FILE NO. 33-86102
FILE NO. 811-8852
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 6 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 7 (X)
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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) (Zip Code)
Registrant's Telephone Number, (617) 375-1700
---------
THOMAS H. DROHAN
Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and Address of Agent for Service)
---------
It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
(X) on December 2, 1996 pursuant to paragraph (b) of Rule 485
( ) 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, Registrant has
registered an indefinite number of shares under the Securities Act of 1933. The
Registrant filed the notice required by Rule 24f-2 for its most recent fiscal
year on or about April 26, 1996.
<PAGE>
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item Number Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
------ ------------------ -------------------
<S> <C> <C>
1 Front Cover Page *
2 Expense Information; The Fund's *
Expenses; Share Price
3 The Fund's Financial Highlights; *
Performance
4 An Overview of the Funds; Investment *
Policies and Strategies; Organization
and Management of the Funds; Performance;
Investments, Techniques and Risk Factors
5 Organization and Management of the *
the Funds; The Fund's Expenses
6 Organization and Management of the *
Fund; Dividends and Taxes; Redeeming
Shares
7 How to Buy Shares; Share Price *
8 Redeeming Shares; Exchange *
Privilege
9 Not Applicable *
10 * Front Cover Page
11 * Table of Contents
12 * Organization of the Fund
13 * Investment Objectives and Policies;
Certain Investment Restrictions
14 * Those Responsible for Management
15 * Those Responsible for Management
16 * Investment Advisory; and Other
Services; Transfer Agent Services;
Custody of Portfolio; Independent
Auditors
17 * Brokerage Allocation
18 * Description of Trust's Shares
19 * Net Asset Value; Special
Redemptions
20 * Tax Status
21 * Not Applicable
22 * Calculation of Performance
23 * Financial Statements
</TABLE>
<PAGE>
JOHN HANCOCK FUNDS
101 Huntington Avenue
Boston, Massachusetts 02199
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
PROSPECTUS
December 2, 1996
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
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TABLE OF CONTENTS Page
----
<S> <C>
Expense Information................................................................ 2
The Funds' Financial Highlights.................................................... 3
An Overview of the Funds........................................................... 7
Investment Objectives and Policies................................................. 8
Who May Buy Shares................................................................. 18
Investors' Guide to Services....................................................... 18
How to Buy Shares............................................................. 18
Opening an Account............................................................ 18
Buying Additional Shares...................................................... 19
Reports to Shareholders....................................................... 19
Share Price................................................................... 19
Redeeming Shares.............................................................. 19
Exchange Privilege............................................................ 21
Organization and Management of the Funds........................................... 22
The Funds' Expenses................................................................ 23
Dividends and Taxes................................................................ 24
Performance........................................................................ 25
Risk Factors, Investments and Techniques........................................... 26
</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 2, 1996, which is
incorporated by reference into this Prospectus, free of charge by writing or
telephoning: John Hancock Investor Services Corporation, P.O. Box 9296, Boston,
Massachusetts 02205-9296, 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.
[JOHN HANCOCK LOGO] [LOGO] Printed on Recycled Paper.
<PAGE>
EXPENSE INFORMATION
<TABLE>
The purpose of the following information is to help you to understand the
various costs and expenses that you will bear, directly or indirectly when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below, except for Small Capitalization Fund, are based on
actual fees and expenses for the Funds' first fiscal year ended February 29,
1996 adjusted to reflect current fees and expenses. The operating expenses for
Small Capitalization Fund which commenced operations in May,1996, are based on
estimated fees and expenses. Actual expenses may be greater or less than those
indicated.
<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
EXAMPLE: You would pay the
following expenses for the
indicated period of years on
a hypothetical $1,000
investment assuming a 5%
annual rate of return and
the voluntary expense
limitation as noted below:+
</TABLE>
<TABLE>
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER OPERATING
FEE (AFTER EXPENSES (AFTER EXPENSES (AFTER
LIMITATION) LIMITATION)** LIMITATION)*** 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------- ---------------- ---------------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SMALL CAPITALIZATION FUND 0.35% 0.55% 0.90% $ 9 $29 $50 $111
DIVIDEND PERFORMERS FUND 0.00% 0.70% 0.70% $ 7 $22 $39 $ 87
ACTIVE BOND FUND 0.00% 0.60% 0.60% $ 6 $19 $33 $ 75
GLOBAL BOND FUND 0.00% 0.85% 0.85% $ 9 $27 $47 $105
MULTI-SECTOR GROWTH FUND 0.00% 0.90% 0.90% $ 9 $29 $50 $111
FUNDAMENTAL VALUE FUND 0.00% 0.80% 0.80% $ 8 $26 $44 $ 99
INTERNATIONAL EQUITY FUND 0.00% 1.00% 1.00% $10 $32 $55 $122
- ---------------
* 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 first fiscal year and should not be
considered as representative of future expenses. Total Fund Operating
Expenses in the table reflect a voluntary limitation by the Funds' Adviser.
Without such limitation, the Management Fee, Other Expenses and Total Fund
Operating Expenses, respectively, would have been estimated at the
following: Small Capitalization Fund -- 0.80%, 0.55% and 1.35%; Dividend
Performers Fund -- 0.60%, 3.42% and 4.02%; Active Bond Fund -- 0.50%, 9.09%
and 9.59%; Global Bond Fund -- 0.75%, 68.24% and 68.99%; Multi-Sector Growth
Fund -- 0.80%, 2.71% and 3.51%; Fundamental Value Fund -- 0.70%, 3.86% and
4.56%; and International Equity Fund -- 0.90%, 7.27% and 8.17%.
+ This example should not be considered a representation of the Funds' actual
or future expenses, which may be greater or less than those shown.
</TABLE>
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."
2
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
<TABLE>
The information in the following table of Financial Highlights for the period
ended February 29, 1996 has been audited by Deloitte & Touche LLP, the Funds'
independent auditors, whose unqualified report is included in the Funds' 1996
Annual Report and is included in the Statement of Additional Information. The
information in the table for the period ended August 29, 1996 is unaudited.
Further information about the performance of the Fund is contained in the Funds'
Annual Report to shareholders, that may be obtained free of charge by writing or
telephoning John Hancock Investor Services Corporation ("Investor Services") at
the address or telephone number listed on the front page of this Prospectus.
Selected data for a share outstanding throughout the period indicated is as
follows:
<CAPTION>
FOR THE PERIOD MARCH 30, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
JOHN HANCOCK DIVIDEND PERFORMERS FUND TO FEBRUARY 29, 1996 (UNAUDITED)
---------------------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net asset value, Beginning of Period...................................... $ 8.50(b) $ 10.15
------ -------
Net investment income..................................................... 0.23** 0.10
Net Realized and Unrealized Gain on Investments........................... 1.68 0.31
------ -------
Total from Investment Operations.................................. 1.91 0.41
------ -------
Less Distributions:
Dividends from Net Investment Income.................................. (0.19) (0.07)
Distributions from Net Realized Gain on Investments Sold.............. (0.07) --
------ -------
Total Distributions............................................... (0.26) (0.07)
------ -------
Net Asset Value, End of Period............................................ $10.15 $ 10.49
====== =======
Total Investment Return at Net Asset Value(e)............................. 22.79%(c) 4.05%(c)
Total Adjusted Investment Return at Net Asset Value(a)(e)................. 19.79%(c) 3.32%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................. $3,319 $ 4,880
Ratio of Expenses to Average Net Assets................................... 0.75%* 0.70%*
Ratio of Adjusted Expenses to Average Net Assets(a)(d).................... 4.02%* 2.15%*
Ratio of Net Investment Income to Average Net Assets...................... 2.51%* 1.98%*
Ratio of Adjusted Net Investment Income (Loss) to Average Net
Assets(a)(d)............................................................ (0.76%)* 0.52%*
Portfolio Turnover Rate................................................... 70% 8%
Average Broker commission Rate (f)........................................ N/A $0.0700
<CAPTION>
FOR THE PERIOD MARCH 30, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
JOHN HANCOCK ACTIVE BOND FUND TO FEBRUARY 29, 1996 (UNAUDITED)
----------------------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................................ $ 8.50(b) $ 8.64
------ ------
Net Investment Income....................................................... 0.51 0.29
Net Realized and Unrealized Gain (Loss) on Investments...................... 0.16 (0.26)
------ ------
Total from Investment Operations.................................... 0.67 0.03
------ ------
Less Distributions:
Dividends from Net Investment Income.................................... (0.51) (0.29)
------ ------
Distributions from Net Realized Gain on Investments Sold................ (0.02) --
------ ------
Total Distributions................................................. (0.53) (0.29)
------ ------
Net Asset Value, End of Period.............................................. $ 8.64 $ 8.38
====== ======
Total Investment Return at Net Asset Value(e)............................... 7.76%(c) 0.41%(c)
Total Adjusted Investment Return at Net Asset Value(a)(e)................... (0.46%)(c) (4.81%)(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................... $1,171 $1,267
Ratio of Expenses to Average Net Assets..................................... 0.65%* 0.60%*
Ratio of Adjusted Expenses to Average Net Assets(a)(d)...................... 9.60%* 5.83%*
Ratio of Net Investment Income to Average Net Assets........................ 6.53%* 6.92%*
Ratio of Adjusted Net Investment Income (Loss) to Average Net
Assets(a)(d).............................................................. (2.42%)* 1.69%*
Portfolio Turnover Rate..................................................... 71% 34%
- ---------------
* On an annualized basis.
** On average month end shares outstanding.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) 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.
(e) Total investment return assumes dividend reinvestment.
(f) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
</TABLE>
3
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
Selected data for a share outstanding throughout the period indicated is as
follows:
<CAPTION>
JOHN HANCOCK GLOBAL BOND FUND FOR THE PERIOD APRIL 19, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
----------------------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................................... $ 8.50(b) $ 8.46
------- ------
Net Investment Income..................................................... 0.41 0.26
Net Realized and Unrealized Loss on Investments and Foreign Currency
Transactions............................................................ (0.04) (0.08)
------- ------
Total from Investment Operations.................................. 0.37 0.18
------- ------
Less Distributions:
Dividends from Net Investment Income.................................. (0.41) (0.26)
------- ------
Net Asset Value, End of Period............................................ $ 8.46 $ 8.38
======= ======
Total Investment Return at Net Asset Value(e)............................. 4.37%(c) 2.18%(c)
Total Adjusted Investment Return at Net Asset Value(a)(e)................. (54.55%)(c) (4.40%)(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................. $ 217 $1,024
Ratio of Expenses to Average Net Assets................................... 0.91%* 0.85%*
Ratio of Adjusted Expenses to Average Net Assets(a)(d).................... 69.15%* 7.43%*
Ratio of Net Investment Loss to Average Net Assets........................ 5.91%* 6.29%*
Ratio of Adjusted Net Investment Income to Average Net Assets(a)(d)....... (62.33%)* (0.29%)*
Portfolio Turnover Rate................................................... 129% 89%
<CAPTION>
JOHN HANCOCK MULTI-SECTOR GROWTH FUND FOR THE PERIOD APRIL 11, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
TO FEBRUARY 29, 1996 (UNAUDITED)
----------------------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................................ $ 8.50(b) $ 10.69
------ -------
Net Investment Loss......................................................... (0.01)** (0.00)**(g)
Net Realized and Unrealized Gain on Investments and Foreign Currency
Transactions.............................................................. 2.22 1.00
------ -------
Total from Investment Operations.................................... 2.21 1.00
------ -------
Less Distributions:
Dividends from Net Investment Income.................................... (0.02) --
------ -------
Net Asset Value, End of Period.............................................. $10.69 $ 11.69
====== =======
Total Investment Return at Net Asset Value(e)............................... 25.98%(c) 9.35%(c)
Total Adjusted Investment Return at Net Asset Value(a)(e)................... 23.70%(c) 9.04%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................... $8,399 $18,455
Ratio of Expenses to Average Net Assets..................................... 0.93%* 0.90%*
Ratio of Adjusted Expenses to Average Net Assets(a)(d)...................... 3.51%* 1.52%*
Ratio of Net Investment Loss to Average Net Assets.......................... (0.10%)* (0.05%)*
Ratio of Adjusted Net Investment Loss to Average Net Assets(a)(d)........... (2.68%)* (0.67%)*
Portfolio Turnover Rate..................................................... 189% 140%
Average Brokerage Commission Rate(f)........................................ N/A $0.0641
- ---------------
* On an annualized basis.
