsetting or successor positions in its portfolio may be
deferred rather than being taken into account currently in calculating the
Fund's taxable income or gain. Certain of such transactions may also cause the
Fund to dispose of investments sooner than would otherwise have occurred. These
transactions may therefore affect the amount, timing and character of the Fund's
distributions to shareholders. The Fund will take into account the special tax
rules applicable to options, futures or forward contracts, including
consideration of available elections, in order to minimize any potential adverse
tax consequences.
The amount of net realized capital gains, if any, in any given year will result
from sales of securities made with a view to the maintenance of a portfolio
believed by the Fund's management to be most likely to attain the Fund's
objectives. Such sales, and any resulting gains or losses, may therefore vary
considerably from year to year. Since, at the time of an investor's purchase of
shares of the Fund, a portion of the per share net asset value by which the
purchase price is determined may be represented by realized or unrealized
appreciation in the Fund's portfolio or undistributed taxable income of the
Fund, subsequent distributions (or portions thereof) on those shares may be
taxable to such investor even if the net asset value of his shares is, as a
result of the distributions, reduced below his cost for such shares and the
distributions (or portions thereof) in reality represent a return of a portion
of the purchase price.
Upon a redemption of shares (including by exercise of the exchange privilege) a
shareholder will ordinarily realize a taxable gain or loss depending upon his
basis in his shares. This gain or loss will be treated as capital gain or loss
if the shares are capital assets in the shareholder's hands and will be
long-term or short-term, depending upon the shareholder's holding period for the
shares. A sales charge paid in purchasing Class A shares of the Fund cannot be
taken into account for purposes of determining gain or loss on the redemption or
exchange of such shares within 90 days after their purchase to the extent Class
A shares of the Fund or another John Hancock fund are subsequently acquired
without payment of a sales charge pursuant to the reinvestment or exchange
privilege. This disregarded charge will result in an increase in the
shareholder's tax basis in the Class A shares subsequently acquired. Also, any
loss realized on a redemption or exchange will be disallowed for tax purposes to
the extent the shares disposed of are replaced within a period of 61 days
beginning 30 days before and ending 30 days after the shares are disposed of,
such as pursuant to the Dividend Reinvestment Plan. In such a case, the basis of
the shares acquired will be adjusted to reflect the disallowed loss. Any loss
realized upon the redemption of shares with a tax holding period of six months
or less will be treated as a long-term capital loss to the extent of any amounts
treated as distributions of long-term capital gain with respect to such shares.
Although its present intention is to distribute all net realized capital gains
annually, if any, the Fund reserves the right to retain and reinvest all or any
portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net long-term capital gains realized in any
year to the extent that a capital loss is carried forward from prior years
against such gain. To the extent such excess was retained and not exhausted by
the carry forward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Each shareholder would be treated for
Federal income tax purposes as if the Fund had distributed to him on the last
day of its taxable year his pro rata share of such excess, and he had paid his
pro rata share of the taxes paid by the Fund and reinvested the remainder in the
Fund. Accordingly, each shareholder would (a) include his pro rata share of such
excess as long-term capital gain income in his tax return for his taxable year
in which the last day of the Fund's taxable year falls, (b) be entitled either
to a tax credit on his return for, or to a refund of, his pro rata share of the
taxes paid by the Fund, and (c) be entitled to increase the adjusted tax basis
for his shares in the Fund by the difference between his pro rata share of such
excess and his pro rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
realized capital loss in any year to offset net realized capital gains, if any,
during the eight years following the year of the loss. To the extent subsequent
net realized capital gains are offset by such losses, they would not result in
Federal income tax liability to the Fund and, as noted above, would not be
distributed as such to shareholders. The Fund has $184,368 of capital loss carry
forward (which expires July 31, 2003) available to offset future net realized
capital gains.
For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund from U.S. domestic corporations in respect of the
stock of such corporations held by the Fund, for U.S. Federal income tax
purposes, for at least 46 days (91 days in the case of certain preferred stock)
and distributed and designated by the Fund may be treated as qualifying
dividends. Corporate shareholders must meet the minimum holding period
requirement stated above (46 or 91 days) with respect to their shares of the
Fund in order to qualify for the deduction and, if they borrow to acquire such
shares, may be denied a portion of the dividends received deduction. The entire
qualifying dividend, including the otherwise-deductible amount, will be included
in determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability. 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.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. Because more than 50% of the Fund's total assets at the close of any
taxable year will not consist of stock or securities of foreign corporations,
the Fund will not be able to pass such taxes through to its shareholders, who in
consequence will not be able to include any portion of such taxes in their
incomes and will not be entitled to tax credits or deductions with respect to
such taxes. However, the Fund will be entitled to deduct such taxes in
determining the amounts it must distribute in order to avoid Federal income tax.
The Fund will be subject to a four percent nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to avoid liability for this tax by
satisfying such distribution requirements.
The foregoing discussion relates solely to U.S. Federal income tax laws
applicable to U.S. persons (i.e., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under these laws.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies and financial
institutions. Dividends, capital gain distributions and ownership of or gains
realized on the exchange or redemption of shares of the Fund may also be subject
to state and local taxes. Shareholders should consult their own tax advisers as
to the Federal, state or local tax consequences of ownership of shares of the
Fund in particular circumstances.
