REGISTRATION NO. 33-29438
REGISTRATION NO. 811-5732
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
----------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. 15 [X]
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 [X]
AMENDMENT NO. 17
(CHECK APPROPRIATE BOX OR BOXES)
----------
FREEDOM INVESTMENT TRUST III
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(617) 375-1700
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date pursuant to paragraph (b)
[X] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant
has registered an indefinite number of securities under the Securities Act of
1933. The Registrant filed the notice required by Rule 24f-2 for its most recent
fiscal year on or about September 26, 1995.
<PAGE>
<TABLE>
<CAPTION>
Item Number Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
------ ------------------ -------------------
<S> <C> <C>
1 Front Cover Page *
2 Overview; Investor Expenses; *
3 Financial Highlights *
4 Overview; Goal and Strategy; Portfolio *
Securities; Risk Factors; Business
Structure; More About Risk
5 Overview; Business Structure; *
Manager/Subadviser; Investor Expenses
6 Choosing a Share Class; Buying Shares; *
Selling Shares; Transaction Policies;
Dividends and Account Policies;
Additional Investor Services
7 Choosing a Share Class; How Sales Charges *
are Calculated; Sales Charge Deductions
and Waivers; Opening an Account; Buying
Shares; Transaction Policies; Additional
Investor Services
8 Selling Shares; Transaction Policies; *
Dividends and Account Policies
9 Not Applicable *
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
13 * Investment Objectives and Policies;
Certain Investment Practices;
Investment Restrictions
14 * Those Responsible for Management
15 * Those Responsible for Management
16 * Investment Advisory; Subadvisory
and Other Services; Distribution
Contract; Transfer Agent Services;
Custody of Portfolio; Independent
Auditors
17 * Brokerage Allocation
18 * Description of Fund's Shares
19 * Net Asset Value; Additional
Services and Programs
20 * Tax Status
21 * Distribution Contract
22 * Calculation of Performance
23 * Financial Statements
</TABLE>
<PAGE>
JOHN HANCOCK
GROWTH
FUNDS
[LOGO]
- -------------------------------------------------------------------------------
PROSPECTUS DISCIPLINED GROWTH FUND
JULY 1, 1996
DISCOVERY FUND
This prospectus gives vital information
about these funds. For your own benefit EMERGING GROWTH FUND
and protection, please read it before
you invest, and keep it on hand for GROWTH FUND
future reference.
REGIONAL BANK FUND
Please note that these funds:
* are not bank deposits SPECIAL EQUITIES FUND
* are not federally insured
* are not endorsed by any bank or SPECIAL OPPORTUNITIES FUND
government agency
* are not guaranteed to achieve
their goal(s)
Like all mutual fund shares, these
securities have not been approved
or disapproved by the Securities
and Exchange Commission or any
state securities commission, nor has
the Securities and Exchange
Commission or any state securities
commission passed upon the accuracy
or adequacy of this prospectus.
Any representation to the contrary [LOGO] JOHN HANCOCK FUNDS
is a criminal offense. A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avanue,
Boston, Massachusetts 02199-7603
<PAGE>
<TABLE>
CONTENTS
- -------------------------------------------------------------------------------
<S> <C> <C>
A fund-by-fund look at goals, DISCIPLINED GROWTH FUND 4
strategies, risks, expenses and
financial history. DISCOVERY FUND 6
EMERGING GROWTH FUND 8
GROWTH FUND 10
REGIONAL BANK FUND 12
SPECIAL EQUITIES FUND 14
SPECIAL OPPORTUNITIES FUND 16
Policies and instructions for opening, YOUR ACCOUNT
maintaining and closing an account Choosing a share class 18
in any growth fund. How sales charges are calculated 18
Sales charge reductions and waivers 19
Opening an account 19
Buying shares 20
Selling shares 21
Transaction policies 22
Dividends and account policies 23
Additional investor services 24
Details that apply to the growth FUND DETAILS
funds as a group. Business structure 25
Sales compensation 26
More about risk 27
Higher risk securities and
practices 29
FOR MORE INFORMATION BACK COVER
</TABLE>
<PAGE>
OVERVIEW
- --------------------------------------------------------------------------------
GOAL OF THE GROWTH FUNDS
John Hancock growth funds seek long-term growth by investing primarily in common
stocks. Each fund employs its own strategy and has its own risk/reward profile.
Because you could lose money by investing in these funds, be sure to read all
risk disclosure carefully before investing.
WHO MAY WANT TO INVEST
John Hancock growth funds may be appropriate for:
- - investors with longer time horizons
- - investors willing to accept higher short-term risk in exchange for higher
potential long-term returns
- - investors who want to diversify their portfolios
- - investors seeking funds for the growth portion of an asset allocation
portfolio
- - retirement investors or others whose goals are many years in the future
Growth funds may NOT be appropriate if you:
- - are investing with a shorter time horizon in mind
- - are uncomfortable with an investment that will go up and down in value
PORTFOLIO MANAGEMENT
All John Hancock growth funds are managed by John Hancock Advisers, Inc. Founded
in 1968, John Hancock Advisers is a wholly owned subsidiary of John Hancock
Mutual Life Insurance Company and manages more than $16 billion in assets.
FUND INFORMATION KEY
Concise fund-by-fund descriptions begin on the next page. Each description
provides the following information:
[A graphic image of a bullseye with an arrow in the middle of it.] GOAL AND
STRATEGY The fund's particular investment goals and the strategies it intends
to use in pursuing those goals.
[A graphic image of a black folder that contains a couple sheets of paper.]
PORTFOLIO SECURITIES The primary types of securities in which the fund invests.
Secondary investments are described in "More about risk" at the end of the
prospectus.
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] RISK FACTORS The major risk factors associated with the fund.
[A graphic image of a generic person.] PORTFOLIO MANAGER The individual or
group (including subadvisers, if any) designated by the investment adviser to
handle the fund's day-to-day management.
[A graphic image of a percent symbol.] EXPENSES The overall costs borne by an
investor in the fund, including sales charges and annual expenses.
[A graphic image of a dollar sign.] FINANCIAL HIGHLIGHTS A table showing the
fund's financial performance for up to ten years, by share class. There is also
a bar graph of year-by-year total return which is intended to show the fund's
volatility in recent years.
<PAGE>
DISCIPLINED GROWTH FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME:FREEDOM INVESTMENT TRUST TICKER SYMBOL CLASS A:SVAAX CLASSB:FEQVX
- ----------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
established, growing companies that have demonstrated superior earnings growth
and stability. In normal circumstances the fund will invest at least 65% of its
assets in these companies, without concentration in any one industry. The fund
also looks for the following characteristics:
- - a low level of debt
- - seasoned management
- - a strong market position
The fund invests for income as a secondary goal.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.] The
fund invests primarily in the common stocks of U.S. companies. It may also
invest in warrants, preferred stocks and investment-grade convertible debt
securities. The fund expects any foreign investments to remain below 10% of
assets. For liquidity and flexibility, the fund may place up to 15% of its net
assets in cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
To a limited extent, the fund also may invest in certain higher risk securities,
and may engage in other investment practices. For details, see "More about risk"
at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market and the success or failure of the
fund's investment strategies. To the extent that the fund invests in restricted
securities, foreign securities, and junk bonds, it takes on additional risks
which could adversely affect its performance.
PORTFOLIO MANAGERS
[A graphic image of a generic person.] Thomas Weary and John Snyder III,
leaders of the fund's portfolio management team, are responsible for the
day-to-day investment management of the fund. A vice president of the investment
adviser, Mr. Weary has been a part of the fund's management team since 1992. He
joined John Hancock in 1983. Mr. Snyder is an executive vice president of the
investment adviser and has been a team member since 1992. He has been an
investment manager since 1971.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic symbol of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.75% 0.75%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.40% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.45% 2.15%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $64 $94 $125 $215
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $72 $97 $135 $231
- --------------------------------------------------------------------------------
Assuming no redemption $22 $67 $115 $231
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
4 DISCIPLINED GROWTH FUND
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<CAPTION>
==========================================================================================================
Class A - year ended October 31, 1992(1) 1993 1994 1995
==========================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $12.81 $10.99 $12.39 $12.02
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.06(2) 0.08(2) 0.10 0.08(2)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.06) 1.34 0.07 1.29
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 0.00 1.42 0.17 1.37
- ---------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.07) (0.02) (0.10) (0.10)
- ---------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold (1.74) -- (0.44) (0.52)
- ---------------------------------------------------------------------------------------------------------
Distributions from capital paid-in (0.01) -- -- --
- ---------------------------------------------------------------------------------------------------------
Total distributions (1.82) (0.02) (0.54) (0.62)
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.99 $12.39 $12.02 $12.77
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3)(%) 0.19(4) 12.97 1.35 12.21
- ---------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 1,771 23,372 23,292 27,692
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.73(5) 1.60 1.53 1.46
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets(%) 0.62(5) 0.64 0.83 0.69
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate(%) 246 71 60 65
- ---------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
=================================================================================================================================
Class B - year ended October 31, 1987(6) 1988 1989 1990 1991 1992 1993 1994 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of
period $ 10.00 $ 8.34 $ 10.29 $ 11.52 $ 9.22 $ 11.71 $ 10.97 $ 12.31 $ 11.95
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.06 0.13 0.19 0.18 0.07 0.01(2) 0.02(2) 0.03 0.01(2)
- ---------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized
gain (loss) on investments (1.70) 2.05 1.25 (2.00) 2.67 1.05 1.33 0.07 1.28
- ---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations (1.64) 2.18 1.44 (1.82) 2.74 1.06 1.35 0.10 1.29
- ---------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- ---------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment
income (0.02) (0.09) (0.12) (0.20) (0.20) (0.03) (0.01) (0.02) (0.03)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold -- (0.14) (0.09) (0.28) (0.05) (1.76) -- (0.44) (0.52)
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from capital
paid-in -- -- -- -- -- (0.01) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.02) (0.23) (0.21) (0.48) (0.25) (1.80) (0.01) (0.46) (0.55)
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.34 $ 10.29 $ 11.52 $ 9.22 $ 11.71 $ 10.97 $ 12.31 $ 11.95 $ 12.69
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE(3) (%) (16.44)(4) 26.69 14.27 (16.46) 30.21 7.22 12.34 0.78 11.51
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 14,016 14,927 23,813 17,714 21,826 23,525 93,853 94,431 86,178
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 2.56(5,7) 2.61(7) 2.30 2.13 2.24 2.27 2.09 2.10 2.11
- ---------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 0.93(5,7) 1.46(7) 1.75 1.64 0.66 0.10 0.17 0.25 0.06
- ---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 40(5) 54 94 165 217 246 71 60 65
- ---------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission
rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------------
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Class B shares commenced operations April 22, 1987.
(7) Net of advisory expense reimbursements per share of $0.01 for the fiscal
year ended October 31, 1988 and less than $.01 for the fiscal year ended
October 31, 1987.
</TABLE>
DISCIPLINED GROWTH FUND 5
<PAGE>
DISCOVERY FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST III TICKER SYMBOL CLASS A:FRDAX CLASS B:FRIDX
- -----------------------------------------------------------------------------------------------------------
</TABLE>
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
companies that appear to offer superior growth prospects. Under normal
circumstances, the fund will invest at least 65% of its assets in these
companies. The fund looks for companies that have broad market opportunities
and consistent or accelerating earnings growth. This may include companies that:
- - occupy a profitable market niche
- - have products or technologies that are new, unique or proprietary
- - are in an industry that has a favorable long-term growth outlook
- - have a capable management team with a significant equity stake
The fund does not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in common stocks of U.S. companies and may also
invest in warrants, preferred stocks and investment-grade convertible debt
securities.
For liquidity and flexibility, the fund may place up to 15% of its net assets in
cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
The Fund may invest up to 25% of its assets in foreign securities, which carry
additional risks; however, foreign securities typically do not exceed 10% of its
assets. To a limited extent, the fund also may invest in certain higher-risk
securities, including foreign securities, and may engage in other investment
practices. For details, see "More about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart that depicts some peaks and valleys.] The
value of an investment in the fund will fluctuate with the performance of the
stock market. Small and medium-sized company stocks tend to be more volatile
than the market as a whole.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since March 1994, is a senior vice president of the
investment adviser. She joined the investment adviser in 1991 and has worked as
an investment professional since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on purchases
(as a percentage of offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.75% 0.75%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.80% 0.80%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.85% 2.55%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $68 $105 $145 $256
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $76 $109 $155 $271
- --------------------------------------------------------------------------------
Assuming no redemption $26 $ 79 $135 $271
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
6 DISCOVERY FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below for the period ended July
31, 1992, were audited by the fund's former independent auditors, Price
Waterhouse LLP. Figures for the subsequent years have been audited by the fund's
current independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
================================================================================
<TABLE>
<CAPTION>
CLASS A - YEAR ENDED JULY 31, 1992(1) 1993 1994 1995 1996(2)
====================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.40 $ 8.95 $ 10.81 $ 8.56 $ 12.95
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) (0.05) (0.16) (0.16)(3) (0.17)(3) (0.10)(3)
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions (0.40) 2.15 (0.43) 4.83 0.55
- ----------------------------------------------------------------------------------------------------
Total from investment operations (0.45) 1.99 (0.59) 4.66 0.45
- ----------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold -- (0.13) (1.66) (0.27) (0.13)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.95 $ 10.81 $ 8.56 $12.95 $ 13.27
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4)(%) (4.79)(5) 22.33 (6.45) 55.80 3.52(5)
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 3,866 4,692 3,266 5,075 6,583
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.78(6) 2.17 2.01 2.10 1.74(6)
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets(%) (1.20)(6) (1.61) (1.64) (1.73) (1.51)(6)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 138 148 108 118 73
- ----------------------------------------------------------------------------------------------------
Average brokerage commission rate(%) N/A N/A N/A N/A N/A
====================================================================================================
CLASS B - YEAR ENDED JULY 31, 1992(1) 1993 1994 1995 1996(2)
====================================================================================================
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.00 $ 8.87 $ 10.65 $ 8.34 $ 12.54
- ----------------------------------------------------------------------------------------------------
Net investment income (loss) (0.11) (0.23) (0.22)(3) (0.22)(3) (0.14)(3)
Net realized and unrealized gain (loss)
on investments and foreign currency
transactions 0.98 2.14 (0.43) 4.69 0.53
- ----------------------------------------------------------------------------------------------------
Total from investment operations 0.87 1.91 (0.65) 4.47 0.39
- ----------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold -- (0.13) (1.66) (0.27) (0.13)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 8.87 $ 10.65 $ 8.34 $ 12.54 $ 12.80
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 10.88(5) 21.63 (7.18) 54.97 3.15(5)
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000s omitted)($) 34,636 38,672 26,537 31,645 34,452
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.56(6) 2.86 2.62 2.70 2.43(6)
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets(%) (1.56)(6) (2.26) (2.24) (2.34) (2.20)(6)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate(%) 138 148 108 118 73
- ----------------------------------------------------------------------------------------------------
Average brokerage commission rate(%) N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
(1) Class A and Class B shares commenced operations on January 3, 1992 and
August 30, 1991, respectively.
(2) Six months ended January 31, 1996 (unaudited).
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
</TABLE>
DISCOVERY FUND 7
<PAGE>
EMERGING GROWTH FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: JOHN HANCOCK SERIES, INC. TICKER SYMBOL CLASS A:TAEMX CLASS B:TSEGX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
emerging companies (market capitalization of less than $1 billion). In normal
circumstances the fund will invest at least 80% of its assets in a diversified
portfolio of these companies. The fund looks for companies that show rapid
growth but are not yet widely recognized. The fund also may invest in
established companies that, because of new management, products or
opportunities, offer the possibility of accelerating earnings. The fund does
not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in the common stocks of U.S. and foreign emerging
growth companies, although it may invest up to 20% of assets in other types of
companies. The fund may also invest in warrants, preferred stocks and
investment-grade convertible debt securities.
