FILE NO. 33-86102
FILE NO. 811-8852
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
---------
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. ( )
Post-Effective Amendment No. 8 (X)
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 9 (X)
---------
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
---------
SUSAN S. NEWTON
Vice President and Secretary
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199
(Name and Address of Agent for Service)
---------
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
It is proposed that this filing will become effective:
( ) immediately upon filing pursuant to paragraph (b) of Rule 485
( ) on (DATE) pursuant to paragraph (b) of Rule 485
( ) 75 days after filing pursuant to paragraph (a) of Rule 485
(X) on July 1, 1998 pursuant to paragraph (a) of Rule 485
If appropiate, check the following box:
( ) This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
List of all the Funds in the Trust:
John Hancock Active Bond Fund
John Hancock Global Bond Fund
John Hancock Small Capitalization Value Fund
John Hancock Dividend Performers Fund
John Hancock Multi-Sector Growth Fund
John Hancock Small Capitalization Growth Fund
John Hancock International Equity Fund
John Hancock Independence Balanced Fund
John Hancock Independence Value Fund
John Hancock Independence Diversified Core Equity Fund II
John Hancock Independence Growth Fund
John Hancock Independence Medium Capitalization Fund
<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
July 1, 1998
The John Hancock Institutional Series Trust consists of twelve mutual funds,
five of which are offered in this Prospectus (each a "Fund," and collectively,
the "Funds"):
JOHN HANCOCK INDEPENDENCE BALANCED FUND
JOHN HANCOCK INDEPENDENCE VALUE FUND
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
JOHN HANCOCK INDEPENDENCE GROWTH FUND
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
TABLE OF CONTENTS ----
<S> <C>
Expense Information......................................... 2
The Funds' Financial Highlights............................. 3
An Overview of the Funds.................................... 6
Investment Objectives and Policies.......................... 7
Who May Buy Shares.......................................... 9
Investors' Guide to Services................................ 10
How to Buy Shares...................................... 10
Opening an Account..................................... 10
Buying Additional Shares............................... 11
Reports to Shareholders................................ 11
Share Price............................................ 11
Redeeming Shares....................................... 12
Exchange Privilege..................................... 13
Organization and Management of the Funds.................... 14
The Funds' Expenses......................................... 14
Dividends and Taxes......................................... 15
Performance................................................. 16
Risk Factors, Investments and Techniques.................... 16
</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 July 1, 1998, which is
incorporated by reference into this Prospectus, free of charge by writing or
telephoning: John Hancock Signature Services, Inc., 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 FUNDS LOGO] [RECYCLE LOGO] Printed on Recycled Paper.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various costs and expenses that you will bear, directly or indirectly when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below are based on actual fees and expenses for the Funds'
fiscal year ended February 28, 1998 adjusted to reflect current fees and
expenses. Actual expenses may be greater or less than those indicated.
<TABLE>
<CAPTION>
ALL FUNDS
SHAREHOLDER TRANSACTION EXPENSES ---------
<S> <C>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Maximum Sales Charge (as a percentage of offering price) NONE
Sales Charge on Reinvested Dividends NONE
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Deferred Sales Charge and Redemptions NONE
Redemption Fees NONE*
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Exchange Fees NONE
</TABLE>
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: +
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL FUND 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>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCED FUND 0.54% 0.36% 0.90% $ 9 $29 $50 $111
VALUE FUND 0.00% 0.95% 0.95% $10 $30 $53 $117
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
DIVERSIFIED CORE
EQUITY FUND II 0.50% 0.15% 0.65% $ 7 $21 $36 $ 81
GROWTH FUND 0.00% 0.95% 0.95% $10 $30 $53 $117
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
MEDIUM CAPITALIZATION
FUND 0.44% 0.56% 1.00% $10 $32 $55 $122
</TABLE>
- ---------------
* Redemption by wire fee (currently $4.00) not included.
** Other Expenses include transfer agent, legal, audit, custody and other
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: Balanced Fund, 0.70%, 0.36% and 1.06%; Value
Fund, 0.80%, 1.10% and 1.90%; Growth Fund, 0.80%, 2.72% and 3.52% and Medium
Capitalization Fund, 0.80%, 0.56% and 1.36%. Diversified Cove Equity Fund II
has a voluntary limitation on total operating expenses of 0.70%.
+ This example should not be considered a representation of the Funds' actual
or future expenses, which may be greater or less than those shown.
The management fee referred to above is more fully explained in this Prospectus
under the caption "THE FUNDS' EXPENSES" and in the Statement of Additional
Information under the caption "INVESTMENT ADVISORY AND OTHER SERVICES."
2
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
The Financial Highlights for the year ended February 28, 1998 has been audited
by Deloitte & Touche LLP, the Funds' independent auditors, whose unqualified
report is included in the Funds' 1998 Annual Report and is included in the
Statement of Additional Information. The Financial Highlights for the year ended
February 28, 1997 and for the period from July 16, 1995 (commencement of
operations) to February 29, 1996, were audited by Arthur Andersen LLP whose
reports expressed unqualified opinions. 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 Signature Services, Inc. ("Signature Services") at the address or
telephone number listed on the front page of this Prospectus.
Selected data for a share outstanding throughout each period indicated is as
follows:
<TABLE>
<CAPTION>
JOHN HANCOCK INDEPENDENCE BALANCED FUND
FOR THE PERIOD JULY 6, 1995
(COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
---------------------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.................... $ 8.50 $ 9.25 $ 9.94
------ ------- -------
Net Investment Income(3)................................ 0.25 0.38 0.38
Net Realized and Unrealized Gain on Investments......... 0.63 0.73 1.60
------ ------- -------
Total from Investment Operations................ 0.88 1.11 1.98
------ ------- -------
Less Distributions:
Dividends from Net Investment Income................ (0.13) (0.34) (0.35)
Distributions from Net Realized Gain on Investments
Sold.............................................. -- (0.08) (0.15)
------ ------- -------
Total Distributions............................... (0.13) (0.42) (0.50)
------ ------- -------
Net Asset Value, End of Period.......................... $ 9.25 $ 9.94 $ 11.42
====== ======= =======
Total Investment Return at Net Asset Value(6)........... 10.42%(2) 12.36% 20.44%
Total Adjusted Investment Return at Net Asset
Value(6,7)............................................ 7.36%(2) 11.62% 20.28%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)............... $5,155 $13,093 $77,116
Ratio of Expenses to Average Net Assets................. 0.90%(1) 0.90% 0.90%
Ratio of Adjusted Expenses to Average Net Assets(4,5)... 5.58%(1) 1.64% 1.06%
Ratio of Net Investment Income to Average Net Assets.... 3.96%(1) 3.96% 3.52%
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets(4,5)............................... (0.72%)(1) 3.22% 3.36%
Portfolio Turnover Rate................................. 31% 149% 224%
Fee Reduction Per Share(3).............................. $ 0.29 $ 0.07 $ 0.02
Average Brokerage Commission Rate(8).................... N/A $0.0276 $0.0059
</TABLE>
<TABLE>
<CAPTION>
JOHN HANCOCK INDEPENDENCE VALUE FUND FOR THE PERIOD OCTOBER 2, 1995
(COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
------------------------------ ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period................... $ 8.50 $ 9.47 $ 10.88
-------- ------- -------
Net Investment Income(3)............................... 0.10 0.23 0.21
Net Realized and Unrealized Gain on Investments........ 0.96 1.77 3.33
-------- ------- -------
Total from Investment Operations............... 1.06 2.00 3.54
-------- ------- -------
Less Distributions:
Dividends from Net Investment Income............... (0.09) (0.19) (0.13)
Distributions from Net Realized Gain on Investments
Sold............................................. -- (0.40) (0.36)
-------- ------- -------
Total Distributions.............................. (0.09) (0.59) (0.49)
-------- ------- -------
Net Asset Value, End of Period......................... $ 9.47 $ 10.88 $ 13.93
======== ======= =======
Total Investment Return at Net Asset Value(6).......... 12.52%(2) 21.36% 32.97%
Total Adjusted Investment Return at Net Asset
Value(6,7)........................................... (1.18%)(2) 15.92% 32.02%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted).............. $ 682 $ 1,323 $ 7,747
Ratio of Expenses to Average Net Assets................ 0.95%(1) 0.95% 0.95%
Ratio of Adjusted Expenses to Average Net
Assets(4,5).......................................... 34.06%(1) 6.39% 1.90%
Ratio of Net Investment Income to Average Net Assets... 2.81%(1) 2.26% 1.60%
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets(4,5).............................. (30.30%)(1) (3.18%) 0.65%
Portfolio Turnover Rate................................ 12% 66% 119%
Fee Reduction Per Share(3)............................. $ 1.22 $ 0.55 $ 0.12
Average Brokerage Commission Rate(8)................... N/A $0.0233 $0.0304
</TABLE>
- ---------------
(1) Annualized.
(2) Not annualized.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the Adviser during the periods shown.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
3
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period indicated is as
follows:
<TABLE>
<CAPTION>
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II
FOR THE PERIOD MARCH 10, 1995
(COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
----------------------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................... $ 8.50 $ 10.96 $ 12.76
-------- -------- --------
Net Investment Income(3).................................. 0.20 0.20 0.17
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions........................... 2.38 2.23 3.91
-------- -------- --------
Total from Investment Operations.................. 2.58 2.43 4.08
-------- -------- --------
Less Distributions:
Dividends from Net Investment Income.................. (0.11) (0.19) (0.17)
Distributions from Net Realized Gains on Investments
Sold and Foreign Currency Transactions.............. (0.01) (0.44) (1.33)
-------- -------- --------
Total Distributions............................... (0.12) (0.63) (1.50)
-------- -------- --------
Net Asset Value, End of Period............................ $ 10.96 $ 12.76 $ 15.34
======== ======== ========
Total Investment Return at Net Asset Value(6)............. 30.48%(2) 22.63% 33.61%
Total Adjusted Investment Return at Net Asset
Value(6,7).............................................. 30.42%(2) N/A N/A
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................. $188,679 $320,029 $572,093
Ratio of Expenses to Average Net Assets................... 0.70%(1) 0.67% 0.65%
Ratio of Adjusted Expenses to Average Net Assets(4,5)..... 0.76%(1) N/A N/A
Ratio of Net Investment Income to Average Net Assets...... 2.00%(1) 1.65% 1.12%
Ratio of Adjusted Net Investment Income to Average Net
Assets(4,5)............................................. 1.94%(1) N/A N/A
Portfolio Turnover Rate................................... 39% 81% 76%
Fee Reduction Per Share(3)................................ $ 0.01 N/A N/A
Average Brokerage Commission Rate(8)...................... N/A $ 0.0420 $ 0.0459
</TABLE>
<TABLE>
<CAPTION>
JOHN HANCOCK INDEPENDENCE GROWTH FUND
FOR THE PERIOD OCTOBER 2, 1995
(COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
------------------------------ ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period..................... $ 8.50 $ 9.29 $ 11.01
------- ------- -------
Net Investment Income(3)................................. 0.03 0.05 0.04
Net Realized and Unrealized Gain on Investments.......... 0.81 2.16 4.34
------- ------- -------
Total from Investment Operations................. 0.84 2.21 4.38
------- ------- -------
Less Distributions:
Dividends from Net Investment Income................. (0.03) (0.04) (0.03)
Distributions from Net Realized Gain on
Investments........................................ (0.02) (0.45) (0.48)
------- ------- -------
Total Distributions.............................. (0.05) (0.49) (0.51)
------- ------- -------
Net Asset Value, End of Period........................... $ 9.29 $ 11.01 $ 14.88
======= ======= =======
Total Investment Return at Net Asset Value(6)............ 9.94%(2) 24.19% 40.52%
Total Adjusted Investment Return at Net Asset
Value(6,7)............................................. (5.63%)(2) 17.40% 37.95%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................ $ 549 $ 883 $ 4,605
Ratio of Expenses to Average Net Assets.................. 0.95%(1) 0.95% 0.95%
Ratio of Adjusted Expenses to Average Net Assets(4,5).... 38.57%(1) 7.74% 3.52%
Ratio of Net Investment Income to Average Net Assets..... 0.91%(1) 0.49% 0.34%
Ratio of Adjusted Net Investment Loss to Average Net
Assets(4,5)............................................ (36.71%)(1) (6.30%) (2.23%)
Portfolio Turnover Rate.................................. 21% 142% 91%
Fee Reduction Per Share(3)............................... $ 1.36 $ 0.68 $ 0.33
Average Brokerage Commission Rate(8)..................... N/A $0.0233 $0.0315
</TABLE>
- ---------------
(1) Annualized.
(2) Not annualized.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the Adviser during the periods shown.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
4
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period indicated is as
follows:
<TABLE>
<CAPTION>
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
FOR THE PERIOD OCTOBER 2, 1995
(COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
------------------------------ ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period..................... $ 8.50 $ 9.29 $ 10.45
------- ------- -------
Net Investment Income(3)................................. 0.08 0.12 0.09
Net Realized and Unrealized Gain on Investments.......... 0.74 1.45 3.69
------- ------- -------
Total from Investment Operations................. 0.82 1.57 3.78
------- ------- -------
Less Distributions:
Dividends from Net Investment Income................. (0.03) (0.12) (0.09)
Distributions from Net Realized Gain on Investments
Sold............................................... -- (0.29) (0.84)
------- ------- -------
Total Distributions................................ (0.03) (0.41) (0.93)
------- ------- -------
Net Asset Value, End of Period........................... $ 9.29 $ 10.45 $ 13.30
======= ======= =======
Total Investment Return at Net Asset Value(6)............ 9.71%(2) 17.19% 37.30%
Total Adjusted Investment Return at Net Asset
Value(6,7)............................................. 7.00%(2) 15.49% 36.94%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................ $ 3,923 $ 5,240 $ 9,722
Ratio of Expenses to Average Net Assets.................. 1.00%(1) 1.00% 1.00%
Ratio of Adjusted Expenses to Average Net Assets(4,5).... 7.55%(1) 2.70% 1.36%
Ratio of Net Investment Income to Average Net Assets..... 1.94%(1) 1.26% 0.75%
Ratio of Adjusted Net Investment Income (Loss) to Average
Net Assets(4,5)........................................ (4.61%)(1) (0.44%) 0.39%
Portfolio Turnover Rate.................................. 3% 78% 65%
Fee Reduction Per Share(3)............................... $ 0.26 $ 0.17 $ 0.04
Average Brokerage Commission Rate(8)..................... N/A $0.0252 $0.0276
</TABLE>
- ---------------
(1) Annualized.
(2) Not annualized.
(3) Based on the average of the shares outstanding at the end of each month.
(4) Unreimbursed, without fee reduction.
(5) 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.
(6) Total investment return assumes dividend reinvestment.
(7) An estimated total return calculation that does not take into consideration
fee reductions by the Adviser during the periods shown.
(8) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
5
<PAGE>
AN OVERVIEW OF THE FUNDS
JOHN HANCOCK INDEPENDENCE BALANCED FUND seeks above-average total return through
capital appreciation and income. The Fund invests in a balanced portfolio
actively 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(R) and the Lehman Brothers Government/Corporate Bond Index.
JOHN HANCOCK INDEPENDENCE VALUE FUND seeks above-average total return. The Fund
emphasizes relatively undervalued securities and seeks higher dividend yield
than the Diversified Core Equity Fund II. The Fund's performance and risk
profile benchmark portfolio is the Russell 1000 Value Index(R).
JOHN HANCOCK INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II seeks above-average
total return consisting of capital appreciation and income. The Fund's
performance and risk profile benchmark is the Standard and Poor's 500 Composite
Stock Index(R) (the "S&P 500 Index").
JOHN HANCOCK INDEPENDENCE GROWTH FUND seeks above-average total return. The Fund
emphasizes 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).
JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND seeks above-average total
return. The Fund emphasizes investments in securities of medium-sized companies
that tend to be at a stage of development where their growth is higher than the
average of all companies. The Fund's performance and risk profile benchmark is
the Callan Medium Capitalization Index.
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 subadviser of each Fund is
Independence Investment Associates, Inc. ("IIA" or the "Subadviser"), also a
wholly-owned indirect subsidiary of the Life Company.
- ---------------
(R) "Standard & Poor's 500" and "S&P 500" are registered trademarks of Standard
& Poor's Ratings Group. "Russell 1000 Value Index" and "Russell 1000 Growth
Index" are registered trademarks of Frank Russell Company. None of the Funds,
the Adviser or the Subadviser is affiliated with Standard & Poor's Corporation,
Frank Russell Company, Lehman Brothers (publisher of the Lehman Brothers
Government/Corporate Bond Index) or Callan Associates, Inc. (publisher of the
Callan Medium Capitalization Index and the Callan Broad Market Index).
------------------------
6
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund invests in common stocks. IIA considers stocks which combine value and
improving fundamentals to be attractive investments for the Funds. In
determining what constitutes "value," IIA seeks stocks with the following
attributes: high growth relative to price/earning ratio, rising dividend stream,
and high asset value. To determine whether a company's stock exhibits improving
fundamentals, IIA looks for accelerating earnings growth, positive earnings
surprises when compared to the market's expectations, and favorable cyclical
timing. Each stock is given a score and ranked from most to least attractive
based on how cheap it is and how much its fundamentals are improving. IIA
selects stocks from the top of this list and observes a mandatory sell policy of
the bottom quintile. IIA calls this strategy of ranking an index of stocks and
nixing out the bottom-ranked issues: "NIXDEX".
- ------------------------------------------------------------------------------
EACH FUND INVESTS A PERCENTAGE OF ITS TOTAL ASSETS IN COMMON STOCKS.
- ------------------------------------------------------------------------------
The "Equity Funds" (Value Fund, Diversified Core Equity Fund II, Growth Fund,
and Medium Capitalization Fund) will invest at least 65% of their assets in
common stocks although, under normal market conditions, the Equity Funds will be
substantially fully invested in common stocks. The Balanced Fund will allocate
its investments between common stocks and fixed-income debt securities in
varying ratios. However, under normal market conditions, at least 25% of the
Balanced Fund's portfolio will be invested in common stocks and 25% in fixed-
income senior securities.
Each Fund may invest in fixed-income securities. Although under normal market
conditions each Equity Fund intends to be substantially fully invested in common
stocks, each Equity Fund will normally invest in fixed-income securities for
purposes of managing its cash position and for temporary defensive purposes. All
fixed income securities purchased by Diversified Core Equity Fund II will be
rated investment grade by Moody's Investors Service, Inc. ("Moody's") (i.e. Baa)
or by Standard and Poor's Ratings Group ("S&P") (i.e. BBB) or, if unrated,
determined to be of investment grade quality by IIA. For the remaining Equity
Funds, these fixed-income securities will be rated A or better by Moody's or S&P
or, if unrated, determined to be of comparable quality by IIA.
- ------------------------------------------------------------------------------
EACH FUND MAY INVEST A PORTION OF ITS TOTAL ASSETS IN CORPORATE AND GOVERNMENTAL
FIXED-INCOME DEBT SECURITIES.
- ------------------------------------------------------------------------------
Under normal market conditions, the Balanced Fund will normally invest at least
25% of its total assets in fixed-income senior securities. These fixed-income
securities will be rated investment grade, i.e., Baa by Moody's or BBB by S&P
or, if unrated, determined to be of investment grade quality by IIA.
Fixed-income securities rated Baa or BBB are considered of medium-grade quality
with speculative characteristics. Adverse economic conditions or changing
circumstances may weaken the issuer's capacity to pay interest and repay
principal on these securities.
The Equity Funds may retain fixed-income securities whose ratings are downgraded
until IIA determines that disposing of such securities is in the best interest
of the affected Fund. The Balanced Fund may retain fixed-income securities whose
ratings are downgraded below investment grade until IIA determines that
disposing of such securities is in the best interest of the Fund.
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. The value
of fixed-income securities with conversion features, however, will also be
affected by changes in the value of the common stock into which such
fixed-income securities are convertible.
When, in the opinion of IIA, extraordinary market or economic conditions
warrant, each Fund may, for temporary defensive purposes, hold cash, cash
equivalents or fixed-income securities without limitation.
Each Fund may invest in the securities of foreign issuers which are U.S. dollar
denominated and traded on a U.S. exchange and in American Depository Receipts
("ADRs") which are also denominated in U.S. dollars and traded on an exchange in
the United States. The Balanced Fund may invest in Yankee Bonds which are the
fixed income securities of foreign issuers that are U.S. dollar denominated and
traded on a U.S. Exchange. Each Fund may purchase securities on a forward
commitment or when-issued basis and illiquid securities. In addition, each Fund
may lend portfolio securities and 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 Funds' investments.
- ------------------------------------------------------------------------------
EACH FUND MAY EMPLOY CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES TO HELP
ACHIEVE ITS INVESTMENT OBJECTIVE.
- ------------------------------------------------------------------------------
7
<PAGE>
Each Fund has adopted investment restrictions that are detailed in the Statement
of Additional Information. Some of these restrictions may help to reduce
investment risk. 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, shareholders should consider whether the Fund remains an
appropriate investment in light of their current financial position and needs.
Each Fund's portfolio of investments is comprised of securities of entities
that, while not identical to those of the particular benchmark index, have
similar performance characteristics and risk profiles. Each Fund will seek to
establish a performance record that exceeds that of the particular benchmark
index. See page 9 for a description of each benchmark index.
- ------------------------------------------------------------------------------
EACH FUND'S PORTFOLIO CHARACTERISTICS AND RISK PROFILE ARE BENCHMARKED TO A
SPECIFIC PERFORMANCE INDEX.
- ------------------------------------------------------------------------------
- - The Balanced Fund's performance and risk profile benchmark is an
equally-weighted composite of the S&P 500 Index(R) and the Lehman Brothers
Government/Corporate Bond Index.
- - The Value Fund's performance and risk profile benchmark is the Russell 1000
Value Index(R).
- - The Diversified Core Equity Fund II's performance and risk profile benchmark
is the S&P 500 Index(R).
- - The Growth Fund's performance and risk profile benchmark is the Russell 1000
Growth Index(R).
- - The Medium Capitalization Fund's performance and risk profile benchmark is the
Callan Medium Capitalization Index.
In attempting to exceed the performance of the composite of the S&P 500 Index(R)
and the Lehman Brothers Government/Corporate Bond Index, the BALANCED FUND will
invest in both equity and fixed-income securities. IIA looks at broad market and
economic variables to determine the overall mix of the Fund's assets between
equity and fixed-income securities. IIA expects that, under normal
circumstances, between 25% and 75% of the Fund's assets will be allocated to the
fixed-income class and the balance of the Fund's assets will be invested in
common stocks. At all times, however, at least 25% of the Fund's assets will be
invested in fixed-income senior securities. As market and economic conditions
change, IIA gradually adjusts the asset mix, but has no fixed formula to
determine the timing of any adjustment to the allocation of the asset classes.
IIA considers the following factors in its analysis of market and economic
variables: prospective return spreads among stocks, bonds and bills; the
absolute valuation levels of both the stock and bond markets; the stage of the
economic cycle; the direction and intent of the government's monetary policies;
and inflationary trends.
In attempting to exceed the performance of the Russell 1000 Value Index(R), the
VALUE FUND focuses on common stocks of companies which are undervalued given
current market and economic conditions. IIA selects common stocks of companies
with stock prices which, in its opinion, are undervalued relative to the
securities' intrinsic value and the stock market in general at the time of
purchase based on such measures as the Russell 1000 Value Index(R) and
price/earnings ratios, price/book ratios, and yield.
In attempting to exceed the performance of the S&P 500 Index(R), the DIVERSIFIED
CORE EQUITY FUND II focuses on securities of companies offering capital growth
and/or income potential over both the intermediate and long term.
In attempting to exceed the performance of the Russell 1000 Growth Index(R), the
GROWTH FUND emphasizes investments in companies whose securities show potential
for relatively high long-term earnings growth rather than current dividend yield
and which appear inexpensive relative to the Index. The Growth Fund invests in
the securities of companies whose growth in the areas of earnings or gross sales
measured either in dollars or in unit volume may exceed that of the average of
the companies whose securities are included in the Russell 1000 Growth Index(R).
IIA seeks out companies with above-average growth potential in the future,
typically by investing in companies that have high long-term earnings growth
relative to the securities of other companies. The securities of these companies
generally command high multiples (price/earnings ratios) in the stock markets
over time.
In attempting to exceed the performance of the Callan Medium Capitalization
Index, the MEDIUM CAPITALIZATION FUND consists of a portfolio whose risk profile
matches a portfolio of companies whose market capitalization at the time of
purchase falls within the capitalization range of the Callan Medium
Capitalization Index. Currently, companies with a market capitalization of
between $1 billion and $5 billion fall within this range. Companies whose
8
<PAGE>
capitalization falls outside this range after purchase continue to be considered
medium capitalized companies for purposes of the Fund's investment policies. The
stocks of medium-capitalized companies generally involve more short-term
volatility than stocks of companies with a larger capitalization, but
significantly less volatility and lower trading costs than are usually
associated with stocks of small-capitalization companies. Typically, a medium
capitalization company has passed through its start-up and initial establishment
phase yet is still small enough to react more quickly than large-capitalization
companies to changes in the marketplace that may present opportunities for the
company. IIA expects that, under normal circumstances, at least 65% of the
Fund's total assets will be invested in the stocks of medium capitalization
companies.
INDEPENDENCE BALANCED FUND. The S&P 500 Index(R) is a capitalization-weighted
index comprised of 500 publicly traded industrial, utility, transportation, and
financial companies located in the United States markets. The Diversified Core
Equity Fund II (see above) is benchmarked to this Index. The Lehman Brothers
Government/Corporate Bond Index is composed of all bonds that are investment
grade (i.e., rated Baa or higher by Moody's or BBB or higher by S&P). Issues
must have at least one year to maturity and the Lehman Brothers
Government-Corporate Index is rebalanced monthly by market capitalization.
INDEPENDENCE VALUE FUND. The Russell 1000 Value Index(R) is comprised of stocks
of companies from the Russell 1000 Index(R) with a less-than-average growth
orientation. The Russell 1000 Value Index(R) represents the universe of stocks
from which value managers typically select. It is capitalization weighted and
includes only common stocks belonging to large-capitalization, domestic
corporations.
INDEPENDENCE DIVERSIFIED CORE EQUITY FUND II. The S&P 500 Index(R) is comprised
of 500 industrial, utility, transportation and financial companies in the United
States markets. Most of these companies are listed on the New York Stock
Exchange (the "Exchange"). Companies included in the S&P 500 Index(R) represent
about 75% of the Exchange's market capitalization and 30% of the Exchange's
issuers. The S&P 500 Index(R) is a capitalization-weighted index calculated on a
total return basis with dividends reinvested.
- ------------------------------------------------------------------------------
EACH FUND'S PERFORMANCE AND RISK BENCHMARK HAS CERTAIN CHARACTERISTICS.
- ------------------------------------------------------------------------------
INDEPENDENCE GROWTH FUND. The Russell 1000 Growth Index(R) is comprised of
stocks of companies from the Russell 1000 Index(R) with a greater-than-average
growth orientation. The Russell 1000 Growth Index(R) represents the universe of
stocks from which growth managers typically select. It is capitalization
weighted and includes only common stocks belonging to large-capitalization
domestic corporations.
INDEPENDENCE MEDIUM CAPITALIZATION FUND. The Callan Medium Capitalization Index
is a subset of the Callan Broad Market Index. The Callan Broad Market Index
includes common stocks of the two thousand largest companies with
capitalizations ranging between $30 million and $240 billion. The Callan Medium
Capitalization Index covers about 25% of the Callan Broad Market Index with
companies that range from approximately $2 billion to $14 billion in
capitalization. The Callan Medium Capitalization Index includes both growth and
value stocks.
