<PAGE> 1
As filed with the Securities and Exchange Commission on September 25, 1995.
File Nos. 33-86102; 811-8852
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / /
----
Pre-Effective Amendment No. / /
----
Post-Effective Amendment No. 2 / X /
----
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 / /
----
Amendment No. 3 / X /
----
(Check appropriate box or boxes.)
-------------------
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
----------------------------------------------------
(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
-------------------
THOMAS H. DROHAN, ESQ.
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
-----------------------------------------
(Name and Address of Agent for Service)
-------------------
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
- ---
on (date) pursuant to paragraph (b)
- ---
X 75 days after filing pursuant to paragraph (a) of rule 485
- ---
on [date] pursuant to paragraph (a) of rule 485
- ---
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended,
the Registrant has elected to register an indefinite number of shares of the
Registrant and each series thereof.
Page 1 of total pages.
Exhibit index is on page .
<PAGE> 2
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE
TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. NEITHER THIS PROSPECTUS
NOR THE STATEMENT OF ADDITIONAL INFORMATION SHALL CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE OR JURISDICITON IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE OR JURIDICTION.
SUBJECT TO COMPLETION DATED OCTOBER 1, 1995
THIS PRELIMINARY PROSPECTUS RELATES ONLY TO JOHN HANCOCK SMALL CAPITALIZATION
EQUITY FUND. INVESTORS SEEKING INFORMATION REGARDING ANY OTHER FUND SHOULD
OBTAIN A COPY OF THE CURRENTLY EFFECTIVE PROSPECTUS DATED SEPTEMBER 12, 1995.
JOHN HANCOCK FUNDS
101 Huntington Avenue
Boston, Massachusetts 02199
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
PROSPECTUS
December , 1995
John Hancock Institutional Series Trust consists of twelve mutual funds, seven
of which are offered in this Prospectus (each, a "Fund" and collectively, the
"Funds"):
JOHN HANCOCK SMALL CAPITALIZATION EQUITY FUND
JOHN HANCOCK DIVIDEND PERFORMERS FUND
JOHN HANCOCK ACTIVE BOND FUND
JOHN HANCOCK GLOBAL BOND FUND
JOHN HANCOCK MULTI-SECTOR GROWTH FUND
JOHN HANCOCK FUNDAMENTAL VALUE FUND
JOHN HANCOCK INTERNATIONAL EQUITY FUND
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<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
----
<S> <C>
Expense Information................................................................ 2
The Funds' Financial Highlights.................................................... 3
An Overview of the Funds........................................................... 6
Investment Objectives and Policies................................................. 7
Who May Buy Shares................................................................. 17
Investors' Guide to Services....................................................... 17
How to Buy Shares............................................................. 17
Opening an Account............................................................ 17
Buying Additional Shares...................................................... 18
Reports to Shareholders....................................................... 18
Share Price................................................................... 18
Redeeming Shares.............................................................. 19
Exchange Privilege............................................................ 20
Organization and Management of the Funds........................................... 21
The Funds' Expenses................................................................ 23
Dividends and Taxes................................................................ 24
Performance........................................................................ 25
Risk Factors, Investments and Techniques........................................... 25
</TABLE>
This Prospectus sets forth information about the Funds, which are each a
series of John Hancock Institutional Series Trust (the "Trust"), that you should
know before investing. Please read and retain it for future reference.
Additional information about the Trust and the Funds has been filed with
the Securities and Exchange Commission (the "SEC"). You can obtain a copy of the
Funds' Statement of Additional Information, dated
December , 1995, which is incorporated by reference into this Prospectus, free
of charge by writing or telephoning: John Hancock Investor Services Corporation,
P.O. Box 9277, Boston, Massachusetts 02205-9277, 1-800-755-4371.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, AND THE SHARES ARE NOT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
LOGO LOGO Printed on Recycled Paper.
<PAGE> 3
<TABLE>
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various costs and expenses that you will bear, directly or indirectly. Since the
Funds have a limited operating history, the costs and expenses included in the
table and hypothetical example below are based on estimated fees and expenses
for the Funds' fiscal year ending February 29, 1996 and should not be considered
as representative of future expenses. Actual expenses may be greater or less
than those shown.
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES ALL FUNDS
---------
<S> <C>
Maximum Sales Charge (as a percentage of offering price) NONE
Sales Charge on Reinvested Dividends NONE
Deferred Sales Charge and Redemptions NONE
Redemption Fees NONE*
Exchange Fees NONE
</TABLE>
EXAMPLE: You would pay the
following expenses for the
indicated period of years on
a hypothetical $1,000
investment assuming 5%
annual rate of return and a
voluntary expense limitation
as noted above:+
<TABLE>
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
<CAPTION>
MANAGEMENT TOTAL FUND
FEE (NET OPERATING
OF OTHER EXPENSES (NET OF
LIMITATION) EXPENSES** LIMITATION)*** 1 YEAR 3 YEARS
---------- ---------- ---------------- ------ -------
<S> <C> <C> <C> <C> <C>
SMALL CAPITALIZATION FUND 0.35% 0.55% 0.90% $ 9 $29
DIVIDEND PERFORMERS FUND 0.15% 0.55% 0.70 $ 7 $22
ACTIVE BOND FUND 0.05% 0.55% 0.60% $ 6 $19
GLOBAL BOND FUND 0.30% 0.55% 0.85% $ 9 $27
MULTI-SECTOR GROWTH FUND 0.40% 0.50% 0.90% $ 9 $29
FUNDAMENTAL VALUE FUND 0.25% .055% 0.80% $ 8 $26
INTERNATIONAL EQUITY FUND 0.45% 0.55% 1.00% $ 10 $32
<FN>
- ---------------
* Redemption by wire fee (currently $4.00) not included.
** Other Expenses include transfer agent, legal, audit, custody and other
expenses.
*** Estimated for the Funds based on expenses to have been incurred if shares
had been in existence for the entire fiscal year. Total Fund Operating
Expenses in the table reflect a voluntary limitation by the Funds' Adviser.
Without such limitation, the Management Fee and Total Fund Operating
Expenses, respectively, would have been estimated at the following: Small
Capitalization Fund -- 0.80% and 1.35%; Dividend Performers Fund -- 0.60%
and 1.15%; Active Bond Fund -- 0.50% and 1.05%; Global Bond Fund -- 0.75%
and 1.30%; Multi-Sector Growth Fund -- 0.80% and 1.30%; Fundamental Value
Fund -- 0.70% and 1.25%; and International Equity Fund -- 0.90% and 1.45%.
+ This example should not be considered a representation of the Funds' actual
or future expenses, which may be greater or less than those shown.
The management fee referred to above is more fully explained in this Prospectus
under the caption "THE FUNDS' EXPENSES" and in the Statement of Additional
Information under the caption "INVESTMENT ADVISORY AND OTHER SERVICES."
</TABLE>
2
<PAGE> 4
<TABLE>
THE FUNDS' FINANCIAL HIGHLIGHTS
The following tables include selected data for a share outstanding throughout the period indicated. Total investment return,
key ratios and supplemental data are listed as follows:
<CAPTION>
JOHN HANCOCK DIVIDEND PERFORMERS FUND FOR THE PERIOD APRIL 3, 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
----------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................................................... $ 8.50(b)
------
Net Investment Income.......................................................................... 0.08
Net Unrealized Gain on Investments............................................................. 0.24
------
Total from Investment Operations....................................................... 0.32
------
Less Distributions
Dividends from Net Investment Income....................................................... (0.08)
------
Net Asset Value, End of Period................................................................. $ 8.74
======
Total Investment Return at Net Asset Value(d).................................................. 3.73%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)...................................................... $3,173
Ratio of Expenses to Average Net Assets........................................................ 0.80%*
Ratio of Adjusted Expenses to Average Net Assets(a)(e)......................................... 4.10%*
Ratio of Net Investment Income to Average Net Assets........................................... 3.86%*
Ratio of Adjusted Net Investment Income to Average Net Assets(a)(e)............................ 0.56%*
Portfolio Turnover Rate........................................................................ 0%
</TABLE>
<TABLE>
<CAPTION>
JOHN HANCOCK ACTIVE BOND FUND FOR THE PERIOD APRIL 3, 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
----------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........................................................... $ 8.50(b)
------
Net investment income.......................................................................... 0.11
------
Less Distributions:
Dividends from net investment income....................................................... (0.11)
------
Net asset value, end of period................................................................. $ 8.50
======
Total investment return at net asset value(d).................................................. 1.29%(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)...................................................... $1,146
Ratio of expenses to average net assets........................................................ 0.70%*
Ratio of adjusted expenses to average net assets(a)(e)......................................... 6.04%*
Ratio of net investment income to average net assets........................................... 5.43%*
Ratio of adjusted net investment income to average net assets(a)(e)............................ 0.09%*
Portfolio Turnover Rate........................................................................ 0%
<FN>
- ---------------
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the voluntary limitation, total investment return would have been lower.
(e) Adjusted expenses as a percentage of average net assets are expected to decrease and adjusted net investment income as a
percentage of average net assets is expected to increase as the net assets of the Fund grow.
</TABLE>
3
<PAGE> 5
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
The following tables include selected data for a share outstanding throughout
the period indicated. Total investment return, key ratios and supplemental data
are listed as follows:
<CAPTION>
FOR THE PERIOD APRIL 20,
JOHN HANCOCK GLOBAL BOND FUND 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
----------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........................................................... $ 8.50(b)
------
Net investment income.......................................................................... 0.07
------
Less Distributions
Dividends from net investment income....................................................... (0.07)
------
Net asset value, end of period................................................................. $ 8.50
======
Total investment return at net asset value(d).................................................. 0.81%(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)...................................................... $ 18
Ratio of expenses to average net assets........................................................ 1.10%*
Ratio of adjusted expenses to average net assets(a)(e)......................................... N/M
Ratio of net investment income to average net assets........................................... 4.28%*
Ratio of adjusted net investment income to average net assets(a)(e)............................ N/M
Portfolio turnover rate........................................................................ 0%
</TABLE>
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 12,
JOHN HANCOCK MULTI-SECTOR GROWTH FUND 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
----------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........................................................... $ 8.50(b)
------
Net investment income.......................................................................... 0.03
Net realized and unrealized gain on investments and foreign currency transactions.............. 0.04
------
Total from investment operations....................................................... 0.07
------
Net asset value, end of period................................................................. $ 8.57
======
Total investment return at net asset value(d).................................................. 0.82%(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)...................................................... $1,901
Ratio of expenses to average net assets........................................................ 1.00%*
Ratio of adjusted expenses to average net assets(a)(e)......................................... 11.33%*
Ratio of net investment income to average net assets........................................... 3.74%*
Ratio of adjusted net investment income (loss) to average net assets(a)(e)..................... (6.59%)*
Portfolio turnover rate........................................................................ 9%
<FN>
---------------
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the voluntary limitation, total investment return would have been
lower.
(e) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
(N/M) Not meaningful.
</TABLE>
4
<PAGE> 6
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
The following tables include selected data for a share outstanding throughout
the period indicated. Total investment return, key ratios and supplemental data
are listed as follows:
<CAPTION>
FOR THE PERIOD APRIL 20,
JOHN HANCOCK FUNDAMENTAL VALUE FUND 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
----------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........................................................... $ 8.50(b)
------
Net investment income.......................................................................... 0.05
Net unrealized gain on investments............................................................. 0.09
------
Total from investment operations....................................................... 0.14
------
Less Distributions
Dividends from net investment income....................................................... (0.05)
------
Net asset value, end of period................................................................. $ 8.59
======
Total investment return at net asset value(e).................................................. 1.62%(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)...................................................... $ 579
Ratio of expenses to average net assets........................................................ 0.95%*
Ratio of adjusted expenses to average net assets(a)(f)......................................... 14.54%*
Ratio of net investment income to average net assets........................................... 3.18%*
Ratio of adjusted net investment income (loss) to average net assets(a)(f)..................... (10.41%)*
Portfolio turnover rate........................................................................ 0%
</TABLE>
<TABLE>
<CAPTION>
JOHN HANCOCK INTERNATIONAL EQUITY FUND FOR THE PERIOD APRIL 3, 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
----------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........................................................... $ 8.50(b)
------
Net investment income.......................................................................... 0.08(d)
Net realized and unrealized gain on investments and foreign currency transactions.............. 0.06
------
Total from investment operations....................................................... 0.14
------
Net asset value, end of period................................................................. $ 8.64
======
Total investment return at net asset value(e).................................................. 1.65%(c)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000's omitted)...................................................... $ 911
Ratio of expenses to average net assets........................................................ 1.15%*
Ratio of adjusted expenses to average net assets(a)(f)......................................... 8.74%*
Ratio of net investment income to average net assets........................................... 3.49%*
Ratio of adjusted net investment income (loss) to average net assets(a)(f)..................... (5.25%)*
Portfolio Turnover Rate........................................................................ 0%
<FN>
- ---------------
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) On average month end shares outstanding.
(e) Without the voluntary limitation, total investment return would have been
lower.
(f) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
</TABLE>
5
<PAGE> 7
AN OVERVIEW OF THE FUNDS
JOHN HANCOCK SMALL CAPITALIZATION EQUITY FUND seeks long-term growth of capital.
The Fund invests primarily in common stocks of rapidly growing small-sized
companies.
JOHN HANCOCK DIVIDEND PERFORMERS FUND seeks long-term growth of capital and of
income without assuming undue market risk. The Fund invests primarily in common
stocks of seasoned companies in sound financial condition with a long-term
record of paying increasing dividends.
JOHN HANCOCK ACTIVE BOND FUND seeks a high level of current income consistent
with prudent investment risk. The Fund invests primarily in a diversified
portfolio of investment grade debt securities of U.S. and foreign issuers.
JOHN HANCOCK GLOBAL BOND FUND seeks a competitive total investment return,
consisting of current income and capital appreciation. The Fund invests
primarily in a global portfolio of high grade, fixed income debt securities.
JOHN HANCOCK MULTI-SECTOR GROWTH OPPORTUNITY FUND seeks long-term capital
appreciation. The Fund invests primarily in equity securities of domestic and
foreign issuers in various economic sectors, selected according to both
macroeconomic factors and the outlook for each sector.
JOHN HANCOCK FUNDAMENTAL VALUE FUND seeks capital appreciation, with income as a
secondary objective. The Fund invests primarily in equity securities that are
believed to be undervalued relative to alternative equity investments.
JOHN HANCOCK INTERNATIONAL EQUITY FUND seeks long-term growth of capital. The
Fund invests primarily in equity securities of foreign issuers.
The investment adviser of each Fund is John Hancock Advisers, Inc. (the
"Adviser"), a wholly-owned indirect subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company").
------------------------
Risk Factors. Each Fund is a recently organized series of the Trust and, either
has no operating history or a limited operating history. There can be no
assurance that the Funds will achieve their investment objectives. An investment
in one or more of the Funds is intended for long-term investors who can accept
the risks associated with investing primarily in equity and fixed-income
securities. The Funds' investments will be subject to market fluctuations and
other risks inherent in all securities. The yield, return and price volatility
of each Fund depend on the type and quality of its investments as well as market
and other factors. In addition, a Fund's potential investments and management
techniques may entail specific risks. For additional information about risks
associated with an investment in one or more of the Funds, see "RISK FACTORS,
INVESTMENTS AND TECHNIQUES" on page 25.
6
<PAGE> 8
INVESTMENT OBJECTIVES AND POLICIES
JOHN HANCOCK SMALL CAPITALIZATION EQUITY FUND
The investment objective of John Hancock Small Capitalization Equity Fund
("Small Capitalization Fund") is long-term growth of capital. The potential for
growth of capital will be the sole basis for selection of portfolio securities.
Current income will not be a factor in this selection. The Fund believes that
its shares are suitable for investment by investors who are in search of
superior long-term growth and who have the ability to assume a moderate amount
of risk in pursuit of this goal.
- -------------------------------------------------------------------------------
JOHN HANCOCK SMALL CAPITALIZATION EQUITY FUND
SEEKS LONG-TERM GROWTH OF CAPITAL.
- -------------------------------------------------------------------------------
Under normal circumstances, the Fund invests at least 65% of its total assets in
common stocks and other equity securities of domestic and foreign issuers
(including convertible securities) of small-sized companies with a total market
capitalization of $750 million or less ("smaller capitalization companies"). The
Adviser selects investments that it believes offer growth potential higher than
average for all companies. The Adviser expects that common stocks of rapidly
growing smaller capitalization companies that tend to be in an emerging growth
stage of development will generally offer the most attractive growth prospects.
However, the Fund may also invest in equity securities of larger, more
established companies that the Adviser believes to offer superior growth
potential.
- -------------------------------------------------------------------------------
SMALL CAPITALIZATION FUND INVESTS PRIMARILY IN
COMMON STOCKS OF RAPIDLY GROWING SMALL-SIZED
COMPANIES, ALTHOUGH IT MAY INVEST IN OTHER
EQUITY SECURITIES OF DOMESTIC AND FOREIGN
ISSUERS OFFERING SUPERIOR GROWTH POTENTIAL.
- -------------------------------------------------------------------------------
Although investment in the securities of smaller capitalization companies may
present greater opportunities for long-term capital growth than other
investments, it may also involve greater risks, including greater price
volatility than investment in the securities of larger capitalization companies.
The Fund is intended for investors who can accept the risks associated with its
investments and may not be suitable for all investors. See "SMALLER
CAPITALIZATION COMPANIES" for a fuller discussion of the risks inherent in the
Fund's investments in securities of smaller capitalization companies.
- -------------------------------------------------------------------------------
INVESTMENT IN SMALLER CAPITALIZATION COMPANIES
INVOLVES CERTAIN RISKS.
- -------------------------------------------------------------------------------
The Fund may invest without limitation in securities of foreign issuers. These
investments involve special risks. See "SECURITIES OF FOREIGN ISSUERS." In
connection with these investments the Fund may hold a portion of its assets in
foreign currencies and enter into forward foreign currency exchange contracts to
hedge against changes in foreign currency exchange rates. See "FOREIGN CURRENCY
TRANSACTIONS." The Fund's investments in foreign securities may include
investments in American Depository Receipts. See "DEPOSITORY RECEIPTS."
- -------------------------------------------------------------------------------
THE FUND MAY INVEST IN SECURITIES OF FOREIGN
ISSUERS.
- -------------------------------------------------------------------------------
When the Adviser determines that adverse market conditions are present, the Fund
may establish and maintain cash reserves or invest in fixed-income securities
for temporary defensive purposes, without limitation. In establishing cash
reserves, the Fund may invest in a wide variety of money market instruments,
including but not limited to U.S. Government obligations, certificates of
deposit, bankers' acceptances, commercial paper, short-term corporate debt
securities and repurchase agreements. In addition, when the Adviser believes
that market and interest rate conditions are suitable, the Fund may for
defensive purposes invest in longer-duration U.S. Government and corporate debt
securities. The market value of fixed income securities varies inversely with
changes in the prevailing level of interest rates. The Fund may purchase
fixed-income debt securities with stated maturities up to thirty years.
- -------------------------------------------------------------------------------
FOR TEMPORARY DEFENSIVE PURPOSES, THE FUND MAY
INVEST IN FIXED INCOME SECURITIES AND MONEY
MARKET INSTRUMENTS.
- -------------------------------------------------------------------------------
The corporate fixed-income securities in which the Fund may invest will be
rated, at the time of investment, at least BBB by Standard & Poor's Ratings
Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's") or their
respective equivalent ratings or, if unrated, determined to be of comparable
quality by the Adviser. Securities rated in the lowest investment grade (BBB or
Baa) involve certain risks. See "INVESTMENT GRADE SECURITIES." If the rating of
a debt security is reduced below Baa or BBB, the Adviser will consider whatever
action is appropriate consistent with the Fund's investment objective and
policies. See Appendix A to the Statement of Additional Information for a
description of the characteristics of obligations in the various rating
categories.
The Fund may for hedging purposes and to enhance return write listed and
over-the-counter covered call and put options on securities in which it may
invest and on indices composed of securities in which it may invest. The Fund
may also for hedging purposes purchase put and call options on these securities
and indices. The Fund may also buy and sell stock index and other financial
futures contracts, and options on futures contracts, to hedge against changes in
securities prices or interest rates. The futures contracts may be based upon
various securities, securities indices and other financial instruments and
indices. The Fund will not engage in transactions in futures and options on
futures for speculative purposes. See "OPTIONS AND FUTURES TRANSACTIONS."
- -------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT
STRATEGIES AND TECHNIQUES TO HELP ACHIEVE ITS
INVESTMENT OBJECTIVE.
- -------------------------------------------------------------------------------
7
<PAGE> 9
The Fund may engage in short sales "against the box" as well as short sales for
hedging purposes and to profit from an anticipated decline in a security's
value. Short sales other than "against the box" involve certain risks. See
"SHORT SALES."
The Fund may also lend its portfolio securities, enter into repurchase
agreements, purchase securities on a forward commitment or when-issued basis,
engage in short-term trading, and purchase restricted and illiquid securities.
See "RISK FACTORS, INVESTMENTS AND TECHNIQUES" for more information about the
Fund's investments.
JOHN HANCOCK DIVIDEND PERFORMERS FUND
The investment objective of John Hancock Dividend Performers Fund ("Dividend
Performers Fund") is long-term growth of capital and of income without undue
market risk. At times, however, because of market conditions, the Fund may find
it advantageous to invest primarily for current income. The Fund believes that
its shares are suitable for investment by persons who are in search of long-term
above-average reward.
- -------------------------------------------------------------------------------
JOHN HANCOCK DIVIDEND PERFORMERS FUND SEEKS
LONG-TERM GROWTH OF CAPITAL
AND INCOME WITHOUT UNDUE
MARKET RISK.
- -------------------------------------------------------------------------------
Under normal circumstances, the Fund invests at least 65% of its total assets in
dividend paying securities. The Adviser expects that common stocks will
ordinarily offer the greatest dividend paying potential and will constitute a
majority of the Fund's assets. The Fund may also invest a smaller portion of its
assets in corporate and U.S. Government fixed-income securities. For defensive
purposes, however, the Fund may temporarily hold a larger percentage of high
grade liquid preferred stock or debt securities. The Adviser and the Fund's
subadviser, Sovereign Asset Management Corp. ("SAMCorp"), will select securities
for the Fund's portfolio mainly for their investment character based upon
generally accepted elements of intrinsic value, including industry position,
management, financial strength, earning power, marketability and prospects for
future growth. The distribution of the Fund's assets among various types of
investments is based on general market conditions, the level of interest rates,
business and economic conditions and the availability of investments in the
equity or fixed-income markets. The amount of the Fund's assets that may be
invested in either equity or fixed-income securities is not restricted and is
based upon the judgment of the Adviser or SAMCorp of what might best achieve the
Fund's investment objective.
- -------------------------------------------------------------------------------
DIVIDEND PERFORMERS FUND INVESTS PRIMARILY IN
COMMON STOCKS, ALTHOUGH IT MAY RESPOND TO
MARKET CONDITIONS BY INVESTING IN OTHER TYPES
OF SECURITIES.
- -------------------------------------------------------------------------------
While there is considerable flexibility in the investment grade and type of
security in which the Fund may invest, the Fund invests only in companies that
have (together with their predecessors) been in continuous business for at least
five years and have total assets of at least $10 million. The Fund currently
uses a strategy of investing only in those common stocks that have a record of
having increased their dividends in each of the preceding ten or more years.
This "dividend performers" strategy can be changed at any time.
- -------------------------------------------------------------------------------
DIVIDEND PERFORMERS FUND GENERALLY INVESTS IN
SEASONED COMPANIES IN SOUND FINANCIAL
CONDITION WITH A LONG RECORD OF PAYING
DIVIDENDS.
- -------------------------------------------------------------------------------
The Fund's investments in corporate fixed-income securities may be in bonds,
convertible debentures and convertible or non-convertible preferred stocks.
Fixed income securities eligible for purchase by the Fund may have stated
maturities of one to thirty years. The value of fixed-income securities varies
inversely with interest rates. See "FIXED-INCOME SECURITIES." Fixed-income
securities in the Fund's portfolio may include securities rated, at the time of
investment, as low as C by S&P or Moody's or their respective equivalent ratings
and unrated securities determined to be of comparable credit quality by the
Adviser or SAMCorp. However, no more than 5% of the Fund's net assets will be
invested in debt securities rated lower than BBB by S&P or Baa by Moody's or
their respective equivalent ratings or unrated securities of comparable credit
quality. Bonds rated BBB or Baa are subject to certain risks. See "INVESTMENT
GRADE SECURITIES." Bonds rated lower than BBB or Baa are high risk securities
commonly known as "junk bonds." Bonds rated as low as C can be regarded as
having extremely poor prospects of attaining investment standing. See "LOWER
RATED SECURITIES" for a discussion of risks inherent in the Fund's investments
in lower rated securities and Appendix A to the Statement of Additional
Information for a description of the characteristics of obligations in the
various rating categories. If any security in the Fund's portfolio falls below
the Fund's minimum credit quality standards as a result of a rating downgrade or
the Adviser's or SAMCorp's determination, the Fund will dispose of the security
as promptly as possible while attempting to minimize any loss.
- -------------------------------------------------------------------------------
THE FUND MAY ALSO INVEST IN CORPORATE AND U.S.
GOVERNMENT FIXED-INCOME SECURITIES.
- -------------------------------------------------------------------------------
8
<PAGE> 10
transactions in futures and options on futures for speculative purposes. See
"OPTIONS AND FUTURES TRANSACTIONS."
The Fund may engage in short sales "against the box" as well as short sales for
hedging purposes and to profit from an anticipated decline in a security's
value. Short sales other than "against the box" involve certain risks. See
"SHORT SALES."
The Fund may also lend its portfolio securities, enter into repurchase
agreements, purchase securities on a forward commitment or when-issued basis,
engage in short-term trading, and purchase restricted and illiquid securities.
See "RISK FACTORS, INVESTMENTS AND TECHNIQUES" for more information about the
Fund's investments.
JOHN HANCOCK DIVIDEND PERFORMERS FUND
The investment objective of John Hancock Dividend Performers Fund ("Dividend
Performers Fund") is long-term growth of capital and of income without undue
market risk. At times, however, because of market conditions, the Fund may find
it advantageous to invest primarily for current income. The Fund believes that
its shares are suitable for investment by persons who are in search of long-term
above-average reward.
- -------------------------------------------------------------------------------
JOHN HANCOCK DIVIDEND PERFORMERS FUND SEEKS
LONG-TERM GROWTH OF CAPITAL AND INCOME WITHOUT
UNDUE MARKET RISK.
- -------------------------------------------------------------------------------
Under normal circumstances, the Fund invests at least 65% of its total assets in
dividend paying securities. The Adviser expects that common stocks will
ordinarily offer the greatest dividend paying potential and will constitute a
majority of the Fund's assets. The Fund may also invest a smaller portion of its
assets in corporate and U.S. Government fixed-income securities. For defensive
purposes, however, the Fund may temporarily hold a larger percentage of high
grade liquid preferred stock or debt securities. The Adviser and the Fund's
subadviser, Sovereign Asset Management Corp. ("SAMCorp"), will select securities
for the Fund's portfolio mainly for their investment character based upon
generally accepted elements of intrinsic value, including industry position,
management, financial strength, earning power, marketability and prospects for
future growth. The distribution of the Fund's assets among various types of
investments is based on general market conditions, the level of interest rates,
business and economic conditions and the availability of investments in the
equity or fixed-income markets. The amount of the Fund's assets that may be
invested in either equity or fixed-income securities is not restricted and is
based upon the judgment of the Adviser or SAMCorp of what might best achieve the
Fund's investment objective.
- -------------------------------------------------------------------------------
DIVIDEND PERFORMERS FUND INVESTS PRIMARILY IN
COMMON STOCKS, ALTHOUGH IT MAY RESPOND TO
MARKET CONDITIONS BY INVESTING IN OTHER TYPES
OF SECURITIES.
- -------------------------------------------------------------------------------
While there is considerable flexibility in the investment grade and type of
security in which the Fund may invest, the Fund invests only in companies that
have (together with their predecessors) been in continuous business for at least
five years and have total assets of at least $10 million. The Fund currently
uses a strategy of investing only in those common stocks that have a record of
having increased their dividends in each of the preceding ten or more years.
This "dividend performers" strategy can be changed at any time.
- -------------------------------------------------------------------------------
DIVIDEND PERFORMERS FUND GENERALLY INVESTS IN
SEASONED COMPANIES IN SOUND FINANCIAL
CONDITION WITH A LONG RECORD OF PAYING
DIVIDENDS.
- -------------------------------------------------------------------------------
The Fund's investments in corporate fixed-income securities may be in bonds,
convertible debentures and convertible or non-convertible preferred stocks.
Fixed income securities eligible for purchase by the Fund may have stated
maturities of one to thirty years. The value of fixed-income securities varies
inversely with interest rates. See "FIXED-INCOME SECURITIES." Fixed-income
securities in the Fund's portfolio may include securities rated, at the time of
investment, as low as C by S&P or Moody's or their respective equivalent ratings
and unrated securities determined to be of comparable credit quality by the
Adviser or SAMCorp. However, no more than 5% of the Fund's net assets will be
invested in debt securities rated lower than BBB by S&P or Baa by Moody's or
their respective equivalent ratings or unrated securities of comparable credit
quality. Bonds rated BBB or Baa are subject to certain risks. See "INVESTMENT
GRADE SECURITIES." Bonds rated lower than BBB or Baa are high risk securities
commonly known as "junk bonds." Bonds rated as low as C can be regarded as
having extremely poor prospects of attaining investment standing. See "LOWER
RATED SECURITIES" for a discussion of risks inherent in the Fund's investments
in lower rated securities and Appendix A to the Statement of Additional
Information for a description of the characteristics of obligations in the
various rating categories. If any security in the Fund's portfolio falls below
the Fund's minimum credit quality standards as a result of a rating downgrade or
the Adviser's
- -------------------------------------------------------------------------------
THE FUND MAY ALSO INVEST IN CORPORATE AND U.S.
GOVERNMENT FIXED-INCOME SECURITIES.
- -------------------------------------------------------------------------------
9
<PAGE> 11
or SAMCorp's determination, the Fund will dispose of the security as promptly
as possible while attempting to minimize any loss.
The Fund may also invest in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities. These may include mortgage-backed
securities. See "GOVERNMENT SECURITIES."
The Fund may also buy and sell options contracts, financial futures contracts
and options on such futures contracts for hedging and non-hedging purposes.
These contracts may be based on securities and securities indices. All of the
Fund's futures contracts and options on futures contracts will be traded on a
U.S. commodity exchange or board of trade. See "OPTIONS AND FUTURES
TRANSACTIONS."
The Fund may invest to a limited extent in restricted and illiquid securities.
The Fund may also lend its portfolio securities and purchase securities on a
when-issued or forward commitment basis. In addition, the Fund may make
temporary investments in short-term securities, including repurchase agreements
and other money market instruments, in order to receive a return on excess cash.
See "RISK FACTORS, INVESTMENTS AND TECHNIQUES" for more information on the
Fund's investments.
JOHN HANCOCK ACTIVE BOND FUND
The investment objective of John Hancock Active Bond Fund ("Active Bond Fund")
is a high level of current income, consistent with prudent investment risk,
through investment primarily in a diversified portfolio of freely marketable
investment grade debt securities of U.S. and foreign issuers.
- -------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF
JOHN HANCOCK ACTIVE BOND
FUND IS A HIGH LEVEL OF CURRENT INCOME
CONSISTENT WITH PRUDENT INVESTMENT RISK.
- -------------------------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65% of the value of
its total assets in bonds and/or debentures. In addition, at least 75% of the
value of the Fund's total investments in debt securities (other than commercial
paper) is normally represented by securities which have, at the time of
purchase, a rating within the four highest grades as determined by S&P (AAA, AA,
A, or BBB) or Moody's (Aaa, Aa, A or Baa) or their respective equivalent ratings
and debt securities of banks, the U.S. Government and its agencies or
instrumentalities and other issuers which, although not rated as a matter of
policy by either S&P or Moody's, are considered by the Adviser to have
investment quality comparable to securities receiving ratings within the four
highest grades. Debt securities rated BBB or Baa and unrated debt securities of
comparable credit quality are subject to certain risks. The Fund's investments
in commercial paper will, at the time of purchase, be rated A-2 or P-2 or better
by S&P or Moody's, respectively. See "INVESTMENT GRADE SECURITIES."
- -------------------------------------------------------------------------------
ACTIVE BOND FUND INVESTS PRIMARILY IN
INVESTMENT GRADE SECURITIES.
- -------------------------------------------------------------------------------
The Fund may also invest up to 25% of the value of its total assets in
fixed-income securities rated below BBB by S&P or below Baa by Moody's or their
respective equivalent ratings or in securities which are unrated. The Fund may
invest in securities rated as low as CC by S&P or Ca by Moody's and unrated
securities of comparable credit quality as determined by the Adviser. These
ratings indicate obligations that are speculative to a high degree and often in
default. Securities rated lower than Baa or BBB are high risk securities
generally referred to as "junk bonds." See "LOWER RATED SECURITIES." See
Appendix A to the Statement of Additional Information for a description of the
characteristics of obligations in the various rating categories. The Fund is not
obligated to dispose of securities whose issuers subsequently are in default or
which are downgraded below the above-stated ratings.
- -------------------------------------------------------------------------------
THE FUND MAY INVEST TO A LIMITED EXTENT IN
LOWER RATED SECURITIES.
- -------------------------------------------------------------------------------
The Fund may acquire individual securities of any maturity and is not subject to
any limits as to the average maturity of its overall portfolio. The longer the
Fund's average portfolio maturity, the more the value of the portfolio and the
net asset value of the Fund's shares will fluctuate in response to changes in
interest rates. An increase in interest rates will generally decrease the value
of the Fund's portfolio securities and its shares, while a decline in interest
rates will generally increase their value.
- -------------------------------------------------------------------------------
THE FUND'S INVESTMENTS MAY BE OF ANY MATURITY.
- -------------------------------------------------------------------------------
10
<PAGE> 12
The Fund may invest in securities of United States and foreign issuers. It is
anticipated that under normal conditions, the Fund will not invest more than 25%
of its total assets in foreign securities (excluding U.S. dollar-denominated
Canadian securities). Securities of foreign issuers involve special risks. See
"SECURITIES OF FOREIGN ISSUERS."
- -------------------------------------------------------------------------------
THE FUND MAY INVEST IN SECURITIES OF BOTH
DOMESTIC AND FOREIGN ISSUERS.
- -------------------------------------------------------------------------------
The Fund may invest to a limited extent in restricted and illiquid securities,
and enter into repurchase agreements. It may also lend its portfolio securities
and purchase securities on a forward commitment or when-issued basis.
- -------------------------------------------------------------------------------
ACTIVE BOND FUND MAY EMPLOY CERTAIN INVESTMENT
STRATEGIES TO HELP ACHIEVE ITS INVESTMENT
OBJECTIVE.
- -------------------------------------------------------------------------------
The Fund may engage in short-term trading in response to changes in interest
rates or other economic trends or developments and for certain other purposes.
See "SHORT TERM TRADING AND PORTFOLIO TURNOVER."
The Fund may also buy and sell options contracts, financial futures contracts
and options on these futures contracts for hedging and non-hedging purposes.
These contracts may be based on securities, indices and currencies. All of the
Fund's futures contracts and options on futures contracts will be traded on a
U.S. commodity exchange or board of trade. See "OPTIONS AND FUTURES
TRANSACTIONS."
The Fund may enter into forward foreign currency exchange contracts to attempt
to hedge against changes in foreign currency exchange rates. See "FOREIGN
CURRENCY TRANSACTIONS."
See "RISK FACTORS, INVESTMENTS AND TECHNIQUES" for more information on the
Fund's investments.
JOHN HANCOCK GLOBAL BOND FUND
The investment objective of the John Hancock Global Bond Fund ("Global Bond
Fund") is a competitive total investment return, consisting of current income
and capital appreciation. The Fund invests primarily in a global portfolio of
high grade, fixed-income debt securities. Normally, the Fund will invest in
fixed-income debt securities denominated in at least three currencies or
multi-currency units, including the U.S. Dollar.
Under normal circumstances, Global Bond Fund invests primarily (at least 65% of
total assets) in fixed-income debt securities issued or guaranteed by: (i) the
U.S. Government, its agencies or instrumentalities; (ii) foreign governments
(including foreign states, provinces and municipalities) or their political
subdivisions, authorities, agencies or instrumentalities; (iii) international
organizations backed or jointly owned by more than one national government, such
as the International Bank for Reconstruction and Development, European
Investment Bank, Asian Development Bank and European Coal and Steel Community;
and (iv) foreign corporations or financial institutions. The term "fixed-income
debt securities" encompasses debt obligations of all types, including bonds,
debentures and notes. A fixed-income debt security may itself be convertible
into or exchangeable for equity securities, or may carry with it the right to
acquire equity securities evidenced by warrants attached to the security or
acquired as part of a unit with a security. The Fund also invests in stocks,
such as preferred stocks, that provide the Fund with current income or capital
appreciation.
- -------------------------------------------------------------------------------
JOHN HANCOCK GLOBAL BOND FUND'S INVESTMENT
OBJECTIVE IS A COMPETITIVE TOTAL INVESTMENT
RETURN, CONSISTING OF CURRENT INCOME AND
CAPITAL APPRECIATION. THE FUND INVESTS
PRIMARILY IN A GLOBAL PORTFOLIO OF HIGH GRADE,
FIXED-INCOME DEBT SECURITIES.
- -------------------------------------------------------------------------------
The Fund has registered as a "non-diversified" fund so that it may invest more
than 5% of its total assets in the obligations of a single foreign government or
other issuer. This may make the Fund more susceptible to certain risks. See
"NON-DIVERSIFIED STATUS." The Fund will not, however, invest more than 25% of
its total assets in securities issued by any one foreign government.
- -------------------------------------------------------------------------------
THE FUND IS "NON-DIVERSIFIED."
- -------------------------------------------------------------------------------
Global Bond Fund's investments in fixed-income debt securities consist primarily
of fixed income debt securities which are rated, at the time of investment, A or
better by either S&P or Moody's or their respective equivalent ratings or in
securities that the Adviser has determined to be of comparable credit quality.
The Fund may, however, invest up to 25% of its total assets in fixed-income debt
securities rated, at the time of investment, as low as CC by S&P or Ca by
Moody's or their respective equivalent ratings and unrated securities of
comparable credit quality. In the event a fixed-income debt security is
subsequently downgraded below these ratings, the Adviser will consider this
event in its determination of whether the Fund should continue to hold the
security. Securities rated lower than BBB or Baa and unrated securities of
comparable credit quality are high risk securities generally referred to as
"junk bonds." See
- -------------------------------------------------------------------------------
THE FUND INVESTS PRIMARILY IN HIGH GRADE
SECURITIES.
- -------------------------------------------------------------------------------
11
<PAGE> 13
"LOWER RATED SECURITIES." See Appendix A to the Statement of Additional
Information for a description of the characteristics of obligations in the
various rating categories.
Global Bond Fund may invest in fixed-income debt securities denominated
in any currency or a multi-national currency unit. The European Currency Unit
("ECU") is a composite currency consisting of specified amounts of each of the
currencies of the ten member countries of the European Economic Community. The
Fund may also invest in fixed-income debt securities denominated in the
currency of one country although issued by a governmental entity, corporation
or financial institution of another country. For example, the Fund may invest
in a Japanese yen-denominated fixed-income debt security issued by a United
States corporation. This type of investment involves credit risks associated
with the issuer of the obligation and currency risks associated with the
currency in which the obligation is denominated.
Global Bond Fund will maintain a flexible investment policy, and its portfolio
assets may be shifted among fixed-income debt securities denominated in various
foreign currencies that the Adviser expects to provide relatively high rates of
income or potential capital appreciation in U.S. Dollars. As with all debt
securities, the prices of the Fund's portfolio securities will generally
increase when interest rates decline and decrease when interest rates rise.
Similarly, if the foreign currency in which a portfolio security is denominated
appreciates against the U.S. Dollar, the total investment return from the
security would be enhanced. Conversely, if the foreign currency in which a
portfolio security is denominated depreciates against the U.S. Dollar, total
investment return from that security would be adversely affected.
In selecting fixed-income debt securities for Global Bond Fund's portfolio, the
Adviser ordinarily considers such factors as the strengths and weaknesses of the
currency in which the securities are denominated; expected levels of inflation
and interest rates; government policies influencing business conditions; the
financial condition of the issuer; and other pertinent financial, tax, social,
political and national factors. The Fund's investments in securities of foreign
issuers involves risks not associated with U.S. securities. In addition, the
Fund may invest in foreign countries with limited or developing capital markets,
including emerging markets. Investments in these countries involve additional
risks. See "SECURITIES OF FOREIGN ISSUERS."
The average maturity of the Fund's portfolio securities may vary based upon the
Adviser's assessment of economic and market conditions.
- -------------------------------------------------------------------------------
THE FUND'S AVERAGE PORTFOLIO MATURITY MAY
VARY.
- -------------------------------------------------------------------------------
When the Adviser determines that adverse market conditions are present, the Fund
may establish and maintain cash reserves for temporary defensive purposes,
without limitation. The Fund's cash reserves may be invested in domestic as well
as foreign money market instruments, including but not limited to governmental
obligations, certificates of deposit, bankers' acceptances, commercial paper,
short-term corporate debt securities and repurchase agreements.
- -------------------------------------------------------------------------------
FOR TEMPORARY DEFENSIVE PURPOSES, THE FUND MAY
INVEST IN A VARIETY OF DOMESTIC AND FOREIGN
MONEY MARKET INSTRUMENTS.
- -------------------------------------------------------------------------------
Global Bond Fund's portfolio turnover rate may vary widely from year to year and
may be higher than that of many other mutual funds with a total return
objective. A high rate of portfolio turnover involves correspondingly higher
expenses than a lower rate, and these expenses must be borne by the Fund. See
"SHORT TERM TRADING AND PORTFOLIO TURNOVER."
The Fund may deal in options listed for trading on national securities or
foreign exchanges or traded over-the-counter. The Fund may invest up to 10% of
its total assets, taken at market value at the time of investment, in call and
put options on domestic and foreign securities and foreign currencies. In
addition, it may write (sell) covered call options and put options to the extent
that the cover for these options does not exceed 25% of the Fund's total assets.
The Fund may also invest in interest rate futures contracts (including futures
contracts on foreign debt securities) and foreign currency futures contracts to
hedge against the effects of fluctuations in interest rates, currency exchange
rates and other market conditions. The Fund may purchase and write (sell)
options on interest rate futures contracts and foreign currency futures
contracts that are traded on a U.S. exchange or board of trade. See "OPTIONS AND
FUTURES TRANSACTIONS."
- -------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT
STRATEGIES AND TECHNIQUES TO HELP ACHIEVE ITS
INVESTMENT OBJECTIVE.