For liquidity and flexibility, the fund may place up to 20% in cash or in
short-term investment-grade securities; in abnormal market conditions, it may
invest more assets in these securities as a defensive tactic. To a limited
extent, the fund also may invest in certain higher-risk securities, including
derivatives, and may engage in other investment practices. For details, see
"More about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market. Stocks of emerging growth companies
carry higher risks than stocks of larger companies. This is because emerging
growth companies:
- - may be in the early stages of development
- - may be dependent on a small number of products or services
- - may lack substantial capital reserves
- - do not have proven track records
In addition, stocks of emerging companies are often traded in low volumes, which
can increase market and liquidity risks.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since February 1996, is a senior vice president of
the investment adviser. She joined the investment adviser in 1991 and has
worked as an investment professional since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.75% 0.75%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.25% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.40% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.40% 2.15%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $64 $92 $123 $210
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $72 $97 $135 $229
- --------------------------------------------------------------------------------
Assuming no redemption $22 $67 $115 $229
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
8 EMERGING GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's current independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
====================================================================================================
<CAPTION>
CLASS A - YEAR ENDED OCTOBER 31, 1991(1) 1992 1993 1994 1995(2)
====================================================================================================
<S> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 18.12 $ 19.26 $ 20.60 $ 25.89 $ 26.82
- ----------------------------------------------------------------------------------------------------
Net investment income (loss)(3) (0.03) (0.20) (0.16) (0.18) (0.25)
- ----------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1.17 1.60 5.45 1.11 9.52
- ----------------------------------------------------------------------------------------------------
Total from investment operations 1.14 1.40 5.29 0.93 9.27
- ----------------------------------------------------------------------------------------------------
Less distributions:
- ----------------------------------------------------------------------------------------------------
Distributions from net realized gain on
investments sold -- (0.06) -- -- --
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period $ 19.26 $ 20.60 $ 25.89 $ 26.82 $ 36.09
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT
NET ASSET VALUE(4) (%) 6.29 7.32 25.68 3.59 34.56
- ----------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 38,859 46,137 81,263 131,053 179,481
- ----------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 0.33 1.67 1.40 1.44 1.38
- ----------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (%) (0.15) (1.03) (0.70) (0.71) (0.83)
- ----------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 66 48 29 25 23
- ----------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
================================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(5) 1988 1989 1990 1991 1992 1993 1994 1995(2)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.89 $ 7.89 $10.54 $ 12.76 $ 11.06 $ 19.22 $ 20.34 $ 25.33 $ 26.04
- --------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(3) (0.0021) 0.09 (0.08) (0.22) (0.30) (0.38) (0.36) (0.36) (0.45)
- --------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investments 0.0021 2.56 2.83 (1.26) 8.46 1.56 5.35 1.07 9.20
- --------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.0000 2.65 2.75 (1.48) 8.16 1.18 4.99 0.71 8.75
- --------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income -- -- (0.04) -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on
investments sold -- -- (0.49) (0.22) -- (0.06) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total distributions -- -- (0.53) (0.22) -- (0.06) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 7.89 $10.54 $12.76 $ 11.06 $ 19.22 $ 20.34 $ 25.33 $ 26.04 $ 34.79
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 0.00 33.59 27.40 (11.82) 73.78 6.19 24.53 2.80 33.60
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 79 3,232 7,877 11,668 52,743 86,923 219,484 283,435 393,478
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 0.44 5.64 3.51 3.11 2.85 2.64 2.28 2.19 2.11
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of expense reimbursement to
average net assets (%) (0.41) (2.59) (0.03) -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net expenses to
average net assets (%) 0.03 3.05 3.48 3.11 2.85 2.64 2.28 2.19 2.11
- --------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (%) (0.03) 0.81 (0.67) (1.64) (1.83) (1.99) (1.58) (1.46) (1.55)
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 0 252 90 82 66 48 29 25 23
- --------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------------------------
(1) Class A shares commenced operations on August 22, 1991. Financial
highlights, including total return, have not been annualized.
(2) On December 22, 1994, John Hancock Advisers, Inc. became the investment
adviser of the Fund.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Class B shares commenced operations on October 26, 1987. Financial
highlights, including total return, have not been annualized.
</TABLE>
EMERGING GROWTH FUND 9
<PAGE>
GROWTH FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A:JHNGX CLASS B:JHGNX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
stocks that are diversified with regard to industries and issuers. The fund
favors stocks of companies whose operating earnings and revenues have grown more
than twice as fast as the Gross Domestic Product (GDP) over the past five years,
although not all stocks in the fund's portfolio will meet this criterion.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The portfolio invests primarily in the common stocks of U.S. companies. It may
also invest in warrants, preferred stocks and convertible debt securities.
For liquidity and flexibility, the fund may invest up to 35% of its net assets
in short-term investment-grade securities; in abnormal market conditions, it may
invest more than 35% in these securities as a defensive tactic. To a limited
extent, the fund may also invest in certain higher risk securities, and may
engage in other investment practices. For details, see "More about risk" at the
end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market and the success or failure of the
fund's investment strategies. To the extent that the fund invests in restricted
securities, foreign securities, and junk bonds, it takes on additional risks
which could adversely affect its performance.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Bernice S. Behar, leader of the fund's
portfolio management team since September 1995, is a senior vice president of
the investment adviser. She joined the investment adviser in 1991 and has worked
as an investment professional since 1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.80% 0.80%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.40% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.50% 2.20%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $95 $128 $220
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption
at end of period $72 $99 $138 $236
- --------------------------------------------------------------------------------
Assuming no redemption $22 $69 $118 $236
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
10 GROWTH FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS A - YEAR ENDED DECEMBER 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.50 $ 14.03 $ 12.34 $ 13.33 $ 15.18 $ 12.93 $ 17.48 $ 17.32 $ 17.40 $ 15.89
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.11 0.22 0.23 0.28 0.16 0.04 (0.06) (0.11) (0.10) (0.09)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 1.79 0.64 1.16 3.81 (1.47) 5.36 1.10 2.33 (1.21) 4.40
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.90 0.86 1.39 4.09 (1.31) 5.40 1.04 2.22 (1.31) 4.31
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.17) (0.28) (0.23) (0.29) (0.16) (0.04) -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments sold (2.20) (2.27) (0.17) (1.95) (0.78) (0.81) (1.20) (2.14) (0.20) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (2.37) (2.55) (0.40) (2.24) (0.94) (0.85) (1.20) (2.14) (0.20) (0.69)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 14.03 $12.34 $13.33 $ 15.18 $ 12.93 $ 17.48 $ 17.32 $ 17.40 $ 15.89 $ 19.51
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(4) (%) 13.83 6.03 11.23 30.96 (8.34) 41.68 6.06 13.03 (7.50) 27.17
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 87,468 86,426 101,497 105,014 102,416 145,287 153,057 162,937 146,466 241,700
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.03 1.00 1.06 0.96 1.46 1.44 1.60 1.56 1.65 1.48
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets (%) 0.77 1.41 1.76 1.73 1.12 0.27 (0.36) (0.67) (0.64) (0.46)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 62 68 47 61 102 82 71 68 52 68
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
===============================================================================
CLASS B - YEAR ENDED DECEMBER 31, 1994(2) 1995
===============================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -------------------------------------------------------------------------------
Net asset value, beginning of period $17.16(3) $ 15.83(1)
- -------------------------------------------------------------------------------
Net investment income (loss) (0.20)(1) (0.26)
- --------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on
investments (0.93) 4.37
- --------------------------------------------------------------------------------
Total from investment operations (1.13) 4.11
- --------------------------------------------------------------------------------
Less distributions:
- --------------------------------------------------------------------------------
Distributions from net realized
gain on investments sold (0.20) (0.69)
- --------------------------------------------------------------------------------
Net asset value, end of period $15.83 $ 19.25
- --------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) (6.56)(5) 26.01
- --------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 3,807 15,913
- --------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.38(6) 2.31
- --------------------------------------------------------------------------------
Ratio of net investment income (loss) to
average net assets (%) (1.25)(6) (1.39)
- --------------------------------------------------------------------------------
Portfolio turnover rate (%) 52 68
- --------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A
(1) Based on the average of the shares outstanding at the end of each month.
(2) Class B shares commenced operations on January 3, 1994.
(3) Initial price at commencement of operations.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Not annualized.
(6) Annualized.
</TABLE>
GROWTH FUND 11
<PAGE>
REGIONAL BANK FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST TICKER SYMBOL CLASS A:FRBAX CLASS B:FRBFX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
regional banks and lending institutions, including:
- - commercial and industrial banks
- - savings and loan associations
- - bank holding companies
These financial institutions provide full-service banking, have primarily
domestic assets, and are typically based outside of New York City and Chicago.
They may or may not be members of the Federal Reserve, and their deposits may or
may not be FDIC-insured. In normal circumstances the fund will invest at least
65% of its assets in these companies; it may invest up to 35% of assets in other
financial services companies, including lending companies and money center
banks. Because regional banks typically pay regular dividends, moderate income
is an investment goal.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in the common stocks of U.S. and foreign companies.
It may also invest in warrants, preferred stocks, and investment-grade
convertible debt securities.
For liquidity and flexibility, the fund may place up to 15% of its net assets in
cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest up to 80% in these securities as a defensive tactic.
To a limited extent, the fund may also invest in certain higher risk securities,
including derivatives, and may engage in other investment practices. For
details, see "More about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate.
Because the fund concentrates in a single industry, its performance is largely
dependent on the industry's performance, which may differ in direction and
degree from that of the overall stock market. Falling interest rates or
deteriorating economic conditions can adversely affect the performance of bank
stocks, while rising interest rates will cause a decline in the value of any
debt securities the fund holds.
PORTFOLIO MANAGER
[A graphic image of a generic person.] James K. Schmidt joined John Hancock in
1985 and has served as the fund's portfolio manager since its inception that
year. A senior vice president of the investment adviser, he has worked as an
investment professional since 1974.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.78% 0.78%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.31% 0.31%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.39% 2.09%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $63 $92 $122 $209
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $71 $95 $132 $224
- --------------------------------------------------------------------------------
Assuming no redemption $21 $65 $112 $224
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
12 REGIONAL BANK FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by the
fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS B [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
===================================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1992(1) 1993 1994 1995
===================================================================================================================================
<S> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.47 $ 17.47 $ 21.62 $ 21.52
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.21 0.26(2) 0.39(2) 0.52(2)
- -----------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.98 5.84 0.91 5.92
- -----------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.19 6.10 1.30 6.44
- -----------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.19) (0.26) (0.34) (0.48)
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain on investments sold -- (1.69) (1.06) (0.34)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.19) (1.95) (1.40) (0.82)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 17.47 $ 21.62 $ 21.52 $ 27.14
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 31.26(4) 37.45 6.44 31.00
- -----------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 31,306 94,158 216,978 486,631
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.41(5) 1.35 1.34 1.39
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (%) 1.64(5) 1.29 1.78 2.23
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 53 35 13 14
- -----------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1987(6) 1987(7) 1988 1989 1990 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.51 $ 12.68 $ 10.02 $ 11.89 $ 13.00 $ 8.13 $ 13.76 $ 17.44 $ 21.56 $ 21.43
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) 0.20 0.05 0.16 0.20 0.30 0.29 0.18 0.15(2) 0.23(2) 0.36(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain
(loss) on investment 1.74 (2.17) 3.12 2.02 (4.19) 5.68 4.56 5.83 0.91 5.89
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 1.94 (2.12) 3.28 2.22 (3.89) 5.97 4.74 5.98 1.14 6.25
Less distributions:
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.26) (0.04) (0.15) (0.16) (0.19) (0.34) (0.28) (0.17) (0.21) (0.32)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments sold (1.51) (0.50) (1.26) (0.95) (0.76) -- (0.78) (1.69) (1.06) (0.34)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from capital paid-in -- -- -- -- (0.03) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (1.77) (0.54) (1.41) (1.11) (0.98) (0.34) (1.06) (1.86) (1.27) (0.66)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 12.68 $ 10.02 $ 11.89 $ 13.00 $ 8.13 $ 13.76 $ 17.44 $ 21.56 $ 21.43 $ 27.02
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(3) (%) 17.44 (17.36)(4) 36.89 20.46 (32.29) 75.35 37.20 36.71 5.69 30.11
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted)($) 54,626 38,721 50,965 81,167 38,992 52,098 56,016 171,808 522,207 1,236,447
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets (%) 1.48 2.47(5) 2.17 1.99 1.99 2.04 1.96 1.88 2.06 2.09
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) 1.62 0.73(5) 1.50 1.67 2.51 2.65 1.21 0.76 1.07 1.53
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 89 58(5) 87 85 56 75 53 35 13 14
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
(1) Class A shares commenced operations on January 3, 1992.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Not annualized.
(5) Annualized.
(6) Year ended March 31, 1987.
(7) For the period April 1, 1987 to October 31, 1987.
</TABLE>
REGIONAL BANK FUND 13
<PAGE>
SPECIAL EQUITIES FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: JOHN HANCOCK SPECIAL EQUITIES FUND TICKER SYMBOL CLASS A:JHNSX CLASS B:SPQBX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
small-capitalization companies and companies in situations offering unusual or
non-recurring opportunities. In normal circumstances the fund will invest at
least 65% of its assets in a diversified portfolio of these companies. The fund
looks for companies that dominate an emerging industry or hold a growing market
share in a fragmented industry, and that have demonstrated earnings and revenue
growth of at least 25%, self-financing capabilities and strong management. The
fund does not invest for income.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in the common stocks of U.S. and foreign companies.
It may also invest in warrants, preferred stocks and investment-grade
convertible debt securities.
For liquidity and flexibility, the fund may place up to 35% of its net assets in
cash or in short-term investment-grade securities; in abnormal market
conditions, it may invest more than 35% in these securities as a defensive
tactic. To a limited extent, the fund also may invest in certain higher risk
securities, and may engage in other investment practices. For details, see "More
about risk" at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] As with any growth fund, the value of your investment will fluctuate
with the performance of the stock market. Stocks of small-capitalization and
special-situation companies carry higher risks than stocks of larger companies.
This is because these companies:
- - may lack proven track records
- - may be dependent on a small number of products or services
- - may be undercapitalized
- - may have highly priced stocks which are sensitive to adverse news
In addition, stocks of these companies are often traded in low volumes, which
can increase market and liquidity risks.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Michael P. DiCarlo is responsible for the
fund's day-to-day investment management. He has served as the fund's portfolio
manager since 1988, and has worked as an investment professional since 1984. He
is currently one of three principals in DFS Advisors, LLC, which was founded in
1996 and serves as subadviser to the fund.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee(3) 0.82% 0.82%
- --------------------------------------------------------------------------------
12b-1 fee(4) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.38% 0.40%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.50% 2.22%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $95 $128 $220
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $73 $99 $139 $237
- --------------------------------------------------------------------------------
Assuming no redemption $23 $69 $119 $237
- --------------------------------------------------------------------------------
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) Includes a subadviser fee equal to 25% of the management fee.