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 a broker affiliated with the Adviser and the
Subadviser. This broker is John Hancock Distributors, Inc., which is indirectly
owned by the Life Company, which in turn indirectly owns the Adviser and the
Subadviser. Fixed-income securities are generally purchased and sold in
transactions directly with dealers acting as principal and involve a "spread"
rather than a commission.
- ------------------------------------------------------------------------------
BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION.
- ------------------------------------------------------------------------------
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.
9
<PAGE>
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 Active Bond Fund, John Hancock Global Bond Fund, John Hancock Small
Capitalization Value Fund, John Hancock Dividend Performers Fund, John Hancock
Multi-Sector Growth Fund, John Hancock Small Capitalization Growth Fund, and
John Hancock International Equity Fund, (the "John Hancock Series Funds") whose
shares are offered by means of a separate prospectus available by calling
1-800-755-4371. Please read that prospectus before investing.
OPENING AN ACCOUNT
PARTICIPANTS
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------
Through your Sponsor according to your Plan.
- --------------------------------------------------------------------------------
</TABLE>
PLANS AND INSTITUTIONS
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------
BY CHECK 1. Make check payable to John Hancock Signature Services,
Inc.
2. Mail the completed account information package directly
to Signature Services at:
John Hancock Signature Services, Inc.
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
Signature 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 Signature Services at
1-800-755-4371.
- --------------------------------------------------------------------------------
</TABLE>
Signature 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 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 Signature Services.
10
<PAGE>
BUYING ADDITIONAL SHARES
PARTICIPANTS
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------
Through your Sponsor according to your Plan.
- --------------------------------------------------------------------------------
</TABLE>
PLANS
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------
BY CHECK Please follow the procedures as set forth above for opening
an account by check.
BY WIRE Please follow the procedures as as set forth above for
opening an account by wire.
- --------------------------------------------------------------------------------
</TABLE>
INSTITUTIONS
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------
BY CHECK Please follow the procedures as set forth above for opening
an account by check.
BY WIRE Please follow the procedures as 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 Signature Services
toll-free at 1-800-755-4371.
3. Give the Signature Services representative the name(s) in
which your account is registered, the Fund name, your
account number, and the amount you wish to invest.
4. our 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 Signature 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 Signature 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 Signature Services. The Funds will normally issue
shares for cash consideration only.
11
<PAGE>
REDEEMING SHARES
The payment of redemption proceeds will be made by check or electronic credit to
a shareholder's account at a financial institution, generally on the next
business day. When you redeem your shares, you may realize a gain or loss. Under
unusual circumstances a Fund may suspend redemptions or postpone payment 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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Through your Sponsor according to your Plan.
</TABLE>
- --------------------------------------------------------------------------------
PLANS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
IN WRITING Send a letter of instruction specifying the name of the
Fund, the dollar amount or the number of shares to be
redeemed, your name, your account number and the additional
requirements listed below that apply to your particular
account.
CORPORATION OR Letter of instruction and a corporate resolution, signed by
ASSOCIATION 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 proceeds will be sent by check and exceed $100,000. (If
TRUSTS the Trustee's name is not registered on your account, also
provide a copy of the Trust document, certified within the
last twelve months.)
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 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.
</TABLE>
- --------------------------------------------------------------------------------
INSTITUTIONS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
IN WRITING Please follow the instructions as set forth for Plans on how
to redeem in writing.
BY WIRE Please follow the instructions as set forth for Plans on how
to redeem by wire.
BY TELEPHONE As an Institution you are automatically eligible for the
telephone redemption privilege. Call 1-800-755-4371, from
8:00 a.m. to 4:00 p.m. (New York time), Monday through
Friday, excluding days on which the Exchange is closed.
Signature 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 exceeding $100,000 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 Signature Services will be liable for
any loss or expense for acting upon telephone instructions
made in accordance with the procedures mentioned above.
Telephone redemption is not available for Fund shares in
certificate form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During such times you should
consider placing redemption requests in writing or using
EASI-line. EASI-line is a telephone number which is listed
on account statements.
</TABLE>
- --------------------------------------------------------------------------------
12
<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 signature guarantee must be from a
member of the Signature Guarantee Medallion Program (generally a broker or
securities dealer). We may refuse any other source.
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.
PARTICIPANTS
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------
Should your investment objective change or if you wish to achieve further
diversification, you must contact your Plan Sponsor to determine Plan
requirements for exchanging shares among the Funds of the Trust or other
investment options available under your Plan.
- --------------------------------------------------------------------------------
</TABLE>
PLANS
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------
IN WRITING 1. In a letter request an 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 Signature Services, Inc.
Attn: Institutional Services
P.O. Box 9296
Boston, MA 02205-9296
- --------------------------------------------------------------------------------
</TABLE>
INSTITUTIONS
<TABLE>
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------
IN WRITING Please follow the instructions as set forth for Plans on how
to exchange shares in writing.
BY TELEPHONE 1. Exchange by telephone is 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.
- --------------------------------------------------------------------------------
</TABLE>
Each Fund reserves the right to require Institutions to keep previously
exchanged shares (and reinvested dividends) in the Fund for 90 days before they
are permitted a new exchange. Participants may exchange shares according to Plan
provisions. The Fund may also terminate or alter the terms of the exchange
privilege upon 60 days' notice to shareholders.
SPECIAL INVESTMENT PRIVILEGE FOR FORMER PLAN PARTICIPANTS. A former Participant
in a Plan may invest the redemption proceeds of Fund shares beneficially owned
by the Participant without a sales charge in other John Hancock funds.
Participants may only invest in the Funds through a Plan. If a Participant
elects or is required to withdraw from a Plan, the shares cannot be transferred
into an account in the name of the Participant. In this circumstance the
Participant may, subject to any other rights or restrictions under the Plan,
cause the Plan Sponsor to redeem shares of the Funds. The proceeds of such
redemption may be either distributed to the Participant or rolled over into an
Individual Retirement Account or other retirement plan.
In either case, such proceeds may be invested at NAV without the imposition of a
sales charge in shares of any other fund (other than those of the Trust) in the
John Hancock family of funds. If the fund selected by the Participant has more
than one class of shares, the privilege of purchasing shares at NAV will only
apply to Class A shares. A Participant should obtain and carefully read the
Prospectus of each John Hancock fund in which the Participant is considering an
investment.
A Participant may obtain a Prospectus, establish an Individual Retirement
Account and arrange the rollover of redemption proceeds by contacting Signature
Services at 1-800-755-4371. Unlike
13
<PAGE>
a rollover, the distribution of redemption proceeds to a Participant may subject
the Participant to tax withholding equal to 20% of the amount of the
distribution.
ORGANIZATION AND MANAGEMENT OF THE FUNDS
Each Fund is organized as a separate portfolio of the Trust, which is an
open-end investment management company organized as a Massachusetts business
trust in 1994. The Trust has an unlimited number of authorized shares and
currently has twelve distinct funds. The John Hancock Series 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 within the Trust and to classify and reclassify the
shares of the Funds, or any new fund of the Trust, into one or more classes. The
Trust is not required to hold annual shareholder meetings, although special
meetings may be called for such purposes as electing or removing Trustees,
changing fundamental restrictions or approving a management contract.
- ------------------------------------------------------------------------------
THE TRUSTEES ELECT OFFICERS AND RETAIN THE INVESTMENT ADVISER AND THE SUBADVISER
WHO ARE RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUNDS, SUBJECT TO THE
TRUSTEES' POLICIES AND SUPERVISION.
- ------------------------------------------------------------------------------
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Fund. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Trust. The Declaration of Trust also provides for indemnification out of a
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. Liability is therefore
limited to circumstances in which a Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote. Liabilities
attributable to one Fund are not charged against the assets of any other Fund.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. The Adviser provides the Funds,
and other investment companies in the John Hancock group of funds, with
investment research and portfolio management services.
- ------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF MORE THAN $30 BILLION.
- ------------------------------------------------------------------------------
The Subadviser was formed in 1982 as an indirect wholly-owned subsidiary of the
Life Company and provides investment advice and advisory services to other
investment companies and various additional clients, primarily institutional
clients. Total assets managed by the Subadviser amount to approximately $28
billion. The organization of the Subadviser is such that all investment
decisions are made by the portfolio management team and no single person is
primarily responsible for making recommendations to the team.
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 and JH Funds.
YEAR 2000 COMPLIANCE
The Adviser has addressed the Year 2000 issue by taking steps that it believes
are reasonably designed to address the potential failure of computer programs
used by the Adviser and the Funds' service providers. There can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Funds.
THE FUNDS' EXPENSES
Each Fund pays a monthly fee to the Adviser for managing the Fund's investment
and business affairs, which is equal on an annual basis to a percentage of the
Fund's average daily net assets. For 1998, only Balanced Fund and Diversified
Core Equity Fund II paid a fee to the Adviser which was equal to 0.50%, 0.54%
respectively, of the Fund's average net assets. Without the voluntary limitation
by the Adviser, these fees are as follows:
<TABLE>
<CAPTION>
ADVISORY FEE
FUND PAID BY FUND
---- ------------
<S> <C>
Balanced Fund .70% of the average daily net assets up to $500
million; .65% of such assets in excess of $500 million.
Diversified Core Equity Fund II .50% of the average daily net assets.
Value Fund, Growth Fund and Medium .80% of the average daily net assets up to $500
Capitalization Fund million; .75% of such assets in excess of $500 million.
</TABLE>
14
<PAGE>
While higher than the investment advisory fees paid by other investment
companies in general, the advisory fees paid by Value Fund, Growth Fund and
Medium Capitalization Fund are comparable to those paid by many investment
companies with similar investment objectives and policies.
The Adviser (not the Fund) pays a portion of its advisory fee to the Subadviser
for sub-advisory services provided to each Fund. These fees are as follows:
Diversified Core Equity Fund II, 80% of the advisory fee payable on the Fund's
average daily net assets; Value Fund, Growth Fund and Medium Capitalization
Fund, 55% of the advisory fee payable on the Fund's average daily net assets;
and Balanced Fund, 60% of the advisory fee payable on the Fund's average daily
net assets.
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 a Fund's
expenses to not more than a specified percentage of average net assets. The
Adviser retains the right to impose such 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 each Fund's expenses until further
notice to the percentages of each Fund's average net assets specified under
"EXPENSE INFORMATION."
- ------------------------------------------------------------------------------
EACH FUND PAYS CERTAIN ADDITIONAL EXPENSES.
- ------------------------------------------------------------------------------
The Fund compensates the Adviser for performing necessary tax and financial
management services. Compensation by each fund is not expected to exceed 0.02%
of its average net assets on an annual basis.
Your broker or agent may charge you separately to effect transactions in fund
shares.
DIVIDENDS AND TAXES
Dividends from net investment income of the Value Fund, Growth Fund and Medium
Capitalization Fund are declared annually and paid annually. Dividends from net
investment income of Diversified Core Equity Fund II and Balanced Fund are
declared quarterly and paid quarterly.
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. 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. For institutional investors who are not exempt from federal income
taxes, dividends from a Fund's net investment income 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
and capital gains are taxable whether they are reinvested in additional shares
or received in cash unless you are exempt from taxation or entitled to tax
deferral. 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.
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.
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
15
<PAGE>
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
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 institutions eligible
to buy the Funds.
- ------------------------------------------------------------------------------
EACH FUND MAY ADVERTISE ITS TOTAL RETURN.
- ------------------------------------------------------------------------------
Yield reflects the 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 net
asset value 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, the Fund's yield may not equal the income paid on shares or
the income reported in the Fund's financial statements.
- ------------------------------------------------------------------------------
BALANCED FUND MAY ALSO ADVERTISE ITS YIELD.
- ------------------------------------------------------------------------------
The value of a Fund's shares, when redeemed, may be more or less than their
original cost. Total return and yield are historical calculations and are not
indications of future performance.
RISK FACTORS, INVESTMENTS AND TECHNIQUES
COMMON STOCKS. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of such entity's preferred stock and other senior equity.
Ownership of common stock usually carries with it the right to vote and,
frequently, an exclusive right to do so. Each Fund will diversify its
investments in common stocks of companies in a number of industry groups without
concentrating in any particular industry. Common stocks have the potential to
outperform fixed-income securities over the long term. Common stocks provide the
most potential for growth, yet are the more volatile of the two asset classes.
DEBT OBLIGATIONS. Debt securities of corporate and governmental issuers in
which the Fund may invest are subject to the risk of an issuer's inability to
meet principal and interest payments on the obligations (credit risk) and may
also be subject to price volatility due to such factors as interest rate
sensitivity, market perception of the creditworthiness of the issuer and general
market liquidity (market risk). Particular debt securities will be selected
based upon credit risk analysis of potential issuers, the characteristics of the
security and the interest rate sensitivity of the various debt issues available
with respect to a particular issuer, and analysis of the anticipated volatility
and liquidity of the particular debt instruments.
PREFERRED STOCKS. Preferred stock generally has a preference to dividends and,
upon liquidation, over an issuer's common stock but ranks junior to debt
securities in an issuer's capital structure. Preferred stock generally pays
dividends in cash (or additional shares of preferred stock) at a defined rate
but, unlike interest payments on debt securities, preferred stock dividends are
payable only if declared by the issuer's board of directors. Dividends on
preferred stock may be cumulative, meaning that, in the event the issuer fails
to make one or more dividend payments on the preferred stock, no dividends may
be paid on the issuer's common stock until all unpaid preferred stock dividends
have been paid. Preferred stock also may be subject to optional or mandatory
redemption provisions.
CONVERTIBLE SECURITIES. The Balanced Fund may invest in convertible securities
which may include corporate notes or preferred stock but are ordinarily
long-term debt obligations of the issuer convertible at a stated exchange rate
into common stock of the same or another issuer. The Balanced Fund's investments
in convertible securities are not subject to the rating criteria
16
<PAGE>
with respect to non-convertible debt obligations. As with all debt securities,
the market value of convertible securities tends to decline as interest rates
increase and, conversely, to increase as interest rates decline. The market
value of convertible securities can also be heavily dependent upon the changing
value of the equity securities into which such securities are convertible,
depending on whether the market price of the underlying security exceeds the
conversion price. Convertible securities generally rank senior to common stocks
in an issuer's capital structure and consequently entail less risk than the
issuer's common stock. However, the extent to which such risk is reduced depends
upon the degree to which the convertible security sells above its value as a
fixed-income security. In evaluating a convertible security, the Subadviser will
give primary emphasis to the attractiveness of the underlying common stock.
FOREIGN ISSUERS AND DEPOSITORY RECEIPTS. Each Fund may invest in securities of
foreign issuers which are U.S. dollar denominated and traded on a U.S. exchange
and in American Depository Receipts ("ADRs"). The Balanced Fund may also invest
in Yankee Bonds. ADRs (sponsored and unsponsored) are receipts typically issued
by an American bank or trust company and Yankee Bonds are fixed-income
securities typically issued by a U.S. branch of a foreign bank or corporation.
These securities evidence ownership of underlying securities issued by a foreign
corporation and are designed for trading in United States securities markets.
Issuers of the shares underlying unsponsored ADRs are not contractually
obligated to disclose material information in the United States and, therefore,
there may not be a correlation between such information and the market value of
the unsponsored ADR.
SMALLER CAPITALIZATION COMPANIES. Each Fund may invest in
smaller-capitalization companies. These companies may have limited product lines
and market and financial resources, or they may be dependent upon 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.
RESTRICTED AND ILLIQUID SECURITIES. Each Fund may invest in restricted
securities, including those eligible for resale to certain institutional
investors pursuant to Rule 144A under the Securities Act of 1933. In addition,
each Fund may invest up to 15% of its net assets in illiquid investments which
include repurchase agreements maturing in more than seven days, restricted
securities and securities not readily marketable. However, if the Board of
Trustees determines, based upon a continuing review of the trading markets for
specific Rule 144A securities, that they are liquid then these securities may be
purchased without regard to the 15% limit.
LENDING OF SECURITIES AND REPURCHASE AGREEMENTS. For the purpose of realizing
additional income, each Fund may lend to brokers, dealers and financial
institutions portfolio securities amounting to not more than 33 1/3% of their
respective 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.
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. Short-term trading may have the effect of
increasing portfolio turnover. The Funds do not intend to invest for the purpose
of seeking short-term profits. Each Fund's particular portfolio securities may
be changed, however, without regard to the holding period of these securities
(subject to
17
<PAGE>
certain tax restrictions) when the Adviser deems that this action will help
achieve the Fund's objective given a change in an issuer's operations or changes
in general market conditions.
The portfolio turnover rate for the Funds is shown in the section captioned "The
Funds' Financial Highlights."
18
<PAGE>
NOTES
19
<PAGE>
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
INVESTMENT ADVISER
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUB-INVESTMENT ADVISER
Independence Investment Associates,
Inc.
53 State Street
Boston, Massachusetts 02109
PRINCIPAL DISTRIBUTOR
John Hancock Funds, Inc.
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
TRANSFER AGENT
John Hancock Signature Services, Inc.
P.O. Box 9296
Boston, Massachusetts 02205-9296
The annual/semi-annual report to
shareholders includes financial
statements, detailed performance
information, portfolio holdings, a
statement from portfolio management
and the auditor's report. To request
a free copy of this report please
contact John Hancock Signature
Services, Inc.
A current SAI has been filed with the
Securities and Exchange Commission
and is incorporated by reference (is
legally a part of this prospectus).
You may visit the Securities and
Exchange Commission's Internet
website (www.sec.gov) to view the
SAI, material incorporated by
reference and other information.
HOW TO OBTAIN INFORMATION
ABOUT THE FUNDS
For Service Information
For Telephone Exchange
For Investment-by-Phone
For Telephone Redemption
call 1-800-755-4371
Internet: www.jhancock.com/funds
KI00P 7/98
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
TELEPHONE 1-800-755-4371
20
<PAGE>
JOHN HANCOCK FUNDS
101 Huntington Avenue
Boston, Massachusetts 02199
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
PROSPECTUS
July 1, 1998
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 ACTIVE BOND FUND
JOHN HANCOCK GLOBAL BOND FUND
JOHN HANCOCK DIVIDEND PERFORMERS FUND
JOHN HANCOCK MULTI-SECTOR GROWTH FUND
JOHN HANCOCK SMALL CAPITALIZATION VALUE FUND
JOHN HANCOCK SMALL CAPITALIZATION GROWTH FUND
JOHN HANCOCK INTERNATIONAL EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
TABLE OF CONTENTS ----
<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.......................................... 17
Investors' Guide to Services................................ 17
How to Buy Shares...................................... 17
Opening an Account..................................... 17
Buying Additional Shares............................... 18
Reports to Shareholders................................ 18
Share Price............................................ 18
Redeeming Shares....................................... 19
Exchange Privilege..................................... 20
Organization and Management of the Funds.................... 21
The Funds' Expenses......................................... 22
Dividends and Taxes......................................... 23
Performance................................................. 24
Risk Factors, Investments and Techniques.................... 24
</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 July 1, 1998, which is
incorporated by reference into this
Prospectus, free of charge by writing or telephoning: John Hancock Signature
Services, Inc., 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 FUNDS LOGO] [RECYCLE LOGO] Printed on Recycled Paper.
<PAGE>
EXPENSE INFORMATION
The purpose of the following information is to help you to understand the
various costs and expenses that you will bear, directly or indirectly when you
purchase Fund shares. The operating expenses included in the table and
hypothetical example below, are based on actual fees and expenses for the Funds'
fiscal year ended February 28, 1998 adjusted to reflect current fees and
expenses. Actual expenses may be greater or less than those indicated.
<TABLE>
<CAPTION>
ALL FUNDS
SHAREHOLDER TRANSACTION EXPENSES ---------
<S> <C>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Maximum Sales Charge (as a percentage of offering price) NONE
Sales Charge on Reinvested Dividends NONE
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Deferred Sales Charge and Redemptions NONE
Redemption Fees NONE*
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Exchange Fees NONE
</TABLE>
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:+
ANNUAL OPERATING EXPENSES (as a percentage of average net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER TOTAL FUND 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>
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
SMALL CAPITALIZATION VALUE
FUND 0.08% 0.72% 0.80% $ 8 $26 $44 $ 99
DIVIDEND PERFORMERS FUND 0.28% 0.42% 0.70% $ 7 $22 $39 $ 87
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
MULTI-SECTOR GROWTH FUND 0.60% 0.30% 0.90% $ 9 $29 $50 $111
SMALL CAPITALIZATION GROWTH
FUND 0.00% 0.90% 0.90% $ 9 $29 $50 $111
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
INTERNATIONAL EQUITY FUND 0.00% 1.00% 1.00% $10 $32 $55 $122
</TABLE>
- ---------------
* Redemption by wire fee (currently $4.00) not included.
** Other Expenses include transfer agent, legal, audit, custody and other
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: Active Bond Fund -- 0.50%, 2.14% and 2.64%;
Global Bond Fund -- 0.75%, 1.42% and 2.17%; Small Capitalization Value Fund
-- 0.70%, 0.72% and 1.42%; Dividend Performers Fund -- 0.60%, 0.42% and
1.02%; Multi-Sector Growth Fund -- 0.80%, 0.30% and 1.10%; Small
Capitalization Growth Fund -- 0.80%, 3.25% and 4.05%; and International
Equity Fund -- 0.90%, 1.12% and 2.02%.
+ This example should not be considered a representation of the Funds' actual
or future expenses, which may be greater or less than those shown.
The management fee referred to above is more fully explained in this Prospectus
under the caption "THE FUNDS' EXPENSES" and in the Statement of Additional
Information under the caption "INVESTMENT ADVISORY AND OTHER SERVICES."
2
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS
The following tables of Financial Highlights have been audited by Deloitte &
Touche LLP, the Funds' independent auditors, whose unqualified report is
included in the Funds' 1998 Annual Report and is included in the Statement of
Additional Information. 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 Signature Services, Inc.
("Signature Services") at the address or telephone number listed on the front
page of this Prospectus.
Selected data for a share outstanding throughout each period indicated is as
follows:
<TABLE>
<CAPTION>
JOHN HANCOCK ACTIVE BOND FUND FOR THE PERIOD MARCH 30, 1995
(COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
----------------------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................... $ 8.50 $ 8.64 $ 8.54
------ ------- -------
Net Investment Income(6).................................. 0.51 0.60 0.59
Net Realized and Unrealized Gain (Loss) on Investments.... 0.16 (0.09) 0.34
------ ------- -------
Total from Investment Operations.................. 0.67 0.51 0.93
------ ------- -------
Less Distributions:
Dividends from Net Investment Income.................. (0.51) (0.60) (0.59)
------ ------- -------
Distributions in Excess of Net Investment Income...... ..... ..... (0.00)(8)
Distributions from Net Realized Gain on Investments
Sold................................................ (0.02) (0.01) (0.05)
------ ------- -------
Total Distributions............................... (0.53) (0.61) (0.64)
------ ------- -------
Net Asset Value, End of Period............................ $ 8.64 $ 8.54 $ 8.83
====== ======= =======
Total Investment Return at Net Asset Value(5)............. 7.76%(3) 6.17% 11.25%
Total Adjusted Investment Return at Net Asset
Value(5,7).............................................. (0.46%)(3) 2.72% 9.21%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................. $1,171 $ 2,191 $ 5,158
Ratio of Expenses to Average Net Assets................... 0.65%(2) 0.60% 0.60%
Ratio of Adjusted Expenses to Average Net Assets(1,4)..... 9.60%(2) 4.05% 2.64%
Ratio of Net Investment Income to Average Net Assets...... 6.53%(2) 7.10% 6.78%
Ratio of Adjusted Net Investment Income (Loss) to Average
Net Assets(1,4)......................................... (2.42%)(2) 3.65% 4.74%
Portfolio Turnover Rate................................... 71% 136% 230%
Fee Reduction Per Share(6)................................ $ 0.75 $ 0.30 $ 0.18
</TABLE>
<TABLE>
<CAPTION>
JOHN HANCOCK GLOBAL BOND FUND FOR THE PERIOD APRIL 19, 1995
(COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
----------------------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period...................... $ 8.50 $ 8.46 $ 8.22
------ ------- -------
Net Investment Income(6).................................. 0.41 0.52 0.48
Net Realized and Unrealized Loss on Investments and
Foreign Currency Transactions........................... (0.04) (0.24) (0.03)
------ ------- -------
Total from Investment Operations.................. 0.37 0.28 0.45
------ ------- -------
Less Distributions:
Dividends from Net Investment Income.................. (0.41) (0.35) (0.48)
------ ------- -------
Distributions from Net Realized Gain on Investments
Sold................................................ ..... ..... (0.03)
Distributions from Capital Paid-in.................... ..... (0.17) .....
------ ------- -------
Total Distributions........................................ (0.41) (0.52) (0.51)
------ ------- -------
Net Asset Value, End of Period............................ $ 8.46 $ 8.22 $ 8.16
====== ======= =======
Total Investment Return at Net Asset Value(5)............. 4.37%(3) 3.39% 5.62%
Total Adjusted Investment Return at Net Asset
Value(5,7).............................................. (54.55%)(3) (2.93%) 4.30%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................. $ 217 $ 1,026 $ 9,960
Ratio of Expenses to Average Net Assets................... 0.91%(2) 0.85% 0.85%
Ratio of Adjusted Expenses to Average Net Assets(1,4)..... 69.15%(2) 7.17% 2.17%
Ratio of Net Investment Income to Average Net Assets...... 5.91%(2) 6.26% 5.44%
Ratio of Adjusted Net Investment Income (Loss) to Average
Net Assets(1,4)......................................... (62.33%)(2) (0.06%) 4.12%
Portfolio Turnover Rate................................... 129% 119% 123%
Fee Reduction Per Share(6)................................ $ 5.35 $ 0.56 $ 0.11
</TABLE>
- ---------------
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) 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.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
(8) Less than $0.01 per share.