- -------------------------------------------------------------------------------
As a means of hedging its exposure to interest rate and currency fluctuations,
the Fund may enter into interest rate swaps, currency swaps, and other types of
swap agreements, such as caps, collars and floors. See "SWAP AGREEMENTS."
12
<PAGE> 14
The Fund may enter into forward foreign currency exchange contracts to attempt
to hedge against changes in foreign currency exchange rates. See "FOREIGN
CURRENCY TRANSACTIONS."
The Fund may also lend its portfolio securities, enter into repurchase
agreements, purchase securities on a forward commitment or when-issued basis,
purchase restricted or illiquid securities, and purchase foreign securities in
the form of American Depositary Receipts, European Depositary Receipts and
similar instruments.
See "RISK FACTORS, INVESTMENTS AND TECHNIQUES" for more information about the
Fund's investments.
JOHN HANCOCK MULTI-SECTOR GROWTH FUND
The investment objective of John Hancock Multi-Sector Growth Fund ("Multi-Sector
Growth Fund") is long-term capital appreciation. The Fund seeks to achieve its
objective by emphasizing investments in equity securities of issuers in various
economic sectors.
- -------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF THE JOHN HANCOCK
MULTI-SECTOR GROWTH FUND IS LONG-TERM CAPITAL
APPRECIATION.
- -------------------------------------------------------------------------------
The equity securities in which the Fund invests consist primarily of common
stocks of U.S. and foreign issuers but may also include preferred stocks,
convertible debt securities and warrants. The Fund seeks to achieve its
investment objective by varying the relative weighting of its portfolio
securities among various economic sectors based upon both macroeconomic factors
and the outlook for each particular sector. The Adviser selects equity
securities for the Fund from various economic sectors, including, but not
limited to, the following: automotive and housing, consumer goods and services,
defense and aerospace, energy, financial services, health care, heavy industry,
leisure and entertainment, machinery and equipment, precious metals, retailing,
technology, transportation, utilities, foreign and environmental. The Fund may
modify these sectors if the Adviser believes that they no longer represent
appropriate investments for the Fund, or if other sectors offer better
opportunities for investment. SEE APPENDIX B TO THE STATEMENT OF ADDITIONAL
INFORMATION FOR A FURTHER DESCRIPTION OF THE SECTORS IN WHICH THE FUND INVESTS.
- -------------------------------------------------------------------------------
THE FUND EMPHASIZES ISSUERS IN CERTAIN
ECONOMIC SECTORS BELIEVED TO PRESENT "SECTOR
OPPORTUNITIES."
- -------------------------------------------------------------------------------
The Adviser will adjust the Fund's relative weighting among the sectors in
response to changes in economic and market conditions. The Fund may focus on as
many as five of the foregoing economic sectors at any time. Under normal market
conditions, at least 90% of the Fund's investment in equity securities consists
of the equity securities of issuers in five or fewer of the sectors. Subject to
the Fund's policy of investing not more than 25% of its total assets in any one
industry, issuers in any one sector may represent all of the Fund's net assets.
Due to the Fund's emphasis on a few sectors, the Fund may be subject to a
greater degree of volatility than a fund that is structured in a more
diversified manner. However, the Fund retains the flexibility to invest its
assets in a broader group of sectors if a narrower range of investments is not
desirable. This flexibility may offer greater diversification than a fund that
is limited to investing in a single sector or industry. The Fund may not hold
securities of issuers in all of the sectors at any given time.
In selecting securities for the Fund's portfolio, the Adviser will determine the
allocation of assets among equity securities, fixed-income securities and cash,
the sectors that will be emphasized at any given time, the distribution of
securities among the various sectors, the specific industries within each sector
and the specific securities within each industry. In making the sector analysis,
the Adviser considers the general economic environment, the outlook for real
economic growth in the United States and abroad, trends and developments within
specific sectors and the outlook for interest rates and the securities markets.
A sector is considered a "sector opportunity" when, in the opinion of the
Adviser, the issuers in that sector have a high earnings potential. In selecting
particular issuers, the Adviser considers price/earnings ratios, ratios of
market to book value, earnings growth, product innovation, market share,
management quality and capitalization.
The Fund's investments may include securities of both large, widely traded
companies and smaller, less well-known issuers. The Fund seeks growth companies
that either occupy a dominant position in an emerging or established industry or
have a significant and growing market share in a large, fragmented industry. The
Fund seeks to invest in those companies with potential for high growth, stable
earnings, ability to self-finance, a position of industry leadership, and strong
visionary management. Higher risks are often associated with invest-
13
<PAGE> 15
ments in companies with smaller market capitalizations. See "SMALLER
CAPITALIZATION COMPANIES."
The Fund may also invest in the following types of fixed-income securities: U.S.
Government securities and convertible and non-convertible corporate preferred
stocks and debt securities of U.S. and foreign issuers. See "SECURITIES OF
FOREIGN ISSUERS." The market value of fixed-income securities varies inversely
with changes in the prevailing levels of interest rates. The market value of
convertible securities, while influenced by the prevailing level of interest
rates, is also affected by the changing value of the equity into which they are
convertible. The Fund may purchase fixed-income debt securities with stated
maturities of up to thirty years. The Fund's investments in fixed-income
securities may include mortgage-backed securities.
- -------------------------------------------------------------------------------
THE FUND MAY ALSO INVEST IN FIXED-INCOME
SECURITIES IN PURSUING ITS INVESTMENT
OBJECTIVE OR FOR TEMPORARY DEFENSIVE PURPOSES.
- -------------------------------------------------------------------------------
The corporate fixed-income securities in which the Fund may invest will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's or their
respective equivalent ratings or, if unrated, determined to be of comparable
credit quality by the Adviser. Securities in the lowest investment grade (BBB or
Baa) involve certain risks. See "INVESTMENT GRADE SECURITIES." If the rating of
a debt security is reduced below Baa or BBB, the Adviser will consider whatever
action is appropriate consistent with the Fund's investment objectives and
policies. See Appendix A to the Statement of Additional Information for a
description of the characteristics of obligations in the various rating
categories.
The Fund has registered as a "non-diversified" fund so that it may invest more
than 5% of its total assets in the securities of any one issuer. This may make
the Fund susceptible to certain risks. See "NON-DIVERSIFIED STATUS."
- -------------------------------------------------------------------------------
THE FUND IS "NON-DIVERSIFIED."
- -------------------------------------------------------------------------------
In connection with its investments in foreign securities, the Fund may hold a
portion of its assets in foreign currency and enter into forward foreign
currency exchange contracts to hedge against changes in foreign currency
exchange rates. See "FOREIGN CURRENCY TRANSACTIONS."
- -------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT
STRATEGIES AND TECHNIQUES TO HELP ACHIEVE ITS
INVESTMENT OBJECTIVE.
- -------------------------------------------------------------------------------
The Fund may write listed and over-the-counter covered call and put options on
securities in which it may invest and on indices composed of securities in which
it may invest. The Fund may also purchase put and call options on these
securities and indices. The Fund may also buy and sell stock index and other
financial futures contracts, and options on futures contracts, to hedge against
changes in securities prices, interest rates and currency exchange rates or for
speculative purposes. The futures contracts may be based upon various
securities, securities indices, foreign currencies and other financial
instruments and indices. See "OPTIONS AND FUTURES TRANSACTIONS."
The Fund may engage in short sales "against the box," as well as short sales for
hedging purposes and to profit from an anticipated decline in a security's
value. Short sales other than "against the box" involve special risks. See
"SHORT SALES."
The Fund may also lend its portfolio securities, enter into repurchase
agreements, purchase securities on a forward commitment or when-issued basis,
engage in short-term trading, purchase restricted and illiquid securities and
invest in foreign issuers in the form of American Depositary Receipts.
See "RISK FACTORS, INVESTMENTS AND TECHNIQUES" for more information about the
Fund's investments.
JOHN HANCOCK FUNDAMENTAL VALUE FUND
The investment objective of John Hancock Fundamental Value Fund ("Fundamental
Value Fund") is capital appreciation with income as a secondary consideration.
The Fund seeks to achieve its objective by investing primarily in equity
securities that are undervalued relative to alternative equity investments. The
equity securities in which the Fund invests consist of common stocks, preferred
stocks, convertible debt securities and warrants of U.S. and foreign issuers.
- -------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF
JOHN HANCOCK FUNDAMENTAL
VALUE FUND IS CAPITAL
APPRECIATION WITH INCOME AS A
SECONDARY OBJECTIVE.
- -------------------------------------------------------------------------------
14
<PAGE> 16
In selecting equity securities for the Fund, the Adviser and the Fund's
subadviser, NM Capital Management, Inc. ("NM Capital"), emphasize issuers whose
equity securities trade at market-to-book value ratios lower than comparable
issuers or the Standard & Poor's Composite Index. The Fund's portfolio will also
include securities that the Adviser and NM Capital consider to have the
potential for capital appreciation, due to potential recognition of earnings
power or asset value which is not fully reflected in the securities' current
market value. The Adviser and NM Capital attempt to identify investments which
possess characteristics, such as high relative value, intrinsic value, going
concern value, net asset value and replacement book value, which are believed to
limit sustained downside price risk, generally referred to as the "margin of
safety" concept. The Adviser and NM Capital also consider an issuer's financial
strength, competitive position, projected future earnings and dividends and
other investment criteria. These securities are collectively referred to as
"fundamental value" securities.
- -------------------------------------------------------------------------------
FUNDAMENTAL VALUE FUND EMPHASIZES "FUNDAMENTAL
VALUE" SECURITIES, WHICH ARE EQUITY SECURITIES
THAT ARE UNDERVALUED RELATIVE TO ALTERNATIVE
EQUITY INVESTMENTS.
- -------------------------------------------------------------------------------
The Fund's investment policy reflects the Adviser's and NM Capital's belief that
while the securities markets tend to be efficient, sufficiently persistent price
anomalies exist which the strategically disciplined active equity manager can
exploit in seeking to achieve an above-average rate of return. Based on this
premise, the Adviser and NM Capital have adopted a strategy of investing in low
market to book value, out of favor, stocks.
The Fund's investments may include securities of both large, widely traded
companies and smaller, less well known issuers. Higher risks are often
associated with investments in companies with smaller market capitalizations.
See "SMALLER CAPITALIZATION COMPANIES."
- -------------------------------------------------------------------------------
FUNDAMENTAL VALUE FUND MAY INVEST IN THE
SECURITIES OF SMALLER, LESS WELL-KNOWN
ISSUERS, WHICH MAY INVOLVE CERTAIN RISKS.
- -------------------------------------------------------------------------------
The Fund's investments in fixed-income securities may include U.S. Government
securities and convertible and non-convertible corporate preferred stocks and
debt securities of U.S. and foreign issuers. Under normal market conditions, the
Fund's investments in fixed-income securities are not expected to exceed 10% of
the Fund's net assets. The market value of fixed-income securities varies
inversely with changes in the prevailing levels of interest rates. The market
value of convertible securities, while influenced by the prevailing level of
interest rates, is also affected by the changing value of the equity securities
into which they are convertible. The Fund may purchase fixed-income debt
securities with stated maturities of up to thirty years.
- -------------------------------------------------------------------------------
FUNDAMENTAL VALUE FUND MAY ALSO INVEST IN
FIXED-INCOME SECURITIES IN PURSUING ITS
INVESTMENT OBJECTIVE OR FOR TEMPORARY
DEFENSIVE PURPOSES.
- -------------------------------------------------------------------------------
The corporate fixed-income securities in which the Fund may invest, including
convertible debt securities and preferred stock, will be rated, at the time of
investment, at least BBB by S&P or Baa by Moody's or their respective equivalent
ratings or, if unrated, determined to be of comparable credit quality by the
Adviser or NM Capital. Debt securities rated BBB or Baa or their equivalent are
subject to certain risks. See "INVESTMENT GRADE SECURITIES." If the rating of a
debt security is reduced below BBB or Baa, the Adviser or NM Capital will sell
it when it is appropriate consistent with the Fund's investment objective and
policies. See Appendix A to the Statement of Additional Information for a
description of the characteristics of obligations in the various rating
categories.
The Fund may invest up to 50% of its assets in securities of foreign issuers,
including American Depositary Receipts. These investments involve special risks.
See "SECURITIES OF FOREIGN ISSUERS."
When the Adviser or NM Capital believes unfavorable investment conditions exist
requiring the Fund to assume a temporary defensive investment posture, the Fund
may hold cash or invest all or a portion of its assets in short-term instruments
which are rated A-1 by S&P or P-1 by Moody's.
In connection with its investments in foreign securities, the Fund may hold a
portion of its assets in foreign currencies and may enter into forward foreign
currency exchange contracts to protect against changes in foreign currency
exchange rates. See "FOREIGN CURRENCY TRANSACTIONS."
- -------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT
STRATEGIES AND TECHNIQUES TO HELP ACHIEVE ITS
INVESTMENT OBJECTIVE.
- -------------------------------------------------------------------------------
The Fund may write listed and over-the-counter covered call and put options on
up to 100% of its net assets on securities in which it may invest and on indices
composed of securities in which it may invest. The Fund may also purchase put
and call options on such securities and indices. The Fund may also buy and sell
stock index and other financial futures contracts and options on such futures
contracts to hedge against changes in securities prices, interest rates
15
<PAGE> 17
and currency exchange rates or for speculative purposes. These contracts may be
based on various securities indices and currencies. See "OPTIONS AND FUTURES
TRANSACTIONS."
The Fund may also lend its portfolio securities, enter into repurchase
agreements, purchase securities on a forward commitment or when-issued basis and
purchase restricted and illiquid securities.
See "RISK FACTORS, INVESTMENTS AND TECHNIQUES" for more information about the
Fund's investments.
JOHN HANCOCK INTERNATIONAL EQUITY FUND
The investment objective of John Hancock International Equity Fund
("International Equity Fund") is long-term growth of capital. The Fund seeks to
achieve its investment objective by investing primarily in foreign equity
securities.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in equity securities of issuers located outside the United States in
various countries around the world. Generally, the Fund's portfolio will contain
securities of issuers from at least three countries other than the United
States. Although the Fund may invest in both equity and debt securities, the
Adviser and the Fund's Subadviser, John Hancock Advisers International Ltd.
("JHAI"), expect that equity securities, such as common stock, preferred stock
and securities convertible into common and preferred stock, will ordinarily
offer the greatest potential for long-term growth of capital and will constitute
substantially all the Fund's assets. However, the Fund may invest in any other
types of securities that the Adviser or JHAI believe offer long-term capital
appreciation due to favorable credit quality, interest rates or currency
exchange rates. These securities include warrants, bonds, notes and other debt
securities (including Euro-dollar securities) or obligations of domestic or
foreign governments and their political subdivisions, or domestic or foreign
corporations.
- -------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF JOHN HANCOCK
INTERNATIONAL EQUITY FUND IS LONG-TERM GROWTH
OF CAPITAL.
- -------------------------------------------------------------------------------
The Fund maintains a flexible investment policy and invests in a diversified
portfolio of securities of companies and governments located throughout the
world. In making the allocation of assets among various countries and geographic
regions, the Adviser and JHAI ordinarily consider such factors as prospects for
relative economic growth between foreign countries; expected levels of inflation
and interest rates; governmental policies influencing business conditions; and
other pertinent financial, tax, social, political and national factors -- all in
relation to the prevailing prices of the securities in each country or region.
- -------------------------------------------------------------------------------
THE INTERNATIONAL ALLOCATION
OF ASSETS IS NOT FIXED, AND WILL
VARY FROM TIME TO TIME BASED
ON THE JUDGMENT OF THE ADVISER
AND JHAI.
- -------------------------------------------------------------------------------
In choosing specific investments for the Fund, the Adviser and JHAI generally
look for companies whose earnings show a strong growth trend or for companies
whose current market value per share is undervalued. The Fund will not restrict
its investments to any particular size company and, consequently, the portfolio
may include the securities of small and relatively less well-known companies.
The securities of small and, in some cases, medium-sized companies may be
subject to more volatile market movements than the securities of larger, more
established companies or the stock market averages in general. See "SMALLER
CAPITALIZATION COMPANIES."
The Fund intends generally to invest in debt securities only for temporary
defensive purposes. Accordingly, when the Adviser or JHAI believes that
unfavorable investment conditions exist requiring the Fund to assume a temporary
defensive investment posture, the Fund may hold cash or invest all or a portion
of its assets in short-term domestic as well as foreign instruments, including:
short-term U.S. Government securities (including mortgage-backed securities) and
repurchase agreements in connection with such instruments; bank certificates of
deposit, bankers' acceptances, time deposits and letters of credit; and
commercial paper (including so called Section 4(2) paper rated at least A-1 or
A-2 by S&P or P-1 or P-2 by Moody's or if unrated considered by the Adviser or
JHAI to be of comparable credit quality). The Fund's temporary defensive
investments may also include: debt obligations of U.S. companies rated at least
BBB or Baa by S&P or Moody's, respectively, or, if unrated, of comparable
quality in the opinion of the Adviser or JHAI; commercial paper and corporate
debt obligations not satisfying the above credit standards if they are (a)
subject to demand features or puts or (b) guaranteed as to principal and
interest by a domestic or foreign bank having total assets in excess of $1
billion, by a corporation whose commercial paper may be purchased by the Fund,
or by a foreign government having an existing debt security rated at
16
<PAGE> 18
least BBB or Baa by S&P or Moody's, respectively; and other short-term
investments which are determined by the Trustees of the Trust to present minimal
credit risks and which are of "high quality" as determined by any major rating
service or, in the case of an instrument that is not rated, of comparable
quality as determined by the Adviser and JHAI. Securities which are convertible
may be rated as low as BBB or Baa by S&P or Moody's, respectively. Debt
securities and convertible securities rated BBB or Baa are subject to certain
risks. See "INVESTMENT GRADE SECURITIES." If the rating of a debt security or a
convertible security is reduced below BBB or Baa, the Adviser and JHAI will
consider whatever action is appropriate consistent with the Fund's investment
objectives and policies. See Appendix A to the Statement of Additional
Information for a description of the characteristics of obligations in the
various rating categories.
The Fund will invest in securities of foreign and United States issuers which
are issued in or outside of the U.S., including American Depositary Receipts
("ADRs"), European Depositary Receipts ("EDRs") or other securities convertible
into securities of corporations in which the Fund is permitted to invest. See
"DEPOSITARY RECEIPTS."
Although the Fund's investments in foreign securities generally are subject to
special risks, these risks may be intensified in the case of investments in
emerging markets or countries with limited or developing capital markets. These
countries are located in the Asia-Pacific region, Eastern Europe, Latin and
South America and Africa. See "SECURITIES OF FOREIGN ISSUERS."
- -------------------------------------------------------------------------------
THE FUND'S INVESTMENTS IN SECURITIES OF
FOREIGN ISSUERS
MAY INCLUDE INVESTMENTS IN
EMERGING MARKETS.
- -------------------------------------------------------------------------------
The Fund will not speculate in foreign currencies, but may enter into forward
foreign currency contracts to seek to hedge against changes in currency exchange
rates. See "FOREIGN CURRENCY TRANSACTIONS."
The Fund may deal in options listed for trading on national securities or
foreign exchanges or those traded over the counter. The Fund may write listed
and over the counter covered call and put options on securities in which it may
invest and on indices composed of securities in which it may invest. The Fund
may also purchase put and call options on these securities and indices. The Fund
may engage in transactions in futures contracts and options on futures contracts
for hedging and speculative purposes. All of the Fund's futures contracts and
options on futures contracts will be traded on a U.S. commodity exchange or
board of trade. See "OPTIONS AND FUTURES TRANSACTIONS."
- -------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT
STRATEGIES AND TECHNIQUES TO HELP ACHIEVE ITS
INVESTMENT OBJECTIVE.
- -------------------------------------------------------------------------------
The Fund may engage in short sales "against the box," as well as short sales for
hedging purposes and to profit from an anticipated decline in a security's
value. Short sales other than "against the box" involve special risks. See
"SHORT SALES."
The Fund may also lend its portfolio securities, enter into repurchase
agreements, purchase securities on a forward commitment or when-issued basis,
purchase restricted and illiquid securities and engage in short-term trading.
See "RISK FACTORS, INVESTMENTS AND TECHNIQUES" for more information on the
Fund's investments.
------------------------
Each Fund has adopted certain investment restrictions which are enumerated in
detail in the Statement of Additional Information where they are classified as
fundamental or nonfundamental. Those restrictions designated as fundamental may
not be changed without shareholder approval. Each Fund's investment objective,
investment policies and nonfundamental restrictions, however, may be changed by
a vote of the Trustees without shareholder approval. If there is a change in a
Fund's investment objective, you should consider whether the Fund remains an
appropriate investment in light of your current financial position and needs.
- -------------------------------------------------------------------------------
EACH FUND HAS ADOPTED INVESTMENT RESTRICTIONS
WHICH ARE ENUMERATED IN DETAIL IN THE
STATEMENT OF ADDITIONAL INFORMATION. SOME OF
THESE RESTRICTIONS MAY HELP TO REDUCE
INVESTMENT RISK.
- -------------------------------------------------------------------------------
The primary consideration in choosing brokerage firms to carry out the Funds'
transactions is execution at the most favorable prices, taking into account the
broker's professional ability and quality of service. Consideration may also be
given to the broker's sales of shares of the Funds. Pursuant to procedures
determined by the Trustees, the Adviser may place securities transactions with
brokers affiliated with the Adviser and/or a subadviser. These brokers include
Tucker, Anthony Incorporated, Sutro and Company, Inc., and John Hancock
Distributors, Inc., which are indirectly owned by the Life Company, which in
turn indirectly owns the Adviser. Fixed-income securities are generally
purchased and sold in transactions directly with dealers acting as principal and
involve a "spread" rather than a commission. Commission rates on
- -------------------------------------------------------------------------------
BROKERS ARE CHOSEN FOR FUND TRANSACTIONS ON
THE BASIS OF BEST PRICE AND EXECUTION.
- -------------------------------------------------------------------------------
17
<PAGE> 19
many foreign securities exchanges are fixed and are generally higher than U.S.
commission rates, which are negotiable.
WHO MAY BUY SHARES
INVESTORS ARE LIMITED TO THE QUALIFIED RETIREMENT PLANS ("PLANS") AND
INSTITUTIONS DEFINED BELOW. THERE IS NO SALES CHARGE. John Hancock Funds, Inc.
("JH Funds") may make payment out of its own resources to a Selling Broker who
sells shares of a Fund in an amount not to exceed 0.15% of the amount invested.
PLANS are defined as follows: (a) unaffiliated benefit plans and (b) tax-exempt
retirement plans of the Adviser and its affiliates, including the retirements
plans of the Adviser's affiliated brokers. A PARTICIPANT is an individual
employee participating in a Plan.
INSTITUTIONS are defined as follows: (a) certain trusts, endowment funds and
foundations; (b) banks and insurance companies purchasing for their own account;
(c) investment companies not affiliated with the Adviser; (d) any entity taxed
as a corporation for purposes of federal taxation; and (e) any state, county,
city or any instrumentality, department, authority or agency thereof.
INVESTORS' GUIDE TO SERVICES
HOW TO BUY SHARES
Each Plan or Institution must make a minimum initial investment in a Fund of at
least $250,000 unless you invest or have invested at least $1 million in the
aggregate in any of the series of the Trust. There is no minimum initial
investment applicable to employee benefit or retirement plans having 350 or more
eligible employees.
The Trust includes the Funds as well as the following additional funds: John
Hancock Independence Diversified Core Equity Fund II, John Hancock Independence
Growth Fund, John Hancock Independence Value Fund, John Hancock Independence
Medium Capitalization Fund and John Hancock Independence Balanced Fund (the
"Independence Funds"). Shares of the Independence Funds are offered by means of
a separate prospectus available by calling 1-800-755-4371. Please read the
Independence Funds' prospectus before investing.
<TABLE>
OPENING AN ACCOUNT
PARTICIPANTS
- --------------------------------------------------------------------------------------------
Through your Sponsor according to your Plan.
- --------------------------------------------------------------------------------------------
<CAPTION>
PLANS AND INSTITUTIONS
- --------------------------------------------------------------------------------------------
<S> <C> <C>
BY CHECK 1. Make check payable to John Hancock Investor Services Corporation
("Investor Services").
2. Mail the completed account information package directly to Investor
Services at:
John Hancock Investor Services Corporation
P.O. Box 9277
Boston, MA 02205-9277
- --------------------------------------------------------------------------------------------
BY WIRE 1. Obtain an account number by calling 1-800-755-4371.
2. Instruct your bank to wire funds to:
First Signature Bank & Trust
John Hancock Deposit Account No. 900022260
ABA Routing No. 211475000
For credit to: [Full Name of Fund]
Your Account Number
Name(s) under which account is registered.
Please note that wires sent in this manner must be for mutual fund investments
only.
3. In the case of multiple series purchases made by one wire, include clear
instructions as to the specific allocation of the monies.
4. Mail the completed account information package directly to Investor
Services at P.O. Box 9277, Boston, MA 02205-9277.
5. Plan Sponsors may make arrangements for Automatic Clearing House ("ACH")
transactions and other types of wire transfers by contacting Investor
Services at
1-800-755-4371.
- --------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 20
Investor Services will open an account when it receives an investment in 'good
order.' 'Good order' is defined as receipt of a completed account information
package and the initial investment amount, if applicable.
OTHER REQUIREMENTS. All purchases must be made in U.S. dollars. Checks written
on foreign banks will delay purchases until U.S. funds are received and a
collection charge may be imposed. Wire purchases normally take two or more hours
to complete and, to be accepted the same day, must be received by 4:00 p.m., New
York time. Your bank may charge a fee to wire funds. Telephone transactions are
recorded to verify information. Share certificates are not issued unless a
request is made to Investor Services.
<TABLE>
BUYING ADDITIONAL SHARES
PARTICIPANTS
- ---------------------------------------------------------------------------------------------
Through your Sponsor according to your Plan.
- ---------------------------------------------------------------------------------------------
<CAPTION>
PLANS
- ---------------------------------------------------------------------------------------------
<S> <C>
BY CHECK Please follow the procedures set forth above for opening an account by check.
BY WIRE Please follow the procedures set forth above for opening an account by wire.
---------------------------------------------------------------------------------------------
INSTITUTIONS
- ---------------------------------------------------------------------------------------------
BY CHECK Please follow the procedures set forth above for opening an account by check.
BY WIRE Please follow the procedures set forth above for opening an account by wire.
BY TELEPHONE 1. Complete the "Invest-By Phone" and "Bank Information" sections on the
Account Application designating a bank account from which funds may be
drawn. Note that in order to invest by phone, your account must be in a
bank or credit union that is a member of the ACH System.
2. After your authorization form has been processed, you may purchase
additional shares by calling Investor Services toll-free at 1-800-755-4371.
3. Give the Investor Services representative the name(s) in which your account
is registered, the Fund name and your account number, and the amount you
wish to invest.
4. Your investment normally will be credited to your account the business day
following your phone request.
---------------------------------------------------------------------------------------------
</TABLE>
REPORTS TO SHAREHOLDERS
Participants should direct all inquiries about the Funds to either the Plan
Sponsor or Investor Services at 1-800-755-4371.
The Funds will issue an annual report containing audited financial statements
and a semiannual report to shareholders (i.e., Plans or Institutions). A printed
confirmation for each transaction affecting share balance or account
registration will be provided to shareholders by Investor Services. Statements
related to reinvestment of dividends will be furnished quarterly. A tax
information statement will be mailed by January 31 of each year.
SHARE PRICE
SHARES OF EACH FUND ARE OFFERED AT THE NET ASSET VALUE ("NAV") OF THAT
FUND. The NAV is the value of one share and is calculated by dividing a Fund's
net assets by the number of outstanding shares of that Fund.
Securities in a Fund's portfolio are valued on the basis of market quotations,
valuations provided by independent pricing services or, at fair value as
determined in good faith in accordance with procedures approved by the Trustees.
Short-term debt investments maturing within 60 days are valued at amortized cost
which approximates market value. Foreign securities are valued on the basis of
quotations from the primary market in which they are traded and are translated
from the local currency into U.S. dollars using current exchange rates. If
quotations are not available or if the values have been materially affected by
events occurring after the closing of a foreign market, foreign securities are
valued by a method that the Trustees believe accurately reflects fair value. The
NAV is calculated once daily as of the close of regular trading on the New York
Stock Exchange (generally at 4:00 p.m. New York time) on each day that the
Exchange is open. On any day an international market is closed and the New York
Stock Exchange is open, the foreign securities will be valued at the prior day's
close with the current day's exchange rate.
19
<PAGE> 21
Shares of the Fund are sold at the NAV computed after your investment is
received in 'good order' by Investor Services. The Fund will normally issue
shares for cash consideration only.
REDEEMING SHARES
The payment of redemption proceeds will be made by check or electronic credit to
a shareholder's account at a financial institution, generally on the next
business day. When you redeem your shares, you may realize a gain or loss. Under
unusual circumstances a Fund may suspend redemptions or postpone payment as
permitted by the Federal securities laws, which could be up to seven (7) days. A
Fund may hold payment until reasonably satisfied that investments which were
recently made by check have been collected, which may take up to 10 calendar
days.
<TABLE>
<CAPTION>
PARTICIPANTS
- ---------------------------------------------------------------------------------------------
<S> <C>
Through your Sponsor according to your Plan
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PLANS
<S> <C>
- ---------------------------------------------------------------------------------------------
IN WRITING Send a letter of instruction specifying the name of the Fund, the dollar
amount or the number of shares to be redeemed, your name, your account
number and the additional requirements listed below that apply to your
particular account.
CORPORATION OR Letter of instruction and a corporate resolution, signed by person(s)
ASSOCIATION authorized to act on the account, with the signature(s) guaranteed.
TRUST Letter of instruction signed by the Trustee(s) with a signature(s)
guaranteed. (If the Trustee's name is not registered on your account, also
provide a copy of the Trust document, certified within the last 60 days.)
IF YOU DO NOT FALL INTO EITHER OF THESE REGISTRATION CATEGORIES PLEASE CALL
1-800-755-4371 FOR FURTHER INSTRUCTIONS.
If you have share certificates you must submit them with your letter of
instruction.
BY WIRE Redemption proceeds of $1,000 or more can be wired on the next business day
to your designated bank account and a small fee may be deducted. You may
also use electronic funds transfer to your assigned bank account and the
funds are usually collectable after 2 business days. Your bank may or may
not charge a fee for this service. Redemptions of less than $1,000 will be
sent by check or electronic funds transfer.
Wire redemption is not available for Fund shares in certificate form.
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONS
<S> <C>
- ---------------------------------------------------------------------------------------------
IN WRITING Please follow the instructions as set forth for Plans on how to redeem in
writing.
BY WIRE Please follow the instructions as set forth for Plans on how to redeem by
wire.
BY TELEPHONE As an Institution you are automatically eligible for the telephone
redemption privilege. Call
1-800-755-4371, from 8:00 a.m. to 4:00 p.m. (New York time), Monday through
Friday, excluding days on which the Exchange is closed. Investor Services
employs the following procedures to confirm that instructions received by
telephone are genuine. Your name, account number, taxpayer identification
number applicable to the account and other relevant information may be
requested. In addition, telephone instructions are recorded.
You may redeem up to $100,000 by telephone, but the address on the account
must not have changed for the last 30 days. A check will be mailed to the
exact name(s) and address on the account.
If reasonable procedures, such as those described above, are not followed,
the Funds may be liable for any loss due to unauthorized or fraudulent
instructions. In all other cases, neither the Funds nor Investor Services
will be liable for any loss or expense for acting upon telephone
instructions made in accordance with the procedures mentioned above.
Telephone redemption is not available for Fund shares in certificate form.
During periods of extreme economic conditions or market changes, telephone
requests may be difficult to implement due to a large volume of calls.
During such times you should consider placing redemption requests in
writing or using EASI-line. EASI-line is a telephone number which is listed
on account statements.
- ------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE> 22
WHO MAY GUARANTEE YOUR SIGNATURE. A signature guarantee is a widely accepted
way to protect you and the Funds by verifying the signature on your request. It
may not be provided by a notary public. If the net asset value of the shares
redeemed is $100,000 or less or if this is a total redemption of a Plan's
assets, Investor Services may guarantee the signature. The following
institutions may provide you with a signature guarantee, provided that the
institution meets credit standards established by Investor Services: (i) a bank;
(ii) a securities broker or dealer, including a government or municipal
securities broker or dealer, that is a member of a clearing corporation or meets
certain net capital requirements; (iii) a credit union having authority to issue
signature guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, a federal savings bank or association; or (v) a
national securities exchange, a registered securities exchange or clearing
agency.
EXCHANGE PRIVILEGE
There is no sales charge for exchanges within the Trust. An exchange is a
redemption of shares in one Fund and the purchase of shares in another Fund
within the Trust. Read the Prospectus of the Fund into which you want to
exchange.
When you make an exchange, your account registration must be identical in both
the existing and new account. The exchange privilege is available only in states
where the exchange can be made legally.
<TABLE>
<CAPTION>
PARTICIPANTS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Should your investment objective change or if you wish to achieve further diversification, you
must contact your Plan Sponsor to determine Plan requirements for exchanging shares among the
Funds of the Trust or other investment options available under your Plan.
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PLANS
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
IN WRITING 1. In a letter request and exchange and list the following:
-- the name of the Fund to be exchanged out of
-- the account number
-- name(s) in which the account is registered
-- name of the Fund in which to invest the exchanged shares
-- the number of shares or the dollar amount wished to be exchanged.
Sign the request exactly as the account is registered.
2. Mail the request and information to:
John Hancock Investor Services Corporation
Attn: Institutional Services
P.O. Box 9277
Boston, MA 02205-9277
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
IN WRITING Please follow the instructions as set forth for Plans on how to exchange shares
in writing.
BY TELEPHONE 1. Exchange by telephone is automatically authorized unless the box indicating
that the telephone exchange privilege is not desired is marked.
2. Call 1-800-755-4371. Have the account number of the Fund to be exchanged
out of
and the exact name in which it is registered available to give to the
telephone
representative.
- -----------------------------------------------------------------------------------------------------
</TABLE>
Each Fund reserves the right to require Institutions to keep previously
exchanged shares (and reinvested dividends) in the Fund for 90 days before they
are permitted a new exchange. Participants may exchange shares according to Plan
provisions. The Fund may also terminate or alter the terms of the exchange
privilege upon 60 days' notice to shareholders.
SPECIAL INVESTMENT PRIVILEGE FOR FORMER PLAN PARTICIPANTS. A former Participant
in a Plan may invest the redemption proceeds of Fund shares beneficially owned
by the Participant without a sales charge in other John Hancock funds.
Participants may only invest in the Funds through a Plan. If a Participant
elects or is required to withdraw from a Plan, the shares cannot be transferred
into an account in the name of the Participant. In this circumstance, the
Participant may, subject to any other rights or restrictions
21
<PAGE> 23
under the Plan, cause the Plan Sponsor to redeem shares of the Funds. The
proceeds of such redemption may be either distributed to the Participant or
rolled over into an Individual Retirement Account or other retirement plan.
In either case, such proceeds may be invested at NAV without the imposition of a
sales charge in shares of any other fund (other than those of the Trust) in the
John Hancock family of funds. If the fund selected by the Participant has more
than one class of shares, the privilege of purchasing shares at NAV will only
apply to Class A shares. A Participant should obtain and carefully read the
Prospectus of each John Hancock fund in which the Participant is considering an
investment.
A Participant may obtain a Prospectus, establish an Individual Retirement
Account and arrange the rollover of redemption proceeds by contacting Investor
Services at 1-800-755-4371. Unlike a rollover, the distribution of redemption
proceeds to a Participant may subject the Participant to tax withholding equal
to 20% of the amount of the distribution.
ORGANIZATION AND MANAGEMENT OF THE FUNDS
Each Fund is organized as a separate portfolio of the Trust, which is an
open-end investment management company organized as a Massachusetts business
trust in 1994. The Trust has an unlimited number of authorized shares, and
currently has twelve distinct funds. The Independence Funds are offered through
a separate prospectus.
Each Fund currently has one class of shares with equal rights as to voting,
redemption, dividends and liquidation within their respective Fund. The Trustees
also have the authority, without further shareholder approval, to establish
additional funds and to classify and reclassify the shares of the Funds, or any
new fund of the Trust, into one or more classes. The Trust is not required to
hold annual shareholder meetings, although special meetings may be called for
such purposes as electing or removing Trustees, changing fundamental
restrictions or approving a management contract.
- -------------------------------------------------------------------------------
THE TRUSTEES ELECT OFFICERS AND RETAIN THE
INVESTMENT ADVISER AND THE SUBADVISERS, WHICH
ARE RESPONSIBLE FOR THE DAY-TO-
DAY OPERATIONS OF THE FUNDS, SUBJECT TO THE
TRUSTEES' POLICIES AND SUPERVISION.
- -------------------------------------------------------------------------------
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Funds. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Trust. The Declaration of Trust also provides for indemnification out of a
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 a Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote. Liabilities
attributable to one Fund are not charged against the assets of any other Fund.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. It provides the Funds, and other
investment companies in the John Hancock group of funds, with investment
research and portfolio management services.
- -------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT
COMPANIES HAVING TOTAL ASSETS OF OVER
$13 BILLION.
- -------------------------------------------------------------------------------
JH Funds distributes shares of all of the John Hancock Mutual funds directly and
through selected broker-dealers ("Selling Brokers"). Certain officers of the
Trust are also officers of the Adviser, the subadvisers and JH Funds.
SAMCorp serves as subadviser to Dividend Performers Fund pursuant to a
subadvisory agreement with that Fund and the Adviser. It was organized in 1992
and is an indirect wholly-owned subsidiary of the Life Company. It provides
investment advice and advisory services to investment companies and private and
institutional accounts totalling approximately $1.5 billion.
NM Capital serves as subadviser to Fundamental Value Fund pursuant to a
subadvisory agreement with that Fund and the Adviser. It was organized in 1977
and is an indirect wholly-owned subsidiary of the Life Company. It provides
investment advice and advisory services to investment companies and private and
institutional accounts totalling approximately $875 million.
- -------------------------------------------------------------------------------
TO ASSIST IN MANAGING THE INVESTMENTS OF
DIVIDEND PERFORMERS FUND, FUNDAMENTAL VALUE
FUND AND INTERNATIONAL EQUITY FUND, THE
ADVISER HAS ENGAGED SUBADVISERS.
- -------------------------------------------------------------------------------
JHAI serves as subadviser to International Equity Fund pursuant to a subadvisory
agreement with that Fund and the Adviser. Formed in 1987, JHAI is a wholly-owned
subsidiary of the
22
<PAGE> 24
Adviser. It provides international investment research and advisory services to
investment companies and institutional clients representing over $182 million in
assets.
The person or persons primarily responsible for the day-to-day management of
each Fund are listed below:
SMALL CAPITALIZATION FUND
Michael P. DiCarlo, Edgar M. Larsen and Benjamin Hock are primarily responsible
for the day-to-day management of Small Capitalization Fund. Mr. DiCarlo also
manages Multi-Sector Growth Fund, John Hancock Special Equities Fund and John
Hancock Special Opportunities Fund in addition to overseeing the Adviser's
equity management operation. Mr. DiCarlo is an Executive Vice President of the
Adviser and has been associated with the Adviser since 1984. Mr. Larsen also
manages John Hancock Emerging Growth Fund. Mr. Larsen is a Senior Vice President
and Mr. Hock is a Vice President of the Adviser. Each was associated with
Transamerica Fund Management Company prior to its purchase by the Adviser in
December 1994. Prior to August 1993 Mr. Hock was employed by Securities
Management Research as a Senior Vice President and at Interfirst Investment
Management.
DIVIDEND PERFORMERS FUND
John F. Snyder III is primarily responsible for the management of Dividend
Performers Fund. He is assisted by a team of co-portfolio managers and analysts
in the day-to-day management of the Fund. Mr. Snyder is Executive Vice President
of SAMCorp and Senior Vice President of the Fund. He has been associated with
the Adviser since 1991. Prior to 1991, Mr. Snyder was Vice President and
portfolio manager for Sovereign Advisers, Inc. He is also co-portfolio manager
of John Hancock Sovereign Achievers Fund, John Hancock Sovereign Investors Fund
(which has investment objectives and policies substantially identical to those
of Dividend Performers Fund), and John Hancock Sovereign Balanced Fund.
ACTIVE BOND FUND
James Ho is a Senior Vice President and the portfolio manager of Active Bond
Fund. Mr. Ho is assisted in the day-to-day management of the Fund's investment
portfolio by a co-manager and a team of credit analysts. Mr. Ho, an Executive
Vice President of the Adviser, also directs all taxable fixed-income investment
management and has been associated with the Adviser since 1985.
GLOBAL BOND FUND
Global Bond Fund is managed by the Adviser's global fixed-income team. All
investment decisions are made by the portfolio management team, and no single
person is primarily responsible for making recommendations to the team.
MULTI-SECTOR GROWTH FUND
Day-to-day management of Multi-Sector Growth Fund is carried out by Michael P.
DiCarlo, supported by an investment team of sector and global specialists from
the Adviser's equity group. See "SMALL CAPITALIZATION FUND" for information
concerning Mr. DiCarlo's professional background. As indicated above, Mr.
DiCarlo also manages John Hancock Special Opportunities Fund (which has
investment objectives and policies substantially identical to those of
Multi-Sector Growth Fund) and John Hancock Special Equities Fund.
FUNDAMENTAL VALUE FUND
The organization of NM Capital, the subadviser of Fundamental Value Fund, is
such that all investment decisions for that Fund are made by a portfolio
management team consisting of three people. Thomas S. Christopher has over
twenty-five years of experience in investment management, including trust and
investment counseling and has been with NM Capital since 1985. Charles H. Womack
also has over twenty years of investment management experience and a background
in investment counselling, portfolio analysis and institutional sales and has
been with NM Capital since 1986. Angela J. Bristow serves as Senior Equity
Analyst and Equity Strategist. She has been with NM Capital since 1991 and has
over thirteen years of investment experience.
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<PAGE> 25
INTERNATIONAL EQUITY FUND
International Equity Fund is managed by the Adviser's and JHAI's international
equities team. All investment decisions are made by the portfolio management
team, and no single person is primarily responsible for making recommendations
to the team.
In order to avoid any conflict with portfolio trades for the Fund, the Adviser,
the subadvisers 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.
<TABLE>
THE FUNDS' EXPENSES
Each Fund pays a monthly fee to the Adviser for managing the Fund's investment
and business affairs, which is equal on an annual basis to a percentage of the
Fund's average daily net assets. These fees are as follows:
<CAPTION>
FUND RATE
- ---------------------------------- ----------------------------------------------------------
<S> <C>
Small Capitalization Fund .80% of average daily net assets
Dividend Performers Fund .60% of average daily net assets up to $500 million
.55% of such assets in excess of $500 million
Active Bond Fund .50% of average daily net assets up to $1.5 billion
.45% of such assets in excess of $1.5 billion
Global Bond Fund .75% of average daily net assets up to $250 million
.70% of such assets in excess of $250 million
Multi-Sector Growth Fund .80% of average daily net assets up to $500 million
.75% of such assets in excess of $500 million
Fundamental Value Fund .70% of average daily net assets up to $500 million
.65% of such assets in excess of $500 million
International Equity Fund .90% of average daily net assets up to $500 million
.65% of such assets in excess of $500 million
</TABLE>
The Adviser pays a portion of its advisory fee from Dividend Performers Fund and
Fundamental Value Fund to SAMCorp and NM Capital, respectively, at the following
rates: 20% of the advisory fee payable on the Fund's average daily net assets up
to $100 million and 55% of the advisory fee payable on the Fund's assets
exceeding $100 million.