(4) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
14 SPECIAL EQUITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited
by the fund's independent auditors, Ernst & Young LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
====================================================================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 5.21 $ 6.08 $ 4.30 $ 4.89 $ 6.38 $ 4.97 $ 9.71 $ 10.99 $ 16.13 $ 16.11
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss)(1) (0.03) (0.03) 0.04 0.01 (0.12) (0.10) (0.19)(2) (0.20)(2) (0.21)(2) (0.18)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments 0.93 (1.26) 0.55 1.53 (1.27) 4.84 2.14 5.43 0.19 6.22
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.90 (1.29) 0.59 1.54 (1.39) 4.74 1.95 5.23 (0.02) 6.04
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions:
- -----------------------------------------------------------------------------------------------------------------------------------
Dividends from net investment income (0.02) -- -- (0.05) (0.02) -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gain
on investments sold (0.01) (0.45) -- -- -- -- (0.67) (0.09) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions from capital paid-in -- (0.04) -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.03) (0.49) -- (0.05) (0.02) -- (0.67) (0.09) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 6.08 $ 4.30 $ 4.89 $ 6.38 $ 4.97 $ 9.71 $ 10.99 $ 16.13 $ 16.11 $ 22.15
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET
ASSET VALUE(1,3) (%) 17.38 (28.68) 13.72 31.82 (21.89) 95.37 20.25 47.83 (0.12) 37.49
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period
(000s omitted) ($) 13,780 10,637 11,714 12,285 8,166 19,713 44,665 296,793 310,625 555,655
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average
net assets(1) (%) 1.50 1.50 1.50 1.50 2.63 2.75 2.24 1.84 1.62 1.48
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income
(loss) to average net assets(1) (%) (0.57) (0.57) 0.82 0.47 (1.58) (2.12) (1.91) (1.49) (1.40) (0.97)
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 64 93 91 115 113 163 114 33 66 82
- ------------------------------------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
=========================================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1993(4) 1994 1995
=========================================================================================================
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.30 $ 16.08 $ 15.97
- ---------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.18)(2) (0.30)(2) (0.31)(2)
- ---------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 3.96 0.19 6.15
- ---------------------------------------------------------------------------------------------------------
Total from investment operations 3.78 (0.11) 5.84
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 16.08 $ 15.97 $ 21.81
- ---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(3) (%) 30.73(5) (0.68) 36.57
- ---------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 158,281 191,979 454,934
- ---------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.34(6) 2.25 2.20
- ---------------------------------------------------------------------------------------------------------
Ratio of net investment income (loss) to average net assets (%) (2.03)(6) (2.02) (1.69)
- ---------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 33 66 82
- ---------------------------------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A N/A
(1) Reflects expense limitation in effect during the years ended October 31, 1986 through
1991 (see note B to the financial statements in the Statement of Additional Information).
As a result of such limitations, expenses of the Fund for the years ended October 31,
1986, 1987, 1988, 1989, 1990, and 1991 reflect reductions of $.09, $.04, $.07, $.03, $.02 and
$.002 respectively. Absent of such limitation, for the years ended October 31, 1986,
1987, 1988, 1989, 1990, and 1991, the ratio of net expenses would have been 3.47%, 2.23%,
2.94%, 2.57%, 2.95%, and 2.79% respectively, and the ratio of net investment income
(loss) to average net assets would have been (2.55%), (1.30%), (0.62%), (0.60%), (1.90%)
and (2.16%), respectively. Without the limitation, total investment return would be
lower.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Assumes dividend reinvestment and does not reflect the effect of sales charges.
(4) Class B shares commenced operations on March 1, 1993.
(5) Not annualized.
(6) Annualized.
</TABLE>
SPECIAL EQUITIES FUND 15
<PAGE>
SPECIAL OPPORTUNITIES FUND
<TABLE>
<S> <C> <C> <C>
REGISTRANT NAME: FREEDOM INVESTMENT TRUST II TICKER SYMBOL CLASS A:SPOAX CLASS B:SPOBX
</TABLE>
- --------------------------------------------------------------------------------
GOAL AND STRATEGY
[A graphic image of a bullseye with an arrow in the middle of it.] The fund
seeks long-term capital appreciation. To pursue this goal, the fund invests in
those economic sectors that appear to have a higher earning potential.
Under normal circumstances, at least 90% of the fund's equity securities will be
invested within five or fewer sectors (e.g. financial services, energy,
technology). Up to 25% may be invested in any one sector. The inclusion and
weighting of any sector is determined on the basis of macroeconomic factors as
well as the outlook for that sector. The fund may add or drop sectors. Because
the fund may invest more than 5% of its assets in a single issuer, it is
classified as a non-diversified fund.
PORTFOLIO SECURITIES
[A graphic image of a black folder that contains a couple sheets of paper.]
The fund invests primarily in common stocks of U.S. and foreign companies of
any size. It may also invest in warrants, preferred stocks, convertible debt
securities, U.S. Government securities and corporate bonds rated at least
BBB/Baa, or equivalent.
To a limited extent, the fund also may invest in certain higher risk securities,
and may engage in other investment practices. For details, see "More about risk"
at the end of this prospectus.
RISK FACTORS
[A graphic image of a line chart with a single line that depicts some peaks and
valleys.] By focusing on a relatively small number of industries or issuers,
the fund runs the risk that any factor influencing those industries or issuers
will have a major effect on performance. The fund may invest in companies with
smaller market capitalizations, which represent higher near-term risks than
larger capitalization companies. The fund's use of derivatives could expose it
to losses substantially in excess of the purchase or sale price of the
derivative. These factors make the fund likely to experience higher volatility
than most other types of growth funds.
PORTFOLIO MANAGER
[A graphic image of a generic person.] Kevin R. Baker is leader of the portfolio
management for the fund. A second vice president of John Hancock Advisers, he
has been an active member of the fund's management team since joining the
investment adviser in 1994. He has worked as an investment professional since
1986.
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
<TABLE>
[A graphic image of a percent symbol.] Fund investors pay various expenses,
either directly or indirectly. The figures below show the expenses for the past
year, adjusted to reflect any changes. Future expenses may be greater or less.
<CAPTION>
================================================================================
Shareholder transaction expenses Class A Class B
================================================================================
<S> <C> <C>
Maximum sales charge imposed on
purchases (as a percentage of
offering price) 5.00% none
- --------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends none none
- --------------------------------------------------------------------------------
Maximum deferred sales charge none(1) 5.00%
- --------------------------------------------------------------------------------
Redemption fee(2) none none
- --------------------------------------------------------------------------------
Exchange fee none none
- --------------------------------------------------------------------------------
================================================================================
Annual fund operating expenses (as a % of average net assets)
================================================================================
Management fee 0.80% 0.80%
- --------------------------------------------------------------------------------
12b-1 fee(3) 0.30% 1.00%
- --------------------------------------------------------------------------------
Other expenses 0.49% 0.49%
- --------------------------------------------------------------------------------
Total fund operating expenses 1.59% 2.29%
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
EXAMPLE The table below shows what you would pay if you invested $1,000 over the
various time frames indicated. The example assumes you reinvested all dividends
and that the average annual return was 5%.
<CAPTION>
================================================================================
Share class Year 1 Year 3 Year 5 Year 10
================================================================================
<S> <C> <C> <C> <C>
Class A shares $65 $ 98 $132 $229
- --------------------------------------------------------------------------------
Class B shares
- --------------------------------------------------------------------------------
Assuming redemption at
end of period $73 $102 $143 $245
- --------------------------------------------------------------------------------
Assuming no redemption $23 $ 72 $123 $245
This example is for comparison purposes only and is not a representation of the
fund's actual expenses and returns, either past or future.
(1) Except for investments of $1 million or more; see "How sales charges are
calculated."
(2) Does not include wire redemption fee (currently $4.00).
(3) May include carry-over of reimbursable costs from previous year(s). Amounts
shown are the fund's current annual maximums for 12b-1 fees. Because of the
12b-1 fee, long-term shareholders may indirectly pay more than the
equivalent of the maximum permitted front-end sales charge.
</TABLE>
16 SPECIAL OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
[A graphic image of a dollar sign.] The figures below have been audited by
the fund's independent auditors, Price Waterhouse LLP.
VOLATILITY, AS INDICATED BY CLASS A [BAR GRAPH]
YEAR-BY-YEAR TOTAL INVESTMENT RETURN (%)
<TABLE>
<CAPTION>
==================================================================================
CLASS A - YEAR ENDED OCTOBER 31, 1994(1) 1995
==================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.50 $ 7.93
- ----------------------------------------------------------------------------------
Net investment income (loss) (0.03)(2) (0.07)(2)
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.54) 1.46
- ----------------------------------------------------------------------------------
Total from investment operations (0.57) 1.39
- ----------------------------------------------------------------------------------
Net asset value, end of period $ 7.93 $ 9.32
- ----------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4) (%) (6.71)(3) 17.53
- ----------------------------------------------------------------------------------
Total adjusted investment return at
net asset value(5) (%) (6.83)(6) --
- ----------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000s omitted) ($) 92,325 101,562
- ----------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 1.50 1.59
- ----------------------------------------------------------------------------------
Ratio of adjusted expenses to average
net assets(5) (%) 1.62 --
- ----------------------------------------------------------------------------------
Ratio of net investment income (loss)
to average net assets (%) (0.41) (0.87)
- ----------------------------------------------------------------------------------
Ratio of adjusted net investment loss
to average net assets(5) (%) (0.53) --
- ----------------------------------------------------------------------------------
Portfolio turnover rate (%) 57 155
- ----------------------------------------------------------------------------------
Expense reimbursement per share (%) 0.01(2) --
- ----------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A
==================================================================================
CLASS B - YEAR ENDED OCTOBER 31, 1994(1) 1995
==================================================================================
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.50 $ 7.87
- ----------------------------------------------------------------------------------
Net investment income (loss) (0.09)(2) (0.13)(2)
- ----------------------------------------------------------------------------------
Net realized and unrealized gain (loss)
on investments (0.54) 1.45
- ----------------------------------------------------------------------------------
Total from investment operations (0.63) 1.32
- ----------------------------------------------------------------------------------
Net asset value, end of period $ 7.87 $ 9.19
- ----------------------------------------------------------------------------------
TOTAL INVESTMENT RETURN AT NET ASSET VALUE(4)(%) (7.41)(3) 16.77
- ----------------------------------------------------------------------------------
Total adjusted investment return at
net asset value(5) (%) (7.53)(6) --
- ----------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------
Net assets, end of period (000s omitted)($) 131,983 137,363
- ----------------------------------------------------------------------------------
Ratio of expenses to average net assets (%) 2.22 2.30
- ----------------------------------------------------------------------------------
Ratio of adjusted expenses to average
net assets(5) (%) 2.34 --
- ----------------------------------------------------------------------------------
Ratio of adjusted net investment income (loss) to
average net assets (%) (1.13) (1.55)
- ----------------------------------------------------------------------------------
Ratio of adjusted net investment loss to
average net assets(5) (%) (1.25) --
- ----------------------------------------------------------------------------------
Portfolio turnover rate (%) 57 155
- ----------------------------------------------------------------------------------
Expense reimbursement per share (%) 0.01(2) --
- ----------------------------------------------------------------------------------
Average brokerage commission rate (%) N/A N/A
(1) Class A and B shares commenced operations on November 1, 1993.
(2) Based on the average of the shares outstanding at the end of each month.
(3) Without the reimbursement, total investment return would be lower.
(4) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(5) Unreimbursed, without expense reduction.
(6) An estimated total return calculation which takes into consideration fees
and expenses waived or borne by the adviser during the periods shown.
</TABLE>
SPECIAL OPPORTUNITIES FUND 17
<PAGE>
YOUR ACCOUNT
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
<TABLE>
All John Hancock growth funds offer two classes of shares, Class A and Class B.
Each class has its own cost structure, allowing you to choose the one that best
meets your requirements. Your financial representative can help you decide.
<CAPTION>
================================================================================
CLASS A CLASS B
================================================================================
<S> <C>
- - Front-end sales charges, as - No front-end sales charge; all
described below. There are of your money goes to work for
several ways to reduce these you right away.
charges, also described below.
- Higher annual expenses than
- - Lower annual expenses than Class A shares.
Class B shares.
- A deferred sales charge on
shares you sell within six
years of purchase, as
described below.
- Automatic conversion to
Class A shares after eight
years, thus reducing
future annual expenses.
For actual past expenses of Class A and B shares, see the fund-by-fund
information earlier in this prospectus.
Special Equities Fund offers Class C shares, which have their own sales charge
and expense structure and are available to financial institutions only. Call
Investor Services or contact your financial representative for more information.
</TABLE>
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
<TABLE>
CLASS A Sales charges are as follows:
================================================================================
CLASS A SALES CHARGES
================================================================================
<CAPTION>
AS A % OF AS A % OF YOUR
YOUR INVESTMENTS OFFERING PRICE INVESTMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
Up to $49,999 5.00% 5.26%
- --------------------------------------------------------------------------------
$50,000 - $99,999 4.50% 4.71%
- --------------------------------------------------------------------------------
$100,000 - $249,999 3.50% 3.63%
- --------------------------------------------------------------------------------
$250,000 - $499,999 2.50% 2.56%
- --------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 2.04%
- --------------------------------------------------------------------------------
$1,000,000 and over See below
</TABLE>
<TABLE>
INVESTMENTS OF $1 MILLION OR MORE Class A shares are available with no
front-end sales charge. However, there is a contingent deferred sales charge
(CDSC) on any shares sold within one year of purchase, as follows:
================================================================================
CDSC ON $1 MILLION+ INVESTMENT
================================================================================
<CAPTION>
YOUR INVESTMENT CDSC ON SHARES BEING SOLD
- --------------------------------------------------------------------------------
<S> <C>
First $1M - $4,999,999 1.00%
- --------------------------------------------------------------------------------
Next $1 - $5M above that 0.50%
- --------------------------------------------------------------------------------
Next $1M or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month.
</TABLE>
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
CLASS B Shares are offered at their net asset value per share, without any
initial sales charge. However, there is a contingent deferred sales charge
(CDSC) on shares you sell within six years of buying them. There is no CDSC on
shares acquired through reinvestment of dividends. The CDSC is based on the
original purchase cost or the current market value of the shares being sold,
whichever is less. The longer the time between the purchase and the sale of
shares, the lower the rate of the CDSC:
<TABLE>
================================================================================
CLASS B DEFERRED CHARGES
================================================================================
<CAPTION>
YEARS AFTER PURCHASE CDSC ON SHARES BEING SOLD
- --------------------------------------------------------------------------------
<S> <C>
1 year 5.0%
- --------------------------------------------------------------------------------
2 years 4.0%
- --------------------------------------------------------------------------------
3 or 4 years 3.0%
- --------------------------------------------------------------------------------
5 years 2.0%
- --------------------------------------------------------------------------------
6 years 1.0%
- --------------------------------------------------------------------------------
7 or more years None
- --------------------------------------------------------------------------------
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the LAST day of that month.
</TABLE>
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
18 YOUR ACCOUNT
<PAGE>
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
REDUCING YOUR CLASS A SALES CHARGES There are several ways you can combine
multiple purchases of Class A shares in John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
- - Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge.
- - Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
- - Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section on your application, or contact
your financial representative or Investor Services to add these options to an
existing account.
GROUP INVESTMENT PROGRAM Allows four or more accountholders to declare
themselves a group. Each has an individual account, but for sales charge
purposes, their investments are lumped together, making the investors
potentially eligible for reduced sales charges. There is no charge, no
obligation to invest (although initial aggregate investments must be at least
$250), and you may terminate the program at any time.
To utilize: contact your financial representative or Investor Services to find
out how to qualify.
CDSC WAIVERS In general, the CDSC for either share class may be waived on
shares you sell for the following reasons:
- - to make payments through certain Systematic Withdrawal Plans
- - to make distributions from a retirement plan
- - because of shareholder death or disability
To utilize: contact your financial representative or Investor Services.
REINSTATEMENT PRIVILEGE If you sell shares in a John Hancock fund, you may
invest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge. If you paid a CDSC when you sold
your shares, you will be credited with the amount of the CDSC. All accounts
involved must have the same registration.
To utilize: contact your financial representative or Investor Services.
WAIVERS FOR CERTAIN INVESTORS Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
- - government entities who are prohibited from paying mutual fund sales
charges
- - financial institutions or common trust funds investing $1 million or more
for non-discretionary accounts
- - selling brokers and their employees and sales representatives
- - financial representatives utilizing fund shares in fee-based investment
products under agreement with John Hancock Funds
- - fund trustees and other individuals who are affiliated with these or other
John Hancock funds
- - individuals transferring assets to a John Hancock growth fund from an
employee benefit plan that has John Hancock funds
To utilize: if you think you may be eligible for a sales charge waiver, contact
Investor Services or consult the SAI (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock growth funds are as follows:
- non-retirement account: $1,000
- retirement account: $250
- group investments: $250
- Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must
invest at least $25 a month
3 Complete the appropriate parts of the Account Application, carefully
following the instructions. If you have questions, please contact your
financial representative or call Investor Services at 1-800-225-5291.
4 Complete the appropriate parts of the Account Privileges Application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges
later on.
5 Make your initial investment using the table on the next page. You can
initiate any purchase, exchange or sale of shares through your financial
representative.