** On average month end shares outstanding.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) 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.
(e) Total investment return assumes dividend reinvestment.
(f) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
(g) Less than $.01 per share.
</TABLE>
4
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
Selected data for a share outstanding throughout the period indicated is as follows:
<CAPTION>
FOR THE PERIOD APRIL 19, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
JOHN HANCOCK FUNDAMENTAL VALUE FUND TO FEBRUARY 29, 1996 (UNAUDITED)
----------------------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................................... $ 8.50(b) $ 9.09
------ -------
Net Investment Income..................................................... 0.17** 0.08
Net Realized and Unrealized Gain on Investments........................... 0.56 0.28
------ -------
Total from Investment Operations.................................. 0.73 0.36
------ -------
Less Distributions:
Dividends from Net Investment Income.................................. (0.14) (0.06)
------ -------
Net Asset Value, End of Period............................................ $ 9.09 $ 9.39
====== =======
Total Investment Return at Net Asset Value(e)............................. 8.61%(c) 3.93%(c)
Total Adjusted Investment Return at Net Asset Value(a)(e)................. 5.40%(c) 3.46%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................. $5,293 $ 5,768
Ratio of Expenses to Average Net Assets................................... 0.83%* 0.80%*
Ratio of Adjusted Expenses to Average Net Assets(a)(d).................... 4.55%* 1.73%*
Ratio of Net Investment Income to Average Net Assets...................... 2.04%* 1.60%*
Ratio of Adjusted Net Investment Income (Loss) to Average Net
Assets(a)(d)............................................................ (1.68%)* 0.67%*
Portfolio Turnover Rate................................................... 0% 23%
Average Brokerage Commission Rate(f)...................................... N/A $0.0625
<CAPTION>
FOR THE PERIOD MARCH 30, 1995 SIX MONTHS ENDED
(COMMENCEMENT OF OPERATIONS) AUGUST 31, 1996
JOHN HANCOCK INTERNATIONAL EQUITY FUND TO FEBRUARY 29, 1996 (UNAUDITED)
----------------------------- ----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................................... $ 8.50(b) $ 9.24
------ -------
Net Investment Income..................................................... 0.15** 0.08**
Net Realized and Unrealized Gain (Loss) on Investments and Foreign
Currency Transactions................................................... 0.68 (0.16)
------ -------
Total from Investment Operations.................................. 0.83 (0.08)
------ -------
Less Distributions:
Dividends from Net Investment Income.................................. (0.08) --
Distributions from Net Realized Gain on Investments Sold.............. (0.01) --
------ -------
Total Distributions............................................... (0.09) --
------ -------
Net Asset Value, End of Period............................................ $ 9.24 $ 9.16
====== =======
Total Investment Return at Net Asset Value(e)............................. 9.81%(c) (0.87%)(c)
Total Adjusted Investment Return at Net Asset Value(a)(e)................. 3.26%(c) (1.90%)(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................................. $2,897 $ 3,166
Ratio of Expenses to Average Net Assets................................... 1.05%* 1.00%*
Ratio of Adjusted Expenses to Average Net Assets(a)(d).................... 8.19%* 3.04%*
Ratio of Net Investment Income to Average Net Assets...................... 1.75%* 1.62%*
Ratio of Adjusted Net Investment Loss to Average Net Assets(a)(d)......... (5.39%)* (0.42%)*
Portfolio Turnover Rate................................................... 59% 29%
Average Brokerage Commission Rate(f)...................................... N/A $0.0235
- ---------------
* On an annualized basis.
** On average month end shares outstanding.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) 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.
(e) Total investment return assumes dividend reinvestment.
(f) Per portfolio share traded. Required for fiscal years that began September 1, 1995 or later.
</TABLE>
5
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
<TABLE>
Selected data for a share outstanding throughout the period indicated is as follows:
<CAPTION>
FOR THE PERIOD MAY 2, 1996
(COMMENCEMENT OF OPERATIONS)
TO AUGUST 31, 1996
JOHN HANCOCK SMALL CAPITALIZATION EQUITY FUND (UNAUDITED)
----------------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................................................... $ 8.50(b)
-------
Net Investment Income.......................................................................... 0.01**
Net Realized and Unrealized Gain on Investments and Foreign Currency Transactions.............. 0.83
-------
Total from Investment Operations....................................................... 0.84
-------
Net Asset Value, End of Period................................................................. $ 9.34
=======
Total Investment Return at Net Asset Value..................................................... 9.88%(c)
Total Adjusted Investment Return at Net Asset Value(a)......................................... 0.46%(c)
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)...................................................... $ 459
Ratio of Expenses to Average Net Assets........................................................ 0.90%*
Ratio of Adjusted Expenses to Average Net Assets(a)(d)......................................... 29.30%*
Ratio of Net Investment Loss to Average Net Assets............................................. 0.75%*
Ratio of Adjusted Net Investment Loss to Average Net Assets(a)(d).............................. (27.65%)*
Portfolio Turnover Rate........................................................................ 19%
Average Brokerage Commission Rate(e)........................................................... $0.0669
- ---------------
* On an annualized basis.
** On average month end shares outstanding.
(a) On an unreimbursed basis.
(b) Initial price to commence operations.
(c) Not annualized.
(d) 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.
(e) Per portfolio share traded.
</TABLE>
6
<PAGE>
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 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 has 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 26.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
JOHN HANCOCK SMALL CAPITALIZATION EQUITY FUND
- --------------------------------------------------------------------------------
JOHN HANCOCK SMALL CAPITALIZATION EQUITY FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
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 $1 billion 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.
- --------------------------------------------------------------------------------
INVESTMENT IN SMALLER CAPITALIZATION COMPANIES INVOLVES CERTAIN RISKS.
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
THE FUND MAY INVEST IN SECURITIES OF FOREIGN ISSUERS.
- --------------------------------------------------------------------------------
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."
- --------------------------------------------------------------------------------
FOR TEMPORARY DEFENSIVE PURPOSES, THE FUND MAY INVEST IN FIXED INCOME SECURITIES
AND MONEY MARKET INSTRUMENTS.
- --------------------------------------------------------------------------------
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.
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 EMPLOY CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES TO HELP ACHIEVE
ITS INVESTMENT OBJECTIVE.
- ------------------------------------------------------------------------------
The Fund may for hedging and speculative purposes 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
8
<PAGE>
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
- ------------------------------------------------------------------------------
JOHN HANCOCK DIVIDEND PERFORMERS FUND SEEKS LONG-TERM GROWTH OF CAPITAL AND
INCOME WITHOUT UNDUE MARKET RISK.
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
DIVIDEND PERFORMERS FUND INVESTS PRIMARILY IN COMMON STOCKS, ALTHOUGH IT MAY
RESPOND TO MARKET CONDITIONS BY INVESTING IN OTHER TYPES OF SECURITIES.
- ------------------------------------------------------------------------------
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 GENERALLY INVESTS IN SEASONED COMPANIES IN SOUND
FINANCIAL CONDITION WITH A LONG RECORD OF PAYING DIVIDENDS.
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
THE FUND MAY ALSO INVEST IN CORPORATE AND U.S. GOVERNMENT FIXED-INCOME
SECURITIES.
- ------------------------------------------------------------------------------
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.
9
<PAGE>
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 IS A HIGH LEVEL OF
CURRENT INCOME CONSISTENT WITH PRUDENT INVESTMENT RISK.
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
ACTIVE BOND FUND INVESTS PRIMARILY IN INVESTMENT GRADE SECURITIES.
- ------------------------------------------------------------------------------
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."
- ------------------------------------------------------------------------------
THE FUND MAY INVEST TO A LIMITED EXTENT IN LOWER RATED 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'S INVESTMENTS MAY BE OF ANY MATURITY.
- ------------------------------------------------------------------------------
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.
10
<PAGE>
- ------------------------------------------------------------------------------
THE FUND MAY INVEST IN SECURITIES OF BOTH DOMESTIC AND FOREIGN ISSUERS.
- ------------------------------------------------------------------------------
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."
- ------------------------------------------------------------------------------
ACTIVE BOND FUND MAY EMPLOY CERTAIN INVESTMENT STRATEGIES TO HELP ACHIEVE ITS
INVESTMENT OBJECTIVE.
- ------------------------------------------------------------------------------
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.
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
- ------------------------------------------------------------------------------
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 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.
- ------------------------------------------------------------------------------
THE FUND IS "NON-DIVERSIFIED."
- ------------------------------------------------------------------------------
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 INVESTS PRIMARILY IN HIGH GRADE SECURITIES.
- ------------------------------------------------------------------------------
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
11
<PAGE>
"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 FUND'S AVERAGE PORTFOLIO MATURITY MAY VARY.
- --------------------------------------------------------------------------------
The average maturity of the Fund's portfolio securities may vary based upon the
Adviser's assessment of economic and market conditions.
- --------------------------------------------------------------------------------
FOR TEMPORARY DEFENSIVE PURPOSES, THE FUND MAY INVEST IN A VARIETY OF DOMESTIC
AND FOREIGN MONEY MARKET INSTRUMENTS.
- --------------------------------------------------------------------------------
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.
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 EMPLOY CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES TO HELP ACHIEVE
ITS INVESTMENT OBJECTIVE.
- --------------------------------------------------------------------------------
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."
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>
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 Depository Receipts, European Depository 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 THE JOHN HANCOCK MULTI-SECTOR GROWTH FUND IS
LONG-TERM CAPITAL APPRECIATION.
- --------------------------------------------------------------------------------
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 FUND EMPHASIZES ISSUERS IN CERTAIN ECONOMIC SECTORS BELIEVED TO PRESENT
"SECTOR OPPORTUNITIES."
- --------------------------------------------------------------------------------
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 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>
ments in companies with smaller market capitalizations. See "SMALLER
CAPITALIZATION COMPANIES."
- ------------------------------------------------------------------------------
THE FUND MAY ALSO INVEST IN FIXED-INCOME SECURITIES IN PURSUING ITS INVESTMENT
OBJECTIVE OR FOR TEMPORARY DEFENSIVE PURPOSES.
- ------------------------------------------------------------------------------
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 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 IS "NON-DIVERSIFIED."
- ------------------------------------------------------------------------------
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 MAY EMPLOY CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES TO HELP ACHIEVE
ITS INVESTMENT OBJECTIVE.
- ------------------------------------------------------------------------------
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 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 IS CAPITAL
APPRECIATION WITH INCOME AS A SECONDARY OBJECTIVE.
- ------------------------------------------------------------------------------
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.
14
<PAGE>
- ------------------------------------------------------------------------------
FUNDAMENTAL VALUE FUND EMPHASIZES "FUNDAMENTAL VALUE" SECURITIES, WHICH ARE
EQUITY SECURITIES THAT ARE UNDERVALUED RELATIVE TO ALTERNATIVE EQUITY
INVESTMENTS.
