As filed with the Securities and Exchange Commission on June 4, 2003.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-14
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_X__/
----
Pre-Effective Amendment No. __ /____/
----
Post-Effective Amendment No. ___ /____/
(Check appropriate box or boxes)
JOHN HANCOCK INVESTMENT TRUST III
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(Exact name of registrant as specified in charter)
101 Huntington Avenue, Boston, Massachusetts 02199-7603
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(Address of principal executive office) Zip Code
(617) 375-1702
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(Registrant's Telephone Number, including Area Code)
Susan S. Newton, Esq.
John Hancock Advisers, Inc.
101 Huntington Avenue
Boston, MA 02199
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(Name and address of agent for service)
Title of Securities Being Registered: shares of beneficial interest of John
Hancock Investment Trust III.
Approximate Date of Proposed Public Offering: As soon as practicable after the
effectiveness of the registration statement.
No filing fee is required because an indefinite number of shares has previously
been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940,
as amended. This Registration Statement relates to shares previously registered
on Form N-1A (File Nos. 33-4559 and 811-4630).
It is proposed that this filing will become effective on July 7, 2003
pursuant to Rule 488 under the Securities Act of 1933.
IMPORTANT INFORMATION
July 15, 2003
Dear Fellow Shareholder:
I am writing to ask for your vote on an important matter that will affect your
investment in John Hancock Pacific Basin Equities Fund. The enclosed proxy
statement contains information about a proposal to reorganize your Fund and
transfer its assets into John Hancock International Fund.
Why are changes being proposed?
The reorganization is intended to consolidate the international strategies of
your Fund and John Hancock International Fund into one unified approach that
eliminates the regional concentration of John Hancock Pacific Basin Equities
Fund in favor of an international investment strategy. This change benefits you
because, unlike John Hancock Pacific Basin Equities Fund, John Hancock
International Fund is not geographically concentrated and can therefore invest
in a broader range of countries and regions, offering greater diversification.
Moreover, by focusing on core international investments, the combined fund may
be better positioned in the market to increase asset size and achieve economies
of scale. Each Fund incurs substantial operating costs for insurance,
accounting, legal, and custodial services. The reorganization of these Funds may
enable you to benefit from the ability to achieve better net prices on
securities trades and spread fixed expenses in a manner that may contribute to a
lower expense ratio. If the proposal is approved, you will receive shares of the
International Fund in proportion to the value of your shares in John Hancock
Pacific Basin Equities Fund.
Impact on Fund Expenses
It is important to note that your Fund's expenses are projected to decrease as a
result of the reorganization. Your Fund's expenses as a percentage of net assets
are 2.57% for Class A shares and 3.27% for Class B and C shares. If the
reorganization is approved, John Hancock Funds has agreed to extend the cap on
the International Fund's expenses, which is equal to 2.35% of net assets for
Class A and 3.05% for Class B and Class C shares, until at least March 1, 2005.
Your Vote Matters
After careful consideration, your Fund's trustees have unanimously agreed to the
reorganization of the assets of John Hancock Pacific Basin Equities Fund into
John Hancock International Fund. The enclosed proxy statement contains further
explanation and important details of the reorganization, which I strongly
encourage you to read before voting. If approved by the shareholders, the
reorganization is scheduled to take place at the close of business on September
26, 2003.
Your vote makes a difference, no matter what the size of your investment. Please
review the enclosed proxy materials and submit your vote promptly to help us
avoid the need for additional mailings. For your convenience, you may vote one
of three ways: via telephone by calling 1-866-241-6192; via mail by returning
the enclosed voting card; or via the Internet by visiting www.jhfunds.com and
selecting the shareholder entryway. If you have any questions or need additional
information, please contact a John Hancock Funds Customer Service Representative
at 1-800-225-5291 between 8:00 A.M. and 8:00 P.M. Eastern Time. I thank you for
your prompt vote on this matter.
Sincerely,
Maureen R. Ford
Chairman and Chief
Executive Officer
JOHN HANCOCK PACIFIC BASIN EQUITIES FUND (a series of John Hancock World Fund)
("Pacific Basin Equities Fund" or "your fund")
101 Huntington Avenue
Boston, MA 02199
Notice of Joint Special Meeting of Shareholders
Scheduled for September 24, 2003
This is the formal agenda for your fund's shareholder meeting. It tells you what
matters will be voted on and the time and place of the meeting, in case you want
to attend in person.
To the shareholders of Pacific Basin Equities Fund:
A joint shareholder meeting for your fund will be held at 101 Huntington Avenue,
Boston, Massachusetts on Wednesday, September 24, 2003, at 9:00 A.M., Eastern
time, to consider the following:
1. A proposal to approve an Agreement and Plan of Reorganization between John
Hancock Pacific Basin Equities Fund ("Pacific Basin Equities Fund" or
"your fund") and John Hancock International Fund ("International Fund").
Under this Agreement, your fund would transfer all of its assets to
International Fund in exchange for shares of International Fund. These
shares would be distributed proportionately to you and the other
shareholders of Pacific Basin Equities Fund. International Fund would also
assume Pacific Basin Equities Fund's liabilities. Pacific Basin Equities
Fund's board of trustees recommends that you vote FOR this proposal.
2. Any other business that may properly come before the meeting.
Shareholders of record as of the close of business on July 02, 2003 are entitled
to vote at the meeting and any related follow-up meetings.
Whether or not you expect to attend the meeting, please complete and return the
enclosed proxy card. If shareholders do not return their proxies in sufficient
numbers, it may result in additional shareholder solicitation.
By order of the board of trustees,
Susan S. Newton
Secretary
July 15, 2003
PROXY STATEMENT of
John Hancock Pacific Basin Equities Fund (referred to herein as "Pacific Basin
Fund", the "Acquired Fund" or "your fund" (a series of John Hancock World Fund))
101 Huntington Avenue
Boston, MA 02199
PROSPECTUS for
John Hancock International Fund (referred to herein as the "Acquiring Fund" or
"International Fund") (a series of John Hancock Investment Trust III)
101 Huntington Avenue
Boston, MA 02199
This proxy statement and prospectus contains the information shareholders should
know before voting on the proposed reorganization. Please read it carefully and
retain it for future reference.
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Acquired Fund Acquiring Fund Shareholders Entitled to Vote
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Proposal 1 Pacific Basin Fund International Fund Pacific Basin Fund shareholders
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How The Reorganization Will Work
o The Acquired Fund will transfer all of its assets to the Acquiring Fund.
The Acquiring Fund will assume the Acquired Fund's liabilities.
o The Acquiring Fund will issue Class A shares to the Acquired Fund in an
amount equal to the value of the Acquired Fund's net assets attributable
to its Class A shares. These shares will be distributed to the Acquired
Fund's Class A shareholders in proportion to their holdings on the
reorganization date.
o The Acquiring Fund will issue Class B shares to the Acquired Fund in an
amount equal to the value of the Acquired Fund's net assets attributable
to its Class B shares. These shares will be distributed to the Acquired
Fund's Class B shareholders in proportion to their holdings on the
reorganization date.
o The Acquiring Fund will issue Class C shares to the Acquired Fund in an
amount equal to the value of the Acquired Fund's net assets attributable
to its Class C shares. These shares will be distributed to the Acquired
Fund's Class C shareholders in proportion to their holdings on the
reorganization date.
o The Acquired Fund will be terminated and fund shareholders will become
shareholders of the Acquiring Fund.
o The reorganization is intended to result in no income, gain or loss for
federal income tax purposes to the Acquiring Fund, the Acquired Fund or
the shareholders of the Acquired Fund.
Rationale for the Reorganization
The reorganization is intended to consolidate the funds' international
strategies into one unified approach that eliminates the regional concentration
of Pacific Basin Fund. Instead, the reorganization would consolidate your fund
into the Acquiring Fund, which invests primarily in non-U.S. equity securities
and has no fixed allocation of assets to specific countries or regions. In
addition, because the Acquiring Fund is now John Hancock Funds' primary vehicle
for international equity investing, it is better positioned to build upon
economies of scale and attract additional investments. As a result, the
Acquiring Fund's greater asset size may allow the Acquiring Fund to (i) obtain
better net prices on securities trades, (ii) achieve greater diversification of
international portfolio holdings and (iii) reduce per share expenses as fixed
expenses are shared over a larger asset base. Therefore, the trustees of your
fund recommend that you vote FOR the reorganization.
The total expenses paid by your fund will decrease as a result of the
reorganization. Although the Acquiring Fund's management fee is higher than John
Hancock International Fund's management fee, the
1
annual operating expenses based on John Hancock International Fund's most recent
fiscal year is lower than Pacific Basin Fund's operating expenses. Furthermore,
upon completion of the merger, the funds' investment adviser has agreed until at
least March 1, 2005 to limit the Acquiring Fund's total operating expenses to
2.35% of average daily net assets for Class A shares and 3.05% of average daily
net assets for Class B and Class C shares.
Shares of the Acquiring Fund are not deposits or obligations of, or guaranteed
or endorsed by, any bank or other depository institution. These shares are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board or any other government agency.
Shares of the Acquiring Fund have not been approved or disapproved by the
Securities and Exchange Commission. The Securities and Exchange Commission has
not passed upon the accuracy or adequacy of this prospectus. Any representation
to the contrary is a criminal offense.
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Where to Get More Information
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Class A, B and C prospectus of In the same envelope as this proxy
International Fund dated February 14, statement and prospectus. These
2003. documents are incorporated by reference
into (and therefore legally part of)
this proxy statement and prospectus.
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The International Fund's annual
report to shareholders dated
October 31, 2002.
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Class A, B and C prospectus for On file with the Securities and
the Acquired Fund dated February Exchange Commission ("SEC") or
14, 2003. available at no charge by calling
our toll-free number:1-800-225-5291.
Incorporated by reference into
(and therefore legally part of)
this proxy statement and
prospectus.
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The Acquired Fund's annual
reports to
shareholders dated October
31, 2002.
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A statement of additional information
dated July 15, 2003. It contains
additional information about the
Acquired Fund and the Acquiring Fund.
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To ask questions about this proxy Call our toll-free telephone
statement and prospectus. number: 1-800-225-5291
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The date of this proxy statement and prospectus is July 15, 2003.
2
TABLE OF CONTENTS
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Page
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INTRODUCTION
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PROPOSAL 1-- PACIFIC BASIN FUND
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Summary
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Comparison of Investment Risks
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Proposal to Approve the Agreement and Plan of Reorganization
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FURTHER INFORMATION ON THE REORGANIZATION CAPITALIZATION
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ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
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BOARDS' EVALUATION AND RECOMMENDATION
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VOTING RIGHTS AND REQUIRED VOTE
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INFORMATION CONCERNING THE MEETING
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OWNERSHIP OF SHARES OF THE FUNDS EXPERTS
- --------------------------------------------------------------------------------
AVAILABLE INFORMATION
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EXHIBIT A -- Form of Agreement and Plan of Reorganization
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INTRODUCTION
This proxy statement and prospectus is being used by the Acquired Fund's board
of trustees to solicit proxies to be voted at a special meeting of the Acquired
Fund's shareholders. This meeting will be held at 101 Huntington Avenue, Boston,
Massachusetts on Wednesday, September 24, 2003 at 9:00 A.M., Eastern time. The
purpose of the meeting is to consider proposals to approve the Agreement and
Plan of Reorganization providing for the reorganization of the Acquired Fund
into the Acquiring Fund. This proxy statement and prospectus is being mailed to
your fund's shareholders on or about July 15, 2003.
Please read carefully the entire proxy statement, including Exhibit A and the
enclosed prospectus and annual report.
Who is Eligible to Vote?
Shareholders of record on July 2, 2003 are entitled to attend and vote at the
meeting or any adjourned meeting. Each share is entitled to one vote. Shares
represented by properly executed proxies, unless revoked before or at the
meeting, will be voted according to shareholders' instructions. If you sign a
proxy but do not fill in a vote, your shares will be voted to approve the
Agreement and Plan of Reorganization. If any other business comes before the
meeting, your shares will be voted at the discretion of the persons named as
proxies.
3
PROPOSAL
Approval of Agreement and Plan of Reorganization Between Pacific Basin Fund and
International Fund
A proposal to approve an Agreement and Plan of Reorganization (the "Agreement")
between Pacific Basin Fund and International Fund. Under this Agreement, Pacific
Basin Fund would transfer all of its assets to International Fund in exchange
for shares of International Fund. These shares would be distributed
proportionately to the shareholders of Pacific Basin Fund. International Fund
would also assume Pacific Basin Fund's liabilities. Pacific Basin Fund's board
of trustees recommends that shareholders vote FOR this proposal.
SUMMARY
Comparison of Pacific Basin Fund to International Fund
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Pacific Basin Fund International Fund
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Business A diversified series of John Hancock A diversified series of John Hancock
World Fund, an open-end investment Investment Trust III, an open-end
management company organized as a investment management company organized
Massachusetts business trust. as a Massachusetts business trust.
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Net assets as of $ 17.2 million $ 64.3 million *
April 30, 2003
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Investment adviser, Investment Adviser: Investment Adviser:
subadviser and John Hancock Advisers, LLC John Hancock Advisers, LLC
portfolio managers Subadviser: Subadviser:
Nicholas Applegate Capital Management Nicholas Applegate Capital Management
-A subsidiary of Allianz AG, a German -A subsidiary of Allianz AG, a German
publicly traded company, which, together publicly traded company, which, together
with its subsidiaries, comprises the with its subsidiaries, comprises the
world's largest insurance group world's largest insurance group
-Supervised by the adviser -Supervised by the adviser
-Founded in 1984 -Founded in 1984
Portfolio managers: Portfolio managers:
U.S.-based team responsible for U.S.-based team responsible for
day-to-day investment management day-to-day investment management
- ----------------------------------------------------------------------------------------------------------------
Investment objective The fund seeks long-term growth of The fund seeks long-term growth of
capital. This objective is fundamental capital. This objective is
and can be changed only with shareholder non-fundamental and can be changed
approval. without shareholder approval.
- ----------------------------------------------------------------------------------------------------------------
Primary investments The fund normally invests at least 80% The fund normally invests at least 80%
of its assets in corporate common stock of its assets in stocks of foreign
and other equity securities of "Pacific companies.
Basin companies".
"Pacific Basin companies" are companies
that derive more than half of their
revenues from Pacific Basin operations,
are organized under the laws of Pacific
Basin countries, or are traded
principally on Pacific Basin exchanges.
Although the Pacific Basin includes all
of the countries bordering the Pacific
Ocean, the manager focuses on Japan,
Hong Kong, Australia, Singapore, South
Korea, China and Taiwan.
- ----------------------------------------------------------------------------------------------------------------
Emerging Markets The fund may invest in emerging markets The fund may invest up to 30% of assets
countries without any specified in emerging markets as classified by
percentage limitation. Morgan Stanley Capital International (MSCI).
- ----------------------------------------------------------------------------------------------------------------
Allocation of Assets Neither fund maintains a fixed allocation of assets, either with respect to
securities type or geography.
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Diversification The fund is diversified, which means The fund is diversified, which means
that, with respect to 75% of total that, with respect to 75% of total
assets, the fund cannot invest (i) more assets, the fund cannot invest (i) more
than 5% of total assets in securities of than 5% of total assets in securities of
a single issuer or (ii) in securities a single issuer or (ii) in securities
representing more than 10% of the representing more than 10% of the
outstanding voting securities of an outstanding voting securities of an
issuer. issuer.
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4
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In addition, the fund cannot invest more
than 5% of total assets in a single
security (other than U.S. Government
securities).
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Derivatives Each fund may make limited use of certain derivatives (investments whose value
is based on indexes, securities or currencies).
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Temporary defensive In abnormal conditions, each fund may temporarily invest more than 20% of assets
positions in investment-grade short-term securities. In these and other cases, the funds
might not achieve their respective goals.
- ----------------------------------------------------------------------------------------------------------------
* Net assets have been restated to reflect the reorganization of John Hancock
Global Fund and John Hancock European Equity Fund into International Fund which
occurred on May 9, 2003.
In deciding whether to approve the reorganization, you should consider the
similarities and differences between your fund and International Fund. In
particular, you should consider whether the amount and character of investment
risk involved in the authorized investments of International Fund is
commensurate with the amount of risk involved in the authorized investments of
your fund. Although the investment objectives of the two funds are identical,
their investment policies and risks are different. Your fund concentrates its
investments in securities of Pacific Basin companies. International Fund,
however, does not maintain any geographical concentration and invests in
securities of foreign companies without any fixed allocation of assets. In
addition, International Fund may invest up to 30% of assets in emerging markets,
whereas your fund may invest in emerging markets within the Pacific Basin but
does not have a stated percentage policy. International Fund also has a more
restrictive diversification policy than your fund, limiting investment in any
single security to 5% of the fund's assets.
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CLASSES OF SHARES
- ------------------------------------------------------------------------------------------------
Pacific Basin Fund and International Fund
- ------------------------------------------------------------------------------------------------
Class A sales charges and The Class A shares of both funds have the same characteristics
12b-1 fees and fee structure.
o Class A shares are offered with front-end sales charges
ranging from 2% to 5% of the fund's offering price,
depending on the amount invested.
o Class A shares are subject to a 12b-1 distribution fee equal
to 0.30% annually of average net assets.
o There is no front-end sales charge for investments of $1
million or more, but there is a contingent deferred sales
charge ranging from 0.25% to 1.00% on shares sold within one
year of purchase.
o Investors can combine multiple purchases of Class A shares
to take advantage of breakpoints in the sales charge
schedule.
o Sales charges are waived for the categories of investors
listed in the funds' prospectuses.
- ------------------------------------------------------------------------------------------------
Class B sales charges and The Class B shares of both funds have the same characteristics and
12b-1 fees fee structure.
o Class B shares are offered without a front-end sales charge,
but are subject to a contingent deferred sales charge (CDSC)
if sold within six years after purchase. The CDSC ranges
from 1.00% to 5.00% depending on how long the shares are
held. No CDSC is imposed on shares held more than six years.
o Class B shares are subject to 12b-1 distribution and service
fees equal to 1.00% annually of average net assets.
o CDSCs are waived for the categories of investors listed in
the funds' prospectus.
o Class B shares automatically convert to Class A shares after
eight years.
- ------------------------------------------------------------------------------------------------
Class C sales charges and The Class C shares of both funds have the same characteristics and
12b-1 fees fee structure.
o Class C shares are offered with a front-end sales charge
equal to 1.00% of the fund's offering price.
o Class C shares are subject to a contingent deferred sales
charge of 1.00% on shares sold within one year of purchase.
o Class C shares are subject to 12b-1 distribution and service
fees equal to 1.00% annually of average net assets.
o No automatic conversion to Class A shares, so annual
expenses continue at the Class C level throughout the life
of the investment.
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12b-1 fees o These fees are paid out of a fund's assets on an ongoing
basis. Over time these fees will increase the cost of
investments and may cost more than other types of sales
charges.
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5
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BUYING, SELLING AND EXCHANGING SHARES
- ------------------------------------------------------------------------------------
Pacific Basin Fund and International Fund
- ------------------------------------------------------------------------------------
Buying shares Investors may buy shares at their public offering price
through a financial representative or the funds' transfer
agent, John Hancock Signature Services, Inc. After May 21,
2003, investors will not be allowed to open new accounts in
Pacific Basin Fund but can add to existing accounts.
- ------------------------------------------------------------------------------------
Minimum initial Class A, Class B and Class C Shares: $1,000 for non-retirement
investment accounts and $250 for retirement accounts and group
investments.
- ------------------------------------------------------------------------------------
Exchanging shares Shareholders may exchange their shares at net asset value with
no sales charge for shares of the same class of any other John
Hancock fund.
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Selling shares Shareholders may sell their shares by submitting a proper
written or telephone request to John Hancock Signature
Services, Inc.
- ------------------------------------------------------------------------------------
Net asset value All purchases, exchanges and sales are made at a price based
on the next determined net asset value (NAV) per share of the
fund. Both funds' NAVs are determined at the close of regular
trading on the New York Stock Exchange, which is normally 4:00
P.M. Eastern time.
- ------------------------------------------------------------------------------------
The Funds' Expenses
Shareholders of both funds pay various expenses, either directly or indirectly.
The expense table appearing below shows the expenses for the twelve-month period
ended April 30, 2003, adjusted to reflect any changes. Future expenses for all
share classes may be greater or less. The examples contained in the expense
table show what you would pay if you invested $10,000 over the various time
periods indicated. Each example assumes that you reinvested all dividends and
that the average annual return was 5%. The examples are for comparison purposes
only and are not a representation of either fund's actual expenses or returns,
either past or future.
Pro Forma Expenses
In connection with the reorganization, the adviser has agreed until at least
March 1, 2005 to limit International Fund's total operating expenses to 2.35% of
average daily net assets for Class A shares and 3.05% of average daily net
assets for Class B and Class C shares. This expense limitation is lower than
your fund's total operating expenses for its most recent fiscal year.
The following expense table shows the hypothetical ("pro forma") expenses of
International Fund assuming that a reorganization with Pacific Basin Fund,
occurred on May 1, 2002. The expenses shown in both tables are based on fees and
expenses incurred during the twelve-month period ended April 30, 2003.
6
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International
Fund*
(PRO FORMA
for the 12 mths
ended 4/30/03)
(Assuming
reorganization
Pacific with
Basin International Pacific Basin
Fund Fund* Fund)
- -------------------------------------------------------------------------------------------
Shareholder transaction expenses Class A Class A Class A
- -------------------------------------------------------------------------------------------
Maximum sales charge (load) imposed on 5.00% 5.00% 5.00%
purchases (as a % of purchase price)
- -------------------------------------------------------------------------------------------
Maximum sales charge imposed on none None None
reinvested dividends
- -------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) as none None None
a % of purchase or sale price,
whichever is less(1)
- -------------------------------------------------------------------------------------------
Redemption fee(2) none None None
- -------------------------------------------------------------------------------------------
Exchange fee none None None
- -------------------------------------------------------------------------------------------
Annual fund operating expenses Class A Class A Class A
(as a % of average net assets)
- -------------------------------------------------------------------------------------------
Management fee 0.80% 0.90% 0.90%
- -------------------------------------------------------------------------------------------
Distribution and service (12b-1) fee 0.30% 0.30% 0.30%
- -------------------------------------------------------------------------------------------
Other expenses 1.47% 1.36% 1.29%
- -------------------------------------------------------------------------------------------
Total fund operating expenses 2.57% 2.56% 2.49%
- -------------------------------------------------------------------------------------------
Expense reduction N/A [0.21]%(3) [0.14]%(3)
- -------------------------------------------------------------------------------------------
Net fund operating expenses 2.57% 2.35% 2.35%
- -------------------------------------------------------------------------------------------
* International Fund's expenses have been restated to reflect the proforma
results of the reorganization of John Hancock Global Fund and John Hancock
European Equity Fund into International Fund which occurred on May 9, 2003.
Actual expenses of International Fund as of April 30, 2003 without taking
into account those reorganizations, were as follows: Class A: 4.91%
(gross) and 2.86% (net).
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) The adviser has agreed to limit International Fund's Class A operating
expenses to 2.35% of the fund's Class A average daily net assets at least
until March 1, 2004, and effective with the reorganization, to extend such
limit until at least March 1, 2005.
7
- ---------------------------------------------------------------------------------------------
International
Fund*
(PRO FORMA
for the 12 mths
ended 4/30/03)
(Assuming
Pacific reorganization with
Basin International Pacific Basin
Fund Fund* Fund)
- ---------------------------------------------------------------------------------------------
Shareholder transaction expenses Class B Class B Class B
- ---------------------------------------------------------------------------------------------
Maximum sales charge (load) None None None
imposed on purchases
(as a % of purchase price)
- ---------------------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends None None None
- ---------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) 5.00% 5.00% 5.00%
as a % of purchase or sale
price, whichever is less
- ---------------------------------------------------------------------------------------------
Redemption fee(2) None None None
- ---------------------------------------------------------------------------------------------
Exchange fee None None None
- ---------------------------------------------------------------------------------------------
Annual fund operating expenses Class B Class B Class B
(as a % of average net assets)
- ---------------------------------------------------------------------------------------------
Management fee 0.80% 0.90% 0.90%
- ---------------------------------------------------------------------------------------------
Distribution and service (12b-1) fee 1.00% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------
Other expenses 1.47% 1.36% 1.29%
- ---------------------------------------------------------------------------------------------
Total fund operating expenses 3.27% 3.26% 3.19%
- ---------------------------------------------------------------------------------------------
Expense reduction N/A [0.21%](3) ([0.14%] (4)
- ---------------------------------------------------------------------------------------------
Net fund operating expenses 3.27% 3.05% 3.05%
- ---------------------------------------------------------------------------------------------
Shareholder transaction expenses Class C Class C Class C
- ---------------------------------------------------------------------------------------------
Maximum sales charge (load)
imposed on purchases 1.00% 1.00% 1.00%
(as a % of purchase price)
- ---------------------------------------------------------------------------------------------
Maximum sales charge imposed on
reinvested dividends None none None
- ---------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) 1.00% 1.00% 1.00%
as a % of purchase or sale
price, whichever is less
- ---------------------------------------------------------------------------------------------
Redemption fee(2) None none None
- ---------------------------------------------------------------------------------------------
Exchange fee None none None
- ---------------------------------------------------------------------------------------------
Annual fund operating expenses Class C Class C Class C
(as a % of average net assets)
- ---------------------------------------------------------------------------------------------
Management fee 0.80% 0.90% 0.90%
- ---------------------------------------------------------------------------------------------
Distribution and service (12b-1) fee 1.00% 1.00% 1.00%
- ---------------------------------------------------------------------------------------------
Other expenses 1.47% 1.36% 1.29%
- ---------------------------------------------------------------------------------------------
Total fund operating expenses 3.27% 3.26% 3.19%
- ---------------------------------------------------------------------------------------------
Expense reduction(3)(4) N/A [0.21%](3) ([0.14%] (3)
- ---------------------------------------------------------------------------------------------
Net fund operating expenses 3.27% 3.05% 3.05%
- ---------------------------------------------------------------------------------------------
8
* International Fund's expenses have been restated to reflect the proforma
results of the reorganization of John Hancock Global Fund and John Hancock
European Equity Fund into International Fund which occurred on May 9, 2003.
Actual expenses of International Fund for the twelve months ended April
30, 2003 without taking into account those reorganizations, were as
follows: Class B shares: 5.61% gross and 3.56% (net); Class C shares:
5.61% gross and 3.56% (net).
(1) Except for investments of $1 million or more.
(2) Does not include wire redemption fee (currently $4.00).
(3) The adviser has agreed to limit International Fund's Class B and Class C
operating expenses to 3.05% of the fund's Class B and Class C average
daily net assets at least until March 1, 2004, and effective with the
reorganization, to extend such limits until at least March 1, 2005.
The pro forma examples contained in the expense table show what you would pay on
a $10,000 investment on each fund separately, and on the International Fund if
the reorganization occurs on September 26, 2003. Each example assumes that you
reinvested all dividends and that the average annual return was 5%. The pro
forma examples are for comparison purposes only and are not a representation of
International Fund's actual expenses or returns, either past or future.
Examples
- ----------------------------------------------------------------------------------------------------
International Fund*
(PRO FORMA)
(Assuming
reorganization with
Pacific Basin International Pacific Basin
Class A Fund Fund* Fund)
- ----------------------------------------------------------------------------------------------------
Year 1 $ 747 $ 738 $ 726
- ----------------------------------------------------------------------------------------------------
Year 3 $1,260 $1,249 $1,218
- ----------------------------------------------------------------------------------------------------
Year 5 $1,797 $1,785 $1,741
- ----------------------------------------------------------------------------------------------------
Year 10 $3,260 $3,244 $3,169
- ----------------------------------------------------------------------------------------------------
Class B-- assuming redemption at end of period
- ----------------------------------------------------------------------------------------------------
Year 1 $ 830 $ 820 $ 808
- ----------------------------------------------------------------------------------------------------
Year 3 $1,307 $1,295 $1,264
- ----------------------------------------------------------------------------------------------------
Year 5 $1,907 $1,895 $1,851
- ----------------------------------------------------------------------------------------------------
Year 10 $3,408 $3.393 $3,318
- ----------------------------------------------------------------------------------------------------
Class B-- assuming no redemption
- ----------------------------------------------------------------------------------------------------
Year 1 $ 330 $ 320 $ 308
- ----------------------------------------------------------------------------------------------------
Year 3 $1,007 $ 995 $ 964
- ----------------------------------------------------------------------------------------------------
Year 5 $1,707 $1,695 $1,651
- ----------------------------------------------------------------------------------------------------
Year 10 $3,408 $3,393 $3,318
- ----------------------------------------------------------------------------------------------------
Class C -- assuming redemption at end of period
- ----------------------------------------------------------------------------------------------------
Year 1 $ 526 $ 516 $ 504
- ----------------------------------------------------------------------------------------------------
Year 3 $1,097 $1,085 $1,054
- ----------------------------------------------------------------------------------------------------
Year 5 $1,790 $1,778 $1,734
- ----------------------------------------------------------------------------------------------------
Year 10 $3,632 $3,617 $3,544
- ----------------------------------------------------------------------------------------------------
Class C-- assuming no redemption
- ----------------------------------------------------------------------------------------------------
Year 1 $ 427 $ 417 $ 405
- ----------------------------------------------------------------------------------------------------
Year 3 $1,097 $1,085 $1,054
- ----------------------------------------------------------------------------------------------------
Year 5 $1,790 $1,778 $1,734
- ----------------------------------------------------------------------------------------------------
Year 10 $3,632 $3,617 $3,544
- ----------------------------------------------------------------------------------------------------
9
* Expenses for International Fund used in the Example have been restated to
reflect the reorganization of John Hancock Global Fund and John Hancock
European Equity Fund into International Fund which occurred on May 9,
2003.
Other Consequences of the Reorganization. Each fund pays monthly advisory fees
equal to the following annual percentage of its average daily net assets:
- --------------------------------------------------------------------------------
Fund Asset Breakpoints Fee Rate
- --------------------------------------------------------------------------------
Pacific Basin Fund
- --------------------------------------------------------------------------------
First $200 million 0.800%
- --------------------------------------------------------------------------------
Amount over $200 million 0.700%
- --------------------------------------------------------------------------------
International Fund (current)
- --------------------------------------------------------------------------------
First $100 million 0.900%
- --------------------------------------------------------------------------------
Next $200 million 0.800%
- --------------------------------------------------------------------------------
Next $200 million 0.750%
- --------------------------------------------------------------------------------
Amount over $500 million 0.625%
- --------------------------------------------------------------------------------
International Fund (pro forma)
- --------------------------------------------------------------------------------
First $100 million 0.900%
- --------------------------------------------------------------------------------
Next $200 million 0.800%
- --------------------------------------------------------------------------------
Next $200 million 0.750%
- --------------------------------------------------------------------------------
Amount over $500 million 0.625%
- --------------------------------------------------------------------------------
International Fund's pro forma management fee rate of 0.90% is higher than your
fund's management fee rate of 0.80% at current asset levels. At higher asset
levels, International Fund's management fee rate is higher than your fund's
management fee rate, except that International Fund's management fee rate is
lower than your fund's management fee rate at asset levels over $500 million.
Both funds have the same 12b-1 fees for Class A shares (0.30%) and Class B and
Class C shares (1.00%). International Fund's pro forma other expenses of 1.29%
are lower than Pacific Basin Fund's other expenses of 1.47%. This results in
International Fund's pro forma total annual operating expenses for all share
classes being lower than Pacific Basin Fund's total annual operating expenses,
in each case both before and after the expense limitations.
Each fund's subadviser is Nicholas Applegate, an indirect wholly owned
subsidiary of Allianz AG, a German publicly traded company, which, together with
its subsidiaries, comprises the world's largest insurance group. Nicholas
Applegate is responsible for providing investment advice to the funds, subject
to the review of the Trustees and overall supervision of the adviser. Nicholas
Applegate also provides the funds on a continuous basis with economic, financial
and political information, research and assistance concerning international
markets. Nicholas Applegate receives its compensation directly from the adviser,
not the funds. For Pacific Basin Fund, the adviser pays Nicholas Applegate a
subadvisory fee equal on an annual basis to: (i) 0.60% of the first $100,000,000
of the average daily net asset value of the Fund; and (ii) 0.50% of the average
daily net asset value of the Fund in excess of $100,000,000. For International
Fund,
10
the annual rate is equal to (i) 0.50% of the first $500,000,000 of the average
daily net asset value of the Fund; and (ii) 0.45% of the average daily net asset
value of the Fund in excess of $500,000,000. However, Nicholas Applegate has
agreed to reduce its subadvisory fees in connection with the reorganization so
that after the reorganization, International Fund's subadvisory fee will be
equal on an annual basis to (i) 0.45% of the first $200,000,000 of the average
daily net asset value of the Fund; and (ii) 0.40% of the average daily net asset
value of the Fund in excess of $200,000,000. This reduction will have no effect
on the fund's advisory fees or other expenses.
COMPARISON OF INVESTMENT RISKS
The funds are exposed to various risks that could cause shareholders to lose
money on their investments in the funds. The following table compares the risks
affecting each fund.
- -------------------------------------------------------------------------------------------------------------------------
Pacific Basin Fund International Fund
- -------------------------------------------------------------------------------------------------------------------------
Stock market risk The value of securities in the fund may go down in response to
overall stock market movements. Markets tend to move in cycles, with
periods of rising prices and periods of falling prices. Stocks tend
to go up and down in value more than bonds. If the fund concentrates
in certain sectors, its performance could be worse than that of the
overall stock market.
- -------------------------------------------------------------------------------------------------------------------------
Management risk The fund's management strategy may fail to produce the intended
results. The fund could underperform its peers or lose money if the
investment strategy, including country, industry or security (or in
the case of International Fund, region) selection, does not perform
as expected.
- -------------------------------------------------------------------------------------------------------------------------
Foreign securities risk Foreign investments are more risky than domestic investments.
Investments in foreign securities may be affected by fluctuations in
currency exchange rates, incomplete or inaccurate financial
information on companies, social instability and political actions
ranging from tax code changes to governmental collapse.
- -------------------------------------------------------------------------------------------------------------------------
Regional concentration risk Because the fund focuses on a single region of the world, its Not applicable.
performance may be more volatile than that of a fund that invests
globally. Pacific Basin issues denominated in euros are subject to
the risk that the euro may decline in value against the U.S. dollar.
Also, applying a single monetary policy to countries with different
economic trends could hurt issuers in some countries, and the
failure of a monetary union could disrupt Pacific Basin economies.
- -------------------------------------------------------------------------------------------------------------------------
Emerging markets risk To the extent the fund invests in emerging markets, the risks of
investment in foreign securities are more significant. Also, in a
down market emerging markets investments could become harder to
value or sell at a fair price.
- -------------------------------------------------------------------------------------------------------------------------
Derivatives risk Certain derivative instruments can produce disproportionate gains or
losses and are riskier than direct investments. Also, in a down
market derivatives could become harder to value or sell at a fair
price.
- -------------------------------------------------------------------------------------------------------------------------
Active trading The fund may trade securities actively, which could increase its
transaction costs (thus lowering performance) and increase your
taxable distributions.
- -------------------------------------------------------------------------------------------------------------------------
PROPOSAL TO APPROVE THE AGREEMENT AND PLAN OF REORGANIZATION
Description of Reorganization
You are being asked to approve an Agreement and Plan of Reorganization, a form
of which is attached to this proxy statement as Exhibit A. Additional
information about the reorganization and the Agreement is set forth below under
"Further Information on Each Reorganization." The Agreement provides for a
reorganization on the following terms:
o The reorganization is scheduled to occur at 5:00 P.M., Eastern time, on
September 26, 2003, but may occur on any later date before December 31,
2003. Pacific Basin Fund will transfer all of its assets to
11
International Fund and International Fund will assume all of Pacific Basin
Fund's liabilities. This will result in the addition of Pacific Basin
Fund's assets to International Fund's portfolio. The net asset value of
both funds will be computed as of 5:00 P.M., Eastern time, on the
reorganization date.
o International Fund will issue to Pacific Basin Fund Class A shares in an
amount equal to the net assets attributable to Pacific Basin Fund's Class
A shares. As part of the liquidation of Pacific Basin Fund, these shares
will immediately be distributed to Class A shareholders of record of
Pacific Basin Fund in proportion to their holdings on the reorganization
date. As a result, Class A shareholders of Pacific Basin Fund will end up
as Class A shareholders of International Fund.
o International Fund will issue to Pacific Basin Fund Class B shares in an
amount equal to the net assets attributable to Pacific Basin Fund's Class
B shares. As part of the liquidation of Pacific Basin Fund, these shares
will immediately be distributed to Class B shareholders of record of
Pacific Basin Fund in proportion to their holdings on the reorganization
date. As a result, Class B shareholders of Pacific Basin Fund will end up
as Class B shareholders of International Fund.
o International Fund will issue to Pacific Basin Fund Class C shares in an
amount equal to the net assets attributable to Pacific Basin Fund's Class
C shares. As part of the liquidation of Pacific Basin Fund, these shares
will immediately be distributed to Class C shareholders of record of
Pacific Basin Fund in proportion to their holdings on the reorganization
date. As a result, Class C shareholders of Pacific Basin Fund will end up
as Class C shareholders of International Fund.
o After the shares are issued, the existence of Pacific Basin Fund will be
terminated.
Reasons for the Proposed Reorganization
The board of trustees of Pacific Basin Fund believes that the proposed
reorganization will be advantageous to the shareholders of Pacific Basin Fund
for several reasons. The board of trustees considered the following matters,
among others, in approving the proposal.
First, that, unlike your fund, International Fund is not geographically
concentrated and therefore can invest in a broader range of countries and
regions. International Fund is larger in size than your fund and invests in
similar types of securities. Combining the funds' assets into a single
investment portfolio will afford greater diversification. Moreover, the
international focus may result in a more concentrated marketing effort with a
goal of increased fund assets.
Second, that the adviser has agreed, until at least March 1, 2005, to limit the
International Fund's total expenses to 2.35% of average daily net asset for
Class A Shares and 3.05% of average daily net assets for Class B and Class C
shares. These are lower than Pacific Basin Fund's total annual operating
expenses for twelve months ended April 30, 2003. For example, Pacific Basin
Fund's total Class A operating expenses for the twelve months ended April 30,
2003 were 2.57%.
Third, that a combined fund offers economies of scale that may lead to lower per
share expenses. Both funds incur substantial costs for accounting, legal,
transfer agency services, insurance, and custodial and administrative services.
Many of these expenses are duplicative and there may be an opportunity to reduce
International Fund's expense ratio over time because of economies of scale if
the funds are combined.
The board of trustees of International Fund considered that the reorganization
presents an excellent opportunity for International Fund to acquire substantial
investment assets without the obligation to pay commissions or other transaction
costs that a fund normally incurs when purchasing securities. This opportunity
provides an economic benefit to International Fund and its shareholders.
The boards of both funds also considered that the adviser and the funds'
distributor will benefit from the reorganization. For example, the adviser might
achieve cost savings due to the fund's lower fixed costs, which may result in a
reduction in the adviser's expense limitation over time, as well as any reduced
costs resulting from a consolidated portfolio management effort. The boards
believe, however, that these savings will not amount to a significant economic
benefit to the adviser or distributor.
Comparative Fees and Expense Ratios. As discussed above, the adviser has agreed
until at least March 1, 2005 to limit International Fund's total operating
expenses to 2.35% of average daily net assets for Class A shares and 3.05% of
average daily net assets for Class B and Class C shares. Without this expense
12
limitation, International Fund's pro forma expenses would still be lower than
your fund's total operating expenses. A full comparison of advisory fee rates
and expense ratios is included above in the summary.
Comparative Performance. The trustees also considered details of the relative
performance of your fund and International Fund.
Unreimbursed Distribution and Shareholder Service Expenses
The boards of trustees of Pacific Basin Fund and International Fund have
determined that, if the reorganization occurs, unreimbursed distribution and
shareholder service expenses incurred under Pacific Basin Fund's Rule 12b-1
Plans will be reimbursable expenses under International Fund's Rule 12b-1 Plans.
However, the maximum amounts payable annually under International Fund's Rule
12b-1 Plans (0.30%, 1.00% and 1.00% of average daily net assets attributable to
Class A shares, Class B shares and Class C shares, respectively) will not
increase.
The following table shows the actual and pro forma unreimbursed distribution and
shareholder service expenses of shares of Pacific Basin Fund and International
Fund. The table shows both the dollar amount of these expenses and the
percentage of each class' average net assets that they represent. Class I shares
of International Fund are not included in the table because this class does not
have a Rule 12b-1 Plan. Pacific Basin Fund does not have Class I shares.
Rule 12b-1 Payments and Unreimbursed Expenses
- -------------------------------------------------------------------------------------
Aggregate
Dollar Amount
of 12b-1 Fees Unreimbursed Unreimbursed
Paid (for 12 Rule 12b-1 Expenses as %
mths ended Expenditures of Each Class'
April 30, (as of April 30, Average Net
Name of Fund 2003) 2003) Assets
- ------------------------------------------------------------------------------------
Pacific Basin Fund $ 34,761(A) $ 47,327(A) 0.41%(A)
- ------------------------------------------------------------------------------------
$113,491(B) $2,428,079(B) 21.39%(B)
- ------------------------------------------------------------------------------------
$ 8,971(C) $ 44,880(C) 5.00%(C)
- ------------------------------------------------------------------------------------
International Fund* $153,488(A) $ 76,769(A) 0.15%(A)
- ------------------------------------------------------------------------------------
$218,535(B) $4,441,500(B) 20.32%(B)
- ------------------------------------------------------------------------------------
$ 18,435(C) $ 268,337(C) 14.56%(C)
- ------------------------------------------------------------------------------------
Pro Forma:
- ------------------------------------------------------------------------------------
International Fund*
- ------------------------------------------------------------------------------------
Assuming reorganization
with Pacific Basin Fund $188,249(A) $ 124,096(A) 0.20%(A)
- ------------------------------------------------------------------------------------
$332,026(B) $6,869,579(B) 20.69%(B)
- ------------------------------------------------------------------------------------
$ 27,406(C) $ 313,217(C) 11.43%(C)
- ------------------------------------------------------------------------------------
* International Fund's Rule 12b-1 payments and expenditures have been
restated to reflect the reorganization of John Hancock Global Fund and
John Hancock European Equity Fund into International Fund which occurred
on May 9, 2003.
If the reorganization had taken place on May 1, 2002, the pro forma combined
unreimbursed expenses of International Fund's Class A, Class B and Class C
shares would have been higher than if no reorganization had occurred.
Nevertheless, International Fund's assumption of Pacific Basin Fund's
unreimbursed Rule 12b-1 expenses will have no immediate effect upon the payments
made under International Fund's Rule 12b-1 Plans. These payments will continue
to be 0.30%, 1.00% and 1.00% of average daily net assets attributable to Class
A, Class B and Class C shares, respectively.
13
John Hancock Funds, LLC may recover unreimbursed distribution and shareholder
service expenses for Class B and Class C shares in future years. However, if
International Fund's board terminates either class' Rule 12b-1 Plan, that class
will not be obligated to reimburse these distribution and shareholder service
expenses. Accordingly, until they are paid or accrued, unreimbursed distribution
and shareholder service expenses do not and will not appear as an expense or
liability in the financial statements of either fund. In addition, unreimbursed
expenses are not reflected in a fund's net asset value or the formula for
calculating Rule 12b-1 payments. The staff of the SEC has not approved or
disapproved the treatment of the unreimbursed distribution and shareholder
service expenses described in this proxy statement.
FURTHER INFORMATION ON THE REORGANIZATION
Tax Status of the Reorganization
The reorganization is not intended to result in income, gain or loss for United
States federal income tax purposes and will not take place unless the funds
receive a satisfactory opinion from Hale and Dorr LLP, substantially to the
effect that the reorganization described above will be a "reorganization" within
the meaning of Section 368(a) of the Code.
As a result, with respect to each reorganization, for federal income tax
purposes:
o No gain or loss will be recognized by the Acquired Fund upon (1) the
transfer of all of its assets to the Acquiring Fund as described above or
(2) the distribution by the Acquired Fund of the Acquiring Fund shares to
the Acquired Fund's shareholders;
o No gain or loss will be recognized by the Acquiring Fund upon the receipt
of the Acquired Fund's assets solely in exchange for the issuance of the
Acquiring Fund shares to the Acquired Fund and the assumption of the
Acquired Fund's liabilities by the Acquiring Fund;
o The basis of the assets of the Acquired Fund acquired by the Acquiring
Fund will be the same as the basis of those assets in the hands of the
Acquired Fund immediately before the transfer;
o The tax holding period of the assets of the Acquired Fund in the hands of
the Acquiring Fund will include the Acquired Fund's tax holding period for
those assets;
o You will not recognize gain or loss upon the exchange of your shares of
the Acquired Fund solely for the Acquiring Fund shares as part of the
reorganization;
o The basis of the Acquiring Fund shares received by you in the
reorganization will be the same as the basis of your shares of the
Acquired Fund surrendered in exchange; and
o The tax holding period of the Acquiring Fund shares you receive will
include the tax holding period of the shares of the Acquired Fund
surrendered in the exchange, provided that the shares of the Acquired Fund
were held as capital assets on the date of the exchange.
In rendering such opinions, counsel shall rely upon, among other things,
reasonable assumptions as well as representations of the Acquired Fund and the
Acquiring Fund.
No tax ruling has been or will be received from the Internal Revenue Service
("IRS") in connection with the reorganization. An opinion of counsel is not
binding on the IRS or a court, and no assurance can be given that the IRS would
not assert, or a court would not sustain, a contrary position.
You should consult your tax adviser for the particular tax consequences to you
of the transaction, including the applicability of any state, local or foreign
tax laws.
14
Additional Terms of the Agreement and Plan of Reorganization
Surrender of Share Certificates. If your shares are represented by one or more
share certificates before the reorganization date, you must either surrender the
certificates to your fund or deliver to your fund a lost certificate affidavit,
in the form and accompanied by the surety bonds that your fund may require
(collectively, an "Affidavit"). On the reorganization date, all certificates
that have not been surrendered will be canceled, will no longer evidence
ownership of your fund's shares and will evidence ownership of International
Fund shares. Shareholders may not redeem or transfer International Fund shares
received in the reorganization until they have surrendered their fund share
certificates or delivered an Affidavit. International Fund will not issue share
certificates in the reorganization.
Conditions to Closing the Reorganization. The obligation of the Acquired Fund to
consummate the reorganization is subject to the satisfaction of certain
conditions, including the performance by the Acquiring Fund of all its
obligations under the Agreement and the receipt of all consents, orders and
permits necessary to consummate the reorganization (see Agreement, paragraph 6).
The obligation of the Acquiring Fund to consummate the reorganization is subject
to the satisfaction of certain conditions, including the Acquired Fund's
performance of all of its obligations under the Agreement, the receipt of
certain documents and financial statements from the Acquired Fund and the
receipt of all consents, orders and permits necessary to consummate the
reorganization (see Agreement, paragraph 7).
The obligations of the Acquired Fund and the Acquiring Fund are subject to
approval of the Agreement by the necessary vote of the outstanding shares of the
Acquired Fund, in accordance with the provisions of Acquired Fund's declaration
of trust and by-laws. The funds' obligations are also subject to the receipt of
a favorable opinion of Hale and Dorr LLP as to the federal income tax
consequences of the reorganization (see Agreement, paragraph 8).
Termination of Agreement. The board of trustees of the Acquired Fund or the
Acquiring Fund may terminate the Agreement (even if the shareholders of the
Acquired Fund have already approved it) at any time before the reorganization
date, if that board believes that proceeding with the reorganization would no
longer be advisable.
Expenses of the Reorganization. John Hancock Advisers, LLC will pay the
reorganization costs attributable to the Acquired Fund and the Acquiring Fund in
connection with entering into and carrying out the provisions of the Agreement,
whether or not the reorganization occurs.
CAPITALIZATION
With respect to each Proposal, the following table sets forth the capitalization
of each fund as of April 30, 2003, and the pro forma combined capitalization of
both funds as if the reorganization had occurred on that date. If the
reorganization is consummated, the actual exchange ratios on the reorganization
date may vary from the exchange ratios indicated. This is due to changes in the
market value of the portfolio securities of both funds between April 30, 2003
and the reorganization date, changes in the amount of undistributed net
investment income and net realized capital gains of both funds during that
period resulting from income and distributions, and changes in the accrued
liabilities of both funds during the same period. It is impossible to predict
how many shares of the Acquiring Fund will actually be received and distributed
by the Acquired Fund on the reorganization date. The tables should not be relied
upon to determine the amount of Acquiring Fund shares that will actually be
received and distributed.
15
If the reorganization of your fund had taken place on April 30, 2003:
- -------------------------------------------------------------------------------------
Pacific Basin International Pro
Proposal 1 Fund Fund* Forma*
- -------------------------------------------------------------------------------------
Net Assets (millions) $ 17.2 $ 64.3 $ 81.5
- -------------------------------------------------------------------------------------
Net Asset Value Per Share
- -------------------------------------------------------------------------------------
Class A $ 8.14 $ 5.10 $ 5.10
- -------------------------------------------------------------------------------------
Class B $ 7.66 $ 4.78 $ 4.78
- -------------------------------------------------------------------------------------
Class C $ 7.66 $ 4.78 $ 4.78
- -------------------------------------------------------------------------------------
Shares Outstanding
- -------------------------------------------------------------------------------------
Class A 1,110,201 8,531,280 10,302,328
- -------------------------------------------------------------------------------------
Class B 978,115 3,817,152 5,383,930
- -------------------------------------------------------------------------------------
Class C 84,640 357,936 493,524
- -------------------------------------------------------------------------------------
* Numbers are adjusted to reflect the reorganization of John Hancock Global Fund
and John Hancock European Equity Fund into International Fund which occurred on
May 9, 2003.
(1) If the reorganization of your fund had taken place on April 30, 2003,
approximately 1.595, 1.602 and 1.602 International Fund Class A, B and C
shares would have been issued for each share of Pacific Basin Fund Class
A, B and C shares, respectively.
16
ADDITIONAL INFORMATION ABOUT THE FUNDS' BUSINESSES
The following table shows where in each fund's prospectus you can find
additional information about the business of each fund.
- ----------------------------------------------------------------------------------
Type of Information Headings in Each Prospectus
- ----------------------------------------------------------------------------------
Investment objective Goal and Strategy / Main Risks
and policies
- ----------------------------------------------------------------------------------
Portfolio Subadviser
management
- ----------------------------------------------------------------------------------
Expenses Your Expenses
- ----------------------------------------------------------------------------------
Custodian Business Structure
- ----------------------------------------------------------------------------------
Shares of beneficial Your Account: Choosing a Share Class
interest
- ----------------------------------------------------------------------------------
Purchase of shares Your Account: Choosing a Share Class, How Sales Charges
are Calculated, Sales Charge Reductions and Waivers,
Opening an Account, Buying Shares, Transaction Policies,
Additional Investor Services
- ----------------------------------------------------------------------------------
Redemption of sales Your Account: Selling Shares, How Sales Charges are
of shares Calculated, Transaction Policies
- ----------------------------------------------------------------------------------
Dividends, Dividends and Account Policies
distributions
and taxes
- ----------------------------------------------------------------------------------
BOARDS' EVALUATION AND RECOMMENDATION
For the reasons described above, the board of trustees of your fund, including
the trustees who are not "interested persons" of the fund or the adviser
("independent trustees"), approved the reorganization. In particular, the
trustees determined that the reorganization is in the best interests of your
fund and that the interest of your fund's shareholders would not be diluted as a
result of the reorganization. Similarly, the board of trustees of International
Fund, including the independent trustees, approved the reorganization. They also
determined that the reorganization is in the best interests of International
Fund and that the interests of International Fund's shareholders would not be
diluted as a result of the reorganization.
The trustees of the Acquired Fund recommend that shareholders of the Acquired
Funds vote FOR the proposal to approve an Agreement and Plan of Reorganization.
17
VOTING RIGHTS AND REQUIRED VOTE
Each share of your fund is entitled to one vote. Approval of the proposal
described above requires the affirmative vote of a majority of the shares of
your fund outstanding and entitled to vote on the proposal. For this purpose, a
majority of the outstanding shares of your fund means the vote of the lesser of:
(1) 67% or more of the shares present at the meeting, if the holders of more
than 50% of the shares of the fund are present or represented by proxy, or (2)
more than 50% of the outstanding shares of the fund.
- -------------------------------------------------------------------------------------------------------------
Shares Quorum Voting
- -------------------------------------------------------------------------------------------------------------
In General All shares "present" in person or by Shares "present" in person will be voted
proxy are counted toward a quorum. in person at the meeting. Shares present
by proxy will be voted in accordance
with instructions.
- -------------------------------------------------------------------------------------------------------------
Proxy with no Voting Considered "present" at Voted "for" a proposal.
Instruction (other than meeting.
Broker Non-Vote)
- -------------------------------------------------------------------------------------------------------------
Broker Non-Vote Considered "present" at Not voted. Same effect as a vote
meeting. "against" a proposal.
- -------------------------------------------------------------------------------------------------------------
Vote to Abstain Considered "present" at Not voted. Same effect as a vote
meeting. "against" a proposal.
- -------------------------------------------------------------------------------------------------------------
If the required approval of shareholders is not obtained with respect to the
proposal, your fund will continue to engage in business as a separate mutual
fund and the board of trustees will consider what further action may be
appropriate. This action could include, among other things, terminating a fund's
expense limitation or closing the fund.
INFORMATION CONCERNING THE MEETING
Solicitation of Proxies
In addition to the mailing of these proxy materials, proxies may be solicited by
telephone, by fax or in person by the trustees, officers and employees of your
fund; by personnel of your fund's investment adviser, John Hancock Advisers, LLC
and its transfer agent, John Hancock Signature Services, Inc.; or by
broker-dealer firms. Signature Services, together with a third party
solicitation firm, has agreed to provide proxy solicitation services to the
Acquired Fund at a cost of approximately $10,000.
Revoking Proxies
The Acquired Fund shareholder signing and returning a proxy has the power to
revoke it at any time before it is exercised:
o by filing a written notice of revocation with the Acquired Fund's transfer
agent, John Hancock Signature Services, Inc., 1 John Hancock Way, Suite
1000, Boston, Massachusetts 02217-1000; or
o by returning a duly executed proxy with a later date before the time of
the meeting; or
o if a shareholder has executed a proxy but is present at the meeting and
wishes to vote in person, by notifying the secretary of your fund (without
complying with any formalities) at any time before it is voted.
Being present at the meeting alone does not revoke a previously executed and
returned proxy.
18
Outstanding Shares and Quorum
As of July 2, 2003 (the "record date"), the number of shares of beneficial
interest of your fund outstanding were as follows:
- --------------------------------------------------------------------------------
FUND SHARES OUTSTANDING
- --------------------------------------------------------------------------------
Pacific Basin Fund
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
Only shareholders of record on the record date are entitled to notice of and to
vote at the meeting. A majority of the outstanding shares of the Acquired Fund
that are entitled to vote will be considered a quorum for the transaction of
business.
Other Business
Your fund's board of trustees knows of no business to be presented for
consideration at the meeting other than the proposal. If other business is
properly brought before the meeting, proxies will be voted according to the best
judgment of the persons named as proxies.
Adjournments
If a quorum is not present in person or by proxy at the time any session of the
meeting is called to order, the persons named as proxies may vote those proxies
that have been received to adjourn the meeting to a later date. If a quorum is
present but there are not sufficient votes in favor of a proposal, the persons
named as proxies may propose one or more adjournments of the meeting to permit
further solicitation of proxies concerning the proposal. Any adjournment will
require the affirmative vote of a majority of your fund's shares at the session
of the meeting to be adjourned. If an adjournment of the meeting is proposed
because there are not sufficient votes in favor of a proposal, the persons named
as proxies will vote those proxies favoring the proposal in favor of
adjournment, and will vote those proxies against the reorganization against
adjournment.
Telephone Voting
In addition to soliciting proxies by mail, by fax or in person, your fund may
also arrange to have votes recorded by telephone by officers and employees of
your fund or by personnel of the adviser or transfer agent or a third party
solicitation firm. The telephone voting procedure is designed to verify a
shareholder's identity, to allow a shareholder to authorize the voting of shares
in accordance with the shareholder's instructions and to confirm that the voting
instructions have been properly recorded. If these procedures were subject to a
successful legal challenge, these telephone votes would not be counted at the
meeting. Your fund has not obtained an opinion of counsel about telephone
voting, but is currently not aware of any challenge.
o A shareholder will be called on a recorded line at the telephone number in
a fund's account records and will be asked to provide the shareholder's
social security number or other identifying information.
o The shareholder will then be given an opportunity to authorize proxies to
vote his or her shares at the meeting in accordance with the shareholder's
instructions.
o To ensure that the shareholder's instructions have been recorded
correctly, the shareholder will also receive a confirmation of the voting
instructions by mail.
o A toll-free number will be available in case the voting information
contained in the confirmation is incorrect.
o If the shareholder decides after voting by telephone to attend the
meeting, the shareholder can revoke the proxy at that time and vote the
shares at the meeting.
19
Internet Voting
You will also have the opportunity to submit your voting instructions via the
Internet by utilizing a program provided through a vendor. Voting via the
Internet will not affect your right to vote in person if you decide to attend
the meeting. Do not mail the proxy card if you are voting via the Internet. To
vote via the Internet, you will need the "control number" that appears on your
proxy card. These Internet voting procedures are designed to authenticate
shareholder identities, to allow shareholders give their voting instructions,
and to confirm that shareholders instructions have been recorded properly. If
you are voting via the Internet you should understand that there may be costs
associated with electronic access, such as usage charges from Internet access
providers and telephone companies, that must be borne to you.
o Read the proxy statement and have your proxy card(s) at hand.
o Go to the Web site on the proxy card.
o Enter the "control number" found on your proxy card.
o Follow the instructions on the Web site. Please call us at 1-800-225-5291
if you have any problems.
o To insure that your instructions have been recorded correctly, you will
receive a confirmation of your voting instructions immediately after your
submission and also by e-mail if chosen.
Shareholders' Proposals
Your fund is not required, and does not intend, to hold meetings of shareholders
each year. Instead, meetings will be held only when and if required. Any
shareholders desiring to present a proposal for consideration at the next
meeting for shareholders must submit the proposal in writing, so that it is
received by the appropriate fund at 101 Huntington Avenue, Boston, Massachusetts
02199 within a reasonable time before any meeting.
20
OWNERSHIP OF SHARES OF THE FUNDS
To the knowledge of each fund, as of July 2, 2003, the following persons owned
of record or beneficially 5% or more of the outstanding shares of a class of
each fund, respectively:
- --------------------------------------------------------------------------------------------
Pacific Basin Fund
- --------------------------------------------------------------------------------------------
Names and Addresses of Owners of Class A Class B Class C
More Than 5% of Shares
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
International Fund
- --------------------------------------------------------------------------------------------
Names and Addresses of Owners of Class A Class B Class C Class I
More Than 5% of Shares
- --------------------------------------------------------------------------------------------
As of July 2, 2003, the trustees and officers of each fund owned in the
aggregate less than 1% of the outstanding shares of their respective funds.
FINANCIAL STATEMENTS AND EXPERTS
The financial highlights and financial statements of Pacific Basin Fund and
International Fund, each for the periods ended October 31, 2002 and April 30,
2003 are incorporated by reference into this proxy statement and prospectus. The
financial statements and financial highlights for the period ended October 31,
2002 have been independently audited by PricewaterhouseCoopers LLP, as stated in
their reports appearing in the statement of additional information. These
financial statements and financial highlights have been included in reliance on
their reports given on their authority as experts in accounting and auditing.
The financial highlights and financial statements for the period ended April 30,
2003 have not been audited.
AVAILABLE INFORMATION
Each fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the Investment Company Act of 1940 and files reports,
proxy statements and other information with the SEC. These reports, proxy
statements and other information filed by the funds can be inspected and copied
(for a duplication fee) at the public reference facilities of the SEC at 450
Fifth Street, N.W., Washington, D.C., and at the Midwest Regional Office (500
West Madison Street, Suite 1400, Chicago, Illinois). Copies of these materials
can also be obtained by mail from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
copies of these documents may be viewed on-screen or downloaded from the SEC's
Internet site at http://www.sec.gov.
21
DRAFT 5/29/03
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
this ___ day of ______, 2003, by and between John Hancock Investment Trust III,
a Massachusetts business trust (the "Trust") on behalf of its series, John
Hancock International Fund (the "Acquiring Fund") and John Hancock World Fund, a
Massachusetts business trust (the "Trust II"), on behalf of its series, John
Hancock Pacific Basin Equities Fund (the "Acquired Fund"), each with their
principal place of business at 101 Huntington Avenue, Boston, Massachusetts
02199. The Acquiring Fund and the Acquired Fund are sometimes referred to
collectively herein as the "Funds" and individually as a "Fund."
This Agreement is intended to be and is adopted as a plan of "reorganization,"
as such term is used in Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). The reorganization will consist of: (1) the transfer of
all of the assets of the Acquired Fund to the Acquiring Fund in exchange solely
for (A) the issuance of Class A shares, Class B shares and Class C shares of
beneficial interest of the Acquiring Fund (the "Acquiring Fund Shares") to the
Acquired Fund and (B) the assumption by the Acquiring Fund of all of the
liabilities of the Acquired Fund, followed by (2) the distribution by the
Acquired Fund, on or promptly after the Closing Date hereinafter referred to, of
the Acquiring Fund Shares to the shareholders of the Acquired Fund in
liquidation and termination of the Acquired Fund as provided herein, all upon
the terms and conditions set forth in this Agreement.
In consideration of the premises of the covenants and agreements hereinafter set
forth, the parties hereto covenant and agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR ASSUMPTION OF
LIABILITIES AND ISSUANCE OF ACQUIRING FUND SHARES; LIQUIDATION OF THE ACQUIRED
FUND
1.1 The Acquired Fund will transfer all of its assets (consisting, without
limitation, of portfolio securities and instruments, dividends and
interest receivables, cash and other assets), as set forth in the
statement of assets and liabilities referred to in Paragraph 7.2 hereof
(the "Statement of Assets and Liabilities"), to the Acquiring Fund free
and clear of all liens and encumbrances, except as otherwise provided
herein, in exchange for (i) the assumption by the Acquiring Fund of the
known and unknown liabilities of the Acquired Fund, including the
liabilities set forth in the Statement of Assets and Liabilities (the
"Acquired Fund Liabilities"), which shall be assigned and transferred
to the Acquiring Fund by the Acquired Fund and assumed by the Acquiring
Fund, and (ii) delivery by the Acquiring Fund to the Acquired Fund, for
distribution pro rata by the Acquired Fund to its shareholders in
proportion to their respective ownership of Class A, Class B and Class
C shares of beneficial interest of the Acquired Fund, as of the close
of business on September 26, 2003 (the "Closing Date"), of a number of
the Acquiring Fund Shares having an aggregate net asset value equal, in
the case of each class of Acquiring Fund Shares, to the value of the
assets, less such liabilities (herein referred to as the "net value of
the assets") attributable to the applicable class, assumed, assigned
and delivered, all determined as provided in Paragraph 2.1 hereof and
as of a date and time as specified therein. Such transactions shall
take place at the Closing, as defined in Paragraph 3.1 hereof. All
computations shall be provided by The Bank of New York (the
"Custodian"), as custodian and pricing agent for the Acquiring Fund and
the Acquired Fund.
1.2 The Acquired Fund has provided the Acquiring Fund with a list of the
current securities holdings of the Acquired Fund as of the date of
execution of this Agreement. The Acquired Fund reserves the right to
sell any of these securities (except to the extent sales may be limited
by representations made in connection with issuance of the tax opinion
provided for in paragraph 8.6 hereof) but will not, without the prior
approval of the Acquiring Fund, acquire any additional securities other
than securities of the type in which the Acquiring Fund is permitted to
invest.
1.3 John Hancock Adviser, LLC, the investment adviser to the Acquiring Fund
and the Acquired Fund, will bear the expenses allocable to each fund in
connection with the transactions contemplated by this Agreement.
1.4 On or as soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Acquired Fund will liquidate and
distribute pro rata to shareholders of record (the "Acquired Fund
shareholders"), determined as of the close of regular trading on the
New York Stock Exchange on the Closing Date, the Acquiring Fund Shares
received by the Acquired Fund pursuant to Paragraph 1.1 hereof. Such
liquidation and distribution will be accomplished by the transfer of
the Acquiring Fund Shares then credited to the account of the Acquired
Fund on the books of the Acquiring Fund, to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund
shareholders and representing the respective pro rata number and class
of Acquiring Fund Shares due such shareholders. Acquired Fund
shareholders who own Class A shares of the Acquired Fund will receive
Class A Acquiring Fund Shares, Acquired Fund shareholders who own Class
B shares of the Acquired Fund will receive Class B Acquiring Fund
Shares. Acquired Fund shareholders who own Class C shares of the
Acquired Fund will receive Class C Acquiring Fund Shares. The Acquiring
Fund shall not issue certificates representing Acquiring Fund Shares in
connection with such exchange.
1.5 The Acquired Fund shareholders holding certificates representing their
ownership of shares of beneficial interest of the Acquired Fund shall
surrender such certificates or deliver an affidavit with respect to
lost certificates in such form and accompanied by such surety bonds as
the Acquired Fund may require (collectively, an "Affidavit"), to John
Hancock Signature Services, Inc. prior to the Closing Date. Any
Acquired Fund share certificate which remains outstanding on the
Closing Date shall be deemed to be canceled, shall no longer evidence
ownership of shares of beneficial interest of the Acquired Fund and
shall evidence ownership of Acquiring Fund Shares. Unless and until any
such certificate shall be so surrendered or an Affidavit relating
thereto shall be delivered, dividends and other distributions payable
by the Acquiring Fund subsequent to the Liquidation Date with respect
to Acquiring Fund Shares shall be paid to the holder of such
certificate(s), but such shareholders may not redeem or transfer
Acquiring Fund Shares received in the Reorganization. The Acquiring
Fund will not issue share certificates in the Reorganization.
1.6 Any transfer taxes payable upon issuance of Acquiring Fund Shares in a
name other than the registered holder of the Acquired Fund Shares on
the books of the Acquired Fund as of that time shall, as a condition of
such issuance and transfer, be paid by the person to whom such
Acquiring Fund Shares are to be issued and transferred.
1.7 The existence of the Acquired Fund shall be terminated as promptly as
practicable following the Liquidation Date.
1.8 Any reporting responsibility of the Acquired Fund, including, but not
limited to, the responsibility for filing of regulatory reports, tax
returns, or other documents with the Securities and Exchange Commission
(the "Commission"), any state securities commissions, and any federal,
state or local tax authorities or any other relevant regulatory
authority, is and shall remain the responsibility of the Acquired Fund.
2. VALUATION
2.1 The net asset values of the Class A, Class B and Class C Acquiring Fund
Shares and the net values of the assets and liabilities of the Acquired
Fund attributable to its Class A, Class B and Class C shares to be
transferred shall, in each case, be determined as of the close of
business (4:00 p.m. Boston time) on the Closing Date. The net asset
values of the Class A, Class B and Class C Acquiring Fund Shares shall
be computed by the Custodian in the manner set forth in the Acquiring
Fund's Declaration of Trust as amended and restated (the
"Declaration"), or By-Laws and the Acquiring Fund's then-current
prospectus and statement of additional information and shall be
computed in each case to not fewer than four decimal places. The net
values of the assets of the Acquired Fund attributable to its Class A,
Class B and Class C shares to be transferred shall be computed by the
Custodian by calculating the value of the assets of each class
transferred by the Acquired Fund and by subtracting therefrom the
amount of the liabilities of each class assigned and transferred to and
assumed by the Acquiring Fund on the Closing Date, said assets and
liabilities to be valued in the manner set forth in the Acquired Fund's
then current prospectus and statement of additional information and
shall be computed in each case to not fewer than four decimal places.
2.2 The number of shares of each class of Acquiring Fund Shares to be
issued (including fractional shares, if any) in exchange for the
Acquired Fund's assets shall be determined by dividing the value of the
Acquired Fund's assets attributable to a class, less the liabilities
attributable to that class assumed by the Acquiring Fund, by the
Acquiring Fund's net asset value per share of the same class, all as
determined in accordance with Paragraph 2.1 hereof.
2.3 All computations of value shall be made by the Custodian in accordance
with its regular practice as pricing agent for the Funds.
3. CLOSING AND CLOSING DATE
3.1 The Closing Date shall be September 26, 2003 or such other date on or
before December 31, 2003 as the parties may agree. The closing of the
reorganization (the "Closing") shall be held as of 5:00 p.m. at the
offices of the Trust and the Trust II, 101 Huntington Avenue, Boston,
Massachusetts 02199, or at such other time and/or place as the parties
may agree.
3.2 Portfolio securities that are not held in book-entry form in the name
of the Custodian as record holder for the Acquired Fund shall be
presented by the Acquired Fund to the Custodian for examination no
later than three business days preceding the Closing Date. Portfolio
securities which are not held in book-entry form shall be delivered by
the Acquired Fund to the Custodian for the account of the Acquiring
Fund on the Closing Date, duly endorsed in proper form for transfer, in
such condition as to constitute good delivery thereof in accordance
with the custom of brokers, and shall be accompanied by all necessary
federal and state stock transfer stamps or a check for the appropriate
purchase price thereof. Portfolio securities held of record by the
Custodian in book-entry form on behalf of the Acquired Fund shall be
delivered to the Acquiring Fund by the Custodian by recording the
transfer of beneficial ownership thereof on its records. The cash
delivered shall be in the form of currency or by the Custodian
crediting the Acquiring Fund's account maintained with the Custodian
with immediately available funds.
3
3.3 In the event that on the Closing Date (a) the New York Stock Exchange
shall be closed to trading or trading thereon shall be restricted or
(b) trading or the reporting of trading on said Exchange or elsewhere
shall be disrupted so that accurate appraisal of the value of the net
assets of the Acquiring Fund or the Acquired Fund is impracticable, the
Closing Date shall be postponed until the first business day after the
day when trading shall have been fully resumed and reporting shall have
been restored; provided that if trading shall not be fully resumed and
reporting restored on or before December 31, 2003, this Agreement may
be terminated by the Acquiring Fund or by the Acquired Fund upon the
giving of written notice to the other party.