Foreign investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above, including a possible 30%
U.S. withholding tax (or lower treaty rate) on dividends representing ordinary
income, and should consult their tax advisers regarding such treatment and the
application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
The average annual total return on Class A shares and Class B shares of the
Fund, respectively, for the 1 year and life of that Class periods ended July 31,
1995, was 48.02% and 14.32% for Class A shares (since inception on January 3,
1992) and 49.97% and 17.95% for Class B shares (since inception on August 30,
1991).
The Fund's total return in computed by finding the average annual compounded
rate of return over the 1 year and life-of-fund period that would equate the
initial amount invested to the ending redeemable value according to the
following formula:
[GRAPHIC OMITTED]
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment made at the
beginning of the 1 year and life-of-fund periods.
This calculation assumes the maximum sales charge of 5% is included in the
initial investment and also assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's 5% sales charge on Class A
shares and the CDSC on Class B shares into account. The "distribution rate" is
determined by annualizing the result of dividing the declared dividends of the
Fund during the period stated by the maximum offering price or net asset value
at the end of the period. Excluding the Fund's sales charge on Class A shares
and the CDSC on Class B shares from a total return calculation produces a higher
total return figure. Any non-SEC measures of performance will be accompanied by
SEC measures of performance.
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper-Mutual Performance Analysis," a monthly publication
which tracks net assets, total return and yield on equity mutual funds in the
United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes, as well as the Russell and Wilshire Indices.
From time to time, in reports and promotional literature, the Fund's yield and
total return will be compared to indices of mutual funds such as the Russell and
Wilshire Indices and those prepared by Lipper Analytical Services, Inc.,
Ibottson and Associates, CDA Weisenberger and F.C. Towers.
Performance rankings and ratings reported periodically in national financial
publications such as Money Magazine, Forbes, Business Week, The Wall Street
Journal, Micropal, Inc., Morningstar, Stranger's, Barron's, etc. will also be
utilized.
The performance of the Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the officers of the Fund
pursuant to recommendations made by an investment committee of the Adviser,
which consists of officers and directors of the Adviser and affiliates, and
Trustees who are interested persons of the Fund. Orders for purchases and sales
of securities are placed in a manner which, in the opinion of the officers of
the Fund, will offer the best price and market for the execution of each such
transaction. Purchases from underwriters of portfolio securities may include a
commission or commission paid by the issuer and transactions with dealers
serving as market maker reflect a "spread." Investment in debt securities are
generally traded on a net basis through dealers acting for their own account as
principals and not as brokers; no brokerage commissions are payable on such
transactions.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Rules of Fair Practice of the National Association of Securities Dealers, Inc.
and such other policies as the Trustees may determine, the Adviser may consider
sales of shares of the Fund as a factor in the selection of broker-dealers to
execute the Fund's portfolio transactions.
To the extent consistent with the foregoing, the Fund will be governed in the
selection of brokers and dealers, and the negotiation of brokerage commission
rates and dealer spreads, by the reliability and quality of the services,
including primarily the availability and value of research information and to a
lesser extent statistical assistance furnished to the Adviser of the Fund, and
their value and expected contribution to the performance of the Fund. It is not
possible to place a dollar value on information and services to be received from
brokers and dealers, since it is only supplementary to the research efforts of
the Adviser. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser. The research information and
statistical assistance furnished by brokers and dealers may benefit the Life
Insurance Company or other advisory clients of the Adviser, and, conversely,
brokerage commissions and spreads paid by other advisory clients of the Adviser
may result in research information and statistical assistance beneficial to the
Fund. The Fund will make no commitment to allocate portfolio transactions upon
any prescribed basis. While the Fund's officers will be primarily responsible
for the allocation of the Fund's brokerage business, the policies in this regard
must be consistent with the foregoing and will at all times be subject to review
by the Trustees. For the fiscal years ended July 31, 1993, 1994 and 1995, the
Fund paid brokerage commissions in the amount of $150,242, $97,167 and $57,084,
respectively.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. During the fiscal year ended July 31,
1995, the Fund paid $4,025 in commissions as compensation to any brokers for
research services such as industry, economic and company reviews and evaluations
of securities.
The Adviser's indirect parent, the Life Insurance Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
three of which, Tucker Anthony Incorporated, John Hancock Distributors, Inc. and
Sutro & Company, Inc., are broker-dealers ("all Affiliated Brokers"). Pursuant
to procedures determined by the Trustees and consistent with the above policy of
obtaining best net results, the Fund may execute portfolio transactions with or
through Tucker Anthony, Sutro or Distributors. During the year ending July 31,
1995, the Fund did not execute any portfolio transactions with Affiliated
Brokers.