- ------------------------------------------------------------------------------
In selecting equity securities for the Fund, the Adviser emphasizes 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 considers 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 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 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.
The Fund's investment policy reflects the Adviser'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 has adopted a strategy of investing in low market to book value, out of
favor, stocks.
- ------------------------------------------------------------------------------
FUNDAMENTAL VALUE FUND MAY INVEST IN THE SECURITIES OF SMALLER, LESS WELL-KNOWN
ISSUERS, WHICH MAY INVOLVE CERTAIN RISKS.
- ------------------------------------------------------------------------------
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 ALSO INVEST IN FIXED-INCOME SECURITIES IN PURSUING
ITS INVESTMENT OBJECTIVE OR FOR TEMPORARY DEFENSIVE PURPOSES.
- ------------------------------------------------------------------------------
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.
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. 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 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 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.
- --------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES TO HELP ACHIEVE
ITS INVESTMENT OBJECTIVE.
- --------------------------------------------------------------------------------
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 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 and
currency exchange rates or for speculative purposes. These contracts may be
based on various securities indices and currencies. See "OPTIONS AND FUTURES
TRANSACTIONS."
15
<PAGE>
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 IS LONG-TERM
GROWTH OF CAPITAL.
- ------------------------------------------------------------------------------
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 INTERNATIONAL ALLOCATION OF ASSETS IS NOT FIXED, AND WILL VARY FROM TIME TO
TIME BASED ON THE JUDGMENT OF THE ADVISER AND JHAI.
- ------------------------------------------------------------------------------
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.
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 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
16
<PAGE>
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 Depository Receipts
("ADRs"), European Depository Receipts ("EDRs") or other securities convertible
into securities of corporations in which the Fund is permitted to invest. See
"DEPOSITORY RECEIPTS."
- ------------------------------------------------------------------------------
THE FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS MAY INCLUDE INVESTMENTS
IN EMERGING MARKETS.
- ------------------------------------------------------------------------------
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 MAY EMPLOY CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES TO HELP ACHIEVE
ITS INVESTMENT OBJECTIVE.
- ------------------------------------------------------------------------------
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 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 FOLLOWS CERTAIN POLICIES WHICH MAY HELP TO REDUCE INVESTMENT RISK.
- ------------------------------------------------------------------------------
Each Fund has adopted certain investment restrictions that are detailed 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.
- ------------------------------------------------------------------------------
BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION.
- ------------------------------------------------------------------------------
When choosing brokerage firms to carry out the Funds' transactions, the Adviser
gives primary consideration to 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 established by the Trustees, the Adviser may place
securities transactions with brokers affiliated with the Adviser and/or a
sub-adviser. 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 many foreign securities exchanges are fixed and are
generally higher than U.S. commission rates, which are negotiable.
17
<PAGE>
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 retirement
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.
OPENING AN ACCOUNT
<TABLE>
PARTICIPANTS
- -------------------------------------------------------------------------------------------------
Through your Sponsor according to your Plan.
- -------------------------------------------------------------------------------------------------
PLANS AND INSTITUTIONS
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
BY CHECK 1. Make check payable to John Hancock Investor Services Corporation.
2. Mail the completed account information package directly to Investor
Services at:
John Hancock Investor Services Corporation
P.O. Box 9296
Boston, MA 02205-9296
- -------------------------------------------------------------------------------------------------
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 9296, Boston, MA 02205-9296.
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>
Investor Services will open an account when it receives an investment in "good
order." A "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
18
<PAGE>
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.
BUYING ADDITIONAL SHARES
<TABLE>
PARTICIPANTS
- -----------------------------------------------------------------------------------------------------
Through your Sponsor according to your Plan.
- -----------------------------------------------------------------------------------------------------
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 semi-annual 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 the Board of Trustees has determined to approximate 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.
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
19
<PAGE>
suspend redemptions or postpone payment for up to three business days or longer,
as permitted by Federal securities laws. 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.)
PARTICIPANTS
- --------------------------------------------------------------------------------
Through your Sponsor according to your Plan
- --------------------------------------------------------------------------------
PLANS
- --------------------------------------------------------------------------------
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
ASSOCIATION by person(s) authorized to act on the account. The
signature(s) must be signature guaranteed if redemption
proceeds will be sent by check and exceed $100,000.
RETIREMENT Letter of instruction signed by the Trustee(s). The
PLAN OR signature(s) must be signature guaranteed if redemption
PENSION TRUSTS proceeds will be sent by check and exceed $100,000. (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.)
Redemptions of $5 million or more must be made in
writing and signature guaranteed.
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 up to $5 million can be wired on
the next business day to your designated corporate bank
account and a small fee may be deducted by your bank.
You may use electronic funds transfer to your assigned
bank account for redemption proceeds of up to $100,000
and the funds are usually collectable after 2 business
days. Your bank may or may not charge a fee for this
service.
Wire redemption is not available for Fund shares in
certificate form.
- --------------------------------------------------------------------------------
INSTITUTIONS
- --------------------------------------------------------------------------------
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 $5 million by telephone. Redemption
proceeds of up to $100,000 may be sent by wire or by
check. A check will be mailed to the exact name(s) and
address on the account. Redemption proceeds between
$100,000 and $5 million must be wired to your designated
corporate bank 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.
- --------------------------------------------------------------------------------
20
<PAGE>
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. 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.
PARTICIPANTS
- -------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
PLANS
- -------------------------------------------------------------------------------
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 9296
Boston, MA 02205-9296
- -------------------------------------------------------------------------------
INSTITUTIONS
- -------------------------------------------------------------------------------
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 authorized automatically 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.
- -------------------------------------------------------------------------------
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 under the Plan,
cause the Plan Sponsor to redeem shares of the Funds. The proceeds of such
21
<PAGE>
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
- ------------------------------------------------------------------------------
THE TRUSTEES ELECT OFFICERS AND RETAIN THE INVESTMENT ADVISER AND THE
SUBADVISERS, WHO ARE RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUNDS,
SUBJECT TO THE TRUSTEES' POLICIES AND SUPERVISION.
- ------------------------------------------------------------------------------
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.
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.
- ------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF MORE THAN $19 BILLION.
- ------------------------------------------------------------------------------
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.
JH Funds distributes shares for 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.
- ------------------------------------------------------------------------------
TO ASSIST IN MANAGING THE INVESTMENTS OF DIVIDEND PERFORMERS FUND AND
INTERNATIONAL EQUITY FUND, THE ADVISER HAS ENGAGED SUBADVISERS.
- ------------------------------------------------------------------------------
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 $2 billion.
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 Adviser. It provides international investment research and
advisory services to investment companies and institutional clients representing
over $320 million in assets.
22
<PAGE>
The person or persons primarily responsible for the day-to-day management of
each Fund are listed below:
SMALL CAPITALIZATION FUND
As of April 1996 Bernice S. Behar has become primarily responsible for
management of the Fund assisted by a group of portfolio managers and analysts.
Ms. Behar, a Senior Vice President, has been associated with the Adviser since
1991.
DIVIDEND PERFORMERS FUND
John F. Snyder III has been primarily responsible for management of the equity
securities of the Fund since its inception. As of April 1996 Barry H. Evans has
become primarily responsible for management of the fixed income securities of
the Fund. He is assisted by Jere Estes. Mr. Snyder is an Executive Vice
President of the Adviser and has been associated with the Adviser since 1991.
Mr. Evans is a Senior Vice President of the Adviser and has managed bond funds
since he joined the Adviser in 1986.
ACTIVE BOND FUND
James K. Ho has been primarily responsible for the management of the Fund since
its inception. Mr. Ho is assisted by a group of portfolio managers and analysts.
Mr. Ho, an Executive Vice President, has been associated with the Adviser since
1985.
GLOBAL BOND FUND
Lawrence J. Daly and Anthony A. Goodchild have been primarily responsible for
management of the Fund since its inception. As of April 1996 Janet L. Clay has
joined Messrs. Daly and Goodchild as a co-portfolio manager of the Fund. Messrs.
Daly and Goodchild, Senior Vice Presidents, joined the Adviser in 1994 and prior
to that were Senior Vice Presidents at Putnam Investments. Ms. Clay, a Second
Vice President, joined the Adviser in 1995 and prior to that was an Assistant
Vice President at Putnam Investments. Ms. Clay has also served in various
research positions at Colonial Management Associates.
MULTI-SECTOR GROWTH FUND
As of April 1996 Kevin R. Baker has become primarily responsible for the
management of the Fund assisted by a group of portfolio managers and analysts.
Mr. Baker, a Second Vice President, was President of Baker Capital Management
from 1991 until joining the Adviser in 1994.
FUNDAMENTAL VALUE FUND
Timothy E. Keefe, leader of the fund's portfolio management team since September
1996, is a Senior Vice President of the Adviser. He joined John Hancock Funds in
July 1996 and has been in the investment business since 1986.
INTERNATIONAL EQUITY FUND
John L. F. Wills has been primarily responsible for the management of the Fund
since its inception. Mr. Wills is managing director of JHAI and has been
associated with the Adviser since 1987.
In order to avoid any conflict with portfolio trades for the Funds, the Adviser,
the subadvisers and the Funds 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.
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
23
<PAGE>
<TABLE>
assets. For 1996, no Fund paid a fee to the Adviser after the limitation by the
Adviser. Without the voluntary limitation by the Adviser, 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 advisory fees paid by Global Bond Fund, Multi-Sector Growth Fund, Small
Capitalization 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.
The Adviser (not the Fund) pays a portion of its advisory fee from Dividend
Performers Fund to SAMCorp 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 (not the Fund) 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.
- ------------------------------------------------------------------------------
EACH FUND PAYS CERTAIN ADDITIONAL EXPENSES.
- ------------------------------------------------------------------------------
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."
The Fund compensates the Adviser for performing necessary tax and financial
management services. The compensation for 1996 is estimated to be at an annual
rate of 0.01875% of the average net assets of the Fund.
Your broker or agent may charge you separately to effect transactions in Fund
shares.
<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
24
<PAGE>
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 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. 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
during the relevant periods. You should consult your tax adviser for specific
advice.
PERFORMANCE
- ------------------------------------------------------------------------------
EACH FUND MAY ADVERTISE ITS TOTAL RETURN.
- ------------------------------------------------------------------------------
Total return is based on the overall change in value of a hypothetical
investment in a 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. Total return calculations are at
net asset value because no sales charges are incurred by those eligible to buy
the Funds.
- ------------------------------------------------------------------------------
SOME FUNDS ALSO ADVERTISE YIELD.
- ------------------------------------------------------------------------------
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.
25
<PAGE>
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 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.
DEPOSITORY RECEIPTS. Each Fund may invest in securities of foreign issuers in
the form of American Depository Receipts ("ADRs"), European Depository 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
26
<PAGE>
in the United States and, therefore, there may not be a correlation between such
information and the market value of the unsponsored ADR.
DERIVATIVE INSTRUMENTS. The Funds may to varying degrees enter into derivative
instruments for speculative purposes, to hedge against fluctuations in interest
rates, currency movements or securities prices or as a substitute for the
purchase or sale of securities. To the extent described below, a Fund's
investment in derivative securities may include investments in certain
mortgage-backed securities (such as collateralized mortgage obligations and
"stripped" mortgage-backed securities), the purchase or sale of futures
contracts or options and forward contracts. Each of these practices and the
related investment risks is described in greater detail below.
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 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,
27
<PAGE>
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 ("GNMA"), 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 ("FHLMC") and Federal National Mortgage Association ("FNMA"), and
obligations supported by the credit of the instrumentality, such as Student Loan
Marketing Association Bonds ("SLMA").