3.4 The Acquired Fund shall deliver at the Closing a list of the names,
addresses, federal taxpayer identification numbers and backup
withholding and nonresident alien withholding status of the Acquired
Fund shareholders and the number of outstanding shares of each class of
beneficial interest of the Acquired Fund owned by each such
shareholder, all as of the close of business on the Closing Date,
certified by its Treasurer, Secretary or other authorized officer (the
"Shareholder List"). The Acquiring Fund shall issue and deliver to the
Acquired Fund a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date, or provide evidence satisfactory to the
Acquired Fund that such Acquiring Fund Shares have been credited to the
Acquired Fund's account on the books of the Acquiring Fund. At the
Closing, each party shall deliver to the other such bills of sale,
checks, assignments, stock certificates, receipts or other documents as
such other party or its counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1 The Trust II on behalf of the Acquired Fund represents, warrants and
covenants to the Acquiring Fund as follows:
(a) The Trust II is a business trust, duly organized, validly existing
and in good standing under the laws of The Commonwealth of Massachusetts
and has the power to own all of its properties and assets and, subject to
approval by the shareholders of the Acquired Fund, to carry out the
transactions contemplated by this Agreement. Neither the Trust II nor the
Acquired Fund is required to qualify to do business in any jurisdiction
in which it is not so qualified or where failure to qualify would subject
it to any material liability or disability. The Trust II has all
necessary federal, state and local authorizations to own all of its
properties and assets and to carry on its business as now being
conducted;
(b) The Trust II is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the Investment Company Act of 1940, as amended
(the "1940 Act"), is in full force and effect. The Acquired Fund is a
diversified series of the Trust II;
(c) The Trust II and the Acquired Fund are not, and the execution,
delivery and performance of their obligations under this Agreement will
not result, in violation of any provision of the Trust II's Declaration
of Trust, as amended and restated (the "Trust II's Declaration") or
By-Laws or of any agreement, indenture, instrument, contract, lease or
other undertaking to which the Trust II or the Acquired Fund is a party
or by which it is bound;
(d) Except as otherwise disclosed in writing and accepted by the
Acquiring Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust II or the Acquired Fund or any of
the Acquired Fund's properties or assets. The Trust II knows of no facts
which might form the basis for the institution of such proceedings, and
neither the Trust II nor the Acquired Fund is a party to or subject to
the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects the Acquired
Fund's business or its ability to consummate the transactions herein
contemplated;
(e) The Acquired Fund has no material contracts or other commitments
(other than this Agreement or agreements for the purchase of securities
entered into in the ordinary course of business and consistent with its
obligations under this Agreement) which will not be terminated without
liability to the Acquired Fund at or prior to the Closing Date;
(f) The audited statement of assets and liabilities, including the
schedule of investments, of the Acquired Fund as of October 31, 2002 [and
the unaudited statement of assets and liabilities of the Acquired Fund as
of April, 2003] and the related statement of operations [for each such
period] (copies of which have been furnished to the Acquired Fund),
present fairly in all material respects the financial condition of the
Acquired Fund as of October 31, 2002 and [and April 30, 2003
respectively] the results of its operations for the period then ended in
accordance with generally accepted accounting principles consistently
applied, and there were no known actual or contingent liabilities of the
Acquired Fund as of the respective dates thereof not disclosed therein;
3
(g) Since April 30, 2003, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities, or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquired Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred, except as
otherwise disclosed to and accepted by the Acquiring Fund;
(h) At the date hereof and by the Closing Date, all federal, state and
other tax returns and reports, including information returns and payee
statements, of the Acquired Fund required by law to have been filed or
furnished by such dates shall have been filed or furnished, and all
federal, state and other taxes, interest and penalties shall have been
paid so far as due, or provision shall have been made for the payment
thereof, and to the best of the Acquired Fund's knowledge no such return
is currently under audit and no assessment has been asserted with respect
to such returns or reports;
(i) The Acquired Fund has qualified as a regulated investment company for
each taxable year of its operation and the Acquired Fund will qualify as
such as of the Closing Date with respect to its taxable year ending on
the Closing Date;
(j) The authorized capital of the Acquired Fund consists of an unlimited
number of shares of beneficial interest, no par value. All issued and
outstanding shares of beneficial interest of the Acquired Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and nonassessable by the Trust II. All of the issued and
outstanding shares of beneficial interest of the Acquired Fund will, at
the time of Closing, be held by the persons and in the amounts and
classes set forth in the Shareholder List submitted to the Acquiring Fund
pursuant to Paragraph 3.4 hereof. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of its shares of beneficial interest, nor is there
outstanding any security convertible into any of its shares of beneficial
interest;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to the assets to be transferred to the Acquiring Fund pursuant to
Paragraph 1.1 hereof, and full right, power and authority to sell,
assign, transfer and deliver such assets hereunder, and upon delivery and
payment for such assets, the Acquiring Fund will acquire good and
marketable title thereto subject to no restrictions on the full transfer
thereof, including such restrictions as might arise under the Securities
Act of 1933, as amended (the "1933 Act");
(l) The execution, delivery and performance of this Agreement have been
duly authorized by all necessary action on the part of the Trust II on
behalf of the Acquired Fund, and this Agreement constitutes a valid and
binding obligation of the Acquired Fund enforceable in accordance with
its terms, subject to the approval of the Acquired Fund's shareholders;
(m) The information to be furnished by the Acquired Fund to the Acquiring
Fund for use in applications for orders, registration statements, proxy
materials and other documents which may be necessary in connection with
the transactions contemplated hereby shall be accurate and complete and
shall comply in all material respects with federal securities and other
laws and regulations thereunder applicable thereto;
(n) The proxy statement of the Acquired Fund (the "Proxy Statement") to
be included in the Registration Statement referred to in Paragraph 5.7
hereof (other than written information furnished by the Acquiring Fund
for inclusion therein, as covered by the Acquiring Fund's warranty in
Paragraph 4.2(m) hereof), on the effective date of the Registration
Statement, on the date of the meeting of the Acquired Fund shareholders
and on the Closing Date, shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which such statements were made, not misleading;
(o) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated by this Agreement;
(p) All of the issued and outstanding shares of beneficial interest of
the Acquired Fund have been offered for sale and sold in conformity with
all applicable federal and state securities laws;
(q) The Class A, Class B, and Class C prospectus of the Acquired Fund,
dated February 14, 2003, (the "Acquired Fund Prospectus"), furnished to
the Acquiring Fund, does not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
in which they were made, not misleading; and
4
(r) The Acquired Fund Tax Representation Certificate to be delivered by
the Acquired Fund to the Acquiring Fund at Closing pursuant to Section
7.5 (the "Acquired Fund Tax Representation Certificate") will not on the
Closing Date contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not
misleading.
4.2 The Trust on behalf of the Acquiring Fund represents, warrants and
covenants to the Acquired Fund as follows:
(a) The Trust is a business trust duly organized, validly existing and in
good standing under the laws of The Commonwealth of Massachusetts and has
the power to own all of its properties and assets and to carry out the
Agreement. Neither the Trust nor the Acquiring Fund is required to
qualify to do business in any jurisdiction in which it is not so
qualified or where failure to qualify would subject it to any material
liability or disability. The Trust has all necessary federal, state and
local authorizations to own all of its properties and assets and to carry
on its business as now being conducted;
(b) The Trust is a registered investment company classified as a
management company and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect. The
Acquiring Fund is a diversified series of the Trust;
(c) The Class A, Class B, and Class C prospectus of the Acquiring Fund
dated February 14, 2003 (the "Acquiring Fund Prospectus") and statement
of additional information for Class A, Class B, Class C and Class I
shares of the Acquiring Fund, dated February 14, 2003, and any amendments
or supplements thereto on or prior to the Closing Date, and the
Registration Statement on Form N-14 filed in connection with this
Agreement (the "Registration Statement") (other than written information
furnished by the Acquired Fund for inclusion therein, as covered by the
Acquired Fund's warranty in Paragraph 4.1(m) hereof) will conform in all
material respects to the applicable requirements of the 1933 Act and the
1940 Act and the rules and regulations of the Commission thereunder, the
Acquiring Fund Prospectus does not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading and the
Registration Statement will not include any untrue statement of material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading;
(d) At the Closing Date, the Trust on behalf of the Acquiring Fund will
have good and marketable title to the assets of the Acquiring Fund;
(e) The Trust and the Acquiring Fund are not, and the execution, delivery
and performance of their obligations under this Agreement will not result
in a violation of any provisions of the Trust's Declaration, or By-Laws
or of any agreement, indenture, instrument, contract, lease or other
undertaking to which the Trust or the Acquiring Fund is a party or by
which the Trust or the Acquiring Fund is bound;
(f) Except as otherwise disclosed in writing and accepted by the Acquired
Fund, no material litigation or administrative proceeding or
investigation of or before any court or governmental body is currently
pending or threatened against the Trust or the Acquiring Fund or any of
the Acquiring Fund's properties or assets. The Trust knows of no facts
which might form the basis for the institution of such proceedings, and
neither the Trust nor the Acquiring Fund is a party to or subject to the
provisions of any order, decree or judgment of any court or governmental
body which materially and adversely affects the Acquiring Fund's business
or its ability to consummate the transactions herein contemplated;
(g) The audited statement of assets and liabilities, including the
schedule of investments, of the Acquiring Fund as of October 31, 2002
[and the unaudited statement of assets and liabilities of the Acquiring
Fund as of April, 2003] and the related statement of operations [for each
such period] (copies of which have been furnished to the Acquired Fund),
present fairly in all material respects the financial condition of the
Acquiring Fund as of October 31, 2002 and [and April 30, respectively]
the results of its operations for the period then ended in accordance
with generally accepted accounting principles consistently applied, and
there were no known actual or contingent liabilities of the Acquiring
Fund as of the respective dates thereof not disclosed therein;
(h) Since April 30, 2003, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Trust on behalf of the Acquiring Fund of
indebtedness maturing more than one year from the date such indebtedness
was incurred, except as disclosed to and accepted by the Acquired Fund;
(i) Each of the Acquiring Fund and its predecessors has qualified as a
regulated investment company for each taxable year of its operation and
the Acquiring Fund will qualify as such as of the Closing Date;
5
(j) The authorized capital of the Trust consists of an unlimited number
of shares of beneficial interest, no par value per share. All issued and
outstanding shares of beneficial interest of the Acquiring Fund are, and
at the Closing Date will be, duly and validly issued and outstanding,
fully paid and nonassessable by the Trust. The Acquiring Fund does not
have outstanding any options, warrants or other rights to subscribe for
or purchase any of its shares of beneficial interest, nor is there
outstanding any security convertible into any of its shares of beneficial
interest;
(k) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of the Trust on
behalf of the Acquiring Fund, and this Agreement constitutes a valid and
binding obligation of the Acquiring Fund enforceable in accordance with
its terms;
(l) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund pursuant to the terms of this Agreement, when so issued and
delivered, will be duly and validly issued shares of beneficial interest
of the Acquiring Fund and will be fully paid and nonassessable by the
Trust;
(m) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements, proxy materials and
other documents which may be necessary in connection with the
transactions contemplated hereby shall be accurate and complete and shall
comply in all material respects with federal securities and other laws
and regulations applicable thereto;
(n) No consent, approval, authorization or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated by the Agreement, except for the
registration of the Acquiring Fund Shares under the 1933 Act and the 1940
Act; and
(o) The Acquiring Fund Tax Representation Certificate to be delivered by
the Acquiring Fund to the Acquired Fund at Closing pursuant to Section
6.3 (the "Acquiring Fund Tax Representation Certificate") will not on the
Closing Date contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein not
misleading.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1 Except as expressly contemplated herein to the contrary, the Trust II
on behalf of the Acquired Fund and the Trust on behalf of the Acquiring
Fund, will operate their respective businesses in the ordinary course
between the date hereof and the Closing Date, it being understood that
such ordinary course of business will include customary dividends and
distributions and any other distributions necessary or desirable to
avoid federal income or excise taxes.
5.2 The Trust II will call a meeting of the Acquired Fund shareholders to
consider and act upon this Agreement and to take all other action
necessary to obtain approval of the transactions contemplated herein.
5.3 The Acquired Fund covenants that the Acquiring Fund Shares to be issued
hereunder are not being acquired by the Acquired Fund for the purpose
of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.4 The Trust II on behalf of the Acquired Fund will provide such
information within its possession or reasonably obtainable as the Trust
on behalf of the Acquiring Fund requests concerning the beneficial
ownership of the Acquired Fund's shares of beneficial interest.
5.5 Subject to the provisions of this Agreement, the Acquiring Fund and the
Acquired Fund each shall take, or cause to be taken, all action, and do
or cause to be done, all things reasonably necessary, proper or
advisable to consummate the transactions contemplated by this
Agreement.
5.6 The Trust II on behalf of the Acquired Fund shall furnish to the Trust
on behalf of the Acquiring Fund on the Closing Date the Statement of
Assets and Liabilities of the Acquired Fund as of the Closing Date,
which statement shall be prepared in accordance with generally accepted
accounting principles consistently applied and shall be certified by
the Acquired Fund's Treasurer or Assistant Treasurer. As promptly as
practicable but in any case within 60 days after the Closing Date, the
Acquired Fund shall furnish to the Acquiring Fund, in such form as is
reasonably satisfactory to the Trust, a statement of the earnings and
profits of the Acquired Fund for federal income tax purposes and of any
capital loss carryovers and other items that will be carried over to
the Acquiring Fund as a result of Section 381 of the Code, and which
statement will be certified by the President of the Acquired Fund.
5.7 The Trust on behalf of the Acquiring Fund will prepare and file with
the Commission the Registration Statement in compliance with the 1933
Act and the 1940 Act in connection with the issuance of the Acquiring
Fund Shares as contemplated herein.
6
5.8 The Trust II on behalf of the Acquired Fund will prepare a Proxy
Statement, to be included in the Registration Statement in compliance
with the 1933 Act, the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and the 1940 Act and the rules and regulations thereunder
(collectively, the "Acts") in connection with the special meeting of
shareholders of the Acquired Fund to consider approval of this
Agreement.
5.9 Neither the Acquired Fund nor the Acquiring Fund shall take any action
that is inconsistent with the representations set forth in, with
respect to the Acquired Fund, the Acquired Fund Tax Representation
Certificate, and with respect to the Acquiring Fund, the Acquiring Fund
Tax Representation Certificate, to the extent such action would prevent
the reorganization from qualifying as a "reorganization" under Section
368(a) of the Code.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF THE ACQUIRED
FUND
The obligations of the Trust II on behalf of the Acquired Fund to complete the
transactions provided for herein shall be, at its election, subject to the
performance by the Trust on behalf of the Acquiring Fund of all the obligations
to be performed by it hereunder on or before the Closing Date, and, in addition
thereto, the following further conditions:
6.1 All representations and warranties of the Trust on behalf of the
Acquiring Fund contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the
Closing Date with the same force and effect as if made on and as of the
Closing Date;
6.2 The Trust on behalf of the Acquiring Fund shall have delivered to the
Trust II on behalf of the Acquired Fund a certificate executed in its
name by the Trust's President or Vice President and its Treasurer or
Assistant Treasurer, in form and substance satisfactory to the Trust II
on behalf of the Acquired Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Trust on behalf
of the Acquiring Fund made in this Agreement are true and correct at
and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other
matters as the Trust II on behalf of the Acquired Fund shall reasonably
request; and
6.3 The Acquiring Fund shall have delivered to the Acquired Fund an
Acquiring Fund Tax Representation Certificate in a form acceptable to
Hale and Dorr LLP, the Acquired Fund and the Acquiring Fund concerning
certain tax-related matters with respect to the Acquiring Fund.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST ON BEHALF OF THE ACQUIRING
FUND
The obligations of the Trust on behalf of the Acquiring Fund to complete
the transactions provided for herein shall be, at its election, subject
to the performance by the Trust II on behalf of the Acquired Fund of
all the obligations to be performed by it hereunder on or before the
Closing Date and, in addition thereto, the following conditions:
7.1 All representations and warranties of the Trust II on behalf of the
Acquired Fund contained in this Agreement shall be true and correct in
all material respects as of the date hereof and, except as they may be
affected by the transactions contemplated by this Agreement, as of the
Closing Date with the same force and effect as if made on and as of the
Closing Date;
7.2 The Trust II on behalf of the Acquired Fund shall have delivered to the
Trust on behalf of the Acquiring Fund the Statement of Assets and
Liabilities of the Acquired Fund, together with a list of its portfolio
securities showing the federal income tax bases and holding periods of
such securities, as of the Closing Date, certified by the Treasurer or
Assistant Treasurer of the Acquired Fund;
7.3 The Trust II on behalf of the Acquired Fund shall have delivered to the
Trust on behalf of the Acquiring Fund on the Closing Date a certificate
executed in the name of the Acquired Fund by a President or Vice
President and a Treasurer or Assistant Treasurer of the Acquired Fund,
in form and substance satisfactory to the Trust on behalf of the
Acquiring Fund and dated as of the Closing Date, to the effect that the
representations and warranties of the Acquired Fund in this Agreement
are true and correct at and as of the Closing Date, except as they may
be affected by the transactions contemplated by this Agreement, and as
to such other matters as the Trust on behalf of the Acquiring Fund
shall reasonably request;
7.4 At or prior to the Closing Date, the Acquired Fund's investment
adviser, or an affiliate thereof, shall have made all payments, or
applied all credits, to the Acquired Fund required by any applicable
contractual expense limitation; and
7.5 The Acquired Fund shall have delivered to the Acquiring Fund an
Acquired Fund Tax Representation Certificate in a form acceptable to
Hale and Dorr LLP, the Acquired Fund and the Acquiring Fund concerning
certain tax-related matters with respect to the Acquired Fund.
7
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRUST II ON BEHALF OF THE
ACQUIRED FUND AND THE TRUST ON BEHALF OF THE ACQUIRING FUND
The obligations hereunder of the Trust II on behalf of the Acquired Fund and the
Trust on behalf of the Acquiring Fund are each subject to the further conditions
that on or before the Closing Date:
8.1 The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares
of beneficial interest of the Acquired Fund in accordance with the
provisions of the Trust II's Declaration and By-Laws, and certified
copies of the resolutions evidencing such approval by the Acquired
Fund's shareholders shall have been delivered by the Acquired Fund to
the Trust on behalf of the Acquiring Fund;
8.2 On the Closing Date no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought
to restrain or prohibit, or obtain changes or other relief in
connection with, this Agreement or the transactions contemplated
herein;
8.3 All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including
those of the Commission and their "no-action" positions) deemed
necessary by the Trust II or the Trust to permit consummation, in all
material respects, of the transactions contemplated hereby shall have
been obtained, except where failure to obtain any such consent, order
or permit would not involve a risk of a material adverse effect on the
assets or properties of the Acquiring Fund or the Acquired Fund,
provided that either party hereto may waive any such conditions for
itself;
8.4 The Registration Statement shall have become effective under the 1933
Act and the 1940 Act and no stop orders suspending the effectiveness
thereof shall have been issued and, to the best knowledge of the
parties hereto, no investigation or proceeding for that purpose shall
have been instituted or be pending, threatened or contemplated under
the 1933 Act or the 1940 Act;
8.5 The Acquired Fund shall have distributed to its shareholders, in a
distribution or distributions qualifying for the deduction for
dividends paid under Section 561 of the Code, all of its investment
company taxable income (as defined in Section 852(b)(2) of the Code
determined without regard to Section 852(b)(2)(D) of the Code) for its
taxable year ending on the Closing Date, all of the excess of (i) its
interest income excludable from gross income under Section 103(a) of
the Code over (ii) its deductions disallowed under Sections 265 and
171(a)(2) of the Code for its taxable year ending on the Closing Date,
and all of its net capital gain (as such term is used in Sections
852(b)(3)(A) and (C) of the Code) after reduction by any available
capital loss carryforward, for its taxable year ending on the Closing
Date; and
8.6 The parties shall have received an opinion of Hale and Dorr LLP,
satisfactory to the Trust II on behalf of the Acquired Fund and the
Trust on behalf of the Acquiring Fund, substantially to the effect that
for federal income tax purposes the acquisition by the Acquiring Fund
of all of the assets of the Acquired Fund solely in exchange for the
issuance of Acquiring Fund Shares to the Acquired Fund and the
assumption of all of the Acquired Fund Liabilities by the Acquiring
Fund, followed by the distribution by the Acquired Fund, in liquidation
of the Acquired Fund, of Acquiring Fund Shares to the shareholders of
the Acquired Fund in exchange for their shares of beneficial interest
of the Acquired Fund and the termination of the Acquired Fund, will
constitute a "reorganization" within the meaning of Section 368(a) of
the Code. Notwithstanding anything herein to the contrary, neither the
Trust II nor the Trust may waive the conditions set forth in this
Paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1 The Trust on behalf of the Acquiring Fund and the Trust II on behalf of
the Acquired Fund each represent and warrant to the other that there
are no brokers or finders entitled to receive any payments in
connection with the transactions provided for herein.
9.2 The Acquiring Fund and the Acquired Fund shall each be liable solely
for its own expenses incurred in connection with entering into and
carrying out the provisions of this Agreement whether or not the
transactions contemplated hereby are consummated.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1 The Trust on behalf of the Acquiring Fund and the Trust II on behalf of
the Acquired Fund agree that neither party has made any representation,
warranty or covenant not set forth herein or referred to in Paragraph 4
hereof and that this Agreement constitutes the entire agreement between
the parties.
10.2 The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection
herewith shall survive the consummation of the transactions
contemplated hereunder.
8
11. TERMINATION
11.1 This Agreement may be terminated by the mutual agreement of the Trust
on behalf of the Acquiring Fund and the Trust II on behalf of the
Acquired Fund. In addition, either party may at its option terminate
this Agreement at or prior to the Closing Date:
(a) because of a material breach by the other of any representation,
warranty, covenant or agreement contained herein to be performed at or
prior to the Closing Date;
(b) because of a condition herein expressed to be precedent to the
obligations of the terminating party which has not been met and which
reasonably appears will not or cannot be met;
(c) by resolution of the Trust's Board of Trustees if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interests of the
Acquiring Fund's shareholders; or
(d) by resolution of the Trust II's Board of Trustees if circumstances
should develop that, in the good faith opinion of such Board, make
proceeding with the Agreement not in the best interests of the
Acquired Fund's shareholders.
11.2 In the event of any such termination, there shall be no liability
for damages on the part of the Trust, the Acquiring Fund, the Trust
II, or the Acquired Fund, or the Trustees or officers of the Trust or
the Trust II, but each party shall bear the expenses incurred by it
incidental to the preparation and carrying out of this Agreement.
12. AMENDMENTS This Agreement may be amended, modified or supplemented
in such manner as may be mutually agreed upon by the authorized
officers of the Trust and the Trust II. However, following the meeting
of shareholders of the Acquired Fund held pursuant to Paragraph 5.2 of
this Agreement, no such amendment may have the effect of changing the
provisions regarding the method for determining the number of
Acquiring Fund Shares to be received by the Acquired Fund shareholders
under this Agreement to the detriment of such shareholders without
their further approval; provided that nothing contained in this
Article 12 shall be construed to prohibit the parties from amending
this Agreement to change the Closing Date.
13. NOTICES Any notice, report, statement or demand required or
permitted by any provisions of this Agreement shall be in writing and
shall be given by prepaid telegraph, telecopy or certified mail
addressed to the Acquiring Fund or to the Acquired Fund, each at 101
Huntington Avenue, Boston, Massachusetts 02199, Attention: President,
and, in either case, with copies to Hale and Dorr LLP, 60 State
Street, Boston, Massachusetts 02109, Attention: David C. Phelan, Esq.
9
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT
14.1 The article and paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
14.2 This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original.
14.3 This Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.
14.4 This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment
or transfer hereof or of any rights or obligations hereunder shall be
made by any party without the prior written consent of the other party.
Nothing herein expressed or implied is intended or shall be construed
to confer upon or give any person, firm or corporation, other than the
parties hereto and their respective successors and assigns, any rights
or remedies under or by reason of this Agreement.
14.5 All persons dealing with the Trust or the Trust II must look solely to
the property of the Trust or the Trust II, respectively, for the
enforcement of any claims against the Trust or the Trust II as the
Trustees, officers, agents and shareholders of the Trust or the Trust
II assume no personal liability for obligations entered into on behalf
of the Trust or the Trust II, respectively. None of the other series of
the Trust or the Trust II shall be responsible for any obligations
assumed by or on behalf of the Acquiring Fund or the Acquired Fund
under this Agreement.
10
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first set forth above by its President or Vice President
and has caused its corporate seal to be affixed hereto.
JOHN HANCOCK INVESTMENT TRUST III on behalf of
JOHN HANCOCK INTERNATIONAL FUND
By:_______________________________________________
Maureen R. Ford
Chairman, President and Chief Executive Officer
JOHN HANCOCK WORLD FUND, on behalf of
JOHN HANCOCK PACIFIC BASIN EQUITIES FUND
By:_______________________________________________
Susan S. Newton
Senior Vice President and Secretary
11
Thank
You
for mailing
your proxy card
promptly!
John Hancock Funds, LLC Mutual Funds
MEMBER NASD Institutional Services
101 Huntington Avenue Private Managed Accounts
Boston, MA 02199-7603 Retirement Plans
1-888-972-8696
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1-800-597-1897 EASI-Line
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12
Sign up for electronic delivery at www.jhancock.com/funds/edelivery
JOHN HANCOCK
- --------------------------------------------------------------------------------
Prospectus 2.14.03 International funds
International Fund
Pacific Basin Equities Fund
[LOGO](R)
- ------------------
JOHN HANCOCK FUNDS
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these funds or determined whether the information in
this prospectus is adequate and accurate. Anyone who indicates otherwise is
committing a federal crime.
Contents
- --------------------------------------------------------------------------------
A fund-by-fund summary International Fund 4
of goals, strategies,
risks, performance and Pacific Basin Equities Fund 6
expenses.
Policies and Your account
instructions for
opening, maintaining and Choosing a share class 8
closing an account in any How sales charges are calculated 8
international fund. Sales charge reductions and waivers 9
Opening an account 10
Buying shares 11
Selling shares 12
Transaction policies 14
Dividends and account policies 14
Additional investor services 15
Further information on Fund details
the international funds.
Business structure 16
Financial highlights 17
For more information back cover
Overview
- --------------------------------------------------------------------------------
JOHN HANCOCK INTERNATIONAL FUNDS
These funds invest primarily in foreign stocks and seek long-term growth of
capital. Each fund has its own strategy and its own risk profile.
WHO MAY WANT TO INVEST
These funds may be appropriate for investors who:
o are seeking to diversify a portfolio of domestic investments
o are seeking access to markets that can be less accessible to individual
investors
o are seeking funds for the growth portion of an asset allocation portfolio
o are investing for retirement or other goals that are many years in the
future
International funds may NOT be appropriate if you:
o are investing with a shorter time horizon in mind
o are uncomfortable with an investment whose value may vary substantially
o want to limit your exposure to foreign securities
RISKS OF MUTUAL FUNDS
Mutual funds are not bank deposits and are not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Because you could lose money by investing in these funds, be sure to read
all risk disclosure carefully before investing.
THE MANAGEMENT FIRM
All John Hancock international funds are managed by John Hancock Advisers,
LLC. Founded in 1968, John Hancock Advisers is a wholly owned subsidiary
of John Hancock Financial Services, Inc. and as of December 31, 2002
managed approximately $26 billion in assets.
- --------------------------------------------------------------------------------
FUND INFORMATION KEY
[Clip Art] Concise fund-by-fund descriptions begin on the next page. Each
description provides the following information:
[Clip Art] Goal and strategy The fund's particular investment goals and the
strategies it intends to use in pursuing those goals.
[Clip Art] Main risks The major risk factors associated with the fund.
[Clip Art] Past performance The fund's total return, measured year-by-year and
over time.
[Clip Art] Your expenses The overall costs borne by an investor in the fund,
including sales charges and annual expenses.
3
International Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital. To pursue this goal, the
fund normally invests at least 80% of its assets in stocks of foreign companies.
The fund may invest up to 30% of assets in emerging markets as classified by
Morgan Stanley Capital International (MSCI). The fund does not maintain a fixed
allocation of assets, either with respect to securities type or geography.
In managing the portfolio, the managers focus on a "bottom-up" analysis on the
financial conditions and competitiveness of individual foreign companies. In
analyzing specific companies for possible investment, the managers ordinarily
look for several of the following characteristics that will enable the companies
to compete successfully in their respective markets:
o above-average per share earnings growth
o high return on invested capital
o a healthy balance sheet
o sound financial and accounting policies and overall financial strength
o strong competitive advantages
o effective research, product development and marketing.
The managers consider whether to sell a particular security when any of those
factors materially changes. The managers allocate the fund's assets among
securities of countries that are expected to provide the best opportunities for
meeting the fund's investment objective.
To manage risk, the fund does not invest more than 5% of assets in any one
security.
The fund may use certain derivatives (investments whose value is based on
indexes, securities or currencies).
In abnormal conditions, the fund may temporarily invest more than 20% of assets
in investment-grade short-term securities. In these and other cases, the fund
might not achieve its goal.
================================================================================
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. All
figures assume dividend reinvestment. Past performance before and after taxes
does not indicate future results.
Class A, total returns
Best quarter: Q4 '99, 25.37%
Worst quarter: Q3 '02, -20.00%
After-tax returns
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
Index (reflects no fees or taxes)
MSCI All Country World Ex-U.S. Free Index, an unmanaged index of freely
traded stocks of foreign companies.
- --------------------------------------------------------------------------------
Class A calendar year total returns (without sales charges)
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999 2000 2001 2002
- -6.61% 5.34% 11.37% -7.73% 17.67% 31.19% -27.68% -29.76% -20.47%
- ---------------------------------------------------------------------------------------------------------
Average annual total returns (including sales charge) for periods ending 12-31-02
- ---------------------------------------------------------------------------------------------------------
1 year 5 year Life of Life of Life of
Class A Class B Class C
Class A before tax (began 1-3-94) -24.40% -9.93% -5.54% -- --
Class A after tax on distributions -24.40% -10.07% -5.69% -- --
Class A after tax on distributions, -14.98% -7.46% -4.15% -- --
with sale
Class B before tax (began 1-3-94) -25.17% -10.01% -- -5.67% --
Class C before tax (began 6-1-98) -22.62% -- -- -- -13.11%
- ---------------------------------------------------------------------------------------------------------
MSCI All Country World Ex-U.S. Free Index -16.53% -4.40% -0.63% -0.63% -6.82%
4
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
Foreign investments are more risky than domestic investments. Investments in
foreign securities may be affected by fluc-tuations in currency exchange rates,
incomplete or inaccurate financial information on companies, social instability
and political actions ranging from tax code changes to governmental collapse.
These risks are more significant in emerging markets.
The fund's management strategy has a significant influence on fund performance.
If the fund invests in countries or regions that experience economic downturns,
performance could suffer. In addition, if certain investments or industries do
not perform as expected, or if the managers' security selection strategies do
not perform as expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o In a down market, emerging market securities, other higher-risk securities
and derivatives could become harder to value or to sell at a fair price.
o Certain derivatives could produce disproportionate losses.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- ------------------------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
- ------------------------------------------------------------------------------------------------
Maximum sales charge (load) 5.00% 5.00% 2.00%
Maximum front-end sales charge (load) on purchases
as a % of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)
as a % of purchase or sale price, whichever is less none(2) 5.00% 1.00%
- ------------------------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- ------------------------------------------------------------------------------------------------
Management fee 1.00% 1.00% 1.00%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 3.13% 3.13% 3.13%
Total fund operating expenses 4.43% 5.13% 5.13%
Expense reimbursement (at least until 2-28-04) 2.05% 2.05% 2.05%
Annual operating expenses 2.38% 3.08% 3.08%
The hypothetical example below shows what your expenses would be after the
expense reimbursement (first year only) if you invested $10,000 over the time
frames indicated, assuming you reinvested all distributions and that the average
annual return was 5%. The example is for comparison only, and does not represent
the fund's actual expenses and returns, either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $729 $1,598 $2,476 $4,717
Class B with redemption $811 $1,655 $2,597 $4,854
Class B without redemption $311 $1,355 $2,397 $4,854
Class C with redemption $507 $1,442 $2,473 $5,039
Class C without redemption $408 $1,442 $2,473 $5,039
(1) A $4.00 fee will be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
================================================================================
SUBADVISER
Nicholas-Applegate Capital Management
U.S.-based team responsible for day-to-day investment management since
December 2000
Founded in 1984
Supervised by the adviser
FUND CODES
Class A Ticker FINAX
CUSIP 409906500
Newspaper IntlA
SEC number 811-4630
JH fund 40
number
Class B Ticker FINBX
CUSIP 409906609
Newspaper IntlB
SEC number 811-4630
JH fund 140
number
Class C Ticker JINCX
CUSIP 409906831
Newspaper --
SEC number 811-4630
JH fund 540
number
5
Pacific Basin Equities Fund
GOAL AND STRATEGY
[Clip Art] The fund seeks long-term growth of capital. To pursue this goal, the
fund normally invests at least 80% of its assets in equity securities (including
common and preferred stocks and their equivalents) of Pacific Basin companies.
These companies derive more than half of their revenues from Pacific Basin
operations, are organized under the laws of Pacific Basin countries, or are
traded principally on Pacific Basin exchanges. Although the Pacific Basin
includes all countries bordering the Pacific Ocean, the managers focus on Japan,
Hong Kong, Australia, Singapore, South Korea, China and Taiwan. Some Pacific
Basin countries may be considered emerging markets.
The fund may also invest in stocks of Asian companies outside the Pacific Basin.
The fund does not maintain a fixed allocation of assets, either with respect to
securities or geography.
In managing the portfolio, the managers focus on a "bottom-up" analysis on the
financial conditions and competitiveness of individual companies located in the
Pacific Basin. In analyzing specific companies for possible investment, the
managers ordinarily look for several of the following characteristics that will
enable the companies to compete successfully in their respective markets:
o above-average per share earnings growth
o high return on invested capital
o a healthy balance sheet
o sound financial and accounting policies and overall financial strength
o strong competitive advantages
o effective research, product development and marketing
The managers consider whether to sell a particular security when any of those
factors materially changes. The managers allocate the fund's assets among
securities of countries that are expected to provide the best opportunities for
meeting the fund's investment objective.
The fund may use certain derivatives (investments whose value is based on
indexes, securities or currencies).
In abnormal circumstances, the fund may temporarily invest more than 20% of its
assets in investment-grade short-term securities. In these and other cases, the
fund might not achieve its goal.
================================================================================
PAST PERFORMANCE
[Clip Art] The graph shows how the fund's total return has varied from year to
year, while the table shows performance over time (along with a broad-based
market index for reference). This information may help provide an indication of
the fund's risks. The average annual figures reflect sales charges; the
year-by-year and index figures do not, and would be lower if they did. All
figures assume dividend reinvestment. Past performance before and after taxes
does not indicate future results.
Class A, total returns
Best quarter: Q4 '99, 38.03%
Worst quarter: Q4 '97, -25.64%
After-tax returns
After-tax returns are shown for Class A shares only and would be different for
the other classes. They are calculated using the historical highest individual
federal marginal income-tax rates and do not reflect the impact of state and
local taxes. Actual after-tax returns depend on the investor's tax situation and
may differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
Index (reflects no fees or taxes)
MSCI All Country Pacific Free Index, an unmanaged index of stocks of companies
in Australia, Japan and certain other Pacific Basin Countries.
- -----------------------------------------------------------------------------------------
Class A calendar year total returns (without sales charges)
- -----------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
70.45% -9.28% 4.95% 3.37% -27.87% -10.72% 99.47% -30.55% -23.60% -7.52%
- --------------------------------------------------------------------------------------------------------
Average annual total returns (including sales charge) for periods ending 12-31-02
- --------------------------------------------------------------------------------------------------------
1 year 5 year 10 year Life of Life of
Class B Class C
Class A before tax -12.11% -3.66% 0.04% -- --
Class A after tax on distributions -12.11% -3.85% -0.30% -- --
Class A after tax on distributions, -7.43% -2.94% -0.05% -- --
with sale
Class B before tax (began 3-7-94) -12.72% -3.73% -- -5.35% --
Class C before tax (began 3-1-99) -10.00% -- -- -- -0.86%
- --------------------------------------------------------------------------------------------------------
MSCI All Country Pacific Free Index -9.93% -4.60% -2.41% -7.36%* -5.76%
* As of March 1, 1994.
6
MAIN RISKS
[Clip Art] The value of your investment will fluctuate in response to stock
market movements.
Because the fund focuses on a single region of the world, its performance may be
more volatile than that of a fund that invests globally.
Foreign investments are more risky than domestic investments. Investments in
foreign securities may be affected by fluctuations in currency exchange rates,
incomplete or inaccurate financial information on companies, social instability
and political actions ranging from tax code changes to governmental collapse.
These risks are more significant in emerging markets, which include much of the
Pacific Basin.
The fund's management strategy has a significant influence on fund performance.
Pacific Basin stocks as a group could fall out of favor with the market, causing
the fund to underperform investments that focus on other types of stocks. In
addition, if the managers' securities selection strategies do not perform as
expected, the fund could underperform its peers or lose money.
To the extent that the fund makes investments with additional risks, these risks
could increase volatility or reduce performance:
o In a down market, emerging market securities, other higher-risk securities
and derivatives could become harder to value or to sell at a fair price.
o Stocks of small- and medium-capitalization companies tend to be more
volatile than those of larger companies.
o Certain derivatives could produce disproportionate losses.
The fund may trade securities actively, which could increase its transaction
costs (thus lowering performance) and increase your taxable distributions.
================================================================================
YOUR EXPENSES
[Clip Art] Transaction expenses are charged directly to your account. Operating
expenses are paid from the fund's assets, and therefore are paid by shareholders
indirectly.
- ------------------------------------------------------------------------------------------------
Shareholder transaction expenses(1) Class A Class B Class C
- ------------------------------------------------------------------------------------------------
Maximum sales charge (load) 5.00% 5.00% 2.00%
Maximum front-end sales charge (load) on purchasesas a %
of purchase price 5.00% none 1.00%
Maximum deferred sales charge (load)as a % of purchase or
sale price, whichever is less none(2) 5.00% 1.00%
- -------------------------------------------------------------------------------------------------
Annual operating expenses Class A Class B Class C
- -------------------------------------------------------------------------------------------------
Management fee 0.80% 0.80% 0.80%
Distribution and service (12b-1) fees 0.30% 1.00% 1.00%
Other expenses 1.47% 1.47% 1.47%
Total fund operating expenses 2.57% 3.27% 3.27%
The hypothetical example below shows what your expenses would be if you invested
$10,000 over the time frames indicated, assuming you reinvested all
distributions and that the average annual return was 5%. The example is for
comparison only, and does not represent the fund's actual expenses and returns,
either past or future.
- --------------------------------------------------------------------------------
Expenses Year 1 Year 3 Year 5 Year 10
- --------------------------------------------------------------------------------
Class A $747 $1,260 $1,797 $3,260
Class B with redemption $830 $1,307 $1,907 $3,408
Class B without redemption $330 $1,007 $1,707 $3,408
Class C with redemption $526 $1,097 $1,790 $3,632
Class C without redemption $427 $1,097 $1,790 $3,632
(1) A $4.00 fee will be charged for wire redemptions.
(2) Except for investments of $1 million or more; see "How sales charges are
calculated."
================================================================================
SUB ADVISER
Nicholas-Applegate Capital Management
U.S.-based team responsible for day-to-day investment management since
December 2000
Founded in 1984
Supervised by the adviser
FUND CODES
Class A Ticker JHWPX
CUSIP 410233209
Newspaper PacBasA
SEC number 811-4932
JH fund 58
number
Class B Ticker FPBBX
CUSIP 410233506
Newspaper PacBasB
SEC number 811-4932
JH fund 158
number
Class C Ticker JPBCX
CUSIP 410233605
Newspaper --
SEC number 811-4932
JH fund 558
number
7
Your account
- --------------------------------------------------------------------------------
CHOOSING A SHARE CLASS
Each share class has its own cost structure, including a Rule 12b-1 plan that
allows it to pay fees for the sale, distribution and service of its shares. Your
financial representative can help you decide which share class is best for you.
- --------------------------------------------------------------------------------
Class A
- --------------------------------------------------------------------------------
o A front-end sales charge, as described at right.
o Distribution and service (12b-1) fees of 0.30%.
- --------------------------------------------------------------------------------
Class B
- --------------------------------------------------------------------------------
o No front-end sales charge; all your money goes to work for you right away.
o Distribution and service (12b-1) fees of 1.00%.
o A deferred sales charge, as described on the following page.
o Automatic conversion to Class A shares after eight years, thus reducing
future annual expenses.
- --------------------------------------------------------------------------------
Class C
- --------------------------------------------------------------------------------
o A front-end sales charge, as described at right.
o Distribution and service (12b-1) fees of 1.00%.
o A 1.00% contingent deferred sales charge on shares sold within one year of
purchase.
o No automatic conversion to Class A shares, so annual expenses continue at
the Class C level throughout the life of your investment.
For actual past expenses of each share class, see the fund-by-fund information
earlier in this prospectus.
Because 12b-1 fees are paid on an ongoing basis, they may cost shareholders more
than other types of sales charges.
Investors purchasing $1 million or more of Class B or Class C shares may want to
consider the lower operating expenses of Class A shares.
Your broker/dealer receives a percentage of these sales charges and fees. In
addition, John Hancock Funds may pay significant compensation out of its own
resources to your broker/dealer.
Your broker/dealer or agent may charge you a fee to effect transactions in fund
shares.
- --------------------------------------------------------------------------------
HOW SALES CHARGES ARE CALCULATED
Class A and Class C Sales charges are as follows:
- --------------------------------------------------------------------------------
Class A sales charges
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $49,999 5.00% 5.26%
$50,000 - $99,999 4.50% 4.71%
$100,000 - $249,999 3.50% 3.63%
$250,000 - $499,999 2.50% 2.56%
$500,000 - $999,999 2.00% 2.04%
$1,000,000 and over See below
- --------------------------------------------------------------------------------
Class C sales charges
- --------------------------------------------------------------------------------
As a % of As a % of your
Your investment offering price investment
Up to $1,000,000 1.00% 1.01%
$1,000,000 and over none
Investments of $1 million or more Class A and Class C shares are available with
no front-end sales charge. However, there is a contingent deferred sales charge
(CDSC) on any Class A shares sold within one year of purchase, as follows:
- --------------------------------------------------------------------------------
CDSC on $1 million+ investments
- --------------------------------------------------------------------------------
CDSC on shares
Your investment being sold
First $1M - $4,999,999 1.00%
Next $1 - $5M above that 0.50%
Next $1 or more above that 0.25%
For purposes of this CDSC, all purchases made during a calendar month are
counted as having been made on the first day of that month.
The CDSC is based on the lesser of the original purchase cost or the current
market value of the shares being sold, and is not charged on shares you acquired
by reinvesting your dividends. To keep your CDSC as low as possible, each time
you place a request to sell shares we will first sell any shares in your account
that are not subject to a CDSC.
8 YOUR ACCOUNT
Class B Shares are offered at their net asset value per share, without any
initial sales charge.
Class B and Class C A CDSC may be charged if you sell Class B or Class C shares
within a certain time after you bought them, as described in the tables below.
There is no CDSC on shares acquired through reinvestment of dividends. The CDSC
is based on the original purchase cost or the current market value of the shares
being sold, whichever is less. The CDSCs are as follows:
- --------------------------------------------------------------------------------
Class B deferred charges
- --------------------------------------------------------------------------------
CDSC on shares
Years after purchase being sold
1st year 5.00%
2nd year 4.00%
3rd year or 4th year 3.00%
5th year 2.00%
6th year 1.00%
After 6th year none
- --------------------------------------------------------------------------------
Class C deferred charges
- --------------------------------------------------------------------------------
Years after purchase CDSC on shares
being sold
1st year 1.00%
After 1st year none
For purposes of these CDSCs, all purchases made during a calendar month are
counted as having been made on the first day of that month.
CDSC calculations are based on the number of shares involved, not on the value
of your account. To keep your CDSC as low as possible, each time you place a
request to sell shares we will first sell any shares in your account that carry
no CDSC. If there are not enough of these to meet your request, we will sell
those shares that have the lowest CDSC.
- --------------------------------------------------------------------------------
SALES CHARGE REDUCTIONS AND WAIVERS
Reducing your Class A sales charges There are several ways you can combine
multiple purchases of Class A shares of John Hancock funds to take advantage of
the breakpoints in the sales charge schedule. The first three ways can be
combined in any manner.
o Accumulation Privilege -- lets you add the value of any Class A shares you
already own to the amount of your next Class A investment for purposes of
calculating the sales charge. Retirement plans investing $1 million in Class
B shares may add that value to Class A purchases to calculate charges.
o Letter of Intention -- lets you purchase Class A shares of a fund over a
13-month period and receive the same sales charge as if all shares had been
purchased at once.
o Combination Privilege -- lets you combine Class A shares of multiple funds
for purposes of calculating the sales charge.
To utilize: complete the appropriate section of your application, or contact
your financial representative or Signature Services, or consult the SAI (see the
back cover of this prospectus).
Group Investment Program A group may be treated as a single purchaser under the
accumulation and combination privileges. Each investor has an individual
account, but the group's investments are lumped together for sales charge
purposes, making the investors potentially eligible for reduced sales charges.
There is no charge or obligation to invest (although initial investments must
total at least $250), and individual investors may close their accounts at any
time.
To utilize: contact your financial representative or Signature Services to find
out how to qualify, or consult the SAI (see the back cover of this prospectus).
CDSC waivers As long as Signature Services is notified at the time you sell, the
CDSC for each share class will generally be waived in the following cases:
o to make payments through certain systematic withdrawal plans
o to make certain distributions from a retirement plan
o because of shareholder death or disability
To utilize: if you think you may be eligible for a CDSC waiver, contact your
financial representative or Signature Services, or consult the SAI (see the back
cover of this prospectus).
YOUR ACCOUNT 9
Reinstatement privilege If you sell shares of a John Hancock fund, you may
reinvest some or all of the proceeds in the same share class of any John Hancock
fund within 120 days without a sales charge, as long as Signature Services is
notified before you reinvest. If you paid a CDSC when you sold your shares, you
will be credited with the amount of the CDSC. All accounts involved must have
the same registration.
To utilize: contact your financial representative or Signature Services.
Waivers for certain investors Class A shares may be offered without front-end
sales charges or CDSCs to various individuals and institutions, including:
o selling brokers and their employees and sales representatives
o financial representatives utilizing fund shares in fee-based investment
products under signed agreement with John Hancock Funds
o fund trustees and other individuals who are affiliated with these or other
John Hancock funds
o individuals transferring assets from an employee benefit plan into a John
Hancock fund
o participants in certain retirement plans with at least 100 eligible
employees (one-year CDSC applies)
Class C shares may be offered without front-end sales charges to various
individuals and institutions, including certain retirement plans.
To utilize: if you think you may be eligible for a sales charge waiver, contact
Signature Services or consult the SAI (see the back cover of this prospectus).
- --------------------------------------------------------------------------------
OPENING AN ACCOUNT
1 Read this prospectus carefully.
2 Determine how much you want to invest. The minimum initial investments for
the John Hancock funds are as follows:
o non-retirement account: $1,000
o retirement account: $250
o group investments: $250
o Monthly Automatic Accumulation Plan (MAAP): $25 to open; you must invest
at least $25 a month
o fee-based clients of selling brokers who have placed at least $2 billion
in John Hancock funds: $250
3 Complete the appropriate parts of the account application, carefully
following the instructions. You must submit additional documentation when
opening trust, corporate or power of attorney accounts. You must notify your
financial representative or Signature Services if this information changes.
For more details, please contact your financial representative or call
Signature Services at 1-800-225-5291.
4 Complete the appropriate parts of the account privileges application. By
applying for privileges now, you can avoid the delay and inconvenience of
having to file an additional application if you want to add privileges
later.
5 Make your initial investment using the table on the next page. You and your
financial representative can initiate any purchase, exchange or sale of
shares.
10 YOUR ACCOUNT
- --------------------------------------------------------------------------------
Buying shares
- --------------------------------------------------------------------------------
Opening an account Adding to an account
By check
[Clip Art] o Make out a check for the o Make out a check for the
investment amount, investment amount payable
payable to "John Hancock to "John Hancock
Signature Services, Inc." Signature Services, Inc."
o Deliver the check and o Fill out the detachable
your completed investment slip from an
application to your account statement. If no
financial representative, slip is available,
or mail them to Signature include a note specifying
Services (address below). the fund name, your share
class, your account
number and the name(s) in
which the account is
registered.
o Deliver the check and
your investment slip or
note to your financial
representative, or mail
them to Signature
Services (address below).
By exchange
[Clip Art] o Call your financial o Log on to www.jhfunds.com
representative or to process exchanges
Signature Services to between funds.
request an exchange. o Call EASI-Line for
automated service 24
hours a day using your
touch tone phone at
1-800-338-8080.
o Call your financial
representative or
Signature Services to
request an exchange.
By wire
[Clip Art] o Deliver your completed o Instruct your bank to
application to your wire the amount of your
financial representative, investment to:
or mail it to Signature First Signature Bank & Trust
Services. Account # 900000260
o Obtain your account Routing # 211475000
number by calling your Specify the fund name, your
financial representative share class, your account
or Signature Services. number and the name(s) in
o Instruct your bank to which the account is registered.
wire the amount of your Your bank may charge a fee to
investment to: wire funds.
First Signature Bank & Trust
Account # 900000260
Routing # 211475000
Specify the fund name, your
choice of share class, the
new account number and the
name(s) in which the account
is registered. Your bank may
charge a fee to wire funds.
By internet
[Clip Art] See "By exchange" and "By o Verify that your bank or
wire." credit union is a member
of the Automated Clearing
House (ACH) system.
o Complete the "Bank
Information" section on
your account application.
o Log on to www.jhfunds.com
to initiate purchases
using your authorized
bank account.
By phone
[Clip Art] See "By exchange" and "By o Verify that your bank or
wire." credit union is a member
of the Automated Clearing
House (ACH) system.
o Complete the "Bank
Information" section on
your account application.
o Call EASI-Line for
automated service 24
hours a day using your
touch tone phone at
1-800-338-8080.
o Call your financial
representative or
Signature Services
between 8 A.M. and 4 P.M.
Eastern Time on most
business days.
- ---------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 1-800-225-5291
Or contact your financial representative for
instructions and assistance.
- ---------------------------------------------
YOUR ACCOUNT 11
- --------------------------------------------------------------------------------
Selling Shares
- --------------------------------------------------------------------------------
Designed for To sell some or all of your shares
By letter
[Clip Art] o Accounts of any type. o Write a letter of
o Sales of any amount. instruction or complete a
stock power indicating
the fund name, your share
class, your account
number, the name(s) in
which the account is
registered and the dollar
value or number of shares
you wish to sell.
o Include all signatures
and any additional
documents that may be
required (see next page).
o Mail the materials to
Signature Services.
o A check will be mailed to
the name(s) and address
in which the account is
registered, or otherwise
according to your letter
of instruction.
By Internet
[Clip Art] o Most accounts. o Log on to www.jhfunds.com
o Sales of up to $100,000. to initiate redemptions
from your funds.
By phone
[Clip Art] o Most accounts. o Call EASI-Line for
o Sales of up to $100,000. automated service 24
hours a day using your
touch tone phone at
1-800-338-8080.
o Call your financial
representative or
Signature Services
between 8 A.M. and 4 P.M.
Eastern Time on most
business days.
By wire or electronic funds transfer (EFT)
[Clip Art] o Requests by letter to o To verify that the
sell any amount. Internet or telephone
o Requests by Internet or redemption privilege is
phone to sell up to in place on an account,
$100,000. or to request the form to
add it to an existing
account, call Signature
Services.
o Amounts of $1,000 or more
will be wired on the next
business day. A $4 fee
will be deducted from
your account.
o Amounts of less than
$1,000 may be sent by EFT
or by check. Funds from
EFT transactions are
generally available by
the second business day.
Your bank may charge a
fee for this service.
By exchange
[Clip Art] o Accounts of any type. o Obtain a current
o Sales of any amount. prospectus for the fund
into which you are
exchanging by Internet or
by calling your financial
representative or
Signature Services.
o Log on to www.jhfunds.com
to process exchanges
between your funds.
o Call EASI-Line for
automated service 24
hours a day using your
touch tone phone at
1-800-338-8080.
o Call your financial
representative or
Signature Services to
request an exchange.
To sell shares through a systematic withdrawal plan, see "Additional investor
services."
12 YOUR ACCOUNT
Selling shares in writing In certain circumstances, you will need to make your
request to sell shares in writing. You may need to include additional items with
your request, unless they were previously provided to Signature Services and are
still accurate. These items are shown in the table below. You may also need to
include a signature guarantee, which protects you against fraudulent orders. You
will need a signature guarantee if:
o your address of record has changed within the past 30 days
o you are selling more than $100,000 worth of shares
o you are requesting payment other than by a check mailed to the address of
record and payable to the registered owner(s)
You will need to obtain your signature guarantee from a member of the Signature
Guarantee Medallion Program. Most brokers and securities dealers are members of
this program. A notary public CANNOT provide a signature guarantee.
- --------------------------------------------------------------------------------
Seller Requirements for written requests
- --------------------------------------------------------------------------------
[Clip Art]
Owners of individual, joint, o Letter of instruction.
UGMA/UTMA accounts (custodial o On the letter, the signatures
accounts for minors). of all persons authorized to
sign for the account, exactly
as the account is registered.
o Signature guarantee if
applicable (see above).
Owners of corporate, sole o Letter of instruction.
proprietorship, general partner o Corporate
or association accounts. business/organization
resolution, certified within
the past 12 months, or a John
Hancock Funds
business/organization
certification form.
o On the letter and the
resolution, the signature of
the person(s) authorized to
sign for the account.
o Signature guarantee if
applicable (see above).
Owners or trustees of trust o Letter of instruction.
accounts. o On the letter, the
signature(s) of the trustee(s).
o Copy of the trust document
certified within the past
12 months, or a John Hancock
Funds trust certification form.
o Signature guarantee if
applicable (see above).
Joint tenancy shareholders with o Letter of instruction signed
rights of survivorship whose by surviving tenant.
co-tenants are deceased. o Copy of death certificate.
o Signature guarantee if
applicable (see above).
Executors of shareholder estates. o Letter of instruction signed
by executor.
o Copy of order appointing
executor, certified within the
past 12 months.
o Signature guarantee if
applicable (see above).
Administrators, conservators, o Call 1-800-225-5291 for
guardians and other sellers or instructions.
account types not listed above.
- ---------------------------------------------
Address:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
Phone Number: 1-800-225-5291
Or contact your financial representative for
instructions and assistance.
- ---------------------------------------------
YOUR ACCOUNT 13
- --------------------------------------------------------------------------------
TRANSACTION POLICIES
Valuation of shares The net asset value (NAV) per share for each fund and class
is determined each business day at the close of regular trading on the New York
Stock Exchange (typically 4 P.M. Eastern Time). The funds use market prices in
valuing portfolio securities, but may use fair-value estimates if reliable
market prices are unavailable. The Funds may also value securities at fair value
if the value of these securities has been materially affected by events
occurring after the close of a foreign market. Foreign stock or other portfolio
securities held by the funds may trade on U.S. holidays and weekends, even
though the funds' shares will not be priced on those days. This may change a
fund's NAV on days when you cannot buy or sell shares.
Buy and sell prices When you buy shares, you pay the NAV plus any applicable
sales charges, as described earlier. When you sell shares, you receive the NAV
minus any applicable deferred sales charges.
Execution of requests Each fund is open on those days when the New York Stock
Exchange is open, typically Monday through Friday. Buy and sell requests are
executed at the next NAV to be calculated after Signature Services receives your
request in good order.
At times of peak activity, it may be difficult to place requests by phone.
During these times, consider using EASI-Line, accessing www.jhfunds.com, or
sending your request in writing.
In unusual circumstances, any fund may temporarily suspend the processing of
sell requests, or may postpone payment of proceeds for up to three business days
or longer, as allowed by federal securities laws.
Telephone transactions For your protection, telephone requests may be recorded
in order to verify their accuracy. Also for your protection, telephone
redemption transactions are not permitted on accounts whose names or addresses
have changed within the past 30 days. Proceeds from telephone transactions can
only be mailed to the address of record.
Exchanges You may exchange shares of one John Hancock fund for shares of the
same class of any other, generally without paying any additional sales charges.
The registration for both accounts involved must be identical. Class B and Class
C shares will continue to age from the original date and will retain the same
CDSC rate. However, if the new fund's CDSC rate is higher, then the rate will
increase. A CDSC rate that has increased will drop again with a future exchange
into a fund with a lower rate.
To protect the interests of other investors in the fund, a fund may cancel the
exchange privileges of any parties who, in the opinion of the fund, are using
market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. A fund may also refuse any exchange order.
A fund may change or cancel its exchange policies at any time, upon 60 days'
notice to its shareholders.
Account Information John Hancock Funds is required by law to obtain information
for verifying an account holder's identity. If you do not provide the required
information, we may not be able to open your account. If verification is
unsuccessful, John Hancock Funds may close your account, redeem your shares at
the next NAV minus any applicable sales charges and take other steps that it
deems reasonable.
Certificated shares The funds no longer issue share certificates. Shares are
electronically recorded. Any existing certificated shares can only be sold by
returning the certifi-cated shares to Signature Services, along with a letter of
instruction or a stock power and a signature guarantee.
Sales in advance of purchase payments When you place a request to sell shares
for which the purchase money has not yet been collected, the request will be
executed in a timely fashion, but the fund will not release the proceeds to you
until your purchase payment clears. This may take up to ten business days after
the purchase.
- --------------------------------------------------------------------------------
DIVIDENDS AND ACCOUNT POLICIES
Account statements In general, you will receive account statements as follows:
o after every transaction (except a dividend reinvestment) that affects your
account balance
o after any changes of name or address of the registered owner(s)
o in all other circumstances, every quarter
Every year you should also receive, if applicable, a Form 1099 tax information
statement, mailed by January 31.
Dividends The funds generally distribute most or all of their net earnings
annually in the form of dividends. The funds declare and pay any income
dividends annually. Capital gains, if any, are typically distributed annually.
Dividend reinvestments Most investors have their dividends reinvested in
additional shares of the same fund and class. If you choose this option, or if
you do not indicate any choice, your dividends will be reinvested on the
dividend record date. Alternatively, you can choose to have a check for your
dividends and capital gains in the amount
14 YOUR ACCOUNT
of more than $10 mailed to you. However, if the check is not deliverable or the
combined dividend and capital gains amount is $10 or less, your proceeds will be
reinvested. If five or more of your dividend or capital gains checks remain
uncashed after 180 days, all subsequent dividends and capital gains will be
reinvested.
Taxability of dividends Dividends you receive from a fund, whether reinvested or
taken as cash, are generally considered taxable. Dividends from a fund's income
and short-term capital gains are taxable as ordinary income. Dividends from a
fund's long-term capital gains are taxable at a lower rate. Whether gains are
short-term or long-term depends on the fund's holding period. Some dividends
paid in January may be taxable as if they had been paid the previous December.
Dividends may include a return of capital.
The Form 1099 that is mailed to you every January details your dividends and
their federal tax category, although you should verify your tax liability with
your tax professional.
Taxability of transactions Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the sale
price of the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
Small accounts (non-retirement only) If you draw down a non-retirement account
so that its total value is less than $1,000, you may be asked to purchase more
shares within 30 days. If you do not take action, your fund may close out your
account and mail you the proceeds. Alternatively, Signature Services may charge
you $10 a year to maintain your account. You will not be charged a CDSC if your
account is closed for this reason, and your account will not be closed if its
drop in value is due to fund performance or the effects of sales charges.
- --------------------------------------------------------------------------------
ADDITIONAL INVESTOR SERVICES
Monthly Automatic Accumulation Program (MAAP) MAAP lets you set up regular
investments from your paycheck or bank account to the John Hancock fund(s)
of your choice. You determine the frequency and amount of your
investments, and you can terminate your program at any time. To establish:
o Complete the appropriate parts of your account application.
o If you are using MAAP to open an account, make out a check ($25 minimum) for
your first investment amount payable to "John Hancock Signature Services,
Inc." Deliver your check and application to your financial representative or
Signature Services.
Systematic withdrawal plan This plan may be used for routine bill payments or
periodic withdrawals from your account. To establish:
o Make sure you have at least $5,000 worth of shares in your account.
o Make sure you are not planning to invest more money in this account (buying
shares during a period when you are also selling shares of the same fund is
not advantageous to you, because of sales charges).
o Specify the payee(s). The payee may be yourself or any other party, and
there is no limit to the number of payees you may have, as long as they are
all on the same payment schedule.
o Determine the schedule: monthly, quarterly, semi-annually, annually or in
certain selected months.
o Fill out the relevant part of the account application. To add a systematic
withdrawal plan to an existing account, contact your financial
representative or Signature Services.
Retirement plans John Hancock Funds offers a range of retirement plans,
including traditional and Roth IRAs, Coverdell ESAs, SIMPLE plans and
SEPs. Using these plans, you can invest in any John Hancock fund (except
tax-free income funds) with a low minimum investment of $250 or, for some
group plans, no minimum investment at all. To find out more, call
Signature Services at 1-800-225-5291.
YOUR ACCOUNT 15
Fund details
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The diagram below shows the basic business structure used by the John Hancock
international funds. Each fund's board of trustees oversees the fund's business
activities and retains the services of the various firms that carry out the
fund's operations.
The trustees of the International Fund have the power to change the fund's
investment goal without shareholder approval.
The trustees of Pacific Basin Equities Fund have the power to change the focus
of the fund's 80% investment policy without shareholder approval. The fund will
provide written notice to shareholders at least 60 days prior to a change in its
80% investment policy.
Management fees The management fees paid to the investment adviser by the John
Hancock international funds last fiscal year are as follows:
- --------------------------------------------------------------------------------
Fund % of net assets
- --------------------------------------------------------------------------------
International 0.00%
Pacific Basin Equities 0.80%
-------------------------------------------------
Shareholders
-------------------------------------------------
-------------------------------------------------
Distribution Financial services firms and
and shareholder their representatives
services Advise current and prospective share-
holders on their fund investments, often
in the context of an overall financial plan.
-------------------------------------------------
-------------------------------------------------
Principal distributor
John Hancock Funds, LLC
Markets the funds and distributes shares
through selling brokers, financial planners
and other financial representatives.
-------------------------------------------------
-------------------------------------------------
Transfer agent
John Hancock Signature Services, Inc.
Handles shareholder services, including record-
keeping and statements, distribution of dividends
and processing of buy and sell requests.
-------------------------------------------------
-------------------------------------------------
Subadviser Asset
management
Nicholas-Applegate
Capital Management
600 West Broadway
San Diego, California 92101
Provides portfolio management
to the funds.
-------------------------------------------------
-------------------------------------------------
Investment adviser
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, MA 02199-7603
Manages the funds' business and
investment activities.
-------------------------------------------------
-------------------------------------------------
Custodian
The Bank of New York
One Wall Street
New York, New York 10286
Holds the funds' assets, settles all
portfolio trades and collects most
of the valuation data required for
calculating each fund's NAV.
-------------------------------------------------
-------------------------------------------------
Trustees
Oversee the funds' activities.
-------------------------------------------------
16 FUND DETAILS
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
These tables detail the performance of each fund's share classes, including
total return information showing how much an investment in the fund has
increased or decreased each year.
International Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED: 10-31-98 10-31-99 10-31-00 10-31-01 10-31-02
- ----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.41 $8.81 $10.95 $9.45 $6.18
Net investment income (loss)(1) --(2) (0.02) (0.04) (0.05) (0.04)
Net realized and unrealized gain (loss) on 0.47 2.16 (1.01) (3.22) (1.04)
investments
Total from investment operations 0.47 2.14 (1.05) (3.27) (1.08)
Less distributions
From net realized gain (0.07) -- (0.45) -- --
Net asset value, end of period $8.81 $10.95 $9.45 $6.18 $5.10
Total return(3),(4) (%) 5.61 24.29 (10.15) (34.60) (17.48)
- ----------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $6 $7 $15 $8 $6
Ratio of expenses to average net assets (%) 1.79 1.96 1.88 2.23 2.38
Ratio of adjusted expenses to average net 3.65 3.81 3.44 3.83 4.43
assets(5) (%)
Ratio of net investment income (loss) to 0.04 (0.20) (0.43) (0.65) (0.68)
average net assets (%)
Portfolio turnover (%) 129 113 163 278 228
CLASS B SHARES PERIOD ENDED: 10-31-98 10-31-99 10-31-00 10-31-01 10-31-02
- ----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $8.22 $8.55 $10.55 $9.04 $5.86
Net investment loss(1) (0.06) (0.09) (0.12) (0.10) (0.08)
Net realized and unrealized gain (loss) 0.46 2.09 (0.94) (3.08) (0.97)
on investments
Total from investment operations 0.40 2.00 (1.06) (3.18) (1.05)
Less distributions
From net realized gain (0.07) -- (0.45) -- --
Net asset value, end of period $8.55 $10.55 $9.04 $5.86 $4.81
Total return(3),(4) (%) 4.88 23.39 (10.65) (35.18) (17.92)
- ----------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $10 $9 $12 $6 $5
Ratio of expenses to average net assets (%) 2.49 2.63 2.57 2.93 3.08
Ratio of adjusted expenses to average 4.35 4.48 4.13 4.53 5.13
net assets(5) (%)
Ratio of net investment loss to average (0.66) (0.91) (1.13) (1.34) (1.38)
net assets (%)
Portfolio turnover (%) 129 113 163 278 228
FUND DETAILS 17
International Fund continued
CLASS C SHARES PERIOD ENDED: 10-31-98(6) 10-31-99 10-31-00 10-31-01 10-31-02
- ----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.36 $8.55 $10.57 $9.05 $5.87
Net investment loss(1) (0.03) (0.10) (0.11) (0.10) (0.08)
Net realized and unrealized gain (0.78) 2.12 (0.96) (3.08) (0.98)
(loss) on investments
Total from investment operations (0.81) 2.02 (1.07) (3.18) (1.06)
Less distributions
From net realized gain -- -- (0.45) -- --
Net asset value, end of period $8.55 $10.57 $9.05 $5.87 $4.81
Total return(3,4) (%) (8.65)(7) 23.63 (10.72) (35.14) (18.06)
- ----------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) --(8) --(8) $1 $1 $1
Ratio of expenses to average net 2.29(9) 2.66 2.57 2.93 3.08
assets (%)
Ratio of adjusted expenses to average 4.15(9) 4.51 4.13 4.53 5.13
net assets(5) (%)
Ratio of net investment loss to (1.27)(9) (1.04) (1.07) (1.35) (1.38)
average net assets (%)
Portfolio turnover (%) 129 113 163 278 228
(1) Based on the average of the shares outstanding.
(2) Less than $0.01 per share.
(3) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(4) Total returns would have been lower had certain expenses not been reduced
during the periods shown.
(5) Does not take into consideration expense reductions during the periods
shown.
(6) Class C shares began operations on 6-1-98.
(7) Not annualized.
(8) Less than $500,000.
(9) Annualized.
================================================================================
The following returns are not audited and are not part of the audited financial
highlights presented above:
Without the expense reductions, returns for the periods or years ended October
31, 1998, 1999, 2000, 2001 and 2002 for Class A would have been 3.75%, 22.44%,
(11.71%), (36.20%) and (19.53%), for Class B 3.02%, 21.54%, (12.21%), (36.78%)
and (19.97%), and for Class C (9.43%), 21.78%, (12.28%), (36.74%) and (20.11%),
respectively.
18 FUND DETAILS
Pacific Basin Equities Fund
Figures audited by PricewaterhouseCoopers LLP.
CLASS A SHARES PERIOD ENDED: 10-31-98 10-31-99 10-31-00 10-31-01 10-31-02
- ----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.63 $8.76 $14.46 $14.02 $9.62
Net investment income (loss)(1) 0.02 (0.09) (0.14) (0.08) (0.10)
Net realized and unrealized gain (loss) on (2.89) 5.79 0.08 (4.32) (0.29)
investments
Total from investment operations (2.87) 5.70 (0.06) (4.40) (0.39)
Less distributions
From net investment income -- -- (0.37) -- --
In excess of net investment income -- -- (0.01) -- --
-- -- (0.38) -- --
Net asset value, end of period $8.76 $14.46 $14.02 $9.62 $9.23
Total return(2) (%) (24.68) 65.07 (0.57) (31.38) (4.05)
- ----------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $15 $33 $23 $12 $11
Ratio of expenses to average net assets (%) 2.46 2.37 2.06 2.67 2.57
Ratio of net investment income (loss) to 0.22 (0.77) (0.81) (0.64) (0.99)
average net assets (%)
Portfolio turnover (%) 230 174 258 448 293
CLASS B SHARES PERIOD ENDED: 10-31-98 10-31-99 10-31-00 10-31-01 10-31-02
- ----------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.32 $8.47 $13.89 $13.43 $9.15
Net investment loss(1) (0.04) (0.17) (0.25) (0.15) (0.17)
Net realized and unrealized gain (loss) (2.81) 5.59 0.09 (4.13) (0.26)
on investments
Total from investment operations (2.85) 5.42 (0.16) (4.28) (0.43)
Less distributions
From net investment income -- -- (0.29) -- --
In excess of net investment income -- -- (0.01) -- --
-- -- (0.30) -- --
Net asset value, end of period $8.47 $13.89 $13.43 $9.15 $8.72
Total return(2) (%) (25.18) 63.99 (1.30) (31.87) (4.70)
- ----------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ----------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $13 $37 $29 $14 $10
Ratio of expenses to average net assets (%) 3.16 3.07 2.77 3.37 3.27
Ratio of net investment loss to average (0.48) (1.47) (1.51) (1.36) (1.69)
net assets (%)
Portfolio turnover (%) 230 174 258 448 293
CLASS C SHARES PERIOD ENDED: 10-31-99(3) 10-31-00 10-31-01 10-31-02
- ------------------------------------------------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
- ------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $9.09 $13.89 $13.43 $9.15
Net investment loss(1) (0.13) (0.24) (0.17) (0.17)
Net realized and unrealized gain (loss) on 4.93 0.08 (4.11) (0.26)
investments
Total from investment operations 4.80 (0.16) (4.28) (0.43)
Less distributions
From net investment income -- (0.29) -- --
In excess of net investment income -- (0.01) -- --
-- (0.30) -- --
Net asset value, end of period $13.89 $13.43 $9.15 $8.72
Total return(2) (%) 52.81(4) (1.30) (31.87) (4.70)
- ------------------------------------------------------------------------------------------------------------
RATIOS AND SUPPLEMENTAL DATA
- ------------------------------------------------------------------------------------------------------------
Net assets, end of period (in millions) $1 $1 --(5) $1
Ratio of expenses to average net assets (%) 3.14(6) 2.77 3.37 3.27
Ratio of net investment loss to average net (1.76)(6) (1.48) (1.48) (1.69)
assets (%)
Portfolio turnover (%) 174 258 448 293
(1) Based on the average of the shares outstanding.
(2) Assumes dividend reinvestment and does not reflect the effect of sales
charges.
(3) Class C shares began operations on 3-1-99.
(4) Not annualized.
(5) Less than $500,000.
(6) Annualized.
FUND DETAILS 19
For more information
Two documents are available that offer further information on John Hancock
international funds:
Annual/Semiannual Report to Shareholders
Includes financial statements, a discussion of the market conditions and
investment strategies that significantly affected performance, as well as the
auditors' report (in annual report only).
Statement of Additional Information (SAI)
The SAI contains more detailed information on all aspects of the funds. The
current annual report is included in the SAI.
A current SAI has been filed with the Securities and Exchange Commission and is
incorporated by reference into (is legally a part of) this prospectus.