Any of the Affiliated Brokers may act as broker for the Fund on exchange
transactions, subject, however, to the general policy of the Fund set forth
above and the procedures adopted by the Trustees pursuant to the Investment
Company Act. Commissions paid to an Affiliated Broker must be at least as
favorable as those which the Trustee believe to be contemporaneously charged by
other brokers in connection with comparable transactions involving similar
securities being purchased or sold. A transaction would not be placed with an
Affiliated Broker if the Fund would have to pay a commission rate less favorable
than the Affiliated Broker's contemporaneous charges for comparable transactions
for its other most favored, but unaffiliated, customers except for accounts for
which the Affiliated Broker acts as clearing broker and comparable to the Fund
as determined by a majority of the Trustees who are not interested persons (as
defined in the Investment Company Act) of the Fund, the Adviser, or the
Affiliated Broker. Because the Adviser, which is affiliated with the Affiliated
Brokers, has, as an investment adviser to the fund, the obligation to provide
investment management services, which includes elements of research and related
investment skills, such research and related skills will not be used by the
Affiliated Brokers as a basis for negotiating commission at a rate higher than
that determined in accordance with the above criteria.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Fund. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Fund. In some
instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Fund with those to be sold or purchased for
other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Investor Services, Corporation ("Investor Services"), P.O. Box
9116, Boston, MA 02205-9116, a wholly-owned indirect subsidiary of the Life
Company, is the transfer and dividend paying agent for the Fund. The Fund pays
an annual fee per shareholder account plus certain out-of-pocket expenses. These
expenses are charged to the Fund and allocated to each class on the basis of the
relative net asset values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Trust and Investors Bank and Trust Company, 24 Federal Street,
Boston, Massachusetts 02110.
INDEPENDENT AUDITORS
Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116,
has been selected as the independent auditors of the Fund. The financial
statements of the Fund included in the Prospectus and this Statement of
Additional Information have been audited by 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.
<PAGE>
APPENDIX A
RATINGS
Bonds.
Standard & Poor's Bond Ratings
AAA--Debt rated AAA has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
To provide more detailed indications of credit quality, the ratings AA
to BBB may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
A provisional rating, indicated by "p" following a rating, is sometimes
used by Standard & Poor's. It assumes the successful completion of the project
being financed by the issuance of the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
Moody's Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are generally referred to
as "gilt edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized are
most unlikely to impair the fundamentally strong position of such issues.
Generally speaking, the safety of obligations of this class is so absolute that
with the occasional exception of oversupply in a few specific instances,
characteristically, their market value is affected solely by money market
fluctuations.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
The market value of Aa bonds is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
A--Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers of
rating symbols Aa, A and Baa are to give investors a more precise indication of
relative debt quality in each of the historically defined categories.
Conditional ratings, indicated by "Con", are sometimes given when the
security for the bond depends upon the completion of some act or the fulfillment
of some condition. Such bonds, are given a conditional rating that denotes their
probably credit statute upon completion of that act or fulfillment of that
condition.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers
are to give investors a more precise indication of relative debt quality in each
of the historically defined categories.
Commercial Paper.
Standard & Poor's Commercial Paper Ratings
A Standard & Poor's Commercial Paper Rating is a current assessment of
the likelihood of timely payment of debt having an original maturity of no more
than 365 days. The two highest categories are as follows:
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are further
refined with the designation 1, 2 and 3 to indicate the relative degree of
safety.
A-1 This designation indicates that the degree of safety regarding
timely payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus(+) sign
designation.
The Commercial Paper Rating is not a recommendation to purchase or sell
a security. The ratings are based on current information furnished to Standard &
Poor's by the issuer and obtained by Standard & Poor's from other sources it
considers reliable. The ratings may be changed, suspended, or withdrawn as a
result of changes in, or unavailability of, such information.
Moody's 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. Moody's employs the following designations, judged to be
investment grade, to indicate the relative repayment capacity of rated issuers.
Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earnings coverage of fixed
financial charges and high internal cash generation; well established access to
a range of financial markets and assured sources of alternate liquidity.
Issuers rated Prime-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
s:\corpsec\N1A\SAI\fitiii\discovry.doc
<PAGE>
----------------------
FINANCIAL STATEMENTS
----------------------
John Hancock Funds - Discovery Fund
STATEMENT OF ASSETS AND LIABILITIES
July 31, 1995
- --------------------------------------------------------------------------------
ASSETS:
Investments at value - Note C:
Common stocks (cost - $21,667,328) .................... $ 36,896,478
Short-term investments (cost - $43,000) ............... 43,000
------------
36,939,478
Cash ................................................... 7,112
Receivable for investments sold ........................ 804,723
Receivable for shares sold ............................. 36,073
Interest receivable .................................... 11
Deferred organization expenses - Note A ................ 15,810
------------
Total Assets ......................... 37,803,207
----------------------------------------------------
LIABILITIES:
Payable for investments purchased ..................... 983,125
Payable for shares repurchased ........................ 13,463
Payable to John Hancock Advisers, Inc. and
affiliates - Note B ................................... 48,687
Accounts payable and accrued expenses .................. 37,615
------------
Total Liabilities .................... 1,082,890
----------------------------------------------------
NET ASSETS:
Capital paid-in ........................................ 21,675,535
Accumulated net realized loss on investments and
foreign currency transactions ......................... (184,368)
Net unrealized appreciation of investments ............. 15,229,150
------------
Net Assets ........................... $ 36,720,317
====================================================
NET ASSET VALUE PER SHARE:
(Based on net asset values and shares of beneficial
interest outstanding - unlimited number of shares
authorized with no par value, respectively)
Class A - $5,075,356/391,822 ........................... $ 12.95
========================================================================
Class B - $31,644,961/2,523,395 ........................ $ 12.54
========================================================================
MAXIMUM OFFERING PRICE PER SHARE*
Class A - $(12.95 x 105.26%) ........................... $ 13.63
========================================================================
* On single retail sales of less than $50,000. On sales of $50,000 or more and
on group sales the offering price is reduced.