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 particularly 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.
28
<PAGE>
SHORT-TERM TRADING AND PORTFOLIO TURNOVER. Short-term trading means the
purchase and subsequent sale of a security after it has been held for a
relatively brief period of time. 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 portfolio turnover rate for all Funds, except Small Capitalization Fund, is
shown in the section captioned "The Funds' Financial Highlights." The estimated
portfolio turnover rate for Small Capitalization Fund is 100%. 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 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
29
<PAGE>
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 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
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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 and financial
institutions portfolio securities amounting to not more than 33 1/3% of its
total assets taken at current value, if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. Each
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Funds lend portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Funds may incur a loss or, in the event of the borrower's
bankruptcy, the Funds may be delayed in or prevented from liquidating the
collateral. Securities loaned by a Fund will remain subject to fluctuations of
market 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.
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>
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
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
89 South Street
Boston, Massachusetts 02111
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Investor Services Corporation
P.O. Box 9296
Boston, Massachusetts 02205-9296
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 101 HUNTINGTON AVENUE
For Telephone Redemption BOSTON, MASSACHUSETTS 02199-7603
call 1-800-755-4371 TELEPHONE 1-800-755-4371
KBOOP 12/96
<PAGE>
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 2, 1996
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 2, 1996 and in the Independence
Funds' Prospectus dated July 1, 1996 (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 9296
Boston, Massachusetts 02205-9296
1-800-755-4371
<PAGE>
TABLE OF CONTENTS
Statement of Additional
Information Page
Organization of the Trust 2
Investment Objectives and Policies 3
- -John Hancock Series Funds 3
- -Independence Funds 7
Certain Investment Practices 8
Investment Restrictions 23
Those Responsible for Management 27
Investment Advisory and Other Services 40
Net Asset Value 43
Special Redemptions 44
Tax Status 44
Description of the Trust's Shares 49
Calculation of Performance 50
Brokerage Allocation 53
Transfer Agent Services 55
Custody of Portfolio 55
Independent Auditors 55
Financial Statements --
Appendix A--Description of Securities Ratings
Appendix B-- Economic sectors in which Sector Opportunity Fund Invests
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").
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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 investment subadviser of each Independence Fund is Independence
Investment Associates, Inc. ("IIA"). Together, SAMCorp, JHAI, and IIA are
sometimes referred to herein collectively as the "Subadvisers" or, individually,
as the "Subadviser." Each Subadviser is an affiliate of the Life Company.
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 that are detailed 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 $1 billion or
less) that tend to be in an emerging growth stage 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.
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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.
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 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.
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<PAGE>
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 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.
5
<PAGE>
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 emphasizes
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 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 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 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.
The Fund's investment policy reflects the Adviser'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 has 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.
6
<PAGE>
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 favorably in 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.
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 500 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 several 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.
7
<PAGE>
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).
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.
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
8
<PAGE>
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.
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.
9
<PAGE>
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.
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
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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 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
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whose terms are available and for which a market exists, but which have not been
issued. A Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, a Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. When a Fund engages in forward commitment and
when-issued transactions, it relies on the seller to consummate the transaction.
The failure of the issuer or seller to consummate the transaction may result in
the Funds losing the opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when-issued and forward commitment
basis also involves a risk of loss if the value of the security to be purchased
declines prior to the settlement date.
On the date a Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid, high grade debt securities equal in value to the Fund's
commitment. These assets will be valued daily at market, and additional cash or
securities will be segregated in a separate account to the extent that the total
value of the assets in the account declines below the amount of the when-issued
commitments. 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.
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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 John Hancock Series
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.
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.
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
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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 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
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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
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
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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.
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.
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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 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.
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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 John Hancock Series 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.
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 ("GNMA"), 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 ("FHLMC"), and
obligations supported by the credit of the instrumentality, such as Federal
National Mortgage Association Bonds ("FNMA"). 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
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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 GNMA, the FNMA and the FHLMC. GNMA certificates are
guaranteed by the full faith and credit of the U.S. Government for timely
payment of principal and interest on the certificates. FNMA certificates are
guaranteed by FNMA, a federally chartered and privately owned corporation, for
full and timely payment of principal and interest on the certificates. FHLMC
certificates are guaranteed by FHLMC, 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.
Typically, CMOs are collateralized by GNMA, FNMA or FHLMC 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.
19
<PAGE>
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 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.
20
<PAGE>
The risk of early prepayments is the primary risk associated with interest only
debt securities ("IOs"), super floaters, other leveraged floating rate
instruments and Mortgage-Backed Securities purchased at a premium to their par
value. In some instances, early prepayments may result in a complete loss of
investment in certain of these securities. The primary risks associated with
certain other derivative debt securities are the potential extension of average
life and/or depreciation due to rising interest rates.
These securities include floating rate securities based on the Cost of Funds
Index ("COFI floaters"), other "lagging rate" floating rate securities, floating
rate securities that are subject to a maximum interest rate ("capped floaters"),
Mortgage-Backed Securities purchased at a discount, leveraged inverse floating
rate securities ("inverse floaters"), principal only debt securities ("POs"),
certain residual or support tranches of CMOs and index amortizing notes. Index
amortizing notes are not Mortgage-Backed Securities, but are subject to
extension risk resulting from the issuer's failure to exercise its option to
call or redeem the notes before their stated maturity date. Leveraged inverse
IOs combine several elements of the Mortgage-Backed Securities described above
and thus present an especially intense combination of prepayment, extension and
interest rate risks.
Planned amortization class ("PAC") and target amortization class ("TAC") CMO
bonds involve less exposure to prepayment, extension and interest rate risk than
other Mortgage-Backed Securities, provided that prepayment rates remain within
expected prepayment ranges or "collars." To the extent that prepayment rates
remain within these prepayment ranges, the residual or support tranches of PAC
and TAC CMOs assume the extra prepayment, extension and interest rate risk
associated with the underlying mortgage assets.
Other types of floating rate derivative debt securities present more complex
types of interest rate risks. For example, range floaters are subject to the
risk that the coupon will be reduced to below market rates if a designated
interest rate floats outside of a specified interest rate band or collar. Dual
index or yield curve floaters are subject to depreciation in the event of an
unfavorable change in the spread between two designated interest rates. X-reset
floaters have a coupon that 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
21
<PAGE>
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.
Lower Rated High Yield Debt Obligations. Dividend Performers Fund, Active Bond
Fund, Global Bond Fund and Fundamental Value 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. Fundamental Value may
invest up to 15% 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.
22
<PAGE>
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.
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 this SAI, a
"majority of the outstanding voting securities" means the approval by the lesser
of (1) 67% or more of the shares of a Fund represented at a meeting if at least
50% of the outstanding shares of the Fund are present in person or by proxy or
(2) 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
23
<PAGE>
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.
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
24
<PAGE>
(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 investment restrictions are designated as non-fundamental and may
be changed by the Trustees without shareholder approval.
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.
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
total assets would be invested in the securities of other investment
companies, (ii) the Fund would hold more than 3% of the total
outstanding voting securities of any one investment company, or (iii)
more than 5% of the Fund's total assets would be invested in the
securities of any one investment company. These limitations do not
apply to (a) the investment of cash collateral, received by the Fund in
connection with lending the Fund's portfolio securities, in the
securities of open-end investment companies or (b) the purchase of
shares of any investment company in connection with a merger,
consolidation, reorganization or purchase of substantially all of the
assets of another investment company. Subject to the above percentage
limitations the Fund may, in connection with the John Hancock Group of
Funds Deferred Compensation Plan for Independent Trustees/Directors,
purchase securities of other investment companies within the John
Hancock Group of Funds. The Fund may not purchase the shares of any
closed-end investment company except in the open market where no
commission or profit to a sponsor or dealer results from the purchase,
other than customary brokerage fees.
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
25
<PAGE>
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. Purchase securities while outstanding borrowings exceed 5% of the
Fund's total assets.
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 the New York or American Stock
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.
26
<PAGE>
International Equity Fund, Multi-Sector Growth Fund and Small Capitalization
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.
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' Adviser
and/or one or more or the Subadvisers, or officers and/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.
27
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Trust During the Past Five Years
- ---------------- -------------- --------------------------
<S> <C>
Edward J. Boudreau, Jr.* Chairman (1,2) Chairman and Chief Executive
101 Huntington Avenue Officer, the Adviser and The
Boston, MA 02199 Berkeley Financial Group ("The
October 1944 Berkeley Group"); Chairman, NM
Capital Management, Inc. ("NM
Capital"); John Hancock Advisers
International Limited; ("JHAI");
Chairman, Chief Executive Officer
and President, John Hancock Funds,
Inc., ("JH Funds"), John Hancock
Investor Services Corporation
("Investor Services"), First
Signature Bank and Trust Companny
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");
Director, John Hancock Freedom
Securities Corp., John Hancock
Capital Corp. and New
England/Canada Business Council;
Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; Vice Chairman and
President, the Adviser (until July
1992); Chairman, John Hancock
Distributors, Inc. (until April
1994).
Thomas W.L. Cameron* Trustee Chairman and Director, Sovereign
Interstate/Johnson Lane Advisers, Inc.; Senior Vice
1892 Andell Bluff Blvd. President, Interstate/Johnson Lane
Johns Island, SC 29455 Corp. (securities dealer).
February 1927
- -------------------
* 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.
28
<PAGE>
Positions Held Principal Occupation(s)
Name and Address with the Trust During the Past Five Years
- ---------------- -------------- --------------------------
William H. Cunningham Trustee (4) Chancellor, University of Texas
601 Colorado Street System and former President of the
O'Henry Hall University of Texas, Austin, Texas;
Austin, TX 78701 Lee Hage and Joseph D. Jamail
January 1944 Regents Chair for Free Enterprise;
Director, LaQuinta Motor Inns, Inc.
(hotel management company);
Director, Jefferson-Pilot
Corporation (diversified life
insurance company) and LBJ
Foundation Board (education
foundation); Advisory Director,
Texas Commerce Bank - Austin.
Charles F. Fretz Trustee (4) Retired, self-employed; Former Vice
RD #5, Box 300B President and Director, Towers,
Clothier Springs Road Perrin, Forster & Crosby, Inc.
Malvern, PA 19355 (international management
June 1928 consultants 1952 - 1985)
Charles L. Ladner Trustee (4) Director, Energy North, Inc.
UGI Corporation (public utility holding company)
460 North Gulph Road (until 1992); Senior Vice
King of Prussia, PA 19406 President, Finance UGI
February 1938 Corp.(holding company, public
Leo E. Linbeck, Jr Trustee(4) Chairman, President, Chief
3810 W. Alabama Executive Officer and Director,
Houston, TX 77027 Linbeck Corporation (a holding
August 1934 company engaged in various phases
of the construction industry and
warehousing interests); Former
Chairman, Federal Reserve Bank of
Dallas (1992, 1993); Chairman of
the Board and Chief Executive
Officer, Linbeck Construction
Corporation; Director, PanEnergy
Eastern Corporation (a diversified
energy company); Daniel Industries,
Inc. (manufacturer of gas measuring
products and energy related
equipment); GeoQuest International,
Inc., (a geophysical consulting
firm) (1980-1993); Director,
Greater Houston Partnership.
- -------------------
* 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.
29
<PAGE>
Positions Held Principal Occupation(s)
Name and Address with the Trust During the Past Five Years
- ---------------- -------------- --------------------------
Patricia P. McCarter Trustee (4) Director and Secretary The McCarter
Swedesford Road Corp. (machine manufacturer).