To request a free copy of the current annual/semiannual report or the SAI,
please contact John Hancock:
By mail:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By phone: 1-800-225-5291
By EASI-Line: 1-800-338-8080
By TDD: 1-800-554-6713
On the Internet: www.jhfunds.com
Or you may view or obtain these documents from the SEC:
In person: at the SEC's Public Reference Room in Washington, DC. For access to
the Reference Room call 1-202-942-8090
By mail: Public Reference Section
Securities and Exchange Commission
Washington, DC 20549-0102
(duplicating fee required)
By electronic request: publicinfo@sec.gov
(duplicating fee required)
On the Internet: www.sec.gov
(C)2003 JOHN HANCOCK FUNDS, LLC INTPN 2/03
-------------
PRSRT STD
U.S. POSTAGE
PAID
BOSTON, MA
PERMIT NO. 11
-------------
[LOGO](R)
John Hancock Funds, LLC
MEMBER NASD
101 Huntington Avenue
Boston, MA 02199-7603
www.jhfunds.com
John Hancock
International
Fund
ANNUAL
REPORT
10.31.02
Sign up for electronic delivery at
www.jhancock.com/funds/edelivery
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Maureen R. Ford, Chairman and Chief Executive Officer,
flush left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Fund's investments
page 8
Financial statements
page 13
Trustees & officers
page 30
For your information
page 33
Dear Fellow Shareholders,
The year 2002 has been an extremely difficult one for the stock market. A
steady stream of accounting scandals and corporate misdeeds has shaken
investors' faith in corporate America. Plus, questions about the strength
of the economic rebound and prospects for corporate earnings have hung over
the financial markets, along with increased fears about Middle East
tensions and terrorism.
With all these concerns, the major stock market indexes have fallen
significantly for much of the year. Despite a strong rally in October, the
broad Standard & Poor's 500 Index is down 22% year to date through October,
the Dow Jones Industrial Average is off 15% and the technology-laden Nasdaq
Composite Index has fallen 32%. Investors in equity mutual funds have been
unable to escape the market's descent, as 99% of all U.S. diversified
equity funds have produced negative results through October, according to
Lipper, Inc., and the average equity fund has lost 23%. Bonds, on the other
hand, outperformed stocks and gained some ground, as often happens when
investors seek safer havens.
At such trying times as these, the impulse to flee is understandable,
especially after the negative stock market returns in 2000 and 2001. But we
urge you to stay the course and keep a well-diversified portfolio and a
longer-term investment perspective. Working with your investment
professional on your long-term plan is especially critical in turbulent
times. Financial markets have always moved in cycles, and even though the
current down cycle is painful, it comes after five straight years of
20%-plus returns between 1995 and 1999.
As discouraging as conditions may seem in the short-term, history shows us
that the bad times do pass. We believe that remains the case today. The
economy is sound and the vast majority of U.S. corporations are honest
institutions striving to do their best for their shareholders. And the
efforts of both the private sector and the U.S. government should address
the current issues of corporate governance, so that corporate credibility
and therefore investor confidence are restored.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
YOUR FUND
AT A GLANCE
The Fund seeks
long-term growth
of capital by
investing primarily
in stocks of foreign
companies.
Over the last twelve months
* Global economic growth remained sluggish and concerns over Middle East
violence and terrorism dampened investor enthusiasm for stocks.
* The Fund's holdings in Japan hampered relative performance.
* International stocks staged a solid rebound late in the period.
[Bar chart with heading "John Hancock International Fund." Under the
heading is a note that reads "Fund performance for the year ended
October 31, 2002." The chart is scaled in increments of 5% with -20% at
the bottom and 0% at the top. The first bar represents the -17.48% total
return for Class A. The second bar represents the -17.92% total return
for Class B. The third bar represents the -18.06% total return for Class
C. The fourth bar represents the -17.15%* total return for Class I. A
note below the chart reads "Total returns for the Fund are at net asset
value with all distributions reinvested. *From inception March 1, 2002
through October 31, 2002."]
Top 10 holdings
1.9% Royal Bank of Scotland Group
1.9% Nokia
1.8% Unilever
1.6% Axa
1.5% Autostrade
1.5% SAP
1.5% HSBC Holdings
1.4% Nestle
1.4% TotalFinaElf
1.4% Barclays
As a percentage of net assets on October 31, 2002.
BY LORETTA MORRIS FOR THE NICHOLAS-APPLEGATE
CAPITAL MANAGEMENT PORTFOLIO MANAGEMENT TEAM
John Hancock
International Fund
MANAGERS'
REPORT
Following two consecutive years of decline in the global stock market,
investors could not be faulted for hoping that better days lay ahead. Alas,
these hopes were dashed as equity markets around the world continued to
retreat during the 12-month period ended October 31, 2002.
The reporting period began with a powerful rally as investors rebuilt their
shattered confidence and sentiment improved following the September 11,
2001 terrorist attacks on U.S. soil. In the wake of the attacks,
coordinated action by the world's central bankers led to unprecedented
stimulus in the form of interest-rate reductions and injections of
liquidity into the markets. The stimulus began to have its desired effect
late in 2001 as encouraging economic reports indicated that a recovery was
indeed underway.
Increasing evidence of a pickup in economic growth, as well as the support
of low interest rates, buoyed international markets during the first
quarter of 2002. While developed markets in Europe and Japan posted modest
gains, emerging markets did significantly better.
As the year unfolded, however, evidence of a slowing global economy,
accounting scandals in the United States, an escalation of violence in the
Middle East and the prospect of U.S. military action in Iraq dampened
investor sentiment. One notable exception was in Japan, where stocks surged
on a combination of technical reforms and hints that its beleaguered
economy might be bottoming.
"...equity markets
around the world
continued to retreat..."
Late in the period, the major international developed stock markets, with
the exception of Japan, staged a solid rebound. On a macroeconomic level,
worries of a possible double-dip recession in global growth were offset by
a number of positive data. A bull market indicator emerged when oil prices
fell even as other commodity prices increased. Prices for dynamic random
access memory chips continued to rise and the Baltic freight rate index,
which measures the cost of shipping cargo worldwide, is up 55%
year-over-year.
FUND PERFORMANCE EXPLAINED
For the 12 months ended October 31, 2002, John Hancock International Fund's
Class A, Class B and Class C shares posted total returns of -17.48%,
- -17.92% and -18.06%, respectively, at net asset value. During the same
period, the average international fund returned -12.72%, according to
Lipper, Inc.,1 while the benchmark MSCI All Country World Free Ex-U.S.
Index fell -10.88%. Class I shares, which were launched on March 1, 2002,
returned -17.15% from inception through October 31, 2002. Keep in mind
that your net asset value return will be different from the Fund's
performance if you were not invested in the Fund for the entire period and
did not reinvest all distributions. Please see pages six and seven for
historical performance information.
"...financial services stocks
were the largest detractor
to performance."
In the latter part of 2002, companies that met or exceeded their earnings
expectations began to be rewarded by investors. The renewed focus on
fundamentals was conducive to our investment philosophy and approach, which
is centered on positive, sustainable change and timeliness of investment.
Our bottom-up approach to selecting individual stocks helped us identify
areas of strength in consumer non-durables -- the only sector in both the
portfolio and the benchmark to post positive returns -- as well as consumer
durables and energy.
On a relative basis, holdings in the insurance services, technology and
utilities sectors benefited the portfolio, while financial services stocks
were the largest detractors to performance. Electric utilities in the
portfolio gained even as those in the benchmark posted a double-digit
decline. Meanwhile, holdings in finance companies registered steep losses.
[Table at top left-hand side of page entitled "Top five industry
groups." The first listing is Banks--foreign 14%, the second is Utilities
8%, the third Telecommunications 7%, the fourth Oil & gas 7%, and the
fifth Medical 6%.]
By country basis, stock selection in Germany, Canada and Italy proved
favorable, while holdings in Japan hampered relative performance. Among the
few bright spots were Indonesia and Russia, where portfolio holdings surged
more than 30%.
PORTFOLIO SHIFTS
During the reporting period, we added to holdings in the consumer
non-durables sector, where consumer spending on staple products remained
solid, and reduced exposure to the health-care and insurance services
groups. By country, we trimmed holdings in France and the United Kingdom on
signs of economic weakness, while increasing exposure to Japan, where
modest reform efforts are being made.
[Bar chart at middle of page with heading "Top five countries As a
percentage of net assets on 10-31-02." The chart is divided into five
sections: United Kingdom 19%, Japan 15%, Italy 7%, France 6% and Germany 5%.]
The list of best-performing stocks included Nissan Motor and Sony Corp. of
Japan, Banque National de Paris of France and Bank of Ireland. Decliners
included Corus Group, British Airways and Rohm Co.
[Table at top of page entitled "SCORECARD." The header for the left
column is "INVESTMENT" and the header for the right column is "RECENT
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Nissan Motor followed by an up arrow with the phrase "New models prove
popular." The second listing is Corus Group followed by a down arrow
with the phrase "Sliding steel prices and reduced output." The third
listing is Samsung Electronics followed by an up arrow with the phrase
"Strong growth in three business units."]
OUTLOOK
Looking ahead, the international equity markets are sending mixed signals.
Economic data have been disappointing in the United States, Eurozone and
Japan, and the Iraq situation continues to hang over the markets.
We are especially cautious about our outlook for Germany and Japan. In
Germany, which amounts to 35% of the total European Union economy, German
business confidence fell to a nine-month low in October, manufacturing
orders declined, and leading German research institutes cut their growth
forecasts for 2003 by more than half. The persistent concerns of excessive
debt could continue to constrain the telecommunications industry, although
we began to see signs of positive change late in the period. In Japan,
resistance to reform is blocking the government from making meaningful
progress.
"...the international
equity markets are
sending mixed signals."
For investors to regain confidence and rekindle enthusiasm for equities, a
return to profitability and increased visibility regarding corporate
earnings in the fourth quarter and into 2003 is paramount. Also, we believe
that the European Central Bank (ECB) must lower interest rates to stimulate
growth. Currently, the ECB has remained committed to its mission of
combating inflation, but inflationary pressures are easing even as the
Eurozone economy weakens.
This commentary reflects the views of the portfolio management team through
the end of the Fund's period discussed in this report. Of course, the
team's views are subject to change as market and other conditions warrant.
International investing involves special risks such as political, economic
and currency risks and differences in accounting standards and financial
reporting.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
A LOOK AT
PERFORMANCE
For the period ended
October 31, 2002
The index used for
comparison is the
Morgan Stanley
Capital International
(MSCI) All Country
World Free Ex-U.S.
Index, an unman-
aged index of freely
traded stocks of
foreign companies.
It is not possible to
invest in an index.
Class A Class B Class C Class I 1 Index
Inception date 1-3-94 1-3-94 6-1-98 3-1-02 --
Average annual returns with maximum sales charge (POP)
One year -21.66% -22.02% -19.70% -- -10.88%
Five years -9.57% -9.61% -- -- -2.95%
Since inception -5.54% -5.64% -13.36% -17.15% 2 --
Cumulative total returns with maximum sales charge (POP)
One year -21.66% -22.02% -19.70% -- -10.88%
Five years -39.52% -39.65% -- -- -13.92%
Since inception -39.53% -40.11% -46.93% -17.15% --
Performance figures assume all distributions are reinvested. Returns with
maximum sales charge reflect a sales charge on Class A shares of 5% and
Class C shares of 1%, and the applicable contingent deferred sales charge
(CDSC) on Class B and Class C shares. The Class B shares' CDSC declines
annually between years 1-6 according to the following schedule: 5, 4, 3,
3, 2, 1%. No sales charge will be assessed after the sixth year. Class C
shares held for less than one year are subject to a 1% CDSC. Sales charge
is not applicable for Class I shares. The return and principal value of an
investment in the Fund will fluctuate, so that shares, when redeemed, may
be worth more or less than the original cost. Index figures do not reflect
sales charges and would be lower if they did.
The returns reflect past results and should not be considered indicative of
future performance. The performance table above and the chart on the next
page do not reflect the deduction of taxes that a shareholder would pay on
fund distributions or the redemption of fund shares.
The Fund's performance results reflect any applicable expense reductions,
without which the expenses would increase and results would have been less
favorable. These reductions can be terminated in the future. See the
prospectus for details.
1 For certain types of investors as described in the Fund's prospectus for
Class I shares.
2 Not annualized.
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in
Class A shares for the period indicated. For comparison, we've shown the
same investment in the MSCI All Country World Free Ex-U.S. Index.
Line chart with the heading "GROWTH OF $10,000." Within the chart are
three lines. The first line represents the Index and is equal to $10,997
as of October 31, 2002. The second line represents the value of the
hypothetical $10,000 investment made in the John Hancock International
Fund, before sales charge, and is equal to $6,367 as of October 31,
2002. The third line represents the value of the same hypothetical
investment made in the John Hancock International Fund, after sales
charge, and is equal to $6,047 as of October 31, 2002.
Class B 1 Class C 1 Class I 2
Period beginning 1-3-94 6-1-98 3-1-02
Without sales charge $5,989 $5,358 $8,285
With maximum sales charge -- $5,305 --
Index $10,997 $7,667 $8,727
Assuming all distributions were reinvested for the period indicated, the
chart above shows the value of a $10,000 investment in the Fund's Class B,
Class C shares and Class I shares, respectively, as of October 31, 2002.
Performance of the classes will vary based on the difference in sales
charges paid by shareholders investing in the different classes and the fee
structure of those classes.
1 No contingent deferred sales charge applicable.
2 For certain types of investors as described in the Fund's prospectus for
Class I shares.
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
October 31, 2002
This schedule is divided into three main categories: common stocks,
warrants and short-term investments. Common stocks and warrants are further
broken down by country. Short-term investments, which represent the Fund's
cash position, are listed last.
SHARES ISSUER VALUE
COMMON STOCKS 92.53% $11,162,958
(Cost $11,728,128)
Australia 2.33% $280,807
7,600 Commonwealth Bank of Australia (Banks -- Foreign) 128,227
22,333 Woolworths Ltd. (Retail) 152,580
Belgium 1.23% 148,319
6,300 Dexia SA (Banks -- Foreign) 60,455
3,900 Interbrew SA (Beverages) 87,864
Bermuda 0.29% 34,970
1,000 Nabors Industries Ltd.* (Oil & Gas) 34,970
Brazil 1.17% 141,679
4,100 Aracruz Celulose SA American Depositary
Receipts (ADR) (Paper & Paper Products) 65,559
11,000 Tele Norte Leste Participacoes SA (ADR) (Telecommunications) 76,120
Canada 4.85% 584,715
7,900 Barrick Gold Corp. (Metal) 119,053
2,100 Canadian National Railway Co. (Transport) 89,607
2,700 Loblaw Cos., Ltd. (Retail) 97,531
1,500 Petro-Canada (Oil & Gas) 41,460
3,600 Shoppers Drug Mart Corp.* (Retail) 57,237
3,800 Suncor Energy, Inc. (Oil & Gas) 54,979
3,400 Talisman Energy, Inc. (Oil & Gas) 124,848
Denmark 0.52% 62,601
2,900 TDC AS (Telecommunications) 62,601
Finland 1.86% 224,370
13,500 Nokia Oyj (ADR) (Telecommunications) 224,370
France 5.78% 697,717
13,200 Axa SA (Insurance) 196,993
1,200 L'Oreal SA (Cosmetics & Personal Care) 89,364
1,800 Sanofi-Synthelabo SA (Medical) 110,071
1,189 TotalFinaElf SA (Oil & Gas) 163,785
5,800 Vivendi Environnement SA (Utilities) 137,504
Germany 4.92% 593,683
2,600 Bayerische Motoren Werke AG (Automobile / Trucks) 92,692
2,900 Degussa AG (Chemicals) 86,156
5,900 Deutsche Telekom AG (Telecommunications) 67,717
3,600 E.ON AG (Utilities) 162,923
2,400 SAP AG (Computers) 184,195
Greece 1.01% 121,593
4,800 Coca-Cola Hellenic Bottling Co. SA (Beverages) 67,594
4,800 Hellenic Telecommunications Organization SA
(Telecommunications) 53,999
Hong Kong 2.98% 358,906
31,000 China Mobile Ltd.* (Telecommunications) 76,115
37,500 CLP Holdings Ltd. (Utilities) 151,935
21,000 Sun Hung Kai Properties, Ltd. (Real Estate Operations) 130,856
India 0.50% 59,885
18,059 Hindustan Lever Ltd.* (Soap & Cleaning Preparations) 59,885
Indonesia 0.14% 17,324
52,000 PT Telekomunikasi Indonesia (Telecommunications) 17,324
Ireland 1.75% 211,650
11,000 Bank of Ireland (Banks -- Foreign) 122,004
7,100 CRH Plc (Building) 89,646
Israel 1.35% 162,603
2,100 Teva Pharmaceutical Industries Ltd. (ADR) (Medical) 162,603
Italy 6.65% 802,588
22,500 Autostrade SpA (Transport) 186,052
9,600 ENI SpA (Oil & Gas) 133,286
152,400 Finmeccanica SpA (Aerospace) 83,761
10,300 Mediaset SpA (Media) 71,910
8,216 Riunione Adriatica di Sicurta SpA (Insurance) 102,354
43,600 Snam Rete Gas SpA (Utilities) 130,394
25,200 UniCredito Italiano SpA (Banks -- Foreign) 94,831
Japan 14.99% 1,808,238
11,000 Asahi Glass Co., Ltd. (Building) 65,815
10,000 Bridgestone Corp (Rubber -- Tires & Miscellaneous) 124,643
13,000 Dai Nippon Printing Co., Ltd. (Printing -- Commercial) 132,854
20,000 Daiwa Securities Group, Inc. (Finance) 93,380
200 Fanuc Ltd. (Electronics) 7,918
2,000 Hoya Corp. (Electronics) 137,295
2,000 Ito-Yokado Co., Ltd. (Retail) 62,362
6,000 Kao Corp. (Cosmetics & Personal Care) 137,132
600 Keyence Corp. (Electronics) 99,323
11 Millea Holdings, Inc.* (Insurance) 82,157
1,900 Murata Manufacturing Co., Ltd. (Electronics) 89,797
900 Nintendo Co., Ltd. (Leisure) 86,687
100 Rohm Co., Ltd. (Electronics) 12,595
2,200 Shin-Etsu Chemical Co., Ltd. (Chemicals) 67,880
10,000 Shiseido Co., Ltd. (Cosmetics & Personal Care) 111,175
3,200 Sony Corp. (Electronics) 137,654
18,000 Sumitomo Mitsu Banking Corp. (Banks -- Foreign) 74,492
3,600 Takeda Chemical Industries, Ltd. (Medical) 149,571
22,000 Tokyo Gas Co., Ltd. (Utilities) 64,289
5,000 Yamato Transport Co., Ltd. (Transport) 71,219
Luxembourg 1.07% 128,569
11,900 Arcelor SA* (Steel) 128,569
Mexico 0.55% 66,943
31,100 Wal-Mart de Mexico SA de CV (Series C) (Retail) 66,943
Netherlands 3.76% 454,171
2,700 Heineken NV (Beverages) 108,476
3,100 Royal Dutch Petroleum Co. (Oil & Gas) 134,094
3,300 Unilever NV (Food) 211,601
Singapore 1.88% 226,312
8,000 Singapore Press Holdings Ltd. (Media) 89,709
18,000 United Overseas Bank Ltd. (Banks -- Foreign) 136,603
South Korea 2.33% 280,852
2,280 Hyundai Motor Co., Ltd. (Automobile / Trucks) 57,912
1,500 Kookmin Bank (Banks -- Foreign) 49,979
700 Samsung Electronics, Ltd.* Global Depositary Receipts
(Electronics) (R) 99,100
400 SK Telecom Co., Ltd. (Telecommunications) 73,861
Spain 3.43% 414,143
13,954 Banco Bilbao Vizcaya Argentaria SA (Banks -- Foreign) 132,93
1,900 Banco Popular Espanol SA (Banks -- Foreign) 81,359
7,500 Endesa SA (Utilities) 77,466
12,900 Telefonica SA* (Telecommunications) 122,383
Sweden 2.60% 313,799
4,400 Hennes & Mauritz AB (B Shares) (Retail) 85,480
16,100 Skandinaviska Enskilda Banken AB (A Shares) (Banks -- Foreign) 139,696
2,900 Svenska Cellulosa AB (B Shares) (Paper & Paper Products) 88,623
Switzerland 4.26% 514,458
1,700 Alcon, Inc.* (Medical) 69,734
2,300 Converium Holding AG* (Insurance) 92,860
800 Nestle SA (Food) 171,522
2,232 Novartis AG (Medical) 85,125
1,600 Syngenta AG (Chemicals) 95,217
Taiwan 0.70% 84,162
20,280 United Microelectronics Corp.* (ADR) (Electronics) 84,162
United Kingdom 19.06% 2,299,731
17,900 Allied Domecq Plc (Beverages) 106,974
23,660 Barclays Plc (Banks -- Foreign) 163,606
23,100 BG Group Plc (Oil & Gas) 92,245
15,963 BHP Billiton Plc (Metal) 77,917
4,800 BOC Group Plc (Chemicals) 67,509
11,800 British American Tobacco Plc (Tobacco) 120,732
11,100 British Sky Broadcasting Group Plc* (Media) 104,801
44,980 Centrica Plc (Utilities) 128,072
180,000 Corus Group Plc* (Steel) 119,681
12,800 Diageo Plc (Beverages) 144,280
6,500 Exel Plc (Transport) 66,810
5,000 GlaxoSmithKline Plc (Medical) 95,432
10,200 HBOS Plc (Banks -- Foreign) 112,899
16,000 HSBC Holdings Plc (Banks -- Foreign) 178,223
7,800 Man Group Plc (Finance) 116,170
21,300 National Grid Transco Plc (Utilities) 151,619
30,300 Rentokil Initial Plc (Diversified Operations) 102,746
9,622 Royal Bank of Scotland Group Plc (Banks -- Foreign) 226,400
76,900 Vodafone Group Plc (Telecommunications) 123,615
United States 0.57% 68,170
1,500 GlobalSantaFe Corp. (Oil & Gas) 35,850
1,000 Noble Corp.* (Oil & Gas) 32,320
WARRANTS 0.78% $94,029
(Cost $86,055)
India 0.78%
1,200 Infosys Technology Ltd* (Computers) 94,029
INTEREST PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 6.70% $808,000
(Cost $808,000)
Joint Repurchase Agreement 6.70%
Investment in a joint repurchase agreement
transaction with Barclays Capital, Inc., --
Dated 10-31-02, due 11-01-02 (Secured by
U.S. Treasury Inflation Indexed Note 3.000%
due 07-15-12) 1.90% $808 808,000
TOTAL INVESTMENTS 100.01% $12,064,987
OTHER ASSETS AND LIABILITIES, NET (0.01%) ($630)
TOTAL NET ASSETS 100.00% $12,064,357
* Non-Income producing security.
(R) This security is exempt from registration under rule 144A of the
Securities Act of 1933. Such security may be resold, normally to qualified
institutional buyers, in transactions exempt from registration. Rule 144A
securities amounted to $99,100 or 0.82% of net assets as of October 31,
2002.
See notes to
financial statements.
PORTFOLIO
CONCENTRATION
October 31, 2002
(unaudited)
This table shows
the percentages
of the Fund's
investments
aggregated
by various
industry groups.
VALUE AS A PERCENTAGE
INVESTMENT DISTRIBUTION OF FUND'S NET ASSETS
Aerospace 0.69%
Automobile / Trucks 1.25
Banks -- Foreign 14.11
Beverages 4.27
Building 1.29
Chemicals 2.63
Computers 2.31
Cosmetics & Personal Care 2.80
Diversified Operations 0.85
Electronics 5.54
Finance 1.74
Food 3.18
Insurance 3.93
Leisure 0.72
Media 2.21
Medical 5.57
Metal 1.63
Oil & Gas 7.03
Paper & Paper Products 1.28
Printing -- Commercial 1.10
Real Estate Operations 1.08
Retail 4.32
Rubber -- Tires & Misc. 1.03
Soap & Cleaning Preparations 0.50
Steel 2.06
Telecommunications 7.44
Tobacco 1.00
Transport 3.43
Utilities 8.32
Short-term investments 6.70
Total investments 100.01%
See notes to
financial statements.
ASSETS AND
LIABILITIES
October 31, 2002
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the
net asset value
and the maximum
offering price
per share.
ASSETS
Investments at value (cost $12,622,183) $12,064,987
Cash 490
Receivable for investments sold 272,210
Receivable for shares sold 3,312
Dividends and interest receivable 32,259
Receivable from affiliates 26,936
Other assets 2,243
Total assets 12,402,437
LIABILITIES
Payable for investments purchased 201,661
Payable for shares repurchased 4,206
Other payables and accrued expenses 132,213
Total liabilities 338,080
NET ASSETS
Capital paid-in 26,588,761
Accumulated net realized loss on investments and
foreign currency transactions (13,966,036)
Net unrealized depreciation of investments and
translation of assets and liabilities in foreign currencies (557,744)
Accumulated net investment loss (624)
Net assets $12,064,357
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($5,571,851 [DIV] 1,092,159 shares) $5.10
Class B ($4,706,547 [DIV] 978,559 shares) $4.81
Class C ($783,277 [DIV] 162,819 shares) $4.81
Class I ($1,002,682 [DIV] 195,952 shares) $5.12
MAXIMUM OFFERING PRICE PER SHARE
Class A 1 ($5.10 [DIV] 95%) $5.37
Class C ($4.81 [DIV] 99%) $4.86
1 On single retail sales of less than $50,000. On sales of $50,000 or more
and on group sales the offering price is reduced.
See notes to
financial statements.
OPERATIONS
For the year ended
October 31, 2002
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in
operating the
Fund. It also
shows net gains
(losses) for the
period stated.
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $27,493) $235,166
Interest (including securities lending income of $468) 9,520
Total investment income 244,686
EXPENSES
Investment management fee 143,908
Class A distribution and service fee 21,175
Class B distribution and service fee 58,879
Class C distribution and service fee 9,672
Class A, B and C transfer agent fee 164,099
Class I transfer agent fee 5,458
Custodian fee 162,080
Registration and filing fee 57,086
Auditing fee 36,633
Printing 17,017
Accounting and legal services fee 3,047
Miscellaneous 2,710
Trustees' fee 912
Legal fee 522
Interest expense 464
Total expenses 683,662
Less expense reductions (294,862)
Net expenses 388,800
Net investment loss (144,114)
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on
Investments (2,537,653)
Foreign currency transactions (8,371)
Change in net unrealized appreciation (depreciation) of
Investments 92,047
Translation of assets and liabilities in foreign currencies (35,291)
Net realized and unrealized loss (2,489,268)
Decrease in net assets from operations ($2,633,382)
See notes to
financial statements.
CHANGES IN
NET ASSETS
This Statement
of Changes in
Net Assets
shows how the
value of the
Fund's net assets
has changed
since the end of
the previous
period. The dif-
ference reflects
earnings less
expenses, any
investment gains
and losses, distri-
butions paid to
shareholders, if
any, and any
increase or
decrease in
money share-
holders invested
in the Fund.
YEAR YEAR
ENDED ENDED
10-31-01 10-31-02
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment loss ($201,942) ($144,114)
Net realized loss (7,653,045) (2,546,024)
Change in net unrealized appreciation
(depreciation) (1,059,294) 56,756
Decrease in net assets resulting
from operations (8,914,281) (2,633,382)
From Fund share transactions (4,718,426) (280,938)
NET ASSETS
Beginning of period 28,611,384 14,978,677
End of period 1 $14,978,677 $12,064,357
1 Includes accumulated net investment loss of $35,941 and $624, respectively.
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 10-31-98 10-31-99 10-31-00 10-31-01 10-31-02
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $8.41 $8.81 $10.95 $9.45 $6.18
Net investment income (loss)1 -- 2 (0.02) (0.04) (0.05) (0.04)
Net realized and unrealized
gain (loss) on investments 0.47 2.16 (1.01) (3.22) (1.04)
Total from investment
operations 0.47 2.14 (1.05) (3.27) (1.08)
Less distributions
From net realized gain (0.07) -- (0.45) -- --
Net asset value, end of period $8.81 $10.95 $9.45 $6.18 $5.10
Total return 3,4 (%) 5.61 24.29 (10.15) (34.60) (17.48)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $6 $7 $15 $8 $6
Ratio of expenses
to average net assets (%) 1.79 1.96 1.88 2.23 2.38
Ratio of adjusted expenses
to average net assets 5 (%) 3.65 3.81 3.44 3.83 4.43
Ratio of net investment income
(loss) to average net assets (%) 0.04 (0.20) (0.43) (0.65) (0.68)
Portfolio turnover (%) 129 113 163 278 228
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 10-31-98 10-31-99 10-31-00 10-31-01 10-31-02
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $8.22 $8.55 $10.55 $9.04 $5.86
Net investment loss 1 (0.06) (0.09) (0.12) (0.10) (0.08)
Net realized and unrealized
gain (loss) on investments 0.46 2.09 (0.94) (3.08) (0.97)
Total from investment
operations 0.40 2.00 (1.06) (3.18) (1.05)
Less distributions
From net realized gain (0.07) -- (0.45) -- --
Net asset value,
end of period $8.55 $10.55 $9.04 $5.86 $4.81
Total return 3,4 (%) 4.88 23.39 (10.65) (35.18) (17.92)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $10 $9 $12 $6 $5
Ratio of expenses
to average net assets (%) 2.49 2.63 2.57 2.93 3.08
Ratio of adjusted expenses
to average net assets 5 (%) 4.35 4.48 4.13 4.53 5.13
Ratio of net investment loss
to average net assets (%) (0.66) (0.91) (1.13) (1.34) (1.38)
Portfolio turnover (%) 129 113 163 278 228
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 10-31-98 6 10-31-99 10-31-00 10-31-01 10-31-02
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $9.36 $8.55 $10.57 $9.05 $5.87
Net investment loss 1 (0.03) (0.10) (0.11) (0.10) (0.08)
Net realized and unrealized
gain (loss) on investments (0.78) 2.12 (0.96) (3.08) (0.98)
Total from investment
operations (0.81) 2.02 (1.07) (3.18) (1.06)
Less distributions
From net realized gain -- -- (0.45) -- --
Net asset value,
end of period $8.55 $10.57 $9.05 $5.87 $4.81
Total return 3,4 (%) (8.65) 7 23.63 (10.72) (35.14) (18.06)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) -- 8 -- 8 $1 $1 $1
Ratio of expenses
to average net assets (%) 2.29 9 2.66 2.57 2.93 3.08
Ratio of adjusted expenses
to average net assets 5 (%) 4.15 9 4.51 4.13 4.53 5.13
Ratio of net investment loss
to average net assets (%) (1.27) 9 (1.04) (1.07) (1.35) (1.38)
Portfolio turnover (%) 129 113 163 278 228
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS I SHARES
PERIOD ENDED 10-31-02 6
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $6.18
Net investment loss 1 (0.01)
Net realized and unrealized
loss on investments (1.05)
Total from investment
operations (1.06)
Net asset value,
end of period $5.12
Total return 3,4 (%) (17.15) 7
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1
Ratio of expenses
to average net assets (%) 2.04 9
Ratio of adjusted expenses
to average net assets 5 (%) 4.09 9
Ratio of net investment loss
to average net assets (%) (0.34) 9
Portfolio turnover (%) 228
1 Based on the average of the shares outstanding.
2 Less than $0.01 per share.
3 Assumes dividend reinvestment and does not reflect the effect of
sales charges.
4 Total returns would have been lower had certain expenses not been reduced
during the periods shown.
5 Does not take into consideration expense reductions during the
periods shown.
6 Class C and Class I shares began operations on 6-1-98 and 3-1-02,
respectively.
7 Not annualized.
8 Less than $500,000.
9 Annualized.
See notes to
financial statements.
NOTES TO
STATEMENTS
NOTE A
Accounting policies
John Hancock International Fund (the "Fund") is a diversified series of
John Hancock Investment Trust III, an open-end investment management
company registered under the Investment Company Act of 1940. The investment
objective of the Fund is to achieve long-term growth of capital.
The Trustees have authorized the issuance of multiple classes of shares of
the Fund, designated as Class A, Class B, Class C and Class I shares. The
shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights as to voting, redemptions,
dividends and liquidation, except that certain expenses, subject to the
approval of the Trustees, may be applied differently to each class of
shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a
class that bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution plan.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or, if
quotations are not readily available, or the value has been materially
affected by events occurring after the closing of a foreign market, at fair
value as determined in good faith in accordance with procedures approved by
the Trustees. Short-term debt investments maturing within 60 days are
valued at amortized cost, which approximates market value. All portfolio
transactions initially expressed in terms of foreign currencies have been
translated into U.S. dollars as described in "Foreign currency translation"
below.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, LLC (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group, LLC,
may participate in a joint repurchase agreement transaction. Aggregate cash
balances are invested in one or more large repurchase agreements, whose
underlying securities are obligations of the U.S. government and/or its
agencies. The Fund's custodian bank receives delivery of the underlying
securities for the joint account on the Fund's behalf. The Adviser is
responsible for ensuring that the agreement is fully collateralized at all
times.
Foreign currency translation
All assets or liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars based on London currency
exchange quotations as of 5:00 P.M., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain (loss) on
investments are translated at the rates prevailing at the dates of the
transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currency, currency gains or losses realized between the trade and
settle ment dates on securities transactions and the difference between the
amounts of dividends, interest and foreign withholding taxes recorded on
the Fund's books and the U.S. dollar equivalent of the amounts actually
received or paid. Net unrealized foreign exchange gains and losses arise
from changes in the value of assets and liabilities, other than
investments in securities, resulting from changes in the exchange rates.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis. Capital gains realized on some
foreign securities are subject to foreign taxes, which are accrued as
applicable.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the fund level and allocated daily to each class of shares
based on the appropriate net assets of the respective classes. Distribution
and service fees, if any, and transfer agent fees for Class I shares, are
calculated daily at the class level based on the appropriate net assets of
each class and the specific expense rate(s) applicable to each class.
Expenses
The majority of the expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund will be
allocated in such a manner as deemed equitable, taking into consideration,
among other things, the nature and type of expense and the relative sizes
of the funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Fund has entered into a
syndicated line of credit agreement with various banks. This agreement
enables the Fund to participate with other funds managed by the Adviser in
an unsecured line of credit with banks, which permit borrowings of up to
$475 million, collectively. Interest is charged to each fund, based on its
borrowing. In addition, a commitment fee is charged to each fund based on
the average daily unused portion of the line of credit and is allocated
among the participating funds. The Fund had no outstanding borrowing under
the line of credit during the year ended October 31, 2002.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the Fund
negotiated lender fees. These fees are included in interest income. The
loans are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As with
other extensions of credit, the Fund may bear the risk of delay of the
loaned securities in recovery or even loss of rights in the collateral,
should the borrower of the securities fail financially. There were no
securities loaned on October 31, 2002.
Forward foreign currency exchange contracts
The Fund may enter into forward foreign currency exchange contracts as a
hedge against the effect of fluctuations in currency exchange rates. A
forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date at a set price. The
aggregate principal amounts of the contracts are marked to market daily at
the applicable foreign currency exchange rates. Any resulting unrealized
gains and losses are included in the determination of the Fund's daily net
assets. The Fund records realized gains and losses at the time the forward
foreign currency exchange contract is closed out. Risks may arise upon
entering these contracts from the potential inability of counterparties to
meet the terms of the contract and from unanticipated movements in the
value of a foreign currency relative to the U.S. dollar. These contracts
involve market or credit risk in excess of the unrealized gain or loss
reflected in the Fund's statement of assets and liabilities.
The Fund may also purchase and sell forward contracts to facilitate the
settlement of foreign currency denominated portfolio transactions, under
which it intends to take delivery of the foreign currency. Such contracts
normally involve no market risk if they are offset by the currency amount
of the underlying transaction. The Fund had no open forward foreign
currency exchange contracts on October 31, 2002.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required. For
federal income tax purposes, the Fund has $13,267,565 of a capital loss
carryforward available, to the extent provided by regulations, to offset
future net realized capital gains. To the extent that such carryforward is
used by the Fund, no capital gain distributions will be made. The loss
carryforward expires as follows: October 31, 2007 -- $32,250, October 31,
2008 -- $2,888,578, October 31, 2009 -- $7,757,736, and October 31, 2010 --
$2,589,001. Availability of a certain amount of this loss carryforward that
was acquired on June 7, 2002 in a merger with John Hancock International
Equity Fund may be limited in a given year.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be subject
to foreign withholding taxes, which are accrued as applicable.
The Fund records distributions to shareholders from net investment income
and net realized gains on the ex-dividend date. Distributions paid by the
Fund with respect to each class of shares are calculated in the same
manner, at the same time and are in the same amount, except for the effect
of expenses that may be applied differently to each class.
As of October 31, 2002, there were no distributable earnings on a tax
basis. Such distributions and distributable earnings on a tax basis are
determined in conformity with income tax regulations, which may differ from
accounting principles generally accepted in the United States of America.
Distributions in excess of tax basis earnings and profits, if any, are
reported in the Fund's financial statements as a return of capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of America,
incorporates estimates made by management in determining the reported
amount of assets, liabilities, revenues and expenses of the Fund. Actual
results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under the
investment management contract, the Fund pays a monthly management fee to
the Adviser equivalent, on an annual basis, to the sum of: (a) 1.00% of the
first $250,000,000 of the Fund's average daily net asset value, (b) 0.80%
of the next $250,000,000, (c) 0.75% of the next $250,000,000 and (d) 0.625%
of the Fund's average daily net asset value in excess of $750,000,000. The
Adviser has a subadvisory agreement with Nicholas-Applegate Capital
Management LP. The Fund is not responsible for the payment of the
subadvisory fees.
The Adviser has agreed to limit the Fund's expenses, excluding the
distribution and service fees and transfer agent fee to 0.90% of the Fund's
average daily net assets, at least until February 28, 2003. Accordingly,
the expense reduction amounted to $294,862 for the year ended October 31,
2002. The Adviser reserves the right to terminate this limitation in the
future.
The Fund has Distribution Plans with John Hancock Funds, LLC ("JH Funds"),
a wholly owned subsidiary of the Adviser. The Fund has adopted Distribution
Plans with respect to Class A, Class B and Class C pursuant to Rule 12b-1
under the Investment Company Act of 1940 to reimburse JH Funds for the
services it provides as distributor of shares of the Fund. Accordingly, the
Fund makes monthly payments to JH Funds at an annual rate not to exceed
0.30% of Class A average daily net assets and 1.00% of Class B and Class C
average daily net assets. A maximum of 0.25% of such payments may be
service fees as defined by the Conduct Rules of the National Association of
Securities Dealers. Under the Conduct Rules, curtailment of a portion of
the Fund's 12b-1 payments could occur under certain circumstances.
Class A and Class C shares are assessed up-front sales charges. During the
year ended October 31, 2002, JH Funds received net up-front sales charges
of $21,199 with regard to sales of Class A shares. Of this amount, $2,406
was retained and used for printing prospectuses, advertising, sales
literature and other purposes, $17,181 was paid as sales commissions to
unrelated broker-dealers and $1,612 was paid as sales commissions to sales
personnel of Signator Investors, Inc. ("Signator Investors"), a related
broker-dealer. The Adviser's indirect parent, John Hancock Life Insurance
Company ("JHLICo"), is the indirect sole shareholder of Signator Investors.
During the year ended October 31, 2002, JH Funds received net up-front
sales charges of $3,285 with regard to sales of Class C shares. Of this
amount, $2,884 was paid as sales commissions to unrelated broker-dealers
and $401 was paid as sales commissions to sales personnel of Signator
Investors.
Class B shares that are redeemed within six years of purchase are subject
to a contingent deferred sales charge ("CDSC") at declining rates,
beginning at 5.00% of the lesser of the current market value at the time of
redemption or the original purchase cost of the shares being redeemed.
Class C shares that are redeemed within one year of purchase are subject to
a CDSC at a rate of 1.00% of the lesser of the current market value at the
time of redemption or the original purchase cost of the shares being
redeemed. Proceeds from the CDSCs are paid to JH Funds and are used in
whole or in part to defray its expenses for providing distribution related
services to the Fund in connection with the sale of Class B and Class C
shares. During the year ended October 31, 2002, CDSCs received by JH Funds
amounted to $15,620 for Class B shares and $155 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature Ser
vices, Inc., an indirect subsidiary of JHLICo. For Class A, B and C shares,
the Fund pays a monthly transfer agent fee based on the number of
shareholder accounts, plus certain out-of-pocket expenses, aggregated and
allocated to each class on the basis of its relative net asset value. For
Class I shares, the Fund pays a monthly transfer agent fee at an annual
rate of 0.05% of the average daily net asset value attributable to Class I
shares, plus certain out-of-pocket expenses. Effective January 1, 2003, for
Class A, B and C shares, the Fund will pay a monthly transfer agent fee at
an annual rate of 0.05% of the average daily net asset value, plus a fee
based on the number of shareholder accounts and reimbursement for certain
out-of-pocket expenses. (Class I structure transfer agent fee will not be
changing.)
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the year
was at an annual rate of 0.02% of the average net assets of the Fund.
Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or officers
of the Adviser and/or its affiliates, as well as Trustees of the Fund. The
compensation of unaffiliated Trustees is borne by the Fund. The
unaffiliated Trustees may elect to defer for tax purposes their receipt of
this compensation under the John Hancock Group of Funds Deferred Compen
sation Plan. The Fund makes investments into other John Hancock funds, as
applicable, to cover its liability for the deferred compensation.
Investments to cover the Fund's deferred compensation liability are
recorded on the Fund's books as an other asset. The deferred compensation
liability and the related other asset are always equal and are marked to
market on a periodic basis to reflect any income earned by the investment
as well as any unrealized gains or losses. The Deferred Compen sa tion Plan
investments had no impact on the operations of the Fund.
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold, issued in
reorganization and repurchased during the last two periods, along with the
corresponding dollar value. The Fund has an unlimited number of shares
authorized with no par value.
YEAR ENDED 10-31-01 PERIOD ENDED 10-31-02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Sold 3,334,883 $26,461,859 1,608,472 $9,646,755
Repurchased (3,716,888) (29,457,682) (1,773,317) (10,715,750)
Net decrease (382,005) ($2,995,823) (164,845) ($1,068,995)
CLASS B SHARES
Sold 460,496 $3,277,285 397,117 $2,291,714
Repurchased (686,822) (4,979,294) (510,300) (2,891,269)
Net decrease (226,326) ($1,702,009) (113,183) ($599,555)
CLASS C SHARES
Sold 612,584 $4,971,952 295,202 $1,675,337
Repurchased (606,501) (4,992,546) (271,816) (1,534,260)
Net increase (decrease) 6,083 ($20,594) 23,386 $141,077
CLASS I SHARES 1
Sold -- -- 34,945 $187,366
Issued in reorganization -- -- 257,801 1,609,274
Repurchased -- -- (96,794) (550,105)
Net increase -- -- 195,952 $1,246,535
NET DECREASE (602,248) ($4,718,426) (58,690) ($280,938)
1 Class I shares began operations on 3-1-02.
NOTE D
Investment transactions
Purchases and proceeds from sales of securities other than short-term
securities and obligations of the U.S. government, during the year ended
October 31, 2002, aggregated $31,275,171 and $32,379,175, respectively.
The cost of investments owned on October 31, 2002, including short-term
investments, for federal income tax purposes was $12,716,456. Gross
unrealized appreciation and depreciation of investments aggregated $435,088
and $1,086,557, respectively, resulting in net unrealized depreciation of
$651,469. The difference between book basis and tax basis net unrealized
depreciation of investments is attributable primarily to the tax deferral
of losses on wash sales.
NOTE E
Reclassification of accounts
During the year ended October 31, 2002, the Fund reclassified amounts to
reflect an increase in accumulated net realized loss on investments of
$2,541,170, a decrease in accumulated net investment loss of $179,431 and
an increase in capital paid-in of $2,361,739. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of October 31, 2002. Additional adjustments may
be needed in subsequent reporting periods. These reclassifications, which
have no impact on the net asset value of the Fund, are primarily
attributable to net operating loss and foreign currency gains and losses in
the computation of distributable income and capital gains under federal tax
rules versus accounting principles generally accepted in the United States
of America and book and tax differences in accounting for deferred
compensation and federal excise tax. The calculation of net investment loss
per share in the financial highlights excludes these adjustments.
NOTE F
Reorganization
On May 29, 2002, the shareholders of John Hancock International Equity Fund
("International Equity Fund") approved an Agreement and Plan of
Reorganization, which provided for the transfer of substantially all of the
assets and liabilities of International Equity Fund in exchange solely for
Class I shares of the Fund. The acquisition was accounted for as a tax-free
exchange of 257,801 Class I shares of the Fund for the net assets of the
Inter national Equity Fund, which amounted to $1,609,274 for Class I
shares, including $62,490 of unrealized appreciation, after the close of
business on June 7, 2002.
NOTE G
Proposed reorganization
On November 19, 2002, the Trustees approved the reorganization of John
Hancock European Equity Fund and John Hancock Global Fund into John Hancock
International Fund, subject to the approval by shareholders.
AUDITORS' REPORT
Report of
Pricewaterhouse-
Coopers LLP,
Independent Auditors
To the Board of Trustees and Shareholders
of John Hancock International Fund,
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of the
John Hancock International Fund (a series of John Hancock Investment Trust
III) (the "Fund") at October 31, 2002, and the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in
the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities owned at October 31,
2002 by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 13, 2002
TAX INFORMATION
Unaudited
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund, if any, paid during its
taxable year ended October 31, 2002.
With respect to the ordinary dividends paid by the Fund for the fiscal year
ended October 31, 2002, none of the dividends qualify for the
dividends-received deduction.
If the fund paid dividends during the fiscal year, shareholders will be
mailed 2002 U.S. Treasury Department Form 1099-DIV in January 2003. This
will reflect the total of all distributions which are taxable for the
calendar year 2002.
TRUSTEES
& OFFICERS
This chart provides information about the Trustees and Officers who oversee
your John Hancock fund. Officers elected by the Trustees manage the
day-to-day operations of the Fund and execute policies formulated by the
Trustees.
INDEPENDENT TRUSTEES
NUMBER OF
NAME, AGE TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
Dennis S. Aronowitz, Born: 1931 1996 31
Professor of Law, Emeritus, Boston University School of Law
(as of 1996); Director, Brookline Bancorp.
Richard P. Chapman, Jr., Born: 1935 1996 31
President and Chief Executive Officer, Brookline Bancorp Inc. (lending)
(since 1972); Trustee, Northeastern University (education); Chairman
and Director, Lumber Insurance Co. (insurance) (until 2000); Chairman
and Director, Northeast Retirement Services, Inc. (retirement administration)
(since 1998).
William J. Cosgrove, Born: 1933 1996 31
Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A.
(retired 1991); Executive Vice President, Citadel Group Representatives,
Inc.; Director, Hudson City Bancorp; Trustee, Scholarship Fund for
Inner City Children (since 1986).
Richard A. Farrell 2, Born: 1932 1994 31
President, Farrell, Healer & Co., Inc. (venture capital management firm)
(since 1980) and General Partner of the Venture Capital Fund of NE
(since 1980); Trustee, Marblehead Savings Bank (since 1994); prior to
1980, headed the venture capital group at Bank of Boston Corporation.
Gail D. Fosler 2, Born: 1947 1996 31
Senior Vice President and Chief Economist, The Conference Board
(non-profit economic and business research) (since 1989); Director, Unisys
Corp. (since 1993); Director, H.B. Fuller Company (since 1992) and
DBS Holdings (Singapore) (banking and financial services) (since 1999);
Director, National Bureau of Economic Research (academic) (since 1989);
Director, Baxter International (medical health care) (since 2001).
William F. Glavin, Born: 1932 1994 31
President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox
Corporation (until 1989); Director, Reebok, Inc. (until 2002) and Inco Ltd.
(until 2002).
Patti McGill Peterson, Born: 1943 1994 39
Executive Director, Council for International Exchange of Scholars (since
1998), Vice President, Institute of International Education (since 1998);
Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until
1997); President Emerita of Wells College and St. Lawrence University;
Director, Niagara Mohawk Power Corporation (electric utility).
John A. Moore 2, Born: 1939 1994 39
President and Chief Executive Officer, Institute for Evaluating Health
Risks, (nonprofit institution) (until 2001); Senior Scientist, Sciences
International (health research) (since 1998); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002).
John W. Pratt, Born: 1931 1994 31
Professor of Business Administration Emeritus, Harvard University
Graduate School of Business Administration (as of 1998).
INTERESTED TRUSTEES 3
NAME, AGE NUMBER OF
POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
John M. DeCiccio, Born: 1948 2001 61
Trustee
Executive Vice President and Chief Investment Officer, John Hancock
Financial Services, Inc.; Director, Executive Vice President and Chief
Investment Officer, John Hancock Life Insurance Company; Chairman of
the Committee of Finance of John Hancock Life Insurance Company;
Director, John Hancock Subsidiaries, LLC, Hancock Natural Resource
Group, Independence Investment LLC, Independence Fixed Income LLC,
John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial
Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John
Hancock Funds"), Massachusetts Business Development Corporation;
Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.")
(until 1999) and John Hancock Signature Services, Inc. ("Signature
Services") (until 1997).
Maureen R. Ford, Born: 1955 2000 61
Trustee, Chairman, President and Chief Executive Officer
Executive Vice President, John Hancock Financial Services, Inc., John
Hancock Life Insurance Company; Chairman, Director, President and
Chief Executive Officer, the Adviser and The Berkeley Group; Chairman,
Director and Chief Executive Officer, John Hancock Funds; Chairman,
Director and Chief Executive Officer, Sovereign Asset Management
Corporation ("SAMCorp."); Director, Independence Investment LLC,
Independence Fixed Income LLC and Signature Services; Senior Vice
President, MassMutual Insurance Co. (until 1999).
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NAME, AGE
POSITION(S) HELD WITH FUND OFFICER
PRINCIPAL OCCUPATION(S) AND OF FUND
DIRECTORSHIPS DURING PAST 5 YEARS SINCE
William L. Braman, Born: 1953 2000
Executive Vice President and Chief Investment Officer
Executive Vice President and Chief Investment Officer, the Adviser and each of the John
Hancock funds; Director, SAMCorp., Executive Vice President and Chief Investment
Officer, Baring Asset Management, London UK (until 2000).
Richard A. Brown, Born: 1949 2000
Senior Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock
Funds, and The Berkeley Group; Second Vice President and Senior Associate Controller,
Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001).
Thomas H. Connors, Born: 1959 1994
Vice President and Compliance Officer
Vice President and Compliance Officer, the Adviser and each of the John Hancock funds;
Vice President, John Hancock Funds.
William H. King, Born: 1952 1994
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each of
the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 1994
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each
of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President,
Signature Services (until 2000); Director, Senior Vice President and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston Massachusetts, 02199.
The Statement of Additional Information of the Fund includes additional
information about members of the Board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or
her successor is elected.
2 Member of Audit Committee.
3 Interested Trustees hold positions with the Fund's investment adviser,
underwriter and certain other affiliates.
FOR YOUR
INFORMATION
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUBADVISER
Nicholas-Applegate Capital Management LP
600 West Broadway
San Diego, California 92101
PRINCIPAL DISTRIBUTOR
John Hancock Funds, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By regular mail John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By express mail John Hancock Signature Services, Inc.
Attn: Mutual Fund Image Operations
529 Main Street
Charlestown, MA 02129
Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-554-6713
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-554-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhancock.com/funds/edelivery
This report is for the information of
the shareholders of the John Hancock
International Fund.
4000A 10/02
12/02
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
JOHN HANCOCK PACIFIC BASIN EQUITIES FUND
SPECIAL MEETING OF SHAREHOLDERS - SEPTEMBER 24, 2003
PROXY SOLICITATION BY THE BOARD OF TRUSTEES
The undersigned, revoking previous proxies, hereby appoint(s) Maureen
R. Ford, Susan S. Newton and William H. King, with full power of substitution in
each, to vote all the shares of beneficial interest of John Hancock Pacific
Basin Equities Fund ("Pacific Basin Equities Fund") which the undersigned is
(are) entitled to vote at the Special Meeting of Shareholders (the "Meeting") of
Pacific Basin Equities Fund to be held at 101 Huntington Avenue, Boston,
Massachusetts, on September 24, 2003 at 9:00 a.m., Boston time, and at any
adjournment(s) of the Meeting. All powers may be exercised by a majority of all
proxy holders or substitutes voting or acting, or, if only one votes and acts,
then by that one. Receipt of the Proxy Statement dated July 15, 2003 is hereby
acknowledged. If not revoked, this proxy shall be voted for the proposal.
Date , 2003
----------------------------------------
PLEASE SIGN, DATE AND RETURN
PROMPTLY IN ENCLOSED ENVELOPE
-----------------------------------------------------
-----------------------------------------------------
Signature(s)
NOTE: Signature(s) should agree with the name(s)
printed herein. When signing as attorney,
executor, administrator, trustee or guardian, please
give your full name as such. If a corporation,
please sign in full corporate name by president
or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
VOTE THIS PROXY CARD TODAY!
YOUR PROMPT RESPONSE WILL SAVE YOUR FUND
THE EXPENSE OF ADDITIONAL MAILINGS
SPECIFY YOUR DESIRED ACTION BY A CHECK MARK IN THE APPROPRIATE SPACE. THIS PROXY
WILL BE VOTED IN FAVOR OF (FOR) PROPOSAL 1 IF NO SPECIFICATION IS MADE BELOW. AS
TO ANY OTHER MATTER, THE PROXY OR PROXIES WILL VOTE IN ACCORDANCE WITH THEIR
BEST JUDGEMENT.
PLEASE VOTE BY FILLING IN THE APPROPRIATE BOX BELOW.
(1) To approve an Agreement and Plan of Reorganization between John Hancock
Pacific Basin Equities Fund ("Pacific Basin Equities Fund") and John
Hancock International Fund ("International Fund"). Under this
Agreement, Pacific Basin Equities Fund would transfer all of its assets
to International Fund in exchange for shares of International Fund.
These shares will be distributed proportionately to you and the other
shareholders of Pacific Basin Equities Fund. International Fund will
also assume Pacific Basin Equities Fund's liabilities.
FOR |_| AGAINST |_| ABSTAIN |_|
PLEASE DO NOT FORGET TO SIGN THE REVERSE SIDE OF THIS CARD.
---------------
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Proxy Control Number in the area below. Your Internet Voting Control Number is
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Internet Control Number. If you have received multiple voting instruction
cards, each card has its own control number; you will need to login and provide
your voting instructions separately for each such distinct Control Number.
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because of technical difficulties, you should refer to your Proxy Package for
other voting options.
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C 2001 PROXY DIRECT TM - Service of ALAMO Direct Mail Svcs, Inc. All rights
reserved.
John Hancock International Funds Proxy PROXY DIRECT TM
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John Hancock
------------------
JOHN HANCOCK FUNDS
i Below is the list of your holdings. Text next to each holding's name
indicates whether you wish to vote as the Board recommends or to submit your
individual instructions. To change between board recommended and individual
instructions, click on the name of the holding; then follow the additional
instructions. Unless you click on the name of the holding and the vote of
your choice, your vote will automatically be recorded on the proposal as
recommended by the Board.
YOU MUST CLICK VOTE NOW! BUTTON TO COMPLETE YOUR SESSION
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List of Your Holdings Voting instructions
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John Hancock Pacific Basin Equities Fund as recommended by the Board
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Shareholder: John P. Sample
ALAMO Direct Mail Services,
Inc.
23-10 Square Circle Lane
Someoldtown, TS 12345-
6789
Acount: ALAMO-TST01 / 271-XXXX- John Hancock
XXXX-123 ------------------
JOHN HANCOCK FUNDS
Previous vote: None-Testing APPS/TR
Setup
John Hancock Pacific Basin Equities Fund
- --------------------------------------------------------------------------------
Applicable Campaign Proposals Mark All For Against Board
- --------------------------------------------------------------------------------
1 A proposal to approve an agreement and ( ) For ( ) Against ( ) Board
Plan of Reorganization between John Hancock
Pacific Basin Equities Fund ("Pacific Basin
Equities Fund") and John Hancock International
Fund ("International Fund"). Under this
Agreement, your fund would transfer all
of its assets to International Fund in
exchange for shares of International
Fund. These shares would be distributed
proportionately to you and the other
shareholders of Pacific Basin Equities
Fund. International Fund would also
assume Pacific Basin Equities Fund's
liabilities.
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Any other business that may properly come before the meeting.
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Voting Instructions
-------------------
i Answers have been marked according to the Board's
recommendations. Please change responses as appropriate
before submission.
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------------------
JOHN HANCOCK FUNDS
Thank you. Your voting instructions have been submitted for processing.
If necessary, you can revisit Internet Voting site any time before the Meeting
Date on Wednesday, September 24, 2003 at 9:00 AM [ET] to submit new voting
instructions.
This is the summary of your voting instructions delivered to John Hancock Funds.
It is not a receipt or vote confirmation. You may print this page for your
records.
Instructions submitted on _________, 2003
Transaction Code: __________________
John Hancock Pacific Basin Equities Fund
- --------------------------------------------------------------------------------
1 Approve an Agreement and Plan of Reorganization Voted For
If you wish to vote another card, please click here.
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Part B
Statement of Additional Information
JOHN HANCOCK INTERNATIONAL FUND
(the "Acquiring Fund", and a series of John Hancock Investment Trust III)
JOHN HANCOCK PACIFIC BASIN
EQUITIES FUND (the "Acquired Fund", and a
series of John Hancock World Fund)
101 Huntington Avenue
Boston, MA 02199
1-800-225-5291
July 15, 2003
This Statement of Additional Information provides additional information and is
not a prospectus. It should be read in conjunction with the related proxy
statement and prospectus that is also dated July 15, 2003. This Statement of
Additional Information provides additional information about John Hancock
International Fund and the Fund that it is acquiring, John Hancock Pacific Basin
Equities Fund. Please retain this Statement of Additional Information for future
reference. A copy of the proxy statement and prospectus can be obtained free of
charge by calling John Hancock Signature Services, Inc., at 1-800-225-5291.
Table Of Contents
Page
Introduction 3
Additional Information about the Acquiring Fund 3
General Information and History 3
Investment Objective and Policies 3
Management of the Acquiring Fund 3
Control Persons and Principal Holders of Shares 3
Investment Advisory and Other Services 3
Brokerage Allocation 3
Capital Stock and Other Securities 3
Purchase, Redemption and Pricing of Acquiring Fund Shares 3
Tax Status 4
Underwriters 4
Calculation of Performance Data 4
Financial Statements 4
Additional Information about the Acquired Fund 4
General Information and History 4
Investment Objective and Policies 4
Management of the Acquired Fund 4
Control Persons and Principal Holders of Shares 4
Investment Advisory and Other Services 4
Brokerage Allocation 4
Capital Stock and Other Securities 4
Purchase, Redemption and Pricing of Acquired Fund Shares 5
Tax Status 5
Underwriters 5
Calculation of Performance Data 5
Financial Statements 5
Exhibits
A - Statement of Additional Information, dated February 14, 2003, of the
Acquiring Fund including audited financial statements as of October 31,
2002 and unaudited financial statements dated April 30, 2003.
B - Statement of Additional Information, dated February 14, 2003, of the
Acquired Fund including audited financial statements as of October 31,
2002 and unaudited financial statements dated April 30, 2003.
C- Proforma combined financial statements as of April 30, 2003, assuming
the reorganization of John Hancock Pacific Basin Equities Fund into
John Hancock International Fund occurred on that date.
2
INTRODUCTION
This Statement of Additional Information ("SAI") is intended to supplement the
information provided in a proxy statement and prospectus dated July 15, 2003.
The proxy statement and prospectus has been sent to the shareholders of the
Acquired Fund in connection with the solicitation by the Trustees of the
Acquired Fund of proxies to be voted at the Special Meeting of Shareholders of
the Acquired Fund to be held on September 24, 2003. This Statement of Additional
Information incorporates by reference the Statement of Additional Information of
the Acquiring Fund, dated February 14, 2003, and the Statement of Additional
Information of the Acquired Fund, dated February 14, 2003. The SAI for the
Acquiring Fund and the SAI for the Acquired Fund are included with this
Statement of Additional Information.
Additional Information About the Acquiring Fund
-----------------------------------------------
General Information and History
- -------------------------------
For additional information about the Acquiring Fund generally and its history,
see "Organization of the Fund" in the Acquiring Fund SAI attached hereto as
Exhibit A.
Investment Objective and Policies
- ---------------------------------
For additional information about the Acquiring Fund's investment objective,
policies and restrictions, see "Investment Objective and Policies" and
"Investment Restrictions" in the Acquiring Fund SAI attached hereto as Exhibit
A.
Management of the Acquiring Fund
- --------------------------------
For additional information about the Acquiring Fund's Board of Trustees,
officers and management personnel, see "Those Responsible for Management" in the
Acquiring Fund SAI attached hereto as Exhibit A.
Control Persons and Principal Holders of Shares
- -----------------------------------------------
For additional information about control persons of the Acquiring Fund and
principal holders of shares of the Acquiring Fund, see "Those Responsible for
Management" in the Acquiring Fund SAI attached hereto as Exhibit A.
Investment Advisory and Other Services
- --------------------------------------
For additional information about the Acquiring Fund's investment adviser,
investment subadviser, custodian, transfer agent and independent accountants,
see "Investment Advisory and Other Services", "Distribution Contracts",
"Transfer Agent Services", "Custody of Portfolio", and "Independent Auditors" in
the Acquiring Fund SAI attached hereto as Exhibit A.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about the Acquiring Fund's brokerage allocation
practices, see "Brokerage Allocation" in the Acquiring Fund SAI attached hereto
as Exhibit A.
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other characteristics of
the Acquiring Fund's shares of beneficial interest, see "Description of the
Fund's Shares" in the Acquiring Fund SAI attached hereto as Exhibit A.
Purchase, Redemption and Pricing of Acquiring Fund Shares
- ---------------------------------------------------------
For additional information about the purchase, redemption and pricing of the
Acquiring Fund's shares, see "Net Asset Value", "Sales Compensation", "Special
Redemptions", "Additional Services and Programs", and "Purchase and Redemptions
through Third Parties" in the Acquiring Fund SAI attached hereto as Exhibit A.
3
Tax Status
- ----------
For additional information about the tax status of the Acquiring Fund, see "Tax
Status" in the Acquiring Fund SAI, attached hereto as Exhibit A.
Underwriters
- ------------
For additional information about the Acquiring Fund's principal underwriter and
the distribution contract between the principal underwriter and the Acquiring
Fund, see "Distribution Contracts" in the Acquiring Fund SAI attached hereto as
Exhibit A.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of the Acquiring
Fund, see "Calculation of Performance" in the Acquiring Fund SAI attached hereto
as Exhibit A.
Financial Statements
- --------------------
Audited financial statements of the Acquiring Fund at October 31, 2002 and
unaudited financial statements at April 30, 2003, which are attached hereto as
Exhibit B.
Pro forma combined financial statements as as of April 30, 2003 are also
attached hereto.
Additional Information About the Acquired Fund
----------------------------------------------
General Information and History
- -------------------------------
For additional information about the Acquired Fund generally and its history,
see "Organization of the Fund" in the Acquired Fund SAI attached hereto as
Exhibit B.
Investment Objective and Policies
- ---------------------------------
For additional information about the Acquired Fund's investment objectives,
policies and restrictions, see "Investment Objective and Policies" and
"Investment Restrictions" in the Acquired Fund SAI attached hereto as Exhibit B.
Management of Acquired Fund
- ---------------------------
For additional information about the Acquired Fund's Board of Trustees, officers
and management personnel, see "Those Responsible for Management" in the Acquired
Fund SAI attached hereto as Exhibit B.
Control Persons and Principal Holders of Shares
- -----------------------------------------------
For additional information about control persons of the Acquiring Fund and
principal holders of shares of the Acquired Fund, see "Those Responsible for
Management" in the Acquired Fund SAI attached hereto as Exhibit B.
Investment Advisory and Other Services
- --------------------------------------
For additional information about the Acquired Fund's investment adviser,
investment subadviser, custodian, transfer agent and independent accountants,
see "Investment Advisory and Other Services", "Distribution Contracts",
"Transfer Agent Services", "Custody of Portfolio" and "Independent Auditors" in
the Acquired Fund SAI attached hereto as Exhibit B.
Brokerage Allocation and Other Practices
- ----------------------------------------
For additional information about the Acquired Fund's brokerage allocation
practices, see "Brokerage Allocation" in the Acquired Fund SAI attached hereto
as Exhibit B.
Capital Stock and Other Securities
- ----------------------------------
For additional information about the voting rights and other characteristics of
the Acquired Fund's shares of beneficial interest, see "Description of the
Fund's Shares" in the Acquired Fund SAI attached hereto as Exhibit B.
4
Purchase, Redemption and Pricing of Acquired Fund Shares
- --------------------------------------------------------
For additional information about the purchase, redemption and pricing of the
Acquired Fund's shares, see "Net Asset Value", "Sales Compensation", "Additional
Services and Programs", "Special Redemptions" and "Purchases and Redemptions
Through Third Parties" in the Acquired Fund SAI attached hereto as Exhibit B.
Tax Status
- ----------
For additional information about the tax status of the Acquired Fund, see "Tax
Status" in the Acquired Fund SAI attached hereto as Exhibit B.
Underwriters
- ------------
For additional information about the Acquired Fund's principal underwriter and
the distribution contract between the principal underwriter and the Acquired
Fund, see "Distribution Contracts" in the Acquired Fund SAI attached hereto as
Exhibit B.
Calculation of Performance Data
- -------------------------------
For additional information about the investment performance of the Acquired
Fund, see "Calculation of Performance" in the Acquired Fund SAI attached hereto
as Exhibit B.
Financial Statements
- --------------------
Audited financial statements of the Acquired Fund at October 31, 2002 and
unaudited financial statements at April 30, 2003, which are attached hereto as
Exhibit B.
Pro forma combined financial statements as of April 30, 2003 are also attached
hereto.
JOHN HANCOCK INTERNATIONAL FUND
Class A, Class B, Class C and Class I Shares
Statement of Additional Information
February 14, 2003
This Statement of Additional Information provides information about John Hancock
International Fund (the "Fund") in addition to the information that is contained
in the combined International Funds' current Prospectus and in the Fund's
current Prospectus for Class I shares, (the "Prospectuses"). The Fund is a
diversified series of John Hancock Investment Trust III (the "Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus. This Statement of Additional Information
incorporates by reference the Fund's Annual Report. A copy of the Prospectus or
Annual Report can be obtained free of charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston MA 02217-1000
1-800-225-5291
TABLE OF CONTENTS
Page
----
Organization of the Fund .................................................. 2
Investment Objective and Policies ......................................... 2
Investment Restrictions ................................................... 13
Those Responsible for Management .......................................... 15
Investment Advisory and Other Services .................................... 22
Distribution Contracts .................................................... 26
Sales Compensation ........................................................ 28
Net Asset Value ........................................................... 31
Initial Sales Charge on Class A and Class C Shares ........................ 31
Deferred Sales Charge on Class B and Class C Shares ....................... 34
Special Redemptions ....................................................... 38
Additional Services and Programs .......................................... 38
Purchases and Redemptions through Third Parties ........................... 40
Description of the Fund's Shares .......................................... 40
Tax Status ................................................................ 41
Calculation of Performance ................................................ 46
Brokerage Allocation ...................................................... 48
Transfer Agent Services .................................................. 52
Custody of Portfolio ...................................................... 52
Independent Auditors ...................................................... 52
Appendix A- Description of Investment Risk ................................ A-1
Appendix B-Description of Bond Ratings .................................... B-1
Financial Statements ...................................................... F-1
1
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust under the laws of The Commonwealth
of Massachusetts.
John Hancock Advisers, LLC (prior to February 1, 2002, John Hancock Advisers,
Inc.) (the "Adviser") is the Fund's investment adviser. The Adviser is an
indirect, wholly-owned subsidiary of John Hancock Life Insurance Company
(formerly John Hancock Mutual Life Insurance Company)(the "Life Company"), a
Massachusetts life insurance company chartered in 1862, with national
headquarters at John Hancock Place, Boston, Massachusetts. The Life Company is
wholly owned by John Hancock Financial Services, Inc., a Delaware corporation
organized in February, 2000.
The Fund's Subadviser is Nicholas-Applegate Capital Management
("Nicholas-Applegate"), (the "Subadviser"). Nicholas-Applegate is responsible
for providing investment advice to the Fund, subject to the review of the
Trustees and overall supervision of the Adviser.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus. Appendix A contains further
information describing investment risks. The investment objective of the Fund is
non-fundamental. There is no assurance that the Fund will achieve its investment
objective.
The 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. The Fund's investments will be subject to the market fluctuations
and risks inherent in all securities.
Under normal circumstances, at least 80% of the Fund's total assets will be
invested in equity securities of issuers located 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 will
invest 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, the Fund may invest in any
other type of security including warrants, bonds, notes and other debt
securities (including Eurodollar securities) or obligations of domestic or
foreign governments and their political subdivisions, or domestic or foreign
corporations.
The Fund will maintain a flexible investment policy and will invest 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 the Subdviser ordinarily consider such
factors as prospects for relative economic growth between foreign countries;
expected levels of inflation and interest rates; government policies influencing
business conditions; and other pertinent financial, tax, social, political,
currency and national factors - all in relation to the prevailing prices of the
securities in each country or region.
In abnormal conditions, 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 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 Standard & Poor's Ratings Group
("S&P") or P-1 or P-2 by Moody's Investors Service, Inc. ("Moody's") or if
unrated considered by the Adviser to be of comparable value. The Fund's
temporary defensive investments may also
2
include: short-term 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; commercial paper and short-term 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 the Trustees of
the Fund determine 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.
Government Securities. Certain U.S. Government securities, including U.S.
Treasury bills, notes and bonds, and GNMA certificates ("Ginnie Maes"), are
supported by the full faith and credit of the United States. Certain other U.S.
Government securities, issued or guaranteed by Federal agencies or government
sponsored enterprises, are not supported by the full faith and credit of the
United States, but may be supported by the right of the issuer to borrow from
the U.S. Treasury. These securities include obligations of the Federal Home Loan
Mortgage Corporation ("Freddie Macs"), and obligations supported by the credit
of the instrumentality, such as Federal National Mortgage Association Bonds
("Fannie Maes"). No assurance can be given that the U.S. Government will provide
financial support to such Federal agencies, authorities, instrumentalities and
government sponsored enterprises in the future.
Ginnie Maes, Freddie Macs and Fannie Maes are mortgage-backed securities which
provide monthly payments which are, in effect, a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans. Collateralized mortgage
obligations ("CMOs") in which the Fund may invest are securities issued by a
U.S. Government instrumentality that are collateralized by a portfolio of
mortgages or mortgage-backed securities. Mortgage-backed securities may be less
effective than traditional debt obligations of similar maturity at maintaining
yields during periods of declining interest rates.
Structured or Hybrid Notes. The Fund 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 benchmark include stock prices, currency
exchange rates and physical commodity prices. Investing in a structured note
allows the 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, the Fund may forego all
or part of the interest and principal that would be payable on a comparable
conventional note; the 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.
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 these ratings are
relative and subjective and are not absolute standards of quality. These ratings
will be used by the Fund as initial criteria for the selection of debt
securities. Among the factors which will be considered are the ability of the
issuer to pay principal and interest and general economic trends. Appendix B
contains further information concerning the ratings of Moody's and S&P and their
significance. Subsequent to its purchase by the Fund, an issue of securities may
cease to be rated or its rating may be reduced below the minimum required for
purchase by the Fund. Neither of these events will require the sale of the
securities by the Fund.
3
Investments in Foreign Securities. The Fund may invest directly in the
securities of foreign issuers as well as 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.