The Adviser pays a portion of its fee from International Equity Fund to JHAI at
the following rate: 70% of the advisory fee payable on the Fund's average daily
net assets up to $500 million and 90% of the advisory fee payable on the Fund's
assets exceeding $500 million.
The Funds are not responsible for payment of these subadvisory fees. The
advisory fees paid by Global Bond Fund, Multi-Sector Growth Fund and
International Equity Fund are greater than those paid by most funds. Due to the
added complexity of managing funds with investment strategies similar to these
Funds, advisory fees of similar funds tend to be higher than those paid by most
funds.
Each Fund pays fees to the independent Trustees of the Trust, the expenses of
the continuing registration and qualification of its shares for sale, the
charges of custodians and transfer agents, and auditing and legal expenses. The
Adviser may, from time to time, agree that all or a portion of its fee will not
be imposed for specific periods or make other arrangements to limit the Funds'
expenses to not more than a specified percentage of average net assets. The
Adviser retains the right to reimpose the fee and recover any other payments to
the extent annual expenses fall below the limit at the end of the fiscal year.
The Adviser has voluntarily agreed to limit the Funds' expenses until further
notice to the percentages of each Fund's average net assets specified under
"EXPENSE INFORMATION."
- -------------------------------------------------------------------------------
EACH FUND PAYS CERTAIN ADDITIONAL EXPENSES.
- -------------------------------------------------------------------------------
24
<PAGE> 26
<TABLE>
DIVIDENDS AND TAXES
Dividends from net investment income are declared and paid as follows:
<CAPTION>
FUND DECLARED PAID
- -------------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Small Capitalization Fund........................................... Annually Annually
Dividend Performers Fund............................................ Quarterly Quarterly
Active Bond Fund.................................................... Daily Monthly
Global Bond Fund.................................................... Daily Monthly
Multi-Sector Growth Fund............................................ Annually Annually
Fundamental Value Fund.............................................. Quarterly Quarterly
International Equity Fund........................................... Annually Annually
</TABLE>
Capital gains distributions are generally declared annually. Dividends are
reinvested in additional shares unless you elect the option to receive them
entirely in cash. If you elect the cash option and the U.S. Postal Service
cannot deliver your checks, your election will be converted to reinvestment in
additional shares.
TAXATION. For institutional investors who are not exempt from Federal income
taxes, dividends from a Fund's net investment income, certain net foreign
currency gains, gains on certain foreign corporations, and net short-term
capital gains are taxable to you as ordinary income. Dividends from a Fund's net
long-term capital gains are taxable as long-term capital gains. These dividends
from net investment income and capital gains are taxable whether they are
reinvested or received in cash. Certain dividends may be paid by a Fund in
January of a given year but may be taxable to shareholders as if received on
December 31 of the prior year. Each Fund will send you a statement by January 31
showing the tax status of the distributions you received for the prior year.
Plan participants should consult their plan sponsor for tax information.
Each Fund intends to elect to be treated and qualify each year as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, each Fund will not be
subject to Federal income taxes on any net investment income and net realized
capital gains that are distributed to its shareholders at least annually.
When you redeem (sell) or exchange shares, you may realize a gain or loss.
On the account application, you must certify that the social security or other
taxpayer identification number you provide is correct and that you are not
subject to back-up withholding of federal income tax, unless you are a
corporation or other entity that is exempt from backup withholding. If you do
not provide this information or are otherwise subject to such withholding, the
applicable Fund may be required to withhold 31% of your dividends, redemptions
and exchanges.
Funds investing in foreign securities may be subject to foreign withholding or
other foreign taxes on certain of their foreign investments, which will reduce
the yield on these investments. However, if more than 50% of a Fund's total
assets at the close of its taxable year consists of stock or securities of
foreign corporations (as may be the case with Global Bond Fund and International
Equity Fund) and if the Fund so elects, shareholders will include in their gross
incomes (in addition to the dividends they receive) their pro-rata shares of
qualified foreign taxes paid by the Fund and may be entitled to claim a Federal
income tax credit or deduction for such taxes, subject to certain conditions and
limitations under the Code.
In addition to Federal taxes, you may be subject to state and local or foreign
taxes with respect to your investment in and distributions from a Fund. In many
states, a portion of the Fund's dividends that represent interest received by
the Fund on direct U.S. Government obligations may be exempt from tax. The
foregoing discussion relates to investors that are subject to tax. Different tax
consequences will apply to plan participants, tax exempt investors and investors
that are subject to tax deferral. You should consult your tax adviser for
specific advice. Under the Code, a tax-exempt investor in the Funds will not
generally recognize unrelated business taxable income from its investment in the
Funds unless the tax-exempt investor incurred indebtedness to acquire or
continue to hold Fund shares and such indebtedness remains unpaid.
25
<PAGE> 27
PERFORMANCE
Total return is based on the overall change in value of a hypothetical
investment in the Fund. A Fund's total return shows the overall dollar or
percentage change in value, assuming the reinvestment of all dividends.
Cumulative total return shows a Fund's performance over a period of time.
Average annual total return shows the cumulative return divided over the number
of years included in the period. Because average annual total return tends to
smooth out variations in a Fund's performance, you should recognize that it is
not the same as actual year-to-year results.
- -------------------------------------------------------------------------------
EACH FUND MAY ADVERTISE ITS TOTAL RETURN.
- -------------------------------------------------------------------------------
Total return calculations are at net asset value because no sales charges are
incurred by those eligible to buy the Funds.
Dividend Performers Fund, Active Bond Fund and Global Bond Fund may also
advertise their respective yields. Yield reflects a Fund's rate of income on
portfolio investments as a percentage of its share price. Yield is computed by
annualizing the result of dividing the net investment income per share over a
30-day period by the maximum offering price per share on the last day of that
period. Yield is also calculated according to accounting methods that are
standardized for all stock and bond funds. Because yield accounting methods
differ from the methods used for other accounting purposes, a Fund's yield may
not equal the income paid on shares or the income reported in the Fund's
financial statements.
- -------------------------------------------------------------------------------
SOME FUNDS ALSO ADVERTISE YIELD.
- -------------------------------------------------------------------------------
The value of a Fund's shares when redeemed may be more or less than their
original cost. Total return and yield are historical calculations, and are not
indications of future performance.
RISK FACTORS, INVESTMENTS AND TECHNIQUES
SECURITIES OF FOREIGN ISSUERS. Each Fund except Dividend Performers Fund may
invest in securities of foreign issuers. Investments in foreign securities may
involve a greater degree of risk than those in domestic securities due to
exchange controls, less publicly available information, more volatile or less
liquid securities markets, and the possibility of expropriation, confiscatory
taxation or political, economic or social instability. There may be difficulty
in enforcing legal rights outside the United States. Some foreign companies are
not generally subject to the same uniform accounting, auditing and financial
reporting requirements as domestic companies; also foreign regulation may differ
considerably from domestic regulation of stock exchanges, brokers and
securities. Security trading practices abroad may offer less protection to
investors such as the Funds. Additionally, because foreign securities may be
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Funds' net asset value, the value of
dividends and interest earned, gains and losses realized on the sale of
securities, and net investment income and gains, if any, that the Funds
distribute to shareholders. Securities transactions undertaken in some foreign
markets may not be settled promptly. Therefore, the Funds' investments in
foreign securities may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement. The expense ratios of Funds
investing significant amounts of their assets in foreign securities can be
expected to be higher than those of mutual funds investing solely in domestic
securities since the expenses of these Funds, such as the cost of maintaining
custody of foreign securities and advisory fees, are higher.
These risks of foreign investing may be intensified in the case of Global Bond
Fund and International Equity Fund's investments in emerging markets or
countries with limited or developing capital markets. These countries are
located in the Asia-Pacific region, Eastern Europe, Latin and South America and
Africa. Security prices in these markets can be significantly more volatile than
in more developed countries, reflecting the greater uncertainties of investing
in less established markets and economies. Political, legal and economic
structures in many of these emerging market countries may be undergoing
significant evolution and rapid development, and they may lack the social,
political, legal and economic stability characteristic of more developed
countries. Emerging market countries may have failed in the past to recognize
private property rights. They may have relatively unstable governments, present
the risk of nationalization of businesses, restrictions on foreign ownership, or
prohibitions on repatriation of assets, and may have less protection of property
rights than more developed countries. Their economies may be predominantly based
on only a few industries, may be highly vulnerable to changes in local or global
trade conditions, and may
26
<PAGE> 28
suffer from extreme and volatile debt burdens or inflation rates. Local
securities markets may trade a small number of securities and may be unable to
respond effectively to increases in trading volume, potentially making prompt
liquidation of substantial holdings difficult or impossible at times. Global
Bond Fund and International Equity Fund may be required to establish special
custodial or other arrangements before making certain investments in those
countries. Securities of issuers located in these countries may have limited
marketability and may be subject to more abrupt or erratic price movements.
Certain realized gains or losses on the sale of international bonds and debt
held by a Fund, to the extent attributable to fluctuations in foreign currency
exchange rates, as well as certain other gains or losses attributable to
exchange rate fluctuations, may be treated as ordinary income or loss. Such
income or loss may increase or decrease (or possibly eliminate) the Fund's
income available for distribution to shareholders.
DEPOSITARY RECEIPTS. Each Fund may invest in securities of foreign issuers in
the form of American Depositary Receipts ("ADRs"), European Depositary Receipts
("EDRs") or other securities convertible into securities of corporations in
which the Fund is permitted to invest. ADRs (sponsored and unsponsored) are
receipts typically issued by an American bank or trust company which evidence
ownership of underlying securities issued by a foreign corporation, and are
designed for trading in United States securities markets. Issuers of the shares
underlying unsponsored ADRs are not contractually obligated to disclose material
information in the United States and, therefore, there may not be a correlation
between such information and the market value of the unsponsored ADR.
FOREIGN CURRENCY TRANSACTIONS. Each of the Funds except Dividend Performers
Fund, and particularly Global Bond Fund and International Equity Fund, may
purchase securities denominated in foreign currencies. The value of investments
in these securities and the value of dividends and interest earned may be
significantly affected by changes in currency exchange rates. Some foreign
currency values may be volatile, and there is the possibility of governmental
controls on currency exchange or governmental intervention in currency markets,
which could adversely affect a Fund. As a result, these Funds may enter into
forward foreign currency exchange contracts to protect against changes in
foreign currency exchange rates. These Funds will not speculate in foreign
currencies or in forward foreign currency exchange contracts, but will enter
into these transactions only in connection with their hedging strategies. A
forward foreign currency exchange contract involves an obligation to purchase or
sell a specific currency at a future date at a price set at the time of the
contract. Although certain strategies could minimize the risk of loss due to a
decline in the value of the hedged foreign currency, they could also limit any
potential gain which might result from an increase in the value of the currency.
SEE THE STATEMENT OF ADDITIONAL INFORMATION FOR FURTHER DISCUSSION OF THE USES
AND RISKS OF FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS.
SMALLER CAPITALIZATION COMPANIES. Small Capitalization Fund invests primarily
in smaller capitalization companies. Multi-Sector Growth Fund, Fundamental Value
Fund and International Equity Fund may also invest in smaller capitalization
companies. These companies may have limited product lines, market and financial
resources, or they may be dependent on smaller or less experienced management
groups. In addition, trading volume for these securities may be limited.
Historically, the market price for these securities has been more volatile than
for securities of companies with greater capitalization. However, securities of
companies with smaller capitalization may offer greater potential for capital
appreciation since they may be overlooked and thus undervalued by investors.
NON-DIVERSIFIED STATUS. Global Bond Fund and Multi-Sector Growth Fund are
"non-diversified" funds in order to permit them to invest more than 5% of their
total assets in the obligations of any one issuer. Since a relatively high
percentage of these Funds' assets may be invested in the obligations of a
limited number of issuers, the value of these Funds' shares may be more
susceptible to any single economic, political or regulatory event, and to the
credit and market risks associated with a single issuer, than would the shares
of a diversified fund. However, these Funds must satisfy certain tax
diversification requirements in order to qualify as regulated investment
companies under the Code.
SHORT SALES. Each Fund may engage in short sales "against the box," as well as
short sales for hedging purposes. Small Capitalization Fund, Multi-Sector Growth
Fund and International Equity Fund may engage in short sales to profit from the
anticipated decline in a security's
27
<PAGE> 29
value. When a Fund engages in a short sale other than "against the box," it will
place cash or U.S. government securities in a segregated account and mark them
to market daily in accordance with applicable regulatory requirements. Except
for short sales against the box, the Fund is limited in the amount of the Fund's
net assets that may be committed to short sales and the securities in which
short sales are made must be listed on a national securities exchange. A short
sale is "against the box" to the extent that the Fund contemporaneously owns or
has the right to obtain, at no added cost, securities identical to those sold
short. Short sales other than "against the box" may involve an unlimited
exposure to loss. SEE THE STATEMENT OF ADDITIONAL INFORMATION.
RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net
assets in illiquid investments, which include repurchase agreements maturing in
more than seven days, certain over-the-counter options, privately-issued
stripped mortgage-backed securities, all interest rate swaps, caps, collars and
floors, certain restricted securities and securities not readily marketable.
Each Fund may also invest up to 15% of its net assets in restricted securities
eligible for resale to certain institutional investors pursuant to Rule 144A
under the Securities Act of 1933 and, to the extent consistent with its
investment policies, foreign securities acquired in accordance with Regulation S
under the Securities Act of 1933.
GOVERNMENT SECURITIES. Each Fund may invest in securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities. Certain U.S.
Government securities, including U.S. Treasury bills, notes and bonds and
Government National Mortgage Association certificates ("Ginnie Maes"), are
supported by the full faith and credit of the United States. Certain other U.S.
Government securities, issued or guaranteed by federal agencies or government
sponsored enterprises, are not supported by the full faith and credit of the
United States, but may be supported by the right of the issuer to borrow from
the U.S. Treasury. These securities include obligations of the Federal Home Loan
Mortgage Corporation ("Freddie Macs") and Federal National Mortgage Association
("Fannie Maes"), and obligations supported by the credit of the instrumentality,
such as Student Loan Marketing Association Bonds ("Sallie Maes").
The Funds, and particularly Active Bond Fund, may invest in mortgage-backed
securities. A mortgage-backed security may be an obligation of the issuer backed
by a mortgage or pool of mortgages or a direct interest in an underlying pool of
mortgages. Some mortgage-backed securities, such as collateralized mortgage
obligations (CMOs), make payments of both principal and interest at a variety of
intervals; others make semiannual interest payments at a predetermined rate and
repay principal at maturity (like a typical bond). Mortgage-backed securities
are based on different types of mortgages including those on commercial real
estate or residential properties. Mortgage-backed securities often have stated
maturities of up to thirty years when they are issued, depending upon the length
of the mortgages underlying the securities. In practice, however, unscheduled or
early payments of principal and interest on the underlying mortgages may make
the securities' effective maturity shorter than this, and the prevailing
interest rates may be higher or lower than the current yield of a Fund's
portfolio at the time the Fund receives the payments for reinvestment.
Mortgage-backed securities may have less potential for capital appreciation than
comparable fixed-income securities, due to the likelihood of increased
prepayments of mortgages as interest rates decline. If a Fund buys
mortgage-backed securities at a premium, mortgage foreclosures and prepayments
of principal by mortgagors (which may be made at any time without penalty) may
result in some loss of the Fund's principal investment to the extent of the
premium paid.
The value of mortgage-backed securities may also change due to shifts in the
market's perception of issuers. In addition, regulatory or tax changes may
adversely affect the mortgage securities market as a whole. Non-governmental
mortgage-backed securities may offer higher yields than those issued by
government entities, but also may be subject to greater price changes than
government issues.
"Stripped" mortgage-backed securities are created when a U.S. Government agency
or a financial institution separates the interest and principal components of a
mortgage-backed security and sells them as individual securities. The holder of
the "principal-only" security ("PO") receives the principal payments made by the
underlying mortgage-backed security, while the holder of the "interest-only"
security ("IO") receives interest payments from the same underlying security.
The prices of stripped mortgage-backed securities may be particu-
28
<PAGE> 30
larly affected by changes in interest rates. As interest rates fall, prepayment
rates tend to increase, which tends to reduce prices of IOs and increase prices
of POs. Rising interest rates can have the opposite effect. Although the market
for such securities is increasingly liquid, the Adviser or appropriate
subadviser may, in accordance with guidelines adopted by the Board of Trustees,
determine that certain stripped mortgage-backed securities issued by the U.S.
Government, its agencies or instrumentalities are not readily marketable. If so,
these securities, together with privately-issued stripped mortgage-backed
securities, will be considered illiquid for purposes of the Funds' limitation on
investments in illiquid securities.
Other types of mortgage-backed securities will likely be developed in the
future, and a Fund may invest in them if the Adviser determines they are
consistent with a Fund's investment objectives and policies.
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. Small Capitalization Fund, Active Bond Fund,
Multi-Sector Growth Fund and International Equity Fund engage in short-term
trading in response to 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.
Dividend Performers Fund, Global Bond Fund and Fundamental Value Fund do not
intend to invest for the purpose of seeking short-term profits. These Funds'
particular portfolio securities may be changed, however, without regard to the
holding period of these securities (subject to certain tax restrictions), when
the Adviser or subadviser determines that this action will help achieve a Fund's
objective given a change in an issuer's operations or changes in general market
conditions.
The estimated portfolio turnover rate for Small Capitalization Fund is 100%. The
portfolio turnover rates for Dividend Performers Fund, Active Bond Fund, Global
Bond Fund, Multi-Sector Growth Fund, Fundamental Value Fund and International
Equity Fund are shown in the section captioned "The Funds' Financial
Highlights." A high rate of portfolio turnover (100% or greater) involves
correspondingly higher transaction expenses and may make it more difficult for a
Fund to qualify as a regulated investment company for federal income tax
purposes.
OPTIONS AND FUTURES TRANSACTIONS. Each Fund may buy and sell options contracts,
financial futures contracts and options on futures contracts. Options and
futures contracts are bought and sold to manage a Fund's exposure to changing
interest rates, security prices, and currency exchange rates. Some options and
futures strategies, including selling futures, buying puts, and writing calls,
tend to hedge a Fund's investment against price fluctuations. Other strategies,
including buying futures, writing puts, and buying calls, tend to increase
market exposure. Options and futures may be combined with each other or with
forward contracts in order to adjust the risk and return characteristics of the
overall strategy. Subject to their individual investment policies, the Funds may
invest in options and futures based on securities, indices, or currencies,
including options and futures traded on foreign exchanges and options not traded
on exchanges.
Options and futures can be volatile investments and involve certain risks. If
the Adviser or a subadviser applies a hedge at an inappropriate time or judges
market conditions incorrectly, options and futures strategies may lower a Fund's
return. A Fund could also experience losses if the prices of its options and
futures positions were poorly correlated with its other investments, or if it
could not close out its positions because of an illiquid secondary market.
Options and futures do not pay interest, but may produce capital gains.
A Fund will not engage in a transaction in futures or options on futures for
non-hedging purposes if, immediately thereafter, the sum of initial margin
deposits and premiums required to establish speculative positions in futures
contracts and options on futures would exceed 5% of the Fund's net assets. The
loss incurred by a Fund investing in futures contracts and in writing options on
futures is potentially unlimited and may exceed the amount of any premium
received. Each Fund's transactions in options and futures contracts may be
limited by the requirements of the Code for qualification as a regulated
investment company.
No Fund, except Global Bond Fund, will hedge more than 25% of its total assets
by selling futures, buying puts, and writing calls under normal conditions.
Global Bond Fund may hedge
29
<PAGE> 31
up to 50% of its total assets by selling futures, buying puts, and writing calls
under normal conditions. In addition, no Fund will buy futures or write puts
whose underlying value exceeds 25% of its total assets or buy calls with a value
exceeding 5% of its total assets. SEE THE STATEMENT OF ADDITIONAL INFORMATION
FOR FURTHER DISCUSSION OF OPTIONS AND FUTURES TRANSACTIONS, INCLUDING TAX
EFFECTS AND INVESTMENT RISKS.
SWAP AGREEMENTS. As one way of managing its exposure to different types of
investments, Global Bond Fund may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars and floors. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specified period of
time. If a swap agreement provides for payments in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
Swap agreements will tend to shift Global Bond Fund's investment exposure from
one type of investment to another. For example, if the Fund agreed to exchange
payments in dollars for payments in a foreign currency, the swap agreement would
tend to decrease the Fund's exposure to U.S. interest rates and increase its
exposure to foreign currency and interest rates. Caps and floors have an effect
similar to buying or writing options. Depending on how they are used, swap
agreements may increase or decrease the overall volatility of a Fund's
investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a
small investment of cash relative to the magnitude of risks assumed. As a
result, swaps can be highly volatile and may have a considerable impact on
Global Bond Fund's performance. Swap agreements are subject to risks related to
the counterparty's ability to perform, and may decline in value if the
counterparty's creditworthiness deteriorates. Global Bond Fund may also suffer
losses if it is unable to terminate outstanding swap agreements or reduce its
exposure through offsetting transactions. Global Bond Fund will maintain in a
segregated account with its custodian, cash or liquid, high grade debt
securities equal to the net amount, if any, of the excess of the Fund's
obligations over its entitlements with respect to swap, cap, collar or floor
transactions.
FIXED-INCOME SECURITIES. Each Fund, and particularly Active Bond Fund and
Global Bond Fund, may invest in fixed-income securities, including debt
obligations of corporate and governmental issuers, and preferred stocks. The
value of fixed-income securities generally varies inversely with interest rates.
The longer the maturity of the fixed-income security, the more volatile will be
changes in its value resulting from changes in interest rates.
INVESTMENT GRADE SECURITIES. Each Fund may invest in securities that are rated
in the lowest category of "investment grade" (BBB by S&P or Baa by Moody's) or
unrated securities of comparable quality. Securities in the lowest investment
grade are considered medium grade obligations and normally exhibit adequate
protection parameters. However, these securities also have speculative
characteristics. Adverse changes in economic conditions or other circumstances
are more likely to lead to weakened capacity to make principal and interest
payments than in the case of higher grade obligations.
LOWER RATED SECURITIES. Dividend Performers Fund, Active Bond Fund and Global
Bond Fund may invest in lower rated securities. Debt obligations rated in the
lower ratings categories, or which are unrated, involve greater volatility of
price and risk of loss of principal and income. In addition, lower ratings
reflect a greater possibility of an adverse change in financial condition
affecting the ability of the issuer to make payments of interest and principal.
The market price and liquidity of lower rated fixed-income securities generally
respond to short-term economic, corporate and market developments to a greater
extent than do the price and liquidity of higher rated securities, because these
developments are perceived to have a more
30
<PAGE> 32
direct relationship to the ability of an issuer of lower rated securities to
meet its ongoing debt obligations.
Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations will make it more difficult to dispose of the
bonds and to value accurately the assets of Dividend Performers Fund, Global
Bond Fund and Active Bond Fund. The reduced availability of reliable, objective
data may increase these Funds' reliance on management's judgment in valuing the
high yield bonds. To the extent that these Funds invest in lower rated
securities, achieving the Funds' objective will depend more on the Adviser's or
subadviser's judgment and analysis than would otherwise be the case. In
addition, these Funds' investments in high yield securities may be susceptible
to adverse publicity and investor perceptions, whether or not justified by
fundamental factors. In the past, economic downturns and increases in interest
rates have caused a higher incidence of default by the issuers of these
securities and may do so in the future, particularly with respect to highly
leveraged issuers. The market prices of zero coupon and payment-in-kind bonds
are affected to a greater extent by interest rate changes, and thereby tend to
be more volatile than securities which pay interest periodically and in cash.
Increasing rate note securities are typically refinanced by the issuers within a
short period of time. A Fund accrues income on these securities for tax and
accounting purposes, and this income is required to be distributed to
shareholders. Because no cash is received at the time and income accrues on
these securities, the Fund may be forced to liquidate other investments to make
distributions.
CONVERTIBLE SECURITIES. Each Fund may invest in convertible securities.
Convertible securities include bonds and preferred stocks that are convertible
for shares of common stock of the same issuer. Because convertible securities
are fixed-income securities, their value is influenced inversely by changes in
interest rates. However, due to their conversion feature, their value often
changes with the value of the common stock into which they are convertible.
WARRANTS. Warrants entitle the holder to buy equity securities at a specific
price for a specific period of time. Warrants tend to be more volatile than
their underlying securities. Also, the value of the warrant does not necessarily
change with the value of the underlying securities and a warrant ceases to have
value if it is not exercised prior to the expiration date.
LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing
additional income, each Fund may lend to broker-dealers portfolio securities
amounting to not more than 33 1/3% of its total assets taken at current value.
Each Fund may also enter into repurchase agreements. In a repurchase agreement,
the Fund buys a security subject to the right and obligation to sell it back to
the issuer at the same price plus accrued interest. These transactions must be
fully collateralized at all times. However, they may involve some credit risk to
a Fund if the other party should default on its obligation and that Fund is
delayed in or prevented from recovering the collateral. Securities loaned by a
Fund will remain subject to fluctuations of market value.
WHEN-ISSUED SECURITIES. Each Fund may purchase securities on a forward or
"when-issued" basis. When a Fund engages in when-issued transactions, it relies
on the seller or the buyer, as the case may be, to consummate the transaction.
Failure to consummate the transaction may result in the Fund's losing the
opportunity to obtain an advantageous price and yield.
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<PAGE> 33
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUB-INVESTMENT ADVISERS
Sovereign Asset Management Corp. (Dividend
Performers Fund)
1235 Westlakes Drive
Berwyn, Pennsylvania 19312
NM Capital Management, Inc. (Fundamental
Value Fund)
6501 Americas Parkway, Suite 950
Albuquerque, New Mexico 87110-5372
John Hancock Advisers International Ltd. (International Equity Fund)
34 Dover Street
London, England WIX 3RA
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIANS
Investors Bank & Trust Company
24 Federal Street
Boston, Massachusetts 02205-9116
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services
Corporation
P.O. Box 9277
Boston, Massachusetts 02205-9277
INDEPENDENT ACCOUNTANTS
Deloitte & Touche LLP
125 Summer Street
Boston, Massachusetts 02110
HOW TO OBTAIN INFORMATION
ABOUT THE FUNDS
For Service Information
For Telephone Exchange
For Investment-by-Phone
For Telephone Redemption
call 1-800-755-4371 101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
KBOOP 12/95 TELEPHONE 1-800-755-4371
<PAGE> 34
- -------------------------------------------------------------------------------
SUBJECT TO COMPLETION: Dated October 1, 1995
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor any
offers to buy be accepted prior to the time the registration statement becomes
effective. This Statement of Additional Information does not constitute a
prospectus.
This preliminary statement of additional information relates only to John
Hancock Small Capitalization Equity Fund. Investors seeking information
regarding any other Fund should obtain a copy of the currently effective
prospectus and statement of additional information dated September 12, 1995.
- -------------------------------------------------------------------------------
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
101 Huntington Avenue
Boston, Massachusetts 02199
consisting of twelve series,
JOHN HANCOCK SMALL CAPITALIZATION EQUITY FUND
JOHN HANCOCK DIVIDEND PERFORMERS FUND
JOHN HANCOCK ACTIVE BOND FUND
JOHN HANCOCK GLOBAL BOND FUND
JOHN HANCOCK MULTI-SECTOR GROWTH FUND
JOHN HANCOCK FUNDAMENTAL VALUE FUND
JOHN HANCOCK INTERNATIONAL EQUITY FUND
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
JOHN HANCOCK INDEPENDENCE VALUE FUND
JOHN HANCOCK INDEPENDENCE GROWTH FUND
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
JOHN HANCOCK INDEPENDENCE BALANCED FUND
(each, a "Fund" and collectively, the "Funds")
STATEMENT OF ADDITIONAL INFORMATION
DECEMBER __, 1995
This Statement of Additional Information ("SAI") provides information
about the Funds in addition to the information that is contained in the John
Hancock Series Funds' Prospectus dated December __, 1995 and in the Independence
Funds' Prospectus dated September 12, 1995 (together, the "Prospectuses").
This SAI is not a prospectus. It should be read in conjunction with the
Funds' Prospectuses, copies of which can be obtained free of charge by writing
or telephoning:
John Hancock Investor Services Corporation
P.O. Box 9277
Boston, Massachusetts 02205-9277
1-800-755-4371
<PAGE> 35
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Cross-Referenced Cross-Referenced
Statement of to John Hancock to Independence
Additional Information Series Funds Funds Prospectus
Page Prospectus Page Page
<S> <C> <C> <C> <C>
I. Organization of the Trust 3 21 12
II. Investment Objectives and
Policies 4
-John Hancock Series Funds 4
-Independence Funds 7 7 -
- 5
III. Certain Investment
Practices 9 25 14
IV. Investment Restrictions 24 7 5
V. Those Responsible for
Management 28 21 12
VI. Investment Advisory and
Other Services 37 21 12
VII. Net Asset Value 40 18 9
VIII. Special Redemptions 40 - -
IX. Tax Status 41 24 13
X. Description of the Trust's
Shares 45 18 9
XI. Calculation of Performance 47 25 14
XII. Brokerage Allocation 48 21 12
XIII. Transfer Agent Services 50 Back Cover Back Cover
</TABLE>
2
<PAGE> 36
<TABLE>
<S> <C> <C> <C>
XIV. Custody of Portfolio 50 Back Cover Back Cover
XV. Independent Auditors 51 Back Cover Back Cover
XVI. Financial Statements
</TABLE>
Appendix A--Description of Securities Ratings
Appendix B--Economic sectors in which Sector Opportunity Fund Invests
I. ORGANIZATION OF THE TRUST
John Hancock Institutional Series Trust (the "Trust") is an open-end management
investment company organized as a Massachusetts business trust under a
Declaration of Trust dated October 31, 1994, as amended from time to time. The
Trust currently has twelve series of shares designated as: John Hancock Small
Capitalization Equity Fund ("Small Capitalization Fund"), John Hancock Dividend
Performers Fund ("Dividend Performers Fund") (formerly John Hancock Berkeley
Dividend Performers Fund), John Hancock Active Bond Fund ("Active Bond Fund")
(formerly John Hancock Berkeley Bond Fund), John Hancock Global Bond Fund
("Global Bond Fund") (formerly John Hancock Berkeley Global Bond Fund), John
Hancock Multi-Sector Growth Fund ("Multi-Sector Growth Fund") (formerly John
Hancock Berkeley Sector Opportunity Fund), John Hancock Fundamental Value Fund
("Fundamental Value Fund") (formerly John Hancock Berkeley Fundamental Value
Fund), John Hancock International Equity Fund ("International Equity Fund")
(formerly John Hancock Berkeley Overseas Growth Fund), John Hancock Independence
Diversified Core Equity Fund II ("Diversified Core Equity Fund II"), John
Hancock Independence Value Fund ("Value Fund"), John Hancock Independence Growth
Fund ("Growth Fund"), John Hancock Independence Medium Capitalization Fund
("Medium Capitalization Fund") and John Hancock Independence Balanced Fund
("Balanced Fund").
Small Capitalization Fund, Dividend Performers Fund, Active Bond Fund, Global
Bond Fund, Multi-Sector Growth Fund, Fundamental Value Fund and International
Equity Fund are sometimes referred to herein collectively as the "John Hancock
Series Funds." Diversified Core Equity Fund II, Value Fund, Growth Fund, Medium
Capitalization Fund and Balanced Fund are sometimes referred to herein
collectively as the "Independence Funds."
The investment adviser of each Fund is John Hancock Advisers, Inc. (the
"Adviser"), a wholly-owned indirect subsidiary of John Hancock Mutual Life
Insurance Company (the "Life Company"). The investment subadviser of Dividend
Performers Fund is Sovereign Asset Management Corp. ("SAMCorp"). The subadviser
of International Equity Fund is John Hancock Advisers International Limited
("JHAI"). The subadviser of Fundamental Value Fund is NM Capital Management,
Inc. ("NM Capital"). The investment subadviser of each Independence Fund is
Independence Investment Associates, Inc. ("IIA"). Together, SAMCorp, JHAI, NM
Capital and IIA are sometimes referred to herein collectively as the
"Subadvisers" or, individually, as the "Subadviser." The Subadvisers are
affiliates of the Life Company.
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<PAGE> 37
II. INVESTMENT OBJECTIVES AND POLICIES
See "Investment Objectives and Policies" in the Prospectuses. There can be no
assurance that the objective of any Fund will be realized.
Each Fund has adopted certain investment restrictions which are enumerated in
detail under "Investment Restrictions" in this SAI where they are classified as
fundamental or nonfundamental. Those restrictions designated as fundamental may
not be changed without shareholder approval. Each Fund's investment objective,
investment policies and nonfundamental restrictions, however, may be changed by
a vote of the Board of Trustees of the Trust (the "Board") without shareholder
approval. If there is a change in a Fund's investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their then current financial position and needs.
A. THE JOHN HANCOCK SERIES FUNDS.
For a further description of the John Hancock Series Funds' investment
objectives, policies and restrictions see "Investment Objectives and Policies"
in the John Hancock Series Funds' Prospectus and "Investment Restrictions" in
this SAI. See Appendix A to this SAI for a description of the quality categories
of corporate bonds in which certain of the John Hancock Series Funds may invest.
SMALL CAPITALIZATION FUND
Small Capitalization Fund's Investment Objective is long-term growth of capital.
The Fund invests primarily in domestic and foreign rapidly growing "smaller
capitalization companies" (those with market capitalizations of $750 million or
less) that tend to be in an emerging growth state of development and where the
Adviser believes there is growth potential higher than the average for all
companies. Under normal circumstances, the Fund will invest at least 65% of its
total assets in smaller capitalization companies. The potential for growth of
capital will be the sole basis for selection of portfolio securities. Current
income will not be a factor in this selection. The Fund may also invest in
equity securities of established companies that the Adviser believes to offer
superior growth potential.
DIVIDEND PERFORMERS FUND
Dividend Performers Fund's investment objective is long-term growth of capital
and income without assuming undue market risk. At times, however, because of
market conditions, the Fund may invest primarily for current income. The Fund
will make investments in different types and classes of securities in accordance
with the Board's and the Adviser's appraisal of economic and market conditions.
The securities held by the Fund are under continuous study by the Adviser.
Securities are selected for the Fund's portfolio if they are considered by the
Adviser to contribute to the possible achievement of the Fund's objective. They
are held or disposed of in accordance with the results of a continuing
examination of their investment merit.
4
<PAGE> 38
The Fund may invest 100% of its total assets in common stocks or, for defensive
purposes, it may hold cash or liquid, high grade preferred stocks or debt
securities. In addition, temporary investments in short-term debt securities may
be made so as to receive a return on excess cash.
The Fund endeavors to achieve its objectives by utilizing experienced management
and generally investing in securities of seasoned companies in sound financial
condition. A company or its predecessors must have been in continuous business
for at least five years and must have total assets of at least $10,000,000
before its securities can be purchased by the Fund.
ACTIVE BOND FUND
Active Bond Fund's investment objective is a high level of current income,
consistent with prudent investment risk, through investment primarily in a
diversified portfolio of freely marketable investment grade debt securities of
U.S. and foreign issuers. The Fund will invest primarily in debt securities
within the four highest investment ratings and unrated securities considered by
the Adviser to be of comparable investment quality. The Fund will, when
feasible, purchase debt securities which are non-callable.
The Fund may purchase corporate debt securities bearing fixed, floating or
variable interest as well as those which carry certain equity features, such as
conversion or exchange rights or warrants for the acquisition of stock of the
same or a different issuer, or participations based on revenues, sales or
profits. The Fund will not exercise any such conversion, exchange or purchase
rights if, at the time, the value of all equity interests so owned would exceed
10% of the Fund's total assets taken at market value.
The market value of debt securities which carry no equity participation usually
reflects yields generally available on securities of similar quality and type.
When such yields decline, the market value of a portfolio already invested at
higher yields can be expected to rise if such securities are protected against
early call. Similarly, when such yields increase, the market value of a
portfolio already invested can be expected to decline. The Fund's portfolio may
include debt securities which sell at substantial discounts from par. These
securities are low coupon bonds which, during periods of high interest rates,
because of their lower acquisition cost tend to sell on a yield basis
approximating current interest rates.
GLOBAL BOND FUND
Global Bond Fund's investment objective is a competitive total investment
return, consisting of current income and capital appreciation. The Fund invests
primarily in a global portfolio of high grade, fixed income securities.
Normally, the Fund will invest in fixed income securities denominated in at
least three currencies or multi-currency units, including the U.S. Dollar.
Under normal circumstances, Global Bond Fund invests primarily (at least 65% of
total assets) in fixed income securities issued or guaranteed by: (i) the U.S.
Government, its agencies or instrumentalities; (ii) foreign governments
(including foreign states, provinces and municipalities) or their political
subdivisions, authorities, agencies or instrumentalities; (iii) international
organizations backed or jointly
5
<PAGE> 39
owned by more than one national government, such as the International Bank for
Reconstruction and Development, European Investment Bank, Asian Development Bank
and European Coal and Steel Community; and (iv) foreign corporations or
financial institutions. The term "fixed income securities" encompasses debt
obligations of all types, including bonds, debentures, notes and stocks, such as
preferred stocks. A fixed income security may itself be convertible into or
exchangeable for equity securities, or may carry with it the right to acquire
equity securities evidenced by warrants attached to the security or acquired as
part of a unit with a security.
MULTI-SECTOR GROWTH FUND
Multi-Sector Growth Fund's investment objective is long-term capital
appreciation. The Fund seeks to achieve its objective by emphasizing investments
in equity securities of issuers in various economic sectors.
The equity securities in which the Fund invests consist primarily of common
stocks of U.S. and foreign issuers but may also include preferred stocks,
convertible debt securities and warrants. The Fund seeks to achieve its
investment objective by varying the relative weighting of its portfolio
securities among various economic sectors based upon both macroeconomic factors
and the outlook for each particular sector. The Adviser selects equity
securities for the Fund from various economic sectors, including, but not
limited to, the following: automotive and housing, consumer goods and services,
defense and aerospace, energy, financial services, health care, heavy industry,
leisure and entertainment, machinery and equipment, precious metals, retailing,
technology, transportation, utilities, foreign and environmental. The Fund may
modify these sectors if the Adviser believes that they no longer represent
appropriate investments for the Fund, or if other sectors offer better
opportunities for investment. See Appendix B to this SAI for a further
description of the sectors in which the Fund invests.
FUNDAMENTAL VALUE FUND
Fundamental Value Fund's investment objective is capital appreciation, with
income as a secondary consideration. The Fund will seek to achieve its objective
by investing primarily in equity securities that are undervalued relative to
alternative equity investments.
The equity securities in which the Fund will invest include common stocks,
preferred stocks, convertible debt securities and warrants of U.S. and foreign
issuers. In selecting equity securities for the Fund, the Adviser and the Fund's
investment subadviser, NM Capital, emphasize issuers whose equity securities
trade at market to book value ratios lower than comparable issuers or the
Standard & Poor's Composite Index. The Fund's portfolio securities will also
include equity securities considered by the Adviser or NM Capital to have the
potential for capital appreciation due to potential recognition of earnings
power or asset value which is not fully reflected in such securities' current
market value. The Adviser or NM Capital attempts to identify investments which
possess characteristics, such as high relative value, intrinsic value, going
concern value, net asset value and replacement book value, which are believed to
limit sustained downside price risk, generally referred to as the "margin of
safety" concept. The Adviser or NM Capital also considers an issuer's financial
strength, competitive position, projected future earnings and dividends and
other investment criteria. These securities are collectively referred to as
"Fundamental Value" securities.
6
<PAGE> 40
The Fund's investment policy reflects the Adviser's and NM Capital's belief that
while the securities markets tend to be efficient, sufficiently persistent price
anomalies exist which the strategically disciplined active equity manager can
exploit in seeking to achieve an above average rate of return. Based on this
premise, the Adviser and NM Capital have adopted a strategy for the Fund of
investing in low market to book value, out of favor, stocks.
The Fund's investments may include securities of both large, widely traded
companies and smaller, less well known issuers. Higher risks are often
associated with investments in companies with smaller market capitalizations.
See "Smaller Capitalization Companies" in the John Hancock Series Funds'
Prospectus.
INTERNATIONAL EQUITY FUND
International Equity Fund's investment objective is long-term growth of capital.
The Fund seeks to achieve its investment objective by investing primarily in
foreign equity securities.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in equity securities of issuers located outside the United States in
various countries around the world. Generally, the Fund's portfolio will contain
securities of issuers from at least three countries other than the United
States. The Fund normally invests substantially all of its assets in equity
securities, such as common stock, preferred stock and securities convertible
into common and preferred stock. However, if deemed advisable by the Adviser or
the Fund's investment subadviser, JHAI, the Fund may invest in any other types
of securities including warrants, bonds, notes and other debt securities
(including Euro-dollar securities) or obligations of domestic or foreign
governments and their political subdivisions, or domestic or foreign
corporations.
B. THE INDEPENDENCE FUNDS.
For a further description of the Independence Funds' investment objectives,
policies and restrictions see "Investment Objectives and Policies" in the
Independence Funds' Prospectus and "Investment Restrictions" in this SAI.
IIA serves as the investment subadviser to each of the Independence Funds. In
selecting common stocks for the Funds' portfolios, IIA uses an investment
strategy it calls "NIXDEX." To produce a NIXDEX portfolio, IIA excludes
("nixes") from consideration stocks contained in the bottom two quintiles of its
ranked stock universe and optimizes the remaining stocks to produce a portfolio
whose risk exposure is similar to that of each of the Independence Fund's
respective performance and risk profile benchmark portfolio. By avoiding stocks
which are not ranked within the top three quintiles of IIA's ranked stock
universe, IIA seeks to construct a NIXDEX portfolio whose performance will
exceed, under all market environments, the performance of the respective
Independence Fund's performance and risk profile benchmark portfolio.