3
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period indicated is as
follows:
<TABLE>
<CAPTION>
JOHN HANCOCK DIVIDEND PERFORMERS FUND FOR THE PERIOD MARCH 30, 1995
(COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
----------------------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.................... $ 8.50 $ 10.15 $ 11.91
------ ------- -------
Net Investment Income(6)................................ 0.23 0.21 0.18
Net Realized and Unrealized Gain on Investments......... 1.68 1.92 3.92
------ ------- -------
Total from Investment Operations................ 1.91 2.13 4.10
------ ------- -------
Less Distributions:
Dividends from Net Investment Income................ (0.19) (0.18) (0.17)
Distributions from Net Realized Gain on Investments
Sold.............................................. (0.07) (0.19) (0.92)
------ ------- -------
Total Distributions............................. (0.26) (0.37) (1.09)
------ ------- -------
Net Asset Value, End of Period.......................... $10.15 $ 11.91 $ 14.92
====== ======= =======
Total Investment Return at Net Asset Value(5)........... 22.79%(3) 21.26% 35.55%
Total Adjusted Investment Return at Net Asset
Value(5,8)............................................ 19.79%(3) 20.07% 35.23%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)............... $3,319 $ 8,668 $20,884
Ratio of Expenses to Average Net Assets................. 0.75%(2) 0.70% 0.70%
Ratio of Adjusted Expenses to Average Net Assets(1,4)... 4.02%(2) 1.89% 1.02%
Ratio of Net Investment Income to Average Net Assets.... 2.51%(2) 1.94% 1.31%
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets(1,4)............................... (0.76%)(2) 0.75% 0.99%
Portfolio Turnover Rate................................. 70% 37% 77%
Fee Reduction Per Share(6).............................. $ 0.30 $ 0.13 $ 0.04
Average Brokerage Commission Rate(7).................... N/A $0.0700 $0.0699
</TABLE>
<TABLE>
<CAPTION>
JOHN HANCOCK MULTI-SECTOR GROWTH FUND FOR THE PERIOD APRIL 11, 1995
(COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
----------------------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.................... $ 8.50 $ 10.69 $ 12.67
------ ------- -------
Net Investment Income (Loss)(6)......................... (0.01) 0.01 0.00(9)
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions......................... 2.22 2.02 2.06
------ ------- -------
Total from Investment Operations................ 2.21 2.03 2.06
------ ------- -------
Less Distributions:
Dividends from Net Investment Income................ (0.02) -- (0.00)(9)
Distributions from Net Realized Gain on Investments
Sold.............................................. -- (0.05) (1.22)
------ ------- -------
Total Distributions............................. (0.02) (0.05) (1.22)
------ ------- -------
Net Asset Value, End of Period.......................... $10.69 $ 12.67 $ 13.51
====== ======= =======
Total Investment Return at Net Asset Value(5)........... 25.98%(3) 19.00% 17.39%
Total Adjusted Investment Return at Net Asset
Value(5,8)............................................ 23.70%(3) 18.48% 17.19%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)............... $8,399 $29,085 $40,302
Ratio of Expenses to Average Net Assets................. 0.93%(2) 0.90% 0.90%
Ratio of Adjusted Expenses to Average Net Assets(1,4)... 3.51%(2) 1.42% 1.10%
Ratio of Net Investment Income (Loss) to Average Net
Assets................................................ (0.10%)(2) 0.06% 0.03%
Ratio of Adjusted Net Investment Loss to Average Net
Assets(1,4)........................................... (2.68%)(2) (0.46%) (0.17%)
Portfolio Turnover Rate................................. 189% 281% 341%
Fee Reduction Per Share(6).............................. $ 0.23 $ 0.06 $ 0.03
Average Brokerage Commission Rate(7).................... N/A $0.0620 $0.0673
</TABLE>
- ---------------
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) 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.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(8) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
(9) Less than $0.01 per share.
4
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period indicated is as
follows:
<TABLE>
<CAPTION>
JOHN HANCOCK SMALL CAPITALIZATION VALUE FUND FOR THE PERIOD APRIL 19, 1995
(COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
----------------------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.................... $ 8.50 $ 9.09 $ 9.38
------ ------- -------
Net Investment Income(6)................................ 0.17 0.14 0.07
Net Realized and Unrealized Gain on Investments......... 0.56 1.08 3.65
------ ------- -------
Total from Investment Operations................ 0.73 1.22 3.72
------ ------- -------
Less Distributions:
Dividends from Net Investment Income................ (0.14) (0.12) (0.10)
Distributions from Net Realized Gain on Investments
Sold.............................................. -- (0.81) (1.26)
------ ------- -------
Total Distributions............................. (0.14) (0.93) (1.36)
Net Asset Value, End of Period.......................... $ 9.09 $ 9.38 $ 11.74
====== ======= =======
Total Investment Return at Net Asset Value(8)........... 8.61%(3) 13.78% 41.81%
Total Adjusted Investment Return at Net Asset
Value(8,9)............................................ 5.40%(3) 12.75% 41.19%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)............... $5,293 $ 6,011 $ 9,549
Ratio of Expenses to Average Net Assets................. 0.83%(2) 0.80% 0.80%
Ratio of Adjusted Expenses to Average Net Assets(1,4)... 4.55%(2) 1.83% 1.42%
Ratio of Net Investment Income to Average Net Assets.... 2.04%(2) 1.46% 0.62%
Ratio of Adjusted Net Investment Income (Loss) to
Average Net Assets(1,4)............................... (1.68%)(2) 0.43% 0.00%
Portfolio Turnover Rate................................. 0% 96 216%
Fee Reduction Per Share(6).............................. $ 0.30 $ 0.10 $ 0.07
Average Brokerage Commission Rate(5).................... N/A $0.0640 $0.0573
</TABLE>
<TABLE>
<CAPTION>
JOHN HANCOCK SMALL CAPITALIZATION GROWTH FUND FOR THE PERIOD MAY 2, 1996
(COMMENCEMENT OF OPERATIONS) YEAR ENDED
TO FEBRUARY 28, 1997 FEBRUARY 28, 1998
---------------------------- -----------------
<S> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period........................ $ 8.50 $ 9.24
------- -------
Net Investment Income (Loss)(6)............................. 0.03 (0.03)
Net Realized and Unrealized Gain on Investments and Foreign
Currency Transactions..................................... 0.73 2.53
------- -------
Total from Investment Operations.................... 0.76 2.50
------- -------
Less Distributions:
Dividends from Net Investment Income.................... (0.02) (0.00)(7)
Net Asset Value, End of Period.............................. $ 9.24 $ 11.74
======= =======
Total Investment Return at Net Asset Value(8)............... 8.89%(3) 27.07%
Total Adjusted Investment Return at Net Asset Value(8,9).... (3.84%)(3) 23.92%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)................... $ 999 $ 3,102
Ratio of Expenses to Average Net Assets..................... 0.90%(2) 0.90%
Ratio of Adjusted Expenses to Average Net Assets(1,4)....... 16.24%(2) 4.05%
Ratio of Net Investment Income (Loss) to Average Net
Assets.................................................... 0.35%(2) (0.25%)
Ratio of Adjusted Net Investment Loss to Average Net
Assets(1,4)............................................... (14.99%)(2) (3.40%)
Portfolio Turnover Rate..................................... 92% 117%
Fee Reduction Per Share(6).................................. $ 1.22 $ 0.34
Average Brokerage Commission Rate(5)........................ $0.0692 $0.0687
</TABLE>
(1) Unreimbursed, without fee reduction.
(2) Annualized.
(3) Not annualized.
(4) 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.
(5) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(6) Based on the average of the shares outstanding at the end of each month.
(7) Less than $0.01 per share.
(8) Total investment return assumes dividend reinvestment.
(9) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
5
<PAGE>
THE FUNDS' FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period indicated is as
follows:
<TABLE>
<CAPTION>
JOHN HANCOCK INTERNATIONAL EQUITY FUND FOR THE PERIOD MARCH 30, 1995
(COMMENCEMENT OF OPERATIONS) YEAR ENDED YEAR ENDED
TO FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 28, 1998
----------------------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Period.................... $ 8.50 $ 9.24 $ 9.35
------ ------- -------
Net Investment Income(6)................................ 0.15 0.12 0.06
Net Realized and Unrealized Gain on Investments and
Foreign Currency Transactions......................... 0.68 0.14 0.23
------ ------- -------
Total from Investment Operations................ 0.83 0.26 0.29
------ ------- -------
Less Distributions:
Dividends from Net Investment Income................ (0.08) (0.10) (0.01)
Distributions from Net Realized Gain on Investments
Sold.............................................. (0.01) (0.05) (.....)
------ ------- -------
Total Distributions............................. (0.09) (0.15) (0.01)
------ ------- -------
Net Asset Value, End of Period.......................... $ 9.24 $ 9.35 $ 9.63
====== ======= =======
Total Investment Return at Net Asset Value(5)........... 9.81%(3) 2.79% 3.07%
Total Adjusted Investment Return at Net Asset
Value(5,8)............................................ 3.26%(3) 0.47% 2.05%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted)............... $2,897 $ 4,204 $ 7,983
Ratio of Expenses to Average Net Assets................. 1.05%(2) 1.00% 1.00%
Ratio of Adjusted Expenses to Average Net Assets(1,4)... 8.19%(2) 3.32% 2.02%
Ratio of Net Investment Income to Average Net Assets.... 1.75%(2) 1.26% 0.60%
Ratio of Adjusted Net Investment Loss to Average Net
Assets(1,4)........................................... (5.39%)(2) (1.06%) (0.42%)
Portfolio Turnover Rate................................. 59% 68% 125%
Fee Reduction Per Share(6).............................. $ 0.60 $ 0.22 $ 0.10
Average Brokerage Commission Rate(7).................... N/A $0.0237 $0.0204
</TABLE>
- ---------------
(1) Unreimbursed, without the reduction.
(2) Annualized
(3) Not annualized.
(4) 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.
(5) Total investment return assumes dividend reinvestment.
(6) Based on the average of the shares outstanding at the end of each month.
(7) Per portfolio share traded. Required for fiscal years that began September
1, 1995 or later.
(8) An estimated total return calculation, which does not take into
consideration fee reductions by the Adviser during the periods shown.
6
<PAGE>
AN OVERVIEW OF THE FUNDS
JOHN HANCOCK ACTIVE BOND FUND seeks a high rate of total return 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 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 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 SMALL CAPITALIZATION 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 SMALL CAPITALIZATION GROWTH FUND seeks long-term growth of capital.
The Fund invests primarily in common stocks of rapidly growing small-sized
companies.
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").
------------------------
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
JOHN HANCOCK ACTIVE BOND FUND
The investment objective of John Hancock Active Bond Fund ("Active Bond Fund")
is a high rate of total return, consistent with prudent investment risk. The
Fund invests primarily in a diversified portfolio of freely marketable
investment grade debt securities of U.S. and foreign issuers.
- ------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF JOHN HANCOCK ACTIVE BOND FUND IS A HIGH RATE OF
TOTAL RETURN CONSISTENT WITH PRUDENT INVESTMENT RISK.
- ------------------------------------------------------------------------------
Under normal market conditions, the Fund invests at least 65% of the value of
its total assets in bonds and/or debentures. At least 75% of the Fund's total
assets will consist of investment grade debt securities (i.e. within the four
highest grades as determined by Standard & Poor's Ratings Group ("S&P"), AAA,
AA, A or BBB, or by Moody's Investors Service, Inc. ("Moody's"), Aaa, Aa, A or
Baa); or debt securities of banks, the U.S. Government, its agencies or
instrumentalities and other issuers not rated as a matter of policy by S&P or
Moody's that are the unrated equivalent of investment grade; or cash and
cash-equivalents. Debt securities rated BBB or Baa and unrated debt securities
of comparable credit quality are subject to certain risks. The Fund's
investments in commercial paper will, at the time of purchase, be rated A-2 or
P-2 or better by S&P or Moody's, respectively. See "INVESTMENT GRADE
SECURITIES."
- ------------------------------------------------------------------------------
ACTIVE BOND FUND INVESTS PRIMARILY IN INVESTMENT GRADE SECURITIES.
- ------------------------------------------------------------------------------
The Fund may also invest up to 25% of the value of its total assets in
fixed-income securities rated below BBB by S&P or below Baa by Moody's or their
respective equivalent ratings or in securities which are unrated. The Fund may
invest in securities rated as low as CC by S&P or Ca by Moody's and unrated
securities of comparable credit quality as determined by the Adviser. These
ratings indicate obligations that are speculative to a high degree and often in
default. Securities rated lower than Baa or BBB are high risk securities
generally referred to as "junk bonds." See "LOWER RATED SECURITIES." See
Appendix A to the Statement of Additional Information for a description of the
characteristics of obligations in the various rating categories. The Fund is not
obligated to dispose of securities whose issuers subsequently are in default or
which are downgraded below the above-stated ratings.
- ------------------------------------------------------------------------------
THE FUND MAY INVEST TO A LIMITED EXTENT IN LOWER RATED SECURITIES.
- ------------------------------------------------------------------------------
The Fund may acquire individual securities of any maturity and is not subject to
any limits as to the average maturity of its overall portfolio. The longer the
Fund's average portfolio maturity, the more the value of the portfolio and the
net asset value of the Fund's shares will fluctuate in response to changes in
interest rates. An increase in interest rates will generally decrease the value
of the Fund's portfolio securities and its shares, while a decline in interest
rates will generally increase their value.
- ------------------------------------------------------------------------------
THE FUND'S INVESTMENTS MAY BE OF ANY MATURITY.
- ------------------------------------------------------------------------------
The Fund may invest in securities of United States and foreign issuers. It is
anticipated that under normal conditions, the Fund will not invest more than 25%
of its total assets in foreign securities (excluding U.S. dollar-denominated
Canadian securities). Securities of foreign issuers involve special risks. See
"SECURITIES OF FOREIGN ISSUERS."
- ------------------------------------------------------------------------------
THE FUND MAY INVEST IN SECURITIES OF BOTH DOMESTIC AND FOREIGN ISSUERS.
- ------------------------------------------------------------------------------
The Fund may invest to a limited extent in restricted and illiquid securities,
and enter into repurchase agreements. It may also lend its portfolio securities
and purchase securities on a forward commitment or when-issued basis.
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."
- ------------------------------------------------------------------------------
ACTIVE BOND FUND MAY EMPLOY CERTAIN INVESTMENT STRATEGIES TO HELP ACHIEVE ITS
INVESTMENT OBJECTIVE.
- ------------------------------------------------------------------------------
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.
8
<PAGE>
JOHN HANCOCK GLOBAL BOND FUND
The investment objective of the John Hancock Global Bond Fund ("Global Bond
Fund") is a competitive total investment return, consisting of current income
and capital appreciation. The Fund invests primarily in a global portfolio of
high grade, fixed-income debt securities. Normally, the Fund will invest in
fixed-income debt securities denominated in at least three currencies or
multi-currency units, including the U.S. Dollar.
Under normal circumstances, Global Bond Fund invests primarily (at least 65% of
total assets) in fixed-income debt securities issued or guaranteed by: (i) the
U.S. Government, its agencies or instrumentalities; (ii) foreign governments
(including foreign states, provinces and municipalities) or their political
subdivisions, authorities, agencies or instrumentalities; (iii) international
organizations backed or jointly owned by more than one national government, such
as the International Bank for Reconstruction and Development, European
Investment Bank, Asian Development Bank and European Coal and Steel Community;
and (iv) foreign corporations or financial institutions. The term "fixed-income
debt securities" encompasses debt obligations of all types, including bonds,
debentures and notes. A fixed-income debt security may itself be convertible
into or exchangeable for equity securities, or may carry with it the right to
acquire equity securities evidenced by warrants attached to the security or
acquired as part of a unit with a security. The Fund also invests in stocks,
such as preferred stocks, that provide the Fund with current income or capital
appreciation.
- ------------------------------------------------------------------------------
JOHN HANCOCK GLOBAL BOND FUND'S INVESTMENT OBJECTIVE IS A COMPETITIVE TOTAL
INVESTMENT RETURN, CONSISTING OF CURRENT INCOME AND CAPITAL APPRECIATION. THE
FUND INVESTS PRIMARILY IN A GLOBAL PORTFOLIO OF HIGH GRADE, FIXED-INCOME DEBT
SECURITIES.
- ------------------------------------------------------------------------------
The Fund has registered as a "non-diversified" fund so that it may invest more
than 5% of its total assets in the obligations of a single foreign government or
other issuer. This may make the Fund more susceptible to certain risks. See
"NON-DIVERSIFIED STATUS." The Fund will not, however, invest more than 25% of
its total assets in securities issued by any one foreign government.
- ------------------------------------------------------------------------------
THE FUND IS "NON-DIVERSIFIED."
- ------------------------------------------------------------------------------
Global Bond Fund's investments in fixed-income debt securities consist primarily
of fixed income debt securities which are rated, at the time of investment, A or
better by either S&P or Moody's or their respective equivalent ratings or in
securities that the Adviser has determined to be of comparable credit quality.
The Fund may, however, invest less than 35% of its total assets in fixed-income
debt securities rated, at the time of investment, as low as CCC by S&P or Caa 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 "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 INVESTS PRIMARILY IN HIGH GRADE SECURITIES.
- ------------------------------------------------------------------------------
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
9
<PAGE>
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 involve risks not associated with U.S.
securities. In addition, the Fund may invest in foreign countries with limited
or developing capital markets, including emerging markets. Investments in these
countries involve additional risks. See "SECURITIES OF FOREIGN ISSUERS."
The average maturity of the Fund's portfolio securities may vary based upon the
Adviser's assessment of economic and market conditions.
- ------------------------------------------------------------------------------
THE FUND'S AVERAGE PORTFOLIO MATURITY MAY VARY.
- ------------------------------------------------------------------------------
When the Adviser determines that adverse market conditions are present, the Fund
may establish and maintain cash reserves for temporary defensive purposes,
without limitation. The Fund's cash reserves may be invested in domestic as well
as foreign money market instruments, including but not limited to governmental
obligations, certificates of deposit, bankers' acceptances, commercial paper,
short-term corporate debt securities and repurchase agreements.
- ------------------------------------------------------------------------------
FOR TEMPORARY DEFENSIVE PURPOSES, THE FUND MAY INVEST IN A VARIETY OF DOMESTIC
AND FOREIGN MONEY MARKET INSTRUMENTS.
- ------------------------------------------------------------------------------
Global Bond Fund's portfolio turnover rate may vary widely from year to year and
may be higher than that of many other mutual funds with a total return
objective. A high rate of portfolio turnover involves correspondingly higher
expenses than a lower rate, and these expenses must be borne by the Fund. See
"SHORT TERM TRADING AND PORTFOLIO TURNOVER."
The Fund may deal in options listed for trading on national securities or
foreign exchanges or traded over-the-counter. The Fund may invest up to 10% of
its total assets, taken at market value at the time of investment, in call and
put options on domestic and foreign securities and foreign currencies. In
addition, it may write (sell) covered call options and put options to the extent
that the cover for these options does not exceed 25% of the Fund's total assets.
The Fund may also invest in interest rate futures contracts (including futures
contracts on foreign debt securities) and foreign currency futures contracts to
hedge against the effects of fluctuations in interest rates, currency exchange
rates and other market conditions. The Fund may purchase and write (sell)
options on interest rate futures contracts and foreign currency futures
contracts that are traded on a U.S. exchange or board of trade. See "OPTIONS AND
FUTURES TRANSACTIONS."
- ------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES TO HELP ACHIEVE
ITS INVESTMENT OBJECTIVE.
- ------------------------------------------------------------------------------
As a means of hedging its exposure to interest rate and currency fluctuations,
the Fund may enter into interest rate swaps, currency swaps, and other types of
swap agreements, such as caps, collars and floors. See "SWAP AGREEMENTS."
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 DIVIDEND PERFORMERS FUND
The investment objective of John Hancock Dividend Performers Fund ("Dividend
Performers Fund") is long-term growth of capital and income without undue market
risk. At times, however, because of market conditions, the Fund may find it
advantageous to invest primarily for current income. The Fund believes that its
shares are suitable for investment by persons who are in search of long-term
above-average reward.
- ------------------------------------------------------------------------------
JOHN HANCOCK DIVIDEND PERFORMERS FUND SEEKS LONG-TERM GROWTH OF CAPITAL AND
INCOME WITHOUT UNDUE MARKET RISK.
- ------------------------------------------------------------------------------
Under normal circumstances, the Fund invests at least 65% of its total assets in
dividend paying securities. The Adviser expects that common stocks will
ordinarily offer the greatest dividend paying potential and will constitute a
majority of the Fund's assets. For defensive purposes, however, the Fund may
temporarily hold high grade short-term 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, earnings power, marketability and
prospects for future growth.
- ------------------------------------------------------------------------------
DIVIDEND PERFORMERS FUND INVESTS PRIMARILY IN COMMON STOCKS.
- ------------------------------------------------------------------------------
10
<PAGE>
The Fund uses a strategy of investing primarily in those common stocks that
have a record of having increased their dividends in each of the preceding ten
or more years. This "dividend performers" strategy can be changed at any time.
- ------------------------------------------------------------------------------
DIVIDEND PERFORMERS FUND GENERALLY INVESTS IN SEASONED COMPANIES IN SOUND
FINANCIAL CONDITION WITH A LONG RECORD OF PAYING DIVIDENDS.
- ------------------------------------------------------------------------------
The Fund 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 INVEST IN CORPORATE AND U.S. GOVERNMENT FIXED-INCOME
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 MULTI-SECTOR GROWTH FUND
The investment objective of John Hancock Multi-Sector Growth Fund ("Multi-Sector
Growth Fund") is long-term capital appreciation. The Fund seeks to achieve its
objective by emphasizing investments in equity securities of issuers in various
economic sectors.
- ------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF THE JOHN HANCOCK MULTI-SECTOR GROWTH FUND IS
LONG-TERM CAPITAL APPRECIATION.
- ------------------------------------------------------------------------------
The equity securities in which the Fund invests consist primarily of common
stocks of U.S. and foreign issuers but may also include preferred stocks,
convertible debt securities and warrants. The Fund seeks to achieve its
investment objective by varying the relative weighting of its portfolio
securities among various economic sectors based upon both macroeconomic factors
and the outlook for each particular sector. The Adviser selects equity
securities for the Fund from various economic sectors, including, but not
limited to, the following: basic material, energy, capital equipment,
technology, consumer cyclical, retail, consumer staple, health care,
transportation, financial and utility. 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.
- ------------------------------------------------------------------------------
THE FUND EMPHASIZES ISSUERS IN CERTAIN ECONOMIC SECTORS BELIEVED TO PRESENT
"SECTOR OPPORTUNITIES."
- ------------------------------------------------------------------------------
The Adviser will adjust the Fund's relative weighting among the sectors in
response to changes in economic and market conditions. The Fund may focus on as
many as five of the foregoing economic sectors at any time. Under normal market
conditions, at least 75% 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
11
<PAGE>
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 investments in
companies with smaller market capitalizations. See "SMALLER CAPITALIZATION
COMPANIES."
The Fund may also invest in the following types of fixed-income securities: U.S.
Government securities and convertible and non-convertible corporate preferred
stocks and debt securities of U.S. and foreign issuers. See "SECURITIES OF
FOREIGN ISSUERS." The market value of fixed-income securities varies inversely
with changes in the prevailing levels of interest rates. The market value of
convertible securities, while influenced by the prevailing level of interest
rates, is also affected by the changing value of the equity into which they are
convertible. The Fund may purchase fixed-income debt securities with stated
maturities of up to thirty years. The Fund's investments in fixed-income
securities may include mortgage-backed securities.
- ------------------------------------------------------------------------------
THE FUND MAY ALSO INVEST IN FIXED-INCOME SECURITIES IN PURSUING ITS INVESTMENT
OBJECTIVE OR FOR TEMPORARY DEFENSIVE PURPOSES.
- ------------------------------------------------------------------------------
The corporate fixed-income securities in which the Fund may invest will be
rated, at the time of investment, at least BBB by S&P or Baa by Moody's or their
respective equivalent ratings or, if unrated, determined to be of comparable
credit quality by the Adviser. Securities in the lowest investment grade (BBB or
Baa) involve certain risks. See "INVESTMENT GRADE SECURITIES." If the rating of
a debt security is reduced below Baa or BBB, the Adviser will consider whatever
action is appropriate consistent with the Fund's investment objectives and
policies. See Appendix A to the Statement of Additional Information for a
description of the characteristics of obligations in the various rating
categories.
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 EMPLOY CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES TO HELP ACHIEVE
ITS INVESTMENT OBJECTIVE.
- ------------------------------------------------------------------------------
The Fund may engage in short sales "against the box," as well as short sales for
hedging purposes and to profit from an anticipated decline in a security's
value. Short sales other than "against the box" involve special risks. See
"SHORT SALES."
The Fund may also lend its portfolio securities, enter into repurchase
agreements, purchase securities on a forward commitment or when-issued basis,
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 SMALL CAPITALIZATION VALUE FUND
The investment objective of John Hancock Small Capitalization Value Fund ("Small
Capitalization Value Fund") is capital appreciation with income as a secondary
consideration. The Fund seeks to achieve its objective by investing primarily in
equity securities that are undervalued relative to alternative equity
investments. The equity securities in which the Fund invests consist of common
stocks, preferred stocks, convertible debt securities and warrants of U.S. and
foreign issuers.
- ------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF JOHN HANCOCK SMALL CAPITALIZATION VALUE FUND IS
CAPITAL APPRECIATION WITH INCOME AS A SECONDARY OBJECTIVE.
- ------------------------------------------------------------------------------
12
<PAGE>
Under normal circumstances, the Fund will invest at least 80% of its total
assets in common stocks and other equity securities, including convertible
securities, preferred stocks and warrants, of domestic and foreign issuers of
small-sized companies with a total market capitalization of $1 billion or less
("small capitalization companies"). Higher risks are often associated with
investments in companies with small market capitalizations. See "SMALLER
CAPITALIZATION COMPANIES."
- ------------------------------------------------------------------------------
SMALL CAPITALIZATION VALUE FUND MAY INVEST IN THE SECURITIES OF SMALLER, LESS
WELL-KNOWN ISSUERS, WHICH MAY INVOLVE CERTAIN RISKS.
- ------------------------------------------------------------------------------
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 disciplined active equity manager can exploit to achieve an
above-average rate of return.
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 15% 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.
- ------------------------------------------------------------------------------
SMALL CAPITALIZATION VALUE FUND MAY ALSO INVEST IN FIXED-INCOME SECURITIES IN
PURSUING ITS INVESTMENT OBJECTIVE OR FOR TEMPORARY DEFENSIVE PURPOSES.
- ------------------------------------------------------------------------------
The fixed-income securities in which the Fund may invest, may be 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. Fixed-income securities that are rated below BBB
by S&P or Baa by Moody's indicate obligations that are speculative to a high
degree and are often in default. Securities rated lower than BBB or Baa are high
risk securities generally referred to as "junk bonds." See "LOWER RATED
SECURITIES." See Appendix A to the Statement of Additional Information for a
description of the characteristics of obligations in the various rating
categories. The Fund is not obligated to dispose of securities whose issuers
subsequently are in default or which are downgraded below the above-stated
ratings.
The Fund may invest 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.
In connection with its investments in foreign securities, the Fund may hold a
portion of its assets in foreign currencies and may enter into forward foreign
currency exchange contracts to protect against changes in foreign currency
exchange rates. See "FOREIGN CURRENCY TRANSACTIONS."
- ------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES TO HELP ACHIEVE
ITS INVESTMENT OBJECTIVE.
- ------------------------------------------------------------------------------
The Fund may write listed and over-the-counter covered call and put options on
up to 100% of its net assets on securities in which it may invest and on indices
composed of securities in which it may invest. The Fund may also purchase put
and call options on such securities and indices. The Fund may also buy and sell
stock index and other financial futures contracts and options on such futures
contracts to hedge against changes in securities prices, interest rates and
currency exchange rates or for speculative purposes. These contracts may be
based on various securities indices and currencies. See "OPTIONS AND FUTURES
TRANSACTIONS."
The Fund may also lend its portfolio securities, enter into repurchase
agreements, purchase securities on a forward commitment or when-issued basis and
purchase restricted and illiquid securities.
See "RISK FACTORS, INVESTMENTS AND TECHNIQUES" for more information about the
Fund's investments.
JOHN HANCOCK SMALL CAPITALIZATION GROWTH FUND
The investment objective of John Hancock Small Capitalization Growth Fund
("Small Capitalization Growth Fund") is long-term growth of capital. The
potential for growth of capital will be the sole basis for selection of
portfolio securities. Current income will not be a factor in this selection. The
Fund believes that its shares are suitable for investment by investors who are
in search of superior long-term growth and who have the ability to assume a
moderate amount of risk in pursuit of this goal.
- ------------------------------------------------------------------------------
JOHN HANCOCK SMALL CAPITALIZATION GROWTH FUND SEEKS LONG-TERM GROWTH OF CAPITAL.
- ------------------------------------------------------------------------------
13
<PAGE>
Under normal circumstances, the Fund invests at least 65% of its total assets in
common stocks and other equity securities, including convertible securities,
preferred stocks and warrants, of domestic and foreign issuers 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.