These securities may not necessarily be denominated in the same currency as the
securities into which they may be converted but rather in the currency of the
market in which they are traded. 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 by banks or
depositories which evidence a similar ownership arrangement. Generally, ADRs, in
registered form, are designed for use in U.S. securities markets and EDRs, in
bearer form, are designed for use in European securities markets. Issuers of the
shares underlying unsponsored ADRs are not contractually obligated to disclose
material information in the United States. Foreign issuers may be assigned to
reasonable industry classifications that differ from the industry
classifications ordinarily assigned to U.S. issuers.
Foreign Currency Transactions. The Fund's foreign currency 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 Fund may also enter into forward foreign currency exchange contracts to
enhance return, to hedge against fluctuations in currency exchange rates
affecting a particular transaction or portfolio position, or as a substitute for
the purchase or sale of a currency or assets denominated in that currency.
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 the Fund accruing in connection
with the purchase and sale of its portfolio securities quoted or denominated in
the same or related foreign currencies. Portfolio hedging is the use of forward
foreign currency contracts to offset portfolio security positions denominated or
quoted in the same or related foreign currencies. The Fund may elect to hedge
less than all of its foreign portfolio positions as deemed appropriate by the
Adviser and Subadviser.
If the Fund purchases a forward contract or sells a forward contract for
non-hedging purposes, the Fund will segregate cash or liquid securities in a
separate account of the Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of such forward contract. The assets in the
segregated account will be valued at market daily and if the value of the
securities in the separate account declines, additional cash or securities will
be placed in the account so that the value of the account will be equal the
amount of the Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
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
4
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.
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.
The Fund normally invests at least 80% of total assets in a diversified
portfolio of foreign stocks from both developed and emerging countries. The Fund
may invest up to 30% of total assets in emerging markets as classified by the
Morgan Stanley (MCI). Foreign equities include but are not limited to common
stocks, convertible preferred stocks, preferred stocks, warrants, ADRs, GDRs and
EDRs. The risks of foreign investing 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.
5
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.
Equity-Linked Securities The Fund may purchase equity-linked securities; also
known as participation notes, equity swaps, and zero strike calls and warrants.
Equity-linked securities are primarily used by a Fund as an alternative means to
access the securities market of a country. The Fund deposits an amount of cash
with its custodian (or broker, if legally permitted) in an amount equal to the
selling price of the underlying security in exchange for an equity linked
security. Upon sale, the Fund receives cash from the broker or custodian based
on the change in the value of the underlying security. Aside from market risk
there is of the underlying security, there is the risk of default by the other
party to the transaction. In the event of insolvency of the other party, the
Fund might be unable to obtain its expected benefit. In addition, while a Fund
will seek to enter into such transactions only with parties which are capable of
entering into closing transactions with the Fund, there can be no assurance that
the Fund will be able to close out such a transaction with the other party or
obtain an offsetting position with any other party, at any time prior to the end
of the term of the underlying agreement. This may impair the Fund's ability to
enter into other transactions at a time when doing so might be advantageous. The
Fund's investments in equity-linked securities may be subject to its 15% of net
assets limitation on investments in illiquid securities.
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 it 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. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements
involve the risk that the market value of securities purchased by the Fund with
proceeds of the transaction may decline below the repurchase price of the
securities sold by the Fund which it is obligated to repurchase. The Fund will
also continue to be subject to the risk of a decline in the market value of the
securities sold under the agreements because it will reacquire those securities
upon effecting their repurchase. To minimize various risks associated with
reverse repurchase agreements, the Fund will establish and maintain 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 accrued interest
thereon) under such agreements. In addition, the Fund will not borrow money or
enter into reverse repurchase agreements except from banks as a temporary
measure for extraordinary emergency purposes in amounts not to exceed 33 1/3% of
the Fund's total assets
6
(including the amount borrowed) taken at market value. The Fund will enter into
reverse repurchase agreements only with federally insured banks which are
approved in advance as being creditworthy by the Trustees. Under procedures
established by the Trustees, the Adviser will monitor the creditworthiness of
the banks involved.
Restricted Securities. The 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 have adopted guidelines and delegated to
the Advisers the daily function of determining and monitoring the 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. The 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. The Fund may write covered put and
call options and purchase put and call options 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 the
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 the 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 the 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 the 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 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. The 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.
7
The 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."
Purchasing Options. The 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. The Fund may also sell call and put options to close out
its purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities or currency at a specified price during
the option period. The 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 the 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
the Fund for the purpose of affirmatively benefiting from a decline in the price
of securities or currencies which it does not own. The 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
the Fund's portfolio securities.
The 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
8
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.
The 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. The Fund may purchase and
sell futures contracts based on various securities (such as U.S. Government
securities) and securities indices, foreign currencies and any other financial
instruments and indices and purchase and write call and put options on these
futures contracts. The Fund may purchase and sell futures and options on futures
for hedging or other non-speculative purposes. The Fund may also enter into
closing purchase and sale transactions with respect to any of these contracts
and options. All futures contracts entered into by the 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 the Fund proposes to acquire or the
exchange rate of currencies in which the portfolio securities are quoted or
denominated. When securities prices are falling, the Fund can seek to offset a
decline in the value of its current portfolio securities through the sale of
futures contracts. When securities prices are rising, the 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.
The 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.
The Fund may, for example, take a "short" position in the futures market by
selling futures contracts in an attempt to hedge against an anticipated decline
in market prices or foreign currency rates that would adversely affect the value
of the Fund's portfolio securities. Such
9
futures contracts may include contracts for the future delivery of securities
held by the Fund or securities with characteristics similar to those of the
Fund's portfolio securities. Similarly, the 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.
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, the 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. The 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. 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, the 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,
the 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 the 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. The 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. The Fund will engage in futures and related options
transactions either for bona fide hedging or for other non-speculative purposes
as permitted by the CFTC. These
10
purposes may include using futures and options on futures as a substitute for
the purchase or sale of securities or currencies to increase or reduce exposure
to particular markets. To the extent that the 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. The Fund will
determine that the price fluctuations in the futures contracts and options on
futures used for hedging purposes are substantially related to price
fluctuations in securities held by the Fund or securities or instruments which
it expects to purchase. As evidence of its hedging intent, the Fund expects that
on 75% or more of the occasions on which it takes a long futures or option
position (involving the purchase of futures contracts), the Fund will have
purchased, or will be in the process of purchasing, equivalent amounts of
related securities 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 the 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. The Fund will engage in
transactions in futures contracts and related options only to the extent such
transactions are consistent with the requirements of the Internal Revenue Code
of 1986, as amended (the "Code"), for maintaining its qualifications 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 the Fund to purchase securities or currencies, require the Fund to
establish 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 the Fund than if
it had not entered into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. 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.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are
11
available and for which a market exists, but which have not been issued. The
Fund will engage in when-issued transactions with respect to securities
purchased for its portfolio in order to obtain what is considered to be an
advantageous price and yield at the time of the transaction. For when-issued
transactions, no payment is made until delivery is due, often a month or more
after the purchase. In a forward commitment transaction, the Fund contracts to
purchase securities for a fixed price at a future date beyond customary
settlement time. When the Fund engages in forward commitment and when-issued
transactions, it relies on the seller to consummate the transaction. The failure
of the issuer or seller to consummate the transaction may result in the 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 the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid 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, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers, and financial institutions if the loan is collateralized by cash or
U.S. Government securities according to applicable regulatory requirements. The
Fund may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income.
Short-term trading may have the effect of increasing portfolio turnover rate. A
high rate of portfolio turnover (100% or greater) involves correspondingly
greater brokerage expenses. The Fund's portfolio turnover rate is set forth in
the table under the caption "Financial Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means the approval by the lesser of (1) the holders of
67% or more of the Fund's shares represented at a meeting if more than 50% of
12
the Fund's outstanding shares are present in person or by proxy at that meeting
or (2) more than 50% of the outstanding shares.
The Fund may not:
(1) Issue senior securities, except as permitted by paragraph (2) below.
For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or
sale of options, futures contracts and options on future contracts,
forward commitments, forward foreign exchange contracts and
repurchase agreements entered into in accordance with the Fund's
investment policy are not deemed to be senior securities.
(2) Borrow money, except for the following extraordinary or emergency
purposes (i) 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; (iv) 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. For purposes of this investment
restriction, the deferral of trustees' fees and transactions in
short sales, futures contracts, options on future contracts,
securities or indices and forward commitment transactions will not
constitute borrowing.
(3) 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 purposes of the Securities Act.
(4) Purchase or sell real estate or any interest therein, except that
the Fund may invest in securities of corporate or governmental
entities secured by real estate or marketable interests therein or
issued by companies that invest in real estate or interests therein.
(5) Make loans, except that the Fund may purchase or hold debt
instruments in accordance with the Fund's investment policies and
may make loans of portfolio securities provided that as a result no
more than 33 1/3% of the Fund's total assets taken at current value
would be so loaned. The Fund does not, for this purpose, consider
the purchase of repurchase agreements, bank certificates of deposit,
bank loan participation agreements, bankers' acceptances, a portion
of an issue of publicly distributed bonds, debentures or other
securities, whether or not the purchase is made upon the original
issuance of the securities, to be the making of a loan.
(6) Invest in commodities or commodity futures contracts, other than
financial derivatives contracts. Financial derivatives include
forward foreign currency contracts; financial futures contracts and
options on financial futures contracts; options and warrants on
securities, currencies and financial indices; swaps, caps, floors,
collars, swapations; and repurchase agreements entered into in
accordance with the Fund's investment policies.
(7) Purchase the securities of issuers conducting their principal
business activity in the same industry if, immediately after such
purchase, the value of its investments in
13
such industry would exceed 25% of its total assets taken at market
value at the time of each investment. This limitation does not apply
to investments in obligations of the U.S. Government or any of its
agencies or instrumentalities.
(8) For each Fund with respect to 75% of total assets [see
nonfundamental investment restriction (e)], purchase securities of
an issuer (other than the U.S. government, its agencies,
instrumentalities or authorities):
(a) such purchase would cause more than 5% of the Fund's total
assets taken at market value to be invested in the securities
of such issuer; or
(b) such purchase would at the time result in more than 10% of the
outstanding voting securities of such issuer being held by the
Fund.
In connection with the lending of portfolio securities under item (5) above,
such loans must at all times be fully collateralized and the Fund's custodian
must take possession of the collateral either physically or in book entry form.
Securities used as collateral must be marked to market daily.
Non-fundamental Investment Restrictions. The following restrictions, as well as
the Fund's investment objective, are designated as non-fundamental and may be
changed by the Trustees without shareholder approval:
The Fund may not:
(a) Make short sales
(b) 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.
(c) Invest for the purpose of exercising control over or
management of any company.
(d) Invest more than 15% of its net assets in illiquid securities.
(e) The Fund may not invest more than 5% of its total assets at
time of purchase in any one security (other than US Government
securities).
(f) The Fund normally invests at least 80% of total assets in a
diversified portfolio of foreign stocks form both developed
and emerging countries. The fund may invest up to 30% of total
assets in emerging markets as classified by the Morgan Stanley
(MSCI). Foreign equities include but are
14
not limited to common stocks, convertible preferred stocks,
preferred stocks, warrants, ADRs, GDRs and EDRs.
Except with respect to borrowing money, 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 value of the Fund's assets will not be considered a violation of the
restriction.
The Funds will invest only in countries on the Adviser's Approved Country
Listing. The Approved Country Listing is a list maintained by the Adviser's
investment department that outlines all countries, including the United States,
that have been approved for investment by Funds managed by the Adviser.
If allowed by the Fund's other investment policies and restrictions, the Fund
may invest up to 5% of its total assets in Russian equity securities and up to
10% of its total assets in Russian fixed income securities. All Russian
securities must be: (1) denominated in U.S. or Canadian dollars, euros,
sterling, or yen; (2) traded on a major exchange; and (3) held physically
outside of Russia.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees, including certain Trustees
who are not "interested persons" of the Fund or the Trust (as defined by the
Investment Company Act of 1940) (the "Independent Trustees"), who elect officers
who are responsible for the day-to-day operations of the Fund and who execute
policies formulated by the Trustees. Several of the officers and Trustees of the
Fund are also officers or Directors of the Adviser, or officers and Directors of
the Fund's principal distributor, John Hancock Funds, LLC (prior to February 1,
2002, John Hancock Funds, Inc.) ("John Hancock Funds").
15
- --------------------------------------------------------------------------------------------------------------------
Number of
John Hancock
Funds
Position(s) Trustee/ Principal Occupation(s) and other Overseen by
Name, Address (1) Held with Officer Directorships Trustee
And Age Fund since(2) During Past 5 Years
- --------------------------------------------------------------------------------------------------------------------
Independent Trustees
- --------------------------------------------------------------------------------------------------------------------
Dennis S. Aronowitz Trustee 1996 Professor of Law, Emeritus, Boston 31
Born: 1931 University School of Law (as of 1996);
Director, Brookline Bancorp.
- --------------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. Trustee 1996 President and Chief Executive Officer, 31
Born: 1935 Brookline Bancorp., Inc. (lending) (since
1972); Chairman and Director, Lumber
Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast
Retirement Services, Inc. (retirement
administration) (since 1998).
- --------------------------------------------------------------------------------------------------------------------
William J. Cosgrove Trustee 1996 Vice President, Senior Banker and Senior 31
Born: 1933 Credit Officer, Citibank, N.A. (banking)
(retired 1991); Executive Vice President,
Citadel Group Representatives, Inc.
(financial reinsurance); Director, Hudson
City Bancorp (banking); Trustee,
Scholarship Fund for Inner City Children
(since 1986).
- --------------------------------------------------------------------------------------------------------------------
Richard A. Farrell Trustee 1994 President, Farrell, Healer & Co., Inc., 31
Born: 1932 (venture capital management firm)(since
1980) and General
Partner of the Venture
Capital Fund of NE;
Trustee, Marblehead
Savings Bank (since
1994). Prior to 1980,
headed the venture
capital group at Bank of
Boston Corporation.
- --------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02199.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
16
- ------------------------------------------------------------------------------------------------------------------------------
Number of John
Position(s) Trustee/ Hancock Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Directorships Overseen by
And Age Fund since(2) During Past 5 Years Trustee
- ------------------------------------------------------------------------------------------------------------------------------
William F. Glavin Trustee 1994 President Emeritus, Babson College (as of 1998); 31
Born: 1932 Vice Chairman, Xerox Corporation (until 1989);
Director, Reebok, Inc. (until 2002) and Inco Ltd.
(until 2002).
- ------------------------------------------------------------------------------------------------------------------------------
John A. Moore Trustee 1994 President and Chief Executive Officer, Institute 39
Born: 1939 for Evaluating Health Risks, (nonprofit
institution) (until 2001); Senior Scientist,
Sciences International (health
research)(since 1998); Principal, Hollyhouse
(consulting)(since 2000); Director,
CIIT(nonprofit research) (since 2002).
- ------------------------------------------------------------------------------------------------------------------------------
Patti McGill Peterson Trustee 1994 Executive Director, Council for International 39
Born: 1943 Exchange of Scholars (since 1998); Vice
President, Institute of International
Education (since 1998); Senior Fellow,
Cornell Institute of Public Affairs, Cornell
University (until 1997); President Emerita
of Wells College and St. Lawrence
University; Director, Niagara Mohawk Power
Corporation (electric utility).
- ------------------------------------------------------------------------------------------------------------------------------
John W. Pratt Trustee 1994 Professor of Business Administration Emeritus, 31
Born: 1931 Harvard University Graduate School of Business
Administration (as of 1998).
- ------------------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02199.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
17
- ------------------------------------------------------------------------------------------------------------------------------
Position(s) Trustee/ Number of John
Name, Address (1) Held with Officer Principal Occupation(s) and other Directorships Hancock Funds
And Age Fund since(2) During Past 5 Years Overseen by Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Interested Trustees
- ------------------------------------------------------------------------------------------------------------------------------
John M. DeCiccio (3) Trustee 2001 Executive Vice President and Chief Investment 61
Born: 1948 Officer, John Hancock Financial Services, Inc.;
Director, Executive Vice President and Chief
Investment Officer, John Hancock Life
Insurance Company; Chairman of the Committee
of Finance of John Hancock Life Insurance
Company; Director, John Hancock
Subsidiaries, LLC, Hancock Natural Resource
Group, Independence Investment LLC,
Independence Fixed Income LLC, John Hancock
Advisers, LLC (the "Adviser") and The
Berkeley Financial Group, LLC ("The Berkeley
Group"), John Hancock Funds, LLC ("John
Hancock Funds"), Massachusetts Business
Development Corporation; Director, John
Hancock Insurance Agency, Inc. ("Insurance
Agency, Inc.") (until 1999) and John Hancock
Signature Services, Inc. ("Signature
Services") (until 1997).
- ------------------------------------------------------------------------------------------------------------------------------
Maureen R. Ford (3) Trustee, 2000 Executive Vice President, John Hancock 61
Born: 1955 Chairman, Financial Services, Inc., John Hancock Life
President Insurance Company; Chairman, Director,
and Chief President and Chief Executive Officer, the
Executive Advisers and The Berkeley Group; Chairman,
Officer President, Director and Chief Executive
Officer, John Hancock Funds; Chairman,
Director and Chief Executive Officer,
Sovereign Asset Management Corporation
("SAMCorp."); Director, John Hancock
Subsidiaries, LLC, Independence Investment
LLC, Independence Fixed Income LLC and
Signature Services; Senior Vice President,
MassMutual Insurance Co. (until 1999).
- ------------------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02199.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
18
- --------------------------------------------------------------------------------------------------------------------
Number of
John Hancock
Position(s) Trustee/ Principal Occupation(s) and other Funds
Name, Address (1) Held with Officer Directorships Overseen by
And Age Fund since(2) During Past 5 Years Trustee
- --------------------------------------------------------------------------------------------------------------------
Principal Officers who
are not Trustees
- --------------------------------------------------------------------------------------------------------------------
William L. Braman Executive 2000 Executive Vice President and Chief N/A
Born: 1953 Vice Investment Officer, the Adviser and each
President of the John Hancock funds; Director,
and Chief SAMCorp., Executive Vice President and
Investment Chief Investment Officer, Barring Asset
Officer Management, London U.K. (until 2000).
- --------------------------------------------------------------------------------------------------------------------
Richard A. Brown Senior Vice 2000 Senior Vice President, Chief Financial N/A
Born: 1949 President Officer and Treasurer, the Adviser, John
and Chief Hancock Funds, and The Berkeley Group;
Financial Second Vice President and Senior Associate
Officer Controller, Corporate Tax Department, John
Hancock Financial Services, Inc. (until
2001).
- --------------------------------------------------------------------------------------------------------------------
Thomas H. Connors Vice 1994 Vice President and Compliance Officer, the N/A
Born: 1959 President Adviser and each of the John Hancock
and funds; Vice President, John Hancock Funds.
Compliance
Officer
- --------------------------------------------------------------------------------------------------------------------
William H. King Vice 1994 Vice President and Assistant Treasurer, N/A
Born: 1952 President the Adviser; Vice President and Treasurer
and Treasurer of each of the John Hancock funds; Assistant
Treasurer of each of the John Hancock funds
(until 2001).
- --------------------------------------------------------------------------------------------------------------------
Susan S. Newton Senior Vice 1994 Senior Vice President, Secretary and Chief N/A
Born: 1950 President, Legal Officer, SAMCorp., the Adviser and
Secretary each of the John Hancock funds, John
and Chief Hancock Funds and The Berkeley Group; Vice
Legal Officer President, Signature Services (until
2000), Director, Senior Vice President and
Secretary, NM Capital.
- --------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02199.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
19
The Fund's Board of Trustees currently has five standing Committees: the Audit
Committee, the Administration Committee, the Contracts/Operations Committee, the
Investment Performance Committee and the Coordinating Committee. Each Committee
is comprised of Independent Trustees. The Audit Committee members are Messrs.
Farrell, Glavin and Moore. The Audit Committee recommends to the full board
auditors for the Fund, monitors and oversees the audits of the Fund,
communicates with both independent auditors and internal auditors on a regular
basis and provides a forum for the auditors to report and discuss any matters
they deem appropriate at any time. The Audit Committee held four meetings during
the fiscal year ended October 31, 2002.
The Administration Committee's members are all of the Independent Trustees of
the Fund. The Administration Committee reviews the activities of the other four
standing committees and makes the final selection and nomination of candidates
to serve as Independent Trustees. The Administration Committee will consider
nominees recommended by shareholders to serve as Independent Trustees, provided
that shareholders submit recommendations in compliance with all of the pertinent
provisions of Rule 14a-8 under the Securities Exchange Act of 1934. The
Administration Committee also works with all Trustees on the selection and
election of officers of the Fund. The Administration Committee held four
meetings during the fiscal year ended October 31, 2002.
The Contracts/Operations Committee members are Messrs. Chapman, Cosgrove and
Pratt. The Contracts/Operations Committee oversees the initiation, operation,
and renewal of contracts between the Fund and other entities. These contracts
include advisory and subadvisory agreements, custodial and transfer agency
agreements and arrangements with other service providers. The
Contracts/Operations Committee held five meetings during the fiscal year ended
October 31, 2002.
The Investment Performance Committee consists of Messrs. Aronowitz and Ms.
Peterson. The Investment Performance Committee monitors and analyzes the
performance of the Fund generally, consults with the adviser as necessary if the
Fund requires special attention, and reviews peer groups and other comparative
standards as necessary. The Investment Performance Committee held four meetings
during the fiscal year ended October 31, 2002.
The Coordinating Committee members are the chairpersons of the other four
standing committees. The Coordinating Committee assures consistency of action
among committees, reviews Trustee compensation, evaluates Trustee performance
and considers committee membership rotations as well as relevant corporate
governance issues.
The following table provides a dollar range indicating each Trustee's ownership
of equity securities of the Fund, as well as aggregate holdings of shares of
equity securities of all John Hancock Funds overseen by the Trustee, as of
December 31, 2002.
20
- ------------------------------------------------------------------------------------------------------------
Aggregate Dollar Range of holdings in
Dollar Range of Fund Shares John Hancock funds overseen by
Name of Trustee Owned by Trustee (1) Trustee (1)
- ------------------------------------------------------------------------------------------------------------
Independent Trustees
- ------------------------------------------------------------------------------------------------------------
Dennis S. Aronowitz $1-$10,000 $50,001-$100,000
- ------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. $1-$10,000 Over $100,000
- ------------------------------------------------------------------------------------------------------------
William J. Cosgrove $1-$10,000 Over $100,000
- ------------------------------------------------------------------------------------------------------------
Richard A. Farrell None Over $100,000
- ------------------------------------------------------------------------------------------------------------
William F. Glavin None $10,001-$50,000
- ------------------------------------------------------------------------------------------------------------
Dr. John A. Moore None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Patti McGill Peterson $1-$10,000 Over $100,000
- ------------------------------------------------------------------------------------------------------------
John W. Pratt $1-$10,000 Over $100,000
- ------------------------------------------------------------------------------------------------------------
Interested Trustees
- ------------------------------------------------------------------------------------------------------------
John M. DeCiccio None Over $100,000
- ------------------------------------------------------------------------------------------------------------
Maureen R. Ford $1-$10,000 Over $100,000
- ------------------------------------------------------------------------------------------------------------
(1) Under the John Hancock Deferred Compensation Plan for Independent Trustees,
an Independent Trustee may elect to earn a return on his deferred fees equal
to the amount that he would have earned if the deferred fees amount were
invested in one or more funds in the John Hancock fund complex. Under these
circumstances, a trustee is not the legal owner of the underlying shares,
but participates in any positive or negative return on those shares to the
same extent as other shareholders. If the Trustees were deemed to own the
shares used in computing the value of his deferred compensation, as of
December 31, 2002, the respective "Dollar Range of Fund Shares Owned by
Trustee" and the "Aggregate Dollar Range of holdings in John Hancock funds
overseen by Trustee" would be $10,001 -$50,000 and over $100,000 for Mr.
Chapman, none and over $100,000 for Mr. Cosgrove, $1-$10,000 and over
$100,000 for Mr. Glavin, none and over $100,000 for Dr. Moore.
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Mr. DeCiccio and Ms. Ford, each a
non-Independent Trustee, and each of the officers of the Fund who are interested
persons of the Adviser, are compensated by the Adviser and/or affiliates and
receive no compensation from the Fund for their services.
Aggregate Compensation Total Compensation From the Fund and
Independent Trustees from the Fund (1) John Hancock Fund Complex to Trustees (2)
- -------------------- ----------------- -----------------------------------------
Dennis J. Aronowitz $ 90 $ 72,000
Richard P. Chapman* 105 78,100
William J. Cosgrove* 100 75,100
Richard A. Farrell 100 75,000
Gail D. Fosler + 97 72,000
William F. Glavin* 100 75,000
Dr. John A. Moore* 97 72,000
Patti McGill Peterson 96 72,000
John Pratt 97 72,100
---- --------
Total $882 $663,300
(1) Compensation is for the current fiscal year ending October 31, 2002.
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 2002. As of this date, there were sixty-one funds
in the John Hancock
21
Fund Complex, with Mr. Moore and Ms. Peterson serving on thirty-nine funds and
each other Independent Trustees servicing on thirty-one funds.
*As of December 31, 2002, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $46,844, Mr. Cosgrove was $166,358, Mr. Glavin was $219,230 and for
Dr. Moore was $203,650 under the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees (the "Plan").
+ As of December 31, 2002, Ms. Fosler resigned as a Trustee of the Complex.
All of the officers listed are officers or employees of the Adviser or
Affiliated Companies. Some of the Trustees and officers may also be officers or
Trustees of one or more of the other funds for which the Adviser serves as
investment adviser.
As of January 14, 2003, the officers and Trustees of the Fund as a group
beneficially owned less than 1% of the outstanding shares of the Fund. As of
that date, the following shareholders of record beneficially owned 5% or more of
the outstanding shares of the Fund.
Class of Percentage of total Outstanding
Name and Address of Shareholders Shares Shares of the Class of the Fund
- -------------------------------- ------ -------------------------------
Sterling Trust Company C 18.52%
FBO Merchants & Manufacturers
Bancorp Retirement Plan
1380 Lawrence St Suite 1400
Denver CO 80204-2060
Sterling Trust Company C 5.67%
FBO Circulation Tools Inc 401(k)
1380 Lawrence St Suite 1400
Denver CO 80204-2060
Sterling Trust Company C 5.22%
FBO Starry Associates Ret Plan
1380 Lawrence St Suite 1400
Denver CO 80204-2060
Sterling Trust Company C 5.15%
FBO Copa Casino
1380 Lawrence St Suite 1400
Denver CO 80204-2060
Sterling Trust Company I 62.14%
Fbo The Investment Incentive Plan
1380 Lawrence St Suite 1400
Denver CO 80204-2060
Sterling Trust Company I 12.96%
FBO Savings Plan for EE's of Texon USA
1380 Lawrence St Suite 1400
Denver CO 80204-2060
22
Class of Percentage of total Outstanding
Name and Address of Shareholders Shares Shares of the Class of the Fund
- -------------------------------- ------ -------------------------------
Sterling Trust Company I 12.57%
FBO One Color Comm 401 (K)
1380 Lawrence St Suite 1400
Denver CO 80204-2060
Sterling Trust Company I 9.82%
FBO Manistique Papers Inc.
401 (K) 1380 Lawrence St Suite 1400 Denver CO 80204-2060
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and as of December 31, 2002 has approximately $26 billion
in assets under management in its capacity as investment adviser to the Fund and
the other funds in the John Hancock group of funds as well as institutional
accounts. The Adviser is an affiliate of the Life Company, one of the most
recognized and respected financial institutions in the nation. With total assets
under management of more than $100 billion, the Life Company is one of 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 management contract (the "Advisory
Agreement") with the Adviser which was approved by the Fund's 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 but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices, prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts,
maintaining a committed line of credit, 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.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser monthly a fee based on a stated percentage of the average of the daily
net assets of the Fund as follows:
23
Average Daily Net Assets Annual Rate
------------------------ -----------
First $250 million 1.00%
Next $250 million 0.80%
Next $250 million 0.75%
Amounts over $750 million 0.625%
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 its 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.
For the fiscal years ended October 31, 2000, 2001 and 2002, the Adviser's
management fee was $252,090, $208,015 and $143,908, respectively. After expense
reductions by the Adviser, the Adviser received no management fees for the
fiscal years ended October 31, 2000, 2001 and 2002.
As of December 14, 2000, the Adviser has entered into a sub-investment
management contract (the "sub-advisory agreement") with Nicholas-Applegate under
which, subject to the review of the Trustees and the overall supervision of the
Adviser, Nicholas-Applegate is responsible for providing the Fund with
investment advice. Nicholas-Applegate will also provide the Fund on a continuous
basis with economic, financial and political information, research and
assistance concerning international markets. Until May 11, 2001, as compensation
for its services under the Sub-Advisory Agreement, the Adviser paid
Nicholas-Applegate quarterly, in arrears, a fee at the annual rate of 55% of the
investment advisory fee received by the Adviser. Effective May 11, 2001, the
Adviser pays quarterly a sub-advisory fee to Nicholas-Applegate equal on an
annual basis to (i) 0.50% of the first $500,000,000 of the average daily net
asset value of the Fund; and (ii) 0.45% of the average daily net asset value of
the Fund in excess of $500,000,000. Nicholas-Applegate is a limited liability
company organized under the laws of the State of Delaware partnership, with
offices at 600 West Broadway, 30th Floor, San Diego, California 92101.
Nicholas-Applegate was organized in August 1984 to manage discretionary accounts
investing primarily in publicly traded equity securities and securities
convertible into or exercisable for publicly traded equity securities, with the
goal of capital appreciation. Nicholas-Applegate is a wholly owned subsidiary of
Allianz of America, Inc. ("AZOA"). Allianz AG, the parent of AZOA, is a German
Aktiengesellschaft, a German publicly traded company, which, together with its
subsidiaries, comprises the world's largest insurance group (the "Allianz
Group"). Allianz Group currently has assets under management of approximately
$690 billion. Allianz AG's address is: Koeniginstrasse 28, D-80802, Munich,
Germany.
Until December 14, 2000, the Subadviser to the Fund was Indocam International
Investment Services ("IIIS"). IIIS is a French corporation and a subsidiary of
Indocam, the asset management affiliate of Credit Agricole, a French bank group
with a presence in financial centers around the world. IIIS is located at 90
Boulevard Pasteaur, Paris, France 75015. Indocam is an asset management firm
maintaining established relationships with institutional, corporate and
individual investors.
Credit Agricole is one of the largest bank groups in the world. As compensation
for its services under the Sub-Advisory Agreement, the Adviser was paying IIIS
quarterly, in arrears, a fee at the annual rate of 55% of the investment
advisory fee received by the Adviser. Until March 1, 2000, the Fund had another
subadviser, John Hancock Advisers International Limited ("JHAI") located at 6th
Floor, Duke's Court, 32-36 Duke Street, St. James's, London, England SW1Y6DF.
JHAI was a wholly-owned subsidiary of the Adviser formed in 1987 to provide
international investment research and advisory services to U.S. institutional
clients. As compensation for its services under
24
the Sub-Advisory Agreement, JHAI received from the Adviser a portion of its
monthly fee equal to 0.70% on an annual basis of the average daily net asset
value of the Fund for each calendar month up to $200 million of average daily
net assets; and 0.6375% on an annual basis of the average daily net asset value
over $200 million. JHAI agreed to waive all but 0.05% of its fee as of January
1, 2000 and its Sub-Advisory contract was terminated effective March 1, 2000.
The Fund is not responsible for paying any Subadviser's fee.
The Adviser has agreed to limit the Fund's expenses (excluding 12b-1 and
transfer agent expenses) to 0.90% of the Fund's average daily net assets. The
Adviser reserves the right to terminate this limitation in the future.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, a Subadviser or any of 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 other Funds or clients are selling the same security.
If opportunities for purchase or sale of securities by the Adviser or a
Subadviser for the Fund or for other funds or clients for which the Adviser or a
Subadviser renders investment advice arise for consideration at or about the
same time, transactions in such securities will be made, insofar as feasible,
for the respective funds or clients in a manner deemed equitable to all of them.
To the extent that transactions on behalf of more than one client of the
Adviser, a Subadviser or its 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 their Advisory Agreements, the Adviser and Subadviser are not liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with the matters to which the 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 reckless
disregard by them of their obligations and duties under the applicable
Agreements.
Under the Advisory Agreement, the 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 the Advisory
Agreement is no longer in effect, the Fund (to the extent that it lawfully can)
will cease to use such a name or any other name indicating that it is advised by
or otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the nonexclusive 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.
The Fund's Board of Trustees is responsible for overseeing the performance of
the Fund's investment Adviser and Subadviser and determining whether to approve
and renew the Fund's Advisory Agreement and Sub-Advisory Agreement. The Board
has a standing request that the Adviser provide the Board with certain
information the Board has deemed important to evaluating the short- and
long-term performance of the Adviser and Subadviser. This information includes
periodic performance analysis and status reports from the Adviser and quarterly
Portfolio and Investment Performance Reports. The Fund's portfolio managers meet
with the Board from time to time to discuss the management and performance of
the Fund and respond to the Board's questions concerning the performance of the
Adviser. When the Board considers whether to renew an investment advisory
contract, the Board takes into account numerous factors, including: (1) the
nature, extent and quality of the services provided by the Adviser and
Subadviser; (2) the investment performance of the Fund; (3) the fair market
value of the services provided by the Adviser and Subadviser; (4) a comparative
analysis of expense ratios of, and advisory fees paid by, similar funds; (5) the
extent to which the Adviser has realized or will realize economies of scale as
the Fund grows; (6) other sources of revenue to the Adviser or its affiliates
from its
25
relationship with the Fund and intangible or "fall-out" benefits that accrue to
the adviser and its affiliates, if relevant; and (7) the Adviser's control of
the operating expenses of the fund, such as transaction costs, including ways in
which portfolio transactions for the fund are conducted and brokers are
selected.
The primary factors underlying the Board's decision to renew the Fund's Advisory
Agreement and Sub-Advisory Agreement were as follows:
o The Board determined that the performance results of the Fund and the
Adviser and Subadviser's responsive actions were reasonable, as compared
with relevant performance standards, including the performance results of
comparable international funds derived from data provided by Lipper Inc.
and appropriate market indexes.
o The Board decided that the advisory fee paid by the Fund was reasonable
based on the average advisory fee for comparable funds. The Board also
took into account the nature of the fee arrangements which include
breakpoints that will adjust the fee downward as the size of the Fund's
portfolio increases.
o The Board evaluated the Adviser and Subadviser's investment staff and
portfolio management process, and reviewed the composition and overall
performance of the Fund's portfolio on both a short-term and long-term
basis. The Board considered whether the Fund should obtain alternative
portfolio management services and concluded that, under all the
circumstances and based on its informed business judgement, the most
appropriate course of action in the best interest of the Fund's
shareholders was to renew the agreements with the Adviser and Subadviser.
The continuation of the Advisory Agreement, the Sub-Advisory Agreement and the
Distribution Agreement (discussed below) was approved by all of the Trustees in
June of 1999. On December 12, 2000, the Trustees approved the termination of
IIIS as Subadviser and appointed Nicholas-Applegate as Subadviser effective
December 14, 2000. On April 25, 2001, the shareholders of the Fund approved the
appointment of Nicholas-Applegate as Subadviser. The Advisory Agreement, the
Nicholas-Applegate Sub-Advisory Agreement and the Distribution Agreement, will
continue in effect from year to year, provided that its continuance is approved
annually both (i) by the holders of a majority of the outstanding voting
securities of the Trust or by the Trustees, and (ii) by a majority of the
Trustees who are not parties to the Agreement or "interested persons" of any
such parties. Each of these Agreements may be terminated on 60 days written
notice by any party or by vote of a majority of the outstanding voting
securities of the Fund and will terminate automatically if assigned.
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, 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 fiscal year ended October 31, 2000, 2001 and 2002,
the Fund paid the Adviser $4,779, $4,160 and $3,047, respectively, for services
under this Agreement.
Personnel of the Adviser and its affiliates may trade securities for their
personal accounts. The Fund also may hold, or may be buying or selling, the same
securities. To prevent the Fund from being disadvantaged, the adviser(s),
principal underwriter and the Fund have adopted a code of ethics which restricts
the trading activity of those personnel.
DISTRIBUTION CONTRACTS
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 class of the Fund. Shares
26
of the Fund are also sold by selected broker-dealers (the "Selling Brokers")
that have entered into selling agency agreements with John Hancock Funds. These
Selling Brokers are authorized to designate other intermediaries to receive
purchase and redemption orders on behalf of the Fund. John Hancock Funds accepts
orders for the purchase of the shares of the Fund that are continually offered
at net asset value next determined, plus an applicable sales charge, if any. In
connection with the sale of Fund shares, John Hancock Funds and Selling Brokers
receive compensation from a sales charge imposed, in the case of Class A and
Class C shares, at the time of sale. In the case of Class B or Class C shares,
the broker receives compensation immediately but John Hancock Funds is
compensated on a deferred basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal years ended October 31, 2000, 2001 and 2002 were $122,328, $45,866 and
$21,199, respectively. Of such amounts $11,580, $5,706 and $2,406, respectively,
were retained by John Hancock Funds in 2000, 2001 and 2002. Total underwriting
commissions for sales of the Fund's Class C shares for the period from May 1,
2000 to October 31, 2000 and the fiscal year ended October 31, 2001 and 2002
were $9,118, $4,901 and $3,285, respectively. The remainder of the underwriting
commissions were reallowed to Selling Brokers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of
1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% for Class A and 1.00% for Class B and Class
C shares of the Fund's average daily net assets attributable to shares of that
class. However, the service fee will not exceed 0.25% of the Fund's average
daily net assets attributable to each class of shares. The distribution fees
will be used to reimburse John Hancock Funds for its distribution expenses,
including but not limited to: (i) initial and ongoing sales compensation to
Selling Brokers and others (including affiliates of John Hancock Funds) engaged
in the sale of Fund shares; (ii) marketing, promotional and overhead expenses
incurred in connection with the distribution of Fund shares; and (iii) with
respect to Class B and Class C shares only, interest expenses on unreimbursed
distribution expenses. The service fees will be used to compensate Selling
Brokers and others for providing personal and account maintenance services to
shareholders. In the event that John Hancock Funds is not fully reimbursed for
payments or expenses they incur under the Class A Plan, these expenses will not
be carried beyond twelve months from the date they were incurred. Unreimbursed
expenses under the Class B and Class C Plans will be carried forward together
with interest on the balance of these unreimbursed expenses. The Fund does not
treat unreimbursed expenses under the Class B and Class C Plans as a liability
of the Fund because the Trustees may terminate the Class B and/or Class C Plans
at any time. For the fiscal year ended October 31, 2002, an aggregate of
$1,431,585 of distribution expenses or 24.31% of the average net assets of the
Fund's Class B shares was not reimbursed or recovered by John Hancock Funds
through the receipt of deferred sales charges or Rule 12b-1 fees in prior
periods. For the fiscal year ended October 31, 2002, an aggregate of $34,535 of
distribution expenses or 3.57% of the average net assets of the Fund's Class C
shares was not reimbursed or recovered by John Hancock Funds through the receipt
of deferred sales charges or Rule 12b-1 fees.
The Plans and all amendments were approved by the Trustees, including a majority
of the Trustees who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plans (the
"Independent Trustees"), by votes cast in person at meetings called for the
purpose of voting on such Plans.
Pursuant to the Plans, at least quarterly, John Hancock Funds provide the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
27
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
Independent Trustees. The Plans provide that they may be terminated without
penalty, (a) by vote of a majority of the Independent Trustees, (b) by a vote of
a majority of the Fund's outstanding shares of the applicable class upon 60
days' written notice to John Hancock Funds, and (c) automatically in the event
of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to that Plan. Each Plan provides that
no material amendment to the Plans will be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Class I shares of the Fund are not subject to any distribution plan. Expenses
associated with the obligation of John Hancock Funds to use its best efforts to
sell Class I shares will be paid by the Adviser or by John Hancock Funds and
will not be paid from the fees paid under Class A, Class B or Class C Plans.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of Trustees.
From time to time, the Fund may participate in joint distribution activities
with other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Fund.
During the fiscal year ended October 31, 2002, the Fund paid John Hancock Funds
the following amount of expenses in connection with their services for the Fund.
Expense Items
-------------
Printing and Interest,
Mailing of Carrying or
Prospectuses to Compensation to Expenses of John Other
Advertising New Shareholders Selling Brokers Hancock Funds Finance Charges
----------- ---------------- --------------- ------------- ---------------
Class A $3,665 $121 $6,896 $10,493 --
Class B 7,980 239 29,792 20,688 $180
Class C 1,648 39 3,977 4,008 --
SALES COMPENSATION
As part of their business strategies, the Fund, along with John Hancock Funds,
pay compensation to financial services firms that sell the Fund's shares. These
firms typically pass along a portion of this compensation to your broker or
financial representative.
The two primary sources of broker compensation payments for Class A, Class B and
Class C are (1) the 12 b-1 fees that are paid out of the fund's assets and (2)
sales charges paid by investors. The sales charges and 12b-1 fees are detailed
in the prospectus and under the "Distribution Contracts" in this Statement of
Additional Information. The portions of these expenses that are
28
paid to financial services firms are shown on the next page. For Class I shares,
John Hancock Funds may make a one-time payment at the time of initial purchase
out of its own resources to a Selling Broker who sells shares of the Fund. This
payment may not exceed 0.15% of the amount invested.
Whenever you make an investment in the Fund, the financial services firm
receives a reallowance/payment, as described below. The firm also receives the
first year's 12b-1 service fee at this time. Beginning with the second year
after an investment is made, the financial services firm receives an annual
12b-1 service fee of 0.25% of its total eligible fund net assets. This fee is
paid quarterly in arrears by the Fund.
In addition, from time to time, John Hancock Funds, at its expense, may provide
significant additional compensation to financial services firms in connection
with their promotion of the Fund or sale of shares of the Fund. Such
compensation provided by John Hancock Funds may include, for example, financial
assistance to financial services firms in connection with their marketing and
sales development programs for their registered representatives and other
employees, as well as payment for travel expenses, including lodging, incurred
by registered representatives and other employees for such marketing and sales
development programs, as well as assistance for seminars for the public,
advertising and sales campaigns regarding one or more Funds, and other financial
services firms-sponsored events or activities. From time to time, John Hancock
Funds may provide expense reimbursements for special training of a financial
services firm's registered representatives and other employees in group
meetings. Other compensation, such as asset retention fees, finder's fees and
reimbursement for wire transfer fees or other administrative fees and costs may
be offered to the extent not prohibited by law or any self-regulatory agency,
such as the NASD.
29
Broker receives
Sales charge Broker receives 12b-1 service fee Total broker
paid by investors maximum reallowance (% of net compensation (1)
Class A investments (% of offering price) (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------------- --------------- ---------------------
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Investments
of Class A share of
$1 million or more (4)
- ----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Broker receives Broker receives
maximum 12b-1 service fee Total broker compensation
reallowance (% of net (1)
Class B investments (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------- ---------------------
All amounts -- 3.75% 0.25% 4.00%
Broker receives Broker receives
maximum 12b-1 service fee Total broker
reallowance (% of net compensation (1)
Class C investments (% of offering price) Investment) (3) (% of offering price)
- ------------------- -------------------- --------------- ---------------------
Over $1,000,000 or amounts
purchased at NAV -- .75% 0.25% 1.00%
All other amounts 1.00% 1.75% 0.25% 2.00%
Broker receives Broker receives
maximum 12b-1 service Total broker
reallowance fee (% of net compensation (1)
Class I investments (% of offering price) investment) (3) (% of offering price)
- ------------------- -------------------- --------------- ---------------------
All amounts -- 0.00% 0.00% 0.00% (5)
(1) Broker percentages and 12b-1 service fee percentages are calculated from
different amounts, and therefore may not equal total broker compensation
percentages if combined using simple addition.
(2) For Group Investment Programs sales, the maximum total broker compensation
for investments of $1 million or more is 1.00% of the offering price (one year
CDSC of 1.00% applies for each sale).
(3) After first year broker receives 12b-1 fees quarterly in arrears.
(4) John Hancock Funds reduce aggregate investments by the amount of recent
redemptions.
30
(5) John Hancock Funds may make a one-time payment at the time of initial
purchase out of its own resources to a Selling Broker who sells Class I shares
of the Fund. This payment may be up to 0.15% of the amount invested.
CDSC revenues collected by John Hancock Funds may be used to pay broker
commissions when there is no initial sales charge.
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the 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 categories for which no sales are reported and
other securities traded over-the-counter are generally valued at the mean
between the current closing bid and asked prices.
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 and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's 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.
INITIAL SALES CHARGE ON CLASS A AND CLASS C SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). The fund no longer
issues share certificates. Shares are electronically recorded. The Trustees
reserve the right to change or waive the Fund's minimum investment requirements
and to reject any order to purchase shares (including purchase by exchange) when
in the judgment of the Adviser such rejection is in the Fund's best interest.
31
The sales charges applicable to purchases of Class A and Class C shares of the
Fund are described in the Prospectus. Methods of obtaining reduced sales charges
referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current purchases of Class A shares
of the Fund, the investor is entitled to accumulate current purchases with the
greater of the current value (at offering price) of the Class A shares of the
Fund owned by the investor, or if John Hancock Signature Services, Inc.
("Signature Services"), is notified by the investor's dealer or the investor at
the time of the purchase, the cost of the Class A shares owned.
Without Sales Charges. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser and
its affiliates, subadviser or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family (spouse,
children, grandchildren, mother, father, sister, brother, mother-in-law,
father-in-law, daughter, son-in-law, niece, nephew, grandparents, and same sex
domestic partner) of any of the foregoing; or any fund, pension, profit sharing
or other benefit plan for the individuals described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into a signed agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds, when
he or she withdraws from his or her plan and transfers any or all of his or her
plan distributions directly to the Fund.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing programs, if the
Plan has more than $3 million in assets or 500 eligible employees at the date
the Plan Sponsor signs the Merrill Lynch Recordkeeping Service Agreement. See
your Merrill Lynch financial consultant for further information.
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
o Pension plans transferring assets from a John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approval by the
Securities and Exchange Commission.
o Participant directed retirement plans with at least 100 eligible employees at
the inception the Fund account. Each of these investors may purchase Class A
shares with no initial sales charges. However, if the shares are redeemed within
12 months after the end of the calendar years in which the purchase was made, a
CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
Class C shares may be offered without a front-end sales charge to:
o Investments of redemption proceeds from a non-John Hancock mutual fund.
32
o Group Retirement plan products for which John Hancock Signature Services
performs recordkeeping and administrative services. (These plans include
403(b), Simple IRA, SEP and SARSEP plans.)
o Group Retirement plan products sold through third party administrators
under the John Hancock SELECT retirement plan program. (These plans
include 401(k), Money Purchase and Profit Sharing plans.)
o An investor who buys through a Merrill Lynch omnibus account. However, a
CDSC may apply if the shares are sold within 12 months of purchase.
Class A and Class C shares may also be purchased without an initial sales charge
in connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. Further
information about combined purchases, including certain restrictions on combined
group purchases, is available from Signature Services or a Selling Broker's
representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize. A company's (not an individual's)
qualified and non-qualified retirement plan investments can be combined to take
advantage of this privilege.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
made pursuant to a Letter of Intention (the "LOI"), which should be read
carefully prior to its execution by an investor. The Fund offers two options
regarding the specified period for making investments under the LOI. All
investors have the option of making their investments over a specified period of
thirteen (13) months. Investors who are using the Fund as a funding medium for a
retirement plan, however, may opt to make the necessary investments called for
by the LOI over a forty-eight (48) month period. These retirement plans include
traditional, Roth IRAs and Coverdell ESAs, SEP, SARSEP, 401(k), 403(b)
(including TSAs), SIMPLE IRA, SIMPLE 401(k), Money
33
Purchase Pension, Profit Sharing and Section 457 plans. An individual's
non-qualified and qualified retirement plan investments cannot be combined to
satisfy LOI of 48 months. Such an investment (including accumulations and
combinations but not including reinvested dividends) must aggregate $50,000 or
more during the specified period from the date of the LOI or from a date within
ninety (90) days prior thereto, upon written request to Signature Services. The
sales charge applicable to all amounts invested under the LOI is computed as if
the aggregate amount intended to be invested had been invested immediately. If
such aggregate amount is not actually invested, the difference in the sales
charge actually paid and the sales charge payable had the LOI not been in effect
is due from the investor. However, for the purchases actually made within the
specified period (either 13 or 48 months) the sales charge applicable will not
be higher than that which would have applied (including accumulations and
combinations) had the LOI been for the amount actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay the sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his or her
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase, or by the Fund to sell, any additional Class A shares and
may be terminated at any time.
Because Class I shares are sold at net asset value without the imposition of any
sales charge, none of the privileges described under these captions are
available to Class I investors.
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively, will be subject to a
CDSC at the rates set forth in the Prospectus as a percentage of the dollar
amount subject to the CDSC. The charge will be assessed on an amount equal to
the lesser of the current market value or the original purchase cost of the
Class B or Class C shares being redeemed. No CDSC will be imposed on increases
in account value above the initial purchase price or on shares derived from
reinvestment of dividends or capital gains distributions.
Class B shares are not available to retirement plans that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining this number of
years from the time of any payment for the purchases of both Class B and Class C
of shares, all payments during a month will be aggregated and deemed to have
been made on the first day of the month.
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period for Class B or one year CDSC
redemption period for Class C, or those you acquired through dividend and
capital gain reinvestment, and next from the shares you have held the longest
during
34
the six-year period for Class B shares. For this purpose, the amount of any
increase in a share's value above its initial purchase price is not subject to a
CDSC. Thus, when a share that has appreciated in value is redeemed during the
CDSC period, a CDSC is assessed only on its initial purchase price.
When requesting a redemption for a specific dollar amount please indicate if you
require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 Class B shares at $10 per share. The second year after
your purchase, your investment's net asset value per share has increased by $2
to $12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time your CDSC will be calculated as follows:
o Proceeds of 50 shares redeemed at $12 per share (50 x 12) $600.00
o *Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC (dividend
reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account not
just the shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C shares without a sales charge being deducted at
the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B and Class C shares and of Class A shares that are subject
to a CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your
account if you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or
acquisition transactions involving other investment companies or
personal holding companies.
* Redemptions due to death or disability. (Does not apply to trust
accounts unless trust is being dissolved.)
* Redemptions made under the Reinstatement Privilege, as described
in "Sales Charge Reductions and Waivers" of the Prospectus.
* Redemptions of Class B and Class C shares made under a periodic
withdrawal plan, or redemptions for fees charged by planners or
advisors for advisory services, as long as your annual
redemptions do not exceed 12% of your account value, including
reinvested dividends, at the time you established your periodic
withdrawal plan and 12% of the value of subsequent investments
(less redemptions) in that account at the time you notify
35
Signature Services. (Please note that this waiver does not apply
to periodic withdrawal plan redemptions of Class A shares that
are subject to a CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch
servicing programs, if the Plan has less than $3 million in
assets or 500 eligible employees at the date the Plan Sponsor
signs the Merrill Lynch Recordkeeping Service Agreement. See
your Merrill Lynch financial consultant for further information.
* Redemptions of Class A shares by retirement plans that invested
through the PruArray Program sponsored by Prudential Securities.
* Redemptions of Class A shares made after one year from the
inception date of a retirement plan at John Hancock.
For Retirement Accounts (such as traditional, Roth IRAs and Coverdell ESAs,
SIMPLE IRAs, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money
Purchase Pension Plan, Profit-Sharing Plan and other plans as described under
the Internal Revenue Code) unless otherwise noted:
* Redemptions made to effect mandatory or life expectancy
distributions under the Internal Revenue Code. (Waiver based on
required minimum distribution calculations for John Hancock
Mutual Fund IRA assets only.)
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or
beneficiaries from employer sponsored retirement plans under
sections 401(a) (such as Money Purchase Pension Plans and
Profit-Sharing Plan/401(k) Plans), 457 and 408 (SEPs and SIMPLE
IRAs) of the Internal Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased
shares prior to October 1, 1992 and certain IRA plans that
purchased shares prior to May 15, 1995.
Please see matrix for some examples.
36
- --------------------------------------------------------------------------------------------------------------
Type of 401 (a) Plan (401 403 (b) 457 IRA, IRA Non-retirement
Distribution (k), MPP, PSP) Rollover
457 & 408 (SEPs &
Simple IRAs)
- --------------------------------------------------------------------------------------------------------------
Death or Disability Waived Waived Waived Waived Waived
- --------------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
required value annually
minimum in periodic
distributions*or payments
12% of account
value annually
in periodic
payments.
- --------------------------------------------------------------------------------------------------------------
Between 59 1/2and 70 Waived Waived Waived Waived for Life 12% of account
1/2 Expectancy or value annually
12% of account
in periodic
value annually
payments in
periodic payments.
- --------------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account
(Class B and Class annuity payments annuity annuity annuity value annually
C only) (72t) or 12% of payments (72t) payments (72t) payments (72t) in periodic
account value or 12% of or 12% of or 12% of payments
annually in account value account value account value
periodic payments. annually in annually in annually in
periodic periodic periodic
payments. payments. payments.
- --------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- --------------------------------------------------------------------------------------------------------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
- --------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- --------------------------------------------------------------------------------------------------------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
- --------------------------------------------------------------------------------------------------------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement
Age
- --------------------------------------------------------------------------------------------------------------
Return of Excess Waived Waived Waived Waived N/A
- --------------------------------------------------------------------------------------------------------------
*Required minimum distributions based on John Hancock Mutual Fund IRA assets
only.
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
37
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. When a 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. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90-day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Investors may exchange between institutional funds and Class I shares
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock 500 Index Fund will retain the
exchanged fund's CDSC schedule). For purposes of computing the CDSC payable upon
redemption of shares acquired in an exchange, the holding period of the original
shares is added to the holding period of the shares acquired in an exchange.
If a retirement plan exchanges the plan's Class A account in its entirety from
the Fund to a non-John Hancock investment, the one-year CDSC applies.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994 for
Class B shares of any other John Hancock fund, the acquired shares will continue
to be subject to the CDSC schedule that was in effect when the exchanged shares
were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares which may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of additional shares of
the Fund could be disadvantageous to a shareholder because of the initial sales
charge payable on such purchases of Class A shares and the CDSC imposed on
redemptions of Class B and Class C shares and because redemptions are taxable
events. Therefore, a shareholder should not purchase shares at the same time a
Systematic Withdrawal Plan is in effect. The Fund reserves the right to modify
or discontinue the Systematic Withdrawal Plan of any
38
shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the order date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit of that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of any CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
39
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers
or Service Agents ("Brokers"). Brokers may charge for their services or place
limitations on the extent to which you may use the services of the Fund. The
Fund will be deemed to have received a purchase or redemption order when an
authorized broker, or if applicable, a broker's authorized designee, receives
the order. If a broker is an agent or designee of the Fund, orders are processed
at the NAV next calculated after the broker receives the order. The broker must
segregate any orders it receives after the close of regular trading on the New
York Stock Exchange and transmit those orders to the Fund for execution at NAV
next determined. Some brokers that maintain nominee accounts with the Fund for
their clients charge an annual fee on the average net assets held in such
accounts for accounting, servicing, and distribution services they provide with
respect to the underlying Fund shares. The Adviser, the Fund, and/or John
Hancock Funds, LLC (the Fund's principal distributor), share in the expense of
these fees.
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series and
classes, without further action by shareholders. As of the date of this
Statement of Additional Information, the Trustees have authorized shares of the
Fund and one other series. Additional series may be added in the future. The
Trustees have also authorized the issuance of four classes of shares of the
Fund, designated as Class A, Class B, Class C and Class I.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
each class of shares have certain exclusive voting rights on matter relating to
their respective distribution plans. The different classes of the Fund may bear
different expenses relating to the cost of holding shareholder meetings
necessitated by the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to each class of shares will be borne
exclusively by that class, (ii) Class B and Class C shares will pay higher
distribution and service fees than Class A shares and (iii) each class of shares
will bear any other class expenses properly allocable to that class of shares,
subject to the conditions the Internal Revenue Service imposes with respect to
multiple-class structures. Similarly, the net asset value per share may vary
depending on which class of shares are purchased. No interest will be paid on
uncashed dividend or redemption checks.
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable, except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund 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
40
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 Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Furthermore, no fund included in this Fund's prospectus shall
be liable for the liabilities of any other John Hancock fund. 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.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the 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. For telephone transactions, the transfer agent will take measures
to verify the identity of the caller, such as asking for name, account number,
Social Security or other taxpayer ID number and other relevant information. If
appropriate measures are taken, the transfer agent is not responsible for any
losses that may occur to any account due to an unauthorized telephone call. Also
for your protection telephone transactions are not permitted on accounts whose
names or addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
TAX STATUS
The Fund is treated as a separate entity for accounting and tax purposes, has
qualified and elected to be treated 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, the 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.
The 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. The Fund
intends under normal circumstances to seek to avoid or minimize liability for
such tax by satisfying such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the
41
Fund's "investment company taxable income," they will be taxable as ordinary
income; and if they are paid from the Fund's "net capital gain," they will be
taxable as long-term capital gain. (Net capital gain is the excess (if any) of
net long-term capital gain over net short-term capital loss, and investment
company taxable income is all taxable income and capital gains, other than net
capital gain, after reduction by deductible expenses.) 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, divided by the number of
shares received in the reinvestment.
If the Fund invests in stock (including an option to acquire stock such as is
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 Fund would not be able to pass through to
its shareholders any credit or deduction for such a tax. An election may be
available to ameliorate these adverse tax consequences, but could require the
Fund 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. The Fund may limit and/or manage its investments in passive
foreign investment companies or make an available election to minimize its tax
liability or maximize its return from these investments.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency options, 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 the 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 gross income for each taxable year. If
the net foreign exchange loss for a year treated as ordinary loss under Section
988 were to exceed the Fund's investment company taxable income computed without
regard to such loss the resulting overall ordinary loss for such year would not
be deductible by the Fund or its shareholders in future years.
The Fund may be subject to withholding and other taxes imposed by foreign
countries with respect to its investments in foreign securities. Tax conventions
between certain countries and the U.S. may reduce or eliminate such taxes.
Investors may be entitled to claim U.S. foreign tax credits or deductions with
respect to foreign income taxes or certain other foreign taxes ("qualified
foreign taxes") paid by the Fund, subject to certain provisions and limitations
contained in the Code, if the Fund so elects. If more than 50% of the value of
the Fund's total assets at the close of any taxable year consists of stock or
securities of foreign corporations, the Fund may file an election with the
Internal Revenue Service pursuant to which shareholders of the Fund will be
required to (i) include in ordinary gross income (in addition to taxable
dividends and distributions
42
actually received) their pro rata shares of qualified foreign taxes paid by the
Fund even though not actually received by them, and (ii) treat such respective
pro rata portions as foreign taxes paid by them.
If the Fund makes this election, shareholders may then deduct such pro rata
portions of qualified foreign taxes in computing their taxable income, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of qualified foreign taxes paid by the Fund,
although such shareholders will be required to include their share of such taxes
in gross income. Shareholders who claim a foreign tax credit for such foreign
taxes may be required to treat a portion of dividends received from the Fund as
a separate category of income for purposes of computing the limitations on the
foreign tax credit. Tax-exempt shareholders will ordinarily not benefit from
this election. Each year (if any) that the Fund files the election described
above, its shareholders will be notified of the amount of (i) each shareholder's
pro rata share of qualified foreign taxes paid by the Fund and (ii) the portion
of Fund dividends which represents income from each foreign country. If the Fund
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.
The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the Adviser's current investment strategy and whether
the Adviser believes it to be in the best interest of the Fund 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 the Fund's portfolio or undistributed taxable income
of the Fund. Consequently, subsequent distributions on those shares from such
appreciation or income may be taxable to such investor even if the net asset
value of the investor's shares is, as a result of the distributions, reduced
below the investor's cost for such shares, and the distributions in reality
represent a return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands. A sales charge paid in purchasing
shares of the Fund cannot be taken into account for purposes of determining gain
or loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or another John Hancock Fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, any loss realized on a redemption or exchange will be disallowed to the
extent the shares disposed of are replaced with other shares of the Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to automatic dividend reinvestments. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss.
Any loss realized upon the redemption of shares with a tax holding period of six
months or less will be treated as a long-term capital loss to the extent of any
amounts treated as distributions of long-term capital gain with respect to such
shares. 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.
43
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
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 the Fund had distributed to him on the last day of its taxable year his pro
rata share of such excess, and he had paid his pro rata share of the taxes paid
by the Fund and reinvested the remainder in the Fund. Accordingly, each
shareholder would (a) include his pro rata share of such excess as long-term
capital gain 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 to a refund of, his pro rata share of the taxes paid by the Fund, and
(c) be entitled to increase the adjusted tax basis for his shares in the Fund by
the difference between his pro rata share of such excess and his pro rata shares
of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
realized capital loss in any year to offset its net capital gains, if any,
during the eight years following the year of the loss. To the extent subsequent
net capital gains are offset by such losses, they would not result in Federal
income tax liability to the Fund and, as noted above, would not be distributed
as such to shareholders. The Fund has $13,871,763 of capital loss carryforwards
available, to the extent provided by regulations, to offset future net realized
capital gains. The Fund's carryforwards expire as follows: $636,448 expires in
October 31, 2007, $2,888,578 expires in October 31, 2008, $7,757,736 expires in
October 31, 2009 and $2,589,001 expires October 31, 2010.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market or constructive sale rules applicable to certain options, futures,
forward, 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. However, the Fund must distribute to shareholders for each taxable
year substantially all of its net income and net capital gains, including such
income or gain, to qualify as a regulated investment company and avoid liability
for any federal income or excise tax. Therefore, the Fund may have to dispose of
its portfolio securities under disadvantageous circumstances to generate cash,
or borrow cash, to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The Fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax in the case of non-exempt shareholders
who fail to furnish the Fund with
44
their correct taxpayer identification number and certain certifications required
by the IRS or if the IRS or a broker notifies the Fund that the number furnished
by the shareholder is incorrect or that the shareholder is subject to backup
withholding as a result of failure to report interest or dividend income. The
Fund may refuse to accept an application that does not contain any required
taxpayer identification number or certification that the number provided is
correct. If the backup withholding provisions are applicable, any such
distributions and proceeds, whether taken in cash or reinvested in shares, will
be reduced by the amounts required to be withheld. Any amounts withheld may be
credited against a shareholder's U.S. federal income tax liability. Investors
should consult their tax advisors about the applicability of the backup
withholding provisions.
For purposes of the dividends received deduction available to corporations,
dividends received by the 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 each such dividend and
distributed and properly designated by the Fund may be treated as qualifying
dividends. Because the Fund is not generally anticipated to invest a significant
portion of its assets in the stock of such U.S. corporations, it is unlikely
that a substantial portion of its distributions will qualify for the dividends
received deduction. Corporate shareholders must meet the holding period
requirements stated above with respect to their shares of the 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.
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Certain 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 the
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, short sales or other transaction is treated as
a constructive sale of an appreciated financial position in the Fund's
portfolio. Also, certain of the Fund's losses on its 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 these transactions
may also cause the Fund to dispose of investments sooner than would otherwise
have occurred. These transactions may therefore affect the amount, timing and
character of the Fund's distributions to shareholders. The Fund will take into
account the special tax rules (including consideration of available elections)
applicable to options, futures or forward contracts in order to minimize any
potential adverse tax consequences.
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 types 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
45
taxes. Shareholders should consult their own tax advisers as to the Federal,
state or local tax consequences of ownership of shares of, and receipt of
distributions from, the Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Fund is effectively connected will be subject to U.S. Federal
income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund and, unless an effective IRS Form W-8, Form W-8BEN or
other authorized withholding certificate is on file and to backup withholding on
certain other payments from the Fund. Non-U.S. investors should consult their
tax advisers regarding such treatment and the application of foreign taxes to an
investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
The Fund anticipates that, provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay any
Massachusetts income tax.
CALCULATION OF PERFORMANCE
As of October 31, 2002, the average annual total returns before taxes of the
Class A shares of the Fund for the one and five year periods and from the
commencement of operations on January 3, 1994 were -21.66%, -9.57% and -5.54%,
respectively.
As of October 31, 2002, the average annual total returns before taxes for the
Fund's Class B shares for the one and five year periods and from the
commencement of operations on January 3, 1994 were -22.02%, -9.61% and -5.64%,
respectively.
As of October 31, 2002, the average annual total returns before taxes for the
Fund's Class C shares for the one year period and from the commencement of
operations on June 1, 1998 were -19.70% and -13.36%, respectively.
As of October 31, 2002, the average annual total returns before taxes for the
Fund's Class I shares since commencement of operations on March 1, 2002 was
- -17.15%.
The average annual total return before taxes is computed by finding the average
annual compounded rate of return over the 1 year, 5-year, and 10-year periods,
or the period since the commencement of operations, that would equate the
initial amount invested to the ending redeemable value according to the
following formula:
n
P(1+T) = ERV
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return.
n = number of years.
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the 1-year. 5-year and 10-year periods (or
fractional portion).
The Fund discloses average annual total returns after taxes for Class A shares
for the one, five and 10 year periods ended December 31, 2002 in the prospectus.
After tax returns are computed using the historical highest individual federal
marginal income-tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on the investor's tax situation and may
differ from those shown. The after-tax returns shown are not relevant to
investors who hold
46
their fund shares through tax-deferred arrangements such as 401(k) plans or
individual retirement accounts.
The average annual total return (after taxes on distributions) is computed by
finding the average annual compounded rate of return over the 1-year, 5-year and
10-year periods, or the period since the commencement of operations, that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
n
P(1+T) = ATV
D
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on distributions).
n = number of years.
ATV =
D ending value of a hypothetical $1,000 payment made at the beginning
of the 1-year. 5-year and 10-year periods (or fractional portion)
after taxes on fund distributions but not after taxes on redemption.
The average annual total return (after taxes on distributions and redemption) is
computed by finding the average annual compounded rate of return over the
1-year, 5-year and 10-year periods, or the period since the commencement of
operations, that would equate the initial amount invested to the ending
redeemable value according to the following formula:
n
P(1+T) = ATV
DR
Where:
P = a hypothetical initial payment of $1,000.
T = average annual total return (after taxes on distributions and
redemption).
n = number of years.
ATV =
DR ending value of a hypothetical $1,000 payment made at the beginning
of the 1-year. 5-year and 10-year periods (or fractional portion),
after taxes on fund distributions and redemption
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, these calculations
assume the maximum sales charge is included in the initial investment or the
CDSC is applied at the end of the period. These calculations also assume that
all dividends and distributions are reinvested at net asset value on the
reinvestment dates during the period. The "distribution rate" is determined by
annualizing the result of dividing the declared dividends of the Fund during the
period stated by the maximum offering price or net asset value at the end of the
period. Excluding the Fund's sales charge from the distribution rate produces a
higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period of time. 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 period of
time. Total returns may be quoted with or without taking the Fund's sales charge
on Class A shares or the CDSC on Class B or Class C shares into account.
Excluding the Fund's sales charge on Class A shares and the CDSC on Class B or
Class C shares from a total return calculation produces a higher total return
figure.
47
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper - Mutual Fund Performance Analysis," a monthly
publication which tracks net assets, total return, and yield on equity mutual
funds in the United States. Ibottson and Associates, CDA Weisenberger and F.C.
Towers are also used for comparison purposes, as well as the Russell and
Wilshire Indices.
Performance rankings and ratings reported periodically in, and excerpts from,
national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK,
THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S and BARRON'S 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 Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors, including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser's or Subadviser's
investment and/or trading personnel. Orders for purchases and sales of
securities are placed in a manner, which, in the opinion of such personnel, will
offer the best price and market for the execution of each such transaction. The
Fund's trading practices and investments are reviewed monthly by the Adviser's
Senior Investment Policy Committee which consists of officers of the Adviser and
quarterly by the Adviser's Investment Committee which consists of officers and
directors of the Adviser and Trustees of the Trust who are interested persons of
the Fund.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers serving as market
maker reflect a "spread." Investments in debt securities are generally traded on
a "net" basis through dealers acting for their own account as principals and not
as brokers; no brokerage commissions are payable on these transactions. In the
U.S. Government securities market, securities are generally traded on a net
basis with dealers acting as principal for their own account without a stated
commission, although the price of the security usually includes a profit to the
dealer. On occasion, certain money market instruments and agency securities may
be purchased directly from the issuer, in which case no commissions or premiums
are paid. Investments in equity securities are generally traded on exchanges or
on over-the-counter markets at fixed commission rates or on a net basis. In
other countries, both debt and equity securities are traded on exchanges at
fixed commission rates. Commissions on foreign transactions are generally higher
than the negotiated commission rates available in the U.S. There is generally
less government supervision and regulation of foreign stock exchanges and
broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
The policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Conduct Rules of the National Association of Securities Dealers, Inc. and such
other policies as the Trustees may determine, the Adviser and Subadviser may
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions. To the
48
extent consistent with the foregoing, the Fund will be governed in the selection
of brokers and dealers, and the negotiation of brokerage commission rates and
dealer spreads, by the reliability and quality of the services, including
primarily the availability and value of research information and, to a lesser
extent, statistical assistance furnished to the Adviser and Subadviser of the
Fund.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. For the fiscal years ended October 31,
2002, the Fund paid $8,167 as compensation to brokers for research services such
as industry, economic and company reviews and evaluations of securities.
Research services received from broker-dealers supplement the Adviser's or
Sub-adviser's own research (and the research of its affiliates), and may include
the following types of information: statistical and background information on
the U.S. and foreign economies, industry groups and individual companies;
forecasts and interpretations with respect to the U.S. and foreign economies,
securities, markets, specific industry groups and individual companies;
information on federal, state, local and foreign political developments;
portfolio management strategies; performance information on securities, indexes
and investment accounts; and information concerning prices and ratings of
securities. Broker-dealers may communicate such information electronically,
orally, in written form or on computer software. Research services may also
include the providing of electronic communication of trade information and the
providing of custody services, as well as the providing of equipment used to
communicate research information, the providing of specialized consultations
with the Adviser's or Subadviser's personnel with respect to computerized
systems and data furnished as a component of other research services, the
arranging of meetings with management of companies, and the providing of access
to consultants who supply research information.
The outside research assistance is useful to the Adviser or Subadviser since the
broker-dealers used by the Adviser or Subadviser tend to follow a broader
universe of securities and other matters than the Adviser's or Subadviser's
staff can follow. In addition, the research provides the Adviser or Subadviser
with a diverse perspective on financial markets. Research services provided to
the Adviser or Subadviser by broker-dealers are available for the benefit of all
accounts managed or advised by the Adviser or by its affiliates, or by the
Subadviser or by its affiliates. Some broker-dealers may indicate that the
provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by the Adviser's or
Subadviser's clients, including the Fund. However, the Fund is not under any
obligation to deal with any broker-dealer in the execution of transactions in
portfolio securities. In some cases, the research services are available only
from the broker-dealer providing them. In other cases, the research services may
be obtainable from alternative sources in return for cash payments.
The Adviser and Subadviser believe that the research services are beneficial in
supplementing the Adviser's research and analysis and that they improve the
quality of the Adviser's or Subadviser's investment advice. It is not possible
to place a dollar value on information and services to be received from brokers
and dealers, since it is only supplementary to the research efforts of the
Adviser or Subadviser. The advisory fee paid by the Fund is not reduced because
the Adviser receives such services. The receipt of research information is not
expected to reduce significantly the expenses of the Adviser and Subadviser.