7
<PAGE> 41
IIA uses a quantitative, multifactor proprietary stock-ranking model called
"Cybercode" to produce a list of stocks for consideration which are ranked from
most to least attractive. IIA's in-house team of professional securities
analysts generate the data necessary to produce a Cybercode ranked list. For
each Fund, IIA's analysts concentrate their research and analysis on those
stocks from IIA's unbiased universe of 3,000 stocks which satisfy the Fund's
performance and risk profile benchmark. The analysts focus on fundamental
research such as: projecting current year and next year's earnings and cash
flows; developing five-year growth forecasts; and understanding the strategic
plan of the companies they follow, and how this plan might affect capital
expenditures and stock dividends. IIA's most senior investment professionals
determine the macroeconomic assumptions needed to forecast an individual
company's progress. These macroeconomic assumptions are integrated into the
analysts' research and analysis. IIA's investment process is distinguished by
its focus on evaluation of risk and, in particular, its avoidance of stocks that
do not score above a certain benchmark with respect to price and fundamentals.
Using the analysts' research and analysis, Cybercode evaluates each stock in the
stock selection universe on ten discrete criteria and scores each stock based on
its inherent value relative to its cost (price) and the stock's fundamental
prospects for improvement. Cybercode produces a list of the selection universe
ranked from most to least attractive. The top stock on the ranked list exhibits
the most favorable combination of inherent value and fundamental prospects for
improvement; the bottom stock is the least favorable. Through this process, IIA
seeks to construct a NIXDEX portfolio whose performance will exceed, under all
market environments, the performance of the respective Independence Fund's
performance and risk profile benchmark portfolio. For a further description of
each Fund's performance and risk profile benchmark portfolio, see "Investment
Objectives and Policies" in the Independence Funds' Prospectus.
DIVERSIFIED CORE EQUITY FUND II
Diversified Core Equity Fund II's investment objective is above-average total
return, consisting of capital appreciation and income. The Fund's performance
and risk profile benchmark is the capitalization weighted Standard and Poor's
500 Composite Stock Index(R) (the "S&P 500 Index").
VALUE FUND
Value Fund's investment objective is above-average total return. The Fund will
emphasize relatively undervalued securities and seek higher dividend yield than
Diversified Core Equity Fund II. The Fund's performance and risk profile
benchmark is the Russell 1000 Value Index(R).
GROWTH FUND
Growth Fund's investment objective is above-average total return. The Fund will
emphasize investments in companies whose securities show potential for
relatively high long-term earnings growth rather than current dividend yield.
The Fund's performance and risk profile benchmark is the Russell 1000 Growth
Index(R).
8
<PAGE> 42
MEDIUM CAPITALIZATION FUND
Medium Capitalization Fund's investment objective is above-average total return.
The Fund will emphasize investment in securities of faster growing, medium sized
companies than those companies included in the other Independence Funds. The
Fund's performance and risk profile benchmark is the Callan Medium
Capitalization Index.
BALANCED FUND
Balanced Fund's investment objective is above-average total return through
capital appreciation and income. The Fund will invest in a balanced portfolio
allocated between equity securities and fixed-income securities. The Fund's
performance and risk profile benchmark is a composite of the S&P 500 Index and
the Lehman Brothers Government/Corporate Bond Index.
III. CERTAIN INVESTMENT PRACTICES
Foreign Securities and Emerging Countries. Small Capitalization Fund, Active
Bond Fund, Multi-Sector Growth Fund, Fundamental Value Fund and, in particular,
International Equity Fund and Global Bond Fund may invest in U.S. dollar and
Foreign currency denominated securities of foreign issuers. International Equity
Fund and Global Bond Fund may also invest in debt and equity securities of
corporate and governmental issuers of countries with emerging economies or
securities markets.
Investing in securities of non-U.S. issuers, and in particular those located in
emerging countries, may entail greater risks than investing in securities of
issuers in the U.S. These risks include (i) less social, political and economic
stability; (ii) the small current size of the markets for many such securities
and the currently low or nonexistent volume of trading, which result in a lack
of liquidity and in greater price volatility; (iii) certain national policies
which may restrict a Fund's investment opportunities, including restrictions on
investment in issuers or industries deemed sensitive to national interests; (iv)
foreign taxation; and (v) the absence of developed structures governing private
or foreign investment or allowing for judicial redress for injury to private
property.
Investing in securities of non-U.S. companies may entail additional risks due to
the potential political and economic instability of certain countries and the
risks of expropriation, nationalization, confiscation or the imposition of
restrictions on foreign investment and on repatriation of capital invested. In
the event of such expropriation, nationalization or other confiscation by any
country, a Fund could lose its entire investment in any such country.
In addition, even though opportunities for investment may exist in foreign
countries, and in particular emerging markets, any change in the leadership or
policies of the governments of those countries or in the leadership or policies
of any other government which exercises a significant influence over those
countries, may halt the expansion of or reverse the liberalization of foreign
investment policies now occurring and thereby eliminate any investment
opportunities which may currently exist.
9
<PAGE> 43
Investors should note that upon the accession to power of authoritarian regimes,
the governments of a number of Latin American countries previously expropriated
large quantities of real and personal property similar to the property which may
be represented by the securities purchased by the Funds. The claims of property
owners against those governments were never finally settled. There can be no
assurance that any property represented by foreign securities purchased by a
Fund will not also be expropriated, nationalized, or otherwise confiscated. If
such confiscation were to occur, a Fund could lose a substantial portion of its
investments in such countries. A Fund's investments would similarly be adversely
affected by exchange control regulation in any of those countries.
Certain countries in which the Funds may invest may have vocal minorities that
advocate radical religious or revolutionary philosophies or support ethnic
independence. Any disturbance on the part of such individuals could carry the
potential for wide-spread destruction or confiscation of property owned by
individuals and entities foreign to such country and could cause the loss of a
Fund's investment in those countries.
Certain countries prohibit or impose substantial restrictions on investments in
their capital markets, particularly their equity markets, by foreign entities
such as the Funds. As illustrations, certain countries require governmental
approval prior to investments by foreign persons, or limit the amount of
investment by foreign persons in a particular company, or limit the investment
by foreign persons to only a specific class of securities of a company that may
have less advantageous terms than securities of the company available for
purchase by nationals. Moreover, the national policies of certain countries may
restrict investment opportunities in issuers or industries deemed sensitive to
national interests. In addition, some countries require governmental approval
for the repatriation of investment income, capital or the proceeds of securities
sales by foreign investors. A Fund could be adversely affected by delays in, or
a refusal to grant, any required governmental approval for repatriation, as well
as by the application to it of other restrictions on investments.
Foreign companies are subject to accounting, auditing and financial standards
and requirements that differ, in some cases significantly, from those applicable
to U.S. companies. In particular, the assets, liabilities and profits appearing
on the financial statements of such a company may not reflect its financial
position or results of operations in the way they would be reflected had such
financial statements been prepared in accordance with U.S. generally accepted
accounting principles. Most foreign securities held by the Funds will not be
registered with the Securities and Exchange Commission (the "SEC") and the
issuers thereof will not be subject to the SEC's reporting requirements. Thus,
there will be less available information concerning foreign issuers of
securities held by the Funds than is available concerning U.S. issuers. If the
financial statements of an issuer are not deemed to reflect accurately the
financial situation of the issuer, the Adviser or Subadviser will take
appropriate steps to evaluate the proposed investment, which may include on-site
inspection of the issuer, interviews with its management and consultations with
accountants, bankers and other specialists. There is substantially less publicly
available information about foreign companies than there are reports and ratings
published about U.S. companies and the U.S. government. In addition, even if
public information is available, it may be less reliable than such information
regarding U.S. issuers.
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Because the Funds may invest and Global Bond Fund and International Equity Fund
will (under normal circumstances) invest a substantial portion of their total
assets, in securities which are denominated or quoted in foreign currencies, the
strength or weakness of the U.S. dollar against such currencies may account for
part of the Funds' investment performance. A decline in the value of any
particular currency against the U.S. dollar will cause a decline in the U.S.
dollar value of a Fund's holdings of securities denominated in such currency
and, therefore, will cause an overall decline in the Fund's net asset value and
any net investment income and capital gains to be distributed in U.S. dollars to
shareholders of the Fund.
The rate of exchange between the U.S. dollar and other currencies is determined
by several factors including the supply and demand for particular currencies,
central bank efforts to support particular currencies, the movement of interest
rates, the pace of business activity in certain other countries and the U.S.,
and other economic and financial conditions affecting the world economy.
Although the Funds value their respective assets daily in terms of U.S. dollars,
the Funds do not intend to convert their holdings of foreign currencies into
U.S. dollars on a daily basis. However, the Funds may do so from time to time,
and investors should be aware of the costs of currency conversion. Although
currency dealers do not charge a fee for conversion, they do realize a profit
based on the difference ("spread") between the prices at which they are buying
and selling various currencies. Thus, a dealer may offer to sell a foreign
currency to a Fund at one rate, while offering a lesser rate of exchange should
the Fund desire to sell that currency to the dealer.
Securities of foreign issuers, and in particular many emerging country issuers,
may be less liquid and their prices more volatile than securities of comparable
U.S. issuers. In addition, foreign securities exchanges and brokers are
generally subject to less governmental supervision and regulation than in the
U.S., and foreign securities exchange transactions are usually subject to fixed
commissions, which are generally higher than negotiated commissions on U.S.
transactions. Foreign securities exchange transactions may also be subject to
difficulties associated with the settlement of such transactions. Delays in
settlement could result in temporary periods when assets of a Fund are
uninvested and no return is earned thereon. The inability of a Fund to make
intended security purchases due to settlement problems could cause the Fund to
miss attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems either could result in losses to a Fund due
to subsequent declines in value of the portfolio security or, if the Fund has
entered into a contract to sell the security, could result in possible liability
to the purchaser.
The Funds' investment income or, in some cases, capital gains from foreign
issuers may be subject to foreign withholding or other taxes, thereby reducing
the Funds' net investment income and/or net realized capital gains. See "Tax
Status."
Restricted and Illiquid Securities. Each Fund may invest in restricted
securities eligible for resale to certain institutional investors pursuant to
Rule 144A under the Securities Act of 1933, as amended (the "1933 Act"), and
foreign securities acquired in accordance with Regulation S under the 1933 Act.
No Fund will invest more than 15% of its net assets in illiquid investments,
which include repurchase
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agreements maturing in more than seven days, securities that are not readily
marketable, restricted securities, purchased over-the-counter ("OTC") options,
certain assets used to cover written OTC options, and privately issued stripped
mortgage-backed securities. However, if the Board determines, based upon a
continuing review of the trading markets for specific Rule 144A securities, that
such securities are liquid, then these securities may be purchased without
regard to the 15% limit. The Board may adopt guidelines and delegate to the
Adviser or respective Subadviser the daily function of determining and
monitoring the liquidity of restricted securities. The Board, however, will
retain sufficient oversight and be ultimately responsible for the
determinations. The Board will carefully monitor each 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 Funds if
qualified institutional buyers become for a time uninterested in purchasing
these restricted securities.
Repurchase Agreements. Each Fund may enter into repurchase agreements. A
repurchase agreement is a contract under which a Fund would acquire a security
for a relatively short period (generally 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 Funds
will enter into repurchase agreements only with member banks of the Federal
Reserve System and with "primary dealers" in U.S. Government securities. The
Adviser or respective Subadviser will continuously monitor the creditworthiness
of the parties with whom the Funds enter into repurchase agreements. Each 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, a Fund could experience delays in liquidating the
underlying securities and could experience losses, including the possible
decline in the value of the underlying securities during the period 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.
Forward Commitment and When-Issued Securities. Each Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. A Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, a Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. When a Fund engages in forward commitment and
when-issued transactions, it relies on the seller to consummate the transaction.
The failure of the issuer or seller to consummate the transaction may result in
the Funds losing the opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when-issued and forward commitment
basis also involves a risk of loss if the value of the security to be purchased
declines prior to the settlement date.
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<PAGE> 46
On the date a Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the when-issued
commitments. Alternatively, a Fund may enter into offsetting contracts for the
forward sale of other securities that it owns.
Short-Term Trading. Small Capitalization Fund, Active Bond Fund, Multi-Sector
Growth Fund, Global Bond Fund and International Equity Fund may engage in
short-term trading. These Funds intend to use short-term trading of securities
as a means of managing their portfolio to achieve their respective investment
objective. In reaching a decision to sell one security and purchase another
security at approximately the same time, the Funds will take into account a
number of factors, including the quality ratings, interest rates, yields,
maturity dates, call prices, and refunding and sinking fund provisions of the
securities under consideration, as well as historical yield spreads and current
economic information. The success of short-term trading will depend upon the
ability of the Funds to evaluate particular securities, to anticipate relevant
market factors, including trends of interest rates and earnings and variations
from such trends, to obtain relevant information, to evaluate it promptly, and
to take advantage of its evaluations by completing transactions on a favorable
basis. It is expected that the expenses involved in short-term trading, which
would not be incurred by an investment company which does not use this portfolio
technique, will be less than the profits and other benefits which will accrue to
shareholders.
The Funds' portfolio turnover rates will depend on a number of factors,
including the fact that each Fund intends to elect to be treated and to qualify
as a regulated investment company under the Internal Revenue Code. Accordingly,
the Funds intend to limit short-term trading so that less than 30% of each
Fund's respective gross annual income (including all dividend and interest
income and gross realized capital gains, both short and long-term, without being
offset for realized capital losses) will be derived from gross realized gains on
the sale or other disposition of securities and certain other investments held
for less than three months. This limitation, which must be met by all regulated
investment companies in order to obtain such Federal tax treatment, at certain
times may prevent the Funds from realizing capital gains on some securities held
for less than three months.
Short Sales. Small Capitalization Fund, International Equity Fund and
Multi-Sector Growth Fund may engage in short sales in order to profit from an
anticipated decline in the value of a security. All of the Funds may also engage
in short sales to attempt to limit their exposure to a possible market decline
in the value of their portfolio securities through short sales of securities
which the Adviser believes possess volatility characteristics similar to those
being hedged. To effect such a transaction, a 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.
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A Fund will realize a gain if the security declines in price between the date of
the short sale and the date on which the Fund replaces the borrowed security. On
the other hand, the Fund will incur a loss as a result of the short sale if the
price of the security increases between those dates. The amount of any gain will
be decreased, and the amount of any loss increased, by the amount of any premium
or interest or dividends the Fund may be required to pay in connection with a
short sale. The successful use of short selling as a hedging device may be
adversely affected by imperfect correlation between movements in the price of
the security sold short and the securities being hedged.
Under applicable guidelines of the staff of the SEC, if a Fund engages in short
sales of the type referred to in Fundamental Investment Restriction No. (2)
below, it must put in a segregated account (not with the broker) an amount of
cash or U.S. Government securities equal to the difference between (a) the
market value of the securities sold short at the time they were sold short and
(b) any cash or U.S. Government securities required to be deposited as
collateral with the broker in connection with the short sale (not including the
proceeds from the short sale). In addition, until the Fund replaces the borrowed
security, it must daily maintain the segregated account at such a level that (1)
the amount deposited in it plus the amount deposited with the broker as
collateral will equal the current market value of the securities sold short, and
(2) the amount deposited in it plus the amount deposited with the broker as
collateral will not be less than the market value of the securities at the time
they were sold short. 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 a Fund and may result in gains from the sale
of securities deemed to have been held for less than three months, which gains
must be less than 30% of the Fund's gross income in order for the Fund to
qualify as a regulated investment company under the Internal Revenue Code of
1986, as amended.
Lending of Portfolio Securities. In order to generate additional income, each
Fund may, from time to time, lend securities from their respective portfolios to
brokers, dealers and financial institutions such as banks and trust companies.
Such loans will be secured by collateral consisting of cash or U.S. Government
securities which will be maintained in an amount equal to at least 100% of the
current market value of the loaned securities. During the period of the loan, a
Fund will receive the income on both the loaned securities and the collateral
and thereby increase its return. Cash collateral will be invested in short-term
high quality debt securities, which will increase the current income of the
Fund. Such loans will not be for more than 60 days and will be terminable at any
time upon five days' notice. The Funds will have the right to regain record
ownership of loaned securities to exercise beneficial rights such as rights to
interest or other distributions or voting rights on important issues. The Funds
may pay reasonable fees to persons unaffiliated with the Funds for services in
arranging such loans. Lending of portfolio securities involves a risk of failure
by the borrower to return the loaned securities, in which event a Fund may incur
a loss.
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Financial Futures Contracts. Each John Hancock Series Fund may buy and sell
futures contracts (and related options) on debt securities, currencies, interest
rate indices, and other instruments. These Funds may also buy and sell futures
contracts (and related options) on stocks and stock indices. Each of these Funds
may hedge its portfolio by selling or purchasing financial futures contracts as
an offset against the effects of changes in interest rates or in security or
foreign currency values. Although other techniques could be used to reduce
exposure to interest rate fluctuations, a Fund may be able to hedge its exposure
more effectively and perhaps at a lower cost by using financial futures
contracts. These Funds may enter into financial futures contracts for hedging
and speculative purposes to the extent permitted by regulations of the Commodity
Futures Trading Commission ("CFTC").
Financial futures contracts have been designed by boards of trade which have
been designated "contract markets" by the CFTC. Futures contracts are traded on
these markets in a manner that is similar to the way a stock is traded on a
stock exchange. The boards of trade, through their clearing corporations,
guarantee that the contracts will be performed. Currently, financial futures
contracts are based on interest rate instruments such as long-term U.S. Treasury
bonds, U.S. Treasury notes, Government National Mortgage Association ("GNMA")
modified pass-through mortgage-backed securities, three-month U.S. Treasury
bills, 90-day commercial paper, bank certificates of deposit and Eurodollar
certificates of deposit. It is expected that if other financial futures
contracts are developed and traded the Funds may engage in transactions in such
contracts.
Although some financial futures contracts by their terms call for actual
delivery or acceptance of financial instruments, in most cases the contracts are
closed out prior to delivery by offsetting purchases or sales of matching
financial futures contracts (same exchange, underlying security and delivery
month). Other financial futures contracts, such as futures contracts on
securities indices, by their terms call for cash settlements. If the offsetting
purchase price is less than a Fund's original sale price, the Fund realizes a
gain, or if it is more, the Fund realizes a loss. Conversely, if the offsetting
sale price is more than a Fund's original purchase price, the Fund realizes a
gain, or if it is less, the Fund realizes a loss. The transaction costs must
also be included in these calculations. Each Fund will pay a commission in
connection with each purchase or sale of financial futures contracts, including
a closing transaction. For a discussion of the Federal income tax considerations
of trading in financial futures contracts, see the information under the caption
"Tax Status" below.
At the time a Fund enters into a financial futures contract, it is required to
deposit with its custodian a specified amount of cash or U.S. Government
securities, known as "initial margin," ranging upward from 1.1% of the value of
the financial futures contract being traded. The margin required for a financial
futures contract is set by the board of trade or exchange on which the contract
is traded and may be modified during the term of the contract. The initial
margin is in the nature of a performance bond or good faith deposit on the
financial futures contract which is returned to the Fund upon termination of the
contract, assuming all contractual obligations have been satisfied. The Funds
expect to earn interest income on their initial margin deposits. Each day, the
futures contract is valued at the official settlement price of the board of
trade or exchange on which it is traded. Subsequent payments, known as
"variation margin," to and from the broker are made on a daily basis as the
market price of the
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financial futures contract fluctuates. This process is known as "mark to
market." Variation margin does not represent a borrowing or lending by the Funds
but is instead settlement between the Funds and the broker of the amount one
would owe the other if the financial futures contract expired. In computing net
asset value, the Funds will mark to market their respective open financial
futures positions.
Successful hedging depends on a strong correlation between the market for the
underlying securities and the futures contract market for those securities.
There are several factors that will probably prevent this correlation from being
a perfect one, and even a correct forecast of general interest rate trends may
not result in a successful hedging transaction. There are significant
differences between the securities and futures markets which could create an
imperfect correlation between the markets and which could affect the success of
a given hedge. The degree of imperfection of correlation depends on
circumstances such as: variations in speculative market demand for financial
futures and debt securities, including technical influences in futures trading
and differences between the financial instruments being hedged and the
instruments underlying the standard financial futures contracts available for
trading in such respects as interest rate levels, maturities and
creditworthiness of issuers. The degree of imperfection may be increased where
the underlying debt securities are lower-rated and, thus, subject to greater
fluctuation in price than higher-rated securities.
A decision as to whether, when and how to hedge involves the exercise of skill
and judgment, and even a well-conceived hedge may be unsuccessful to some degree
because of market behavior or unexpected interest rate trends. The Funds will
bear the risk that the price of the securities being hedged will not move in
complete correlation with the price of the futures contracts used as a hedging
instrument. Although the Adviser or Subadviser believes that the use of
financial futures contracts will benefit the Funds, an incorrect prediction
could result in a loss on both the hedged securities in the respective Fund's
portfolio and the hedging vehicle so that the Fund's return might have been
better had hedging not been attempted. However, in the absence of the ability to
hedge, the Adviser or Subadviser might have taken portfolio actions in
anticipation of the same market movements with similar investment results but,
presumably, at greater transaction costs. The low margin deposits required for
futures transactions permit an extremely high degree of leverage. A relatively
small movement in a futures contract may result in losses or gains in excess of
the amount invested.
Futures exchanges may limit the amount of fluctuation permitted in certain
futures contract prices during a single trading day. The daily limit establishes
the maximum amount the price of a futures contract may vary either up or down
from the previous day's settlement price, at the end of the current trading
session. Once the daily limit has been reached in a futures contract subject to
the limit, no more trades may be made on that day at a price beyond that limit.
The daily limit governs only price movements during a particular trading day
and, therefore, does not limit potential losses because the limit may work to
prevent the liquidation of unfavorable positions. For example, futures prices
have occasionally moved to the daily limit for several consecutive trading days
with little or no trading, thereby preventing prompt liquidation of positions
and subjecting some holders of futures contracts to substantial losses.
Finally, although the Funds engage in financial futures transactions only on
boards of trade or exchanges where there appears to be an adequate secondary
market, there is no assurance that a liquid market will exist for a particular
futures contract at any given time. The liquidity of the market depends on
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<PAGE> 50
participants closing out contracts rather than making or taking delivery. In the
event participants decide to make or take delivery, liquidity in the market
could be reduced. In addition, the Funds could be prevented from executing a buy
or sell order at a specified price or closing out a position due to limits on
open positions or daily price fluctuation limits imposed by the exchanges or
boards of trade. If a Fund cannot close out a position, it will be required to
continue to meet margin requirements until the position is closed.
Options on Financial Futures Contracts. Each John Hancock Series Fund may buy
and sell options on financial futures contracts on debt securities, currencies,
interest rate indices, and other instruments. These Funds may buy and sell
options on financial futures contracts on stocks and stock indices. An option on
a futures contract gives the purchaser the right, in return for the premium
paid, to assume a position in a futures contract at a specified exercise price
at any time during the period of the option. Upon exercise, the writer of the
option delivers the futures contract to the holder at the exercise price. The
Funds would be required to deposit with their custodian initial and variation
margin with respect to put and call options on futures contracts written by
them. Options on futures contracts involve risks similar to the risks relating
to transactions in financial futures contracts. Also, an option purchased by a
Fund may expire worthless, in which case the Fund would lose the premium it paid
for the option.
Other Considerations. Each John Hancock Series Fund may use futures and options
transactions for bona fide hedging or speculative purposes, if consistent with a
Fund's investment policies, to the extent permitted by CFTC regulations. A Fund
will determine that the price fluctuations in the futures contracts and options
on futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or which it expects to purchase.
Except as stated below, the Funds' futures transactions will be entered into for
traditional hedging purposes -- i.e., futures contracts will be sold to protect
against a decline in the price of securities that the Funds own, or futures
contracts will be purchased to protect the Funds against an increase in the
price of securities, or the currency in which they are denominated, the Fund
intends to purchase. As evidence of this hedging intent, the Funds expect that
on 75% or more of the occasions on which they take a long futures or option
position (involving the purchase of futures contracts), the Funds will have
purchased, or will be in the process of purchasing equivalent amounts of related
securities or assets denominated in the related currency in the cash market at
the time when the futures contract or option position is closed out. However, in
particular cases, when it is economically advantageous for a Fund to do so, a
long futures position may be terminated or an option may expire without the
corresponding purchase of securities or other assets.
As an alternative to literal compliance with the bona fide hedging definition, a
CFTC regulation permits the Funds to elect to comply with a different test,
under which the aggregate initial margin and premiums required to establish
speculative positions in futures contracts and options on futures will not
exceed 5% of the net asset value of the respective Fund's portfolio, after
taking into account unrealized profits and losses on any such positions and
excluding the amount by which such options were in-the-money at the time of
purchase. The Funds will engage in transactions in futures contracts only to the
extent such transactions are consistent with the requirements of the Internal
Revenue Code for maintaining their qualifications as regulated investment
companies for Federal income tax purposes.
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When the Funds purchase financial futures contracts, or write put options or
purchase call options thereon, cash or liquid, high grade debt securities will
be deposited in a segregated account with the Funds' custodian in an amount
that, together with the amount of initial and variation margin held in the
account of its broker, equals the market value of the futures contracts.
Options Transactions. Each John Hancock Series Fund may write listed and
over-the-counter covered call options and covered put options on securities in
order to earn additional income from the premiums received. In addition, these
Funds may purchase listed and over-the-counter call and put options on
securities and indices. The extent to which covered options will be used by the
Funds will depend upon market conditions and the availability of alternative
strategies. The Funds may write listed and over-the-counter call and put options
on up to 100% of their respective net assets.
A Fund will write listed and over-the-counter call options only if they are
"covered," which means that the Fund owns or has the immediate right to acquire
the securities underlying the options without additional cash consideration upon
conversion or exchange of other securities held in its portfolio. A call option
written by a Fund may also be "covered" if the Fund holds on a share-for-share
basis a covering call on the same securities where (i) the exercise price of the
covering call held is equal to or less than the exercise price of the call
written if the difference is maintained by the Fund in cash or high grade liquid
debt obligations in a segregated account with the Fund's custodian, and (ii) the
covering call expires at the same time as the call written. If a covered call
option is not exercised, a Fund would keep both the option premium and the
underlying security. If the covered call option written by a Fund is exercised
and the exercise price, less the transaction costs, exceeds the cost of the
underlying security, the Fund would realize a gain in addition to the amount of
the option premium it received. If the exercise price, less transaction costs,
is less than the cost of the underlying security, a Fund's loss would be reduced
by the amount of the option premium.
As the writer of a covered put option, each Fund will write a put option only
with respect to securities it intends to acquire for its portfolio and will
maintain in a segregated account with its custodian bank cash or high-grade
liquid debt securities with a value equal to the price at which the underlying
security may be sold to the Fund in the event the put option is exercised by the
purchaser. The Funds may also write a "covered" put option by purchasing on a
share-for-share basis a put on the same security as the put written by the Fund
if the exercise price of the covering put held is equal to or greater than the
exercise price of the put written and the covering put expires at the same time
or later than the put written.
When writing listed and over-the-counter covered put options on securities, the
Funds would earn income from the premiums received. If a covered put option is
not exercised, the Funds would keep the option premium and the assets maintained
to cover the option. If the option is exercised and the exercise price,
including transaction costs, exceeds the market price of the underlying
security, a Fund would realize a loss, but the amount of the loss would be
reduced by the amount of the option premium.
If the writer of an exchange-traded option wishes to terminate its obligation
prior to its exercise, it may effect a "closing purchase transaction." This is
accomplished by buying an option of the same series as the option previously
written. The effect of the purchase is that a Fund's position will be offset by
the
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<PAGE> 52
Options Clearing Corporation. The Funds may not effect a closing purchase
transaction after they have been notified of the exercise of an option. There is
no guarantee that a closing purchase transaction can be effected. Although the
Funds will generally write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange or board of trade will exist for any particular option or at any
particular time, and for some options no secondary market on an exchange may
exist. In the case of a written call option, effecting a closing transaction
will permit a Fund to write another call option on the underlying security with
either a different exercise price, expiration date or both. In the case of a
written put option, it will permit a Fund to write another put option to the
extent that the exercise price thereof is secured by deposited cash or
short-term securities. Also, effecting a closing transaction will permit the
cash or proceeds from the concurrent sale of any securities subject to the
option to be used for other investments. If a Fund desires to sell a particular
security from its portfolio on which it has written a call option, it will
effect a closing transaction prior to or concurrent with the sale of the
security.
The Funds will realize a gain from a closing transaction if the cost of the
closing transaction is less than the premium received from writing the option.
The Funds will realize a loss from a closing transaction if the cost of the
closing transaction is more than the premium received for writing the option.
However, because increases in the market price of a call option will generally
reflect increases in the market price of the underlying security, any loss
resulting from the repurchase of a call option is likely to be offset in whole
or in part by appreciation of the underlying security owned by the Fund.
Over-the-Counter Options. Each Fund may engage in options transactions on
exchanges and in the over-the-counter markets. In general, exchange-traded
options are third-party contracts (i.e., performance of the parties' obligations
is guaranteed by an exchange or clearing corporation) with standardized strike
prices and expiration dates. Over-the-counter ("OTC") transactions are two-party
contracts with price and terms negotiated by the buyer and seller. A Fund will
acquire only those OTC options for which management believes the Fund can
receive on each business day at least two separate bids or offers (one of which
will be from an entity other than a party to the option) or those OTC options
valued by an independent pricing service. The Funds will write and purchase OTC
options only with member banks of the Federal Reserve System and primary dealers
in U.S. Government securities or their affiliates which have capital of at least
$50 million or whose obligations are guaranteed by an entity having capital of
at least $50 million. The SEC has taken the position that OTC options are
illiquid securities subject to the restriction that illiquid securities are
limited to not more than 15% of the respective Fund's net assets. The SEC,
however, has a partial exemption from the above restrictions on transactions in
OTC options. The SEC allows a Fund to exclude from the 15% limitation on
illiquid securities a portion of the value of the OTC options written by the
Fund, provided that certain conditions are met. First, the other party to the
OTC options has to be a primary U.S. Government securities dealer designated as
such by the Federal Reserve Bank. Second, the Fund must have an absolute
contractual right to repurchase the OTC options at a formula price. If the above
conditions are met, a Fund may treat as illiquid only that portion of the OTC
option's value (and the value of its underlying securities) which is equal to
the formula price for repurchasing the OTC option, less the OTC option's
intrinsic value.
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Although Diversified Core Equity Fund II may invest in certain types of
derivative securities, it has no current plans to do so. However, this policy
could change at any time in the future.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and Government National Mortgage Association
certificates ("Ginnie Maes"), are supported by the full faith and credit of the
United States. Certain other U.S. Government securities, issued or guaranteed by
Federal agencies or government sponsored enterprises, are not supported by the
full faith and credit of the United States, but may be supported by the right of
the issuer to borrow from the U.S. Treasury. These securities include
obligations of the Federal Home Loan Mortgage Corporation ("Freddie Macs"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("Fannie Maes"). No assurance can be given
that the U.S. Government will provide financial support to such Federal
agencies, authorities, instrumentalities and government sponsored enterprises in
the future.
Mortgage-Backed Securities. Each Fund that may invest in U.S. Government
securities, and in particular Dividend Performers Fund and Active Bond Fund, may
invest in mortgage pass-through certificates and multiple-class pass-through
securities, such as real estate mortgage investment conduits ("REMIC")
pass-through certificates, collateralized mortgage obligations ("CMOs") and
stripped mortgage-backed securities ("SMBS"), and other types of
"Mortgage-Backed Securities" that may be available in the future.
Guaranteed Mortgage Pass-Through Securities. Guaranteed mortgage pass-through
securities represent participation interests in pools of residential mortgage
loans and are issued by U.S. Governmental or private lenders and guaranteed by
the U.S. Government or one of its agencies or instrumentalities, including but
not limited to the Government National Mortgage Association ("Ginnie Mae"), the
Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan
Mortgage Corporation ("Freddie Mac"). Ginnie Mae certificates are guaranteed by
the full faith and credit of the U.S. Government for timely payment of principal
and interest on the certificates. Fannie Mae certificates are guaranteed by
Fannie Mae, a federally chartered and privately owned corporation, for full and
timely payment of principal and interest on the certificates. Freddie Mac
certificates are guaranteed by Freddie Mac, a corporate instrumentality of the
U.S. Government, for timely payment of interest and the ultimate collection of
all principal of the related mortgage loans.
Multiple-Class Pass-Through Securities and Collateralized Mortgage Obligations.
CMOs and REMIC pass-through or participation certificates may be issued by,
among others, U.S. Government agencies and instrumentalities as well as private
lenders. CMOs and REMIC certificates are issued in multiple classes and the
principal of and interest on the mortgage assets may be allocated among the
several classes of CMOs or REMIC certificates in various ways. Each class of
CMOs or REMIC certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Generally, interest is paid or accrues on all
classes of CMOs or REMIC certificates on a monthly basis.
20
<PAGE> 54
Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac
certificates but also may be collateralized by other mortgage assets such as
whole loans or private mortgage pass-through securities. Debt service on CMOs is
provided from payments of principal and interest on collateral of mortgaged
assets and any reinvestment income thereon.
A REMIC is a CMO that qualifies for special tax treatment under the Code and
invests in certain mortgages primarily secured by interests in real property and
other permitted investments. Investors may purchase "regular" and "residual"
interest shares of beneficial interest in REMIC trusts although the Funds do not
intend to invest in residual interests.
Stripped Mortgage-Backed Securities. SMBS are derivative multiple-class
mortgage-backed securities. SMBS are usually structured with two classes that
receive different proportions of interest and principal distributions on a pool
of mortgage assets. A typical SMBS will have one class receiving some of the
interest and most of the principal, while the other class will receive most of
the interest and the remaining principal. In the most extreme case, one class
will receive all of the interest (the "interest only" class) while the other
class will receive all of the principal (the "principal only" class). The yields
and market risk of interest only and principal only SMBS, respectively, may be
more volatile than those of other fixed income securities. The staff of the SEC
considers privately issued SMBS to be illiquid.
Structured or Hybrid Notes. Funds that may invest in mortgage-backed securities
may invest in "structured" or "hybrid" notes. The distinguishing feature of a
structured or hybrid note is that the amount of interest and/or principal
payable on the note is based on the performance of a benchmark asset or market
other than fixed-income securities or interest rates. Examples of these
benchmarks include stock prices, currency exchange rates and physical commodity
prices. Investing in a structured note allows a Fund to gain exposure to the
benchmark market while fixing the maximum loss that the Fund may experience in
the event that market does not perform as expected. Depending on the terms of
the note, a Fund may forego all or part of the interest and principal that would
be payable on a comparable conventional note; a Fund's loss cannot exceed this
foregone interest and/or principal. An investment in structured or hybrid notes
involves risks similar to those associated with a direct investment in the
benchmark asset.
Risk Factors Associated with Mortgage-Backed Securities. Investing in
Mortgage-Backed Securities involves certain risks, including the failure of a
counter-party to meet its commitments, adverse interest rate changes and the
effects of prepayments on mortgage cash flows. In addition, investing in the
lowest tranche of CMOs and REMIC certificates involves risks similar to those
associated with investing in equity securities. Further, the yield
characteristics of Mortgage-Backed Securities differ from those of traditional
fixed income securities. The major differences typically include more frequent
interest and principal payments (usually monthly), the adjustability of interest
rates, and the possibility that prepayments of principal may be made
substantially earlier than their final distribution dates.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic, social and other factors and cannot be
predicted with certainty. Both adjustable rate mortgage loans and fixed rate
mortgage loans may be subject to a greater rate of principal prepayments in a
declining interest rate environment and to a lesser rate of principal
prepayments in an increasing
21
<PAGE> 55
interest rate environment. Under certain interest rate and prepayment rate
scenarios, a Fund may fail to recoup fully its investment in Mortgage-Backed
Securities notwithstanding any direct or indirect governmental, agency or other
guarantee. When a Fund reinvests amounts representing payments and unscheduled
prepayments of principal, it may receive a rate of interest that is lower than
the rate on existing adjustable rate mortgage pass-through securities. Thus,
Mortgage-Backed Securities, and adjustable rate mortgage pass-through securities
in particular, may be less effective than other types of U.S. Government
securities as a means of "locking in" interest rates.
Conversely, in a rising interest rate environment, a declining prepayment rate
will extend the average life of many Mortgage-Backed Securities. This
possibility is often referred to as extension risk. Extending the average life
of a Mortgage-Backed Security increases the risk of depreciation due to future
increases in market interest rates.
Risk Associated With Specific Types of Derivative Debt Securities. Different
types of derivative debt securities are subject to different combinations of
prepayment, extension and/or interest rate risk. Conventional mortgage
pass-through securities and sequential pay CMOs are subject to all of these
risks, but are typically not leveraged. Thus, the magnitude of exposure may be
less than for more leveraged Mortgage-Backed Securities.
The risk of early prepayments is the primary risk associated with interest only
debt securities ("IOs"), super floaters, other leveraged floating rate
instruments and Mortgage-Backed Securities purchased at a premium to their par
value. In some instances, early prepayments may result in a complete loss of
investment in certain of these securities. The primary risks associated with
certain other derivative debt securities are the potential extension of average
life and/or depreciation due to rising interest rates.
These securities include floating rate securities based on the Cost of Funds
Index ("COFI floaters"), other "lagging rate" floating rate securities, floating
rate securities that are subject to a maximum interest rate ("capped floaters"),
Mortgage-Backed Securities purchased at a discount, leveraged inverse floating
rate securities ("inverse floaters"), principal only debt securities ("POs"),
certain residual or support tranches of CMOs and index amortizing notes. Index
amortizing notes are not Mortgage-Backed Securities, but are subject to
extension risk resulting from the issuer's failure to exercise its option to
call or redeem the notes before their stated maturity date. Leveraged inverse
IOs combine several elements of the Mortgage-Backed Securities described above
and thus present an especially intense combination of prepayment, extension and
interest rate risks.
Planned amortization class ("PAC") and target amortization class ("TAC") CMO
bonds involve less exposure to prepayment, extension and interest rate risk than
other Mortgage-Backed Securities, provided that prepayment rates remain within
expected prepayment ranges or "collars." To the extent that prepayment rates
remain within these prepayment ranges, the residual or support tranches of PAC
and TAC CMOs assume the extra prepayment, extension and interest rate risk
associated with the underlying mortgage assets.
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<PAGE> 56
Other types of floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates. X-reset
floaters have a coupon that remains fixed for more than one accrual period.
Thus, the type of risk involved in these securities depends on the terms of each
individual X-reset floater.
Forward Foreign Currency Transactions. Each John Hancock Series Fund, other than
Dividend Performers Fund, may engage in forward foreign currency transactions.
Foreign currency exchange transactions may be conducted on a spot (i.e., cash)
basis at the spot rate for purchasing or selling currency prevailing in the
foreign exchange market. The Funds may also deal in forward foreign currency
exchange contracts involving currencies of the different countries in which they
may invest as a hedge against possible variations in the foreign exchange rate
between these currencies. This is accomplished through contractual agreements to
purchase or sell a specified currency at a specified future date and price set
at the time of the contract. The Funds' dealings in forward foreign currency
exchange contracts will be limited to hedging either specified transactions or
portfolio positions. Transaction hedging is the purchase or sale of forward
foreign currency contracts with respect to specific receivables or payables of a
Fund accruing in connection with the purchase and sale of its portfolio
securities denominated in foreign currencies. Portfolio hedging is the use of
forward foreign currency contracts to offset portfolio security positions
denominated or quoted in such foreign currencies. A Fund will not attempt to
hedge all of its foreign portfolio positions and will enter into such
transactions only to the extent, if any, deemed appropriate by the Adviser or
Subadviser. The Funds will not engage in speculative forward foreign currency
exchange transactions.
If a Fund purchases a forward contract, its custodian bank will segregate cash
or high grade liquid debt securities in a separate account of the Fund in an
amount equal to the value of the Fund's total assets committed to the
consummation of such forward contract. Those assets will be valued at market
daily and if the value of the securities in the separate account declines,
additional cash or securities will be placed in the account so that the value of
the account will be equal to the amount of the Fund's commitment with respect to
such contracts.
Hedging against a decline in the value of currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Funds to hedge against a devaluation that is so
generally anticipated that the Funds are not able to contract to sell the
currency at a price above the devaluation level they anticipate.
The cost to the Funds of engaging in foreign currency exchange transactions
varies with such factors as the currency involved, the length of the contract
period and the market conditions then prevailing. Since transactions in foreign
currency are usually conducted on a principal basis, no fees or commissions are
involved.
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<PAGE> 57
Lower Rated High Yield Debt Obligations. Dividend Performers Fund, Active Bond
Fund and Global Bond Fund may invest in high yielding, fixed income securities
rated below investment grade (e.g., rated Baa or lower by Moody's Investors
Service, Inc. ("Moody's") or BBB or lower by Standard & Poor's Ratings Group
("S&P")). Dividend Performers Fund will not invest in securities rated below C
by Moody's or by S&P. In addition, no more than 5% of Dividend Performers Fund's
net assets will be invested in securities rated below investment grade and no
more than 5% of the Fund's net assets will be invested in securities rated BBB
by S&P or Baa by Moody's and their equivalents. Active Bond Fund will not invest
in securities rated below Ca by Moody's or CC by S&P. Global Bond Fund may
invest up to 25% of its net assets in securities rated as low as Ca by Moody's
or CC by S&P and their equivalents.
Ratings are based largely on the historical financial condition of the issuer.
Consequently, the rating assigned to any particular security is not necessarily
a reflection of the issuer's current financial condition, which may be better or
worse than the rating would indicate. See Appendix A to this SAI which describes
the characteristics of corporate bonds in the various ratings categories. The
Funds may invest in comparable quality unrated securities which, in the opinion
of the Adviser or Subadviser, offer comparable yields and risks to those
securities which are rated.
Debt obligations rated in the lower ratings categories, or which are unrated,
involve greater volatility of price and risk of loss of principal and income. In
addition, lower ratings reflect a greater possibility of an adverse change in
financial condition affecting the ability of the issuer to make payments of
interest and principal. The high yield fixed income market is relatively new and
its growth occurred during a period of economic expansion. The market has not
yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities generally
respond to short term corporate and market developments to a greater extent than
do the price and liquidity of higher rated securities because such developments
are perceived to have a more direct relationship to the ability of an issuer of
such lower rated securities to meet its ongoing debt obligations.
Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations will make it more difficult to dispose of the
bonds and to value accurately the Funds' assets. The reduced availability of
reliable, objective data may increase the Funds' reliance on management's
judgment in valuing high yield bonds. In addition, the Funds' investments in
high yield securities may be susceptible to adverse publicity and investor
perceptions, whether or not justified by fundamental factors. A Fund's
investments, and consequently its net asset value, will be subject to the market
fluctuations and risks inherent in all securities.
IV. INVESTMENT RESTRICTIONS
A. Fundamental Investment Restrictions.
Each Fund has adopted the following fundamental investment restrictions which
may not be changed without approval of a majority of the applicable Fund's
outstanding voting securities. Under the Investment Company Act of 1940, as
amended (the "1940 Act"), and as used in the Prospectuses and
24
<PAGE> 58
this SAI, a "majority of the outstanding voting securities" requires the
approval of the lesser of (1) the holders of 67% or more of the shares of a Fund
represented at a meeting if the holders of more than 50% of the outstanding
shares of the Fund are present in person or by proxy or (2) the holders of more
than 50% of the outstanding shares of the Fund.