RD #3, Box 121
Malvern, PA 19355
May 1928
Steven R. Pruchansky Trustee (3, 4) Director and President, Mast
360 Horse Creek Drive #208 Holdings, Inc. (since 1991);
Naples, FL 33942 Director, First Signature Bank &
August 1944 Trust Company (until August 1991);
Director, Mast Realty Trust
(1982-1994); President, Maxwell
Building Corp. (until 1991).
Richard S. Scipione* Trustee (1) General Counsel, the Life Company;
John Hancock Place Director, the Adviser, JHAI, John
P.O. Box 111 Hancock Funds, Investor Services,
Boston, MA 02117 John Hancock Distributors, John
August 1937 Hancock Subsidiaries, Inc., John
Hancock Property and Casualty
Insurance and its affiliates (until
November 1993), SAMCorp and NM
Capital; Trustee, The Berkeley
Group; Director, JH Networking
Insurance Agency, Inc.
Norman H. Smith Trustee(4) Lieutenant General, USMC, Deputy
Rt. 1, Box 249 E Chief of Staff for Manpower and
Linden, VA 22642 Reserve Affairs, Headquarters
March 1933 Marine Corps; Commanding General
III Marine Expeditionary Force/3rd
Marine Division (reitred 1991).
- -------------------
* 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.
30
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Trust During the Past Five Years
- ---------------- -------------- --------------------------
John P. Toolan Trustee (4) Director, The Smith Barney Muni
13 Chadwell Place Bond Funds, The Smith Barney
Morristown, NJ 07960 Tax-Free Money Fund, Inc., Vantage
September 1930 Money Market Funds (mutual funds),
The Inefficient-Market Fund, Inc.
(closed-end investment company) and
Smith Barney Trust Company of
Florida; Chairman, Smith Barney
Trust Company (retired 1991);
Director, Smith Barney, Inc.,
Mutual Mangement Company and Smith
Barney Advisers, Inc. (investment
advisers) (retired 1991); Senior
Executive Vice President, Director
and member of the Executive
Committee, Smith Barney, Harris
Upham & Co., Incorporated
(investment bankers) (until 1991).
James F. Carlin Trustee (4) Chairman and Chief Executive
233 West Central Street Officer, Carlin Consolidated, Inc.
Natick, MA 01760 (management/investments); Director,
April 1940 Arabella Mutual Insurance Company
(insurance); Consolidated Group
Trust (insurance administration),
Carlin Insurance Agency, Inc., West
Insurance Agency, Inc. (until May,
1995) and Uno Restaurant Corp.;
Chairman, Massachusetts Board of
Higher Education (since 1995);
Receiver, City of Chelsea,
Massachusetts (until August 1992).
Harold R. Hiser, Jr. Trustee (4) Executive Vice President,
Schering-Plough Corporation Schering-Plough Corporation
One Giralda Farms (pharmaceuticals) (retired 1996);
Madison, NJ 07940-1000 Director, ReCapital Corporation
October 1931 (reinsurance) (until 1995).
Robert G. Freedman* Vice Chairman and Chief Vice Chairman and Chief Investment
101 Huntington Avenue Investment Officer Officer, the Adviser; President,
Boston, MA 02199 (2) the Adviser (until December 1994);
July 1938 Director, the Adviser, JHAI,
Investor Services, SAMCorp and NM
Capital; Senior Vice President, The
Berkeley Group.
- -------------------
* 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.
31
<PAGE>
Positions Held Principal Occupation(s)
Name and Address With the Trust During the Past Five Years
- ---------------- -------------- --------------------------
Anne C. Hodsdon* Trustee and President and Chief Operating
101 Huntington Avenue President (2) Officer, the Adviser; Director,
Boston, MA 02199 Executive Vice President, the
April 1953 Adviser (until December 1994);
Senior Vice President, the Adviser
(until December 1993); Vice
President, the Adviser (until
1991).
James B. Little* Senior Vice President and Senior Vice President, the Adviser,
101 Huntington Avenue Chief Financial Officer The Berkeley Group, JH Funds and
Boston, MA 02199 Investor Services.
February 1935
Susan S. Newton* Vice President and Secretary Vice President and Assistant
101 Huntington Avenue Secretary, the Adviser; Vice
Boston, MA 02199 President and Secretary, JH Funds,
March 1950 Investor Services and Distributors
(until April, 1994); Secretary,
SAMCorp; Vice President, The
Berkeley Group.
John A. Morin* Vice President Vice President, the Adviser,
101 Huntington Avenue Investor Services and JH Funds;
Boston, MA 02199 Vice President and Assistant
July 1950 Secretary, The Berkeley Group.
James J. Stokowski* Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
</TABLE>
- -------------------
* 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.
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.
32
<PAGE>
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 Funds Complex to the Independent Trustees for their services. Ms.
Hodsdon and Messrs. Boudreau, Scipione and Cameron, non-Independent Trustees,
and each of the officers of the Trust, who are interested persons of the
Adviser, are compensated by the adviser or its affiliates and received no
compensation from the Funds for their services.
Aggregate Total Compensation
Compensation From From the Funds and the
The Funds Fiscal John Hancock Fund
Year Ended Complex to
Independent Trustees February 29, 1996 Trustees/Directors (1)(2)(3)
- -------------------- ----------------- ----------------------------
James F. Carlin $ 1,631 $ 60,700
William H. Cunningham(3) 2,147 69,700
Charles F. Fretz 1,607 56,200
Harold R. Hiser, Jr.(3) 1,607 60,200
Charles L. Ladner 1,607 60,700
Leo E. Linbeck, Jr. 2,147 73,200
Patricia P. McCarter 1,607 60,700
Steven R. Pruchansky 1,607 62,700
Norman H. Smith 1,607 62,700
John P. Toolan(3) 1,607 60,700
-------- --------
$17,174 $627,500
(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, 1995.
(2) All Trustees except Messrs. Cunningham and Linbeck are Trustees/Directors
of 33 funds in the John Hancock Fund Complex as of December 31, 1995.
Messrs. Cunningham and Linbeck are Trustees/Directors of 31 funds and were
not Trustees/Directors of any funds in the John Hancock Fund Complex prior
to December 22, 1994.
(3) As of December 31, 1995 the value of the aggregate accrued deferred
compensation from all Funds in the John Hancock fund complex for Mr.
Cunningham was $54,413, for Mr. Hiser was $31,324, and for Mr. Toolan was
$71,437 under the John Hancock Deferred Compensation Plan for Independent
Trustees (the "Plan").
33
<PAGE>
As of October 31, 1996 the officers and trustees of the Trust as a
group owned 6.79% of the outstanding shares of Dividend Performers Fund; 9.51%
of the outstanding shares of Active Bond Fund; 3.54% of the outstanding shares
of Global Bond Fund; 1.10% of the outstanding shares of Multi-Sector Growth
Fund; 3.40% of the outstanding shares of Fundamental Value Fund; 4.50% of the
outstanding shares of International Equity Fund; 1.42% of the outstanding shares
of Small Capitalization 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, Independence Value Fund,
Independence Growth Fund and Independence Medium Capitalization Fund.
As of October 31, 1996 the following shareholders beneficially owned 5%
of or more of the outstanding shares of the Funds listed below:
<TABLE>
<CAPTION>
Number of shares Percentage of
of beneficial total outstanding
Name and Address of Shareholder Fund interest owned shares of the Fund
- ------------------------------- ---- -------------- ------------------
<S> <C> <C> <C>
Lathers' Local No. 144L Dividend Performers 102,189 19.81%
Pension Plan II (DC)
c/o Allied Administrators Inc.
P.O. Box 2500
San Francisco, CA 94126-2500
John Hancock Funds Dividend Performers 44,290 8.59%
Sawyer Ferguson & Walker Co Inc.
401 (k) Profit Sharing Plan
101 Huntington Avenue
Boston, Ma 02199-7603
John Hancock Funds Dividend Performers 32,905 6.38%
Aurora Electronics Inc.
Attn: Institutional Ret Services
c/o Geoffrey Hablow
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Funds Dividend Performers 71,079 13.78%
Shakpee Valley Printing
Attn: Sandra MaCarthur
101 Huntington Avenue
Boston, MA 02199-7603
34
<PAGE>
Number of shares Percentage of
of beneficial total outstanding
Name and Address of Shareholder Fund interest owned shares of the Fund
- ------------------------------- ---- -------------- ------------------
John Hancock Funds Dividend Performers 28,655 5.55%
Liguori Publications Def Savings Pl
Attn: Institutional Ret Services
c/o Marie Sauvignon
101 Huntington Avenue
Boston, MA 02199-7603
The Investment Incentive Plan Active Bond 15,630 6.49%
Beverly A. Cleathero
18 Main Street
Malden, MA 02148-7617
John Hancock Funds Active Bond 88,405 36.72%
FBO Hartford Provisions
Attn: Institututional Ret. Services
c/o Lynn Hayward
101 Huntington Ave
Boston, MA. 02199-7603
John Hancock Advisers Inc. Global Bond 94,118 76.26%
101 Huntington Avenue
Boston, MA 02199-7603
Independence Investment Associates Attn Coleen Independence Mid-Cap 59,046 13.88%
Pink
53 State Street
Boston, MA 02109-2809
Independence Investment Associates Attn: Independence Growth 59,172 75.50%
Colleen Pink
53 State Street
Boston, MA 02109-2809
35
<PAGE>
Number of shares Percentage of
of beneficial total outstanding
Name and Address of Shareholder Fund interest owned shares of the Fund
- ------------------------------- ---- -------------- ------------------
John Hancock Funds Inc. Independence Mid-Cap 325,347 76.47%
FBO Gilbane Building Company
Instituitonal Ret Services
c/o Kristina Graves - 5th Floor
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Funds Inc. Fundmental Value 362,063 63.15%
FBO Gilbane Building Company
Attn: Institutional Ret Services
c/o Kristina Graves - 5th Floor
101 Huntington Avenue
Boston, MA 02199-7603
Lathers' Local No. 144L Fundamental Value 76,563 13.35%
Pension Plan II (DB)
c/o Price Administrators Inc.
400 S. El Camino Real, Suite 950
San Mateo, CA 94402-1708
Independence Investment Associates Independence Value 59,409 66.11%
Attn: Colleen Pink
53 State Street
Boston, MA 02109-2809
John Hancock Funds Independence Value 19,669 21.89%
Aurora Electronics Inc.
Attn: Institutional Ret Services
c/o Geoffrey Hablow
101 Huntington Avenue
Boston, MA 02109-7603
John Hancock Funds Independence Value 10,780 12.00%
Liguori Publications Def Savings Pl
Attn: Institutional Ret Services
c/o Marie Sauvignon
101 Huntington Avenue
Boston, MA 02109-7603
36
<PAGE>
Number of shares Percentage of
of beneficial total outstanding
Name and Address of Shareholder Fund interest owned shares of the Fund
- ------------------------------- ---- -------------- ------------------
Wachovia Bank of Georgia Independence 4,988,701 21.08%
National Service Industries Inc. Diversified Core
Defined Contribution Plans Equity II
Attn: Mr. W. Russell Watson
1420 Peachtree St N.E.
Atlanta, GA 30309-3002
Weil Gotshal & Manges Independence 1,883,394 7.96%
401K Plan FBO The Plan Diversified Core
Attn: Mark A. Vogel Equity II
767 Fifth Avenue
New York, NY 10153-0001
Food Marketing Institute Independence Diversified 1,525,119 6.44%
Attn: Lisa Sally Core Equity II
800 Connecticut Avenue NW
Suite 400
Washington, DC 20006-4505
Charles Schwabb Trust Company FBO Independence Diversified 1,488,332 6.29%
Gaylord Entertainment Co Core Equity II
401(K) Savings Plan
1 Montgomery Street 7th Floor
San Francisco CA 94104-4505
John Hancock Funds Inc. Independence Balanced 370,102 37.09%
FPO Gilbane Building Company
Attn: Institutional Ret Services
c/o Kristina Graves - 5th Floor
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Funds Independence Balanced 145,761 14.61%
FBO Cape Ann Local Lodge
Attn: Institutional Ret Services
c/o Lynne Hayward
101 Huntington Avenue
Boston MA 02199-7603
37
<PAGE>
Number of shares Percentage of
of beneficial total outstanding
Name and Address of Shareholder Fund interest owned shares of the Fund
- ------------------------------- ---- -------------- ------------------
John Hancock Funds Independence Balanced 109,181 10.94%
American College of Physicians Inc.