However, to the extent that the Adviser or Subadviser would have purchased
research services had they not been provided by broker-dealers, the expenses to
the Adviser or Subadviser could be considered to have been reduced accordingly.
The research information and statistical assistance furnished by brokers and
dealers may benefit
49
the Life Company or other advisory clients of the Adviser or Sub-adviser, and
conversely, brokerage commissions and spreads paid by other advisory clients of
the Adviser or Subadviser may result in research information and statistical
assistance beneficial to the Fund. The Fund will make no commitment to allocate
portfolio transactions upon any prescribed basis.
While the Adviser and/or the Subadviser will be primarily responsible for its
allocation of the Fund's brokerage business, the policies and practices of the
Adviser or Subadviser in this regard must be consistent with the foregoing and
at all times be subject to review by the Trustees. For the fiscal years ended
October 31, 2000, 2001 and 2002, the Fund paid negotiated brokerage commissions
of $223,172, $160,338 and $125,242, respectively.
The Adviser or Subadviser may determine target levels of commission business
with various brokers on behalf of its clients (including the Fund) over a
certain time period. The target levels will be based upon the following factors,
among others: (1) the execution services provided by the broker; (2) the
research services provided by the broker; and (3) the broker's interest in
mutual funds in general and in the Fund and other mutual funds advised by the
Adviser or Subadviser in particular, including sales of the Fund. In connection
with (3) above, the Fund's trades may be executed directly by dealers that sell
shares of the John Hancock funds or by other broker-dealers with which such
dealers have clearing arrangements, consistent with obtaining best execution and
the Conduct Rules of the National Association of Securities Dealers, Inc. The
Adviser or Subadviser will not use a specific formula in connection with any of
these considerations to determine the target levels.
Pursuant to procedures determined by the Trustees and consistent with the above
policy of obtaining best net results, the Fund may execute portfolio
transactions with or through brokers affiliated with the Adviser and/or the
Subadviser ("Affiliated Brokers"). Affiliated Brokers may act as broker for the
Fund on exchange transactions, subject, however, to the general policy of the
Fund set forth above and the procedures adopted by the Trustees pursuant to the
Investment Company Act. Commissions paid to an Affiliated Broker must be at
least as favorable as those which the 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 the Fund would have to pay a commission rate less
favorable than the Affiliated Broker's contemporaneous charges for comparable
transactions for its other most favored, but unaffiliated, customers except for
accounts for which the Affiliated Broker acts as clearing broker 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 Fund, the Adviser, the
Subadviser or the Affiliated Broker. Because the Adviser or Subadviser that is
affiliated with the Affiliated Broker has, as an investment adviser to the Fund,
the obligation to provide investment management services, which includes
elements of research and related investment skills such research and related
skills will not be used by the Affiliated Broker as a basis for negotiating
commissions at a rate higher than that determined in accordance with the above
criteria.
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of Signator Investors, Inc., a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" or an "Affiliated Broker"). For the
fiscal years ended October 31, 2000, 2001 and 2002, the Fund did not execute
portfolio transactions with Signator.
Allianz AG, the parent of Nicholas Applegate Capital Management ("NACM"), has
several affiliates engaged in the brokerage business: Bayerische Hypo-und
Vereinsbank AG, HPV, HVB Capital Markets; Credit Lyonnais SA; Dresdner, Dresdner
Kleinwort Benson, Dresdner Kleinwort Wasserstein; IKB Deutsche Industriebank AG;
Munchener Ruckversicherungs-Gesellschaft AG, Munich Re; UniCredito Italiano
S.p.A., UniCredit Banco Mobiliare S.p.A.; US Allianz Securities, Inc.;
Zagrebacka Banka. (all "Affiliated Brokers"). Pursuant to procedures determined
by the
50
Trustees and consistent with the above policy of obtaining best net results, the
Fund may execute portfolio transactions with or through Affiliated Brokers. For
the period from December 14, 2000 through October 31, 2001, the Fund paid $3,616
to Affiliated Brokers of NACM. For the fiscal year ended October 31, 2002, the
Fund paid $2,647 to Affiliated Brokers of NACM. During the fiscal year ended
October 31, 2002, this amounted to approximately 2.11% of the aggregate
brokerage commissions paid by the Fund for the transactions involving
approximately 1.93% of the aggregate dollar amount of transactions for which the
Fund paid brokerage commissions.
Credit Agricole, the parent of Indocam International Investment Services
("IIIS"), the Fund's subadviser until December 13, 2000, has several affiliates
engaged in the brokerage business in Europe and Asia: Credit Agricole Indosuez
Cheuvreux; CPR Action (ex-Schelcher Prince Cheuvreux de Virieu International
Ltd, London; Cheuvreux de Virieu, Nordic AB, Stockholm, Cheuvreux de Virieu,
Espana, Madrid, Credit Agricole Indosuez Cheuvreux Deutschland GMBH, Frankfourt/
Main; Caboto Sim in Italy; Carr Securities; Carr Futures SNC. (Paris) and Carr
Futures PTE, Singapore (all "Affiliated Brokers"). Pursuant to procedures
determined by the Trustees and consistent with the above policy of obtaining
best net results, the Fund may execute portfolio transactions with or through
Affiliated Brokers. For the fiscal years ended October 31, 1999, 2000 and for
the period from November 1, 2000 through October 12, 2000, the Fund paid $0, $0
and $1,899, respectively, for portfolio transactions with Affiliated Brokers of
IIIS. During the fiscal year ended October 31, 2001, this amounted to
approximately 1.18% of the aggregate brokerage commissions paid by the Fund for
transactions involving approximately 0.61% of the aggregate dollar amount of
transactions for when the Fund paid brokerage commissions.
Affiliated Brokers may act as broker for the Fund on exchange transactions,
subject, however, to the general policy of the Fund set forth above and the
procedures adopted by the Trustees pursuant to the Investment Company Act.
Commissions paid to an Affiliated Broker must be at least as favorable as those
which the 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 the Fund would have to pay a commission rate less favorable than the
Affiliated Broker's contemporaneous charges for comparable transactions for its
other most favored, but unaffiliated, customers except for accounts for which
the Affiliated Broker acts as clearing broker 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 Fund, the Adviser or the Affiliated Broker.
Because the Adviser, which is affiliated with the Affiliated Broker, has, as an
investment adviser to the Fund, the obligation to provide investment management
services, which includes elements of research and related investment skills such
research and related skills will not be used by the Affiliated 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 or Subadviser may also
invest in the same securities as the Fund. When these clients buy or sell the
same securities at substantially the same time, the Adviser or Subadviser may
average the transactions as to price and allocate the amount of available
investments in a manner which the Adviser or Subadviser believes to be equitable
to each client, including the Fund. Because of this, client accounts in a
particular style may sometimes not sell or acquire securities as quickly or at
the same prices as they might if each were managed and traded individually.
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each participating account pro rata based on
the order size. For high demand issues (for example, initial public offerings),
shares will be allocated pro rata by account size as well as on the basis of
account objective, account size ( a small account's allocation may be increased
to provide it with a meaningful position), and the account's other holdings. In
addition, an account's
51
allocation may be increased if that account's portfolio manager was responsible
for generating the investment idea or the portfolio manager intends to buy more
shares in the secondary market. For fixed income accounts, generally securities
will be allocated when appropriate among accounts based on account size, except
if the accounts have different objectives or if an account is too small to get a
meaningful allocation. For new issues, when a complete order is not filled, a
partial allocation will be made to each account pro rata based on the order
size. However, if a partial allocation is too small to be meaningful, it may be
reallocated based on such factors as account objectives, strategies, duration
benchmarks and credit and sector exposure. For example, value funds will likely
not participate in initial public offerings as frequently as growth funds. In
some instances, this investment procedure may adversely affect the price paid or
received by the Fund or the size of the position obtainable for it. On the other
hand, to the extent permitted by law, the Adviser or Subadviser may aggregate
securities to be sold or purchased for the Fund with those to be sold or
purchased for other clients managed by it in order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Signature
Services monthly a fee which is based on an annual rate of $16.00 for each Class
A shareholder account and $18.50 for each Class B shareholder account and $17.50
for each Class C shareholder account. The Fund also pays Signature Services an
monthly a fee whcih is based on annual rate of 0.05% of average daily net assets
attributable to Class A, Class B and Class C shares. For Class A, B, and C
shares, the Fund also pays certain out-of pocket expenses. Expenses for Class A,
B and C shares are aggregated and allocated to each class on the basis of their
relative net asset values. The Fund pays Signature Services an annual fee of
0.05% of average daily net assets attributable to Class I shares plus certain
out-of pocket expenses.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and The Bank of New York, One Wall Street, New York, New York
10286. Under the custodian agreement, The Bank of New York is performing
custody, Foreign Custody Manager and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are PricewaterhouseCoopers LLP, 160 Federal
Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP audits and
renders an opinion on the Fund's annual financial statements and reviews the
Fund's annual Federal income tax return.
52
APPENDIX A
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of the fund's
risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees --
certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). (e.g., short sales, currency
contracts, financial futures and options; securities and index options).
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. (e.g., repurchase agreements, securities lending, foreign debt
securities, non-investment-grade debt securities, asset-backed securities,
mortgage-backed securities, participation interests, financial futures and
options; securities and index options, structured securities).
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments, and may widen any losses. (e.g., currency
trading, foreign debt securities, currency contracts, financial futures and
options; securities and index options).
Extension risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.(e.g., mortgage-backed securities,
structured securities).
Information risk The risk that key information about a security or market is
inaccurate or unavailable.(e.g., non-investment-grade debt securities).
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.(e.g.,
foreign debt securities, non-investment-grade debt securities, asset-backed
securities, mortgage-backed securities, participation interests, financial
future and options; securities and index options, structured securities).
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
when-issued securities and forward
A-1
commitments, currency contracts, financial futures and options; securities and
index options, structured securities).
o Hedged When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance. (e.g., short sales, non-investment-grade debt securities,
restricted and illiquid securities, mortgage-backed securities, participation
interests, currency contracts, financial futures and options; securities and
index options, structured securities).
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than it was worth at an earlier time. Market risk may affect a
single issuer, industry, sector of the economy or the market as a whole. Common
to all stocks and bonds and the mutual funds that invest in them. (e.g., short
sales, short-term trading, when-issued securities and forward commitments,
foreign debt securities, non-investment-grade debt securities, restricted and
illiquid securities, financial futures and options; securities and index
options, structured securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events.
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments. (e.g., short sales, when-issued securities and forward commitments,
currency contracts, financial futures and options; securities and index
options).
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
(e.g., foreign debt securities).
Prepayment risk The risk that unanticipated prepayments may occur during periods
of falling interest rates, reducing the value of mortgage-backed securities.
(e.g., mortgage-backed securities, structured securities).
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade debt
securities, restricted and illiquid securities, participation interests,
structured securities)
A-2
APPENDIX B
DESCRIPTION OF BOND RATINGS
Standard & Poor's Bond Ratings
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.
AAA Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA has a very strong capacity to pay interest and repay
principal, and differs from the highest rated issues only in small degree.
A Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
To provide more detailed indications of credit quality, the ratings AA to
BBB may be modified by the addition of a plus or minus sign to show relative
standing within the major rating categories.
A provisional rating, indicated by "p" following a rating, is sometimes
used by Standard & Poor's. It assumes the successful completion of the project
being financed by the issuance of the bonds being rated and indicates that
payment of debt service requirements is largely or entirely dependent upon the
successful and timely completion of the project. This rating, however, while
addressing credit quality subsequent to completion, makes no comment on the
likelihood of, or the risk of default upon failure of, such completion.
Moody's Bond Ratings
Aaa Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues. Generally speaking, the safety
of obligations of this class is so absolute that with the occasional exception
of oversupply in a few specific instances, characteristically, their market
value is affected solely by money market fluctuations.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
The market value of Aa bonds is virtually immune to all but money market
influences, with the occasional exception of oversupply in a few specific
instances.
B-1
A Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate, but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Rating symbols may include numerical modifiers 1, 2 or 3. The numerical
modifier 1 indicates that the security ranks at the high end, 2 in the
mid-range, and 3 nearer the low end, of the generic category. These modifiers of
rating symbols Aa, A and Baa are to give investors a more precise indication of
relative debt quality in each of the historically defined categories.
Conditional ratings, indicated by "Con," are sometimes given when the
security for the bond depends upon the completion of some act or the fulfillment
of some condition. Such bonds, are given a conditional rating that denotes their
probable credit status upon completion of that act or fulfillment of that
condition.
B-2
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2002 Annual
Report to Shareholder's for the year ended October 31, 2002 (filed
electronically on December 27, 2002, accession number 0000928816-02-000996 and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock International Fund (file no. 811-4630 and 33-4559).
John Hancock Investment Trust III
John Hancock International Fund
Statement of Assets and Liabilities as of October 31, 2002. Statement of
Operations for year ended October 31, 2002.
Statement of Changes in Net Assets for the two years ended October 31, 2002.
Financial Highlights.
Notes to Financial Statements.
Schedule of Investments as of October 31, 2002.
Report of Independent Auditors.
F-1
JOHN HANCOCK PACIFIC BASIN EQUITIES FUND
Class A, Class B and Class C Shares
Statement of Additional Information
February 14, 2003
This Statement of Additional Information provides information about John Hancock
Pacific Basin Equities Fund (the "Fund") in addition to the information that is
contained in the combined International Funds' current Prospectus (the
"Prospectus"). The Fund is a diversified series of John Hancock World Fund (the
"Trust").
This Statement of Additional Information is not a prospectus. It should be read
in conjunction with the Prospectus. This Statement of Additional Information
incorporates by reference the Fund's Annual Report. A copy of the Prospectus or
Annual Report can be obtained free of charge by writing or telephoning:
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston MA 02217-1000
1-800-225-5291
Table of Contents
Page
Organization of the Fund.......................................................2
Investment Objective and Policies..............................................2
Investment Restrictions.......................................................12
Those Responsible for Management..............................................15
Investment Advisory and Other Services........................................22
Distribution Contracts........................................................26
Sales Compensation............................................................28
Net Asset Value...............................................................31
Initial Sales Charge on Class A and Class C Shares............................31
Deferred Sales Charge on Class B and Class C Shares...........................34
Special Redemptions...........................................................38
Additional Services and Programs..............................................38
Purchases and Redemptions through Third Parties...............................40
Description of the Fund's Shares..............................................40
Tax Status....................................................................42
Calculation of Performance....................................................47
Brokerage Allocation..........................................................49
Transfer Agent Services.......................................................53
Custody of Portfolio..........................................................53
Independent Auditors..........................................................53
Appendix A - Description of Investment Risk .................................A-1
Appendix B - Description of Bond and Commercial Paper Ratings ...............B-1
Financial Statements.........................................................F-1
-1-
ORGANIZATION OF THE FUND
The Fund is a series of the Trust, an open-end investment management company
organized as a Massachusetts business trust in August, 1986 under the laws of
The Commonwealth of Massachusetts.
John Hancock Advisers, LLC (prior to February 1, 2002, John Hancock Advisers,
Inc.) (the "Adviser") is the Fund's investment adviser. The Adviser is an
indirect, wholly-owned subsidiary of John Hancock Life Insurance Company
(formerly John Hancock Mutual Life Insurance Company)(the "Life Company"), a
Massachusetts life insurance company chartered in 1862, with national
headquarters at John Hancock Place, Boston, Massachusetts. The Life Company is
wholly owned by John Hancock Financial Services, Inc., a Delaware corporation
organized in February, 2000.
The Fund's Subadviser is Nicholas-Applegate Capital Management
("Nicholas-Applegate"), (the "Subadviser"). Nicholas-Applegate is responsible
for providing investment advice to the Fund, subject to the review of the
Trustees and overall supervision of the Adviser.
INVESTMENT OBJECTIVE AND POLICIES
The following information supplements the discussion of the Fund's investment
objective and policies discussed in the Prospectus. Appendix A contains further
information describing investment risks. The investment objective is fundamental
and may only be changed with shareholder approval. There is no assurance that
the Fund will achieve its investment objective.
The Fund's investment objective is to achieve long-term capital appreciation.
The Fund's seeks to achieve its investment objectives by investing in a
diversified portfolio of equity securities of issuers located in countries of
the Pacific Basin. These investments will consist of (1) securities of companies
traded principally on stock exchanges in Pacific Basin countries; (2) securities
of companies deriving at least 50% of their total revenue from goods produced,
sales made or services performed in Pacific Basin countries; (3) securities of
companies that are organized under the laws of Pacific Basin countries, which
are publicly traded on recognized securities exchanges outside these countries;
and (4) securities of investment companies and trusts that invest principally in
the foregoing. The Pacific Basin includes all countries bordering on the Pacific
Ocean, but the managers focus on Japan, Hong Kong, Australia, Singapore, South
Korea China and Taiwan. The fund may invest in other Pacific Basin countries
outside of Asia, such as Canada and the United States. The Fund may invest in
other Pacific Basin countries, such as Indonesia, Malaysia, New Zealand, the
Philippines and Thailand.
Under normal circumstances, the Fund will invest at least 80% of its Assets in
Pacific Basin corporate common stock and other equity securities (consisting of
common stock, warrants and securities convertible into common stock). The
balance of the Fund's assets will be invested in (1) equity securities of
issuers located in Asian countries not in the Pacific Basin (including India,
Pakistan, Sri Lanka and Bangladesh) and (2) investment grade debt securities
(i.e., rated BBB, Baa or higher by Standard & Poor's Ratings Group or Moody's
Investors Services, Inc., or, if unrated by either such service, determined to
be of comparable quality by the Adviser or a Sub-adviser) of U.S., Japanese,
Australian and New Zealand companies and governments and bank certificates of
deposit. Debt securities rated BBB or Baa and unrated securities of equivalent
quality are considered medium-grade obligations with speculative
characteristics, and adverse economic conditions or changing circumstances may
weaken the issuer's capacity to pay interest and repay principal.
-2-
With respect to the Fund's investment policy of investing at least 80% of its
Assets in equity securities of companies located in the Pacific Basin, "Assets"
is defined as net assets plus the amount of any borrowings for investment
purposes. In addition, the Fund will notify shareholders at least 60 days prior
to any change in this policy.
The Fund has not established any limitations on the allocation of investments
among the Pacific Basin countries. The portion of the Fund's assets to be
allocated to each of the Pacific Basin countries will be determined by the
Trustees based on recommendations of the Adviser, in consultation with the
Subadviser. In making this allocation recommendation, the Adviser and the
Subadviser will consider several factors, including the relative economic growth
and potential of the various economies and securities markets, expected levels
of inflation, governmental policies influencing business conditions, regulatory
and tax considerations, the domestic and international strength of the leading
industrial sectors and currency stability relative to the U.S. When the Adviser
and the Subadviser believe that investment conditions are unfavorable, they may
recommend a temporary reduction in the proportion of assets assigned to Pacific
Basin countries and investment of a higher than normal proportion in the debt
and other securities described above.
Under normal circumstances, up to 20% of the Fund's Net Assets may be held in
cash or investment grade short-term securities and repurchase agreements
(denominated in U.S. dollars) to meet anticipated redemptions of the Fund's
shares. In abnormal circumstances, all or any part of the Fund's assets may be
temporarily invested in money market instruments, including but not limited to
governmental obligations, certificates of deposit, bankers' acceptances,
commercial paper and investment grade short-term corporate debt securities, cash
and repurchase agreements. Any of the foregoing, including cash, may be
denominated in U.S. or foreign currencies and may be obligations of foreign
issuers.
Investment in Foreign Securities. The Fund may invest directly in the securities
of foreign issuers as well as in the form of sponsored and unsponsored American
Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") or other
securities convertible into securities of foreign issuers. ADRs are receipts
typically issued by a U.S. bank or trust company which evidence ownership of
underlying securities issued by a foreign corporation. EDRs are receipts issued
in Europe by banks or depositories which evidence a similar ownership
arrangement. Generally, ADRs, in registered form, are designed for use in U.S.
securities markets and EDRs, in bearer form, are designed for use in European
securities markets. Issuers of unsponsored ADRs are not required to disclose
material information in the United States. Foreign issuers may be assigned to
reasonable industry classifications that differ from the industry
classifications ordinarily assigned to U.S. issuers.
Foreign Currency Transactions. The Fund's foreign currency 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 Fund may also enter into forward foreign currency exchange contracts to
enhance return, to hedge against fluctuations in currency exchange rates
affecting a particular transaction or portfolio position, or as a substitute for
the purchase or sale of a currency or assets denominated in that currency.
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 the Fund accruing in connection
with the purchase and sale of its portfolio securities quoted or denominated in
the same or related foreign currencies. Portfolio hedging is the use of
-3-
forward foreign currency contracts to offset portfolio security positions
denominated or quoted in the same or related foreign currencies. The Fund may
elect to hedge less than all of its foreign portfolio positions as deemed
appropriate by the Adviser and Subadviser.
If the Fund purchases a forward contract or sells a forward contract for
non-hedging purposes, the Fund will segregate cash or liquid securities in a
separate account of the Fund in an amount equal to the value of the Fund's total
assets committed to the consummation of such forward contract. The assets in the
segregated account will be valued at market daily and if the value of the
securities in the separate account declines, additional cash or securities will
be placed in the account so that the value of the account will be equal the
amount of the Fund's commitment with respect to such contracts.
Hedging against a decline in the value of a currency does not eliminate
fluctuations in the prices of portfolio securities or prevent losses if the
prices of such securities decline. Such transactions also preclude the
opportunity for gain if the value of the hedged currency rises. Moreover, it may
not be possible for the Fund to hedge against a devaluation that is so generally
anticipated that the Fund is not able to contract to sell the currency at a
price above the devaluation level it anticipates.
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.
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.
-4-
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.
Equity-Linked Securities The Fund may purchase equity-linked securities; also
known as participation notes, equity swaps, and zero strike calls and warrants.
Equity-linked securities are primarily used by a Fund as an alternative means to
access the securities market of a country. The Fund deposits an amount of cash
with its custodian (or broker, if legally permitted) in an amount equal to the
selling price of the underlying security in exchange for an equity linked
security. Upon sale, the Fund receives cash from the broker or custodian based
on the change in the value of the underlying security. Aside from market risk
there is of the underlying security, there is the risk of default by the other
party to the transaction. In the event of insolvency of the other party, the
Fund might be unable to obtain its expected benefit. In addition, while a Fund
will seek to enter into such transactions only with parties which are capable of
entering into closing transactions with the Fund, there can be no assurance that
the Fund will be able to close out such a transaction with the other party or
obtain an offsetting position with any other party, at any time prior to the end
of the term of the underlying agreement. This may impair the Fund's ability to
enter into other transactions at a time when doing so might be advantageous. The
Fund's investments in equity-linked securities may be subject to its 15% of net
assets limitation on investments in illiquid securities.
-5-
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 or Subadviser 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. The Fund may also enter into reverse repurchase
agreements which involve the sale of U.S. Government securities held in its
portfolio to a bank with an agreement that the Fund will buy back the securities
at a fixed future date at a fixed price plus an agreed amount of "interest"
which may be reflected in the repurchase price. Reverse repurchase agreements
are considered to be borrowings by the Fund. Reverse repurchase agreements are
considered to be borrowings by the Fund. Reverse repurchase agreements involve
the risk that the market value of securities purchased by the Fund with proceeds
of the transaction may decline below the repurchase price of the securities sold
by the Fund which it is obligated to repurchase. The Fund will also continue to
be subject to the risk of a decline in the market value of the securities sold
under the agreements because it will reacquire those securities upon effecting
their repurchase. To minimize various risks associated with reverse repurchase
agreements, the Fund will establish and maintain a separate account consisting
of liquid securities, of any type or maturity, in an amount at least equal to
the repurchase prices of these securities (plus accrued interest thereon) under
such agreements. In addition, the Fund will not borrow money or enter into
reverse repurchase agreements except from banks as a temporary measure for
extraordinary emergency purposes in amounts not to exceed 33 1/3% of the Fund's
total assets (including the amount borrowed) taken at market value. The Fund
will not use leverage to attempt to increase income. The Fund will not purchase
securities while outstanding borrowings exceed 5% of the Fund's total assets.
The 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 established by the Trustees, the Adviser will
monitor the creditworthiness of the banks involved.
Restricted Securities. The 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 securities. The Trustees have adopted guidelines and delegated to
the Adviser the daily function of determining and monitoring the 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
-6-
of illiquidity in the Fund if qualified institutional buyers become for a time
uninterested in purchasing these restricted securities.
Options on Securities, and Securities Indices. The Fund may purchase and write
(sell) call and put options on any securities in which it may invest, or on any
securities index based on securities in which it may invest. These options may
be listed on national domestic securities exchanges or foreign securities
exchanges or traded in the over-the-counter market. The 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 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 written by the Fund
obligates the Fund to sell specified securities 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 written by the Fund obligates the Fund to
purchase specified securities 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 the Fund of the
opportunity to profit from an increase in the market price of the securities in
its portfolio. Writing covered put options may deprive the Fund of the
opportunity to profit from a decrease in the market price of the securities 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 in a
segregated account 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. The 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.
The 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."
Purchasing Options. The 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 of the type in which it
may invest. The Fund may also sell call and put options to close out its
purchased options.
The purchase of a call option would entitle the Fund, in return for the premium
paid, to purchase specified securities at a specified price during the option
period. The Fund would ordinarily realize a gain on the purchase of a call
option if, during the option period, the value of such securities 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 the Fund, in exchange for the premium
paid, to sell specified securities at a specified price during the option
period. The purchase of protective puts
-7-
is designed to offset or hedge against a decline in the market value of the
Fund's portfolio securities. Put options may also be purchased by the Fund for
the purpose of affirmatively benefiting from a decline in the price of
securities which it does not own. The Fund would ordinarily realize a gain if,
during the option period, the value of the underlying securities 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 the Fund's portfolio securities.
The 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.
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 although 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.
The 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
-8-
future price fluctuations and, for hedging transactions, the degree of
correlation between the options and securities markets.
Futures Contracts and Options on Futures Contracts. To seek to increase total
return or hedge against changes in interest rates or securities prices, the Fund
may purchase and sell various kinds of futures contracts, and purchase and write
call and put options on these futures contracts. The 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), securities indices and any other financial
instruments and indices. All futures contracts entered into by the 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 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 will usually be liquidated in
this manner, the Fund may instead make, or take, delivery of the underlying
securities 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 the Fund proposes to acquire. When
interest rates are rising or securities prices are falling, the 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, the 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.
The 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 a decline in market prices 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 the Fund or securities
with characteristics similar to those of the Fund's portfolio securities.
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
-9-
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, the 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 then available in the applicable market to be less favorable
than prices that are currently available. The Fund may also purchase futures
contracts as a substitute for transactions in securities, to alter the
investment characteristics of portfolio securities or to gain or increase its
exposure to a particular securities market.
Options on Futures Contracts. The 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, the 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,
the 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 the 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. The 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. The 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 the 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 that the Fund owns or
futures contracts will be purchased to protect the Fund against an increase in
the price of securities it intends to purchase. The Fund will determine that the
price fluctuations in the futures contracts and options on futures used for
hedging purposes are substantially related to price fluctuations in securities
held by the Fund or securities or instruments which it expects to purchase. As
evidence of its hedging intent, the Fund expects that on 75% or more of the
occasions on which it takes a long futures or option position (involving the
purchase of futures contracts), the Fund will have purchased, or will be in the
process of purchasing, equivalent amounts of related securities (or assets
denominated in the related currency) in the cash market at the time when the
futures or option position is closed out. However, in particular cases, when it
is economically advantageous for the Fund to do so, a long futures position may
be terminated or an option may expire without the corresponding purchase of
securities or other assets.
To the extent that the Fund engages in nonhedging transactions in futures
contracts and options on futures, the aggregate initial margin and premiums
required to establish these nonhedging
-10-
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. The Fund will engage in transactions in futures contracts and related
options only to the extent such transactions are consistent with the
requirements of the Internal Revenue Code of 1986, as amended (the "Code"), for
maintaining its qualifications 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 the Fund to purchase securities require the Fund to establish 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, or securities prices may
result in a poorer overall performance for the Fund than if it had not entered
into any futures contracts or options transactions.
Perfect correlation between the Fund's futures positions and portfolio positions
will be impossible to achieve. 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.
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.
Lending of Securities. The Fund may lend portfolio securities to brokers,
dealers and financial institutions if the loan is collateralized by cash or U.S.
Government securities according to applicable regulatory requirements. The Fund
may reinvest any cash collateral in short-term securities and money market
funds. When the Fund lends portfolio securities, there is a risk that the
borrower may fail to return the securities involved in the transaction. As a
result, the Fund may incur a loss or, in the event of the borrower's bankruptcy,
the Fund may be delayed in or prevented from liquidating the collateral. It is a
fundamental policy of the Fund not to lend portfolio securities having a total
value exceeding 33 1/3% of its total assets.
Rights and Warrants. The Fund may purchase warrants and rights which are
securities permitting, but not obligating, their holder to purchase the
underlying securities at a predetermined price, subject to the Fund's Investment
Restrictions. Generally, warrants and stock purchase rights do not carry with
them the right to receive dividends or exercise voting rights with respect to
the underlying securities, and they do not represent any rights in the assets of
the issuer. As a result, an investment in warrants and rights may be considered
to entail greater investment risk than certain other types of investments. In
addition, the value of warrants and rights does not necessarily change with the
value of the underlying securities, and they cease to have value if they are not
exercised on or prior to their expiration date. Investment in warrants and
rights increases the potential profit or loss to be realized from the investment
of a given amount of the Fund's assets as compared with investing the same
amount in the underlying stock.
-11-
Short Sales. The Fund may engage in short sales against the box. In a short sale
against the box, the Fund agrees to sell at a future date a security that it
either contemporaneously owns or has the right to acquire at no extra cost. If
the price of the security has declined at the time the Fund is required to
deliver the security, the Fund will benefit from the difference in the price. If
the price of the security has increased, the Fund will be required to pay the
difference.
Forward Commitment and When-Issued Securities. The Fund may purchase securities
on a when-issued or forward commitment basis. "When-issued" refers to securities
whose terms are available and for which a market exists, but which have not been
issued. The Fund will engage in when-issued transactions with respect to
securities purchased for its portfolio in order to obtain what is considered to
be an advantageous price and yield at the time of the transaction. For
when-issued transactions, no payment is made until delivery is due, often a
month or more after the purchase. In a forward commitment transaction, the Fund
contracts to purchase securities for a fixed price at a future date beyond
customary settlement time.
When the Fund engages in forward commitment and when-issued transactions, it
relies on the seller to consummate the transaction. The failure of the issuer or
seller to consummate the transaction may result in the Fund's losing the
opportunity to obtain a price and yield considered to be advantageous. The
purchase of securities on a when-issued or forward commitment basis also
involves a risk of loss if the value of the security to be purchased declines
prior to the settlement date.
On the date the Fund enters into an agreement to purchase securities on a
when-issued or forward commitment basis, the Fund will segregate in a separate
account cash or liquid 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, the Fund may enter into
offsetting contracts for the forward sale of other securities that it owns.
Short-Term Trading and Portfolio Turnover. Short-term trading means the purchase
and subsequent sale of a security after it has been held for a relatively brief
period of time. The Fund may engage in short-term trading in response to stock
market conditions, changes in interest rates or other economic trends and
developments, or to take advantage of yield disparities between various fixed
income securities in order to realize capital gains or improve income.
Short-term trading may have the effect of increasing portfolio turnover rate. A
high rate of portfolio turnover (100% or greater) involves correspondingly
greater brokerage expenses. The Fund's portfolio turnover rate is set forth in
the table under the caption "Financial Highlights" in the Prospectus.
INVESTMENT RESTRICTIONS
Fundamental Investment Restrictions. The following investment restrictions will
not be changed without the approval of a majority of the Fund's outstanding
voting securities which, as used in the Prospectus and this Statement of
Additional Information, means the approval by the lesser of (1) the holders of
67% or more of the Fund's shares represented at a meeting if more than 50% of
the Fund's outstanding shares are present in person or by proxy at that meeting
or (2) more than 50% of the Fund's outstanding shares.
The Fund may not:
-12-
(1) Issue senior securities, except as permitted by paragraphs (2), (5)
and (6) below. For purposes of this restriction, the issuance of shares of
beneficial interest in multiple classes or series, the purchase or sale of
options, futures contracts and options on futures contracts, and forward
foreign exchange contracts, forward commitments and repurchase agreements
entered into in accordance with the Fund's investment policies are not
deemed to be senior securities.
(2) Borrow money, except for the following extraordinary or emergency
purposes (i) 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; (iv) 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. For purposes of this investment restriction, the deferral of
trustees' fees and transactions in short sales, futures contracts, options
on future contracts, securities or indices and forward commitment
transactions will not constitute borrowing.
(3) 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 purposes of the Securities Act of 1933.
(4) Purchase or sell real estate or any interest therein, except that the
Fund may invest in securities of corporate or governmental entities
secured by real estate or marketable interests therein or securities
issued by companies that invest in real estate or interests therein.
(5) 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 publicly distributed debt
securities, bank loan participation interests, bank certificates of
deposits, bankers' acceptances, debentures or other securities, whether or
not the purchase is made upon the original issuance of the securities.
(6) Invest in commodities or commodity futures contracts, other than
financial derivatives contracts. Financial derivatives include forward
foreign currency contracts; financial futures contracts and options on
financial futures contracts; options and warrants on securities,
currencies and financial indices; swaps, caps, floors, collars,
swapations; and repurchase agreements entered into in accordance with the
Fund's investment policies.
(7) Purchase the securities of issuers conducting their principal business
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 each investment. This
limitation does not apply to investments in obligations of the U.S.
Government or any of its agencies or instrumentalities.
(8) With respect to 75% of the Fund's total assets, invest more than 5% of
the Fund's total assets in the securities of any single issuer or own more
than 10% of the outstanding voting securities of any one issuer, in each
case other than (i) securities issued or guaranteed by
-13-
the U.S. government, its agencies or its instrumentalities or (ii)
securities of other investment companies.
Non-fundamental Investment Restrictions. The following restrictions are
designated as non-fundamental and may be changed by the Trustees without
shareholder approval.
-14-
The Fund may not:
(a) Purchase securities on margin or make short sales, unless by virtue of
its ownership of other securities, the Fund has the right to obtain
securities equivalent in kind and amount to the securities sold and, if
the right is conditional, the sale is made upon the same conditions,
except that the Fund may obtain such short-term credits as may be
necessary for the clearance of purchases and sales of securities and in
connection with transactions involving forward foreign currency exchange
contracts.
(b) 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.
(c) Invest for the purpose of exercising control over or management of any
company.
(d) Invest more than 15% of its net assets in illiquid securities.
Except with respect to borrowing money, 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 the Fund's assets will not be considered a violation of the
restriction.
Nothing in the foregoing investment restrictions shall be deemed to prohibit the
Fund from purchasing the securities of any issuer pursuant to the exercise of
subscription rights distributed to the Fund by the issuer, except that no such
purchase may be made if as a result, the Fund will no longer be a diversified
investment company as defined in the Investment Company Act or will fail to meet
the diversification requirements for a regulated investment company under the
Internal Revenue Code of 1986, as amended. Japanese corporations frequently
issue additional capital stock by means of subscription rights offerings to
existing shareholders at a price substantially below the market prices of the
shares. The failure to exercise such rights would result in the Fund's interest
in the issuing company being diluted. The market for such rights is not well
developed in all cases and, accordingly, the Fund may not always realize full
value on the sale of rights. Therefore, the exception applies in cases where the
limits set forth in the investment restrictions in the Prospectus would
otherwise be exceeded as a result of fluctuations in the market value of the
Fund's portfolio securities with the result that the Fund would be forced either
to sell securities at a time when it might not otherwise have done so, or to
forego exercising the rights.
The Fund will invest only in countries on the Adviser's Approved Country
Listing. The Approved Country Listing is a list maintained by the Adviser's
investment department that outlines all countries, including the United States,
that have been approved for investment by Funds managed by the Adviser.
-15-
If allowed by the Fund's other investment policies and restrictions, the Fund
may invest up to 5% of its total assets in Russian equity securities and up to
10% of its total assets in Russian fixed income securities. All Russian
securities must be: (1) denominated in U.S. or Canadian dollars, euros,
sterling, or yen; (2) traded on a major exchange; and (3) held physically
outside of Russia.
THOSE RESPONSIBLE FOR MANAGEMENT
The business of the Fund is managed by its Trustees, including certain Trustees
who are not "interested persons" of the Fund or the Trust (as defined by the
Investment Company Act of 1940) (the "Independent Trustees"), who elect officers
who are responsible for the day-to-day operations of the Fund and who execute
policies formulated by the Trustees. Several of the officers and Trustees of the
Fund are also officers or Directors of the Adviser, or officers and Directors of
the Fund's principal distributor, John Hancock Funds, LLC (prior to February 1,
2002, John Hancock Funds, Inc.) ("John Hancock Funds").
-16-
- ---------------------------------------------------------------------------------------------------------------------
Number of
John Hancock
Position(s) Trustee/ Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since(2) Directorships During Past 5 Years Trustee
- ---------------------------------------------------------------------------------------------------------------------
Independent Trustees
- ---------------------------------------------------------------------------------------------------------------------
Dennis S. Aronowitz Trustee 1987 Professor of Law, Emeritus, Boston 31
Born: 1931 University School of Law (as of 1996);
Director, Brookline Bancorp.
- ---------------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. Trustee 1987 President and Chief Executive Officer, 31
Born: 1935 Brookline Bancorp., Inc. (lending) (since
1972); Chairman and Director, Lumber
Insurance Co. (insurance) (until 2000);
Chairman and Director, Northeast
Retirement Services, Inc. (retirement
administration) (since 1998).
- ---------------------------------------------------------------------------------------------------------------------
William J. Cosgrove Trustee 1991 Vice President, Senior Banker and Senior 31
Born: 1933 Credit Officer, Citibank, N.A. (banking)
(retired 1991); Executive Vice President,
Citadel Group Representatives, Inc.
(financial reinsurance); Director, Hudson
City Bancorp; Trustee, Scholarship Fund
for Inner City Children (since 1986).
- ---------------------------------------------------------------------------------------------------------------------
Richard A. Farrell Trustee 1994 President, Farrell, Healer & Co., Inc. 31
Born: 1932 (venture capital management firm)(since
1980) and General Partner of the Venture
Capital Fund of NE (since 1980); Trustee,
Marblehead Savings Bank (since 1994).
Prior to 1980, headed the venture capital
group at Bank of Boston Corporation.
- ---------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02199.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
-17-
- ---------------------------------------------------------------------------------------------------------------------
Number of
John
Hancock
Position(s) Trustee/ Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since(2) Directorships During Past 5 Years Trustee
- ---------------------------------------------------------------------------------------------------------------------
William F. Glavin Trustee 1996 President Emeritus, Babson College (as of 31
Born: 1932 1998); Vice Chairman, Xerox Corporation
(until 1989); Director, Reebok, Inc. (until
2002) and Inco Ltd. (until 2002).
- ---------------------------------------------------------------------------------------------------------------------
John A. Moore Trustee 1996 President and Chief Executive Officer, 39
Born: 1939 Institute for Evaluating Health Risks,
(nonprofit institution) (until 2001); Senior
Scientist, Sciences International (health
research)(since 1998); Principal, Hollyhouse
(consulting)(since 2000); Director,
CIIT(nonprofit research) (since 2002).
- ---------------------------------------------------------------------------------------------------------------------
Patti McGill Peterson Trustee 1996 Executive Director, Council for International 39
Born: 1943 Exchange of Scholars (since 1998); Vice
President, Institute of International
Education (since 1998); Senior Fellow,
Cornell Institute of Public Affairs, Cornell
University (until 1997); President Emerita of
Wells College and St. Lawrence University;
Director, Niagara Mohawk Power Corporation
(electric utility).
- ---------------------------------------------------------------------------------------------------------------------
John W. Pratt Trustee 1996 Professor of Business Administration 31
Born: 1931 Emeritus, Harvard University Graduate School
of Business Administration (as of 1998).
- ---------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02199.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
-18-
- ---------------------------------------------------------------------------------------------------------------------
Number of
John Hancock
Position(s) Trustee/ Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since(2) Directorships During Past 5 Years Trustee
- ---------------------------------------------------------------------------------------------------------------------
Interested Trustees
- ---------------------------------------------------------------------------------------------------------------------
John M. DeCiccio (3) Trustee 2001 Executive Vice President and Chief Investment 61
Born: 1948 Officer, John Hancock Financial Services,
Inc.; Director, Executive Vice President and
Chief Investment Officer, John Hancock Life
Insurance Company; Chairman of the Committee
of Finance of John Hancock Life Insurance
Company; Director, John Hancock Subsidiaries,
LLC, Hancock Natural Resource Group,
Independence Investment LLC, Independence
Fixed Income LLC, John Hancock Advisers, LLC
(the "Adviser") and The Berkeley Financial
Group, LLC ("The Berkeley Group"), John
Hancock Funds, LLC ("John Hancock Funds"),
Massachusetts Business Development
Corporation; Director, John Hancock Insurance
Agency, Inc. ("Insurance Agency, Inc.") (until
1999) and John Hancock Signature Services,
Inc. ("Signature Services") (until 1997).
- ---------------------------------------------------------------------------------------------------------------------
Maureen R. Ford (3) Trustee, 2000 Executive Vice President, John Hancock 61
Born: 1955 Chairman, Financial Services, Inc., John Hancock Life
President Insurance Company; Chairman, Director,
and Chief President and Chief Executive Officer, the
Executive Advisers and The Berkeley Group; Chairman,
Officer Director, President and Chief Executive
Officer, John Hancock Funds; Chairman,
Director and Chief Executive Officer,
Sovereign Asset Management Corporation
("SAMCorp."); Director, John Hancock
Subsidiaries, LLC; Independence Investment
LLC, Independence Fixed Income LLC and
Signature Services; Senior Vice President,
MassMutual Insurance Co. (until 1999).
- ---------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02199.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
-19-
- ---------------------------------------------------------------------------------------------------------------------
Number of
John Hancock
Position(s) Trustee/ Funds
Name, Address (1) Held with Officer Principal Occupation(s) and other Overseen by
And Age Fund since(2) Directorships During Past 5 Years Trustee
- ---------------------------------------------------------------------------------------------------------------------
Principal Officers who are
not Trustees
- ---------------------------------------------------------------------------------------------------------------------
William L. Braman Executive 2000 Executive Vice President and Chief N/A
Born: 1953 Vice Investment Officer, the Adviser and each
President of the John Hancock funds; Director,
and Chief SAMCorp., Executive Vice President and
Investment Chief Investment Officer, Baring Asset
Officer Management, London U.K. (until 2000).
- ---------------------------------------------------------------------------------------------------------------------
Richard A. Brown Senior Vice 2000 Senior Vice President, Chief Financial N/A
Born: 1949 President Officer and Treasurer, the Adviser, John
and Chief Hancock Funds, and The Berkeley Group;
Financial Second Vice President and Senior Associate
Officer Controller, Corporate Tax Department, John
Hancock Financial Services, Inc. (until
2001).
- ---------------------------------------------------------------------------------------------------------------------
Thomas H. Connors Vice 1992 Vice President and Compliance Officer, the N/A
Born: 1959 President Adviser and each of the John Hancock
and funds; Vice President, John Hancock Funds.
Compliance
Officer
- ---------------------------------------------------------------------------------------------------------------------
William H. King Vice 1988 Vice President and Assistant Treasurer, the N/A
Born: 1952 President Adviser; Vice President and Treasurer of
and each of the John Hancock funds; Assistant
Treasurer Treasurer of each of the John Hancock funds
(until 2001).
- ---------------------------------------------------------------------------------------------------------------------
Susan S. Newton Senior Vice 1987 Senior Vice President, Secretary and Chief N/A
Born: 1950 President, Legal Officer, SAMCorp., the Adviser and
Secretary each of the John Hancock funds, John
and Chief Hancock Funds and The Berkeley Group; Vice
Legal Officer President, Signature Services (until
2000), Director, Senior Vice President and
Secretary, NM Capital.
- ---------------------------------------------------------------------------------------------------------------------
(1) Business address for independent and interested Trustees and officers is 101
Huntington Avenue, Boston, Massachusetts 02199.
(2) Each Trustee serves until resignation, retirement age or until her or his
successor is elected.
(3) Interested Trustee: holds positions with the Fund's investment adviser,
underwriter, and or certain other affiliates.
-20-
The Fund's Board of Trustees currently has five standing Committees: the Audit
Committee, the Administration Committee, the Contracts/Operations Committee, the
Investment Performance Committee and the Coordinating Committee. Each Committee
is comprised of Independent Trustees. The Audit Committee members are Messrs.
Farrell, Glavin and Moore. The Audit Committee recommends to the full board
auditors for the Fund, monitors and oversees the audits of the Fund,
communicates with both independent auditors and internal auditors on a regular
basis and provides a forum for the auditors to report and discuss any matters
they deem appropriate at any time. The Audit Committee held four meetings during
the fiscal year ended October 31, 2002.
The Administration Committee's members are all of the Independent Trustees of
the Fund. The Administration Committee reviews the activities of the other four
standing committees and makes the final selection and nomination of candidates
to serve as Independent Trustees. The Administration Committee will consider
nominees recommended by shareholders to serve as Independent Trustees, provided
that shareholders submit recommendations in compliance with all of the pertinent
provisions of Rule 14a-8 under the Securities Exchange Act of 1934. The
Administration Committee also works with all Trustees on the selection and
election of officers of the Fund. The Administration Committee held four
meetings during the fiscal year ended October 31, 2002.
The Contracts/Operations Committee members are Messrs. Chapman, Cosgrove and
Pratt. The Contracts/Operations Committee oversees the initiation, operation,
and renewal of contracts between the Fund and other entities. These contracts
include advisory and subadvisory agreements, custodial and transfer agency
agreements and arrangements with other service providers. The
Contracts/Operations Committee held five meetings during the fiscal year ended
October 31, 2002.
The Investment Performance Committee consists of Mr. Aronowitz, and Ms. McGill
Peterson. The Investment Performance Committee monitors and analyzes the
performance of the Fund generally, consults with the adviser as necessary if the
Fund requires special attention, and reviews peer groups and other comparative
standards as necessary. The Investment Performance Committee held four meetings
during the fiscal year ended October 31, 2002.
The Coordinating Committee members are the chairpersons of the other four
standing committees. The Coordinating Committee assures consistency of action
among committees, reviews Trustee compensation, evaluates Trustee performance
and considers committee membership rotations as well as relevant corporate
governance issues.
The following table provides a dollar range indicating each Trustee's ownership
of equity securities of the Fund, as well as aggregate holdings of shares of
equity securities of all John Hancock Funds overseen by the Trustee, as of
December 31, 2002.
-21-
- -------------------------------------------------------------------------------------------------------------
Aggregate Dollar Range of holdings
Dollar Range of Fund Shares in John Hancock funds overseen by
Name of Trustee Owned by Trustee(1) Trustee(1)
- -------------------------------------------------------------------------------------------------------------
Independent Trustees
- -------------------------------------------------------------------------------------------------------------
Dennis S. Aronowitz $1-$10,000 $50,001-$100,000
- -------------------------------------------------------------------------------------------------------------
Richard P. Chapman, Jr. $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
William J. Cosgrove $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
Richard A. Farrell $10,001-$50,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
William F. Glavin None $10,001-$50,000
- -------------------------------------------------------------------------------------------------------------
Dr. John A. Moore $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
Patti McGill Peterson $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
John W. Pratt $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
Interested Trustees
- -------------------------------------------------------------------------------------------------------------
John M.DeCiccio None Over $100,000
- -------------------------------------------------------------------------------------------------------------
Maureen R. Ford $1-$10,000 Over $100,000
- -------------------------------------------------------------------------------------------------------------
(1) Under the John Hancock Deferred Compensation Plan for Independent
Trustees, an Independent Trustee may elect to earn a return on his
deferred fees equal to the amount that he would have earned if the
deferred fees amount were invested in one or more funds in the John
Hancock fund complex. Under these circumstances, a trustee is not the
legal owner of the underlying shares, but participates in any positive or
negative return on those shares to the same extent as other shareholders.
If the Trustees were deemed to own the shares used in computing the value
of his deferred compensation, as of December 31, 2002, the respective
"Dollar Range of Fund Shares Owned by Trustee" and the "Aggregate Dollar
Range of holdings in John Hancock funds overseen by Trustee" would be none
and over $100,000 for Mr. Chapman, none and over $100,000 for Mr.
Cosgrove, none and over $100,000 for Mr. Glavin, none and over $100,000
for Dr. Moore.
The following table provides information regarding the compensation paid by the
Fund and the other investment companies in the John Hancock Fund Complex to the
Independent Trustees for their services. Mr. DeCiccio and Ms. Ford, each a
non-Independent Trustee, and each of the officers of the Fund who are interested
persons of the Adviser, are compensated by the Adviser and/or affiliates and
receive no compensation from the Fund for their services.
Aggregate Total Compensation From the Fund and
Compensation John Hancock Fund Complex to
Independent Trustees From the Fund(1) Trustees(2)
- -------------------- ---------------- -----------
Dennis S. Aronowitz $ 169 $ 72,000
Richard P. Chapman, Jr.* 183 78,100
William J. Cosgrove* 174 75,100
Richard A. Farrell 173 75,000
Gail D. Fosler+ 169 72,000
William F. Glavin* 173 75,000
Dr. John A. Moore* 169 72,000
Patti McGill Peterson 167 72,000
John W. Pratt 168 72,100
------ --------
Total $1,545 $663,300
(1) Compensation is for the fiscal year ended October 31, 2002.
-22-
(2) Total compensation paid by the John Hancock Funds Complex to the Independent
Trustees is as of December 31, 2002. As of this date, there were sixty-one funds
in the John Hancock Fund Complex, with Mr. Moore and Ms. Peterson serving on
thirty-nine funds and each other Independent Trustees serving on thirty-one
funds.
*As of December 31, 2002, the value of the aggregate accrued deferred
compensation amount from all funds in the John Hancock Funds Complex for Mr.
Chapman was $46,844, Mr. Cosgrove was $166,358, Mr. Glavin was $219,230 and for
Dr. Moore was $203,650 under the John Hancock Group of Funds Deferred
Compensation Plan for Independent Trustees (the "Plan").
+As of December 31, 2002, Ms. Fosler resigned as Trustee of the Complex.
All of the officers listed are officers or employees of the Adviser or
affiliated companies. Some of the Trustees and officers may also be officers
and/or directors and/or Trustees of one or more of the other funds for which the
Adviser serves as investment adviser.
As of January 14, 2003, the officers and Trustees of the Trust as a group
beneficially owned less than 1% of the Fund's outstanding shares. As of that
date, the following shareholders beneficially owned 5% or more of outstanding
shares of the Fund:
Percentage of Outstanding
Name and Address of Shareholder Class of Shares Shares of Class of Fund
- ------------------------------- --------------- -----------------------
MLPF&S For The Sole Benefit Of Its Customers B 17.29%
Attn: Fund Administration 97DR7
4800 Deer Lake Drive East
Jacksonville FL 32246-6484
Donaldson Lufkin Jenrette Securities Corp. C 19.63%
PO Box 2052
Jersey City, NJ 07303-2052
MLPF&S For The Sole Benefit Of Its Customers C 6.48%
Attn: Fund Administration 974E6
4800 Deer Lake Drive East
Jacksonville FL 32246-6484
INVESTMENT ADVISORY AND OTHER SERVICES
The Adviser, located at 101 Huntington Avenue, Boston, Massachusetts 02199-7603,
was organized in 1968 and as of December 31, 2002 had approximately $26 billion
in assets under management in its capacity as investment adviser to the Fund and
the other funds in the John Hancock group of funds as well as retail and
institutional privately managed accounts. The Adviser is an affiliate of the
Life Company, one of the most recognized and respected financial institutions in
the nation. With total assets under management of approximately $100 billion,
the Life Company is one of the ten largest life insurance companies in the
United States, and carries
-23-
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.
As of December 14, 2000, the Adviser has entered into a sub-investment
management contract (the "sub-advisory agreement") with Nicholas-Applegate under
which, subject to the review of the Trustees and the overall supervision of the
Adviser, Nicholas-Applegate is responsible for providing the Fund with
investment advice. Nicholas-Applegate will also provide the Fund on a continuous
basis with economic, financial and political information, research and
assistance concerning international markets. Nicholas-Applegate is a limited
liability company organized under the laws of the State of Delaware, with
offices at 600 West Broadway, 30th Floor, San Diego, California 92101.
Nicholas-Applegate was organized in August 1984 to manage discretionary accounts
investing primarily in publicly traded equity securities and securities
convertible into or exercisable for publicly traded equity securities, with the
goal of capital appreciation. Nicholas-Applegate is a wholly owned subsidiary of
Allianz of America, Inc. ("AZOA"). Allianz AG, the parent of AZOA, is a German
Aktiengesellschaft, a German publicly traded company, which, together with its
subsidiaries, comprises the world's largest insurance group (the "Allianz
Group"). Allianz Group currently has assets under management of approximately
$690 billion. Allianz AG's address is: Koeniginstrasse 28, D-80802, Munich,
Germany.
Until May 11, 2001, the Adviser paid Nicholas-Applegate quarterly a fee at the
annual rate equal to (a) .30% of the first $100 million of the Fund's average
daily net assets managed by Nicholas-Applegate plus (b) the following additional
amount, based on a percentage of the gross management fee received by the
Adviser pursuant to the Advisory Agreement with respect to the Fund's average
daily net assets in excess of $100 million which are managed by
Nicholas-Applegate:
Net Assets Percentage of Gross
Managed by Nicholas-Applegate Management Fee
- ----------------------------- --------------
More than $100 million up to $250 million 40%
More than $250 million 50%
Effective May 11, 2001, the Adviser pays quarterly a sub-advisory fee to
Nicholas-Applegate equal on an annual basis to (i) 0.60% of the first
$100,000,000 of the average daily net asset value of the Fund; and (ii) 0.50% of
the average daily net asset value of the Fund in excess of $100,000,000.
Until December 14, 2000, the Subadviser of the Fund was Indocam Asia Advisers
Ltd. ("IAAL"). IAAL is a Hong-Kong based investment adviser and a subsidiary of
Indocam, the asset management affiliate of Credit Agricole, a French bank group
with presence in financial centers around the world. IAAL is located at One
Exchange Square, Suite 2606-2608, Hong Kong. Indocam is an asset management firm
maintaining established relationships with institutional, corporate and
individual investors. Credit Agricole is one of the largest bank groups in the
world. Until March 1, 2000, the Fund had another Subadviser, John Hancock
Advisers International Limited ("JHAI"), located at 6th Floor, Duke's Court,
32-36 Duke Street St. James's, London, England SWIY6DF. JHAI was a wholly-owned
subsidiary of the Adviser formed in 1987 to provide international investment
research and advisory services to U.S. institutional clients. As compensation
for its services under the Sub-Advisory Agreement, JHAI received from the
Adviser a portion of its monthly fee equal to 0.50% on an annual basis of the
average daily net asset value of the Fund for each calendar month up to $200
million of average
-24-
daily net assets; and 0.4375% on an annual basis of the average daily net asset
value over $200 million. JHAI agreed to waive all but 0.05% of its fee as of
September 1, 1994 and its sub-advisory contract was terminated effective March
1, 2000. The Fund is not responsible for paying any Subadviser's fee.
The Adviser paid IAAL quarterly a fee at the annual rate equal to (a) .30% of
the first $100 million of the Fund's average daily net assets managed by IAAL
plus (b) the following additional amount, based on a percentage of the gross
management fee received by the Adviser pursuant to the Advisory Agreement with
respect to the Fund's average daily net assets in excess of $100 million which
are managed by IAAL:
Net Assets Percentage of Gross
Managed by IAAL Management Fee
- --------------- --------------
More than $100 million up to $250 million 40%
More than $250 million 50%
The Fund has entered into an investment management contract (the "Advisory
Agreement") with the Adviser which was approved by the Fund's 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 but not
limited to expenses of preparing, printing and mailing all shareholders'
reports, notices, prospectuses, proxy statements and reports to regulatory
agencies; expenses relating to the issuance, registration and qualification of
shares; government fees; interest charges; expenses of furnishing to
shareholders their account statements; taxes; expenses of redeeming shares;
brokerage and other expenses connected with the execution of portfolio
securities transactions; expenses pursuant to the Fund's plan of distribution;
fees and expenses of custodians including those for keeping books and accounts,
maintaining a committed line of credit 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.
As compensation for its services under the Advisory Agreement, the Fund pays the
Adviser quarterly a fee based on a stated percentage of the average daily net
assets of the Fund as follows:
Average Daily Net Assets Annual Rate
- ------------------------ -----------
First $200,000,000 0.80%
Amount over $200,000,000 0.70%
From time to time, the Adviser may reduce its fee or make other arrangements to
limit the Fund's expenses to a specified percentage of its 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.
-25-
The Advisory Agreement fee paid by the Fund is higher than the fee paid by most
mutual funds but is comparable to the fee paid by similar funds which invest
primarily in international securities. For the fiscal years ended October 31,
2000, 2001 and 2002, the Fund paid the Adviser fees in the amount of $649,348,
$298,644 and $216,195, respectively.
Securities held by the Fund may also be held by other funds or investment
advisory clients for which the Adviser, a Subadviser or any of their respective
affiliates provides 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 other funds or clients are selling the same
security. If opportunities for purchase or sale of securities by the Adviser or
the Subadviser for the Fund or for other funds or clients for which the Adviser
or a Subadviser renders investment advice arise for consideration at or about
the same time, transactions in such securities will be made insofar as feasible,
for the respective funds or clients in a manner deemed equitable to all of them.
To the extent that transactions on behalf of more than one client of the
Adviser, a Sub-adviser or its affiliate 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 their respective Advisory Agreements, the Adviser and Subadviser are
not liable for any error of judgment or mistake of law or for any loss suffered
by the Fund in connection with the matters to which the 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 reckless disregard by them of their obligations and duties under the
applicable Agreement.
Under the Advisory Agreement, the 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 the Advisory
Agreement is no longer in effect, the Fund (to the extent that it lawfully can)
will cease to use such a name or any other name indicating that it is advised by
or otherwise connected with the Adviser. In addition, the Adviser or the Life
Company may grant the nonexclusive 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.
The Fund's Board of Trustees is responsible for overseeing the performance of
the Fund's investment Adviser and Subadviser and determining whether to approve
and renew the Fund's Advisory Agreement and Sub-Advisory Agreement. The Board
has a standing request that the Adviser provide the Board with certain
information the Board has deemed important to evaluating the short- and
long-term performance of the Adviser and Subadviser. This information includes
periodic performance analysis and status reports from the Adviser and quarterly
Portfolio and Investment Performance Reports. The Fund's portfolio managers meet
with the Board from time to time to discuss the management and performance of
the Fund and respond to the Board's questions concerning the performance of the
Adviser. When the Board considers whether to renew an investment advisory
contract, the Board takes into account numerous factors, including: (1) the
nature, extent and quality of the services provided by the Adviser and
Subadviser; (2) the investment performance of the Fund; (3) the fair market
value of the services provided by the Adviser and Subadviser; (4) a comparative
analysis of expense ratios of, and advisory fees paid by, similar funds; (5) the
extent to which the Adviser has realized or will realize economies of scale as
the Fund grows; (6) other sources of revenue to the Adviser or its affiliates
from its relationship with the Fund
-26-
and intangible or "fall-out" benefits that accrue to the adviser and its
affiliates, if relevant; and (7) the Adviser's control of the operating expenses
of the fund, such as transaction costs, including ways in which portfolio
transactions for the fund are conducted and brokers are selected.
The primary factors underlying the Board's decision to renew the Fund's Advisory
Agreement and Sub-Advisory Agreement were as follows:
o The Board determined that the performance results of the Fund and the
Adviser and Sub-adviser's responsive actions were reasonable, as compared
with relevant performance standards, including the performance results of
comparable Pacific region funds (equity income, income, etc.) derived from
data provided by Lipper Inc. and appropriate market indexes.
o The Board decided that the advisory fee paid by the Fund was reasonable
based on the average advisory fee for comparable funds. The Board also
took into account the nature of the fee arrangements which include
breakpoints that will adjust the fee downward as the size of the Fund's
portfolio increases.
o The Board evaluated the Adviser and Subadviser's investment staff and
portfolio management process, and reviewed the composition and overall
performance of the Fund's portfolio on both a short-term and long-term
basis. The Board considered whether the Fund should obtain alternative
portfolio management services and concluded that, under all the
circumstances and based on its informed business judgement, the most
appropriate course of action in the best interest of the Fund's
shareholders was to renew the agreements with the Adviser and Subadviser.
The continuation of the Advisory Agreement, the Sub-Advisory Agreement and the
Distribution Agreement was approved by all of the Trustees in June of 1999. On
December 12, 2000, the Trustees approved the termination of IAAL as Subadviser
and appointed Nicholas-Applegate as Subadviser effective December 14, 2000. On
April 25, 2001, the shareholders of the Fund approved the appointment of
Nichols-Applegate as Subadviser. The Advisory Agreement, the Nicholas-Applegate
Sub-Advisory Agreement and the Distribution Agreement, will continue in effect
from year to year, provided that its continuance is approved annually both (i)
by the holders of a majority of the outstanding voting securities of the Trust
or by the Trustees, and (ii) by a majority of the Trustees who are not parties
to the Agreement or "interested persons" of any such parties. Each of these
Agreements may be terminated on 60 days written notice by any party or by vote
of a majority of the outstanding voting securities of the Fund and will
terminate automatically if assigned
Accounting and Legal Services Agreement. The Trust, on behalf of the Fund, 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 fiscal years ended October 31, 2000, 2001 and 2002,
the Fund paid the Adviser $15,323, $7,462 and $5,706, respectively, for services
under this Agreement.
Personnel of the Adviser and its affiliates may trade securities for their
personal accounts. The Fund also may hold, or may be buying or selling, the same
securities. To prevent the Fund from being disadvantaged, the adviser(s),
principal underwriter and the Fund have adopted a code of ethics which restricts
the trading activity of those personnel.
-27-
DISTRIBUTION CONTRACTS
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 class of the Fund. Shares of the Fund are also sold by selected
broker-dealers (the "Selling Brokers") that have entered into selling agency
agreements with John Hancock Funds. These Selling Brokers are authorized to
designate other intermediaries to receive purchase and redemption orders on
behalf of the Fund. John Hancock Funds accepts orders for the purchase of the
shares of the Fund that are continually offered at net asset value next
determined, plus an applicable sales charge, if any. In connection with the sale
of shares, John Hancock Funds and Selling Brokers receive compensation from a
sales charge imposed, in the case of Class A and Class C shares, at the time of
sale. In the case of Class B or Class C shares, the broker receives compensation
immediately but John Hancock Funds is compensated on a deferred basis.
Total underwriting commissions for sales of the Fund's Class A shares for the
fiscal years ended October 31, 2000, 2001 and 2002 were $49,891, $15,745 and
$17,984, respectively. Of such amounts $7,770, $2,041 and $2,504, were retained
by John Hancock Funds for the fiscal years 2000, 2001 and 2002, respectively.
Total underwriting commissions for sales of the Fund's Class C shares for the
period from May 1, 2000 to October 31, 2000 was $9,906 and for the fiscal years
ended October 31, 2001 and 2002 were $1,068 and $11,955, respectively. The
remainder of the underwriting commissions were reallowed to Selling Brokers.
The Fund's Trustees adopted Distribution Plans with respect to each class of
shares (the "Plans") pursuant to Rule 12b-1 under the Investment Company Act of
1940. Under the Plans, the Fund will pay distribution and service fees at an
aggregate annual rate of up to 0.30% for Class A and 1.00% for Class B and Class
C shares, of the Fund's average daily net assets attributable to shares of that
class. However, the service fee will not exceed 0.25% of the Fund's average
daily net assets attributable to each class of shares. The distribution fees
will be used to reimburse John Hancock Funds for its distribution expenses,
including but not limited to: (i) initial and ongoing sales compensation to
Selling Brokers and others (including affiliates of John Hancock Funds) engaged
in the sale of Fund shares; (ii) marketing, promotional and overhead expenses
incurred in connection with the distribution of Fund shares; and (iii) with
respect to Class B and Class C shares only, interest expenses on unreimbursed
distribution expenses. The service fees will be used to compensate Selling
Brokers and others for providing personal and account maintenance services to
shareholders. In the event that John Hancock Funds is not fully reimbursed for
payments or expenses they incur under the Class A Plan, these expenses will not
be carried beyond twelve months from the date they were incurred. Unreimbursed
expenses under the Class B and Class C Plans will be carried forward together
with interest on the balance of these unreimbursed expenses. The Fund does not
treat unreimbursed expenses under the Class B and Class C Plans as a liability
of the Fund because the Trustees may terminate Class B and/or Class C Plans at
any time. For the fiscal year ended October 31, 2002, an aggregate of $2,381,923
of distribution expenses or 17.45% of the average net assets of the Class B
shares of the Fund, was not reimbursed or recovered by John Hancock Funds
through the receipt of deferred sales charges or Rule 12b-1 fees in prior
periods. For the fiscal year ended October 31, 2002, an aggregate of $12,581 of
distribution expenses or 1.87% of the average net assets of the Class C shares
of the Fund, was not reimbursed or recovered by John Hancock Funds through the
receipt of deferred sales charges or Rule 12b-1 fees.
The Plans and all amendments were approved by the Trustees, including a majority
of the Trustees who are not interested persons of the Fund and who have no
direct or indirect financial interest in the operation of the Plans (the
"Independent Trustees"), by votes cast in person at meetings called for the
purpose of voting on these Plans.
-28-
Pursuant to the Plans, at least quarterly, John Hancock Funds provide the Fund
with a written report of the amounts expended under the Plans and the purpose
for which these expenditures were made. The Trustees review these reports on a
quarterly basis to determine their continued appropriateness.
The Plans provide that they will continue in effect only so long as their
continuance is approved at least annually by a majority of both the Trustees and
Independent Trustees. The Plans provide that they may be terminated without
penalty, (a) by vote of a majority of the Independent Trustees, (b) by a vote of
a majority of the Fund's outstanding shares of the applicable class upon 60
days' written notice to John Hancock Funds, and (c) automatically in the event
of assignment. The Plans further provide that they may not be amended to
increase the maximum amount of the fees for the services described therein
without the approval of a majority of the outstanding shares of the class of the
Fund which has voting rights with respect to that Plan. Each Plan provides, that
no material amendment to the Plans will be effective unless it is approved by a
majority vote of the Trustees and the Independent Trustees of the Fund. The
holders of Class A, Class B and Class C shares have exclusive voting rights with
respect to the Plan applicable to their respective class of shares. In adopting
the Plans, the Trustees concluded that, in their judgment, there is a reasonable
likelihood that the Plans will benefit the holders of the applicable class of
shares of the Fund.
Amounts paid to John Hancock Funds by any class of shares of the Fund will not
be used to pay the expenses incurred with respect to any other class of shares
of the Fund; provided, however, that expenses attributable to the Fund as a
whole will be allocated, to the extent permitted by law, according to a formula
based upon gross sales dollars and/or average daily net assets of each such
class, as may be approved from time to time by vote of a majority of Trustees.
From time to time, the Fund may participate in joint distribution activities
with other Funds and the costs of those activities will be borne by each Fund in
proportion to the relative net asset value of the participating Funds.
For the fiscal year ended October 31, 2002, the Fund paid John Hancock Funds the
following amounts of expenses in connection with their services for the Fund.
Expense Items
-------------
Printing and
Mailing of Interest,
Prospectuses Expenses of Compensation Carrying or
to New John Hancock to Selling Other Finance
Shares Advertising Shareholders Funds Brokers Charges
- ------ ----------- ------------ ----- ------- -------
Class A $ 4,490 $173 $20,178 $13,279 $ 0
Class B $18,760 $500 $72,961 $43,861 $384
Class C $ 1,543 $ 22 $ 1,411 $ 3,737 $ 0
SALES COMPENSATION
As part of their business strategies, the fund, along with John Hancock Funds,
pay compensation to financial services firms that sell the fund's shares. These
firms typically pass along a portion of this compensation to your broker or
financial representative.
-29-
The two primary sources of broker compensation payments are (1) the 12b-1 fees
that are paid out of the fund's assets and (2) sales charges paid by investors.
The sales charges and 12b-1 fees are detailed in the prospectus and under
"Distribution Contracts" in this Statement of Additional Information. The
portions of these expenses that are paid to financial services firms are shown
on the next page.
Whenever you make an investment in the Fund, the financial services firm
receives a reallowance/payment, as described below. The firm also receives the
first year's 12b-1 service fee at this time. Beginning with the second year
after an investment is made, the financial services firm receives an annual
12b-1 service fee of 0.25% of its total eligible fund net assets. This fee is
paid quarterly in arrears by the Fund.
In addition, from time to time, John Hancock Funds, at its expense, may provide
significant additional compensation to financial services firms in connection
with their promotion of the Fund or sale of shares of the Fund. Such
compensation provided by John Hancock Funds may include, for example, financial
assistance to financial services firms in connection with their marketing and
sales development programs for their registered representatives and other
employees, as well as payment for travel expenses, including lodging, incurred
by registered representatives and other employees for such marketing and sales
development programs, as well as assistance for seminars for the public,
advertising and sales campaigns regarding one or more Funds, and other financial
services firms-sponsored events or activities. From time to time, John Hancock
Funds may provide expense reimbursements for special training of a financial
services firm's registered representatives and other employees in group
meetings. Other compensation, such as asset retention fees, finder's fees and
reimbursement for wire transfer fees or other administrative fees and costs may
be offered to the extent not prohibited by law or any self-regulatory agency,
such as the NASD.
-30-
Broker
Broker receives receives 12b-1
Sales charge paid maximum service fee Total broker
by investors (% reallowance (% of net compensation (1)
Class A investments of offering price) (% of offering price) investment) (3) (% of offering price)
- ------------------- ------------------ --------------------- --------------- ---------------------
Up to $49,999 5.00% 4.01% 0.25% 4.25%
$50,000 - $99,999 4.50% 3.51% 0.25% 3.75%
$100,000 - $249,999 3.50% 2.61% 0.25% 2.85%
$250,000 - $499,999 2.50% 1.86% 0.25% 2.10%
$500,000 - $999,999 2.00% 1.36% 0.25% 1.60%
Investments of Class A
shares of
$1 million or more (4)
- ----------------------
First $1M - $4,999,999 -- 0.75% 0.25% 1.00%
Next $1 - $5M above that -- 0.25% 0.25% 0.50% (2)
Next $1 or more above that -- 0.00% 0.25% 0.25% (2)
Broker receives
Broker receives 12b-1
maximum service fee Total broker
reallowance (% of net compensation (1)
Class B investments (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------- ---------------------
All amounts -- 3.75% 0.25% 4.00%
Broker receives
Broker receives 12-1
maximum service fee Total broker
reallowance (% of net compensation (1)
Class C investments (% of offering price) investment) (3) (% of offering price)
- ------------------- --------------------- --------------- ---------------------
Over $1,000,00 or amounts
purchased at NAV -- 0.75% 0.25% 1.00%
All other amounts 1.00% 1.75% 0.25% 2.00%
(1) Broker percentages and 12b-1 service fee percentages are calculated from
different amounts, and therefore may not equal total broker compensation
percentages if combined using simple addition.