A Fund may not:
1. Issue senior securities, except as permitted by paragraphs 3, 6 and 7
below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the deferral of
trustees' fees, the purchase or sale of options, futures contracts,
forward commitments and repurchase agreements entered into in
accordance with the Fund's investment policies or within the meaning of
paragraph 6 below, are not deemed to be senior securities.
2. Purchase securities on margin or make short sales, or unless, by virtue
of its ownership of other securities, the Fund has the right to obtain
securities equivalent in kind and amount to the securities sold and, if
the right is conditional, the sale is made upon the same conditions,
except (i) in connection with arbitrage transactions, (ii) for hedging
the Fund's exposure to an actual or anticipated market decline in the
value of its securities, (iii) to profit from an anticipated decline in
the value of a security, and (iv) obtaining such short-term credits as
may be necessary for the clearance of purchases and sales of
securities.
3. Borrow money, except for the following extraordinary or emergency
purposes: (i) from banks for temporary or short-term purposes or for
the clearance of transactions in amounts not to exceed 33 1/3% of the
value of the Fund's total assets (including the amount borrowed) taken
at market value; (ii) in connection with the redemption of Fund shares
or to finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other assets; (iii) in
order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets,
and; (iv) in the case of Small Capitalization Fund, in connection with
entering into reverse repurchase agreements and dollar rolls, but only
if after each such borrowing there is asset coverage of at least 300%
as defined in the 1940 Act. A Fund, other than Small Capitalization
Fund, may not borrow money for the purpose of leveraging the Funds'
assets. For purposes of this investment restriction, the deferral of
Trustees' fees and transactions in short sales, futures contracts,
options on futures contracts, securities or indices and forward
commitment transactions shall not constitute borrowing. Small
Capitalization Fund has no current intention of entering into reverse
repurchase agreements or dollar rolls.
4. Act as an underwriter, except to the extent that in connection with the
disposition of portfolio securities, the Fund may be deemed to be an
underwriter for purpose of the 1933 Act.
5. Purchase or sell real estate except that the Fund may (i) acquire or
lease office space for its own use, (ii) invest in securities of
issuers that invest in real estate or interests therein, (iii) invest
in securities that are secured by real estate or interests therein,
(iv) purchase and sell mortgage-related securities and (v) hold and
sell real estate acquired by the Fund as a result of the ownership of
securities.
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<PAGE> 59
6. Invest in commodities, except the Fund may purchase and sell options on
securities, securities indices and currency, futures contracts on
securities, securities indices and currency and options on such
futures, forward foreign currency exchange contracts, forward
commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Fund's investment
policies.
7. 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.
8. Purchase the securities of issuers conducting their principal activity
in the same industry if, immediately after such purchase, the value of
its investments in such industry would exceed 25% of its total assets
taken at market value at the time of such investment. This limitation
does not apply to investments in obligations of the U.S. Government or
any of its agencies, instrumentalities or authorities.
9. For each Fund other than Global Bond Fund and Multi-Sector Growth Fund,
with respect to 75% of total assets, purchase securities of an issuer
(other than the U.S. Government, its agencies, instrumentalities or
authorities), if:
(a) such purchase would cause more than 5% of the Fund's total
assets taken at market value to be invested in the securities
of such issuer; or
(b) such purchase would at the time result in more than 10% of
the outstanding voting securities of such issuer being held by
the Fund.
B. Non-Fundamental Investment Restrictions.
The following restrictions are designated as non-fundamental and may be changed
by the Board of Trustees without the approval of shareholders.
A Fund may not:
1. Pledge, mortgage or hypothecate its assets, except to secure permitted
borrowings and then only if such pledging, mortgaging or hypothecating
does not exceed 33 1/3% of the Fund's total assets taken at market
value. Collateral arrangements with respect to margin, option, short
sale and other risk management and when-issued and forward commitment
transactions are not deemed to be pledges or other encumbrances for
purposes of this restriction.
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<PAGE> 60
2. Participate on a joint or joint-and-several basis in any securities
trading account. The "bunching" of orders for the sale or purchase of
marketable portfolio securities with other accounts under the
management of the Adviser or any Subadviser to save commissions or to
average prices among them is not deemed to result in a joint securities
trading account.
3. Purchase or retain securities of an issuer if one or more of the
Trustees or officers of the Trust or directors or officers of the
Adviser, any Subadviser or any investment management subsidiary of the
Adviser individually owns beneficially more than 0.5% and together own
beneficially more than 5% of the securities of such issuer.
4. Purchase a security if, as a result, (i) more than 10% of the Fund's
assets would be invested in securities of other investment companies,
(ii) such purchase would result in more than 3% of the total
outstanding voting securities of any one such investment company being
held by the Fund or (iii) more than 5% of the Fund's assets would be
invested in any one such investment company. The Fund will not purchase
the securities of any open-end investment company except when such
purchase is part of a plan of merger, consolidation, reorganization or
purchase of substantially all of the assets of any other investment
company, or purchase the securities of any closed-end investment
company except in the open market where no commission or profit to a
sponsor or dealer results from the purchase, other than customary
brokerage fees. The Fund has no current intention of investing in other
investment companies. Notwithstanding the foregoing, each Fund may, in
connection with the John Hancock Group of Funds Deferred Compensation
Plan for Independent Trustees/Directors, purchase securities of other
investment companies within the John Hancock Group of Funds provided
that, as a result, (i) no more than 10% of the Fund's assets would be
invested in securities of all other investment companies, (ii) such
purchase would not result in more than 3% of the total outstanding
voting securities of any one such investment company being held by the
Fund and (iii) no more than 5% of the Fund's assets would be invested
in any one such investment company.
5. Invest more than 15% of its total assets in the aggregate in (1)
securities of any issuer which, together with its predecessors, has
been in operation for less than three years and (2) restricted
securities, excluding securities eligible for resale pursuant to Rule
144A under the 1933 Act or foreign securities which are offered or sold
outside the United States in accordance with Regulation S under the
1933 Act; provided, however, that the Fund may not invest more than 15%
of its net assets in restricted securities including those eligible for
resale under Rule 144A.
6. Invest in securities which are illiquid if, as a result, more than 15%
of its net assets would consist of such securities, including
repurchase agreements maturing in more than seven days, securities that
are not readily marketable, restricted securities not eligible for
resale pursuant to Rule 144A under the 1933 Act, purchased OTC options,
certain assets used to cover written OTC options, and privately issued
stripped mortgage-backed securities.
7. For all Funds except Small Capitalization Fund, purchase securities
while outstanding borrowings exceed 5% of the Fund's total assets.
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<PAGE> 61
8. Invest in real estate limited partnership interests.
9. Purchase warrants of any issuer, if, as a result of such purchase, more
than 2% of the value of the Fund's total assets would be invested in
warrants which are not listed on an exchange or more than 5% of the
value of the total assets of the Fund would be invested in warrants
generally, whether or not so listed. For these purposes, warrants are
to be valued at the lesser of cost or market, but warrants acquired by
the Fund in units with or attached to debt securities shall be deemed
to be without value.
10. Purchase interests in oil, gas, or other mineral exploration programs
or mineral leases; however, this policy will not prohibit the
acquisition of securities of companies engaged in the production or
transmission of oil, gas, or other minerals.
11. Write covered call or put options with respect to more than 25% of the
value of its total assets, invest more than 25% of its total assets in
protective put options or invest more 5% of its total assets in puts,
calls, spreads or straddles, or any combination thereof, other than
protective put options. The aggregate value of premiums paid on all
options, other than protective put options, held by the Fund at any
time will not exceed 20% of the Fund's total assets.
12. Invest for the purpose of exercising control over or management of any
company.
If a percentage restriction on investment or utilization of assets as set forth
above is adhered to at the time an investment is made, a later change in
percentage resulting from changes in the values of a Fund's assets will not be
considered a violation of the restriction. In order to permit the sale of shares
of the Funds in certain states, the Board may, in its sole discretion, adopt
restrictions on investment policy more restrictive than those described above.
Should the Board determine that any such more restrictive policy is no longer in
the best interest of a Fund and its shareholders, the Fund may cease offering
shares in the state involved and the Board may revoke such restrictive policy.
Moreover, if the states involved shall no longer require any such restrictive
policy, the Board may, in its sole discretion, revoke such policy.
International Equity Fund and Multi-Sector Growth Fund agree that, in accordance
with Texas Blue Sky Regulations, until such regulations no longer require, they
will not engage in short sales (other than short sales against the box) unless
(i) the dollar amount of the short sales does not exceed 25% of the net assets
of the Fund; (ii) the value of the securities of any one issuer in which the
Fund maintains a short position does not exceed the lesser of (a) 2% of the net
asset value of the Fund or (b) 2% of the securities of any class of any issuer;
and (iii) the securities in which short sales are made are listed on a national
securities exchange. The Independence Funds have no current intent to engage in
short sales.
V. THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Funds is managed by the Trustees of the Trust who elect
officers who are responsible for the day-to-day operations of the Funds and who
execute policies formulated by the Trustees. Several of the officers and
Trustees of the Trust are also officers or directors of the Funds'
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<PAGE> 62
Adviser and/or one or more or the Subadvisers, or officers or directors of the
Funds' principal distributor, John Hancock Funds, Inc. ("JH Funds").
The following table sets forth the principal occupation or employment of the
Trustees and principal officers of the Trust during the past five years.
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
- ---------------- -------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr.* Chairman (1,2) Chairman and Chief Executive Officer, the Adviser and The
101 Huntington Avenue Berkeley Financial Group ("The Berkeley Group"); Chairman,
Boston, MA 02199 NM Capital Management, Inc. ("NM Capital"); John Hancock
Advisers International Limited; ("JHAI"); John Hancock
Funds, Inc., ("JH Funds"), John Hancock Investor Services
Corporation ("Investor Services") and Sovereign Asset
Management Corporation ("SAMCorp"); (hereinafter the
Adviser, the Berkeley Group, NM Capital, JHAI, JH Funds,
Investor Services and SAMCorp are collectively referred to
as the "Affiliated Companies"); Chairman, Transamerica Fund
Management Company ("TFMC") and 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 1990);
Chairman, John Hancock Distributors, Inc.
("Distributors")(until April 1994).
Thomas W.L. Cameron Trustee Chairman and Director, Sovereign Advisers, Inc.; Senior Vice
Interstate/Johnson Lane President, Interstate/Johnson Lane Corp. (securities
1892 Andell Bluff Blvd. dealer).
Johns Island, SC 29455
<FN>
- -------------------
* An "interested person" of the Funds, as such term is defined in the 1940
Act.
(1) A Member of the Trust's Executive Committee.
(2) A Member of the Investment Policy Committee of the Adviser.
(3) An Alternate Member of the Trust's Executive Committee.
(4) A Member of the Audit and the Administration and Nominating Committees.
</TABLE>
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<PAGE> 63
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
- ---------------- -------------- --------------------------
<S> <C> <C>
William H. Cunningham Trustee (4) Chancellor, University of Texas System and former President
601 Colorado Street of the University of Texas, Austin, Texas; Regents Chair in
O'Henry Hall Higher Education Leadership; James L. Bayless Chair for Free
Austin, TX 78701 Enterprise; Professor of Marketing and Dean, College of
Business Administration/Graduate School of Business (1983 -
1985); Centennial Chair in Business Education.
Charles F. Fretz Trustee (4) Consultant, self employed; Vice President and Director, Towers,
RD #5, Box 300B Perrin, Forster & Crosby, Inc. (international management
Clothier Springs Road consultants) (until 1985).
Malvern, PA 19355
Charles L. Ladner Trustee (4) Director, Energy North, Inc. (public utility holding company)
UGI Corporation (until 1992); Senior Vice President, Finance of UGI Corp. (gas
P.O. Box 858 distribution utility).
Valley Forge, PA 19482
Leo E. Linbeck, Jr. Trustee (4) Chairman, President, Chief Executive Officer and Director,
3810 W. Alabama Linbeck Corporation (a holding company engaged in various
Houston, TX 77027 phases of the construction industry and warehousing interests);
Director and Chairman, Federal Reserve Bank of Dallas; Chairman
of the Board and Chief Executive Officer, Linbeck Construction
Corporation; Director, Panhandle Eastern Corporation (a
diversified energy company); Director, Daniel Industries, Inc.
(manufacturer of gas measuring products and energy related
equipment); Director, GeoQuest International, Inc. (a geophysical
consulting firm); and Director, Greater Houston Partnership.
Patricia P. McCarter Trustee (4) Director and Secretary of the McCarter Corp. (machine
Swedesford Road manufacturer).
RD #3, Box 121
Malvern, PA 19355
Steven R. Pruchansky Trustee (3, 4) Director and Treasurer, Mast Holdings, Inc.; Director, First
6920 Daniel Road Signature Bank & Trust Company (until August 1991); General
Naples, FL 33942 Partner, Mast Realty Trust; President, Maxwell Building Corp.
(until 1991).
<FN>
- -------------------
* An "interested person" of the Funds, as such term is defined in the 1940
Act.
(1) A Member of the Trust's Executive Committee.
(2) A Member of the Investment Policy Committee of the Adviser.
(3) An Alternate Member of the Trust's Executive Committee.
(4) A Member of the Audit and the Administration and Nominating Committees.
</TABLE>
30
<PAGE> 64
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
- ---------------- -------------- --------------------------
<S> <C> <C>
Richard S. Scipione* Trustee (1) General Counsel, the Life Company; Director, the Adviser, JH
John Hancock Place Funds, Investor Services, Distributors, John Hancock
P.O. Box 111 Subsidiaries , Inc., John Hancock Property and Casualty
Boston, MA 02117 Insurance and its affiliates, SAMCorp and NM Capital;
Trustee, The Berkeley Group; Director, JH Networking
Insurance Agency, Inc.; Director, John Hancock Home Mortgage
Corporation and John Hancock Financial Access, Inc. (until
July, 1990).
John P. Toolan Trustee (4) Director, The Muni Bond Funds, National Liquid Reserves,
13 Chadwell Place Inc., The Tax Free Money Fund, Inc. and Vantage Money Market
Morristown, NJ 07960 Funds (mutual funds), and The Inefficient-Market Fund, Inc.
(closed-end investment company; Chairman, Smith Barney Trust
Company (retired December, 1991); Director, Smith Barney,
Inc., Mutual Management Company and Smith Barney Advisers,
Inc. (investment advisers) (until December 1991).
James F. Carlin Trustee (4) Chairman and Chief Executive Officer, Carlin Consolidated,
233 West Central Street Inc. (insurance); Director, Arabella Mutual Insurance
Natick, MA 01760 Company; Receiver, City of Chelsea, Massachusetts (until
August 1992).
Harold R. Hiser, Jr. Trustee (4) Executive Vice President, Schering-Plough Corporation
Schering-Plough Corporation (pharmaceuticals); Director, ReCapital Corporation
One Giralda Farms (reinsurance).
Madison, NJ 07940-1000
Robert G. Freedman* Vice Chairman and Vice Chairman, Director and Chief Investment Officer, the
101 Huntington Avenue Chief Investment Adviser; President, the Adviser (until December 1994);
Boston, MA 02199 Officer (2) Director, JHAI, Investor Services, JH Funds, SAMCorp, NM
Capital; Senior Vice President, The Berkeley Group and
Distributors (until April, 1994); Director, TFMC; and an
officer of other investment companies managed by the
Adviser.
Anne C. Hodsdon* President (2) President and Chief Operating Officer, the Adviser; Executive
101 Huntington Avenue Vice President, the Adviser (until December 1994); Director,
Boston, MA 02199 JHAI; President and Director, TFMC.
<FN>
- -------------------
* An "interested person" of the Funds, as such term is defined in the 1940
Act.
(1) A Member of the Trust's Executive Committee.
(2) A Member of the Investment Policy Committee of the Adviser.
(3) An Alternate Member of the Trust's Executive Committee.
(4) A Member of the Audit and the Administration and Nominating Committees.
</TABLE>
31
<PAGE> 65
<TABLE>
<CAPTION>
POSITIONS HELD PRINCIPAL OCCUPATION(S)
NAME AND ADDRESS WITH THE TRUST DURING THE PAST FIVE YEARS
- ---------------- -------------- --------------------------
<S> <C> <C>
Thomas H. Drohan* Senior Vice President and Senior Vice President and Secretary, the Adviser and The
101 Huntington Avenue Secretary Berkeley Group, Senior Vice President, JH Funds, Investor
Boston, MA 02199 Services, and Distributors (until April, 1994); Director,
JHAI; Secretary, NM Capital; Director and Secretary, TFMC.
James K. Ho* Senior Vice Executive Vice President, the Adviser.
101 Huntington Avenue President (2)
Boston, MA 02199
James B. Little* Senior Vice President Senior Vice President, the Adviser, JH Funds, Investor
101 Huntington Avenue and Chief Financial Services, Distributors (until April, 1994).
Boston, MA 02199 Officer (2)
Michael P. DiCarlo* Senior Vice President (2) Executive Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
Susan S. Newton* Vice President, Assistant Vice President and Assistant Secretary, the Adviser; Vice
101 Huntington Avenue Secretary and Compliance President and Secretary, JH Funds, Investor Services and
Boston, MA 02199 Officer Distributors (until April, 1994); Secretary, SAMCorp; Vice
President, The Berkeley Group; Assistant Secretary, NM
Capital.
John A. Morin* Vice President Vice President, the Adviser, JH Funds, Distributors (until
101 Huntington Avenue April, 1994) and Investor Services; Counsel, the Life
Boston, MA 02199 Company; Vice President and Assistant Secretary, The
Berkeley Group.
James J. Stokowski* Vice President and Vice President, the Adviser.
101 Huntington Avenue Treasurer
Boston, MA 02199
<FN>
- -------------------
* An "interested person" of the Funds, as such term is defined in the 1940
Act.
(1) A Member of the Trust's Executive Committee.
(2) A Member of the Investment Policy Committee of the Adviser.
(3) An Alternate Member of the Trust's Executive Committee.
(4) A Member of the Audit and the Administration and Nominating Committees.
</TABLE>
32
<PAGE> 66
All of the officers listed are officers or employees of the Adviser and
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.
COMPENSATION OF THE TRUSTEES. The following table provides information regarding
the compensation paid by the Funds and the other investment companies in the
John Hancock Fund Complex to the Independent Trustees for their services. Mr.
Boudreau, a non-Independent Trustee, and each of the officers of the Trust, who
are interested persons of the Adviser, are compensated by the adviser and
received no compensation from the Funds for their services.
<TABLE>
<CAPTION>
TOTAL
PENSION OR COMPENSATION
RETIREMENT FROM THE FUNDS
AGGREGATE BENEFITS ESTIMATED AND THE JOHN
COMPENSATION ACCRUED AS PART ANNUAL BENEFITS HANCOCK FUND
FROM THE OF THE FUNDS' UPON COMPLEX TO
INDEPENDENT TRUSTEES FUNDS EXPENSES RETIREMENT TRUSTEES/DIRECTORS
- -------------------- ----- -------- ---------- ------------------
(1)(2)
<S> <C> <C> <C> <C>
James F. Carlin $ 0 - - $ 60,450
William H. Cunningham 0 - - 0
Charles F. Fretz 0 - - 60,350
Harold R. Hiser, Jr. 0 - - 56,000
Charles L. Ladner 0 - - 60,450
Leo E. Linbeck, Jr. 0 - - 0
Patricia P. McCarter 0 - - 60,200
Steven R. Pruchansky 0 - - 62,450
Norman H. Smith 0 - - 62,450
John P. Toolan 0 - - 60,450
--- -------- ------- --------
$ 0 $482,800
<FN>
(1) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees/Directors is as of the calendar year ended December 31,
1994.
(2) All Trustees except Messrs. Cunningham and Linbeck are Trustees/Directors of
38 funds in the John Hancock Fund Complex as of the date of this SAI. Messrs.
Cunningham and Linbeck are Trustees/Directors of 36 funds and were not
Trustees/Directors of any funds in the John Hancock Fund Complex prior to
December 22, 1994.
</TABLE>
33
<PAGE> 67
As of September 15, 1995 the officers and trustees of the Trust as a
group owned 11.53% of the outstanding shares of Dividend Performers Fund; 17.24%
of the outstanding shares of Active Bond Fund; 13.87% of the outstanding shares
of Global Bond Fund; 1.80% of the outstanding shares of Multi-Sector Growth
Fund; 9.42% of the outstanding shares of Fundamental Value Fund; 24.75% of the
outstanding shares of International Equity Fund; less than 1% of the outstanding
shares of Independence Diversified Core Equity Fund II; and less than 1% of the
outstanding shares of Independence Balanced Fund. There were no outstanding
shareholders of Independence Value Fund, Independence Growth Fund and
Independence Medium Capitalization Fund as of September 15, 1995.
As of September 15, 1995 the following shareholders beneficially owned
5% of or more of the outstanding shares of the Funds listed below:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF SHARES OUTSTANDING
OF BENEFICIAL SHARES OF THE
NAME AND ADDRESS OF SHAREHOLDER FUND INTEREST OWNED FUND
- ------------------------------- ---- -------------- ----
<S> <C> <C> <C>
Lathers' Local No. 144L Dividend Performers 91,635.730 33.14%
Pension Plan II (DC)
c/o Price Administrators, Inc.
400 S. El Camino Real, Suite 950
San Mateo, CA 94402-1708
John Hancock Advisers 401(k) Plan Active Bond 13,542.028 13.49%
Beverly A. Cleathero
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Advisers 401(k) Plan Active Bond 8,653.843 8.62%
Robert G. Freedman
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Advisers 401(k) Plan Global Bond 3,738.976 19.00%
Katherine M. Harman
101 Huntington Avenue
Boston, MA 02199-7603
</TABLE>
34
<PAGE> 68
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF SHARES OUTSTANDING
OF BENEFICIAL SHARES OF THE
NAME AND ADDRESS OF SHAREHOLDER FUND INTEREST OWNED FUND
- ------------------------------- ---- -------------- ----
<S> <C> <C> <C>
John Hancock Advisers 401(k) Plan Global Bond 2,337.474 11.88%
Anne C. Hodsdon
101 Huntington Avenue
Boston, MA 02199-7603
Investment Incentive Program for John Hancock Multi-Sector 353,603.476 67.94%
Employees Growth
John Hancock Place
PO Box 111
Boston, MA 02117-0111
Lathers' Local No. 144L Fundamental Value 59,151.846 33.44%
Pension Plan II (DB)
c/o Price Administrators, Inc.
400 S. El Camino Real, Suite 950
San Mateo, CA 94402-1708
John Hancock Advisers 401(k) Plan Fundamental Value 9,631.351 5.45%
Edward J. Boudreau, Jr.
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Advisers 401(k) Plan International Equity 10,067.846 10.34%
Robert G. Freedman
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Advisers 401(k) Plan International Equity 9,330.135 9.58%
Edward J. Boudreau, Jr.
101 Huntington Avenue
Boston, MA 02199-7603
</TABLE>
35
<PAGE> 69
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL
NUMBER OF SHARES OUTSTANDING
OF BENEFICIAL SHARES OF THE
NAME AND ADDRESS OF SHAREHOLDER FUND INTEREST OWNED FUND
- ------------------------------- ---- -------------- ----
<S> <C> <C> <C>
Wachovia Bank of Georgia Independence 4,309,481.598 32.25%
National Service Industries, Inc. Diversified Core
Defined Contribution Plans Equity II
Attn: Mr. W. Russell Watson
1420 Peachtree Street, N.E.
Atlanta, GA 30309-3002
Weil Gotshal & Manges Independence 1,345,430.193 10.07%
401(k) Plan FBO The Plan Diversified Core
Attn: Mark A. Vogel Equity II
767 Fifth Avenue
New York, NY 10153-0001
The Chase Manhattan Bank, N.A. Independence 888,122.219 6.65%
Trustee Diversified Core
Anjou Pension Trust Equity II
Attn: Anne Clark
770 Broadway, 10th Floor
New York, NY 10003-9522
Saxon & Co. Independence 793,786.917 5.94%
FBO Amsco ERA Independence Diversified Core
A/C#10-01-002-1041481 Equity II
PO Box 7780-1888
Philadelphia, PA 19182
John Hancock Mutual Life Cust. for Mokrynski Independence 34,424.366 97.48%
Associates 401(k) Plan Balanced
Attn: Bill Koch - 5th Floor
101 Huntington Avenue
Boston, MA 02199-7603
</TABLE>
Shareholders of a Fund having beneficial ownership of more than 25% of
the shares of a Fund may be deemed for purposes of the Investment Company Act of
1940, as amended, to control that Fund.
36
<PAGE> 70
VI. INVESTMENT ADVISORY AND OTHER SERVICES
Each of the Trustees and principal officers affiliated with the Trust
who is also an affiliated person of the Adviser or any Subadviser is named
above, together with the capacity in which such person is affiliated with the
Trust, the Adviser or Subadviser.
The Trust, on behalf of each Fund, has entered into an investment
management contract with John Hancock Advisers, Inc. (the "Adviser"). Under the
respective investment management contract, the Adviser provides each Fund with
(i) a continuous investment program, consistent with the Fund's stated
investment objective and policies, (ii) supervision of all aspects of the Fund's
operations except those that are delegated to a custodian, transfer agent or
other agent and (iii) such executive, administrative and clerical personnel,
officers and equipment as are necessary for the conduct of its business.
With respect to Dividend Performers Fund, the Adviser has entered into
a sub-investment management contract with SAMCorp. With respect to International
Equity Fund, the Adviser has entered into a sub-investment management contract
with JHAI. With respect to Fundamental Value Fund, the Adviser has entered into
a sub-investment management contract with NM Capital. With respect to each
Independence Fund, the Adviser has entered into a sub-investment management
contract with IIA. Under each respective sub-investment management contract, the
corresponding Subadviser, subject to the review of the Trustees and the over-all
supervision of the Adviser, is responsible for managing the investment
operations of the corresponding Fund and the composition of the Fund's portfolio
and furnishing the Fund with advice and recommendations with respect to
investments, investment policies and the purchase and sale of securities.
See "Organization and Management of the Funds" and "The Funds'
Expenses" in the Prospectuses for a description of certain information
concerning each Fund's investment management contract and the sub-investment
management contracts of Dividend Performers Fund, International Equity Fund,
Fundamental Value Fund and the Independence Funds.
Securities held by the Funds may also be held by other funds or
investment advisory clients for which the Adviser, the Subadvisers or their
respective affiliates provide investment advice. Because of different investment
objectives or other factors, a particular security may be bought for one or more
funds or clients when one or more are selling the same security. If
opportunities for purchase or sale of securities by the Adviser or Subadviser
for a Fund or for other funds or clients for which the Adviser or Subadvisers
renders investment advice arise for consideration at or about the same time,
transactions in such securities will be made, insofar as feasible, for the
respective funds or clients in a manner deemed equitable to all of them. To the
extent that transactions on behalf of more than one client of the Adviser,
Subadvisers or their respective affiliates may increase the demand for
securities being purchased or the supply of securities being sold, there may be
an adverse effect on price.
37
<PAGE> 71
No person other than the Adviser and the corresponding Subadviser and
their directors and employees regularly furnishes advice to the Funds with
respect to the desirability of the Funds investing in, purchasing or selling
securities. The Adviser and Subadvisers may from time to time receive
statistical or other similar factual information, and information regarding
general economic factors and trends, from the Life Company and its affiliates.
Under the terms of the investment management contracts with the Trust
on behalf of each Fund, the Adviser provides each Fund with office space,
supplies and other facilities required for the business of the Fund. The Adviser
pays the compensation of all officers and employees of the Trust and Trustees of
the Trust affiliated with Adviser, the office expenses of the Funds, including
those of the Trust's Treasurer and Secretary, and other expenses incurred by the
Adviser in connection with the performance of its duties.
All expenses which are not specifically paid by the Adviser and which
are incurred in the operation of the Funds including fees of Trustees of the
Trust who are not "interested persons," as such term is defined in the 1940 Act
(the "Non-Interested Trustees") and the continuous public offering of the shares
of the Funds are borne by the Funds.
As provided by the investment management contracts, each Fund pays the
Adviser an investment management fee, which is accrued daily and paid monthly in
arrears, equal on an annual basis to a stated percentage of the respective
Fund's average daily net asset value. The Adviser, not any Fund, pays the
subadvisory fees as described in the Prospectuses. See "Organization and
Management of the Funds" in the Prospectuses.
In the event normal operating expenses of a Fund, exclusive of certain
expenses prescribed by state law, are in excess of any state limit where the
Fund is registered to sell shares of beneficial interest, the fee payable to the
Adviser will be reduced to the extent required by law. At this time, the most
restrictive limit on expenses imposed by a state requires that expenses charged
to a Fund in any fiscal year not exceed 2.5% of the first $30,000,000 of the
Fund's average daily net asset value, 2% of the next $70,000,000 and 1.5% of the
remaining average daily net asset value. When calculating the limit above, the
Funds may exclude interest, brokerage commissions and extraordinary expenses.
Pursuant to each investment management contract and, where applicable,
sub-investment management contract, the Adviser and Subadviser are not liable to
the Funds or their shareholders for any error of judgment or mistake of law or
for any loss suffered by the Funds in connection with the matters to which their
respective contracts relate, except a loss resulting from willful misfeasance,
bad faith or gross negligence on the part of the Adviser or Subadviser in the
performance of their duties or from their reckless disregard of the obligations
and duties under the applicable contract.
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts
02199-7603, was organized in 1968 and has over $13 billion in assets under
management in its capacity as investment adviser to the Funds and the other
mutual funds and publicly traded investment companies in the John Hancock group
of funds having a combined total of over 1,030,000 shareholders. The Adviser is
an
38
<PAGE> 72
indirect wholly-owned subsidiary of the Life Company, one of the nation's oldest
and largest financial services companies. With total assets under management of
over $80 billion, the Life Company is one of the ten largest life insurance
companies in the United States, and carries Standard & Poor's and A.M. Best's
highest ratings. Founded in 1862, the Life Company has been serving clients for
over 130 years.
JHAI, located at 34 Dover Street, London, England, W1X 3RA, is a
wholly-owned subsidiary of the Adviser, formed in 1987 to provide international
investment research and advisory services to U.S. institutional clients.
SAMCorp, located at 235 Westlakes Drive, Berwyn, PA 19312, is a wholly-owned
subsidiary of The Berkeley Financial Group. NM Capital, located at 6501 Americas
Parkway, Suite 950, Albuquerque, NM 87110, is a wholly-owned subsidiary of The
Berkeley Financial Group. IIA, located at 53 State Street, Boston, Massachusetts
02109, was organized in 1982, and is a wholly-owned subsidiary of John Hancock
Asset Management, which is in turn a wholly-owned subsidiary of John Hancock
Subsidiaries, Inc., which is in turn a wholly-owned subsidiary of The Life
Company.
Under each investment management contract, each Fund may use the name
"John Hancock" or any name derived from or similar to it only for so long as the
investment management contract or any extension, renewal or amendment thereof
remains in effect. If a Fund's investment management contract is no longer in
effect, the Fund (to the extent that it lawfully can) will cease to use such
name or any other name indicating that it is advised by or otherwise connected
with the Adviser. In addition, the Adviser or the Life Company may grant the
non-exclusive right to use the name "John Hancock" or any similar name to any
other corporation or entity, including but not limited to any investment company
of which the Life Company or any subsidiary or affiliate thereof or any
successor to the business of any subsidiary or affiliate thereof shall be the
investment adviser.
Under the subadvisory contract of each Independence Fund, each
Independence Fund may use the name "Independence" or any name derived from or
similar to it only for so long as the sub-investment management contract or any
extension, renewal or amendment thereof remains in effect. If an Independence
Fund's sub-investment management contract is no longer in effect, the Fund (to
the extent that it lawfully can) will cease to use such name or any other name
indicating that it is advised by or otherwise connected with IIA. In addition,
IIA or the Life Company may grant the non-exclusive right to use the name
"Independence" or any similar name to any other corporation or entity, including
but not limited to any investment company of which IIA or any subsidiary or
affiliate thereof or any successor to the business of any subsidiary or
affiliate thereof shall be the investment adviser.
Each investment management contract and sub-investment management
contract initially expires in the spring of 1997 and will continue in effect
from year to year thereafter if approved annually by a vote of a majority of the
Trustees of the Trust who are not interested persons of one of the parties to
the contract, cast in person at a meeting called for the purpose of voting on
such approval, or by either the Trustees or the holders of a majority of the
applicable Fund's outstanding voting securities. Each contract automatically
terminates upon assignment. Each contract may be terminated without penalty on
60 days' notice at the option of either party to the respective contract or by
vote of the holders of a majority of the outstanding voting securities of the
applicable Fund. Each sub-investment management contract terminates
automatically upon the termination of the corresponding investment management
contract.
39
<PAGE> 73
VII. 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 determination of a Fund's NAV.
A Fund will not price its securities on the following national
holidays: New Year's Day, Presidents' Day, Good Friday; Memorial Day;
Independence Day; Labor Day; Thanksgiving Day, and Christmas Day. On any day an
international market is closed and the New York Stock Exchange is open, any
foreign securities will be valued at the prior day's close with the current
day's exchange rate. Trading of foreign securities may take place on Saturdays
and U.S. business holidays on which a Fund's NAV is not calculated.
Consequently, a Fund's portfolio securities may trade and the NAV of the Fund's
redeemable securities may be significantly affected on days when a shareholder
has no access to the Fund.
VIII. SPECIAL REDEMPTIONS
Although no Fund would normally do so, each Fund has the right to pay
the redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Board. When the shareholder sells portfolio
securities received in this fashion it 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. Each Fund has, however, elected to
be governed by Rule 18f-1 under the 1940 Act. Under that rule, each Fund must
redeem its shares for cash except to the extent that the redemption payments to
any one 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 that period.
40
<PAGE> 74
IX. TAX STATUS
Each series of the Trust, including the Funds, is treated as a separate
entity for accounting and tax purposes. It is each Fund's intention to elect to
be treated and to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code of 1986, as amended (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, a Fund will not be subject to Federal income tax
on taxable income (including net realized capital gains) which is distributed to
shareholders at least annually.
Distributions of net investment income (which includes accrued original
issue discount and accrued, recognized market discount) and any net realized
capital gains, as computed for Federal income tax purposes, will be taxable as
described in the Prospectuses whether made in shares or in cash. Shareholders
electing to receive distributions in the form of additional shares will have a
cost basis for Federal income tax purposes in each share so received equal to
the amount of cash they would have received had they taken the distribution in
cash.
If a Fund invests (either directly or through depository receipts such
as ADRs, GDRs or EDRs) in certain non-U.S. corporations that receive at least
75% of their annual gross income from passive sources (such as sources that
produce interest, dividend, rental, royalty or capital gain income) or hold at
least 50% of their assets in such passive sources ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from such companies or gain
from the sale of stock in such companies, even if all income or gain actually
received by the Fund is timely distributed to its shareholders. The Funds would
not be able to pass through to their respective shareholders any credit or
deduction for such a tax. In certain cases, an election may be available that
would ameliorate these adverse tax consequences. Accordingly, the Funds may
limit their investments in such passive foreign investment companies and will
undertake appropriate actions, including the consideration of any available
elections, to limit their tax liability, if any, with respect to such
investments.
Foreign exchange gains and losses realized by a 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 a Fund's investment in stock or securities may increase the amount of
gain it is deemed to recognize from the sale of certain investments held for
less than three months, which gain is limited under the Code to less than 30% of
its annual gross income, and may under future Treasury regulations produce
income not among the types of "qualifying income" from which the Fund must
derive at least 90% of its annual gross income.
41
<PAGE> 75
The amount of net realized capital gains, if any, in any given year
will result from sales of securities or transactions in options or futures
contracts made with a view to the maintenance of a portfolio believed by the
respective Fund's management to be most likely to attain such Fund's investment
objective. Such sales, and any resulting gains or losses, may therefore vary
considerably from year to year. Since, at the time of an investor's purchase of
Fund shares, a portion of the per share net asset value by which the purchase
price is determined may be represented by realized or unrealized appreciation in
a Fund's portfolio or undistributed taxable income of a Fund, subsequent
distributions (or portions thereof) on such shares may be taxable to such
investor even if the net asset value of his shares is, as a result of the
distributions, reduced below his cost for such shares and the distributions (or
portions thereof) in reality represent a return of a portion of the purchase
price.
Upon a redemption of shares (including by exercise of the exchange
privilege), a shareholder will ordinarily realize a taxable gain or loss
depending upon his basis in his shares. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's hands
and will be long-term or short-term, depending upon the shareholder's holding
period for the shares. Any loss realized on a sale or exchange will be
disallowed to the extent the shares disposed of are replaced within a period of
61 days beginning 30 days before and ending 30 days after the shares are
disposed of, such as pursuant to the Dividend Reinvestment Plan. In such a case,
the basis of the shares acquired will be adjusted to reflect the disallowed
loss. Any loss realized upon the redemption of shares with a tax holding period
of six months or less will be treated as a long-term capital loss to the extent
of any amounts treated as distributions of long-term capital gain with respect
to such shares.
The Funds reserve 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. Although each Fund's
present intention is to distribute all net realized capital gains, if any, the
Fund will not in any event distribute net long-term capital gains realized in
any year to the extent that a capital loss is carried forward from prior years
against such gain. To the extent such excess was retained and not exhausted by
the carryforward of prior years' capital losses, it would be subject to Federal
income tax in the hands of the Fund. Each shareholder would be treated for
Federal income tax purposes as if such 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 such Fund and reinvested the remainder in
the Fund. Accordingly, each shareholder would (a) include his pro rata share of
such excess as long-term capital gain income in his return for his taxable year
in which the last day of the Fund's taxable year falls, (b) be entitled either
to a tax credit on his return for, or a refund of, his pro rata share of the
taxes paid by the Fund, and (c) be entitled to increase the adjusted tax basis
for his Fund shares by the difference between his pro rata share of such excess
and his pro rata share of such taxes.
For Federal income tax purposes, each Fund is permitted to carry
forward a net realized capital loss in any year to offset net realized capital
gains of that Fund, if any, during the eight years following the year of the
loss. To the extent subsequent net realized capital gains are offset by such
losses, they would not result in Federal income tax liability to a Fund and, as
noted above, would not be distributed as such to shareholders. Presently, there
are no realized capital loss carry forwards in any of the Funds to offset
against future net realized capital gains.
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With respect to any Fund that receives dividends from U.S. domestic
corporations, a portion of its distributions representing such dividend income
is normally eligible for the dividends-received deduction for corporations.
Distributions from other sources, including long-term capital gain
distributions, do not qualify for the dividends-received deduction allowable to
corporations. Corporate shareholders which borrow to acquire or retain Fund
shares will be denied a portion of the dividends-received deduction, and
corporate shareholders will not be eligible for any deduction if they fail to
meet applicable holding period requirements. The entire qualifying dividend,
including the otherwise deductible amount, will be included in determining the
excess (if any) of a corporation's adjusted current earnings over its
alternative minimum taxable income, which may increase a corporate shareholder's
alternative minimum tax liability, if any. Such shareholder's tax basis in its
Fund shares may also be reduced to the extent of any "extraordinary dividends,"
as determined under applicable Code provisions.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions, and certain prohibited transactions is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
advisers for more information.
Certain entities otherwise exempt from federal income taxes (such as
pension plans, Individual Retirement Accounts and other exempt organizations)
are nevertheless taxable under Section 511 of the Code on unrelated business
taxable income ("UBTI"). UBTI is income from an unrelated trade or business (as
defined in Section 513 of the Code) regularly carried on. A tax-exempt entity is
subject to tax on UBTI in any taxable year at corporate tax rates or, in the
case of certain trusts, at the rates applicable to trusts. Tax-exempt entities
with gross income, included in computing UBTI, of $1,000 or more must report
UBTI, if any, on Form 990-T. Dividends, interest and capital gain realized on
the sale of property held for investment are generally excluded from UBTI.
However, income from such sources will be included in UBTI if "acquisition
indebtedness" exists with respect to the property generating such income.
Acquisition indebtedness ordinarily includes the unpaid amount of indebtedness
incurred to acquire or to continue to hold the property. Based on these rules, a
tax-exempt investor holding shares in the Funds for investment will not
generally recognize unrelated business taxable income from such investment in
the Funds unless the tax-exempt investor incurred indebtedness to acquire or to
continue to hold Fund shares and such indebtedness remains unpaid during the
relevant period(s).
Each Fund that invests in securities of foreign issuers may be subject
to withholding and other taxes imposed by foreign countries with respect to its
investments in foreign securities. Tax conventions between certain countries and
the United States may reduce or eliminate such taxes. With respect to each Fund,
other than International Equity Fund and Global Bond Fund, because more than 50%
of the Fund's total assets at the close of any taxable year will not consist of
stock or securities of foreign corporations, the Funds will not be able to pass
such taxes through to their shareholders, who in consequence will not be able to
include any portion of such taxes in their incomes and will not be entitled to
tax credits or deductions with respect to such taxes. However, such Funds will
be entitled to deduct such taxes in determining the amounts they must distribute
in order to avoid Federal income tax. If more than 50% of the value of the total
assets of International Equity Fund or Global Bond Fund at
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<PAGE> 77
the close of any taxable year consists of stock or securities of foreign
corporations, the applicable Fund may file an election with the Internal Revenue
Service pursuant to which shareholders of the Fund will be required to (i)
include in ordinary gross income (in addition to taxable dividends actually
received) their pro rata shares of foreign income taxes paid by the Fund even
though not actually received, and (ii) treat such respective pro rata portions
as foreign income taxes paid by them.
If the election is made, shareholders of the applicable Fund may then
deduct such pro rata portions of foreign income taxes in computing their taxable
incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. federal income taxes. Shareholders
who do not itemize deductions for Federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign taxes paid by International
Equity Fund or Global Bond Fund, although such shareholders will be required to
include their shares of such taxes in gross income. Shareholders who claim a
foreign tax credit for such foreign taxes may be required to treat a portion of
dividends received from the relevant Fund as a separate category of income for
purposes of computing the limitations on the foreign tax credit. Tax-exempt
shareholders will ordinarily not benefit from this election. Each year that
International Equity Fund or Global Bond Fund files the election described
above, its shareholders will be notified of the amount of (i) each shareholder's
pro rata share of foreign income taxes paid by the Fund and (ii) the portion of
Fund dividends which represents income from each foreign country.
Each Fund that invests in zero coupon securities or certain PIK or
increasing rate securities and any other securities with original issue discount
(or with market discount if the Fund elects to include market discount in income
currently) accrues income on such securities prior to the receipt of the
corresponding cash payments. Each Fund must distribute, at least annually, all
or substantially all of its net income, including such accrued income, to
shareholders to qualify as a regulated investment company under the Code and
avoid Federal income and excise taxes. Therefore, a Fund may have to dispose of
its portfolio securities under disadvantageous circumstances to generate cash,
or may have to leverage itself by borrowing the cash, to satisfy distribution
requirements.