YOUR ACCOUNT 19
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
BUYING SHARES
===============================================================================================================================
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BY CHECK
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a blank check.]
- - Make out a check for the investment amount, payable - Make out a check for the investment amount payable
to "John Hancock Investor Services Corporation." to "John Hancock Investor Services Corporation."
- - Deliver the check and your completed application to - Fill out the detachable investment slip from an account
your financial representative, or mail to Investor Services statement. If no slip is available, include a note specifying
(address on next page). the fund name, your share class, your account number,
and the name(s) in which the account is registered.
- Deliver the check and your investment slip or note to
your financial representative, or mail to Investor Services
(address on next page).
- ---------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- ---------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a white arrow outlined in black that points to the right above a black that points to the left.]
- - Call your financial representative or Investor Services - Call Investor Services to request an exchange.
to request an exchange.
- ---------------------------------------------------------------------------------------------------------------------------------
BY WIRE
- ---------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a jagged white arrow outlined in black that points upwards at a 45 degree angle.]
- - Deliver your completed application to your financial - Instruct your bank to wire the amount of your
representative, or mail it to Investor Services. investment to:
First Signature Bank & Trust
- - Obtain your account number by calling your financial Account #900000260
representative or Investor Services. Routing #211475000
Specify the fund name, your share class, your account
- - Instruct your bank to wire the amount of your number, and the name(s) in which the account is registered.
investment to: Your bank may charge a fee to wire funds.
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your choice of share class, the new
account number, and the name(s) in which the account is
registered. Your bank may charge a fee to wire funds.
- -------------------------------------------------------------------------------------------------------------------------------
BY PHONE
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a telephone.]
See "By wire" and "By exchange." - Verify that your bank or credit union is a member of
the Automated Clearing House (ACH) system.
- Complete the "Invest-By-Phone" and "Bank Information"
sections on your Account Privileges Application.
- Call Investor Services to verify that these features are in
place on your account.
- Tell the Investor Services representative the fund name,
your share class, your account number, the name(s)
in which the account is registered, and the amount of
your investment.
To open or add to an account using the Monthly Automatic Accumulation Program, see "Additional investor services."
</TABLE>
20 YOUR ACCOUNT
<PAGE>
<TABLE>
<CAPTION>
===============================================================================================================================
SELLING SHARES
===============================================================================================================================
DESIGNED FOR TO SELL SOME OR ALL OF YOUR SHARES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
BY LETTER
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of the back of an envelope.]
- - Accounts of any type. - Write a letter of instruction or stock power indicating
the fund name, your share class, your account number,
- - Sales of any amount. the name(s) in which the account is registered, and the
dollar value or number of shares you wish to sell.
- Include all signatures and any additional documents
that may be required (see next page).
- Mail the materials to Investor Services.
- A check will be mailed to the name(s) and address in
which the account is registered, or otherwise according
to your letter of instruction.
- -------------------------------------------------------------------------------------------------------------------------------
BY PHONE
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a telephone.]
- - Most accounts. - For automated service 24 hours a day using your
Touch-Tone phone, call the John Hancock Funds
- - Sales of up to $100,000. EASI-Line at 1-800-338-8080.
- To place your order with a representative at John
Hancock Funds, call Investor Services between 8 a.m. and
4 p.m. on most business days.
- -------------------------------------------------------------------------------------------------------------------------------
BY WIRE OR ELECTRONIC FUNDS TRANSFER (EFT)
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a jagged white arrow outlined in black that points upwards at a 45 degree angle.]
- - Requests by letter to sell any amount (accounts of - Fill out the "Telephone redemption" section of your
any type). new account application.
- - Requests by phone to sell up to $100,000 (accounts - To verify that the telephone redemption privilege is in
with telephone redemption privileges). place on an account, or to request the forms to add it
to an existing account, call Investor Services.
- Amounts of $1,000 or more will be wired on the next
business day. A $4 fee will be deducted from your
account.
- Amounts of less than $1,000 may be sent by EFT or by
check. Funds from EFT transactions are generally available
by the second business day. Your bank may charge
a fee for this service.
- -------------------------------------------------------------------------------------------------------------------------------
BY EXCHANGE
- -------------------------------------------------------------------------------------------------------------------------------
[A graphic image of a white arrow outlined in black that points to the right above a black that points to the left.]
- - Accounts of any type. - Obtain a current prospectus for the fund into which
you are exchanging by calling your financial representative
- - Sales of any amount. Investor Services.
- Call Investor Services to request an exchange.
============================================
Address for opening an account
John Hancock Investor Services Corporation
P.O. Box 9115 Boston, MA 02205-9115
Address for all other transactions
John Hancock Investor Services Corporation
P.O. Box 9116 Boston, MA 02205-9116
Phone number for all transactions
1-800-225-5291
Or contact your financial representative for To sell shares through a systematic withdrawal plan,
instructions and assistance see "Additional investor services."
============================================
</TABLE>
YOUR ACCOUNT 21
<PAGE>
SELLING SHARES IN WRITING In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, as shown in the table below. You may also need to include a
signature guarantee, which protects you against fraudulent orders. You will
need a signature guarantee if:
- - your address of record has changed within the past 30 days
- - you are selling more than $100,000 worth of shares
- - you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
- - you are an executor
You can generally obtain a signature guarantee from the following sources:
- - a broker or securities dealer
- - a federal savings, cooperative or other type of bank
- - a savings and loan or other thrift institution
- - a credit union
- - a securities exchange or clearing agency
A notary public cannot provide a signature guarantee.
<TABLE>
<CAPTION>
===================================================================================================================================
SELLER REQUIREMENTS FOR WRITTEN REQUESTS [A graphic image of the back of
an envelope.]
===================================================================================================================================
<S> <C>
Owners of individual, joint, sole proprietorship, UGMA/UTMA - Letter of instruction
(custodial accounts for minors) or general partner accounts.
- On the letter, the signatures and titles of all persons authorized
to sign for the account, exactly as the account is registered.
- -----------------------------------------------------------------------------------------------------------------------------------
Owners of corporate or association accounts. - Letter of instruction.
- Corporate resolution.
- On the letter and the resolution, the signature of the
person(s) authorized to sign for the account.
- -----------------------------------------------------------------------------------------------------------------------------------
Owners or trustees of trust accounts. - Letter of instruction.
- On the letter, the signature(s) of the trustee(s).
- If the names of all trustees are not registered on the account,
please also provide a copy of the trust document certified
within the last 60 days.
- -----------------------------------------------------------------------------------------------------------------------------------
Joint tenancy shareholders whose co-tenants are deceased. - Letter of instruction signed by surviving tenant.
- Copy of death certificate.
- -----------------------------------------------------------------------------------------------------------------------------------
Executors of shareholder estates. - Letter of instruction signed by executor.
- Copy of order appointing executor.
- -----------------------------------------------------------------------------------------------------------------------------------
Administrators, conservators, guardians and other sellers or - Call 1-800-225-5291 for instructions.
account types not listed above.
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22 YOUR ACCOUNT
<PAGE>
- -------------------------------------------------------------------------------
TRANSACTION POLICIES
VALUATION OF SHARES The net asset value per share (NAV) for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 p.m. Eastern Time) by dividing a class's net assets
by the number of its shares outstanding.
BUY AND SELL PRICES When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges, as described earlier.
EXECUTION OF REQUESTS Each fund is open on those days when the New York Stock
Exchange is open, typically Monday-Friday. Buy and sell requests are executed
at the next NAV to be calculated after your request is accepted by Investor
Services.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line or sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
TELEPHONE TRANSACTIONS For your protection, telephone requests may be recorded
in order to verify their accuracy. In addition, Investor Services will take
measures to verify the identity of the caller, such as asking for name,
account number, Social Security or taxpayer ID number, and other relevant
information. If these measures are not taken, Investor Services is responsible
for any losses that may occur to any account due to an unauthorized telephone
call. Also for your protection, telephone transactions are not permitted on
accounts whose names or addresses have changed within the past 30 days.
Proceeds from telephone transactions can only be mailed to the address of
record.
EXCHANGES You may exchange shares of your John Hancock fund for shares of the
same class in any other John Hancock fund. You will not be charged any front-end
sales charges, and in general any CDSC calculations will be based on the date of
your original investment (although the CDSC will generally be that of the fund
with the higher rates). Class B shares that are exchanged into a fund that has
no CDSC will retain their original CDSC terms.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties that, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may change or cancel its exchange
privilege at any time, upon 60 days' notice to its shareholders. A fund may also
refuse any exchange order.
CERTIFICATED SHARES Most shares are electronically recorded. If you wish to
have certificates for your shares, please write to Investor Services.
Certificated shares can only be sold by returning the certificates to Investor
Services, along with a letter of instruction or a stock power and a signature
guarantee.
SALES IN ADVANCE OF PURCHASE PAYMENTS When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten calendar days after
the purchase.
FOREIGN CURRENCIES Purchases must be made in U.S. dollars. Purchases in foreign
currencies must be converted, which may result in a fee and delayed execution.
- -------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
ACCOUNT STATEMENTS In general, you will receive account statements as follows:
- - after every transaction (except a dividend reinvestment) that affects your
account balance
- - after any changes of name or address of the registered owner(s)
- - every quarter during which there is a transaction, an automatic
investment/withdrawal plan activity or a dividend reinvestment
- - in all other circumstances, once a year
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
DIVIDENDS The funds generally distribute most or all of their net earnings in
the form of dividends.Capital gains dividends, if any, are typically paid once
a year. Most of the funds do not typically pay income dividends, with the
exception of Disciplined Growth Fund and Regional Bank Fund, which typically
pay income dividends quarterly and semi-annually respectively.
YOUR ACCOUNT 23
<PAGE>
DIVIDEND REINVESTMENTS Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends mailed to you. However, if the check is not deliverable, your
dividends will be reinvested.
TAXABILITY OF DIVIDENDS As long as a fund meets the requirements for being a
tax-qualified regulated investment company, which each fund has in the past and
intends to in the future, it pays no federal income tax on the earnings it
distributes to shareholders.
Consequently, any dividends you receive from a fund, whether reinvested or taken
as cash, are considered taxable. Dividends from a fund's long-term capital gains
are taxable as capital gains; dividends from other sources are generally taxable
as ordinary income.
Some dividends paid in January may be taxable as if they had been paid the
previous December. Corporations may be entitled to take a dividends-received
deduction for a portion of certain dividends they receive.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
TAXABILITY OF TRANSACTIONS Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
SMALL ACCOUNTS (NON-RETIREMENT ONLY) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, your fund's transfer agent
may charge you $10 a year to maintain your account. You will not be charged a
CDSC if your account is closed for this reason, and your account will not be
closed if its drop in value is due to fund performance or the effects of sales
charges.
- -------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
MONTHLY AUTOMATIC ACCUMULATION PROGRAM (MAAP) Lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s) of
your choice. You determine the frequency and amount of your investments, and you
can terminate your program at any time. To establish:
- - Complete the appropriate parts of your Account Privileges Application.
- - If you are using MAAP to open an account, make out a check ($25 minimum)
for your first investment amount payable to "John Hancock Investor Services
Corporation" and deliver your check and application to your financial
services representative or Investor Services.
SYSTEMATIC WITHDRAWAL PLAN May be used for routine bill payment or periodic
withdrawals from your account. To establish:
- - Make sure you have at least $5,000 worth of shares in your account.
- - Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
- - Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they are
all on the same payment schedule.
- - Determine the schedule: monthly, quarterly, semi-annually, annually, or in
certain selected months.
- - Fill out the relevant part of the Account Privileges Application. To add a
Systematic Withdrawal Plan to an existing account, contact your financial
representative or Investor Services.
RETIREMENT PLANS John Hancock Funds offers a range of qualified retirement
plans, including IRAs, SEPs, SARSEPs, TSAs, 401(k) plans, 403(b) plans, and
other pension and profit-sharing plans. Using these plans, you can invest in any
John Hancock fund with a low minimum investment of $250 or, for some group
plans, no minimum investment at all. To find out more, call Investor Services at
1-800-225-5291.
24 YOUR ACCOUNT
<PAGE>
FUND DETAILS
- -------------------------------------------------------------------------------
BUSINESS STRUCTURE
HOW THE FUNDS ARE ORGANIZED Each John Hancock growth fund is an open-end
management investment company or a series of such a company.
Each fund is supervised by a Board of Trustees or a Board of Directors, an
independent body which has ultimate responsibility for the fund's activities.
The board retains various companies to carry out the fund's operations,
including the investment adviser, custodian, transfer agent, and others (see
diagram). The board has the right, and the obligation, to terminate the fund's
relationship with any of these companies and to retain a different company if
the board believes that it is in the shareholders' best interests.
At a mutual fund's inception, the initial shareholder (typically the adviser)
appoints the fund's board. Thereafter, the board and the shareholders determine
the board's membership. The boards of the John Hancock growth funds may include
individuals who are affiliated with the investment adviser. However, the
majority of board members must be independent.
The funds do not hold annual shareholder meetings, but may hold special meetings
for such purposes as electing or removing board members, changing fundamental
policies, approving a management contract, or approving a 12b-1 plan (12b-1 fees
are explained in "Sales compensation").
[A flow chart that contains 9 rectangular-shaped boxes and illustrates the
hierarchy of how the funds are organized. Within the flowchart, there are 5
tiers. The tiers are connected by shaded lines.
Shareholders represent the first tier. There is a shaded vertical arrow on the
left-hand side of the page. The arrow has arrowheads on both ends and is
contained within two horizontal, shaded lines. This is meant to highlight
tiers two and three which focus on Distribution and Shareholder Services.
Financial Services Firms and their Representatives is shown on the second
tier. Principal Distributor and Transfer Agent are shown on the third tier.
A shaded vertical arrow on the right-hand side of the page denotes those
entities involved in Asset Management. The arrow has arrowheads on both ends
and is contained within two horizontal, shaded lines. This fourth tier
includes the Subadvisor, Investment Advisor and the Custodian.
The fifth tier contains the Trustees/Directors.]
FUND DETAILS 25
<PAGE>
ACCOUNTING COMPENSATION The funds compensate the adviser for performing tax and
financial management services. Annual compensation for 1996 is estimated to be
0.01875% of each fund's average net assets.
PORTFOLIO TRADES In placing portfolio trades, the adviser may give preference to
brokerage firms that market the fund's shares or that are affiliated with John
Hancock Mutual Life Insurance Company, but only in cases where no other firm
appears to offer a better combination of quality execution (i.e., timeliness and
completeness) and favorable price.
<TABLE>
ADVERTISEMENT OF PERFORMANCE The funds may include figures for yield (where
appropriate) and total return in advertisements and other sales materials, as
follows:
<CAPTION>
===============================================================================
DEFINITIONS OF PERFORMANCE MEASURES
===============================================================================
Measure Definition
<S> <C>
Cumulative total Overall dollar or percentage change of a
return hypothetical investment over the stated time
period.
Average annual Cumulative total return divided by the
total return number of years in the period. The result is
an average and is not the same as the actual
year-to-year results.
Yield A measure of income, calculated by taking
the net investment income per share for a
30-day period, dividing it by the offering
price per share on the last day of the period
(if there is more than one offering price, the
highest price is used), and annualizing the
result. While this is the standard accounting
method for calculating yield, it does not
reflect the fund's actual bookkeeping; as a
result, the income reported or paid by the
fund may be different.
</TABLE>
All performance figures assume that dividends are reinvested, and show the
effect of all applicable sales charges. Class A performance figures generally
are calculated using the maximum sales charge. Because each share class has its
own sales charge structure, the classes have different performance results.
- -------------------------------------------------------------------------------
SALES COMPENSATION As part of their business strategies, the funds, along with
John Hancock Funds, pay compensation to financial services firms that sell the
funds' shares. These firms typically pass along a portion of this compensation
to your financial representative.
Compensation payments originate from two sources: from sales charges and from
12b-1 fees that are paid out of the fund in assets (the name refers to the
federal securities regulation that authorizes annual fees of this type). The
12b-1 fee rates vary by fund and by share class, according to Rule 12b-1 plans
adopted by the funds' respective boards. The sales charges and 12b-1 fees paid
by investors are detailed in the fund-by-fund information. The portions of these
expenses that are reallowed to financial services firms are shown below.