THE STATEMENT OF ASSETS AND LIABILITIES IS THE FUND'S BALANCE SHEET AND SHOWS
THE VALUE OF WHAT THE FUND OWNS, IS DUE AND OWES ON JULY 31, 1995. YOU'LL ALSO
FIND THE NET ASSET VALUE AND THE MAXIMUM OFFERING PRICE PER SHARE AS OF THAT
DATE.
THE STATEMENT OF OPERATIONS SUMMARIZES THE FUND'S INVESTMENT INCOME EARNED AND
EXPENSES INCURRED IN OPERATING THE FUND. IT ALSO SHOWS NET GAINS (LOSSES) FOR
THE PERIOD STATED.
STATEMENT OF OPERATIONS
Year ended July 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest ............................................... $ 60,431
Dividends (net of foreign withholding taxes
of $4,323) ............................................ 45,978
------------
106,409
------------
Expenses:
Investment management fee - Note B .................... 294,993
Distribution/service fee - Note B
Class A ............................................. 11,042
Class B ............................................. 249,491
Transfer agent fee - Note B
Class A ............................................. 13,194
Class B ............................................. 72,966
Custodian fee ......................................... 46,275
Auditing fee .......................................... 31,300
Registration and filing fees .......................... 17,387
Organization expense - Note A ......................... 14,658
Printing .............................................. 12,789
Trustees' fees ........................................ 6,547
Miscellaneous ......................................... 1,473
Legal fees ............................................ 1,239
------------
Total Expenses ....................... 773,354
----------------------------------------------------
Net Investment Loss .................. (666,945)
----------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY TRANSACTIONS
Net realized loss on investments sold .................. (184,355)
Net realized loss on foreign currency transactions ..... (1,501)
Change in net unrealized appreciation/depreciation
of investments ........................................ 14,483,069
------------
Net Realized and Unrealized
Gain on Investments and
Foreign Currency Transactions ........ 14,297,213
----------------------------------------------------
Net Increase in Net Assets
Resulting from Operations ............ $ 13,630,268
====================================================
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
<TABLE>
<CAPTION>
----------------------
FINANCIAL STATEMENTS
----------------------
John Hancock Funds - Discovery Fund
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
-----------------------------
1995 1994
------------ ------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
<S> <C> <C>
Net investment loss ........................................................... $ (666,945) $ (831,202)
Net realized gain (loss) on investments sold and foreign currency
transactions ................................................................. (185,856) 1,895,546
Change in net unrealized appreciation/depreciation of investments ............. 14,483,069 (3,261,315)
------------- -------------
Net Increase (Decrease) in Net Assets Resulting from Operations .............. 13,630,268 (2,196,971)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Distributions from net realized gain on investments sold
Class A - $(0.2685 and $1.6619 per share, respectively) ...................... (101,860) (902,081)
Class B - $(0.2685 and $1.6619 per share, respectively) ...................... (755,311) (5,438,402)
------------- -------------
Total Distributions to Shareholders ........................................ (857,171) (6,340,483)
------------- -------------
FROM FUND SHARE TRANSACTIONS -- NET* ............................................ (5,816,073) (5,063,020)
------------- -------------
NET ASSETS:
Beginning of period ........................................................... 29,763,293 43,363,767
------------- -------------
End of period ................................................................. $ 36,720,317 $ 29,763,293
============= =============
* ANALYSIS OF FUND SHARE TRANSACTIONS:
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------------------
1995 1994
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ------------ ------------ ------------
CLASS A
<S> <C> <C> <C> <C>
Shares sold ................................................... 334,726 $ 3,367,716 2,972,453 $ 30,392,925
Shares issued to shareholders in reinvestment of
distributions ................................................ 10,315 92,837 90,127 825,563
--------
345,041 3,460,553 3,062,580 31,218,488
Less shares repurchased ....................................... (330,231) (3,351,654) (3,119,595) (31,598,574)
-------- ----------- ---------- ------------
Net increase (decrease) ....................................... 14,810 $ 108,899 (57,015) $ (380,086)
======== =========== ========== ============
CLASS B
Shares sold .................................................. 214,582 $ 2,091,432 243,890 $ 2,401,058
Shares issued to shareholders in reinvestment of
distributions ............................................... 79,634 696,802 545,000 4,888,647
-------- ----------- ---------- ------------
294,216 2,788,234 788,890 7,289,705
Less shares repurchased ...................................... (951,880) (8,713,206) (1,238,061) (11,972,639)
-------- ----------- ---------- ------------
Net decrease.................................................. (657,664) $(5,924,972) (449,171) $ (4,682,934)
======== =========== ========== ============
</TABLE>
THE STATEMENT OF CHANGES IN NET ASSETS SHOWS HOW THE VALUE OF THE FUND'S NET
ASSETS HAVE CHANGED SINCE THE END OF THE PREVIOUS PERIOD. THE DIFFERENCE
REFLECTS EARNINGS LESS EXPENSES, ANY INVESTMENT GAINS AND LOSSES, DISTRIBUTIONS
PAID TO SHAREHOLDERS, AND ANY INCREASE OR DECREASE IN MONEY SHAREHOLDERS
INVESTED IN THE FUND. THE FOOTNOTE ILLUSTRATES THE NUMBER OF FUND SHARES SOLD,
REINVESTED AND REDEEMED DURING THE LAST TWO PERIODS, ALONG WITH THE
CORRESPONDING DOLLAR VALUES.