- ------------------------------------------------------------------------------
SMALL CAPITALIZATION GROWTH FUND INVESTS PRIMARILY IN COMMON STOCKS OF RAPIDLY
GROWING SMALL-SIZED COMPANIES, ALTHOUGH IT MAY INVEST IN OTHER EQUITY SECURITIES
OF DOMESTIC AND FOREIGN ISSUERS OFFERING SUPERIOR GROWTH POTENTIAL.
- ------------------------------------------------------------------------------
Although investment in the securities of smaller capitalization companies may
present greater opportunities for long-term capital growth than other
investments, it may also involve greater risks, including greater price
volatility than investments in the securities of larger capitalization
companies. The Fund is intended for investors who can accept the risks
associated with its investments and may not be suitable for all investors. See
"SMALLER CAPITALIZATION COMPANIES" for a fuller discussion of the risks inherent
in the Fund's investments in securities of smaller capitalization companies.
- ------------------------------------------------------------------------------
INVESTMENT IN SMALLER CAPITALIZATION COMPANIES INVOLVES CERTAIN RISKS.
- ------------------------------------------------------------------------------
The Fund may invest without limitation in securities of foreign issuers. These
investments involve special risks. See "SECURITIES OF FOREIGN ISSUERS." In
connection with these investments the Fund may hold a portion of its assets in
foreign currencies and enter into forward foreign currency exchange contracts to
hedge against changes in foreign currency exchange rates. See "FOREIGN CURRENCY
TRANSACTIONS." The Fund's investments in foreign securities may include
investments in American Depository Receipts. See "DEPOSITORY RECEIPTS."
- ------------------------------------------------------------------------------
THE FUND MAY INVEST IN SECURITIES OF FOREIGN ISSUERS.
- ------------------------------------------------------------------------------
When the Adviser determines that adverse market conditions are present, the Fund
may establish and maintain cash reserves or invest in fixed-income securities
for temporary defensive purposes, without limitation. In establishing cash
reserves, the Fund may invest in a wide variety of money market instruments,
including but not limited to U.S. Government obligations, certificates of
deposit, bankers' acceptances, commercial paper, short-term corporate debt
securities and repurchase agreements. In addition, when the Adviser believes
that market and interest rate conditions are suitable, the Fund may for
defensive purposes invest in longer-duration U.S. Government and corporate debt
securities. The market value of fixed income securities varies inversely with
changes in the prevailing level of interest rates. The Fund may purchase
fixed-income debt securities with stated maturities up to thirty years.
- ------------------------------------------------------------------------------
FOR TEMPORARY DEFENSIVE PURPOSES, THE FUND MAY INVEST IN FIXED INCOME SECURITIES
AND MONEY MARKET INSTRUMENTS.
- ------------------------------------------------------------------------------
The corporate fixed-income securities in which the Fund may invest will be
rated, at the time of investment, at least BBB by Standard & Poor's Ratings
Group ("S&P") or Baa by Moody's Investors Service, Inc. ("Moody's") or their
respective equivalent ratings or, if unrated, determined to be of comparable
quality by the Adviser. Securities rated in the lowest investment grade (BBB or
Baa) involve certain risks. See "INVESTMENT GRADE SECURITIES." If the rating of
a debt security is reduced below Baa or BBB, the Adviser will consider whatever
action is appropriate consistent with the Fund's investment objective and
policies. See Appendix A to the Statement of Additional Information for a
description of the characteristics of obligations in the various rating
categories.
The Fund may for hedging 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 futures and options on
futures for speculative purposes. See "OPTIONS AND FUTURES TRANSACTIONS."
- ------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES TO HELP ACHIEVE
ITS INVESTMENT OBJECTIVE.
- ------------------------------------------------------------------------------
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.
14
<PAGE>
See "RISK FACTORS, INVESTMENTS AND TECHNIQUES" for more information about the
Fund's investments.
JOHN HANCOCK INTERNATIONAL EQUITY FUND
The investment objective of John Hancock International Equity Fund
("International Equity Fund") is long-term growth of capital. The Fund seeks to
achieve its investment objective by investing primarily in foreign equity
securities.
Under normal circumstances, at least 65% of the Fund's total assets will be
invested in equity securities of issuers located outside the United States in
various countries around the world. Generally, the Fund's portfolio will contain
securities of issuers from at least three countries other than the United
States. Although the Fund may invest in both equity and debt securities, the
Adviser and the Fund's Subadviser, John Hancock Advisers International Ltd.
("JHAI"), expect that equity securities, such as common stock, preferred stock
and securities convertible into common and preferred stock, will ordinarily
offer the greatest potential for long-term growth of capital and will constitute
substantially all the Fund's assets. However, the Fund may invest in any other
types of securities that the Adviser or JHAI believe offer long-term capital
appreciation due to favorable credit quality, interest rates or currency
exchange rates. These securities include warrants, bonds, notes and other debt
securities (including Euro-dollar securities) or obligations of domestic or
foreign governments and their political subdivisions, or domestic or foreign
corporations.
- ------------------------------------------------------------------------------
THE INVESTMENT OBJECTIVE OF JOHN HANCOCK INTERNATIONAL EQUITY FUND IS LONG-TERM
GROWTH OF CAPITAL.
- ------------------------------------------------------------------------------
The Fund maintains a flexible investment policy and invests in a diversified
portfolio of securities of companies and governments located throughout the
world. In making the allocation of assets among various countries and geographic
regions, the Adviser and JHAI ordinarily consider such factors as prospects for
relative economic growth between foreign countries; expected levels of inflation
and interest rates; governmental policies influencing business conditions; and
other pertinent financial, tax, social, political and national factors -- all in
relation to the prevailing prices of the securities in each country or region.
- ------------------------------------------------------------------------------
THE INTERNATIONAL ALLOCATION OF ASSETS IS NOT FIXED, AND WILL VARY FROM TIME TO
TIME BASED ON THE JUDGMENT OF THE ADVISER AND JHAI.
- ------------------------------------------------------------------------------
In choosing specific investments for the Fund, the Adviser and JHAI generally
look for companies whose earnings show a strong growth trend or for companies
whose current market value per share is undervalued. The Fund will not restrict
its investments to any particular size company and, consequently, the portfolio
may include the securities of small and relatively less well-known companies.
The securities of small and, in some cases, medium-sized companies may be
subject to more volatile market movements than the securities of larger, more
established companies or the stock market averages in general. See "SMALLER
CAPITALIZATION COMPANIES."
The Fund intends generally to invest in debt securities only for temporary
defensive purposes. Accordingly, when the Adviser or JHAI believes that
unfavorable investment conditions exist requiring the Fund to assume a temporary
defensive investment posture, the Fund may hold cash or invest all or a portion
of its assets in short-term domestic as well as foreign instruments, including:
short-term U.S. Government securities (including mortgage-backed securities) and
repurchase agreements in connection with such instruments; bank certificates of
deposit, bankers' acceptances, time deposits and letters of credit; and
commercial paper (including so called Section 4(2) paper rated at least A-1 or
A-2 by S&P or P-1 or P-2 by Moody's or if unrated considered by the Adviser or
JHAI to be of comparable credit quality). The Fund's temporary defensive
investments may also include: debt obligations of U.S. companies rated at least
BBB or Baa by S&P or Moody's, respectively, or, if unrated, of comparable
quality in the opinion of the Adviser or JHAI; commercial paper and corporate
debt obligations not satisfying the above credit standards if they are (a)
subject to demand features or puts or (b) guaranteed as to principal and
interest by a domestic or foreign bank having total assets in excess of $1
billion, by a corporation whose commercial paper may be purchased by the Fund,
or by a foreign government having an existing debt security rated at least BBB
or Baa by S&P or Moody's, respectively; and other short-term investments which
are determined by the Trustees of the Trust to present minimal credit risks and
which are of "high quality" as determined by any major rating service or, in the
case of an instrument that is not rated, of comparable quality as determined by
the Adviser and JHAI. Securities which are convertible may be rated as low as
BBB or Baa by S&P or Moody's, respectively. Debt securities and convertible
securities rated BBB or Baa are subject to certain risks. See
15
<PAGE>
"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."
Although the Fund's investments in foreign securities generally are subject to
special risks, these risks may be intensified in the case of investments in
emerging markets or countries with limited or developing capital markets. These
countries are located in the Asia-Pacific region, Eastern Europe, Latin and
South America and Africa. See "SECURITIES OF FOREIGN ISSUERS."
- ------------------------------------------------------------------------------
THE FUND'S INVESTMENTS IN SECURITIES OF FOREIGN ISSUERS MAY INCLUDE INVESTMENTS
IN EMERGING MARKETS.
- ------------------------------------------------------------------------------
The Fund will not speculate in foreign currencies, but may enter into forward
foreign currency contracts to seek to hedge against changes in currency exchange
rates. See "FOREIGN CURRENCY TRANSACTIONS."
The Fund may deal in options listed for trading on national securities or
foreign exchanges or those traded over the counter. The Fund may write listed
and over the counter covered call and put options on securities in which it may
invest and on indices composed of securities in which it may invest. The Fund
may also purchase put and call options on these securities and indices. The Fund
may engage in transactions in futures contracts and options on futures contracts
for hedging and speculative purposes. All of the Fund's futures contracts and
options on futures contracts will be traded on a U.S. commodity exchange or
board of trade. See "OPTIONS AND FUTURES TRANSACTIONS."
- ------------------------------------------------------------------------------
THE FUND MAY EMPLOY CERTAIN INVESTMENT STRATEGIES AND TECHNIQUES TO HELP ACHIEVE
ITS INVESTMENT OBJECTIVE.
- ------------------------------------------------------------------------------
The Fund may engage in short sales "against the box," as well as short sales for
hedging purposes and to profit from an anticipated decline in a security's
value. Short sales other than "against the box" involve special risks. See
"SHORT SALES."
The Fund may also lend its portfolio securities, enter into repurchase
agreements, purchase securities on a forward commitment or when-issued basis,
purchase restricted and illiquid securities and engage in short-term trading.
See "RISK FACTORS, INVESTMENTS AND TECHNIQUES" for more information on the
Fund's investments.
------------------------
Each Fund has adopted certain investment restrictions 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.
- ------------------------------------------------------------------------------
EACH FUND FOLLOWS CERTAIN POLICIES WHICH MAY HELP TO REDUCE INVESTMENT RISK.
- ------------------------------------------------------------------------------
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 a broker affiliated with the Adviser and/or a
subadviser. This broker is John Hancock Distributors, Inc., which is 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.
- ------------------------------------------------------------------------------
BROKERS ARE CHOSEN ON BEST PRICE AND EXECUTION.
- ------------------------------------------------------------------------------
16
<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 Balanced Fund, John Hancock Independence Value Fund, John
Hancock Independence Diversified Core Equity Fund II, John Hancock Independence
Growth Fund and John Hancock Independence Medium Capitalization 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
PARTICIPANTS
- --------------------------------------------------------------------------------
Through your Sponsor according to your Plan.
- --------------------------------------------------------------------------------
<TABLE>
PLANS AND INSTITUTIONS
- --------------------------------------------------------------------------------
<S> <C>
BY CHECK 1. Make check payable to John Hancock Signature Services, Inc.
2. Mail the completed account information package directly to
Signature Services at:
John Hancock Signature Services, Inc.
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
Signature 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 Signature Services at
1-800-755-4371.
- --------------------------------------------------------------------------------
</TABLE>
Signature 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
17
<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 Signature
Services.
BUYING ADDITIONAL SHARES
PARTICIPANTS
- --------------------------------------------------------------------------------
Through your Sponsor according to your Plan.
- --------------------------------------------------------------------------------
<TABLE>
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.
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
INSTITUTIONS
- --------------------------------------------------------------------------------
<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.
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 Signature Services
toll-free at 1-800-755-4371.
3. Give the Signature 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 Signature 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 Signature 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 Signature Services. The Fund will normally issue
shares for cash consideration only.
18
<PAGE>
REDEEMING SHARES
The payment of redemption proceeds will be made by check or electronic credit to
a shareholder's account at a financial institution, generally on the next
business day. When you redeem your shares, you may realize a gain or loss. Under
unusual circumstances a Fund may suspend redemptions or postpone payment 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
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------
IN WRITING Send a letter of instruction specifying the name of the
Fund, the dollar amount or the number of shares to be
redeemed, your name, your account number and the additional
requirements listed below that apply to your particular
account.
CORPORATION OR Letter of instruction and a corporate resolution, signed by
ASSOCIATION 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 twelve months.)
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.
- --------------------------------------------------------------------------------------
</TABLE>
INSTITUTIONS
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------
IN WRITING Please follow the instructions as set forth for Plans on
how to redeem in writing.
BY WIRE Please follow the instructions as set forth for Plans on
how to redeem by wire.
BY TELEPHONE As an Institution you are automatically eligible for the
telephone redemption privilege. Call 1-800-755-4371, from
8:00 a.m. to 4:00 p.m. (New York time), Monday through
Friday, excluding days on which the Exchange is closed.
Signature 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 exceeding
$100,000 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 Signature Services will be
liable for any loss or expense for acting upon telephone
instructions made in accordance with the procedures
mentioned above. Telephone redemption is not available for
Fund shares in certificate form.
During periods of extreme economic conditions or market
changes, telephone requests may be difficult to implement
due to a large volume of calls. During such times you
should consider placing redemption requests in writing or
using EASI-line. EASI-line is a telephone number which is
listed on account statements.
</TABLE>
- --------------------------------------------------------------------------------
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 signature guarantee must be from a
member of the Signature Guarantee Medallion Program (generally, a broker or
securities dealer). We may refuse any other source.
19
<PAGE>
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.
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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PLANS
- --------------------------------------------------------------------------------
<S> <C>
IN WRITING 1. In a letter request an 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 Signature Services, Inc.
Attn: Institution Services
P.O. Box 9296
Boston MA 02205-9296
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INSTITUTIONS
- --------------------------------------------------------------------------------
<S> <C>
IN WRITING Please follow the instructions as set forth for Plans on
how to exchange shares in writing.
BY TELEPHONE 1. Exchange by telephone is 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.
- --------------------------------------------------------------------------------
</TABLE>
Each Fund reserves the right to require Institutions to keep previously
exchanged shares (and reinvested dividends) in the Fund for 90 days before they
are permitted a new exchange. Participants may exchange shares according to Plan
provisions. The Fund may also terminate or alter the terms of the exchange
privilege upon 60 days' notice to shareholders.
SPECIAL INVESTMENT PRIVILEGE FOR FORMER PLAN PARTICIPANTS. A former Participant
in a Plan may invest the redemption proceeds of Fund shares beneficially owned
by the Participant without a sales charge in other John Hancock funds.
Participants may only invest in the Funds through a Plan. If a Participant
elects or is required to withdraw from a Plan, the shares cannot be transferred
into an account in the name of the Participant. In this circumstance, the
Participant may, subject to any other rights or restrictions under the Plan,
cause the Plan Sponsor to redeem shares of the Funds. The proceeds of such
redemption may be either distributed to the Participant or rolled over into an
Individual Retirement Account or other retirement plan.
In either case, such proceeds may be invested at NAV without the imposition of a
sales charge in shares of any other fund (other than those of the Trust) in the
John Hancock family of funds. If the fund selected by the Participant has more
than one class of shares, the privilege of purchasing shares at NAV will only
apply to Class A shares. A Participant should obtain and carefully read the
Prospectus of each John Hancock fund in which the Participant is considering an
investment.
A Participant may obtain a Prospectus, establish an Individual Retirement
Account and arrange the rollover of redemption proceeds by contacting Signature
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.
20
<PAGE>
ORGANIZATION AND MANAGEMENT OF THE FUNDS
Each Fund is organized as a separate portfolio of the Trust, which is an
open-end investment management company organized as a Massachusetts business
trust in 1994. The Trust has an unlimited number of authorized shares, and
currently has twelve distinct funds. The Independence Funds are offered through
a separate prospectus.
Each Fund currently has one class of shares with equal rights as to voting,
redemption, dividends and liquidation within their respective Fund. The Trustees
also have the authority, without further shareholder approval, to establish
additional funds and to classify and reclassify the shares of the Funds, or any
new fund of the Trust, into one or more classes. The Trust is not required to
hold annual shareholder meetings, although special meetings may be called for
such purposes as electing or removing Trustees, changing fundamental
restrictions or approving a management contract.
- ------------------------------------------------------------------------------
THE TRUSTEES ELECT OFFICERS AND RETAIN THE INVESTMENT ADVISER AND THE
SUBADVISERS, WHO ARE RESPONSIBLE FOR THE DAY-TO-DAY OPERATIONS OF THE FUNDS,
SUBJECT TO THE TRUSTEES' POLICIES AND SUPERVISION.
- ------------------------------------------------------------------------------
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the Funds. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Trust. The Declaration of Trust also provides for indemnification out of a
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. Liability is, therefore,
limited to circumstances in which a Fund itself would be unable to meet its
obligations, and the possibility of this occurrence is remote. Liabilities
attributable to one Fund are not charged against the assets of any other Fund.
The Adviser was organized in 1968 and is a wholly-owned indirect subsidiary of
the Life Company, a financial services company. It provides the Funds, and other
investment companies in the John Hancock group of funds, with investment
research and portfolio management services.
- ------------------------------------------------------------------------------
JOHN HANCOCK ADVISERS, INC. ADVISES INVESTMENT COMPANIES HAVING A TOTAL ASSET
VALUE OF MORE THAN $30 BILLION.
- ------------------------------------------------------------------------------
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.
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 $2.8 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 $570 million in assets.
- ------------------------------------------------------------------------------
TO ASSIST IN MANAGING THE INVESTMENTS OF DIVIDEND PERFORMERS FUND AND
INTERNATIONAL EQUITY FUND, THE ADVISER HAS ENGAGED SUBADVISERS.
- ------------------------------------------------------------------------------
The person or persons primarily responsible for the day-to-day management of
each Fund are listed below:
ACTIVE BOND FUND
Mr. James K. Ho, CFA, assisted by a team of portfolio managers and analysts, has
been primarily responsible for the management of the Fund since its inception.
Mr. Ho, an executive vice president, has been associated with the Adviser since
1985 and in the investment business since 1977.
GLOBAL BOND FUND
Mr. Lawrence J. Daly and Mr. Anthony A. Goodchild have been primarily
responsible for management of the Fund since its inception. Ms. Janet L. Clay
joined Messrs. Daly and Goodchild as a co-portfolio manager of the Fund in April
1996. Messrs. Daly and Goodchild, senior vice presidents, have been associated
with the Adviser since 1994. Ms. Clay, a vice president, has been associated
with the Adviser since 1995. Mr. Daly, Mr. Goodchild, and Ms. Clay have been in
the investment business since 1971, 1968 and 1990, respectively.
21
<PAGE>
DIVIDEND PERFORMERS FUND
Mr. John F. Snyder III, assisted by a team of portfolio managers and analysts,
has been primarily responsible for management of the Fund since its inception.
Mr. Snyder, an executive vice president, has been associated with the Adviser
since 1991 and in the investment business since 1972.
MULTI-SECTOR GROWTH FUND
Ms. Barbara C. Friedman, CFA, assisted by a team of portfolio managers and
analysts, has been primarily responsible for the management of the Fund since
1998. Ms. Friedman, a senior vice president, has been associated with the
Adviser since 1998 and in the investment business since 1973.
SMALL CAPITALIZATION VALUE FUND
Mr. Timothy E. Keefe, CFA, assisted by a team of portfolio managers and
analysts, has been primarily responsible for the management of the Fund since
September 1996. Mr. Keefe, a senior vice president, has been associated with the
Adviser since July 1996 and in the investment business since 1986.
SMALL CAPITALIZATION GROWTH FUND
Ms. Bernice S. Behar, CFA, leads the fund's portfolio management team. Other
team members are managers Ms. Laura Allen, CFA, Mr. Anurag Pandit, CFA, and Mr.
Andrew Slabin. Ms. Behar, senior vice president, has been in the investment
business since 1986 and has managed the fund since 1996. Ms. Allen, senior vice
president, has been in the investment business since 1991 and joined the fund's
management team in 1998. Mr. Pandit, vice president, has been in the investment
business since 1984 and a member of the fund's team since 1996. Mr. Slabin has
been with John Hancock Funds since 1993 and joined the team in 1996.
INTERNATIONAL EQUITY FUND
Ms. Miren Etcheverry, Mr. John L.F. Wills and Mr. Gerardo J. Espinoza lead the
portfolio management team responsible for the Fund. Ms. Etcheverry and Mr.
Espinoza, senior vice presidents, have been associated with the Adviser since
1996 and in the investment business since 1978 and 1979, respectively. Mr.
Wills, a senior vice president and managing director of the subadviser, John
Hancock Advisers International, Ltd. has been associated with the Adviser since
1987 and in the investment business since 1969.
YEAR 2000 COMPLIANCE
The Adviser has addressed the Year 2000 issue by taking steps that it believes
are reasonably designed to address the potential failure of computer programs
used by the Adviser and the Funds' service providers. There can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Funds.
THE FUNDS' EXPENSES
Each Fund pays a monthly fee to the Adviser for managing the Fund's investment
and business affairs, which is equal on an annual basis to a percentage of the
Fund's average daily net assets. For 1998, only Multi-Sector Growth 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:
<TABLE>
<CAPTION>
FUND RATE
---- ----
<S> <C>
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
Small Capitalization Value Fund .70% of average daily net assets up to $500 million
.65% of such assets in excess of $500 million
Dividend Performers Fund .60% of average daily net assets up to $500 million
.55% of such assets in excess of $500 million
Multi-Sector Growth Fund .80% of average daily net assets up to $500 million
.75% of such assets in excess of $500 million
Small Capitalization Growth Fund .80% of average daily net assets
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
FUND RATE
---- ----
<S> <C>
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 Growth Fund and International Equity Fund are greater than those
paid by most funds. Due to the added complexity of managing funds with
investment strategies similar to these Funds, advisory fees of similar funds
tend to be higher than those paid by most funds.
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 fees to the independent Trustees of the Trust, the expenses of
the continuing registration and qualification of its shares for sale, the
charges of custodians and transfer agents, and auditing and legal expenses. The
Adviser may, from time to time, agree that all or a portion of its fee will not
be imposed for specific periods or make other arrangements to limit the Funds'
expenses to not more than a specified percentage of average net assets. The
Adviser retains the right to reimpose the fee and recover any other payments to
the extent annual expenses fall below the limit at the end of the fiscal year.
The Adviser has voluntarily agreed to limit the Funds' expenses until further
notice to the percentages of each Fund's average net assets specified under
"EXPENSE INFORMATION."
- ------------------------------------------------------------------------------
EACH FUND PAYS CERTAIN ADDITIONAL EXPENSES.
- ------------------------------------------------------------------------------
The Fund compensates the Adviser for performing necessary tax and financial
management services. Compensation by each Fund is not expected to exceed 0.02%
of its average net assets on an annual basis.
Your broker or agent may charge you separately to effect transactions in Fund
shares.
DIVIDENDS AND TAXES
Dividends from net investment income are declared and paid as follows:
<TABLE>
<CAPTION>
FUND DECLARED PAID
---- -------- ----
<S> <C> <C>
Active Bond Fund............................................ Daily Monthly
Global Bond Fund............................................ Daily Monthly
Small Capitalization Value Fund............................. Quarterly Quarterly
Dividend Performers Fund.................................... Quarterly Quarterly
Multi-Sector Growth Fund.................................... Annually Annually
Small Capitalization Growth Fund............................ Annually Annually
International Equity Fund................................... Annually Annually
</TABLE>
Capital gains distributions are generally declared annually. Dividends are
reinvested in additional shares unless you elect the option to receive them
entirely in cash. If you elect the cash option and the U.S. Postal Service
cannot deliver your checks, your election will be converted to reinvestment in
additional shares.
TAXATION. For institutional investors who are not exempt from Federal income
taxes, dividends from a Fund's net investment income, certain net foreign
currency gains, gains on certain foreign corporations, and net short-term
capital gains are taxable to you as ordinary income. Dividends from a Fund's net
long-term capital gains are taxable as long-term capital gains. These dividends
from net investment income and capital gains are taxable whether they are
reinvested or received in cash. Certain dividends may be paid by a Fund in
January of a given year but may be taxable to shareholders as if received on
December 31 of the prior year. Each Fund will send you a statement by January 31
showing the tax status of the distributions you received for the prior year.
Plan participants should consult their plan sponsor for tax information.
Each Fund intends to elect to be treated and qualify each year as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, each Fund will not be
subject to Federal income
23
<PAGE>
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
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.
- ------------------------------------------------------------------------------
EACH FUND MAY ADVERTISE ITS TOTAL RETURN.
- ------------------------------------------------------------------------------
Active Bond Fund, Global Bond Fund and Dividend Performers Fund may also
advertise their respective yields. Yield reflects a Fund's rate of income on
portfolio investments as a percentage of its share price. Yield is computed by
annualizing the result of dividing the net investment income per share over a
30-day period by the maximum offering price per share on the last day of that
period. Yield is also calculated according to accounting methods that are
standardized for all stock and bond funds. Because yield accounting methods
differ from the methods used for other accounting purposes, a Fund's yield may
not equal the income paid on shares or the income reported in the Fund's
financial statements.
- ------------------------------------------------------------------------------
SOME FUNDS ALSO ADVERTISE YIELD.
- ------------------------------------------------------------------------------
The value of a Fund's shares, when redeemed, may be more or less than their
original cost. Total return and yield are historical calculations, and are not
indications of future performance.
RISK FACTORS, INVESTMENTS AND TECHNIQUES
INVESTMENTS IN FOREIGN SECURITIES AND DEPOSITORY RECEIPTS. Each Fund except
Dividend Performers Fund may invest in securities of foreign issuers. All the
Funds may invest in securities in the form of sponsored or unsponsored American
Depository Receipts (ADRs), European Depository Receipts (EDRs) or other
securities convertible into securities of foreign issuers. ADRs are receipts
typically issued by an American bank or trust company which evidence ownership
of underlying securities issued by a foreign corporation. EDRs are receipts
issued in Europe which evidence a similar ownership arrangement. Issuers of
unsponsored
24
<PAGE>
ADRs are not contractually obligated to disclose material information, including
financial information, in the United States. Generally, ADRs are designed for
use in the United States securities markets and EDRs are designed for use in
European securities markets.
Investments in foreign securities may involve a greater degree of risk than
those in domestic securities 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.
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.
25
<PAGE>
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 Growth Fund invests
primarily in smaller capitalization companies. Multi-Sector Growth Fund, Small
Capitalization 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 is a "non-diversified" fund in order
to permit it to invest more than 5% of its total assets in the obligations of
any one issuer. Since a relatively high percentage of this Fund's assets may be
invested in the obligations of a limited number of issuers, the value of this
Fund's 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, this Fund must
satisfy certain tax diversification requirements in order to qualify as a
regulated investment company 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 Growth 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 in restricted
securities, including those eligible for resale to certain institutional
investors pursuant to Rule 144A under the Securities Act of 1933 and foreign
securities acquired in accordance with Regulation S under the Securities Act of
1933 (to the extent consistent with its investment policies). In addition, each
Fund may invest up to 15% of its net assets in illiquid investments, which
include repurchase agreements maturing in more than seven days, certain
over-the-counter options, privately-issued stripped mortgage-backed securities,
all interest rate swaps, caps, collars and floors, certain restricted securities
and securities not readily marketable. However, if the Board of Trustees
determines, based upon a continuing review of the trading markets for specific
Rule 144A securities, that they are liquid then these securities may be
purchased without regard to the 15% limit.
26
<PAGE>
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.
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. Active Bond Fund, Multi-Sector Growth Fund,
Small Capitalization 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.