Defined Contribution Plan A
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Funds Independence Balanced 128,106 12.84%
O N E Color Communications 401(K)
Attn: Institutional Ret Services
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Funds Inc. International Equity 170,317 48.73%
FBO Gilbane Building Company
Attn: Institutional Ret Services
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Funds International Equity 22,905 6.55%
Network Computing Devices
Attn: Institutional Ret Services
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Funds Independence Balanced 57,660 5.78%
Sawyer Ferguson & Walker Co Inc.
401 (k) Profit Sharing Plan
101 Huntington Avenue
Boston, MA 02199-7603
John Hancock Fund Independence Balanced 76,828 7.70%
FBO Manistique Papers Inc.
Employees Tax Sheltered Savings Plan
101 Huntington Avenue
Boston, MA 02199-7603
38
<PAGE>
Number of shares Percentage of
of beneficial total outstanding
Name and Address of Shareholder Fund interest owned shares of the Fund
- ------------------------------- ---- -------------- ------------------
Investment Incentive Program For Multi-Sector Growth 1,452,048 81.20%
John Hancock Employees
John Hancock Place
PO Box 111
John Hancock Advisers Inc. Small Capitalization 11,768 14.13%
101 Huntington Avenue Equity
Boston, MA 02199-7603
The Investment Incentive Plan Small Capitalization 7,047 8.46%
Robert G. Freedman Equity
8 Elm Street
Marblehead, MA 01945-3404
John Hancock Funds Small Capitalization 4,946 5.94%
FBO Hartford Provisions Equity
Attn: Institutional Ret. Services
101 Huntington Ave
Boston, MA 02199-7603
The Investment Incentive Plan Small Capitalization 4,626 5.56%
Edward J. Boudreau, Jr. Equity
34 Swan Road
Winchester, MA
The Investment Incentive Plan Small Capitalization 4,888 5.87%
Linda B. Carter Equity
9 Hodge Rod
Arlington, MA 02174-1015
The Investment Incentive Plan Small Capitalization 4,295 5.16%
John R. Spears Equity
240 Prospect Street
Stoughton, MA 02072-4162
39
<PAGE>
Number of shares Percentage of
of beneficial total outstanding
Name and Address of Shareholder Fund interest owned shares of the Fund
- ------------------------------- ---- -------------- ------------------
John Hancock Funds Small Capitalization 18,134 21.78%
FBO Cape Ann Local Lodge Equity
Attn: Institutional Ret Services
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.
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, 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 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
40
<PAGE>
concerning each Fund's investment management contract and the sub-investment
management contracts of Dividend Performers Fund, International Equity 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.
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. For the period end February 29,
1996, the Adviser waived the entire investment management fees for all Funds
except Diversified Core Equity Fund II. The Adviser received $441,899 after
expense limitation from Diversified Core Equity Fund II and the Advisers paid
the subadviser $404,779.
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
41
<PAGE>
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 $19 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 1,080,000 shareholders. The Adviser is
an 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 high ratings from Standard
& Poor's and A.M. Best. 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. 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.
Accounting and Legal Services Agreement. The Trust, on behalf of the Funds, is a
party to an Accounting and Legal Services Agreement with the Adviser. Pursuant
to this agreement, the Adviser provides the Fund with certain tax, accounting
and legal services. For the two months ended February 29, 1996, the Fund paid
the Adviser the following for services under this agreement: Balanced Fund $160,
Growth Fund $16, Medium Capitalization Fund $116, Value Fund $20, Diversified
Core Equity Fund II $5,556, Active Bond Fund $35, Global Bond Fund $7, Dividend
Performers Fund $98, Multi-Sector Growth Fund $216, Fundamental Value Fund $167
and International Equity Fund $84.
42
<PAGE>
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.
The investment management contract and sub-investment management
contracts of all Funds, except Small Capitalization Fund, Value Fund, Balanced
Fund, Medium Capitalization Fund and Growth Fund, initially expires in the
Spring of 1997. The investment management contract for Small Capitalization Fund
initially expires in the Winter of 1997 and the investment management contract
and sub-investment management contract for Value Fund, Balanced Fund, Medium
Capitalization Fund and Growth Fund initially expire in the Fall of 1997. Each
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.
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
43
<PAGE>
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.
The NAV for each Fund is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4 p.m. Eastern Time)
by dividing the net assets by the number of its shares outstanding.
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.
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
44
<PAGE>
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.
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
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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. As of February
29, 1996, Fundamental Value Fund had a capital loss carryforward of $230, which
will expire in 2004. Presently, there are no realized capital loss carryforwards
in any of the remaining Funds to offset against future net realized capital
gains.
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.
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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 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.
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Dividend Performers Fund, Active Bond Fund, Fundamental Value 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 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.
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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.
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.
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
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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.
A shareholder's account is governed by the laws of The Commonwealth of
Massachusetts.
CALCULATION OF PERFORMANCE
Yield
For the 30-day period ended August 31, 1996, the yields of Active Bond
Fund and Global Bond Fund were 6.84% and 6.28%, respectively.
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:
Yield = 2 ([( a-b ) + 1] 6 - 1)
---
cd
Where:
a = dividends and interest earned during the period.
b = net expenses accrued during the period.
c = the average daily number of fund shares outstanding during
the period that would be entitled to receive dividends.
d = the maximum offering price per share on the last day of the period (NAV).
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Total Return
The average annual total return for the 1 year and life of that Fund
for the period ended August 31, 1996 is as follows:
Commencement of
One Year Ended Operations
August 31, 1996 to August 31, 1996
--------------- ------------------
Small Capitalization Fund 9.88% (a)(b) ---
Dividend Performers Fund 20.95% 18.83% (c)
Active Bond Fund 5.34% 5.89% (c)
Global Bond Fund 5.90% 4.82% (d)
Multi-Sector Growth Fund 24.18% 26.13% (e)
Fundamental Value Fund 5.09% 9.25% (d)
International Equity Fund 5.39% 6.16% (c)
Diversified Core Equity Fund II 17.04% 22.00% (h)
Value Fund 14.78% (a)(g) ---
Growth Fund 9.59% (a)(g) ---
Medium Capitalization Fund 10.53% (a)(g) ---
Balanced Fund 10.32% 10.03% (f)
(a) Not annualized.
(b) From commencement of operations, May 2, 1996.
(c) Commencement of operations, March 30, 1995.
(d) Commencement of operations, April 19, 1995.
(e) Commencement of operations, April 11, 1995.
(f) Commencement of operations, July 6, 1995.
(g) From commencement of operations, October 2, 1995.
(h) Commencement of operations, March 10, 1995.
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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.
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 simple change in value of
an investment over a stated period. Cumulative total returns may be quoted as a
percentage or as a dollar amount, and may be calculated for a single investment,
a series of investments, and/or a series of redemptions, over any time period.
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 such as Money magazine, Forbes, Business Week, The Wall
Street Journal, Micropal, Inc., Morningstar, Stanger's, and Barron's.
Pensions & Investments and Institutional Investor may 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.
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Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease a
Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities of
the Funds are made by officers of the Adviser 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.
Each Fund's primary policy is to execute all purchases and sales of
portfolio instruments at the most favorable prices consistent with best
execution, considering all of the costs of the transaction including brokerage
commissions. This policy governs the selection of brokers and dealers and the
market in which a transaction is executed. Consistent with the foregoing primary
policy, the Rules of Fair Practice of the 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. For the year ended on February 29, 1996, the Funds paid negotiated
brokerage commissions in the amount as follows: Independence Diversified Core
Equity Fund, $116,047, Independence Value Fund, $361, Independence Medium
Capitalization Fund, $1,885, Independence Growth Fund, $310, Independence
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Balance Fund, $1,226, Dividend Performers Fund, $8,269, Multi-Sector Fund,
$29,262, Fundamental Value Fund $18,787, International Equity, $16,778. Active
Bond Fund, Global Bond and Small Capitalization Fund had no negotiated brokerage
commissions.
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. During the fiscal year ended February 29,
1996, Dividend Performers Fund and Multi-Sector Growth Fund directed commissions
in the amount of $833 and $875, respectively to compensate brokers for research
services such as industry, economics and company reviews and evaluations of
securities.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of John Hancock Freedom Securities Corporation and its subsidiaries,
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. During the year ended February 29, 1996, the
Funds did not execute any portfolio transactions with Affiliated Brokers.
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.
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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.
TRANSFER AGENT SERVICES
John Hancock Investor Services Corporation, P.O. Box 9296, Boston, MA
02205-9296, 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.
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, 89 South Street, Boston, Massachusetts 02111. 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.
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 Ratings1
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.
- ---------------------
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 os 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 give to these securities on the date of a Fund's
fiscal year-end.
A1
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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>
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>
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>
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>
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>
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>
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>
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 between
B3
<PAGE>
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>
PART C.
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) The financial statements listed below are included in and incorporated
by reference into Part B of the Registration Statement from the 1996 Annual
Report to Shareholders for the year ended February 29, 1996 (filed
electronically on May 8, 1996; file nos. 811-8852 and 33-86102; accession number
0001010521-96-000061 and 1996 Semi-Annual Report to Shareholders for the year
ended August 30, 1996 (filed electronically on October , 1996; file nos.
811-8852 and 33-86102; accession number 0001005477-96-000332 and
0001005477-96-000331:
John Hancock Institutional Series Trust
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
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 Small Capitalization Equity Fund
Statement of Assets and Liabilities as of February 29, 1996 (audited).
Statement of Operations of the period ended February 29, 1996 (audited).
Statement of Changes in Net Asset for period ended February 29, 1996
(audited).
Notes to Financial Statements.
Financial Highlights for each of the period ended November 29, 1996
(audited).
Schedule of Investments as of February 29, 1996 (audited).
Statement of Assets and Liabilities as of August 31, 1996 (unaudited).
Statement of Operations of the period ended August 31, 1996 (unaudited).
Statement of Changes in Net Asset for period ended August 31, 1996
(unaudited).
Notes to Financial Statements (unaudited).
Financial Highlights for each of the period ended August 31, 1996
(unaudited).
Schedule of Investments as of August 31, 1996 (unaudited).
<PAGE>
(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
As of October 31, 1996, the number of record holders of shares of the
Registrant was as follows:
Title Number of Record Holders
----- ------------------------
Dividend Performers 466
Active Bond 263
Global Bond 130
Multi-Sector Growth 542
Fundamental Value 321
International Equity 399
Independence Diversified Core Equity II 615
Independence Value 6
Independence Growth 4
Independence Medium Capitalization 7
Independence Balanced 20
Small Capitalization Equity 164
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>
(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
not 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>
(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 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) and Sovereign Asset
<PAGE>
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 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 Series Fund, John Hancock
Technology Series, Inc., John Hancock Limited Term Government Fund, John
Hancock World Fund, Freedom Investment Trust, Freedom Investment Trust II,
John Hancock Investment Trust IV, John Hancock Bond Trust, 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 Trust.