Dividend Performers Fund, Active Bond Fund and Global Bond Fund may
invest in debt obligations that are in the lower rating categories or are
unrated, including debt obligations of issuers not currently paying interest as
well as issuers who are in default. Investments in debt obligations that are at
risk of or in default present special tax issues for the Funds. Tax rules are
not entirely clear about issues such as when the Funds may cease to accrue
interest, original issue discount, or market discount, when and to what extent
deductions may be taken for bad debts or worthless securities, how payments
received on obligations in default should be allocated between principal and
income, and whether exchanges of debt obligations in a workout context are
taxable. These and other issues will be addressed by Dividend Performers Fund,
Active Bond Fund and Global Bond Fund, in the event they invest in such
securities, in order to ensure that they distribute sufficient income to
preserve their status as regulated investment companies and to avoid becoming
subject to Federal income or excise tax.
With respect to each Fund that may enter into forwards, futures and
options transactions, limitations imposed by the Code on regulated investment
companies may restrict the Funds' ability to enter into such transactions. The
options and futures transactions undertaken by a Fund may cause the Fund to
recognize gains or losses from marking to market even though its positions have
not been sold
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<PAGE> 78
or terminated and affect their character as long-term or short-term and timing
of some capital gains and losses realized by the Fund. Also, a Fund's losses on
its transactions involving options and futures contracts and/or offsetting
portfolio positions may be deferred rather than being taken into account
currently in calculating the Fund's taxable income. A Fund's foreign currency
forward contracts may also be subject to certain of these rules in addition to
the provisions of Section 988 of the Code, described above. These transactions
may thereafter affect the amount, timing and character of the Funds'
distributions to shareholders. The Funds will take into account the special tax
rules applicable to options, futures and forward transactions in order to
minimize any potential adverse tax consequences.
Each 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. Each Fund intends, under normal circumstances, to avoid liability
for such tax by satisfying such distribution requirements.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions. Dividends, capital gain distributions, and ownership
of or gains realized on the exchange or redemption of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of the Fund in particular circumstances.
Foreign investors not engaged in a U.S. trade or business with which
their Fund investment is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above, including a
possible 30% U.S. withholding tax (or lower treaty rate) on dividends
representing ordinary income, and should consult their tax advisers regarding
such treatment and the application of foreign taxes to an investment in the
Funds.
The Funds are not subject to Massachusetts corporate excise or
franchise taxes. Provided that the Funds qualify as regulated investment
companies under the Code, they will also not be required to pay any
Massachusetts income tax.
X. DESCRIPTION OF THE TRUST'S SHARES
The Trustees of the Trust are responsible for the management and
supervision of the Funds. The Declaration of Trust, dated October 31, 1994, as
amended from time to time, permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of the Funds, 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 SAI, the Trustees have authorized
shares of twelve series. Additional series may be added in the future. The
Declaration of Trust also authorizes the Trustees to classify and reclassify the
shares of the Funds, or any other series of the Trust, into one or more classes.
As of the date of this SAI, the Trustees have not authorized the issuance of
additional classes of shares.
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Each share of a Fund represents an equal proportionate interest in the
assets belonging to that Fund. When issued, shares are fully paid and
nonassessable except as provided in the Prospectuses under the caption
"Organization and Management of the Funds." In the event of liquidation of a
Fund, shareholders are entitled to share pro rata in the net assets of the Fund
available for distribution to such shareholders. Shares of the Trust are freely
transferable and have no preemptive, subscription or conversion rights.
In accordance with the provisions of the Declaration of Trust, the
Trustees have initially determined that shares entitle their holders to one vote
per share on any matter on which such shares are entitled to vote. The Trustees
may determine in the future, without the vote or consent of shareholders, that
each dollar of net asset value (number of shares owned times net asset value per
share) will be entitled to one vote on any matter on which such shares are
entitled to vote.
Unless otherwise required by the 1940 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 Trust. The Declaration of Trust also provides for indemnification out of the
Trust's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Liability is therefore limited to circumstances in which a
Fund itself would be unable to meet its obligations, and the possibility of this
occurrence is remote.
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XI. CALCULATION OF PERFORMANCE
YIELD
A Fund's yield is computed by dividing its net investment income per
share determined for a 30-day period by the maximum offering price per share on
the last day of the period, according to the following standard formula:
6
YIELD = 2 [( a - b = 1) - 1 ]
-----
[( cd ) ]
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during
the period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the
period (NAV).
TOTAL RETURN
A Fund's total return is computed by finding the average annual
compounded rate of return over the indicated period that would equate the
initial amount invested to the ending redeemable value according to the
following formula:
-----
T = \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 indicated period.
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This calculation assumes that all dividends and distributions are
reinvested at net asset value on the reinvestment dates during the period.
In addition to average annual total returns, the Funds may quote
unaveraged or cumulative total returns reflecting the 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.
From time to time, in reports and promotional literature, a Fund's
total return will be ranked or compared to indices of mutual funds and bank
deposit vehicles. Such indices may include Lipper Analytical Services, Inc.'s
"Lipper-Mutual Performance Analysis," a monthly publication which tracks net
assets and total return on equity mutual funds in the United States, as well as
those published by Frank Russell, Callan Associates, Wilshire Associates and
SEI.
Performance rankings and ratings reported periodically in national
financial publications including, but not limited to, Money magazine, Forbes,
Business Week, The Wall Street Journal, Micropal, Inc., Morningstar, Stanger's,
Barron's, Pensions & Investments, and Institutional Investor, will also be
utilized.
The performance of the Funds is not fixed or guaranteed. Performance
quotations should not be considered to be representations of performance of any
Fund for any period in the future. The performance of a Fund is a function of
many factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease a
Fund's performance.
XII. BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities of
the Funds are made by officers of the Trust pursuant to recommendations made by
an investment policy committee of the Adviser, which consists of officers and
directors of the Adviser, corresponding Subadviser (if applicable), officers and
Trustees who are interested persons of the Trust. Orders for purchases and sales
of securities are placed in a manner, which, in the opinion of the officers of
the Trust, will offer the best price and market for the execution of each such
transaction. Purchases from underwriters of portfolio securities may include a
commission or commissions paid by the issuer and transactions with dealers
serving as market makers reflect a "spread." Debt securities are generally
traded on a net basis through dealers acting for their own account as principals
and not as brokers; no brokerage commissions are payable on such transactions.
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Each Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. The 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 Funds as a factor in the selection of
broker-dealers to execute a Fund's portfolio transactions.
To the extent consistent with the foregoing, each Fund will be governed
in the selection of brokers and dealers, and the negotiation of brokerage
commission rates and dealer spreads, by the reliability and quality of the
services, including primarily the availability and value of research information
and to a lesser extent statistical assistance furnished to the Adviser and
corresponding Subadviser (if applicable) of the Funds. It is not possible to
place a dollar value on information and services to be received from brokers and
dealers, since it is only supplementary to the research efforts of the Adviser
and corresponding Subadviser (if applicable). The receipt of research
information is not expected to reduce significantly the expenses of the Adviser
and Subadviser. The research information and statistical assistance furnished by
brokers and dealers may benefit the Life Company or other advisory clients of
the Adviser, and, conversely, brokerage commissions and spreads paid by other
advisory clients of the Adviser may result in research information and
statistical assistance beneficial to the Funds. Similarly, research information
and assistance provided to a Subadviser by brokers and dealers may benefit other
advisory clients or affiliates of such Subadviser. The Funds will not make any
commitment to allocate portfolio transactions upon any prescribed basis. While
the Adviser, in connection with the corresponding Subadviser (if applicable),
will be primarily responsible for the allocation of the Funds' brokerage
business, the policies and practices of the Adviser in this regard must be
consistent with the foregoing and will, at all times, be subject to review by
the Trustees.
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
each 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.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
two of which, Tucker Anthony Incorporated and Sutro & Company, Inc., are
broker-dealers. In addition, John Hancock Distributors, Inc., an indirect
wholly-owned subsidiary of the Life Company, is a broker-dealer (together with
Tucker Anthony Incorporated and Sutro & Company, "Affiliated Brokers"). Pursuant
to procedures adopted by the Trustees consistent with the above policy of
obtaining best net results, each Fund may execute portfolio transactions with or
through the Affiliated Brokers.
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<PAGE> 83
Any of the Affiliated Brokers may act as broker for the Funds on
exchange transactions, subject, however, to the general policy of the Funds set
forth above and the procedures adopted by the Trustees pursuant to the 1940 Act.
Commissions paid to an Affiliated Broker must be at least as favorable as those
which the Trustees believe to be contemporaneously charged by other brokers in
connection with comparable transactions involving similar securities being
purchased or sold. A transaction would not be placed with an Affiliated Broker
if a Fund would have to pay a commission rate less favorable than the Affiliated
Broker's contemporaneous charges for comparable transactions for its other most
favored, but unaffiliated, customers except for accounts for which the
Affiliated Broker acts as clearing broker for another brokerage firm, and any
customers of the Affiliated Broker not comparable to the Fund as determined by a
majority of the Trustees who are not interested persons (as defined in the 1940
Act) of the Funds, the Adviser, the corresponding Subadviser (if applicable) or
the Affiliated Broker. Because the Adviser, which is affiliated with the
Affiliated Brokers, and the corresponding Subadviser (if applicable), have, as
investment advisers to the Funds, the obligation to provide investment
management services, which includes elements of research and related investment
skills, such research and related skills will not be used by the Affiliated
Broker as a basis for negotiating commissions at a rate higher than that
determined in accordance with the above criteria. The Funds will not effect
principal transactions with Affiliated Brokers.
Other investment advisory clients advised by the Adviser may also
invest in the same securities as the Funds. 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
Funds. In some instances, this investment procedure may adversely affect the
price paid or received by a 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 Funds with those to be sold or
purchased for other clients managed by it in order to obtain best execution.
XIII. TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9277, Boston, MA
02205-9277, a wholly-owned indirect subsidiary of the Life Company is the
transfer and dividend paying agent for each Fund. Each Fund pays Investor
Services an annual fee accrued daily of 0.05% of the its average daily net
assets, plus certain out-of-pocket expenses.
XIV. CUSTODY OF PORTFOLIO
Portfolio securities of International Equity Fund and Global Bond Fund
are held pursuant to a Master Custodian Agreement, as amended, between the
Adviser and State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110. Portfolio securities of the other Funds are held pursuant
to a Master Custodian Agreement, as amended, between the Adviser and Investors
Bank & Trust Company, 24 Federal Street, Boston, Massachusetts 02205-9116. Under
the Master Custodian Agreements, Investors Bank & Trust Company and State Street
Bank and Trust Company perform custody, portfolio and fund accounting services
for their respective Funds.
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XV. INDEPENDENT AUDITORS
The independent accountants of the John Hancock Series Funds are
Deloitte & Touche LLP, 125 Summer Street, Boston, Massachusetts 02110. The
independent accountants of the Independence Funds are Arthur Andersen LLP, One
International Place, Boston, Massachusetts 02110-2640. Arthur Andersen LLP and
Deloitte & Touche LLP audit and render opinions on their respective Funds'
annual financial statements and review their respective Funds' annual Federal
income tax returns.
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APPENDIX A
DESCRIPTION OF SECURITIES RATINGS(1)
MOODY'S INVESTORS SERVICE, INC.
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.
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 fluctuations 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.
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.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
[FN]
- --------
(1) The ratings described here are believed to be the most recent ratings
available at the date of this SAI for the securities listed. Ratings are
generally given to securities at the time of issuance. While the rating agencies
may from time to time revise these ratings, they undertake no obligation to do
so, and the ratings indicated do not necessarily represent those which would be
given to these securities on the date of a Fund's fiscal year-end.
A1
<PAGE> 86
Caa: Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
The ratings described here are believed to be the most recent ratings available
at the date of this SAI for the securities listed. Ratings are generally given
to securities at the time of issuance. While the rating agencies may from time
to time revise these ratings, they undertake no obligation to do so, and the
ratings indicated do not necessarily represent those which would be given to
these securities on the date of a Fund's fiscal year-end.
Ca: Bonds which are rated Ca represent obligations which are speculative in
a high degree. Such issues are often in default or have other marked
shortcomings.
C: Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever attaining
any real investment standing.
ABSENCE OF RATING: Where no rating has been assigned or where a rating has been
suspended or withdrawn, it may be for reasons unrelated to the quality of the
issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or
companies that are not rated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or
issuer.
4. The issue was privately placed, in which case the rating is
not published in Moody's publications.
Suspension or withdrawal may occur if new and material circumstances arise, the
effects of which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
NOTE: Moody's applies numerical modifiers, 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
COMMERCIAL PAPER
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.
A2
<PAGE> 87
Issuers rated PRIME-1 or P-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-I or P-1
repayment ability will often 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.
PRIME-2
Issuers (or supporting institutions) rated PRIME-2 (P-2) have a strong ability
for repayment of senior short-term 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, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
PRIME-3
Issuers (or supporting institutions) rated PRIME-3 (P-3) have an acceptable
ability for repayment of senior short-term obligations. The effect of industry
characteristics and market compositions may be more pronounced. Variability in
earnings and profitability may result in changes in the level of debt protection
measurements and may require relatively high financial leverage. Adequate
alternate liquidity is maintained.
STANDARD & POOR'S RATINGS GROUP
INVESTMENT GRADE
AAA: Debt rated AAA have the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
A3
<PAGE> 88
AA: Debt rated AA has a very strong capacity to pay interest and repay
principal and differ 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.
SPECULATIVE GRADE
Debt rated BB, B, CCC, CC, and C is regarded as having predominantly speculative
characteristics with respect to capacity to pay interest and repay principal. BB
indicates the least degree of speculation and C the highest. While such debt
will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions.
BB: Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB-rating.
B: Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal.
The B rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BB or BB-rating.
CCC: Debt rated CCC has a currently identifiable vulnerability to default,
and is dependent upon favorable business, financial, and economic conditions to
meet timely payment of interest and repayment of principal. In the event of
adverse business, financial, or economic conditions, it is not likely to have
the capacity to pay interest and repay principal.
The CCC rating category is also used for debt subordinated to senior debt that
is assigned an actual or implied B or B-rating.
CC: The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC debt rating.
A4
<PAGE> 89
C: The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC-debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt
service payments are continued.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus of minus sign to show relative standing within the major
rating categories.
PROVISIONAL RATINGS: The letter "P" indicates that the rating is provisional. A
provisional rating assumes the successful completion of the project being
financed by the debt 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 of the project, makes no comment on the likelihood of,
or the risk of default upon failure of such completion. The investor should
exercise his own judgment with respect to such likelihood and risk.
L: The letter "L" indicates that the rating pertains to the principal
amount of those bonds to the extent that the underlying deposit collateral is
insured by the Federal Saving & Loan Insurance Corp. or the Federal Deposit
Insurance Corp. and interest is adequately collateralized. In the case of
certificates of deposit the letter "L" indicates that the deposit, combined with
other deposits, being held in the same right and capacity will be honored for
principal and accrued pre-default interest up to the federal insurance limits
within 30 days after closing of the insured institution or, in the event that
the deposit is assumed by a successor insured institution, upon maturity.
NR: NR indicates no rating has been requested, that there is insufficient
information on which to base a rating, or that Standard & Poor's does not rate a
particular type of obligation as a matter of policy.
COMMERCIAL PAPER
Standard & Poor's describes its three highest ratings for commercial paper as
follows:
A-1. This designation indicated that the degree of safety regarding timely
payment is very strong.
A-2. Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as overwhelming as for issues
designated A-1.
A-3. Issues carrying this designation have a satisfactory capacity for timely
payment. They are, however, somewhat more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher designations.
********
A5
<PAGE> 90
NOTES: Bonds which are unrated expose the investor to risks with respect to
capacity to pay interest or repay principal which are similar to the risks of
lower-rated speculative bonds. A Portfolio is dependent on the Investment
Adviser's judgment, analysis and experience in the evaluation of such bonds.
Investors should note that the assignment of a rating to a bond by a
rating service may not reflect the effect of recent developments on the issuer's
ability to make interest and principal payments.
A6
<PAGE> 91
APPENDIX B
ECONOMIC SECTORS IN WHICH MULTI-SECTOR GROWTH FUND MAY INVEST
As more fully described in the John Hancock Series Funds' Prospectus,
Multi-Sector Growth Fund seeks to achieve its investment objective by varying
the weight in of its portfolio among the following sixteen economic sectors:
1. AUTOMOTIVE AND HOUSING SECTOR: companies engaged in the design, production
and sale of automobiles, automobile parts, mobile homes and related products,
and in the design, construction, renovation and refurbishing of residential
dwellings. The value of automobile industry securities is affected by foreign
competition, consumer confidence, consumer debt and installment loan rates. The
housing construction industry is affected by the level of consumer confidence,
consumer debt, mortgage rates and the inflation outlook.
2. CONSUMER GOODS AND SERVICES SECTOR: companies engaged in providing consumer
goods and services such as: the design, processing, production and storage of
packaged, canned, bottled and frozen foods and beverages; and the design,
production and sale of home furnishings, appliances, clothing, accessories,
cosmetics and perfumes. Certain such companies are subject to government
regulation affecting the permissibility of using various food additives and
production methods, which regulations could affect company profitability. Also,
the success of food- and fashion-related products may be strongly affected by
fads, marketing campaigns and other factors affecting supply and demand.
3. DEFENSE AND AEROSPACE SECTOR: companies engaged in the research, manufacture
or sale of products or services related to the defense and aerospace industries,
such as: air transport; data processing or computer-related services;
communications systems; military weapons and transportation; general aviation
equipment, missiles, space launch vehicles and spacecraft; units for guidance,
propulsion and control of flight vehicles; and airborne and ground-based
equipment essential to the test, operation and maintenance of flight vehicles.
Since such companies rely largely on U.S. (and other) governmental demand for
their products and services, their financial conditions are heavily influenced
by Federal (and other governmental) defense spending policies.
4. ENERGY SECTOR: companies in the energy field, including oil, gas, electricity
and coal as well as nuclear, geothermal, oil shale and solar sources of energy.
The business activities of companies comprising this sector may include:
production, generation, transmission, marketing, control or measurement of
energy or energy fuels; provision of component parts or services to companies
engaged in such activities; energy research or experimentation; environmental
activities related to the solution of energy problems; and activities resulting
from technological advances or research discoveries in the energy field. The
value of such companies' securities varies based on the price and supply of
energy fuels and may be affected by events relating to international politics,
energy conservation, the success of exploration projects, and the tax and other
regulatory policies of various governments.
B1
<PAGE> 92
5. FINANCIAL SERVICES SECTOR: companies providing financial services to
consumers and industry, such as: commercial banks and thrift institutions;
consumer and industrial finance companies; securities brokerage companies;
leasing companies; and firms in all segments of the insurance field (such as
multiline, property and casualty, and life insurance). These kinds of companies
are subject to extensive governmental regulations, some of which regulations are
currently being studied by Congress. The profitability of these groups may
fluctuate significantly as a result of volatile interest rates and general
economic conditions.
6. HEALTH CARE SECTOR: companies engaged in the design, manufacture or sale of
products or services used in connection with health care or medicine, such as:
pharmaceutical companies; firms that design, manufacture, sell or supply
medical, dental and optical products, hardware or services; companies involved
in biotechnology, medical diagnostic and biochemical research and development;
and companies involved in the operation of health care facilities. Many of these
companies are subject to government regulations, which could affect the price
and availability of their products and services. Also, products and services in
this sector could quickly become obsolete.
7. HEAVY INDUSTRY SECTOR: companies engaged in the research, development,
manufacture or marketing of products, processes or services related to the
agriculture, chemicals, containers, forest products, non-ferrous metals, steel
and pollution control industries, such as: synthetic and natural materials, for
example, chemicals, plastics, fertilizers, gases, fibers, flavorings and
fragrances; paper, wood products; steel and cement. Certain companies in this
sector are subject to regulation by state and Federal authorities, which could
require alteration or cessation of production of a product, payment of fines or
cleaning of a disposal site. In addition, since some of the materials and
processes used by these companies involve hazardous components, there are risks
associated with their production, handling and disposal. The risk of product
obsolescence is also present.
8. LEISURE AND ENTERTAINMENT SECTOR: companies engaged in the design, production
or distribution of goods or services in the leisure industry, such as:
television and radio broadcast or manufacture; motion picture and photography;
recordings and musical instruments; publishing; sporting goods, camping and
recreational equipment; sports arenas; toys and games; amusement and theme
parks; travel-related services and airlines; hotels and motels; fast food and
other restaurants; and gaming casinos. Many products produced by companies in
this sector - for example, video and electronic games - may quickly become
obsolete.
9. MACHINERY AND EQUIPMENT SECTOR: companies engaged in the research,
development or manufacture of products, processes or services relating to
electrical equipment, machinery, pollution control and construction services,
such as: transformers, motors, turbines, hand tools, earth-moving equipment and
waste disposal services. The profitability of most companies in this group may
fluctuate significantly in response to capital spending and general economic
conditions. Since some of the materials and processes used by these companies
involve hazardous components, there are risks associated with their production,
handling and disposal. The risk of product obsolescence is also present.
B2
<PAGE> 93
10. PRECIOUS METALS SECTOR: companies engaged in exploration, mining, processing
or dealing in gold, silver, platinum, diamonds or other precious metals or
companies which, in turn, invest in companies engaged in these activities. A
significant portion of this sector may be represented by securities of foreign
companies, and investors should understand the special risks related to such an
investment emphasis. Also, such securities depend heavily on prices in metals,
some of which may experience extreme price volatility based on international
economic and political developments.
11. RETAILING SECTOR: companies engaged in the retail distribution of home
furnishings, food products, clothing, pharmaceuticals, leisure products and
other consumer goods, such as: department stores; supermarkets; and retail
chains specializing in particular items such as shoes, toys or pharmaceuticals.
The value of securities in this sector will fluctuate based on consumer spending
patterns, which depend on inflation and interest rates, level of consumer debt
and seasonal shopping habits. The success or failure of a particular company in
this highly competitive sector will depend on such company's ability to predict
rapidly changing consumer tastes.
12. TECHNOLOGY SECTOR: companies which are expected to have or develop products,
processes or services which will provide or will benefit significantly from
technological advances and improvements or future automation trends in the
office and factory, such as: semiconductors; computers and peripheral equipment;
scientific instruments; computer software; telecommunications; and electronic
components, instruments and systems. Such companies are sensitive to foreign
competition and import tariffs. Also, many products produced by companies in
this sector may quickly become obsolete.
13. TRANSPORTATION SECTOR: companies involved in the provision of transportation
of people and products, such as airlines, railroads and trucking firms. Revenues
of companies in this sector will be affected by fluctuations in fuel prices
resulting from domestic and international events, and government regulation of
fares.
14. UTILITIES SECTOR: companies in the public utilities industry and companies
deriving a substantial majority of their revenues through supplying public
utilities such as: companies engaged in the manufacture, production, generation,
transmission and sale of gas and electric energy; and companies engaged in the
communications field, including telephone, telegraph, satellite, microwave and
the provision of other communications facilities to the public. The gas and
electric public utilities industries are subject to various uncertainties,
including the outcome of political issues concerning the environment, price of
fuel for electric generation, availability of natural gas, and risks associated
with the construction and operation of nuclear power facilities.
15. FOREIGN SECTOR: companies whose primary business activity takes place
outside of the Untied States. The securities of foreign companies would be
heavily influenced by the strength of national economies, inflation levels and
the value of the U.S. dollar versus foreign currencies. Investments in the
Foreign Sector will be subject to certain risks not generally associated with
domestic investments. Such investments may be favorably or unfavorably affected
by changes in interest rates, currency exchange rates and exchange control
regulations, and costs may be incurred in connection with conversions
B3
<PAGE> 94
between currencies. In addition, investments in foreign countries could be
affected by less favorable tax provisions, less publicly available information,
less securities regulations, political or social instability, limitations on the
removal of funds or other assets of the Fund, expropriation of assets,
diplomatic developments adverse to U.S. investments and difficulties in
enforcing contractual obligations.
16. ENVIRONMENTAL SECTOR: companies that are engaged in the research,
development, manufacture or distribution of products, processes or services
related to pollution control, waste management or pollution/waste remediation,
or that provide alternative energies such as natural gas, water utilities and
clean renewable fuels such as solar, geothermal and hydropower, various
technologies that make coal burning cleaner, notably scrubbers, emission
monitoring and control equipment, biodegradable products and materials, or new
biotechnological products favoring the environment such as non-chemical
pesticides. These companies may have broadly-diversified business segments or
lines of business, only one or several of which are in the environmental sector.
B4
<PAGE> 95
John Hancock Funds
INDEPENDENCE DIVERSIFIED
CORE EQUITY FUND II
June 30, 1995
<PAGE> 96
John Hancock Funds - John Hancock Independence Diversified Core Equity Fund II
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
- ------------------------------------------------------------------------------
<S> <C>
ASSETS:
Investments at value - Note C:
Common stocks (cost - $82,883,935) $83,693,375
Short-term investments (cost - $1,519,485) 1,519,485
Corporate savings account 120,098
-----------
85,332,958
Receivable for shares sold 42,214
Dividends receivable 113,461
Foreign tax receivable 887
Receivable from John Hancock Advisers, Inc. - Note B 27,618
Deferred organization expenses - Note A 37,880
-----------
Total Assets 85,555,018
-------------------------------------------------
LIABILITIES:
Payable to John Hancock Advisers, Inc.
and affiliates - Note B 58,684
Accounts payable and accrued expenses 29,730
-----------
Total Liabilities 88,414
-------------------------------------------------
NET ASSETS:
Capital paid-in 84,597,361
Accumulated net realized gain on investments 11,947
Net unrealized appreciation of investments 809,440
Undistributed net investment income 47,856
-----------
Net Assets $85,466,604
=================================================
NET ASSET VALUE PER SHARE:
(based on 9,196,707
shares of beneficial interest outstanding - unlimited number
of shares authorized with no par value) $ 9.29
===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 97
John Hancock Funds - John Hancock Independence Diversified Core Equity Fund II
STATEMENT OF OPERATIONS
For the period March 10, 1995 (commencement of operations) to
June 30, 1995 (Unaudited)
<TABLE>
- --------------------------------------------------------------------------------
<S> <C>
Investment Income:
Dividend $136,364
Interest 13,271
--------
149,635
EXPENSES:
Investment management fee - Note B 16,682
Custodian fee 15,094
Registration and filing fees 6,634
Printing 3,140
Organization expense - Note A 2,498
Auditing fee 2,388
Transfer agent fee 1,624
Trustees' fees 1,369
Miscellaneous 589
Legal fees 516
--------
Total Expenses 50,534
Less expenses reimbursable by
John Hancock Advisers, Inc. - Note B (27,618)
--------
Net Expenses 22,916
--------
Net Investment Income 126,719
--------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 11,947
Change in net unrealized appreciation/
depreciation of investments 809,440
--------
Net Realized and Unrealized Gain
on Investments 821,387
--------
Net Increase in Net Assets
Resulting from Operations $948,106
=============================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 98
John Hancock Funds - John Hancock Independence Diversified Core Equity Fund II
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
FOR THE PERIOD
MARCH 10, 1995
(COMMENCEMENT OF
OPERATIONS) TO
JUNE 30, 1995
(UNAUDITED)
-----------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 126,719
Net realized gain on investments 11,947
Change in net unrealized appreciation/depreciation of investments 809,440
------------
Net Increase in Net Assets from Operations 948,106
DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income ($0.0176 per share) (78,863)
------------
FROM FUND SHARE TRANSACTIONS - NET* 84,597,361
NET ASSETS:
Beginning of period --
------------
End of period (including undistributed net investment income of $47,856) $ 85,466,604
============
</TABLE>
*ANALYSIS OF FUND SHARE TRANSACTIONS:
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 10, 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
------------------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Shares sold 9,222,587 $ 84,837,970
Shares issued to shareholders in reinvestment of distributions 8,426 78,863
------------------------------
9,231,013 84,916,833
Less shares repurchased (34,306) (319,472)
------------------------------
Net increase 9,196,707 $ 84,597,361
==============================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 99
John Hancock Funds - John Hancock Independence Diversified Core Equity Fund II
The Fund's Financial Highlights
The following table includes selected data for a share outstanding throughout
the period, total investment return, key ratios and supplemental data.
<TABLE>
<CAPTION>
FOR THE PERIOD MARCH 10, 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
------------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50 (b)
--------------
Net Investment Income 0.03
Net Realized and Unrealized Gain on Investments 0.78
--------------
Total from Investment Operations 0.81
Less Distributions:
Dividends from Net Investment Income (0.02)
--------------
Net Asset Value, End of Period $ 9.29
==============
Total Investment Return at Net Asset Value (d) 9.50% (c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $85,467
Ratio of Expenses to Average Net Assets 0.70% *
Ratio of Adjusted Expenses to Average Net Assets (a) (e) 1.54% *
Ratio of Net Investment Income to Average Net Assets 3.87% *
Ratio of Adjusted Net Investment Income to Average Net Assets (a) (e) 3.03% *
Portfolio Turnover Rate 2%
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the reimbursement, total investment return would have been lower.
(e) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
SEE NOTES TO FINANCIAL HIGHLIGHTS
<PAGE> 100
John Hancock Funds - Independence Diversified Core Equity Fund II
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
COMMON STOCKS
AEROSPACE(1.29%)
Lockheed Martin Corp. 7,200 454,500
Raytheon Co. 8,300 644,287
---------
1,098,787
---------
AUTOMOBILE/TRUCK(1.22%)
Chrysler Corp. 200 9,575
Dana Corp. 18,700 535,287
Eaton Corp. 8,500 494,063
---------
1,038,925
---------
BANKS(5.84%)
Barnett Banks, Inc. 6,800 348,500
Chemical Banking Corp. 15,800 746,550
Citicorp 24,200 1,400,575
First Interstate Bancorp 8,200 658,050
First Union Corp. 7,100 321,275
Fleet Financial Group, Inc. 9,000 334,125
NationsBank Corp. 22,000 1,179,750
---------
4,988,825
---------
BEVERAGES(3.17%)
Anheuser-Busch Cos., Inc. 4,900 278,687
Coca-Cola Co. (The) 13,700 873,375
PepsiCo, Inc 34,200 1,560,375
---------
2,712,437
---------
BIOMEDICS/GENETICS(0.65%)
Amgen, Inc.** 6,900 555,019
---------
BROADCASTING(1.31%)
Walt Disney Co., (The) 20,100 1,118,063
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 101
John Hancock Funds - Independence Diversified Core Equity Fund II
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
BUILDING PRODUCTS(2.38%)
Home Depot, Inc. (The) 21,100 857,187
Weyerhauser Co. 24,900 1,173,413
---------
2,030,600
---------
CHEMICALS(3.26%)
Eastman Chemical Co. 5,600 333,200
Hercules, Inc. 13,300 648,375
Monsanto Co. 3,500 315,437
Morton International, Inc. 21,600 631,800
PPG Industries, Inc. 19,900 855,700
---------
2,784,512
---------
COMPUTERS(3.89%)
Cabletron Systems, Inc.** 200 10,650
Ceridian Corp.** 10,800 398,250
International Business Machines Corp. 25,300 2,428,800
Microsoft Corp.** 5,200 469,950
Tandem Computers, Inc.** 1,100 17,738
---------
3,325,388
---------
COSMETICS & TOILETRIES(0.30%)
Avon Products, Inc. 3,900 261,300
---------
DIVERSIFIED OPERATIONS(9.87%)
AlliedSignal, Inc. 300 13,350
Dial Corp. 8,000 198,000
Du Pont (E.I.) De Nemours & Co. 37,300 2,564,375
General Electric Co. 61,000 3,438,875
Tenneco Inc. 28,100 1,292,600
Textron Inc. 7,400 430,125
Whitman Corp. 25,600 496,000
---------
8,433,325
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 102
John Hancock Funds - Independence Diversified Core Equity Fund II
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
DRUGS (4.20%)
Abbott Laboratories 600 24,300
Bristol-Myers Squibb Co. 27,100 1,846,187
Merck & Co., Inc. 22,800 1,117,200
Schering-Plough Corp. 10,800 476,550
Warner-Lambert Co. 1,500 129,563
---------
3,593,800
---------
ELECTRONICS (6.74%)
Hewlett-Packard Co. 9,900 737,550
Intel Corp. 33,300 2,108,306
Lam Research Corp.** 10,000 640,000
Parker-Hannifin Corp. 43,050 1,560,563
Teradyne, Inc.** 7,500 490,313
Texas Instruments, Inc. 1,700 227,588
---------
5,764,320
---------
FINANCE (3.38%)
American Express Co. 39,600 1,390,950
Dean Witter Discover & Co. 25,100 1,179,700
Equifax, Inc. 3,100 103,463
MBNA Corp. 300 10,125
Ryder System, Inc. 8,500 202,937
---------
2,887,175
---------
FOODS (2.53%)
Archer Daniels Midland Co. 28,300 527,087
Sara Lee Corp. 26,700 760,950
Unilever N.V 6,700 871,838
---------
2,159,875
---------
HEALTHCARE (1.01%)
Columbia/HCA Healthcare Corp. 15,000 648,750
Health Management Associates, Inc. (Class A)** 7,400 216,450
---------
865,200
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 103
John Hancock Funds - Independence Diversified Core Equity Fund II
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
INSURANCE (3.88%)
Aetna Life & Casualty Co. 700 44,012
Allstate Corp. 24,800 734,700
Cigna Corp. 9,600 745,200
Lincoln National Corp. 27,500 1,203,125
Marsh & McLennan Cos., Inc. 4,800 389,400
St. Paul Cos., Inc. 4,000 197,000
---------
3,313,437
---------
MACHINERY (0.74%)
Millipore Corp. 9,400 634,500
---------
MEDICAL/DENTAL (4.04%)
Baxter International, Inc. 17,100 622,013
Johnson & Johnson 24,400 1,650,050
Medtronic Inc. 7,400 570,725
Pfizer, Inc. 6,600 609,675
---------
3,452,463
---------
METALS (1.60%)
Phelps Dodge Corp. 23,200 1,368,800
---------
OFFICE EQUIPMENT & SUPPLIES (1.49%)
Xerox Corp. 10,900 1,278,025
---------
OIL & GAS (9.05%)
Amoco Corp. 23,100 1,539,037
Anadarko Petroleum Corp. 13,700 590,813
Chevron Corp. 11,800 550,175
Exxon Corp. 11,000 776,875
Imperial Oil Ltd 19,500 723,937
Mobil Corp. 18,000 1,728,000
Panhandle Eastern Corp. 21,500 524,063
Phillips Petroleum Co. 39,000 1,301,625
---------
7,734,525
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 104
John Hancock Funds - Independence Diversified Core Equity Fund II
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
PAPER (2.79%)
Georgia Pacific Corp. 4,900 425,075
International Paper Co. 800 68,600
Mead Corp. 20,500 1,217,187
Willamette Industries, Inc. 12,100 671,550
---------
2,382,412
---------
PHOTO EQUIPMENT (0.79%)
Eastman Kodak Co. 11,100 672,937
---------
RETAIL (5.10%)
Albertson's Inc. 26,900 800,275
Gap, Inc. (The) 2,800 97,650
Price/Costco Inc.** 36,300 589,875
Sears, Roebuck & Co. 34,100 2,041,738
Toys "R" Us, Inc.** 400 11,700
Wal-Mart Stores, Inc. 30,700 821,225
---------
4,362,463
---------
RUBBER (0.84%)
Goodyear Tire & Rubber Co. 17,500 721,875
---------
SOAP & CLEANING PREPARATIONS (0.39%)
Proctor & Gamble Co. (The) 4,700 337,813
---------
STEEL (0.48%)
British Steel, PLC, American Depositary Receipt 14,800 410,700
---------
TELECOMMUNICATIONS (4.12%)
AT & T Corp. 49,900 2,650,937
SBC Communications, Inc. 18,200 866,775
---------
3,517,712
---------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 105
John Hancock Funds - Independence Diversified Core Equity Fund II
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
MARKET
ISSUER, DESCRIPTION NUMBER OF SHARES VALUE
- ------------------- ---------------- -----
<S> <C> <C>
TOBACCO (3.47%)
Philip Morris Cos., Inc. 28,900 2,149,437
UST, Inc. 27,400 815,150
----------
2,964,587
----------
TRANSPORTATION (0.75%)
Conrail, Inc. 3,300 183,563
Delta Air Lines, Inc. 100 7,375
UAL Corp.** 3,200 448,800
----------
639,738
----------
UTILITIES (7.35%)
Ameritech Corp. 17,200 756,800
GTE Corp. 53,200 1,815,450
Pacific Gas & Electric Co. 74,500 2,160,500
Peco Energy Co. 9,500 262,437
Unicom Corp. 48,400 1,288,650
----------
6,283,837
----------
TOTAL COMMON STOCKS
(Cost $82,883,935) (97.92%) 83,693,375
====== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 106
John Hancock Funds - Independence Diversified Core Equity Fund II
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
SHORT-TERM INVESTMENTS RATE (000'S OMITTED) VALUE
---------------------- ---- --------------- -----
<S> <C> <C> <C>
SHORT-TERM NOTES (1.78%)
Federal Home Loan Bank, 07-03-95 6.10% 1,520 $1,519,485
-----------
CORPORATE SAVINGS ACCOUNT (0.14%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00% $120,098
-----------
TOTAL SHORT-TERM INVESTMENTS (1.92%) $1,639,583
------ -----------
TOTAL INVESTMENTS (99.84%) $85,332,958
====== ===========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 107
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
(UNAUDITED)
NOTE A -
ACCOUNTING POLICIES
John Hancock Independence Diversified Core Equity Fund II (the "Fund"), a
separate portfolio of John Hancock Institutional Series Trust (the "Trust"), is
an open-end management investment company, registered under the Investment
Company Act of 1940. The Trust organized as a Massachusetts business trust in
1994, consists of eleven series portfolios: the Fund, John Hancock Multi-Sector
Growth Fund, John Hancock Active Bond Fund, John Hancock Dividend Performers
Fund, John Hancock Fundamental Value Fund, John Hancock Global Bond Fund, John
Hancock International Equity Fund, John Hancock Independence Balanced Fund, John
Hancock Independence Growth Fund, John Hancock Independence Medium
Capitalization Fund and John Hancock Independence Value Fund. Prior to
September 12, 1995, John Hancock Multi-Sector Growth Fund was known as John
Hancock Sector Opportunity Fund, John Hancock Active Bond Fund was known as John
Hancock Berkeley Bond Fund, John Hancock Dividend Performers Fund was known as
John Hancock Berkeley Dividend Performers Fund, John Hancock Fundamental Value
Fund was known as John Hancock Berkeley Fundamental Value Fund, John Hancock
Global Bond Fund was known as John Hancock Berkeley Global Bond Fund and John
Hancock International Equity Fund was known as John Hancock Berkeley Overseas
Growth Fund. Each Fund currently has one class of shares with equal rights as
to voting, redemption, dividends and liquidation within their respective Fund.
The Trustees may authorize the creation of additional portfolio's from time to
time to satisfy various investment objectives.
Significant accounting policies of the Fund as are follows:
VALUATION OF INVESTMENTS. Securities in the Fund's portfolio are valued on the
basis of market quotations, valuations provided by independent pricing services
or, a fair value as determined in a good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value.
JOINT REPURCHASE AGREEMENT. Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Fund, along with other registered
investment companies having a management contract with the Adviser may
participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring
that the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS. Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES. The Fund intends to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies. It
is not subject to Federal income tax on taxable earnings which are distributed
to shareholders.
DIVIDENDS, DISTRIBUTIONS AND INTEREST. Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Fund is made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Fund records all distributions to shareholders from net investment
income and realized gains on the ex-divided date. Such distributions are
determined in conformity with income tax regulations, which may differ from
generally accepted accounting principles.
EXPENSES. The majority of the expenses of the Trust are directly identifiable
to an individual Fund. Expenses which are not readily identifiable to a
specific Fund will be allocated in such a manner as deemed equitable, taking
into consideration, among other things, the nature and type of expense and the
relative sizes of the Fund.
<PAGE> 108
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
ORGANIZATION EXPENSE. Expenses incurred in connection with the organization of
the Fund have been capitalized and will be charged to the Fund's operations
ratably over a five-year period that will begin with the commencement of
investment operations of the Fund.
In the event that any of the initial shares are redeemed during the
amortization period, the redemption proceeds will be reduced by a pro rata
portion of the then unamortized organization expense in the same proportion as
the number of the initial shares redeemed bears to the number of the initial
shares outstanding at the time of such redemption.
NOTE B-
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
The Adviser is responsible for managing the Fund's investment business
affairs and overseeing the investment activities of the sub-adviser. The
adviser has a sub-investment management contract with Independence Investment
Associates, Inc. (the "Sub-Adviser"), under which the sub-adviser, subject to
the review of the Trustees and the over-all supervision of the Adviser, provides
the Fund with investment services and advice with respect to investment
transactions. Under the present investment management contract, the Fund pays a
monthly management fee to the Adviser, equivalent on an annual basis of 0.50% of
the Fund's average daily net asset value. The Adviser pays the Sub-Adviser a
monthly management fee, equivalent on an annual basis, of 0.80% of the advisory
fee payable on the Fund's average daily net assets. The Fund is not responsible
for payment of the Sub-Adviser's fee.
In the event normal operating expenses of the Fund, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Fund is registered to sell shares of beneficial interest, the
fee payable to the Adviser will be reduced to the extent of such excess, and the
Adviser will make additional arrangements necessary to eliminate any remaining
excess expenses. The current limits are 2.5% of the first $30,000,000 of the
Fund's average daily net assets, 2.0% of the next $70,000,000 and 1.5% of the
remaining average daily net assets.
The Adviser has agreed to limit Fund expenses further to the extent
required to prevent expenses from exceeding 0.70% of the Fund's average daily
net assets. Accordingly, the reduction in the Adviser's fee amounted to $27,618
for the period ended June 30, 1995. The Adviser reserves the right to terminate
this fee reduction limitation in the future.
The Fund has a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended June
30, 1995, all sales of shares of beneficial interest were sold at net asset
value. The Fund pays all expenses of printing prospectuses and other sales
literature, all fees and expenses in connection with qualification as a dealer
in various states, and all other expenses in connection with the sale and
offering for sale of the shares of the Fund which have not been herein
specifically allocated to the Trust.
The Fund has a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. The Fund pays Investor Services a monthly transfer agent fee
equivalent, on an annual basis, to 0.05% of the Fund's average daily net asset
value, plus out-of-pocket expenses incurred by Investor Services on behalf of
the Fund for proxy mailings.
Messrs. Edward J. Boudreau, Jr., Richard S. Scipione and Thomas W.L.
Cameron are directors and/or officers of the Adviser, and/or its affiliates as
well as Trustees of the Fund. The Adviser or an affiliated party owns 201,739
shares of beneficial interest of the Fund. The compensation of unaffiliated
Trustees is borne by the Fund.