27
<PAGE>
Global Bond Fund, Dividend Performers Fund and Small Capitalization 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 is shown in the section captioned "The
Funds' Financial Highlights." A high rate of portfolio turnover (100% or
greater) involves correspondingly higher transaction expenses and may make it
more difficult for a Fund to qualify as a regulated investment company for
federal income tax purposes.
OPTIONS AND FUTURES TRANSACTIONS. Each Fund may buy and sell options contracts,
financial futures contracts and options on futures contracts. Options and
futures contracts are bought and sold to manage a Fund's exposure to changing
interest rates, security prices, and currency exchange rates. Some options and
futures strategies, including selling futures, buying puts, and writing calls,
tend to hedge a Fund's investment against price fluctuations. Other strategies,
including buying futures, writing puts, and buying calls, tend to increase
market exposure. Options and futures may be combined with each other or with
forward contracts in order to adjust the risk and return characteristics of the
overall strategy. Subject to their individual investment policies, the Funds may
invest in options and futures based on securities, indices, or currencies,
including options and futures traded on foreign exchanges and options not traded
on exchanges.
Options and futures can be volatile investments and involve certain risks. If
the Adviser or a subadviser applies a hedge at an inappropriate time or judges
market conditions incorrectly, options and futures strategies may lower a Fund's
return. A Fund could also experience losses if the prices of its options and
futures positions were poorly correlated with its other investments, or if it
could not close out its positions because of an illiquid secondary market.
Options and futures do not pay interest, but may produce capital gains.
A Fund will not engage in a transaction in futures or options on futures for
non-hedging purposes if, immediately thereafter, the sum of initial margin
deposits and premiums required to establish speculative positions in futures
contracts and options on futures would exceed 5% of the Fund's net assets. The
loss incurred by a Fund investing in futures contracts and in writing options on
futures is potentially unlimited and may exceed the amount of any premium
received. Each Fund's transactions in options and futures contracts may be
limited by the requirements of the Code for qualification as a regulated
investment company.
No Fund, except Global Bond Fund, will hedge more than 25% of its total assets
by selling futures, buying puts, and writing calls under normal conditions.
Global Bond Fund may hedge up to 50% of its total assets by selling futures,
buying puts, and writing calls under normal conditions. In addition, no Fund
will buy futures or write puts whose underlying value exceeds 25% of its total
assets or buy calls with a value exceeding 5% of its total assets. SEE THE
STATEMENT OF ADDITIONAL INFORMATION FOR FURTHER DISCUSSION OF OPTIONS AND
FUTURES TRANSACTIONS, INCLUDING TAX EFFECTS AND INVESTMENT RISKS.
SWAP AGREEMENTS. As one way of managing its exposure to different types of
investments, Global Bond Fund may enter into interest rate swaps, currency
swaps, and other types of swap agreements such as caps, collars and floors. In a
typical interest rate swap, one party agrees to make regular payments equal to a
floating interest rate times a "notional principal amount," in return for
payments equal to a fixed rate times the same amount, for a specified period of
time. If a swap agreement provides for payments in different currencies, the
parties might agree to exchange the notional principal amount as well. Swaps may
also depend on other prices or rates, such as the value of an index or mortgage
prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only
under specified circumstances, usually in return for payment of a fee by the
other party. For example, the buyer of an interest rate cap obtains the right to
receive payments to the extent that a specified interest rate exceeds an
agreed-upon level, while the seller of an interest rate floor is obligated to
make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap and
selling a floor.
28
<PAGE>
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. Active Bond Fund, Global Bond Fund and Small
Capitalization Value 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 Active Bond Fund, Global Bond Fund
and Small Capitalization Value Fund. The reduced availability of reliable,
objective data may increase these Funds' reliance on management's judgment in
valuing the high yield bonds. To the extent that these Funds invest in lower
rated securities, achieving the Funds' objective will depend more on the
Adviser's or subadviser's judgment and analysis than would otherwise be the
case. In addition, these Funds' investments in high yield securities may be
susceptible to adverse publicity and investor perceptions, whether or not
justified by fundamental factors. In the past, economic downturns and increases
in interest rates have caused a higher incidence of default by the issuers of
these securities and may do so in the future, particularly with respect to
highly leveraged issuers. The market prices of zero coupon and payment-in-kind
bonds are affected to a greater extent by interest rate changes, and thereby
tend to be more volatile than securities which pay interest periodically and in
cash. Increasing rate note securities are typically refinanced by the issuers
within a short period of time. A Fund accrues income on these securities for tax
and accounting purposes, and this income is required to be distributed to
shareholders. Because no cash is received at the time and income accrues on
these securities, the Fund may be forced to liquidate other investments to make
distributions.
29
<PAGE>
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 brokers, 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.
30
<PAGE>
QUALITY DISTRIBUTION. The average weighted quality distribution of the
securities in the portfolio for the year ended February 28, 1998.
JOHN HANCOCK ACTIVE BOND FUND
<TABLE>
<CAPTION>
RATING RATING
AVERAGE % OF ASSIGNED % OF ASSIGNED % OF
VALUE PORTFOLIO BY ADVISER PORTFOLIO BY SERVICE* PORTFOLIO
SECURITY RATINGS ------- --------- ---------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
AAA.......................................... 2,285,113 63.2% 374 0.0% 2,284,740 63.2%
AA........................................... 133,250 3.7% 0 0.0% 133,250 3.7%
A............................................ 248,413 6.9% 0 0.0% 248,413 6.9%
BBB.......................................... 286,294 7.9% 3,817 0.1% 282,477 7.8%
BB........................................... 260,810 7.2% 1,551 0.1% 259,259 7.1%
B............................................ 121,345 3.3% 11,271 0.3% 110,074 3.0%
CCC.......................................... 6,669 0.2% 0 0.0% 6,669 0.2%
CC........................................... 0 0.0% 0 0.0% 0 0.0%
C............................................ 0 0.0% 0 0.0% 0 0.0%
NR........................................... 0 0.0% 0 0.0% 0 0.0%
--------- ----- ------ --- --------- ----
DEBT SECURITIES.............................. 3,341,694 92.4% 17,013 0.5% 3,324,881 91.9%
EQUITY SECURITIES............................ 0 0.0%
SHORT-TERM SECURITIES........................ 275,306 7.6%
---------
TOTAL PORTFOLIO.............................. 3,617,201 100.0%
OTHER ASSETS -- NET.......................... 11,516
---------
NET ASSETS................................... 3,628,717
=========
</TABLE>
- ---------------
The ratings are described in the Statement of Additional Information.
* S&P, Moody's and Fitch's.
JOHN HANCOCK GLOBAL BOND FUND
<TABLE>
<CAPTION>
Y-T-D RATING RATING
AVERAGE % OF ASSIGNED % OF ASSIGNED % OF
VALUE PORTFOLIO BY ADVISER PORTFOLIO BY SERVICE PORTFOLIO
------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
AAA.......................................... 3,795,014 85.8% 0 0.0% 3,795,014 85.8%
AA........................................... 0 0.0% 0 0.0% 0 0.0%
A............................................ 0 0.0% 0 0.0% 0 0.0%
BAA.......................................... 0 0.0% 0 0.0% 0 0.0%
BA........................................... 281,756 6.4% 0 0.0% 281,757 6.4%
B............................................ 96,852 2.2% 6,108 0.1% 90,744 2.1%
CAA.......................................... 0 0.0% 0 0.0% 0 0.0%
CA........................................... 0 0.0% 0 0.0% 0 0.0%
C............................................ 0 0.0% 0 0.0% 0 0.0%
D............................................ 0 0.0% 0 0.0% 0 0.0%
--------- ------ ---------
0
DEBT SECURITIES.............................. 4,173,622 94.4% 6,108 0.1% 4,167,514 94.3%
0
EQUITY SECURITIES............................ 0 0.0%
0
SHORT-TERM SECURITIES........................ 247,308 5.6%
---------
0
TOTAL PORTFOLIO.............................. 4,420,930 100.0%
0
OTHER ASSETS -- NET.......................... 63,653
---------
0
NET ASSETS................................... 4,484,583
=========
</TABLE>
31
<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
200 Clarendon Street
Boston, Massachusetts 02116
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110
TRANSFER AGENT
John Hancock Signature Services, Inc.
P.O. Box 9296
Boston, Massachusetts 02205-9296
The annual/semi-annual report to
shareholders includes financial
statements, detailed performance
information, portfolio holdings, a
statement from portfolio management and
the auditor's report. To request a free
copy of this report please contact John
Hancock Signature Services, Inc.
A current SAI has been filed with the
Securities and Exchange Commission and
is incorporated by reference (is
legally a part of this prospectus). You
may visit the Securities and Exchange
Commission's Internet website
(www.sec.gov) to view the SAI, material
incorporated by reference and other
information.
HOW TO OBTAIN INFORMATION
ABOUT THE FUNDS
For Service Information
For Telephone Exchange
For Investment-by-Phone
For Telephone Redemption
call 1-800-755-4371
Internet: www.jhancock.com/funds
101 HUNTINGTON AVENUE
BOSTON, MASSACHUSETTS 02199-7603
TELEPHONE 1-800-755-4371
KBOOP 7/98
<PAGE>
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
101 Huntington Avenue
Boston, Massachusetts 02199
consisting of twelve series,
John Hancock Active Bond Fund
John Hancock Global Bond Fund
John Hancock Dividend Performers Fund
John Hancock Multi-Sector Growth Fund
John Hancock Small Capitalization Value Fund
John Hancock Small Capitalization Growth Fund
John Hancock International Equity Fund
John Hancock Independence Balanced Fund
John Hancock Independence Value Fund
John Hancock Independence Diversified Core Equity Fund II
John Hancock Independence Growth Fund
John Hancock Independence Medium Capitalization Fund
(each, a "Fund" and collectively, the "Funds")
Statement of Additional Information
July 1, 1998
This Statement of Additional Information provides information about the Funds in
addition to the information that is contained in the John Hancock Series Funds'
Prospectus and in the Independence Funds' Prospectus dated July 1, 1998
(together, the "Prospectuses").
This Statement of Additional Information 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 Signature Services, Inc.
P.O. Box 9296
Boston, Massachusetts 02205-9296
1-800-755-4371
1
<PAGE>
TABLE OF CONTENTS
Statement of Additional
Information
Page
Organization of the Funds 2
Investment Objectives and Policies 3
-The John Hancock Series Funds 3
-The Independence Funds 5
Investment Restrictions 19
Those Responsible for Management 21
Investment Advisory and Other Services 32
Distribution Contract 34
Net Asset Value 35
Special Redemptions 35
Description of the Funds' Shares 36
Tax Status 37
Calculation of Performance 41
Brokerage Allocation 43
Transfer Agent Services 45
Custody of Portfolio 45
Independent Auditors 45
Appendix A--Description of Securities Ratings A-1
Financial Statements F-1
ORGANIZATION OF THE FUNDS
Each Fund is a series of John Hancock Institutional Series Trust (the "Trust")
an open-end investment management company organized as a Massachusetts business
trust on October 31, 1994 under the laws of the Commonwealth of Massachusetts.
The Trust currently has twelve series of shares designated as: John Hancock
Small Capitalization Growth Fund ("Small Capitalization Growth Fund")(formerly
John Hancock Small Capitalization Equity 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 Small Capitalization Value Fund
("Small Capitalization Fund") (formerly John Hancock Fundamental Value Fund and
John Hancock Berkeley Fundamental Value Fund), John Hancock International Equity
Fund ("International Equity Fund") (formerly John Hancock Berkeley Overseas
Growth Fund), John Hancock Independence Diversified Core Equity Fund II
("Diversified Core Equity Fund II"), John Hancock Independence Value Fund
("Value Fund"), John Hancock Independence Growth Fund ("Growth Fund"), John
Hancock Independence Medium Capitalization Fund ("Medium Capitalization Fund")
and John Hancock Independence Balanced Fund ("Balanced Fund").
Small Capitalization Growth Fund, Dividend Performers Fund, Active Bond Fund,
Global Bond Fund, Multi-Sector Growth Fund, Small Capitalization 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
2
<PAGE>
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
The following information supplements the discussion of each Fund's investment
objective and policies as discussed in the Prospectuses. There is no assurance
that any Fund will achieve its investment objective.
Each Fund has adopted certain investment restrictions that are detailed under
"Investment Restrictions" in this 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, 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 Statement of Additional Information. See Appendix A to this Statement of
Additional Information for a description of the quality categories of corporate
bonds in which certain of the John Hancock Series Funds may invest.
Active Bond Fund
Active Bond Fund's investment objective is a high rate of total return,
consistent with prudent investment risk. The Fund invests 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
3
<PAGE>
early call. Similarly, when such yields increase, the market value of a
portfolio already invested can be expected to decline. The Fund's portfolio may
include debt securities which sell at substantial discounts from par. These
securities are low coupon bonds which, during periods of high interest rates,
because of their lower acquisition cost tend to sell on a yield basis
approximating current interest rates.
Global Bond Fund
Global Bond Fund's investment objective is a competitive total investment
return, consisting of current income and capital appreciation. The Fund invests
primarily in a global portfolio of high grade, fixed income securities.
Normally, the Fund will invest in fixed income securities denominated in at
least three currencies or multi-currency units, including the U.S. Dollar.
Under normal circumstances, Global Bond Fund invests primarily (at least 65% of
total assets) in fixed income securities issued or guaranteed by: (i) the U.S.
Government, its agencies or instrumentalities; (ii) foreign governments
(including foreign states, provinces and municipalities) or their political
subdivisions, authorities, agencies or instrumentalities; (iii) international
organizations backed or jointly 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.
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 Trustees' 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, may temporarily hold cash or liquid, high grade short-term 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.
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
4
<PAGE>
limited to, the following: basic material, energy, capital equipment,
technology, consumer cyclical, retail, consumer staple, health care,
transportation, financial and utility. 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.
Small Capitalization Value Fund
Small Capitalization 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.
Under normal circumstances, the Fund will invest at least 80% of its total
assets in common stocks and other equity securities, including convertible
securities, preferred stocks and warrants, of domestic and foreign issuers of
small-size companies with a total market capitalization of $1 billion or less
("small capitalization companies").
The Fund's investment policy reflects the Adviser's belief that while the
securities markets tend to be efficient, sufficiently persistent price anomalies
exit which the disciplined active equity manager seeks to exploit to achieve an
above-average rate of return.
Small Capitalization Growth Fund
Small Capitalization Growth 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.
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 Subadviser, JHAI, the Fund may invest in any other types of
securities including warrants, bonds, notes and other debt securities (including
Euro-dollar securities) or obligations of domestic or foreign governments and
their political subdivisions, or domestic or foreign corporations.
B. The Independence Funds.
For a further description of the Independence Funds' investment objectives,
policies and restrictions see "Investment Objectives and Policies" in the
Independence Funds' Prospectus and "Investment Restrictions" in this Statement
of Additional Information.
5
<PAGE>
IIA serves as the 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.
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.
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).
6
<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").
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.
Investments in Foreign Securities and Emerging Countries. Small Capitalization
Growth Fund, Active Bond Fund, Multi-Sector Growth Fund and Small Capitalization
Value Fund may invest in U.S. dollar and foreign currency denominated securities
of foreign issuers. International Equity Fund and Global Bond Fund will invest
primarily 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.
Risks of Foreign Securities. Investments in foreign securities may involve a
greater degree of risk than those in domestic securities. There is generally
less publicly available information about foreign companies in the form of
reports and ratings similar to those that are published about issuers in the
United States. Also, foreign issuers are generally not subject to uniform
accounting, auditing and financial reporting requirements comparable to those
applicable to United States issuers.
Because foreign securities may be denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates will affect the Fund's net
asset value, the value of dividends and interest earned, gains and losses
realized on the sale of securities, and any net investment income and gains that
the Fund distributes to shareholders. Securities transactions undertaken in some
foreign markets may not be settled promptly so that the Fund's investments on
foreign exchanges may be less liquid and subject to the risk of fluctuating
currency exchange rates pending settlement.
Foreign securities will be purchased in the best available market, whether
through over-the-counter markets or exchanges located in the countries where
principal offices of the issuers are located. Foreign securities markets are
generally not as developed or efficient as those in the United States. While
growing in volume, they usually have substantially less volume than the New York
Stock Exchange, and securities of some foreign issuers are less liquid and more
volatile than securities of comparable United States issuers. Fixed commissions
on foreign exchanges are generally higher than negotiated commissions on United
States exchanges, although the Fund will endeavor to achieve the most favorable
net results on its portfolio transactions. There is generally less government
supervision and regulation of securities exchanges, brokers and listed issuers
than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, expropriation,
nationalization or confiscatory taxation limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
7
<PAGE>
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States' economy in terms of growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The dividends, in some cases capital gains and interest payable on certain of
the Fund's foreign portfolio securities, may be subject to foreign withholding
or other foreign taxes, thus reducing the net amount of income or gains
available for distribution to the Fund's shareholders.
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. 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. The 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.
The U.S. Government has from time to time in the past imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such as
the Fund. If such restrictions should be reinstituted, it might become necessary
for the Fund to invest all or substantially all of its assets in U.S.
securities. In such event, the Fund would review its investment objective and
investment policies to determine whether changes are appropriate.
The Fund's ability and decisions to purchase or sell portfolio securities may be
affected by laws or regulations relating to the convertibility and repatriation
of assets. Because the shares of the Fund are redeemable on a daily basis in
U.S. dollars, the Fund intends to manage its portfolio so as to give reasonable
assurance that it will be able to obtain U.S. dollars. Under present conditions,
it is not believed that these considerations will have any significant effect on
its portfolio strategy.
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. Forward contracts are agreements to purchase or sell a
specified currency at a specified future date and price set at the time of the
contract. 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. . The Funds' dealings in forward foreign
currency exchange contracts will be limited to hedging either specified
transactions or portfolio positions. A Fund will not attempt to hedge all of its
foreign portfolio positions and will enter into such transactions only to the
8
<PAGE>
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 to purchase foreign currency, its
custodian will segregate cash or liquid securities, of any type or maturity, in
a separate account of the Fund in an amount necessary to complete the forward
contract. These assets will be marked to market daily and if the value of the
assets in the separate account declines, additional cash or liquid assets will
be added so that the value of the account will equal the amount of the Fund's
commitment in purchased forward 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. These 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 transactions varies with
such factors as the currency involved, the length of the contract period and the
market conditions then prevailing. Since transactions in foreign currency are
usually conducted on a principal basis, no fees or commissions are involved.
Repurchase Agreements. Each Fund may enter into repurchase agreements. In a
repurchase agreement the Fund buys a security for a relatively short period
(usually not more than 7 days) subject to the obligation to sell it back to the
issuer at a fixed time and price plus accrued interest. The Fund will enter into
repurchase agreements only with member banks of the Federal Reserve System and
with "primary dealers" in U.S. Government securities. The Adviser will
continuously monitor the creditworthiness of the parties with whom the Fund
enters into repurchase agreements.
The Fund has established a procedure providing that the securities serving as
collateral for each repurchase agreement must be delivered to the Fund's
custodian either physically or in book-entry form and that the collateral must
be marked to market daily to ensure that each repurchase agreement is fully
collateralized at all times. In the event of bankruptcy or other default by a
seller of a repurchase agreement, the Fund could experience delays in
liquidating the underlying securities during the period in which the Fund seeks
to enforce its rights thereto, possible subnormal levels of income, decline in
value of the underlying securities or lack of access to income during this
period as well as the expense of enforcing its rights.
Reverse Repurchase Agreements. Each Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that a Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by a Fund. Reverse repurchase agreements involve
the risk that the market value of securities purchased by each Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by a Fund which it is obligated to repurchase. Each Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting its repurchase. To minimize various risks associated with reverse
repurchase agreements, a Fund will establish and maintain with each Fund's
custodian a separate account consisting of liquid securities, of any type or
maturity, in an amount at least equal to the repurchase prices of the securities
(plus any accrued interest thereon) under such agreements. In addition, a Fund
will not enter into reverse repurchase agreements or borrow money, except from
banks temporarily for extraordinary or emergency purposes (not for leveraging)
in amounts not to exceed 33 1/3% of a Fund's total assets (including the amount
borrowed) taken at market value. Each Fund will not use leverage to attempt to
increase income. Each Fund will not purchase securities while outstanding
borrowings exceed 5% of that Fund's total assets. Each Fund will enter into
reverse repurchase agreements only with federally insured banks which are
approved in advance as being creditworthy by the Trustees. Under the procedures
9
<PAGE>
established by the Trustees, the Adviser will monitor the creditworthiness of
the banks involved.
Restricted Securities. Each Fund may purchase securities that are not registered
("restricted securities") under the Securities Act of 1933 ("1933 Act"),
including commercial paper issued in reliance on Section 4(2) of the 1933 Act
and securities offered and sold to "qualified institutional buyers" under Rule
144A under the 1933 Act. The Fund will not invest more than 15% of its net
assets in illiquid investments. If the Trustees determine, based upon a
continuing review of the trading markets for specific Section 4(2) paper or Rule
144A securities, that they are liquid, they will not be subject to the 15% limit
on illiquid investments. The Trustees may adopt guidelines and delegate to the
Adviser the daily function of determining the monitoring and liquidity of
restricted securities. The Trustees, however, will retain sufficient oversight
and be ultimately responsible for the determinations. The Trustees will
carefully monitor the Fund's investments in these securities, focusing on such
important factors, among others, as valuation, liquidity and availability of
information. This investment practice could have the effect of increasing the
level of illiquidity in the Fund if qualified institutional buyers become for a
time uninterested in purchasing these restricted securities.
Options on Securities, Securities Indices and Currency. Each John Hancock Series
Fund may purchase and write (sell) call and put options on any securities in
which it may invest, on any securities index based on securities in which it may
invest or on any currency in which Fund investments may be denominated. These
options may be listed on national domestic securities exchanges or foreign
securities exchanges or traded in the over-the-counter market. Each Fund may
write covered put and call options and purchase put and call options to enhance
total return, as a substitute for the purchase or sale of securities or
currency, or to protect against declines in the value of portfolio securities
and against increases in the cost of securities to be acquired.
Writing Covered Options. A call option on securities or currency written by a
Fund obligates the Fund to sell specified securities or currency to the holder
of the option at a specified price if the option is exercised at any time before
the expiration date. A put option on securities or currency written by a Fund
obligates the Fund to purchase specified securities or currency from the option
holder at a specified price if the option is exercised at any time before the
expiration date. Options on securities indices are similar to options on
securities, except that the exercise of securities index options requires cash
settlement payments and does not involve the actual purchase or sale of
securities. In addition, securities index options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. Writing covered call options may
deprive a Fund of the opportunity to profit from an increase in the market price
of the securities or foreign currency assets in its portfolio. Writing covered
put options may deprive a Fund of the opportunity to profit from a decrease in
the market price of the securities or foreign currency assets to be acquired for
its portfolio.
All call and put options written by the Fund are covered. A written call option
or put option may be covered by (i) maintaining cash or liquid securities,
either of which may be quoted or denominated in any currency, in a segregated
account maintained by the affected Fund's custodian with a value at least equal
to the Fund's obligation under the option, (ii) entering into an offsetting
forward commitment and/or (iii) purchasing an offsetting option or any other
option which, by virtue of its exercise price or otherwise, reduces the Fund's
net exposure on its written option position. A written call option on securities
is typically covered by maintaining the securities that are subject to the
option in a segregated account. Each Fund may cover call options on a securities
index by owning securities whose price changes are expected to be similar to
those of the underlying index.
Each Fund may terminate its obligations under an exchange traded call or put
option by purchasing an option identical to the one it has written. Obligations
under over-the-counter options may be terminated only by entering into an
offsetting transaction with the counterparty to such option. Such purchases are
referred to as "closing purchase transactions."
10
<PAGE>
Purchasing Options. A Fund would normally purchase call options in anticipation
of an increase, or put options in anticipation of a decrease ("protective
puts"), in the market value of securities or currencies of the type in which it
may invest. Each Fund may also sell call and put options to close out its
purchased options.
The purchase of a call option would entitle a Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. A Fund would ordinarily realize a gain on the purchase of a
call option if, during the option period, the value of such securities or
currency exceeded the sum of the exercise price, the premium paid and
transaction costs; otherwise the Fund would realize either no gain or a loss on
the purchase of the call option.
The purchase of a put option would entitle a Fund, in exchange for the premium
paid, to sell specified securities or currency at a specified price during the
option period. The purchase of protective puts is designed to offset or hedge
against a decline in the market value of the Fund's portfolio securities or the
currencies in which they are denominated. Put options may also be purchased by a
Fund for the purpose of affirmatively benefiting from a decline in the price of
securities or currencies which it does not own. A Fund would ordinarily realize
a gain if, during the option period, the value of the underlying securities or
currency decreased below the exercise price sufficiently to cover the premium
and transaction costs; otherwise the Fund would realize either no gain or a loss
on the purchase of the put option. Gains and losses on the purchase of put
options may be offset by countervailing changes in the value of a Fund's
portfolio securities.
Each Fund's options transactions will be subject to limitations established by
each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in
each class which may be written or purchased by a single investor or group of
investors acting in concert, regardless of whether the options are written or
purchased on the same or different exchanges, boards of trade or other trading
facilities or are held or written in one or more accounts or through one or more
brokers. Thus, the number of options which the Fund may write or purchase may be
affected by options written or purchased by other investment advisory clients of
the Adviser. An exchange, board of trade or other trading facility may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
Risks Associated with Options Transactions. There is no assurance that a liquid
secondary market on a domestic or foreign options exchange will exist for any
particular exchange-traded option or at any particular time. If the Fund is
unable to effect a closing purchase transaction with respect to covered options
it has written, the Fund will not be able to sell the underlying securities or
currencies or dispose of assets held in a segregated account until the options
expire or are exercised. Similarly, if the Fund is unable to effect a closing
sale transaction with respect to options it has purchased, it would have to
exercise the options in order to realize any profit and will incur transaction
costs upon the purchase or sale of underlying securities or currencies.
Reasons for the absence of a liquid secondary market on an exchange include the
following: (i) there may be insufficient trading interest in certain options;
(ii) restrictions may be imposed by an exchange on opening transactions or
closing transactions or both; (iii) trading halts, suspensions or other
restrictions may be imposed with respect to particular classes or series of
options; (iv) unusual or unforeseen circumstances may interrupt normal
operations on an exchange; (v) the facilities of an exchange or the Options
Clearing Corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other reasons,
decide or be compelled at some future date to discontinue the trading of options
(or a particular class or series of options). If trading were discontinued, the
secondary market on that exchange (or in that class or series of options) would
cease to exist. However, outstanding options on that exchange that had been
issued by the Options Clearing Corporation as a result of trades on that
exchange would continue to be exercisable in accordance with their terms.
11
<PAGE>
A Fund's ability to terminate over-the-counter options is more limited than with
exchange-traded options and may involve the risk that broker-dealers
participating in such transactions will not fulfill their obligations. The
Adviser will determine the liquidity of each over-the-counter option in
accordance with guidelines adopted by the Trustees.
The writing and purchase of options is a highly specialized activity which
involves investment techniques and risks different from those associated with
ordinary portfolio securities transactions. The successful use of options
depends in part on the Adviser's ability to predict future price fluctuations
and, for hedging transactions, the degree of correlation between the options and
securities or currency markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates, securities prices or currency
exchange rates, each John Hancock Series Fund may purchase and sell various
kinds of futures contracts, and purchase and write call and put options on these
futures contracts. Each Fund may also enter into closing purchase and sale
transactions with respect to any of these contracts and options. The futures
contracts may be based on various securities (such as U.S. Government
securities) and securities indices, foreign currencies and any other financial
instruments and indices. All futures contracts entered into by a Fund are traded
on U.S. or foreign exchanges or boards of trade that are licensed, regulated or
approved by the Commodity Futures Trading Commission ("CFTC").