(b) The following table lists, for each director and officer of JH Funds,
Inc., the information indicated.
<TABLE>
<CAPTION>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
<S> <C> <C>
Edward J. Boudreau, Jr. Chairman, President and Chairman and
101 Huntington Avenue Chief Executive Officer Chief Executive
Boston, Massachusetts Officer
Foster L. Aborn Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
David F. D'Alessandro Director None
John Hancock Place
P.O. Box 111
Boston, Massachusetts
William C. Fletcher Director None
53 State Street
Boston, Massachusetts
Robert H. Watts Director, Executive None
101 Huntington Avenue Vice President and
Boston, Massachusetts Chief Compliance Officer
Anne C. Hodsdon Director President
101 Huntington Avenue
Boston, Massachusetts
<PAGE>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
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
David A. King Director None
101 Huntington Avenue
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 and Secretary
Boston, Massachusetts
Susan S. Newton Vice President Vice President and
101 Huntington Avenue Secretary
Boston, Massachusetts
<PAGE>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
William S. Nichols Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Christopher M. Meyer Second Vice President None
101 Huntington Avenue and Treasurer
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
<PAGE>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
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
Anthony P. Petrucci Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Charles H. Womack Senior Vice President None
6501 Americas parkway
Suite 950
Alberquerque, New Mexico
Keith Harstein Senior Vice President None
101 Huntington Avenue
Boston, Massachusetts
Griselda Lyman Vice President None
101 Huntington Avenue
Boston, Massachusetts
Karen Walsh Vice President None
101 Huntington Avenue
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>
(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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant certifies that it meets all the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and 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
22nd day of November 1996.
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) November 22, 1996
- ---------------------------
James B. Little
*
- --------------------------- Trustee
Thomas W. L. Cameron
*
- --------------------------- Trustee
James F. Carlin
*
- --------------------------- Trustee
William H. Cunningham
*
- --------------------------- Trustee
Charles F. Fretz
- --------------------------- Trustee
Anne C. Hodsdon
<PAGE>
*
- --------------------------- 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/Susan S. Newton November 22, 1996
- ---------------------------
Susan S. Newton
Attorney-in-Fact under
Powers of Attorney dated
June 25, 1996, file herewith
</TABLE>
<PAGE>
<TABLE>
<S> <C>
John Hancock Bank and Thrift Opportunity Fund John Hancock Patriot Global Dividend Fund
John Hancock Bond Fund John Hancock Patriot Preferred Dividend Fund
John Hancock California Tax-Free Income Fund John Hancock Patriot Premium Dividend Fund I
John Hancock Cash Reserve, Inc. John Hancock Patriot Premium Dividend Fund II
John Hancock Current Interest John Hancock Patriot Select Dividend Trust
John Hancock Institutional Series Trust John Hancock Series, Inc.
John Hancock Investment Trust John Hancock Tax-Free Bond Fund
</TABLE>
POWER OF ATTORNEY
The undersigned Trustee/Director of each of the above listed Trusts, each a
Massachusetts business trust, and Corporations, each a Maryland Corporation,
does hereby severally constitute and appoint EDWARD J. BOUDREAU, JR., SUSAN S.
NEWTON, 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 the Trust 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 the Trust 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 25th day of June, 1996.
/s/Edward J. Boudreau, Jr. /s/Leo E. Linbeck, Jr.
- ----------------------------- --------------------------
Edward J. Boudreau, Jr. Leo E. Linbeck, Jr.
/s/James F. Carlin /s/Patricia P. McCarter
- ----------------------------- --------------------------
James F. Carlin Patricia P. McCarter
/s/William H. Cunningham /s/Steven R. Pruchansky
- ----------------------------- --------------------------
William H. Cunningham Steven R. Pruchansky
/s/Charles F. Fretz /s/Richard S. Scipione
- ----------------------------- --------------------------
Charles F. Fretz Richard S. Scipione
/s/Harold R. Hiser, Jr. /s/Norman H. Smith
- ----------------------------- --------------------------
Harold R. Hiser, Jr. Norman H. Smith
/s/Anne C. Hodsdon /s/John P. Toolan
- ----------------------------- --------------------------
Anne C. Hodsdon John P. Toolan
/s/Charles L. Ladner
- -----------------------------
Charles L. Ladner
<PAGE>
JOHN HANCOCK INSTITUTIONAL SERIES
---------------------------------
EXHIBIT INDEX
-------------
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
99.B1 Declaration of Trust dated October 31, 1994.*
99.B1.1 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.**
99.B1.2 Instrument Increasing the Number of Trustees and Appointing
Individual to Fill the Vacancy.****
99.B2 Amended and Restated By-Laws dated December 19, 1994.*
99.B3 None
99.B4 Specimen share certificates for each series of the
Registrant.*
99.B5 Investment Management Contracts between John Hancock
Advisers, Inc. and 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 Berkeley Fundamental
Value Fund, John Hancock Berkeley Overseas Growth Fund.*
99.B5.1 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.*
99.B5.2 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.*
99.B5.3 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.*
99.B5.4 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.*
99.B5.5 Investment Management Contracts between John Hancock
Advisers, Inc. and the Registrant on behalf of John
Hancock Independence Value Fund, John Hancock Independence
Growth Fund, John Hancock Independence Balanced Fund, John
Hancock Small Capitalization Equity Fund, and John Hancock
Independence Medium Capitalization Fund.***
99.B5.6 Sub-Investment Management Contract among the Registrant on
behalf of John Hancock Independence Value Fund, John Hancock
Independence Medium Capitalization Fund, and John Hancock
Independence Growth Fund, John Hancock Advisers, Inc., and
Independence Investment Associates, Inc.***
99.B6 Distribution Agreement between the Registrant and John
Hancock Funds, Inc. dated January 30, 1995.*
99.B6.1 Amendment to Distribution Agreement between the Registrant and
John Hancock Funds, Inc. dated December 11, 1995.***
99.B7 None
<PAGE>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
99.B8 Master Custodian Agreement between John Hancock Mutual
Funds and Investors Bank and Trust Company. *
99.B8.1 Master Custodian Agreement between John Hancock Mutual
Funds and State Street Bank and Trust Company.*
99.B8.2 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.*
99.B8.3 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.*
99.B8.4 Amendment to Master Custodian Agreement between Registrant
on behalf of John Hancock Small Capitalization Fund and
Investors Bank and Trust Company.***
99.B9 Transfer Agency and Service Agreement between the
Registrant and John Hancock Investor Services
Corporation dated January 30, 1995.*
99.B9.1 Amendment to Transfer Agency and Service Agreement between the
Registrant and John Hancock Investor Services Corporation dated
December 11, 1995.***
99.B9.2 Accounting and Legal Services Agreement between John Hancock
Advisers, Inc. and Registrant as of January 1, 1996.****
99.B10 Legal Opinion with respect to the Registrant.*
99.B11 None
99.B12 Not Applicable.
99.B13 Subscription agreement between Registrant and John
Hancock Advisers, Inc. dated January 12, 1995.*
99.B14 None
99.B15 None
99.B16 Working papers showing yield and total return.****
<PAGE>
27.1A Independence Value Fund - Annual
27.1B Independence Value Fund - Semi
27.2A Independence Growth Fund - Annual
27.2B Independence Growth Fund - Semi
27.3A Independence Medium Capitalization Fund - Annual
27.3B Independence Medium Capitalization Fund - Semi
27.4A Fundamental Value Fund - Annual
27.4B Fundamental Value Fund - Semi
27.5A Independence Balanced Fund - Annual
27.5B Independence Balanced Fund - Semi
27.6A International Equity Fund - Annual
27.6B International Equity Fund - Semi
27.7A Small Capitalization Equity Fund - Annual
27.7B Small Capitalization Equity Fund - Semi
27.8A Dividend Performers Fund - Annual
27.8B Dividend Performers Fund - Semi
27.9A Active Bond Fund - Annual
27.9B Active Bond Fund - Semi
27.10A Global Bond Fund - Annual
27.10B Global Bond Fund - Semi
27.11A Multi-Sector Growth Fund - Annual
27.11B Multi-Sector Growth Fund - Semi
27.12A Independence Diversified Core Equity Fund II - Annual
27.12B Independence Diversified Core Equity Fund II - Semi
* Previously filed electronically with post-effective amendment number 1
(file nos. 811-8851 and 33-86102) on September 8, 1995, accession number
0000950135-95-001879.
** Previously filed electronically with post-effective amendment number 2
(file nos. 811-8851 and 33-86102) on September 25, 1995, accession number
0000950135-95-001978.
*** Previously filed electronically with post-effective amendment number 4
(file nos. 811-8851 and 33-86102) on January 5, 1996, accession number
0000950135-96-000075.
**** Previously filed electronically with post-effective amendment number 5
(file nos. 811-8851 and 33-86102) on June 24, 1996, accession number
0001010521-96-000102.
+ Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 011
<NAME> JOHN HANCOCK INDEPENDENCE VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 628,673
<INVESTMENTS-AT-VALUE> 686,256
<RECEIVABLES> 90,619
<ASSETS-OTHER> 11,208
<OTHER-ITEMS-ASSETS> 57,583
<TOTAL-ASSETS> 788,083
<PAYABLE-FOR-SECURITIES> 18,985
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87,195
<TOTAL-LIABILITIES> 106,180
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 619,905
<SHARES-COMMON-STOCK> 71,972
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 1,270
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,145
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 57,583
<NET-ASSETS> 681,903
<DIVIDEND-INCOME> 8,146
<INTEREST-INCOME> 584
<OTHER-INCOME> 0
<EXPENSES-NET> 2,206
<NET-INVESTMENT-INCOME> 6,524
<REALIZED-GAINS-CURRENT> 3,145
<APPREC-INCREASE-CURRENT> 57,583
<NET-CHANGE-FROM-OPS> 67,252
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,254
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 71,507
<NUMBER-OF-SHARES-REDEEMED> 120
<SHARES-REINVESTED> 585
<NET-CHANGE-IN-ASSETS> 681,903
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,855
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 79,199
<AVERAGE-NET-ASSETS> 562,051
<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> 0.10
<PER-SHARE-GAIN-APPREC> 0.96
<PER-SHARE-DIVIDEND> 0.09
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.47
<EXPENSE-RATIO> 0.95
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 012
<NAME> JOHN HANCOCK INDEPENDENCE VALUE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 814,870
<INVESTMENTS-AT-VALUE> 856,522
<RECEIVABLES> 4,060
<ASSETS-OTHER> 7,756
<OTHER-ITEMS-ASSETS> 41,036
<TOTAL-ASSETS> 867,722
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 13,262
<TOTAL-LIABILITIES> 13,262
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 777,808
<SHARES-COMMON-STOCK> 88,419
<SHARES-COMMON-PRIOR> 71,972
<ACCUMULATED-NII-CURRENT> 11,813
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 23,803
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 41,036
<NET-ASSETS> 854,460
<DIVIDEND-INCOME> 14,012
<INTEREST-INCOME> 435
<OTHER-INCOME> 0
<EXPENSES-NET> 3,904
<NET-INVESTMENT-INCOME> 10,543
<REALIZED-GAINS-CURRENT> 20,658
<APPREC-INCREASE-CURRENT> (16,547)
<NET-CHANGE-FROM-OPS> 14,654
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,195
<NUMBER-OF-SHARES-REDEEMED> 4,748
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 172,557
<ACCUMULATED-NII-PRIOR> 1,270
<ACCUMULATED-GAINS-PRIOR> 3,145
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,288
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 31,280
<AVERAGE-NET-ASSETS> 819,691
<PER-SHARE-NAV-BEGIN> 9.47
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 0.07
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.66
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 021
<NAME> JOHN HANCOCK INDEPENDENCE GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 505,016
<INVESTMENTS-AT-VALUE> 549,806
<RECEIVABLES> 81,201
<ASSETS-OTHER> 8,016
<OTHER-ITEMS-ASSETS> 44,790
<TOTAL-ASSETS> 639,796
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 90,369
<TOTAL-LIABILITIES> 90,369
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 503,059
<SHARES-COMMON-STOCK> 59,172
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,578
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 44,790
<NET-ASSETS> 549,427
<DIVIDEND-INCOME> 3,537
<INTEREST-INCOME> 426
<OTHER-INCOME> 0
<EXPENSES-NET> 2,026
<NET-INVESTMENT-INCOME> 1,937
<REALIZED-GAINS-CURRENT> 2,701
<APPREC-INCREASE-CURRENT> 44,790
<NET-CHANGE-FROM-OPS> 49,428
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,937
<DISTRIBUTIONS-OF-GAINS> 1,123
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 58,832
<NUMBER-OF-SHARES-REDEEMED> 8
<SHARES-REINVESTED> 348
<NET-CHANGE-IN-ASSETS> 549,427
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,704
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 82,369
<AVERAGE-NET-ASSETS> 516,173
<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.81
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0.02
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.29
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 022
<NAME> JOHN HANCOCK INDEPENDENCE GROWTH FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 521,423
<INVESTMENTS-AT-VALUE> 550,734
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<ASSETS-OTHER> 7,139
<OTHER-ITEMS-ASSETS> 29,311
<TOTAL-ASSETS> 583,254
<PAYABLE-FOR-SECURITIES> 23,594
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,807
<TOTAL-LIABILITIES> 35,401
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 503,059
<SHARES-COMMON-STOCK> 59,172
<SHARES-COMMON-PRIOR> 59,172
<ACCUMULATED-NII-CURRENT> 1,715
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 13,768
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,311
<NET-ASSETS> 547,853
<DIVIDEND-INCOME> 4,232
<INTEREST-INCOME> 129
<OTHER-INCOME> 0
<EXPENSES-NET> 2,646
<NET-INVESTMENT-INCOME> 1,715
<REALIZED-GAINS-CURRENT> 12,190
<APPREC-INCREASE-CURRENT> (15,479)
<NET-CHANGE-FROM-OPS> (1,574)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (1,574)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,578
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,228
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 29,901
<AVERAGE-NET-ASSETS> 555,463
<PER-SHARE-NAV-BEGIN> 9.29
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> (0.06)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 9.26
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 031
<NAME> JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> OCT-02-1995
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 3,645,872
<INVESTMENTS-AT-VALUE> 3,937,606
<RECEIVABLES> 58,786
<ASSETS-OTHER> 8,143
<OTHER-ITEMS-ASSETS> 291,734
<TOTAL-ASSETS> 4,004,939
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 82,031
<TOTAL-LIABILITIES> 82,031
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,626,554
<SHARES-COMMON-STOCK> 422,379
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 9,267
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (4,647)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 291,734
<NET-ASSETS> 3,922,908
<DIVIDEND-INCOME> 25,988
<INTEREST-INCOME> 7,777
<OTHER-INCOME> 0
<EXPENSES-NET> 11,485
<NET-INVESTMENT-INCOME> 22,280
<REALIZED-GAINS-CURRENT> (4,647)
<APPREC-INCREASE-CURRENT> 291,734
<NET-CHANGE-FROM-OPS> 309,367
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,013
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 448,130
<NUMBER-OF-SHARES-REDEEMED> 27,231
<SHARES-REINVESTED> 1,480
<NET-CHANGE-IN-ASSETS> 3,922,908
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,177
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 86,864
<AVERAGE-NET-ASSETS> 2,780,577
<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.74
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.29
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 032
<NAME> JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
<INVESTMENTS-AT-COST> 4,013,181
<INVESTMENTS-AT-VALUE> 4,214,383
<RECEIVABLES> 12,323
<ASSETS-OTHER> 7,837
<OTHER-ITEMS-ASSETS> 200,638
<TOTAL-ASSETS> 4,233,979
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,659
<TOTAL-LIABILITIES> 15,659
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,890,255
<SHARES-COMMON-STOCK> 450,618
<SHARES-COMMON-PRIOR> 422,379
<ACCUMULATED-NII-CURRENT> 38,364
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 89,063
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 200,638
<NET-ASSETS> 4,218,320
<DIVIDEND-INCOME> 46,353
<INTEREST-INCOME> 3,525
<OTHER-INCOME> 0
<EXPENSES-NET> 20,781
<NET-INVESTMENT-INCOME> 29,097
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 041
<NAME> JOHN HANCOCK FUNDAMENTAL VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> APR-19-1995
<PERIOD-END> FEB-29-1996
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 042
<NAME> JOHN HANCOCK FUNDAMENTAL VALUE FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
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<ACCUM-APPREC-OR-DEPREC> (42,183)
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<ACCUMULATED-NII-PRIOR> 6,338
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<PER-SHARE-NAV-BEGIN> 9.09
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 051
<NAME> JOHN HANCOCK INDEPENDENCE BALANCED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> JUL-06-1995
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 4,993,296
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<SHARES-COMMON-STOCK> 557,295
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 28,772
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 20,243
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 170,514
<NET-ASSETS> 5,154,934
<DIVIDEND-INCOME> 22,351
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<EXPENSES-NET> 15,291
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<REALIZED-GAINS-CURRENT> 20,423
<APPREC-INCREASE-CURRENT> 170,514
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<NUMBER-OF-SHARES-SOLD> 609,416
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<ACCUMULATED-NII-PRIOR> 0
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<GROSS-EXPENSE> 94,884
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<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> 0.25
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<PER-SHARE-NAV-END> 9.25
<EXPENSE-RATIO> 0.90
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 052
<NAME> JOHN HANCOCK INDEPENDENC BALANCED FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
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<TOTAL-LIABILITIES> 128,777
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<PAID-IN-CAPITAL-COMMON> 6,563,318
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<SHARES-COMMON-PRIOR> 557,295
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<ACCUMULATED-NET-GAINS> 30,839
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<ACCUM-APPREC-OR-DEPREC> 103,580
<NET-ASSETS> 6,745,654
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<INTEREST-INCOME> 112,474
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<EXPENSES-NET> 27,519
<NET-INVESTMENT-INCOME> 119,531
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<APPREC-INCREASE-CURRENT> (66,934)
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<NUMBER-OF-SHARES-SOLD> 228,181
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<SHARES-REINVESTED> 10,893
<NET-CHANGE-IN-ASSETS> 1,628,093
<ACCUMULATED-NII-PRIOR> 28,772
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<AVERAGE-NET-ASSETS> 6,098,632
<PER-SHARE-NAV-BEGIN> 9.25
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> (0.07)
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<EXPENSE-RATIO> 0.90
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 061
<NAME> JOHN HANCOCK INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-30-1995
<PERIOD-END> FEB-29-1996
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<ACCUMULATED-NII-CURRENT> (813)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 062
<NAME> JOHN HANCOCK INTERNTIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
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<ACCUMULATED-NII-PRIOR> 0
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<PER-SHARE-NAV-BEGIN> 9.24
<PER-SHARE-NII> 0.08
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<EXPENSE-RATIO> 1.00
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 071
<NAME> JOHN HANCOCK SMALL CAPITALIZATION EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
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<DIVIDEND-INCOME> 0
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<PER-SHARE-NAV-BEGIN> 0
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<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 072
<NAME> JOHN HANCOCK SMALL CAPITALIZATION EQUIT FUND
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAY-02-1996
<PERIOD-END> AUG-31-1996
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<OTHER-INCOME> 0
<EXPENSES-NET> 847
<NET-INVESTMENT-INCOME> 711
<REALIZED-GAINS-CURRENT> (5,004)
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<NUMBER-OF-SHARES-SOLD> 53,147
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<NET-CHANGE-IN-ASSETS> 458,612
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 753
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 27,796
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<PER-SHARE-NAV-BEGIN> 8.50
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<PER-SHARE-NAV-END> 9.34
<EXPENSE-RATIO> 0.90
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<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 081
<NAME> JOHN HANCOCK DIVIDEND PERFORMERS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-30-1995
<PERIOD-END> FEB-29-1996
<INVESTMENTS-AT-COST> 2,861,160
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<OTHER-ITEMS-LIABILITIES> 25,726
<TOTAL-LIABILITIES> 25,726
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<PAID-IN-CAPITAL-COMMON> 2,826,605
<SHARES-COMMON-STOCK> 326,898
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 4,660
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<ACCUMULATED-NET-GAINS> 22,146
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<TABLE> <S> <C>
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<SERIES>
<NUMBER> 082
<NAME> JOHN HANCOCK DIVIDEND PERFORMERS FUND
<S> <C>
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<NUMBER-OF-SHARES-SOLD> 156,262
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 091
<NAME> JOHN HANCOCK ACTIVE BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> MAR-30-1995
<PERIOD-END> FEB-29-1996
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<OVERDISTRIBUTION-NII> 0
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<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,391
<NET-ASSETS> 1,170,627
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<NUMBER-OF-SHARES-SOLD> 252,193
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 092
<NAME> JOHN HANCOCK ACTIVE BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
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<ACCUMULATED-NII-CURRENT> 141
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<ACCUMULATED-NET-GAINS> (1,444)
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<ACCUM-APPREC-OR-DEPREC> (24,254)
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<GROSS-EXPENSE> 35,233
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<PER-SHARE-NAV-BEGIN> 8.64
<PER-SHARE-NII> 0.29
<PER-SHARE-GAIN-APPREC> (0.26)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 110
<NAME> JOHN HANCOCK GLOBAL BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> APR-19-1995
<PERIOD-END> FEB-29-1996
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<OTHER-ITEMS-ASSETS> (15)
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<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,014
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<ACCUM-APPREC-OR-DEPREC> (448)
<NET-ASSETS> 216,741
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<EXPENSES-NET> 1,061
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<GROSS-EXPENSE> 80,500
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<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> 0.41
<PER-SHARE-GAIN-APPREC> (0.04)
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<EXPENSE-RATIO> 0.91
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 112
<NAME> JOHN HANCOCK GLOBAL BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
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<ACCUMULATED-NET-GAINS> (8,849)
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<ACCUM-APPREC-OR-DEPREC> (5,307)
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<ACCUMULATED-NII-PRIOR> 0
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<OVERDISTRIB-NII-PRIOR> (616)
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<GROSS-EXPENSE> 36,911
<AVERAGE-NET-ASSETS> 991,231
<PER-SHARE-NAV-BEGIN> 8.46
<PER-SHARE-NII> 0.26
<PER-SHARE-GAIN-APPREC> (0.08)
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<EXPENSE-RATIO> 0.85
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 120
<NAME> JOHN HANCOCK MULTI-SECTOR GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-START> APR-11-1995
<PERIOD-END> FEB-29-1996
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<NET-INVESTMENT-INCOME> (3,720)
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<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> (0.01)
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 121
<NAME> JOHN HANCOCK MULTI-SECTOR GROWTH FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
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<NET-INVESTMENT-INCOME> (3,435)
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<PER-SHARE-NAV-BEGIN> 10.69
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 130
<NAME> JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
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<NET-INVESTMENT-INCOME> 2,020,577
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<GROSS-EXPENSE> 771,415
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<PER-SHARE-NAV-BEGIN> 8.50
<PER-SHARE-NII> 0.20
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 131
<NAME> JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> AUG-31-1996
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