INITIAL COMPENSATION Whenever you make an investment in a fund or funds, the
financial services firm receives either a reallowance from the initial sales
charge or a commission, as described below. The firm also receives
the first year's service fee at this time.
From time to time, as an additional incentive to these firms, John Hancock Funds
may increase the reallowance on Class A shares to as much as the entire
front-end sales charge.
ANNUAL COMPENSATION Beginning with the second year after an investment is made,
the financial services firm receives an annual service fee of 0.25% of its total
eligible net assets. This fee is paid quarterly in arrears. Firms affiliated
with John Hancock, which include Tucker Anthony, Sutro & Company and John
Hancock Distributors, may receive an additional fee of up to 0.05% a year of
their total eligible net assets.
STATE REGISTRATION OF FUNDS You may only invest in or exchange into funds that
are registered in the state in which you live.
INVESTMENT GOALS Except for Discovery Fund, Special Opportunities Fund and
Emerging Growth Fund, each fund's investment goal is fundamental, meaning that
it may only be changed with shareholder approval.
26 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
CLASS A INVESTMENTS
==========================================================================================================================
MAXIMUM
SALES CHARGE REALLOWANCE MAXIMUM
PAID BY INVESTORS OR COMMISSION SERVICE FEE TOTAL COMPENSATION (1)
(% of offering price) (% of offering price) (% of net investment) (% of offering price)
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Up to $49,999 5.00% 4.01% 0.25% 4.25%
- --------------------------------------------------------------------------------------------------------------------------
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
- --------------------------------------------------------------------------------------------------------------------------
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
- --------------------------------------------------------------------------------------------------------------------------
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
- --------------------------------------------------------------------------------------------------------------------------
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
- --------------------------------------------------------------------------------------------------------------------------
Regular investments of
$1 million or more
- --------------------------------------------------------------------------------------------------------------------------
First $1M - $4,999,999 -- 1.00% 0.25% 1.24%
- --------------------------------------------------------------------------------------------------------------------------
Next $1 - $5M above that -- 0.50% 0.25% 0.74%
- --------------------------------------------------------------------------------------------------------------------------
Next $1M and more above that -- 0.25% 0.25% 0.49%
- --------------------------------------------------------------------------------------------------------------------------
Waiver investments(2) -- 0.00% 0.25% 0.25%
==========================================================================================================================
CLASS B INVESTMENTS
==========================================================================================================================
MAXIMUM
REALLOWANCE MAXIMUM
OR COMMISSION SERVICE FEE TOTAL COMPENSATION (1)
(% of offering price) (% of net investment) (% of offering price)
- --------------------------------------------------------------------------------------------------------------------------
All amounts 3.75% 0.25% 4.00%
- --------------------------------------------------------------------------------------------------------------------------
(1) Reallowance/commission percentages and service fee percentages are calculated from different amounts, and therefore
may not equal total compensation percentages if combined using simple addition.
(2) Refers to any investments made by municipalities, financial institutions and trusts that take advantage of the sales
charge waivers described earlier in this prospectus.
CDSC revenues collected by John Hancock Funds may be used to fund commission payments when there is no initial sales charge.
</TABLE>
FUND DETAILS 27
<PAGE>
- -------------------------------------------------------------------------------
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of each fund's
risk profile in the fund-by-fund information.
The funds are permitted to utilize -- within limits established by the Trustees
- -- certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent a fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following page are brief descriptions of these
securities and practices, along with the risks associated with them. The funds
follow certain policies which may reduce these risks.
As with any mutual fund, there is no guarantee that the performance of a John
Hancock growth fund will be positive over any period of time -- days, months, or
years. However, stock funds as a category have historically performed better
over the long term than bond or money market funds.
Below are definitions of the types of investment risk associated with higher
risk securities and practices:
CORRELATION RISK The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). Incomplete correlation can result
in unanticipated leverage risk.
CREDIT RISK The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation.
CURRENCY RISK The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments, and may widen any losses.
INFORMATION RISK The risk that key information about a security or market is
inaccurate or unavailable.
INTEREST RATE RISK The risk of losses attributable to the behavior of interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.
LEVERAGE RISK Associated with securities or practices (such as borrowing) that
"leverage" small changes in the value of a given index or security into large
changes.
- - HEDGED When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position which
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
- - SPECULATIVE To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
LIQUIDITY RISK The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative affect on fund management or
performance.
MANAGEMENT RISK The risk that strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
MARKET RISK The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than the price originally paid for it, or less than it was worth
at an earlier time. Market risk operates on all levels of a market; it may
affect a single issuer, industry, sector of the economy or the market as a
whole. Common to all stocks and bonds and the mutual funds that invest in them.
NATURAL EVENT RISK The risk of losses attributable to natural disasters, crop
failures and similar events.
OPPORTUNITY RISK The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in other investments.
POLITICAL RISK The risk of losses directly attributable to government or
political actions of any sort. These actions may range from changes in tax or
trade statutes to expropriation, governmental collapse and war.
VALUATION RISK The risk that a fund has valued certain of its securities at a
higher price than it can sell them for.
28 FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
HIGHER RISK SECURITIES AND PRACTICES
====================================================================================================================================
This table shows each funs's investment limitations as
a percent of portfolio assets italic type if gross
assets, roman type if net assets). "NPL" indicates there
is no policy limit. In each case the principal types of DISICI-
risk are listed (see previous page for definitions). PLINED EMERGING REGIONAL SPECIAL SPECIAL
GROWTH DISCOVERY GROWTH GROWTH BANK EQUITIES OPPORTUNITIES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT PRACTICES
REPURCHASE AGREEMENTS The purchase of a security that must
later be sold back to the issuer at the same price plus
interest. Credit risk. NPL NPL NPL NPL NPL NPL NPL
REVERSE REPURCHASE AGREEMENTS The sale of a security that
must later be bought back at the same price minus interest.
Leverage, credit risks. 33.3% 5% 33.3% 33.3% 33.3% 33.3% 33.3%
SECURITIES LENDING The lending of securities to financial
institutions, which provide cash or government securities as
collateral. Credit risk. 5% 33.3% 30% 33.3% 0% 33.3% 33.3%
SHORT SALES The selling of securities which have been
borrowed on the expectation that the market price will drop.
- - Hedged. Hedged leverage, market, correlation, liquidity,
opportunity risks. 0% NPL NPL NPL 0% NPL NPL
- - Speculative. Speculative leverage, market, liquidity risks. 0% 0% 0% 0% 0% 0% 5%
SHORT-TERM TRADING Selling a security soon after purchase.
A portfolio engaging in short-term trading will have higher
turnover and transaction expenses. Market risk. NPL NPL NPL NPL NPL NPL NPL
WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS The purchase
or sale of securities for delivery at a future date; market
value may change before delivery. Market, opportunity, leverage
risks. NPL NPL NPL NPL NPL NPL NPL
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES -- NON-DERIVATIVE
NON-INVESTMENT GRADE CONVERTIBLE SECURITIES Debt securities
that convert into equity securities at a future time.
Convertibles rated below BBB/Baa are considered "junk" bonds.
Credit, market, interest rate risks, liquidity, valuation and
information risks. 0% 0% 10% 5% 0% 0% 0%
FOREIGN EQUITIES
- - Stocks issued by foreign corporations. Market, currency,
information, natural event, political risks. 0% 25% NPL 0% 0% NPL NPL
- - American or European depository receipts, which are
dollar-denominated securities typically issued by American
or European banks and are based on ownership of securities
issued by a foreign corporation. Market, currency, information,
natural event, political risks. 10% 25% NPL 15% 0% NPL NPL
RESTRICTED AND ILLIQUID SECURITIES Securities not traded on the
open market. May include illiquid Rule 144A securities.
Liquidity, market risks. 15% 15% 10% 15% 10% 15% 15%
- -----------------------------------------------------------------------------------------------------------------------------------
SECURITIES -- DERIVATIVE
FINANCIAL FUTURES AND OPTIONS; SECURITIES AND INDEX OPTIONS
Contracts involving the right or obligation to deliver or
receive assets or money depending on the performance of one or
more assets or an economic index.
- - Futures and related options. Market, hedged or speculative
leverage, correlation, liquidity, opportunity risks. NPL NPL NPL NPL NPL NPL NPL
- - Options on securities and indices. Market, hedged or
speculative leverage, correlation, liquidity, opportunity
risks. 5% 5%(1) 10%(1) NPL 5% NPL NPL
CURRENCY CONTRACTS Contracts involving the right or obligation
to buy or sell a given amount of foreign currency at a specified
price and future date.
- - Hedged. Currency, hedged leverage, correlation, liquidity,
opportunity risks. 0% 25% NPL NPL 0% NPL NPL
- - Speculative. Currency, speculative leverage, liquidity risks. 0% 0% 0% 0% 0% 0% 0%
(1) Applies to purchases only.
</TABLE>
FUND DETAILS 29
<PAGE>
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
Two documents are available that offer further information on John Hancock
Growth Funds:
ANNUAL/SEMI-ANNUAL REPORT TO SHAREHOLDERS
Includes financial statements, detailed performance information, portfolio
holdings, a statement from the portfolio manager, and the auditor's report.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual/semi-annual report is included in the SAI.
The Statement of Additional Information has been filed with the Securities and
Exchange Commission and is incorporated by reference into this prospectus (is
legally part of this prospectus).
To request a free copy of the current annual/semi-annual report or the SAI,
please write or call:
John Hancock Investor Services Corporation
P.O. Box 9116
Boston, MA 02205-9116
Telephone: 1-800-225-5291
TDD: 1-800-544-6713
Email: http://jhancockfunds.com
[LOGO] JOHN HANCOCK FUNDS
A GLOBAL INVESTMENT MANAGEMENT FIRM
101 Huntington Avenue
Boston, Massachusetts 02199-7603
[LOGO]
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JOHN HANCOCK DISCOVERY FUND
Statement of Additional Information
Class A and Class B Shares
July 1, 1996
This Statement of Additional Information provides information about John Hancock
Discovery Fund (the "Fund") in addition to the information that is contained in
the combined Growth Funds' Prospectus dated July 1, 1996 (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
Page
Organization of the Fund...................................... 2
Investment Objective and Policies............................. 2
Investment Restrictions....................................... 13
Those Responsible for Management.............................. 16
Investment Advisory and Other Services........................ 23
Distribution Contracts........................................ 24
Net Asset Value............................................... 25
Initial Sales Charge on Class A Shares........................ 26
Deferred Sales Charge on Class B Shares....................... 27
Special Redemptions........................................... 28
Additional Services and Programs
for Class A and Class B Shares............................. 28
Description of the Fund's Shares.............................. 29
34SAI 7/96
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Tax Status.................................................... 30
Calculation of Performance.................................... 33
Brokerage Allocation.......................................... 34
Transfer Agent Services....................................... 37
Custody of Portfolio.......................................... 37
Independent Auditors.......................................... 38
Financial Statements.......................................... 38
Appendix A - Description of Bond
and Commercial Paper Ratings............................... A-1
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 goals,
strategies and risks discussed in the Prospectus.
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. 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.
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Investment in Foreign Securities. The Fund may invest 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.
Investments in foreign securities may involve a greater degree of risk than
those in domestic securities. There is generally less publicly available
information about foreign companies 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. Also, foreign regulation may differ considerably from
domestic regulation of stock exchanges, brokers and securities.
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.
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,
nationalization 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.
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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. A repurchase agreement is a contract under which the Fund
acquires a security for a relatively short period (usually not more than 7 days)
subject to the obligation of the seller to repurchase and the Fund to resell
such security at a fixed time and price (representing the Fund's cost plus
interest). The Fund will enter into repurchase agreements only with member banks
of the Federal Reserve System and with "primary dealers" in U.S. Government
securities. The Adviser will continuously monitor the creditworthiness of the
parties with whom the Fund enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income and lack of
access to income during this period and the expense of enforcing its rights.
Reverse Repurchase Agreements. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank or securities firm with an agreement that the Fund will buy
back the securities at a fixed future date at a fixed price plus an agreed
amount of "interest" which may be reflected in the repurchase price. Reverse
repurchase agreements are considered to be borrowings by the Fund. The Fund will
use proceeds obtained from the sale of securities pursuant to reverse repurchase
agreements to purchase other investments. The use of borrowed funds to make
investments is a practice known as "leverage," which is considered speculative.
Use of reverse repurchase agreements is an investment technique that is intended
to increase income. Thus, the Fund will enter into a reverse repurchase
agreement only when the Adviser determines that the interest income to be earned
from the investment of the proceeds is greater than the interest expense of the
transaction. However, there is a risk that interest expense will nevertheless
exceed the income earned. Reverse repurchase agreements involve the risk that
the market value of securities purchased by the Fund with proceeds of the
transaction may decline below the repurchase price of the securities sold by the
Fund which it is obligated to repurchase. The Fund will also continue to be
subject to the risk of a decline in the market value of the securities sold
under the agreements because it will reacquire those securities upon effecting
their repurchase. To minimize various risks associated with reverse repurchase
agreements, the Fund will establish and maintain with the Fund's custodian a
separate account consisting of highly liquid, marketable securities in an amount
at least equal to the repurchase prices of the securities (plus any accrued
interest thereon) under such agreements. In addition, the Fund will not enter
into reverse repurchase agreements and other borrowings exceeding in the
aggregate 33 1/3% of the market value of its total assets. The Fund will enter
into reverse repurchase agreements only with selected registered broker/dealers
or with federally insured banks or savings and loan associations which are
approved in advance as being creditworthy by the Board of Trustees. Under
procedures established by the Board of Trustees, the Adviser will monitor the
creditworthiness of the firms involved.
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Restricted Securities. The Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including securities offered and sold to "qualified institutional buyers" under
Rule 144A under the 1933 Act. However, the Fund will not invest more than 15% of
its assets in illiquid investments, which include repurchase agreements maturing
in more than seven days, securities that are not readily marketable and
restricted securities. However, if the Board of Trustees determines, based upon
a continuing review of the trading markets for specific Rule 144A securities,
that they are liquid, then such securities may be purchased without regard to
the 15% limit. The Trustees may adopt guidelines and delegate to the Adviser the
daily function of determining the monitoring and liquidity of restricted
securities. The Trustees, however, will retain sufficient oversight and be
ultimately responsible for the determinations. The Trustees will carefully
monitor the Fund's investments in these securities, focusing on such important
factors, among others, as valuation, liquidity and availability of information.
This investment practice could have the effect of increasing the level of
illiquidity in the Fund if qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
The Fund may acquire other restricted securities including securities for which
market quotations are not readily available. These securities may be sold only
in privately negotiated transactions or in public offerings with respect to
which a registration statement is in effect under the 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. The Fund may invest up
to 15% of its net assets in short-term investment grade (i.e., rated at the time
of purchase AAA, AA, A or BBB by S&P or Aaa, Aa, A or Baa by Moody's) debt
securities. 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.
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Foreign Currency Transactions. The foreign currency transactions of the Fund may
be conducted on a spot (i.e., cash) basis at the spot rate for purchasing or
selling currency prevailing in the foreign exchange market. The Fund may also
deal in forward foreign currency contracts involving currencies of the different
countries in which it will invest as a hedge against possible variations in the
foreign exchange rate between these currencies. This is accomplished through
contractual agreements to purchase or sell a specified currency at a specified
future date and price set at the time of the contract. The Fund's dealings in
forward foreign currency contracts will be limited to hedging either specific
transactions or portfolio positions. The Fund will not attempt to hedge all of
its foreign portfolio positions. The Fund will not engage in speculative forward
currency transactions.
If the Fund enters into a forward contract to purchase foreign currency, its
custodian bank will segregate cash or liquid high-grade liquid debt securities
(i.e. securities rated in one of the top three rating categories by Moody's or
S&P in a separate account of the Fund in an amount equal to the value of the
Fund's total assets committed to the consummation of such forward contract.