Futures Contracts. A futures contract may generally be described as an agreement
between two parties to buy and sell particular financial instruments or
currencies for an agreed price during a designated month (or to deliver the
final cash settlement price, in the case of a contract relating to an index or
otherwise not calling for physical delivery at the end of trading in the
contract).
Positions taken in the futures markets are not normally held to maturity but are
instead liquidated through offsetting transactions which may result in a profit
or a loss. While futures contracts on securities or currency will usually be
liquidated in this manner, the Fund may instead make, or take, delivery of the
underlying securities or currency whenever it appears economically advantageous
to do so. A clearing corporation associated with the exchange on which futures
contracts are traded guarantees that, if still open, the sale or purchase will
be performed on the settlement date.
Hedging and Other Strategies. Hedging is an attempt to establish with more
certainty than would otherwise be possible the effective price or rate of return
on portfolio securities or securities that a Fund proposes to acquire or the
exchange rate of currencies in which the portfolio securities are quoted or
denominated. When interest rates are rising or securities prices are falling, a
Fund can seek to offset a decline in the value of its current portfolio
securities through the sale of futures contracts. When interest rates are
falling or securities prices are rising, a Fund, through the purchase of futures
contracts, can attempt to secure better rates or prices than might later be
available in the market when it effects anticipated purchases. A Fund may seek
to offset anticipated changes in the value of a currency in which its portfolio
securities, or securities that it intends to purchase, are quoted or denominated
by purchasing and selling futures contracts on such currencies.
A Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated rise in
interest rates or decline in market prices or foreign currency rates that would
adversely affect the value of the Fund's portfolio securities. Such futures
contracts may include contracts for the future delivery of securities held by a
Fund or securities with characteristics similar to those of the Fund's portfolio
securities. Similarly, a Fund may sell futures contracts on any currencies in
which its portfolio securities are quoted or denominated or in one currency to
hedge against fluctuations in the value of securities denominated in a different
currency if there is an established historical pattern of correlation between
the two currencies.
12
<PAGE>
If, in the opinion of the Adviser, there is a sufficient degree of correlation
between price trends for the Fund's portfolio securities and futures contracts
based on other financial instruments, securities indices or other indices, the
Fund may also enter into such futures contracts as part of its hedging strategy.
Although under some circumstances prices of securities in the Fund's portfolio
may be more or less volatile than prices of such futures contracts, the Adviser
will attempt to estimate the extent of this volatility difference based on
historical patterns and compensate for any differential by having the Fund enter
into a greater or lesser number of futures contracts or by attempting to achieve
only a partial hedge against price changes affecting the Fund's portfolio
securities.
When a short hedging position is successful, any depreciation in the value of
portfolio securities will be substantially offset by appreciation in the value
of the futures position. On the other hand, any unanticipated appreciation in
the value of the Fund's portfolio securities would be substantially offset by a
decline in the value of the futures position.
On other occasions, a Fund may take a "long" position by purchasing futures
contracts. This would be done, for example, when the Fund anticipates the
subsequent purchase of particular securities when it has the necessary cash, but
expects the prices or currency rates then available in the applicable market to
be less favorable than prices that are currently available. A Fund may also
purchase futures contracts as a substitute for transactions in securities or
foreign currency, to alter the investment characteristics of or currency
exposure associated with portfolio securities or to gain or increase its
exposure to a particular securities market or currency..
Options on Futures Contracts. Each John Hancock Series Fund may purchase and
write options on futures for the same purposes as its transactions in futures
contracts. The purchase of put and call options on futures contracts will give
the Fund the right (but not the obligation) for a specified price to sell or to
purchase, respectively, the underlying futures contract at any time during the
option period. As the purchaser of an option on a futures contract, the Fund
obtains the benefit of the futures position if prices move in a favorable
direction but limits its risk of loss in the event of an unfavorable price
movement to the loss of the premium and transaction costs.
The writing of a call option on a futures contract generates a premium which may
partially offset a decline in the value of the Fund's assets. By writing a call
option, a Fund becomes obligated, in exchange for the premium (upon exercise of
the option) to sell a futures contract if the option is exercised, which may
have a value higher than the exercise price. Conversely, the writing of a put
option on a futures contract generates a premium which may partially offset an
increase in the price of securities that the Fund intends to purchase. However,
a Fund becomes obligated (upon exercise of the option) to purchase a futures
contract if the option is exercised, which may have a value lower than the
exercise price. The loss incurred by each Fund in writing options on futures is
potentially unlimited and may exceed the amount of the premium received.
The holder or writer of an option on a futures contract may terminate its
position by selling or purchasing an offsetting option of the same series. There
is no guarantee that such closing transactions can be effected. A Fund's ability
to establish and close out positions on such options will be subject to the
development and maintenance of a liquid market.
Other Considerations. Each John Hancock Series Fund will engage in futures and
related options transactions either for bona fide hedging purposes or to seek to
increase total return as permitted by the CFTC. To the extent that a Fund is
using futures and related options for hedging purposes, futures contracts will
be sold to protect against a decline in the price of securities (or the currency
in which they are quoted or denominated) that the Fund owns or futures contracts
will be purchased to protect the Fund against an increase in the price of
securities or the currency in which they are quoted or denominated) it intends
to purchase. Each 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 securities or
13
<PAGE>
instruments which it expects to purchase. As evidence of its hedging intent,
each Fund expects that on 75% or more of the occasions on which it takes a long
futures or option position (involving the purchase of futures contracts), the
Fund will have purchased, or will be in the process of purchasing, equivalent
amounts of related securities in the cash market at the time when the futures or
option position is closed out. However, in particular cases, when it is
economically advantageous for the Fund to do so, a long futures position may be
terminated or an option may expire without the corresponding purchase of
securities or other assets.
To the extent that a Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging positions will not exceed 5% of the net
asset value of the Fund's portfolio, after taking into account unrealized
profits and losses on any such positions and excluding the amount by which such
options were in-the-money at the time of purchase. Each Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualification as a
regulated investment company for federal income tax purposes.
Transactions in futures contracts and options on futures involve brokerage
costs, require margin deposits and, in the case of contracts and options
obligating a Fund to purchase securities or currencies, require the Fund to
establish with the custodian a segregated account consisting of cash or liquid
securities in an amount equal to the underlying value of such contracts and
options.
While transactions in futures contracts and options on futures may reduce
certain risks, these transactions themselves entail certain other risks. For
example, unanticipated changes in interest rates, securities prices, or currency
exchange rates may result in a poorer overall performance for a Fund than if it
had not entered into any futures contracts or options transactions.
Perfect correlation between a Fund's futures positions and portfolio positions
will be impossible to achieve. There are no futures contracts based upon
individual securities, except certain U.S. Government securities. The only
futures contracts available to hedge the Fund's portfolio are various futures on
U.S. Government securities and securities indices and foreign currencies. In the
event of an imperfect correlation between a futures position and a portfolio
position which is intended to be protected, the desired protection may not be
obtained and the Fund may be exposed to risk of loss. In addition, it is not
possible to hedge fully or protect against currency fluctuations affecting the
value of securities denominated in foreign currencies because the value of such
securities is likely to fluctuate as a result of independent factors not related
to currency fluctuations.
Some futures contracts or options on futures may become illiquid under adverse
market conditions. In addition, during periods of market volatility, a commodity
exchange may suspend or limit trading in a futures contract or related option,
which may make the instrument temporarily illiquid and difficult to price.
Commodity exchanges may also establish daily limits on the amount that the price
of a futures contract or related option can vary from the previous day's
settlement price. Once the daily limit is reached, no trades may be made that
day at a price beyond the limit. This may prevent the Fund from closing out
positions and limiting its losses.
Short Sales. Small Capitalization Growth 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.
14
<PAGE>
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.
Short selling may produce higher than normal portfolio turnover which may result
in increased transaction costs to a Fund.
Forward Commitment and When-Issued Securities. Each Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. A Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, a Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time. When a Fund engages in forward commitment and
when-issued transactions, it relies on the seller to consummate the transaction.
The failure of the issuer or seller to consummate the transaction may result in
the Funds losing the opportunity to obtain a price and yield considered to be
advantageous. The purchase of securities on a when-issued and forward commitment
basis also involves a risk of loss if the value of the security to be purchased
declines prior to the settlement date.
On the date a Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid securities, of any type or maturity, 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.
Time Deposits. Global Bond Fund may invest in time deposits. Time deposits are
non-negotiable deposits maintained for a stated period of time at a stated
interest rate. All time deposits purchased which mature in seven (7) days or
more will be treated as illiquid.
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
15
<PAGE>
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
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.
16
<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.
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
17
<PAGE>
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.
Ratings as Investment Criteria. In general, the ratings of Moody's and S&P
represent the opinions of these agencies as to the quality of the securities
which they rate. It should be emphasized however, that ratings are relative and
subjective and are not absolute standards of quality. These ratings will be used
by the Funds as initial criteria for the selection of portfolio securities.
Among the factors which will be considered are the long-term ability of the
issuer to pay principal and interest and general economic trends. Appendix A
contains further information concerning the rating of Moody's and S&P and their
significance.
Subsequent to its purchase by the Fund, an issue of securities may cease to be
rated or its rating may be reduced below the minimum required for purchase by
the Fund. Neither of these events will require the sale of the securities by the
Fund, but the Adviser will consider the event in its determination of whether
the Fund should continue to hold the securities.
Lower Rated High Yield Debt Obligations. Active Bond Fund, Global Bond Fund and
Small Capitalization 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")). Active Bond Fund will not invest in securities rated below Ca by
Moody's or CC by S&P. Global Bond Fund may invest less than 35% of its total
assets in securities rated as low as CCC by S&P or Caa by Moody's and their
equivalents. Small Capitalization 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 Statement of
Additional Information 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
18
<PAGE>
financial condition affecting the ability of the issuer to make payments of
interest and principal. The high yield fixed income market is relatively new and
its growth occurred during a period of economic expansion. The market has not
yet been fully tested by an economic recession.
The market price and liquidity of lower rated fixed income securities generally
respond to short term corporate and market developments to a greater extent than
do the price and liquidity of higher rated securities because such developments
are perceived to have a more direct relationship to the ability of an issuer of
such lower rated securities to meet its ongoing debt obligations.
Reduced volume and liquidity in the high yield bond market or the reduced
availability of market quotations will make it more difficult to dispose of the
bonds and to value accurately the Funds' assets. The reduced availability of
reliable, objective data may increase the Funds' reliance on management's
judgment in valuing high yield bonds. In addition, the Funds' investments in
high yield securities may be susceptible to adverse publicity and investor
perceptions, whether or not justified by fundamental factors. A Fund's
investments, and consequently its net asset value, will be subject to the market
fluctuations and risks inherent in all securities.
Short-Term Trading. Each John Hancock Series 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.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. Each Fund has adopted the following
investment restrictions which may not be changed without the approval of a
majority of the applicable Fund's outstanding voting securities which, as used
in the Prospectuses and this Statement of Additional Information means the
approval by the lesser of (1) the holders of 67% or more of a Fund's shares
represented at a meeting if more than 50% of a Fund's outstanding shares are
present in person or by proxy or (2) more than 50% of the outstanding shares.
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.
19
<PAGE>
3. Borrow money, except for the following extraordinary or emergency
purposes: (i) from banks for temporary or short-term purposes or for
the clearance of transactions in amounts not to exceed 33 1/3% of the
value of the Fund's total assets (including the amount borrowed) taken
at market value; (ii) in connection with the redemption of Fund shares
or to finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other assets; (iii) in
order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets;
and (iv) in the case of Small Capitalization Growth 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 Growth 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 Growth 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, 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
20
<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.
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. 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.
2. 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.
3. Invest more than 15% of the net assets of the Fund, taken at market
value, in illiquid securities.
4. Purchase securities while outstanding borrowings exceed 5% of the
Fund's total assets.
5. 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.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Funds is managed by the Trustees 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 Funds
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. ("John Hancock Funds").
21
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Edward J. Boudreau, Jr. * Trustee, Chairman and Chief Chairman, Director and Chief
101 Huntington Avenue Executive Officer (1, 2) Executive Officer, the Adviser;
Boston, MA 02199 Chairman, Director and Chief
October 1944 Executive Officer, The Berkeley
Financial Group, Inc. ("The
Berkeley Group"); Chairman and
Director, NM Capital Management,
Inc. ("NM Capital"), John Hancock
Advisers International Limited
("Advisers International") and
Sovereign Asset Management
Corporation ("SAMCorp"); Chairman,
Chief Executive Officer and
President, John Hancock Funds, Inc.
("John Hancock Funds"); Chairman,
First Signature Bank and Trust
Company; Director, John Hancock
Insurance Agency, Inc. ("Insurance
Agency, Inc."), John Hancock
Advisers International (Ireland)
Limited ("International Ireland"),
John Hancock Capital Corporation
and New England/Canada Business
Council; Member, Investment Company
Institute Board of Governors;
Director, Asia Strategic Growth
Fund, Inc.; Trustee, Museum of
Science; Director, John Hancock
Freedom Securities Corporation
(until September 1996); Director,
John Hancock Signature Services,
Inc. ("Signature Services") (until
January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
James F. Carlin Trustee Chairman and CEO, Carlin
233 West Central Street Consolidated, Inc.
Natick, MA 01760 (management/investments); Director,
April 1940 Arbella Mutual Insurance Company
(insurance), Health Plan Services,
Inc., Massachusetts Health and
Education Tax Exempt Trust, Flagship
Healthcare, Inc., Carlin Insurance
Agency, Inc., West Insurance Agency,
Inc. (until May 1995), Uno
Restaurant Corp.; Chairman,
Massachusetts Board of Higher
Education (since 1995).
William H. Cunningham Trustee 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 of 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.
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Charles F. Fretz Trustee Retired; self employed; Former Vice
RD #5, Box 300B President and Director, Towers,
Clothier Springs Road Perrin, Foster & Crosby, Inc.
Malvern, PA 19355 (international management
June 1928 consultants) (1952-1985).
Harold R. Hiser, Jr. Trustee Executive Vice President,
123 Highland Avenue Schering-Plough Corporation
Short Hill, NJ 07078 (pharmaceuticals) (retired 1996);
October 1931 Director, ReCapital Corporation
(reinsurance) (until 1995).
Anne C. Hodsdon * Trustee and President (1,2) President, Chief Operating Officer
101 Huntington Avenue and Director, the Adviser, The
Boston, MA 02199 Berkeley Group; Director, John
April 1953 Hancock Funds, Advisers
International, Insurance Agency,
Inc. and International Ireland;
President and Director, SAMCorp. and
NM Capital; Executive Vice
President, the Adviser (until
December 1994); Director, Signature
Services (until January 1997).
Charles L. Ladner Trustee Director, Energy North, Inc. (public
UGI Corporation utility holding company) (until
P.O. Box 858 1992); Senior Vice President of UGI
Valley Forge, PA 19482 Corp. Holding Company Public
February 1938 Utilities, LPGAS, Vice President of
Amerigas Partners L.P.
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Leo E. Linbeck, Jr. Trustee Chairman, President, Chief Executive
3810 W. Alabama Officer and Director, Linbeck
Houston, TX 77027 Corporation (a holding company
August 1934 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
Corporation (a diversified energy
company), Daniel Industries, Inc.
(manufacturer of gas measuring
products and energy related
equipment), GeoQuest International
Holdings, Inc. (a geophysical
consulting firm) (1980-1993);
Former Director, Greater Houston
Partnership (1980 -1995).
Patricia P. McCarter Trustee Director and Secretary, The McCarter
1230 Brentford Road Corp. (machine manufacturer).
Malvern, PA 19355
May 1928
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
Steven R. Pruchansky Trustee (1) Director and President, Mast
4327 Enterprise Avenue Holdings, Inc. (since 1991);
Naples, FL 33942 Director, First Signature Bank &
August 1944 Trust Company (until August 1991);
Director, Mast Realty Trust (until
1994); President, Maxwell Building
Corp. (until 1991).
Richard S. Scipione * Trustee (1) General Counsel, John Hancock Life
John Hancock Place Company; Director, the Adviser,
P.O. Box 111 Advisers International, John Hancock
Boston, MA 02117 Funds, John Hancock Distributors,
August 1937 Inc., Insurance Agency, Inc., John
Hancock Subsidiaries, Inc., SAMCorp.
and NM Capital; Director, The
Berkeley Group; Director, JH
Networking Insurance Agency, Inc.;
Director, Signature Services (until
January 1997).
Norman H. Smith Trustee Lieutenant General, United States
243 Mt. Oriole Lane Marine Corps; Deputy Chief of Staff
Linden, VA 22642 for Manpower and Reserve Affairs,
March 1933 Headquarters Marine Corps;
Commanding General III Marine
Expeditionary Force/3rd Marine
Division (retired 1991).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
John P. Toolan Trustee Director, The Smith Barney Muni Bond
13 Chadwell Place Funds, The Smith Barney Tax-Free
Morristown, NJ 07960 Money Funds, Inc., Vantage Money
September 1930 Market Funds (mutual funds), The
Inefficient-Market Fund, Inc.
(closed-end investment company) and
Smith Barney Trust Company of
Florida; Chairman, Smith Barney
Trust Company (retired December,
1991); Director, Smith Barney,
Inc., Mutual Management Company and
Smith Barney Advisers, Inc.
(investment advisers) (retired
1991); Senior Executive Vice
President, Director and member of
the Executive Committee, Smith
Barney, Harris Upham & Co.,
Incorporated (investment bankers)
(until 1991).
Robert G. Freedman Vice Chairman and Chief Investment Vice Chairman and Chief Investment
101 Huntington Avenue Officer (2) Officer, the Adviser; Director, the
Boston, MA 02199 Adviser, Advisers International,
July 1938 John Hancock Funds, SAMCorp.,
Insurance Agency, Inc.,
Southeastern Thrift & Bank Fund and
NM Capital; Director and Senior
Vice President, The Berkeley Group;
President, the Adviser (until
December 1994); Director, Signature
Services (until January 1997).
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Positions Held Principal Occupation(s)
Name and Address With the Company During the Past Five Years
- ---------------- ---------------- --------------------------
<S> <C> <C>
James B. Little Senior Vice President and Chief Senior Vice President, the Adviser,
101 Huntington Avenue Financial Officer The Berkeley Group, John Hancock
Boston, MA 02199 Funds.
February 1935
John A. Morin Vice President Vice President and Secretary, the
101 Huntington Avenue Adviser, The Berkeley Group,
Boston, MA 02199 Signature Services and John Hancock
July 1950 Funds; Secretary, NM Capital and
SAMCorp.; Clerk, Insurance Agency,
Inc.; Counsel, John Hancock Mutual
Life Insurance Company (until
February 1996), and Vice President
of John Hancock Distributors, Inc.
(until April 1994).
Susan S. Newton Vice President and Secretary Vice President, the Adviser; John
101 Huntington Avenue Hancock Funds, Signature Services
Boston, MA 02199 and The Berkeley Group; Vice
March 1950 President, John Hancock
Distributors, Inc. (until April
1994).
James J. Stokowski Vice President and Treasurer Vice President, the Adviser.
101 Huntington Avenue
Boston, MA 02199
November 1946
- -------------------
* Trustee may be deemed to be an "interested person" of the Fund as defined in
the Investment Company Act of 1940
(1) Member of the Executive Committee. The Executive Committee may generally
exercise most of the powers of the Board of Trustees.
(2) A member of the Investment Committee of the Adviser.
All of the officers listed are offices or employees of the Adviser or affiliated
companies. Some of the Trustees and officers may also be officers and Trustees
of one or more of the other funds for which the Adviser serves as investment
adviser.
</TABLE>
28
<PAGE>
The following table provides information regarding the compensation paid by the
Funds and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Messrs. Boudreau and Scipione and Ms
Hodsdon, each a non-Independent Trustee, and each of the officers of the Funds,
who are interested persons of the Adviser and/or affiliates, are compensated by
the Adviser, and/or affiliates and receive no compensation from the Funds for
their services.
<TABLE>
<CAPTION>
Aggregate
Compensation Total Compensation from
From the Funds' the Funds and the John
fiscal year ended Hancock Fund Complex
Independent Trustees February 28, 1998 to Trustees/Directors (1)
-------------------- ----------------- -------------------------
<S> <C> <C>
James F. Carlin $ 4,853 $ 74,000
William H. Cunningham (2) 4,853 74,000
Charles F. Fretz 3,969 74,250
Harold R. Hiser, Jr. (2) 4,853 74,000
Charles L. Ladner 4,853 74,250
Leo E. Linbeck, Jr. 4,853 74,250
Patricia P. McCarter (2) 3,222 74,250
Steven R. Pruchansky (2) 5,012 77,250
Norman H. Smith (2) 5,012 77,250
John P. Toolan (2) 4,853 74,250
--------- ------
Totals $ 46,333 $747,750
</TABLE>
(1) The total compensation paid by the John Hancock Fund Complex to the
Independent Trustees as of the calendar year ended December 31, 1997.
As of that date, there were sixty-seven funds in the John Hancock Fund
Complex, with each of these Independent Trustees serving on thirty-two
funds.
(2) As of December 31, 1997, the value of the aggregate deferred
compensation from all funds in the John Hancock Funds Complex for Mr.
Cunningham was $220,106, for Mr. Hiser was $103,868, for Ms. McCarter
was $159,075, for Mr. Pruchansky was $68,102, for Mr. Smith was $70,607
and for Mr. Toolan was $281,133 under the John Hancock Deferred
Compensation Plan for Independent Trustees.
As of April 1, 1998 the officers and trustees of the Trust as a group owned
1.98% of the outstanding shares of Active Bond Fund; 0% of the outstanding
shares of Global Bond Fund and Multi-Sector Growth Fund; 3.6% of the outstanding
shares of Small Capitalization Value Fund; 1.11 % of the outstanding shares of
International Equity Fund; 6.6% of the outstanding shares of Small
Capitalization Growth Fund; less than 1.0% of the outstanding shares of
Independence Diversified Core Equity Fund II, Dividend Performers Fund,
Independence Balanced Fund, Independence Value Fund, the following shareholders
beneficially owned 5% of or more of the outstanding shares of the Funds listed
below:
29
<PAGE>
<TABLE>
<CAPTION>
Percentage of
total
outstanding
shares of the
Name and Address of Shareholder Fund Fund
- ------------------------------- ---- ----
<S> <C> <C>
Hartford Provision Co. Ret & Savgs Pl Active Bond 8.25%
Ralph Lotstein
51 Westover Ln
Stanford, CT 06902-1914
John Hancock Advisers, Inc. Global Bond 97.20%
Attn Chris Meyer 6th Floor
101 Huntington Avenue
Boston, MA 02199-7603
Lathers' Local No. 144L Dividend Performers 7.97%
Pension Plan II (DC)
c/o Allied Administrators, Inc.
P.O. Box 2500
San Francisco, CA 94126-2500
Investors Bank & Trust As Trustee for Multi-Sector Growth 49.95%
Investment-Incentive Plan for JHMLIC
Employees TIP & SIP
Attn: Mark Swiderski
PO Box 9130 FPG 90
Boston, MA 02117-9130
Southern Industrial 401(K) Plan International Equity 6.72%
David A. Stein
6750 Epping Forest Way N Apt 1 Jacksonville, FL 32217-2688
Independence Investment Associates Independence Value 13.38%
Attn: Colleen Pink
53 State Street
Boston, MA 02109-2809
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Name and Address of Total Outstanding
Shareholder Fund Shares
- ----------- ---- ------
<S> <C> <C>
The Cardiovascular Center, Inc. Independence Value 5.60%
Attn: S. Gwin Robbins, MD, Trustee
6005 Park Avenue Suite 329-B
Memphis, TN 38119-5208
Invesco Retirement Plan Services Independence 15.63%
Attn: Brad Echols Diversified Core
400 Colony Square Ste 2100
1201 Peachtree Street NE
Atlanta, GA 30361-3500
Weil Gotshal & Manges Section Independence 6.16%
401(K) Savings & Investment Trust Diversified Core
Attn: Ellen Alexander Equity II
767 Fifth Avenue
New York, NY 10153-0001
Independence Investment Associates Independence Growth 20.26%
Attn: Coleen Pink
53 State Street
Boston, MA 02109-2809
Independence Investment Associates Independence Mid-Cap 8.95%
Employee Deferred Compensation Plan
Attn: Coleen Pink
53 State Street
Boston, MA 02109-2809
Independence Investment Associates Independence Mid-Cap 6.02%
Employee Deferred Compensation
Attn: Christine M. Dicenso
53 State Street
Boston, MA 02109-2809
</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.
31
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and has more than $30 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 1,400,000 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
more than $100 billion, the Life Company is one of the ten largest life
insurance companies in the United States, and carries a high rating from
Standard & Poor's and A.M. Best. Founded in 1862, the Life Company has been
serving clients for over 130 years.
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with the Adviser which was approved by the Funds' shareholders.
Pursuant to the Advisory Agreement, the Adviser will: (a) furnish continuously
an investment program for the Fund and determine, subject to the overall
supervision and review of the Trustees, which investments should be purchased,
held, sold or exchanged, and (b) provide supervision over all aspects of the
Fund's operations except those which are delegated to a custodian, transfer
agent or other agent.
The Fund bears all costs of its organization and operation, including expenses
of preparing, printing and mailing all shareholders' reports, notices,
prospectuses, proxy statements and reports to regulatory agencies; expenses
relating to the issuance, registration and qualification of shares; government
fees; interest charges; expenses of furnishing to shareholders their account
statements; taxes; expenses or redeeming shares; brokerage and other expenses
connected with the execution of portfolio securities transactions; expenses
pursuant to the Fund's plan of distribution; fees and expenses of custodians
including those for keeping books and accounts and calculating the net asset
value of shares; fees and expenses of transfer agents and dividend disbursing
agents; legal, accounting, financial, management, tax and auditing fees and
expenses of the Fund (including an allocable portion of the cost of the
Adviser's employees rendering such services to the Fund; the compensation and
expenses of Trustees who are not otherwise affiliated with the Trust, the
Adviser or any of their affiliates; expenses of Trustees' and shareholders,
meetings; trade association membership; insurance premiums; and any
extraordinary expenses.
With respect to Dividend Performers Fund, the Adviser has entered into a
Sub-Advisory Agreement with SAMCorp. With respect to International Equity Fund,
the Adviser has entered into a Sub-Advisory Agreement with JHAI. With respect to
each Independence Fund, the Adviser has entered into a Sub-Advisory Agreement
with IIA. Under each respective Sub-Advisory Agreement, 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. JHAI, located at 34 Dover
Street, London, England, W1X3RA, is a wholly owned subsidiary of the Adviser,
formed in 1987 to provide investment research and advisory services to U.S.
institutional clients. IIA, located at 53 State Street, Boston, Massachusetts
02109, and organized in 1982, is a wholly owned indirect subsidiary of John
Hancock Subsidiaries, Inc. SAMCorp, located at 1235 Westlakes Drive, Berwyn,
Pennsylvania 19312, is a wholly owned subsidiary of The Berkeley Financial
Group.
See "Organization and Management of the Funds" and "The Funds' Expenses" in the
Prospectuses for a description of certain information concerning each Fund's
Advisory Agreement and the Sub-Advisory Agreements of Dividend Performers Fund,
International Equity Fund and the Independence Funds.