(2) For Group Investment Programs sales, the maximum total broker compensation
for investments of $1 million or more is 1.00% of the offering price (one
year CDSC of 1.00% applies for each sale).
(3) After first year broker receives 12b-1 service fees quarterly in arrears.
(4) John Hancock Funds reduce aggregate investments by the amount of recent
redemptions.
CDSC revenues collected by John Hancock Funds may be used to pay broker
commissions when there is no initial sales charge.
-31-
NET ASSET VALUE
For purposes of calculating the net asset value ("NAV") of the 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 and class is determined each business day at the close of
regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern
Time) by dividing a class's 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.
INITIAL SALES CHARGE ON CLASS A AND CLASS C SHARES
Shares of the Fund are offered at a price equal to their net asset value plus a
sales charge which, at the option of the purchaser, may be imposed either at the
time of purchase (the "initial sales charge alternative") or on a contingent
deferred basis (the "deferred sales charge alternative"). The Fund no longer
issues share certificates, all shares are electronically recorded. The Trustees
reserve the right to change or waive the Fund's minimum investment requirements
and to reject any order to purchase shares (including purchase by exchange) when
in the judgment of the Adviser such rejection is in the Fund's best interest.
The sales charges applicable to purchases of Class A and Class C shares of the
Fund are described in the Prospectus. Methods of obtaining a reduced sales
charge referred to generally in the Prospectus are described in detail below. In
calculating the sales charge applicable to current
-32-
purchases of Class A shares of the Fund, the investor is entitled to accumulate
current purchases with the greater of the current value (at offering price) of
the Class A shares of the Fund, owned by the investor, or, if John Hancock
Signature Services, Inc. ("Signature Services") is notified by the investor's
dealer or the investor at the time of the purchase, the cost of the Class A
shares owned.
Without Sales Charge. Class A shares may be offered without a front-end sales
charge or contingent deferred sales charge ("CDSC") to various individuals and
institutions as follows:
o A Trustee or officer of the Trust; a Director or officer of the Adviser
and its affiliates, subadviser or Selling Brokers; employees or sales
representatives of any of the foregoing; retired officers, employees or
Directors of any of the foregoing; a member of the immediate family
(spouse, children, grandchildren, mother, father, sister, brother,
mother-in-law, father-in-law, daughter-in-law, son-in-law, niece, nephew,
grandparents, and same sex domestic partner) of any of the foregoing, or
any fund, pension, profit sharing or other benefit plan of the individuals
described above.
o A broker, dealer, financial planner, consultant or registered investment
advisor that has entered into a signed agreement with John Hancock Funds
providing specifically for the use of Fund shares in fee-based investment
products or services made available to their clients.
o A former participant in an employee benefit plan with John Hancock funds,
when he or she withdraws from his or her plan and transfers any or all of
his or her plan distributions directly to the Fund.
o A member of a class action lawsuit against insurance companies who is
investing settlement proceeds.
o Retirement plans participating in Merrill Lynch servicing programs, if the
Plan has more than $3 million in assets or 500 eligible employees at the
date the Plan Sponsor signs the Merrill Lynch Recordkeeping Service
Agreement. See your Merrill Lynch financial consultant for further
information.
o Retirement plans investing through the PruArray Program sponsored by
Prudential Securities.
o Pension plans transferring assets from a John Hancock variable annuity
contract to the Fund pursuant to an exemptive application approved by the
Securities and Exchange Commission.
o Participant directed retirement plans with at least 100 eligible employees
at the inception of the Fund account. Each of these investors may purchase
Class A shares with no initial sales charge. However, if the shares are
redeemed within 12 months after the end of the calendar year in which the
purchase was made, a CDSC will be imposed at the following rate:
Amount Invested CDSC Rate
--------------- ---------
$1 to $4,999,999 1.00%
Next $5 million to $9,999,999 0.50%
Amounts of $10 million and over 0.25%
-33-
Class C shares may be offered without a front-end sales charge to:
o Investments of redemption proceeds from a non-John Hancock mutual fund.
o Group Retirement plan products for which John Hancock Signature Services
performs recordkeeping and administrative services. (These plans include
403(b), Simple IRA, SEP and SARSEP plans.)
o Group Retirement plan products sold through third party administrators
under the John Hancock SELECT retirement plan program. (These plans
include 401(k), Money Purchase and Profit Sharing plans.)
o An investor who buys through a Merrill Lynch omnibus account. However, a
CDSC may apply if the shares are sold within 12 months of purchase.
Class A and Class C shares may also be purchased without an initial sales charge
in connection with certain liquidation, merger or acquisition transactions
involving other investment companies or personal holding companies.
Combination Privilege. In calculating the sales charge applicable to purchases
of Class A shares made at one time, the purchases will be combined to reduce
sales charges if made by (a) an individual, his or her spouse and their children
under the age of 21, purchasing securities for his or their own account, (b) a
trustee or other fiduciary purchasing for a single trust, estate or fiduciary
account and (c) groups which qualify for the Group Investment Program (see
below). A company's (not an individual's) qualified and non-qualified retirement
plan investments can be combined to take advantage of this privilege. Further
information about combined purchases, including certain restrictions on combined
group purchases, is available from Signature Services or a Selling Broker's
representative.
Accumulation Privilege. Investors (including investors combining purchases) who
are already Class A shareholders may also obtain the benefit of the reduced
sales charge by taking into account not only the amount being invested but also
the investor's purchase price or current value of the Class A shares of all John
Hancock funds which carry a sales charge already held by such person. Class A
shares of John Hancock money market funds will only be eligible for the
accumulation privilege if the investor has previously paid a sales charge on the
amount of those shares. Retirement plan investors may include the value of Class
B shares if Class B shares held are greater than $1 million. Retirement plans
must notify Signature Services to utilize. A company's (not an individual's)
qualified retirement and non-qualified plan investments can be combined to take
advantage of this privilege.
Group Investment Program. Under the Combination and Accumulation Privileges, all
members of a group may combine their individual purchases of Class A shares to
potentially qualify for breakpoints in the sales charge schedule. This feature
is provided to any group which (1) has been in existence for more than six
months, (2) has a legitimate purpose other than the purchase of mutual fund
shares at a discount for its members, (3) utilizes salary deduction or similar
group methods of payment, and (4) agrees to allow sales materials of the fund in
its mailings to members at a reduced or no cost to John Hancock Funds.
Letter of Intention. Reduced sales charges are also applicable to investments
made pursuant to a Letter of Intention (the "LOI"), which should be read
carefully prior to its execution by an
-34-
investor. The Fund offers two options regarding the specified period for making
investments under the LOI. All investors have the option of making their
investments over a specified period of thirteen (13) months. Investors who are
using the Fund as a funding medium for a retirement plan, however, may opt to
make the necessary investments called for by the LOI over a forty-eight (48)
month period. These retirement plans include traditional, Roth IRAs and
Coverdell ESAs, SEP, SARSEP, 401(k), 403(b) (including TSAs), SIMPLE IRA, SIMPLE
401(k), Money Purchase Pension, Profit Sharing and Section 457 plans. An
individual's non-qualified and qualified retirement plan investments cannot be
combined to satisfy an LOI of 48 months. Such an investment (including
accumulations and combinations but not including reinvested dividends) must
aggregate $100,000 or more during the specified period from the date of the LOI
or from a date within ninety (90) days prior thereto, upon written request to
Signature Services. The sales charge applicable to all amounts invested under
the LOI is computed as if the aggregate amount intended to be invested had been
invested immediately. If such aggregate amount is not actually invested, the
difference in the sales charge actually paid and the sales charge payable had
the LOI not been in effect is due from the investor. However, for the purchases
actually made with the specified period (either 13 or 48 months), the sales
charge applicable will not be higher than that which would have applied
(including accumulations and combinations) had the LOI been for the amount
actually invested.
The LOI authorizes Signature Services to hold in escrow sufficient Class A
shares (approximately 5% of the aggregate) to make up any difference in sales
charges on the amount intended to be invested and the amount actually invested,
until such investment is completed within the specified period, at which time
the escrowed Class A shares will be released. If the total investment specified
in the LOI is not completed, the Class A shares held in escrow may be redeemed
and the proceeds used as required to pay the sales charge as may be due. By
signing the LOI, the investor authorizes Signature Services to act as his or her
attorney-in-fact to redeem any escrowed Class A shares and adjust the sales
charge, if necessary. A LOI does not constitute a binding commitment by an
investor to purchase or by the Fund to sell any additional Class A shares and
may be terminated at any time.
DEFERRED SALES CHARGE ON CLASS B AND CLASS C SHARES
Investments in Class B shares are purchased at net asset value per share without
the imposition of an initial sales charge so the Fund will receive the full
amount of the purchase payment.
Contingent Deferred Sales Charge. Class B and Class C shares which are redeemed
within six years or one year of purchase, respectively will be subject to a CDSC
at the rates set forth in the Prospectus as a percentage of the dollar amount
subject to the CDSC. The charge will be assessed on an amount equal to the
lesser of the current market value or the original purchase cost of the Class B
or Class C shares being redeemed. No CDSC will be imposed on increases in
account value above the initial purchase prices or on shares derived from
reinvestment of dividends or capital gains distributions.
Class B shares are not available to retirement plans that had more than 100
eligible employees at the inception of the Fund account.
The amount of the CDSC, if any, will vary depending on the number of years from
the time of payment for the purchase of Class B shares until the time of
redemption of such shares. Solely for purposes of determining the number of
years from the time of any payment for the purchases of both Class B and Class C
shares, all payments during a month will be aggregated and deemed to have been
made on the first day of the month.
-35-
In determining whether a CDSC applies to a redemption, the calculation will be
determined in a manner that results in the lowest possible rate being charged.
It will be assumed that your redemption comes first from shares you have held
beyond the six-year CDSC redemption period for Class B or one year CDSC
redemption period for Class C, or those you acquired through dividend and
capital gain reinvestment, and next from the shares you have held the longest
during the six-year period for Class B shares. For this purpose, the amount of
any increase in a share's value above its initial purchase price is not subject
to a CDSC. Thus, when a share that has appreciated in value is redeemed during
the CDSC period, a CDSC is assessed only on its initial purchase price.
When requesting a redemption for a specific dollar amount, please indicate if
you require the proceeds to equal the dollar amount requested. If not indicated,
only the specified dollar amount will be redeemed from your account and the
proceeds will be less any applicable CDSC.
Example:
You have purchased 100 Class B shares at $10 per share. The second year after
your purchase, your investment's net asset value per share has increased by $2
to $12, and you have gained 10 additional shares through dividend reinvestment.
If you redeem 50 shares at this time your CDSC will be calculated as follows:
o Proceeds of 50 shares redeemed at $12 per shares (50 x 12) $600.00
o *Minus Appreciation ($12 - $10) x 100 shares (200.00)
o Minus proceeds of 10 shares not subject to CDSC (dividend reinvestment) (120.00)
-------
o Amount subject to CDSC $280.00
*The appreciation is based on all 100 shares in the account not just the
shares being redeemed.
Proceeds from the CDSC are paid to John Hancock Funds and are used in whole or
in part by John Hancock Funds to defray its expenses related to providing
distribution-related services to the Fund in connection with the sale of the
Class B and Class C shares, such as the payment of compensation to select
Selling Brokers for selling Class B and Class C shares. The combination of the
CDSC and the distribution and service fees facilitates the ability of the Fund
to sell the Class B and Class C shares without a sales charge being deducted at
the time of the purchase.
Waiver of Contingent Deferred Sales Charge. The CDSC will be waived on
redemptions of Class B and Class C shares and of Class A shares that are subject
to a CDSC, unless indicated otherwise, in the circumstances defined below:
For all account types:
* Redemptions made pursuant to the Fund's right to liquidate your account if
you own shares worth less than $1,000.
* Redemptions made under certain liquidation, merger or acquisition
transactions involving other investment companies or personal holding
companies.
* Redemptions due to death or disability. (Does not apply to trust accounts
unless trust is being dissolved.)
-36-
* Redemptions made under the Reinstatement Privilege, as described in "Sales
Charge Reductions and Waivers" in the Prospectus.
* Redemptions of Class B and Class C shares made under a periodic withdrawal
plan, or redemptions for fees charged by planners or advisors for advisory
services, as long as your annual redemptions do not exceed 12% of your
account value, including reinvested dividends, at the time you established
your periodic withdrawal plan and 12% of the value of subsequent
investments (less redemptions) in that account at the time you notify
Signature Services. (Please note that this waiver does not apply to
periodic withdrawal plan redemptions of Class A shares that are subject to
a CDSC.)
* Redemptions by Retirement plans participating in Merrill Lynch servicing
programs, if the Plan has less than $3 million in assets or 500 eligible
employees at the date the Plan Sponsor signs the Merrill Lynch
Recordkeeping Service Agreement. See your Merrill Lynch financial
consultant for further information.
* Redemptions of Class A shares by retirement plans that invested through
the PruArray Program sponsored by Prudential Securities.
* Redemptions of Class A shares made after one year from the inception date
of a retirement plan at John Hancock.
For Retirement Accounts (such as traditional, Roth IRAs and Coverdell ESAs,
SIMPLE IRA, SIMPLE 401(k), Rollover IRA, TSA, 457, 403(b), 401(k), Money
Purchase Pension Plan, Profit-Sharing Plan and other plans as described in the
Internal Revenue Code) unless otherwise noted.
* Redemptions made to effect mandatory or life expectancy distributions
under the Internal Revenue Code. (Waiver based on required, minimum
distribution calculations for John Hancock Mutual Fund IRA assets only.)
* Returns of excess contributions made to these plans.
* Redemptions made to effect distributions to participants or beneficiaries
from employer sponsored retirement plans under sections 401(a) (such as
Money Purchase Pension Plans and Profit-Sharing/401(k) Plans), 457 and 408
(SEPs and SIMPLE IRAs) of the Internal Revenue Code.
* Redemptions from certain IRA and retirement plans that purchased shares
prior to October 1, 1992 and certain IRA plans that purchased shares prior
to May 15, 1995.
Please see matrix for some examples.
-37-
- ---------------------------------------------------------------------------------------------------------------
Type of 401 (a) Plan 403 (b) 457 IRA, IRA Non-retirement
Distribution (401 (k), MPP, Rollover
PSP) 457 & 408
(SEPs & Simple
IRAs)
- ---------------------------------------------------------------------------------------------------------------
Death or Disability Waived Waived Waived Waived Waived
- ---------------------------------------------------------------------------------------------------------------
Over 70 1/2 Waived Waived Waived Waived for 12% of account
required value annually
minimum in periodic
distributions* payments
or 12% of
account value
annually
in periodic
payments.
- ---------------------------------------------------------------------------------------------------------------
Between 59 1/2 Waived Waived Waived Waived for Life 12% of account
and 70 1/2 Expectancy or value annually
12% of account in periodic
value annually payments
in periodic
payments.
- ---------------------------------------------------------------------------------------------------------------
Under 59 1/2 Waived for Waived for Waived for Waived for 12% of account
(Class B and Class C annuity annuity annuity annuity value annually
only) payments (72t) payments (72t) payments (72t) payments (72t) in periodic
or 12% of or 12% of or 12% of or 12% of payments
account value account value account value account value
annually in annually in annually in annually in
periodic periodic periodic periodic
payments. payments. payments. payments.
- ---------------------------------------------------------------------------------------------------------------
Loans Waived Waived N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Termination of Plan Not Waived Not Waived Not Waived Not Waived N/A
- ---------------------------------------------------------------------------------------------------------------
Hardships Waived Waived Waived N/A N/A
- ---------------------------------------------------------------------------------------------------------------
Qualified Domestic Waived Waived Waived N/A N/A
Relations Orders
- ---------------------------------------------------------------------------------------------------------------
Termination of Waived Waived Waived N/A N/A
Employment Before
Normal Retirement Age
- ---------------------------------------------------------------------------------------------------------------
Return of Excess Waived Waived Waived Waived N/A
- ---------------------------------------------------------------------------------------------------------------
* Required minimum distributions based on John Hancock Mutual Fund IRA assets
only.
-38-
If you qualify for a CDSC waiver under one of these situations, you must notify
Signature Services at the time you make your redemption. The waiver will be
granted once Signature Services has confirmed that you are entitled to the
waiver.
SPECIAL REDEMPTIONS
Although it would not normally do so, the Fund has the right to pay the
redemption price of shares of the Fund in whole or in part in portfolio
securities as prescribed by the Trustees. 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. The Fund has,
however, elected to be governed by Rule 18f-1 under the Investment Company Act.
Under that rule, the Fund must redeem its shares for cash except to the extent
that the redemption payments to any shareholder during any 90- day period would
exceed the lesser of $250,000 or 1% of the Fund's net asset value at the
beginning of such period.
ADDITIONAL SERVICES AND PROGRAMS
Exchange Privilege. The Fund permits exchanges of shares of any class of a fund
for shares of the same class in any other John Hancock fund offering that class.
Exchanges between funds with shares that are not subject to a CDSC are based on
their respective net asset values. No sales charge or transaction charge is
imposed. Shares of the Fund which are subject to a CDSC may be exchanged into
shares of any of the other John Hancock funds that are subject to a CDSC without
incurring the CDSC; however, the shares acquired in an exchange will be subject
to the CDSC schedule of the shares acquired if and when such shares are redeemed
(except that shares exchanged into John Hancock 500 Index Fund will retain the
exchanged fund's CDSC schedule). For purposes of computing the CDSC payable upon
redemption of shares acquired in an exchange, the holding period of the original
shares is added to the holding period of the shares acquired in an exchange.
If a retirement plan exchanges the plan's Class A account in its entirety from
the Fund to a non-John Hancock investment, the one-year CDSC applies.
If a shareholder exchanges Class B shares purchased prior to January 1, 1994 for
Class B shares of any other John Hancock fund, the acquired shares will continue
to be subject to the CDSC schedule that was in effect when the exchanged shares
were purchased.
The Fund reserves the right to require that previously exchanged shares (and
reinvested dividends) be in the Fund for 90 days before a shareholder is
permitted a new exchange.
The Fund may refuse any exchange order. The Fund may change or cancel its
exchange policies at any time, upon 60 days' notice to its shareholders.
An exchange of shares is treated as a redemption of shares of one fund and the
purchase of shares of another for Federal Income Tax purposes. An exchange may
result in a taxable gain or loss. See "TAX STATUS".
Systematic Withdrawal Plan. The Fund permits the establishment of a Systematic
Withdrawal Plan. Payments under this plan represent proceeds arising from the
redemption of Fund shares which may result in realization of gain or loss for
purposes of Federal, state and local income taxes. The maintenance of a
Systematic Withdrawal Plan concurrently with purchases of
-39-
additional shares of the Fund could be disadvantageous to a shareholder because
of the initial sales charge payable on such purchases of Class A shares and the
CDSC imposed on redemptions of Class B and Class C shares and because
redemptions are taxable events. Therefore, a shareholder should not purchase
shares at the same time a Systematic Withdrawal Plan is in effect. The Fund
reserves the right to modify or discontinue the Systematic Withdrawal Plan of
any shareholder on 30 days' prior written notice to such shareholder, or to
discontinue the availability of such plan in the future. The shareholder may
terminate the plan at any time by giving proper notice to Signature Services.
Monthly Automatic Accumulation Program ("MAAP"). The program is explained in the
Prospectus. The program, as it relates to automatic investment checks, is
subject to the following conditions:
The investments will be drawn on or about the day of the month indicated.
The privilege of making investments through the MAAP may be revoked by Signature
Services without prior notice if any investment is not honored by the
shareholder's bank. The bank shall be under no obligation to notify the
shareholder as to the non-payment of any checks.
The program may be discontinued by the shareholder either by calling Signature
Services or upon written notice to Signature Services which is received at least
five (5) business days prior to the order date of any investment.
Reinstatement or Reinvestment Privilege. If Signature Services is notified prior
to reinvestment, a shareholder who has redeemed Fund shares may, within 120 days
after the date of redemption, reinvest without payment of a sales charge any
part of the redemption proceeds in shares of the same class of the Fund or
another John Hancock fund, subject to the minimum investment limit in that fund.
The proceeds from the redemption of Class A shares may be reinvested at net
asset value without paying a sales charge in Class A shares of the Fund or in
Class A shares of any John Hancock fund. If a CDSC was paid upon a redemption, a
shareholder may reinvest the proceeds from this redemption at net asset value in
additional shares of the class from which the redemption was made. The
shareholder's account will be credited with the amount of the CDSC charged upon
the prior redemption and the new shares will continue to be subject to the CDSC.
The holding period of the shares acquired through reinvestment will, for
purposes of computing the CDSC payable upon a subsequent redemption, include the
holding period of the redeemed shares.
To protect the interests of other investors in the Fund, the Fund may cancel the
reinvestment privilege of any parties that, in the opinion of the Fund, are
using market timing strategies or making more than seven exchanges per owner or
controlling party per calendar year. Also, the Fund may refuse any reinvestment
request.
The Fund may change or cancel its reinvestment policies at any time.
A redemption or exchange of Fund shares is a taxable transaction for Federal
income tax purposes even if the reinvestment privilege is exercised, and any
gain or loss realized by a shareholder on the redemption or other disposition of
Fund shares will be treated for tax purposes as described under the caption "TAX
STATUS."
-40-
Retirement plans participating in Merrill Lynch's servicing programs:
Class A shares are available at net asset value for plans with $3 million in
plan assets or 500 eligible employees at the date the Plan Sponsor signs the
Merrill Lynch Recordkeeping Service Agreement. If the plan does not meet either
of these limits, Class A shares are not available.
For participating retirement plans investing in Class B shares, shares will
convert to Class A shares after eight years, or sooner if the plan attains
assets of $5 million (by means of a CDSC-free redemption/purchase at net asset
value).
PURCHASES AND REDEMPTIONS THROUGH THIRD PARTIES
Shares of the Fund may be purchased or redeemed through certain broker-dealers
or Service Agents ("Brokers"). Brokers may charge for their services or place
limitations on the extent to which you may use the services of the Fund. The
Fund will be deemed to have received a purchase or redemption order when an
authorized broker, or if applicable, a broker's authorized designee, receives
the order. If a broker is an agent or designee of the Fund, orders are processed
at the NAV next calculated after the broker receives the order. The broker must
segregate any orders it receives after the close of regular trading on the New
York Stock Exchange and transmit those orders to the Fund for execution at NAV
next determined. Some brokers that maintain nominee accounts with the Fund for
their clients charge an annual fee on the average net assets held in such
accounts for accounting, servicing, and distribution services they provide with
respect to the underlying Fund shares. The Adviser, the Fund and/or John Hancock
Funds, LLC (the Fund's principal distributor), share in the expense of these
fees.
DESCRIPTION OF THE FUND'S SHARES
The Trustees of the Trust are responsible for the management and supervision of
the Fund. The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest of the Fund, without
par value. Under the Declaration of Trust, the Trustees have the authority to
create and classify shares of beneficial interest in separate series and
classes, without further action by shareholders. As of the date of this
Statement of Additional Information, the Trustees have authorized shares of the
Fund and six other series. Additional series may be added in the future. The
Trustees have also authorized the issuance of three classes of shares of the
Fund, designated as Class A, Class B and Class C.
The shares of each class of the Fund represent an equal proportionate interest
in the aggregate net assets attributable to that class of the Fund. Holders of
each class of shares have certain exclusive voting rights on matters relating to
their respective distribution plans. The different classes of the Fund may bear
different expenses relating to the cost of holding shareholder meetings
necessitated by the exclusive voting rights of any class of shares.
Dividends paid by the Fund, if any, with respect to each class of shares will be
calculated in the same manner, at the same time and on the same day and will be
in the same amount, except for differences resulting from the facts that (i) the
distribution and service fees relating to each class of shares will be borne
exclusively by that class (ii) Class B and Class C shares will pay higher
distribution and service fees than Class A shares and (iii) each class of shares
will bear any other class expenses properly allocable to that class of shares,
subject to the conditions the Internal Revenue Service imposes with respect to
multiple-class structures. Similarly, the net asset value per share may vary
depending on which class of shares are purchased. No interest will be paid on
uncashed dividend or redemption checks.
-41-
In the event of liquidation, shareholders of each class are entitled to share
pro rata in the net assets of the Fund available for distribution to these
shareholders. Shares entitle their holders to one vote per share, are freely
transferable and have no preemptive, subscription or conversion rights. When
issued, shares are fully paid and non-assessable except as set forth below.
Unless otherwise required by the Investment Company Act or the Declaration of
Trust, the Fund has no intention of holding annual meetings of shareholders.
Fund 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 Fund's Declaration of Trust contains an express
disclaimer of shareholder liability for acts, obligations or affairs of the
Fund. The Declaration of Trust also provides for indemnification out of the
Fund's assets for all losses and expenses of any shareholder held personally
liable by reason of being or having been a shareholder. The Declaration of Trust
also provides that no series of the Trust shall be liable for the liabilities of
any other series. Furthermore, no fund included in this Fund's prospectus shall
be liable for the liabilities of any other John Hancock fund. Liability is
therefore limited to circumstances in which the Fund itself would be unable to
meet its obligations, and the possibility of this occurrence is remote.
The Fund reserves the right to reject any application which conflicts with the
Fund's internal policies or the policies of any regulatory authority. John
Hancock Funds does not accept starter, credit card or third party checks. All
checks returned by the post office as undeliverable will be reinvested at net
asset value in the fund or funds from which a redemption was made or dividend
paid. Information provided on the account application may be used by the 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. For telephone transactions, the transfer agent will take measures
to verify the identity of the caller, such as asking for name, account number,
Social Security or other taxpayer ID number and other relevant information. If
appropriate measures are taken, the transfer agent is not responsible for any
losses that may occur to any account due to an unauthorized telephone call. Also
for your protection telephone transactions are not permitted on accounts whose
names or addresses have changed within the past 30 days. Proceeds from telephone
transactions can only be mailed to the address of record.
Selling activities for the Fund may not take place outside the U.S. except with
U.S. military bases, APO addresses and U.S. diplomats. Brokers of record on
Non-U.S. investors' accounts with foreign mailing addresses are required to
certify that all sales activities have occurred, and in the future will occur,
only in the U.S. A foreign corporation may purchase shares of the Fund only if
it has a U.S. mailing address.
-42-
TAX STATUS
The Fund is treated as a separate entity for accounting and tax purposes, has
qualified and elected to be treated as a "regulated investment company" under
Subchapter M of the Internal Revenue Code of 1986 as amended (the "Code"), and
intends to continue to so 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, the 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.
The 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. The Fund
intends under normal circumstances to avoid liability for such tax by satisfying
such distribution requirements.
Distributions from the Fund's current or accumulated earnings and profits
("E&P") will be taxable under the Code for investors who are subject to tax. If
these distributions are paid from the Fund's "investment company taxable
income," they will be taxable as ordinary income; and if they are paid from the
Fund's "net capital gain," they will be taxable as long term capital gain. (Net
capital gain is the excess (if any) of net long-term capital gain over net
short-term capital loss, and investment company taxable income is all taxable
income and capital gains, other than net capital gain, after reduction by
deductible expenses.) 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, divided by the number of
shares received in the reinvestment.
Foreign exchange gains and losses realized by the Fund in connection with
certain transactions involving foreign currency-denominated debt securities,
certain foreign currency options, 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 the 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 gross income for each taxable year. If
the net foreign exchange loss for a year treated as ordinary loss under Section
988 were to exceed the Fund's investment company taxable income computed without
regard to such loss, the resulting overall ordinary loss for such year would not
be deductible by the Fund or its shareholders in future years.
If the Fund invests in stock (including an option to acquire stock such as is
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
-43-
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 Fund would not be able to
pass through to its shareholders any credit or deduction for such a tax. An
election may be available to ameliorate these adverse tax consequences, but
could require the Fund 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. The Fund may limit and/or manage
its investments in passive foreign investment companies or make an available
election to minimize its tax liability or maximize its return from these
investments.
The amount of the Fund's net realized capital gains, if any, in any given year
will vary depending upon the current investment strategy of the Adviser and
Subadviser and whether the Adviser and the Subadviser believes it to be in the
best interest of the Fund 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 the Fund's
portfolio or undistributed taxable income of the Fund. Consequently, subsequent
distributions on those shares from such appreciation or income may be taxable to
such investor even if the net asset value of the investor's shares is, as a
result of the distributions, reduced below the investor's cost for such shares,
and the distributions in reality represent a return of a portion of the purchase
price.
Upon a redemption or other disposition of shares of the Fund (including by
exercise of the exchange privilege) in a transaction that is treated as a sale
for tax purposes, a shareholder will ordinarily realize a taxable gain or loss
depending upon the amount of the proceeds and the investor's basis in his
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands. A sales charge paid in purchasing
shares of the Fund cannot be taken into account for purposes of determining gain
or loss on the redemption or exchange of such shares within 90 days after their
purchase to the extent shares of the Fund or another John Hancock fund are
subsequently acquired without payment of a sales charge pursuant to the
reinvestment or exchange privilege. This disregarded charge will result in an
increase in the shareholder's tax basis in the shares subsequently acquired.
Also, 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 Fund within
a period of 61 days beginning 30 days before and ending 30 days after the shares
are disposed of, such as pursuant to automatic dividend reinvestments. In such a
case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term capital loss
to the extent of any amounts treated as distributions of long- term capital gain
with respect to such shares. 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.
Although its present intention is to distribute, at least annually, all net
capital gain, if any, the Fund reserves the right to retain and reinvest all or
any portion of the excess, as computed for Federal income tax purposes, of net
long-term capital gain over net short-term capital loss in any year. The Fund
will not in any event distribute net capital gain realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. To the extent such excess was retained and not exhausted by the
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 the
-44-
Fund had distributed to him on the last day of its taxable year his pro rata
share of such excess, and he had paid his pro rata share of the taxes paid by
the Fund and reinvested the remainder in the Fund. Accordingly, each shareholder
would (a) include his pro rata share of such excess as long-term capital gain 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 to a refund
of, his pro rata share of the taxes paid by the Fund, and (c) be entitled to
increase the adjusted tax basis for his shares in the Fund by the difference
between his pro rata share of such excess and his pro rata share of such taxes.
For Federal income tax purposes, the Fund is permitted to carry forward a net
realized capital loss in any year to offset net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in Federal income
tax liability to the Fund and, as noted above, would not be distributed as such
to shareholders. The Fund has $8,741,298 of capital loss carryforwards available
to the extent provided by regulations to offset net capital gains. The Fund's
carryforwards expire as follows: $821,474 on October 31, 2006, $1,234,369 on
October 31, 2007, $3,678,367 on October 31, 2008 and $3,007,088 on October 31,
2010.
For purposes of the dividends-received deduction available to corporations,
dividends received by the 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 each such dividend and
distributed and properly designated 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 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.
The Fund 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 U.S. may reduce or eliminate such
taxes. Investors may be entitled to claim U.S. foreign tax credits or deductions
with respect to foreign income taxes or certain other foreign taxes ("qualified
foreign taxes"), paid by the Fund, subject to certain holding period
requirements and limitations contained in the Code, if the Fund so elects. If
more than 50% of the value of the Fund's total assets at the close of any
taxable year consists of stock or securities of foreign corporations, the Fund
may file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to (i) include in ordinary gross
income (in addition to taxable dividends and distributions actually received)
their pro rata shares of qualified foreign taxes paid by the Fund even though
not actually received by them, and (ii) treat such respective pro rata portions
as foreign taxes paid by them.
If the Fund makes this election, shareholders may then deduct such pro rata
portions of qualified foreign taxes in computing their taxable income, or,
alternatively, use them as foreign tax credits, subject to applicable
limitations, against their U.S. Federal income taxes. Shareholders who do not
itemize deductions for Federal income tax purposes will not, however, be able to
deduct their pro rata portion of qualified foreign taxes paid by the Fund,
although such shareholders will be required to include their shares of such
taxes in gross income. Shareholders who claim a foreign
-45-
tax credit for such foreign taxes may be required to treat a portion of
dividends received from the Fund as a separate category of income for purposes
of computing the limitations on the foreign tax credit. Tax-exempt shareholders
will ordinarily not benefit from this election. Each year (if any) that the Fund
files the election described above, its shareholders will be notified of the
amount of (i) each shareholder's pro rata share of qualified foreign taxes paid
by the Fund and (ii) the portion of Fund dividends which represents income from
each foreign country. If the Fund 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.
The Fund is required to accrue income on any debt securities that have more than
a de minimis amount of original issue discount (or debt securities acquired at a
market discount, if the Fund elects to include market discount in income
currently) prior to the receipt of the corresponding cash payments. The mark to
market 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. However, the Fund must distribute to shareholders for each taxable
year substantially all of its net income and net capital gains, including such
income or gain, to qualify as a regulated investment company and avoid liability
for any federal income or excise tax. Therefore, the Fund may have to dispose of
its portfolio securities under disadvantageous circumstances to generate cash,
or borrow cash, to satisfy these distribution requirements.
A state income (and possibly local income and/or intangible property) tax
exemption is generally available to the extent (if any) the Fund's distributions
are derived from interest on (or, in the case of intangible property taxes, the
value of its assets is attributable to) certain U.S. Government obligations,
provided in some states that certain thresholds for holdings of such obligations
and/or reporting requirements are satisfied. The Fund will not seek to satisfy
any threshold or reporting requirements that may apply in particular taxing
jurisdictions, although the Fund may in its sole discretion provide relevant
information to shareholders.
The Fund will be required to report to the Internal Revenue Service (the "IRS")
all taxable distributions to shareholders, as well as gross proceeds from the
redemption or exchange of Fund shares, except in the case of certain exempt
recipients, i.e., corporations and certain other investors distributions to
which are exempt from the information reporting provisions of the Code. Under
the backup withholding provisions of Code Section 3406 and applicable Treasury
regulations, all such reportable distributions and proceeds may be subject to
backup withholding of federal income tax in the case of non-exempt shareholders
who fail to furnish the Fund with their correct taxpayer identification number
and certain certifications required by the IRS or if the IRS or a broker
notifies the Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding as a result of failure to
report interest or dividend income. The Fund may refuse to accept an application
that does not contain any required taxpayer identification number or
certification that the number provided is correct. If the backup withholding
provisions are applicable, any such distributions and proceeds, whether taken in
cash or reinvested in shares, will be reduced by the amounts required to be
withheld. Any amounts withheld may be credited against a shareholder's U.S.
federal income tax liability. Investors should consult their tax advisers about
the applicability of the backup withholding provisions.
-46-
Different tax treatment, including penalties on certain excess contributions and
deferrals, certain pre-retirement and post-retirement distributions and certain
prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax advisers for more
information.
Certain 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 the
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, short sale or other transaction is treated as
a constructive sale of an appreciated financial position in the Fund's
portfolio. Also, certain of the Fund's losses on its 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 Fund's distributions to shareholders. The Fund will take into
account the special tax rules (including consideration of available elections)
applicable to options, futures and forward contracts in order to seek to
minimize any potential adverse tax consequences.
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 types 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 distribution from, the Fund in their particular
circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the Fund 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 non-resident alien withholding tax at the rate of
30% (or a lower rate under an applicable tax treaty) on amounts treated as
ordinary dividends from the Fund and, unless an effective IRS Form W-8, Form
W-8BEN or other authorized withholding certificate is on file and to backup
withholding on certain other payments from the Fund. Non-U.S. investors should
consult their tax advisers regarding such treatment and the application of
foreign taxes to an investment in the Fund.
The Fund is not subject to Massachusetts corporate excise or franchise taxes.
The Fund anticipates that, provided that the Fund qualifies as a regulated
investment company under the Code, it will also not be required to pay any
Massachusetts income tax.
Hong Kong Taxes
Taxation of the Fund. The Fund will be subject to Hong Kong profits tax at the
current rate of 16.5% if (i) it carries on business in Hong Kong and (ii) its
profits are derived from a Hong Kong source. Dividends and capital gains are
exempt from profits tax in any event, as are profits from trading in securities
listed on exchanges outside Hong Kong. Profits from trading in securities listed
on a Hong Kong exchange may in certain cases be subject to profits tax.
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Taxation of Shareholders. There is no tax in Hong Kong on capital gains arising
from the sale by an investor of shares of the Fund. However, in the case of
certain investors (principally share traders, financial institutions and certain
companies carrying on business in Hong Kong), such gains may be considered to be
part of the investor's normal business profits and in such circumstances will be
subject to Hong Kong profits tax at the current rate of 16.5% for corporations
and 15% for individuals. Dividends which the Fund pays to its shareholders are
not taxable in Hong Kong (whether through withholding or otherwise) under
current legislation and practice. No Hong Kong stamp duty will be payable in
respect of transactions in the Fund's shares provided that the register of
shareholders is maintained outside of Hong Kong.
CALCULATION OF PERFORMANCE
As of October 31, 2002, the average annual total returns before taxes for the
Fund's Class A shares of the Fund for the 1 year, 5 year and 10 year periods
were -8.88%, -5.01% and 0.35%, respectively.
As of October 31 2002, the average annual total returns before taxes for the
Fund's Class B shares of the Fund for the 1 year and 5 year periods and since
the commencement of operations on March 7, 1994 were -9.46%, -5.07% and -5.43%,
respectively.
As of October 31, 2002, the average annual total return before taxes for the
Fund's Class C shares of the Fund for the l year period and since the
commencement of operations on March 1, 1999 was -6.57% and -0.84%.
n
P(1+T) = ERV
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return
n= number of years
ERV= ending redeemable value of a hypothetical $1,000 payment made
at the beginning of the 1-year, 5-year or 10-year periods (or
fractional portion).
The Fund discloses average annual total returns after taxes for Class B shares
for the one, five and 10 year periods ended December 31, 2002 in the prospectus.
After tax returns are computed using the historical highest individual federal
marginal income-tax rates and do not reflect the impact of state and local
taxes. Actual after-tax returns depend on the investor's tax situation and may
differ from those shown. The after-tax returns shown are not relevant to
investors who hold their fund shares through tax-deferred arrangements such as
401(k) plans or individual retirement accounts.
The average annual total return (after taxes on distributions) is computed by
finding the average annual compounded rate of return over the 1-year, 5-year and
10-year periods, or the period since the commencement of operations, that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
-48-
n
P(1+T) = ATV
D
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return (after taxes on distributions)
n= number of years
ATV = ending value of a hypothetical $1,000 payment made at the
D beginning of the 1-year, 5-year, or 10-year periods (or
fractional portion) after taxes on fund distributions but not
after taxes on redemption.
The average annual total return (after taxes on distributions and redemption) is
computed by finding the average annual compounded rate of return over the
1-year, 5-year, and 10-year periods, or the period since inception, that would
equate the initial amount invested to the ending redeemable value according to
the following formula:
n
P(1+T) = ATV
DR
Where:
P= a hypothetical initial payment of $1,000.
T= average annual total return (after taxes on distributions and
redemption)
n= number of years
ATV = ending value of a hypothetical $1,000 payment made at the
DR beginning of the 1-year, 5-year or 10-year periods (or
fractional portion), after taxes on fund distributions and
redemption.
Because each class has its own sales charge and fee structure, the classes have
different performance results. In the case of each class, these calculations
assume the maximum sales charge is included in the initial investment or the
CDSC is applied at the end of the period, respectively. These calculations
assume that all dividends and distributions are reinvested at net asset value on
the reinvestment dates during the period. The "distribution rate" is determined
by annualizing the result of dividing the declared dividends of the Fund during
the period stated by the maximum offering price or net asset value at the end of
the period. Excluding the Fund's sales charge from the distribution rate
produces a higher rate.
In addition to average annual total returns, the Fund may quote unaveraged or
cumulative total returns reflecting the simple change in value of an investment
over a stated period. Cumulative total returns may be quoted as a percentage or
as a dollar amount, and may be calculated for a single investment, a series of
investments, and/or a series of redemptions, over any time period. Total returns
may be quoted with or without taking the Fund's sales charge on Class A shares
or the CDSC on Class B or Class C shares into account. Excluding the Fund's
sales charge on Class A shares and the CDSC on Class B or Class C shares from a
total return calculation produces a higher total return figure.
From time to time, in reports and promotional literature, the Fund's total
return will be compared to indices of mutual funds such as Lipper Analytical
Services, Inc.'s "Lipper - Mutual Fund Performance Analysis," a monthly
publication which tracks net assets and total return on mutual funds in the
United States. Ibottson and Associates, CDA Weisenberger and F.C. Towers are
also used for comparison purposes as well as the Russell and Wilshire Indices.
-49-
Performance rankings and ratings reported periodically in, and excerpts from,
national financial publications such as MONEY Magazine, FORBES, BUSINESS WEEK,
THE WALL STREET JOURNAL, MICROPAL, INC., MORNINGSTAR, STANGER'S, BARRON'S, etc.
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 Fund is not fixed or guaranteed. Performance quotations
should not be considered to be representations of performance of the Fund for
any period in the future. The performance of the Fund is a function of many
factors including its earnings, expenses and number of outstanding shares.
Fluctuating market conditions; purchases, sales and maturities of portfolio
securities; sales and redemptions of shares of beneficial interest; and changes
in operating expenses are all examples of items that can increase or decrease
the Fund's performance.
BROKERAGE ALLOCATION
Decisions concerning the purchase and sale of portfolio securities and the
allocation of brokerage commissions are made by the Adviser's or Subadviser's
investment and/or trading personnel. Orders for purchases and sales of
securities are placed in a manner, which, in the opinion of such personnel, will
offer the best price and market for the execution of each such transaction. The
Fund's trading practices and investments are reviewed monthly by the Adviser's
Senior Investment Policy Committee which consists of officers of the Adviser and
quarterly by the Adviser's Investment Committee which consists of officers and
directors of the Adviser and Trustees of the Trust who are interested persons of
the Fund.
Purchases from underwriters of portfolio securities may include a commission or
commissions paid by the issuer and transactions with dealers serving as market
maker reflect a "spread." Investments in debt securities are generally traded on
a "net" basis through dealers acting for their own account as principals and not
as brokers; no brokerage commissions are payable on these transactions. In the
U.S. Government securities market, securities are generally traded on a net
basis with dealers acting as principal for their own account without a stated
commission, although the price of the security usually includes a profit to the
dealer. On occasion, certain money market instruments and agency securities may
be purchased directly from the issuer, in which case no commissions or premiums
are paid. Investments in equity securities are generally traded on exchanges or
on over-the-counter markets at fixed commission rates or on a net basis. In
other countries, both debt and equity securities are traded on exchanges at
fixed commission rates. Commissions on foreign transactions are generally higher
than the negotiated commission rates available in the U.S. There is generally
less government supervision and regulation of foreign stock exchanges and
broker-dealers than in the U.S.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
The policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with the foregoing primary policy, the
Conduct Rules of the National Association of Securities Dealers, Inc. and such
other policies as the Trustees may determine, the Adviser and Subadviser may
consider sales of shares of the Fund as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions. To the extent
consistent with the foregoing, the Fund will be governed in the selection of
brokers and dealers, and the negotiation of brokerage commission rates and
dealer spreads, by the reliability and quality of the services, including
primarily the availability and
-50-
value of research information and, to a lesser extent, statistical assistance
furnished to the Adviser and Subadviser of the Fund.
As permitted by Section 28(e) of the Securities Exchange Act of 1934, the Fund
may pay to a broker which provides brokerage and research services to the Fund
an amount of disclosed commission in excess of the commission which another
broker would have charged for effecting that transaction. This practice is
subject to a good faith determination by the Trustees that such price is
reasonable in light of the services provided and to such policies as the
Trustees may adopt from time to time. For the fiscal year ended October 31,
2002, the Fund paid $5,647as compensation to brokers for research services such
as industry, economic and company reviews and evaluations of securities.
Research services received from broker-dealers supplement the Adviser's or
Subadviser's own research (and the research of its affiliates), and may include
the following types of information: statistical and background information on
the U.S. and foreign economies, industry groups and individual companies;
forecasts and interpretations with respect to the U.S. and foreign economies,
securities, markets, specific industry groups and individual companies;
information on federal, state, local and foreign political developments;
portfolio management strategies; performance information on securities, indexes
and investment accounts; and information concerning prices and ratings of
securities. Broker-dealers may communicate such information electronically,
orally, in written form or on computer software. Research services may also
include the providing of electronic communication of trade information and the
providing of custody services, as well as the providing of equipment used to
communicate research information, the providing of specialized consultations
with the Adviser's or Subadviser's personnel with respect to computerized
systems and data furnished as a component of other research services, the
arranging of meetings with management of companies, and the providing of access
to consultants who supply research information.
The outside research assistance is useful to the Adviser or Subadviser since the
broker-dealers used by the Adviser or Subadviser tend to follow a broader
universe of securities and other matters than the Adviser's or Subadviser's
staff can follow. In addition, the research provides the Adviser or Subadviser
with a diverse perspective on financial markets. Research services provided to
the Adviser or Subadviser by broker-dealers are available for the benefit of all
accounts managed or advised by the Adviser or by its affiliates, or by the
Subadviser or by its affiliates. Some broker-dealers may indicate that the
provision of research services is dependent upon the generation of certain
specified levels of commissions and underwriting concessions by the Adviser's or
Subadviser's clients, including the Fund. However, the Fund is not under any
obligation to deal with any broker-dealer in the execution of transactions in
portfolio securities. In some cases, the research services are available only
from the broker-dealer providing them. In other cases, the research services may
be obtainable from alternative sources in return for cash payments.
The Adviser and Subadviser believe that the research services are beneficial in
supplementing the Adviser's research and analysis and that they improve the
quality of the Adviser's or Subadviser's investment advice. It is not possible
to place a dollar value on information and services to be received from brokers
and dealers, since it is only supplementary to the research efforts of the
Adviser or Subadviser. The advisory fee paid by the Fund is not reduced because
the Adviser receives such
-51-
services. The receipt of research information is not expected to reduce
significantly the expenses of the Adviser and Subadviser. However, to the extent
that the Adviser or Subadviser would have purchased research services had they
not been provided by broker-dealers, the expenses to the Adviser or Subadviser
could be considered to have been reduced accordingly. The research information
and statistical assistance furnished by brokers and dealers may benefit the Life
Company or other advisory clients of the Adviser or Subadviser, and conversely,
brokerage commissions and spreads paid by other advisory clients of the Adviser
or Subadviser may result in research information and statistical assistance
beneficial to the Fund. The Fund will make no commitment to allocate portfolio
transactions upon any prescribed basis.
While the Adviser and/or the Subadviser will be primarily responsible for its
allocation of the Fund's brokerage business, the policies and practices of the
Adviser or Subadviser in this regard must be consistent with the foregoing and
at all times be subject to review by the Trustees. For fiscal years ended
October 31, 2000, 2001 and 2002, the Fund paid negotiated commissions of
$1,255,584, $697,018 and $285,910, respectively.
The Adviser or Subadviser may determine target levels of commission business
with various brokers on behalf of its clients (including the Fund) over a
certain time period. The target levels will be based upon the following factors,
among others: (1) the execution services provided by the broker; (2) the
research services provided by the broker; and (3) the broker's interest in
mutual funds in general and in the Fund and other mutual funds advised by the
Adviser or Subadviser in particular, including sales of the Fund. In connection
with (3) above, the Fund's trades may be executed directly by dealers that sell
shares of the John Hancock funds or by other broker-dealers with which such
dealers have clearing arrangements, consistent with obtaining best execution and
the Conduct Rules of the National Association of Securities Dealers, Inc. The
Adviser or Subadviser will not use a specific formula in connection with any of
these considerations to determine the target levels.
Pursuant to procedures determined by the Trustees and consistent with the above
policy of obtaining best net results, the Fund may execute portfolio
transactions with or through brokers affiliated with the Adviser and/or the
Subadviser ("Affiliated Brokers"). Affiliated Brokers may act as broker for the
Fund on exchange transactions, subject, however, to the general policy of the
Fund set forth above and the procedures adopted by the Trustees pursuant to the
Investment Company Act. Commissions paid to an Affiliated Broker must be at
least as favorable as those which the 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 the Fund would have to pay a commission rate less
favorable than the Affiliated Broker's contemporaneous charges for comparable
transactions for its other most favored, but unaffiliated, customers except for
accounts for which the Affiliated Broker acts as clearing broker 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 Fund, the Adviser, the
Subadviser or the Affiliated Broker. Because the Adviser or Subadviser that is
affiliated with the Affiliated Broker has, as an investment adviser to the Fund,
the obligation to provide investment management services, which includes
elements of research and related investment skills such research and related
skills will not be used by the Affiliated Broker as a basis for negotiating
commissions at a rate higher than that determined in accordance with the above
criteria.
-52-
The Adviser's indirect parent, the Life Company, is the indirect sole
shareholder of Signator Investors, Inc., a broker-dealer (until January 1, 1999,
John Hancock Distributors, Inc.) ("Signator" or an "Affiliated Broker"). For the
fiscal years ended October 31, 2000, 2001 and 2002, the Fund did not execute
portfolio transactions with Signator.
Allianz AG, the parent of Nicholas Applegate Capital Management ("NACM"), has
several affiliates engaged in the brokerage business: Bayerische Hypo-und
Vereinsbank AG, HPV, HVB Capital Markets; Credit Lyonnais SA; Dresdner, Dresdner
Kleinwort Benson, Dresdner Kleinwort Wasserstein; IKB Deutsche Industriebank AG;
Munchener Ruckversicherungs-Gesellschaft AG, Munich Re; National Discount
Brokers Group, Inc., NDB Capital Markets; UniCredito Italiano S.p.A., UniCredit
Banco Mobiliare S.p.A.; US Allianz Securities, Inc.; Williams Capital Group;
Zagrebacka Banka (all "Affiliated Brokers"). Pursuant to procedures determined
by the Trustees and consistent with the above policy of obtaining best net
results, the Fund may execute portfolio transactions with or through Affiliated
Brokers. For the fiscal years ended October 31, 2000, 2001 and 2002, the Fund
paid $0, $25,149 and $4,512, respectively to Affiliated Brokers of NACM. During
the fiscal years ended October 31, 2001 and 2002, this amounted to approximately
5.34% and 1.58%, respectively, of the aggregate brokerage commissions paid by
the Fund for transactions involving approximately 5.24% and 1.58%, respectively,
of the aggregated dollar amount of transactions for which the Fund paid
brokerage commissions.
Credit Agricole, parent of Indocam International Investment Services ("IIIS"),
the Fund's subadviser until December 14, 2001, has several affiliates engaged in
the brokerage business in Europe and Asia: Credit Agricole Indosuez Cheuvreux;
CPR Action (ex-Schelcher Prince Cheuvreux de Virieu International Ltd, London;
Cheuvreux de Virieu, Nordic AB, Stockholm, Cheuvreux de Virieu, Espana, Madrid,
Credit Agricole Indosuez Cheuvreux Deutschland GMBH, Frankfourt/ Main; Caboto
Sim in Italy; Carr Securities; Carr Futures SNC. (Paris) and Carr Futures PTE,
Singapore (all "Affiliated Brokers"). Pursuant to procedures determined by the
Trustees and consistent with the above policy of obtaining best net results, the
Fund may execute portfolio transactions with or through Affiliated Brokers. For
the fiscal year ended October 31, 2000, 2001 and 2002, the Fund paid no
commissions to Affiliated Brokers of IIIS.
Other investment advisory clients advised by the Adviser or Subadviser may also
invest in the same securities as the Fund. When these clients buy or sell the
same securities at substantially the same time, the Adviser or Subadviser may
average the transactions as to price and allocate the amount of available
investments in a manner which the Adviser or Subadviser believes to be equitable
to each client, including the Fund. Because of this, client accounts in a
particular style may sometimes not sell or acquire securities as quickly or at
the same prices as they might if each were managed and traded individually.
For purchases of equity securities, when a complete order is not filled, a
partial allocation will be made to each participating account pro rata based on
the order size. For high demand issues (for example, initial public offerings),
shares will be allocated pro rata by account size as well as on the basis of
account objective, account size ( a small account's allocation may be increased
to provide it with a meaningful position), and the account's other holdings. In
addition, an account's allocation may be increased if that account's portfolio
manager was responsible for generating the investment idea or the portfolio
manager intends to buy more shares in the secondary market. For fixed income
accounts, generally securities will be allocated when appropriate among accounts
based on account size, except if the accounts have different objectives or if an
account is too small to get a meaningful allocation. For new issues, when a
-53-
complete order is not filled, a partial allocation will be made to each account
pro rata based on the order size. However, if a partial allocation is too small
to be meaningful, it may be reallocated based on such factors as account
objectives, strategies, duration benchmarks and credit and sector exposure. For
example, value funds will likely not participate in initial public offerings as
frequently as growth funds. In some instances, this investment procedure may
adversely affect the price paid or received by the Fund or the size of the
position obtainable for it. On the other hand, to the extent permitted by law,
the Adviser or Subadviser may aggregate securities to be sold or purchased for
the Fund with those to be sold or purchased for other clients managed by it in
order to obtain best execution.
TRANSFER AGENT SERVICES
John Hancock Signature Services, Inc., 1 John Hancock Way, Suite 1000, Boston,
MA 02217-1000, a wholly owned indirect subsidiary of the Life Company, is the
transfer and dividend paying agent for the Fund. The Fund pays Signature
Services monthly a fee which is based on an annual rate of $16.00 for each Class
A shareholder account and $18.50 for each Class B shareholder account and $17.50
for each Class C shareholder account. The Fund also pays Signature Services
monthly a fee whcih is based on an annual rate of 0.05% of average daily net
assets attributable to Class A, Class B and Class C shares. For Class A, B, and
C shares, the Fund also pays certain out-of pocket expenses. Expenses are
aggregated and allocated to each class on the basis of their relative net asset
values.
CUSTODY OF PORTFOLIO
Portfolio securities of the Fund are held pursuant to a custodian agreement
between the Fund and The Bank of New York, One Wall Street, New York, New York
10286. Under the custodian agreement, The Bank of New York is performing
custody, portfolio, Foreign Custody Manager and fund accounting services.
INDEPENDENT AUDITORS
The independent auditors of the Fund are PricewaterhouseCoopers LLP, 160 Federal
Street, Boston, Massachusetts 02110. PricewaterhouseCoopers LLP audits and
renders an opinion on the Fund's annual financial statements and reviews the
Fund's annual Federal income tax return.
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APPENDIX A- Description of Investment Risk
MORE ABOUT RISK
A fund's risk profile is largely defined by the fund's primary securities and
investment practices. You may find the most concise description of the fund's
risk profile in the prospectus.
A fund is permitted to utilize -- within limits established by the trustees --
certain other securities and investment practices that have higher risks and
opportunities associated with them. To the extent that the Fund utilizes these
securities or practices, its overall performance may be affected, either
positively or negatively. On the following pages are brief definitions of
certain associated risks with them with examples of related securities and
investment practices included in brackets. See the "Investment Objective and
Policies" and "Investment Restrictions" sections of this Statement of Additional
Information for a description of this Fund's investment policies. The Fund
follows certain policies that may reduce these risks.
As with any mutual fund, there is no guarantee that the Fund will earn income or
show a positive return over any period of time -- days, months or years.
TYPES OF INVESTMENT RISK
Correlation risk The risk that changes in the value of a hedging instrument will
not match those of the asset being hedged (hedging is the use of one investment
to offset the effects of another investment). (e.g., short sales, currency
contracts, financial futures and options; securities and index options).
Credit risk The risk that the issuer of a security, or the counterparty to a
contract, will default or otherwise become unable to honor a financial
obligation. (e.g., repurchase agreements, securities lending, foreign debt
securities, non-investment-grade debt securities, asset-backed securities,
mortgage-backed securities, participation interests, financial futures and
options; securities and index options, structured securities).
Currency risk The risk that fluctuations in the exchange rates between the U.S.
dollar and foreign currencies may negatively affect an investment. Adverse
changes in exchange rates may erode or reverse any gains produced by foreign
currency denominated investments, and may widen any losses. (e.g., currency
trading, foreign debt securities, currency contracts, financial futures and
options; securities and index options).
Extension risk The risk that an unexpected rise in interest rates will extend
the life of a mortgage-backed security beyond the expected prepayment time,
typically reducing the security's value.(e.g., mortgage-backed securities,
structured securities).
Information risk The risk that key information about a security or market is
inaccurate or unavailable.(e.g., non-investment-grade debt securities).
Interest rate risk The risk of market losses attributable to changes in interest
rates. With fixed-rate securities, a rise in interest rates typically causes a
fall in values, while a fall in rates typically causes a rise in values.(e.g.,
foreign debt securities, non-investment-grade debt securities, asset-backed
securities, mortgage-backed securities, participation interests, financial
future and options; securities and index options, structured securities).
A-1
Leverage risk Associated with securities or practices (such as borrowing) that
multiply small index or market movements into large changes in value. (e.g.,
when-issued securities and forward commitments, currency contracts, financial
futures and options; securities and index options, structured securities).
o Hedged When a derivative (a security whose value is based on another
security or index) is used as a hedge against an opposite position that
the fund also holds, any loss generated by the derivative should be
substantially offset by gains on the hedged investment, and vice versa.
While hedging can reduce or eliminate losses, it can also reduce or
eliminate gains.
o Speculative To the extent that a derivative is not used as a hedge, the
fund is directly exposed to the risks of that derivative. Gains or losses
from speculative positions in a derivative may be substantially greater
than the derivative's original cost.
Liquidity risk The risk that certain securities may be difficult or impossible
to sell at the time and the price that the seller would like. The seller may
have to lower the price, sell other securities instead, or forego an investment
opportunity, any of which could have a negative effect on fund management or
performance. (e.g., short sales, non-investment-grade debt securities,
restricted and illiquid securities, mortgage-backed securities, participation
interests, currency contracts, financial futures and options; securities and
index options, structured securities).
Management risk The risk that a strategy used by a fund's management may fail to
produce the intended result. Common to all mutual funds.
Market risk The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. These fluctuations may cause a security to
be worth less than it was worth at an earlier time. Market risk may affect a
single issuer, industry, sector of the economy or the market as a whole. Common
to all stocks and bonds and the mutual funds that invest in them. (e.g., short
sales, short-term trading, when-issued securities and forward commitments,
foreign debt securities, non-investment-grade debt securities, restricted and
illiquid securities, financial futures and options; securities and index
options, structured securities).
Natural event risk The risk of losses attributable to natural disasters, crop
failures and similar events.
Opportunity risk The risk of missing out on an investment opportunity because
the assets necessary to take advantage of it are tied up in less advantageous
investments. (e.g., short sales, when-issued securities and forward commitments,
currency contracts, financial futures and options; securities and index
options).
Political risk The risk of losses attributable to government or political
actions, from changes in tax or trade statutes to governmental collapse and war.
(e.g., foreign debt securities).
Prepayment risk The risk that unanticipated prepayments may occur during periods
of falling interest rates, reducing the value of mortgage-backed securities.
(e.g., mortgage-backed securities, structured securities).
Valuation risk The risk that a fund has valued certain of its securities at a
higher price than it can sell them for. (e.g., non-investment-grade debt
securities, restricted and illiquid securities, participation interests,
structured securities)
A-2
APPENDIX-B
Moody's describes its lower ratings for corporate bonds as follows:
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.
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
both good and bad times over the future. Uncertainty of position characterized
bonds in this class.
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.
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.
Bonds which are rated Ca represented obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
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.
Standard & Poor's describes its lower ratings for corporate bonds as follows:
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.
Debt rated 'BB,' 'B,' 'CCC,' or 'CC' is regarded, on balance, as predominantly
speculative with respect to the issuer's capacity to pay interest and repay
principal in accordance with the terms of the obligations. 'BB' indicates the
lowest degree of speculation and 'CC' the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties or major risk exposures to adverse
conditions.
Moody's describes its three highest ratings for commercial paper as follows:
Issuers rated P-1 (or related supporting institutions) have a superior capacity
for repayment of short-term promissory obligations. P-1 repayment capacity will
normally be evidenced by the following characteristics: (1) leading market
positions in well- established industries; (2) high rates of return on funds
employed; (3) conservative capitalization structures with moderate reliance on
debt and ample asset protections; (4) broad margins in earnings coverage of
fixed financial charges and high internal cash generation; and (5) well
established access to a range of financial markets and assured sources of
alternate liquidity.
B-1
Issuers rated P-2 (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) 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 describes its lower ratings for corporate bonds as follows:
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.
BB, B, CCC, CC, C Debt rated 'BB', 'B', 'CCC', 'CC" and 'C' is regarded, on
balance, as predominantly speculative with respect to capacity to pay interest
and repay principal in accordance with the terms of the obligation. 'BB'
indicates the lowest degree of speculation and 'C' the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
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 that
is assigned an actual or implied 'CCC' rating.
B-2
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.
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.
Issuers rated P-2 (or related supporting institutions) have a strong capacity
for repayment of short-term promissory obligations. This will normally be
evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Issuers rated P-3 (or supporting institutions) 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.
B-3
FINANCIAL STATEMENTS
The financial statements listed below are included in the Fund's 2002 Annual
Report to Shareholders for the year ended October 31, 2002; (filed
electronically on December 27, 2002, accession number 0000928816-02-000992) and
are included in and incorporated by reference into Part B of the Registration
Statement for John Hancock Pacific Basin Equities Fund (file nos. 811-4932 and
33-10722).
John Hancock World Fund
John Hancock Pacific Basin Equities Fund
Statement of Assets and Liabilities as of October 31, 2002
Statement of Operations for year ended October 31, 2002
Statement of Changes in Net Assets for the two years ended October 31, 2002
Financial Highlights.
Notes to Financial Statements.
Schedule of Investments as of October 31, 2002
Report of Independent Auditors.
John Hancock
Pacific Basin
Equities Fund
ANNUAL
REPORT
10.31.02
Sign up for electronic delivery at
www.jhancock.com/funds/edelivery
[A 2" x 1" John Hancock (Signature)/John Hancock Funds logo in lower,
center middle of page. A tag line below reads "JOHN HANCOCK FUNDS."]
[A photo of Maureen R. Ford, Chairman and Chief Executive Officer, flush
left next to first paragraph.]
WELCOME
Table of contents
Your fund at a glance
page 1
Managers' report
page 2
A look at performance
page 6
Growth of $10,000
page 7
Fund's investments
page 8
Financial statements
page 13
Trustees & officers
page 27
For your information
page 33
Dear Fellow Shareholders,
The year 2002 has been an extremely difficult one for the stock market.
A steady stream of accounting scandals and corporate misdeeds has shaken
investors' faith in corporate America. Plus, questions about the
strength of the economic rebound and prospects for corporate earnings
have hung over the financial markets, along with increased fears about
Middle East tensions and terrorism.
With all these concerns, the major stock market indexes have fallen
significantly for much of the year. Despite a strong rally in October,
the broad Standard & Poor's 500 Index is down 22% year to date through
October, the Dow Jones Industrial Average is off 15% and the
technology-laden Nasdaq Composite Index has fallen 32%. Investors in
equity mutual funds have been unable to escape the market's descent, as
99% of all U.S. diversified equity funds have produced negative results
through October, according to Lipper, Inc., and the average equity fund
has lost 23%. Bonds, on the other hand, outperformed stocks and gained
some ground, as often happens when investors seek safer havens.
At such trying times as these, the impulse to flee is understandable,
especially after the negative stock market returns in 2000 and 2001. But
we urge you to stay the course and keep a well-diversified portfolio and
a longer-term investment perspective. Working with your investment
professional on your long-term plan is especially critical in turbulent
times. Financial markets have always moved in cycles, and even though
the current down cycle is painful, it comes after five straight years of
20%-plus returns between 1995 and 1999.
As discouraging as conditions may seem in the short-term, history shows
us that the bad times do pass. We believe that remains the case today.
The economy is sound and the vast majority of U.S. corporations are
honest institutions striving to do their best for their shareholders.
And the efforts of both the private sector and the U.S. government
should address the current issues of corporate governance, so that
corporate credibility and therefore investor confidence are restored.
Sincerely,
/S/ MAUREEN R. FORD
Maureen R. Ford,
Chairman and Chief Executive Officer
YOUR FUND
AT A GLANCE
The Fund seeks
long-term growth
of capital by
investing
primarily in stocks
of companies
located in the
Pacific Basin.
Over the last twelve months
* Global economic growth remained sluggish.
* Concerns over Middle East violence and terrorism dampened investor
enthusiasm for stocks.
* Pacific Rim markets rallied early in the period, then sagged as the
prospect of a strong economic recovery worldwide dimmed.
[Bar chart with heading "John Hancock Pacific Basin Equities Fund."
Under the heading is a note that reads "Fund performance for the year
ended October 31, 2002." The chart is scaled in increments of 1% with
- -5% at the bottom and 0% at the top. The first bar represents the -4.05%
total return for Class A. The second bar represents the -4.70% total
return for Class B. The third bar represents the -4.70% total return for
Class C. A note below the chart reads "Total returns for the Fund are at
net asset value with all distributions reinvested."]
Top 10 holdings
2.6% Takeda Chemical Industries, Ltd.
2.5% Kao Corp.
2.4% Hoya Corp.
2.2% Lion Corp.
2.1% East Japan Railway Co.
2.1% Funai Electric Co., Ltd.
2.1% SK Telecom Co., Ltd.
2.1% SMC Corp.
1.9% Shiseido Co., Ltd.
1.8% Singapore Press Holdings Ltd.
As a percentage of net assets on October 31, 2002.
BY SHU NUNG LEE, CFA, FOR THE NICHOLAS-APPLEGATE CAPITAL MANAGEMENT
PORTFOLIO MANAGEMENT TEAM
John Hancock
Pacific Basin Equities Fund
MANAGERS'
REPORT
Following two consecutive years of decline in the global stock market,
investors could not be faulted for hoping that better days lay ahead.
However, these hopes were dashed as equity markets around the world
continued to retreat during the 12-month period ended October 31, 2002.
The reporting period began with a powerful rally as investors rebuilt
their shattered confidence and sentiment improved following the
September 11, 2001 terrorist attacks on U.S. soil. In the wake of the
attacks, coordinated action by the world's central bankers led to
unprecedented stimulus in the form of interest-rate reductions and
injections of liquidity into the markets. The stimulus began to have its
desired effect late in 2001, as encouraging economic reports indicated
that a recovery was indeed underway. Emerging markets, which tend to
benefit in such an environment, rallied as 2002 opened.
"...equity markets around
the world continued
to retreat..."
In Japan, which dominates the Pacific Rim region, equities fell early in
the period, due to weak economic fundamentals, including persistent
deflation, rising unemployment and falling industrial production.
Concerns over the pace of government reform added to selling pressure.
From February through May, however, Japan's stock market advanced
strongly based on technical reasons (limitations placed on short
selling, for example), talk of restructuring the country's troubled
financial system and reports showing a potential bottom in economic
activity.
The rally faded in the summer and early fall as banking problems with
bad loans persisted, the economy faltered and reform efforts were
watered down. As a result, Japan did not participate in the rebound in
stock prices enjoyed by its developed counterparts worldwide.
The Pacific Rim region as a whole came under pressure as a deterioration
in the global economy, earnings disappointments and ongoing Middle East
violence -- including the threat of U.S. military action against Iraq --
weighed on investor sentiment. After posting four months of consecutive
gains from February to March, the MSCI All Country Pacific Free Index
gave up ground in the last five months of the reporting period.
FUND PERFORMANCE EXPLAINED
For the 12 months ended October 31, 2002, John Hancock Pacific Basin
Equities Fund's Class A, Class B and Class C shares posted total returns
of -4.05%, -4.70% and -4.70%, respectively, at net asset value.
During the same period, the average Pacific region fund returned
- -6.58%, according to Lipper, Inc.,1 while the benchmark MSCI All
Country Pacific Free Index returned -9.48%. Keep in mind that your net
asset value return will be different from the Fund's performance if you
were not invested in the Fund for the entire period and did not reinvest
all distributions. Please see pages six and seven for historical
performance information.
"...outperformance was
driven largely by favor
able stock selection in the
producers/manufacturing
and consumer non-
durables sectors."
The portfolio's solid outperformance was driven largely by favorable
stock selection in the producers/manufacturing and consumer non-durables
sectors. In particular, building materials and apparel holdings
registered significant gains during the period. On the downside,
financial services and health-care stocks in the portfolio fared poorly,
with money-center banks and medical specialty supply companies declining
sharply.
By country, stock selection in Japan was positive, and an underweight
position also benefited relative performance. Stock selection in South
Korea and Indonesia also proved beneficial. Meanwhile, holdings in
Australia -- which for most of 2002 had been among the world's strongest
economies -- and Singapore helped depress both absolute and relative
returns.
[Table at top left-hand side of page entitled "Top five industry
groups." The first listing is Electronics 21%, the second is Cosmetics &
personal care 10%, the third Telecommunications 8%, the fourth
Banks--foreign 5%, and the fifth Retail 5%.]
The portfolio's best-performing stocks for the period included Nissan
Motor Co. of Japan, and High Fashion International of Hong Kong, both of
which we sold, and South Korea's Samsung Electronics. Leading decliners
included United Microelectronics Corp. of Taiwan, LG Electronics of
South Korea, and Singapore-based Flextronics.
[Bar chart at middle of page with heading "Top five countries As a
percentage of net assets on 10-31-02." The chart is divided into five
sections: Japan 55%, South Korea 12%, Taiwan 8%, Hong Kong 7% and
Singapore 3%.]
PORTFOLIO SHIFTS
During the period, we trimmed exposure to technology stocks, for which
growth prospects are uncertain, and added to holdings in the consumer
non-durables sector. By country, we reduced our position in Australia
and Hong Kong while increasing exposure to Japanese equities.
In October, we shifted our position in Japan away from cyclical stocks
in favor of export-oriented equities, which we believed exhibited
greater fundamental strength and more attractive appreciation potential.
[Table at top of page entitled "SCORECARD." The header for the left
column is "INVESTMENT" and the header for the right column is "RECENT
PERFORMANCE...AND WHAT'S BEHIND THE NUMBERS." The first listing is
Nissan Motor followed by an up arrow with the phrase "New models prove
popular." The second listing is United Microelectronics followed by a
down arrow with the phrase "Weak corporate IT spending and slowing
consumer PC sales cut demand." The third listing is Samsung Electronics
followed by an up arrow with the phrase "Strong growth in three business
units."]
OUTLOOK
In the near term, we believe weak economic data worldwide and
uncertainty over Iraq will continue to put downward pressure on Pacific
Rim equities. We are especially cautious on our outlook for Japan, where
resistance to reform is preventing the government from making meaningful
progress.
"...we remain confident in
our ability to uncover
pockets of investment
opportunity in the
Pacific Rim..."
For investors to regain confidence and rekindle enthusiasm for equities,
a return to profitability and increased visibility regarding corporate
earnings in the fourth quarter and into 2003 is paramount. An
improvement in the economies of the United States and European countries
would help stimulate end-user demand for the products supplied by the
export-oriented economies of the Pacific Basin.
Nicholas-Applegate's bottom-up investment process emphasizes rigorous,
company-specific research. As a result, we remain confident in our
ability to uncover pockets of investment opportunity in the Pacific Rim,
despite challenging market conditions. Finally, we thank you for your
patience and support during what has been a challenging period for
investors.
This commentary reflects the views of the portfolio management team
through the end of the Fund's period discussed in this report. Of
course, the team's views are subject to change as market and other
conditions warrant.
International investing involves special risks such as political,
economic and currency risks and differences in accounting standards and
financial reporting.