Those assets will be valued at market daily and if the value of the assets in
the separate account declines, additional cash or liquid assets will be placed
in the account so that the value of the account will equal the amount of the
Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency should rise. Moreover,
it may not be possible for the Fund to hedge against a devaluation that is so
generally anticipated that the Fund is not able to contract to sell the currency
at a price above the devaluation level it anticipates.
The cost to the Fund of engaging in foreign currency transactions varies with
such factors as that currency involved, the length of the contract period and
the market conditions then prevailing. Since transactions in foreign currency
are usually conducted on a principal basis, no fees or commissions are involved.
Financial Futures Contracts. The Fund may hedge its portfolio by selling
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.
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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
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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 and 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
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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
(the "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 or S&P, 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. 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.
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
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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.
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.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
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When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, the Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
Short Sales. The Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. The Fund may also engage in
short sales to attempt to limit its exposure to a possible market decline in the
value of its portfolio securities through short sales of securities which the
Adviser believes possess volatility characteristics similar to those being
hedged. To effect such a transaction, the Fund must borrow the security sold
short to make delivery to the buyer. The Fund then is obligated to replace the
security borrowed by purchasing it at the market price at the time of
replacement. Until the security is replaced, the Fund is required to pay to the
lender any accrued interest and may be required to pay a premium.
The Fund will realize a gain if the security declines in price between the date
of the short sale and the date on which the Fund replaces the borrowed security.
On the other hand, the Fund will incur a loss as a result of the short sale if
the price of the security increases between those dates. The amount of any gain
will be decreased, and the amount of any loss increased, by the amount of any
premium or interest or dividends the Fund may be required to pay in connection
with a short sale. The successful use of short selling as a hedging device may
be adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the SEC, if the Fund engages in
short sales, it must put in a segregated account (not with the broker) an amount
of cash or U.S. Government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). In addition, until the Fund replaces the borrowed
security, it must daily maintain the segregated account at such a level that the
amount deposited in it plus the amount deposited with the broker as collateral
will equal the current market value of the securities sold short. Except for
short sales against the box, the amount of the Fund's net assets that may be
committed to short sales is limited and the securities in which short sales are
made must be listed on a national securities exchange.
Short selling may produce higher than normal portfolio turnover which may result
in increased transaction costs to the Fund and may result in gains from the sale
of securities deemed to have been held for less than three months, which gains
must be less than 30% of the Fund's gross income for a taxable year in order for
the Fund to qualify as a regulated investment company under the Code for that
year.
-11-
<PAGE>
Short Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income. Short
term trading may have the effect of increasing portfolio turnover rate. A high
rate of portfolio turnover (100% or greater) involves corresponding higher
transaction expenses and may make it more difficult for the Fund to qualify as a
regulated investment company for federal income tax purposes.
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.
-12-
<PAGE>
(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.
-13-
<PAGE>
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 15%
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 securities trading
account (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
-14-
<PAGE>
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 predecessors, 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").
-15-
<PAGE>
The following table sets forth the principal occupation or employment of the
Trustees and principal officers of the Fund during the past five years.
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
*Edward J. Boudreau, Jr. Chairman (3,4) Chairman and Chief Executive
101 Huntington Avenue Officer, the Adviser and The
Boston, Massachusetts Berkeley Financial Group ("The
Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited; ("Advisers
International"); John Hancock
Funds, Inc., ("John Hancock
Funds"); John Hancock Investor
Services Corporation ("Investor
Services"), Transamerica Fund
Management Company ("TFMC") and
Sovereign Asset Management
Corporation ("SAMCorp");
(hereinafter the Adviser, the
Berkeley Group, NM Capital,
Advisers International, John
Hancock Funds, Investor Services
and SAMCorp are collectively
referred to as the "Affiliated
Companies"); Chairman, First
Signature Bank & Trust; Director,
John Hancock Freedom Securities
Corp., John Hancock Capital Corp.,
New England/Canada Business
Council; Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; President, the Adviser
(until July 1992); Chairman, John
</TABLE>
- ------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
-17-
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
Hancock Distributors, Inc.
("Distributors") until April 1994.
Dennis S. Aronowitz Trustee (1,2) Professor of Law, Boston University
Boston University School of Law; Trustee, Brookline
Boston, Massachusetts Savings Bank.
June 1931
Richard P. Chapman, Jr. Trustee (1,2) President, Brookline Savings Bank;
160 Washington Street Director, Federal Home Loan Bank of
Brookline, Massachusetts Boston (lending); Director, Lumber
February 1935 Insurance Companies (fire and
casualty insurance); Trustee,
Northeastern University
(education); Director, Depositors
Insurance Fund, Inc. (insurance).
William J. Cosgrove Trustee (1,2) Vice President, Senior Banker and
20 Buttonwood Place Senior Credit Officer, Citibank,
Saddle River, New Jersey N.A. (retired September 1991);
January 1933 Executive Vice President, Citadel
Group Representatives, Inc.; EVP
Resource Evaluation Inc.
(consulting, October 1991 - October
1993); Trustee, the Hudson City
Savings Bank (until October 1995).
Douglas M. Costle Trustee (1,2,3) Director, Chairman of the Board and
RR2 Box 480 Distinguished Senior Fellow,
Woodstock, Vermont 05091 Institute for Sustainable
July 1939 Communities, Montpelier, Vermont
(since 1991). Dean Vermont Law
School (until 1991). Director, Air
and Water Technologies Corporation
(environmental services and
equipment), Niagara Mohawk Power
Company (electric services) and
MITRE Corporation (governmental
consulting services).
</TABLE>
- ------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
-18-
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
Leland O. Erdahl Trustee (1,2) Director of Santa Fe Ingredients
9449 Navy Blue Court Company of California, Inc. and
Las Vegas, NV 89117 Santa Fe Ingredients Company, Inc.
December 1928 (private food processing
companies); Director of Uranium
Resources, Inc.; President of
Stolar, Inc. (from 1987-1991) and
President of Albuquerque Uranium
Corporation (from 1985-1992);
Director of Freeport-McMoRan Copper
& Cold Company Inc., Hecla Mining
Company,
Canyon Resources Corporation and
Original Sixteen to One Mine, Inc.
(from 1984-1987 and from 1991 to
1995)(management consultant).
Richard A. Farrell
Farrell, Healer & Company, Inc. Trustee (1,2) President of Farrell, Healer & Co.,
160 Federal Street -- 23rd Floor (venture capital management firm
Boston, MA 02110 (since 1980); Prior to 1980, headed
November 1932 the venture capital group at Bank
of Boston Corporation.
Gail D. Fosler Trustee (1,2) Vice President and Chief Economist,
4104 Woodbine Street The Conference Board (non-profit
Chevy Chase, MD economic and business research).
December 1947
William F. Glavin Trustee (1,2) President, Babson College; Vice
Babson College Chairman, Xerox Corporation until
Horn Library June 1989; Director, Caldor Inc.,
Babson Park, MA 02157 Reebok, Ltd. (since 1994), and Inco
March 1931 Ltd.
</TABLE>
- ------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
-19-
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
Bayard Henry Trustee (1,2) Corporate Advisor; Director,
31 Milk Street Fiduciary Trust Company (a trust
Boston, Massachusetts company); Director, Groundwater
July 1931 Technology, Inc. (remediation);
Samuel Cabot, Inc.; Advisor,
Kestrel Venture Management.
Dr. John A. Moore Trustee (1,2) President and Chief Executive
Institute for Evaluating Officer, Institute for Evaluating
Health Risks Health Risks, (nonprofit
1101 Vermont Avenue N.W. institution) ( since September
Suite 608 1989).
Washington, DC 20005
February 1939
Patti McGill Peterson Trustee (1,2) President, St. Lawrence University;
St. Lawrence University Director, Niagara Mohawk Power
110 Vilas Hall Corporation and Security Mutual
Canton, NY 13617 Life.
May 1943
John W. Pratt Trustee (1,2) Professor of Business
2 Gray Gardens East Administration at Harvard
Cambridge, MA 02138 University Graduate School of
September 1931 Business Administration (since
1961).
*Richard S. Scipione Trustee (3) General Counsel, the Life Insurance
John Hancock Place Company; Director, the Adviser, the
P.O. Box 111 Affiliated Companies, John Hancock
Boston, Massachusetts Distributors, Inc., JH Networking
August 1937 Insurance Agency, Inc., John
Hancock Subsidiaries, Inc.,
SAMCorp, NM Capital and John
Hancock Property and Casualty
Insurance and its affiliates (until
November, 1993); Trustee; The
Berkeley Group;
</TABLE>
- ------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
-20-
<PAGE>
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
Edward J. Spellman, CPA Trustee (1,2,4) Partner, KPMG Peat Marwick LLP
259C Commercial Bld. (retired June 1990).
Lauderdale, FL
November 1932
</TABLE>
- ------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
-21-
<PAGE>
The executive officers of the Trust and their principal occupations during the
past five years are set forth below. Unless otherwise indicated, the business
address of each is 101 Huntington Avenue, Boston, Massachusetts 02199.
<TABLE>
<CAPTION>
Name, Address Position(s) Held Principal Occupation(s)
and Date of Birth With Registrants During Past 5 Years
- ----------------- ---------------- -------------------
<S> <C> <C>
Robert G. Freedman Vice Chairman and Chief Vice Chairman and Chief Investment
July 1938 Investment Officer (4) Officer, the Adviser; President
(until December 1994).
Anne C. Hodsdon Trustee and President (4) President and Chief Operating
August 1953 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, Senior Vice President, the Adviser.
February 1935 Chief Financial Officer
Thomas H. Drohan Senior Vice President Senior Vice President and
December 1936 and Secretary Secretary, the Adviser.
John A. Morin Vice President Vice President, the Adviser.
July 1950
Susan S. Newton Vice President, Assistant Vice President and Assistant
March 1950 Secretary and Compliance Secretary, the Adviser.
Officer
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
November 1946
</TABLE>
- ------------
* Trustee may be deemed to be an "interested person" of the Trust as defined
in the Investment Company Act of 1940.
(1) Member of the Audit Committee of the Trust.
(2) Member of the Committee on Administration of the Trust.
(3) Member of the Executive Committee of the Trust. The Executive Committee may
generally exercise most powers of the Trustees between regularly scheduled
meetings of the Board of Trustees.
(4) Member of the Investment Committee of the Adviser.
As of March 31, 1996, the officers and trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares. At that date, no
other person owned of record or beneficially as much as 5% of the outstanding
shares of the Fund.
-21-
<PAGE>
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services for the Fund's most recently completed
fiscal year. The three non-Independent Trustees, Ms. Hodson, Messrs. Boudreau
and Scipione, and each of the officers of the Fund are interested persons of the
Adviser, and/or affiliates are compensated by the Adviser and receive no
compensation from the Fund for their services.
<TABLE>
<CAPTION>
Total Compensation From
Pensions or Retirement Estimated Annual the Fund and John Hancock
Aggregate Compensation Benefits Accrued as Part Benefits Upon Fund Complex to Trustees1
Independent Trustees From the Fund of the Fund's Expenses Retirement (Total of 12 Funds)
<S> <C> <C> <C> <C>
Dennis S. Aronowitz* $ 0 -- -- $ 0
William A. Barron, III**+ $ 551 -- -- $ 41,750
Richard P. Chapman, Jr.* $ 0 -- -- $ 0
William J. Cosgrove* $ 0 -- -- $ 0
Douglas M. Costle** $ 551 -- -- $ 41,750
Leland O. Erdahl** $ 551 -- -- $ 41,750
Richard A. Farrell** $ 571 -- -- $ 43,250
Gail D. Fosler* $ 0 -- -- $ 0
William F. Glavin** $ 551 -- -- $ 37,500
Patrick Grant**+ $ 578 -- -- $ 43,750
Bayard Henry* $ 0 -- -- $ 0
Ralph Lowell, Jr.** $ 551 -- -- $ 41,750
Dr. John A. Moore** $ 551 -- -- $ 41,750
Patti McGill Peterson** $ 551 -- -- $ 41,750
John W. Pratt** $ 551 -- -- $ 41,750
-22-
<PAGE>
Edward J. Spellman* $ 0 -- -- $ 0
$ 5,557 $416,750
</TABLE>
1 The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees is as of the calendar year ended December 31, 1995.
* Trustees of 17 funds in the John Hancock Complex. As of the Fund's most
recently completed fiscal year, these persons were not yet Trustees of the
Fund and did not receive any compensation from the Fund during such fiscal
year.
** Trustees of 12 funds in the John Hancock Complex.
+ As of the date of this document, these persons no longer serve as Trustees
of the Fund.
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 Fund 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 130 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 Adviser
(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
-23-
<PAGE>
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.
As discussed in the Prospectus and as provided by the investment management
contract, the Fund pays the Adviser monthly an investment management fee, which
is accrued daily, based on a stated percentage of the daily net assets of the
Fund as follows:
Net Asset Value Annual Rate
- --------------- -----------
First $750,000,000 0.75%
Amount over 750,000,000 0.70%
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 accept 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% for Class A and Class B,
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. In each case, up to 0.25% is for service expenses and the
remaining amount is for
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distribution expenses. The distribution fees will be used to reimburse the
Distributors for their distribution expenses, including but not limited to: (i)
initial and ongoing sales compensation to Selling Brokers and others (including
affiliates of the Distributors) 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 Distributors are not
fully reimbursed for payments or expenses they incur 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. The Fund
does not treat unreimbursed expenses under the Plan as a liability of the Fund.
For the fiscal year ended July 31, 1995 an aggregate of $552,329 of distribution
expenses or 2.14% of the average net assets of the Class B shares of the Fund,
was not reimbursed or recovered by the Distributors through the receipt of
deferred sales charges or 12b-1 fees in prior periods.
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 Distributors, 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
holders of Class A shares and Class B shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the 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 their services for the
Fund:
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Expense Items Class A Class B
- ------------- ------- -------
Advertising and Promotion Expense $1,602 $ 10,712
Printing and Mailing of Prospectuses to New Shareholders $ 269 $ 973
Trail Payments to Underwriters and Selling Brokers and $3,376 $157,909
Compensation to Sales Personnel $5,795 $ 26,675
Interest, Carrying or other Finance Charges $ 0 $ 53,222
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. The Fund will not price its
securities on the following national holidays: New Year's Day; Presidents' Day;
Good Friday; Memorial Day; Independence Day; Labor Day; Thanksgiving Day; and
Christmas Day. On any day an international market is closed and the New York
Stock Exchange is open, any foreign securities will be valued at the prior day's
close with the current day's exchange rate. Trading of foreign securities may
take place on Saturdays and U.S. business holidays on which the Fund's NAV is
not calculated. Consequently, the Fund's portfolio securities may trade and the
NAV of the Fund's redeemable securities may be significantly affected on days
when a shareholder has no access to the Fund.
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.
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Combined Purchases. In calculating the sales charge applicable to purchases of
Class A shares made at one time, the purchases will be combined if made by (a)
an individual, his spouse and their children under the age of 21, purchasing
securities for his or their own account, (b) a trustee or other fiduciary
purchasing for a single trust estate or 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.
Class A shares may also be purchased without an initial sales charge in
connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
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<PAGE>
DEFERRED SALES CHARGE ON CLASS B SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so that the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B shares which are redeemed within six
years of purchase will be subject to a contingent deferred sales charge ("CDSC")
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
shares being redeemed. Accordingly, no CDSC will be imposed on increases in
account value above the initial purchase prices, including Class B shares
derived from reinvestment of dividends or capital gains distributions.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for the purpose of determining the number of
years from the time of any payment for the purchase of shares, all payments
during a month will be aggregated and deemed to have been made on the last day
of the month.
Proceeds from the CDSC are paid to 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 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
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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.
A redemption or exchange of shares of the Fund is a taxable transaction
for federal income tax purposes even if the reinvestment privilege is exercised,
and any gain or loss realized by a shareholder on the redemption or other
disposition of Fund shares will be treated for tax purposes as described under
the caption "TAX STATUS."