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
----------------------
FINANCIAL STATEMENTS
----------------------
John Hancock Funds - Discovery Fund
FINANCIAL HIGHLIGHTS
Selected data for a share of beneficial interest outstanding throughout the
periods indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS A YEAR ENDED JULY 31,
-------------------------------------------------------
PER SHARE OPERATING PERFORMANCE 1995 1994 1993 1992(a)
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period ........................... $ 8.56 $ 10.81 $ 8.95 $ 9.40
------- ------- ------- --------
Net Investment Loss ............................................ (0.17)+ (0.16)+ (0.16) (0.05)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ............................ 4.83 (0.43) 2.15 (0.40)
------- ------- ------- --------
Total from Investment Operations ............................. 4.66 (0.59) 1.99 (0.45)
------- ------- ------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ....... (0.27) (1.66) (0.13) --
------- ------- ------- --------
Net Asset Value, End of Period ................................. $ 12.95 $ 8.56 $ 10.81 $ 8.95
======= ======= ======= =======
Total Investment Return at Net Asset Value ..................... 55.80% (6.45)% 22.33% (4.79)%(b)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ...................... $ 5,075 $ 3,226 $ 4,692 $ 3,866
Ratio of Expenses to Average Net Assets ........................ 2.10% 2.01% 2.17% 1.78%*
Ratio of Net Investment Loss to Average Net Assets ............. (1.73)% (1.64)% (1.61)% (1.20)%*
Portfolio Turnover Rate ........................................ 118% 108% 148% 138%
CLASS B
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period ........................... $ 8.34 $ 10.65 $ 8.87 $ 8.00
------- ------- ------- --------
Net Investment Loss ............................................ (0.22)+ (0.22)+ (0.23) (0.11)
Net Realized and Unrealized Gain (Loss) on Investments
and Foreign Currency Transactions ............................ 4.69 (0.43) 2.14 0.98
------- ------- ------- --------
Total from Investment Operations ............................. 4.47 (0.65) 1.91 0.87
------- ------- ------- --------
Less Distributions:
Distributions from Net Realized Gain on Investments Sold ....... (0.27) (1.66) (0.13) $ --
------- ------- ------- --------
Net Asset Value, End of Period ................................. $ 12.54 $ 8.34 $ 10.65 $ 8.87
======= ======= ======= =======
Total Investment Return at Net Asset Value ..................... 54.97% (7.18)% 21.63% 10.88%(b)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) ...................... $31,645 $26,537 $38,672 $34,636
Ratio of Expenses to Average Net Assets ........................ 2.70% 2.62% 2.86% 2.56%*
Ratio of Net Investment Loss to Average Net Assets ............. (2.34)% (2.24)% (2.26)% (1.56)%*
Portfolio Turnover Rate ........................................ 118% 108% 148% 138%
* On an annualized basis.
(a) Class A and Class B shares commenced operations on January 3, 1992 and
August 30, 1991, respectively.
(b) Not annualized.
+ On average month end shares outstanding.
</TABLE>
THE FINANCIAL HIGHLIGHTS SUMMARIZE THE IMPACT OF THE FOLLOWING FACTORS ON A
SINGLE SHARE FOR THE PERIOD INDICATED: THE NET INVESTMENT INCOME, GAINS (LOSSES)
AND DISTRIBUTIONS OF THE FUND. IT SHOWS HOW THE FUND'S NET ASSET VALUE FOR A
SHARE HAS CHANGED SINCE THE END OF THE PREVIOUS PERIOD. IT ALSO SHOWS THE TOTAL
INVESTMENT RETURN FOR EACH PERIOD BASED ON THE NET ASSET VALUE OF FUND SHARES.
ADDITIONALLY, IMPORTANT RELATIONSHIPS BETWEEN SOME ITEMS PRESENTED IN THE
FINANCIAL STATEMENTS ARE EXPRESSED IN RATIO FORM.
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
----------------------
FINANCIAL STATEMENTS
----------------------
John Hancock Funds - Discovery Fund
SCHEDULE OF INVESTMENTS
July 31, 1995
- --------------------------------------------------------------------------------
THE SCHEDULE OF INVESTMENTS IS A COMPLETE LIST OF ALL SECURITIES OWNED BY THE
FUND ON JULY 31, 1995. THE MAIN CATEGORY OF SECURITIES, COMMON STOCKS, ARE
FURTHER BROKEN DOWN BY INDUSTRY GROUPS. SHORT-TERM INVESTMENTS, WHICH REPRESENT
THE FUNDS "CASH" POSITION, ARE LISTED LAST.