1 Figures from Lipper, Inc. include reinvested dividends and do not take
into account sales charges. Actual load-adjusted performance is lower.
A LOOK AT
PERFORMANCE
For the period ended
October 31, 2002
The index used for
comparison is the
Morgan Stanley
Capital International
(MSCI) All Country
Pacific Free Index, an
unmanaged index
composed of compa-
nies in Australia, Japan
and certain other
Pacific Basin countries.
It is not possible to
invest in an index.
Class A Class B Class C Index
Inception date 9-8-87 3-7-94 3-1-99 --
Average annual returns with maximum sales charge (POP)
One year -8.88% -9.46% -6.57% -6.94%
Five years -5.01% -5.07% -- -5.54%
Ten years 0.35% -- -- -1.17%
Since inception -- -5.43% -0.84% --
Cumulative total returns with maximum sales charge (POP)
One year -8.88% -9.46% -6.57% -6.94%
Five years -22.67% -22.90% -- -24.78%
Ten years 3.59% -- -- -11.13%
Since inception -- -38.29% -3.03% --
Performance figures assume all distributions are reinvested. Returns
with maximum sales charge reflect a sales charge on Class A shares of 5%
and Class C shares of 1%, and the applicable contingent deferred sales
charge (CDSC) on Class B and Class C shares. The Class B shares' CDSC
declines annually between years 1-6 according to the following
schedule: 5, 4, 3, 3, 2, 1%. No sales charge will be assessed after the
sixth year. Class C shares held for less than one year are subject to a
1% CDSC. The return and principal value of an investment in the Fund
will fluctuate, so that shares, when redeemed, may be worth more or less
than the original cost. Index figures do not reflect sales charges and
would be lower if they did.
The returns reflect past results and should not be considered indicative
of future performance. The performance table above and the chart on the
next page do not reflect the deduction of taxes that a shareholder would
pay on fund distributions or the redemption of fund shares.
GROWTH OF
$10,000
This chart shows what happened to a hypothetical $10,000 investment in
Class A shares for the period indicated. For comparison, we've shown the
same investment in the Morgan Stanley Capital International (MSCI) All
Country Pacific Free Index.
Line chart with the heading "GROWTH OF $10,000." Within the chart are
three lines. The first line represents the value of the hypothetical
$10,000 investment made in the John Hancock Pacific Basin Equities Fund,
before sales charge, and is equal to $10,903 as of October 31, 2002. The
second line represents the value of the same hypothetical investment
made in the John Hancock Pacific Basin Equities Fund, after sales
charge, and is equal to $10,359 as of October 31, 2002. The third line
represents the Index and is equal to $8,887 as of October 31, 2002.
Class B 1 Class C 1
Period beginning 3-7-94 3-1-99
Without sales charge $6,171 $9,793
With maximum sales charge -- $9,695
Index $5,661 $8,248
Assuming all distributions were reinvested for the period indicated, the
chart above shows the value of a $10,000 investment in the Fund's Class
B and Class C shares, respectively, as of October 31, 2002. Performance
of the classes will vary based on the difference in sales charges paid
by shareholders investing in the different classes and the fee structure
of those classes.
1 No contingent deferred sales charge applicable.
FINANCIAL STATEMENTS
FUND'S
INVESTMENTS
Securities owned
by the Fund on
October 31, 2002
This schedule is divided into four main categories: common stocks,
preferred stocks, warrants and short-term investments. Common stocks and
preferred stocks are further broken down by country. Short-term
investments, which represent the Fund's cash position, are listed last.
SHARES ISSUER VALUE
COMMON STOCKS 91.44% $20,278,902
(Cost $21,610,154)
Australia 2.53% $561,138
22,600 Australia & New Zealand Banking Group Ltd.
(Banks -- Foreign) 236,185
47,563 Woolworths Ltd. (Retail) 324,953
Hong Kong 7.31% 1,621,076
118,000 ASM Pacific Technology Ltd. (Electronics) 229,210
92,000 China Mobile Ltd.* (Telecommunications) 225,889
92,500 CLP Holdings Ltd. (Utilities) 374,772
685,500 Dickson Concepts International Ltd. (Retail) 151,173
78,000 Henderson Land Development Co., Ltd. (Real Estate Operations) 237,018
435,500 Hongkong & Shanghai Hotels Ltd. (Leisure) 175,889
968,000 Tungtex Holdings Co., Ltd. (Textile) 227,125
Indonesia 2.79% 618,164
5,825,000 PT Bank Pan Indonesia Tbk (Banks -- Foreign) 107,286
5,255,500 Pt Bentoel Internasional Investama Tbk* (Tobacco) 71,174
3,690,500 PT Perusahaan Perkebunan London Sumatra Indonesia Tbk*
(Agricultural Operations) 113,954
124,500 PT Sepatu Bata Tbk (Retail) 242,795
249,000 PT Telekomunikasi Indonesia (Telecommunications) 82,955
Japan 54.56% 12,100,052
14,700 ABC-Mart, Inc. (Retail) 161,987
9,400 Aderans Co., Ltd. (Cosmetics & Personal Care) 204,481
6,600 Advantest Corp. (Electronics) 217,865
46,000 Alca Kogyo Co., Ltd. (Chemicals) 279,732
51,000 Asahi Glass Co., Ltd. (Building) 305,142
9,000 CANON, Inc. (Office) 332,055
4,200 Citizen Electronic Co., Ltd. (Electronics) 284,548
103 East Japan Railway Co. (Transport) 469,137
12,700 Fukuda Denshi Co., Ltd. (Medical) 234,283
4,300 Funai Electric Co., Ltd. (Electronics) 464,362
27,000 Hokkaido Electric Power Co., Inc. (Utilities) 344,911
7,700 Hoya Corp. (Electronics) 528,585
58,000 Jeol Ltd. (Instruments -- Scientific) 263,701
24,000 Kao Corp. (Cosmetics & Personal Care) 548,527
9,000 Konami Corp. (Computers) 214,513
9,120 Kose Corp. (Cosmetics & Personal Care) 282,139
52 Kubotek Corp. (Electronics) 42,446
118,000 Lion Corp. (Cosmetics & Personal Care) 492,188
47 Millea Holdings, Inc.* (Insurance) 351,033
8,300 Murata Manufacturing Co., Ltd. (Electronics) 392,270
2,200 Nintendo Co., Ltd. (Leisure) 211,901
70 Office Building Fund of Japan, Inc. (Real Estate Investment Trust) 338,830
89,000 Okamura Corp. (Office) 389,389
3,200 Otsuka Kagu Ltd. (Retail) 51,457
6,100 Plenus Co., Ltd. (Retail) 204,147
51,000 Sekisui Chemical Co., Ltd. (Building) 134,462
4,300 Shin-Etsu Chemical Co., Ltd. (Chemicals) 132,675
37,000 Shiseido Co., Ltd. (Cosmetics & Personal Care) 411,346
5,800 SMC Corp. (Machinery) 459,228
7,000 Sony Corp. (Electronics) 301,118
17 Sparx Asset Management Co., Ltd. (Finance) 277,528
70,000 Sumitomo Mitsu Banking Corp. (Banks -- Foreign) 289,691
6,800 Suruga Co., Ltd. (Manufacturing) 129,328
5,100 Taiyo Ink Manufacturing Co., Ltd. (Chemicals) 154,028
14,000 Takeda Chemical Industries, Ltd. (Medical) 581,667
15,900 THK Co., Ltd. (Machinery) 161,972
16,300 Towa Corp. (Manufacturing) 106,839
13,500 Toyota Motor Corp. (Automobile / Trucks) 328,381
7,900 Uni-Charm Corp. (Cosmetics & Personal Care) 292,115
19,800 Urban Corp. (Real Estate Operations) 141,579
27,500 Yamaichi Electronics Co., Ltd. (Electronics) 250,061
14,000 Yamato Transport Co., Ltd. (Transport) 199,412
9,900 Yushin Precision Equipment Co., Ltd. (Machinery) 138,993
Malaysia 2.19% 485,448
103,200 Malayan Banking Berhad (Banks -- Foreign) 224,053
59,000 Telekom Malaysia Berhad (Telecommunications) 119,553
77,000 Unisem (M) Berhad (Electronics) 141,842
Singapore 3.34% 741,576
35,000 Singapore Press Holdings Ltd. (Media) 392,479
46,000 United Overseas Bank Ltd. (Banks -- Foreign) 349,097
South Korea 10.76% 2,386,124
13,088 INTOPS Co., Ltd.* (Telecommunications) 171,320
35,310 Jahwa Electronics Co., Ltd. (Electronics) 234,144
2,450 Kumgang Korea Chemical Co., Ltd. (Building) 241,280
10,160 LG Electronics Investment Ltd. (Diversified Operations) 111,731
7,060 LG Electronics, Inc.* (Electronics) 214,378
12,700 LG Household & Health Care Ltd. (Soap & Cleaning Preparations) 187,608
22,340 Pantech Co., Ltd.* (Telecommunications) 237,426
4,830 Samsung Electro Mechanics Co., Ltd. (Electronics) 183,726
470 Samsung Electronics Co., Ltd. (Electronics) 133,073
23,100 SK Telecom Co., Ltd. ADR (Telecommunications) 463,617
11,010 You Eal Electronics Co., Ltd. (Telecommunications) 207,821
Taiwan 7.96% 1,765,324
470,000 AU Optronics Corp.* (Electronics) 296,159
187,000 Benq Corp. (Telecommunications) 267,950
10,000 Compeq Manufacturing Co., Ltd.* (Electronics) 7,625
309,000 Evergreen Marine Corp. (Transport) 127,139
920 Formosa Chemicals & Fibre Corp. (Chemicals) 829
211,000 Fubon Financial Holding Co., Ltd,* (Diversified Operations) 183,953
14,400 Hon Hai Precision Industry Co., Ltd. (Electronics) 51,998
24,000 MediaTek, Inc. (Electronics) 224,428
213,400 Test-Rite International Co., Ltd. (Diversified Operations) 157,187
338,182 United Microelectronics Corp.* (Electronics) 245,207
282,000 Wan Hai Lines Ltd. (Transport) 202,849
PREFERRED STOCKS 1.18% $261,108
(Cost $112,944)
South Korea 1.18%
1,940 Samsung Electronics Co., Ltd. (Electronics) 261,108
WARRANTS 2.99% $663,667
(Cost $732,150)
India 2.99% 663,667
98,338 Hindustan Lever Ltd.* (Soap & Cleaning Preparations) 326,099
26,529 ITC Ltd.* (Tobacco) 337,568
INTEREST PAR VALUE
ISSUER, DESCRIPTION, MATURITY DATE RATE (000s OMITTED) VALUE
SHORT-TERM INVESTMENTS 0.51% $113,000
(Cost $113,000)
Joint Repurchase Agreement 0.51%
Investment in a joint repurchase agreement
transaction with Barclays Capital, Inc. --
Dated 10-31-02, due 11-01-02 (Secured by
U.S. Treasury Inflation Indexed Note, 3.00%
due 07-15-12) 1.90% $113 113,000
TOTAL INVESTMENTS 96.12% $21,316,677
OTHER ASSETS AND LIABILITIES, NET 3.88% $860,245
TOTAL NET ASSETS 100.00% $22,176,922
* Non-income producing security.
The percentage shown for each investment category is the total value of
that category as a percentage of the net assets of the Fund.
See notes to
financial statements.
PORTFOLIO
CONCENTRATION
October 31, 2002
(unaudited)
This table shows
the percentages
of the Fund's
investments
aggregated
by various
industries.
VALUE AS A PERCENTAGE
INVESTMENT CATEGORIES OF NET ASSETS
Agricultural Operations 0.51%
Automobile/Trucks 1.48
Banks -- Foreign 5.44
Building 3.07
Chemicals 2.56
Computers 0.97
Cosmetics & Personal Care 10.06
Diversified Operations 2.04
Electronics 21.21
Finance 1.25
Instruments -- Scientific 1.19
Insurance 1.58
Leisure 1.75
Machinery 3.43
Manufacturing 1.07
Media 1.77
Medical 3.68
Office 3.25
Real Estate Investment Trust 1.53
Real Estate Operations 1.71
Retail 5.12
Soap & Cleaning Preparations 2.32
Telecommunications 8.01
Textile 1.02
Tobacco 1.84
Transport 4.50
Utilities 3.25
Short-term investments 0.51
Total investments 96.12%
See notes to
financial statements.
ASSETS AND
LIABILITIES
October 31, 2002
This Statement
of Assets and
Liabilities is the
Fund's balance
sheet. It shows
the value of
what the Fund
owns, is due
and owes. You'll
also find the
net asset value
and the maximum
offering price per
share.
ASSETS
Investments at value (cost $22,568,248) $21,316,677
Cash 128
Foreign cash at value (cost $1,008,054) 1,012,267
Receivable for investments sold 590,942
Receivable for shares sold 9,100
Dividends and interest receivable 43,895
Other assets 4,144
Total assets 22,977,153
LIABILITIES
Payable for investments purchased 621,438
Payable for shares repurchased 13,900
Payable to affiliates 71,616
Other payables and accrued expenses 93,277
Total liabilities 800,231
NET ASSETS
Capital paid-in 37,001,815
Accumulated net realized loss on investments
and foreign currency transactions (13,573,676)
Net unrealized depreciation of investments and translation
of assets and liabilities in foreign currencies (1,248,129)
Accumulated net investment loss (3,088)
Net assets $22,176,922
NET ASSET VALUE PER SHARE
Based on net asset values and shares outstanding
Class A ($10,764,571 [DIV] 1,165,914 shares) $9.23
Class B ($10,455,247 [DIV] 1,198,673 shares) $8.72
Class C ($957,104 [DIV] 109,821 shares) $8.72
MAXIMUM OFFERING PRICE PER SHARE
Class A 1 ($9.23 [DIV] 95%) $9.72
Class C ($8.72 [DIV] 99%) $8.81
1 On single retail sales of less than $50,000. On sales of $50,000 or
more and on group sales the offering price is reduced.
See notes to
financial statements.
OPERATIONS
For the year ended
October 31, 2002
This Statement
of Operations
summarizes the
Fund's investment
income earned
and expenses
incurred in
operating the
Fund. It also
shows net gains
(losses) for the
period stated.
INVESTMENT INCOME
Dividends (net of foreign withholding taxes of $66,935) $400,267
Interest (including securities lending income of $2,363) 26,598
Total investment income 426,865
EXPENSES
Investment management fee 216,195
Class A distribution and service fee 38,120
Class B distribution and service fee 136,466
Class C distribution and service fee 6,713
Transfer agent fee 195,100
Custodian fee 126,457
Auditing fee 31,300
Registration and filing fee 31,124
Accounting and legal services fee 5,706
Interest expense 4,078
Miscellaneous 2,520
Trustee's fee 1,600
Total expenses 795,379
Net investment loss (368,514)
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on
Investments 665,130
Foreign currency transactions (188,772)
Change in unrealized appreciation (depreciation) of
Investments (1,100,142)
Translation of assets and liabilities in foreign currencies 5,616
Net realized and unrealized loss (618,168)
Decrease in net assets from operations ($986,682)
See notes to
financial statements.
CHANGES IN
NET ASSETS
This Statement
of Changes in
Net Assets
shows how the
value of the
Fund's net assets
has changed
since the end of
the previous
period. The dif-
ference reflects
earnings less
expenses, any
investment gains
and losses, distri-
butions paid to
shareholders, if
any, and any
increase or
decrease in
money share-
holders invested
in the Fund.
YEAR YEAR
ENDED ENDED
10-31-01 10-31-02
INCREASE (DECREASE) IN NET ASSETS
From operations
Net investment loss ($389,339) ($368,514)
Net realized gain (loss) (13,951,304) 476,358
Change in net unrealized appreciation
(depreciation) 588,982 (1,094,526)
Decrease in net assets
resulting from operations (13,751,661) (986,682)
From Fund share transactions (13,643,041) (2,622,422)
NET ASSETS
Beginning of period 53,180,728 25,786,026
End of period 1 $25,786,026 $22,176,922
1 Includes accumulated net investment loss of $3,183 and $3,088, respectively.
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS A SHARES
The Financial Highlights show how the Fund's net asset value for a share
has changed since the end of the previous period.
PERIOD ENDED 10-31-98 10-31-99 10-31-00 10-31-01 10-31-02
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $11.63 $8.76 $14.46 $14.02 $9.62
Net investment income (loss) 1 0.02 (0.09) (0.14) (0.08) (0.10)
Net realized and unrealized
gain (loss) on investments (2.89) 5.79 0.08 (4.32) (0.29)
Total from investment
operations (2.87) 5.70 (0.06) (4.40) (0.39)
Less distributions
From net investment income -- -- (0.37) -- --
In excess of net investment income -- -- (0.01) -- --
-- -- (0.38) -- --
Net asset value,
end of period $8.76 $14.46 $14.02 $9.62 $9.23
Total return 2 (%) (24.68) 65.07 (0.57) (31.38) (4.05)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $15 $33 $23 $12 $11
Ratio of expenses to
average net assets (%) 2.46 2.37 2.06 2.67 2.57
Ratio of net investment
income (loss) to average
net assets (%) 0.22 (0.77) (0.81) (0.64) (0.99)
Portfolio turnover (%) 230 174 258 448 293
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS B SHARES
PERIOD ENDED 10-31-98 10-31-99 10-31-00 10-31-01 10-31-02
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $11.32 $8.47 $13.89 $13.43 $9.15
Net investment loss 1 (0.04) (0.17) (0.25) (0.15) (0.17)
Net realized and unrealized
gain (loss) on investments (2.81) 5.59 0.09 (4.13) (0.26)
Total from investment
operations (2.85) 5.42 (0.16) (4.28) (0.43)
Less distributions
From net investment income -- -- (0.29) -- --
In excess of net investment income -- -- (0.01) -- --
-- -- (0.30) -- --
Net asset value,
end of period $8.47 $13.89 $13.43 $9.15 $8.72
Total return 2 (%) (25.18) 63.99 (1.30) (31.87) (4.70)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $13 $37 $29 $14 $10
Ratio of expenses to
average net assets (%) 3.16 3.07 2.77 3.37 3.27
Ratio of net investment
loss to average
net assets (%) (0.48) (1.47) (1.51) (1.36) (1.69)
Portfolio turnover (%) 230 174 258 448 293
See notes to
financial statements.
FINANCIAL
HIGHLIGHTS
CLASS C SHARES
PERIOD ENDED 10-31-99 3 10-31-00 10-31-01 10-31-02
PER SHARE OPERATING PERFORMANCE
Net asset value,
beginning of period $9.09 $13.89 $13.43 $9.15
Net investment loss 1 (0.13) (0.24) (0.17) (0.17)
Net realized and unrealized
gain (loss) on investments 4.93 0.08 (4.11) (0.26)
Total from investment
operations 4.80 (0.16) (4.28) (0.43)
Less distributions
From net investment income -- (0.29) -- --
In excess of net investment income -- (0.01) -- --
-- (0.30) -- --
Net asset value,
end of period $13.89 $13.43 $9.15 $8.72
Total return 2 (%) 52.81 4 (1.30) (31.87) (4.70)
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period
(in millions) $1 $1 -- 6 $1
Ratio of expenses to
average net assets (%) 3.14 5 2.77 3.37 3.27
Ratio of net investment
loss to average net assets (%) (1.76) 5 (1.48) (1.48) (1.69)
Portfolio turnover (%) 174 258 448 293
1 Based on the average of the shares outstanding.
2 Assumes dividend reinvestment and does not reflect the effect of sales
charges.
3 Class C shares began operations on 3-1-99.
4 Not annualized.
5 Annualized.
6 Less than $500,000.
See notes to
financial statements.
NOTES TO
STATEMENTS
NOTE A
Accounting policies
John Hancock Pacific Basin Equities Fund (the "Fund") is a diversified
series of John Hancock World Fund, an open-end investment management
company registered under the Investment Company Act of 1940. The
investment objective of the Fund is to seek long-term capital
appreciation.
The Trustees have authorized the issuance of multiple classes of shares
of the Fund, designated as Class A, Class B and Class C shares. The
shares of each class represent an interest in the same portfolio of
investments of the Fund and have equal rights as to voting, redemptions,
dividends and liquidation, except that certain expenses, subject to the
approval of the Trustees, may be applied differently to each class of
shares in accordance with current regulations of the Securities and
Exchange Commission and the Internal Revenue Service. Shareholders of a
class that bears distribution and service expenses under terms of a
distribution plan have exclusive voting rights to that distribution
plan.
Significant accounting policies of the Fund are as follows:
Valuation of investments
Securities in the Fund's portfolio are valued on the basis of market
quotations, valuations provided by independent pricing services or, if
quotations are not readily available, or the value has been materially
affected by events occurring after the closing of a foreign market, at
fair value as determined in good faith in accordance with procedures
approved by the Trustees. Short-term debt investments maturing within 60
days are valued at amortized cost, which approximates market value. All
portfolio transactions initially expressed in terms of foreign
currencies have been translated into U.S. dollars as described in
"Foreign currency translation" below.
Joint repurchase agreement
Pursuant to an exemptive order issued by the Securities and Exchange
Commission, the Fund, along with other registered investment companies
having a management contract with John Hancock Advisers, LLC (the
"Adviser"), a wholly owned subsidiary of The Berkeley Financial Group,
LLC, may participate in a joint repurchase agreement transaction.
Aggregate cash balances are invested in one or more large repurchase
agreements, whose underlying securities are obligations of the U.S.
government and/or its agencies. The Fund's custodian bank receives
delivery of the underlying securities for the joint account on the
Fund's behalf. The Adviser is responsible for ensuring that the
agreement is fully collateralized at all times.
Foreign currency translation
All assets or liabilities initially expressed in terms of foreign
currencies are translated into U.S. dollars based on London currency
exchange quotations as of 5:00 P.M., London time, on the date of any
determination of the net asset value of the Fund. Transactions affecting
statement of operations accounts and net realized gain (loss) on
investments are translated at the rates prevailing at the dates of the
transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales
of foreign currency, currency gains or losses realized between the trade
and settlement dates on securities transactions and the difference
between the amounts of dividends, interest and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains
and losses arise from changes in the value of assets and liabilities,
other than investments in securities, resulting from changes in the
exchange rates.
Investment transactions
Investment transactions are recorded as of the date of purchase, sale or
maturity. Net realized gains and losses on sales of investments are
determined on the identified cost basis. Capital gains realized on some
foreign securities are subject to foreign taxes, which are accrued as
applicable.
Class allocations
Income, common expenses and realized and unrealized gains (losses) are
determined at the fund level and allocated daily to each class of shares
based on the appropriate net assets of the respective classes. Distribution
and service fees, if any, are calculated daily at the class level based on
the appropriate net assets of each class and the specific expense rate(s)
applicable to each class.
Expenses
The majority of the expenses are directly identifiable to an individual
fund. Expenses that are not readily identifiable to a specific fund will
be allocated in such a manner as deemed equitable, taking into
consideration, among other things, the nature and type of expense and
the relative sizes of the funds.
Bank borrowings
The Fund is permitted to have bank borrowings for temporary or emergency
purposes, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. The Fund has entered into a
syndicated line of credit agreement with various banks. This agreement
enables the Fund to participate with other funds managed by the Adviser in
an unsecured line of credit with banks, which permit borrowings of up to
$475 million, collectively. Interest is charged to each fund, based on its
borrowing. In addition, a commitment fee is charged to each fund based on
the average daily unused portion of the line of credit and is allocated
among the participating funds. The Fund had no borrowing activity under the
line of credit during the year ended October 31, 2002.
Securities lending
The Fund may lend securities to certain qualified brokers who pay the Fund
negotiated lender fees. These fees are included in interest income. The
loans are collateralized at all times with cash or securities with a market
value at least equal to the market value of the securities on loan. As with
other extensions of credit, the Fund may bear the risk of delay of the
loaned securities in recovery or even loss of rights in the collateral,
should the borrower of the securities fail financially. There were no
securities loaned on October 31, 2002.
Forward foreign currency exchange contracts
The Fund may enter into forward foreign currency exchange contracts as a
hedge against the effect of fluctuations in currency exchange rates. A
forward foreign currency exchange contract involves an obligation to
purchase or sell a specific currency at a future date at a set price.
The aggregate principal amounts of the contracts are marked to market
daily at the applicable foreign currency exchange rates. Any resulting
unrealized gains and losses are included in the determination of the
Fund's daily net assets. The Fund records realized gains and losses at
the time the forward foreign currency exchange contract is closed out.
Risks may arise upon entering these contracts from the potential
inability of counterparties to meet the terms of the contract and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar. These contracts involve market or credit risk in excess
of the unrealized gain or loss reflected in the Fund's statement of
assets and liabilities.
The Fund may also purchase and sell forward contracts to facilitate the
settlement of foreign currency denominated portfolio transactions, under
which it intends to take delivery of the foreign currency. Such
contracts normally involve no market risk if they are offset by the
currency amount of the underlying transaction.
The Fund had no open forward foreign currency exchange contracts on
October 31, 2002.
Federal income taxes
The Fund qualifies as a "regulated investment company" by complying with
the applicable provisions of the Internal Revenue Code and will not be
subject to federal income tax on taxable income that is distributed to
shareholders. Therefore, no federal income tax provision is required.
For federal income tax purposes, the Fund has $13,280,111 of a capital
loss carryforward available, to the extent provided by regulations, to
offset future net realized capital gains. To the extent that such
carryforward is used by the Fund, no capital gain distributions will be
made. The entire amount of the loss carryforward expires October 31,
2009.
Dividends, interest and distributions
Dividend income on investment securities is recorded on the ex-dividend
date or, in the case of some foreign securities, on the date thereafter
when the Fund identifies the dividend. Interest income on investment
securities is recorded on the accrual basis. Foreign income may be subject
to foreign withholding taxes, capital gains and repatriation taxes imposed
by certain countries in which the Fund invests, which are accrued as
applicable.
The Fund records distributions to shareholders from net investment
income and net realized gains on the ex-dividend date. Distributions
paid by the Fund with respect to each class of shares are calculated in
the same manner, at the same time and are in the same amount, except for
the effect of expenses that may be applied differently to each class.
As of October 31, 2002, there were no distributable earnings on a tax basis.
Such distributions and distributable earnings, on a tax basis, are
determined in conformity with income tax regulations, which may differ
from accounting principles generally accepted in the United States of
America. Distributions in excess of tax basis earnings and profits, if
any, are reported in the Fund's financial statements as a return of
capital.
Use of estimates
The preparation of these financial statements, in accordance with
accounting principles generally accepted in the United States of
America, incorporates estimates made by management in determining the
reported amount of assets, liabilities, revenues and expenses of the
Fund. Actual results could differ from these estimates.
NOTE B
Management fee and transactions with affiliates and others
The Fund has an investment management contract with the Adviser. Under
the investment management contract, the Fund pays a quarterly management
fee to the Adviser equivalent, on an annual basis, to the sum of: (a)
0.80% of the first $200,000,000 of the Fund's average daily net asset
value and (b) 0.70% of the Fund's average daily net asset value in
excess of $200,000,000. The Adviser has a subadvisory agreement
Nicholas-Applegate Capital Management LP. The Fund is not responsible
for payment of the subadvisory fees.
The Fund has Distribution Plans with John Hancock Funds, LLC ("JH
Funds"), a wholly owned subsidiary of the Adviser. The Fund has adopted
Distribution Plans with respect to Class A, Class B and Class C pursuant
to Rule 12b-1 under the Investment Company Act of 1940 to reimburse JH
Funds for the services it provides as distributor of shares of the Fund.
Accordingly, the Fund makes monthly payments to JH Funds at an annual
rate not to exceed 0.30% of Class A average daily net assets and 1.00%
of Class B and Class C average daily net assets. A maximum of 0.25% of
such payments may be service fees as defined by the Conduct Rules of the
National Association of Securities Dealers. Under the Conduct Rules,
curtailment of a portion of the Fund's 12b-1 payments could occur under
certain circumstances.
Class A and Class C shares are assessed up-front sales charges. During
the year ended October 31, 2002, JH Funds received net up-front sales
charges of $17,984 with regard to sales of Class A shares. Of this
amount, $2,504 was retained and used for printing prospectuses,
advertising, sales literature and other purposes, $9,850 was paid as
sales commissions to unrelated broker-dealers and $5,630 was paid as
sales commissions to sales personnel of Signator Investors, Inc.
("Signator Investors"), a related broker-dealer. The Adviser's indirect
parent, John Hancock Life Insurance Company ("JHLICo"), is the indirect
sole shareholder of Signator Investors. During the year ended October
31, 2002, JH Funds received net up-front sales charges of $11,955 with
regard to sales of Class C shares. Of this amount, $11,954 was paid as
sales commissions to unrelated broker-dealers and $1 was paid as sales
commissions to sales personnel of Signator Investors.
Class B shares that are redeemed within six years of purchase are
subject to a contingent deferred sales charge ("CDSC") at declining
rates, beginning at 5.00% of the lesser of the current market value at
the time of redemption or the original purchase cost of the shares being
redeemed. Class C shares that are redeemed within one year of purchase
are subject to a CDSC at a rate of 1.00% of the lesser of the current
market value at the time of redemption or the original purchase cost of
the shares being redeemed. Proceeds from the CDSCs are paid to JH Funds
and are used in whole or in part to defray its expenses for providing
distribution related services to the Fund in connection with the sale of
Class B and Class C shares. During the year ended October 31, 2002,
CDSCs received by JH Funds amounted to $34,186 for Class B shares and
$1,860 for Class C shares.
The Fund has a transfer agent agreement with John Hancock Signature
Services, Inc., an indirect subsidiary of JHLICo. The Fund pays a
monthly transfer agent fee based on the number of shareholder accounts,
plus certain out-of-pocket expenses.
Effective January 1, 2003, the Fund will pay a monthly transfer agent
fee at an annual rate of 0.05% of the average daily net asset value,
plus a fee based on the number of shareholder accounts and reimbursement
for certain out-of-pocket expenses.
The Fund has an agreement with the Adviser to perform necessary tax,
accounting and legal services for the Fund. The compensation for the
year was at an annual rate of 0.02% of the average net assets of the
Fund.
Ms. Maureen R. Ford and Mr. John M. DeCiccio are directors and/or
officers of the Adviser and/or its affiliates, as well as Trustees of
the Fund. The compensation of unaffiliated Trustees is borne by the
Fund. The unaffiliated Trustees may elect to defer for tax purposes
their receipt of this compensation under the John Hancock Group of Funds
Deferred Compen sation Plan. The Fund makes investments into other John
Hancock funds, as applicable, to cover its liability for the deferred
compensation. Investments to cover the Fund's deferred compensation
liability are recorded on the Fund's books as an other asset. The
deferred compensation liability and the related other asset are always
equal and are marked to market on a periodic basis to reflect any income
earned by the investment as well as any unrealized gains or losses. The
Deferred Compensation Plan investments had no impact on the operations
of the Fund.
NOTE C
Fund share transactions
This listing illustrates the number of Fund shares sold and repurchased
during the last two periods, along with the corresponding dollar value.
The Fund has an unlimited number of shares authorized with no par value.
YEAR ENDED 10-31-01 YEAR ENDED 10-31-02
SHARES AMOUNT SHARES AMOUNT
CLASS A SHARES
Sold 1,924,148 $23,188,386 1,121,272 $11,813,825
Repurchased (2,348,182) (28,626,186) (1,180,930) (12,396,555)
Net decrease (424,034) ($5,437,800) (59,658) ($582,730)
CLASS B SHARES
Sold 398,606 $4,406,414 508,893 $5,177,571
Repurchased (1,080,841) (12,317,177) (794,841) (7,929,140)
Net decrease (682,235) ($7,910,763) (285,948) ($2,751,569)
CLASS C SHARES
Sold 103,500 $1,182,673 369,684 $3,661,327
Repurchased (130,058) (1,477,151) (304,259) (2,949,450)
Net increase (decrease) (26,558) ($294,478) 65,425 $711,877
NET DECREASE (1,132,827) ($13,643,041) (280,181) ($2,622,422)
NOTE D
Investment transactions
Purchases and proceeds from sales of securities, other than short-term
securities and obligations of the U.S. government, during the year ended
October 31, 2002, aggregated $74,526,474 and $77,942,716, respectively.
The cost of investments owned on October 31, 2002, including short-term
investments, for federal income tax purposes was $22,861,813. Gross
unrealized appreciation and depreciation of investments aggregated
$1,035,352 and $2,580,488, respectively, resulting in net unrealized
depreciation of $1,545,136. The difference between book basis and tax
basis net unrealized depreciation, of investments is attributable
primarily to the tax deferral of losses on wash sales.
NOTE E
Reclassification of accounts
During the year ended October 31, 2002, the Fund reclassified amounts to
reflect a decrease in accumulated net realized loss on investments of
$188,830, a decrease in accumulated net investment loss of $368,609 and
a decrease in capital paid-in of $557,439. This represents the amount
necessary to report these balances on a tax basis, excluding certain
temporary differences, as of October 31, 2002. Additional adjustments
may be needed in subsequent reporting periods. These reclassifications,
which have no impact on the net asset value of the Fund, are primarily
attributable to the treatment of net operating loss and foreign currency
gains and losses in the computation of distributable income and capital
gains under federal tax rules versus accounting principles generally
accepted in the United States of America. The calculation of net
investment loss per share in the financial highlights excludes these
adjustments.
AUDITORS'
REPORT
Report of
Pricewaterhouse-
Coopers LLP,
Independent
Auditors
To the Board of Trustees and Shareholders
of John Hancock Pacific Basin Equities Fund,
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of the
John Hancock Pacific Basin Equities Fund (a series of John Hancock World
Fund) (the "Fund") at October 31, 2002, and the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in
the United States of America, which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities owned at October
31, 2002 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 13, 2002
TAX
INFORMATION
Unaudited
For federal income tax purposes, the following information is furnished
with respect to the distributions of the Fund, if any, paid during its
taxable year ended October 31, 2002.
If the Fund paid dividends during the fiscal year, shareholders will be
mailed a 2002 U.S. Treasury Department Form 1099-DIV in January 2003.
This will reflect the total of all distributions that are taxable for
the calendar year 2002.
TRUSTEES
& OFFICERS
This chart provides information about the Trustees and Officers who
oversee your John Hancock fund. Officers elected by the Trustees manage
the day-to-day operations of the Fund and execute policies formulated by
the Trustees.
INDEPENDENT TRUSTEES
NUMBER OF
NAME, AGE TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
Dennis S. Aronowitz, Born: 1931 1987 31
Professor of Law, Emeritus, Boston University School of Law
(as of 1996); Director, Brookline Bancorp.
Richard P. Chapman, Jr., Born: 1935 1987 31
President and Chief Executive Officer, Brookline Bancorp Inc. (lending)
(since 1972); Trustee, Northeastern University (education); Chairman
and Director, Lumber Insurance Co. (insurance) (until 2000); Chairman
and Director, Northeast Retirement Services, Inc. (retirement administration)
(since 1998).
William J. Cosgrove, Born: 1933 1991 31
Vice President, Senior Banker and Senior Credit Officer, Citibank, N.A.
(retired 1991); Executive Vice President, Citadel Group Representatives,
Inc.; Director, Hudson City Bancorp; Trustee, Scholarship Fund for
Inner City Children (since 1986).
Richard A. Farrell 2, Born: 1932 1994 31
President, Farrell, Healer & Co., Inc. (venture capital management firm)
(since 1980) and General Partner of the Venture Capital Fund of NE
(since 1980); Trustee, Marblehead Savings Bank (since 1994); prior to
1980, headed the venture capital group at Bank of Boston Corporation.
Gail D. Fosler 2, Born: 1947 1994 31
Senior Vice President and Chief Economist, The Conference Board
(non-profit economic and business research) (since 1989); Director, Unisys
Corp. (since 1993); Director, H.B. Fuller Company (since 1992) and
DBS Holdings (Singapore) (banking and financial services) (since 1999);
Director, National Bureau of Economic Research (academic) (since 1989);
Director, Baxter International (medical health care) (since 2001).
William F. Glavin, Born: 1932 1996 31
President Emeritus, Babson College (as of 1998); Vice Chairman, Xerox
Corporation (until 1989); Director, Reebok, Inc. (until 2002) and Inco Ltd.
(until 2002).
Patti McGill Peterson, Born: 1943 1996 39
Executive Director, Council for International Exchange of Scholars (since
1998), Vice President, Institute of International Education (since 1998);
Senior Fellow, Cornell Institute of Public Affairs, Cornell University (until
1997); President Emerita of Wells College and St. Lawrence University;
Director, Niagara Mohawk Power Corporation (electric utility).
John A. Moore 2, Born: 1939 1996 39
President and Chief Executive Officer, Institute for Evaluating Health
Risks, (nonprofit institution) (until 2001); Senior Scientist, Sciences
International (health research) (since 1998); Principal, Hollyhouse
(consulting) (since 2000); Director, CIIT (nonprofit research) (since 2002).
John W. Pratt, Born: 1931 1996 31
Professor of Business Administration Emeritus, Harvard University
Graduate School of Business Administration (as of 1998).
INTERESTED TRUSTEES 3
NAME, AGE NUMBER OF
POSITION(S) HELD WITH FUND TRUSTEE JOHN HANCOCK
PRINCIPAL OCCUPATION(S) AND OTHER OF FUND FUNDS OVERSEEN
DIRECTORSHIPS DURING PAST 5 YEARS SINCE 1 BY TRUSTEE
John M. DeCiccio, Born: 1948 2001 61
Trustee
Executive Vice President and Chief Investment Officer, John Hancock
Financial Services, Inc.; Director, Executive Vice President and Chief
Investment Officer, John Hancock Life Insurance Company; Chairman of
the Committee of Finance of John Hancock Life Insurance Company;
Director, John Hancock Subsidiaries, LLC, Hancock Natural Resource
Group, Independence Investment LLC, Independence Fixed Income LLC,
John Hancock Advisers, LLC (the "Adviser") and The Berkeley Financial
Group, LLC ("The Berkeley Group"), John Hancock Funds, LLC ("John
Hancock Funds"), Massachusetts Business Development Corporation;
Director, John Hancock Insurance Agency, Inc. ("Insurance Agency, Inc.")
(until 1999) and John Hancock Signature Services, Inc. ("Signature
Services") (until 1997).
Maureen R. Ford, Born: 1955 2000 61
Trustee, Chairman, President and Chief Executive Officer
Executive Vice President, John Hancock Financial Services, Inc., John
Hancock Life Insurance Company; Chairman, Director, President and
Chief Executive Officer, the Adviser and The Berkeley Group; Chairman,
Director and Chief Executive Officer, John Hancock Funds; Chairman,
Director and Chief Executive Officer, Sovereign Asset Management
Corporation ("SAMCorp."); Director, Independence Investment LLC,
Independence Fixed Income LLC and Signature Services; Senior Vice
President, MassMutual Insurance Co. (until 1999).
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NAME, AGE
POSITION(S) HELD WITH FUND OFFICER
PRINCIPAL OCCUPATION(S) AND OF FUND
DIRECTORSHIPS DURING PAST 5 YEARS SINCE
William L. Braman, Born: 1953 2000
Executive Vice President and Chief Investment Officer
Executive Vice President and Chief Investment Officer, the Adviser and each of the John
Hancock funds; Director, SAMCorp., Executive Vice President and Chief Investment
Officer, Baring Asset Management, London UK (until 2000).
Richard A. Brown, Born: 1949 2000
Senior Vice President and Chief Financial Officer
Senior Vice President, Chief Financial Officer and Treasurer, the Adviser, John Hancock
Funds, and The Berkeley Group; Second Vice President and Senior Associate Controller,
Corporate Tax Department, John Hancock Financial Services, Inc. (until 2001).
Thomas H. Connors, Born: 1959 1992
Vice President and Compliance Officer
Vice President and Compliance Officer, the Adviser and each of the John Hancock funds;
Vice President, John Hancock Funds.
William H. King, Born: 1952 1988
Vice President and Treasurer
Vice President and Assistant Treasurer, the Adviser; Vice President and Treasurer of each of
the John Hancock funds; Assistant Treasurer of each of the John Hancock funds (until 2001).
Susan S. Newton, Born: 1950 1987
Senior Vice President, Secretary and Chief Legal Officer
Senior Vice President, Secretary and Chief Legal Officer, SAMCorp., the Adviser and each
of the John Hancock funds, John Hancock Funds and The Berkeley Group; Vice President,
Signature Services (until 2000); Director, Senior Vice President and Secretary, NM Capital.
The business address for all Trustees and Officers is 101 Huntington
Avenue, Boston, Massachusetts 02199.
The Statement of Additional Information of the Fund includes additional
information about members of the Board of Trustees of the Fund and is
available, without charge, upon request, by calling 1-800-225-5291.
1 Each Trustee serves until resignation, retirement age or until his or
her successor is elected.
2 Member of Audit Committee.
3 Interested Trustees hold positions with the Fund's investment adviser,
underwriter and certain other affiliates.
OUR FAMILY
OF FUNDS
- -------------------------------------------------------
Equity Balanced Fund
Classic Value Fund
Core Equity Fund
Focused Equity Fund
Growth Trends Fund
Large Cap Equity Fund
Large Cap Growth Fund
Large Cap Spectrum Fund
Mid Cap Growth Fund
Multi Cap Growth Fund
Small Cap Equity Fund
Small Cap Growth Fund
Sovereign Investors Fund
U.S. Global Leaders Growth Fund
- -------------------------------------------------------
Sector Biotechnology Fund
Financial Industries Fund
Health Sciences Fund
Real Estate Fund
Regional Bank Fund
Technology Fund
- -------------------------------------------------------
Income Bond Fund
Government Income Fund
High Income Fund
High Yield Bond Fund
Investment Grade Bond Fund
Strategic Income Fund
- -------------------------------------------------------
International European Equity Fund
Global Fund
International Fund
Pacific Basin Equities Fund
- -------------------------------------------------------
Tax-Free Income California Tax-Free Income Fund
High Yield Municipal Bond Fund
Massachusetts Tax-Free Income Fund
New York Tax-Free Income Fund
Tax-Free Bond Fund
- -------------------------------------------------------
Money Market Money Market Fund
U.S. Government Cash Reserve
ELECTRONIC
DELIVERY
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FOR YOUR
INFORMATION
INVESTMENT ADVISER
John Hancock Advisers, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
SUBADVISER
Nicholas-Applegate Capital Management LP
600 West Broadway
San Diego, California 92101
PRINCIPAL DISTRIBUTOR
John Hancock Funds, LLC
101 Huntington Avenue
Boston, Massachusetts 02199-7603
CUSTODIAN
The Bank of New York
One Wall Street
New York, New York 10286
TRANSFER AGENT
John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, Massachusetts 02217-1000
LEGAL COUNSEL
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109-1803
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, Massachusetts 02110
HOW TO
CONTACT US
On the Internet www.jhfunds.com
By regular mail John Hancock Signature Services, Inc.
1 John Hancock Way, Suite 1000
Boston, MA 02217-1000
By express mail John Hancock Signature Services, Inc.
Attn: Mutual Fund Image Operations
529 Main Street
Charlestown, MA 02129
Customer service representatives 1-800-225-5291
24-hour automated information 1-800-338-8080
TDD line 1-800-554-6713
[A 1 1/2" x 1/2" John Hancock (Signature) logo in upper left hand corner.
A tag line below reads "JOHN HANCOCK FUNDS."]
1-800-225-5291
1-800-554-6713 (TDD)
1-800-338-8080 EASI-Line
www.jhfunds.com
Now available: electronic delivery
www.jhancock.com/funds/edelivery
This report is for the information of
the shareholders of the John Hancock
Pacific Basin Equities Fund.
5800A 10/02
12/02
John Hancock International Fund
Pro-forma Statement of Assets and Liabilities
April 30, 2003
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
INTERNATIONAL PAC BASIN PRO FORMA
FUND * FUND ADJUSTMENTS COMBINED
-------------- ------------ ----------- -------------
Assets:
Investments at value
(cost - $51,383,833, $17,913,448 and
$69,297,281, respectively) $ 54,765,591 $ 16,635,771 $ -- $ 71,401,362
Cash 1,263 670 -- 1,933
Foreign cash at value
(cost - $25,359, $527,101 and
$552,460, respectively) 25,359 528,259 -- 553,618
Receivable for investments sold 16,776,819 449,228 -- 17,226,047
Receivable for shares sold 30,712 95,000 -- 125,712
Dividends and interest receivable 269,719 78,248 -- 347,967
Receivable for foreign currency
exchange contracts -- 298 -- 298
Receivable from affiliates 10,877 -- -- 10,877
Other assets 13,422 4,144 -- 17,566
------------- ------------ ------------ -------------
Total Assets 71,893,762 17,791,618 -- 89,685,380
------------- ------------ ------------ -------------
Liabilities:
Due to custodian 697,804 -- -- 697,804
Payable for investments purchased 6,576,147 497,385 -- 7,073,532
Payable for shares repurchased 22,950 2,130 -- 25,080
Payable for forward currency
exchange contracts -- -- -- --
Payable to affiliates 106,030 79,761 -- 185,791
Accounts payable and accrued expenses 142,976 42,683 -- 185,659
------------- ------------ ------------ -------------
Total Liabilities 7,545,907 621,959 -- 8,167,866
------------- ------------ ------------ -------------
Net Assets:
Capital paid-in 140,514,416 34,384,832 -- 174,899,248
Accumulated net realized gain (loss)
on investments -- --
and foreign currency transactions (79,176,745) (15,848,143) -- (95,024,888)
Net unrealized appreciation
(depreciation) of investments and
translation of assets and -- --
liabilities in foreign currencies 3,389,714 (1,274,216) -- 2,115,498
Accumulated net investment loss (379,530) (92,814) -- (472,344)
------------- ------------ ------------ -------------
$ 64,347,855 $ 17,169,659 $ -- $ 81,517,514
============= ============ ============ =============
Net Assets
International Fund
Class A $ 43,509,530 -- $ 9,032,343 $ 52,541,873
Class B $ 18,245,987 -- $ 7,489,201 $ 25,735,188
Class C $ 1,710,934 -- $ 648,115 $ 2,359,049
Class I $ 881,404 -- -- $ 881,404
Pac Basin Fund
Class A -- $ 9,032,343 (9,032,343) --
Class B -- $ 7,489,201 (7,489,201) --
Class C -- $ 648,115 (648,115) --
============= ============ ============ =============
Shares outstanding
International Fund
Class A 8,531,280 -- 1,771,048 (a) 10,302,328
Class B 3,817,152 -- 1,566,778 (a) 5,383,930
Class C 357,936 -- 135,588 (a) 493,524
Class I 171,282 -- -- 171,282
Pac Basin Fund
Class A -- 1,110,201 (1,110,201)(a) --
Class B -- 978,115 (978,115)(a) --
Class C -- 84,640 (84,640)(a) --
============= ============ ============ =============
Net Asset Value Per Share
Class A $ 5.10 $ 8.14 --(a) $ 5.10
Class B $ 4.78 $ 7.66 --(a) $ 4.78
Class C $ 4.78 $ 7.66 --(a) $ 4.78
Class I $ 5.15 -- -- $ 5.15
============= ============ ============ =============
* Restated to include John Hancock Global Fund and John Hancock European
Equity Fund merged into International Fund on May 9, 2003.
See notes to pro-forma financial statements
John Hancock International Fund
Pro-forma Statement of Operations
For the twelve month period ended April 30, 2003
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL PAC BASIN PRO-FORMA
FUND * FUND ADJUSTMENTS COMBINED
------------- ----------- ----------- ------------
Investment Income:
Dividends (net of foreign withholding
tax of $114,812, and $78,719 and
$193,531, respectively) $ 1,186,974 $ 431,924 $ -- $ 1,618,898
Interest 37,622 20,280 -- 57,902
------------ ----------- ----------- ------------
1,224,596 452,204 -- 1,676,800
------------ ----------- ----------- ------------
Expenses:
Investment management fee 682,329 190,666 23,833 (b) 896,828
Class A distribution and service fee 153,488 34,761 --(c) 188,249
Class B distribution and service fee 218,535 113,491 --(c) 332,026
Class C distribution and service fee 18,435 8,971 --(c) 27,406
Class A, Class B and Class C
transfer agent fee 738,910 183,578 --(d) 922,488
Transfer agent fee Class I 10,791 -- -- 10,791
Custodian fee 90,651 87,634 (35,053)(e) 143,232
Registration and filing fee 75,133 28,644 (14,322)(e) 89,455
Auditing fee 42,000 32,061 (32,061)(e) 42,000
Printing 27,096 1,612 - (e) 27,096
Accounting and legal services fee 21,536 7,248 -- 28,784
Miscellaneous 6,663 2,558 -- 9,221
Trustees' fee 6,535 1,530 -- 8,065
Legal fee 2,754 1,235 -- 3,989
Interest expense 5,506 4,078 -- 9,584
------------ ----------- ----------- ------------
Total Expenses 2,100,362 698,067 (57,603) 2,740,826
------------ ----------- ----------- ------------
Less Expense Reductions (159,210) -- 19,703 (f) (139,507)
------------ ----------- ----------- ------------
Net Expenses 1,941,152 698,067 (37,900) 2,601,319
------------ ----------- ----------- ------------
Net Investment loss (716,556) (245,863) 37,900 (924,519)
------------ ----------- ----------- ------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investments (18,568,113) (2,719,606) -- (21,287,719)
Foreign currency transactions (263,877) (233,708) -- (497,585)
Change in net unrealized appreciation
(depreciation) of:
Investments (2,153,108) (4,814,428) -- (6,967,536)
Translation of assets and liabilities
in foreign currencies 96,073 4,544 -- 100,617
------------ ----------- ----------- ------------
Net realized and unrealized gain (loss) (20,889,025) (7,763,198) -- (28,652,223)
------------ ----------- ----------- ------------
Increase (Decrease) in net assets
resulting from operations $(21,605,581) $(8,009,061) $ 37,900 $(29,576,742)
============ =========== =========== ============
* Restated to include John Hancock Global Fund and John Hancock European
Equity Fund merged into International Fund on May 9, 2003.
See notes to pro-forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
-----------------------------------------
International Fund *
- ---------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ---------------------------------------------------------------------------------------------------------------------------
Australia 1.83%
Aristocrat Leisure Ltd. (Leisure)
Australia & New Zealand Banking
Group Ltd.(Banks - Foreign) 54,100 631,160
Commonwealth Bank of Australia
(Banks - Foreign)
Foster's Group Ltd. (Beverages) 20,000 56,049
News Corp., Ltd. (The) (Media) 15,000 106,782
Qantas Airways Ltd. (Transport)
Woolworths Ltd. (Retail) 48,133 389,016
---------
1,183,007
---------
Austria 0.14%
Gericom AG (Computers) 3,800 57,208
OMV AG (Oil & Gas) 500 60,041
---------
117,249
---------
Belgium 0.27%
Interbrew SA (Beverages) 8,000 178,560
Mobistar SA* (Telecommunications) 1,400 45,622
---------
224,182
---------
Bermuda 0.04%
Nabors Industries Ltd.* (Oil & Gas) 900 35,280
---------
Brazil 0.34%
Aracruz Celulose SA American Depositary
Receipts (ADR) (Paper & Paper Products) 2,300 48,300
Companhia de Bebidas das Americas
(ADR) (Beverages) 3,900 77,571
Petroleo Brasileiro SA (ADR) (Oil & Gas) 2,600 44,486
Tele Norte Leste Participacoes SA
(ADR) (Telecommunications) 6,300 68,355
Uniao de Bancos Brasileiros SA (ADR)
(Banks - Foreign) 2,100 38,115
---------
276,827
---------
Canada 2.90%
Biovail Corp.* (Medical) 6,800 245,820
Canadian National Railway Co.
(Transport) 2,100 102,123
Cott Corp.* (Beverages) 18,200 333,970
EnCana Corp. (Oil & Gas) 6,300 207,270
Loblaw Cos., Ltd. (Retail) 1,800 70,263
Petro-Canada (Oil & Gas) 1,500 49,425
Placer Dome, Inc. (Metal) 4,300 42,527
Royal Bank of Canada (Banks - Foreign) 11,000 459,250
Shoppers Drug Mart Corp.* (Retail) 3,000 49,874
Suncor Energy, Inc. (Oil & Gas) 3,800 62,486
Talisman Energy, Inc. (Oil & Gas) 1,600 63,824
Telus Corp. (Telecommunications) 31,500 458,908
Telus Corp. (Non-Voting Shares)
(Telecommunications) 3,718 50,019
WestJet Airlines Ltd.* (Transport) 14,950 171,947
---------
2,367,706
---------
China 1.47%
BYD Co., Ltd. (Electronics)
China Telecom Corp., Ltd.
(Telecommunications) 454,000 86,736
Jiangsu Expressway Co., Ltd. (Transport) 594,000 199,928
Sinopec Shanghai Petrochemical Co., Ltd. *
(Chemicals)
---------
286,664
---------
Denmark 0.24%
Jyske Bank AS* (Banks - Foreign) 2,400 78,285
TDC AS (Telecommunications) 5,600 114,436
---------
192,721
---------
Finland 0.60%
Nokia Oyj (ADR) (Telecommunications) 17,600 292,538
Nokia Oyj (Telecommunications) 7,000 115,990
Sampo Oyj (A Shares) (Finance) 11,100 80,519
---------
489,047
---------
* Restated to include John Hancock Global and John Hancock European Equity
Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
--------------------------------------
Pacific Basin Fund
- ---------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ---------------------------------------------------------------------------------------------------------------------------
Australia 1.83%
Aristocrat Leisure Ltd. (Leisure) 38,900 37,961
Australia & New Zealand Banking Group Ltd.
(Banks - Foreign) 10,200 118,999
Commonwealth Bank of Australia
(Banks - Foreign) 7,000 119,193
Foster's Group Ltd. (Beverages)
News Corp., Ltd. (The) (Media)
Qantas Airways Ltd. (Transport) 18,000 35,807
Woolworths Ltd. (Retail)
---------
311,960
---------
Austria 0.14%
Gericom AG (Computers)
OMV AG (Oil & Gas)
Belgium 0.27%
Interbrew SA (Beverages)
Mobistar SA* (Telecommunications)
Bermuda 0.04%
Nabors Industries Ltd.* (Oil & Gas)
Brazil 0.34%
Aracruz Celulose SA American Depositary
Receipts (ADR) (Paper & Paper Products)
Companhia de Bebidas das Americas
(ADR) (Beverages)
Petroleo Brasileiro SA (ADR) (Oil & Gas)
Tele Norte Leste Participacoes SA
(ADR) (Telecommunications)
Uniao de Bancos Brasileiros SA (ADR)
(Banks - Foreign)
Canada 2.90%
Biovail Corp.* (Medical)
Canadian National Railway Co.
(Transport)
Cott Corp.* (Beverages)
EnCana Corp. (Oil & Gas)
Loblaw Cos., Ltd. (Retail)
Petro-Canada (Oil & Gas)
Placer Dome, Inc. (Metal)
Royal Bank of Canada (Banks - Foreign)
Shoppers Drug Mart Corp.* (Retail)
Suncor Energy, Inc. (Oil & Gas)
Talisman Energy, Inc. (Oil & Gas)
Telus Corp. (Telecommunications)
Telus Corp. (Non-Voting Shares)
(Telecommunications)
WestJet Airlines Ltd.* (Transport)
China 1.47%
BYD Co., Ltd. (Electronics) 273,000 540,816
China Telecom Corp., Ltd.
(Telecommunications)
Jiangsu Expressway Co., Ltd.
(Transport)
Sinopec Shanghai Petrochemical Co., Ltd. *
(Chemicals) 2,384,000 369,871
---------
910,687
---------
Denmark 0.24%
Jyske Bank AS* (Banks - Foreign)
TDC AS (Telecommunications)
Finland 0.60%
Nokia Oyj (ADR) (Telecommunications)
Nokia Oyj (Telecommunications)
Sampo Oyj (A Shares) (Finance)
* Restated to include John Hancock Global and John Hancock European Equity
Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
-----------------------------------
International Pro Forma
- ---------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ---------------------------------------------------------------------------------------------------------------------------
Australia 1.83%
Aristocrat Leisure Ltd. (Leisure) 38,900 37,961
Australia & New Zealand Banking Group Ltd.
(Banks - Foreign) 64,300 750,159
Commonwealth Bank of Australia
(Banks - Foreign) 7,000 119,193
Foster's Group Ltd. (Beverages) 20,000 56,049
News Corp., Ltd. (The) (Media) 15,000 106,782
Qantas Airways Ltd. (Transport) 18,000 35,807
Woolworths Ltd. (Retail) 48,133 389,016
---------
1,494,967
---------
Austria 0.14%
Gericom AG (Computers) 3,800 57,208
OMV AG (Oil & Gas) 500 60,041
---------
117,249
---------
Belgium 0.27%
Interbrew SA (Beverages) 8,000 178,560
Mobistar SA* (Telecommunications) 1,400 45,622
224,182
Bermuda 0.04%
Nabors Industries Ltd.* (Oil & Gas) 900 35,280
Brazil 0.34%
Aracruz Celulose SA American Depositary
Receipts (ADR) (Paper & Paper Products) 2,300 48,300
Companhia de Bebidas das Americas
(ADR) (Beverages) 3,900 77,571
Petroleo Brasileiro SA (ADR) (Oil & Gas) 2,600 44,486
Tele Norte Leste Participacoes SA
(ADR) (Telecommunications) 6,300 68,355
Uniao de Bancos Brasileiros SA (ADR)
(Banks - Foreign) 2,100 38,115
---------
276,827
---------
Canada 2.90%
Biovail Corp.* (Medical) 6,800 245,820
Canadian National Railway Co. (Transport) 2,100 102,123
Cott Corp.* (Beverages) 18,200 333,970
EnCana Corp. (Oil & Gas) 6,300 207,270
Loblaw Cos., Ltd. (Retail) 1,800 70,263
Petro-Canada (Oil & Gas) 1,500 49,425
Placer Dome, Inc. (Metal) 4,300 42,527
Royal Bank of Canada (Banks - Foreign) 11,000 459,250
Shoppers Drug Mart Corp.* (Retail) 3,000 49,874
Suncor Energy, Inc. (Oil & Gas) 3,800 62,486
Talisman Energy, Inc. (Oil & Gas) 1,600 63,824
Telus Corp. (Telecommunications) 31,500 458,908
Telus Corp. (Non-Voting Shares)
(Telecommunications) 3,718 50,019
WestJet Airlines Ltd.* (Transport) 14,950 171,947
---------
2,367,706
---------
China 1.47%
BYD Co., Ltd. (Electronics) 273,000 540,816
China Telecom Corp., Ltd. 454,000 86,736
(Telecommunications) 594,000
Jiangsu Expressway Co., Ltd. (Transport) 199,928
Sinopec Shanghai Petrochemical Co., Ltd. *
(Chemicals) 2,384,000 369,871
---------
1,197,351
---------
Denmark 0.24%
Jyske Bank AS* (Banks - Foreign) 2,400 78,285
TDC AS (Telecommunications) 5,600 114,436
---------
192,721
---------
Finland 0.60%
Nokia Oyj (ADR) (Telecommunications) 17,600 292,538
Nokia Oyj (Telecommunications) 7,000 115,990
Sampo Oyj (A Shares) (Finance) 11,100 80,519
---------
489,047
---------
* Restated to include John Hancock Global and John Hancock European Equity
Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
------------------------------------------
International Fund *
------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- --------------------------------------------------------------------------------------------------------------------------
France 3.83%
Alcatel SA (Telecommunications) 53,600 439,060
Axa SA (Insurance) 25,000 379,718
BNP Paribas SA (Banks - Foreign) 15,900 746,327
France Telecom SA
(Telecommunications) 16,500 381,169
JC Decaux SA* (Advertising) 38,900 375,516
Michelin (CGDE) (B Shares) 700 25,897
(Rubber - Tires & Misc)
Pernod-Ricard SA (Beverages) 350 30,721
Suez SA (Pollution Control) 10,000 162,824
Unibail SA (Real Estate Operations) 900 60,214
Vinci SA (Engineering / R&D Services) 1,500 97,678
Vivendi Universal SA (Media) 25,800 420,373
---------
3,119,497
---------
Germany 2.23%
BASF AG (Chemicals) 9,300 411,519
Continental AG* (Rubber - Tires & Misc) 3,100 55,007
Deutsche Boerse AG (Finance) 2,200 102,136
Deutsche Telekom AG (Telecommunications) 10,000 133,696
E.ON AG (Utilities) 4,200 199,206
Medion AG (Business Services - Misc) 1,900 70,185
Muenchener Rueckversicherungs-Gesellschaft 5,100 507,689
AG (Insurance)
Schwarz Pharma AG (Medical) 2,500 107,136
SGL Carbon AG* (Chemicals) 3,500 51,364
Siemens AG (Diversified Operations) 3,600 177,980
---------
1,815,918
---------
Hong Kong 1.90%
Cheung Kong (Holdings) Ltd. 10,000 55,442
(Real Estate Operations)
China Resources Enterprise Ltd.
(Diversified Operations)
CLP Holdings Ltd. (Utilities) 20,000 81,805
CNOOC Ltd. (Oil & Gas) 304,000 399,536
Dickson Concepts International Ltd.
(Retail)
Henderson Land Development Co., Ltd.
(Real Estate Operations)
CNOOC Ltd. (Oil & Gas)
TCL International Holdings Cos., Ltd.
(Electronics)
Tingyi Holding Corp. (Cayman Island)
(Food)
VTech Holdings Ltd.
(Telecommunications)
---------
536,783
---------
Hungary 0.17%
OTP Bank Rt. (Banks - Foreign) 12,800 137,422
---------
Indonesia 0.50%
PT Bank Pan Indonesia Tbk
(Banks - Foreign)
PT Bentoel Internasional Investama Tbk*
(Tobacco)
PT Perusahaan Perkebunan London Sumatra
Indonesia Tbk* (Agricultural Operations)
PT Telekomunikasi Indonesia
(Telecommunications)
Ireland 1.68%
Allied Irish Banks Plc (Banks - Foreign) 7,000 107,415
Bank of Ireland (Banks - Foreign) 60,900 744,209
Irish Life & Permanent Plc (Finance) 8,000 92,799
Ryanair Holdings Plc* American Depositary
Receipts (ADR) (Transport) 10,800 428,436
---------
1,372,859
---------
* Restated to include John Hancock Global and John Hancock European Equity
Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
------------------------------------------
Pacific Basin Fund
------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ---------------------------------------------------------------------------------------------------------------------------
France 3.83%
Alcatel SA (Telecommunications)
Axa SA (Insurance)
BNP Paribas SA (Banks - Foreign)
France Telecom SA (Telecommunications)
JC Decaux SA* (Advertising)
Michelin (CGDE) (B Shares)
(Rubber - Tires & Misc)
Pernod-Ricard SA (Beverages)
Suez SA (Pollution Control)
Unibail SA (Real Estate Operations)
Vinci SA (Engineering / R&D Services)
Vivendi Universal SA (Media)
Germany 2.23%
BASF AG (Chemicals)
Continental AG* (Rubber - Tires & Misc)
Deutsche Boerse AG (Finance)
Deutsche Telekom AG
(Telecommunications)
E.ON AG (Utilities)
Medion AG (Business Services - Misc)
Muenchener Rueckversicherungs-
Gesellschaft AG (Insurance)
Schwarz Pharma AG (Medical)
SGL Carbon AG* (Chemicals)
Siemens AG (Diversified Operations)
Hong Kong 1.90%
Cheung Kong (Holdings) Ltd.
(Real Estate Operations)
China Resources Enterprise Ltd. 342,000 271,879
(Diversified Operations)
CLP Holdings Ltd. (Utilities) 25,500 104,301
CNOOC Ltd. (Oil & Gas)
Dickson Concepts International Ltd.
(Retail) 661,500 100,085
Henderson Land Development Co., Ltd. 60,000 148,864
(Real Estate Operations)
CNOOC Ltd. (Oil & Gas) 794,000 185,289
TCL International Holdings Cos., Ltd.
(Electronics) 177,000 33,135
Tingyi Holding Corp. (Cayman Island)
(Food) 78,000 14,102
VTech Holdings Ltd.
(Telecommunications) 271,000 156,365
---------
1,014,020
---------
Hungary 0.17%
OTP Bank Rt. (Banks - Foreign)
Indonesia 0.50%
PT Bank Pan Indonesia Tbk (Banks - Foreign) 5,325,000 144,276
PT Bentoel Internasional Investama Tbk*
(Tobacco) 5,255,500 69,682
PT Perusahaan Perkebunan London Sumatra 3,152,924
Indonesia Tbk* (Agricultural Operations)
PT Telekomunikasi Indonesia
(Telecommunications) 88,500 41,834
---------
408,716
---------
Ireland 1.68%
Allied Irish Banks Plc (Banks - Foreign)
Bank of Ireland (Banks - Foreign)
Irish Life & Permanent Plc (Finance)
Ryanair Holdings Plc* American Depositary
Receipts (ADR) (Transport)
* Restated to include John Hancock Global and John Hancock European Equity
Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
------------------------------------------
International Pro Forma
------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- --------------------------------------------------------------------------------------------------------------------------
France 3.83%
Alcatel SA (Telecommunications) 53,600 439,060
Axa SA (Insurance) 25,000 379,718
BNP Paribas SA (Banks - Foreign) 15,900 746,327
France Telecom SA (Telecommunications) 16,500 381,169
JC Decaux SA* (Advertising) 38,900 375,516
Michelin (CGDE) (B Shares) 700 25,897
(Rubber - Tires & Misc)
Pernod-Ricard SA (Beverages) 350 30,721
Suez SA (Pollution Control) 10,000 162,824
Unibail SA (Real Estate Operations) 900 60,214
Vinci SA (Engineering / R&D Services) 1,500 97,678
Vivendi Universal SA (Media) 25,800 420,373
-----------
3,119,497
-----------
Germany 2.23%
BASF AG (Chemicals) 9,300 411,519
Continental AG* (Rubber - Tires & Misc) 3,100 55,007
Deutsche Boerse AG (Finance) 2,200 102,136
Deutsche Telekom AG
(Telecommunications) 10,000 133,696
E.ON AG (Utilities) 4,200 199,206
Medion AG (Business Services - Misc) 1,900 70,185
Muenchener Rueckversicherungs- 5,100 507,689
Gesellschaft AG (Insurance)
Schwarz Pharma AG (Medical) 2,500 107,136
SGL Carbon AG* (Chemicals) 3,500 51,364
Siemens AG (Diversified Operations) 3,600 177,980
-----------
1,815,918
-----------
Hong Kong 1.90%
Cheung Kong (Holdings) Ltd. 10,000 55,442
(Real Estate Operations)
China Resources Enterprise Ltd. 342,000 271,879
(Diversified Operations)
CLP Holdings Ltd. (Utilities) 45,500 186,106
CNOOC Ltd. (Oil & Gas) 304,000 399,536
Dickson Concepts International Ltd. (Retail) 661,500 100,085
Henderson Land Development Co., Ltd. 60,000 148,864
(Real Estate Operations)
CNOOC Ltd. (Oil & Gas) 794,000 185,289
TCL International Holdings Cos., Ltd.
(Electronics) 177,000 33,135
Tingyi Holding Corp. (Cayman Island)
(Food) 78,000 14,102
VTech Holdings Ltd.