<PAGE> 109
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
NOTE C-
INVESTMENT TRANSACTIONS
Purchases and proceeds from sales of securities, other than obligations of the
U.S. government and its agencies and short-term securities, during the period
ended June 30, 1995, aggregated $83,394,050 and $522,062, respectively. There
were no purchases or sales of the U.S. government and its agencies during the
period ended June 30, 1995.
The cost of investments owned at June 30, 1995, (excluding the corporate
savings account), for Federal income tax purposes was $84,403,420. Gross
unrealized appreciation and depreciation of investments aggregated $1,616,644
and $807,204, respectively, resulting in net unrealized appreciation of
$809,440.
<PAGE> 110
John Hancock Funds
INSTITUTIONAL SERIES
TRUST
Dividend Performers Fund
Active Bond Fund
Global Bond Fund
Multi-Sector Growth Fund
Fundamental Value Fund
International Equity Fund
June 30, 1995
<PAGE> 111
John Hancock Funds - Institutional Series Trust
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDEND ACTIVE
PERFORMERS BOND
ASSETS: FUND FUND
---------- ----------
<S> <C> <C>
Investments at value - Note C:
Common and preferred stocks (cost - $2,521,860 and none, respectively) $2,609,253 --
United States government obligations (cost - $302,641 and none, respectively) 302,141 --
Short-term investments (cost - $249,915 and $1,144,612, respectively) 249,915 $1,144,612
Corporate savings account 6,659 2,911
---------- ----------
3,167,968 1,147,523
Interest receivable 5,587 --
Dividends receivable 4,880 --
Deferred organization expenses - Note A 39,743 39,657
Receivable from John Hancock Advisers, Inc. - Note B 23,896 13,420
---------- ----------
Total Assets 3,242,074 1,200,600
-------------------------------------------------------------------------------------------------------------
LIABILITIES:
Dividend payable -- 172
Payable to John Hancock Advisers, Inc. and affiliates - Note B 46,560 41,899
Accounts payable and accrued expenses 22,721 12,919
---------- ----------
Total Liabilities 69,281 54,990
-------------------------------------------------------------------------------------------------------------
NET ASSETS:
Capital paid-in 3,085,709 1,145,608
Net unrealized appreciation of investments 86,893 --
Undistributed net investment income 191 2
----------
Net Assets $3,172,793 $1,145,610
=============================================================================================================
NET ASSET VALUE PER SHARE
(based on 362,997 and 134,777 shares, respectively, of
beneficial interest outstanding - unlimited number of shares authorized
with no par value) $8.74 $8.50
=============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 112
John Hancock Funds - Institutional Series Trust
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
GLOBAL MULTI - SECTOR
BOND GROWTH
ASSETS: FUND FUND
------- --------------
<S> <C> <C>
Investments at value - Note C:
Common stocks (cost - none and $1,879,348, respectively) -- $1,874,450
Cash $18,080 --
Receivable for investments sold -- 156,840
Dividends receivable -- 239
Deferred organization expenses - Note A 39,833 42,044
Receivable from John Hancock Advisers, Inc. - Note B 13,557 16,618
------- ----------
Total Assets 71,470 2,090,191
------------------------------------------------------------------------------------------------------------
LIABILITIES:
Temporary overdraft of cash -- 78,287
Payable for investments purchased -- 50,742
Payable to John Hancock Advisers, Inc. and affiliates - Note B 41,484 45,337
Accounts payable and accrued expenses 11,928 14,933
------- ----------
Total Liabilities 53,412 189,299
------------------------------------------------------------------------------------------------------------
NET ASSETS:
Capital paid-in 18,058 1,904,857
Accumulated net realized loss on investments and foreign currency transactions -- (5,089)
Net unrealized depreciation of investments -- (4,898)
Accumulated net investment income -- 6,022
------- ----------
Net Assets $18,058 $1,900,892
============================================================================================================
NET ASSET VALUE PER SHARE
(based on 2,125 and 221,744 shares, respectively, of
beneficial interest outstanding - unlimited number of shares authorized
with no par value) $8.50 $8.57
============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 113
John Hancock Funds - Institutional Series Trust
STATEMENT OF ASSETS AND LIABILITIES
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
FUNDAMENTAL INTERNATIONAL
VALUE EQUITY
ASSETS: FUND FUND
----------- -------------
<S> <C> <C>
Investments at value - Note C:
Common stocks (cost - $509,893 and $707,380,respectively) $515,041 $713,306
Short-term investments (cost - $69,976 and $189,936, respectively) 69,976 189,936
Corporate savings account 4,981 --
-------- --------
589,998 903,242
Cash -- 8,991
Interest receivable -- 345
Dividends receivable 959 839
Deferred organization expenses - Note A 40,114 39,657
Receivable from John Hancock Advisers, Inc. - Note B 13,582 18,891
-------- --------
Total Assets 644,653 971,965
--------------------------------------------------------------------------------------------------------------
LIABILITIES:
Foreign tax payable -- 135
Payable for investments purchased 10,564 --
Payable to John Hancock Advisers, Inc. and affiliates - Note B 42,510 43,923
Accounts payable and accrued expenses 12,135 17,086
-------- --------
Total Liabilities 65,209 61,144
NET ASSETS: --------------------------------------------------------------------------------------------------------------
Capital paid-in 574,328 897,364
Accumulated net realized loss on investments and foreign currency transactions -- (19)
Net unrealized appreciation of investments 5,148 5,926
Accumulated net investment income/(Distributions in excess of net investment income) (32) 7,550
-------- --------
Net Assets $579,444 $910,821
==============================================================================================================
NET ASSET VALUE PER SHARE
(based on 67,471 and 105,386 shares, respectively, of
beneficial interest outstanding - unlimited number of shares authorized
with no par value) $8.59 $8.64
==============================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 114
John Hancock Funds - Institutional Series Trust
STATEMENT OF OPERATIONS
Period ended June 30, 1995* (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
GLOBAL MULTI-SECTOR
BOND GROWTH
FUND FUND
-------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 106 $ 7,392
Dividends (net of foreign withholding tax of none and $25, respectively) -- 239
-------- --------
106 7,631
Expenses:
Custodian fee 5,582 6,788
Registration and filing fees 3,418 3,704
Printing 1,186 2,520
Organization expense - Note A 1,635 1,926
Auditing fee 1,709 1,852
Investment management fee - Note B 15 1,287
Transfer agent fee -- 81
Legal fees 13 37
Trustees' fees 9 20
Miscellaneous 11 12
-------- --------
Total Expenses 13,578 18,227
Less Expenses Reimbursable by John Hancock Advisers, Inc. - Note B (13,557) (16,618)
-------- --------
Net Expenses 21 1,609
-----------------------------------------------------------------------------------------------------------
Net Investment Income 85 6,022
-----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments sold -- (8,274)
Net realized gain on foreign currency transactions -- 3,185
Change in net unrealized depreciation of investments -- (4,898)
-------- --------
Net Realized and Unrealized Loss on Investments -- (9,987)
===========================================================================================================
Net Increase (Decrease) in Net Assets Resulting from Operations $ 85 ($3,965)
===========================================================================================================
</TABLE>
* Global Bond Fund and Multi - Sector Growth Fund commenced operations
on April 20, 1995 and April 12, 1995, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 115
John Hancock Funds - Institutional Series Trust
STATEMENT OF OPERATIONS
Period ended June 30, 1995* (Unaudited)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
DIVIDEND ACTIVE
PERFORMERS BOND
FUND FUND
INVESTMENT INCOME: ---------- -------
<S> <C> <C>
Interest $ 24,396 $15,390
Dividends 9,389 --
-------- -------
33,785 15,390
Expenses: -------- -------
Custodian fee 12,269 3,902
Registration and filing fees 5,476 4,107
Investment management fee - Note B 4,346 126
Printing 2,794 2,794
Organization expense - Note A 2,109 2,104
Auditing fee 2,054 2,053
Transfer agent fee 362 13
Miscellaneous 181 23
Legal fees 67 26
Trustees' fees 33 22
-------- -------
Total Expenses 29,691 15,170
Less Expenses Reimbursable by John Hancock Advisers, Inc. - Note B (23,896) (13,420)
-------- -------
Net Expenses 5,795 1,750
-------------------------------------------------------------------------------------------------------------
Net Investment Income 27,990 13,640
-------------------------------------------------------------------------------------------------------------
UNREALIZED GAIN ON INVESTMENTS:
Change in net unrealized appreciation of investments 86,893 --
--------
Net Unrealized Gain on Investments 86,893 --
-------------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $114,883 $13,640
=============================================================================================================
</TABLE>
* Dividend Performers Fund and Active Bond Fund commenced operations on
April 3, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 116
John Hancock Funds - Institutional Series Trust
STATEMENT OF OPERATIONS
Period ended June 30, 1995* (Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
FUNDAMENTAL INTERNATIONAL
VALUE EQUITY
FUND FUND
----------- -------------
<S> <C> <C>
Investment Income:
Interest $ 1,360 $ 3,669
Dividends (net of foreign withholding tax of $62 and $906, respectively) 2,766 6,367
-------- --------
4,126 10,036
-------- --------
Expenses:
Custodian fee 5,315 8,885
Registration and filing fees 3,418 4,107
Printing 1,642 1,973
Organization expense - Note A 1,647 2,104
Auditing fee 1,709 2,053
Investment management fee - Note B 699 2,054
Transfer agent fee 50 108
Legal fees 22 32
Trustees' fees 18 22
Miscellaneous 11 39
-------- --------
Total Expenses 14,531 21,377
Less Expenses Reimbursable by John Hancock Advisers, Inc. - Note B (13,582) (18,891)
-------- --------
Net Expenses 949 2,486
-----------------------------------------------------------------------------------------------------------
Net Investment Income 3,177 7,550
-----------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on foreign currency transactions -- (19)
Change in net unrealized appreciation/depreciation of investments 5,148 5,926
-------- --------
Net Realized and Unrealized Gain on Investments 5,148 5,907
-----------------------------------------------------------------------------------------------------------
Net Increase in Net Assets Resulting from Operations $ 8,325 $ 13,457
===========================================================================================================
</TABLE>
* Fundamental Value Fund and International Equity Fund
commenced operations on April 20, 1995 and April 3, 1995, respectively.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 117
John Hancock Funds - Institutional Series Trust
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
DIVIDEND ACTIVE
PERFORMERS BOND
FUND FUND
-------------- --------------
PERIOD ENDED PERIOD ENDED
JUNE 30, 1995+ JUNE 30, 1995+
INCREASE (DECREASE) IN NET ASSETS: (UNAUDITED) (UNAUDITED)
FROM OPERATIONS: -------------- --------------
<S> <C> <C>
Net investment income $ 27,990 $ 13,640
Change in net unrealized appreciation of investments 86,893 --
---------- ----------
Net Increase in Net Assets Resulting from Operations 114,883 13,640
DISTRIBUTIONS TO SHAREHOLDERS: * ---------- ----------
Dividends from net investment income (27,799) (13,638)
---------- ----------
FROM PORTFOLIO SHARE TRANSACTIONS: **
Shares sold 3,278,384 1,152,247
Shares issued to shareholders in reinvestment of distributions 27,799 13,465
---------- ----------
3,306,183 1,165,712
Less shares repurchased (220,474) (20,104)
---------- ----------
Net Increase 3,085,709 1,145,608
---------- ----------
NET ASSETS:
Beginning of period -- --
End of period (including undistributed net investment income of ---------- ----------
$191 and $2, respectively) $3,172,793 $1,145,610
================================
* DISTRIBUTIONS TO SHAREHOLDERS:
Per share dividends from net investment income $0.0773 $0.1107
---------- ----------
** ANALYSIS OF PORTFOLIO SHARE TRANSACTIONS:
Shares sold 384,933 135,558
Shares issued to shareholders in reinvestment of distributions 3,173 1,584
---------- ----------
388,106 137,142
Less shares repurchased (25,109) (2,365)
---------- ----------
Net increase 362,997 134,777
================================
</TABLE>
+ Dividend Performers Fund and Active Bond Fund commenced operations on
April 3, 1995.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 118
John Hancock Funds - Institutional Series Trust
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GLOBAL MULTI-SECTOR
BOND GROWTH
FUND FUND
-------------- --------------
PERIOD ENDED PERIOD ENDED
JUNE 30, 1995+ JUNE 30, 1995+
(UNAUDITED) (UNAUDITED)
INCREASE (DECREASE) IN NET ASSETS: -------------- --------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income $ 85 $ 6,022
Net realized loss on investments sold and foreign currency transaction -- (5,089)
Change in net unrealized appreciation/depreciation of investments -- (4,898)
------- ----------
Net Increase (Decrease) in Net Assets Resulting from Operations 85 (3,965)
------- ----------
DISTRIBUTIONS TO SHAREHOLDERS: *
Dividends from net investment income (85) --
------- ----------
FROM PORTFOLIO SHARE TRANSACTIONS: **
Shares sold 17,973 1,829,479
Shares issued to shareholders in reinvestment of distributions 85 --
------- ----------
18,058 1,829,479
Less shares repurchased -- (24,622)
Initial Investment by John Hancock Advisers, Inc. - Note A -- 100,000
------- ----------
Net Increase 18,058 1,904,857
------- ----------
NET ASSETS:
Beginning of period -- --
End of period (including accumulated net investment income of ------- ----------
none and $6,022, respectively) $18,058 $1,900,892
=========================
* DISTRIBUTIONS TO SHAREHOLDERS:
Per share dividends from net investment income $0.0685 --
------- ----------
** ANALYSIS OF PORTFOLIO SHARE TRANSACTIONS:
Shares sold 2,115 212,865
Shares issued to shareholders in reinvestment of distributions 10 --
------- ----------
2,125 212,865
Less shares repurchased -- (2,886)
Initial Investment by John Hancock Advisers, Inc. - Note A -- 11,765
------- ----------
Net increase 2,125 221,744
=========================
+ Global Bond Fund and Multi-Sector Growth Fund commenced operations
on April 20, 1995 and April 12, 1995, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 119
John Hancock Funds - Institutional Series Trust
STATEMENT OF CHANGES IN NET ASSETS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FUNDAMENTAL INTERNATIONAL
VALUE EQUITY
FUND FUND
-------------- --------------
PERIOD ENDED PERIOD ENDED
JUNE 30, 1995+ JUNE 30, 1995+
(UNAUDITED) (UNAUDITED)
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS:
Net investment income $ 3,177 $ 7,550
Net realized loss on investments sold and foreign currency transactions -- (19)
Change in net unrealized appreciation/depreciation of investments 5,148 5,926
-------- --------
Net Increase in Net Assets Resulting from Operations 8,325 13,457
Distributions to Shareholders: * -------- --------
Dividends from net investment income (3,209) --
-------- --------
FROM PORTFOLIO SHARE TRANSACTIONS: **
Shares sold 571,119 908,394
Shares issued to shareholders in reinvestment of distributions 3,209 --
-------- --------
574,328 908,394
Less shares repurchased -- (11,030)
-------- --------
Net Increase 574,328 897,364
-------- --------
NET ASSETS:
Beginning of period -- --
-------- --------
End of period (including distributions in excess of net investment income
and accumulated net investment income of ($32) and $7,550, respectively $579,444 $910,821
===============================
* DISTRIBUTIONS TO SHAREHOLDERS:
Per share dividends from net investment income $0.0480 --
-------- --------
** ANALYSIS OF PORTFOLIO SHARE TRANSACTIONS:
Shares sold 67,098 106,632
Shares issued to shareholders in reinvestment of distributions 373 --
-------- --------
67,471 106,632
Less shares repurchased -- (1,246)
-------- --------
Net increase 67,471 105,386
==============================
+ Fundamental Value Fund and International Equity Fund
commenced operations on April 20, 1995 and April 3, 1995, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 120
John Hancock Funds - John Hancock Dividend Performers Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 3, 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50 (b)
------
Net Investment Income 0.08
Net Unrealized Gain on Investments 0.24
------
Total from Investment Operations 0.32
------
Less Distributions:
Dividends from Net Investment Income (0.08)
------
Net Asset Value, End of Period $ 8.74
======
Total Investment Return at Net Asset Value (d) 3.73% (c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $3,173
Ratio of Expenses to Average Net Assets 0.80% *
Ratio of Adjusted Expenses to Average Net Assets (a)(e) 4.10% *
Ratio of Net Investment Income to Average Net Assets 3.86% *
Ratio of Adjusted Net Investment Income to Average Net Assets (a)(e) 0.56% *
Portfolio Turnover Rate 0%
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the reimbursement, total investment return would have been lower.
(e) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets are expected to increase as the net assets of the Fund grow.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 121
John Hancock Funds - John Hancock Active Bond Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 3, 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $ 8.50 (b)
------
Net Investment Income 0.11
------
Less Distributions:
Dividends from Net Investment Income (0.11)
------
Net Asset Value, End of Period $ 8.50
======
Total Investment Return at Net Asset Value (d) 1.29% (c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $1,146
Ratio of Expenses to Average Net Assets 0.70% *
Ratio of Adjusted Expenses to Average Net Assets (a)(e) 6.04% *
Ratio of Net Investment Income to Average Net Assets 5.43% *
Ratio of Adjusted Net Investment Income to Average Net Assets (a)(e) 0.09% *
Portfolio Turnover Rate 0%
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the reimbursement, total investment return would have been lower.
(e) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets are expected to increase as the net assets of the Fund grow.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 122
John Hancock Funds - John Hancock Global Bond Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 20, 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
-----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $8.50 (b)
-----
Net Investment Income 0.07
-----
Less Distributions:
Dividends from Net Investment Income (0.07)
-----
Net Asset Value, End of Period $8.50
=====
Total Investment Return at Net Asset Value (d) 0.81% (c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $18
Ratio of Expenses to Average Net Assets 1.10% *
Ratio of Adjusted Expenses to Average Net Assets (a)(e) N/M *
Ratio of Net Investment Income to Average Net Assets 4.28% *
Ratio of Adjusted Net Investment Income to Average Net Assets (a)(e) N/M *
Portfolio Turnover Rate 0%
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the reimbursement, total investment return would have been lower.
(e) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
NM - Not Meaningful
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 123
John Hancock Funds - John Hancock Multi-Sector Growth Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 12, 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
-----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $8.50 (b)
-----
Net Investment Income 0.03
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions 0.04
-----
Total from Investment Operations 0.07
-----
-----
Net Asset Value, End of Period $8.57
=====
Total Investment Return at Net Asset Value (d) 0.82% (c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $1,901
Ratio of Expenses to Average Net Assets 1.00% *
Ratio of Adjusted Expenses to Average Net Assets (a)(e) 11.33% *
Ratio of Net Investment Income to Average Net Assets 3.74% *
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(e) (6.59%)*
Portfolio Turnover Rate 9%
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the reimbursement, total investment return would have been lower.
(e) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 124
John Hancock Funds - John Hancock Fundamental Value Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 20, 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
-----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $8.50 (b)
-----
Net Investment Income 0.05
Net Unrealized Gain on Investments 0.09
-----
Total from Investment Operations 0.14
-----
Less Distributions:
Dividends from Net Investment Income (0.05)
-----
Net Asset Value, End of Period $8.59
=====
Total Investment Return at Net Asset Value (d) 1.62% (c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $579
Ratio of Expenses to Average Net Assets ** 0.95% *
Ratio of Adjusted Expenses to Average Net Assets (a)(e) 14.54% *
Ratio of Net Investment Income to Average Net Assets 3.18% *
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(e) (10.41%)*
Portfolio Turnover Rate 0%
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the reimbursement, total investment return would have been lower.
(e) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 125
John Hancock Funds - John Hancock International Equity Fund
Financial Highlights
Selected data for a share of beneficial interest outstanding throughout the
period indicated, investment returns, key ratios and supplemental data are
listed as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD APRIL 3, 1995
(COMMENCEMENT OF OPERATIONS)
TO JUNE 30, 1995
(UNAUDITED)
----------------------------
<S> <C>
Per Share Operating Performance
Net Asset Value, Beginning of Period $8.50 (b)
-----
Net Investment Income 0.08 (e)
Net Realized and Unrealized Gain on Investments
and Foreign Currency Transactions 0.06
-----
Total from Investment Operations 0.14
-----
Net Asset Value, End of Period $8.64
=====
Total Investment Return at Net Asset Value (d) 1.65% (c)
Ratios and Supplemental Data
Net Assets, End of Period (000's omitted) $911
Ratio of Expenses to Average Net Assets ** 1.15% *
Ratio of Adjusted Expenses to Average Net Assets (a)(f) 8.74% *
Ratio of Net Investment Income to Average Net Assets 3.49% *
Ratio of Adjusted Net Investment Loss to Average Net Assets (a)(f) (5.25%)*
Portfolio Turnover Rate 0%
</TABLE>
* On an annualized basis.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) Without the reimbursement, total investment return would have been lower.
(e) On average month end shares outstanding.
(f) Adjusted expenses as a percentage of average net assets are expected to
decrease and adjusted net investment income as a percentage of average net
assets is expected to increase as the net assets of the Fund grow.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 126
John Hancock Mutual Funds - Dividend Performers Fund
Schedule of Investments
June 30, 1995
(Unaudited)
The Schedule of Investments is a complete list of all securities owned by
Dividend Performers Fund on June 30, 1995. Its divided into four main
categories: common stocks, preferred stocks, U.S. government obligations and
short-term investments. The common stocks are further broken down by industry
groups. Short-term investments, which represent the Fund's "cash" position, are
listed last.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES COMMON STOCKS (81.14%) VALUE
- --------- --------
<S> <C> <C>
BANKS (6.41%)
1,000 First Tennessee National Corp. @ 46 3/8 $ 46,375
Tennessee-based bank holding company
1,000 First Union Corp. @ 45 1/4 45,250
North Carolina-based bank holding company
1,000 KeyCorp. @ 31 3/8 31,375
Multi-regional bank holding company
1,500 NationsBank Corp. @ 53 5/8 80,438
Largest superregional bank in the Southeast
--------
203,438
--------
BASIC INDUSTRY (1.47%)
1,890 Sonoco Products Corp. @ 24 3/4 46,778
--------
Containers, paper products and packaging
CHEMICALS (6.44%)
1,000 Air Products & Chemicals, Inc. @ 55 3/4 55,750
Producer of industrial and specialty chemicals and gases
2,000 Crompton & Knowles Corp. @ 14 1/8 28,250
Produces and markets specialty chemicals
500 E.I. du Pont de Nemours and Co. @ 68 3/4 34,375
Nation's largest chemical manufacturer
2,000 PPG Industries, Inc. @ 43 86,000
Manufacturer of specialty chemicals, coatings and resins
--------
204,375
--------
COMPUTER & OFFICE EQUIPMENT (1.51%)
600 Alco Standard Corp. @ 79 7/8 47,925
--------
Distributor of office and paper products
CONSUMER CYCLICALS & SERVICES (5.42%)
1,000 Albertson's, Inc. @ 29 3/4 29,750
Idaho-based operator of supermarkets and combination food-drug stores
3,000 Sysco Corp. @ 29 1/2 88,500
Largest distributor of food service products
1,000 V.F. Corp. @ 53 3/4 53,750
International apparel manufacturer
--------
172,000
--------
CONSUMER DURABLES (1.39%)
1,000 Leggett & Platt, Inc. @ 44 44,000
Produces intermediate products for the home furnishings industry
--------
CONSUMER NON-DURABLES (11.41%)
1,000 Anheuser-Busch Cos., Inc. @ 56 7/8 56,875
Nation's largest brewer
1,000 Campbell Soup Co. @ 49 49,000
Leading food manufacturer and distributor
2,000 PepsiCo, Inc. @ 45 5/8 91,250
Second largest soft drink company
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 127
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES COMMON STOCKS (81.14%) VALUE
- --------- --------
<S> <C> <C>
1,500 Procter & Gamble Co. (The) @ 71 7/8 107,812
Leading producer of household consumer products
2,000 Sara Lee Corp. @ 28 1/2 57,000
Manufacturer of brand name packaged food and consumer products
--------
361,937
--------
DIVERSIFIED OPERATIONS (2.84%)
1,000 Corning Inc. @ 32 3/4 32,750
Operations are in laboratory services, fiber optics, specialty materials and consumer products
1,000 Minnesota Mining & Manufacturing Co. @ 57 1/4 57,250
--------
Diversified manufacturer of industrial, commercial, health care and consumer products 90,000
--------
ELECTRICAL EQUIPMENT (8.62%)
1,000 AMP Inc. @ 42 1/4 42,250
Produces and sells electrical/electronic products and systems
1,000 Emerson Electric Co. @ 71 1/2 71,500
Produces and sells electrical/electronic products and systems
2,000 General Electric Co. @ 56 3/8 112,750
Dominant force in home appliances, electrical power, and financial services
800 W.W. Grainger, Inc. @ 58 3/4 47,000
Dominant force in home appliances, electrical power, and financial services
--------
273,500
--------
ENERGY (1.78%)
800 Exxon Corp. @ 70 5/8 56,500
Major factor in the crude oil, natural gas and chemical industry
--------
HEALTHCARE (6.87%)
2,000 Abbott Laboratories @ 40 1/2 81,000
Major pharmaceutical and healthcare firm
1,300 Johnson & Johnson @ 67 5/8 87,912
Major producer of prescription and non-prescription drugs, toiletries, medical instruments
and supplies
1,000 Merck & Co., Inc. @ 49 49,000
World's largest ethical drug manufacturer
--------
217,912
--------
INSURANCE (1.20%)
1,000 Reliastar Financial Corp. @ 38 1/4 38,250
Financial services company engaged in life/health insurance and consumer finance
--------
MEDIA AND INFORMATION SERVICES (2.76%)
1,000 Interpublic Group Inc. @ 37 1/2 37,500
One of the largest advertising agencies in the world
1,000 Reuters Holdings PLC ADR @ 50 1/8 50,125
Electronic publisher of worldwide news, market information and trading systems
--------
87,625
--------
METALS - STEEL (1.69%)
1,000 Nucor Corp. @ 53 1/2 53,500
Nation's fifth largest steelmaker in the U.S.
--------
POLLUTION CONTROL (1.79%)
2,000 WMX Technologies Inc. @ 28 3/8 56,750
Nation's largest provider of waste management services
--------
RETAIL (5.53%)
1,000 May Department Stores Co. (The) @ 41 5/8 41,625
Operates 318 department stores and 3,295 shoe stores
2,000 Pep Boys (The) - Manny, Moe & Jack @ 26 3/4 53,500
Retailer of automotive parts and accessories
3,000 Wal-Mart Stores, Inc. @ 26 3/4 80,250
Operates chain of discount department stores
--------
175,375
--------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 128
<TABLE>
<CAPTION>
NUMBER MARKET
OF SHARES COMMON STOCKS (81.14%) VALUE
- --------- ----------
<S> <C> <C>
TECHNOLOGY (1.98%)
1,000 Automatic Data Processing, Inc. @ 62 7/8 62,875
Largest independent computing services firm in the U.S.
----------
TELECOMMUNICATIONS (6.16%)
1,500 ALLTEL Corp. @ 25 3/8 38,063
One of the country's largest telephone systems
700 Bell Atlantic Corp. @ 56 39,200
Provides telephone services in Mid-Atlantic states
3,500 Frontier Corp. @ 24 84,000
Provides telephone service to the city of Rochester N.Y. and outlying areas
1,000 GTE Corp. @ 34 1/8 34,125
Largest independent local telephone holding company
----------
195,388
----------
TOBACCO (2.81%)
800 Philip Morris Cos., Inc. @ 74 3/8 59,500
Global tobacco, brewing and food company
1,000 UST Inc. @ 29 3/4 29,750
Leading producer of smokeless tobacco
----------
89,250
----------
UTILITIES (3.06%)
1,000 Florida Progress Corp. @ 31 1/4 31,250
Holding Company for Florida Power electric utility services
1,000 National Fuel Gas Co. @ 28 5/8 28,625
Integrated natural gas system serving New York, Pennsylvania and Ohio
1,000 Union Electric Co. @ 37 1/4 37,250
Largest electric utility in Missouri
----------
97,125
----------
TOTAL COMMON STOCKS
(Cost $2,488,040) 2,574,503
----------
PREFERRED STOCKS (1.10%)
1,000 Sprint Corp. 8.25% Conv Pfd @ 34 3/4 34,750
----------
TOTAL PREFERRED STOCKS
(Cost $33,820) 34,750
----------
</TABLE>
<TABLE>
<CAPTION>
PAR VALUE
(000's
OMITTED) UNITED STATES GOVERNMENT OBLIGATIONS (9.52%)
- ----------
<S> <C> <C> <C>
100 United States Treasury, Note 7.875%, 02-15-96 @ 101.250 101,250
100 United States Treasury, Note 6.00%, 06-30-96 @ 100.250 100,250
100 United States Treasury, Note 6.25%, 01-31-97 @ 100.641 100,641
----------
TOTAL UNITED STATES GOVERNMENT OBLIGATIONS
(Cost $302,641) 302,141
----------
SHORT-TERM INVESTMENTS (8.09%)
SHORT-TERM NOTES (7.88%)
250 Federal Home Loan Bank, 6.10% 07/03/1995 249,915
----------
TOTAL SHORT-TERM NOTES 249,915
----------
CORPORATE SAVINGS ACCOUNT ( 0.21%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00% 6,659
----------
TOTAL SHORT-TERM INVESTMENTS 256,574
----------
TOTAL INVESTMENTS (99.85%) $3,167,968
====== ==========
</TABLE>
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE> 129
John Hancock Funds - Active Bond Fund
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
<TABLE>
<CAPTION>
Par Value
Interest (000`s Market
Issuer - Description Rate Omitted) Value
- -------------------- -------- --------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
GOVERNMENTAL U.S. (1.18%)
Federal Home Loan Bank, Due 07-03-95 6.10% $1,145 $1,144,612
----------
CORPORATE SAVINGS ACCOUNT (0.00%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00% 2,911
----------
TOTAL SHORT-TERM INVESTMENTS (100.15%) 1,147,523
------- ----------
TOTAL INVESTMENTS (100.15%) $1,147,523
------- ==========
</TABLE>
NOTES TO THE SCHEDULE OF INVESTMENTS
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
See notes to financial statements.
<PAGE> 130
JOHN HANCOCK FUNDS - MULTI-SECTOR GROWTH FUND
SCHEDULE OF INVESTMENTS
June 30, 1995 (Unaudited)
The Schedule of Investments is a complete list of all securities owned by
Multi-Sector Growth Fund on June 30, 1995. Its divided into one main category:
common stocks. The common stocks are further broken down by industry groups.
<TABLE>
<CAPTION>
NUMBER MARKET
ISSUER, DESCRIPTION OF SHARES VALUE
- ------------------- --------- --------
<S> <C> <C>
COMMON STOCKS
BROADCASTING (11.99%)
Infinity Broadcasting Corp. (Class A)* 3,500 $116,812
Lin Television Corp.* 1,500 50,437
New World Communications Group, Inc.* 500 10,438
Renaissance Communications Corp.* 1,500 50,250
--------
227,937
--------
COMPUTERS (25.20%)
BMC Software, Inc.* 1,500 115,875
Computer Associates International, Inc. 1,500 101,625
Microsoft Corp.* 1,500 135,562
Seagate Technology, Inc.* 1,500 58,875
3Com Corp.* 1,000 67,000
--------
478,937
--------
DIVERSIFIED OPERATIONS (5.52%)
CUC International Inc.* 2,500 105,000
--------
ELECTRICAL (4.69%)
Integrated Device Technology, Inc.* 500 23,125
Linear Technology Corp. 1,000 66,000
--------
89,125
--------
ELECTRONICS (4.52%)
Helix Technology Corp. 2,000 86,000
--------
HEALTHCARE (6.83%)
American Oncology Resources, Inc.* 500 13,875
HealthCare COMPARE Corp.* 1,000 30,000
Rotech Medical Corp.* 500 13,875
RTW, Inc.* 500 9,125
Vencor, Inc.* 2,000 63,000
--------
129,875
--------
LEISURE & RECREATION (4.39%)
Walt Disney Co., (The) 1,500 83,437
--------
MACHINERY-PRINTING TRADE (0.53%)
Indigo N.V. (Netherlands)* 200 10,000
--------
MEDICAL (8.72%)
Boston Scientific Corp.* 3,000 95,625
Community Health Systems, Inc.* 1,500 50,812
STAAR Surgical Co.* 2,300 19,263
--------
165,700
--------
Metals (3.76%)
Battle Mountain Gold Co. 1,000 9,625
Hemlo Gold Mines, Inc. 1,500 15,938
Kinross Gold Corp. (Canada)* 4,500 33,750
Santa Fe Pacific Gold Corp. 1,000 12,125
--------
71,438
--------
</TABLE>
See notes to financial statements
<PAGE> 131
John Hancock Mutual Funds - Multi-Sector Growth Fund
<TABLE>
<CAPTION>
NUMBER MARKET
ISSUER, DESCRIPTION OF SHARES VALUE
- ------------------- --------- ----------
<S> <C> <C>
Oil & Gas (8.47%)
Benton Oil & Gas Co.* 3,500 $ 48,563
Coflexip, American Depositary Receipts (ADR) (France) 500 12,688
Nabors Industries, Inc.* 4,000 33,000
Petroleum Geo-Services AS (ADR) (Norway)* 1,000 28,750
Pride Petroleum Services, Inc.* 3,000 22,500
Seitel Inc.* 500 15,500
----------
161,001
----------
Pollution Control (1.91%)
Tetra Technologies, Inc.* 3,000 36,375
----------
Publishing (1.39%)
Houghton Mifflin Co. 500 26,375
----------
Telecommunications (9.22%)
America Online, Inc.* 3,000 132,000
Cascade Communications Corp.* 1,000 43,250
----------
175,250
----------
Textile-Apparel Manufacturing (1.47%)
Tommy Hilfiger Corp.* 1,000 28,000
----------
TOTAL COMMON STOCKS
(COST $1,879,348) (98.61%) 1,874,450
------ ----------
TOTAL INVESTMENTS (98.61%) $1,874,450
====== ==========
</TABLE>
* Non-income producing security.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
Portfolio Concentration
The Multi-Sector Growth Fund invests primarily in securities issued in the
United States of America. The performance of the Fund is closely tied to the
economic and financial conditions within the countries in which it invests. The
concentration of investments by industry category for individual securities held
by the Fund is shown in the Schedule of Investments. In Addition, concentration
of investments can be aggregated by various countries. The table below shows the
percentages of the Fund's investments at June 30, 1995 assigned to country
categories.
<TABLE>
<CAPTION>
MARKET VALUE AS A
PERCENTAGE OF
COUNTRY DIVERSIFICATION FUND'S NET ASSETS
- ----------------------- -----------------
<S> <C>
Canada 1.77%
France 0.67
Netherlands 0.53
Norway 1.51
United States 94.13
-----
TOTAL INVESTMENTS 98.61%
=====
</TABLE>
See notes to financial statements
<PAGE> 132
John Hancock Funds - Fundamental Value Fund
Schedule of Investments
June 30, 1995
(Unaudited)
The Schedule of Investments is a complete list of all securities owned by the
Fundamental Value Fund on June 30, 1995. It's divided into two main categories:
common stocks and short-term investments. Common stocks are further broken down
by industry groups. Short-term investments, which represent the Fund's "cash"
position are listed last.
<TABLE>
<CAPTION>
MARKET
ISSUER,DESCRIPTION NUMBER OF SHARES VALUE
- ------------------ ---------------- ------
<S> <C> <C>
COMMMON STOCKS
AIRCRAFT (9.02%)
Boeing Co. (The) 400 $ 25,050
Thiokol Corp. 900 27,225
--------
52,275
--------
BEVERAGES (4.24%)
Coors (Adolph) Co. 1,500 24,563
--------
DIVERSIFIED OPERATIONS (9.28%)
Hanson PLC, American Depositary Receipts 1,500 26,437
Tejon Ranch 1,900 26,363
U. S. Industries, Inc.* 70 954
--------
53,754
--------
FOODS (9.02%)
Archer-Daniels-Midland Co. 1,400 26,075
Dole Food Co. 900 26,212
--------
52,287
--------
LEISURE & RECREATION (9.53%)
Outboard Marine Corp. 1,400 27,475
Russ Berrie & Co. Inc. 2,000 27,750
--------
55,225
--------
MACHINERY (5.38%)
Harnischfeger Industries, Inc. 900 31,163
--------
OIL & GAS ( 5.17%)
Parker Drilling Co.* 5,700 29,925
--------
PAPER (4.86%)
Glatfelter (P.H.) Co. 1,400 28,175
--------
POLLUTION CONTROL (4.60%)
Calgon Carbon Corp. 2,200 26,675
--------
PUBLISHING (5.36%)
Times Mirror Co. (The) Class A 1,300 31,038
--------
RETAIL (4.56%)
Great Atlantic & Pacific Tea Co., Inc. (The) 1,000 26,375
--------
SHOES (4.71%)
Brown Group, Inc. 1,200 27,300
--------
TEXTILE (8.15%)
Delta Woodside Industries, Inc. 2,900 22,111
Garan Inc. 1,500 25,125
--------
47,236
--------
TRANSPORTATION - SHIP (5.01%)
Overseas Shipholding Group, Inc. 1,400 29,050
--------
TOTAL COMMON STOCKS (88.89%) $515,041
-------- --------
(Cost $509,893)
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 133
John Hancock Funds - Fundamental Value Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE MARKET
RATE (000'S OMITTED) VALUE
-------- --------------- ------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
SHORT TERM NOTES (12.07%)
Federal Home Loan Bank, 07-03-95 6.10% 70 $ 69,976
--------
CORPORATE SAVINGS ACCOUNT (0.86%)
Investors Bank & Trust Company
Daily Interest Savings Account
Current Rate 3.00% 4,981
--------
TOTAL SHORT-TERM INVESTMENTS ( 12.93%) 74,957
--------- ---------
TOTAL INVESTMENTS (101.82%) $589,998
--------- =========
</TABLE>
* Non-income producing security
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
SEE NOTES TO FINANCIAL STATEMENTS
<PAGE> 134
John Hancock Funds - International Equity Fund
Schedule of Investments
June 30, 1995 (Unaudited)
The Schedule of Investments is a complete list of all securities owned by the
International Equity Fund on June 30, 1995. It's divided into two main
categories: common stocks and short-term investments. Common stocks are further
broken down by country. Under each country heading is a list of the securities
owned by the Fund. Short-term investments, which represent the Fund's "cash"
position, are listed last.
<TABLE>
<CAPTION>
ISSUER,DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------ ---------------- ------------
<S> <C> <C>
COMMON STOCKS
Australia (6.73%)
Broken Hill Proprietary Co., Ltd.
(Diversified Operations) 1,210 $ 14,896
BTR Nylex Ltd. (Diversified Operations) 7,700 14,722
News Corp. Ltd. (The) (Publishing) 3,100 17,319
Western Mining Corp. Holdings Ltd.
(Metal Processing & Products) 2,600 14,322
--------
61,259
--------
Chile (2.05%)
Madeco, SA, American Depositary Receipts
(ADR) (Metal Processing & Products) 650 18,687
--------
France (6.00%)
Banque Nationale de Paris (Banks) 280 13,506
LVMH Moet Henessey Louis Vuitton (Beverages) 75 13,496
Lyonnaise Des Eaux Dumez (Diversified Operations) 150 14,186
Renault SA (Automobile/Trucks)* 430 13,473
--------
54,661
--------
Germany (3.43%)
Bayerische Motoren Werke AG (Automobile/Trucks) 29 15,958
Mannesmann AG (Diversified Operations) 50 15,276
--------
31,234
--------
Hong Kong (7.14%)
CITIC Pacific Ltd. (Diversified Operations) 6,000 15,082
HSBC Holdings Ltd. (Banks) 1,200 15,392
Hutchison Whampoa Ltd. (Diversified Operations) 4,000 19,334
Swire Pacific Ltd. (Diversified Operations) 2,000 15,250
--------
65,058
--------
Japan (14.10%)
Daido Steel Co., Ltd. (Steel) 3,000 14,158
Denki Kagaku Kogyo K.K. (Chemicals)* 4,000 13,309
Fujisawa Pharmaceutical Co., Ltd. (Drugs) 1,000 10,477
Jusco Co., Ltd. (Retail) 1,000 20,766
Matsushita Electric Industrial Co., Ltd. (Electronics) 1,000 15,574
NKK Corp. (Steel)* 6,000 14,088
Seino Transportation Co., Ltd. (Transportation) 1,000 16,872
Sumitomo Osaka Cement Co., Ltd. (Building Products) 3,000 11,008
Sumitomo Trust & Banking Co., Ltd. (The) (Banks) 1,000 12,153
--------
128,405
--------
</TABLE>
See notes to financial statements
<PAGE> 135
John Hancock Funds - International Equity Fund
<TABLE>
<CAPTION>
ISSUER,DESCRIPTION NUMBER OF SHARES MARKET VALUE
- ------------------ ---------------- ------------
<S> <C> <C>
Malaysia (2.65%)
Aokam Perdana Berhad (Building Products) 3,000 $ 7,445
Land & General Berhad (Diversified Operations) 5,000 16,714
--------
24,159
--------
Mexico (1.63%)
Telefonos de Mexico S.A. de C.V. (ADR)
(Telecommunications) 500 14,812
--------
Netherlands (3.40%)
Koninklijke P.T.T. Nederland (Telecommunications) 425 15,277
Polygram N.V. (Audio/Video) 265 15,649
--------
30,926
--------
New Zealand (1.69%)
Carter Holt Harvey Ltd. (Paper) 6,300 15,416
--------
Norway (3.36%)
Den norske Bank AS (Banks) 5,500 14,901
Orkla AS (Diversified Operations) 350 15,671
--------
30,572
--------
Philippines (1.95%)
San Miguel Corp. (Beverages) 4,290 17,805
--------
Singapore (6.26%)
Fraser & Neave Ltd. (Diversified Operations) 2,000 23,041
Jardine Matheson Holdings Ltd. (Diversified Operations) 2,400 17,640
Keppel Corp. (Diversified Operations) 2,000 16,315
--------
56,996
--------
Spain (1.73%)
Repsol SA (Oil & Gas) 500 15,728
--------
Sweden (3.75%)
Investor AB (Diversified Operations) 550 15,858
Telefonaktiebolaget (LM) Ericsson
(Telecommunications) 920 18,316
--------
34,174
--------
Switzerland (5.25%)
BBC Brown Boveri AG (Engineering) 80 16,049
Ciba-Geigy AG (Drugs) 22 16,125
Nestle S.A. (Food) 15 15,619
--------
47,793
--------
United Kingdom (7.20%)
Carlton Communications PLC (Broadcasting) 1,000 15,148
Reed International PLC (Publishing) 1,170 16,430
Smithkline Beecham (Drugs) 1,840 16,650
Thorn EMI PLC (Leisure & Recreation) 840 17,393
--------
65,621
--------
TOTAL COMMON STOCKS
(Cost $707,380) (78.32%) 713,306
-------- --------
</TABLE>
See notes to financial statements
<PAGE> 136
John Hancock Funds - International Equity Fund
<TABLE>
<CAPTION>
INTEREST PAR VALUE
ISSUER,DESCRIPTION RATE (000'S OMITTED) MARKET VALUE
- ------------------ -------- --------------- ------------
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS
Short-Term Notes (20.85%)
Federal Home Loan Bank, 07-03-95 6.10% 190 $189,936
-------- --------
TOTAL SHORT-TERM INVESTMENTS (20.85%) 189,936
-------- --------
TOTAL INVESTMENTS (99.17%) $903,242
======== ========
</TABLE>
* Non-income producing security.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Industry Diversification
...............................................................................