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
COMMON STOCKS
APPLIANCES - HOUSEHOLD(1.15%)
Fedders Corp. ......................... 19,100 $ 128,925
Fedders Corp. (Class A) ............... 60,463 294,755
----------
423,680
----------
BROADCASTING/RADIO/TV (2.26%)
Citicasters, Inc.** ................... 15,000* 498,750
Evergreen Media Corp. (Class A)** ..... 10,000* 330,000
----------
828,750
----------
BUSINESS SERVICES (13.15%)
Alternative Resources Corp.** ......... 50,000 1,500,000
Corrections Corp of America** ......... 15,000* 616,875
CRA Managed Care, Inc.** .............. 10,000* 227,500
Li & Fung Ltd. (Hong Kong) ............ 300,000 238,410
PhyCor, Inc.** ........................ 15,000* 615,000
PMT Services, Inc.** .................. 30,000* 547,500
Seattle Filmworks, Inc.** ............. 45,000* 894,375
RTW, Inc.** ........................... 10,000* 188,750
----------
4,828,410
----------
COMPUTERS (18.06%)
Astea International, Inc.** ........... 5,000* 106,250
Baan Company, N.V.** .................. 3,500* 116,812
CBT Group PLC, American Depositary
Receipt ** ........................... 14,000* 634,375
Discreet Logic, Inc. ** ............... 2,500* 105,000
Eagle Point Software Corp.** .......... 20,000* 415,000
HCIA, Inc.** .......................... 22,900* 681,275
HNC Software, Inc.** .................. 20,700* 501,975
Informix Corp.** ...................... 34,000* 1,007,250
Novadigm, Inc.** ...................... 6,000* 124,500
Phamis, Inc.** ........................ 14,000* 409,500
Pinnacle Systems, Inc.** .............. 25,000* 676,563
Read-Rite Corp.** ..................... 20,000* 825,000
Sterling Software, Inc.** ............. 15,000 615,000
Symantec Corp.** ...................... 15,000* 408,750
----------
6,627,250
----------
ELECTRONICS (17.96%)
ANADIGICS, Inc.** ..................... 8,000* 224,000
Aseco Corp.** ......................... 35,000* 695,625
Cypress Semiconductor Corp.** ......... 27,000* 1,424,250
Integrated Silicon Solution, Inc.** ... 15,000* 1,035,000
LSI Logic Corp.** ..................... 30,000 1,402,500
OnTrak Systems, Inc.** ................ 6,000* $ 175,500
Teradyne, Inc.** ...................... 20,000 1,637,500
----------
6,594,375
----------
MACHINE - DIVERSIFIED (3.48%)
AG Associates, Inc.** ................. 10,000* 368,125
ASM Lithography Holding, N.V.** ....... 13,000* 728,000
Opal, Inc.** .......................... 7,500* 181,875
----------
1,278,000
----------
MEDICAL/DENTAL (16.59%)
American Oncology Resources, Inc.** ... 18,000* 596,250
Boston Scientific Corp.** ............. 30,000* 1,095,000
Idexx Laboratories, Inc.** ............ 45,000 1,383,750
i-STAT Corp.** ........................ 10,000* 372,500
InStent, Inc.** ....................... 20,000* 265,000
Isolyser Co, Inc.** ................... 16,750* 598,813
Omnicare, Inc. ....................... 40,000 1,240,000
Research Industries Corp.** ........... 16,000* 380,000
Ventritex, Inc.** ..................... 10,000* 159,375
----------
6,090,688
----------
PHARMACEUTICALS (1.40%)
Dura Pharmaceuticals, Inc.** .......... 20,000* 515,000
----------
PHOTO EQUIPMENT (1.69%)
Avid Technology, Inc.** ............... 14,000 621,250
----------
PRECIOUS METALS/JEWELRY (0.69%)
Fossil, Inc.** ........................ 10,000* 255,000
-------
RETAIL (10.02%)
Dollar General Corp. ................. 22,031 743,555
Dollar Tree Stores, Inc.** ............ 9,100* 276,412
Elkjop Norge AS (Norway) .............. 14,300* 324,863
Geerlings & Wade Inc.** ............... 34,200* 410,400
Global DirectMail Corp.** ............. 14,200* 355,000
Micro Warehouse, Inc.** ............... 20,000 975,000
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
----------------------
FINANCIAL STATEMENTS
----------------------
John Hancock Funds - Discovery Fund
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
RETAIL (CONTINUED)
Next PLC (United Kingdom) ............. 97,000* $ 594,445
-----------
3,679,675
-----------
RESTAURANTS/FOOD SERVICE (2.07%)
Rock Bottom Restaurants, Inc.** ....... 29,500* 759,625
-----------
TELECOMMUNICATIONS (6.61%)
DSP Communications, Inc.** ............ 25,000* 631,250
Palmer Wireless, Inc.** ............... 16,500* 338,250
Spectrian Corp.** ..................... 20,000* 877,500
Telcom Semiconductor Inc.** ........... 2,000* 30,375
U.S. Order, Inc.** .................... 25,000* 550,000
-----------
2,427,375
-----------
TEXTILES (2.15%)
Tommy Hilfiger Corp.** ................ 25,000 790,625
-----------
TOYS/GAMES/HOBBY PRODUCTS (3.20%)
First Team Sports, Inc.** ............. 41,200* 1,176,775
-----------
TOTAL COMMON STOCKS
(Cost $21,667,328) ....... (100.48%) $36,896,478
----------- -----------
INTEREST PAR VALUE
ISSUER DISCRIPTION RATE (OOO's OMITTED) MARKET VALUE
- ------------------ ---- --------------- ------------
SHORT-TERM INVESTMENTS
JOINT REPURCHASE AGREEMENT (0.12%)
Investment in a joint repurchase
agreement transaction with
Lehman Brothers, Inc. - Dated
07-31-95, Due 08-01-95 (secured
by U.S. Treasury Bond, 13.125%
due 05-15-01 , U.S. Treasury
Note, 8.625% due 10-15-95,
and U.S.Treasury Bill, 5.47%
due 06-27-96) Note A .......... 5.85% 43 $ 43,000
-----------
TOTAL SHORT-TERM INVESTMENTS (0.12%) 43,000
-------- -----------
TOTAL INVESTMENTS (100.60%) $36,939,478
======== ===========
* Securities, other than short-term investments, newly added to the portfolio
during the year ended July 31, 1995.
** Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of net assets of the fund.
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
----------------------
FINANCIAL STATEMENTS
----------------------
John Hancock Funds - Discovery Fund
Portfolio Concentration
- --------------------------------------------------------------------------------
THE DISCOVERY FUND INVESTS PRIMARILY IN SECURITIES ISSUED IN THE UNITED STATES
OF AMERICA. THE PERFORMANCE OF THE FUND IS CLOSELY TIED TO THE ECONOMIC AND
FINANCIAL CONDITIONS WITHIN THE COUNTRIES IN WHICH IT INVESTS. THE CONCENTRATION
OF INVESTMENTS BY INDUSTRY CATEGORY FOR INDIVIDUAL SECURITIES HELD BY THE FUND
IS SHOWN IN THE SCHEDULE OF INVESTMENTS.
IN ADDITION, CONCENTRATION OF INVESTMENTS CAN BE AGGREGATED BY VARIOUS
COUNTRIES. THE TABLE BELOW SHOWS THE PERCENTAGES OF THE FUND'S INVESTMENTS AT
JULY 31, 1995 ASSIGNED TO COUNTRY CATEGORIES.
MARKET VALUE
OF SECURITIES
AS A PERCENTAGE
OF FUND'S
COUNTRY DIVERSIFICATION NET ASSETS
- ----------------------- ----------
Hong Kong...................................... 0.65%
Norway......................................... 0.89
United Kingdom................................. 1.62
United States.................................. 97.44
------
TOTAL INVESTMENTS 100.60%
======
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-------------------------------
John Hancock Funds - Discovery Fund
NOTE A --
ACCOUNTING POLICIES
Freedom Investment Trust III (the "Trust") is an open-end management investment
company, registered under the Investment Company Act of 1940. As of December 16,
1994, the Trust consisted of two series portfolios: John Hancock Discovery Fund
(the "Fund"), and John Hancock Freedom Environmental Fund.
On November 30, 1994, the shareholders approved a plan of reorganization
between the John Hancock Freedom Environmental Fund and John Hancock Special
Opportunities Fund ("Special Opportunities Fund") providing for the transfer of
substantially all of the assets and liabilities of the John Hancock Freedom
Environmental Fund to Special Opportunities Fund in exchange solely for shares
of beneficial interest of Special Opportunities Fund. After this transaction and
as of the close of business on December 16, 1994, John Hancock Freedom
Environmental Fund was terminated.
The Trustees have authorized the issuance of two classes of shares of the Fund,
designated as Class A and Class B shares. The shares of each class represent an
interest in the same portfolio of investments of the Fund and have equal rights
to voting, redemptions, dividends and liquidation, except that certain expenses,
subject to the approval of the Trustees, may be applied differently to each
class of shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a class
which bears distribution/service expenses under the terms of a distribution
plan, have exclusive voting rights to such distribution plan. Significant
accounting policies of the Fund are as follows:
VALUATION OF INVESTMENTS Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income, including any net realized gain on
investment, to its shareholders. Therefore, no federal income tax provision is
required. For federal income tax purposes, the Fund has $184,368 of capital loss
carryforward available, to the extent provided by regulations, to offset future
net realized capital gains. If such carryforward is used by the Fund, no capital
gain distributions will be made. The carryforward expires July 31, 2003.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date, or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-dividend date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles. Dividends paid by the Fund with
respect to each class of shares
15
<PAGE>
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-------------------------------
John Hancock Funds - Discovery Fund
will be calculated in the same manner, at the same time and will be in the same
amount, except for the effect of expenses that may be applied differently to
each class as explained previously.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual fund. Expenses which are not readily identifiable to a specific
fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the funds.
CLASS ALLOCATIONS Income, common expenses and realized and unrealized gains
(losses) are determined at the Fund level and allocated daily to each class of
shares based on the appropriate net assets of the respective classes.
Distribution/service fees, if any, are calculated daily at the class level based
on the appropriate net assets of each class and the specific expense rates
applicable to each class.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund have been capitalized and are being charged ratably to the Fund's
operations over a five-year period that began with the commencement of
investment operations of the Fund.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain/loss on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities, resulting
from changes in the exchange rate.
NOTE B --
MANAGEMENT FEE AND TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund pays a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis, to the sum of (a) 1.00% of the first $250,000,000 of the
Fund's average daily net asset value, (b) 0.80% of the next $250,000,000 and (c)
0.75% of the Fund's average daily net asset value in excess of $500,000,000.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess, and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2.0% of the next $70,000,000, and 1.5% of
the remaining average daily net asset value.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. Prior to January 1, 1995, JH
Funds was known as John Hancock Broker Distribution Services, Inc. For the
period ended July 31, 1995, JH Funds received net sales charges of $21,836 with
regard to sales of Class A shares. Out of this amount, $3,274 was retained and
used for printing prospectuses, advertising, sales literature and other
purposes, $13,065 was paid as sales commissions to unrelated broker-dealers and
$5,497 was paid as sales commissions to sales personnel of John Hancock
Distributors, Inc. ("Distributors"), Tucker Anthony, Incorporated ("Tucker
Anthony") and Sutro & Co., Inc.