(Telecommunications) 271,000 156,365
-----------
1,550,803
-----------
Hungary 0.17%
OTP Bank Rt. (Banks - Foreign) 12,800 137,422
-----------
Indonesia 0.50%
PT Bank Pan Indonesia Tbk (Banks - Foreign) 5,325,000 144,276
PT Bentoel Internasional Investama Tbk*
(Tobacco) 5,255,500 69,682
PT Perusahaan Perkebunan London Sumatra 3,152,924
Indonesia Tbk* (Agricultural Operations)
PT Telekomunikasi Indonesia
(Telecommunications) 88,500 41,834
-----------
408,716
-----------
Ireland 1.68%
Allied Irish Banks Plc (Banks - Foreign) 7,000 107,415
Bank of Ireland (Banks - Foreign) 60,900 744,209
Irish Life & Permanent Plc (Finance) 8,000 92,799
Ryanair Holdings Plc* American Depositary 10,800 428,436
Receipts (ADR)
(Transport)
-----------
1,372,859
-----------
* Restated to include John Hancock Global Fund and John Hancock European
Equity Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
-----------------------------------------
International Fund *
-----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ----------------------------------------------------------------------------------------------------------------------------------
Israel 1.08%
Taro Pharmaceutical Industries Ltd.* (Medical) 2,000 91,520
Teva Pharmaceutical Industries Ltd. (ADR) (Medical) 16,900 789,230
---------
880,750
---------
Italy 1.22%
Banco Popolare di Verona e Novara Scrl (Banks - Foreign) 4,600 62,476
ENI SpA (Oil & Gas) 14,400 205,218
ERG SpA (Oil & Gas) 5,100 22,653
Finmeccanica SpA (Aerospace) 88,000 52,247
Impregilo SpA* (Building) 175,000 74,214
Italcementi SpA (Building) 7,500 78,343
Mediaset SpA (Media) 12,600 107,712
Saipem SpA (Oil & Gas) 11,800 82,305
Snam Rete Gas SpA (Utilities) 29,800 108,084
UniCredito Italiano SpA (Banks - Foreign) 46,400 202,986
---------
996,238
---------
Japan 11.55%
Aderans Co., Ltd. (Cosmetics & Personal Care)
Asahi Glass Co., Ltd. (Building) 11,000 58,569
Bridgestone Corp. (Rubber - Tires & Misc)
CANON, Inc. (Office) 2,000 80,832
Dai Nippon Printing Co., Ltd. (Printing - Commercial) 51,000 495,204
Daiwa House Industry Co., Ltd. (Building)
Dowa Mining Co., Ltd. (Metal)
East Japan Railway Co. (Transport) 16 72,447
Eneserve Corp. (Utilities)
Fanuc Ltd. (Electronics) 11,900 486,936
Funai Electric Co., Ltd. (Electronics)
Hitachi Ltd. (Electronics)
Hogy Medical Co., Inc. (Medical)
Honda Motor Co., Ltd. (Automobile / Trucks)
Hoya Corp. (Electronics) 1,500 88,672
Japan Telecom Holdings Co., Ltd. (Telecommunications) 130 355,358
Jeol Ltd. (Instruments - Scientific)
Kao Corp. (Cosmetics & Personal Care) 22,000 401,224
KDDI Corp. (Telecommunications) 30 91,062
Keyence Corp. (Electronics) 550 88,408
Kikkoman Corp. (Food)
Kose Corp. (Cosmetics & Personal Care)
Kyocera Corp. (Electronics)
Mabuchi Motor Co., Ltd. (Electronics)
Millea Holdings, Inc.* (Insurance) 11 71,390
Mitsubishi Tokyo Financial Group, Inc. (Banks - Foreign) 119 403,120
Nintendo Co., Ltd. (Leisure)
Nissan Motor Co., Ltd. (Automobile / Trucks)
Nitto Denko Corp. (Chemicals)
NTT DoCoMo, Inc. (Telecommunications)
Olympus Optical Co., Ltd. (Leisure)
Ricoh Co., Ltd. (Office)
Shin-Etsu Chemical Co., Ltd. (Chemicals) 3,000 89,804
SMC Corp. (Machinery)
Sparx Asset Management Co., Ltd. (Finance)
Takeda Chemical Industries Ltd. (Medical) 2,500 91,607
THK Co., Ltd. (Machinery)
Tokai Rika Co., Ltd. (Automobile / Trucks)
Tokyo Electric Power Co., Inc. (Utilities) 3,200 64,934
Tokyo Gas Co., Ltd. (Utilities) 22,000 71,575
TonenGeneral Sekiyu K.K. (Oil & Gas)
Toyota Motor Corp. (Automobile / Trucks) 4,500 101,878
Uni-Charm Corp. (Cosmetics & Personal Care)
Yamaichi Electronics Co., Ltd. (Electronics)
Yamato Transport Co., Ltd. (Transport)
Yushin Precision Equipment Co., Ltd. (Machinery)
---------
3,113,020
---------
Malaysia 0.65%
Perusahaan Otomobil Nasional Berhad (Automobile / Trucks)
Telekom Malaysia Berhad (Telecommunications)
Netherlands
Aegon NV (Insurance) 38,500 391,418
ASML Holding NV (NY Reg Shares)* (Electronics) 14,300 125,983
Euronext NV (Finance) 3,800 83,968
Fugro NV (Engineering / R&D Services) 1,300 52,736
IHC Caland NV (Oil & Gas) 800 41,292
ING Groep NV (Insurance) 33,400 542,341
Royal Dutch Petroleum Co. (Oil & Gas) 5,300 216,776
TPG NV (Transport) 14,200 221,543
Unilever NV (Food) 3,100 195,294
---------
1,871,351
---------
Norway 0.21%
ProSafe ASA* (Oil & Gas) 3,200 53,960
Statoil ASA (Oil & Gas) 14,400 114,207
---------
168,167
---------
* Restated to include John Hancock Global Fund and John Hancock European
Equity Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
-----------------------------------------
Pacific Basin Fund
-----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ----------------------------------------------------------------------------------------------------------------------------------
Israel 1.08%
Taro Pharmaceutical Industries Ltd.* (Medical)
Teva Pharmaceutical Industries Ltd. (ADR) (Medical)
Italy 1.22%
Banco Popolare di Verona e Novara Scrl (Banks - Foreign)
ENI SpA (Oil & Gas)
ERG SpA (Oil & Gas)
Finmeccanica SpA (Aerospace)
Impregilo SpA* (Building)
Italcementi SpA (Building)
Mediaset SpA (Media)
Saipem SpA (Oil & Gas)
Snam Rete Gas SpA (Utilities)
UniCredito Italiano SpA (Banks - Foreign)
Japan 11.55%
Aderans Co., Ltd. (Cosmetics & Personal Care) 1,000 18,321
Asahi Glass Co., Ltd. (Building) 67,000 356,742
Bridgestone Corp. (Rubber - Tires & Misc) 3,000 34,035
CANON, Inc. (Office)
Dai Nippon Printing Co., Ltd. (Printing - Commercial)
Daiwa House Industry Co., Ltd. (Building) 6,000 36,223
Dowa Mining Co., Ltd. (Metal) 54,000 178,853
East Japan Railway Co. (Transport) 43 194,701
Eneserve Corp. (Utilities) 5,600 196,277
Fanuc Ltd. (Electronics) 2,100 85,930
Funai Electric Co., Ltd. (Electronics) 2,000 201,241
Hitachi Ltd. (Electronics) 101,000 337,062
Hogy Medical Co., Inc. (Medical) 3,400 143,971
Honda Motor Co., Ltd. (Automobile / Trucks) 5,600 185,477
Hoya Corp. (Electronics) 7,300 431,536
Japan Telecom Holdings Co., Ltd. (Telecommunications)
Jeol Ltd. (Instruments - Scientific) 54,000 131,310
Kao Corp. (Cosmetics & Personal Care) 5,000 91,187
KDDI Corp. (Telecommunications)
Keyence Corp. (Electronics)
Kikkoman Corp. (Food) 27,000 168,212
Kose Corp. (Cosmetics & Personal Care) 620 19,651
Kyocera Corp. (Electronics) 7,300 356,247
Mabuchi Motor Co., Ltd. (Electronics) 1,200 89,653
Millea Holdings, Inc.* (Insurance) 44 285,561
Mitsubishi Tokyo Financial Group, Inc. (Banks - Foreign) 87 294,717
Nintendo Co., Ltd. (Leisure) 1,200 93,778
Nissan Motor Co., Ltd. (Automobile / Trucks) 4,800 36,827
Nitto Denko Corp. (Chemicals) 700 20,133
NTT DoCoMo, Inc. (Telecommunications) 24 49,505
Olympus Optical Co., Ltd. (Leisure) 5,000 86,576
Ricoh Co., Ltd. (Office) 6,000 92,017
Shin-Etsu Chemical Co., Ltd. (Chemicals) 9,900 296,353
SMC Corp. (Machinery) 800 60,238
Sparx Asset Management Co., Ltd. (Finance) 36 152,440
Takeda Chemical Industries Ltd. (Medical) 7,800 285,813
THK Co., Ltd. (Machinery) 14,500 133,741
Tokai Rika Co., Ltd. (Automobile / Trucks) 19,000 102,440
Tokyo Electric Power Co., Inc. (Utilities)
Tokyo Gas Co., Ltd. (Utilities)
TonenGeneral Sekiyu K.K. (Oil & Gas) 36,000 228,811
Toyota Motor Corp. (Automobile / Trucks) 24,700 559,198
Uni-Charm Corp. (Cosmetics & Personal Care) 500 19,914
Yamaichi Electronics Co., Ltd. (Electronics) 1,500 19,810
Yamato Transport Co., Ltd. (Transport) 3,000 33,557
Yushin Precision Equipment Co., Ltd. (Machinery) 14,400 194,640
---------
6,302,698
---------
Malaysia 0.65%
Perusahaan Otomobil Nasional Berhad (Automobile / Trucks) 205,000 339,868
Telekom Malaysia Berhad (Telecommunications) 96,000 186,947
---------
526,815
---------
Netherlands 2.30%
Aegon NV (Insurance)
ASML Holding NV (NY Reg Shares)* (Electronics)
Euronext NV (Finance)
Fugro NV (Engineering / R&D Services)
IHC Caland NV (Oil & Gas)
ING Groep NV (Insurance)
Royal Dutch Petroleum Co. (Oil & Gas)
TPG NV (Transport)
Unilever NV (Food)
Norway 0.21%
ProSafe ASA* (Oil & Gas)
Statoil ASA (Oil & Gas)
* Restated to include John Hancock Global Fund and John Hancock European
Equity Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
-----------------------------------------
International Pro Forma
-----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ----------------------------------------------------------------------------------------------------------------------------------
Israel 1.08%
Taro Pharmaceutical Industries Ltd.* (Medical) 2,000 91,520
Teva Pharmaceutical Industries Ltd. (ADR) (Medical) 16,900 789,230
---------
880,750
---------
Italy 1.22%
Banco Popolare di Verona e Novara Scrl (Banks - Foreign) 4,600 62,476
ENI SpA (Oil & Gas) 14,400 205,218
ERG SpA (Oil & Gas) 5,100 22,653
Finmeccanica SpA (Aerospace) 88,000 52,247
Impregilo SpA* (Building) 175,000 74,214
Italcementi SpA (Building) 7,500 78,343
Mediaset SpA (Media) 12,600 107,712
Saipem SpA (Oil & Gas) 11,800 82,305
Snam Rete Gas SpA (Utilities) 29,800 108,084
UniCredito Italiano SpA (Banks - Foreign) 46,400 202,986
---------
996,238
---------
Japan 11.55%
Aderans Co., Ltd. (Cosmetics & Personal Care) 1,000 18,321
Asahi Glass Co., Ltd. (Building) 78,000 415,311
Bridgestone Corp. (Rubber - Tires & Misc) 3,000 34,035
CANON, Inc. (Office) 2,000 80,832
Dai Nippon Printing Co., Ltd. (Printing - Commercial) 51,000 495,204
Daiwa House Industry Co., Ltd. (Building) 6,000 36,223
Dowa Mining Co., Ltd. (Metal) 54,000 178,853
East Japan Railway Co. (Transport) 59 267,148
Eneserve Corp. (Utilities) 5,600 196,277
Fanuc Ltd. (Electronics) 14,000 572,866
Funai Electric Co., Ltd. (Electronics) 2,000 201,241
Hitachi Ltd. (Electronics) 101,000 337,062
Hogy Medical Co., Inc. (Medical) 3,400 143,971
Honda Motor Co., Ltd. (Automobile / Trucks) 5,600 185,477
Hoya Corp. (Electronics) 8,800 520,208
Japan Telecom Holdings Co., Ltd. (Telecommunications) 130 355,358
Jeol Ltd. (Instruments - Scientific) 54,000 131,310
Kao Corp. (Cosmetics & Personal Care) 27,000 492,411
KDDI Corp. (Telecommunications) 30 91,062
Keyence Corp. (Electronics) 550 88,408
Kikkoman Corp. (Food) 27,000 168,212
Kose Corp. (Cosmetics & Personal Care) 620 19,651
Kyocera Corp. (Electronics) 7,300 356,247
Mabuchi Motor Co., Ltd. (Electronics) 1,200 89,653
Millea Holdings, Inc.* (Insurance) 55 356,951
Mitsubishi Tokyo Financial Group, Inc. (Banks - Foreign) 206 697,837
Nintendo Co., Ltd. (Leisure) 1,200 93,778
Nissan Motor Co., Ltd. (Automobile / Trucks) 4,800 36,827
Nitto Denko Corp. (Chemicals) 700 20,133
NTT DoCoMo, Inc. (Telecommunications) 24 49,505
Olympus Optical Co., Ltd. (Leisure) 5,000 86,576
Ricoh Co., Ltd. (Office) 6,000 92,017
Shin-Etsu Chemical Co., Ltd. (Chemicals) 12,900 386,157
SMC Corp. (Machinery) 800 60,238
Sparx Asset Management Co., Ltd. (Finance) 36 152,440
Takeda Chemical Industries Ltd. (Medical) 10,300 377,420
THK Co., Ltd. (Machinery) 14,500 133,741
Tokai Rika Co., Ltd. (Automobile / Trucks) 19,000 102,440
Tokyo Electric Power Co., Inc. (Utilities) 3,200 64,934
Tokyo Gas Co., Ltd. (Utilities) 22,000 71,575
TonenGeneral Sekiyu K.K. (Oil & Gas) 36,000 228,811
Toyota Motor Corp. (Automobile / Trucks) 29,200 661,076
Uni-Charm Corp. (Cosmetics & Personal Care) 500 19,914
Yamaichi Electronics Co., Ltd. (Electronics) 1,500 19,810
Yamato Transport Co., Ltd. (Transport) 3,000 33,557
Yushin Precision Equipment Co., Ltd. (Machinery) 14,400 194,640
---------
9,415,718
---------
Malaysia 0.65%
Perusahaan Otomobil Nasional Berhad (Automobile / Trucks) 205,000 339,868
Telekom Malaysia Berhad (Telecommunications) 96,000 186,947
---------
526,815
---------
Netherlands 2.30%
Aegon NV (Insurance) 38,500 391,418
ASML Holding NV (NY Reg Shares)* (Electronics) 14,300 125,983
Euronext NV (Finance) 3,800 83,968
Fugro NV (Engineering / R&D Services) 1,300 52,736
IHC Caland NV (Oil & Gas) 800 41,292
ING Groep NV (Insurance) 33,400 542,341
Royal Dutch Petroleum Co. (Oil & Gas) 5,300 216,776
TPG NV (Transport) 14,200 221,543
Unilever NV (Food) 3,100 195,294
---------
1,871,351
---------
Norway 0.21%
ProSafe ASA* (Oil & Gas) 3,200 53,960
Statoil ASA (Oil & Gas) 14,400 114,207
---------
168,167
---------
* Restated to include John Hancock Global Fund and John Hancock European
Equity Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
-----------------------------------------
International Fund*
-----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ----------------------------------------------------------------------------------------------------------------------------------
Philippine Islands 0.52%
Ayala Land, Inc. (Real Estate Operations)
Manila Electric Co.* (Utilities)
Philippine Long Distance Telephone Co.*
(Telecommunications)
Russia 1.05%
LUKOIL (ADR) (Oil & Gas) 1,800 123,912
VimpelCom* (ADR) (Telecommunications) 1,700 67,762
YUKOS (ADR) (Oil & Gas) 3,800 666,900
---------
858,574
---------
Singapore 1.29%
Chartered Semiconductor Manufacturing Ltd.*
(Electronics)
City Developments, Ltd. (Real Estate Operations)
Singapore Exchange Ltd. (Finance)
Singapore Press Holdings Ltd. (Media) 8,000 74,341
---------
South Korea 4.19%
Hotel Shilla Co., Ltd. (Leisure)
Hyundai Department Store Co., Ltd. (Retail)
Korea Electric Power Corp. (Utilities) 2,700 45,444
LG Ad, Inc. (Advertising)
LG Electronics, Inc. (Electronics) 12,850 443,140
LG Home Shopping, Inc. (Retail)
LG Household & Health Care Ltd. (Soap & Cleaning
Preparations)
Samsung Electronics Ltd.* (Global Depositary Receipts)
(Electronics) (R) 2,300 476,954
Shinhan Financial Group Co., Ltd. (Finance)
Shinsegae Co., Ltd. (Retail)
SK Telecom Co., Ltd. (ADR) (Telecommunications) 2,000 30,400
SK Telecom Co., Ltd. (Telecommunications) 700 97,366
Ssangyong Motor Co. * (Automobile / Trucks)
You Eal Electronics Co., Ltd. (Telecommunications)
---------
1,093,304
---------
Spain 1.38%
Acciona SA (Building) 1,400 67,183
Acesa Infraestructuras SA (Transport) 4,000 52,005
Actividades de Construccion y Servicios SA (Building) 2,500 94,162
Banco Popular Espanol SA (Banks - Foreign) 3,000 145,436
Bankinter SA (Banks - Foreign) 2,500 76,362
Corporacion Mapfre SA (Insurance) 11,600 108,743
Endesa SA (Utilities) 17,600 249,644
Iberia Lineas Aereas de Espana SA (Transport) 27,300 47,833
Repsol YPF, SA (Oil & Gas) 2,900 42,235
Telefonica SA* (Telecommunications) 21,624 239,151
---------
1,122,754
---------
Sweden 1.03%
Elekta AB (B Shares)* (Medical) 7,900 85,957
Hennes & Mauritz AB (B Shares) (Retail) 20,550 457,242
Skandinaviska Enskilda Banken AB (A Shares)
(Banks - Foreign) 24,600 255,633
Svenska Cellulosa AB (B Shares) (Paper & Paper
Products) 1,200 40,637
---------
839,469
---------
Switzerland 3.28%
Actelion Ltd.* (Medical) 1,200 76,841
Alcon, Inc.* (Medical) 9,200 405,260
Converium Holding AG* (Insurance) 2,200 99,352
Credit Suisse Group (Banks - Foreign) 12,000 286,663
Novartis AG (Medical) 7,773 306,610
Roche Holding AG (Medical) 6,900 439,039
SGS Societe Generale de Surveillance Holding SA
(Business Services - Misc) 150 52,477
UBS AG (Banks - Foreign) 21,300 1,010,584
---------
2,676,826
---------
* Restated to include John Hancock Global Fund and John Hancock European
Equity Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
-----------------------------------------
Pacific Basin Fund
-----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ----------------------------------------------------------------------------------------------------------------------------------
Philippine Islands 0.52%
Ayala Land, Inc. (Real Estate Operations) 2,215,300 211,081
Manila Electric Co.* (Utilities) 915,300 178,787
Philippine Long Distance Telephone Co.*
(Telecommunications) 4,700 34,035
---------
423,903
---------
Russia 1.05%
LUKOIL (ADR) (Oil & Gas)
VimpelCom* (ADR) (Telecommunications)
YUKOS (ADR) (Oil & Gas)
Singapore 1.29%
Chartered Semiconductor Manufacturing Ltd.*
(Electronics) 1,013,000 393,653
City Developments, Ltd. (Real Estate Operations) 86,000 163,708
Singapore Exchange Ltd. (Finance) 343,000 235,672
Singapore Press Holdings Ltd. (Media) 19,400 180,277
---------
973,310
---------
South Korea 4.19%
Hotel Shilla Co., Ltd. (Leisure) 66,600 254,889
Hyundai Department Store Co., Ltd. (Retail) 26,700 437,309
Korea Electric Power Corp. (Utilities)
LG Ad, Inc. (Advertising) 3,210 42,668
LG Electronics, Inc. (Electronics)
LG Home Shopping, Inc. (Retail) 680 38,673
LG Household & Health Care Ltd. (Soap & Cleaning
Preparations) 11,280 160,148
Samsung Electronics Ltd.* (Global Depositary Receipts)
(Electronics) (R)
Shinhan Financial Group Co., Ltd. (Finance) 41,400 408,889
Shinsegae Co., Ltd. (Retail) 3,570 426,049
SK Telecom Co., Ltd. (ADR) (Telecommunications) 8,000 121,600
SK Telecom Co., Ltd. (Telecommunications)
Ssangyong Motor Co. * (Automobile / Trucks) 91,940 395,002
You Eal Electronics Co., Ltd. (Telecommunications) 1,780 33,988
---------
2,319,215
---------
Spain 1.38%
Acciona SA (Building)
Acesa Infraestructuras SA (Transport)
Actividades de Construccion y Servicios SA (Building)
Banco Popular Espanol SA (Banks - Foreign)
Bankinter SA (Banks - Foreign)
Corporacion Mapfre SA (Insurance)
Endesa SA (Utilities)
Iberia Lineas Aereas de Espana SA (Transport)
Repsol YPF, SA (Oil & Gas)
Telefonica SA* (Telecommunications)
Sweden 1.03%
Elekta AB (B Shares)* (Medical)
Hennes & Mauritz AB (B Shares) (Retail)
Skandinaviska Enskilda Banken AB (A Shares)
(Banks - Foreign)
Svenska Cellulosa AB (B Shares) (Paper &
Paper Products)
Switzerland 3.28%
Actelion Ltd.* (Medical)
Alcon, Inc.* (Medical)
Converium Holding AG* (Insurance)
Credit Suisse Group (Banks - Foreign)
Novartis AG (Medical)
Roche Holding AG (Medical)
SGS Societe Generale de Surveillance Holding SA (Business
Services - Misc)
UBS AG (Banks - Foreign)
* Restated to include John Hancock Global Fund and John Hancock European
Equity Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
-----------------------------------------
International Pro Forma
-----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ----------------------------------------------------------------------------------------------------------------------------------
Philippine Islands 0.52%
Ayala Land, Inc. (Real Estate Operations) 2,215,300 211,081
Manila Electric Co.* (Utilities) 915,300 178,787
Philippine Long Distance Telephone Co.*
(Telecommunications) 4,700 34,035
---------
423,903
---------
Russia 1.05%
LUKOIL (ADR) (Oil & Gas) 1,800 123,912
VimpelCom* (ADR) (Telecommunications) 1,700 67,762
YUKOS (ADR) (Oil & Gas) 3,800 666,900
---------
858,574
---------
Singapore 1.29%
Chartered Semiconductor Manufacturing Ltd.* (Electronics) 1,013,000 393,653
City Developments, Ltd. (Real Estate Operations) 86,000 163,708
Singapore Exchange Ltd. (Finance) 343,000 235,672
Singapore Press Holdings Ltd. (Media) 27,400 254,618
---------
1,047,651
---------
South Korea 4.19%
Hotel Shilla Co., Ltd. (Leisure) 66,600 254,889
Hyundai Department Store Co., Ltd. (Retail) 26,700 437,309
Korea Electric Power Corp. (Utilities) 2,700 45,444
LG Ad, Inc. (Advertising) 3,210 42,668
LG Electronics, Inc. (Electronics) 12,850 443,140
LG Home Shopping, Inc. (Retail) 680 38,673
LG Household & Health Care Ltd. (Soap & Cleaning
Preparations) 11,280 160,148
Samsung Electronics Ltd.* (Global Depositary Receipts)
(Electronics) (R) 2,300 476,954
Shinhan Financial Group Co., Ltd. (Finance) 41,400 408,889
Shinsegae Co., Ltd. (Retail) 3,570 426,049
SK Telecom Co., Ltd. (ADR) (Telecommunications) 10,000 152,000
SK Telecom Co., Ltd. (Telecommunications) 700 97,366
Ssangyong Motor Co. * (Automobile / Trucks) 91,940 395,002
You Eal Electronics Co., Ltd. (Telecommunications) 1,780 33,988
---------
3,412,519
---------
Spain 1.38%
Acciona SA (Building) 1,400 67,183
Acesa Infraestructuras SA (Transport) 4,000 52,005
Actividades de Construccion y Servicios SA (Building) 2,500 94,162
Banco Popular Espanol SA (Banks - Foreign) 3,000 145,436
Bankinter SA (Banks - Foreign) 2,500 76,362
Corporacion Mapfre SA (Insurance) 11,600 108,743
Endesa SA (Utilities) 17,600 249,644
Iberia Lineas Aereas de Espana SA (Transport) 27,300 47,833
Repsol YPF, SA (Oil & Gas) 2,900 42,235
Telefonica SA* (Telecommunications) 21,624 239,151
---------
1,122,754
---------
Sweden 1.03%
Elekta AB (B Shares)* (Medical) 7,900 85,957
Hennes & Mauritz AB (B Shares) (Retail) 20,550 457,242
Skandinaviska Enskilda Banken AB (A Shares)
(Banks - Foreign) 24,600 255,633
Svenska Cellulosa AB (B Shares) (Paper & Paper Products) 1,200 40,637
---------
839,469
---------
Switzerland 3.28%
Actelion Ltd.* (Medical) 1,200 76,841
Alcon, Inc.* (Medical) 9,200 405,260
Converium Holding AG* (Insurance) 2,200 99,352
Credit Suisse Group (Banks - Foreign) 12,000 286,663
Novartis AG (Medical) 7,773 306,610
Roche Holding AG (Medical) 6,900 439,039
SGS Societe Generale de Surveillance Holding SA
(Business Services - Misc) 150 52,477
UBS AG (Banks - Foreign) 21,300 1,010,584
---------
2,676,826
---------
* Restated to include John Hancock Global Fund and John Hancock European
Equity Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
-----------------------------------------
International Fund*
-----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ----------------------------------------------------------------------------------------------------------------------------------
Taiwan 2.36%
Eva Airways Corp. * (Transport)
Largan Precision Co., Ltd. (Leisure)
Nanya Technology Corp.* (Electronics) 424,000 231,160
Optimax Technology Corp. * (Electronics)
Siliconware Precision Industries Co. * (Electronics)
Siliconware Precision Industries Co. * (ADR)
(Electronics)
Taiwan Semiconductor Manufacturing Co., Ltd.* (ADR)
(Electronics) 32,000 267,840
----------
499,000
----------
Thailand 0.23%
Bangkok Expressway Pcl (Building)
Thai Union Frozen Products Pcl (Food)
United Kingdom 12.32%
Acambis Plc* (Medical) 12,400 56,483
Arriva Plc (Transport) 13,000 66,591
AstraZeneca Plc (Medical) 6,400 251,119
Barclays Plc (ADR) (Banks - Foreign) 400 11,208
Barclays Plc (Banks - Foreign) 41,656 287,780
BG Group Plc (Oil & Gas) 10,600 42,396
BHP Billiton Plc (Metal) 34,875 178,366
BP Plc (Oil & Gas) 36,200 229,403
British Sky Broadcasting Group Plc* (Media) 76,300 790,828
Diageo Plc (Beverages) 26,700 296,155
Gallaher Group Plc (Tobacco) 33,200 314,394
GlaxoSmithKline Plc (Medical) 40,700 815,717
HBOS Plc (Banks - Foreign) 44,600 522,501
Imperial Tobacco Group Plc (Tobacco) 28,879 410,988
InterContinental Hotels Group Plc* (Leisure) 26,949 120,359
Kelda Group Plc (Utilities) 15,000 98,653
Kingfisher Plc (Retail) 14,000 54,708
Lloyds TSB Group Plc (ADR) (Banks - Foreign) 10,000 266,400
Lloyds TSB Group Plc (Banks - Foreign) 46,300 304,508
Man Group Plc (Finance) 38,500 649,174
Mitchells & Butler Plc* (Retail) 13,728 46,514
mm02 Plc* (Telecommunications) 210,000 187,116
National Grid Transco Plc (Utilities) 41,600 273,264
Northern Rock Plc (Banks - Foreign) 5,700 65,183
Peninsular and Oriental Steam Navigation Co. (Transport) 28,300 87,295
Reckitt Benckiser Plc (Soap & Cleaning Preparations) 6,700 118,166
Royal Bank of Scotland Group Plc (Banks - Foreign) 42,919 1,125,657
Severn Trent Plc (Utilities) 6,000 68,565
Shell Transport & Trading Co. Plc (Oil & Gas) 32,600 195,257
SkyePharma Plc* (Medical) 93,000 73,576
Smith & Nephew Plc (Medical) 43,800 292,091
Smiths Group Plc (Manufacturing) 4,200 44,908
Tesco Plc (Retail) 55,800 176,582
Tullow Oil Plc* (Oil & Gas) 67,700 74,735
Vodafone Group Plc (ADR) (Telecommunications) 39,200 774,592
Vodafone Group Plc (Telecommunications) 312,100 616,038
Wood Group (John) Plc (Oil & Gas) 22,500 56,009
----------
10,043,279
----------
United States 18.76%
Adobe Systems, Inc. (Computers) 8,500 293,760
AdvancePCS* (Medical) 4,500 135,270
Affiliated Computer Services, Inc.* (Computers) 3,000 143,100
Allergan, Inc. (Medical) 1,500 105,375
Allstate Corp. (The) (Insurance) 3,300 124,707
Amdocs Ltd.* (Telecommunications) 34,300 605,738
Amgen, Inc.* (Medical) 10,400 637,624
Anadarko Petroleum Corp. (Oil & Gas) 1,900 84,360
Anheuser-Busch Cos., Inc. (Beverages) 3,100 154,628
Anthem, Inc.* (Medical) 2,500 171,600
Apache Corp. (Oil & Gas) 3,410 195,223
Apollo Group, Inc. (Class A)* (Schools / Education) 11,200 607,029
Applied Materials, Inc.* (Electronics) 21,600 315,360
AutoZone, Inc.* (Retail) 1,500 121,215
Bank of America Corp. (Banks - United States) 6,100 451,705
Barr Laboratories, Inc.* (Medical) 7,300 405,880
Comcast Corp. (Special Class A)* (Media) 17,100 514,026
Dell Computer Corp.* (Computers) 15,500 448,105
eBay, Inc.* (Diversified Operations) 3,200 296,864
EchoStar Communicaitons Corp. (Class A)* (Media) 2,800 83,888
EMC Corp.* (Computers) 10,700 97,263
Fannie Mae (Mortgage Banking) 2,800 202,692
General Electric Co. (Diversified Operations) 40,800 1,201,560
Gilead Sciences, Inc.* (Medical) 14,800 682,872
GlobalSantaFe Corp. (Oil & Gas) 2,400 50,784
Intel Corp. (Electronics) 12,100 222,640
International Business Machines Corp. (Computers) 7,400 628,260
Johnson & Johnson (Medical) 16,500 929,940
Lowe's Cos., Inc. (Retail) 10,300 452,067
Merck & Co., Inc. (Medical) 12,600 733,068
Microsoft Corp. (Computers) 40,600 1,038,142
Noble Corp.* (Oil & Gas) 7,000 216,650
Patterson-UTI Energy, Inc.* (Oil & Gas) 2,700 89,343
Pfizer, Inc. (Medical) 29,700 913,275
Procter & Gamble Co. (The) (Cosmetics & Personal Care) 2,300 206,655
Schlumberger Ltd. (Oil & Gas) 3,000 125,790
Transocean, Inc.* (Oil & Gas) 3,500 66,675
Tribune Co. (Media) 2,200 107,756
Univision Communications, Inc. (Class A)* (Media) 2,800 84,784
VERITAS Software Corp.* (Computers) 21,500 473,215
Wal-Mart Stores, Inc. (Retail) 9,400 529,408
Williams Cos., Inc. (The) (Oil & Gas) 12,400 86,180
Zimmer Holdings, Inc.* (Medical) 5,500 257,950
----------
15,292,426
----------
TOTAL COMMON STOCKS 81.56%
(Cost $64,419,711) 51,684,661
----------
PURCHASED CALL OPTION
Ireland 0.08%
Ryanair Holdings Plc (Transport)
Zero Strike Call Expiration 2-27-04 9,000 61,570
----------
TOTAL OPTIONS 0.08%
(Cost $57,232) 61,570
----------
PREFERRED STOCKS
Germany 0.39%
Henkel KGaA (Chemicals) 800 51,514
Porsche AG (Automobile / Trucks) 400 145,526
Wella AG (Cosmetics & Personal Care) 1,600 118,563
----------
315,603
----------
JAPAN 0.06%
SMFG Finance Ltd. (Banks - Foreign) (R) 3,000,000 17,168
----------
South Korea 0.71%
Samsung Electronics Co., Ltd. (Electronics)
TOTAL PREFERRED STOCKS 1.16%
(Cost $854,484) 332,771
----------
RIGHTS AND WARRANTS
Netherlands 0.02%
Aegon NV* (Insurance), Right 50,300 20,456
----------
India 0.89%
Hindustan Lever Ltd. * (Soap & Cleaning
Preparations), Warrant
Infosys Technologies Ltd. * (Computers), Warrant
Taiwan 0.19%
Taiwan Semiconductor Manufacturing Co., Ltd.
(Electronics), Warrant 156,087
- ----------------------------------------------------------------------------------------------------------------------------------
United Kingdom 0.18%
United Microelectronics Corp.* (Electronics), Warrant 251,000 144,046
----------
TOTAL RIGHTS AND WARRANTS 1.28%
(Cost $1,100,854) 320,589
----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement 3.51%
Investment in a joint repurchase agreement
transaction with State Street Bank & Trust Co. -
Dated 04-30-03, due 05-01-03 (Secured by U.S. Treasury
Inflation Indexed Bond, 3.875% due 04-15-29 and U.S.
Treasury Inflation Indexed Notes, 3.000% thru 3.875%,
due 01-15-07 thru 07-15-12) 2,366 2,366,000
----------
TOTAL SHORT-TERM INVESTMENTS 3.51%
(Cost $2,865,000) 2,366,000
----------
TOTAL INVESTMENTS 87.59% 54,765,591
----------
OTHER ASSETS AND LIABILITIES, NET 12.41% 9,582,264
----------
TOTAL NET ASSETS 100.00% 64,347,855
==========
* Restated to include John Hancock Global Fund and John Hancock European
Equity Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
-----------------------------------------
Pacific Basin Fund
-----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ----------------------------------------------------------------------------------------------------------------------------------
Taiwan 2.36%
Eva Airways Corp. * (Transport) 579,000 177,719
Largan Precision Co., Ltd. (Leisure) 44,000 271,371
Nanya Technology Corp.* (Electronics) 27,000 14,716
Optimax Technology Corp. * (Electronics) 112,000 128,514
Siliconware Precision Industries Co. * (Electronics) 375,000 177,496
Siliconware Precision Industries Co. * (ADR)
(Electronics) 108,300 258,837
Taiwan Semiconductor Manufacturing Co., Ltd.* (ADR)
(Electronics) 291,000 399,019
---------
1,427,672
---------
Thailand 0.23%
Bangkok Expressway Pcl (Building) 104,000 36,147
Thai Union Frozen Products Pcl (Food) 300,800 147,348
---------
183,495
---------
United Kingdom 12.32%
Acambis Plc* (Medical)
Arriva Plc (Transport)
AstraZeneca Plc (Medical)
Barclays Plc (ADR) (Banks - Foreign)
Barclays Plc (Banks - Foreign)
BG Group Plc (Oil & Gas)
BHP Billiton Plc (Metal)
BP Plc (Oil & Gas)
British Sky Broadcasting Group Plc* (Media)
Diageo Plc (Beverages)
Gallaher Group Plc (Tobacco)
GlaxoSmithKline Plc (Medical)
HBOS Plc (Banks - Foreign)
Imperial Tobacco Group Plc (Tobacco)
InterContinental Hotels Group Plc* (Leisure)
Kelda Group Plc (Utilities)
Kingfisher Plc (Retail)
Lloyds TSB Group Plc (ADR) (Banks - Foreign)
Lloyds TSB Group Plc (Banks - Foreign)
Man Group Plc (Finance)
Mitchells & Butler Plc* (Retail)
mm02 Plc* (Telecommunications)
National Grid Transco Plc (Utilities)
Northern Rock Plc (Banks - Foreign)
Peninsular and Oriental Steam Navigation Co. (Transport)
Reckitt Benckiser Plc (Soap & Cleaning Preparations)
Royal Bank of Scotland Group Plc (Banks - Foreign)
Severn Trent Plc (Utilities)
Shell Transport & Trading Co. Plc (Oil & Gas)
SkyePharma Plc* (Medical)
Smith & Nephew Plc (Medical)
Smiths Group Plc (Manufacturing)
Tesco Plc (Retail)
Tullow Oil Plc* (Oil & Gas)
Vodafone Group Plc (ADR) (Telecommunications)
Vodafone Group Plc (Telecommunications)
Wood Group (John) Plc (Oil & Gas)
United States 18.76%
Adobe Systems, Inc. (Computers)
AdvancePCS* (Medical)
Affiliated Computer Services, Inc.* (Computers)
Allergan, Inc. (Medical)
Allstate Corp. (The) (Insurance)
Amdocs Ltd.* (Telecommunications)
Amgen, Inc.* (Medical)
Anadarko Petroleum Corp. (Oil & Gas)
Anheuser-Busch Cos., Inc. (Beverages)
Anthem, Inc.* (Medical)
Apache Corp. (Oil & Gas)
Apollo Group, Inc. (Class A)* (Schools / Education)
Applied Materials, Inc.* (Electronics)
AutoZone, Inc.* (Retail)
Bank of America Corp. (Banks - United States)
Barr Laboratories, Inc.* (Medical)
Comcast Corp. (Special Class A)* (Media)
Dell Computer Corp.* (Computers)
eBay, Inc.* (Diversified Operations)
EchoStar Communicaitons Corp. (Class A)* (Media)
EMC Corp.* (Computers)
Fannie Mae (Mortgage Banking)
General Electric Co. (Diversified Operations)
Gilead Sciences, Inc.* (Medical)
GlobalSantaFe Corp. (Oil & Gas)
Intel Corp. (Electronics)
International Business Machines Corp. (Computers)
Johnson & Johnson (Medical)
Lowe's Cos., Inc. (Retail)
Merck & Co., Inc. (Medical)
Microsoft Corp. (Computers)
Noble Corp.* (Oil & Gas)
Patterson-UTI Energy, Inc.* (Oil & Gas)
Pfizer, Inc. (Medical)
Procter & Gamble Co. (The) (Cosmetics & Personal Care)
Schlumberger Ltd. (Oil & Gas)
Transocean, Inc.* (Oil & Gas)
Tribune Co. (Media)
Univision Communications, Inc. (Class A)* (Media)
VERITAS Software Corp.* (Computers)
Wal-Mart Stores, Inc. (Retail)
Williams Cos., Inc. (The) (Oil & Gas)
Zimmer Holdings, Inc.* (Medical)
TOTAL COMMON STOCKS 81.56%
(Cost $64,419,711) 14,802,491
----------
PURCHASED CALL OPTION
Ireland 0.08%
Ryanair Holdings Plc (Transport)
Zero Strike Call Expiration 2-27-04
TOTAL OPTIONS 0.08%
(Cost $57,232)
PREFERRED STOCKS
Germany 0.39%
Henkel KGaA (Chemicals)
Porsche AG (Automobile / Trucks)
Wella AG (Cosmetics & Personal Care)
JAPAN 0.06%
SMFG Finance Ltd. (Banks - Foreign) (R) 6,000,000 34,337
----------
South Korea 0.71%
Samsung Electronics Co., Ltd. (Electronics) 4,710 577,605
----------
TOTAL PREFERRED STOCKS 1.16%
(Cost $854,484) 611,942
----------
RIGHTS AND WARRANTS
Netherlands 0.02%
Aegon NV* (Insurance), Right
India 0.89%
Hindustan Lever Ltd. * (Soap & Cleaning Preparations),
Warrant 115,000 350,808
Infosys Technologies Ltd. * (Computers), Warrant 6,300 371,530
---------
722,338
---------
Taiwan 0.19%
Taiwan Semiconductor Manufacturing Co., Ltd.
(Electronics), Warrant
United Kingdom 0.18%
United Microelectronics Corp.* (Electronics), Warrant
TOTAL RIGHTS AND WARRANTS 1.28%
(Cost $1,100,854) 722,338
---------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement 3.51%
Investment in a joint repurchase agreement
transaction with State Street Bank & Trust Co. -
Dated 04-30-03, due 05-01-03 (Secured by U.S. Treasury
Inflation Indexed Bond, 3.875% due 04-15-29 and U.S.
Treasury Inflation Indexed Notes, 3.000% thru 3.875%,
due 01-15-07 thru 07-15-12) 499 499,000
---------
TOTAL SHORT-TERM INVESTMENTS 3.51%
(Cost $2,865,000) 499,000
---------
TOTAL INVESTMENTS 87.59% 16,635,771
----------
OTHER ASSETS AND LIABILITIES, NET 12.41% 533,888
----------
TOTAL NET ASSETS 100.00% 17,169,659
==========
* Restated to include John Hancock Global Fund and John Hancock European
Equity Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
John Hancock International Fund
Schedule of Investments
April 30, 2003 (Unaudited)
-----------------------------------------
International Pro Forma
-----------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
% of Net Interest Maturity Par Value Market
Issuer, Description Assets Rate % Date Shares (000's Omitted) Value
- ----------------------------------------------------------------------------------------------------------------------------------
Taiwan 2.36%
Eva Airways Corp. * (Transport) 579,000 177,719
Largan Precision Co., Ltd. (Leisure) 44,000 271,371
Nanya Technology Corp.* (Electronics) 451,000 245,876
Optimax Technology Corp. * (Electronics) 112,000 128,514
Siliconware Precision Industries Co. *
(Electronics) 375,000 177,496
Siliconware Precision Industries Co. *
(ADR) (Electronics) 108,300 258,837
Taiwan Semiconductor Manufacturing Co., Ltd.*
(ADR) (Electronics) 323,000 666,859
----------
1,926,672
----------
Thailand 0.23%
Bangkok Expressway Pcl (Building) 104,000 36,147
Thai Union Frozen Products Pcl (Food) 300,800 147,348
----------
183,495
----------
United Kingdom 12.32%
Acambis Plc* (Medical) 12,400 56,483
Arriva Plc (Transport) 13,000 66,591
AstraZeneca Plc (Medical) 6,400 251,119
Barclays Plc (ADR) (Banks - Foreign) 400 11,208
Barclays Plc (Banks - Foreign) 41,656 287,780
BG Group Plc (Oil & Gas) 10,600 42,396
BHP Billiton Plc (Metal) 34,875 178,366
BP Plc (Oil & Gas) 36,200 229,403
British Sky Broadcasting Group Plc* (Media) 76,300 790,828
Diageo Plc (Beverages) 26,700 296,155
Gallaher Group Plc (Tobacco) 33,200 314,394
GlaxoSmithKline Plc (Medical) 40,700 815,717
HBOS Plc (Banks - Foreign) 44,600 522,501
Imperial Tobacco Group Plc (Tobacco) 28,879 410,988
InterContinental Hotels Group Plc* (Leisure) 26,949 120,359
Kelda Group Plc (Utilities) 15,000 98,653
Kingfisher Plc (Retail) 14,000 54,708
Lloyds TSB Group Plc (ADR) (Banks - Foreign) 10,000 266,400
Lloyds TSB Group Plc (Banks - Foreign) 46,300 304,508
Man Group Plc (Finance) 38,500 649,174
Mitchells & Butler Plc* (Retail) 13,728 46,514
mm02 Plc* (Telecommunications) 210,000 187,116
National Grid Transco Plc (Utilities) 41,600 273,264
Northern Rock Plc (Banks - Foreign) 5,700 65,183
Peninsular and Oriental Steam Navigation Co. (Transport) 28,300 87,295
Reckitt Benckiser Plc (Soap & Cleaning Preparations) 6,700 118,166
Royal Bank of Scotland Group Plc (Banks - Foreign) 42,919 1,125,657
Severn Trent Plc (Utilities) 6,000 68,565
Shell Transport & Trading Co. Plc (Oil & Gas) 32,600 195,257
SkyePharma Plc* (Medical) 93,000 73,576
Smith & Nephew Plc (Medical) 43,800 292,091
Smiths Group Plc (Manufacturing) 4,200 44,908
Tesco Plc (Retail) 55,800 176,582
Tullow Oil Plc* (Oil & Gas) 67,700 74,735
Vodafone Group Plc (ADR) (Telecommunications) 39,200 774,592
Vodafone Group Plc (Telecommunications) 312,100 616,038
Wood Group (John) Plc (Oil & Gas) 22,500 56,009
----------
10,043,279
----------
United States 18.76%
Adobe Systems, Inc. (Computers) 8,500 293,760
AdvancePCS* (Medical) 4,500 135,270
Affiliated Computer Services, Inc.* (Computers) 3,000 143,100
Allergan, Inc. (Medical) 1,500 105,375
Allstate Corp. (The) (Insurance) 3,300 124,707
Amdocs Ltd.* (Telecommunications) 34,300 605,738
Amgen, Inc.* (Medical) 10,400 637,624
Anadarko Petroleum Corp. (Oil & Gas) 1,900 84,360
Anheuser-Busch Cos., Inc. (Beverages) 3,100 154,628
Anthem, Inc.* (Medical) 2,500 171,600
Apache Corp. (Oil & Gas) 3,410 195,223
Apollo Group, Inc. (Class A)* (Schools / Education) 11,200 607,029
Applied Materials, Inc.* (Electronics) 21,600 315,360
AutoZone, Inc.* (Retail) 1,500 121,215
Bank of America Corp. (Banks - United States) 6,100 451,705
Barr Laboratories, Inc.* (Medical) 7,300 405,880
Comcast Corp. (Special Class A)* (Media) 17,100 514,026
Dell Computer Corp.* (Computers) 15,500 448,105
eBay, Inc.* (Diversified Operations) 3,200 296,864
EchoStar Communicaitons Corp. (Class A)* (Media) 2,800 83,888
EMC Corp.* (Computers) 10,700 97,263
Fannie Mae (Mortgage Banking) 2,800 202,692
General Electric Co. (Diversified Operations) 40,800 1,201,560
Gilead Sciences, Inc.* (Medical) 14,800 682,872
GlobalSantaFe Corp. (Oil & Gas) 2,400 50,784
Intel Corp. (Electronics) 12,100 222,640
International Business Machines Corp. (Computers) 7,400 628,260
Johnson & Johnson (Medical) 16,500 929,940
Lowe's Cos., Inc. (Retail) 10,300 452,067
Merck & Co., Inc. (Medical) 12,600 733,068
Microsoft Corp. (Computers) 40,600 1,038,142
Noble Corp.* (Oil & Gas) 7,000 216,650
Patterson-UTI Energy, Inc.* (Oil & Gas) 2,700 89,343
Pfizer, Inc. (Medical) 29,700 913,275
Procter & Gamble Co. (The) (Cosmetics & Personal Care) 2,300 206,655
Schlumberger Ltd. (Oil & Gas) 3,000 125,790
Transocean, Inc.* (Oil & Gas) 3,500 66,675
Tribune Co. (Media) 2,200 107,756
Univision Communications, Inc. (Class A)* (Media) 2,800 84,784
VERITAS Software Corp.* (Computers) 21,500 473,215
Wal-Mart Stores, Inc. (Retail) 9,400 529,408
Williams Cos., Inc. (The) (Oil & Gas) 12,400 86,180
Zimmer Holdings, Inc.* (Medical) 5,500 257,950
----------
15,292,426
----------
TOTAL COMMON STOCKS 81.56%
(Cost $64,419,711) 66,487,152
----------
PURCHASED CALL OPTION
Ireland 0.08%
Ryanair Holdings Plc (Transport)
Zero Strike Call Expiration 2-27-04 9,000 61,570
----------
TOTAL OPTIONS 0.08%
(Cost $57,232) 61,570
----------
PREFERRED STOCKS
Germany 0.39%
Henkel KGaA (Chemicals) 800 51,514
Porsche AG (Automobile / Trucks) 400 145,526
Wella AG (Cosmetics & Personal Care) 1,600 118,563
----------
315,603
----------
JAPAN 0.06%
SMFG Finance Ltd. (Banks - Foreign) (R) 9,000,000 51,505
----------
South Korea 0.71%
Samsung Electronics Co., Ltd. (Electronics) 4,710 577,605
----------
TOTAL PREFERRED STOCKS 1.16%
(Cost $854,484) 944,713
----------
RIGHTS AND WARRANTS
Netherlands 0.02%
Aegon NV* (Insurance), Right 50,300 20,456
----------
India 0.89%
Hindustan Lever Ltd. * (Soap & Cleaning Preparations),
Warrant 115,000 350,808
Infosys Technologies Ltd. * (Computers), Warrant 6,300 371,530
----------
722,338
----------
Taiwan 0.19%
Taiwan Semiconductor Manufacturing Co., Ltd.
(Electronics), Warrant 156,087
- -----------------------------------------------------------------------------------------------------------------------------------
United Kingdom 0.18%
United Microelectronics Corp.* (Electronics), Warrant 251,000 144,046
----------
TOTAL RIGHTS AND WARRANTS 1.28%
(Cost $1,100,854) 1,042,927
----------
SHORT-TERM INVESTMENTS
Joint Repurchase Agreement 3.51%
Investment in a joint repurchase agreement
transaction with State Street Bank & Trust Co. -
Dated 04-30-03, due 05-01-03 (Secured by U.S. Treasury
Inflation Indexed Bond, 3.875% due 04-15-29 and U.S.
Treasury Inflation Indexed Notes, 3.000% thru 3.875%,
due 01-15-07 thru 07-15-12) 2,865 2,865,000
----------
TOTAL SHORT-TERM INVESTMENTS 3.51%
(Cost $2,865,000) 2,865,000
----------
TOTAL INVESTMENTS 87.59% 71,401,362
----------
OTHER ASSETS AND LIABILITIES, NET 12.41% 10,116,152
----------
TOTAL NET ASSETS 100.00% 81,517,514
==========
* Restated to include John Hancock Global Fund and John Hancock European
Equity Fund merged into International Fund on May 9, 2003.
See notes to pro forma financial statements
Footnotes for International Fund, Global Fund, European Equity Fund, and Pacific
Basin Fund combined.
* Non-Income producing security.
(R) These securities are exempt from registration under rule 144A of the
Securities Act of 1933. Such securities may be resold, normally to
qualified institutional buyers, in transactions exempt from registration.
Rule 144A securities amounted to $117,579 or 0.14% of net assets as of
April 30, 2003.
The percentage shown for each investment category is the total value of that
category as a percentage of the net assets of the Fund.
Portfolio Concentration
The Fund primarily invests in securities issued by companies of other countries.
The performance of the Fund is closely tied to the economic conditions within
the countries it invests. The concentration of investments by country for
individual securities held by the Fund is shown in the schedule of investments.
In addition, the concentration of investments can be aggregated by various
industry groups. The table below shows the percentages of the Fund's Investments
at April 30, 2003 assigned to the various investment categories.
VALUE
AS A PERCENTAGE INTERNATIONAL
INVESTMENT CATEGORIES OF NET ASSETS COMBINED PACIFIC BASIN COMBINED
- --------------------- ---------------------------------------------------------------------------------
Advertising 0.51% 375,516.15 42,667.90 418,184.05 0.51%
Aerospace 0.06% 52,246.50 52,246.50 0.06%
Agricultural Operations 0.19% 152,924.42 152,924.42 0.19%
Automobile / Trucks 2.29% 247,404.21 1,618,812.55 1,866,216.76 2.29%
Banks - Foreign 10.67% 7,985,843.58 711,520.99 8,697,364.57 10.67%
Banks - United States 0.55% 451,705.00 451,705.00 0.55%
Beverages 1.38% 1,127,653.04 1,127,653.04 1.38%
Building 0.98% 372,471.48 429,111.44 801,582.92 0.98%
Business Services - Misc 0.15% 122,662.36 122,662.36 0.15%
Chemicals 1.58% 604,200.15 686,355.68 1,290,555.83 1.58%
Computers 4.36% 3,179,053.22 371,529.59 3,550,582.81 4.36%
Cosmetics & Personal Care 1.07% 726,442.71 149,074.28 875,516.99 1.07%
Diversified Operations 2.39% 1,676,403.16 271,879.27 1,948,282.43 2.39%
Electronics 8.93% 3,047,227.14 4,230,557.68 7,277,784.82 8.93%
Engineering / R&D Services 0.18% 150,414.03 150,414.03 0.18%
Finance 2.22% 1,008,595.29 797,001.39 1,805,596.68 2.21%
Food 0.64% 195,293.84 329,661.83 524,955.67 0.64%
Instruments - Scientific 0.16% 131,309.74 131,309.74 0.16%
Insurance 3.11% 2,245,813.71 285,560.96 2,531,374.67 3.11%
Leisure 1.02% 83,375.53 744,574.89 827,950.42 1.02%
Machinery 0.48% 388,619.83 388,619.83 0.48%
Manufacturing 0.06% 44,907.94 44,907.94 0.06%
Media 3.03% 2,290,490.24 180,277.09 2,470,767.33 3.03%
Medical 11.69% 9,100,860.25 429,783.67 9,530,643.92 11.69%
Metal 0.49% 220,892.93 178,852.93 399,745.86 0.49%
Mortgage Banking 0.25% 202,692.00 202,692.00 0.25%
Office 0.21% 80,831.80 92,017.44 172,849.24 0.21%
Oil & Gas 5.19% 4,004,610.96 228,811.00 4,233,421.96 5.19%
Paper & Paper Products 0.11% 88,937.19 88,937.19 0.11%
Pollution Control 0.20% 162,823.92 162,823.92 0.20%
Printing - Commercial 0.61% 495,203.76 495,203.76 0.61%
Real Estate Operations 0.78% 115,655.35 523,653.79 639,309.14 0.78%
Retail 4.20% 2,425,047.03 1,002,116.54 3,427,163.57 4.20%
Rubber - Tires & Misc 0.14% 80,904.18 34,034.88 114,939.06 0.14%
Schools / Education 0.75% 607,028.80 607,028.80 0.74%
Soap & Cleaning Preparations 0.77% 118,166.64 510,955.65 629,122.29 0.77%
Telecommunications 7.21% 5,251,114.20 624,275.90 5,875,390.10 7.21%
Tobacco 0.93% 684,210.78 69,681.50 753,892.28 0.92%
Transport 2.40% 1,511,718.72 441,783.58 1,953,502.30 2.40%
Utilities 2.14% 1,261,173.80 479,364.77 1,740,538.57 2.14%
Short-Term Investments 3.51% 2,366,000.00 499,000.00 2,865,000.00 3.51%
-----
Total Investments: 87.59%
=====
JOHN HANCOCK INTERNATIONAL FUND
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS - (UNAUDITED)
APRIL 30, 2003
Pro forma information is intended to provide shareholders of John Hancock
International Fund and John Hancock Pacific Basin Equities Fund with information
about the impact of the proposed merger by indicating how the merger might have
affected information had the merger been consummated as of May 1, 2002.
The unaudited pro forma combined statements of assets and liabilities and
results of operations as of April 30, 2003, have been prepared to reflect the
merger of the John Hancock International Fund and the John Hancock Pacific Basin
Equities Fund. The statements have been adjusted to include the pro forma
financial position and results of operations of the merger of John Hancock
Global Fund and John Hancock European Equity Fund into John Hancock
International Fund which occurred on May 9, 2003. The statements also include
the pro forma adjustments described in the notes listed below.
(a) Acquisition by John Hancock International Fund of all the assets of John
Hancock Pacific Basic Equities Fund and issuance of John Hancock
International Fund Class A, Class B and Class C shares in exchange for all
of the outstanding Class A, Class B and Class C shares, respectively of
John Hancock Pacific Basin Equities Fund.
(b) The investment advisory fee was adjusted to reflect the application of the
fee structure which is currently in effect for John Hancock International
Fund.
0.90% of the first $100,000,000 of the Fund's net assets;
0.80% for the net assets between $100,000,000 and $300,000,000;
0.75% for the net assets between $300,000,000 and $500,000,000;
0.625% for the net assets in excess of $500,000,000
(c) The 12b-1 fee reflects the application of the fee structure which will be
in effect for the John Hancock International Fund: 0.30% of Class A average
daily net assets and 1.00% of Class B and Class C average daily net assets.
(d) The transfer agent fee for each of the Class A, Class B and Class C shares
is the total of the respective individual fund's transfer agent fees.
(e) The actual expenses incurred by the John Hancock International Fund and
John Hancock Pacific Basin Equities Fund for various expenses included on a
pro forma basis were reduced to reflect the estimated savings arising from
the merger.
(f) The Adviser has limited International Fund's total operating expenses at
least until March 1, 2004, to 2.35% of average daily net assets for Class A
shares and 3.05% of average daily net assets for Class B and Class C
shares. The Adviser has agreed to extend this limitation to March 1, 2005,
pending approval of the reorganization.
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION
No change from the information set forth in Item 27 of the Registration
Statement of John Hancock Investment Trust III (the "Registrant") on Form N-1A
under the Securities Act of 1933 and the Investment company Act of 1940 (File
Nos. 33-4559 and 811-4630), which information is incorporated herein by
reference.
ITEM 16. EXHIBITS:
1 Registrant's Amended and Restated Filed as Exhibit 99.a to Registrant's
Declaration of Trust Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 46 (file
nos. 811-4630 and 33-4559 on February 12,
2003, accession no. 0001010521-03-000089)
("PEA 46")
1.1 Abolition of John Hancock U.S. Global Filed as Exhibit 99.a.1 to PEA 46
Leaders Fund and Amendment of Section and incorporated herein by reference
5.11
1.2 Abolition of John Hancock Global Fund Filed herewith as Exhibit 1
and Amendment of Section 5.11
2 Amended and Restated By-Laws of Filed as Exhibit 99.b to Registrant's
Registrant Registration Statement on Form N-1A and
incorporated herein by reference to
post-effective amendment no. 34 (file
nos. 811-4630 and 33-4559 on February 27,
1998, accession no. 0001010521-98-000202)
("PEA 34")
2.1 Amendment to By-Laws Filed as Exhibit 99b.1 to PEA 46 and
incorporated herein by reference
3 Not applicable
4 Form of Agreement and Plan of Filed herewith as Exhibit A to the Proxy
reorganization Statement and Prospectus included as Part
A of this Registration Statement
5 Not applicable
6 Investment Management Contracts Filed as Exhibit 99.d to Registrant's
between Registrant and John Hancock Registration Statement on Form N-1A and
Advisers, LLC incorporated herein by reference to
post-effective amendment no. 28 (file
nos. 811-4630 and 33-4559 on
February 27, 1995,
accession no. 0000950146-95-000057)
("PEA 28 ")
6.1 Investment Management Contract Filed as Exhibit 99.d.1 to Registrant's
between John Hancock Growth Fund and Registration Statement on Form N-1A and
John Hancock Advisers, LLC incorporated herein by reference to
post-effective amendment no. 32 (file
nos. 811-4630 and 33-4559 on August 30,
1996, accession no. 0001010521-96-000151)
("PEA 32 ")
6.2 Investment Management Contract Filed as Exhibit 99.d.2 to PEA 32 and
between John Hancock International incorporated herein by reference
Fund and John Hancock Advisers, LLC
6.3 Investment Management Contract Filed as Exhibit 99.d.3 to PEA 32 and
between John Hancock Global Fund and incorporated herein by reference
John Hancock Advisers, LLC
6.4 Sub-Advisory Agreement among Filed as Exhibit 99.d.4 to Registrant's
International Fund, Indocam Registration Statement on Form N-1A and
International Investment Services and incorporated herein by reference to
John Hancock Adviser, LLC post-effective amendment no. 39 (file
nos. 811-4630 and 33-4559 on December 23,
1999, accession no. 0001010521-99-000389)
("PEA 39 ")
6.5 Sub-Advisory Agreement among Global Filed as Exhibit 99.d.5 to PEA 39 and
Fund, Indocam International incorporated herein by reference
Investment Services and John Hancock
Adviser, LLC
6.6 Interim Sub-Advisory Agreement among Filed as Exhibit 99.d.6 to PEA 42 and
John Hancock International Fund, incorporated herein by reference
Nicholas Applegate and John Hancock
Advisers, LLC
6.7 Interim Sub-Advisory Agreement among Filed as Exhibit 99.d.7 to PEA 42 and
John Hancock Global Fund, Nicholas incorporated herein by reference.
Applegate and John Hancock Adviser,
LLC
6.8 Second Interim sub-Advisory Agreement Filed as Exhibit 99.d.8 to PEA 42 and
among John Hancock International incorporated herein by reference
Fund, Nicholas Applegate and John
Hancock Advisers, LLC
6.9 Second Interim sub-Advisory Agreement Filed as Exhibit 99.d.9 to PEA 42 and
among John Hancock Global Fund, incorporated herein by reference.
Nicholas Applegate and John Hancock
Advisers, LLC
6.10 Sub-Advisory Agreement among John Filed as Exhibit 99.d.10 to Registrant's
Hancock Global Fund, Nicholas Registration Statement on Form N-1A and
Applegate and John Hancock Advisers, incorporated herein by reference to
LLC post-effective amendment no. 43 (file
nos. 811-4630 and 33-4559 on
June 25, 2001, accession no.
0001010521-01-500062)
("PEA 43 ")
6.11 Sub-Advisory Agreement among John Filed as Exhibit 99.d.11 to PEA 43 and
Hancock International Fund, Nicholas incorporated herein by reference
Applegate and John Hancock Advisers,
LLC
6.12 Sub-Advisory Agreement among John Filed as Exhibit 2
Hancock International Fund, Nicholas
Applegate Capital and John Hancock
Advisers, LLC
7 Distribution Agreement between Filed as Exhibit 99.e to Registrant's
Registrant and John Hancock Funds, Registration Statement on Form N-1A and
LLC incorporated herein by reference to
post-effective amendment no. 33 (file
nos. 811-4630 and 33-4559 on
February 27, 1997, accession no.
0001010521-97-000227)
("PEA 33 ")
7.1 Form of Soliciting Dealer Agreement Filed as Exhibit 99.e.1 to Registrant's
between John Hancock Funds, LLC and Registration Statement on Form N-1A and
Selected Dealers incorporated herein by reference to
post-effective amendment no. 37 (file
nos. 811-4630 and 33-4559 on
February 25, 1999, accession no.
0001010521-99-000143)
("PEA 37 ")
7.2 Form of Financial Institution Sales Filed as Exhibit 99.e.2 to PEA 28 and
and Service agreement between John incorporated herein by reference
Hancock Funds, LLC and John Hancock
funds
7.3 Amendment to Distribution Agreement Filed as Exhibit 99.e.3 to PEA 32 and
incorporated herein by reference
7.4 Amendment to Distribution Agreement Filed as Exhibit 99.e.4 to PEA 42 and
incorporated herein by reference
8 Not applicable
9 Master Custodian Agreement between Filed as Exhibit 99.g to Registrant's
John Hancock Mutual Funds (including Registration Statement on Form N-1A and
Registrant) and The Bank of New York incorporated herein by reference to
post-effective amendment no. 44 (file
nos. 811-4630 and 33-4559 on
December 27, 2001, accession no.
0001010521-01-500306)
("PEA 44 ")
10 Amended & Restate Master Transfer Filed as Exhibit 99.h. to Registrant's
Agent Service Agreement between John Registration Statement on Form N-1A and
Hancock Mutual Funds (including incorporated herein by reference to
Registrant) and John Hancock post-effective amendment no. 36 (file
Signature Services, Inc. nos. 811-4630 and 33-4559 on December 21,
1998, accession no. 0001010521-98-000397)
("PEA 36 ")
10.1 Amendment to the Amended & Restate Filed as Exhibit 99.h.1 to PEA 42 and
Master Transfer Agent Service incorporated herein by reference.
Agreement between John Hancock Mutual
Funds (including Registrant) and John
Hancock Services, Inc.
10.2 Accounting and Legal Services Filed as Exhibit 99.h.2 to PEA 28 and
Agreement incorporated herein by reference
11 Class A Distribution Plan between Filed as Exhibit 99.m to PEA 36 and
Growth Fund and John Hancock Funds, incorporated herein by reference
LLC
11.1 Class B Distribution Plan between Filed as Exhibit 99.m.1 to PEA 36 and
Growth Fund and John Hancock Funds, incorporated herein by reference
LLC
11.2 Class A Distribution Plan between Filed as Exhibit 99.m.2 to Registrant's
Global Fund, International Fund, Mid Registration Statement on Form N-1A and
Cap Growth Fund and John Hancock incorporated herein by reference to
Funds, LLC post-effective amendment no. 34 (file
nos. 811-4630 and 33-4559 on February 27,
1998, accession no. 0001010521-98-000202)
("PEA 34 ")
11.3 Class B Distribution Plans between Filed as Exhibit 99.m.3 to PEA 34 and
Global Fund, International Fund, Mid incorporated herein by reference
Cap Growth Fund and John Hancock
Funds, LLC
11.4 Class C Distribution Plan between Filed as Exhibit 99.m.4 to PEA 36 and
Growth Fund, International Fund, Mid incorporated herein by reference
Cap Growth Fund and John Hancock
Funds, LLC
11.5 Class C Distribution Plan between Filed as Exhibit 99.m.5 to PEA 39 and
Global Fund and John Hancock Funds, incorporated herein by reference
LLC
12 John Hancock Funds Class A, Class B Filed as Exhibit 99.o to PEA 36 and
and Class C Amended and restated incorporated herein by reference
Multiple Class Plan pursuant to Rule
18f-3
12.1 John Hancock Funds Class A, Class B, Filed as Exhibit 99.o.1 to Registrant's
Class C and Class I Amended and Registration Statement on Form N-1A and
restated Multiple Class Plan pursuant incorporated herein by reference to
to Rule 18f-3 post-effective amendment no. 45 (file
nos. 811-4630 and 33-4559 on February 27,
2002, accession no. 0001010521-02-000110)
("PEA 45 ")
13 Code of Ethics- John Hancock Funds,
LLC
13.1 Code of Ethics - Indocam Filed as Exhibit 99.p.1 to PEA 41 and
International Investment Services incorporated herein by reference
13.2 Code of Ethics -Nicholas-Applegate Filed as Exhibit 99.p.1 to PEA 42 and
incorporated herein by reference
14 Opinion as to legality of shares and Filed herewith as Exhibit 14
consent
15 Form of opinions as to tax matters and Filed herewith as Exhibit 15
consent
16 Not applicable
17 Consents of PricewaterhouseCoopers Filed herewith as Exhibit 17
LLP regarding the audited financial
statements of John Hancock
International Fund, John Hancock
Pacific Basin Equities Fund
18 Not applicable
19 Powers of Attorney Filed as addendum to signature pages and
incorporated herein by reference
20 Prospectus of John Hancock Filed herewith as Exhibit B to Part B of
International Fund and Pacific this Registration Statement.
Basin Equities Fund dated
February 14, 2003
21 Statement of Additional Information Filed herewith as Exhibit A and B to Part
of John Hancock Pacific Basin B of this Registration Statement
Equities Fund dated February 14, 2003
21.1 Statement of Additional Information Filed herewith as Exhibit A and B to Part
of John Hancock International Fund B of this Registration Statement
dated February 14, 2003
ITEM 17
(1) The undersigned Registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is
part of this registration statement by any person or party which is
deemed to be an underwriter within the meaning of Rule 145 (C) under
the Securities Act of 1933, the reoffering prospectus will contain the
information called for by the applicable registration form for
reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) The undersigned Registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as part of an amendment to the
registration statement and will not be used until the amendment is
effective, and that, in determining any liability under the Securities
Act of 1933, each post-effective amendment shall be deemed to be a new
registration statement for the securities offered therein, and the
offering of the securities at that time shall be deemed to be the
initial bona fide offering of them.
(3) The undersigned Registrant agrees to file, by post-effective amendment,
an opinion of counsel supporting the tax consequence of each proposed
reorganization within a responsible time after receipt of such opinion.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston and The
Commonwealth of Massachusetts, on the 4th day of June, 2003.
JOHN HANCOCK INVESTMENT TRUST III
By: *
-----------------------------
Maureen R. Ford
Chairman, President and Chief Executive Officer
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.
Signature Title Date
--------- ----- ----
* Chairman, President and Chief Executive Officer
- ----------------------- (Principal Executive Officer)
Maureen R. Ford
* Senior Vice President and Chief
- ----------------------- Financial Officer
Richard A. Brown
/s/William H. King Senior Vice President, Treasurer June 4, 2003
- ----------------------- (Chief Accounting Officer)
William H. King
* Trustee
- -----------------------
Dennis S. Aronowitz
* Trustee
- -----------------------
John M. DeCiccio
* Trustee
- -----------------------
Richard P. Chapman, Jr.
* Trustee
- -----------------------
William J. Cosgrove
* Trustee
- -----------------------
Richard A. Farrell
* Trustee
- -----------------------
William F. Glavin
* Trustee
- -----------------------
Dr. John A. Moore
* Trustee
- -----------------------
Patti McGill Peterson
* Trustee
- -----------------------
John W. Pratt
*By: /s/Susan S. Newton June 4, 2003
-------------------
Susan S. Newton
Attorney-in-Fact under
Powers of Attorney dated
June 23, 2001 and
September 12, 2001 filed herewith.
John Hancock Capital Series John Hancock Strategic Series
John Hancock Declaration Trust John Hancock Tax-Exempt Series Fund
John Hancock Income Securities Trust John Hancock World Fund
John Hancock Investors Trust John Hancock Investment Trust II
John Hancock Equity Trust John Hancock Investment Trust III
John Hancock Sovereign Bond Fund
POWER OF ATTORNEY
The undersigned Trustee/Officer of each of the above listed Trusts,
each a Massachusetts business trust or Maryland corporation, does hereby
severally constitute and appoint Susan S. Newton, WILLIAM h. KING, and AVERY P.
MAHER, and each acting singly, to be my true, sufficient and lawful attorneys,
with full power to each of them, and each acting singly, to sign for me, in my
name and in the capacity indicated below, any Registration Statement on Form
N-1A and any Registration Statement on Form N-14 to be filed by the Trust under
the Investment Company Act of 1940, as amended (the "1940 Act"), and under the
Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments
to said Registration Statements, with respect to the offering of shares and any
and all other documents and papers relating thereto, and generally to do all
such things in my name and on my behalf in the capacity indicated to enable the
Trust to comply with the 1940 Act and the 1933 Act, and all requirements of the
Securities and Exchange Commission thereunder, hereby ratifying and confirming
my signature as it may be signed by said attorneys or each of them to any such
Registration Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 12th day of September, 2001.
/s/ Maureen R. Ford /s/Gail D. Fosler
- ------------------- -----------------
Maureen R. Ford, as Chairman and Chief Gail D. Fosler
Exective Officer
/s/John M. DeCiccio /s/William F. Glavin
- ------------------- --------------------
John M. DeCiccio, as Trustee William F. Glavin
/s/Dennis S. Aronowitz /s/John A. Moore
- ---------------------- ----------------
Dennis S. Aronowitz John A. Moore
/s/Richard P. Champman, Jr. /s/Patti McGill Peterson
- --------------------------- ------------------------
Richard P. Chapman, Jr. Patti McGill Peterson
/s/William J. Cosgrove /s/John W. Pratt
- ---------------------- ----------------
William J. Cosgrove John W. Pratt
/s/Richard A. Farell
- --------------------
Richard A. Farrell
COMMONWEALTH OF MASSACHIUSETTS)
- ------------------------------
)ss
COUNTY OF SUFFOLK )
- -----------------
Then personally appeared the above-named Richard A. Brown, who
acknowledged the foregoing instrument to be his free act and deed, before me,
this 23rd day of June, 2001.
/s/Erika Nager
--------------
Notary Public
My Commission Expires: June 14, 2007
-------------
s:\general\prwattn\01Sept12.doc
Panel A
- -------
John Hancock Capital Series John Hancock Strategic Series
John Hancock Declaration Trust John Hancock Tax-Exempt Series Fund
John Hancock Income Securities Trust John Hancock World Fund
John Hancock Investors Trust John Hancock Investment Trust II
John Hancock Equity Trust John Hancock Investment Trust III
John Hancock Sovereign Bond Fund
Panel B
- -------
John Hancock Bank and Thrift Opportunity Fund John Hancock Patriot Global Dividend Fund
John Hancock Bond Trust John Hancock Patriot Preferred Dividend Fund
John Hancock California Tax-Free Income Fund John Hancock Patriot Premium Dividend Fund I
John Hancock Current Interest John Hancock Patriot Premium Dividend Fund II
John Hancock Institutional Series Trust John Hancock Patriot Select Dividend Trust
John Hancock Investment Trust John Hancock Series Trust
John Hancock Cash Reserve, Inc. John Hancock Tax-Free Bond Trust
POWER OF ATTORNEY
-----------------
The undersigned Officer of each of the above listed Trusts, each a
Massachusetts business trust, or Maryland Corporation, does hereby severally
constitute and appoint SUSAN S. NEWTON, WILLIAM H. KING, AND AVERY P. MAHER, and
each acting singly, to be my true, sufficient and lawful attorneys, with full
power to each of them, and each acting singly, to sign for me, in my name and in
the capacity indicated below, any Registration Statement on Form N-1A and any
Registration Statement on Form N-14 to be filed by the Trust under the
Investment Company Act of 1940, as amended (the "1940 Act"), and under the
Securities Act of 1933, as amended (the "1933 Act"), and any and all amendments
to said Registration Statements, with respect to the offering of shares and any
and all other documents and papers relating thereto, and generally to do all
such things in my name and on my behalf in the capacity indicated to enable the
Trust to comply with the 1940 Act and the 1933 Act, and all requirements of the
Securities and Exchange Commission thereunder, hereby ratifying and confirming
my signature as it may be signed by said attorneys or each of them to any such
Registration Statements and any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunder set my hand on this Instrument as
of the 23rd day of June, 2001.
/s/Richard A. Brown
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Richard A. Brown
Chief Financial Officer
Commonwealth of Massachusetts )ss
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COUNTY OF Suffolk )
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Then personally appeared the above-named Richard A. Brown, who
acknowledged the foregoing instrument to be his free act and deed, before me,
this 23rd day of June, 2001.
/s/Erika L. Nager
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Notary Public
My Commission Expires: June 14, 2007
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s:\general\prwattn\01June23.doc
EXHIBIT INDEX
The following exhibits are filed as part of this Registration Statement:
Exhibit No. Description
1 Abolition of John Hancock Global Fund and Amendment of Sections 5.11
2 Sub-Advisory Agreement among John Hancock International Fund,
Nicholas-Applegate Capital Management and John Hancock Advisers, LLC.
4 Form of Agreement and Plan of Reorganization between John Hancock
International Fund (the "Acquiring Fund") and John Hancock Pacific
Basin Equities Fund (the "Acquired Fund") (filed as EXHIBIT A to Part A
of this Registration Statement).
14 Opinion as to legality of shares and consent.
15 Form of opinions as to tax matters and consent.
17 Consent of PricewaterhouseCoopers LLP regarding the audited financial
statements and highlights of the John Hancock International Fund and
John Hancock Pacific Basin Equities Fund.