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Trust,
without par value. Under the Declaration of Trust, the Trustees have the
authority to create and classify shares of beneficial interest in separate
series, without further action by shareholders. As of the date of this Statement
of Additional Information, the Trustees have authorized shares of the Fund and
two other series. The Declaration of Trust also authorizes the Trustees to
classify and reclassify the shares of the Fund, or any new series of the Fund,
into one or more classes. As of the date of this Statement of Additional
Information, the Trustees have authorized the issuance of two classes of shares
of the Fund, designated as Class A and Class B.
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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 of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to Class A and Class B shares will be
borne exclusively by the applicable 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. 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.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Trust has no intention of holding annual meetings of shareholders.
Trust shareholders may remove a Trustee by the affirmative vote of at least
two-thirds of the Trust's outstanding shares and the Trustees shall promptly
call a meeting for such purpose when requested to do so in writing by the record
holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the trust. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any 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.
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.
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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 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 in accordance with the timing requirements of the
Code.
The Fund will be subject to a four percent nondeductible Federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. The
Fund intends under normal circumstances to avoid liability for this tax by
satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long-term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) The tax treatment described above will apply without
regard to whether distributions are received in cash or reinvested in additional
shares of the Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, divided by the number of
shares received in the reinvestment.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of
distributions to shareholders. Any such transactions that are not
directly-related to the Fund's investment in stock or securities, possibly
including any such transaction not used for hedging purposes, may increase the
amount of gain it is deemed to recognize from the sale of certain investments or
derivatives held for less than three months, which gain is limited under the
Code to less than 30% of its gross income for each taxable year, and may under
future Treasury regulations produce income not among the types of "qualifying
income" from which the Fund must derive at least 90% of its gross income for
each taxable year. If the net foreign exchange loss for a year treated as
ordinary loss under Section 988 were to exceed the Fund's investment company
taxable income computed without regard to such loss the resulting overall
ordinary loss for such year would not be deductible by the Fund or its
shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax convections
between certain countries and the U.S. may reduce or eliminate such taxes.
Investors may be entitled to claim U.S. foreign tax credits or deductions with
respect to foreign income taxes or certain other foreign taxes ("qualified
foreign taxes"), subject to certain provisions and limitations contained in the
Code. Specifically,
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<PAGE>
if more than 50% of the value of the Fund's total assets at the close of any
taxable year consists of stock or securities of foreign corporations, the Fund
may file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends and distributions actually received)
their pro rata shares of qualified foreign taxes paid by the Fund even though
not actually received by them, and (ii) treat such respective pro rata portions
as qualified foreign taxes paid by them.
If the Fund makes this election, shareholders may then deduct such pro rata
portions of qualified foreign taxes in computing their taxable incomes, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of qualified foreign taxes paid by the Fund,
although such shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit for such foreign
taxes may be required to treat a portion of dividends received from the Fund as
a separate category of income for purposes of computing the limitations on the
foreign tax credit. Tax-exempt shareholders will ordinarily not benefit from
this election. Each year (if any) that the Fund files the election described
above, its shareholders will be notified of the amount of (i) each shareholder's
pro rata share of qualified foreign taxes paid by the Fund and (ii) the portion
of Fund dividends which represents income from each foreign country. If the Fund
does not satisfy the 50% requirement described above or otherwise does not make
the election, the Fund will deduct the foreign taxes it pays in determining the
amount it has available for distribution to shareholders, and shareholders will
not include these foreign taxes in their income, nor will they be entitled to
any tax deductions or credits with respect to such taxes.
If the Fund invests in stock of certain non-U.S. corporations that receive at
least 75% of their annual gross income from passive sources (such as interest,
dividends, rents, royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Fund would
not be able to pass through to its shareholders any credit or deduction for such
a tax. Certain an elections may, if available, ameliorate these adverse tax
consequences, but any such election would require the Fund to recognize the
taxable income or gain without the concurrent receipt of cash. The Fund may
limit and/or manage its holdings in passive foreign investment companies to
minimize its tax liability or maximize its return from these investments.
Limitations imposed by the Code on regulated investment companies like the Fund
may restrict the Fund's ability to enter into options and futures contracts,
foreign currency positions and foreign currency forward contracts. Certain of
these transactions may cause the Fund to recognize gains or losses from marking
to market even though its positions have not been sold or terminated and may
affect the character as long-term or short-term (or, in the case of certain
foreign currency options, futures and forward contracts, as ordinary income or
loss) of some capital gains and losses realized by the Fund. Additionally,
certain of the Fund's losses on transactions involving options, futures, forward
contracts, and any offsetting or successor positions in its portfolio may be
deferred rather than being taken into account currently in calculating the
Fund's taxable income or gain. Certain of such transactions may also cause the
Fund to dispose of investments sooner than would otherwise have occurred. These
transactions may therefore affect the amount, timing and character of the Fund's
distributions to shareholders. The Fund will take into account the special tax
rules applicable to options, futures or forward contracts, including
consideration of available elections, in order to seek to minimize any potential
adverse tax consequences.
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The amount of net realized capital gains, if any, in any given year will result
from sales of securities and the use of certain other transactions or
derivatives 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. The
resulting gains or losses may therefore vary considerably from year to year. At
the time of an investor's purchase of shares of the Fund, a portion of the
purchase price may be attributable to by realized or unrealized appreciation in
the Fund's portfolio or undistributed taxable income of the Fund. Consequently,
subsequent distributions on those shares from such appreciation or income may be
taxable to such investor even if the net asset value of the investor's shares
is, as a result of the distributions, reduced below the investor's cost for such
shares and the distributions in reality represent a return of a portion of the
purchase price.
Upon a redemption of shares of the Fund (including by exercise of the exchange
privilege) a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. This gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares
and subject to the special rules described below. A sales charge paid in
purchasing Class A shares of the Fund cannot be taken into account for purposes
of determining gain or loss on the redemption or exchange of such shares within
90 days after their purchase to the extent Class A shares of the Fund or another
John Hancock fund are subsequently acquired without payment of a sales charge
pursuant to the reinvestment or exchange privilege. This disregarded charge will
result in an increase in the shareholder's tax basis in the Class A shares
subsequently acquired. Also, any loss realized on a redemption or exchange may
be disallowed for tax purposes to the extent the shares disposed of are replaced
with other shares of the Fund within a period of 61 days beginning 30 days
before and ending 30 days after the shares are disposed of, such as pursuant to
automatic dividend reinvestments. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized upon
the redemption of shares with a tax holding period of six months or less will be
treated as a long-term capital loss to the extent of any amounts treated as
distributions of long-term capital gain with respect to such shares.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the carry
forward of prior years' capital losses, it would be subject to Federal income
tax in the hands of the Fund. Upon proper designation by the Fund, each
shareholder would be treated for Federal income tax purposes as if the Fund had
distributed to him on the last day of its taxable year his pro rata share of
such excess, and he had paid his pro rata share of the taxes paid by the Fund
and reinvested the remainder in the Fund. Accordingly, each shareholder would
(a) include his pro rata share of such excess as long-term capital gain income
in his tax return for his taxable year in which the last day of the Fund's
taxable year falls, (b) be entitled either to a tax credit on his return for, or
to a refund of, his pro rata share of the taxes paid by the Fund, and (c) be
entitled to increase the adjusted tax basis for his shares in the Fund by the
difference between his pro rata share of such excess and his pro rata share of
such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
capital loss in any year to offset net capital gains, if any, during the eight
years following the year of the loss. To the extent subsequent net capital gains
are offset by such losses, they would not result in Federal income tax liability
to the Fund and, as noted above, would not be distributed as such to
shareholders. The Fund has $184,368 of capital loss carry forward (which expires
July 31, 2003) available to offset future net capital gains.
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For purposes of the dividends-received deduction available to corporations,
dividends received by the Fund from U.S. domestic corporations in respect of the
stock of such corporations held by the Fund, for U.S. Federal income tax
purposes, for at least 46 days (91 days in the case of certain preferred stock)
and distributed and properly designated by the Fund may be treated as qualifying
dividends. Corporate shareholders must meet the minimum holding period
requirement stated above (46 or 91 days) with respect to their shares of the
Fund in order to qualify for the deduction and, if they have any debt that is
deemed under the Code directly attributable to 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 is required to accrue income on any debt securities that have more than
a de minimus amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market rules applicable to certain options, futures and forward contracts may
also require the Fund to recognize income or gain without a concurrent receipt
of cash. However, the Fund must distribute to shareholders for each taxable year
substantially all of its net income and net capital gains, including such income
or gain, to qualify as a regulated investment company and avoid liability for
any federal income or excise tax. Therefore, the Fund may have to dispose of its
portfolio securities under disadvantageous circumstances to generate cash, or
may have to leverage itself by borrowing the cash, to satisfy these distribution
requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible taxes, the value of
its assets is attributable to) certain U.S. Government obligations, provided in
some states that certain thresholds for holdings of such obligations and/or
reporting requirements are satisfied. The Fund will not seek to satisfy any
threshold or reporting requirements that may apply in particular taxing
jurisdictions, although it may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax at the rate of 31% in the case of
non-exempt shareholders who fail to furnish the Fund with their correct taxpayer
identification number or if the IRS or a broker notifies the Fund that the
number furnished by the shareholder is incorrect or that the shareholder is
subject to backup withholding as a result of failure to report interest or
dividend income. A fund may refuse to accept an application that does not
contain any required taxpayer identification number or certification that the
number provided is correct. If the backup withholding provisions are applicable,
any such distributions and proceeds, whether taken in cash or reinvested in
shares, will
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be reduced by the amounts required to be withheld. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability. Investors
should consult their tax advisers about the applicability of the backup
withholding provisions.
The foregoing discussion relates solely to U.S. Federal income tax laws
applicable to U.S. persons (i.e., U.S. citizens 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 redemption (including an exchange) of shares of the Fund may
also be subject to state and local taxes. Shareholders should consult their own
tax advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their Fund
investment is effectively connected will be subject to U.S. Federal income tax
treatment that is different from that described above. These investors may be
subject to nonresident alien withholding tax at the rate of 30% (or a lower rate
under an applicable tax treaty) on amounts treated as ordinary dividends from
the Fund and, unless an effective IRS Form W-8 or authorized substitute is on
file, to 31% backup withholding on certain other payments from the Fund.
Non-U.S. investors should consult their tax advisers regarding such treatment
and the application of foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
Provided that the Fund qualifies as a regulated investment company under the
Code, it will also not be required to pay any Massachusetts income tax.
CALCULATION OF PERFORMANCE
The average annual total return on Class A shares of the Fund for the 1 year and
the life of the Class periods ended July 31, 1995, was 48.02% and 14.32%,
respectively.
The average annual total return on Class B shares of the Fund for the 1 year and
the life of the Class periods ended July 31, 1995, was 49.97% and 17.95%,
respectively.
The average annual total return on Class A shares (since inception on January 3,
1992) and Class B shares (since inception on August 30, 1991) for the period
ended December 31, 1995, was 13.97% and 17.36%, respectively.
The Fund's total return is 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:
______
\n/ERV/P - 1
Where:
P = a hypothetical initial investment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 investment
made at the beginning of the 1 year and life-of-fund periods.
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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 commissions paid by the issuer and transactions with dealers
serving as market maker reflect a "spread." Investments in debt securities are
generally traded on a net basis through dealers acting for their own account as
principals and not as brokers; no brokerage commissions are payable on such
transactions.
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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
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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 commissions 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.
FINANCIAL STATEMENTS
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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-1
<PAGE>
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.
A-2
<PAGE>
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.
A-3
<PAGE>
PART C.
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) The financial statements listed below are included in and incorporated by
reference into Part B of the Registration Statement from the January 31, 1996
Semi -Annual Report (filed electronically on March 27, 1996; accession number
0001010521-96-000005 ) and July 31, 1995 Annual Report to Shareholders (filed
electronically on September 26, 1995; accession number
0000950135-95-001985)(File Nos. 811-5732 and 33-29438):
Freedom Investment Trust III
John Hancock Discovery Fund
Statement of Assets and Liabilities as of July 31, 1995.
Statement of Operations of the year ended July 31, 1995.
Statement of Changes in Net Asset for each of the two years ended
July 31, 1995.
Financial Highlights for each of the years ended July 31, 1995.
Notes to Financial Statements.
Schedule of Investments as of July 31, 1995.
Statement of Assets and Liabilities as of January 31, 1996.
Statement of Operations of the year ended January 31, 1996.
Statement of Changes in Net Asset for each of the two years ended
January 31, 1996.
Financial Highlights for each of the years ended January 31, 1996.
Notes to Financial Statements.
Schedule of Investments as of January 31, 1996.
(b) Exhibits:
The exhibits to this Registration Statement are listed in the Exhibit Index
hereto and are incorporated herein by reference.
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common control
with Registrant.
Item 26. Number of Holders of Securities
As of March 29, 1996, the number of record holders of shares of Registrant
was as follows:
Title of Class Number of Record Holders
Class A Class B
John Hancock Discovery Fund - 1,073 3,011
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<PAGE>
Item 27. Indemnification
(a) Under Article VI of the Registrant's Master Trust Agreement each of its
Trustees and Officers or person serving in such capacity with another entity at
the request of the Registrant ("Covered Person") shall be indemnified against
all liabilities, including, but not limited to, amounts paid in satisfaction of
judgments, in compromises or as fines or penalties, and expenses, including
reasonable legal and accounting fees, in connection with the defense or
disposition of any action, suit or other proceeding, whether civil or criminal,
before any court or administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or otherwise or with which
such person may be or may have been threatened, while in office or thereafter,
by reason of being or having been such a Trustee or officer, director or
trustee, except with respect to any matter as to which it has been determined
that such Covered Person (i) did not act in good faith in the reasonable belief
that such Covered Person's action was in or not opposed to the best interests of
the Trust or (ii) had acted with willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of such
Covered Person's office (either and both of the conduct described in (i) and
(ii) being referred to hereafter as "Disabling Conduct"). A determination that
the Covered Person is entitled to indemnification may be made by (i) a final
decision on the merits by a court or other body before whom the proceeding was
brought that the person to be indemnified was not liable by reason of Disabling
Conduct, (ii) dismissal of a court action or an administrative proceeding
against a Covered Person for insufficiency of evidence of Disabling Conduct, or
(iii) a reasonable determination, based upon a review of the facts, that the
indemnitee was not liable by reason of Disabling Conduct by (a) a vote of a
majority of a quorum of Trustees who are neither "interested persons" of the
Trust as defined in section 2(a)(19) of the 1940 Act nor parties to the
proceeding, or (b) an independent legal counsel in a written opinion.
(b) Under the Distribution Agreement. Under Section 12 of the Distribution
Agreement, John Hancock Funds, Inc. ("John Hancock Funds" ) has agreed to
indemnify the Registrant and its Trustees, officers and controlling persons
against claims arising out of certain acts and statements of John Hancock Funds.
Section 9(a) of the By-Laws of the John Hancock Mutual Life Insurance
Company (the "Insurance Company provides, in effect, that the Insurance Company
will, subject to limitations of law, indemnify each present and former director,
officer and employee of the of the Insurance Company who serves as a Trustee or
officer of the Registrant at the direction or request of the Insurance Company
against litigation expenses and liabilities incurred while acting as such,
except that such indemnification does not cover any expense or liability
incurred or imposed in connection with any matter as to which such person shall
be finally adjudicated not to have acted in good faith in the reasonable belief
that his action was in the best interests of the Insurance Company. In addition,
no such person will be indemnified by the Insurance Company in respect of any
liability or expense incurred in connection with any matter settled without
final adjudication unless such settlement shall have been approved as in the
best interests of the Insurance Company either by vote of the Board of Directors
at a meeting composed of directors who have no interest in the outcome of such
vote, or by vote of the policyholders. The Insurance Company may pay expenses
incurred in defending an action or claim in advance of its final disposition,
but only upon receipt of an undertaking by the person indemnified to repay such
payment if he should be determined to be entitled to indemnification.
C-2
<PAGE>
Article IX of the respective By-Laws of John Hancock Funds and the Adviser
provide as follows:
"Section 9.01. Indemnity: Any person made or threatened to be made a party to
any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was at any time since the
inception of the Corporation serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, shall be indemnified by the Corporation
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and the liability was not
incurred by reason of gross negligence or reckless disregard of the duties
involved in the conduct of his office, and expenses in connection therewith may
be advanced by the Corporation, all to the full extent authorized by the law."