16
<PAGE>
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-------------------------------
John Hancock Funds - Discovery Fund
("Sutro"). The Adviser's indirect parent, John Hancock Mutual Life Insurance
Company, is the indirect sole shareholder of Distributors and John Hancock
Freedom Securities Corporation and its subsidiaries, which include Tucker
Anthony and Sutro, all of which are broker-dealers.
Class B shares which are redeemed within six years of purchase will be
subject to a contingent deferred sales charge ("CDSC") at declining rates
beginning at 5.0% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed. Proceeds
from the CDSC are paid to JH Funds and are used in whole or in part to defray
its expenses related to providing distribution related services to the Fund in
connection with the sale of Class B shares. For the period ended July 31, 1995
contingent deferred sales charges received by JH Funds amounted to $42,273.
In addition, to compensate JH Funds for the services it provides as
distributors of shares of the Fund, the Fund has adopted Distribution Plans with
respect to Class A and Class B pursuant to Rule 12b-1 under the Investment
Company Act of 1940. Accordingly, the Fund will make payments to JH Funds, for
distribution and service expenses at an annual rate not to exceed 0.30% of Class
A average daily net assets and 1.00% of Class B average daily net assets to
reimburse JH Funds for its distribution/service costs. Up to a maximum of 0.25%
of such payments may be service fees as defined by the amended Rules of Fair
Practice of the National Association of Securities Dealers. Under the amended
Rules of Fair Practice, curtailment of a portion of the Fund's 12b-1 payments
could occur under certain circumstances.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation, ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Prior to January 1, 1995, Investor Services was known as John
Hancock Fund Services, Inc. Effective January 1, 1995, Class A and Class B
shares pay transfer agent fees based on the number of shareholder accounts and
certain out-of-pocket expenses. Prior to January 1, 1995, the Fund paid Investor
Services a monthly transfer agent fee equivalent, on an annual basis, to 0.25%
and 0.21% of the average daily net asset value of Class A and Class B shares of
the Fund, respectively, plus out of pocket expenses incurred by Investor
Services on behalf of the Fund for proxy mailings.
Mr. Edward J. Boudreau, Jr. is a director and officer of the Adviser, and/or
its affiliates, as well as a Trustee of the Fund. The compensation of
unaffiliated Trustees is borne by the Fund. Effective with the fees paid for
1995, the unaffiliated Trustees may elect to defer for tax purposes their
receipt of this compensation under the John Hancock Group of Funds Deferred
Compensation Plan. The Fund will make investments into other John Hancock funds,
as applicable, to cover its liability with regard to the deferred compensation.
Investments to cover the Fund's deferred compensation liability will be recorded
on the Fund's books as an other asset. The deferred compensation liability will
be marked to market on a periodic basis and income earned by the investment will
be recorded on the Fund's books.
NOTE C --
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended July 31, 1995, aggregated $34,136,849 and $38,536,977, respectively. There
were no purchases or sales of long-term obligations of the U.S. government and
its agencies during the period ended July 31, 1995.
The cost of investments owned at July 31, 1995 for federal income tax
purposes was $21,710,328. Gross unrealized appreciation and depreciation of
investments aggregated $15,291,081 and $61,931 respectively, resulting in net
unrealized appreciation of $15,229,150.
17
<PAGE>
-------------------------------
NOTES TO FINANCIAL STATEMENTS
-------------------------------
John Hancock Funds - Discovery Fund
NOTE D --
RECLASSIFICATION OF CAPITAL ACCOUNTS
During the year ended July 31, 1995, the Fund has reclassified $1,501 from
accumulated net realized loss on investments to accumulated net investment loss
and reclassified the accumulated net investment loss of $668,446 to capital
paid-in. This represents the cumulative amount necessary to report these
balances on a tax basis, excluding certain temporary differences, as of July 31,
1995. These reclassifications, which have no impact on the net asset value of
the Fund, are primarily attributable to certain differences in the computation
of distributable income and capital gains under federal tax rules versus
generally accepted accounting principles.
18
<PAGE>
John Hancock Funds - Discovery Fund
REPORT OF ERNST &YOUNG LLP,
INDEPENDENT AUDITORS
To the Trustees and Shareholders of
John Hancock Discovery Fund
We have audited the accompanying statement of assets and liabilities of John
Hancock Discovery Fund (the "Fund"), including the schedule of investments, as
of July 31, 1995, and the related statement of operations for the year then
ended, the statement of changes in net assets for each of the two years in the
period then ended and the financial highlights for each of the three years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights of John Hancock Discovery Fund for the period
ended July 31, 1992, were audited by other independent auditors whose report
dated September 18, 1992 expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of July
31, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of John
Hancock Discovery Fund at July 31, 1995, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and its financial highlights for each of the three years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
September 8, 1995
TAX INFORMATION NOTICE (UNAUDITED)
For Federal Income Tax purposes, the following information is furnished with
respect to the distributions of the Fund for its fiscal year ended July 31,
1995.
The Fund designated distributions to shareholders of $857,100 as long-term
capital gain dividends. Shareholders were mailed a 1994 U.S. Treasury Department
Form 1099-DIV in January 1995 representing their proportionate share. The Fund
has not paid any distributions of ordinary income dividends during the fiscal
year ended July 31, 1995.
None of the distributions noted above qualify for the corporate dividends
received deduction.
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