32
<PAGE>
As compensation for its services under the Advisory Agreements, each Fund pays
the Adviser monthly a fee, based on a stated percentage of the respective Fund's
average daily net assets. 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 ended February 28, 1998, the Adviser waived the entire investment
management fee for all Funds except Small Capitalization Value Fund, Dividend
Performers Fund, Multi-Sector Growth Fund, Balanced Fund, Diversified Core
Equity Fund II and Medium Capitalization Fund. For the period ended February 28,
1998, the Adviser received $5,528, $43,601, $225,934, $245,098, $2,212,037 and
$31,293 after expense limitation from Small Capitalization Value Fund, Dividend
Performers Fund, Multi-Sector Growth Fund, Balanced Fund, Diversified Core
Equity Fund II and Medium Capitalization Fund, respectively. The Adviser paid
the Subadviser of Dividend Core Equity Fund II $1,775,718, the Subadviser of
International Equity Fund $43,303 and the Subadviser of Balanced Fund (effective
January 1, 1998) $49,958. The Subadvisers waived all other subadvisory fees for
the period.
For the period ended February 28, 1997, the Adviser waived the entire investment
management fees for all Funds except Multi-Sector Growth Fund and Diversified
Core Equity Fund II. For the period ended February 28, 1997, the Adviser
received $53,016 after expense limitation from Multi-Sector Growth Fund. The
Adviser received $1,280,296 from Diversified Core Equity Fund II and the Adviser
paid the Subadviser $1,020,770.
For the period ended February 29, 1996, the Adviser received $441,899 after
expense limitation from Diversified Core Equity Fund II and the Advisers paid
the Subadviser $404,779. For the period ended February 29, 1996, the Adviser
waived the entire investment management fee for all Funds except Diversified
Core Equity Fund II.
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of average daily net assets.
The Adviser retains the right to reimpose a fee and recover any other payments
to the extent that, at the end of any fiscal year, the Fund's annual expenses
fall below this limit.
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 render 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.
Pursuant to each Advisory Agreement, where applicable, Sub-Advisory Agreement,
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 Agreements 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
Agreement.
Under each Advisory Agreement, each Fund may use the name "John Hancock" or any
name derived from or similar to it only for so long as the Advisory Agreement or
any extension, renewal or amendment thereof remains in effect. If a Fund's
Advisory Agreement 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
33
<PAGE>
is advised by or otherwise connected with the Adviser. In addition, the Adviser
or the Life Company may grant the non-exclusive right to use the name "John
Hancock" or any similar name to any other corporation or entity, including but
not limited to any investment company of which the Life Company or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
Under the Sub-Advisory Agreement 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-Advisory Agreement 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 other wise connected with IIA. In
addition, IIA or the Life Company may grant the non-exclusive right to use the
name "Independence" or any similar name to any other corporation or entity,
including but not limited to any investment company of which IIA or any
subsidiary or affiliate thereof or any successor to the business of any
subsidiary or affiliate thereof shall be the investment adviser.
Each Advisory Agreement will continue in effect from year to year thereafter if
approved annually by a vote of a majority of the Trustees who are not interested
persons of one of the parties to the Agreement, 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 Agreement automatically terminates upon assignment and may be
terminated without penalty on 60 days' notice at the option of either party to
the respective Agreement or by vote of the holders of a majority of the
outstanding voting securities of the applicable Fund. Each Sub-Advisory
Agreement terminates automatically upon the termination of the corresponding
Advisory Agreement.
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. For the fiscal year ended February 28, 1998
and 1997, the Fund paid the Adviser the following for services under this
Agreement: Balanced Fund $8,091 and $1,477, Growth Fund $371 and $129, Medium
Capitalization Fund $1,287 and $820, Value Fund $1,067 and $176, Diversified
Core Equity Fund II $79,447 and $48,011, Active Bond Fund $658 and $308, Global
Bond Fund $812 and $190, Dividend Performers Fund $2,742 and $929, Multi-Sector
Growth Fund $6,771 and $3,506, Small Capitalization Value Fund $1,308 and
$1,084, Small Capitalization Growth Fund $420 and $99 and International Equity
Fund $1,232 and $616.
In order to avoid conflicts with portfolio trades for the Funds, the Adviser,
the Sub-Adviser and the Funds have adopted extensive restrictions on personal
securities trading by personnel of the Adviser and its affiliates. In the case
of the Adviser, 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. IIA has adopted similar restrictions which may differ where
appropriate, as long as they have the same intent. These restrictions are a
continuation of the basic principle that the interests of the Funds and their
shareholders come before those of management.
DISTRIBUTION CONTRACT
The Fund has a Distribution Agreement with John Hancock Funds. Under the
Agreement, John Hancock Funds is obligated to use its best efforts to sell
shares of each Fund. John Hancock Funds accepts orders for the purchase of the
34
<PAGE>
shares of the Funds which are continually offered at net asset value next
determined.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of a Fund's shares, the
following procedures are utilized wherever applicable.
Debt investment securities are valued on the basis of valuations furnished by a
principal market maker or a pricing service, both of which generally utilize
electronic data processing techniques to determine valuations for normal
institutional size trading units of debt securities without exclusive reliance
upon quoted prices.
Equity securities traded on a principal exchange or NASDAQ National Market
Issues are generally valued at last sale price on the day of valuation.
Securities in the aforementioned category for which no sales are reported and
other securities traded over-the-counter are generally valued at the last
available bid price.
Short-term debt investments which have a remaining maturity of 60 days or less
are generally valued at amortized cost which approximates market value. If
market quotations are not readily available or if in the opinion of the Adviser
any quotation or price is not representative of true market value, the fair
value of the security may be determined in good faith in accordance with
procedures approved by the Trustees.
Foreign securities are valued on the basis of quotations from the primary
market in which they are traded. Any assets or liabilities expressed in terms of
foreign currencies are translated into U.S. dollars by the custodian bank based
on London currency exchange quotations as of 5:00 p.m., London time (12:00 noon,
New York time) on the date of any determination of the Fund's NAV. If quotations
are not readily available, or the value has been materially affected by events
occurring after the closing of a foreign market, assets are valued by a method
that the Trustees believe accurately reflects fair value.
The NAV 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. On any day an
international market is closed and the New York Stock Exchange is open, any
foreign securities will be valued at the prior day's close with the current
day's exchange rate. Trading of foreign securities may take place on Saturdays
and U.S. business holidays on which the Fund's NAV is not calculated.
Consequently, the Fund's portfolio securities may trade and the NAV of the
Fund's redeemable securities may be significantly affected on days when a
shareholder has no access to the Fund.
SPECIAL REDEMPTIONS
Although the Funds would not normally do so, each Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When the shareholder sells portfolio
securities received in this fashion, the shareholder will 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 Investment Company Act.
Under that rule, each Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of that period.
35
<PAGE>
DESCRIPTION OF THE FUNDS' SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Funds. The Declaration of Trust 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 Statement
of Additional Information, 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
Statement of Additional Information, 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 Investment Company Act or the Declaration of
Trust, the Funds have no intention of holding annual meetings of shareholders.
Each Fund's shareholders may remove a Trustee by the affirmative vote of at
least two-thirds of the Trust's outstanding shares and the Trustees shall
promptly call a meeting for such purpose when requested to do so in writing by
the record holders of not less than 10% of the outstanding shares of the Trust.
Shareholders may, under certain circumstances, communicate with other
shareholders in connection with requesting a special meeting of shareholders.
However, at any time that less than a majority of the Trustees holding office
were elected by the shareholders, the Trustees will call a special meeting of
shareholders for the purpose of electing Trustees.
Under Massachusetts law, shareholders of a Massachusetts business trust could,
under certain circumstances, be held personally liable for acts or obligations
of the trust. However, the Trust's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Trust. The Declaration of Trust also provides for indemnification out of the
Trust's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Liability is therefore limited to circumstances in which a
Fund itself would be unable to meet its obligations, and the possibility of this
occurrence is remote.
A Fund reserves the right to reject any application which conflicts with a
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter or credit card checks. All checks returned
by the post office as undeliverable will be reinvested in the fund or funds from
which a redemption was made or dividend paid. Use of information provided on the
account application may be used by a Fund to verify the accuracy of the
information or for background or financial history purposes. A joint account
will be administered as a joint tenancy with right of survivorship, unless the
joint owners notify Signature Services of a different intent. A shareholder's
account is governed by the laws of The Commonwealth of Massachusetts.
36
<PAGE>
TAX STATUS
Each series of the Trust, including the Funds, is treated as a separate entity
for tax purposes. Each Fund has qualified as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code")
and intends to continue to qualify for each taxable year. As such and by
complying with the applicable provisions of the Code regarding the sources of
its income, the timing of its distributions, and the diversification of its
assets, a Fund will not be subject to Federal income tax on its taxable income
(including net realized capital gains) which is distributed to shareholders in
accordance with the timing requirements of the Code.
Each Fund will be subject to a 4% 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 seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions from each Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from a Fund's "investment company taxable income,"
they will be taxable as ordinary income; and if they are paid from the Fund's
"net capital gain," they will be taxable as capital gain. (Net capital gain is
the excess (if any) of net long-term capital gain over net short-term capital
loss, and investment company taxable income is all taxable income and capital
gains, other than those gains and losses included in computing net capital gain,
after reduction by deductible expenses.) As a result of federal tax legislation
enacted on August 5, 1997 (the "Act"), gain recognized after May 6, 1997 from
the sale of a capital asset is taxable to individual (noncorporate) investors at
different maximum federal income tax rates, depending generally upon the tax
holding period for the asset, the federal income tax bracket of the taxpayer,
and the dates the asset was acquired and/or sold. The Treasury Department has
issued guidance under the Act that enables each Fund to pass through to its
shareholders the benefits of the capital gains rates enacted in the Act.
Shareholders should consult their own tax advisers on the correct application of
these new rules in their particular circumstances. Some distributions may be
paid in January but may be taxable to shareholders as if they had been received
on December 31 of the previous year. The tax treatment described above will
apply without regard to whether distributions are received in cash or reinvested
in additional shares of the Fund.
Distributions, if any, in excess of E&P will constitute a return of capital
under the Code, which will first reduce an investor's federal tax basis in Fund
shares and then, to the extent such basis is exceeded, will generally give rise
to capital gains. Shareholders who have chosen automatic reinvestment of their
distributions will have a federal tax basis in each share received pursuant to
such a reinvestment equal to the amount of cash they would have received had
they elected to receive the distribution in cash, dividend by the number of
shares received in the reinvestment. Foreign exchange gains and losses realized
by a Fund in connection with certain transactions involving foreign
currency-denominated debt securities, certain foreign currency options and
futures, 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. Transactions in foreign currencies that are not
directly related to a Fund's investment in stock or securities, including
speculative currency positions could under future Treasury regulations produce
income not among the types of "qualifying income" from which the Fund must
derive at least 90% of its annual gross income for each taxable year. If the net
foreign exchange loss for a year treated as ordinary loss under Section 988 were
to exceed a Fund's investment company taxable income computed without regard to
such loss, the resulting overall ordinary loss for such year would not be
deductible by a Fund or its shareholders in future years.
37
<PAGE>
If a Fund invests (either directly or through depository receipts such as ADRs,
GDRs or EDRs) in stock (including an option to acquire stock such as inherent in
a convertible bond) of certain foreign corporations that receive at least 75% of
their annual gross income from passive sources (such as interest, dividends
certain rents and royalties or capital gain) or hold at least 50% of their
assets in investments producing such passive income ("passive foreign investment
companies"), the Fund could be subject to Federal income tax and additional
interest charges on "excess distributions" received from these passive foreign
investment companies or gain from the sale of stock in such companies, even if
all income or gain actually received by the Fund is timely distributed to its
shareholders. The Funds would not be able to pass through to their respective
shareholders any credit or deduction for such a tax. An election may be
available to ameliorate these adverse tax consequences, but could require the
Funds to recognize taxable income or gain without the concurrent receipt of
cash. These investments could also result in the treatment of associated capital
gains as ordinary income. Each Fund may limit and/or manage its investments in
passive foreign investment companies to minimize its tax liability or maximize
its return from these investments.
The amount of a Fund's net realized capital gains, if any, in any given year
will vary depending upon the current investment strategy of the Adviser and
Subadvisers and whether the Adviser and the Subadvisers believes it to be in the
best interest of the Funds to dispose of portfolio securities and/or engage in
options, futures or forward transactions that will generate capital gains. At
the time of an investor's purchase of Fund shares, a portion of the purchase
price is often attributable to realized or unrealized appreciation in a Fund's
portfolio or undistributed taxable income of a Fund. Consequently, subsequent
distributions on those shares from such appreciation or income may be taxable to
such investor even if the net asset value of the investor's shares is, as a
result of the distributions, reduced below the investor's cost for such shares,
and the distributions in reality represent a return of a portion of the purchase
price.
Upon a redemption or other disposition of shares of a Fund (including by
exercise of the exchange privilege), in a transaction that is treated as a sale
for tax purposes, a shareholder may realize a taxable gain or loss depending
upon the amount of the proceeds and the investors 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. Any loss realized on a redemption or exchange may be
disallowed to the extent the shares disposed of are replaced with other shares
of the same Fund within a period of 61 days beginning 30 days before and ending
30 days after the shares are disposed of, such as pursuant to the automatic
dividend reinvestments. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized upon the redemption
of shares with a tax holding period of six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain with respect to such shares. Shareholders should consult
their own tax advisers regarding their particular circumstances to determine
whether a disposition of Fund shares is properly treated as a sale for tax
purposes, as is assumed in the foregoing discussion. Also, future Treasury
Department guidance issued to implement the Act may contain additional rules for
determining the tax treatment of sales of Fund shares held for various periods,
including the treatment of losses on the sales of shares held for six months or
less that are recharacterized as long-term capital losses, as described above.
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 capital gains, if any, the Fund will not in
any event distribute net capital gains realized in any year to the extent that a
capital loss is carried forward from prior years against such gain. To the
extent such excess was retained and not exhausted by the carryforward of prior
years' capital losses, it would be subject to Federal income tax in the hands of
the Fund. Upon proper designation of this amount by 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
38
<PAGE>
pro rata share of such excess as capital gain 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 capital gains of that Fund, if
any, during the eight years following the year of the loss. To the extent
subsequent net capital gains are offset by such losses, they would not result in
Federal income tax liability to a Fund and, as noted above, would not be
distributed as such to shareholders. As of February 28, 1998, Small
Capitalization Growth Fund had a capital loss carryforward of $3,648, which will
expire in 2005. The remaining Funds do not have any capital loss carryforwards.
For purposes of dividends received deduction available to corporations,
dividends received by a Fund, if any, from U.S. domestic corporations in respect
of any share of stock held by the Fund, for U.S. Federal income tax purposes,
for at least 46 days (91 days in the case of certain preferred stock) during a
prescribed period extending before and after such dividend and distributed
properly designed by the Fund may be treated as qualifying dividends. Corporate
shareholders must meet the holding period requirements stated above with respect
to their shares of the applicable Fund for each dividend in order to qualify for
the deduction and, if they have any debt that is deemed under the Code directly
attributable to such shares, may be denied a portion of the dividends-received
deduction. The entire qualifying dividend, including the otherwise deductible
amount, will be included in determining alternative minimum tax liability, if
any. Additionally, any corporate shareholder should consult its tax adviser
regarding the possibility that its tax basis in its shares may be reduced, for
Federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares and, to the extent such basis would be reduced below
zero, that current recognition of income would be required.
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. Some 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 and
distributions actually received) their pro rata shares of qualified foreign
taxes paid by the Fund even though not actually received, and (ii) treat such
respective pro rata portions as foreign taxes paid by them.
If the election is made, shareholders of the applicable Fund may then deduct
such pro rata portions of qualified foreign taxes in computing their taxable
incomes, or, alternatively, use them as foreign tax credits, subject to holding
period requirements and other limitations, against their U.S. federal income
taxes. Shareholders who do not itemize deductions for Federal income tax
purposes will not, however, be able to deduct their pro rata portion of
qualified foreign taxes paid by 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 (if any) that International Equity
39
<PAGE>
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
qualified foreign taxes paid by the Fund and (ii) the portion of Fund dividends
which represents income from each foreign country. If the Fund cannot or does
not make this election, the Fund will deduct the foreign taxes it pays in
determining the amount it has available for distribution to shareholders, and
shareholders will not include these foreign taxes in their income, nor will they
be entitled to any tax deductions or credits with respect to such taxes.
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. The mark to market or constructive sale rules
applicable to certain options, futures, forwards, short sales or other
transactions, may also require the Fund to recognize income or gain without a
concurrent receipt of cash. Additionally, some countries restrict repatriation
which may make it difficult or impossible for the Fund to obtain cash
corresponding to its earnings or assets in those countries. Each Fund must
distribute, at least annually, all or substantially all of its net income and
net capital gains, including such accrued income or gain, 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
borrow cash, to satisfy these distribution requirements.
Dividend Performers Fund, Active Bond Fund, Small Capitalization 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 seek 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.
The Federal income tax rules applicable to certain structured or hybrid
securities, currency swaps, interest rate swaps, caps, floors and collars, and
possibly other investments or transactions are or may be unclear in certain
respects, and each Fund will account for these investments or transactions in a
manner intended to preserve its qualification as a regulated investment company
and avoid material tax liability.
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.
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 options, futures, foreign currency
positions, and forward foreign currency contracts.
Certain options, futures and forward foreign currency contracts undertaken by
the 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 (or in the case of foreign currency
contracts, as ordinary income or loss) and timing of some capital gains and
losses realized by the Fund. Additionally, the Fund may be required to recognize
gain, but not loss, if an option, futures contract, short sale or other
transaction is treated as a constructive sale of an appreciated financial
position in the Fund's portfolio. Also, certain of a Fund's losses on its
40
<PAGE>
transactions involving options, futures or forward contracts and/or offsetting
or successor portfolio positions may be deferred rather than being taken into
account currently in calculating the Fund's taxable income or gains. Certain of
such transactions may also cause the Fund to dispose of investments sooner than
would otherwise have occurred. These transactions may therefore affect the
amount, timing and character of the Funds' distributions to shareholders. A Fund
will also take into account the special tax rules (including consideration of
available elections) applicable to options, futures and forward contracts in
order to minimize any potential adverse tax consequence.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. Shareholders should consult their own tax
advisers as to the Federal, state or local tax consequences of ownership of
shares of, and receipt of distributions from, the Funds in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Funds is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to a non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividend from a Fund, unless an effective IRS Form W-8 or authorized
substitute for Form W-8 is on file, to 31% back up withholding on certain other
payments from the Fund. Non U.S. investors should consult their tax advisers
regarding such treatment and the application of foreign taxes to an investment
in the Funds.
The Funds are not subject to Massachusetts corporate excise or franchise taxes.
The Funds anticipate that, provided that the Funds qualify as regulated
investment companies under the Code, they will also not be required to pay any
Massachusetts income tax.
CALCULATION OF PERFORMANCE
Yield
For the 30-day period ended February 28, 1998, the yields of Active Bond Fund
and Global Bond Fund were 5.73% and 4.97%, 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:
a - b
____ 6
Yield = 2 ( [ ( cd ) + 1 ] - 1 )
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.
41
<PAGE>
d = the maximum offering price per share on the last day of the
period (NAV).
Total Return
The average annual total return for the 1 year and life of that Fund for the
period ended February 28, 1998 is as follows:
<TABLE>
<CAPTION>
One Year Ended Commencement of Operations
February 28, 1998 to February 28, 1998
----------------- --------------------
<S> <C> <C>
Active Bond Fund 11.25% 8.73% (c)
Global Bond Fund 5.62% 4.68% (d)
Small Capitalization Value Fund 41.81% 21.65 % (d)
Dividend Performers Fund 35.55% 27.21% (c)
Multi-Sector Growth Fund 17.39% 21.64% (e)
Small Capitalization Growth Fund 27.07% 19.44% (b)
International Equity Fund 3.07% 5.32% (c)
Balanced Fund 20.44% 16.37% (f)
Value Fund 32.97% 28.11% (g)
Diversified Core Equity Fund II 33.61% 29.09% (a)
Growth Fund 40.52% 31.07% (g)
Medium Capitalization Fund 37.30% 26.61% (g)
(a) Commencement of operations, March 10, 1995.
(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.
</TABLE>
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:
n ________
T = \ / 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 one year and life of
fund periods.
42
<PAGE>
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 Fund's
promotional and sales literature may make reference to the Fund's "beta". Beta
is a reflection of the market related risk of the Fund by showing how responsive
the Fund is to the market.
The performance of the Funds is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of any Fund for
any period in the future. The performance of a Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease a
Fund's performance.
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
43
<PAGE>
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 28, 1996, 1997 and 1998, the Funds
paid negotiated brokerage commissions in the amount as follows: Independence
Diversified Core Equity Fund, $116,047, $357,443 and $617,705, Independence
Value Fund, $361, $335 and $9,897, Independence Medium Capitalization Fund,
$1,885, $3,963 and $6,324, Independence Growth Fund, $310, $917 and $3,577,
Independence Balanced Fund $1,226, $4,063 and $30,186, Dividend Performers Fund,
$8,269, $10,194 and $39,778, Multi-Sector Fund, $29,262, $164,166 and $338,119,
Small Capitalization Value Fund $18,787, $26,007 and $45,691, International
Equity $16,778, $17,069 and $57,083, Small Capitalization Growth Fund for the
year ended 1997 and 1998 was $1,275 and $5,896. Active Bond Fund and Global Bond
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 28,
1998, Dividend Performers Fund, Multi-Sector Growth Fund, Small Capitalization
Value Fund, Global Fund, Small Capitalization Growth and International Equity
directed commissions in the amount of $5,768, $88,576, $7,066, $0, $210 and
$1,460, 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 John Hancock Distributors, Inc., a broker-dealer ("Distributors" or
"Affiliated Brokers"). Pursuant to procedures determined by the Trustees and
consistent with the above policy of obtaining best results, each Fund may
execute portfolio transactions with or through the Affiliated Brokers. During
the year ended February 28, 1998 and 1997, the Funds did not execute any
portfolio transactions with Affiliated Brokers.
Distributors may act as broker for the Funds on securities or commodities
exchange transactions, subject, however, to the general policy of the Funds set
forth above and the procedures adopted by the Trustees pursuant to the
Investment Company Act. Commissions paid to an Affiliated Broker must be at
least as favorable as those which the 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 Investment Company Act) of the Funds, the Adviser, the
corresponding Subadviser (if applicable) or the Affiliated Broker. Because the
Adviser, which is affiliated with the Affiliated Broker, and the corresponding
Subadviser (if applicable), have, as investment advisers to the Funds, the
44
<PAGE>
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.
Other investment advisory clients advised by the Adviser may also invest in the
same securities as the Funds. When these clients buy or sell the same securities
at substantially the same time, the Adviser may average the transactions as to
price and allocate the amount of available investments in a manner which the
Adviser believes to be equitable to each client, including the Funds. In some
instances, this investment procedure may adversely affect the price paid or
received by a Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser may aggregate the securities
to be sold or purchased for the Funds with those to be sold or purchased for
other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc. 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 Signature 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, 200 Clarendon Street, Boston, Massachusetts 02116. 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 auditors of the Funds are Deloitte & Touche LLP, 125 Summer
Street, Boston, Massachusetts 02110. Until February 28, 1997, the independent
auditors of the Independence Funds were Arthur Andersen LLP, 225 Franklin
Street, Boston, Massachusetts 02110. Deloitte & Touche LLP audits and renders
opinions on the Funds' annual financial statements and reviews the Funds' annual
Federal income tax returns.
For the periods up to and including the February 28, 1997 audit, Arthur Andersen
LLP audited and rendered opinions on the Independence Funds.
45
<PAGE>
APPENDIX A
Description of Securities Ratings (1)
Moody's Investors Service, Inc.
Aaa: Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuations of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A: Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa: Bonds which are rated Baa are considered as medium grade obligations i.e.,
they are neither highly protected nor poorly secured. Interest payments and
principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba: Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during other good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B: Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
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.
(1)The ratings described here are believed to be the most recent ratings
available at the date of this Statement of Additional Information 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.
A-1
<PAGE>
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.
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.
A-2
<PAGE>
_ 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 has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA: Debt rated AA has a very strong capacity to pay interest and repay principal
and 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.
A-3
<PAGE>
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.
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.
A-4
<PAGE>
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.
********
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.
A-5
<PAGE>
APPENDIX Independence Balanced
Quality Distribution From February 28, 1997 through Year-To-Date
February 28, 1998
<TABLE>
<CAPTION>
Rating
Year-To-Date Assigned Rating
Average % of by Adviser % of Assigned by % of
Security Ratings Value Portfolio Portfolio Service* Portfolio
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
AAA $13,126,060 28.7% 0 0.0% $ 13,126,060 28.7%
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
AA 587,024 1.3% 0 0.0% 587,024 1.3%
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
A 3,624,807 7.9% 0.0% 3,624,807 7.9%
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
BAA 4,364,713 9.5% 0.0% 4,364,713 9.5%
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
BA 49,847 0.1% 0.0% 49,847 0.1%
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
B 0 0.0% 0 0.0% 0 0.0%
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
CAA 0 0.0% 0 0.0% 0 0.0%
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
CA 0 0.0% 0 0.0% 0 0.0%
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
C 0 0.0% 0 0.0% 0 0.0%
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
D 502,169 1.1% 0 0.0% 502,169 1.1%
------- -------
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
0 48.6% 0 0.0% $22,254.620 48.6%
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
Debt Securities $22,254,620
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
0
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
Equity Securities $21,201,260 46.3%
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
0
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
Short-Term Securities $ 2,346,000 5.1%
----------
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
0
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
Total Portfolio $45,801,880 100.0%
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
0
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
Other Assets - Net $ -315,600
--------
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
0
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
Net Assets $45,486,280
- ----------------------------- ------------------ -------------- ------------- -------------- ---------------- ------------
</TABLE>
A-6
<PAGE>
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 1998 Annual
Report to Shareholders for the year ended February 28, 1998; (filed
electronically on April 29, 1998, accession number 0001010521-98-000240) and are
included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Institutional Series Trust (file nos. 33-86102 and
811-8852).
John Hancock Institutional Series Trust
John Hancock Active Bond Fund
John Hancock Global Bond Fund
John Hancock Dividend Performers Fund
John Hancock Multi-Sector Growth Fund
John Hancock Small Capitalization Value Fund
John Hancock Small Capitalization Growth Fund
John Hancock International Equity Fund
John Hancock Independence Balanced Fund
John Hancock Independence Value Fund
John Hancock Independence Diversified Core Equity Fund II
John Hancock Independence Growth Fund
John Hancock Independence Medium Capitalization Fund
Statement of Assets and Liabilities as of February 28, 1998 (audited).
Statement of Operations for the year ended February 28, 1998 (audited).
Statement of Changes in Net Asset for period ended February 28, 1998
(audited).
Notes to Financial Statements.
Financial Highlights for each of the period ended February 28, 1998
(audited). Schedule of Investments as of February 28, 1998 (audited).
Report of Independent Auditors.
<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 for the 1998 Annual
Report to Shareholders for the year ended February 28, 1998 (filed
electronically on April 29, 1998; file nos. 811-8852 and 33-86102;
accession number: 0001010521-98-000240)
John Hancock Institutional Series Trust
John Hancock Active Bond Fund
John Hancock Global Bond Fund
John Hancock Small Capitalization Value Fund
John Hancock Dividend Performers Fund
John Hancock Multi-Sector Growth Fund
John Hancock Small Capitalization Growth Fund
John Hancock International Equity Fund
John Hancock Independence Balanced Fund
John Hancock Independence Value Fund
John Hancock Independence Diversified Core Equity Fund II
John Hancock Independence Growth Fund
John Hancock Independence Medium Capitalization Fund
Statement of Assets and Liabilities as of February 28, 1998 (audited).