"Section 9.02. Not Exclusive; Survival of Rights: The indemnification provided
by Section 9.01 shall not be deemed exclusive of any other right to which those
indemnified may be entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such as person."
C-3
<PAGE>
Insofar as indemnification for liabilities under the Securities Act of 1933 (the
"Act") may be permitted to Trustees, officers and controlling persons of
Registrant pursuant to the Registrant's Amended and Restated Articles of
Incorporation, Article 10.1 of the Registrant's By-Laws, The underwriting
Agreement, the By-Laws of Distributors, the Adviser, or the Insurance Company or
otherwise, Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such Trustee, officer or controlling person in connection with the
securities being registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
For information as to the business, profession, vocation or employment of a
substantial nature of each of the officers and Directors of the Adviser,
reference is made to Form ADV (801-8124) filed under the Investment Advisers Act
of 1940, which is incorporated herein by reference.
Substantial business and other connections of the directors and officers of the
Adviser other than with Registrant are listed below:
Item 29. Principal Underwriters
(a) The Funds have two distributors. One distributor, Freedom Distributors
Corporation ("Freedom") also acts as co-distributor with Tucker Anthony
Incorporated for two other registered investment companies: Freedom Group of Tax
Exempt Funds and Freedom Mutual Fund. The other distributor is John Hancock
Funds, which also acts as principal underwriter for the following investment
companies: John Hancock Cash Reserve, Inc., John Hancock Bond Fund, John Hancock
Current Interest, John Hancock Series, Inc., John Hancock Tax-Free Bond Fund,
John Hancock California Tax-Free Income Fund, John Hancock Capital Series, John
Hancock Limited Term Government Fund, John Hancock Tax-Exempt Income Fund, John
Hancock Sovereign Investors Fund, Inc., John Hancock Special Equities Fund, John
Hancock Sovereign Bond Fund, John Hancock Tax-Exempt Series, John Hancock
Strategic Series, John Hancock Technology Series, Inc., John Hancock World Fund,
John Hancock Investment Trust, John Hancock Institutional Series Trust, Freedom
Investment Trust, Freedom Investment Trust II and Freedom Investment Trust III.
(b) The name of each director and officer of Freedom, together with the
offices held by such person with Freedom and the Registrant, are set forth
below.
C-4
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
<S> <C> <C>
Edward J. Boudreau, Jr. Chairman, President and Chief Chairman
101 Huntington Avenue Executive Officer
Boston, Massachusetts
Robert H. Watts Director, Executive Vice None
John Hancock Place President and Chief Compliance
P.O. Box 111 Officer
Boston, Massachusetts
James V. Bowhers Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Robert G. Freedman Director Vice Chairman, Chief
101 Huntington Avenue Investment Officer
Boston, Massachusetts
Stephen M. Blair Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Thomas H. Drohan Senior Vice President Senior Vice President and
101 Huntington Avenue Secretary
Boston, Massachusetts
James W. McLaughlin Senior Vice President None
101 Huntington Avenue and
Boston, Massachusetts Chief Financial Officer
David A. King Director and Senior Vice None
101 Huntington Avenue President
Boston, Massachusetts
James B. Little Senior Vice President Senior Vice President and
101 Huntington Avenue Chief Financial Officer
Boston, Massachusetts
C-5
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
Michael T. Carpenter Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Charles H. Womack Senior Vice President None
6501 Americas Parkway
Suite 950
Albuquerque, New Mexico
Anthony P. Petrucci Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President and Secretary Vice President,
101 Huntington Avenue Assistant Secretary
Boston, Massachusetts and Compliance Officer
Keith Harstein Vice President None
101 Huntington Avenue
Boston, Massachusetts
Griselda Lyman Vice President None
101 Huntington Avenue
Boston, Massachusetts
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
C-6
<PAGE>
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John Goldsmith Director None
One Beacon Street
Boston, Massachusetts
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Foster L. Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
C-7
<PAGE>
(b) The name of each director and officer of Freedom, together with the
offices held by such person with Freedom and the Registrant, are set forth
below.
Name and Principal Positions and Offices Positions and Offices
Business Address with Underwriter with Registrant
John J. Danello President, Director None
One Beacon Street and Clerk
Boston, Massachusetts
Thomas J. Brown Treasurer and Director None
One Beacon Street
Boston, Massachusetts
Dexter A. Dodge Vice President None
One Beacon Street
Boston, Massachusetts
(b) None
(c) None
</TABLE>
C-8
<PAGE>
Item 30. Location of Accounts and Records
Registrant maintains the records required to be maintained by it under Rules
31a-1 (a), 31a-a(b), and 31a-2(a) under the Investment Company Act of 1940 as
its principal executive offices at 101 Huntington Avenue, Boston Massachusetts
02199-7603. Certain records, including records relating to Registrant's
shareholders and the physical possession of its securities, may be maintained
pursuant to Rule 31a-3 at the main office of Registrant's Transfer Agent and
Custodian.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
(a) Not applicable.
(b) Not applicable.
(c) Registrant hereby undertakes to furnish each person to whom a
prospectus with respect to a series of the Registrant is delivered with a copy
of the latest annual report to shareholders with respect to that series upon
request and without charge.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
17th day of April, 1996 .
FREEDOM INVESTMENT TRUST III
By: *
Edward J. Boudreau, Jr.
Chairman
Pursuant to the requirements of the Securities Act of 1933, the
Registration has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* Chairman
Edward J. Boudreau, Jr. (Principal Executive Officer)
/s/ James B. Little
James B. Little Senior Vice President and Chief April 17, 1996
Financial Officer (Principal
Financial and Accounting Officer)
* Trustee
Dennis S. Aronowitz
* Trustee
Richard P. Chapman, Jr.
* Trustee
William J. Cosgrove
* Trustee
Douglas M. Costle
* Trustee
Leland O. Erdahl
* Trustee
Richard A. Farrell
C-10
<PAGE>
Signature Title Date
* Trustee
Gail D. Fosler
* Trustee
William F. Glavin
* Trustee
Bayard Henry
* Trustee
John A. Moore
* Trustee
Patti McGill Peterson
* Trustee
John W. Pratt
* Trustee
Richard S. Scipione
* Trustee
Edward J. Spellman
*By: /s/Thomas H. Drohan
Thomas H. Drohan, Attorney-in-Fact April 17, 1996
under Powers of Attorney dated June 25, 1992,
incorporated by reference to Post-Effective
Amendment No. 8 dated December 14, 1992,
and August 17, 1993, incorporated by reference to
Post-Effective Amendment No. 10.
</TABLE>
C-11
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
99.B1 Master Trust Agreement (Agreement and Declaration. of Trust), as
amended.*
99.B1.1 Amendment No. 1 to Master Trust Agreement as Amended and Restated.*
99.B1.2 Amendment No. 2 to Master Trust Agreement as Amended and Restated.*
99.B1.3 Amendment No. 3 to Master Trust Agreement as Amended and Restated.*
99.B2 By-Laws as amended September 16, 1992.*
99.B2.1 Amendment to By-Laws dated December 19, 1994.*
99.B3 None
99.B4 Specimen share certificate for the Discovery Fund Classes A & B.*
99.B5 Advisory Agreement dated August 29, 1989 as restated July 1 1992.*
99.B5.1 Transfer and Assumption Agreement between Freedom Capital
Management Corporation and John Hancock Advisers, Inc.*
99.B6 Distribution Agreement by and among Freedom Distributions
Corporation and John Hancock Broker Distribution Corporation.*
99.B6.1 Form of Soliciting Dealer Agreement between John Hancock Broker
Distribution Services, Inc. and Selected Dealers.*
99.B6.2 Form of Financial Institution Sales and Service Agreement.*
99.B7 None
99.B8 Master Custodian Agreement with Investors Bank & Trust Company
dated December 15, 1992.*
<PAGE>
Exhibit No. Description
99.B9 Transfer Agency and Service Agreement with John Hancock Fund
Services, Inc.*
99.B10 Legal opinion and consent of Goodwin, Procter & Hoar with respect
to the Discovery Fund (Class B Shares); Legal opinion and consent
of Goodwin, Procter & Hoar with respect to the Class B Shares
of the Environmental Fund and the Class A Shares of the Discovery
Fund.*
99.B11 Consent of Auditor.+
99.B12 Not Applicable
99.B13 Investment letter for the Discovery Fund (Class B Shares);
Investment letter for the Class B Shares of the Environmental
Fund and the Class A Shares of the Discovery Fund.*
99.B14 None
99.B15 Plan of Distribution pursuant to Rule 12b-1 as amended and
restated.*
99.B16 Schedule for Computation of Total Return.*
99.27 Class A
99.27 Class B
* Previously filed electronically with post-effective amendment number 14 (file
nos. 811-5738; 33-29438) on September 29, 1995, accession number
0000950156-95-000724.
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights" for Discovery Fund in the John Hancock Growth Funds prospectus and
"Independent Auditors" in the John Hancock Discovery Fund Class A and Class B
Shares Statement of Additional Information and to the use of our report dated
September 8, 1995, on the financial statements and financial highlights of the
John Hancock Discovery Fund in this Post-Effective Amendment Number 15 to
Registration Statement (Form N-1A No. 33-29438) dated July 1, 1996.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Boston, Massachusetts
April 16, 1996
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> JOHN HANCOCK DISCOVERY FUND - CLASS A
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 25,695,445
<INVESTMENTS-AT-VALUE> 40,810,116
<RECEIVABLES> 1,084,695
<ASSETS-OTHER> 39,363
<OTHER-ITEMS-ASSETS> 15,114,671
<TOTAL-ASSETS> 41,934,174
<PAYABLE-FOR-SECURITIES> 886,255
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,464
<TOTAL-LIABILITIES> 898,719
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,154,211
<SHARES-COMMON-STOCK> 495,944
<SHARES-COMMON-PRIOR> 391,822
<ACCUMULATED-NII-CURRENT> (403,774)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,170,347
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,114,671
<NET-ASSETS> 41,035,455
<DIVIDEND-INCOME> 18,141
<INTEREST-INCOME> 25,915
<OTHER-INCOME> 0
<EXPENSES-NET> 447,830
<NET-INVESTMENT-INCOME> (403,774)
<REALIZED-GAINS-CURRENT> 1,766,848
<APPREC-INCREASE-CURRENT> (114,479)
<NET-CHANGE-FROM-OPS> 1,248,595
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 61,866
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 926,457
<NUMBER-OF-SHARES-REDEEMED> 826,830
<SHARES-REINVESTED> 4,495
<NET-CHANGE-IN-ASSETS> 4,315,138
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (184,368)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 175,917
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 447,830
<AVERAGE-NET-ASSETS> 38,315,734
<PER-SHARE-NAV-BEGIN> 12.95
<PER-SHARE-NII> (0.10)
<PER-SHARE-GAIN-APPREC> 0.55
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.27
<EXPENSE-RATIO> 1.74
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> FREEDOM INVESTMENT TRUST III - DISCOVERY FUND, CLASS A
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 21,710,328
<INVESTMENTS-AT-VALUE> 36,939,478
<RECEIVABLES> 840,807
<ASSETS-OTHER> 22,922
<OTHER-ITEMS-ASSETS> 15,229,150
<TOTAL-ASSETS> 37,803,207
<PAYABLE-FOR-SECURITIES> 983,125
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 99,765
<TOTAL-LIABILITIES> 1,082,890
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,675,535
<SHARES-COMMON-STOCK> 391,822
<SHARES-COMMON-PRIOR> 377,012
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (184,368)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,229,150
<NET-ASSETS> 36,720,317
<DIVIDEND-INCOME> 45,978
<INTEREST-INCOME> 60,431
<OTHER-INCOME> 0
<EXPENSES-NET> 773,354
<NET-INVESTMENT-INCOME> (666,945)
<REALIZED-GAINS-CURRENT> (185,856)
<APPREC-INCREASE-CURRENT> 14,483,069
<NET-CHANGE-FROM-OPS> 13,630,268
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 101,860
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 334,726
<NUMBER-OF-SHARES-REDEEMED> 330,231
<SHARES-REINVESTED> 10,315
<NET-CHANGE-IN-ASSETS> 6,957,024
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 857,158
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 294,993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 773,354
<AVERAGE-NET-ASSETS> 29,499,302
<PER-SHARE-NAV-BEGIN> 8.56
<PER-SHARE-NII> (0.17)
<PER-SHARE-GAIN-APPREC> 4.83
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.27)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.95
<EXPENSE-RATIO> 2.10
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> JOHN HANCOCK DISCOVERY FUND - CLASS B
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JAN-31-1996
<INVESTMENTS-AT-COST> 25,695,445
<INVESTMENTS-AT-VALUE> 40,810,116
<RECEIVABLES> 1,084,695
<ASSETS-OTHER> 39,363
<OTHER-ITEMS-ASSETS> 15,114,671
<TOTAL-ASSETS> 41,934,174
<PAYABLE-FOR-SECURITIES> 886,255
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,464
<TOTAL-LIABILITIES> 898,719
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,154,211
<SHARES-COMMON-STOCK> 2,691,702
<SHARES-COMMON-PRIOR> 2,523,395
<ACCUMULATED-NII-CURRENT> (403,774)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,170,347
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,114,671
<NET-ASSETS> 41,035,455
<DIVIDEND-INCOME> 18,141
<INTEREST-INCOME> 25,915
<OTHER-INCOME> 0
<EXPENSES-NET> 447,830
<NET-INVESTMENT-INCOME> (403,774)
<REALIZED-GAINS-CURRENT> 1,766,848
<APPREC-INCREASE-CURRENT> (114,479)
<NET-CHANGE-FROM-OPS> 1,248,595
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 350,267
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 399,442
<NUMBER-OF-SHARES-REDEEMED> 256,636
<SHARES-REINVESTED> 25,501
<NET-CHANGE-IN-ASSETS> 4,315,138
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (184,368)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 175,917
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 447,830
<AVERAGE-NET-ASSETS> 38,315,734
<PER-SHARE-NAV-BEGIN> 12.54
<PER-SHARE-NII> (0.14)
<PER-SHARE-GAIN-APPREC> 0.53
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0.13
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.80
<EXPENSE-RATIO> 2.43
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> FREEDOM INVESTMENT TRUST III - DISCOVERY FUND, CLASS B
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1995
<PERIOD-END> JUL-31-1995
<INVESTMENTS-AT-COST> 21,710,328
<INVESTMENTS-AT-VALUE> 36,939,478
<RECEIVABLES> 840,807
<ASSETS-OTHER> 22,922
<OTHER-ITEMS-ASSETS> 15,229,150
<TOTAL-ASSETS> 37,803,207
<PAYABLE-FOR-SECURITIES> 983,125
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 99,765
<TOTAL-LIABILITIES> 1,082,890
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 21,675,535
<SHARES-COMMON-STOCK> 2,523,395
<SHARES-COMMON-PRIOR> 3,181,059
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (184,368)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 15,229,150
<NET-ASSETS> 36,720,317
<DIVIDEND-INCOME> 45,978
<INTEREST-INCOME> 60,431
<OTHER-INCOME> 0
<EXPENSES-NET> 773,354
<NET-INVESTMENT-INCOME> (666,945)
<REALIZED-GAINS-CURRENT> (185,856)
<APPREC-INCREASE-CURRENT> 14,483,069
<NET-CHANGE-FROM-OPS> 13,630,268
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 755,311
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 214,582
<NUMBER-OF-SHARES-REDEEMED> 951,880
<SHARES-REINVESTED> 79,634
<NET-CHANGE-IN-ASSETS> 6,957,024
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 857,158
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 294,993
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 773,354
<AVERAGE-NET-ASSETS> 29,499,302
<PER-SHARE-NAV-BEGIN> 8.34
<PER-SHARE-NII> (0.22)
<PER-SHARE-GAIN-APPREC> 4.69
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.27)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 12.54
<EXPENSE-RATIO> 2.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