The Fund primarily invests in securities issued by companies of other
countries. The performance of the Fund is closely tied to the economic
conditions within the countries it invests. The concentration of investments by
country for individual securities held by the Fund is shown in the schedule of
investments. In addition, the concentration of investments can be aggregated by
various industry groups. The table below shows the percentages of the Fund's
Investments at June 30, 1995 assigned to the various investment categories.
<TABLE>
<CAPTION>
MARKET VALUE OF
SECURITIES AS A
INVESTMENT CATEGORIES % OF NET ASSETS
- --------------------- ---------------
<S> <C>
Audio/Video 1.72
Automobile/Trucks 3.23
Banks 6.14
Beverages 3.44
Broadcasting 1.66
Building Products 2.03
Chemicals 1.46
Diversified Operations 23.49
Drugs 4.75
Electronics 1.71
Engineering 1.76
Food 1.72
Leisure & Recreation 1.91
Metal Processing & Products 3.62
Oil & Gas 1.73
Paper 1.69
Publishing 3.71
Retail 2.28
Steel 3.10
Telecommunications 5.32
Transportation 1.85
Short-Term Investments 20.85
-----
TOTAL INVESTMENTS 99.17%
=====
</TABLE>
See notes to financial statements
<PAGE> 137
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
NOTE A -
ACCOUNTING POLICIES
(UNAUDITED)
John Hancock Dividend Performers Fund ("Dividend Performers Fund"), John Hancock
Active Bond Fund ("Active Bond Fund"), John Hancock Global Bond Fund ("Global
Bond Fund"), John Hancock Multi-Sector Growth Fund ("Multi-Sector Growth Fund"),
John Hancock Fundamental Value Fund ("Fundamental Value Fund") and John Hancock
International Equity Fund ("International Equity Fund"), (each, a "Fund" and
collectively, the "Funds"), are separate portfolios of John Hancock
Institutional Series Trust (the "Trust"), an open-end management investment
company, registered under the Investment Company Act of 1940. Prior to September
12, 1995, Dividend Performers Fund was known as John Hancock Berkeley Dividend
Performers Fund, Active Bond Fund was known as John Hancock Berkeley Bond Fund,
Global Bond Fund was known as John Hancock Berkeley Global Bond Fund,
Multi-Sector Growth Fund was known as John Hancock Berkeley Sector Opportunity
Fund, Fundamental Value Fund was known as John Hancock Berkeley Fundamental
Value Fund and International Equity Fund was known as John Hancock Berkeley
Overseas Growth Fund. The Trust, organized as a Massachusetts business trust in
1994, consists of eleven series portfolios: the Funds, John Hancock Independence
Balanced Fund, John Hancock Independence Diversified Core Equity Fund II, John
Hancock Independence Growth Fund, John Hancock Independence Medium
Capitalization Fund and John Hancock Independence Value Fund. Each Fund
currently has one class of shares with equal rights as to voting, redemption,
dividends and liquidation within their respective Fund. The Trustees may
authorize the creation of additional portfolios from time to time to satisfy
various investment objectives.
Significant accounting policies of the Funds are as follows:
VALUATION OF INVESTMENTS Securities in the Funds portfolios are valued on the
basis of market quotations, valuations provided by independent pricing services
or, at fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60 days
are valued at amortized cost which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign Currency Translation"
below.
JOINT REPURCHASE AGREEMENT Pursuant to an exemptive order issued by the
Securities and Exchange Commission, the Funds, along with other registered
investment companies having a management contract with John Hancock Advisers,
Inc. (the "Adviser"), a wholly-owned subsidiary of The Berkeley Financial Group,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more repurchase agreements, whose underlying
securities are obligations of the U.S. government and/or its agencies. The
Fund's custodian bank receives delivery of the underlying securities for the
joint account on the Fund's behalf. The Adviser is responsible for ensuring that
the agreement is fully collateralized at all times.
INVESTMENT TRANSACTIONS Investment transactions are recorded as of the date of
purchase, sale or maturity. Net realized gains and losses on sales of
investments are determined on the identified cost basis.
FEDERAL INCOME TAXES The Fund's policy is to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies.
They will not be subject to Federal income tax on taxable earnings which are
distributed to shareholders.
DIVIDENDS, DISTRIBUTIONS AND INTEREST Dividend income on investment securities
is recorded on the ex-dividend date or, in the case of some foreign securities,
on the date thereafter when the Funds are made aware of the dividend. Interest
income on investment securities is recorded on the accrual basis. Foreign income
may be subject to foreign withholding taxes which are accrued as applicable.
The Funds record all distributions to shareholders from net investment income
and realized gains on the ex-dividend date. Such distributions are determined in
conformity with income tax regulations, which may differ from generally accepted
accounting principles.
EXPENSES The majority of the expenses of the Trust are directly identifiable to
an individual Fund. Expenses which are not readily identifiable to a specific
Fund are allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and the
relative sizes of the Funds.
ORGANIZATION EXPENSE Expenses incurred in connection with the organization of
the Fund's has been capitalized and will be charged to the Fund's operations
ratably over a five-year period that will begin with the commencement of
investment operations of the Funds.
<PAGE> 138
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
In the event that any of the initial shares are redeemed during the
amortization period, the redemption proceeds will be reduced by a pro rata
portion of the then unamortized organization expense in the same proportion as
the number of the initial shares redeemed bears to the number of the initial
shares outstanding at the time of such redemption.
FOREIGN CURRENCY TRANSLATION All assets or liabilities initially expressed in
terms of foreign currencies are translated into U.S. dollars based on London
currency exchange quotations as of 5:00 p.m., London time, on the date of any
determination of the net asset value of the Funds. Transactions affecting
statement of operations accounts and net realized gain/loss on investments are
translated at the rates prevailing at the dates of the transactions.
The Fund does not isolate that portion of the results of operations resulting
from changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settlement dates on securities transactions and the difference between the
amounts of dividends, interest, and foreign withholding taxes recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received or
paid. Net unrealized foreign exchange gains and losses arise from changes in the
value of assets and liabilities other than investments in securities, resulting
from changes in the exchange rate.
NOTE B -
MANAGEMENT FEE, AND
TRANSACTIONS WITH AFFILIATES AND OTHERS
Under the present investment management contract, the Fund's pay a monthly
management fee to the Adviser, for a continuous investment program equivalent,
on an annual basis as follows:
<TABLE>
<CAPTION>
Fund Rate
---- ----
<S> <C>
Dividend Performers Fund .60% of average daily net assets up to $500 million
.55% of such assets in excess of $500 million
Active Fund .50% of average daily net assets up to $1.5 billion
.45% of such assets in excess of $1.5 billion
Global Bond Fund .75% of average daily net assets up to $250 million
.70% of such assets in excess of $250 million
Multi-Sector Growth Fund .80% of average daily net assets up to $500 million
.75% of such assets in excess of $500 million
Fundamental Value Fund .70% of average daily net assets up to $500 million
.65% of such assets in excess of $500 million
International Equity Fund .95% of average daily net assets up to $500 million (0.90% effective September 12, 1995)
.65% of such assets in excess of $500 million
</TABLE>
In the event normal operating expenses of the Funds, exclusive of certain
expenses prescribed by state law, are in excess of the most restrictive state
limit where the Funds are registered to sell shares of beneficial interest, the
fees payable to the Adviser will be reduced to the extent of such excess, and
the Adviser will make additional arrangements necessary to eliminate any
remaining excess expenses. The current limits are 2.5% of the first $30,000,000
of the Fund's average daily net assets, 2.0% of the next $70,000,000 and 1.5% of
the remaining average daily net asset value.
As of June 30, 1995, the Adviser voluntarily agreed to limit the Funds
expenses, including the management fee, to the extent required to prevent
expenses from exceeding: 0.80% of Dividend Performers Fund's average daily net
assets, 0.70% of Active Bond Fund's average daily net assets, 1.10% of Global
Bond Fund's average daily net assets, 1.00% of Multi-Sector Growth Fund's
average daily net assets, 0.95% of Fundamental Value Fund's average daily net
assets and 1.15% of International Equity Fund's average daily net assets. The
<PAGE> 139
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
Adviser reserves the right to terminate this limitation in the future.
Accordingly, for the period ended June 30, 1995, the reduction in the Fund's
expenses collectively with any additional amounts not borne by the Funds by
virtue of the expense limit amounted to $23,896 for Dividend Performers Fund,
$13,420 for Active Bond Fund, $13,557 for Global Bond Fund, $16,618 for
Multi-Sector Growth Fund, $13,582 for Fundamental Value Fund and $18,891 for
International Equity Fund.
Effective September 12, 1995, the Adviser plans to limit the Funds expenses
further to the extent required to prevent expenses from exceeding: 0.70% of
Dividend Performers Fund's average daily net assets, 0.60% of Active Bond Fund's
average daily net assets, 0.85% of Global Bond Fund's average daily net assets,
0.90% of Multi-Sector Growth Fund's average daily net assets, 0.80% of
Fundamental Value Fund's average daily net assets and 1.00% of International
Equity Fund's average daily net assets. The Adviser reserves the right to
terminate this limitation in the future.
SAMCorp serves as subadviser to Dividend Performers Fund pursuant to a
subadvisory agreement with that Fund and the Adviser. SAMCorp was organized in
1992 and is a wholly-owned subsidiary of The Berkeley Financial Group. The
Adviser pays SAMCorp a monthly management fee, equivalent on an annual basis, to
the sum of (a) 0.20% of the advisory fee payable on the Fund's average daily net
assets up to $100 million and (b) 0.55% of the advisory fee payable on the
Fund's assets exceeding $100 million.
NM Capital serves as subadviser to Fundamental Value Fund pursuant to a
subadvisory agreement with that Fund and the Adviser. NM Capital was organized
in 1977 and is a wholly-owned subsidiary of The Berkeley Financial Group. The
Adviser pays NM Capital a monthly management fee, equivalent on an annual basis,
to the sum of (a) 0.20% of the advisory fee payable on the Fund's average daily
net assets up to $100 million and (b) 0.55% of the advisory fee payable on the
Fund's assets exceeding $100 million.
John Hancock Advisers International, Ltd. serves as subadviser to
International Equity Fund pursuant to a subadvisory agreement with that Fund and
the Adviser. Formed in 1987, it is a wholly-owned subsidiary of the Adviser. The
Adviser pays John Hancock Advisers International, Ltd. a monthly management fee,
equivalent on an annual basis, to the sum of (a) 0.70% of the advisory fee
payable on the Fund's average daily net assets up to $500 million and (b) 0.90%
of the advisory fee payable on the Fund's assets exceeding $500 million.
The Funds are responsible for payment of these subadvisory fees.
The Funds have a distribution agreement with John Hancock Funds, Inc. ("JH
Funds"), a wholly-owned subsidiary of the Adviser. For the period ended June 30,
1995, all sales of shares of beneficial interest were sold at net asset value.
The Funds pay all expenses of printing prospectuses and other sales literature,
all fees and expenses in connection with qualification as a dealer in various
states, and all other expenses in connection with the sale and offering for sale
of the shares of the Fund which have not been herein specifically allocated to
the Trust.
The Funds have a transfer agent agreement with John Hancock Investor Services
Corporation ("Investor Services"), a wholly-owned subsidiary of The Berkeley
Financial Group. Each fund pays Investor Services an annual fee accrued daily of
0.05% of its average net assets, plus certain out-of-pocket expenses.
Messrs. Edward J. Boudreau, Jr., Richard S. Scipione and Thomas W.L. Cameron
are directors and/or officers of the Adviser, and/or its affiliates as well as
Trustees of the Fund. The Adviser and other subsidiaries of John Hancock Mutual
Life Insurance Company owned, as of June 30, 1995, the following shares of
beneficial interest: 259,334 shares of Dividend Performers Fund, 114,230 shares
of Active Bond Fund, 3 shares of Global Bond Fund, 186,320 shares of
Multi-Sector Growth Fund, 3 shares of Fundamental Value Fund and 96,671 shares
of International Equity Fund, respectively. The compensation of unaffiliated
Trustees is borne by the Funds.
<PAGE> 140
NOTES TO FINANCIAL STATEMENTS
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
NOTE C -
INVESTMENT TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short term
obligations, for the period ended June 30, 1995 were as follows:
<TABLE>
<CAPTION>
Purchases Proceeds
--------- --------
<S> <C> <C>
Dividend Performers Fund
U.S. Government Securities $302,641 None
Other Investments 2,521,860 None
Bond Fund None None
Global Bond Fund None None
Sector Opportunity Fund 2,045,312 $157,690
Fundamental Value Fund 509,893 None
Overseas Growth Fund 707,380 None
</TABLE>
At June 30, 1995, the cost and gross unrealized appreciation and depreciation in
value of investments owned by the Funds, as computed on a federal income tax
basis, were as follows:
<TABLE>
<CAPTION>
Net unrealized
Aggregate Gross unrealized Gross unrealized appreciation/
cost appreciation depreciation depreciation
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Dividend Performers Fund $3,074,416 $112,373 ($25,480) $86,893
Bond Fund 1,144,612 N/A N/A N/A
Global Bond Fund N/A N/A N/A N/A
Sector Opportunity Fund 1,879,348 36,241 (41,139) (4,898)
Fundamental Value Fund 579,869 21,008 (15,860) 5,148
Overseas Growth Fund 897,316 38,139 (32,213) 5,926
</TABLE>
<PAGE> 141
PART C.
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements included in the Registration Statement:
John Hancock Institutional Series Trust
---------------------------------------
John Hancock Independence Diversified Core Equity Fund II
---------------------------------------------------------
Statement of Assets and Liabilities as of June 30, 1995
(unaudited).
Statement of Operations of the period ended June 30, 1995
(unaudited).
Statement of changes in Net Asset for period ended June 30,
1995 (unaudited).
Notes to Financial Statements.
Financial Highlights for each of the period ended June 30,
1994 (unaudited).
Schedule of Investments as of June 30, 1994 (unaudited).
John Hancock Dividend Performers Fund
-------------------------------------
Statement of Assets and Liabilities as of June 30, 1995
(unaudited).
Statement of Operations of the period ended June 30, 1995
(unaudited).
Statement of changes in Net Asset for period ended June 30,
1995 (unaudited).
Notes to Financial Statements.
Financial Highlights for each of the period ended June 30,
1994 (unaudited).
Schedule of Investments as of June 30, 1994 (unaudited).
John Hancock Active Bond Fund
-----------------------------
Statement of Assets and Liabilities as of June 30, 1995
(unaudited).
Statement of Operations of the period ended June 30, 1995
(unaudited).
Statement of changes in Net Asset for period ended June 30,
1995 (unaudited).
Notes to Financial Statements.
Financial Highlights for each of the period ended June 30,
1994 (unaudited).
Schedule of Investments as of June 30, 1994 (unaudited).
<PAGE> 142
John Hancock Global Bond Fund
-----------------------------
Statement of Assets and Liabilities as of June 30, 1995
(unaudited).
Statement of Operations of the period ended June 30, 1995
(unaudited).
Statement of changes in Net Asset for period ended June 30,
1995 (unaudited).
Notes to Financial Statements.
Financial Highlights for each of the period ended June 30,
1994 (unaudited).
Schedule of Investments as of June 30, 1994 (unaudited).
John Hancock Mulit-Sector Growth Fund:
--------------------------------------
Statement of Assets and Liabilities as of June 30, 1995
(unaudited).
Statement of Operations of the period ended June 30, 1995
(unaudited).
Statement of changes in Net Asset for period ended
June 30, 1995 (unaudited).
Notes to Financial Statements.
Financial Highlights for each of the period ended June 30,
1994 (unaudited).
Schedule of Investments as of June 30, 1994 (unaudited).
John Hancock Fundamental Value Fund
-----------------------------------
Statement of Assets and Liabilities as of June 30, 1995
(unaudited).
Statement of Operations of the period ended June 30, 1995
(unaudited).
Statement of changes in Net Asset for period ended June 30,
1995 (unaudited).
Notes to Financial Statements.
Financial Highlights for each of the period ended June 30,
1994 (unaudited).
Schedule of Investments as of June 30, 1994 (unaudited).
John Hancock International Equity Fund
--------------------------------------
Statement of Assets and Liabilities as of June 30, 1995
(unaudited).
Statement of Operations of the period ended June 30, 1995
(unaudited).
Statement of changes in Net Asset for period ended June 30,
1995 (unaudited).
Notes to Financial Statements.
Financial Highlights for each of the period ended June 30,
1994 (unaudited).
Schedule of Investments as of June 30, 1994 (unaudited).
<PAGE> 143
(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 the Registrant.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
As of September 13, 1995, the number of record holders of shares of
the Registrant was as follows:
<CAPTION>
Title Number of Record Holders
----- ------------------------
<S> <C>
Dividend Performers 337
Active Bond 210
Global Bond 102
Multi-Sector Growth 335
Fundamental Value 252
International Equity 258
Independence Diversified Core Equity II 368
Independence Value 0
Independence Growth 0
Independence Medium Capitalization 0
Independence Balanced 4
</TABLE>
ITEM 27. INDEMNIFICATION
(a) Under Registrant's Declaration of Trust. Article IV, Section 4.3
of the Registrant's Declaration of Trust contains provisions
indemnifying each trustee and each officer of Registrant from
liability to the full extent permitted by law, subject to the
provisions of the Investment Company Act of 1940, as amended.
(b) Under the Underwriting Agreement. Under Section 12 of the
Distribution Agreement, the principal underwriter has agreed to
indemnify the Registrant and its Trustees, officers and
controlling persons against claims arising out of certain acts and
statements of the underwriter.
<PAGE> 144
(c) Under The By-Laws of the John Hancock Mutual Life Insurance
Company ("the Company"), John Hancock Funds, Inc. ("JH Funds,
Inc.") and John Hancock Advisers, Inc. (the "Adviser"). Section
9a of the By-Laws of the Company provides, in effect, that the
Company will, subject to limitations of law, indemnify each
present and former director, officer and employee of the Company
who serves as a director or officer of the Registrant at the
direction or request of the 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 Company. In addition, no such person will be indemnified by
the 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 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 Company
may pay expenses incurred in defending an action or claim in
advance of its final disposition, but only upon receipt of an
undertaking by the person indemnified to repay such payment if he
should be determined to be entitled to indemnification.
Article IX of the respective By-Laws of JH Funds, Inc. and the
Adviser provides as follows:
Section 9.01. Indemnity: Any person made or threatened to be
made a party to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the
fact that he is or was at any time since the inception of the
Corporation a director, officer, employee or agent of the
Corporation, or is or was at any time since the inception of
the Corporation serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
be indemnified by the Corporation against expenses (including
attorney's fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in
good faith and the liability was not incurred by reason of
gross negligence or reckless disregard of the duties involved
in the conduct of his office, and expenses in connection
therewith may be advanced by the Corporation, all to the full
extent authorized by law.
Section 9.02. Not Exclusive; Survival of Rights: The
indemnification provided by Section 9.01 shall not be deemed
exclusive of any other right to which those indemnified may be
entitled, and shall continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such
a person.
<PAGE> 145
(d) Under the Investment Management Contracts of Registrant on behalf of
each Fund. Each of the Registrant's Investment Management Contracts (the
"Contracts") provides that the Adviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund in
connection with matters to which the Contract relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence on the
part of the Adviser in the performance of its duties or from reckless
disregard by it of its obligations and duties under the contract. Any
person, even though also employed by the Adviser, who may be or become an
employee of and paid by the Trust a Fund shall be deemed, when acting
within the scope of his employment by the Fund, to be acting in such
employment solely for the Fund and not as the Adviser's employee or agent.
(e) Under the Sub-Investment Management Contracts. Each of the
Sub-Investment Management Contracts (the "Sub-Investment Contracts")
provides that the Sub-Adviser shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Trust, the Fund or the
Adviser in connection with matters to which the Sub-Investment Contract
relates, except a loss resulting from willful misfeasance, bad faith or
gross negligence on the Sub-Adviser's part in the performance of its duties
or from reckless disregard by it of its obligations and duties under the
contract. Any person, even though also employed by the Sub-Adviser, who
may be or become an employee of and paid by the Trust or the Fund shall be
deemed, when acting within the scope of his employment by the Trust or the
Fund, to be acting in such employment solely for the Trust or the Fund and
not as the Sub-Adviser's employee or agent.
(f) Insofar as indemnification for liabilities under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to Trustees, officers
and controlling persons of Registrant pursuant to the foregoing provisions,
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against policy as expressed in
the 1933 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 1933 Act and will be
governed by the final adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
For all of the information required by this item reference is made to
the Forms ADV, as amended, filed under the Investment Advisers Act of
1940 of the Registrant's Adviser, John Hancock Advisers, Inc. (File
No. 801-8124), and the Registrant's Sub-Advisers; Independence
Investment Associates, Inc. (File No. 801- 18048), John Hancock
Advisers International, Ltd. (File No. 801-294981), NM Capital
Management, Inc. (File No. 801
<PAGE> 146
-14571) and Sovereign Asset Management Corporation (File No. 801-
420231) incorporated herein by reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The Registrant's sole principal underwriter is JH Funds, Inc., which
also acts as principal underwriter for the following investment companies:
John Hancock Cash Management Fund, John Hancock Capital Series, John
Hancock Sovereign Bond Fund, John Hancock Sovereign Investors Fund, Inc.,
John Hancock Special Equities Fund, John Hancock Strategic Series, John
Hancock Tax- Exempt Income Fund, John Hancock Tax-Exempt Series Fund, John
Hancock Technology Series, Inc., John Hancock Limited Term Government Fund,
John Hancock World Fund, Freedom Investment Trust, Freedom Investment Trust
II, Freedom Investment Trust III, John Hancock Bond Fund, John Hancock
California Tax-Free Income Fund, John Hancock Cash Reserve, Inc., John
Hancock Current Interest, John Hancock Investment Trust, John Hancock
Series, Inc. and John Hancock Tax-Free Bond Fund.
<TABLE>
(b) The following table lists, for each director and officer of JH Funds,
Inc., the information indicated.
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
<S> <C> <C>
Edward J. Boudreau, Jr. Chairman of Chairman and
101 Huntington Avenue the Board Chief Executive
Boston, Massachusetts Officer
Foster L. Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
Robert H. Watts Director None
101 Huntington Avenue
Boston, Massachusetts
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
<S> <C> <C>
C. Troy Shaver, Jr. President, Chief None
101 Huntington Avenue Executive Officer
Boston, Massachusetts and Director
Stephen W. Blair Executive Vice None
101 Huntington Avenue President
Boston, Massachusetts
James V. Bowhers Executive Vice None
101 Huntington Avenue President
Boston, Massachusetts
James W. McLaughlin Senior Vice President None
101 Huntington Avenue and Chief Financial
Boston, Massachusetts Officer
Thomas H. Drohan Senior Vice Senior Vice
101 Huntington Avenue President President and
Boston, Massachusetts Secretary
David A. King Director and Senior None
101 Huntington Avenue Vice President
Boston, Massachusetts
James B. Little Senior Vice Senior Vice
101 Huntington Avenue President President and
Boston, Massachusetts Chief
Financial Officer
John A. Morin Vice President Vice President
101 Huntington Avenue
Boston, Massachusetts
Susan S. Newton Vice President Vice President,
101 Huntington Avenue and Secretary Assistant Secretary
Boston, Massachusetts and Compliance
Officer
</TABLE>
<PAGE> 148
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
<S> <C> <C>
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Michael T. Carpenter Senior Vice President None
1000 Louisiana Street
Houston, Texas
Christopher M. Meyer Treasurer None
101 Huntington Avenue
Boston, Massachusetts
Robert G. Freedman Director Vice Chairman
101 Huntington Avenue and Chief Investment
Boston, Massachusetts Officer
Stephen L. Brown Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Thomas E. Moloney Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Jeanne M. Livermore Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard S. Scipione Director Trustee
John Hancock Place
P.O. Box 111
Boston, Massachusetts
</TABLE>
<PAGE> 149
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
<S> <C> <C>
John Goldsmith Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
Richard O. Hansen Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
John M. DeCiccio Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
</TABLE>
(c) None.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
Registrant maintains the records required to be maintained by it under
Rules 31a-1(a), 31a-1(b) and 31a-2(a) under the Investment Company Act
of 1940 at its principal executive offices at 101 Huntington Avenue,
Boston, Massachusetts 02199- 7603. Certain records, including records
relating to Registrant's shareholders and the physical possession of
its securities, may be maintained pursuant to Rule 31a-3 at the main
office of Registrant's Transfer Agent or Custodian.
ITEM 31. MANAGEMENT SERVICES
The Registrant is not a party to any management-related service
contract, except as described in this Registration Statement.
ITEM 32. UNDERTAKINGS
The Registrant undertakes:
(a) not applicable;
<PAGE> 150
(b) to file a post-effective amendment, using financial statements which
need not be certified, within four to six months from the effective date of
the Trust's 1933 Act registration statement;
(c) to furnish each person to whom a prospectus is delivered with a copy
of the Registrant's latest annual report to shareholders upon request and
without charge; and
(d) if requested to do so by holders of at least 10% of the outstanding
shares of the Registrant, to call and hold a meeting of shareholders of the
Registrant for the purpose of voting upon the question of removal of a
trustee or trustees and to assist shareholders in the communication with
other shareholders.
<PAGE> 151
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
21st day of September 1995.
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
By: *
-------------------------------
Edward J. Boudreau, Jr.
Chairman
<TABLE>
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.
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman
- --------------------------- (Principal Executive Officer)
Edward J. Boudreau, Jr.
Senior Vice President and Chief
Financial Officer (Principal
/s/ James B. Little Financial and Accounting Officer) September 21, 1995
- ---------------------------
James B. Little
*
- --------------------------- Trustee
Thomas W. L. Cameron
*
- --------------------------- Trustee
James F. Carlin
*
- --------------------------- Trustee
William H. Cunningham
*
- --------------------------- Trustee
Charles F. Fretz
</TABLE>
<PAGE> 152
<TABLE>
<S> <C> <C>
*
- --------------------------- Trustee
Harold R. Hiser, Jr.
*
- --------------------------- Trustee
Charles L. Ladner
*
- --------------------------- Trustee
Leo E. Linbeck, Jr.
*
- --------------------------- Trustee
Patricia P. McCarter
*
- --------------------------- Trustee
Steven R. Pruchansky
*
- --------------------------- Trustee
Richard S. Scipione
*
- --------------------------- Trustee
Norman H. Smith
*
- --------------------------- Trustee
John P. Toolan
*By:
/s/Thomas H. Drohan September 21, 1995
- ---------------------------
Thomas H. Drohan
(Attorney-in-Fact)
</TABLE>
<PAGE> 153
<TABLE>
JOHN HANCOCK INSTITUTIONAL SERIES
---------------------------------
EXHIBIT INDEX
-------------
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NUMBER
- ----------- ------------------- -----------
<S> <C>
1 Declaration of Trust dated October 31, 1994.*
1a Instrument Changing Names of Series of Shares of
Trust, Increasing the Number of Trustees and Appointing
Individuals to Fill the Vacancies, and Establishing
New Series +
2 Amended and Restated By-Laws dated December 19, 1994.*
3 None
4 Specimen share certificates for each series of the
Registrant.*
5 Investment Management Contracts between the Registrant
on behalf of John Hancock Berkeley Bond Fund, John
Hancock Berkeley Sector Opportunity Fund, John Hancock
Independence Diversified Core Equity Fund II, John
Hancock Berkeley Dividend Performers Fund, John Hancock
Berkeley Global Bond Fund, John Hancock Independence
Balanced Fund, John Hancock Berkeley Fundamental Value
Fund, John Hancock Berkeley Overseas Growth Fund.*
5.1 Sub-Investment Management Contracts among the
Registrant on behalf of John Hancock Independence
Diversified Core Equity Fund II and John Hancock
Independence Balanced Fund, John Hancock Advisers,
Inc., and Independence Investment Associates, Inc.*
5.2 Sub-Investment Management Contract among the Registrant
on behalf of John Hancock Berkeley Dividend Performers
Fund, John Hancock Advisers, Inc., and Sovereign Asset
Management Corporation.*
5.3 Sub-Investment Management Contact among the Registrant
on behalf of John Hancock Berkeley Overseas Growth
Fund, John Hancock Advisers, Inc., and John Hancock
Advisers International, Ltd.*
5.4 Sub-Investment Management Contract among the Registrant
on behalf of John Hancock Berkeley Fundamental Value
Fund, John Hancock Advisers, Inc., and NM Capital
Management, Inc.*
6 Distribution Agreement between the Registrant and John
Hancock Funds, Inc. dated January 30, 1995.*
7 None
</TABLE>
<PAGE> 154
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NUMBER
- ----------- ------------------- -----------
<S> <C>
8 Master Custodian Agreement between John Hancock Mutual
Funds and Investors Bank and Trust Company. *
8.1 Master Custodian Agreement between John Hancock Mutual
Funds and State Street Bank and Trust Company.*
8.2 Amendment to Master Custodian Agreement between
Registrant on behalf of John Hancock Berkeley Global
Bond Fund and John Hancock Berkeley Overseas Growth
Fund and State Street Bank and Trust Company.*
8.3 Amendment to Master Custodian Agreement between
Registrant on behalf of John Hancock Berkeley Dividend
Performers Fund, John Hancock Berkeley Bond Fund, John
Hancock Berkeley Fundamental Value Fund, John Hancock
Berkeley Sector Opportunity Fund, John Hancock
Independence Diversified Core Equity Fund II, John
Hancock Independence Value Fund, John Hancock
Independence Growth Fund, John Hancock Independence
Medium Capitalization Fund and John Hancock
Independence Balanced Fund and Investors Bank and Trust
Company.*
9 Transfer Agency and Service Agreement between the
Registrant and John Hancock Investors Services
Corporation dated January 30, 1995.*
10 Legal Opinion with respect to the Registrant.*
11 None
12 Financial Statements of the Registrant for the period
ended June 30, 1995 included in Parts A and B.*
13 Subscription agreement between Registrant and John
Hancock Advisers, Inc. dated January 12, 1995.*
14 None
15 None
16 None
17 Powers of Attorney +
27.1 Multi-Sector Growth
27.2 International Equity
27.3 Div Core II
<FN>
* Previously filed with Registration Statement and/or
post-effective amendments and incorporated by reference
herein.
+ Filed herewith.
</TABLE>
<PAGE> 155
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION PAGE NUMBER
- ----------- ------------------- -----------
<S> <C>
27.4 Div Perf
27.5 Active Bond
27.6 Global Bond
27.7 Fund Value
</TABLE>
<PAGE> 1
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
Instrument Changing Names of Series of Shares of the Trust
----------------------------------------------------------
The Trustees of John Hancock Institutional Series Trust (the "Trust"),
hereby amend the Trust's Declaration of Trust, dated October 31, 1994, to the
extent necessary to reflect the change of the name of John Hancock Berkeley
Dividend Performers Fund to John Hancock Dividend Performers Fund, John
Hancock Berkeley Bond Fund to John Hancock Active Bond Fund, John Hancock
Berkeley Global Bond Fund to John Hancock Global Bond Fund, John Hancock
Berkeley Sector Opportunity Fund to John Hancock Multi-Sector Growth Fund,
John Hancock Berkeley Fundamental Value Fund to John Hancock Fundamental
Value Fund and John Hancock Berkeley Overseas Growth Fund to John Hancock
International Equity Fund, effective September 12, 1995.
Instrument Increasing the Number of Trustees and
------------------------------------------------
Appointing Individuals To Fill the Vacancies
--------------------------------------------
The Trustees of John Hancock Institutional Series Trust (the "Trust"),
hereby amend the Trust's Declaration of Trust, dated October 31, 1994:
(a) pursuant to Section 2.12 of the Declaration of Trust, to increase
the number of Trustees of the Trust from eleven to thirteen; and
(b) pursuant to Section 2.14 of the Declaration of Trust, to appoint
William H. Cunningham and Leo E. Linbeck, Jr. to fill the vacancies
thereby created, such appointments to become effective upon such
individuals accepting in writing such appointments and agreeing to be
bound by the terms of the Declaration of Trust with such individuals
holding office until their successor is elected and qualified or until
the earlier of their resignation, removal or death.
Instrument Establishing New Series
----------------------------------
The undersigned being a majority of the Trustees of John Hancock
Institutional Series Trust (the "Trust"), acting pursuant to the Declaration
of Trust, do hereby establish an additional series of shares of the Trust
(the "Shares"), having all the rights set forth in the Declaration of Trust
and in the Trust's Registration Statement on Form N-1A which Shares shall
represent an undivided beneficial interest in a separate portfolio of assets
of the Trust designated "John Hancock Small Capitalization Equity Fund."
<PAGE> 2
The Declaration of Trust is hereby amended to the extent necessary to
reflect (i) the changing of names of series of shares of the Trust; (ii) an
increase in the number of Trustees and the appointment of individuals to
fill the vacancies created thereby; and (iii) the establishment of an
additional series of shares.
IN WITNESS WHEREOF, the Trustees of the Trust have executed these
Instruments as of the 11th day of September, 1995.
/s/ Edward J. Boudreau, Jr. /s/ Patricia P. McCarter
- ---------------------------------- ----------------------------------
Edward J. Boudreau, Jr. Patricia P. McCarter
As Trustee and not individually As Trustee and not individually
/s/ Thomas W. L. Cameron /s/ Steven R. Pruchansky
- ---------------------------------- ----------------------------------
Thomas W. L. Cameron Steven R. Pruchansky
As Trustee and not individually As Trustee and not individually
/s/ James F. Carlin /s/ Richard S. Scipione
- ---------------------------------- ----------------------------------
James F. Carlin Richard S. Scipione
As Trustee and not individually As Trustee and not individually
/s/ Charles F. Fretz /s/ Norman H. Smith
- ---------------------------------- ----------------------------------
Charles F. Fretz Norman H. Smith
As Trustee and not individually As Trustee and not individually
/s/ Harold R. Hiser /s/ John P. Toolan
- ---------------------------------- ----------------------------------
Harold R. Hiser John P. Toolan
As Trustee and not individually As Trustee and not individually
/s/ Charles L. Ladner
- ----------------------------------
Charles L. Ladner
As Trustee and not individually
<PAGE> 3
The Declaration of Trust, a copy of which is on file in the office of
the Secretary of State of the Commonwealth of Massachusetts, provides that
no Trustee, officer, employee or agent of the Trust or any Series thereof
shall be subject to any personal liability whatsoever to any Person, other
than to the Trust or its shareholders, in connection with Trust Property or
the affairs of the Trust, save only that arising from bad faith, willful
misfeasance, gross negligence or reckless disregard of his duties with
respect to such Persons; and all such Persons shall look solely to the
Trust Property, or to the Trust Property of one or more specific Series of
the Trust if the claim arises from the conduct of such Trustee, officer,
employee or agent with respect to only such Series, for satisfaction of
claims of any nature arising in connection with the affairs of the Trust.
<PAGE> 1
POWER OF ATTORNEY
-----------------
The undersigned Trustee/Director of John Hancock Institutional Series
Trust, a Massachusetts business trust, and John Hancock Technology Series,
Inc., a corporation organized under the laws of Maryland, does hereby
severally constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan,
Robert G. Freedman and James B. Little, and each acting singly, to be my
true, sufficient and lawful attorneys, with full power to each of them, and
each acting singly, to sign for me, in my name and in the capacity
indicated below, any Registration Statement on Form N-1A and any
Registration Statement on Form N-14 to be filed by either John Hancock
Institutional Series Trust or John Hancock Technology Series, Inc. under
the Investment Company Act of 1940, as amended ( the "1940 Act"), and under
the Securities Act of 1933, as amended (the "1933 Act"), and any and all
amendments to said Registration Statements, with respect to the offering of
shares and any and all other documents and papers relating thereto, and
generally to do all such things in my name and on my behalf in the capacity
indicated to enable either John Hancock Institutional Series Trust or John
Hancock Technology Series, Inc. to comply with the 1940 Act and the 1933
Act, and all requirements of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be
signed by said attorneys or each of them to any such Registration
Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 11th day of September, 1995.
/s/ William H. Cunningham
---------------------------------------
William H. Cunningham, Trustee/Director
<PAGE> 2
POWER OF ATTORNEY
-----------------
The undersigned Trustee/Director of John Hancock Institutional Series
Trust, a Massachusetts business trust, and John Hancock Technology Series,
Inc., a corporation organized under the laws of Maryland, does hereby
severally constitute and appoint Edward J. Boudreau, Jr., Thomas H. Drohan,
Robert G. Freedman and James B. Little, and each acting singly, to be my
true, sufficient and lawful attorneys, with full power to each of them, and
each acting singly, to sign for me, in my name and in the capacity
indicated below, any Registration Statement on Form N-1A and any
Registration Statement on Form N-14 to be filed by either John Hancock
Institutional Series Trust or John Hancock Technology Series, Inc. under
the Investment Company Act of 1940, as amended ( the "1940 Act"), and under
the Securities Act of 1933, as amended (the "1933 Act"), and any and all
amendments to said Registration Statements, with respect to the offering of
shares and any and all other documents and papers relating thereto, and
generally to do all such things in my name and on my behalf in the capacity
indicated to enable either John Hancock Institutional Series Trust or John
Hancock Technology Series, Inc. to comply with the 1940 Act and the 1933
Act, and all requirements of the Securities and Exchange Commission
thereunder, hereby ratifying and confirming my signature as it may be
signed by said attorneys or each of them to any such Registration
Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 11th day of September, 1995.
/s/ Leo E. Linbeck, Jr.
------------------------------------
Leo E. Linbeck, Jr., Trustee/Director
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> SECTOR OPPORTUNITY
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> APR-11-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 1,879,348
<INVESTMENTS-AT-VALUE> 1,874,450
<RECEIVABLES> 173,697
<ASSETS-OTHER> 42,044
<OTHER-ITEMS-ASSETS> (4,898)
<TOTAL-ASSETS> 2,090,191
<PAYABLE-FOR-SECURITIES> 50,742
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 138,557
<TOTAL-LIABILITIES> 189,299
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,904,857
<SHARES-COMMON-STOCK> 221,744
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 6,022
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5,089)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (4,898)
<NET-ASSETS> 1,900,892
<DIVIDEND-INCOME> 239
<INTEREST-INCOME> 7,392
<OTHER-INCOME> 0
<EXPENSES-NET> 1,609
<NET-INVESTMENT-INCOME> 6,022
<REALIZED-GAINS-CURRENT> (5,089)
<APPREC-INCREASE-CURRENT> (4,898)
<NET-CHANGE-FROM-OPS> (3,965)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 224,630
<NUMBER-OF-SHARES-REDEEMED> 2,886
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,900,892
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,287
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 18,227
<AVERAGE-NET-ASSETS> 743,212
<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.04
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.57
<EXPENSE-RATIO> 1
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> OVERSEAS GROWTH
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 897,316
<INVESTMENTS-AT-VALUE> 903,242
<RECEIVABLES> 20,075
<ASSETS-OTHER> 48,648
<OTHER-ITEMS-ASSETS> 5,921
<TOTAL-ASSETS> 971,965
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 61,144
<TOTAL-LIABILITIES> 61,144
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 897,364
<SHARES-COMMON-STOCK> 105,386
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 7,550
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (19)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 5,926
<NET-ASSETS> 910,821
<DIVIDEND-INCOME> 6,367
<INTEREST-INCOME> 3,669
<OTHER-INCOME> 0
<EXPENSES-NET> 2,486
<NET-INVESTMENT-INCOME> 7,550
<REALIZED-GAINS-CURRENT> (19)
<APPREC-INCREASE-CURRENT> 5,926
<NET-CHANGE-FROM-OPS> 13,456
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 106,632
<NUMBER-OF-SHARES-REDEEMED> 1,246
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 910,821
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,054
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 21,377
<AVERAGE-NET-ASSETS> 857,708
<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.06
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.64
<EXPENSE-RATIO> 1.15
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> DIV CORE II
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-10-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 84,403,420
<INVESTMENTS-AT-VALUE> 85,212,860
<RECEIVABLES> 184,180
<ASSETS-OTHER> 157,978
<OTHER-ITEMS-ASSETS> 809,440
<TOTAL-ASSETS> 85,555,018
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 88,414
<TOTAL-LIABILITIES> 88,414
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 84,597,361
<SHARES-COMMON-STOCK> 9,196,707
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 47,856
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,947
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 809,440
<NET-ASSETS> 85,466,604
<DIVIDEND-INCOME> 136,364
<INTEREST-INCOME> 13,271
<OTHER-INCOME> 0
<EXPENSES-NET> 22,916
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 11,947
<APPREC-INCREASE-CURRENT> 809,440
<NET-CHANGE-FROM-OPS> 948,106
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 78,863
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,222,587
<NUMBER-OF-SHARES-REDEEMED> (34,306)
<SHARES-REINVESTED> 8,426
<NET-CHANGE-IN-ASSETS> 85,466,604
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,682
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 50,534
<AVERAGE-NET-ASSETS> 10,569,915
<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.78
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.29
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> DIV PERF
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-30-1995
<PERIOD-END> JUN-30-1995
<INVESTMENTS-AT-COST> 3,074,416
<INVESTMENTS-AT-VALUE> 3,161,309
<RECEIVABLES> 34,363
<ASSETS-OTHER> 46,402
<OTHER-ITEMS-ASSETS> 86,893
<TOTAL-ASSETS> 3,242,074
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 69,281
<TOTAL-LIABILITIES> 69,281
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,085,709
<SHARES-COMMON-STOCK> 362,997
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 191
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 86,893
<NET-ASSETS> 3,172,793
<DIVIDEND-INCOME> 9,389
<INTEREST-INCOME> 24,396
<OTHER-INCOME> 0
<EXPENSES-NET> 5,795
<NET-INVESTMENT-INCOME> 27,990
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 86,893
<NET-CHANGE-FROM-OPS> 114,883
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 27,799
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 384,933
<NUMBER-OF-SHARES-REDEEMED> 25,109
<SHARES-REINVESTED> 3,173
<NET-CHANGE-IN-ASSETS> 3,172,793
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,346
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 29,691
<AVERAGE-NET-ASSETS> 2,873,810
<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> (0.08)
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> 0.08
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<TABLE> <S> <C>
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<SERIES>
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<NAME> BERKELEY BOND
<S> <C>
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<TABLE> <S> <C>
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<SERIES>
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<NAME> GLOBAL BOND
<S> <C>
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<SERIES>
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<NAME> FUND VALUE
<S> <C>
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