Statement of Operations of the period ended February 28, 1998 (audited).
Statement of Changes in Net Asset for period ended February 28, 1998
(audited).
Notes to Financial Statements.
Financial Highlights for each of the period ended February 28, 1998
(audited).
Schedule of Investments as of February 28, 1998 (audited).
Report of Independence Auditors.
C-1
<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 April 1, 1998, the number of record holders of shares of the
Registrant was as follows:
Title Number of Record Holders
----- ------------------------
Active Bond 3,133
Global Bond 515
Dividend Performers 2,621
Multi-Sector Growth 4,908
Small Capitalization Value 1,519
Small Capitalization Growth 2,266
International Equity 4,512
Independence Balanced 14,103
Independence Value 1,146
Independence Diversified Core Equity II 18,851
Independence Growth 2,363
Independence Medium Capitalization 1,481
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.
C-2
<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.
C-3
<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
C-4
<PAGE>
Management Corporation (File No. 801- 420231) incorporated herein by
reference.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) The Registrant's sole principal underwriter is John Hancock Funds,
Inc., which also acts as principal underwriter for the following
investment companies: John Hancock Capital Series, John Hancock
Sovereign Bond Fund, John Hancock Special Equities Fund, John Hancock
Strategic Series, John Hancock Tax-Exempt Series Fund, John Hancock
World Fund, John Hancock Investment Trust II, John Hancock Investment
Trust III, 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 Trust 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. Director, Chairman, President Chairman and
101 Huntington Avenue and 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 and President
101 Huntington Avenue Executive Vice President
Boston, Massachusetts
C-5
<PAGE>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
James V. Bowhers Executive Vice None
101 Huntington Avenue President
Boston, Massachusetts
Osbert Hood 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
C-6
<PAGE>
Positions and Positions and
Name and Principal Offices with Offices with
Business Address Underwriter Registrant
- ------------------ ------------- --------------
J. William Benintende Vice President None
101 Huntington Avenue
Boston, Massachusetts
Gary Cronin Vice President None
101 Huntington Avenue
Boston, Massachusetts
Christopher M. Meyer 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
C-7
<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 Executive Vice President None
101 Huntington Avenue
Boston, Massachusetts
Charles H. Womack Senior Vice President None
6501 Americas parkway
Suite 950
Alberquerque, New Mexico
Keith Hartstein 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
Kristine Pancare 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;
C-8
<PAGE>
(b) 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
(c) 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.
C-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940 the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the City of Boston, and the Commonwealth of Massachusetts on the
30th day of April, 1998.
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) April 30, 1998
- ---------------------------
James B. Little
*
- --------------------------- Trustee
James F. Carlin
*
- --------------------------- Trustee
William H. Cunningham
*
- --------------------------- Trustee
Charles F. Fretz
- --------------------------- Trustee
Anne C. Hodsdon
C-10
<PAGE>
Signature Title Date
--------- ----- ----
*
- --------------------------- 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 April 30, 1998
- ---------------------------
Susan S. Newton
Attorney-in-Fact under
Powers of Attorney dated
June 25, 1996.
</TABLE>
C-11
<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.B1.3 Instrument Changing Names of Series of Shares of the
Trust dated December 3, 1997.+
99.B2 Amended and Restated By-Laws dated November 19, 1996.*****
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
C-12
<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 Auditors' Consents.+
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.****
C-13
<PAGE>
27.1 Independence Value Fund - Annual
27.2 Independence Growth Fund - Annual
27.3 Independence Medium Capitalization Fund - Annual
27.4 Small Capitalization Value Fund - Annual
27.5 Independence Balanced Fund - Annual
27.6 International Equity Fund - Annual
27.7 Small Capitalization Growth Fund - Annual
27.8 Dividend Performers Fund - Annual
27.9 Active Bond Fund - Annual
27.10 Global Bond Fund - Annual
27.11 Multi-Sector Growth Fund - Annual
27.12 Independence Diversified Core Equity Fund II - Annual
* 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.
***** Previously Filed electronically with post-effective amendment number 7
file nos. 811-8851 and 33-86102) on April 30, 1997, accession number
0001010521-97-000281.
+ Filed herewith.
C-14
JOHN HANCOCK INSTITUTIONAL SERIES TRUST
Instrument Changing Names of Series of Shares of the Trust
The Trustees of John Hancock Institutional Series Trust (the "Trust"),
hereby amend the Trust's Declaration of Trust dated October 31, 1994, as amended
from time to time, to the extent necessary to reflect the change of the names of
John Hancock Fundamental Value Fund to John Hancock Small Capitalization Value
Fund and John Hancock Small Capitalization Equity Fund to John Hancock Small
Capitalization Growth Fund, effective January 1, 1998.
IN WITNESS WHEREOF, the undersigned have executed this instrument this
3rd day of December, 1997.
/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. Pruchansk
- ------------------------- ------------------------
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
The Declaration of Trust, a copy of which, together with all amendments
thereto, is on file in the office of the Secretary of State of The Commonwealth
of Massachusetts, provides that no Trustee, officer, employee or agent of the
Trust or any Series thereof shall be subject to any personal liability
whatsoever to any Person, other than to the Trust or its shareholders, in
connection with Trust Property or the affairs of the Trust, save only that
arising from bad faith, willful misfeasance, gross negligence or reckless
disregard of his/her duties with respect to such Person; and all such Persons
shall look solely to the Trust Property, or to the Trust Property of one or more
specific Series of the Trust if the claim arises from the conduct of such
Trustee, officer, employee or agent with respect to only such Series, for
satisfaction of claims of any nature arising in connection with the affairs of
the Trust.
<PAGE>
COMMONWEALTH OF MASSACHUSETTS)
)ss
COUNTY OF SUFFOLK )
Then personally appeared the above-named Edward J. Boudreau, Jr., James
F. Carlin, William H. Cunningham, Charles F. Fretz, Harold R. Hiser, Jr., Anne
C. Hodsdon, Charles L. Ladner, Leo E. Linbeck, Jr., Patricia P. McCarter, Steven
R. Pruchansky, Richard S. Scipione, Norman H. Smith, and John P. Toolan, who
acknowledged the foregoing instrument to be his or her free act and deed, before
me, this 3rd day of December, 1997.
/s/Ann Marie White
--------------------
Notary Public
My Commission Expires: 10/20/00
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
for the John Hancock Institutional Series Trust (comprising the Independence
Balanced Fund, Independence Value Fund, Independence Diversified Core Equity
Fund II, Independence Growth Fund, and Independence Medium Capitalization Fund)
dated February 28, 1997 (and to all references to our Firm) included in or made
a part of the Post-Effective Amendment No. 8 and Amendment No. 9 to Registration
Statement File Nos. 33-86102 and 811-8852, respectively.
/s/Arthur Andersen LLP
Arthur Andersen LLP
Boston, Massachusetts
April 27, 1998
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Post-effective Amendment
No. 8 to the Registration Statement (File No. 33-86102) of John Hancock
Institutional Series Trust of our reports each dated April 3, 1998, appearing in
the annual reports to shareholders for the year ended February 28, 1998. We also
consent to the references to us under the headings "The Funds' Financial
Highlights" in the Prospectuses and "Independent Auditors" in the Statement of
Additional Information , all of which are part of such Registration Statement.
/s/Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Boston, Massachusetts
April 27, 1998
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 080
<NAME> JOHN HANCOCK INDEPENDENCE VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1998
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 6,535,327
<INVESTMENTS-AT-VALUE> 7,763,526
<RECEIVABLES> 21,853
<ASSETS-OTHER> 6
<OTHER-ITEMS-ASSETS> 4,519
<TOTAL-ASSETS> 7,789,904
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 42,544
<TOTAL-LIABILITIES> 42,544
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,074,436
<SHARES-COMMON-STOCK> 556,145
<SHARES-COMMON-PRIOR> 121,599
<ACCUMULATED-NII-CURRENT> 21,093
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 423,900
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,227,931
<NET-ASSETS> 7,747,360
<DIVIDEND-INCOME> 139,409
<INTEREST-INCOME> 12,598
<OTHER-INCOME> 0
<EXPENSES-NET> 56,631
<NET-INVESTMENT-INCOME> 95,376
<REALIZED-GAINS-CURRENT> 617,872
<APPREC-INCREASE-CURRENT> 1,060,357
<NET-CHANGE-FROM-OPS> 1,773,605
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 78,693
<DISTRIBUTIONS-OF-GAINS> 218,123
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 747,624
<NUMBER-OF-SHARES-REDEEMED> 336,616
<SHARES-REINVESTED> 23,538
<NET-CHANGE-IN-ASSETS> 6,424,042
<ACCUMULATED-NII-PRIOR> 4,118
<ACCUMULATED-GAINS-PRIOR> 24,151
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 47,689
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 112,976
<AVERAGE-NET-ASSETS> 5,961,174
<PER-SHARE-NAV-BEGIN> 10.88
<PER-SHARE-NII> 0.21
<PER-SHARE-GAIN-APPREC> 3.33
<PER-SHARE-DIVIDEND> (0.13)
<PER-SHARE-DISTRIBUTIONS> (0.36)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.93
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 110
<NAME> JOHN HANCOCK INDEPENDENCE GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 3,876,708
<INVESTMENTS-AT-VALUE> 4,611,972
<RECEIVABLES> 11,960
<ASSETS-OTHER> 5
<OTHER-ITEMS-ASSETS> 4,519
<TOTAL-ASSETS> 4,628,456
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,961
<TOTAL-LIABILITIES> 22,961
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,742,196
<SHARES-COMMON-STOCK> 309,512
<SHARES-COMMON-PRIOR> 80,246
<ACCUMULATED-NII-CURRENT> 646
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 127,561
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 735,092
<NET-ASSETS> 4,605,495
<DIVIDEND-INCOME> 21,610
<INTEREST-INCOME> 5,247
<OTHER-INCOME> 0
<EXPENSES-NET> 19,733
<NET-INVESTMENT-INCOME> 7,124
<REALIZED-GAINS-CURRENT> 211,135
<APPREC-INCREASE-CURRENT> 599,553
<NET-CHANGE-FROM-OPS> 817,812
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,336
<DISTRIBUTIONS-OF-GAINS> 132,773
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 274,154
<NUMBER-OF-SHARES-REDEEMED> 55,833
<SHARES-REINVESTED> 10,945
<NET-CHANGE-IN-ASSETS> 3,722,210
<ACCUMULATED-NII-PRIOR> 566
<ACCUMULATED-GAINS-PRIOR> 49,199
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57,318
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 97,672
<AVERAGE-NET-ASSETS> 2,077,205
<PER-SHARE-NAV-BEGIN> 11.01
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 4.34
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> (0.48)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.88
<EXPENSE-RATIO> 0.95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 100
<NAME> JOHN HANCOCK INDEPENDENCE MEDIUM CAPITALIZATION FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 7,370,068
<INVESTMENTS-AT-VALUE> 9,724,464
<RECEIVABLES> 16,205
<ASSETS-OTHER> 171
<OTHER-ITEMS-ASSETS> 4,519
<TOTAL-ASSETS> 9,745,359
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,583
<TOTAL-LIABILITIES> 23,583
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,061,732
<SHARES-COMMON-STOCK> 730,875
<SHARES-COMMON-PRIOR> 501,260
<ACCUMULATED-NII-CURRENT> 6,969
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 299,222
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,353,853
<NET-ASSETS> 9,721,776
<DIVIDEND-INCOME> 112,606
<INTEREST-INCOME> 12,480
<OTHER-INCOME> 0
<EXPENSES-NET> 71,647
<NET-INVESTMENT-INCOME> 53,439
<REALIZED-GAINS-CURRENT> 730,981
<APPREC-INCREASE-CURRENT> 1,628,168
<NET-CHANGE-FROM-OPS> 2,412,588
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 56,108
<DISTRIBUTIONS-OF-GAINS> 523,103
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 859,487
<NUMBER-OF-SHARES-REDEEMED> 678,916
<SHARES-REINVESTED> 49,044
<NET-CHANGE-IN-ASSETS> 4,481,903
<ACCUMULATED-NII-PRIOR> 9,347
<ACCUMULATED-GAINS-PRIOR> 91,344
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57,318
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 97,672
<AVERAGE-NET-ASSETS> 7,164,777
<PER-SHARE-NAV-BEGIN> 10.45
<PER-SHARE-NII> 0.09
<PER-SHARE-GAIN-APPREC> 3.69
<PER-SHARE-DIVIDEND> (0.09)
<PER-SHARE-DISTRIBUTIONS> (0.84)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.30
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 050
<NAME> JOHN HANCOCK SMALL CAPITALIZATION VALUE FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 8,574,700
<INVESTMENTS-AT-VALUE> 9,556,313
<RECEIVABLES> 90,332
<ASSETS-OTHER> 4,439
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,651,084
<PAYABLE-FOR-SECURITIES> 82,389
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,865
<TOTAL-LIABILITIES> 102,254
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,601,990
<SHARES-COMMON-STOCK> 813,038
<SHARES-COMMON-PRIOR> 640,811
<ACCUMULATED-NII-CURRENT> 2,997
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 962,327
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 981,516
<NET-ASSETS> 9,548,830
<DIVIDEND-INCOME> 70,692
<INTEREST-INCOME> 32,755
<OTHER-INCOME> 0
<EXPENSES-NET> 58,235
<NET-INVESTMENT-INCOME> 45,212
<REALIZED-GAINS-CURRENT> 1,689,121
<APPREC-INCREASE-CURRENT> 742,018
<NET-CHANGE-FROM-OPS> 2,476,351
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 60,567
<DISTRIBUTIONS-OF-GAINS> 857,697
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 907,426
<NUMBER-OF-SHARES-REDEEMED> 824,315
<SHARES-REINVESTED> 89,116
<NET-CHANGE-IN-ASSETS> 3,538,248
<ACCUMULATED-NII-PRIOR> 17,322
<ACCUMULATED-GAINS-PRIOR> 131,933
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 50,956
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 103,663
<AVERAGE-NET-ASSETS> 7,279,373
<PER-SHARE-NAV-BEGIN> 9.38
<PER-SHARE-NII> 0.07
<PER-SHARE-GAIN-APPREC> 3.65
<PER-SHARE-DIVIDEND> (0.10)
<PER-SHARE-DISTRIBUTIONS> (1.26)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.74
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 090
<NAME> JOHN HANCOCK INDEPENDENCE BALANCED FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 70,008,329
<INVESTMENTS-AT-VALUE> 76,624,312
<RECEIVABLES> 711,081
<ASSETS-OTHER> 264
<OTHER-ITEMS-ASSETS> 4,402
<TOTAL-ASSETS> 77,340,059
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 223,598
<TOTAL-LIABILITIES> 223,598
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 69,244,979
<SHARES-COMMON-STOCK> 6,752,112
<SHARES-COMMON-PRIOR> 1,316,609
<ACCUMULATED-NII-CURRENT> 385,336
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 871,115
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,615,031
<NET-ASSETS> 77,116,461
<DIVIDEND-INCOME> 359,078
<INTEREST-INCOME> 1,644,582
<OTHER-INCOME> 0
<EXPENSES-NET> 408,174
<NET-INVESTMENT-INCOME> 1,595,486
<REALIZED-GAINS-CURRENT> 1,714,204
<APPREC-INCREASE-CURRENT> 5,930,015
<NET-CHANGE-FROM-OPS> 9,239,705
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,287,391
<DISTRIBUTIONS-OF-GAINS> 970,387
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,672,953
<NUMBER-OF-SHARES-REDEEMED> 2,450,824
<SHARES-REINVESTED> 213,374
<NET-CHANGE-IN-ASSETS> 64,023,778
<ACCUMULATED-NII-PRIOR> 76,825
<ACCUMULATED-GAINS-PRIOR> 127,298
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 317,469
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 480,545
<AVERAGE-NET-ASSETS> 45,352,747
<PER-SHARE-NAV-BEGIN> 9.94
<PER-SHARE-NII> 0.38
<PER-SHARE-GAIN-APPREC> 1.60
<PER-SHARE-DIVIDEND> (0.35)
<PER-SHARE-DISTRIBUTIONS> (0.15)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.42
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 060
<NAME> JOHN HANCOCK INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 7,384,036
<INVESTMENTS-AT-VALUE> 7,923,143
<RECEIVABLES> 390,944
<ASSETS-OTHER> 336,460
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 8,650,547
<PAYABLE-FOR-SECURITIES> 639,780
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 27,900
<TOTAL-LIABILITIES> 667,680
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 7,737,429
<SHARES-COMMON-STOCK> 828,701
<SHARES-COMMON-PRIOR> 449,532
<ACCUMULATED-NII-CURRENT> (6,246)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (286,287)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 537,971
<NET-ASSETS> 7,982,867
<DIVIDEND-INCOME> 81,131
<INTEREST-INCOME> 29,098
<OTHER-INCOME> 0
<EXPENSES-NET> 68,687
<NET-INVESTMENT-INCOME> 41,542
<REALIZED-GAINS-CURRENT> (278,948)
<APPREC-INCREASE-CURRENT> 292,145
<NET-CHANGE-FROM-OPS> 54,739
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,326,050
<NUMBER-OF-SHARES-REDEEMED> 947,485
<SHARES-REINVESTED> 604
<NET-CHANGE-IN-ASSETS> 3,778,900
<ACCUMULATED-NII-PRIOR> (9,867)
<ACCUMULATED-GAINS-PRIOR> (40,052)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 61,818
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 138,463
<AVERAGE-NET-ASSETS> 6,868,687
<PER-SHARE-NAV-BEGIN> 9.35
<PER-SHARE-NII> 0.06
<PER-SHARE-GAIN-APPREC> 0.23
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.63
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 120
<NAME> JOHN HANCOCK SMALL CAPITALIZATION GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 2,523,795
<INVESTMENTS-AT-VALUE> 3,111,825
<RECEIVABLES> 61,136
<ASSETS-OTHER> 14,523
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,187,484
<PAYABLE-FOR-SECURITIES> 66,123
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 19,154
<TOTAL-LIABILITIES> 85,277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,584,118
<SHARES-COMMON-STOCK> 264,310
<SHARES-COMMON-PRIOR> 108,206
<ACCUMULATED-NII-CURRENT> (16)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (69,924)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 588,029
<NET-ASSETS> 3,102,207
<DIVIDEND-INCOME> 8,113
<INTEREST-INCOME> 7,227
<OTHER-INCOME> 0
<EXPENSES-NET> 21,094
<NET-INVESTMENT-INCOME> (5,754)
<REALIZED-GAINS-CURRENT> (14,223)
<APPREC-INCREASE-CURRENT> 551,977
<NET-CHANGE-FROM-OPS> 532,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 229
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 312,919
<NUMBER-OF-SHARES-REDEEMED> 156,837
<SHARES-REINVESTED> 22
<NET-CHANGE-IN-ASSETS> 2,102,711
<ACCUMULATED-NII-PRIOR> 229
<ACCUMULATED-GAINS-PRIOR> (56,301)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18,750
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 94,972
<AVERAGE-NET-ASSETS> 2,343,774
<PER-SHARE-NAV-BEGIN> 9.24
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 2.53
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.74
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 010
<NAME> JOHN HANCOCK DIVIDEND PERFORMERS FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 17,767,073
<INVESTMENTS-AT-VALUE> 21,340,556
<RECEIVABLES> 286,416
<ASSETS-OTHER> 464
<OTHER-ITEMS-ASSETS> 8,747
<TOTAL-ASSETS> 21,636,183
<PAYABLE-FOR-SECURITIES> 729,520
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,218
<TOTAL-LIABILITIES> 751,738
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 16,237,866
<SHARES-COMMON-STOCK> 1,399,614
<SHARES-COMMON-PRIOR> 727,948
<ACCUMULATED-NII-CURRENT> 36,650
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,036,435
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,573,494
<NET-ASSETS> 20,884,445
<DIVIDEND-INCOME> 255,516
<INTEREST-INCOME> 51,859
<OTHER-INCOME> 0
<EXPENSES-NET> 107,157
<NET-INVESTMENT-INCOME> 200,218
<REALIZED-GAINS-CURRENT> 2,026,525
<APPREC-INCREASE-CURRENT> 2,433,147
<NET-CHANGE-FROM-OPS> 4,659,890
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (188,048)
<DISTRIBUTIONS-OF-GAINS> (1,154,688)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 856,008
<NUMBER-OF-SHARES-REDEEMED> (283,722)
<SHARES-REINVESTED> 99,380
<NET-CHANGE-IN-ASSETS> 12,216,934
<ACCUMULATED-NII-PRIOR> 24,480
<ACCUMULATED-GAINS-PRIOR> 164,598
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 91,848
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 155,404
<AVERAGE-NET-ASSETS> 15,308,092
<PER-SHARE-NAV-BEGIN> 11.91
<PER-SHARE-NII> 0.18
<PER-SHARE-GAIN-APPREC> 3.92
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.17)
<RETURNS-OF-CAPITAL> (0.92)
<PER-SHARE-NAV-END> 14.92
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 020
<NAME> JOHN HANCOCK ACTIVE BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 5,356,846
<INVESTMENTS-AT-VALUE> 5,398,672
<RECEIVABLES> 123,910
<ASSETS-OTHER> 345
<OTHER-ITEMS-ASSETS> 4,873
<TOTAL-ASSETS> 5,527,800
<PAYABLE-FOR-SECURITIES> 354,039
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,136
<TOTAL-LIABILITIES> 370,175
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,046,367
<SHARES-COMMON-STOCK> 584,266
<SHARES-COMMON-PRIOR> 256,550
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (154)
<ACCUMULATED-NET-GAINS> 69,582
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 41,830
<NET-ASSETS> 5,157,625
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 270,649
<OTHER-INCOME> 0
<EXPENSES-NET> 22,003
<NET-INVESTMENT-INCOME> 248,646
<REALIZED-GAINS-CURRENT> 86,744
<APPREC-INCREASE-CURRENT> 37,222
<NET-CHANGE-FROM-OPS> 372,612
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (116,555)
<DISTRIBUTIONS-OF-GAINS> (2,809)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 532,093
<NUMBER-OF-SHARES-REDEEMED> 234,419
<SHARES-REINVESTED> 30,042
<NET-CHANGE-IN-ASSETS> 12,927,117
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 6,102
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 18,336
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 96,674
<AVERAGE-NET-ASSETS> 3,667,157
<PER-SHARE-NAV-BEGIN> 8.54
<PER-SHARE-NII> 0.59
<PER-SHARE-GAIN-APPREC> 0.34
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (0.59)
<RETURNS-OF-CAPITAL> (0.05)
<PER-SHARE-NAV-END> 8.83
<EXPENSE-RATIO> 0.60
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 030
<NAME> JOHN HANCOCK GLOBAL BOND FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 9,734,688
<INVESTMENTS-AT-VALUE> 9,824,317
<RECEIVABLES> 170,132
<ASSETS-OTHER> 4,329
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 9,998,778
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,667
<TOTAL-LIABILITIES> 38,667
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,074,266
<SHARES-COMMON-STOCK> 1,220,246
<SHARES-COMMON-PRIOR> 124,830
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (167,117)
<ACCUMULATED-NET-GAINS> (35,523)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 88,485
<NET-ASSETS> 9,960,111
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 287,929
<OTHER-INCOME> 0
<EXPENSES-NET> 38,889
<NET-INVESTMENT-INCOME> 249,040
<REALIZED-GAINS-CURRENT> (167,705)
<APPREC-INCREASE-CURRENT> 96,133
<NET-CHANGE-FROM-OPS> 177,468
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 249,040
<DISTRIBUTIONS-OF-GAINS> 31,000
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,100,749
<NUMBER-OF-SHARES-REDEEMED> 7,419
<SHARES-REINVESTED> 2,086
<NET-CHANGE-IN-ASSETS> 8,934,258
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (3,935)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 34,314
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 99,237
<AVERAGE-NET-ASSETS> 4,575,194
<PER-SHARE-NAV-BEGIN> 8.22
<PER-SHARE-NII> 0.48
<PER-SHARE-GAIN-APPREC> (0.03)
<PER-SHARE-DIVIDEND> (0.48)
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 8.16
<EXPENSE-RATIO> 0.85
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 040
<NAME> JOHN HANCOCK MULTI-SECTOR GROWTH FUND
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 35,251,989
<INVESTMENTS-AT-VALUE> 38,774,744
<RECEIVABLES> 2,476,426
<ASSETS-OTHER> 5,469
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 41,256,639
<PAYABLE-FOR-SECURITIES> 910,164
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 44,456
<TOTAL-LIABILITIES> 954,620
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,377,137
<SHARES-COMMON-STOCK> 2,982,086
<SHARES-COMMON-PRIOR> 2,294,832
<ACCUMULATED-NII-CURRENT> (218)
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,402,321
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,522,779
<NET-ASSETS> 40,302,019
<DIVIDEND-INCOME> 243,143
<INTEREST-INCOME> 105,456
<OTHER-INCOME> 0
<EXPENSES-NET> 339,055
<NET-INVESTMENT-INCOME> 9,544
<REALIZED-GAINS-CURRENT> 4,749,043
<APPREC-INCREASE-CURRENT> 1,644,227
<NET-CHANGE-FROM-OPS> 6,402,814
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,989,505
<NUMBER-OF-SHARES-REDEEMED> 1,597,014
<SHARES-REINVESTED> 294,763
<NET-CHANGE-IN-ASSETS> 11,217,442
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 1,215,401
<OVERDISTRIB-NII-PRIOR> (1,998)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 301,382
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 414,503
<AVERAGE-NET-ASSETS> 37,672,770
<PER-SHARE-NAV-BEGIN> 12.67
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 2.06
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> (1.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.51
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 070
<NAME> JOHN HANCOCK INDEP. DIV. CORE EQUITY FUND II
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<INVESTMENTS-AT-COST> 444,230,366
<INVESTMENTS-AT-VALUE> 571,478,422
<RECEIVABLES> 986,522
<ASSETS-OTHER> 8,560
<OTHER-ITEMS-ASSETS> 3,835
<TOTAL-ASSETS> 572,477,339
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 383,922
<TOTAL-LIABILITIES> 383,922
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 424,477,020
<SHARES-COMMON-STOCK> 37,292,376
<SHARES-COMMON-PRIOR> 25,073,644
<ACCUMULATED-NII-CURRENT> 788,223
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 19,579,819
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 127,248,355
<NET-ASSETS> 572,093,417
<DIVIDEND-INCOME> 7,392,699
<INTEREST-INCOME> 407,419
<OTHER-INCOME> 0
<EXPENSES-NET> 2,866,696
<NET-INVESTMENT-INCOME> 4,933,422
<REALIZED-GAINS-CURRENT> 54,376,230
<APPREC-INCREASE-CURRENT> 73,641,789
<NET-CHANGE-FROM-OPS> 132,951,441
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,912,959
<DISTRIBUTIONS-OF-GAINS> 45,208,159
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 18,671,866
<NUMBER-OF-SHARES-REDEEMED> 10,157,269
<SHARES-REINVESTED> 3,704,135
<NET-CHANGE-IN-ASSETS> 252,064,778
<ACCUMULATED-NII-PRIOR> 767,464
<ACCUMULATED-GAINS-PRIOR> 10,411,753
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,212,037
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,866,696
<AVERAGE-NET-ASSETS> 442,407,390
<PER-SHARE-NAV-BEGIN> 12.76
<PER-SHARE-NII> 0.17
<PER-SHARE-GAIN-APPREC> 3.91
<PER-SHARE-DIVIDEND> (0.17)
<PER-SHARE-DISTRIBUTIONS> (1.33)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.34
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
